Made Tech Group Plc (MTEC) Earnings Call Transcript & Summary

Welcome to today's webinar hosted by Made Tech to discuss the company's 2026 full year results issued earlier today. Bear with us one moment. My name is Simon Geelon, and I manage Made Tech's Investor Relations program. On the call today to discuss the results are Rory MacDonald, CEO; and Richard Swinyard, CFO. Before I hand over to Rory for his formal remarks, I would draw your attention to the important notice slide in our presentation, which is on screen now and available to download at madetech.com. At this time, I will now turn over the call to Rory. Rory, please go ahead.

Thank you very much, Simon, and good morning, everyone. Welcome to the results presentation for FY '26. So for those of you who are less familiar with the Made Tech story, we're going to start by talking a little bit about -- providing a bit of background on the business, talk a little bit about kind of the clients we serve, the business we are today. The Made Tech business really is here to build the next generation of public services. We work with public sector organizations to modernize critical services that citizens rely on every single day. Really, the work we do kind of spans digital and what we're now calling AI transformation. We provide everything from citizen experience services through to kind of legacy and data modernization, cybersecurity, managed services. We're increasingly spending more of our time developing reusable solutions and IP that over time, we expect to be used across multiple clients, really kind of helping to accelerate delivery and the outcomes for the customers we work with. The business -- the Made Tech business has really kind of reached a meaningful scale now. We're almost GBP 60 million of revenue. We've achieved a 35% compound annual growth rate over the last 5 years and GBP 250 million of contracts have been won since 2023 with a contracted backlog at the end of July of GBP 115 million. The business continues to be debt-free and have a considerable amount of cash on the balance sheet. So strategically kind of in a really strong, strong position. Before we go into kind of the investment case and talk through that in a bit more detail, I'm going to hand over to Richard, who's going to talk us through the financial performance that underpins the investment case and the story. Richard?

Thank you, Rory. So at a high level, financial year '26 was another great year for us with strong performance and growth across the business. Our revenue increased by 27% to almost GBP 59 million. Our gross profit was up by 20%. And importantly, for us, our EBITDA margins hit 10% for the year. Very importantly for us, that EBITDA growth is at a significantly higher percentage than the revenue growth as we continue to drive efficiencies, imply strict cost discipline to help us improve the overall performance of the business. Our contracted backlog and sales orders were not quite where we'd hoped. But at the end of July, our contracted backlog was up at GBP 115 million, showing the strength of our relationships with our existing clients and our continued winning mentality on bids. Importantly for us as well, the profitability that we're driving is translating into cash. We continue to see strong cash generation. We continue to see that as a result of the fact that the revenue increases are high quality that are driving the right kind of profit. We believe, as Rory just said, that having that amount of cash on the balance sheet puts us in a very strong position strategically to explore inorganic and organic opportunities for growth that come up for the business. I will hand back over to Rory to talk about our clients.

