Synertec Corporation Limited ($SOP)

Thank you. Welcome, everyone, to Synertec's FY '26 First Half Business Update. And welcome to the new shareholders who came across as part of the perennial tranche. I think your timing is exquisite. So I look forward to providing further updates when we can. I've got with me Yash Gala, the CFO of Synertec; and Lisa Borden, who's our MC cum moderator for today. Lisa, do you want to run through how people might drop questions into the session?

We do want to make this as interactive as possible. We really welcome your questions and your feedback. [Operator Instructions] We're going to do our best to get through this presentation in time to answer as many questions as we can. Thanks, Michael.

Okay. I'm going to flip through some slides here. We'll get to the next slide. Yash, do you want to take out this one?

Thank you, Michael. Welcome, everybody. I would like to start by saying we've had a great first half. For the first half FY '26, the group has delivered a materially improved financial result, recording an EBITDA loss of $1.5 million, an improvement of $1.9 million on prior comparative period. This result reflects both disciplined execution and underlying operational momentum. Revenue increased by 20% year-on-year, which is driven by solid growth across both the Engineering and the Powerhouse business, demonstrating an improved market traction and scalability of our operational model. At the same time, we've remained sharply focused on the business efficiency via cost discipline, delivering $1.3 million of operational cost reductions in the first half of this year. These initiatives are built upon the prior half amounting to a $2.5 million cost saving across the calendar year 2025, positioning us as a business with a structurally low cost base. Importantly, the pipeline is strong and diversified across both business units and work-in-hand position is stronger than ever before. Move on to the next one. This slide demonstrates a clear uplift in EBITDA performance on previous periods. That improvement has been driven by a combination of revenue growth, cost reductions, like I mentioned before, and a strong operational execution. If we focus on Engineering, Engineering has materially improved in terms of the project margins and utilizations, reflecting better project delivery and tighter delivery disciplines. Powerhouse continues to perform exactly as expected, delivering EBITDA margins above 90%, consistent with prior years. This provides a stable and high-quality earnings base for the group. The EBITDA uplift that we are seeing is -- which is underpinned by margin and execution improvement. It's not just volume which gives us the confidence, but it's actually the durability of the earnings, which we continue to scale upon. Move on to the next slide, which is about cash flow. So if we turn to the cash flow, the first half represents a very strong inflection point for the business. We've moved from $1.2 million net operating cash outflow to $0.5 million net operating cash inflow. This has happened first time since FY '19, marking a significant milestone. This improvement has been driven by materially stronger working capital management, reflecting tighter controls over billings, collections and project execution. As a result, we are seeing earnings improvement translate more effectively into our cash. Back to you, Michael.

