Eleco plc (5H3.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Eleco plc interim results investor presentation. [Operator Instructions] 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 2025. My name is Jonathan Hunter, CEO of Eleco and I'm joined by Neil Pritchard, who's our Chief Financial Officer. 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 upscale and collaborate and report with better insights, managed safety and compliance. What makes Eleco a high-quality business is its people. We're very proud of our people that are the foundation of our growth and drive our strategy and long-term thinking and innovation. 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 labor rate compared to industry averages, regretted [ labor ] rates, that is. 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 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. We have 314 colleagues in the group now across the U.K., Continental Europe, U.S.A. and Australia. In those markets listed in the middle at the top of the operating markets, we operate with colleagues in -- on the ground in local regions, servicing customers directly within those regions. So you 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 maintained 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 digital transformation. So we're very pleased to present the outcomes of that in the results, which has been a challenging time in the built environment and construction sector. Worth highlighting as well that, we have about 80 R&D technicians and all of our IP and R&D is developed primarily in-house and with very, very little use of open source, which we're very proud of, especially as there's some new -- there's a cyber resilience at that's going to come into play in a couple of years, in 2027, that's going to require disclosures around code stack and open source and so forth. So we're very well positioned for that in the future. The product set, our solutions are best of breed, as mentioned earlier, they're very feature-rich. They've been developed over many decades with customers through iterations and rewrites and rereleases, which makes them sticky, makes them very, very loved by the customers and also quite challenging to displace. So we -- 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 & Visualization. And within the building life cycle products, you'll see that, that covers the full life cycle from early specification and design standards. Through the project portfolio management, very -- that's a top-down approach to planning objectives and outcomes and they're managing portfolios of projects and then scheduling, which is more of a bottom-up, very detailed complex construction schedules to estimating and asset maintenance and management. And we've enhanced the asset maintenance and management with the acquisition of PMAC, which we'll come on to later in the presentation. The other group of products is visualization and CAD, which comprise of niche products in the interiors and CAD and engineering, timber engineering disciplines. We'll provide more about the scale and revenues of each of these groups in the financial of the presentation. Highlights for the first half of 2025. 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 our -- to attain new customers. Retain existing customers and expand within the existing customer base. And that's really that go-to-market value proposition, marketing, product management, aligning 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. So yes, we're very pleased with the momentum in H1. There's a lot of initiatives 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 very high-quality proof of concepts to have further strategic discussions with customers and start to really open up the opportunities of digital transformation moving beyond just a point technology solutions. So that's been really encouraging with the customer base. We've -- we're very pleased with the integration of PMAC, which PMAC was acquired in January of 2025. It's -- is a maintenance management software solution headquartered in Ireland with some overlap with our existing ShireSystem, maintenance management system in terms of feature functions, However, they didn't compete the audience at PMAC we're 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 ShireSystem audiences, more general manufacturing and also facilities management as well with a land-and-expand modular approach to go to market. So the teams have come together very well. In fact, the first week, the sales teams have come together and shared leads and brought the CRMs together. We're -- and we're taking opportunities 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 were also pleased to onboard three high-profile retail customers in the first half. After the RNS and the results were released, were given 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. And they're using our software to store all of their property and fit out information to drive standards and specifications across all their properties. So yes, very, very pleased to be working with them and further working on further opportunities. The recurring revenue has been strong despite a challenging backdrop for our customers, which we'll share a bit more into later on, but we're really pleased to be able to continue to expand the use of Eleco's technology within the customer base. And that's been a lot of the driver for revenue growth is expanding the adoption of technology. we have absolutely been growing in terms of customer count as well, attracting new customers, often starting at a sort of lower level of technology maturity. And we've really improved in the way we take customers through this journey of implementing technology and getting from an entry level through to a fully predictive insights-led technology adoption model. So it's been really exciting. I think yes, lots -- exposing a lot more opportunities for us going forward. I'm going to take the opportunity now to invite Neil to present the financials.