Thanks, Richard. We like to think our customer relationships are kind of really one of the kind of core strengths of our business. We've got a bunch of relationships that are really long term and of high quality. If you look at the kind of logos on the slide here, you'll see kind of a number of organizations who you'll likely be familiar with who are critically important for national public service delivery. A number of these relationships have been kind of long-term relationships that have been going on for somewhere in the region of kind of 5 to 10 years now. It's worth kind of flagging that these customers are -- they're hard to win, right? Public sector customers of some of the nature we've got are very kind of critically important to kind of lots of organizations. And some of these customers have been kind of really hard to win and expanding the relationships with these customers over the years is even harder. I think we've shown time and time again that our business has been able to do that, win these customers and kind of build long-term multiyear relationships with the customers kind of listed here. It's also kind of worth flagging that the projects and kind of things we are delivering for these customers are of significant scale, high-impact digital transformation programs that help public sector bodies serve their clients more and more efficiently. Just to kind of give kind of a few examples, some of the work we do with kind of the Department for Education running the Reception Baseline Assessment is a national kind of program supporting kind of all reception level children to be assessed as they kind of enter school. Lots of kind of really significant programs that we are delivering across government. The relationships that we've built here have really been kind of built over many years, and they underpin the historical growth of the business has seen, but also kind of the future opportunity that we see ahead. Talking about kind of the journey, I think it's kind of worth reflecting on the business has evolved considerably over the years since it was founded by me in 2008. In the early years of the Made Tech business, we spent a lot of our time kind of working with kind of high-growth technology businesses. And that really kind of set the early kind of stage culture and kind of ways of working that have now flown through and kind of support the public sector organizations that we deliver for. We pivoted into the public sector in 2017. And so we've now been serving that market for nearly 10 years and kind of really built a kind of strategically valuable proposition in what is a kind of significant growing market. Since we IPO-ed in kind of 2021, we've continued to scale the business further, winning kind of larger contracts, expanding our capabilities. And kind of we're really pleased to see the business has achieved a 35% compound annual growth rate over the last 5 years -- or sorry, last 6 years. And on that journey, we've materially improved our profit margins going from 3.8% in FY '23 through to kind of 10% in FY '26. I want to kind of highlight this as the history matters because it shows the growth is being delivered organically through kind of strong execution, deep levels of kind of client trust and a real continued focus on the U.K. public sector. That's a really important kind of part of our business and kind of really the investment case for investing into the Made Tech business. Just to kind of explore that a little bit further. I want to step back and kind of really explain kind of why we think the Made Tech business represents an attractive long-term investment opportunity for investors in the market. I think the first thing to kind of flag is we see the market opportunity -- well, we see the business operating within a structural growth market. We see the public sector digital transformation journey being a multi-decade journey that we're still at the relatively early stages on. There's significant amounts of productivity kind of improvements that need to be made in the way kind of public sector delivers technology. There is citizens up and down the country are looking for kind of better and better services from their governments. And the way kind of digital transformation drives that is a really important part of how we see the market opportunity for the business moving forward. The other kind of piece to flag is the supplier dynamics are kind of moving increasingly in our favor. We are a mid-market U.K. tech company. And that is really important as the government is looking to do more and more work with kind of British technology companies, and we're seeing kind of an increasing trend of that in the market. We think that's going to really drive a kind of multi-decade digital transformation journey. The second area kind of to focus on is the -- we see the business as being a trusted and proven partner to public sector organizations. We've been embedded in the public sector now for a number of years. We've got a number of long-term client relationships in places like the Ministry of Justice, Home Office, Department for Education. And that kind of trusted relationship really underpins our ability to kind of win more and kind of continue to scale the business. The clients we've got, we expect to be able to continue working with them for years and years ahead and to expand and build on those relationships into other areas of the public sector. The third kind of pillar that we see within the investment case is around kind of AI and how we see that kind of driving the next wave of kind of transformation that's needed across government. We're increasingly expecting kind of AI to have a massive impact on the way kind of public services are delivered. We're expecting there to be a significant increase in demand as citizens up and down the country use AI to engage increasingly with government and to drive inquiries and information requests into different parts of government. We think this is going to require a step change in the way government delivers its services, and we think we're really well positioned to kind of support government on that transformation journey. We also see AI as an opportunity for us to look at how we drive, how we continue to operate our business efficiently and how we improve the service delivery for our customers. So we see lots of opportunities in this space. I think it will be a really key driver of opportunity for the business moving forward. The fourth area we just wanted to highlight is earnings visibility and the kind of balance sheet that underpins our business. The contracts that we've gotten and we've won over the years have been multiyear contracts from repeat customers. And we've seen kind of really strong customer retention over the last 8, 9 years that we've been operating within this market. 80% of the revenue that we've delivered in FY '26 have come from customers that we were working with back in FY '23, so 4 or 5 years ago. And we're seeing significant runway and opportunities ahead as our contract backlog kind of builds out over the coming years. We also have a kind of significant amount of cash in the business and are completely debt-free. So that gives us a number of different options around how we might strategically deploy that cash over the kind of coming months and years. The other thing I want to point out here is our pipeline is strong going into FY '27 and '28, seeing lots of opportunities for us to win and continue growing the business. So that kind of earnings visibility, growth visibility is there, and we have the balance sheet and the cash in the business to fund that growth over the coming years. The final point I kind of want to flag on the investment case is around being kind of founder-led and having a proven track record for delivering results. We've proven now over a number of years that the business is resilient and can respond to changes in the market conditions. We've got very strong alignment with shareholders. And we've shown we can deliver and execute and grow the business from what was GBP 13 million when we IPO-ed to GBP 59 million in revenue last year. We expect that trend to continue in the years ahead. Jumping on to the next slide. I just want to kind of touch on how we think about the market opportunity. The total U.K. government technology market is very substantial, and we're expecting it to grow over the medium term. We see our addressable market today being about GBP 4.5 billion in value. And there are clear drivers for how that market is evolving and the opportunities for businesses like us. The supply dynamics are evolving. You'll see on the chart on the right how the U.K. government currently spends about 42% of its technology spend on U.K. HQ businesses. We think that is a significant opportunity and will enable us to kind of continue to kind of grow and see market expansion over the years ahead as the government kind of pushes this kind of Buy British agenda. So we're interested to see how that plays through over the coming months and years. So overall, the combination of the market, the supply dynamics and the relatively low penetration we have in quite a significant market gives us a significant runway ahead for us to continue growing the business and driving things forward. And we're really excited to kind of capture the opportunity moving forward. Just moving on to kind of how we think about winning within this market. So there are 5 kind of key things we look at. The first thing is we win because we are a trusted public sector delivery partner. We've proven time and time again that we can kind of deliver public sector projects at scale. We've got 9 years of relationships and work that we've delivered, and we're highly regarded for that. We're public sector native. So we focus our whole organization on delivering outcomes for public sector clients. We don't have our people kind of spread across multiple industries, right? We have people focused all in on public sector delivery and delivering kind of fantastic outcomes for citizens. That aligns really well with what our kind of stakeholders and our client in the public sector are looking for. We've got deep client relationships and evidence of kind of ability to retain and win over and over again. And we've got some of the kind of key clients listed out on the slide here. We've also got kind of very significant expertise around kind of digital AI transformation, lots of experience in citizen experience, legacy modernization, data modernization, cybersecurity, managed services. So we've got significant technical expertise that is really critical in driving forward the next wave of transformation that's needed for government. And the fifth thing and the final point I kind of want to highlight on kind of why we win is, we're large enough as an organization now to win the bigger contracts. We're also agile and able to move really quickly. And that's really important for our clients in the public sector who are looking for organizations who can adapt with them and can scale and kind of meet the evolving needs that are kind of being thrown at our clients kind of day in, day out. That's a really, really important part of what our clients look for in a partner, and we're really well suited to providing that. With that, I'm going to hand across to Richard, who's going to talk a little bit about our performance and growth over the last few years.

