Eleco (LSE:ELCO) — Interim Results

0:01 Good afternoon, and welcome to the ELECO PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Jonathan Hunter. Good afternoon to you. Thank you, Alex, and good afternoon to everyone. It's a pleasure to have you all join us today to see our presentation and positive momentum in the first half of twenty twenty five. My name is Jonathan Hunter, CEO of ELECO, and I'm joined by Neil Pritchard, who's our Chief Financial Officer.

1:00 So, as a reminder of what ELECO does, ELECO is a trusted technology partner for the built environment addressing mission critical, areas of the building life cycle from early planning and estimating through to project delivery and maintenance. Our solutions are best of breed, meeting the needs of a diverse audience throughout that building life cycle, allowing them to prescriptively schedule, plan, and project manage, also upskill and collaborate, and report with better insights, manage safety, and compliance. What makes ELCO a high quality business is its people. We're very proud of of our people that are the foundation of our growth and drive our strategy and and long term thinking and innovation.

1:54 We've got a high level of trust in the purpose and management in our strategy, which is proven in our trust index and our great place to work recognition, but also low low lever rate compared to industry averages, regrettably the rates that is. We're we're very proud of the work we do in the community as well and some of the innovation that comes from our people. So we're very much a a group of problem solvers supporting the industry. An update on the group at a glance at the midyear of 2025. We continue to be a leading developer of innovative and award winning software.

2:41 We have 314 colleagues in the group now across The UK, Continental, Europe, USA, and Australia. In those markets, listed in the the middle at the top, operating markets, we operate with colleagues in on the ground in local regions servicing customers directly within those regions. So you'll see on the bottom right, there's 97% of our revenue now is direct through direct customer relationships with 3% through the resellers and international other international markets. We maintain strong market positions in terms of companies and brands we work with. We still see a lot of opportunity for expansion as the industry and our customers are still adopting technology and and and digital transformation.

3:34 So we're we're very pleased to present the the the outcomes of that and the results, which, you know, it's been a challenging time in this in the field environment and construction sector. Worth highlighting as well that we have about 80 r and d technicians, and all of our IP and and r and d is developed primarily in house and with very, very little use of open source, which we're we're very proud of, especially as there's some new there's a cyber resilience act that's gonna gonna come into play in a couple of years in 2027 that's gonna require disclosures around code stack and open source and and and so forth. So we're very well positioned for that in the future.

4:25 The product search, our solutions are best of breed, as as mentioned earlier. They're they're very feature rich. They've been developed over many decades with customers through iterations and and rewrites and re releases, which makes them sticky, makes them very, very, loved by the customers, and also quite challenging to displace. So with with part of our business model is to really continue to expand within the existing customer base while attracting new customers as well. We divide the, portfolio into two groups, the building life cycle and CAD and visualization. And, within the building life cycle, products, you'll see that that that covers the full life cycle from from early specification and design standards through project portfolio management.

5:17 Very that's a top down approach to to planning objectives and outcomes, and then managing portfolios of projects, and then scheduling, which is more of a bottom up, very detailed complex construction schedules for estimating and and asset maintenance and management. And and we've enhanced the asset maintenance and management with the acquisition of PMAC, which we'll we'll come on to later in the presentation. The other group of products is visualization and CAD where which comprise of niche products in the interiors and CAD and engineering, timber engineering disciplines. We'll provide more more about the scale and and revenues of each of these groups in the financial part of the presentation.

6:13 Highlights for, the first half of twenty twenty five. I can say that life's been quite busy at ELECO in the first half, as we've been focused on our ARE strategy. So that's out to retain to attain new customers, retain existing customers, and expand within the existing customer base. And that's really, you know, that go to market, value proposition, marketing, product management, aligning with with the ARE as well is driving good recurring revenue and software sales. So we see that in the financial metrics at the top, ARR growth of 19%, TRR growth of 23%, total revenue growth, and also seeing the margins drop through is very good as well in terms of the EBITDA, growth.

7:02 So, yeah, we're very, very pleased with the momentum in in h one. There's a lot of initiatives and and and work being carried out and supporting the numbers. I think in terms of innovation, we released several, major releases of our core products. We're also, thanks to AI, we're also able to create more prototypes and and very high quality proof of concepts to have further, strategic discussions with customers and and start to, really open up the opportunities of digital transformation moving beyond just, you know, a point technology solution. So that's been really encouraging with the customer base.

7:48 We've we've, we're very pleased with the integration of PMAC, which PMAC was acquired in January 2025. It's is a maintenance management software solution headquartered in an island with a with some overlap with our existing Shire system, maintenance management system, in terms of feature functions. However, they didn't they didn't compete. The the audience that PMAC were really the ideal customer profile is a high compliance sectors such as pharmaceutical and American owned sort of FDA approved food and drink manufacturers. And also the go to market for PMAC is very much a solution consultative led sales approach versus Shire system.

8:46 Audiences, more general manufacturing, and also facilities management as well with a land and expand modular approach to to go to market. So the teams have come to gather very well. In fact, the first week, the the sales teams had come together and and shared leads and and brought the CRMs together. We're and we're we're taking opportunities of of shared customers as well. So we've got an example of that in the later on in the case studies within the presentation. I think we're very pleased overall with the growth. We we we're also pleased to onboard three high profile retail customers in the first half After we after the r and s and the results were released, we're given the the the written approval to be able to say that one of the three retail customers is JD Sports, who are a global fashion brand that's expanding.