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 highlights, and then I'll move on to as is, I guess, tradition of this presentation. So a little bit more detail on everything going through revenue, P&L cash flow and then finally the balance sheet. First of all, these financial headlines for the first half, which is calendar period of 2025. And -- what you can see there, as it says on the top line there is really around continued growth that we've seen building the consistency and having sort of gone through our financial recurring revenues and the transition over the last 3, 3.5 years, building every sort of period in terms of on top of growth, 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 a record level for the group as a software group, dedicated group now. So on the first top of it, if you like, the 9 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 moved ahead a little bit of a snapshot, if you like, but moved ahead 19% organically. That was around about 12% because we have made acquisitions, as Jonathan mentioned, including -- well, mainly in these numbers effectively the PMAC ones from Ireland. Secondly, looking at recurring revenues across the whole of the 6-month period. Then that's TRR. And so that's sort of a wider universe 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 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 go into the reasons for those as well. Overall total revenues moved ahead by and half on half to GBP 18.4 million, and that's actually a similar on a constant currency basis as well. On the central row of the metrics there, they are just a flavor of some of the many profitability metrics, which all showed more than proportionate increase compared to the high levels of increase within the revenue-related metrics as well. So -- and that is, as I mentioned, improved operational gearing as we scale. It's markedly improved, and we still see further opportunity for that in the future. So for example, adjusted EBITDA was 30% adjusted operating profit, 29% ahead, adjusted PBT, 29%, adjusted profit after tax, 29%. And just to be clear, the statutory measures are similar percentages. They -- 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 to 2.7p per share. And while the cash there shows an increase, just to be completely transparent and flag, 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 skewed by the acquisition of PMAC in the period of more than GBP 5.6 million including related costs. And indeed increased final dividend that was paid out in the first half. So had the acquisition, for example, not being made, then we were looking, 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 of 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 their needs on an income level as well as capital growth level. We -- the Board has raised the interim dividend by 17%, in line with our consistent sustainable progressive model that, again, we've employed since COVID. Now if I could just kind of 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 core and direct to market, that 97%, which is the very top. So if we look first on the left-hand side, 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 nonrecurring licensing, if you like. That's moved down actually from 4% in the previous half to 1% as a composition of the overall revenues. It is lumpy. It is possible, but it is quite disproportionately lower, which 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 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 very, very strong. And I think we continue to see opportunities on that score as well. Now just on services income, headline is down about 6%. It's a GBP 3.3 million in this first half. So that means as a proportion of total revenues between the halves, it's moved from 22 to 18. So it's around about that sort of level of total revenues, and 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, we are in a diversified, multi-geography basis, there is a little bit of 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. 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 some one-offs in the previous half as a comparator as well. We'll come back to that on the actual geographies on the right-hand side in a second. In the middle diagram here, the kind of pie chart type of diagrams. What we see is the main part of the business building life cycle. That now as the outside blew compared to the previous year half -- previous half, I should say, a 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 group. And consequently, also partly due to the services element that I was talking about in visualization. Visualization & 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. And it's good -- nice -- very good to see, of course, that there are some notable movements and advances in the U.K., rest of Europe. Rest of Europe does include PMAC, but even without that, some good movement there. And very pleasingly to see Scandinavia up last year on a sterling basis, 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, which is great. The U.K. was slightly behind by about 0.1 or so in this half against half. There are some one-offs that I've mentioned a few moments ago, First of all, several visualization U.S.-based customers that is a global business, albeit centered very much around the predominance of their customers in European terms. And there was also a significant one-off training related and implementation-related contracts on the building life cycle side in H1 2024, which clearly didn't repeat in H1 2021. 