So this slide pulls together the financial evidence to support the story that Rory has just been explaining around Made Tech and our growth. We have now in the short and the medium term, this consistent performance and growth level. We are seeing on the back of our reputation and our performance, continued and growing demand within our existing core client base that's building long-term relationships that's enabling us to scale, as Rory just mentioned, at about a 35% CAGR. What is also really important for us is that, that revenue growth has a quality of earnings around it. And therefore, the fact that we've been able to increase our EBITDA at a faster rate than our revenue is obviously an indication of the fact that we have a scalable and a repeatable business model that's helping us. On the headcount side as well, what's very important to draw out from here is that we're delivering more each year from our employees. Our headcount is increasing at a lower rate than both our revenue and our EBITDA, which gives us that confidence to believe that we can continue to grow the business forward successfully. It is also enabling us to generate the cash flow that we need to continue to make the investments in the business, both now and for the future. What we're really saying here is the bottom line is that we're delivering that rare combination of high growth, expanding margins, robust cash conversion and strict cost discipline. On this next slide, there's a key theme that we've seen over the last year is that we're starting to win longer and larger contracts, which is obviously part of the reason why our backlog has increased to GBP 115 million at the end of July. And since that number was, we've also had the good news about the Met Office framework, which we've been awarded a place on. Within our core client base, 80% of our revenue over the last 4-year period has come from the same clients each and every year. So that is really helping us as we build these relationships, we become a trusted partner to get a great deal of revenue visibility for our current and our future financial years. And importantly, It's a milestone for us. We've now gone through winning GBP 250 million worth of contracts since 2023. We also believe that, that is a trend that will continue, and it looks like H1 for 2027 will be a record 6-month period for contract wins for us as a business. Something that shouldn't be underestimated as well is the challenges of entering into this market space. There are high barriers to entry in terms of needing to win and get on to frameworks, being able to show a social value proposition that we also are investing heavily in to make sure that we stay in a very strong position. I'll hand back to Rory.

