Solid State (LSE:SOLI) — FY 2026 results & prospects

0:01 Good afternoon, ladies and gentlemen, and welcome to the SOLID STATE PLC results presentation. Before we begin, we would like to submit the following poll, which you will see on your screens. Throughout the presentation, investors will be in listen only mode. However, questions are encouraged and can be submitted at any time via the q and a tab on the right of your screen. The company may not be able to answer every question. However, it will review all questions submitted and publish responses where appropriate. These will then be available via your dashboard. I will now hand over to Chief Executive Officer, John McMichael and Chief Financial Officer, Pete James. Thank you. Thank you for joining us this afternoon, everybody.

0:50 You can see the agenda there. We'll take Q and A at the end, and we'll try and move through the presentation as quickly as possible for you. We have with you myself, John McMichael, recently appointed CEO, and Peter James, our CFO. For those that know the group already, this may appear a little different. The group is structured in three divisions. We have STATE PLC, which is our systems business, Custom Power, which is our power business, that's a battery pack manufacturer, and SOLID STATE, our components business. We were previously two divisions, systems and components. This is the first year that we're reporting as three. Frankly, that is just to allow us much better transparency, for investors, but also for us, under the mantra of what gets measured gets done. We now have greater visibility of our revenue generating units.

1:46 I always make no apology for putting this slide up. We always show this, frankly, to demonstrate that we're conscious that a good business needs a good board. It needs a good board with strong oversight and scrutiny, but one that understands the business as well. And the, addition of Victor Chavez, CBE, is a clear win for the group, a real coup that we've been able to get Victor to join us, and one that should bring with it a very high degree of confidence for, our investors. We are a bit unusual for a company of our size and that we also utilize an executive board, but this really does give us a tremendous springboard to add to the experience and skills of those that are involved, in the key decision making, and it gives a very clear succession path.

2:33 So it involves the key people in the key in the key decisions, and it adds strength and depth to the management. And taking that one step further, what you see here is the group organization. And you can see that our divisional structure, brings further strength and depth within that leadership team. Within each of those, divisions that you see there, there is a senior leadership team. And below that, not on the slide here, are business units, and each of those business units has a leadership team. So we have a very strong management and leadership structure. All of our senior staff are incentivized according to group performance and the behaviors that we require of them within the divisions and business units, and that ensures divisional and business unit success as well as group success.

3:28 The simple message, I guess, is that the business is not one person deep. Just some quick financial highlights for you. I I won't read the slide, and Peter James will give you a lot more color on this as we get further into the presentation. But FY twenty six was a strong year for us. Despite the significant investments in the business, especially in the power division, we hit or exceeded the key metrics and consensus points. Revenue was ahead. Adjusted PBT was ahead. Net debt was down. EPS rose and order book all up. There are a number of key drivers, in our, our business. And what I'd really like to do is just quickly take you through some of these in terms of the strategy and actions so that you can see how this has panned out throughout the year. So our investments throughout the year were mostly within our custom power business and our ICS business. ICS is part of our systems business, and it's the facility you may have heard us talk about before, that we opened about two years ago and have been developing over that period.

4:42 These have enabled new customers to come on board, and we're now in a position where some of the longer design cycles that we used to are coming to fruition. So that means that they're now moving from those design programs into a production build. And in our power business, the investment in The USA facility and staff there is now paying back with good growth in the order book and in the billings. We're now focused on The UK for custom power, implementing facility improvements and capacity gains. In terms of organic growth, nearly all of our growth last year was organic. There was some small element that came from an acquisition in the previous year, but nearly all of the growth was organic. So if we just move on with the strategy, and look at how we execute on that strategy, you'll hear us talk throughout this presentation about three c's and three p's.

5:40 So in terms of our, how, we're moving to a three c's model, which is cooperation, collaboration, and communication across the group. In terms of market conditions, everybody's familiar, I think, with the geopolitical environment at the moment and what's happening in the defense world. The changes in defense strategy, quite frankly, are playing to the group's strengths. We've seen the announcements today, and they seem to be requiring more agile, rapid, and innovative responses. That, frankly, is the market moving towards us. Those are our strong areas, And the battlefield has changed and is driving demand for radios, batteries, sensors, and these larger exquisite programs of which some are still going ahead according to day to today's news, are in fact reducing in terms of the percentage of spend, towards the upper end of the spend, which is now on these smaller, lower cost, upgradable, and advanced technologies.

