Synertec Corporation Limited (SOP) Earnings Call Transcript & Summary

[Audio Gap] Guidance. So the momentum in performance continues. The foundations are set. And all I will say is FY '27 is already taking its shape. Go on to the next slide. So our financial trends, which you can see here, they are unmistakable. On the left, we are looking at our net operating cash outflows, a consistent performance year-on-year. A big change and shift from FY '25 to FY '26, amounting to $4.6 million. On the right, we are looking at our EBITDA performance. With every half that's getting stronger, the underlying business is compounding. We've improved from $3.4 million of loss in first half FY '25 to a $400,000 EBITDA loss in FY -- second half of FY '26, an improvement of almost $1 million every half. But it's the quality of the performance and the improvement that matters. Our group revenue has been up 19%. Engineering business is contributing 35% more. We've been able to remove $1.5 million in corporate costs and no longer spending on R&D for Powerhouse. The technology is self-funding. So this turnaround is built on strong and improved revenue, better margins and disciplined cost management. It's the turnaround that sustains.

Thank you. Michael, over to you.

Thanks, Yash. Good set of numbers there. Okay. So for new -- I thought I'd just recap for new investors, and we've got a whole lot of new investors after the recent raise. So for the new investors, we've got 5 segments which we put across the engineering effort that we put in. And so across those 5 sectors, we look for certain attributes in each of those sectors, which I'll come to in the next slide. But we use the 5 sectors as our filter to look at new opportunities. And so if you -- we use those 5 sectors across the geographical expansion, for instance, that's the first one. And you can see that our geographical expansion is going quite well for something which has only been in play for 18 months, 2 years, I suppose, we've got a very strong pipeline and an increasing pipeline. So if you just remember some of those segments there, they all exist in that order for a reason. And so when looking forward to what might be coming in the future and all that sort of thing, everything revolves around those 5 sectors within the engineering business. We have diversity of revenue. We have geographical diversity and industry diversity. And so that's important from an engineering business point of view. Lisa, would you mind -- right. So the filter, the top left-hand corner there with those 4 boxes, that's the overall filter that we look at our industries around. And so our industries that we move into have to be -- have to have attributes in each one of those sectors. And that essentially means you need to be on panels. And so panels are the be all and end all of an engineering business in our view. They offer barrier to entry, exclusivity, revenue visibility and they're a long-term nature. And they only come up every, I don't know, 3, 5, maybe 7 years. So it's -- you really -- you've got to work hard to get on a panel, and you've got to have a bit of luck that you -- that the panels come up and you're there at the right time with the right track record, with the right capability to win them. So just taking a bit of a look at the water industry, in particular. The thing that's driving the water industry, that's our largest revenue generator for us is there's population growth, there's data centers, there's climate resilience activities, which government will invest in and there's asset renewal, which, of course, government has to do that. And just to demonstrate how much money is being -- extra money is being put into the water industry, we've put those 2 boxes on the top, the dark boxes in the top to show how much over the last 4 years from the previous period, if you like, Melbourne Water has budgeted 51% more money to go into asset renewal and all those sorts of things. And Sydney Water has put in $20 billion over, I think they're 5 years maybe compared to, say, $12 billion in the previous period. So it's a really important sector for us. It's something that we started looking at -- we've been in the industry -- in the water industry for 17 or 18 years, but we really focused on panels about 2.5, 3 years ago. We've been awarded those about 2 years ago, and we're really starting to hit our straps just in the water industry. But that same philosophy applies to each of the 5 segments. So there are these opportunities for future growth for long-term revenue vision visibility in each of those sectors. So that's why we're excited about the engineering business as well. So I suppose now to the thing of the moment is the Powerhouse and the announcement that came out yesterday. Before I move into more detail about the announcement, I just want to explain why we've got a deep and wide moat for the Powerhouse technology platform. We've been working with Santos for a very long time. We've got a great partner in Santos. They've been to enable us to develop an unrivaled data set. So when we talk to people, we say, well, we've got 99.95% uptime, and that includes the prototype. Our Generation 2 is operating at -- Generation 2 Powerhouse units are operating at better than 99.99%. We've got 6 years of