Synectics (LSE:SNX) — Final Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the SYNECTICS Final Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I now,

0:33 if I may, hand over to David Bedford, finance director and Paul Webb, CEO. Good afternoon. Thanks very much, Mark, and thanks to everyone else for for joining us this afternoon. It's very nice to have the opportunity to present to so many people on this platform this afternoon. As Mark said, I'm Paul Webb, chief executive of SYNECTICS. Been with the business quite a while now. Been chief executive since 2015 after a long career in the surveillance and electronic security industry.

1:08 Hi, everyone. I'm David Bedford. I joined SYNECTICS in January 2020. I'm a chartered accountant. Prior to being at SYNECTICS, I I was with IMI PLC, the FTSE two fifty engineering group, where I did a number of senior finance roles covering both Europe and Asia Pacific. And prior to that, I spent time with Jaguar Land Rover, also time in accountancy practice working at Deloitte and Pricewaterhouse. Thanks, David.

1:39 So this afternoon, I'll I'll give you a brief introduction to the company and and a brief overview to of our results for the year. Then I'll hand over to David who will take you through the results in detail, our key performance indicators, and a detailed financial review, and then I'll come back and take you through some of the operational performance in the in the different business units. Also, share a couple of highlights around some projects at the end and and finish with a summary and some outlook statement. So very brief introduction to the company. There are a few more slides in the appendix to this deck that you'll better download afterwards, and it's a more comprehensive coverage of the company, its markets, its customers will be in our annual report, which will be available to download from our website from next Friday.

2:32 Okay. So SYNECTICS is a electronic surveillance and security business structured in two complementary divisions, our systems division and our security division. They have slightly different business models, but very complementary. The systems division develops technology, these days largely software based, and deploys those systems in selected markets on a global basis as a technology provider, usually working through systems integrators or other local service providers. The markets we work in, heritage is public space, town centers, and public space in The UK was where the business started from. Got a good footprint now into critical infrastructure, transportation, and strong positions in gaming, casino markets, and and oil and gas. I'll take you through the performance in those markets in a bit more detail.

3:30 Characterized really by markets where security is either operationally critical and in most cases, cases, some degree of regulation around that. That's where we really do add some value. Our security division operates just in The UK and Ireland. It's a service based model. It's a systems integrator. So it's supplying technology either from the group or from other selected partners directly to end users in The UK and provide support, delivery, service, maintenance, etcetera for that.

4:03 Well, we do operate globally. SYNECTICS systems division operates globally. Following the the the fundamental restructuring of the cost base a couple of years ago, which David will go into shortly, the teams around the world are all customer facing teams. So we've got people where our customers are, sporting our gaming customers, our transport customers, our oil and gas customers. So the the teams out in the regions are essentially customer facing sales, business development, service, support engineering. Okay. So as I said, there's there's there's more some more details on the company in the the slides in the appendix, and annual report will be available next Friday with a lot more comprehensive details on the company.

4:48 Okay. If I give you a brief overview for the results for for last year, I suppose the headline is return to profit. We're really pleased that in the second half of the year, we were able to make a profit. That's on a a restructured cost base, significant restructuring undertaken in 2020, structural changes rather than just cost base reductions. And David will explain how those have panned out in a few minutes. Meant we were able to deliver a significant reduction in the losses against the prior year. So really pleased with that. Solid cash position. The the the the balance sheet is very healthy. So we're really pleased that we got a solid cash position, and, the order book is pretty healthy given the the sort of general market conditions. Really encouraging that we've got some early adopters, some high profile customers adopting our latest new generation software systems, and we've got some market leading positions in a in a few markets. So very encouraging for midterm growth that early adopters on latest generation. Again, I'll come back to some of that in a while.

