Exclusive interview for SPINOFF with Mr. Ken Johnsen, the Managing Director at Nauti Craft, about the exceptional marine suspension technology
Nauti-Craft Pty Ltd is a research and develоpment cоmpany fоcused оn the design and develоpment оf the marine suspensiоn system. This patented technоlоgy separates the vessel's hulls frоm the deck and superstructure via a “passive reactive” interlinked hydraulic system which prоvides increased levels оf ride cоmfоrt, cоntrоl and stability whether statiоnary оr travelling at speed.
S.O.C.: Dear Mr. Johnsen, we are so grateful for your generosity this day in spending time speaking with us and sharing your insights about your unique marine suspension system. Today here with us also Leonid Nersisyan, the top military observer at Forbes magazine and also the chief editor at New Defence Order Strategy magazine. Mr. Nersisyan will ask all the technical issues about the Nauti Craft marine suspension technology.
Leonid Nersisyan: Hello Mr. Johnsen.
Ken Johnsen: Hello Mr. Nersisyan. Pleased to meet you.
S.O.C.: Our investors and we would like to learn more about a vast experience of your professional background.
I have been involved in the commercialization of new technology for almost my whole working career. I am a trained mechanical engineer but through my career I diverted into the commercial sector and around 30 years of age I was appointed a managing director of a large engineering company in Australia that was developing an advanced fuel injection system for automotive and the marine world. The company name was Orbital Engine Company Pty Ltd. I was the managing director of the company. We were involved in the commercialization of a new fuel injection system and that eventually was licensed to amongst other people Ford, General Motors, Fiat and we had commercial contracts with Mercedes, Siemens. I’ve had a lot of exposure to the technology licensing. Also in the marine world the technology was adopted by Mercury Marine and up untill these days is still used. I was co-inventor of the technology that is used on current Mercury Marine products, any product with the name Opti Max, this is the patented technology that I was involved in and I was also involved in the commercial side of that. So that was up until the mid 90s. One of the highlights of my personal career was that I spent two years as chief executive of the Australian company's US Division and in that role I was involved in the IPO on the New York’s Stock Exchange. Our company listed on the New York Stock Exchange and the market capitalization of the company was a billion dollars and we raised a hundred million dollars as an IPO. And I was the named resident officer of the company during that capital raising. So I had a lot of exposure to the equities market as well as engineering technical side. And then in my own career I left that company in 2008 and I became the CEO of another Australian public listed company called Advanced Braking Technology and we were developing and commercializing an advanced braking system. So I ran that company for around 8 years and decided to retire but then this is when I come on to the involvement with the Nauti Craft. The founder, the inventor of Nauti Craft technology, Chris Heyring was a personal friend of mine. And I told him I was retiring and he asked me to come to join Nauti Craft first as a consultant but then eventually asked me to run a company. He is now 70 years old and he needed someone to help run it and get involved in the commercial side. I joined 3 years ago Nauti Craft as Managing Director, I’ve been instrumental in securing some commercial arrangements now. My job is to lead the company through its commercialization phase.
S.O.C.: Mr. Johnsen, that’s really huge experience under your belt. You have already mentioned the inventor and the founder of Nauti Craft technology. Are there any other team members who supported the project? As we all know that in the formation of every scientific spinoff, one of the most important keys to success is the team.
Well, as you recognized that this technology is literally a spinoff from the automotive technology. The original company was called Kinetic and was eventually sold to Tenneco Automotive for US$ 57 million dollars around 10 years ago. Three or four guys who worked for Kinetic now work for Nauti Craft. Chris Heyring, the founder, has been involved in the technology for over 20 years, Mike Longman, the chief engineer, has been involved in almost 20 years, another gentlemen, my business development manager, he worked for Kinetic, now he works for us, he has around 15 years of experience, straddling both companies. Several of the other technical staff similarly 15-20 years of experience. So, this is the advantage! Well, it actually makes my job easier as they have gone through the commercialization phase with Kinetic. That was a startup, it was successful, it was sold to Tenneco. While at Kinetic these guys worked at Toyota, Chrysler, McLaren transferring the Kinetic automotive suspension technology into these companies and now that is a commercial success. So I can build on that expertise, they’ve been there before and they know what it takes to make something.
