Synectics (LSE:SNX) — Unaudited interim results for H1 2025

0:02 Good morning, ladies and gentlemen, and welcome to the SYNECTICS PLC 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 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 our responses where it's appropriate to do so on the investor meet company platform. Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from SYNECTICS PLC. Amanda, good morning. Good morning. Firstly, thank you everyone for taking the time today to join us for our interim results for the period ended 05/31/2025.

0:52 I'm Amanda Lander, CEO, and with me, I have Chris Pennington, interim finance director. In terms of content today, I'll give a brief overview of the company and the performance review for each of the businesses. Chris will then take you through the consolidated results, and then I'll come back on and give a bit of an update on the progress of some of the strategic priority areas that we set out a few months ago in the year end presentation. And there's also a few appendix slides at the back of the presentation for those of you who would like a bit more information after the presentation. Next slide. Thank you. So I'm not going to go into lots of detail here as I know that most of you already know us. But SYNECTICS provides advanced security and surveillance solutions that help protect people, property, and assets in the world's most critical environments.

1:47 So these tend to be, highly regulated markets where our expertise can really make a difference to the customer. And those core market sectors are shown on the right hand side, critical infrastructure, energy, public space, transport, and leisure and hospitality. We have two business units. The first is SYNECTICS PLC, which develops proprietary technology led solutions, and our flagship software is the Synergy command and control platform, which is completely technology agnostic and integrates with any piece of, software, hardware, or cameras. SYNECTICS systems operates globally out of the, geographical hubs that you can see on the map there. And our second business unit is Ocular Integration. Ocular is a, UK based security systems integrator, delivering solutions directly to your end users.

2:43 So just moving on to overall highlights, the business delivered a strong first half performance with growth across both, SYNECTICSystems and Ocular. And a key milestone and one that contributed significantly to the revenue increase was the, successful delivery of a substantial portion of the, major casino project in Asia. We also secured a five year extension with that customer worth at least 4,800,000 over the five years. That's absolutely fantastic and gives real testament to the relationship, that the team have developed with our customer over the last ten years. Adjusted, EBITDA, so before share based payment increased by 47% to 4,200,000. And so in line with our progressive dividend policy, we increased our interim dividend to 2.2p per share, reflecting both our half one performance, and also confidence in the outlook.

3:37 As well as in leisure and hospitality, we also saw progress across critical infrastructure and transport, with notable wins like, the 2,000,000, contract with West Midlands Police and the Stagecoat Pilots, and I'll talk more about those, shortly. We've made good early progress on our strategic priorities, which focus on the product, our operational efficiencies, and accelerating commercial growth. And and I'll come back to talk about those later on in the presentation. I'm really pleased that we've announced the appointment of Paul Williams, as CFO. He brings strong experience in software and capital markets, and he joins us in just over a month at the end of August. And then in terms of outlook, we're pleased with how the second half has started and we continue to trade in line with expectations for the full year.

4:26 We finished the half with a very robust order book of 35,000,000. That's 5,000,000 more than it was at the half one in the comparative period and about 3,000,000 lower than it was at the year end in November. And that's because the prior year end figure included the major casino project order. So that solid order book and the pipeline give us clear visibility over the contract deliveries in the second half.

4:58 SYNECTICS PLC delivered strong growth in half one with revenue up 36% to 23,600,000 versus the comparative period. And this was driven primarily, by the delivery of that major casino contract in leisure and hospitality. And you can see revenue in that sector has more than doubled versus the comparative period. It's worth also noting here the smaller increase in the transport sector. And during the period, we've taken steps to improve the performance and the commercial focus of our German business, and that started to contribute to the transport growth in the period. And transport generally, will remain a focus area for us moving forwards, as we continue to invest in our transport solution. We have experienced modest declines in revenue and energy critical infrastructure and public space, and that's not unusual to see those fluctuations in sectors, particularly where there's such a significant, a significant increase in in one of the other sectors.