5:54 Pleased to be in a position to recommend the final dividend that's in recognition of the profitable trading in the second half of last year, but also that confidence in further progress as we go into this year. Now we do expect further progress the year. There's clearly some uncertain timing around the recovery in some of our markets, and we'll we'll explore that in a bit more detail as we go through the rest of the presentation. But confident that we will make further progress, particularly in the systems vision where we expect to see quite a lot of recovery in revenues in some markets and great progress in the year in the security division, and we expect that progress to continue. And just mind you that we're we're working in some markets that are fundamentally attractive. The underlying global market for these increasingly sophisticated software software centric solutions is really strong and healthy and very positive about some of the opportunities in the future, which I'll come back to at the end.

6:57 So with that, I'll, I'll hand over to David Bedford, who will take you through the results. Thank you, Paul. I know we're all very keen to move on, from from the pandemic, but it's worth just bearing in mind this is the first set of results reflecting a full year of the the impact of COVID on the business. And and revenue of 43,600,000 was broad broadly flat on 2020, 2% lower. But despite the the flat revenue, as a result of the restructuring actions that Paul just mentioned, we're able to report a very significant improvement in the in the trading performance.

7:43 The underlying loss for the year at naught 600,000 compares to a loss of 4,100,000 reported in 2020. And this this year just gone, we had no non underlying items to report. So the loss before tax was also naught 600,000. Last year, we did have 2,200,000 of exceptional restructuring costs resulting in a a loss for that year of 6,300,000. So during 2020, we carried out significant restructuring in both divisions, mainly consolidating the number of sites both in The UK, also within our German operations.

8:31 The the improvement in the financial performance is also reflected in the fully diluted earnings per share, negative 2.8p compared to 27.7 negative for 2020. We have a strong net cash position. The business has remained in positive net cash throughout last year, ending the year at 4,600,000 compared to 2020 at 6,900,000. We have no bank debt. We recently renewed a facility with Lloyd's at 3,000,000. As I say, we we didn't touch that facility during last year, and currently no plans to need to use that facility in 2022.

9:18 Obviously, for prudent reasons, it's it's good to have that available. The order book is healthy. Year end order book up 12% on last year at 28,400,000. Two thirds of the order book is due to trade out in the current year, and the balance relates to multiyear service and support agreements. So off the back of the profitable second half, the the strong balance sheet and and the strong net cash position, the board are recommending a final dividend of 1.5p per share, and we're really pleased to be back in a position where we can start paying dividends again. So moving on to our key performance indicators. We we introduced this set of measures at the end of twenty twenty.

10:07 As you can see there, the the revenue, 43,600,000, as I said, 2% below the prior year. But because of the benefits coming through of of that restructuring and and taking down the cost base, you can see the improvements that we're seeing across the financial measures. So the underlying profit, the earnings per share, and return on capital employed, all showing very significant progress compared to 2020. And then our free cash flow on the bottom left there. In 2020, we we did experience a significant unwinding of working capital resulting in a a free cash flow of 6,300,000. We had a small outflow of free cash in 2021 at naught 400,000.

10:57 I'll cover the the the cash flow in more detail on the following slide.

11:02 The the next measure is around our employee engagement score. This is based on an annual survey that we do of all of our employees at the middle of each year. And we are we have shown a dip there from 72% to 66%. And this isn't this wasn't surprising, but it is it is disappointing. We feel that we did a very good job in the early part of the pandemic when all of our teams had to revert to to homeworking. We did a really good job of keeping everyone very close and engaged and in touch with the business throughout 2020, but we did have that very extensive restructuring in in the second half of twenty twenty.

11:51 And then with 2021, with the further waves of the pandemic and return to home working, we have unfortunately seen seen a dip in that engagement. The good news is, particularly in The UK with the the release of all COVID restrictions, we are now back with our teams working in the office. We've always had a flexible working policy in SYNECTICS. So quite a few of our employees are are making use of that to to have a hybrid approach to working with with you know, which we welcome. But for the majority of our people, that means them spending the majority of their time in the office. We think that's really important, not just in terms of building that engagement, but, you know, getting getting a shared culture, shared sense of purpose, and I'm I'm bring I'm bringing on new members of the team as well. So really good that we're we're we're finally back in the office.