9:41 And they're using our software to store all of their property and fit out information that drive standards and specifications across all their properties. So, yeah, very, very pleased to be working with them and and further working on further opportunities. The recurring revenue has been strong despite a, you know, a challenging backdrop for our customers, which we'll we'll share a bit more insight into later on, but we're we're really pleased to be able to, continue to expand the use of ELCO's technology within the customer base. And that's been a lot of the driver for revenue growth is expanding, the the the adoption of technology. We have absolutely been growing in terms of customer count as well, attracting new customers, often starting at a a sort of lower level of technology maturity, and and we've really improved in the way we take customers through this, journey of, implementing technology and and, getting from an entry level through to a, you know, fully predictive insights led, you know, technology adoption model. So it's been really exciting.

10:58 Think, yeah, lots exposing a lot more opportunities for us going forwards. I'm going to take the opportunity now to invite Neil to present the financials. Super. Thank you very much, Jonathan. Good afternoon, everybody. Thank you so much for joining. I'm very pleased to give you some color on the financial highlights for the first half of the year. And so I'll start off first of all with with highlights, then I'll move on to, as is, I guess, tradition of of these presentations, a little bit more detail on everything going through revenue, p and l, cash flow, and then finally, balance sheet. But first of all, these financial headlines of the first half, which is calendar period of 2025. And what you can see there, as it says on on on the on the top line there, is really around continued growth that we've seen building consistency and having sort of gone through our financial recurring revenues and transition over the last three, three and a half years, building every sort of period in in terms of on top of growth.

12:10 But also beginning to see really some really nice movements in those enhanced profitability levels, the operating gearing effectively, and also getting to a recurring revenue model that's sort of your record record level for the group as a software group, dedicated group now. So on the first top of the if you like, the the nine bubbles, as I would call them, they're all revenue related. So first of all, ARR, the annualized one, which is really the June numbers multiplied by 12 for recurring. That that's moved that moved ahead a little bit of a snapshot, if you like, but it moved ahead 19% organically. That was around about 12% because we have made acquisitions, as Johnson mentioned, in including well, mainly in these numbers effectively the the the PMAC ones from from Ireland.

13:06 Secondly, looking at recurring revenues across the whole of the six month period, then that's TRR. And so that's the sort of, you know, wider universe of of data, if you like. And that those have advanced very pleasingly by 23%. Now, again, organically stripping out acquisition effects, those increased by 16%, which is a very strong number as well, which we continue to see and we're very pleased with indeed. Overall revenues, were I'm sorry. I should say that those recurring revenues were now represent 81% of total revenues as well, compared to 74 for the prior half. And we'll we'll talk a little bit around that on the revenue slide coming up. That does include lower services revenue in the first half, and we'll we'll go into the reasons for those as well.

14:00 Overall total revenues moved ahead by 13% and half on half to 18,400,000, and that's actually a similar number in a constant currency basis as well. On the central row of the metrics there, there are just a flavor of some of the many profitability metrics, which all showed more more than proportionate increase compared to the high levels of increase within the revenue related metrics as well. So and that that is, as I've mentioned, improved operational gearing. As we scale, it's it's, you know, it's markedly improved, and we still see further opportunity for that in the future. So, for example, adjusted EBITDA was 13 30%, adjusted operating profit 29% ahead, p b adjusted PBT 29%, adjusted profit after tax 29%.

14:54 And and just to be clear, you know, the statutory measures are similar percentages. They you know, EBITDA was up 27%, PBT, 25%, profit after tax, 29%. And that follows through clearly on to EPS, and you can see that the adjusted EPS on the bottom left is up by 29%. So, you know, to 2.7p per share. And while the cash there shows an increase, you know, just to be completely transparent and flag, that that's obviously 2% against the prior half year value or 48% ahead if you take into account acquisitions. The overall net outflow in the first half just really related and was was skewed by the acquisition of PMAC in the period of more than 5,600,000 including related costs.

15:47 And indeed an increased final dividend that was paid out in the first half. So had the acquisition, for example, not been made, then we would have been, as I said, 48% up on the first half, but actually 27% up on the year end as well, which is very much in line with those profitability measures that I just mentioned. And then finally, on the right hand side at the bottom there, you can see that, obviously, having due regard as we always do do to the competing needs and demands for the business, but also, we appreciate our shareholders and the diversity of the shareholder base and and their needs, you know, on an income level as well as capital growth level. We the board has raised the interim dividend by 17%, you know, in line with our consistent, you know, sustainable progressive model that, again, we've employed since since COVID.

16:41 Now if I could just kindly move on to the next slide, which is really a little bit more detail this time on revenue. Jonathan mentioned about how most of what we do is is core and direct to market, that 97%, which is at the very top. So if we look first on the left hand slide, just a little bit of how that then splits between the different revenue types, if you like. So you can see in the very left hand of the left hand chart that we have lower perpetual licensing, one off licensing, non recurring licensing, if you like. That's moved down actually from 4% in the previous half to one percent as a composition of the overall revenues.

17:28 It is it is lumpy. It is possible that it, you know but it is quite disproportionately lower, which in in many senses is a good news. I mean, that's a reflection and you see that strength not on a one to one basis, but you see that in in higher recurring revenues coming back and recognized over a longer period, obviously, rather than immediately. And those recurring revenues, quick reminder, the 81%, they've moved ahead really nicely for us. And, you know, very, very strong. And I I think, you know, we continue to see opportunities on that score as well. And just on services income, headline is down about 6%. It's at 3,300,000 in this first half. So that means as a proportion of total revenues between the halves, it's moved from 22 to 18.