6:43 Some of you may have heard of Atlantic Bastion, and that's a means of putting uncrewed outriders around highly expensive naval assets. We don't build exquisite systems on our own as I think most of you know, but we certainly do build significant parts of them. It's an important part of our business and very important to see that those are continuing. But we certainly do design and build innovative computing systems, antennas, and so on, and that's where the market's moving towards. AI is also driving demand, particularly for our own brand Jureco products in the power distribution systems that are in AI data centers.

7:28 And we've seen the results of that, with orders worth several million dollars for our Duracool contactors in The United States. There is a bot, and the AI is certainly driving up memory prices at a rate, that's never been seen before in the industry. That has a secondary effect for us. We're not directly affected by it, but that secondary effect is in the in the fact that much of the or some of the product we buy has memory within it. And so as that is incorporated, we have to pass that pricing on, and we do that. It does, however, present an opportunity particularly in our components business. The components business is securing product for its customers, locking in pricing where we can to protect them as far as possible, and certainly worthy of note that we do where we can try to maintain margin.

8:22 We are never in the business of gouging our customers, so we do not take advantage of these market conditions to increase margin percentages or gauge customers, but we most certainly do try to maintain those margins at the percentage level. In terms of quality of earnings, which of course is the goal, we try to improve our quality of earnings. We will give more flavor on that as we go through the numbers. But power has been transformed. It's exited the low margin commodity business, and we now have a focus on higher margin business and execution efficiency. All of our divisions have seen growth, and that can be seen across all of our core drivers, which can see along the bottom row there, defense, medical, industrial.

9:12 And and for us, industrial does include, AI. And we're now focused on revenue visibility. That is to say the order book is progressing, but there's a greater emphasis now on enhancing and securing longer term contracts through the program partner and product elements of our three p's program. So so, earlier, you'll hear us talk about three p's and three c's, and we'll explain that again in more detail as we go through. Thanks, Pete. Thanks, John. So on to some of the numbers for for this year. And pleasingly, it's a a return to much stronger performance. As John said, the majority of the growth is organic. And if we normalize for the acquisitions and the currency headwinds, the organic growth rate is just over 25%.

10:00 Gross margins are up a couple of 100 basis points to 33.5%, and those improved margins translate into significant improvement in operating profit, which is up 60% year on year. As John talked to, we have invested in capacity and capability this year. We've consolidated our active silicon facilities in two into one, and that will deliver efficiencies as we look forward. Our ICS facility that we stood up last year has delivered product this year and provides an opportunity for growth as we look forward and increase utilization. And as John said, we've continued to invest in power both in The UK and The US. That translates into significant improvement in EPS, up 77%, and we've continued with our progressive dividend in line with consensus.

10:55 So if we look at some of the balance sheet metrics, you'll see inventories have increased significantly at year end, and that's driven by Project Cain. That's a program we announced in q three with our half year results. It's an order from, the UK Army for radio comms equipment, and that was a 10,800,000 order. That has not been delivered in the financial year we're reporting on here. It was delivered in q one of the current financial year. So we had the inventory at year end that, pleasingly, we've shipped in the first part of this financial year we're in today. The cash generation has been strong, and you can see that's funded investments in CapEx and the dividend returned to shareholders, which is full time covered. The surplus cash has allowed net debt to reduce, and that's continued to reduce to just over 4,000,000 by by the period end.

11:48 Retained profits less the dividend has driven increasing net assets and a continued strengthening of the balance sheet. And if we look at the key numbers there, so some of the graphs in numbers form, operating cash flow up 30% to $13,500,000 net assets up to just over $63,000,000 net debt down to 4,200,000 and pleasingly, return on capital employed returned to double digit percentage at 14%. So moving on to some of the divisional performance. Here, you can see, first up our systems division. The key driver is that NATO contract where we shipped 23,300,000 in the first half of the financial year to the UK Royal Marines, and that's been a a really key driver.

12:37 Margin percentage at a divisional level is down one percentage point. However, if we look at the business units, actually, all of the business units are up, but that increased revenue in comms is a lower margin than some of the antenna or ICS revenues. So the mix is slightly diluted in this period, but the underlying business unit margins are all progressing positively. The investment, we've made and talked about on previous slides, has been critical to positioning the business to deliver more together as we look forward, but the operating margins have continued to progress positively for the division as well. Here are a couple of graphs that illustrate the benefit of that and the value of that NSPA contract driving revenue up year on year.