5:56 And in addition as well, these markets have seen, some similar conditions around cost pressures, that have led to some, project delays. In energy, oil and gas has been a bit slower than we would have expected. So several large projects, have been pushed back, and that's in part due to an element of caution in relation to the volatile geopolitical markets and also the impact of cost inflation. And we're seeing there that projects are facing more scrutiny at the final investment decision phase, and are often coming in significantly over budget. So that's then triggering, a comprehensive redesign of the project once all the cost estimates have been received. And obviously, we're just a small small part of that, wider cost. And in some cases, that's impacting project timelines by by months and even years for the, bigger projects.

6:49 Encourage encouragingly in energy, we are seeing positive early signs of our engagement in renewables, including wind and carbon capture, where our oil and gas offering aligns well with the requirements for renewables. I think it's important to note here that within these sectors, the delays that we're seeing are timing issues within the individual markets. It's not a sign of structural decline in the overall market demand. Gross margin remained strong in systems at 47.4%. That's slightly lower than last year, which I said as I said at the time, benefited from some exceptionally high margin projects. As one of our separate focus areas anyway, we are already actively reviewing internal operating efficiencies as well as looking at opportunities across our supply chain and procurement to make sure we protect those margins going forwards.

7:44 And I'm pleased that we've held our operating margins at 16.7%. That's after increased investment in product development, in sales capability, in systems and processes. We've made good progress in some of our key priorities that I set out a few months ago. These are important building blocks for scaling the business. And and as I mentioned, I'll I'll talk about these in a bit more detail later. So moving on to Ocular. Ocular delivered a strong first half performance with revenue up 29 to 12,600,000, versus the comparative period. The increase was driven by momentum in the transport and critical infrastructure sectors. In critical infrastructure, revenue growth there was supported by the delivery of larger projects for National Grid.

8:34 And in transport, we're seeing increased demand for connected, and IP based solutions. So particularly as operators, invest in their electric vehicle fleets and look for better tools for fleet oversight and passenger experience.

8:49 We secured the, two important contracts in the period, in these sectors, which I'll look at on the next slide. Sorry. Just back one slide. Thank you. Gross margin fell by 1.8 percentage points to 26.7%, reflecting the delivery of more critical infrastructure work, where margins are typically tied to due to the competitive procurement frameworks. Despite this, gross margin remains healthy for an integrator and in line with expectations. An operating margin dipped slightly to 6.1%, that reflects the increased investment in sales, marketing, and business development to support future growth. And since the rebrand to Ocular, we've made some really positive progress against Ocular's refresh strategy, and we're continuing to refine our go to market to align more tightly, with our core sector focus.

9:44 So this is including developing a clearer proposition and more targeted marketing. Next slide. Thank you. So I've mentioned the, two important wins in Stagecoach from West Midlands Police. The 1,100,000 pilot contract with, Stagecoach, is a really, exciting contract, and this is for the deployment of our new product, the onboard hub. That's a connected platform that leverages SYNECTICS cloud services and software, and it provides a secure environment capable of running multiple third party applications, and integrates functionality including CCTV, telematics, diagnostics, and vehicle location data into a single system.

10:30 This new system, simplifies the deployment of onboard hub of onboard, surveillance technology. It saves the customer costs over the longer term. It streamlines operations and really improves efficiencies. It supports Stagecoach's broader ambitions around, fleet modernization and digital transformation as well. So that pilot will run over the next, nine months or so with the expectation for future rollout to the rest of the fleet after that. For the 2,000,000 project with West Midlands Police, Ocular is upgrading surveillance systems, across their custodial suites. This deployment includes the installation of new hardware and software, and, that includes SYNECTICS synergy software, which will deliver a range of security and surveillance capabilities, including their multisite management, secure video storage, and streamlined evidence management.

11:26 The rollout is underway and expected to be largely completed within the next nine or so months. And now I'll hand over to Chris to talk through the consolidated results. Thank you, Amanda, and good morning, everybody. So opening remarks, we are looking at the half year results to May 2025. We're looking at these on a group consolidated basis. And when we talk about EBITDA and operating profit, we'll talk about those on an adjusted underlying basis. So prior to any non underlying items and share based payment charges. We can see from the graphs that we've included on the slide, we had a positive performance in the first six months. Revenue grew by $9,200,000 to $35,500,000 in the period, an increase of 35%, and that came from growth in both divisions.