S.O.C.: It is so interesting to know more about the process of your technology/product creation. Please tell on which stage of commercialization your technology/product currently is? Was the project funded by any state financing or grants?
We’ve had a number of external financings. I'll talk about the external funding. So we’ve had two main sources of external funding. One of the most important sources of funding has come from the Carbon Trust. 7 years ago the company won the competition when there were 12 winners of the competition called the Offshore Wind Accelerator program. And we were one of the winners. Out of that competition we have now received around 600.000 GBP of support from the UK. We’ve had a progressively 6 rounds of funding now, we normally get around a 100.000 GBP a year. So, 6 rounds of funding we intend to apply for some more funding.The Carbon Trust, they co-funded the yellow boat on a website so everyone would seen the video that’s gone viral, they’ve paid for probably half of the development of that boat. And they also got us the exposure into the Wind Farm Industry. On top of that we have in Australia a very attractive research and development tax scheme. So effectively they give a tax deduction equivalent to a 150% of the money you spend on research and development. Now that translates into every dollar we spend, we get 43 cents of the dollar as a cash rebate. And on average we get 300.000 or 400.000 AUD a year funding from the Australian government. This year, in a few month, we expect to get around 600.000 AUD because of our activity. So we’ve been very successful in securing government assistance/government grants. And then on top of that as now we are in the commercialization phase over the last two years we’ve been earning income from prospective licensees.
Today we have got 3 companies that licensed or taken an option to license the technology. The first company is a UAE based company. They are developing a high speed four hulled vessel, we call it a quadmaran, it’s a boat with four hulls. They entered into the license around 3 years ago and they’ve been paying us for the development support. There was an entry fee, and then they pay us for the engineering work, we carry out to adapt the technology to their application. That program is now nearly completed. They expect to finish building their vessel in Dubai around the end of 2017 and they already started to discuss the sale of it with prospective customers. Once they sell that boat, we will earn the royalty and we’ll earn some additional license fee and then we’ll earn technical support fees. So that’s one company.
The second company is Strategic Marine, they are based in Singapore. They are a division of a Singapore listed company called Triyards Holdings and we’ve licensed that 18 month ago and they paid an initial license fee and over the last year they’ve paid us engineering contract fees. The purpose of that development contact is to develop a 26m windfarm vessel. The design of that vessel is basically complete. We are waiting for a final DNV approval of it and we expect that would be in a next 2-3 weeks. DNV classifications are ready to approve the design. The customer is now trying to put together project financing to build the vessel. They funded the design phase and there are 10.000 hours of work has gone into the design phase and they are building up to a get project financing to construct the vessel. So this is the second commercial arrangement.
The third commercial arrangement we have with Japanese company. It’s one of the biggest marine engine companies in the world but they also have a boatbuilding division. So our contract is with the boatbuilding division. And they’ve contacted us to help design a new boat which they will evaluate in Japan and if they like what they see it will move forward to a licensing phase with Yanmar.
So today there are three firm commercial contracts we have, with each of those customers we are planning to introduce vessels or incorporating the technology.
S.O.C.: As we know it’s quite new technology, has it already received any honors or awards?
We’ve delivered several technical papers to the Royal Institution of Naval Architects. I guess the main recognition is that we were the winner of the funding arrangement by the Carbon Trust which is quite prestigious. I think there was around 200 applicants for the funding and we were one of twelve winners of that.
S.O.C.: So we’ve come up to the technical part, Mr. Nersisyan will continue.
Leonid Nersisyan: It is not a secret that the development of a new technology and its subsequent commercializaton presupposes some problem and addresses unmet needs. Respectively, what problem did you intend to solve by creating your technology? What results did you plan to achieve?