Okay. Thanks, Yash. If you just move on to forward a couple of slides. Great. The product strategy for Powerhouse started about 4 years ago. We set out to develop a capable, flexible and robust technology platform and we wanted to be able to offer that platform across multiple markets. So that has transpired that now we can operate in the highly sophisticated, highly robust markets, which is Santos and Shell and down to our other markets, which I'll come to in a moment, which are perhaps less sophisticated but nonetheless, will generate great business for us. I won't go into a lot of these slides are information slides for the shareholders. I'll only pick up points here and there, which I want to highlight along the way. So that's what we set out to do right at the start. And now we'll run you through our progression over the last 4 years or so. We have 4 distinct market segments which have opened up to us over the last, say, over the last 4 years, and in particular, the new -- the ones on the right-hand side over the last 18 months or so. We initially targeted the remote high availability power, again, Santos and Shell. And now we're moving into the Powerhouse, the urban powerhouse, if you like. And that's the [ TasNet ] system that we've just announced last week or so. And then the next markets, which we are heavily engaged with major operators with is what we call spinning reserve, where the operators might have a bank of, say, 4 large diesel old technology generators consuming a huge amount of diesel. And what they are looking to do now that we've sort of cracked the code. We've got the track record, 4 years -- probably now 6 years' worth of operational data across our operating powerhouse units. We've got their confidence. They are now looking at their critical diesel generator applications and looking to retire diesel generators. And so Powerhouse will, first of all, replace one diesel generator and then replace another diesel generator and so on and so forth. So this is a huge market, which offers great benefits in Scope 1 reduction, but more importantly, for the operators, it will be cheaper and more reliable. The grid resilience, which is the column on the right-hand side, the grid resilience market is in remote communities where towns, sizable towns are experiencing unreliable power. Powerhouse can plug into that grid at that point there and buffer power in and power out voltage regulation and frequency regulation as well. So these applications are a little bit less sophisticated than the far left ones. But nonetheless, they are really large markets, and we're very keen to put our best foot forward. There's not so much competition in these markets yet. We are at the leading edge of this. And so that's very exciting. Yes, if you want to go to the next slide. I wanted to put a demonstration of our cost advantage, especially over the last year or so. What we've found is that the cost has always been a perception of a barrier for people to take it up. Our supply chain now, we are delivering significantly cheaper powerhouse units. And this graph, if you look at the left-hand side of this graph, in the dark blue is our cost base back in FY '25. In the light blue is our cost base now. So we have actually come down in price over the last year. I think this was -- last year was FY '25, we put those numbers out in a presentation. And if we compare that against the diesel generation that we are targeting and gas generation for that matter, their costs have gone up as evidenced by the move from the dark blue to the light blue. Those costs are going to keep going up as diesel with the current geopolitical problems that we're experiencing with the increase in labor costs, Powerhouse basically is a hedge against increasing costs once it's installed. It's a really powerful proposition and fundamental to our business. So I think -- again, this is an info slide rather than a talking slide. There's a lot of words on it. I won't go through it. I just want to emphasize one point on the right-hand side, and that is the autonomous operation and the power of the autonomous operation that's built into our powerhouse systems. When Cyclone Albert came through about a year ago, this was a point of real point of interest to us and to the likes of Shell, Origin, Santos because a lot of their generators, both gas and diesel, stopped through maintenance, breakdowns through no fuel being able to be delivered on the dirt roads. Our system sailed through. We were always asserting that this was -- this would happen, but we have to wait for an event, which was Cyclone Albert to demonstrate our promise to the client. So that also has given us a bit more impetus amongst these -- the largest energy companies in the world. They make a lot of money doing what they're doing, the way they're doing them, and we're presenting to them an alternative method. And it takes a lot to turn the titanic but we are doing that. And we're getting runs on the board and greater engagement through all of the major -- through all the major energy majors. Okay. I think that's all on next slide. Now I dragged this slide from an FY '24 presentation. And this is what we presented to the market back then, and we have delivered on this strategy. So we spent the last 2 years honing, gathering great partners into our ecosystem. And we now have delivered on this strategy. If you go to the next slide, please, thank you. This is all in place now. We are delivering units via this strategy. Our current supply chain can deliver over 500 units per year. This has been a big body of work by the team, and we are very excited about the ecosystem that we've gathered around us. They're big technology players, the likes of Siemens, we've already announced. There's some others that we will announce in the future. So this is something I get great satisfaction out of. So it's one thing to say that we are doing something. The photo here is evidence that we have delivered. These are the first 2 units which have come from China. The one for Shell and part of one for Santos. Shell, in fact, sent a representative to China to run their nose over these units. Behind the doors is a fully stacked battery box, fully wired, ready for the plug and play of the control panel, which goes in under the verandah that you can see in that photo there, and it plugs into various junction boxes. This is how we're protecting our IP is having the smart, the brain, if you like, developed in Australia and commissioned in Australia. So this is obviously a very exciting time for us. For the new investors, I thought given the recent articles in the [indiscernible], which is the one I read that there's been 1,695 new wells approved for development by the government. I just took me back to this slide. So our original thesis for powerhouse is we took an idea to Santos 4 years ago. They embraced it. And where we've ended up is we are now central in their consideration. It's still baby steps, but we're getting there. And for changing the way super majors do their business, it's a challenge, as I said. Where we're at now is that there are something like 11,000 coal seam gas wells. We're powering about 15 of them by 3 units. We have 2 units which are in manufacture now, one for Shell, one for Santos, one more for Santos. And I think the rate of approvals will increase given the energy shocks and also the -- I suppose, the consolidation of gas in our energy mix. The projections for coal seam gas wells is very large. And you need to do your own research on that one, but it's very large. Many, many -- twice as big as what it currently is potentially. So that brings us to TasNetworks, which, as I mentioned, it falls into the second segment of our 4-segment market strategy. And I think it's important to us because this is an industry first. So we're delivering something that hasn't been done to this sophistication before. The other DNSPs and there's 13 DNSPs in total across Australia, they will take this up, they're watching very closely. This has been a 3-year process for TasNetworks. That demonstrates that we are on the cutting edge of what will be a very important technology. It's a new approach to energy security, and there are going to be significant barriers to the competition that will come up behind us. So we're really excited about this opportunity, and we're grateful for TasNetworks for giving us their faith in delivering. Again, this is a bit of an info slide, but I just want to draw your attention to the last part of this slide. And that is that I think the big thing that's coming, which is going to further cement this technology is the change in government and regulatory direction. This technology is going to be so important in the stabilization of the national energy grid into the future. So it has a long runway, which we are right at the start of. And at the moment, there might be 1 or 2 others who are coming up behind us, but it's going to be an uncrowded market for quite some time, I believe.