12:22 That drove an increase of $3,400,000 in gross profit to $14,500,000 in the period, an increase of 30%, with a small reduction in gross margin for the reasons that Amanda has outlined earlier in the presentation. There was growth in underlying operating profit of 48% to 3,300,000, and that came despite some significant investment going into the business driving future scale, and we'll look at that more closely in a few minutes' time. And EPS shown on an adjusted diluted basis grew by 59% from 10.3p per share to 16.4p.

13:07 So on a headline level, positive performance in the first half.

13:14 In terms of the revenue sectors in which we operate, this presentation of the sectors is is the one that we would like to adopt going forward. I think it gives a a better visual impression of where the business operates. And we can see quite clearly Ocular operating in the transport public space and critical infrastructure areas and and systems predominantly in energy and leisure and hospitality in the period. We saw growth in the transport sector from ocular and also in critical infrastructure, which is which is driven by activity with a large utility provider. On the systems side, we can see the impact of some slowdown in the energy markets, primarily oil and gas in the first half.

14:08 But conversely, very strong growth within leisure and hospitality, driven primarily by the large gaming contract, which Amanda has referred to. On the next slide, we look at the revenue profile and the order book profile. And in terms of the revenues, we've in the last couple of years, we've seen a weighting more towards the second half. Said in the statement that we anticipate performance will be more evenly weighted in FY 'twenty five and a strong performance of 35,000,000 in the first half. The recurring and repeat revenues reduced as a proportion of total revenue in the period, but remained stable at just over £8,000,000 across h one, and that remains an important area for us going forward.

15:04 In terms of the order book, the order book here is deals with contracted revenues, contract contracted orders that we will build out in the future periods. Amanda's noted already, the 35,100,000 is higher than the same position in FY '24, lower than the year end, but for the reasons noted around the large gaming contract. And approximately two thirds of that will be delivered in the second half of the year, providing some underpinning to the H2 numbers. In terms of the operating profit, looking at the movement from GBP 2,200,000 underlying operating profit to GBP 3.3. We can see a large increase in gross profit driven by the revenue uplift and then a number of areas of investment for the business looking at h one this year versus the same period last year.

16:02 The largest area of investment for us has been around staff costs. There are some inflationary increases here from the likes of salary increase and other employee owned costs, but also a significant proportion of cost driven by investment in new people joining the business who will help to drive scale going forward and in the areas such as sales team and particularly the development teams. Within overheads, an increase of 900,000, and this is a mix of some ongoing costs in areas such as marketing, insurance, software costs, but also some areas of nonrecurring cost As we continue to build out the ERP system, we we spend money with third party consultants around the likes of subscription pricing models and run with some other projects within the business.

17:01 Depreciation and amortization has increased, reflecting very much the investment that's been made in the business over the last twelve to eighteen months. And there was a small increase in capitalized cost increasing from 500,000 to £600,000 and that came as part of an overall spend in R and D in the first half of two point three million pounds

17:27 Moving on to cash. At the year end, we announced a record cash balance of GBP 9,600,000. At the half year, we had grown to GBP 12,100,000. We saw a strong inflow from operating activities and also some benefit from timing movements really on on working capital prior to CapEx of just over £1,000,000 with investment in both tangible and intangible assets in the period and $200,000 of tax payments made in the period. That gave us free cash flow of 3,700,000 versus $3,100,000 in the same period last year. Other areas of spend included leases, the final tranche of dividend from FY '24.

18:15 And then we've noted a movement in retranslation of dollar balances, which are significant at the year end, reflecting adverse movement in the dollar across the first six months. In summary then, in terms of the financials for h one, we saw an increase in revenues, an increase in underlying profits. That came despite some significant investment focused around building the foundations for further scale in the business, an increase in the dividend, just noted on the bottom of the slide. We closed the period with a solid order book. We saw positive movement in net assets, an increase in the cash balance, and we continue to hold no debt at the period end. And I will now pass you back to Amanda.