Thanks, Richard. So we've spoken a little bit about the kind of journey we've been on. I want to talk now about what the growth strategy looks like moving forward and kind of how we continue the fantastic momentum we've seen in the business to date. Yes. Our medium-term strategy really is pretty straightforward. We start with expanding and deepening the relationships with our existing customers, right? These customers will underpin the near-term and the long-term growth of our business. So kind of doing great work for them is absolutely critical, and we will continue to kind of focus on them. Secondly, broadening our reach to adjacent public sector verticals, so areas like defense, doubling down on health care. These are areas where we think it's really important to expand our footprint, but also use the delivery model that has worked so well in the other areas of government to deliver more. Third area is around new logo acquisition. There are a number of areas in government where we don't yet have established relationships, and that gives some areas like DWP are key kind of targets for us where we think we can kind of win and kind of build our business over the coming years. So we will focus on kind of new logo acquisition and kind of driving that forward. The fourth point we're really kind of doubling down on is growing the recurring and longer-term kind of revenue visibility. So that piece around kind of the long sort of recurring revenue and the quality of earnings is a really important kind of theme for us, and we're going to continue kind of focusing on that over the kind of months and years ahead. We'll use kind of reusable solutions and IP to kind of help drive that, and we'd expect that to kind of lead to margin expansion in the years ahead. Fifth point we want to kind of highlight is around our partnerships and alliances. These partners, they can help us win larger opportunities that we wouldn't be able to access directly ourselves given our current scale. They also help us kind of reduce the cost to win. So this is an area of kind of focus for us moving forward, particularly when we're breaking into new areas or areas where we are not as yet at this point in time as well established. And then kind of final area really of focus is around selective M&A where it strengthens our strategic positioning. There are a number of areas I've touched on there where we are looking to accelerate our progress and M&A can help us to do that. We will only do that in a disciplined way that will kind of drive results, but in a kind of very disciplined way because we are already kind of delivering a business that's growing quickly organically. So we want to make sure any M&A we do is additive to that and kind of help kind of build the business strategically in the right direction. But that will be a kind of area we will focus on, and you'll hear more from us on in future kind of periods. Together, these 6 initiatives will really kind of help to drive the business forward and drive the kind of long-term growth and value creation that we know is kind of important for our business and for our shareholders. So this is a really key part of kind of how we see the next few years of the business moving forward. It's -- I can't really kind of give a presentation as a technology company without talking about AI. But we see AI being an increasingly more important kind of part of how we provide services to our customers, how we deliver our service to our customers, how we operate our business and the growth and the demand environment from our customers. I touched on earlier about the increase in kind of service demand we're expecting or we are seeing within public sector organizations that are increasingly being driven by AI. We are increasing kind of how we deliver for our customers and increasingly use AI to deliver our customers. And we're also looking at how we use AI to improve the operational efficiency of our organization and deliver better outcomes. We see all of this being about enabling better outcomes for our clients and the citizens who ultimately use the technology that we deliver. And we see it being a really important part of what the journey over the next few years will look like. We jump on to the next slide. Also just to conclude, we've started FY '27 with really good momentum. We've got a kind of really kind of strong platform to build on, and we've already upgraded FY '27 expectations back in August as the kind of business was trading really well. We are really well positioned in this market to deliver on sort of the long-term opportunity. There is significant amount of modernization required. There's a significant amount of work required to deliver on citizen experiences, the AI transformation opportunity. And the Made Tech business is really well positioned to capture that opportunity as a sort of mid-market British kind of U.K. HQ organization. So we think that kind of really kind of helped the outlook for our organization over the coming years. Alongside that, we see a significant growth and margin upside off the back of the AI opportunity as we start to increasingly deliver reusable solutions for both kind of products and more broadly across the organization. We think this will help us to scale and also help us to improve margins over time. So we think that's a really important kind of dynamic at play. And then finally, we've got a very kind of strong balance sheet, approximately GBP 14.5 million in cash, I think, at the end of the period, and that really provides strategic optionality for the organization moving forward. There's not too many organizations who have the kind of cash position that we do and multiple ways to deploy it. So that gives us a number of different opportunities to look at how we continue to grow the business over the next few years and continue to deliver great results for shareholders. So with that, I'm going to hand across to Simon, who is going to moderate Q&A.