13:25 And if we look at the operational gearing benefits, volume is really the key driver here as well as the operational margin improvements. We have invested, as I said previously. And in looking forward, the investment that you'll hear a little more from John on is gonna be around our antenna facilities where there are significant opportunities for continued growth. Moving on to power, a year of turnaround. 2025 was a tough period for the power division. We exited some business that became commoditized, and we also saw some destocking. Work has been done over the last two years to secure a number of programs where our engineering value add is recognized and valued by customers, and that started to deliver in this period with revenues up 16%.

14:13 Pleasingly, you'll see the gross margin improvement talks to the quality of earnings, and that's up to 35.8, significant improvement on the prior year. And that really does drive the improvement in operating margins that you can see there. So picture speaks a thousand words, and it really does show the the importance of that margin improvement. Yes. The volume helps, but the margin improvement is a real big step function for us. Dave Crossman is leading that division, and he's got a lovely phrase which we've coined across the group, which is win a bit, spend a bit. It's absolutely important with this division to spend and invest, and we've made those investments that positions that division to continue to secure more business and grow in the periods ahead. Yet it's a period of transition.

14:59 We want to see those operating margins continue to improve towards the target of double digit operating margins. Last but by no means least is our components division. Again, the organic growth here has been driven out of The USA. We've had less penetration in The USA traditionally. We've been more UK centric. But demand from IoT and AI data centers, where we supply power switching, contactors and relays, has really helped drive the growth for this business unit. Gross margins continued to recover positively back towards that target of 27%. And in this period, we absolutely have invested in growing the talent base, SOLIDRAINT talent base, both in The US and The UK, which positions this business in a place to continue to grow beyond the sort of just shy of 60,000,000 we are today to get back towards some of the highs we saw through the shortages in 2223.

16:00 This really does show the benefit, the operational gearing benefit that our components division has. As we continue to grow, we will absolutely work towards seeing those operating margins improve back towards the mid single digit mid to high single digit, 7.5% target operating margins. We've laid the foundations in both The UK and US, which position this team really well to deliver growth in the in the periods ahead. Order book. Order book continues to strengthen, up significantly from November to just over a 106.6 at the year end. And on this slide here, what's driving that strong order intake in power? The project CAIN order was in that year end order book, and that was shipped in q one of the current financial year.

16:50 The majority of the order book is deliverable over eighteen months. And as John said at the outset, there's real focus on increasing that forward visibility and the length of the order book. The graphs on the right show you the dark blue bit is the non NSPA NATO orders, and that's really progressing well and gives us good confidence in terms of delivery of the consensus revenues that you can see on the bottom chart. Thanks, mate. So just a quick look at our performance by division in a non numeric sense. And, again, I'll leave you to read the slides, but I'd just like to draw some things out from that. So the NATO orders, that we've received in the systems division are expected to repeat from sixteen air assault, but the quantum and timing, of those remain uncertain.

17:42 The integrated systems facility is now billing, and it's one new business. And that's now running alongside what everybody knows with the BAE work that we do there as our cornerstone customer. And antennas are now opportunity rich with new opportunities in The United States. In the power division, we have continued investment in production efficiency, and we're capitalizing on strong wins in the UAV or on crude unmanned sectors. We're sharing our engineering resources across the two continents, and that's working exceptionally well. And investment is continuing at both Custom Power UK and Custom Power USA, where we've seen increased order books on both sides of the ocean.

18:30 In components, we have three major focus sectors which are all performing well, medical, defense, and autonomy, with AI creating that high demand that we spoke about for our Duracool, that's our own brand, contactors in The USA. The USA for components has traditionally had low penetration, but these recent wins and some new wins in our industrial sector, which is essentially managed networks and our power switching for data centers has really given us good uplift in The United States. In The UK, the destocking is finally over. I'm pleased to be able to say, but concerns around memory pricing, are creating some upward pricing for our customers, that we're now managing.

19:21 We have strong repetitive orders, and this is something I'd like to stress about this business because I don't think we've made enough of it in the past. In our components business, we get a lot of repeat orders. Our order book is typically less than twelve months, but the nature of the programs is that they have repeat year on year orders. And an example of that is Eurofighter, which has been running for over ten years, and our OXPUS Energy business, it's been running for multiple years. Most of our customers are repeat customers year on year. So once we're designed in, we're in for the life of the program. That creates strong, stable, repeating business. Hence, the emphasis is on and has always been on getting designed into the next iteration.