18:19 So it's all around about that sort of level of of total revenues. And, you know, we refer to sort of the overall climate, geopolitical and macroeconomic factors at play. And it's fair that in some of our markets, some of our customers, and clearly, are on a diversified multi geography basis, you know, there is a little bit of, you know, reduction really in the services, which is predominantly training related income, also some other bespoking income as well. And we tend to see that a little bit across the board, but there are some geographies where it's been stronger and a little bit stronger also on the visualization side of the business as well. Indeed, there are also some elements, just to point out, of some one offs in the previous half as a comparator as well. I'll come back to the to that on the actual geographies on the right hand side in a second.

19:15 In the middle diagram here, the kind of pie chart y type type of diagrams, What we see is the main part of the business building life cycle. That now, as the outside blue compared to the previous year previous half, I should say, of building life cycle, the inner blue. And so what you can see, that's moved from 73% composition of the group to 79% of the of the group. And consequently, also partly due to the services element that I was talking about in visualization. Visualization in CAD has reduced down from 22% to 15. There are some other where we act as a reseller predominantly in Sweden. Now on the right hand side, you see the geographic split.

20:03 And it's it's good a very nice a very good to see, of course, that there's some notable movements and advances in The UK, rest of Europe. Rest of Europe does include PMAT, but even without that, some some good movement there. And very pleasingly to see Scandinavia up, last year on a sterling basis. It was it was it was relatively flattish, but, actually, in the underlying, taking into account currencies have moved ahead. Again, this year, in full terms, in sterling terms as well, of course, it's still showing that advance here, which is great. The UK was slightly behind by about point one or so in this in this half against half. There are some one offs that I've mentioned a few moments ago. First of all, several visualization US based customers. It is a global business, albeit centered very much around predominance of of their customers in in in European terms.

21:00 And there was also a significant one off training related and implementation related contracts on the building life cycle side in h one twenty twenty four, which clearly didn't repeat in h one twenty twenty five. In Germany, we continue to see not only through visualization, but more generally even on our building life cycle business. While there are some signs of green shoots, nonetheless, in the period reported, it didn't necessarily come through in quite the same way. Visualization is a building as a sorry. As a business to business to consumer business is a little bit more more related to the end consumer markets, if you like, and and and the the effects and and the macroeconomic effects going on there.

21:50 And some budgetary constraints within some of the interior furnishings type clients that we have there on on that sort of visualization basis for its the spoken of service revenues. And clearly, by being lower on that service revenue, I just wanted to flag that, therefore, the recurring revenues, you know, probably instead of being eighty eighty would be an 80 on 81 types of percentages. So it it is an impact there just for full transparency as well. But really, general advances and improvements along along the lines and certainly, by way of reassurance, for example, on the building life cycle part within The US, advances in recurring revenues and underlying customer growth as well.

22:38 If I can now move on, kindly to just a little bit more detail on the overall p and l. Now as we discussed earlier, that demonstrates both the revenue growth, but also the positive effects of the operational gearing. And it's really good to see that actually, overall revenues, which, gross margins of those revenues are around about sort of 88 to 90%. We came in approximately halfway, 88.93. Tiny bit below the previous one. But when you think about the mix of the business now includes some elements of of our vertical digital Romanian business that kind of provides r and d project capability and and the costs of those.

23:26 Actually, outside of that, we would have been north of 91%. So actually, half on half improvement on a like for like basis. Depreciation's little change in the in the period. Amortization is higher by about point four, but actually point three of that is all acquisition related. It's PEMAC acquisitions. And for the first time, we, you know, we have to once you acquire a business, you have to allocate out all the purchase price adjustments, all the other intangibles. And from that, you then derive your amortization. So three quarters of that actually relates to acquisition intangibles, which are reflected in adjust in adjusted. And also other things on adjusted would be some associated costs for PMAC. There's a point one there. There was, in full transparency, a point two in the second half of last year on that.

24:17 And the first half of last year related to acquisition costs in the remaining side of the business. Share based payments have ticked up to about point three against point one. But the point one was also had some half year previous half effects in terms of some cancellation of share options or some staff staff changes and against very strict stringent very, stringent performance criteria. Overall, opex wise, on the face of it, looks about 6% ahead, just over 12,000,000. But actually, if you take into account the absorbed cost basis of the acquired businesses, and particularly PennyMac, then what you're seeing is actually only an OpEx increase of one to 2%, which is trending slightly below inflationary levels, of course.

25:04 And that's involved some reductions in other discretionary spend that have been made and other cost saving and cost control measures. So overall, you can see that with that feeding through the top and good cost control elsewhere, that the operating profit has moved ahead. And the one thing I wanted to also flag for transparency sake is on the tax line. So the effective tax rate, while it would only be about point one difference, was slightly more favorable between the halves. And this came down there are lots of ups and downs, but there's two primary drivers. One would be the tax benefit of the higher, otherwise, non benefit of increasing the share based payment costs, and then inclusion of further tax credit benefits from the Irish acquisition beyond what we took in or assumed to be the case within the opening balance sheet.

25:57 So some upside one off nonetheless on the tax side there. And so as we discussed before, the with the increased profitability and indeed that lower effective tax rate and profit after tax was 1,600,000, which led to those improvements in overall EPS. Finally, maybe just the where it could fit into lots of different places, but total software r and d investment was 2,800,000 in the period. And that represents, just under, but rounded up to 16% of total revenues. And that compares very much to kind of the the 16 to 17% level that we saw for full year 2024. So that's just continuation. Obviously, much of that is staff based costs, in r and d, and those are obviously subject to, you know, normal cost of living increases and so forth.