Thank you very much, Rory. So good afternoon again, everybody. [Operator Instructions] But should we not get to all your questions in the time we have remaining, please do follow up with us at investor-relations@madetech.com, if you wish to discuss anything raised on today's webinar in more detail. We will now take our first question from George O'Connor at Singer Capital Markets.

At the risk of aging myself, there was a time in the late '90s where even my grandmother was making out like a bandit in COBOL programming. Are we looking at a similar situation right now? U.K. gov spend looks very large. There is a lean into mid-market and U.K. technology providers. Is there anything extra you need to do beyond hiring and clearly delivering to spec when you look at your portfolio and the skills in order to execute on TAM?

Thanks, George. Yes, yes, it's certainly kind of a buoyant time in the market, in the public sector market at the moment. There's lots of opportunity. There's a lot of kind of transformation to go through. Within our business, there's obviously kind of lots we need to do to kind of continue to scale and to capture the opportunities. But we have the right foundations and the right people in place across the organization to kind of capture the opportunity that's ahead of us right now. Over a number of years, we have been investing in bringing the right people into different parts of the organization, building out new capabilities and new offerings to make sure we are well positioned to capture the kind of the end-to-end sort of transformation opportunity that's occurring. So we have a lot of those foundations in place. We need to execute and continue to grow with new contracts, deliver on those contracts and make sure we build, continue to kind of build the reputation that we've got in the market. And I think that if we can deliver on all that as we expect to do, we think we should do very well over the coming years.

4/5 of revenue has come from customers active through the period. What does land and expand look like from a numbers perspective? Any idea what your penetration rate is in your existing customers?

Yes, that's a good question. So that does vary by account. So we will see some of our -- some of the sort of larger departments where we will be sub 3% to -- sub 3% of spend on digital technology at this point in time, where they'll be spending GBP 1 billion a year on technology, and we will be the single-digit millions of revenue for organizations. So a significant opportunity ahead. There are other parts of government where we've got a more established larger percentage of spend coming through to the Made Tech organization. So there can be some organizations where maybe 20%, 30% of the spend they're doing in digital will be through the Made Tech business. So we will see different kind of percentages in different places. Overall, there's a huge amount for us to go for, though. I'd say we are at a relatively early stage on what is a kind of long-term opportunity. There's a huge amount of demand we can capture from a number of the sort of large incumbents, but also from the new programs where there are no incumbency yet. So significant opportunity ahead, relatively low market share given the size of the TAM.

Rory, do you need to hire into that sort of customer relationship people, quota-carrying, guys and girls?