20:08 It's a design led cell, that allows us to secure that regular repeat business. Sweet. Yep. We've lost the mouse. In terms of, more detail on the group strategy, there are, in fact, at the moment, four sort of immediate strategic priorities that we have, and then I'll go on and explain, about those three c's and three p's. So first, we need to deliver on our commitments, and that means significant investment to meet the current orders, ensuring that we still have the capacity to grow. Our CapEx and OpEx spend will support development of the business units to allow us to execute the three p's, as we build out capacity and order book.

20:56 This should allow us to expand the reach, expand the standard product base, expand the customer base, and improve the length of the order book. And, ultimately, that means the quality of earnings. So these three c's. Let me start by saying the reason that we use these acronyms. It's really important in our business that everybody in the business understands what the strategy is, whether we're shop floor, whether we're we're warehouse, or whether we're on the board. Everybody needs to understand where we're headed, what we're doing, and how we're doing it. So these acronyms work well for understanding. Our three c's tell us about how we will work together. So as we're bringing this group, to work more closely together, we're relying on these three c's, which is cooperation so that the information, tools, resources, knowledge, capabilities can be shared easily across the divisions.

21:56 We're starting to reduce the number of ERP systems we have in that group. We're installing a common CRM platform with common rules to give us a single trusted source of truth for the whole group. We're trying to standardize some of our certifications where it makes sense so that it's easier for the customers to assess our capabilities and reduce their requirements to auditors. We're establishing a common EDM platform. That's a product data management platform for engineering, which allows us to transfer engineering information far more seamlessly than we currently can. We are collaborating to produce cross division and business unit tenders, quotes and bids to customers. This is the element that's allowing us to go after much larger, longer term orders.

22:46 Cross functional teams are taking on shared challenges to create solutions that none of the business units alone could deliver. That's being admirably led by Matthew Richards, who stepped up to really drive that for us. And we're communicating. We're communicating to share what we know, to increase transparency, to lift our knowledge, and for me, above all, to create curiosity. I want our engineers on one side of the business to be curious about what's happening on the other side of the business. I want our sales teams on one side of business to be curious about what's happening on the other side of the business. And through that curiosity, we can learn and drive and develop new business. Our three p's tell us what.

23:35 So we've got the how, but now the what. We have been a project based business, and that brings with it inherent highs and lows, and a constant need to refill the hopper. We're good at it, and we won't stop it, because it provides a platform to develop closer customer relationships. But we're going to accelerate and expand the introduction of our own brand products. That's the product element. From dual fuel contactors to our semi custom battery packs and the new optics range that have been developed by our custom power business to standard antennas and ruggedized compute systems under our Endura brand. This gives us the runners and repeaters. It provides the running business in the factories. It provides the platforms to demonstrate our technologies to multiple customers.

24:26 Going to use those relationships, the trust and confidence that these elements build to partner with our key customers over much longer contract periods on bigger programs utilizing multiple business units and really benefiting from those through life support programs. Great. So what are the strategic enablers on this? So, if we look at this in detail, you can see that despite the fact that we talk a lot about our defense business, we do not have reliability on a single market. We are a diversified business in diversified markets, and that's a strength that provides genuine resilience to the whole group.

25:13 Defense and security is strong, and it is important across the group. It is a focus, particularly where the military requires situational awareness and autonomy in this changing world of warfare. Our agility has allowed us to capture these fast moving markets, while still being a player in the likes of those longer term large scale exquisite, as they're called, programs such as the AUKUS program. Long crewed vehicles are a game changer on the various battlefields, and you may be familiar, as we say, with Atlantic Bastion, which is a means of deploying unmanned, uncrewed surface and subsurface vessels to protect much larger assets. Our medtech market remains buoyant with good wins.

26:02 The components division has done particularly well there, winning both displays and communications and small systems from our embedded unit. In terms of industrial and AI, we have those very large scale high power demands, which suits our durable products. And as we've said, we have six significant success in this sector in The USA. Autonomies in factories and warehousing is also driving demand. Just moving to transport. It is fair to say that large scale infrastructure programs in transport are slow, But there are fast moving markets in transport, and, again, this really plays into our hands. So I like to describe it as those markets within transport that are revenue generating are the fast moving markets.