26:51 Moving on just a little bit more focus on the cash, if I may. We have we can see in the first in the left hand diagram, the slightly lower cash on the year end simply because of the acquisition. You can see the net effect of that acquisition in the biggest orange downward part on the waterfall diagram on the right hand side. And that includes some of the cash that we took in from PMAC on acquisition as well. And overall, the group has high gross margins. We've seen that high recurring revenues, high retention rates. And so our business model, therefore, is is is fortunately, we're blessed with a very resilient and and operating cash generative model. There were some working capital movements, some of which relate to the acquisitions, so these things tend to throw things out somewhat.

27:43 We did increase the dividends that I mentioned, and we, of course, paid some tax on account in advance. Overall, free cash flow was largely unchanged with roundings also operating between the halves. And free cash flow, about 3,400,000, represents about a 179% of operating profits. Quick reminder that the group has no borrowings. We repaid those in 2021. We you know, that's a that's a model that proves even more resilient in in in tough times as well, of course. And then finally, moving on to the balance sheet, if I may. So the balance sheet, again, is one of those things where there are some movements in and out for balances that come in with predominantly, again, the PMAC acquisition.

28:30 But, you know, we we continue to see advancement in the balance sheet and a robust growth and and coming through there and growth in the net asset values as well. The overall intangibles are probably seeing the biggest changes in terms of the, the balance sheet for PMAC. For example, goodwill, 2.6, customer relationships of 1,500,000, development costs of 1.3, and brands of point two. That side of that, much of the rest of it is really around the trading and scaling up of the business. And, you know, you can read some of the other explanations at your leisure, of course, and some of those. The overall cash position at twelve point two represents 38% of the balance sheet value at the end of half one.

29:20 And a nice indicator often for the future is around the deferred income where, you know, we don't recognize all the income on some contract renewals and and and business immediately, of course. And so and goes into the future predominantly within the next year. Now they that actually was ahead by 32%. But even stripping out, taking in the PMAC balances, that was ahead by 24% organically, which bodes incredibly well for the future. So overall, an increase in net assets, net asset value by 13% here. And as I mentioned earlier, the board has proposed well, will raise the interim dividend by 17% in line with all those sort of measures and improvements in in all the financial metrics as well.

30:13 I think that's probably everything for me for now. So back over to you, Jonathan. Thank you. Thank you, Neil. And yeah. So that that's a summary of the first half of twenty twenty five. For the next part of the presentation, I'd like to provide you with insights into the market drivers and our strategy as well as how our customers are using our technology. Now the the built environment, and all the aspects that, relate to the to constructions and structure, but also maintenance and operations is a exciting and buoyant market for companies like ELECO. The growth and adoption of technology is is continuing to accelerate.

30:59 It's a market where we see low levels of of technology usage still, pen and paper and spreadsheets and lots of people. So, yeah, we there's there's lots of opportunity, and it's very exciting for for us as an organization. Our total addressable market today is over $8,000,000,000 in the markets we serve well, the geographies we we cover, and that's growing, you know, across all those different customers. We're we're seeing growth in the market research of sort of double digit, 10 to 10 to 12% spend in in project management, maintenance, etcetera. And across all the markets, you know, the demand for technology will continue to increase, especially as there's added demand on our customers.

31:53 There's environmental social governance drivers that are demanding and driving greener construction as well as greener operation of structures and better insights to inform design and specifications as well. So there's this joining up of this the whole built built environment or building life cycle, a trend towards trying to achieve that. And as you could imagine, there's many, many, many disparate parties involved just in in one element of of a building. So there's challenges there. And many of the cost companies are turning to technology to drive new new techniques in building, but also technology. And this is, you know, closely linked to the driver to reduce waste and improve productivity.

32:42 So we see a trend where well, we're we're seeing our customers' clients being more demanding, putting making construction projects much more complex and and challenging. It's a it's a highly, yeah, highly challenging, fast paced, or or demanding environment to work in, and technology is supporting that. The adoption of technologies is supporting our customers, but at the same time, complexities are increasing. There's also, you some of you might have heard of the safety act post Grenfell. There's other initiatives that are that are driving changes and transformation, better ways of working, but to implement those, it's it's taking time and causing delays. And our customers are anecdotally reporting or informing us that some of the, you know, the changes are causing delays and therefore pressure on margins.

33:40 So, yeah, very, very challenging. However, we're fortunate to be able to offer many many ways of solving customer problems, particularly in the time management planning, project delivery, as well as maintenance management, time and task, really critical functions across the building life cycle as well as estimating cost cost estimating. So we've we're really, you know, energized as customers are adopting technology to be able to offer more and more and work with customers to continue to feed back into our product road maps to further enhance and strengthen our solutions. So we're very much taking advantage of the opportunities, and this is I guess, of these challenges not just focused on one region. It's it's globally across, you know, all regions and markets.

34:35 Our strategy is it comprises three pillars, three core pillars of go to market innovation and technology and mergers and acquisitions. But to support those three pillars is a growth platform, and we've really, focused on developing and maintaining a really well run operating business that's profitable, continues to continues to increase profits, cat continues to generate cash. We have fantastic talent. We're attracting even more industry talent. I think industry talent is really important for us as an organization because we want to be positioned as the experts being able to solve problems, and AI is supporting other areas of sales, marketing, r and d. But that industry expertise really drives, you know, better decision making, better outputs. So so we're we've been really, focusing more on on customer problems and also, hiring within the industry.

