Eleco (LSE:ELCO) — Final Results

0:01 Good afternoon, ladies and gentlemen, welcome to the ELECO Fund Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab, on the right hand corner of your screen, type in your question at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, company can review your questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll and if you could give that your kind attention, I'm sure the company most grateful. I'd now like to hand over to CEO

0:31 Jonathan Hunter. Good afternoon. Thank you, Mike. Good afternoon, ladies and gentlemen and good morning for those dialing in in different time zones as well. Pleasure to be here, to present our full year results. So without any further ado, we'll go into the highlights. We're really proud of the results, that we that the ELCO delivered in 2023. Demonstrates the progress that we're making on our strategy. The key sort of takeaways is that we've developed predictable revenue for the future with our focus on recurring revenue, which is a high quality of revenue that we're generating. We've seen profit improvement compared to the interims for those who are following. You see that the second half has been coming out of The U in terms of our SaaS transition and starting to see that accelerate to growth and going into quarter one of this year.

1:33 And we expanded further internationally, which we'll go into some more detail on in a moment. The headline financials demonstrates that, you know, all the key metrics are heading in the right direction. The headline revenues that were reported were 5% up versus twenty twenty two, 6% at constant currency. Impressively, the, annualised recurring revenue, which is the December recurring revenue multiplied by 12 is 22,600,000 up 24%. And we shared as well that at the end of March twenty twenty four, that's now up to £24,500,000 So we're seeing that growth in ARR.

2:21 Total recurring revenues, now represents 74% of total revenues is £20,700,000 so healthy increase there. You see all the profit metrics are now going in the right direction and we're seeing the operating gearing coming through. As a show of confidence, we're proposing an increased dividend for the full year. Our 2023 operational highlights, represent the progress that we're making on our strategy. We're focused on innovation, continuing to enhance our core products, ensuring that they remain market leaders in their markets, but also that we're continuing to add more value alongside those products and more value for our customers.

3:14 Very proud to have won the best project management software of the year, again, for the tenth year in a row in The UK. And that our project management and scheduling software is being recognised internationally as well with some very, very positive and encouraging feedback from all markets. We're focused as part of our, M and A search. We looked closely with our product roadmaps as well and as part of that, identifying other technologies that are in the market. It could be potential competitors or partners or acquisition targets. That's really been, you know, working with our teams on innovation and us looking externally at opportunities.

4:02 Some of those areas of our roadmap, we identified there isn't any acquisition or partnership opportunity there, and therefore we do have to build those. And one of those was, you know, building our AI roadmap and strategy. And we're proud to release earlier this year, Asta GPT, which is our first AI module, which uses generative AI technology.

4:29 Strengthen the business, continuing to focus on ESG, made solid progress on ESG by appointing a subcommittee of the board and also an ESG implementation team. And in terms of acquisitions, we said we would continue to look for acquisitions. Made a we announced an acquisition mid year twenty twenty three, but a further smaller acquisition last week, Vertical Digital. So we'll provide some more information on that in a moment. In terms of growth, we had a real focus on go to market and our initiatives there that continues into 2024. We carried out sales enablement training with all of our sales teams using the best skills and knowledge that we have in house.

5:15 We transitioned to SaaS in The US, so subscription revenue from one off perpetual through our reseller channel. And we also introduced a direct sales approach within The US which started in May and resulted in 44 new logos acquired from May to the end of the year. So we're pleased with the the progress we're making in The US.

5:45 Just for those that are new to us, new to ELCO, a bit of background. It's a software and services business that's focused on the construction sector as well as property and real estate. We have about now, as of the recent announcement of the acquisition, have two ninety employees in The UK, Europe, USA and Australia. Our core markets where our customers, where we service our customers directly, 96% of our revenues are direct to market or direct to customer. Those core markets are The UK, Scandinavia, Germany, Netherlands and The US. And you can see the market positions over on the bottom right there.

6:31 We've got strong positions within our core markets and growing presence within The US. We see that as an opportunity for growth for us. In terms of our portfolio, we cover different stages of the building life cycle. So from early stage of BIM design and standards, programme and portfolio project management, through to cost estimating, project scheduling and management and maintenance and management post construction facilities, maintenance and management. So there's different customer groups within each stage of the life cycle. The common theme is the time and task and cost management across those different disciplines.

7:17 We also so that's what we call our building life cycle product portfolio. We have a second group called CAD and Visualisation, and that's more niche in nature of those products. So that's the timber engineering software, so you starecom, starecomframing, and also views data and visualisation, which is niche for the interiors segment doing AI and different technologies to help consumers make buying decisions within that market. Still related to the built environment. So with that, I'd like to, hand over to Neil to take you through more depth on the financials. Super. Thanks very much, Jonathan.

8:05 Good afternoon, good morning to all of you watching. Thanks very much for joining us and I've got a pleasure to take you through the financials, which you can see there in overview are really across the board very pleasing to deliver and to report. What I'm going to do is take you through what I usually do in terms of the headlines, then we'll go through the P and L, the cash balance sheet, a little bit more color on the revenue as well, which he'll take you through and then hand you back to Jonathan. So with regard to these first highlights, the way they're split out, they're very much along the top around the revenues, which I'll go into to some depth, as I say, but come back to, and second, more profitability and cash along the bottom.

8:53 With regard to the first ones, where we touched on, we're obviously we've come around the U shape of that SaaS transition. This is briefly for those that are less familiar with the story that effectively moving from perpetual one off licenses, lots of upfront revenue through to, you know, a more recurring nature, more predictable. Really, you know, we're now in that upwards level in that trajectory, which is absolutely fantastic to see. And, you know, we were actually ahead on revenues and also strong non profit as well compared to what we were expecting as well and market expectations. So always good to see. Now with regard to the revenues, first of all, as Jonathan mentioned, the first one is really the exit one. That's the end of the year times by 12, so that's up by 24%.

