Eleco (LSE:ELCO) — Investor Presentation

0:01 Good morning, ladies and gentlemen. Welcome to the ELECO PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, as usual, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to CEO, Jonathan Hunter. Jonathan, good morning, sir. Good morning. Thank you, Jake, and good morning, ladies and gentlemen. Delighted to present ELECO's interim results, which is a record growth in terms of interim results and demonstrates positive momentum, in the group strategy.

0:58 I'm also joined by our CFO, Neil Pritchard, who, many of you would have met in previous meetings. Some of you may be new to ELECO, so I would like to take a few moments to introduce the group and also, be a reminder for those who do know the story.

1:21 ELECO aims to be a trusted technology partner in the built environment. We address mission critical areas of the building life cycle from early planning, and that relates to, project planning and time and task planning, and estimating through to project delivery, maintenance, and operations. Our solutions are best of breed, meeting the needs of a diverse audience within that building life cycle and allowing them to prescriptively schedule, collaborate, report, manage, and also, meet compliance and and safety, regulations. It's a group at a glance.

2:07 ELECO now comprises just under 300 colleagues, and they're based in The UK, throughout Europe, US, Australia, and Romania. Our core markets remain The UK, Scandinavia, Germany, Netherlands, and The US. And within those markets, we primarily sell direct to customers. So as you can see, 96% of our revenues are direct to customer, and 4% is through indirect reseller channels. We're very proud to to share that, 74% of our revenues are now recurring, SaaS and subscription contracts, and that's continuing to grow. And we'll we'll present some more, some more, detail on that in a moment.

2:55 4% of our revenues are perpetual license, and 22% is through services. And, on the slide there on the bottom right, you can see our key market positions. We're very well positioned within our home markets. Despite this and and having fantastic, lasting relationships with loyal customers, we still continue to expand within our customer base as the industry and our customers, are progressing through their digital transformation journey.

3:28 So I shall move on to the strategic progress we've been making in the first half. And we're really pleased to, demonstrate, and the results are showing it, solid momentum, alongside our strategy. We continue to, innovate, and we look released some new products in the first half, including Asta GPT, which is a generative AI application offered to our customers, helping them adopt the use to solve problems within the software, but also adopt, the software a lot quicker for for new customers and new users joining the platform. We also, introduced the collaboration functionality within our ASTER Vision platform, which is which is fantastic in terms of sharing in a secure way, working together on on complex project schedules.

4:21 And, also, the platform allows for data to be prescriptively stored and measured, which is which is really fantastic for our customers because they get real time dashboards, but also very clean, high quality data, which will drive and and and fuel their AI ambitions in the future. In terms of strengthening the business, it's a key pillar to our strategy. We want to ensure that ELCO is a future proof and a resilient platform that allows us to invest in innovation and and future growth. And with that, we, we perform really well on our ESG targets. We've had really high retention rates in in our staff and talent, and we continue to attract new talent to the business, which is really exciting.

5:12 There's a lot of focus on customers and customer centricity, ensuring that our that we're nurturing our customer relationships. And we've introduced further customer success capabilities and continue to develop, future capabilities in a learning management system. We remain, very sticky within our customer base, and retention rates very high, which we're very pleased to to see. We also made a small acquisition in the first half of a company called Vertical Digital, which strengthens our team. It was an an acquisition hire in terms of r and d, a very experienced and profitable r and d business, and it allows us to to invest in in r and d in areas where we may not have had the capability and also complement some of the the requirements that our customers have as they're implementing technology within their businesses.

6:10 Our growth plans are focused on regions and ensuring that we are meeting the needs in a customer centric way within each region and appealing to their their needs as well. We've invested, further in The US, in terms of marketing and sales capability. We're pleased to see the the momentum starting to develop there.

6:33 Go to market is a key pillar to our strategy, which I will I'll present and share with you later on, but we're continuing to see good progress with sales enablement activities continuing throughout the year, ensuring that all of our sales colleagues are learning and and taking the best lessons learned within our organization and and sharing those and applying those. And as always, when we're, looking at our M and A and future M and A prospects, we're also considering, what we will need to develop in terms of our roadmap and who we could potentially partner with to solve problems. And with that, we we continue to sponsor the construction tech, C Tech Club, which comprises over 400 founders in construction tech businesses around the world. It's a unique club.

7:26 It's one unique club and also growing and expanding. So really great things going on there and really great insight for our colleagues as well. So I will now I will hand over to Neil to, to please ask you to take, viewers through the, interim results, the financial results. Pleasure. Thank you very much, Jonathan. Good morning, everybody. Thanks very much for joining. Incredibly pleased to present the interim financial results for the six months to ending 06/30/2024 and obviously against the comparative half year as well. So this first slide is is very much the financial highlights, if you like, the the news headlines, and I'll go into far far more detail on the p and l, the revenues as well, the cash, and finally, balance sheet.