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 as a building -- sorry, as a business to business to consumer business is a little bit more related to the end consumer markets, if you like, and the effects and the macroeconomic effects going on there and some budgetary constraints within some of the interior furnishings type clients that we have there on that sort of visualization basis for bespoking and service revenues. And clearly, by being lower on that service revenue, I just wanted to flag that, therefore, the recurring revenues probably would be 81 type sort of percentages. So it is an impact there just for full transparency as well. But really, general advances and improvements along lines and certainly by way of reassurance, for example, on the building life cycle part within the U.S. advances in recurring revenues and underlying customer growth as well. If I could now move on kindly to just a little bit more detail on the overall P&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 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 our vertical digital Romanian business that kind of provides R&D project capability and the cost of those. Actually, outside of that, we would have been north of 91%, so actually half-on-half improvement on a like-for-like basis. Depreciation is a little change in the period. Amortization is higher by about 0.4%, but actually 0.3% of that is all acquisition related. It's PMAC acquisitions. And for the first time, 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 3/4 of that actually relates to acquisition intangibles, which are reflected in adjusted. And also other things on adjusted would be some associated costs for PMAC. There's 0.1 million there. There was in full transparency, GBP 0.2 million in the second half of last year on that. And the first half of last year related to acquisition costs on the Romanian side of the business. Share-based payments have ticked up to about 0.3 against 0.1, but the 0.1 was also had some half year previous half effect in terms of some cancellation of share options for some staff changes and against very stringent. Very, very stringent performance criteria. Overall, OpEx wise, on the face of it looks about 6% ahead, just over GBP 12 million. But actually, if you take into account the absorbed cost basis of the acquired businesses and particularly PMAC, then what you're seeing is actually only an OpEx increase of 1% to 2%, which is trending slightly below inflationary levels, of course. And that's involves some reductions in other discretionary spend that have been made and other cost savings and cost control measures. So overall, you can see that with that feeding through at 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's sake is on the tax line. So the effective tax rate, while it would only be about 0.1 difference was slightly more favorable between the halves. And this came down, there are lots of ups and downs, but there's two sort of primary drivers. One would be the tax benefit of the higher, otherwise non-benefit of increase in the share-based payment costs. And then inclusion of further tax credit benefits from the Irish acquisition beyond what we took in or assume to be the case within the opening balance sheet. So some upside one-off nonetheless on the tax side there. And so as we discussed before, with the increased profitability and indeed that lower effective tax rate and profit after tax was or GBP 1.6 million, which led to those improvements in overall EPS. Finally, maybe just for where it could fit into lots of different places. The total software R&D investment was GBP 2.8 million in the period, and that represents just under rounded up to 16% of total revenues. And that compares very much to kind of 16% to 17% level that we saw for full year 2024. So that's just a continuation. Obviously, much of that is staff based costs in R&D, and those are obviously subject to cost of doing increases and so forth. 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 the acquisition in the biggest orange downward part on the waterfall diagram on the right-hand side that includes some of the cash that we took in from PMAC on acquisition as well. And overall, the group is high gross margins. We've seen that high recurring revenues, higher retention rates. And so our business model, therefore, is fortunately, we're blessed with a very resilient and operating cash-generative model. There were some working capital movements, some of which relate to the acquisition. So these things tend to throw things out somewhat. 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 of about GBP 3.4 million represents about 179% of operating profits. A quick reminder that the group has no borrowings. We repaid those in 2021. We -- that's a model that proves even more resilient 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. But we continue to see advancement in the balance sheet and robust growth and coming through there and growth in the net asset values as well. The overall intangibles will probably see the biggest changes in terms of the balance sheet for PMAC. For example, goodwill of GBP 2.6 million, customer relationships of GBP 1.5 million, development costs of GBP 1.3 million and brands of GBP 0.2 million. But outside of that, much of the rest of it is really around the trading and scaling up of the business. And you can read some of the other explanations at your leisure, of course, and some of those. The overall cash position at 12.2 million represents 38% of the balance sheet value at the end of half 1. And a nice indicator often for the future is around the deferred income where we don't recognize all the income on some contract renewals and business immediately, of course. And so -- and goes into the future predominantly within the next year. Now 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 and net asset value by 13% here. And as I mentioned earlier, the Board has proposed. We'll raise the interim dividend by 17% in line with all those measures and improvements in all the financial metrics as well. I think that's probably everything for me for now. So back over to you, Jonathan. Thank you.