35:41 Culture and values is really driving the driving the strategy as well as, you know, having good reliable systems to be able to measure and, continue to perform. And that allows us to be innovative. I think we've got we're sort of team well, 300 team of really, you know, intelligent, talented engineers. They wanna solve problems. So, you know, r and d is really something that I I'd say colleagues are really comfortable with in terms of being able to having the capability to to solve a challenge. It's, you know, it's understanding what the customers really want to get out of technology, and the same can be said about AI. Implementing AI can be done quite quite easily now.

36:27 But what are the problems that that that are trying to be trying to be solved, is the key question. So, very much focused around that when it comes to innovation and technology. And then providing ensuring customers and the market understands what ELECO does and the capability of that technology is really critical to our growth, and that's where go to market as a pillar. And within that, many initiatives and and strategies around attaining, retaining, and expanding within the customers are taking place, and that's an ongoing enhancement and improvement. And with some examples of that will be, around an enhancement of our marketing and marketing teams.

37:13 We've also with the acquisition of PMAC, it's provided enough scale to develop a, a focused marketing team for the asset and maintenance management sector. So with that, you know, we're driving better customer profile acquisition, but understanding customer profiles so that we could we could provide the solution that fits with them and improved product value proposition or solution value proposition. That's that's certainly progressed quite substantially in the first half. So we continue to drive our go to market initiatives. I think we will continue to see benefits of that in the software sales and subscription revenue that we're we're increasing.

38:00 And then finally, on the on the priorities, mergers and acquisitions where we're seeking three types of businesses or targets. The first type is well, all the SaaS businesses, they have to be profitable with which complement our markets. That's a type a. Type b is proven technologies that could advance our road map. So specifically, you know, comparing, m and a opportunities alongside our product road map and seeing if there's an opportunity to purchase rather than develop. And then, of course, inject that into our portfolio and and sell to to the existing customer base leveraging the relationships that we've we have.

38:45 And the third type of acquisition is technology that's, next generation and could be from another sector or another industry and and seeing opportunities to introduce that into the built environment. I think overall, our strategy around, m and a is really taken you know, we're we're we're seeking those types of businesses, but we're having many, many meetings and introductions with founder owners, and then diving a little bit deeper into products and, different area different opportunities for synergies, and then coming back and and looking at the overall picture before really pursuing acquisitions. So there's quite a lot of work that goes into the search and assessment.

39:35 We absolutely want to ensure that, you there's a synergy and there's an opportunity to really drive shareholder value and value to to this growth platform. So it's important that we maintain a high quality of business, and, you know, it's enhancing. So, the search continues. We made an acquisition in January. We're we're meeting many, many companies. I'd say that there's more volume of businesses that are some approaching us, some we've spoken to previously, and some new opportunities. So more volume, a few more that are probably finding it a bit difficult in the in the current market. So they've they've got invested in the technology, but the go to market has been, holding them back, and therefore, they're they're looking to to join a large organization.

40:29 And, again, I repeat, you know, for us, there there's interest interesting opportunities, but we're probably turning away quite number more because we absolutely want to ensure that it's value enhancing, and it's a quality business that will support the rest of the group. That takes us nicely onto customer case studies, and I have two, to to share with you. The first is a PMAC customer, but also a Shire System customer, and that's Kingspan, who are a global building products manufacturer. Kingspan are using Shire system within their insulation and and building envelope part of division of their business.

41:18 And they're also using PMAC in their waterproofing and and roofing production lines and part of their business. So since announcing the we've had a great relationship with Kingspan. Since announcing the the merger, they were they were really pleased to have two big you know, have the same same solution provider, but two solutions that were were complementary. Since then and more recently in the first half, Kingspan have expanded their use of PMAC into other international sites so that they're now using PMAC in Germany and two sites in Turkey as well. And we're seeing an opportunity to leverage the relationships we have, both with Shire and System and PMAC, to expand globally rather than having to set up a distribution or a service center in in each region. So that's been progressing well. There's some other, you know, positive opportunities for for both of the products going forwards.

42:28 And the second case study is ERAGOL, an Irish based internal fit out and facade contractor. They've actually been a customer for fifteen years, ELCO. They've implemented ASTER scheduling software and have been using that to to run projects. But more recently, they've implemented ASTER Vision, which is our scheduling platform, and it's a central source of the truth, but also being able to, provide collaboration. That's the vision live and also workflows and and and governance and structure around a portfolio of projects. So Regal, now has the ability to progress project plans from tender to contract and then instruct, programs of work all from a central data environment.

43:20 There's no errors in terms of versioning or or etcetera. And they can also provide this capability in, across different audiences or different user types within their organization. The output of that is is better, you know, well managed, well governed projects, but also real time reporting to stakeholders at different levels and different departments in the organization. So it's just an example of, you know, this digital transformation that that customers are are progressing through and, you know, improving and being able to measure multiple projects against each other, which has really, really, yeah, provided a lot of value. And Graham McCracken provides a quote there very, very generously.

44:09 Just giving his insight into what it's like working with ELECO, Graham is actually part of our user community. So he he provides insights, really valuable insights into our product road map and, you know, future future enhancements in the product. Very pleased to be working with Eregol. And perhaps I will just pause there and then hand back to Alex to open up for questions. That's great, Jonathan. Neil, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to read those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

45:02 Jonathan Neal, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions where appropriate, and I'll pick up from your birthday at the end. Thank you. Thank you, Alex. I shall just there were some questions submitted prior to the meeting which I'd like to answer first, and then we'll move on to the questions that have been asked in the meeting, which there have been a few. So a couple of investors have asked about the change in the business model and what has led to the Cavendish analysts adjusting their full year estimates. The maintaining recurring revenues, however, reducing service revenue while maintaining the adjusted EBITDA, there's also been other adjustments that have led to a decrease in the adjusted EPS by 16% with an increase in reported EPS of 18%.