8:25 But first of all, just to just to head off at the at the very start on the terms of these highlights. As as many of you know who who've been following us, we've we've been we've on a sort of financial SaaS and subscription revenue journey, proven from perpetual one off licenses to a recurring model that provides greater predictability, forecast ability, and shareholder value, and indeed, you know, strength going forward for the group. And we're really pleased to say as we now move into this very latter part, that some of those fruits of the labors are really showing through. So on the top level here, what you can see are the revenue metrics. And first of all, we we can see analyze recurring revenues, ARR.

9:15 And those that's where you take the last period of the last month of the six month period and you multiply them by 12. It's it's often used as an exit measure just then as a useful forward looking measure and as an indicator. And what's really, really, really pleasing to see is obviously that's moved ahead by 31%. And that was if you if you looked at where that was going at the first half of twenty three, the comparative group, that's at '18. So now if you actually strip away the acquisition effects, and briefly, let me just explain what those are. So first of all, Jonathan mentioned Vertical Digital, which was our remaining acquisition that we made in mid April. So that's two and a half months worth of relatively minor external revenues, obviously, purpose for internal r and d capability.

10:08 But also, there was the first half contribution of best outcome, which was an acquisition we made and took place really from the second half of twenty three onwards. So therefore, the first half of twenty three didn't have it in. So when we talk about the organic numbers here, what we're doing is stripping out the effects of those acquisitions had they not taken place. So you can see that that even by stripping those out, the ARR moved ahead by 22%, which is incredibly encouraging. And then the next measure is total recurring revenues. And that's really looking at all the recurring revenues across the six month period at within the overall revenues and and the growth of those. And the recurring revenues across the six month period, as you can see there, were up 24%.

10:55 And again, up 14% if you take out those acquisition effects. So that's really, again, very, very encouraging. As Jonathan mentioned, we're now nearly three quarters of the group is on a recurring basis, which is a fantastic platform for the future. And overall revenues as well, it's it's really, really interesting. So for those who've as I say, that follow us, last half year, we sort of anticipate it might be roughly flat, but actually slightly better than that. This time around, you can really see it coming through now on the overall revenues and and and where we are. So overall, as you can see there, up 21%, 22% on a constant currency basis. And even on an organic basis, double more than double digit growth, which is much higher than previous levels prior to this and many other initiatives that Jonathan and the rest of the management team and indeed all the colleagues have been working so incredibly hard towards.

11:54 So really good news on the revenue side to recap on that. Now on the bottom side, you can see mainly cash and profit related measures. And you can see that our our revenues continue continue to generate very high gross margins as a proportion of the business, over 90%, which is really pleasing to see and a great indicator, again, of the value that we provide to our customers. What's really interesting because there was a one off disposal of of of a sort of non core business in the, first half of, last year. So like for like at the operating profit level, actually, things are ahead 36. And then you can see the various other measures there, 27, 22, and so on. I mean, what's what's that that's actually adjusted for things like share based payments and acquisition expenses and things like that, the straightforward thing. So actually, on the statutory measures, they're much higher. EBITDA were up 30%, profit before tax up up 23%, profit after tax up 30%.

12:59 So what you're really seeing is the effects of the improved operational gearing and, you know, a lot more things on the whole whole business really firing on all cylinders, which is really, really, really good to see. And consequently, cash generation has been really excellent. I'll come back to that later in terms of the detail. We're slightly ahead of where we were at the year end, up to 12. So 10% on the year end figure, not the half year figure. Had we not made that remaining acquisition, we actually would have been 22% up. So very much in line with the sort of profit and and the cash generation of the business. And then finally, really, on the interim dividend, we're very conscious that we've had some very supportive shareholders through this transition, and we we're very grateful to them. And we do know there's a a multitude of sorts, both a measure for income as well as capital growth.

13:55 So building on the 14% interim and final increase of last year of the dividend, we've actually raised the interim dividend by 20% akin to some of those measures. Just moving on, if I may then, to the p and l in a little bit more detail. I'm gonna come back to the revenue on the next slide. So I'm not gonna go huge huge levels of detail there right now, if I may. But I'll just sort of pick pick through a few other things where we're at. In terms of some of the other lines that you can see there, amortization slightly higher, capitalization slightly higher. That was bringing in the first time effects of best outcome, one of the acquisitions where there is development investment that goes on.

14:42 We've got sort of acquisition expenses relating to both acquisitions in both periods, if you like. Share based payments, very little changed. And the the main really change on OpEx while it's increased is if you actually take into account the fact that we've absorbed the fixed cost basis of those two acquisitions. If you if you then strip those back out, what you have other than a few other sort of minor elements in terms of scaling up with the business, in terms of planned budgeted headcount, is very much around the inflationary levels in in the of of of our operating costs. I've mentioned about the operating profit and the increased gearing that we're seeing in the in the p and l. And other than sort of finance income, slightly higher effective rate of tax, really around the fact there are sort of higher tax rates in some jurisdictions.

15:37 There's a little bit more deferred tax effects on some of the acquisition intangibles that's taken in. The the gain previously was offset somewhat in the previous half year, which reduced the effective comparative figure a little bit more than otherwise would have been. So what that then leads to overall is, you know, that improvement you can see in profit after tax and also EBITDA.