Okay, I asked the inventor this question and his simple answer “My wife didn’t like going on a boat. It was too uncomfortable for her.” So that’s the first simple answer. There has never been a successful suspension system adopted in a marine vessel. It is almost unheard of to consider suspension on a vessel. There has been people trying to suspend a deck but it has never been successful. Effectively up until today the main suspension of a boat is the shape of the hull, the way it penetrates the water and if it is a the deep V or a shallow V. In an analogy to a motor vehicle the hull acts like a tire, a balloon tire or a very hard tire, so the hull acts as a suspension system. We’ve taken that one step further and developed a very successful automotive suspension system and why can’t we apply the same principles to a boat. That’s why we applied the same principles and the essence of it is load sharing whether its contacting the ground or the water with 3 points or 4 points, the essence of the system is to distribute the load equally against these 3 or 4 or 6 contact points. The essence of the idea is the ability to load share. That was the essential feature of the patents of the automotive system.
So, you’ve probably seen the pictures of the boat and the principle is the same – we load share. So with the high contact one corner is high, it takes the pressure of one corner and applies it equally. And on top of that there is a passive suspension system to absorb the shock. In a standard boat doing 30 knots across the water, the G forces generated by those boats is sometimes up to 10 G. Now when we have our system, those maximum G forces come down from 10 G to around 2 G. And if you go back to the inventors wife that’s what makes the boat uncomfortable, those very harsh forces on your spine or on your knees make the boat very uncomfortable. So, our job is to soften the ride. Some people explain it as a magic carpet ride. That’s what we end up coming up with. And when you on a boat and its just feels like that. If you hit the wave instead of a rapid decent it brings you down gently and then pushes you up gently too. And the true benefits can only be seen by actually getting on one of our boats, the video doesn’t give such effect, you can only feel it. Now when we come to the application in windfarms we can add an enhance by keeping a stable deck against the wind turbine or against a jetty or against a cruise ship liner where the deck can be stable when the hull is moving up and down. But most of all it is targeted to improve the comfort and ride control when the boat is in motion. And when the boat is in motion the system is largely passive, no energy is required to keep the boat stable, its passive, there is a fluid flow from one cylinder to the other and we control the rate of fluid flow but there is no energy input. We only put an energy input into the system when we are turning, you’ve seen in the video the boat leans in so we apply a little bit of power to allow the boat to lean into a turn. The main value proposition is comfort. You know, we are taking road transport from the horse and buggy where there was no suspension or very little suspension to a sophisticated McLaren that’s got the best suspension in the world and it happened to be invented by the same inventor.
Leonid Nersisyan: As far as we understand, the idea of developing a marine suspensión system come up after you have created a similar system for vehicles (and it became very widespread). Could you please describe in a more detailed way how does the marine suspensión system work and whether it has similarity with the ground vehicular suspension system?
Absolutely complete similarity. The same principle that have been around for twenty years on the automotive, we have the benefit of effectively refreshing those and gaining new patents with particular emphasis on the marine system. So the same subject matter the different application and brought us new patents.
Around certain patent families I think the current average patent life is probably around 15-16 years. We’ve only launched them in a last 3-4 years. But we are relying on IP knowledge from the prior work and applying it to vessels.
Leonid Nersisyan: What are the advantages of a vessel with a marine suspensión system compared to a multihulled vessel without this system?
Okay, I guess the way we put it, particularly in the context of windfarm. What we state is, in transit, so going in motion from point A to B transit G forces on the passengers is much reduced. The latest buzz word in the military industry is whole body vibration so in the military context if a soldier is doing 40 knots, he is suffering very high vertical G forces. So we see, up to 60% reduction in vertical G forces, so increased comfort but then you can translate that into the motion sickness so with our system much reduced propencity for motion sickness. If it was in the military context, a soldier is more fit for battle when he gets to the destination. So a passenger is not getting sea sick and feels much more comfortable.
The other benefit compared to a standard multihull as you’ve seen from the video, when we turn the boat leans in so we can corner at a lot faster speed. A standard multihulled needs to slow down because it tends to breach but we roll in, we can keep the constant speed when turning which is a big advantage for a multihulled vessel. So one of dis-benefits of a standard multihulls is their ability to turn fast we solve that. We haven’t proved it yet but we think there will be some fuel economy benefits as well because the hulls rides over the water waves instead of cutting through we believe we’ll be able to demonstrate fuel economy savings as well. When you get to a dock, wind pylon, a jetty or another boat we can assist a transfer of passengers. When the deck is stable it's much safer, less risk of damage, easier to transfer. It depends on the application how well its designed, on a windfarm vessel we’ve designed it to be very stable at the bow but we could equally design it to be very stable on the side. We can adapt the design on the specific application.