data. We can point to the fact that we've had no unplanned or planned callouts. And so that's our part of our sales proposition. It's compelling. But from our point of view, the economics are really powerful as well. So I just wanted to put across that there will be competition coming. They're way behind at the moment, and we're working to keep ahead of them really, really hard. So yes, maybe we'll move on. So this is the exciting thing for us. And rather than looking at underneath this slide here, the Santos benefits, that's sort of for future reference for people new to the story. But what's really, really important for us, and I really want to explain why this contract is important to us. It's because we're being dragged -- not dragged, we're being taken by the client into their central operations. So what we see is a picture here a part of MOOMBA, Santos' MOOMBA facility in the Cooper Basin. For those who may not know, Santos is Australia's second largest energy company. So this is a really significant company in the Australian context. So before the announcement yesterday, we were operating in the Surat Basin, in Queensland, providing power, very high availability power to the gathering operations, the wells that gather the gas and take it to the central processing facilities on Curtis Island. So it's a discrete -- lots of discrete projects that we have. Powering 4 or 5 wells here, 4 or 5 wells there, 4 or 5 wells there. Santos has, I don't know, 2,500 or 3,000 wells. So while the gathering is important, the risk is distributed across the whole field. So what's happened now is that through delivery excellence through a technology platform that's really leading the pack, and we know that through our supply chain and through our engineering and integration capabilities, Santos have trusted us to bring our Powerhouse technology platform into their central operation in MOOMBA. So what this means is that we are sitting beside their gas-fired generators equal to gas-fired generators in terms of criticality. So if this power -- if the power plant goes down, the whole operation stops, okay? So I think that's the first thing. The second thing is that the projects which we've got the contract under is about $357 million to future-proof the MOOMBA operations, if you like. It's Santos' vision for how they're going to operate that facility going forward. We're part of that vision now. And so as power, they're going to electrify a whole lot more of those operations. But interestingly, which has really got nothing to do with us is that as the power demand increases, they can't just go and buy a gas-fired turbine generator. You can't get them for a lot more money. And so what's the alternative? The alternative is Powerhouse right now. And so we can deliver on that really quickly. Even I think it was Governor South Australia said the other day on 7.30 report, his government can't get a gas-fired generator for 5 years. So we got a bit of lucky business, and I think the market has moved such a way that we'll take that luck and really drive that home. I don't think I want to say anything more about that slide. And again, just quickly on this, there's our 4 market segments. Santos and Shell are in the remote part of that, the far left, one. But interestingly, now Santos is also in the industry resilience along with Amplitude Energy, where we are replacing gas-fired generators. That's really exciting for us. Each one of these segments is a really large addressable market. And we're really just starting this journey now, but with a really strong technology platform and an engineering team that can understand the client needs and deliver to those client needs. Next slide, I think. I've just seen the kilowatt -- the 30 there with the KW above it, that should be megawatt hour. So that's my mistake. Apologies for that. Anyway, there's not much more to say about this slide, except it is showing the increase in our megawatt hour delivered to clients or contracted and delivered to clients. I suppose the question that gets -- that this may facilitate is, can we sustain the growth? And that goes to supply chain and our supply chain -- I was in China in -- before Christmas in 2024, setting the whole thing in train to look at the global technology partners that we might be able to team up with. The Powerhouse team has continued that work, and we have really strong partners, best in the world, biggest in the world in their areas. And so we're confident that the supply chain can deliver, easily deliver at the rate which industry will demand. So there's a lot of work that's gone into the background to making sure Powerhouse can deliver. And again, that goes to keeping our moat really, really deep and really, really wide. If someone says we need 100 units, we're there, we can do it. Our supply chain can do that. So I think next slide there, there's nothing more I want to say on that one. So I suppose in conclusion, one of my roles as MD is clarity, clarity for the team. So our team is crystal clear on what they need to do across the 3 areas there. So there's Powerhouse there's engineering and there's corporate. It couldn't be clearer, and we're really excited about the future. So I think if we've got questions, I'll finish there. We can move to questions.