16:01 So really very welcome to see, as I say, that level of operational gearing. Now a little bit more, if I may, on just the overall revenue detail, a little bit more detail because it's quite interesting to to really look through a little bit deeper to see what's going on within the business. And what you can see in the first chart on the left hand side is those recurring revenues are very much that central column. You can see that 74% of total revenues. Perpetual has reduced down somewhat further as we would have anticipated, although there were some other it can be lumpy. There can be someone else in there. Occasionally. There are most of the business is on that recurring side of things. There are some small elements that, while they do have recurring nature, always lend themselves in terms of the way they they go to market with customers in in terms of the perpetual side of things. I think the really also another one that is is of particular interest there is on the right hand side in that first chart is that we've started to see the other services income, which is predominantly training income really come back nicely. So trend we started to see towards the this in the second half and then the year end numbers for those, again, who followed us.

17:23 And there is an element there of the remaining acquisition for the services income. But even if you strip that out, that's really nice to see that is that has come back. And there's been a huge amount of effort to flex and improve the offer for customers there. And I think, you know, the the macroeconomic headwinds somewhat have alleviated or certainly there's some of the uncertainties around. That's the one bit that we occasionally do see deferral or some slight chipping away at in more uncertain times. But it's really good to see that coming back. In the central area there, a couple of things. Really just to say the focus of the SaaS transition has been the building life cycle, the greatest part of the group. And that, While all parts of the group have increased, overall, the building life cycle has grown there to be a bigger proportion, so more like 72%.

18:13 There's a little bit of other as well where we act as a third party reseller. And we continue, like for like actually, more or less predominantly selling direct to customers, as you can see there, 96%. On the right hand side, this is another interesting one. I think where we've got we've seen really nice growth and actually outside of the currency effects of the Swedish corona, even in local currency terms, Scandinavia has improved as well. So actually, we've seen improvements across the board in all geographical customer jurisdictions. So The UK there, Scandinavia, I've mentioned Germany as well despite, you know, some uncertainties that were there. And, course, we did dispose of the German business, as I said earlier.

18:58 Rest of Europe now includes Romania, so that's one element just for full transparency. But nonetheless, it's still moving ahead very nicely. US shows continued growth, as Jonathan mentioned a little bit earlier as well, and we'll come back to, and rest of world. So really encouraging to see all that sort of revenue advancement across the whole portfolio. Just moving a tiny bit on further then to the cash. And, for those of you who know know us, I've mentioned the high gross margins before and the recurring revenues obviously is a feature, and a greater feature of the group. And the retention rates, Jonathan mentioned, have high retention rates. So but we do have good very good cash generation.

19:43 And, you know, it it it as a business, we we we don't have to have huge inventories of widgets or something else to scale up. So it really does provide an opportunity for future growth to be able to do so and and kind of self fund in respect of our ongoing innovation in r and d. So, a couple of really interesting stats. I think, first of all, the cash generated from operations has gone from 2.8 to 5.8. It's gone up 3,000,000 in that in in the first half. The free cash flow has doubled from 1.8 to 3.2, which is, as you can see in the bottom left, an improved proportion of operating profits on what was otherwise still a very, very good measure. So it's really interesting to see. The breakdown on the right hand side is is kind of very much follows the sort of the main movements the main movements that you see in the in the in the cash flow, but kind of visually is a good aid to to see that.

20:39 And and clearly, we've had some improvements in terms of working capital scaling up in the business about 0.2 in debt, there's 0.4 in payables, and a lot more in deferred income that I'll come back to in the balance sheet slide next. But in terms of we paid a little bit more tax because sometimes you predict forward your future numbers, so you end up having to pay on account. And those are shown as current assets, tax assets. So that bit that expenditure is slightly higher than it was in previous times. Likewise, we've got the acquisition and small acquisition expenses relating to vertical digital, so that's no surprise there. And we have an ongoing continual investment in development that has so those of you who know, we know we do have very prudent measures, which I can expand upon later in terms of how we how we do capitalize.

21:31 And obviously, we've got a great platform, a long developed trusted platform with our customers' high reputation that we can build upon for innovation overall. We did increase the inter the final dividend that was paid in the first half. So that's an element there that you can see in the cash flow. So, overall and of course, we have no borrowings at present either. So, you know, we do have really nice to see that level of cash generation coming through the for the business that adds to the resilience of our balance sheet as well. And then just finally moving on to the balance sheet, if I may as well. What I won't talk too much longer about it for you, but essentially, of the main movements there relate to kind of acquisition related things. So for example, there's a little bit that says that about point four for vertical digital for in terms of goodwill, also about another point five for intangibles, predominantly customer relationships in vertical digital.