The video above shows an ADAMS dynamic simulation of a pylon docking sequence. This model includes the full hydraulic systems with active enhancement, hull water contacts, engine thrust and pylon contact and friction forces. The simulation shows one third scale N-C catamaran removing the roll and pitch components (which make one sea-sick) while its deck remains horizontal with moderate heave motion (vertically). This is achieved using our own DACS (Deck Attitude Control System) which actively adjusts and maintains the horizontal attitude of the deck at low speeds and when manoeuvring relative to fixed structures or coming along side larger vessels like ships. The video then goes on to stabilise the front end of the deck at a precise / given height before touching the wind turbine pylon.
Leonid Nersisyan: As we know, Nauti has some optional system components, such as Deck Attitude Control System (DACS) and active pitch and roll control. How do they work and what additional benefits do they provide for a vessel?
Pitch and Roll control are part of the DACS. It is really just having extra ability, with an additional hydraulic pump to override the passive system. I am sure as you’ve seen we have 8 hydraulic cylinders, we can automate the system with a close loop feedback so we can have an inertial measurement sensor or IMU, sensing position and some other sensors to look at deck attitude and then with our electronic control we can provide a complete closed loop circle keeping the deck stable. In pitch, if select just active pitch or active roll, we keep either the roll flat or if its fully enable we have both active pitch and active roll working at the same time. Really the effectiveness is determined by the size of the pump which is added and the duty cycle. If you wanted to loiter or stay still for minutes it might be one size pump. If you wanted to loiter few hours you might need slightly bigger pump. It’s an active classic control system and for a recreational boat we didn’t want that extra pumps but for a windfarm boat or for a military boat you might need this extra pumps. These might be an auxiliary power unit driving the extra pump and the size of that is determined by the duty cycle.
The video above shows an ADAMS dynamic simulation of active roll and pitch systems operating at 10 knots.
Leonid Nersisyan: Are there any restrictions on the dimensions and the displacement of the ships to which the marine suspensión system can be installed? Starting with what displacement and dimensions of the ship, the installation of the marine suspensión system is meaningless (pitching already becomes insignificant) is it right?
Well, once we are building, the test prototype we’ve got is 8.5 meters long and it weighs about 4 ton. The windfarm vessel is 26 meters long and its weight is around a hundred ton. The boat in Dubai is 16 meters long and weights around 8 ton. As you pointed earlier, there is a limit, we think around 40 meters might be the limit for pitch control. It may go beyond that for the roll control. We have looked at some sort of designs up to a 100 meters long wit outriggers to help on roll control. So its not so important pitch control but I think up to 40 meters we can get benefits in pitch control. In the size range of 15 to 25 meters it’s very beneficial both for pitch and roll control. We think the main application is below 40 meters but in theory I am sure if we get into roll stabilization, it would be probably longer.
Leonid Nersisyan: How does the system work under the storm? At what force of the storm (in km/h) the system is able to continue compensating for the pitching? Are there any maximum speed limits when using the marine suspensión system?
Just to give you this in a slightly different way. The vessel that we have designed for the North Sea windfarm, we have designed it in two modes: in a fail safe mode if something goes wrong with the vessel, we can disable the suspension and the boat locks down. When the suspension is working we are talking about effectively working in seas 3 meters high for a 26 meter boat. But the seas get much beyond that we have the mode to locked, no boat can handle those seas very well and in locked down mode the boat would have an lower operating window. I am sure it will still operate a 10 meter high sea in terms of the structural strength of it whether you’re getting much benefit of that point I am not sure. I can show operating profiles that we submitted to DNV to show the different operating with and without suspension.