9:44 The second is the recurring revenues across the whole of the period up to the December 31 year end that we had, and that's 22% of overall revenues as well. So really strong performances there. We had a number of ups and downs in terms of M and A strategic changes in the year vis a vis the '22 previous comparative periods. So, just an overview here only, and I'll come back and measure on a few of them. I'll just talk you through those rather than all the dynamics of the numbers. So, of all, in February, we announced that we were divesting ARCON, which is a German architectural CAD business, that was so it a slightly

10:32 underperforming business and in line with our overall strategic fit and shareholder value. We divested that, actually the gain and the proceeds of which we actually provided back to shareholders in terms of a special dividend as well. And then secondly, also as Jonathan mentioned, we acquired Best Outcome for a net sort of overall outflow of 3,800,000 in the year, and we took in their numbers from the second half of twenty twenty three. And also during the year, there were three predominantly Nordic end of life products. Two were internal to us, one where we acted as a reseller, which were so those products were end of life. They were actually contributors to the group, but we felt that the further investment needed in those products warranted, didn't quite give the paybacks and the revenues a near term perspective, from a shareholder perspective.

11:30 So further sort of focus on shareholder value in the product portfolio and so forth. So there's various things. And if you take all of those out, effectively the underlying recurring revenue rates are moving by 17%, which is the third metric there. Skipping quite quickly through the headline numbers, which obviously the full effects of which SaaS transition haven't yet worked through, but the headline numbers are still ahead year on year as we promised and have delivered, and as I say, ahead. So 5% more in terms of the reported numbers, 6% on a constant currency basis, 7% if you then strip out some of those one offs that I've mentioned as well. Obviously, focus on enhanced profitability and margins by both the divestment of that one business and the end of lives of those other products has largely contributed to a very sizable and pleasant increase in the gross margins and with other sort of more minor mix effects as well.

12:33 Across the board, in terms of profitability, every metric, be it reported or adjusted, is positive and and nicely positive. And what you're starting to see is that operational gearing, as Jonathan mentioned, coming through. So that's really, really good to see. Overall cash was down at 10,900,000, but that is if you actually add back in the acquisition outflow for best outcome in the year in terms of the acquisition, then actually, otherwise, all other things being equal, we would have been 18% ahead. And then finally dividend, and Jonathan will come back to it, but you know, as an expression of confidence in the future to reward our supportive shareholders, we are again increasing the final on top of an increased interim in line with other increases in recent years as well, and the special dividend. So actually, that's 14% up on the previous year. That's really, hopefully, will be well received.

13:35 Now, just a little bit more on the P and L, if I may. I've sort of spoken about the overall revenues, and I say I will come back to them. So I'm going to actually just take it and looking at the admin OpEx side of things first of all. As you can see there, that's moved up by £1,400,000 in the year to 21,900,000 against the 20,500,000 Now, if you actually strip out some of those ups and downs on the M and A and the strategic moves and initiatives initiatives that are underway, what you actually get back to is more like a £1,000,000 or a 5% increase. Then there's some other one offs. There was an adverse FX swing of about 0.3 between the periods. Share based payments are rather the same. There's a little bit of extra acquisition costs associated with advisories and stamp duties to do with the best outcome acquisition.

14:29 And then actually, was a little bit ahead at 1.8 against 1.6 for the previous year. So really, regarding that, the actual underlying increase is about approximately 4%, in line with sort of salary related inflation and so forth. Obviously, that then leads to operating profit being ahead. We actually have that gain on business disposal associated with the Alcon divestment that I mentioned, a little bit of positive financial net income there, and PPT ahead tax. Tax is higher, but it's higher in longer terms, a little bit in effective rate terms, higher because of higher taxes. Actually, The UK tax weighted rate is higher as well in terms of jurisdictions, one of our core markets, and of course, there are deferred tax elements associated with the purchase of acquisition intangibles as well. As I say, after tax, EBITDA, everything else, much more moving up in line. Now, A little bit more on the cash, a little bit more color here. So on the top left, see the reduction cash is primarily due to the acquisition, and what you can see in the right hand side in terms of bridge is that's very much the largest outflow of 3.8, sort of halfway along the other bigger diagram.

15:50 Investment indeed continued at £2,200,000 slightly ahead of previous years as well, and dividends Dividends a little bit higher than normal also because of that special dividend that I mentioned earlier. Overall, cash generated from operations after working capital was £6,400,000 against £6.3 And free cash flow, and we're really quite hard on ourselves in free cash flow, it's not the traditional method of just after investment costs and CapEx, it's also after expenditure on tax and so forth, and paying tax bills and so forth. Actually, that was 3.8% against the previous year as well, 3.8%. So overall, some really, really good moves there. We remain, I should say, for the benefit of those who know us less, free of debt, with obviously significant cash, and to deploy both for shareholder returns, but also for inorganic, as well as our organic R and D roadmap purposes as well.

16:51 Moving on just to the balance sheet. Because of some of those strategic initiatives, the balance sheet's a little bit coloured around. So, for example, in 2022, some assets were held for sale, which obviously were sold and then moved out. Equally, with the acquisition of Best Outcome, that leads to bringing on things like brand values and customer list values, and also R and D values. And actually, that's one of the key drivers behind the increase in capitalised development costs, which is obviously one of the metrics, that actually does include a fair value of bringing on the development costs capitalised by about 0.7. So that's one of the sort of big ones. And then obviously, clearly, the goodwill after those other intangibles have been valued and separated out. We've spoken a little bit around the tax and the deferred tax, and obviously receivables and payables are very much in line with sort of trading and so forth, and also clearly on cash. I think the other interesting here one here is around the deferred income.