22:30 We've talked about the current tax. I suppose we've effectively talked about the cash. The total income is higher by 18%. And again, that's sort of revenues that haven't yet been recognized, but if you like, another good lead indicator of where we're going with things. So really nice to see that. And overall, obviously, improvements on on net assets and balance sheet strength. With that improved cash position, which is now a higher level proportion of net assets, now 43% compared to 40% for the previous one, we stand in very good steps for the future. And thanks very much for all your attention on that. It's been a delight to be able to share all those great numbers. And back to Jonathan. You. So in this section of the presentation, I'd like to share some insight into the sector that we're involved in, our strategy, and also some customer case studies to to share how they use, how customers use and gain value from our solutions.

23:38 So to start with the sector, it it really is a buoyant and exciting, market in terms of construction and property technology. ELCO services both the management of, you know, complex construction projects and then also maintenance and facilities management of operations and production lines and and manufacturing businesses, so ensuring efficiency and safety and compliance across, you know, all all the industries. But when it comes to the built environment,

24:10 there's changes in in the market characteristics. There's obviously a demand for for new buildings and structures just purely from population growth, and that's that's international, but also persistent cost pressures and demands from end clients upon our clients that building and maintaining, which is leading to complexity within projects, project planning, project management, measuring productivity,

24:40 and also maintaining as well. The maintenance of properties and structures is considered more and more, during the planning, design, and construction phases. And the emerging disruptors are environmental, sustainability, compliance and regulation, modern methods of construction, and also digital transformation. The whole industry is is is transforming digitally and increasing that pace of of transformation and adoption of technology and modernization. And at the same time, the industry is also becoming more complex, and the demands are increasing, which makes it very exciting, but also, you know, challenging. And and what ELCO does is solves many of those customer challenges and, which which there are, many.

25:36 And we we we really provide, a great, well, position and and mission critical, solution for time and task management, which applies to every project and, you know, maintenance and facility maintenance as well. So, we're really well positioned, with best of breed solutions, and, you know, the customers really love what we do and and what we offer and always, you know, throughout the the the decades that we've been providing software, the customers drive that innovation, and and we work together to ensure that whatever we are developing and offering is meeting the customer needs. That makes us very sticky and also challenging to disrupt and replicate.

26:27 Our growth strategy, is focused on three key pillars, but but the foundation of our growth is to ensure that we have a strong, profitable, well governed business platform with good ESG credentials, a great company culture and values, and also people and talent, and and a strong reputation as well within the industry as that trusted business that people want to work with and and customers want to work with as well. Because we see ourselves as as being on a journey within the industry as it's digitally transforming. We're on a journey with our customers to improve and really not just add technology, but change the workflows and the way things, the way way businesses operate in a in a digital environment.

27:16 That's why when we, look at the the middle pillar, innovation and technology, that's where the business is really well positioned. We've been, we've got very feature rich solutions. We understand our clients very well. We were, for those that that that know the full history of ELECO, we were a construction and and building engineering business, and now we're in a you know, we've always been in that tech space. So we can inform and work with customers to digitalize and not just digitize. And and what we mean by that is changing workflows and changing ways of working to meet the needs or to to to ensure they're best suited for a digital environment, not just simply applying technology to a to a workflow that may be outdated and and therefore less productive if digitized.

28:03 So very confident, and we've got great, you know, proven technology. I think that the pillar to the far left go to market is really, you know, really key for us in terms of driving further growth and expansion within our customer base and geographies, ensuring that, the customers and the world know how how fantastic our technology is and continuing to position and and invest in our brand and ensure that, you know, we we retain our reputation within the market. We've had a focus on

28:38 partnerships as we've been progressing through M and A, and I'll I'll come on to that more of that in a moment. Also, on customer success and account management, so ensuring that our our new customers or, you know, customers that are buying new technology and new solutions from us, we're shortening that time to value, ensuring that they gain value as quickly as possible from from their investment. And and, you know, the customer satisfaction surveys that we carry out quite frequently just just demonstrate that that, you know, the the the services and the fact that we listen, is a key selling point that's driven their decision to to work with ELCO and and our products. And, you know, they they feel that we really understand their problems, and we we get to understand what their problems are and how we can help support them. And we're driving that through into our r and d as well with the with the new acquisition of Vertical Digital.

29:41 We, also, appointed, one of the founders there as our CTO, Alex Gebliano, and he's bringing that into our r and d teams, that storytelling from customers and and ensuring our our engineers understand

29:57 the customers' problems and what they're developing technically to solve those problems. So the output is a better quality, r and d result. And finally, the third pillar, mergers and acquisitions, we're we're very much ELCO has been formed through through acquisitions over the years, and we've continued that search, for value enhancing opportunities and and and businesses. We're looking at three three criteria, type a, b, and c. Type a being revenue, growing and profitable businesses that complement our existing customers. We believe that, you know, we have good customer relationships and good positions. We want to leverage those relationships and offer more value, and therefore, you know, looking at businesses and technologies that can complement that.