The graph above shows the predicted performance of a 26 m vessel operating in various significant wave heights up to 3 m ( this not max wave height a significant wave height of 3 m would equate to max wave height > 6 metres. The orange line is with suspension active the blue line the suspension is locked.
Leonid Nersisyan: How does the system behave in extreme temperature conditions? (-50 to +50° C)
Well, these boats been designed for windfarms in the North Sea, so there is no particular issue. You know if a standard boat can work in the ocean and it’s not frozen so there is no reason why our system won’t work in that same ocean. There is nothing fundamental about it that would prevent it from operating. Obviously with the hydraulic oil, viscosity gets stiffer, we have self sensing of the damping rates and we can open the system to accomodate increased viscosity. So I don’t think there is any fundamental problem. If a hydraulic winch would operate in those temperatures, our system will operate in those temperatures.
Leonid Nersisyan: What is the operation life of the marine suspensión system? Is there a need to carry out routine maintenance more often?
It depends how you design it. For the windfarm boat we’ve designed the maintenance schedule to be equivalent to the main powertrain maintenance schedule. We designed the maintenance schedule to fit in with the maintenance schedule of the engine. And that would be oil filters, joints, inspection of the power units etc. What we have done for DNV, the classification agency of the windfarm vessel, we’ve had to demonstrate 20 year fatigue life so we’ve done analysis to show fatigue life on the main structure components. Now on recreational boat it would be the different story.
Leonid Nersisyan: Is there a possibility to install your system on military boats armed with heavy machine guns, or with automatic small-caliber cannons (recoil energy 40-50 kN)? Will your hydraulic system partially extinguish the recoil?
I think so yes. I mean I need to talk to my technical guys but intuitively I think we’ve always thought that this would be a benefit of our system. These machine gun mounts can cost as much as the boat. We would have the benefit of this partially stabilizing the platform. In terms of the recoil, I mean the response time we would have to do some mathematics only to see to what extend our system can adapt to the response time required for the recoil. At least from a gun stabilization point of view we can see some great benefits.
Leonid Nersisyan: Thank you, Mr. Johnsen. We’ve completed the technical part of the interview and Yuliia will go on with other questions.
S.O.C.: If we are talking about the application could you tell us what other industries and fields your technology could be applied to?
Well, I think on a website you’ll see there is a table. Essentially any application its really just defining on the value proposition of a specific application. Coast guard boats, pilot boats, and military vessels, I think we can find application on virtually any type of vessel. But you’ve get to decide whether it’s got monetary benefit. You know, in a recreational vessel if it cost 15% more is the recreational customer prepared to pay 15% more for increased comfort, they may do, they may not. In a windfarm vessel we can give a 40 % better utilization of the vessel it is easy to justify. In the military vessel if we can save a million dollar gun mount - it is easy to justify. So it’s just depends on value proposition of each specific application.
S.O.C.: In order to understand the peculiarities of this particular spinoff our investors always ask what is the investment structure of the company? Do you still own the controlling stake in your spinoff?
I’ll give you the break down. Chris Heyring is the biggest shareholder, and he owns 49%. Nauti Craft staff and directors own 15%. Insiders own nearly 65%. Other external investors own 35%.
S.O.C.: You have already mentioned that you have first clients and one of the first boats will be ready in November. Have you already received any feedback from them?
Well, it’s continuous feedback. We’ve got engineering programs, we talk to them every day, they are very happy and things are proceeding. The way we write their technical programs they are sort of contingent on performance. They are happy and pushing on.
S.O.C.: As we both know that for you and the investor it is crucial to reach positive cash flow as soon as possible. Certainly, the market scaling cannot be achieved without proper partners network and clients. Please tell us about your criteria of partners selection and which markets are open for spinoff activity.
At the moment, let me address to positive cash flow, I mean now the cash burn rate is quite low and we are heading to a point of self suffiency as we earn greater levels of external income. So the cash burn quite modest for the size of the operation but its still a negative cash flow but we are heading towards positive, I can’t give a prediction but that’s my goal at least.
