Release Date: July 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue growth of 20% year-on-year, indicating strong business performance.
- Significant increase in operating profits, with almost half the revenue increase dropping to the bottom line.
- Strong order book with substantial order intake in April and May.
- Continued investment in technology to maintain market-leading positions.
- Reinstatement of interim dividend, reflecting confidence in financial stability.
Negative Points
- Challenges in the gaming market, with subdued capital investment and delayed project go-aheads.
- Public space surveillance market in the UK remains challenging.
- Expected normalization of gross margins, potentially lowering by 5% or more by year-end.
- Increased staff costs due to pay rises and recruitment, impacting operating expenses.
- Ongoing restructuring and transformation costs, including external support for the security business refresh.
Q & A Highlights
Q: Can you provide some detail on the GBP235,000 charged as non-underlying item related to costs associated with restructuring and transformation? Why are these specifically identified as non-underlying items?
A: Amanda Larnder, Finance Director: The GBP235,000 relates to finalizing restructuring efforts and receiving external transformation support for the security business's go-to-market strategy. These costs are identified as non-underlying due to their one-off nature and not being part of the ongoing operational expenses.
Q: What is the status of the holding by one of your large shareholders, Danny?
A: Paul Webb, CEO: Danny is winding up one of their market cap funds that holds Synectics shares. They are transferring the holding into a different fund, which is long-term and still believes in the value of the business.
Q: What is your aspirational target for revenue in the next three to five years?
A: Paul Webb, CEO: Our focus is on sustainable profit growth rather than revenue growth. We aim for GBP10 million EBIT over the next three to five years, leveraging the work done on the cost base.
Q: How do you manage partnerships, channel partners, and system integrators when it comes to driving business development?
A: Paul Webb, CEO: We work through local service partners, channel partners, and system integrators for almost all projects. We are formalizing these partnerships with various tiers and co-marketing opportunities to drive new business.
Q: Do you expect continued sequential revenue growth with H2 being higher than H1?
A: Amanda Larnder, Finance Director: This year, we expect revenues to be evenly weighted between H1 and H2. Generally, we see higher second-half weighting due to global seasonal holidays and shutdowns.
Q: Will the increased staff numbers be able to cope with further growth in the business over the next few years, or should we expect similar increases in staff costs in future periods?
A: Amanda Larnder, Finance Director: The current staff levels are set to support future growth, particularly in sales, business development, and technology development. We expect to maintain higher revenues with the existing level of staff, leading to increased revenues dropping down into profits.
Q: Have you explored the aviation/passenger industry?
A: Paul Webb, CEO: We have previously worked on an airport project in Southeast Asia and are presenting at an aviation event in Asia this week. We see the transport infrastructure market, including aviation, as attractive and are exploring opportunities with partners.
Q: What are the key areas of investment for Synectics?
A: Paul Webb, CEO: Key areas include cloud services, AI integrations, subscription-based software models, and enhancing mobile and web applications. We aim to maintain our products at the forefront of the industry and support future growth.
Q: Can you provide more details on the major upgrade and expansion contract with a large casino resort in Asia?
A: Paul Webb, CEO: The contract involves a major upgrade and expansion of one of the most iconic casino resorts in Southeast Asia. Deployment will start in February 2025 and continue through October, with potential expansions beyond that.
Q: What is the outlook for the oil and gas market?
A: Paul Webb, CEO: The oil and gas market remains strong and buoyant, with significant activity expected to continue for at least the next couple of years. We see ongoing demand and project wins in this sector.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