30:48 Type b is, proven technologies, perhaps new new tech that's entering the built environment. And there is, as we've been searching, there's many, many new smaller businesses and startups that are coming out of their startup phase into early stage growth. And they're proven in that they've got some a few good clients, and we could work together and possibly grow and expand. So those are really quite interesting opportunities. But we're looking at those technology opportunities in relation to our own product road maps to ensure that we're enhancing or complementing our product road maps, and also identifying what areas of our product road maps that we possibly couldn't consider acquisition, and we will develop and invest in R and D ourselves with with our own capabilities. So it's, very much, you know, ensuring and testing that the technology will will, be complementary.

31:49 And the next generation type c technology is looking at opportunities that may not be within the built environment and could be in fintech and, you know, other areas of payments and and different types of, technologies that we may be able to introduce into the built environment. Whilst I I I assure you that type a and b is is our primary focus. We still feel that it's important to, consider and and keep our eyes open as to what technologies are are in other sectors. So, therefore, you know, it is one of the criterias that we're seeking when looking at m and a. Ultimately, you know, we're very conscious of ensuring that the the platform as a business continues to strengthen and, you know, be value enhancing. So that's why we've got that that that growth platform across the bottom.

32:47 And therefore, you know, we're very diligent when looking at m and a opportunities. It has to be, you know, contributing and enhancing to the group and the future of the group. So I'd like to share, two briefcase studies with you, from our customers, and we love seeing these because our customers, very much add their quotes and comments. You can see on the bottom right. The first is from Taylor Taylor Snacks, formerly known as Mackey Chris, and and they're a food manufacturing business. They have, recently, installed our maintenance management software, Shire Systems. And, the the head of engineering and facilities there, who's recently joined Taylor Snacks at Dunmore, he he, shared that he's actually he he loves the product that much, that he's taken Shire Systems, every business that he's worked for, and it's been implemented in businesses that have been £20,000,000 in turnover up to £220,000,000 in turnover.

33:54 So it's, you know, whilst he's recently joined there and thought, you know, very happy that Shire Systems was chosen, it just demonstrates the stickiness of the products and how much it's really, you know, adding value. And, you know, people, new joiners and so forth, are willing to, you know, recommend the product and install it and really push for it to be to be used despite being new to an organization. So we're really pleased with that, and it's just one example of many. But we're we're very Shire is very much used, throughout The UK with food and drink manufacturers, but that's also expanding internationally as, you know, many of those businesses have manufacturing sites in local jurisdictions as well. And and the industry, just a little bit a little bit on on what we're seeing in in manufacturing is that, there's there's, yeah, global manufacturing brands are, are moving to more, moving manufacturing more closer to their customers.

35:03 So instead of sending products, you know, across the across the different jurisdictions with increased tariffs and supply chain disruptions and so forth, there's a greater focus on manufacturing products closer to home, and that's really an interesting, opportunity for our solution in Shire. But, you know, we also service facilities as well, which is a growing demand as well for those businesses. A little bit on, the next one, which is, Balfour BT, the largest UK general contractor, construction contractor. They had, been a Aster customer for several years, many years, using our solutions to manage plan and manage their construction projects in in great amount of detail.

35:55 More recently, their senior leadership team had requested forensic planning information on their key projects to understand risks, where programs are against where they they ought to be, and also ensure visibility of whether those, projects will be finishing ahead or behind. And what we've provided and installed is our AstaVision platform, which more recently now allows for real time collaboration across those projects. And, what Vision is providing is a central, a central location for all project files, but also, workflows and templating and sign offs and and and so forth. So it is a platform that controls the the the project data and allows for clean prescriptive data tailored for Balfour Beatty. So we've you know, it's been set up to to meet their needs and their workflows.

36:54 And, of course, you know, appealing to their leadership team that now has real time visibility in the dashboard of what's exactly happening on-site and and what should have happened or or may not have happened. So really, really exciting. I I think really forward thinking as well. You know, historically, they would you know, the leadership team would have had to wait for a report to to be presented, and, you know, that could you know, wasn't real time. It's fantastic to see, our customers also adopting us to vision as it's the backbone to future AI and analysis, on that clean prescriptive data. And and that's the real challenge that we see, many companies having is that, you know, that the historic data, which is very complex and, you know, it it's difficult to, to cleanse and also determine the quality of that data and therefore the quality of once AI machine learning is applied, the quality of the output.

37:58 So clean data is is very much loved in, when it comes to considering and implementing AI. So I hope you enjoyed those case studies. Just in summary, we'd like to just share the the key points that, you know, we're we're very pleased with the results for the first half. We will keep, keep the momentum. I think it demonstrates momentum. We'll keep the momentum going into, the second half. Pleased that the recurring revenues and at 74%, and, you know, it's providing predictability of our revenues. And the ARR, which is more of a forward looking number, you know, that's grown by 31%. Very good performance, solid performance from our colleagues in the group, demonstrating positive momentum.

38:49 M and A activities will continue. As a reminder, we did acquire business this year, and we'll continue to identify and review opportunities very carefully, and in in conjunction with our products and our road maps and the direction we're taking our technology. And, also, we're pleased to be able to increase the dividend at the interims, demonstrating our confidence in the future expectations in the year. So that concludes the presentation. I will hand back to Jake so we can open up for your questions. Perfect, Jonathan, Neil. That's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and a can all be accessed via your investor dashboard.