19:07 Thanks, Chris. So we, we set out quite a comprehensive update to our refresh strategy, in the full year results a few months ago. And that it gives us clearer direction, but I think importantly focuses on the execution and and really how we're going to achieve it. The summary of the strategic pillars that we set out back then is on the right hand side. So these focus on accelerating our commercial growth through expanding our market presence and and developing our partner program, improving our operational performance, and focusing on the product portfolio. And then there's some more detail, on that in the appendix slides.

19:54 We've made some tangible early progress, across a number of these priorities that we set out, and I'll pick up on some of those here. So in Ocula, we've made a good start in delivering the first phase of the, change program in that business. We've now begun embedding a more targeted, sector led go to market approach. We're working on improving the marketing program, and clarifying the sector propositions, increasing the outbound sales activity, and also strengthening the, team capability. Across both SYNECTICSystems and Ocular, we've strengthened our, business development, sales, and marketing teams. And two of the key roles that, have been recruited in the period include our business development director in North America and our first director in The UAE.

20:45 And our UAE director is very experienced in the region, and he will be responsible for, developing our presence out there. Another critical role that we have recruited is our head of partner program, Daniel. Daniel is really experienced in the industry and is a fantastic, new addition to the team. He'll be focusing on the commercial side of our partner model and creating a sales led, partner channel. And this will include, empowering and incentivizing, and educating our partners in order to develop in order to develop, mutual value creation within the relationship. At the same time, we're also investing in and progressing our technology. It's important that as we grow and strengthen our partner program that the technology is able to scale at the same pace and that we continue to invest in our new product portfolio.

21:40 Some of our recent developments, include cloud and hybrid features, enhancements to Synergy Web and Mobile, visitor management, and, of course, the AI modules. We've also continued to strengthen our cyber security, capability, including working towards the CAP certification, which we believe will further differentiate us in the critical national infrastructure sector where CAPS is increasingly, becoming specified in tenders.

22:09 We're in the final stages now of rolling out our ERP and CRM systems, across the whole group. This will be a significant enabler for improving our internal processes and information. We've also made progress on evolving our commercial model to support more recurring revenues, and that includes the ongoing development of, subscription price subscription based pricing for, for SYNECTIC.

22:37 Through our work on this, we have tested the appetites in the markets, for OpEx pricing, which at the moment is pretty low, particularly in the highly regulated markets such as gaming and critical national infrastructure where on prem solutions, are much preferred and the association of subscription with those on on prem solutions is quite low at the moment. There is more interest in subscription pricing in some of the other markets such as education, custodial, and and local authorities. So while we will start to offer subscription pricing to our customers, we wouldn't necessarily expect any significant changes in the short term, and we're looking at this as being ahead in the market of a longer term shift in pricing.

23:26 It's worth also just noting here that other forms of recurring revenue include some of our new product portfolio. So our our cloud solutions, the AI modules, and then a couple of other more recently launched prod products are all on a recurring revenue basis.

23:46 And, of course, the software support agreements and maintenance contracts, that we currently offer, are also on a recurring basis. And then culturally, we continue to strengthen how we engage with our teams. We've recently launched internal comms platform, and hosted our first UK Wide Employee Summit. This was a really good event. We were joined by some of our customers, as well as the as as well as the chair of the board for for a good day there. And then we're also actively exploring strategic acquisition opportunities that could complement our technology roadmap or our sector focus. This is at a very early stage, so there's nothing more to note on this at this time.

24:34 And these steps that we're taking now will help us to to deliver better, to operate more efficiently, and to be able to build the capability to deliver consistently, stronger results over time.