Thank you, Neil. And yes, so that's the summary of the first half 2025. So the next part of the presentation, I'd like to provide you with insights into the market drivers and our strategy as well as our customers are using our technology. Now the built environment and all the aspects that relate to construction and structure, but also maintenance and operations is an exciting moat market for companies like Eleco. The growth and adoption of technology is continuing to accelerate. It's a market where we see low levels of technology usage still pen and paper and spreadsheets and lots of people. So yes, there's lots of opportunity, and it's very exciting for us as an organization. Our total addressable market today is over $8 billion in the markets we serve, all the geographies we cover. And that's growing across all those different customers, we're seeing growth in the market research of sort of double digit, 10% to 12% spend in project management, maintenance, et cetera. And across all the markets, the demand for technology will continue to increase, especially as there's added demand on our customers, environmental, social governance drivers that are demanding and driving greener construction as well as green operation of structures and better insights to inform design and specifications as well. So there's this joining up of 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 one element of building. So there's challenges there. And many of the companies are turning to technology to drive new techniques in building but also technology. And this is closely linked to the driver to reduce waste and improve productivity. So we see a trend where, we're seeing our customers clients being more demanding, putting -- making construction projects much more complex and challenging. It's a highly challenging, fast-paced or demanding environment to work in and technologies supporting that. The adoption of technology is supporting our customers, but at the same time, complexities are increasing. There's also -- some of you might have heard of the Safety Act post, Grenfell. There's other initiatives that are driving changes and transformation better ways of working. But to implement those, it's taking time and causing delays. And our customers are anecdotally reporting or informing us that some of the changes causing delays and therefore, pressure on margins. So yes, very, very challenging. However, we're fortunate to be able to offer 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 estimating. So we really 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, all of these challenges, not just focused on one region. It's globally across all regions and markets. 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 increase profit, 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&D, but that industry expertise really drives better decision-making, better output. So we've been really focusing more on customer problems and also hiring within the industry. Culture and values is really driving the strategy as well as 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 intelligent, talented engineers. They want to solve problems. So R&D is really something that I'd say colleagues are really comfortable with in terms of being able to having the capability to solve the challenge. 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 easily now. But what are the problems 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 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. We've also, with the acquisition of PMAC, it's provided enough scale to develop a focused marketing team for the asset and maintenance management sector. So with that, we're driving better customer profile acquisition but understanding customer profiles so that we could provide the solution that fits with them and improved product value proposition or solution value proposition. That certainly progress quite substantially in the first half. So we continue to drive our go-to-market initiatives. I think we'll continue to see benefits of that in the software sales and subscription revenue that we're increasing. And then finally, on the varieties, 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 comparing M&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 sell to the existing customer base, leveraging the relationships that we have. And the third type of acquisition is technology that's next generation and could be from another sector or another industry and seeing opportunities to introduce that into the built environment. I think overall, our strategy around M&A is really taken. 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 opportunities for synergies and then coming back and looking at the overall picture before really pursuing acquisition. So there's quite a lot of work that goes into the search and assessment. We absolutely want to ensure that there's a synergy and there's an opportunity to really drive shareholder value and value to this growth platform. So it's important that we maintain a high quality of business and it's enhancing. So the search continues. We made an acquisition in January. 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 current market. So they've got invested in the technology, but the go-to-market has been holding them back, and therefore, they're looking to join a large organization and again, I repeat, for us is it interesting opportunities that we're probably turning away quite a 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 into customer case studies. And I have to share with you. First is a PMAC customer, but also a ShireSystem customer, and that's Kingspan, who are a global building products manufactured. Kingspan are using ShireSystem within their installation and building envelope part of the division of their business. And they're also using PMAC in the waterproofing and roofing production lines in part of that business. So since announcing that we've had a great relationship with Kingspan, since announcing the merger they were really pleased to have to have the same solution provider about two solutions that were complementary. Since then and more recently, in the first half, Kingspan have expanded their use of PMAC into other international sites. So 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 ShireSystem and system and PMAC to expand globally rather than having to set up a distribution or a service center in each region. So that's been progressing well. There's some other positive opportunities for both of the products going forward. And the second case study is aerogel an Irish-based internal fit-out and [ facade ] contract. They've actually been a customer for 15 years. The Eleco -- they've implemented Asta scheduling software and been using that to run projects. But more recently, they've implemented Asta Vision, which is our scheduling platform, and it's a central source of the truth, but also being able to provide collaboration with Asta Vision Live and also workflows 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 or from a central data environment. There's no areas in terms of versioning or et cetera. And they can also provide this capability across the different audiences or different news of types within their organization. The output of that is better 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 this digital transformation that customers are progressing through and improving and being able to measure multiple projects against each other, which is really, really yes, provided a lot of value. And Graham McCracken provides a quote there very generously. Just giving his insight into what it's like working with Eleco. Graham is actually part of our user community. So he provides insights, really valuable insights into our product road map and future enhancements in the products. So very pleased to be working with Eleco. And perhaps I will just pause there and then hand back to Alex to open up for questions.