46:02 Why haven't other research analysts made such adjustments? So I wanted to answer that one first. Neil, you'd like to take that? Yeah. Yeah. Sure, Jonathan. Yeah. Very happy to to clarify. I'm certainly where I'm able able to do so. Yeah. So I guess I'd probably start with saying just a quick reminder that, as you know, market consensus expectations are for the full year, not for not necessarily, you know, there are no forecasts around the interims or anything like that. But nevertheless, there's always a commentary around, you know, the full year in terms of whether we're trading in line and things. So I I would say, you know, we are and continue to be trading in line with those market consensus expectations.

46:53 And to be clear, that that includes we we are trading we're trading and continue to be trading in line with that with those expectations before there are any changes in those analyst notes that were changed at the interim. Actually so so, you know, either way, we were trading in line. Now as you know, we're covered by three independent research analysts that they produce those forecasts themselves and and model the business going forward. We're not allowed to provide those prospective numbers or out into the market or anything like that. So that we're covered by three independent research analysts, Canaccord, Cavendish, and Singers.

47:40 One of those, Cavendish, reappraised its full year forecasts on the back of the new interim numbers released. And in particular, the acquiring of PMAC in the first half as well. But actually, the other two analysts made very little change indeed and and sort of remained with those until so Cavindish seems to have changed quite a lot of things. They've significantly increased their free cash flow numbers, their full year cash forecasts, their dividend per share. They've they have decreased, as Jonathan said, their one off service revenues, which is obviously in line with with what was reported in in last year. And they have left the adjusted EBITDA the same, which, you know, with the reduction in in the services revenue kind of just testifies, if you like, to the improved margin growth in the business that we can still deliver.

48:37 Now within this, there seems to be some technical change in the model and modeling by the analysts on depreciation and amortization in the adjusted sphere. I think it's taking in the ack PMAC acquisition and the provisional fair value adjustments under IFRS seven. So, you know, that that seems to have sort of thrown something one way and something the opposite way, net net actually slightly better. So it actually shows it still shows actually healthy adjusted EPS growth, but a more an even higher increase in reported EPS growth. So hopefully, yeah, that that provides a little bit more clarity on that. Yeah. Thank you for that question. Thank you. And thanks Neil for taking that one.

49:23 A question from Rob. PMAC contributed 1,100,000 of revenue and 0.2 of profit in h one. How does this compare to your expectations, and what are the early synergies you're seeing alongside Shire system? So perhaps you take the first half and I'll take the second half. Yeah. Sure. Yeah. No problem. Yeah. So actually, for for visibility, you can see kind of what it otherwise would have been had it not been under ELCO control if you look at the acquisition notes that's in the interim statement. So and what you can see there, it would have been relatively flat, you know, adjusted EBITDA. We basically, it is a tiny bit more ahead of what we otherwise were expecting. I'm not gonna make a big thing of it, but it's we're pleased that in in what we set as expectations for ourselves internally, I should hasten to add, bearing in mind, previous question.

50:26 We're pleased that that's slightly ahead. And and, you know, and and just to just to reemphasize what Jonathan said earlier, we're incredibly pleased with it and the people. The people are brilliant and and the business and and, you know, the and everything else. And, yeah, we we we we are in the process of realizing synergies as you as you would expect and hope and I would expect as well. We have made some changes on the property side. We have we are transitioning some of the cloud hosting to different providers to to provide economies of scale and and so forth. But equally, we're also building building up the business. Perhaps that's the place to hand over to you, Jonathan, on some of those Yeah. Yeah. Thank you.

51:14 Yeah. There has been some some cost synergies, but absolutely some amazing r and d efforts, you know, major release of the whole UX and UI, so user interface, user experience, better integrations with ERP systems. And also, we when we acquired the business, the code stack was on an older version of Python, so we've upgraded all of that very quickly. We thought it would take six to eight months. It was done in the first half. And thanks to our our team in Romania and and in Ireland, but also the input from our CTO, Alex Gebayano, who's a former founder of our Romanian r and d business. So that's been fantastic.

52:06 We've actually augmented the r and d as well with some some further recruitments in Romania, and very pleased on the on the technology stack and and the way it's, you know, it's positioned now. In terms of marketing, mentioned earlier, we've we've actually appointed a marketing manager for asset maintenance and management, but also recruited a lead generation expert, content creator, and then utilizing shared resources in marketing as well to establish a marketing team that is just driving opportunities and leads for our Shire and PMAC and and ICON system solutions.

52:54 And then when the leads are being are going into that marketing team, they're qualified and and shared amongst the the best, you know, either technical or or solution that sells those people. So we've got a system there for go to market, which has been enhanced through the which we didn't have previously. You know, we've enhanced that through the acquisition because we've we've got more scale now. And next area of integration we're looking at is services and customer success. So being able to combine the the technical support and the services and and training as well. So we have one team across both. I think there's some brilliant brilliant work that's gone into the the go to market value proposition and taking customers on this journey from reactive maintenance through six stages to being predictable and proactive and and preventative in their maintenance efforts.