17:49 Although, actually, you know, the majority of the group's recurring revenue contracts are on a sort of one year basis, sometimes up to three years, but majority one year. Actually deferred income is very nicely ahead as well, that's ahead by 26% and even if you strip out the £1,000,000 that became part of the acquisition for Best Outcome in terms of their deferred income, which is still clearly part of the ongoing group, and Zion deferred revenue still grew by 13%. So that's another good measure of the future coming through, which is really, really fantastic.

18:24 So, onto just a little bit more color on that revenue, and then I'll hand you back to Jonathan. So just on the left hand side, what you see here is, you know, that fruition, that fruits of the labour is really coming through now on the SaaS transition and also clearly on other organic growth initiatives. So we've got recurring revenues, we mentioned earlier, now 74% of the group. You can see that in the central bar column of the left hand side. And so, you know, what does that mean? It means that, you know, as we enter the year, 74% of the previous year's revenues are on that recurring sort of underpin basis. So that really brings predictability, a sustainability, a durability, and a forecast ability for the whole group, which is absolutely fantastic.

19:13 And, you know, it gives us a great position of growth to to grow further from on the on the inorganic side as well. Perpetual actually is actually down to about 5%. That is lumpy, can go up and down. Services income, slightly down. That is the one area, as we mentioned at the interims, where sometimes we see a little bit more related to the deferral, sort of discretionary, expenditures, in the slightly uneconomic times, obviously, with, you know,

19:42 where where where companies are looking and and keeping the the sort of tight holes on their budgets, understandably. But actually, proportionally in terms there's been a lot of initiatives underway on that and, you know, actually the gap is closed somewhat from what we saw at the interim as well, so that's also on a good trajectory. In the middle, what you see is really the blue section has grown from 65% to 71% and that's the building lifecycle part of the business and that's really showing higher levels of growth than the visualization can, and hence why it's a bigger proportion of the group. You can also see in the grey area a slight reduction, and that also lends itself back to some of that end of life products that we mentioned. On the right, when we sort of split out the headline geographies and the one right at the very top talks about how 96% of what we do is direct to market rather than say through value added resellers for the remainder, On the right, it is I I would sort of,

20:46 obviously, let caution to that people are aware that's obviously the headline revenues, not necessarily underlying SaaS related revenues coming through. And, you know, we are a a group of diverse but also related portfolio of solutions in different geographies and embarking at slightly different times for cultural, market, legal, commercial reasons at different levels on the SaaS transition. So, you can see that UK is clearly ahead and was one of the first embarking on that, and his headline remains nicely ahead. That does include best outcome just for the sake of transparency. Nordics, slightly behind. Nordics, obviously where the focus of some of those end of lives were, so that explain a very large part of it, otherwise would have been considerably ahead and nicely ahead on the recurring revenue side as well. Also to mention, that's where some of that 0.3 FX swing as well, particularly on the Swedish krona to sterling.

21:40 On Germany, clearly, we have the divestment of the Alcon business, which was very much focused around Germany as well. So again, that would have otherwise been significantly ahead on rest of Europe. Actually, Benelux and Netherlands location moving nicely ahead is really bits and pieces from elsewhere, and also there's some transitional effects there on the SaaS. And on The US, that's actually ahead, even though they're sort of quite early on in that SaaS transition journey moving, as Jonathan will probably take you through on some of the reseller base as well. So,

22:11 you know, there's more to come there, and obviously, that is headline revenue rather than anything else. And I guess probably just to give you a little flavour of where things have been and where we're going, you know, we've gone from a position where prior to the SAS transition, were, I think, 48%, so it's certainly below 50% in terms of recurring revenues to now what is nearly 75% of those overall revenues and more to come, as you can see in the market consensus forecast and so forth. So, with that, I'll hand back over to Jonathan. Thank you very much. Thank you, Neil. Yeah. Thank you. So, for this part of the presentation, I'd like to, take you through some of the market drivers, a little bit of color on the acquisitions, and also how our customers are benefiting from the use of our software.

23:07 This is a bit of a busy slide, on the on the left, you'll see that, you know, there's some key changes in market characteristics within the built environment. And the built environment, especially technology within the built environment, is a very exciting space to be at the moment. I think the construction market remains buoyant despite what we're There's a huge driver in terms of just population growth, is driving demand for housing as well as infrastructure. But then our clients, who are the general contractors and building operators, are receiving demands from their clients for more sophisticated buildings. I think generally construction projects are becoming more complex and require more detailed management.

23:54 There's regulation and demands there. We heard about the Safety Act in The UK for house builders. And then there's further

24:05 demands on our customers when it comes to environmental, social and governance, carbon calculation and measurement during the construction phase, but also post construction operating the asset and how that, you know, what impact that will have on the environment. There's a drive for modern methods of construction and new construction techniques and robotics and things are starting to look very interesting. And a general transformation of our customers businesses into digital businesses. So there's a lot of focus on data, there's a lot of data being collected, a lot of different systems being used coming out of COVID when our customers moved to working remotely.

24:53 There was a lot of technology adoption and now it's sort of unpicking and piecing together what's going to make sense for the long term. And there's also many sort of paper driven workflows and processes that need to move to a digital world. So there's many, many factors and many, many challenges within the industry which makes it very exciting for companies like ELCO. Our vision is to solve those challenges and we're setting out to do those in many different ways. So if we look at our strategy and our pillars, the key focus to our growth, if you're following us for the last couple of periods, announced early in our SAS transition at that stage a new strategic direction.