Michael, just before I move on from this slide, it is good to note in that picture that you can see under the veranda where all the smarts are sitting. So this one has got the smart technology sitting under the verandah. So all of the hardware and the low or the dumb technology is outsourced and offshore and the smarts are kept in Australia are well hidden under the verandah there.

Thanks, Lisa. Appreciate that. So how are we going for time? We're on time. So we move to the Engineering. And while the slide here would think the number of slides, you would think that the engineering is the poor cousin. It's not. It's really important to us. We have 100 people in the engineering business. We operate in very sophisticated sectors. The DNA of the engineering business is really well and truly in place in the technology business. So that's important. I can report that the engineering business is going well. That is evidenced by what Yash has already said, but perhaps also by the growth in the Sydney and the Perth markets. We -- our panel strategy is starting now to pay dividends, which we're very excited about, and we get great satisfaction out of that. And with the nature of the long-term panel arrangements, we see growth in the engineering business well into the midterm, if not beyond. These panels last for years. They're difficult to renew. They -- because there's limited competition that the big infrastructure companies can call upon to deliver, it sets up a moat, it sets up a trust. It does protect our margins. It's a really good space to be in, and we're just at the start of that.

I think one other thing to note about the panels is Synertec has a long history of long-standing client relationships. Synertec and CSIRO have been clients together for over a decade. So these panels are just primed at Synertec to be part of it to deliver well and to be engaged over the long term with these customers.

Exactly. So going to the industry sector performance. As we said, water is going really well. Life science is going really well. I suppose the question is where is -- what's our next opportunity horizon for growth. And we believe that the energy and resource sector for us is probably underrepresented in our revenue. We have the capabilities. We are working hard. Our industry leads are working hard and focusing on opportunities in the energy and the resources. The third horizon of our growth opportunity is in defense and manufacturing, particularly defense. We are doing work in defense now. We have done work in defense in the past, but there are gate openers that we need to get through and that for the type of work that we're targeting. And we need to get our accreditations DNSPs, DISPs, these sorts of things in place. And that's a process where we've got a small team working on ensuring that our accreditations put us right in the sweet spot in order to -- it's sort of like a panel, I suppose, to deliver to the trends. I don't think there's anything more to say there. I'm pretty happy with that. So in summary, I suppose you might have got the tone that we're pretty excited. We couldn't be more excited about the future. The last one you come to, Lisa. We couldn't be more excited about the future. And I suppose just to give you -- within this slide, I made a change. This is a quote from my half year quote when we released that. We had a figure of $70 million in the pipeline for Powerhouse at February 26. That is now $122 million. It's a very busy time. It's chaotic. It's exciting. And I've got to say I'm looking forward to the next 18 months or so. So I think if Lisa can pull us together, we might have some questions.

Sorry, I've got one job to do. Now we have had some questions come through. We also had some questions e-mailed to us beforehand. So I'm going to start with a question it says a top 5 shareholder, a well-regarded small cap investor has recently sold out. Clearly, Powerhouse adoption and rollout has not met initial expectations. What feedback are you receiving from customers on unsuccessful tenders and proposals as to why they're not proceeding? So Michael, I might hand that one to you.

The first question is, yes, Perennial decided to move out. They crossed to a series of well-known investors, well known to them. The reasons for that, I haven't asked Perennial but these things happen. Circumstances change, people need to realign. That's fine. We agree. We don't mind that. That's okay. We thank Perennial for their support basically thus far. But in terms of the second part of that is the expectation side of things. I think that's a fair comment. Back when we first started, we had undertakings from large multinationals. We won't say anything. We communicated that to the market. We thought we had a deal. The people we were dealing with thought they had a deal, but the deal fell over. So that was a big disappointment way back. We've been rebuilding since then and probably on a more traditional technology-based development pathway. We thought we jagged the elephant, I should say, we jagged the whale. We did for a moment, and we lost it, and we've been rebuilding it. So I think there was some disappointment early on. I acknowledge that. No one more disappointed than our team. But in terms of why the feedback, why we didn't bag that was internal politics within the super major. In terms of more recently why we have lost -- we haven't lost any projects when it comes to Powerhouse. It's quite incredible that it's a new technology that people haven't had time to sort of pull away or give the work to somebody else. There isn't anybody else to give it to. So I can honestly say that we haven't lost any meaningful or meaningful from the client's point of view, opportunities. And that sort of, again, goes to we're right at the start of this journey.