26:52 For example, traffic monitoring, parking systems, speed cameras. Anything that's generating revenue is currently a fast moving market and we are a player. It's not just those four sectors that we've spoken about the AI data center win and that, of course, is our DuraCool standard product. There's one area of the business that people within the business, particularly at the senior leadership level, have reminded me really is a competitive advantage for our business, and it is these supplier relationships. It's often overlooked as a competitive advantage. So I just wanted to take a moment today to stress why it's important for us. Across the group, our suppliers are trusting us with their reputations, whether that's in the components business where we're trusted to design in their products, promote their products, stock their products, provide engineering support, and resolve customer problems on their behalf, or whether it's our power division where the likes of cell manufacturers such as SAFT, Electrochem, Molycell are trusting us to utilize their products in our battery packs. And that means ensuring the safety of our customers and their customers in providing the right cell and the right application with the right management systems.

28:18 So throughout the group, we've developed very strong lasting relationships with our key suppliers, and we're often acting as their face to The UK market, their partner in The UK market. So a quick look at the outlooks by division. If I take a look at systems first, here, what we're seeing is a business that typically has quite long conversion cycles. It can be from a few years to maybe five years, but our standard products that we're developing have relatively short, design cycles, much quicker sell, much quicker revenue. Hence, this move to product, as well as those highly engineered solutions.

29:06 And the focus has now shifted to execution and delivery, with continued investment at our ICS facility and the start of a major investment program at our antennas facility, which will play out over the next twelve to eighteen months. In power, we've developed those own brand semi standard products during the year, and we'll go to the market with those in the current year. They are strong technology demonstrators that will accelerate the order book and shorten the design cycles. The USA continues to focus on high growth markets where technology advantage really supports price. And in our components division, we're seeing strong demand for the durable contactors for power switching, and we're pressing well towards transferring towards Indian built, product.

29:56 You'll have heard us talk before about moving away from China, and that's all part of that process. The division has a loyal, customer base in part from the support it provided during the shortages of three or four years ago and in part because of the excellent service and engineering support it provides. It's now well placed to benefit from the memory and processor derived extended lead times. The integration of our SOLID STATE embedded business with the STATE PLC embedded business, two businesses that we brought together to form a single business unit, is now paying dividends. The transferred accounts are growing, and we're getting new business wins there. And, fundamentally, we're now starting to see new business wins which are driving product into those steer type factories.

30:43 It's worth noting, I think, that within that components division, we are representing world class suppliers. And I go back to that point that they are trusting Solstad with their reputations, relying on our engineering skills, our logistic skills, our customer service excellence to grow their business. And just one quick look at, like, margin and margin expectations. But this slide is in here because it's a question that we've been asked many times, so we thought we'd deal with this head on. The move to three divisions, first of all, is giving us better visibility and greater transparency so that we can, declare our ambition. I go back to that what gets measured gets done mantra.

31:30 And so we are actively measuring and rewarding against critical targets. So within our systems business, you can see these adjusted operating margins. We're targeting somewhere in that 12 and a half to 15% range. Within our power business, that's now moved up to double digit, and we'd be targeting somewhere in that 10 to 14% range. And in our components business, which is more of a mid to high single digit, we're targeting somewhere in that seven to 9%, operating range. So really just to clarify where we are, and I'll hand back to Pete to give you a rest from my voice for sure. John. So M and A has been an important part of our strategy over recent years, and it continues to be. Yeah. We look at M and A to deliver on the strategy where it's a lower risk execution than organic growth.

32:23 It absolutely will complement the organic opportunities and be aligned to the strategy that John's just taken you through. In the near term, probably more likely to be focused around strategic nearline bolt ons. However, large funk larger step function transactions is still part of the toolkit. And if the right opportunities arose, we would look to, pursue those as well. We've got a well established sort of framework and financial discipline for evaluation of opportunities. And to be honest, the business is fussy, and, yeah, we walk away from far more opportunities than we ever complete. That said, we will remain opportunistic, and the current business environment means I think there is potential for opportunistic m and a to come to the market in the periods ahead.

33:15 So looking forward in terms of capital allocation, I'm gonna start on the far side. Shareholder returns, our progressive dividend policy was maintained, and it's an important discipline and financial discipline for us to to maintain. We absolutely will use our cash generation to fund bolt on m and a. But also, yeah, we are a public company, and we have, in the past, used the markets to support those opportunities as well. In terms of organic investment, you've seen over recent years the investment in the ICS facility. John's talked about the opportunities that we are investing in in the periods ahead in terms of antennas and ongoing investment in power. This is critical to ensure we can continue to drive organic growth and take the opportunities to add real value to our customers.