25:45 That really involved ensuring that the business and the operating model

25:49 was one that would supplement growth. So you see along the bottom there, there's been a lot of focus on ensuring we're a profitable financial platform, cash positive, cash generative. We're very customer focused. We've come from being a construction business to being a construction software business. So we know our customers because we were our customers. Culture and values has been, you know, we've been focused on as well in terms of improving, defining our culture and incentivising the correct behaviours within our teams to drive towards our vision and our goals. As a result, you know, that's been proven with our Great Place to Work certification that we're very proud of.

26:36 We're also attracting top talent and, you know, building a reputation as a trusted partner in the industry, has certainly been our strategic ambition as well. So, and I mentioned ESG earlier on in the presentation. If I start in the middle, innovation and technology, that's our lifeblood and that's where ELCO and our colleagues, I think, are very confident and feel comfortable around the innovation and technology we deliver. They're all very highly technical and love what they do, love solving problems for our customers. So, that's a key pillar to our strategy is to retain our innovation and ensure that we remain ahead and we're continuing to add value for our clients.

27:27 So what that brings in terms of strategic initiatives is to ensure that we're enhancing and continuing to enhance our existing solutions. We're looking at ecosystems and partnerships because we know that as a business, you know, no single technology platform is going to solve every challenge within our customers' business. So we need to be open in terms of our, data formats and, you know, the way we work with other systems and, you know, critical to every project is the time and task management. That's where, ELCO had ELCO well, that's what we deliver as a core application. And therefore linking in and out of that master plan and master schedule is important for other businesses and for our clients.

28:14 And then we've got an ambition to help our customers digitalise and not just digitise. What we mean by that is not just sell a piece of technology to take a manual paper process and make that digital, which is what we saw during the COVID period with many, many companies now adopting, you know, digital forms and so forth. But rather improve that process because we've seen productivity overall with across many regions in the construction sector actually declined coming out of COVID. And we believe that that's a form of digitising where a process may have taken five minutes, a form might have taken five minutes to complete on-site with paper and then completing that on an iPad now requires drop downs and takes fifteen minutes.

29:06 So that's just a simple example of where digitisation hasn't worked and our mindset is around digitalising. So what data can we grab and use to pre populate that form. It's just a minimal amount of time is required to complete it and sign it off. So that's where we're adding value. That's our ethos. One box to the left, the the pillar to the left is our go to market, and and that's a real focus coming into our SAS SAS transition and, of course, continuing. We had to really work closely with the customers to ensure they stayed with us and that we have high retention rates. That's ongoing. But also that they're getting more value from our products and they're utilising the capabilities that we can offer. So with that, we've been focused on and continue to develop our identity and sharing with customers our best capabilities that we have that provides stickiness and also attracts new customers.

30:11 We've been working with partners, channel partners, but also technology partners. And we've increased our capacity for customer success and premium support. I mentioned the Asta GPT module earlier, which is providing quick responses and support for our customers, which saves them time and that's actually reducing our support queries that are coming through to our support hotline and allowing our support team to focus on more of that premium support. For example, not just how to use the software, but how can I, get a better schedule? How can I quality check the schedule and see if there's risks of failure and so forth? How do I reschedule? So providing customers with more value there.

31:00 And as we're introducing new customers, that team is also looking at time to value. So from the time of placing the order to getting value and solutions. And then customer verticals and market diversification. We've been, part of our strategy has been to continue to enhance our systems, but also develop alongside those to build out a suite of solutions within planning and estimating and so forth. So that we can offer more value and diversify within our customer logos and not just selling to an individual, but to a department and then to the wider organisation, offering more services and capability where we've now elevated our discussion and being part of that organisation's strategic IT transformation journey.

31:55 And that's an ongoing process which is, which is, which is, we're continuing to see opportunities for and we're seeing that as the industry is transforming as well and thinking differently about technology. Mergers and acquisitions in organic growth is also a pillar to our strategy. Actually have a criteria broken into three types that we're searching. So profitable revenue generating businesses that are in complementary markets and best outcome, the acquisition we made last year sits in that criteria. Type B, which is proven technology or technology capability that can advance our roadmap and that's the vertical digital acquisition that gives us the capability for further R and D and expertise there. And then type C is next generation technology, which could be coming from another sector, another industry that's slightly ahead in terms of that digital transformation journey and repurposing that and spotting that for the built environment.

33:06 And vertical digital brings elements of that as well. That's a good segue into giving you a bit more information about the acquisitions we made during the last twelve months. So the first thing, best outcome for the transaction metrics there. It was on the consideration was £4,800,000. You can see there that was a cash consideration, but the business also had almost £1,300,000 of cash within the business. So the net consideration was £3,600,000 Best outcome provides a it's a well established business, very well developed software, SAS software, very good interface. So it's intuitive and is adopted by people within an organisation very quickly, very secure as well. So ISO 27,001 security credentials listed on the government's G Cloud and servicing, in fact, the largest supplier to the NHS for PPM, portfolio project management software.

34:16 You can see some of the customers there. There's a broad base customers. The product is very sticky and it's used for it complements our existing scheduling software, which is designed our existing software is designed for very complex projects with a task and and detailed sort of build up of the schedule and programme of works. PM3 best outcome is an outcomes focused project management solution. So first focusing on what are the objectives of the project and working down into the depths of Gantt chart and Kanban boards and the details for managing that. Very good reporting tool as well for C suite and different stakeholders within the organisation.