39:50 Neil, Jonathan, as you can see there, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Thank you, Jake. So and thank you, folks, for your questions. The first is from Adam Lee. I'll read it out. Great set of figures. Well done. Thank you very much. Very kind. The only real concern, which I had, was with the large increase in OpEx from h two to h one this year. Were the costs fall forward into h two, or were there lumpy amounts? How should we think about the h two OpEx base? So Yeah. Great question. Shall I Neil, would you like to Happy to take that. Thanks, Jonathan. Yes. And thanks, Adam, for the for the question. Yeah. So I did allude a little bit to it in it. I'm happy to provide a tiny bit more detail, of course, in answer to your question. So really, it was about the absorption of those cost bases of the two acquired businesses, You know, of of that movement of about 2,000,000 or so, approximately between one point two and one point three was actually related to that.

41:05 So other than that, you said, what we're what we're really talking about is kind of underlying levels that, as I say, we have come from a more inflationary environment. I appreciate it's come down more recently in The UK, for example, that you'll be very well aware of. So the sort of six, seven percents that we're then left with is kinda coming from that area. That isn't entirely just because of inflationary demands and so on within the business. Although, clearly, we always, you know, keep a tight lid on that and and see what else needs to be, you know, reassessed from almost an x b b sort of zero based budgeting basis upwards. But also, there is an element. Yes. We are spending more on some of the go to market particularly and some plans, as I say, budgeted heads and things. This is important because what we need to do is obviously make sure that, you know, we we are setting ourselves up rightly for the future, really, in terms of the scale up of the business. And so, you know, we it's not just about immediate results and immediate shareholder value. It's about making sure the business is is absolutely, you know, world class on a world class stage and that we're resourcing it accordingly.

42:24 That is built into the market guidance forecast in that respect, so I might have sort of sent that question another way. So it is. But nonetheless, that's that's really the the main rationale for it. There's other, you know, there's other bits and pieces in terms of the other, you know, slight differences in acquisition related costs and so on. But those are very much one off, and that's why we do do the adjusted measures so that you can, you know, get that clarity on where we're at. So, hopefully, goes some way, Adam, towards addressing the question. Thanks, Neil. Another one I'll I'll ask you to answer or respond to. I think you might have already responded to it in the deck, but it was asked by William as to why the Scandinavian revenues have reduced in h one. Yeah. Yeah. So I think I think what we saw last year were a couple of measures where it did go back, you know, significantly other than, yes, there would be an been an element of some sort of SaaS transition effects back then.

43:28 Last year, what we saw were a couple of other things. I think it's fair to say why actually net net, it's still still underlying growth in sort of numbers of customers and things. We did see in gross terms slightly more Scandinavian customers because they are a smaller nature, so therefore perhaps don't have as much latitude or buffer within their own businesses. You know, they were a little bit more prone to Scandinavian economies to, their exposures to higher input costs, predominantly energy costs that are coming out of the Russia, Ukraine sort of conflict and so on. And that's obviously settled down to a certain equilibrium in terms of what the and other measures that they've taken within their economies to address that. And, you know, that that that picture seems to be improving. There's still elements of it, but, you know, they tend to have a lot lots of customers, but smaller customers in themselves base.

44:24 And also, of course, last year, there were end of life products on things like Memo and Tong. We had three products actually where end of life. So if you like, the previous scale of the business was lower. And while we took we took those quite tough decisions to make sure that we maintain, that we focus on a portfolio of solutions that's adding shareholder value that can stand on its own two feet, that doesn't involve cross subsidization. Cross subsidization is not every portfolio, every product or suite of products, I should say, needs to stand on its own two feet. So we took that very difficult decision and that's all led to kind of, yes, headline numbers and theories being down. And then finally, the other reason, which is the one I referred to earlier, if you look at the Scandinavian krona particularly, given that the Scandinavia is serviced out of the the Swedish jurisdiction, it's it's it's something like four, four and a half percent adverse to to sterling. And therefore, had we looked in local currency terms, we would have been ahead sort of two or 3% even in Scandinavia.

45:28 So that's the reasons for Scandinavia. Thank you. Excellent. And the next question from Rob. The acquisition of Vertical Digital was a significant move. What synergies and strategic strategic advantage does the acquisition bring to ELCO, and how's integration progressing? So perhaps I'll start with answering that, and and Neil, please do feel free to jump in if I miss anything. Sure. So the yeah. The acquisition is it was a small acquisition. It's about seventeen seventeen full time people there, but with some really fantastic customers, including, you know, companies like Volkswagen and, you know, PUBLIC and, you know, Bank of Transylvania and so forth. But their their customers were primarily also apart from one in in Romania, they're all throughout Europe and and some in Canada as well.