53:56 And along that journey, you know, there's there's training, consulting, and and software to to adopt. So, that's been established and actually just launched, just coming into the second half of the year. So we've we've got we're seeing just a much more sophistication in in marketing and as well as sales. So very pleased with the integration. Pleased to see some cost synergies and a little bit of early signs of upside as well as opportunities for international expansion as as demonstrated in the the case study. So, hopefully, that's covered your question, Rob. You you did post another question around US revenues, which were down 8% due to lower services that that was not lost business, just wasn't repeated project work.

54:50 However, through the SaaS recurring revenue, that has increased 25%. How do you see the balance between volatile services and more stable SaaS evolving in that market? Did you wanna take that, Neil? Handsome it to me. Yeah. Sure. We we absolutely, as I mentioned, the the the revenues are down by that sort of point one or so, and it is service related. Just a tiny bit more detail there there. And I can't remember if I sort of mentioned that one on the tool. But, yeah, of the there were two US visualization customers as well as the building life cycle one. So if you like, there's elements of The US that that don't relate to building life cycle in those one offs.

55:39 But I think, really, when you're talking about the recurring revenues and the and the bulk of the ongoing US business, then, you know, then clearly, it revolves around those building life cycle sides of things. We have seen those increased recurring revenues in where we're going. I think we have seen net net new customers growth within the first half. So we remain confident that, you know, The US building life cycle business is going ahead. The balance between the volatile services and more stable SaaS evolving in that market I mean, to say to say that we would turn away services revenue, obviously, wouldn't be necessarily the fact. But I think I think, look, you know, as remains the the core focus of the business around, you know, which is which is around building life cycle, but recurring revenues importantly.

56:30 That is that's one where we would see the vast bulk of and probably higher than the the proportionate group one to be on the recurring revenue side. It is growing from a small base. It is always hard to crack the bigger market. That's why we we very much sort of expand on the basis of, you know, kind of making sure that we cut our cloth while we're doing that. And, you know, it it takes time to get that brand recognition, but we see going forward, while there we wouldn't turn away services revenue, we're certainly not, you know, looking for that to be the driver behind it. It will be with the recurring revenue business model that we that we prize and we've worked so hard for to get to over the last sort of three and a half years. Yeah.

57:23 Thank you. And and adding to that question, Stuart, you've asked how confident are you in restoring growth and momentum in The US market? Perhaps I'll I'll take that to to follow on from what Neil's just said. Just a bit of color around the the one off service that we received, service project order we received in h one last year, but not this year. It was relating to the Pennsylvania Department of Transport and moving them to our past division platform. So supporting them with security and and permissions and and a lot of work there, which was purely bespoke, quite high value, but actually enhancing our our, you know, enhancing our our relationship with the Pennsylvania department.

58:17 So it was certainly wasn't lost business. I think it just demonstrates that we are adding value. And we have many, many new customers joining as new customers using, adopting the technology. But when I say customers, it's it's normally one individual in a in a top 400 general contract or one one department. And then the the journey starts from there to expand and and displace the incumbent, which is very well known and has been used for for decades. But the feedback that we're receiving is is very positive, and the software is very, very loved. And once individuals within the the the customer base are adopting our, our scheduling software, they, they're not turning back. They they become product champions, and they're they're selling it internally.

59:16 So we really see that that gives us confidence in the growth that the technology is absolutely it works, and it's proven. It's been localized. It's got a US language version. We're supporting it. We we have the ability to provide services to large government departments if if necessary. It's absolutely the driver is recurring revenue. That's our focus. That's what we're we're measuring our success on because that's sustainable. That's predictable and long term. So, yeah, we're we're absolutely confident. There has been, yeah, some some positive momentum, but we're we're we're still building our brand. We're still developing the market there. So it it will take a little bit of time, but we've it it's absolutely amazing when when you if you have the opportunity to see a customer focus, you know, user group meeting and the and the buzz and the enthusiasm for the technology is is amazing to see. So, yeah, very much gives us confidence for The US.

1:00:24 And thank you for your question, Stuart. Next question is from Peter. What's the biggest risks in delivering full year results in lower market expectations? I I think it's the it's probably the service area. However, we've we've started the second half in a good position. I think we we we have referred to initiatives that we're taking. One is working with the institute of an educational institute for builders who who sell training and and subsidize 70% of that training. So that's driving, you know, one initiative where to to to tackle the the services.

1:01:14 So I think we've we're feeling pretty good about the services. The recurring revenue, absolutely, we we need to continue to to continue the software sales. That's a that's a core business. Yeah. I I I think that's certainly the core driver. You know, it's 81% of our revenues, and that ARR, the $3,030,000,000 of annualized recurring revenue gives you an indicator of the future. So that's the June you know, end of June recurring revenue multiplied by 12, and you can see that that's delivering the the momentum and growth that we're expecting. So Yeah.

1:02:00 Yeah. I think it's I think we're in good shape. We're very resilient. We've proven to be resilient even through, you know, downturns like the global financial crisis and COVID. The the the services are impacted during those downturns, but the software, you know, the customers are very, much very loyal. We have high retention, and, also, you know, they're they're looking at adopting more technology as they as they're digitally transforming their businesses. So thank you, Peter. The next question's from Mark. How does a reduction in service revenue impact future recurring revenues? Good good question. Is a decline in service a negative signal for ARR growth?

1:02:48 Neil, would you like to Yeah. I think I actually built upon your last answer, thinking about it, Jonathan, I think. One so so without seeking not not to start start fresh and and and recycle somewhat there, you know, there is an element there where obviously, you know, the services revenue and is and the one element, yes, for the future, but we're but we've got initiatives well underway, and we've seen seen better progress on that. But yeah. Look. I I don't think there there is that correlation, as Jonathan said, in in in that state of structure. You know, we've seen that before. We've been through things before. That's not to sound complacent, of course. I would say that probably some additional things, you know, the best of breed solutions we have are typically mission critical.