35:04 The integration of the business has been going very well. We actually use the PM three software required for the integration plan, and to manage that. We've restructured the sales team, so we're focused, I think we're getting better focus there on sales and got some very good pipeline coming through as well. And we introduced the product to our reseller network as well. Those might have seen who follow us on the LinkedIn would say that our Australian reseller are promoting Best Outcome PM three and they've resourced it with marketing and salespeople as well. So, we're very pleased with, the way Best Outcome is progressing and integrated into the business. Now more recently, and last week, we announced the acquisition of Vertical Digital, which is a small, but very important acquisition for the group. It's a specialist custom software development business based in Romania.

36:02 But despite being in Romania, they only have one Romanian client. Actually, all of their clients, you can see some logos there, a multinational, a lot around the DACH region and also some in The US and Canada. They've really proven to have a diverse skill set, but also be able to scale and flex their development capability up and down. Have 17, permanent staff, including the founders, and then a pool of about 30 to 35 contractors that have specialist skills that they can bring into a project or, you know, within a team or a client. So that gives ELECO a very needed capability as we're looking at our future development roadmap.

36:54 Our R and D colleagues very much know our core product set. They know the technology very well. They know our customers and audience and so forth. As developing on new tech stacks or looking at new innovation, we would ordinarily have to hire those skills in or train their existing colleagues. And what vertical digital brings on day one is that capability. They've got a very broad understanding and can bring and supply, different technical capability around mobile and cloud and, you know, even DevOps. So there were there were roles that we were looking to recruit. And, you know, we've de risked that by bringing in vertical digital, which I must point out is a profitable business as well.

37:42 It also what we've what has brought us is some very key leadership colleagues. So Alex Geboyanu is joining us as the group CTO. Appear there as well. But Alex, what Alex brings as a CTO is that, of course, he's got fifteen years experience as a CTO working on over 100 projects, professional certified trainer, advising for clients at PWC and Deloitte and so forth. But also he's an entrepreneurial and commercial mindset and that was really important for us as investing in R and D. We want to ensure that firstly the customer problems are being solved and that commercially makes sense as well. So we do a lot of business cases and R and D cases internally when we embark on new projects.

38:47 And then for our clients, as they're transforming and digitally linking their systems together, we do get requests from time to time for integration projects, support in transitions from one software solution to another and then help with dashboard reporting, etc. So having that capability for our clients is very reassuring as well and being able to scale that up and down is of course very much an advantage. And it protects our existing R and D team from being taken off their roadmaps and, you know, working on clients. Very, very, you know, happy with the acquisition and we believe it's going to add a lot of value to the business. So finally, just a couple of customer case studies, because we really love to show how we're helping our customers solve problems.

39:41 And, the first is, for a company called McGee Construction. They're a London based specialist engineering contractor. And the project though, they were using Aster on, they use Aster on several projects. Aster is our project scheduling and project management software. It was for Claridge's hotel, which was this project was actually on a BBC documentary. So it's a very ambitious mega project. In fact, a mega basement. They constructed five storeys below ground under the hotel in Mayfair. Whilst the hotel was still being occupied and they had guests coming in and staying and sleeping there while the basement was being dug down.

40:31 Every aspect of the project from site deliveries, logistics, working hours, resources was all managed using AstaPower project software. Project critical, any delays, you know, the delay of materials arriving, for example, all of that is managed within the software and it's rolling, you know, rolling out what impact that could have and helping the project planner and manager get the project back on track by managing that. Really critical important for such a complex project. Moving to Sweden, very proud to have been working with an existing power project customer GBJ BIG.

41:18 They, as I said, they were using power project, but, they also had a demand from the Swedish housing agency to provide climate declarations for their new construction. Just a bit about GBJ, they're actually a timber frame house builder, a very specialist contractor, timber construction contractor. So with the requirement for the climate declarations and climate estimating, they actually bought out BIDCON software, which is a cost estimation software for construction. But we've also added the ability to calculate carbon alongside those construction costs. So, you know, that's been really well received. It's actually been endorsed by the Swedish government.

42:06 And it's actually a regulatory requirement now in Sweden to provide those declarations during the planning. And finally, we're really proud to be working with WIPED, who are using PM3. So that's the best outcome software part of the acquisition we made. And they're using it on their Premier Inn brand. Every project within Premier Inn is centralised and managed within PM3. And you can see a small snippet of the screen of the sort of dashboard that gives all the sort of KPIs and performance of that project and risk and who's involved, etcetera. So in order to deliver that, the interface had to be completely intuitive because everyone working on a project is inputting and using PM3 in the organisation.

43:00 And also the reports are tailored for different departments, different individuals. And then the security and permissions, you could imagine you don't want everyone on the project or in the organisation having access to everything. So that's where we really come to our strength in terms of the security, the segmenting of data, the reporting and then the usability and a lot of work has gone into the interface to ensure that it's accessible for those that are vision impaired as well. And in fact, last week we launched a refresh to the interface with Kanban board capability. So there's further enhancements going on within p m three, which we're really, really pleased to see. So in summary, we're really pleased to see the results for 2023, which demonstrates the progress we're making on our strategy. We said we would focus on that recurring revenue and it's now reached 74% of our total revenue and it's continuing to grow as we stated, the March ARR is now £24,500,000 and we're continuing to seek and look for acquisitions, potential acquisitions, but as well as partnerships as we're doing that and ensuring that those opportunities will provide real value to the business.