24:48 And then to wrap up, we're pleased with the first half performance. We've delivered strong revenue and profit growth, progressed our strategic priorities, and continue to invest for the longer term. Trading is in line with the board's expectations, with a solid order book underpinning visibility into the second half. Revenue is expected to be more evenly split as as Chris mentioned, across both halves than it than it has been in some period in some years, but with investment continuing into the second half as well. These investments are aligned to our strategy, and are expected to begin contributing, from later in f y twenty six, with a more material impact, over the medium term.

25:35 So we have a strong cash position, no debt, and a clear roadmap. And, with the focused sector execution, the targeted investment, and the commercial momentum, we believe that we're well positioned to deliver sustainable growth and longer term value. So that's the end of our formal presentation. Thank you. So I'll hand back over to Jake. Perfect. Amanda, Chris, that's great. 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 right hand corner of your screen. But just while the team take a few moments just to review those questions that have been submitted already, 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.

26:24 Guys, as you can see there, we have received a number of questions, and thank you to all of those on the call for taking the time to submit their questions.

26:31 But Amanda, Chris, 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 if I pick up from you at the end, that would be great. Thank you. Great. Thank you. K. K. Lovely. So we've got a number of questions. First one being how are you using AI in the business? We're at quite an early stage of using, AI, and we're, taking a structured approach, I'd say, to how we're using it. So right now, our focus is on applying AI to support specific use cases. So things like automating certain reporting, streamlining document documentation and testing. And we're exploring how it can support, efficiency in areas like market research, thought leadership and marketing, and contract reviews where we're starting to use it there.

27:24 And but really, I guess, the important point is it sits alongside our our broader, operational improvement agenda, so including the rollout of of ERP and CRM. You know, we're focused on making sure we've got the right processes, processes, and and I I believe we can use tools like AI to complement these. So I think over time, I do expect that AI will improve how we work, will free up people's time so they can concentrate on more important tasks and will help us in our in our longer term kind of strategic priority of making our operations more efficient. Next question. 2025 seems to be going very well and the $3.5300000 PBT target looks like it will be exceeded.

28:12 However, the wording in the last few RNSs has been cautious, should investors be worried. Well, hopefully, this was a a pre submitted question. So hopefully, we've answered a lot of that throughout the presentation. I think we've had a strong first half. We said that we expect to be comfortably in line with expectations for the full year, and that reflects solid momentum across the business and good visibility on the second half. At the same time, we're only halfway through the year, and we have seen some timing delays in oil and gas as I mentioned earlier. And we're also in a phase of increased investment. So the tone in the updates, I'd say, has been, measured, but focuses on the, important point of the strategic execution.

29:02 So, again, I'd say we're encouraged by the progress we're making and confident in the, longer term opportunity. What percentage of pipeline business do you expect to convert to actual revenue? Is the pipeline quoted an annual figure or the total of potential contracts that may run over a number of years? We don't formally disclose our pipeline, but we have a structured opportunity driven approach to determining our pipeline and the wider funnel. And we have good visibility over the contracts that we expect to convert. We do report the order book obviously, and that represents, as Chris mentioned earlier, the secured revenue or the confirmed orders.

29:51 The sales pipeline itself includes quite a range of mix of opportunities, some of which may convert within this financial year, others that may extend over a longer time frame into next year. And that really depends on the nature of the customer and the sector. Our focus really is as part of what we're doing now is to build a a qualified high quality pipeline, to be able to continue to, improve that going forwards. Next question. What is the culture like at SYNECTICS? I'll I'll start. Chris Chris, you may want to add something onto here, but I mean, I believe we've got a strong committed culture at SYNECTICS. People take pride in what they do. We've got some really fantastic people within the business and they really care about the business and and how we support our customers.

30:46 You know, on top of that, we've been working hard for the last, twelve to eighteen months or so to develop, to develop on this, and to build a culture that's, supportive and inclusive. But also really genuinely, we want to be a positive place to work. As I said more recently, we focused on engagement and comms, particularly in the last half. And and, you know, we'll continue to invest in in our people in areas like the management development program and learning and well bit and well-being. And and we've got a fantastic, HR team really supporting and and driving that through. So, you know, I'm really pleased, with the progress we're making here, and the engagement that we've got from our teams.