34:07 Last one from me. Here, we've got a summary of the sort of key financial metrics that, investors monitor. Last two years' worth of of results, but also the updated consensus that the analysts that cover us have issued following the the results we announced yesterday. And, yeah, you could see there we've got positive progress on all of those key metrics. And if we look beyond that period, we've set out an ambition to get to double EPS from, you know, 10 to 20 p. And internally, we've we've translated that because EPS doesn't make a lot of sense to to people who are on the shop floor or in the warehouse. So we want to double the business. So you'll see we talk about doubling the revenue from a 125 to 250.

34:53 Whilst the maths on that doesn't work at the operating margins, it's a simple metric for the people in our business to to get their arms around. Don't actually need to double the revenue to to deliver the key metric for us, which is doubling that profitability. Excellent. I'm sure you'll all be pleased to know this is the last slide despite the fact fact that I can see it says 35 to 46. I'm not sure. Just a very quick look at the summary. Again, I won't read the slide, but you can see that we've had a very strong FY '26, and we're growing and want to accelerate that growth. We have a clear strategic path with our three Cs and three Ps, and they're looking at a stronger future position whereby we can leverage the entire group to win bigger and longer period contracts.

35:43 Put simply, that we want accelerated but stay sustainable growth with improved profitability and greater visibility. We'll continue to invest heavily this year, but note that we're in the right markets, with the right products at the right time, and with a resilient business model. That really does bring us to the Q and A. And just for me to say that we will be holding Capital Markets Day at some point during the year if you'd like to come along and meet some of our leadership team. And we do also have visits, which I'm sure Walbrook will cover off, at the end of the presentation. Perfect. Thank you, John and Pete. Now if we could turn to the questions. We have a number of questions that were submitted ahead of the presentation, but please do continue to submit your questions via the Q and A tab.

36:33 I'll kick off with one the exposure to defense sector. Given your exposure to the defense sector, should we be concerned at the number of defense projects and defense spend that gets delayed or canceled? I can talk about that. So a very fair question indeed. There's a lot of toing and froing on this defense spend. If the if the information that came out today is to be believed, it's probably put us in the strongest position we've been in with the market. We were anticipating that some of those exquisite, that's the very high CapEx programs, would be stopped if not delayed. It seems that those are continuing, so AUKUS and so on. Those are important projects for us where we supply to the primes. However, this recent move towards drones and high technology, fast to market, upgradable technology is is is where we sit. That's our play.

37:33 So both of these both sides of the coin now are in play for us. I saw a question that comes later on as well that I can probably cover off at the same time about drones. We are in the drone market. It's very significant for us in terms of our battery division, where we have some particular skills in, making sure that those packs can continue to work when they're cold, high altitudes, and so on. And we also have cameras, frame grabbers, antennas, and sensing devices, all of which are on drones. Perfect. Thank you. Is the active silicon hiring spree due to recent orders or natural churn from consolidating to a single site? Okay. That's also a fair question.

38:20 Right now, what's happening is right across the business, it's not just active silicon. We have active hiring programs, particularly in the region where we need more engineers. So we're actively trying to recruit more, high caliber engineers into that active silicon business, and both of those things are true. It's not a natural churn. It's that we have promoted some key individuals, and we need to backfill those positions. But it is also the fact that that business is doing particularly well in terms of its order book. Great. Thank you. Can you please explain the jump in SG and A in detail, as in how much is not capacity related, and what you've budgeted for this year?

39:05 Yeah. Why why don't I grab that one, John, as it's clearly a a a number centric question? The the SG and A, there is a level of variable overhead that's been invested this year to deliver the the significant step up in performance. So there is a, yeah, several million of, yeah, variable overhead that will not recur if we don't continue to grow. That said, we do expect to see continued growth, as you saw on the consensus slide, which also results in continued growth in overhead, as we progress forward with with our strategy that Jon and we've presented so far. So it's not all fixed overhead as such. There's a pretty significant in excess of £3,000,000 worth of variable overhead within this year's number.

39:57 Great. Thanks. Persistent Systems won a large US military order earlier this year. Does this have any indirect read through or direct flow through to SOLID STATE other than signaling general adopt adoption of the technology within NATO? Yeah. I I think that the last point in the question is is absolutely right. It it certainly supports the broader adoption within The US, clearly, but also within the NATO alliance. We're seeing the benefits of that in The UK. It does present some challenges, and as John talked to earlier, in terms of timing of when follow on orders from project came, one may be received and two may be deliverable, which is why they're not in the the order book chart that you saw, also the the guidance that we've issued.