44:31 So we're very careful in our search and how that fits into our product roadmap and our overall strategy. So with that, I think, you know, we demonstrated there's an increase in dividend as well. And we just want to demonstrate that we're really positive and confident with the outlook for the rest of the year and the future. I will just stop there and that concludes the presentation. So I'd like to open up for questions if any folks have any. Okay, so there's several questions that have come through. So I'll just, if I just read those out and then we will attempt to answer all of those. So the first one I see is from Howard M. Thank you, Howard. Could you elaborate on The US policy of direct to market and what your hopes are for this?

45:32 So, yes, absolutely. So historically, we have entered The US market with the reseller channel, primarily focused on ASSA power project. That's a scheduling software that's world class best software for the last ten years in The UK. And when we were carrying out our strategic review and looking at The US more closely, we identified that there was quite a lot of opportunity that could potentially be serviced directly and you know, we're building up leads and pipeline and sharing that with resellers.

46:18 Then took a view to work with the resellers and actually sell and offer those customers software directly. So in terms of the progress and phasing, if we think about the resellers that had, we have 15 resellers in The US. When we were carrying out our SaaS transition, when we were looking at the progress the resellers were making on that SaaS transition and also the fact that our version of Aster that we released last year was only SaaS only. That's not going back to the perpetual model. We actually mandated a switch to SaaS and subscription, at the end of Q1 last year in The US for all resellers.

47:05 And at the same time, we announced that we were entering the market directly with our first sales hire in May 2023. And by the end of that first half, of course, we we planned and and built pipe line before then, attracted 13 new logos at the end of the first half, I think I shared. And then at the end of the year, we closed the year with 44 new logos, new customers. Now, and that was direct with our own salespeople. We saw that opportunity developing. So actually in November, we hired a further sales colleague for The US. And that's our approach is is we're going to continue to hire and resource as we assess the market position, assess the growth and the opportunity, and then we're going to, you know, invest in that market.

47:54 And any sort of whale deals, the large opportunities, enterprise customers that we have that, we are servicing and supporting our US colleagues from The UK. But if there's any sort of rapid scale up, then we also got the reseller network that we rely upon to help deliver those larger clients. So we've got a pretty low risk approach there, you know, an investment is going in as the market develops. In terms of just to give you some color on the market and how that's progressing, the incumbent has two major players, Microsoft Project and Oracle P6. Microsoft is more of a broader planning tool, not dedicated to construction and complexities and different resourcing and so forth that's required in construction.

48:50 And p six has been in the market well established in The US. And that's the Oracle solution. But we've been successful, I guess, in demonstrating to our customers that the workflows and, you know, there's an improvement in terms of using our software. So we have seen clients moving away and moving to Aster, and that was evident in our user forum, which we had in February of this year. We had a customer called Mortensen. They're a top 400, in fact, 100, I think, main contractor that specialises in multi disciplines, infrastructure, construction, wind and energy and civils. They've announced that 50% of their projects are now run and managed using Aster. So it just demonstrates that, you know, that's growing. They initially started with just one division, their smallest, which was their wind and energy.

49:46 Over a couple of years period, they're expanding more and more. And we had another client attend Pennsylvania Department of Transport and they were presenting the presentation they shared at the Autodesk University in Las Vegas as well, actually, which we're very proud that our name came up there. But they were sharing how they've linked 14 different software solutions to ASTER and the data within ASTER. And that's the core of scheduling data. It's the master plan. So, you know, they're getting value there through integration. Their approach was to mandate the use of ASTER across all the projects in the state of Pennsylvania, all road projects. And everyone that's working on the road projects have to report. They receive their reports and have to report back within ASTER. So very, very much, I guess that helps, I hope that helps demonstrate the quality of software that we're providing and that it's all about building that reputation. The challenge for us is getting recognised as a better solution, as a market leading solution that is genuinely solving problems.

50:58 And, you know, we're pleased to say that the momentum is starting to build, but it will take a little bit of time before, you know, the market realizes that there's something different there. Shall I take the second one, Jonathan? Just on the how's how's the transition question from John. Thank you for that, John. How has the transition to a SaaS subscription model impacted the revenue streams, particularly in terms of recurring revenue growth? I imagine, John, that you're probably proficient at everything on this, but I'm going start at square one and work forwards, if that's okay. So I think, really, hinted a little bit earlier, but for those perhaps a little less aware, obviously, with perpetual licenses, you know, rather like your old Microsoft ones before it moved to Microsoft 365, you need to have that. Perhaps the maintenance and support, even if you didn't have that, you'd stay with it and so forth. And and but obviously, with with recurring revenues, it's a lower entry point for customers, and there are many other, you know, modularizations and other potential opportunities by doing that. So a little bit more like a selection box, a chocolate selection box if you like, compared to everything all in one overall licence.

52:14 In terms of the financials of that, clearly, one overall licence is, you know, in theory, it's a slug, but then of money and revenue, but then, you know, you kinda have to replace them every year rather than the ongoing developing and working in partnership with your customers and really sort of expanding, landing and expanding new territories, but also upselling expanding with existing customers, which is very, very important when when we operate, you know, more or less on a sort of licensing model and then they use us increasingly in the businesses. That, you know, loads of headroom for growth in that respect. So that's that's kind of the financials. In terms of each revenue stream, I mean, guess you may be inferring, you know, kind of, obviously, within the business. And and as Jonathan mentioned mentioned, obviously, you know, we could be looking at 30 different sort of revenue streams if you like. But if you were to try and class them try and classify them together somewhat, what you'd have is building life cycle, which has been very much the focus of the SaaS transition. You can see that in the growth numbers that I showed earlier where it moved to 71%.