[Operator Instructions] Jonathan and Neil as you see we have received a number of questions throughout today's presentation. If I may now hand back to you kindly ask you to read out the questions where appropriate, and I'll pick up for you but at the end.

Thank you, Alex. I should 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 the -- in 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. 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%. Why have an other research analysts made such adjustment? So I wanted to answer that one first. Neil, you'd like to take that?

Yes, sure, Jonathan. I'm very happy to clarify, certainly where I'm able to do so. Yes, so I guess I'd probably start saying just a quick reminder that market consensus expectations are for the full year, not for -- not necessarily -- there are no forecasts around the interims or anything like that. But nevertheless, there's always a commentary around full year in terms of whether we're training in line and things. So I would say we are and continue to be trading in line with those market consensus expectations. And to be clear, that includes we're trading and continue to be trading in line with those expectations before. There are any changes in those analyst notes that were changed at the interim. Actually, so -- so either way, we were trading in line. Now as you know, we're covered by three independent research on this. They produce those forecasts themselves and we'll 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 3 independent research analysts, Canaccord, Cavendish and [ Singers ]. One of those, Cavendish, reappraised its full year forecast 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 2 analysts made very little change indeed. and sort of remained with those until -- so Cavendish seems to have changed quite a lot of things. They've significantly increased their free cash flow numbers, their full year cash forecast, their dividend per share. They have decreased, as Jonathan said, they're one-off service revenues, which is obviously in line with what was reported in last year. And they have left the adjusted EBITDA the same, which with the reduction in the services revenue kind of testifies, if you like, to the improved margin growth in the business that we can still deliver. 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 PMAC acquisition and the provisional fair value adjustments under IFRS 7. So that seems to have sort of coming one way and something the opposite way, net-net, actually slightly better. So it actually shows -- it still shows actually a healthy adjusted EPS growth, but in more -- an even higher increase in reported EPS growth. So hopefully, that provides a little bit more clarity on that.

Thank you for that question. And thanks, Neil, for taking that one. A question from Rob. PMAC contributed GBP 1.1 million of revenue and GBP 0.2 million of profit in H1. 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.

Yes, sure. problem. Yes. So actually, for visibility, you can see kind of what it otherwise would have been had it not been under Eleco 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 adjusted EBITDA. We basically, it is a tiny bit more ahead of what we otherwise were expecting. I'm not going to make a big thing of it, but it's -- we're pleased that in what we set as expectations for ourselves internally, I should bearing in mind the previous question, we're pleased that, that's slightly ahead. And just to reemphasize what Jonathan said earlier, we're incredibly pleased with it and the people, the people are brilliant and the business and everything else. And yes, we are in the process of realizing synergies 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 provide economies of scale and so forth. But equally, we're also building up the business. Perhaps that's the place to hand over to you, Jonathan, on some of those.