40:48 But, certainly, this is is a very positive thing as the adoption of the technology continues to be accelerating. Perfect. Thank you. I think I'd be sticking with you for a bit of fewer financial related questions. Quick clarification, really. 75,000,000 sorry. 7,500,000 CapEx figure. Is this combative over the 2728, or per year? It is cumulative. Absolutely right. And the timing of that CapEx is is a little unclear, and it depends on how we progress. Our CapEx plans are always aligned to commercial successes, win a bit, spend a bit. So the timing of how we invest will be done dovetailed with our commercial progress as well.

41:35 Great. And can you clarify the new option plan vesting targets, really EPS, ten point five and sixteen? Are they, yeah, are they statutory? I'm just read let me I'll finish this just so everyone. Are they statutory adjusted basis, basically, Steve? They are adjusted EPS, adjusted diluted EPS, and the 11.5, that's where the option starts to vest up to full vesting at 16. So it's a it's a it's a sliding scale. And, yeah, there's a separate r and s that's on the website that's got all of the details of those on. Great. How much of your CapEx is really USRF facility build out?

42:21 USRF, I think it's fair to say the CapEx, a significant proportion of the investment is around RF capacity and capability. Whether it's US or UK is yet to be determined. I think the the initial CapEx is likely to be UK, capacity increasing to start with. Subsequent CapEx may be US. That may be an m and a opportunity. Our focus Yeah. Whether it's CapEx or whether it's m and a is is to be determined at this stage. The the only thing I would add to that is that we have an active m and a pipeline that we're studying at the moment, and that does span The UK and The United States. Great. Thank you. I'm gonna talk I mean, I know you've talked about margins in-depth, but just maybe an opportunity to reiterate.

43:11 Can you please explain why your operating margins are low for business supplying to end markets such as defense, power and communications? And what are your medium term targets for margins? And how might these be achieved? As I said, I think we've talked to some of this already. We we we absolutely have, Nick, and I'll I'll reiterate it to try and provide some some clarity for people. And I'll I'll start by division. If we look at the systems division, which is probably the most complex from a margin perspective, We have sort of three key business unit areas within that. We have our comms business, which is more like our components business where the gross margins are 27, 28%. We have our embedded computing and integrated systems business where the margins there are high thirties, low forties.

44:03 And we have our antenna business in Herefordshire where the margins there are 60 to 70%, sometimes higher. It's the area of the business that has the highest level of engineering value add. And as a result, the margin the gross margins are high. However, the investment in development and the like is high as well. So we then move on to power. Power is quite a broad church in terms of gross margins. The yeah. If you have a relatively small pack with a high level of engineering value add, so maybe six cells but with battery management systems, heating, Mylar heating sheets, fuel gauging, very high charge or discharge rates, yeah, the the gross margins on that can be high, yeah, north of 50, sometimes 60%.

44:53 If you have a lot of sales, so maybe 60 sales rather than six, the gross margin percentage would be a lot lower, albeit the absolute pound's gross margin would be very strong. But the blended average is typically high thirties in power. Moving on to components, as I said, a lot like the communications, gross margins are are high twenties, 26, 27, maybe 28%. And what does that translate into in terms of operating margins? We we presented a slide on that. And, really, operating margin is the the key metric that we measure. Particularly in components, there's a real opportunity with the operational gearing benefits to see that improve from where it is today towards that sort of seven and a half to 9%.

45:44 Power is in a period of turnaround. Last year was tough. This year, we've seen the benefit of the operational gearing coming through aligned with the investment. If we can continue to drive growth through there, we will get towards that ambition of double digit margins. And in systems, we're already at the sort of mid teens, and what we are striving to do there is maintain those margins while increasing the the share of, yeah, more predictable longer term order book revenue that come out or comes out of our ICS antennas and embedded computing activities. Great. Thank you for the extra detail there.

46:29 I think, that concludes, the questions for the moment, so I'll just wrap up. Obviously, thank you both for updating investors today. And can I ask investors not to close this session as you will now be automatically redirected to the opportunity to provide your feedback? As if anyone has further questions or would like additional information on SOLID STATE, please do get in contact via solid state at Woolbrook PR dot com. Thank you again for attending today's presentation. Thanks. Thank you.