53:21 And that's that's been sort of, you know, the the primary center of it. It doesn't mean there isn't actually recurring revenues elsewhere within the business, for example, some of the hosting SaaS within, you know, views, visualization, and so forth. But but, you know, that has been the focus, and that's that's kind of the one of some of the key drivers behind it. Yes, service revenues are relatively sort of static in absolute terms, but, you know, as a proportion, as the group moves ahead, obviously, in some ways, as a percentage would be lower. So I hope that goes some way towards, answering your question there. It's a it's a business that, you know, we still continue to see opportunity for that and higher recurring revenues as well, of course. So we don't we don't stop there.

54:16 Thank you, Neil. So then the next question from Andrew. Thank you. How does the acquisition of Vertical Digital enhance ELCO's R and D capabilities and support its growth strategy? I should just repopulate that slide just as a reminder. Certainly, of course, in terms of augmenting our R and D teams, it allows enhancement there. Think that the jurisdiction is a low cost jurisdiction as well. But it's the way that, you know, the team operate is very, very well governed. They've got a lot of good skills and it's actually a team that's worked together over several years and stuck together.

55:02 So there's been low churn in terms of people. And that's really important because of the knowledge that's with those people. The way that Dan and Alex, the founders, actually operated is that they're very much around people and building teams around projects or around customers and appointing that building that culture and the purpose. And that's really unique because the output that they're getting, that we're seeing is very high quality. It's not simply, you know, having a room full of technical folks and just giving them tasks. It's about collaborating and you know, that's how they've attracted those really prestigious customers.

55:50 And that's how we operate internally in ELECO as well. You know, we really believe, our technical colleagues really believe in what they're doing and they're really looking for creative ways to solve problems and to really address the customer's needs. And the quality as a result, the quality of the software is much better. The quality of solutions is well thought out and very difficult to displace and disrupt for a competitor to simply come in and not have those customer engagement, not have those interactions to build something that is really compelling. So we say that, you know, there's certainly a synergy in terms of culture and mindset and, you know, the ability to augment our existing R and D capabilities.

56:37 I think the second part, how does that support our growth strategy? Well, that's our lifeblood and one of the pillars of our strategy is also go to market. So we're driving more product into that market. We have a fantastic customer base and, you know, we're leveraging and offering more to those customers. There is, you know, opportunity for growth. The next question is from Andrew again. Being debt free with a strong balance sheet, what are your plans for capital allocation moving forwards, special dividend buybacks, acquisitions? So perhaps Sure. Would you like to take that, Neil? Yeah. Thank you, Jonathan. And thanks, Andrew. Yeah.

57:24 So as you as you quite rightly point out, we're obviously we are a, you know, we're a technology business that's also embedded in the real world and and real world challenges in solving the built environment. And and so we've got all those growth drivers and then all you add that technology on top. So unlike other technology businesses, you know, we have actually probably higher gross margins than many other technology businesses. We are very cash generative, you know, and the operational gearing and so forth is coming through. We also interestingly pay a dividend. And and, you know, as part of all this, we, you know, we've got some very long standing, very supportive shareholders that we're very conscious that we, you know, we, you know, stayed with us through this transition, that we want to reward both obviously through dividend, obviously, and increasingly so through capital growth as well.

58:22 So, you know, there is definitely an element there where we must make sure that, you know, there is that that income stream and and that reward side of things. But equally, what we want to do is grow on top of our organic growth. Right? So we really want to scale up. And, when we do that, we there is an inorganic side to that. How we how we do that is, you know, we don't want to do you know, there there's there's there's we see a lot of opportunity out there. Of course, we're not gonna jump at every opportunity nor should we. But we do see a lot out there and engaging all the time and, you know, looking for those those businesses and and and product suites that really complement what we already have, extend our geographies where sensible to do so, you know, all all that strategic fit. But what whatever we do, fundamentally, it has to be a strategic fit, but also enhance shareholder value.

59:24 So that will be growing the size of the cake even if, you know, it led to something very transformative and equity as part of that as part of that, you know, because it has to be something that is valuable to to to all our shareholders. We that's our raison d'etre of being listed. So the you know, we we have cash available, as you can already point out. Not all cash, by the way, is utilisable in the sense that you have to maintain balance sheets for commercial trading purposes, distributable reserves, tax reasons and so forth. Okay? So you'll always have some cash, but then equally we have no debt. We could we certainly could raise significant amounts of debts if we needed to, you know, assuming taking in the business actually as part of the product portfolio as part of that.

1:00:10 And then, yes, ultimately, if something very transformative, there may be a mix that involves equity, but I come back to the point, it's about shareholder value and making sure that we grow that size of the cake. So, you know, we're not gonna just do something silly there. And we look at all things remain on the table, dividends, buybacks, everything else. But, of course, what you want is an imaginative team that can grow the business for you in the medium to long term, and that means deploying funds sensibly, but deploying funds. Yeah. Thank you. A question from David s. Do you plan to leverage AI in the customer offering? Yes, absolutely. In fact, there's already AI within the solution.

1:00:57 So, yeah, the answer is yes. We brought in the capability, additional capability last year, with a data and AI expert that actually supported and helped us, you know, look at that as the GPT solution or build it. But, yeah, I think AI is not going away. We're looking at it closely and, you know, there's been peaks and troughs when it comes to AI dating back to, you know, nineteen seventy's, sixty's, different forms of AI. So we're absolutely monitoring that. It's important for investors to just remember, I guess, we look at AI, the actual technology is only five to 10% of the whole AI project.