I'm really waiting for the market to catch up and see.

Yes, that's right.

Okay. Can you -- what about this one around the recent federal government approval of 1,695 additional gas wells in Queensland. Can you shed some color on how many gas wells there are, which you've done well? And how many existing wells of powerhouses available market is of those wells? So what's the market share today? What's the future market share? And then finally, it's a question around does one powerhouse unit serve one or multiple wells? And does this depend on the [indiscernible] wells. So can you share a little...

This can go really be this question. Currently, we are doing somewhere between depending on the geography essentially, we can power 1 well of 1 powerhouse unit or 10 or 12 or 15 of 1 powerhouse unit. It depends on how the wells are clustered. So at the moment, we're powering -- well, we're powering 11 wells currently because they're doing some -- the client is doing some work, but that's designed for 15 wells. So 3 powerhouse units are doing 15 wells in typical operation. And -- going to the flexibility of our technology, you need to have a super sophisticated, reliable energy source, which is powerhouse better than 99.9% availability if you're powering 10 wells. You can imagine if powerhouse goes down, they lose the production from 10 wells. On the other side of the scale, if you're only powering 1 well and for instance, you've got something like 3,500 wells, but the geography of your field means that they're too far apart, then you just want to be powering one with one powerhouse unit. The sophistication of that powerhouse unit based on the damage that can be done if it breaks down or whatever, means that, that client is very happy to have a less sophisticated unit delivering power to 1 well. And that, in fact, is the Shell model. So we've got 2 models there. We've got the highly sophisticated Santos model because we're powering lots and lots of wells per powerhouse over to the Shell, which is 1 well per powerhouse. So that then comes down to sophistication is less important, communications and autonomous operation becomes really important. But cost is so -- we've got to be so cost effective. And if you go back to that slide around cost effectiveness, you look at the single diesel generator, we're cheaper than the single diesel generator. That's our opportunity for Shell. They only have about 3,500 wells. So we're working with Shell on that.

So just on that one, Michael, so there's an additional question that's come on Slide 9 to clarify what the graph shows, specifically around the 1, 2, 3 diesel generator data points. And the question is that, is it implying that 3 diesel generators are needed over a 7-year period. So I think one of the investors is confused as to what are we trying to say there in that particular one. Sorry.

Put that slide back up.

That's a fair question. So with critical operations, you cannot use just a single diesel or gas-fired generator. They have a reliability figure of about 0.8. So 1/5 of the time, if you had it just on its own, it wouldn't be operating. So the way you get your availability up is you put multiple banks of diesel generators. So depending on the criticality of the application, you will have more diesel generators operating in series. So that's what we're demonstrating there. So with Santos, we are operating at the times 3 generator. So at the high end there because the one generator breaks down, the other one kicks in. And if that one breaks down, the third one kicks in. And they're in the middle of nowhere. So it takes a long time and a lot of effort to get people out to service them. That's why they have 3 because they're driving maybe 10 wells. Our Powerhouse system has replaced that 3 diesel a gas-fired system. And that's what we're rolling out now against multiple generators. Does that answer the question?

Yes.

That's clear. With clean energy, highly reliable, weather-resistant, supply chain disruption resistant, yes.

That's right.

Okay. I think we've got time for -- actually, we really have run out of time. I think we might leave it there for today. If we got one more.

There's a question about TasNetworks.

Yes.

Yes. I think one question there, and it's been asked a couple of times is why didn't we disclose how much the contract value was for TasNet. The contract value is $3.5 million for us. The total project value, I think, is $4.5 million. It's a dance that we have to play with government agencies. We've got to get the approval of the counterparties, and it is just really difficult. They don't understand that when we sign a contract, we've got to announce very quickly. It's a requirement of the ASX. So if we put too much information into the announcements, they throw their hands up and they say, well, you can't say this, you can't say that. So it's really a strategy to get the announcement out. And I think some of our announcements, we go into a lot of detail and others, we don't go into much detail. Obviously, we want to give as much detail as we can to our investors, but we are somewhat hamstrung sometimes. So that's the reason around that. We wanted to get the announcement out quickly. And we decided not to put it in there, not to raise. Even though it's on the website, I know all that, it's a really difficult sometimes.

It's all on Arena's website as to what the project is and...

That's Arena, not TasNet.

All right. Well, I think we're going to wrap it up there. Thank you, Yash. Thank you, Michael. Thank you to everyone who's joined the call today. Sorry if we didn't get to your questions, we did have a lot to get through. Thank you very much for your time, and we look forward to seeing you again shortly soon.

Thank you.

Thank you again.