In terms of the markets that are open, the best thing what I can say what markets are closed and the rest are open. At the moment the ones that are closed are the rights for the European windfarm market, we have also granted rights for the MINA market for high speed four hulled vessels and granted provisional rights for Japanese sports fishing boats. So all the rest is open. We keen to have a licensing, we control the manufacturing territory but we don’t control the sales territory because boats can go anywhere. So it’s too difficult control the sales territories that we generally grant a manufacturing license for particular territory or an application license but we permit worldwide sales.
S.O.C.: Mr. Johnsen in our previous conversation with Alexander Miller you also have mentioned than Nauti Craft is also looking for some new money to the company and why do you consider investors might be interested in investing into a promotion of your technology on the addressable market?
Okay. When you turn to commercialized technology the most important thing is to get market quickly. So the reason we would be interested in more money is to identify wider applications, to develop those applications to get to the market quickly. If we can do things in parallel and attack multiple markets together or simultaneously we can increase the upside for the investors in a long run.
S.O.C.: How do you think what market cap your company plans to reach at the peak of its development and why? How long might this process take?
Well, market capitalization at the moment is around US$65 million and I think I’ve done some rough numbers to easily justify that if we penetrate a various markets. I am not going to make financial projections. I’ve been involved in technology company that had a market capitalization of a billion dollars. I think this company has much potential.
S.O.C.: If we talk about the intellectual property, it is a key to success. The investors pay particular attention to it. What key intellectual property does your company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
Yes. We’ve got patent family of around 12-13 patent families progressively been granted, we restrict the countries you know we have about 5 core countries Europe, Japan, China, the USA, we don’t always do Canada and then we have some other countries Middle East, Hong Kong sometimes in Philippines. So we have a core group and then we pick depending on the potential market of technology. You know, we think it’s quite a strong portfolio but there are costs involved so we just up what we think most important countries to patent it for either manufacturer or the areas of use.
S.O.C.: The investors will want to get a clear picture of how many rounds of investments have you completed? Are you seeking for the investments at the moment? What is the volume and time limits? What milestones will the financing get you to? What did you plan to use the invested funds for?
At the moment we’ve had 5 rounds. We’ve had external investment of around 6.6 million to date, around 9 million had been spent on the project so originally that was some seed capital by the founder. We are not in desperate search of cash right now. We’ve got around a million dollars in the bank and around 600.000 AUD due from the government R&D rebate in a few month, so we are okay for money but as I said the more money we have we think we can leverage and expand our activity to target some additional markets.
S.O.C.: So what exactly do you plan to use this money for? As I understood it would be for the extension of the system?
Yes, we are small company, we have around 10 people on staff, we would seek to take on some more experts and to look for some additional applications. We are very interested in military applications and we would like to explore this further.
S.O.C.: If we talk about the numbers, what will you name Nauti Craft would like to be invested?
You should never ask technology company how much money they want. I mean we always want money.
S.O.C.: Just like women, Mr. Johnsen.
I mean that we always want money for the technology. I’ll say up 3 to 5 million USD.
S.O.C.: Could you please describe your ideal investor? What aspects are important for you, for instance, is it experience, country, the amount of own private capital or maybe some personal qualities?
I guess they need to be compatible with the thinking. Let’s say if we raised 5 million USD, so someone coming on board might take as much 10 percent of the company. He should be in for the long run. If the investor was from a related industry either hydraulics or the marine industry that would be good. If he was a straight financial investor that’s good too. But you know it’s really just someone who’ll share the vision. Some investors want return in 6 months or a year. A patient investor but willing to grow the company with us.
S.O.C.: And the last question, could you specify the most convenient way you would like to receive inquiries from potential investors? Should it be by e-mail or personal phone call?
Well, I think initially e-mail and then followed up by a phone call.
We would like to express gratitude for the time you have dedicated to this interview. SPINOFF.COM will observe the development of your spinoff with great pleasure and interest. Also, we are thankful for providing all the necessary materials. We are pleased to forward all potential investors the database of the spinoff supportive materials such as presentation materials, schedules, videos, pictures, figures, blueprints, text materials etc.
Also we would like to express gratitude to Mr. Nersisyan for taking the time for this interview.