1:03:38 We have, you know, recurring nature. It also stands from very low churn rates, and we quote very conservatively externally, you know, above 90% retention rates, but but often much more. We are obviously multi product, multi jurisdiction, so we have a diversified income and profit flow within the business, of course, as well. And then very importantly, I would suggest also that, you know, some of those sort of mission critical sort of those those the software sales regardless of training or anything that goes alongside them. Software sales are being made also to people, existing customers who also know it, of course, you know. And when they are being made in that mission critical environment, what you're seeing is that they are a very small bill of materials. We're very well diversified. No customer concentration of any particular nature at all. So so therefore quite relatively low spend within the customer, but it saves some time, money, waste, cost, efficiency, productivity derived from using our products. And without them, actually, it goes very much awry.

1:04:47 So we are, as we always say, you know, a very small of their bit elements of their bill of material. So if they're spending thousands with us, they're saving millions of pounds on rescheduling, you know, for example, in our planning software. So, you know, we're the last thing they look to in tough times. Thank you, Neil. And further question from Mark. Please comment on EBITDA and free cash flow conversion and how this may develop with further scale. I refer to my earlier question that I'm not allowed to talk about forecast per se or anything else. I mean, look, we're very pleased with it, and we have a resilient model, The recurring nature, the high gross margins and so forth, again, not staying in place.

1:05:35 We saw we saw good growth in in well, we've seen it in both halves, you know, actually relatively similar levels and, you know, higher proportions of operating profit. That can be skewed by working capital adjustments, of course. But on the basis of a continual scaling nature of the business and on the basis that we bill in advance so the cash comes in before we recognize the revenue, you know, on the basis of that ongoing momentum within the business, then, you know, as an economist would say, then actually, you would see strong free cash flow conversion from the operating profit levels that we have.

1:06:26 Again, not sound complacent. There could be some other one offs, of course. But yeah. That you know, we should see that. So definitely, ambition is scale of the business. Definitely, we remain focused on cash as well as profitability. Definitely, we see upside in in trying to improve those numbers, frankly, as well. Yeah. Yeah. Thank you. And final question from Mark. Are Trump tariffs impacting in a way that decision makers are distracted or holding back on investment in new software or up sales? Has churn or down trading increased? Perhaps I'll give you a break, Neil. I'll try and I'll try and answer that one. The there's there's no tariffs impacting our trading at the moment directly.

1:07:17 There's no tariffs on software or services, but also we have a a US trading business, trading entity where we're invoicing from. In terms of our decision makers and and is it distracting? Perhaps slightly. However, we feel that, you know, we we're we're not really saying that so much. I don't I don't feel, you know, we're we're very much having, I guess, entry level conversations into an organization about, you know, how they're they're gonna run projects. I think as we as we scale up, we'll have, you know, more of the enterprise led solutions, but I think there is just a a demand and trend for adopting better better ways of working. Many of the customers across, not not just construction, but just across the building life cycle, adopted a lot of different software tools just to solve problems in the last five years pre you know, post COVID, and it's it's very chaotic.

1:08:21 So we're seeing an ongoing trend towards trying to simplify different software sets, reduce the number of pieces of software, standardize more work with fewer vendors. There's a lot of, you know, technology initiatives that are happening across the building life cycle. So that's really, yeah, really continuing, and we see opportunities there. So I don't don't think we're direct we're definitely not directly seeing an impact. We we hear our customers, you know, saying business is challenging, but we're not hearing that that I'm not hearing personally, not hearing about Trump tariffs so much. And then has churn churn yeah. Has churn increased?

1:09:09 So we have seen I think mentioned it in one of the meetings. We we looked at The UK customer base, and we had 13 customers file for administration in the first half. I think last year, some might remember ISG went into administration. But, yeah, that's probably been the main causes of churn, I would say. They and many of the projects, you know, were taken up by by other customers. So STO London were very pleased to to expand their account through the the ISG projects. So we do see churn through through through bankruptcies.

1:09:58 We've seen quite substantial numbers in Sweden, but they're they're small businesses, plumbers, electricians, ventilation businesses. We've also seen many new companies becoming new customers, small businesses as well. So there there hasn't been anything apart from, I guess, maybe an increase in the number of bankruptcies. Nothing really that's driving you know, not not relating to tariffs anyway. That's what's driving churn. Yeah. All reflected within the numbers that we've sort of talked about anyway. So Yeah. Exactly. Yeah. That was the final question. So back to you, Alex. Thank you very much, Jonathan. Neil, thank you for addressing all those questions from investors today. And of course, the company can view your questions submitted today, and we will publish those responses on the Investor Me Company platform.

1:10:50 But Jonathan, before I redirect investors to provide you with their feedback, which I know is particularly important to the company, I please just ask you for a few closing comments? Yes. Of course. Thank you. It's been, yeah. Thank you everyone for joining, and thank you very much for your questions. We really, really appreciate those. And please feel free to reach out if you have any feedback or leave feedback. We we very much take that on board. Otherwise, you know, we're delighted with the improvements in performance and look forward to sharing progress when we meet again to to share the full year results. Fantastic, Jonathan, Neil. Thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations.

1:11:39 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of ELECO PLC, we would like to thank you for attending today's presentation, and good afternoon to you all.