31:32 Is there anything you'd add, Chris? I I think I would just second what you said. I think we recognize people as as the key assets in the business. I would talk a little bit in the in the year end statutory accounts around some of the people initiatives and really fantastic work done by the HR team on a very, very supportive environment to come into. So I've I've second everything that you've said, Amanda. Okay. Who are your main competitors, and why would customers choose you over them? So our competitors do vary quite a lot by sector and solution. Those we tend to compete against more often tend to be, a bit more generalist than we are such as Genentech and Milestone and, Motorola also through some of its, acquisitions in recent years. So that's the likes of PLC and Indigo Vision and Avigilon.

32:31 I think where SYNECTICS differentiates and where also you'll see that we have a higher win rate, is really in those complex, mission critical environments. Those really highly regulated solutions that we talked briefly about at the beginning. So where security integration, resilience are are all really key. I'd say, generally, our customers choose us from our deep sector expertise where we go above and beyond where our competitors will do, particularly in those highly regulated industries, and the flexible end to end platform that is completely technology agnostic.

33:17 So that's tailored to to meet their specific requirements. So I think, you know, we've we've got a strong track record of of delivering some really key project for some good reference customers. And I think, you know, you you can see that, in the major casino operator project that that we talked about earlier. That's been a long term customer of ours for ten years. They they, you know, didn't look for an alternative provider on this. It was a, you know, an upgrade back to SYNECTICS. So I guess we're we don't try to be a general generalist solution for all sectors. We focus on being the best at what we can in in those particular sectors. There's a few questions here on cash, our cash position and capital allocation going forward.

34:10 Chris, do you wanna start with this one? And I'll I'll add anything after. Yes. Thank you. So it's well, it's nice a nice problem to have in terms of the growth in the cash, which has been very positive over the last the last twenty four months. It's an area the way we we're always trying to balance between cash for internal investment and to drive that that foundation for further scale. We are we we've noted that we are open to the right acquisition opportunities, and we're we're certainly starting some very early stage discussions to look at markets and and where complementary acquisitions may sit. Nothing further to report at this stage. And we will continue to look at capital allocation.

35:05 But really, you know, a key item on the agenda being the the opportunities for organic growth and potentially inorganic growth. Nothing further to report on that front at this stage. Yeah. I I I just add to that. That's completely agree. And there was a specific point of that around if we'd be looking at share buybacks. And I think given the organic investment, the potential for m and a and our progressive dividend policy that we have, share buybacks aren't a priority for us at the moment as we can we we see the value of those further investments. So next one's cash. There's another next one's cash.

35:55 Is there a, is there a factor that's responsible for for the recent growth in the half? I think, hopefully, we've explained that from the the first slides around the, key projects and then which sectors have grown. And then what's the reason for the sectoral split between systems and ocular revenues? Think that's asking why we have why we are stronger in certain sectors in in one business than we are in the other business. So with SYNECTICS systems is is global and is obviously particularly strong in in gaming in the highly regulated markets. Ocula is a UK only based systems integrator.

36:45 So the fact that it's UK based means that the the markets are obviously different in in terms of where Ocula can serve versus where systems can serve. And I think that's the last question. Thank you. Absolutely. Amanda, Chris, if I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in for 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. But Amanda, perhaps before really now 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, if I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. Sure. Thank you. Well, well, you know, firstly, I'd just like to say thank you again to everyone for joining us just today.

37:35 We've hopefully, you'll see that we've set out clearly where we're focused, and the steps that we're taking to, strengthen the business for the future. We're clear on the, opportunities that are ahead. You know, we operate in resilient markets that have very strong long term drivers. And again, there's a bit more, information on those market drivers in the appendix slides. We've built some good foundations, and we're continuing to, invest in those areas that will matter, most over time. So, you know, whilst there's still work to do, we are, making really good progress heading in the right direction, and and hopefully, you see the the same opportunity as we do to continue to to to build and and scale moving forward.

38:28 Perfect, Amanda, Chris. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of SYNECTICS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.