Yes. Thank you. Yes, there has been some cost synergies, but absolutely some amazing R&D efforts, a 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 6 to 8 months. It was done in the first half. And thanks to our team in Romania and in Ireland, but also input from our CTO, Alex [ Gabano ], who is the former founder of our Romanian R&D business. So that's been fantastic. We've actually augmented the R&D as well with some further recruitments in Romania and very pleased on the technology stack and the way it's positioned now. In terms of marketing, I mentioned earlier, 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 Ion system solutions. And then when the leads are being -- are going into that marketing team, they're qualified and shared amongst the best either technical or solution-led sales people. So we've got a system there for go-to-market, which has been enhanced through the -- which we didn't have previously. We've enhanced that through the acquisition because 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 technical support and the services and training as well. So we have one team across both. I think there's some brilliant work that's gone into the go-to-market value proposition and taking customers on this journey from reactive maintenance through six stages to being predictable and proactive and preventative in their maintenance efforts. And along that journey, there's training, consulting and software to adopt. So that's been established and actually just launched just coming into the second half of the year. So we've got -- we're seeing just a much more sophistication in marketing 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 demonstrated in the case study. So hopefully, that's covered your question, Rob. You did post another question around U.S. revenues, which were down 8% due to lower services that was not lost business. just wasn't repeated project work. 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 want to take that, Neil?

Yes, sure. We -- absolutely, as I mentioned, the revenues are down by that 0.1 or so, and it is service related. Just a tiny bit more detail there. And I can't remember if I sort of mentioned that one on all. But yes, of the -- there were two U.S. visualization customers as well as the building life cycle one. So if you like, there's elements of the U.S. there that don't relate to building lifecycle and those one-offs. But I think really, when you're talking about the recurring revenues and the bulk of the ongoing U.S. business, 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 new customers growth within the first half. So we remain confident that the U.S. 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 that we would turn away services revenue, obviously, wouldn't be necessarily the fact. But I think, look, as remains the core focus of the business, which is around building life cycle, but recurring revenues importantly, that is -- that's one where we would see the vast bulk of -- and probably higher than the proportion of Group 1 to be on the recurring revenue side. It is growing from a small base. It is always hard to crack a bigger market. That's why we very much sort of expand on the basis of kind of making sure that we cut our cost while we're doing that. And it takes time to get that brand recognition. But we see going forward, while we wouldn't turn away services revenue, we're certainly not looking for that to be the driver behind it. It will be the recurring revenue business model that we price and we've worked so hard for to get to over the last sort of 3.5 years.

Yes. And -- adding to that question, Stuart, you've asked how confident are you in restoring growth and momentum in the U.S. market? Perhaps I'll take that to follow on from what Neils just said. Just a bit of color around the one-off service that we received, service project order we received in H1 last year, but not this year. It was relating to the Pennsylvania Department of Transport and moving them to our Asta Vision platform. So supporting them with security and permissions and a lot of work there, which was purely bespoke, quite a high value but actually enhancing our relationship with the Pennsylvania department. So it 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 normally one individual in a top 400 general contractor or one department. And then the journey starts from there to expand and displace the incumbent, which is very well known and has been used for decades. But the feedback that we're receiving is very positive and the software is very, very loved. And once individuals within the customer base are adopting our scheduling software, they're not turning back. They become product champions and they're selling it internally. 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 U.S. language version. We're supporting it. We have the ability to provide services to large government departments, if necessary. It's absolutely -- the driver is recurring revenue. That's our focus. That's what we're measuring our success on because that's sustainable, that's predictable and long term. So yes, we're absolutely confident there has been, yes, some positive momentum, but we're still building our brand. We're still developing the market there. So it will take a little bit of time. But we -- it's absolutely amazing when you -- if you have the opportunity to see a customer-focused user group meeting and the buzz and the enthusiasm for the technology is amazing to see. So yes, very much gives us confidence for the U.S. And thank you for your question, Stuart. Next question is from Peter. What's the biggest risks in delivering full year results in line with market expectations? I think it's probably the service area. However, we've started the second half in a good position. I think we have referred to initiatives that we're taking. One is working with the Institute of an educational institute for builders who sell training and subsidize 70% of that training. So that's driving one initiative to tackle the services. So I think we're feeling pretty good about the services. The recurring revenue, absolutely, we need to continue the software sales. That's a core business. Yes. I think that's certainly the core driver. It's 81% of our revenues. And that ARR, the GBP 30 million of annualized recurring revenue gives an indicator of the future. So that's the June -- end of June recurring revenue multiplied by 12, and you can see that, that's delivering the momentum and growth that we're expecting. So yes, I think it's -- I think we're in good shape. We're very resilient. We've proven to be resilient even through downturns like the global financial crisis and COVID. The services are impacted during those downturns, but the software, the customers are very much very loyal. We have high retention and also they're looking at adopting more technology as they're digitally transforming their businesses. Thank you, Peter. The next question is from Mark. How does a reduction in service revenue impact future recurring revenues? Good question. Is a decline in service a negative signal for ARR growth? And Neil, would you like to?