1:01:51 What we found is that 75% of AI is the data and gathering the data, cleansing the data, then applying the software, the AI engine, and then the remainder is learning and retraining. And AI makes mistakes and then it improves. So actually, for our our customers, for ELCO, our customers, the industry, to implement AI effectively, we need to have clean data collected and cleansed. And that's the challenge because the industry is digitising and we have been collecting a lot more data on projects. And ELECO's ambition is to support that data workflow from the early design, everything that's planned to happen to everything that is happening on-site and then all the operational, you know, maintenance and management. So around time and task across that portfolio.

1:02:52 So we're in a good position because that's critical for every project and building or asset or structure. And that's the foundation, I guess, of our portfolio, which helps, I hope, answer the next question, which is looking at divestment. Think we did we I thought I saw the question here, looking at your divestments, so hence you'll want to focus on your core, yeah, as I described. And on the other hand, your M and A agenda seems to be very wide in terms of what you can invest in. How does this fit? Yes. Good question, Jani. So the slide that showed our pillars, we've got three criteria for M and A.

1:03:38 But within that, probably as we go into a level deeper, and I may have alluded to it earlier, we're looking very closely at technology and how that can help accelerate our roadmap. And we're looking at that in conjunction with reviewing, constantly reviewing our product roadmaps, constantly looking at competition and looking at ways to accelerate or looking at potential partners. The M and A sort of search is integrated into that product base and that's the technology search. So we are looking for type fits and when we talk, when we, you know, when it comes to tech play. When it comes to customers, we're looking a little bit more broadly. So best outcome, we had a requirement for a programme and portfolio management solution outside of, you know, to a broader audience in our asset owner management audience, you know, the retail audience, we've got Boots, Sainsbury's, you know, those large retailers who are running, you know, storing all their project data, etcetera. And that still was to, was, you know, very much for running complex projects. So that's where the PN3 solution is really complementary and it's broadening our reach, but still within the built environment.

1:04:58 And then another opportunity could be a region or geography. But we're very much focused on growing in the markets that we've presented, which is most of Europe and The US. So if we're looking at acquisition opportunities, we're looking at these geographical regions and areas. So while that slide may look a bit broad in terms of, you know, it has to be profitable and it has to divide, you know, have customer overlap. We're looking, of course, a layer deeper than that. And then the second part of your question, Yannick, I hope that answered the first part. What hurdle rate does the investment need to take? As Neil pointed out, the products terminated that do not meet standards, so what is the standard? Does that vary across investment opportunities?

1:05:45 If so, how? Yeah. I can probably sort of build on what Johnson's mentioned there in terms of, you know, type b ABCs and whatever. I mean, I think for us, fundamentally, this is space about being accretive and, you know, or or, you know, very near so, the very least, such that, you know, with potential and concrete potential to do so. And what yeah. I mean, look. On on on Arcon, you know, the bottom line, it just wasn't delivering in terms of that profitability for us, and it didn't really fit our sort of product road map and where we were going, and I I sort of alluded to that earlier. In terms of EOLs, I mean, they were below sort of the the typical sort of you know, as you can see, our margins tend to be at group level 88 to 90. They were below that.

1:06:37 They you know, it's possible that you can kind of have some that are slightly lower, but at the end of the day, we fundamentally believe that everything has to stand on its own two feet, and there's no cross subsidization there. So if there's something even better for some other companies at 60, 65, we're not gonna be we're not gonna entertain that. So, you know, the thing for us is there are there are lots of different hurdle and there are different metrics, you know, for different things, and it does vary a little bit between, you know, as you say, different sides and the income streams of of the business. But, you know, in terms of the metrics for investment probabilities, we don't again, some of that is commercially sensitive in what we do, but, of course, you know, you just have to look at some of the recent metrics and the transaction metrics on best outcome or or in the vertical digital. You know, they're very, very favorable ones indeed. And and, you know, and I think that's because businesses want to be part of us, you know, and the culture, as Jonathan said, and, you know, just developing with us, growing with us.

1:07:39 And, you know, they they don't want to be, you know, necessarily a small number in a in you know, they want to be a contributor, a net contributor to the business. And so, you know, while bolt ons may be, you know, one to 15 or we're looking for annual growth 10 to 20 or whatever it's gonna be, you know, certain other metrics, the the the the point is it's also about the strategic fit as well, of course, as the as the value. But, you know, do we see that business being part of the portfolio and growing for us as we grow and and move forward? You know, it's very, very powerful to have those people engaged and really active when they join the group and really part of the ELECO group. So I appreciate it doesn't go through absolutely everything there. Some of it's a little bit commercially sensitive, Yannick. I'm happy to pick up with you. I know we're seeing you again, which is great. And so we can talk again further, you know, and I can sort of expand a little bit more about the business. But for the sake of brevity, I'll I'll hand back to Jonathan now.

1:08:38 That's great, Jonathan. Neil, thank you very much indeed for updating us. Thank you everybody for your engagement this afternoon. Absolutely unbelievable. So thank you once again to you all. Jonathan, Neil, I know investor feedback will be important to you both and I'll shortly redirect those on the call to give you their thoughts and their expectations. But Jonathan, before doing so, wondered if I may just ask you for a couple of closing comments. Yeah. Thank you everyone for joining. Really appreciate it. Thank you for your questions. Those very good questions and hopefully we went some way to answering those. As Mark said, if we didn't, please reach out. Happy to take those offline. And hopefully, can see we're really excited about the journey we're on and the future. So we look forward to sharing an update at the interims. That's great. Jonathan, Neil, thank you once again for updating investors. Could I please ask investors not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations.

1:09:36 This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of ELECO, we'd like to thank you for attending today's presentation and wish you all a very good afternoon.