We do. We have questions that were submitted earlier and questions that have come through today. So please keep going with your questions. The first one, I think, is everyone's top of mind is you have very exciting news about Santos. So Michael, can you talk a little bit about when you expect? And we've only had a day to digest that information. And already the questions come through, when is the next Powerhouse sale coming?

Yes. We have very active -- I can't answer that -- obviously, I can't answer that because we don't know that some things come from way back and jump to the front like what happened yesterday. All I'll say is that the pipeline is very active. There are a lot of opportunities which are right at the front of the queue, which one is to fall next, I couldn't tell you. And that goes for both -- I've got to say, that goes for both engineering. There are some really significant opportunities right there for us, and it goes for Powerhouse. And those 2, Engineering and Powerhouse are hand in glove. So for us right now, that's a really powerful combination that we look forward to sort of updating the market on in the near future on both of those segments. So I can't say when is next, what's next. But there will be some significant announcements with a bit of luck coming our way in the near future.

Okay. The second question that's come up by a number of different people is why cap raise? I'll hand that one to you, Michael.

It's a judgment. It's a management judgment. It's a Board judgment. It's taking a view on what's going on in the world, what's directly in front of us. And so some of the things which informed why we did the cap raise and why we moved so quickly was that we've got some really significant opportunities ahead of us. And so major companies are running their nose over Synertec, not just the technology platform, but the strength of the balance sheet. So we took the view with what we anticipate coming our way that we needed to strengthen our balance sheet, and we need to do it really quickly. And so we knew that Santos was a potential. We didn't think it would be happening so quickly. So it's sort of like some people might say, well, why didn't you do the raise into some good news? Well, I was of the view that maybe we wouldn't have got the good news if we didn't do the raise because we were able to prove that we could raise money if needed. I think everybody who's had a good look at us saw that there's a debt. There's a lot of debt in the business. And so that rightly raises questions. So we needed to address that, and we needed to address it quickly, and that's what we decided to do. So that's why we did the raise. And also, there was also the geopolitical environment. If you're thinking about doing a raise and you've got bombs raining down in other critical parts of the world, that raise goes off the table. Therefore, any -- if there is an issue about you need the money, you won't get it. And that's just the life of the microcap business. You really do -- you've got to be super careful around those areas. So that's why we did the raise when we did it.

As a follow-up question here, I'm going to pass to Yash. The question is, following the capital raise, is there a potential for your current debt facility to be refinanced to a cheaper level?

Yes. I mean part of that we've already accomplished. I mean, as part of subsequent events from -- in the last couple of months post raise, we have dissolved Tranche 3, which was our expensive tranche and merged it with Tranche 1, which is at a lower interest rate. So we have been able to get and refinance that to a cheaper level already. And that was always the plan with regards to what we were planning to do post 12 months of the performance and the kind of performance that we've had. So that is a tick in terms of we have accomplished that and been able to refinance to better rates, reducing our cost of borrowings.

And a quick question, is there anything else? Did you think the cap raise was successful? Anything else want to add about the cap raise?

Yes. I mean the cap raise was significantly oversubscribed. So -- and we've brought on institutionals on do our register. So always -- that was always the plan, and we were focused on making sure that we've got the right supporters for us.

And we have new investors, which is always great to see as well.

Yes.

Okay. Now the other question that's popping up by a number of different people is the word data centers. We heard it in the presentation today. It is a worldwide phenomena about how the growth of the data centers is weighing down on us. Can you talk about that, Michael, about where Synertec fits in, if anywhere, and what you see for the future?