46:24 So, yeah, a proven track record in attracting and servicing really large blue chip companies, and and offering technology development and consulting and also to to those businesses, that are in different sectors as well. So the the strategic synergies, and advantages it brings to ELCO is that it augments our r and d teams. We did, I mentioned earlier that, you know, we have identified areas of our road map that we will need to invest in. And, you know, many of those, new r and d, items will require different technical capability, not drawing on our existing engineers and capability that we have with our core products. So things like AI and and, you know, different different new disciplines will require hiring.

47:21 And what Vertical Digital does was, really, allowed us to bring into the group that capability as well as a CTO I mentioned earlier and derisk that hiring program and process. So the business had been run very well, diligently servicing, high profile customers. And, the team there really also wanted to join a larger group to to expand and scale and and do a lot more. So, finally, I guess, the the the last point is also that, you know, the jurisdiction that vertical digital is in is we estimated to be 40 to 45 lower cost, than our home markets, as well.

48:08 The integration is progressing well. The team have really liked, that that, you know, really fit into our culture. I think we had similar culture. They they have really high ESG credentials and, you know, volunteering and and and and so forth, good customer and employee feedback and and scores. So, yeah, it was a natural fit in terms of people. And, yeah, I think the integration, as I say, is is going well, and and we're improving, you know, both both businesses really with the new injection of of creativity and knowledge and experience. Next question is from John regarding Asta GPT being shortlisted for innovation of the year awards.

49:00 What additional AI driven features are planned for the future is the question. And how do you see AI transforming ELCO's offerings in the built environment? Great question, and very, very much. Yeah. I I think AI has been, you know, on the minds of many businesses and so forth. I think just to to start with the the first part first half of your question around AI features that are planned for the future, we have a we have an AI road map. AstroGPT was the first release of that, and it's why it's so, capable and and really loved is that it's built on well, it's drawing from one and a half million words of really high quality documentation and content that we have developed, with content authors for ASTER.

49:55 And, you know, that provides high quality output and responses. And and that's really, you know, the key to having high quality output is the the high quality input as well. So, you know, we're working with customers. Actually, the industry, I think, is very is very much embracing the AI opportunity, and they're more willing to share their data and allow us to analyze and and interrogate, that data and identify trends and so forth. And and we're working with customers to also identify what problems they have and what they would like to solve or have answers to to develop our our AI's, you know, capability. So that that is ongoing.

50:42 It is, part of our road map. We're in line with that. We already have quite a substantial experience in developing AI within our products. For example, Astor, for many years, has had simulation capabilities and scheduling with Monte Carlo and s curve capabilities built in. You know, we're seeing some some vendors, you know, offering that as a stand alone solution. We also have AI visual recognition within our views business and r and d teams. So, yeah, we're quite familiar with AI. I think, you know, what the the journey is is to work with customers to really ensure that the data that that we data and the problems or answers they they're looking for, are being addressed.

51:33 And, hopefully, that answers the second question around AI transforming our offering in the built environment. It it it comes back to the information that that we have. I think one more insight to add is probably that, you know, as the industry is going through digital transformation, and investing in technology, investing in AI, they they do want to use that as a for their competitive advantage. So it's important that data is segmented as well, or we have the capability to segment information and data and work with clients. So there's some nuances there, and it it takes, you know, a company like ourselves that understands and is close to the client to the to the industry and customers to really address their, needs.

52:26 The next question was from David s. Given the strong cash generation in the first half of twenty twenty four, how would you plan to utilize cash reserves? Are there any large investments in technology or acquisitions planned? Should I take that first, George? Yeah. Yeah. Yes. What I'm doing now. So thanks very much, David, for the question. Yeah. Look. It we're really, pleased with with the, you know, excellent cash generation and and the way businesses and, you know, and and and the people within businesses are performing is excellent. Regarding, you know, the utilization of those then, I think it's fair to say that in terms of those sort of high margins recurring revenues to kind of ongoing cash generation, that certainly does provide a level of ongoing funding for, for example, for r and d innovation purposes, which is great.

53:26 So utilization of the reserves in themselves specifically for that is less less required, frankly, because of that ongoing generation. And, of course, we have a predictability and if you like the underpin of both the revenues and the and the gross margins and the cash generating from that to kind of also, you know, to have that knowledge is is is a wonderful thing to have. So there may be an instance, Jonathan referred to it earlier, where, you know, we do monitor closely through C Tech and and other opportunities, you know, what the market is doing. And and often, there's an interplay here between talking as we do do very frequently to, you know, to see what else is out there on the m and a. You know, that does inform us in terms of the organics, which still remains clearly the the main ongoing focus for the group.

54:22 So it may be, for example, that, you know, there are elements as as we develop our road maps further and further in greater detail in in and into the future in greater detail that, you know, there may be a a further need that we can't otherwise address through internally. Although, clearly, the physical digital gives us that flexibility. But maybe there's an there's a case to be made for acceleration of some developments and so on. But right now, as we stand, we don't necessarily see that to be the case. But I guess I should leave that door open if ever that were to be the case. But I think predominantly, it is around m and a. I think it's about and possibly around the investment on the go to market side as well. We do have some really good, you know, identifying some further senior hires that come through that will really, you know, do that and and build on on some of the great foundations that Jonathan and others have have really put through.