Yes. I think that actually builds upon your last answer thinking about it, Jonathan, I think. And when -- so without seeking not to start a fresh and recycle somewhat, there is an element there where obviously, the service revenue is the one element, yes, for the future, but we've got initiatives well underway, and we've seen better progress on that. But yes, look, I don't think there is that correlation, as Jonathan said, in that. 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, the best-of-breed solutions we have are typically mission-critical. We have the recurring nature, it also stems from very low churn rates, and we quote very conservatively externally above 90% retention rates, but often much more. We are obviously multiproduct, 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 some of those sort of mission critical sort of 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. 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 therefore, quite relatively low spend within the customer, but it saves them time, money, waste, cost efficiency, productivity derived from using our products. And without them, actually, it goes very much a rye. So we are, as we always say, a very small element of their bill of materials. So if they're spending thousands with us, they're saving millions of pounds on rescheduling, for example, in our planning software. So with 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, 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 of the high gross margins and so forth, again, not stay in place. We saw good growth in -- what we've seen in both halves, actually relatively similar levels and 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. On the basis of that ongoing momentum within the business, then as an economist to say, [indiscernible], then actually, you would see strong free cash flow conversion from the operating profit levels that we have. Again, not sound complacent. There could be some other one-offs, of course. But yes, that we should see that. So definitely, our ambition is to scale the business. Definitely, we remain focused on cash as well as profitability. Definitely, we see upside in trying to improve those numbers, frankly.

Yes. And final question from Mark. A Trump tariffs impacting in a way that decision-makers are distracted or holding back on investment in new software or up has churn or down trading increased? Perhaps I'll give you a break, Neil, I'll try and answer that one. There's no tariffs impacting our trading at the moment directly. There's no tariffs on software or services, but also we have a U.S. trading business, trading entity where we're invoicing from. In terms of our decision-makers and is it distracting perhaps slightly. However, we feel that we're not really seeing that so much. I don't feel we're very much having, I guess, entry-level conversations into an organization about how they're going to run projects. I think as we scale up, we'll have more of the enterprise-led conversations. But I think there is just a demand and trend for adopting better ways of working. Many of the customers across -- not just construction, but just across the building life cycle adopted a lot of different software tools to solve problems in the last 5 years, post-COVID. And it's very chaotic. 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 technology initiatives that are happening across the building life cycle. So that's really yes, really continuing, and we see opportunities there. So I don't think we're direct -- we're definitely not directly seeing an impact. We hear our customers saying business is challenging, but we're not hearing that -- I'm not hearing personally, not hearing about tariffs so much. And then has churn -- yes, has churn increased. So we have seen -- I think I mentioned it in one of the meetings, we looked at the U.K. customer base, and we have 13 customers filed for administration in the first half. I think last year, some might remember ISG went into administration, but, yes, that's probably been the main causes of churn, I would say. And many of the projects were taken up by other customers. So STO London, we were very pleased to expand their account through the ISG projects. So we do see churn through bankruptcies. We've seen quite substantial numbers in Sweden, but they're small businesses, plumbers, electricians, ventilation businesses. We've also seen many new companies becoming new customers, small businesses as well. So there hasn't been anything apart from, I guess, maybe an increase in the number of bankruptcies, nothing really that's driving -- not relating to tariffs anyway that's driving churn.

All reflected within the numbers that we've sort of talked about anyway. So exactly.

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 all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But Jonathan, before I redirect investors to provide you with their feedback, which I know is particularly important to the company, could I please just ask you for a few closing comments?

Yes, of course. Thank you. It's been -- yes, 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 very much take that on board. Otherwise, we're delighted with the improvements in performance and look forward to sharing progress when we meet again 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. 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.