55:21 So I I I think that's, you know, that that's that remains a possibility. That said, from where I stand at the moment, you know, in terms of the forecast that go out and there'll be a reappraisal clearly next year as normal and so on, you know, you know, that sort of factored in. So then that leaves you back to the m and a front and your question predominantly. For us, than sort of the type a b c that Johnson referred to and so on, you know, if you were to encompass that, what I would always say is, you know, the acquisition has to make sense. It has to be a compelling strategic fit. It has to be you know, we're not gonna do something that's, you know, gonna depart from our knitting and so on, stick to the knitting.

56:10 But, you know, we are we are very well, diversified yet best of breed in what we do. So we have expertise not just in contact, but also in prop tech. And, you know, there are opportunities across the piece, actually, that we are seeing and we're seeing more and we're looking for more and so on. But as I say, probably rejecting more. Right? So that so that it has to be a compelling strategic fit. But secondly, it absolutely has to be accretive and add shareholder value. We can see that coming through now even okay. Small period so far for vertical digital, mainly it's repurposed as well, but, you know, the best time for them and so on. So it's all been it's got to it's got to be part of a a a very sensible, appropriate fit that is obviously customer centric as well and addresses customers' needs for those solutions.

57:04 You know, the cash can go there. Yes. We have the ability to to move into debt. And, yes, we have the ability for something very large and transformative to to to go into equity. But we understand the preferences of shareholders, the order of that, largely speaking, unless, you know, other opportunities present themselves. Occasionally, opportunities present themselves that are kind of once in a once, you know, probably once in a twenty, thirty year thing. So, you know, one has to seize that. But, you know, those are the key measures, the key metrics, the key ways of looking at it. And, you know, we absolutely want to be focused and sensible about it. So predominantly, other than those other elements I mentioned earlier, it would be around the MNA use.

57:54 Thank you. Thanks for your question, David. And a final question from a different David, David R. Thank you for your question. It's difficult to gauge the health of the construction industry at the moment, especially where political interference is proposed. Which sectors within construction are currently looking most promising? Which sectors are of most concern to you? Great question. And, I think important to, I guess, understand our resilience in terms of the industry, through through you know, we've we've went through the global financial crisis where we retained customers, remained profitable in in terms of the software side of the business. COVID, you know, we we fed wealth through that period as well and, you know, actually elected to voluntarily repay our our furlough and and pay shareholders a dividend and pay back our borrowings and so forth. So we've so it's challenging, when we consider the construction output, and and the the the link that back to our our sort of operations and and business and performance. I think where we do see an impact, is in our service line, but the the software and the recurring revenue is is resilient.

59:16 So that's, I guess, important to highlight because, we we don't directly our revenues are not directly linked to the to the output, in construction. But what we do see is, yeah, as I mentioned earlier, ongoing complexity and challenges for our customers delivering construction projects. And, sectors that we see as as most promising are the the general contractors, main contractors, and associated, you know, advisers and and engineers and and consultants that are working around the scheduling, planning of of projects, of all sizes, really. I mean, absolutely necessary to to use our solutions on complex projects, but also, you know, simple, you know, smaller projects as well.

1:00:13 We're we're seeing a lot of new customers joining, particularly in the in The UK as well, where we're we've got a good market position. We continue to see new customers and attract new customers that are that are moving from no system, essentially, for for scheduling. They're using, you know, self made sort of Gantt charts and things and and very generic tools, moving to to our platform, and sort of on the start of that digital modernization transformation journey. So that's quite, quite a focus for us to to support those smaller businesses and and newcomers, to to CPM to to join. But, you know, they they do start on a small a low level and then expand their use, over time. And and, therefore, you know, our focus, if if you're tasked where we you know, our colleagues are focused on servicing is the the customers that we've had as what we class as existing customers to ensure that the product is continuing to be used, and they're considering expanding and adopting more of the solutions and capabilities we have.

1:01:27 And we definitely have capabilities to to future proof their businesses. So, you know, there's there's still many, that could take off could adopt some of the things like the vision platform I described earlier. We also offer four d and and, you know, really capable, functionality. So, hopefully, that goes some way to answering your question, David. Thank you very much again for your question. And that was the final question. I'll Jonathan, Neil, that that's great. And thank you very much indeed for addressing all of those questions that came in from investors this morning. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Jonathan, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company.

1:02:28 If I could please just ask you for a few closing comments to wrap up with, that'd be great. Yes. Well, ladies and gentlemen, thank you very much for joining, and thank you for your questions and your engagement. Really appreciate the kind words and encouragement. We are delighted to be, presenting what is a record first half results for us and demonstrating the momentum, in our growth strategy. We really look forward to sharing progress of the full year when we meet again, next year. But if there are any further questions, please feel free to to write in after the meeting. Thank you very much. Thank you. Perfect. Perfect. Jonathan, that's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session? She will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations.

1:03:20 This will only 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 PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.