12:47 The next metric and net promoter score, this this is a a measure of the how our customers perceive us, and they're willing to to advocate the the services they receive from us. The score there of plus 32 is actually slightly ahead of the 2020 score, and it's it that that marks six consecutive years of improvement in our Net Promoter Score. It's something we're we're really proud of, you know, particularly given the challenges during the pandemic that our our teams have had, and yet they've continued to provide an excellent level of of customer service. And then the final measure is our r and d spend.

13:33 We it it's it's very much development spend. In 2021, 3,400,000. That was a dip compared to 2020. The main reason behind that, we entered the year with a number of open positions within the development team, which understandably, we were quite cautious around filling, but we have have gone ahead with those roles now. I am expecting to see the development spend pick up in this year and be much closer to the 2020 number. And Paul will take you through some of the sort of development activities in in some more detail shortly. Then moving on to the income statement, I've met I've mentioned the the revenue number there.

14:20 The gross profit for the year of 15,600,000 made some pleasing progress in terms of overall gross margin, 35.8% compared to 33.6% in 2020. The interest charge there, 121,000 down on on the prior year. That that represents deemed interest on leases under IFRS 16. As I said, we maintain positive net cash throughout the year. And as you can see, no non underlying items to report compared to the 2,200,000 of restructuring that we had in 2020. So with the small income tax credit are related to tax losses in the year, you get a profit for the period with a a negative four seven nine compared to the 4,700,000 loss from 2020.

15:19 So a very significant improvement in in the in the profit situation there.

15:26 So this this slide breaks down the performance between our two divisions, systems and security, starting with systems. Sales of 20,700,000, They were down 13% on 2020, and that reflects a full year's impact of COVID on our gaming sector in particular and most notably in The US and Asia. We at half year, we reported a significant progress on the gross margin in systems business that was driven by an improving mix towards higher margin software sales, and that's continued throughout the year. So the full year margin of 46.4% was well ahead of 2020 at 40.8.

16:18 So despite the the the decline in sales as a result of the margin improvement, but in particular, the significant savings coming from the restructuring, we've seen a major improvement in the financial performance of systems. So moving from a 1,800,000 operating loss in 2020 to that modest but positive 58,000 profit for 2021. And moving on to the security division, really pleased with the progress on the top line there. 15% growth to £25,000,000, broadly similar gross margin at 24.1%, just behind the 24.6% from from the previous year.

17:05 So that top line growth combined again with the significant savings coming through from the restructuring has also really moved the financial performance positively for security, moving from a £388,000 loss to a £924,000 operating profit. We've also had further savings within our central costs coming in just below 1,500,000 for the year compared to 1,800,000 in 2020. That also includes some benefit from from currency. And during during the year, there was an increased level of collaboration between the two divisions with security able to specify and and deliver tech technology sourced from our systems division, and that's helped increase the overall gross margin as you can see there to 35.8%.

18:02 You know, good progress compared to the 33.6 we saw in the prior year.

18:12 This this slide shows a summary of the balance sheet. The fixed assets, they're slightly below the prior year level at 5,000,000. That's basically just because the level of depreciation was higher than our replacement spend on on fixed assets. We have had some pretty tight spend controls which remain in place, and that that does also apply to sort of asset spend. We don't have any planned major capital investment this year. The intangibles on the balance sheet mainly relate to historic purchase goodwill, had no changes there. The only movement being in relation to currency translation. Last year, we announced the decision to wind up our old closed final final salary defined benefits pension scheme.

19:08 So this year, with the buyout of the scheme, we've removed that 1,300,000 actuarial valuation off the balance sheet, transferred it through through a reserve movement. So significantly sort of derisking, not having that that scheme and also, of course, all of the significant ongoing costs related to to running a pension scheme. I mentioned the cash of 4,600,000. We saw some some return in working capital to more normal levels after a very significant unwinding of working capital in 2020. So net current assets, they're at 6,300,000 up on the 4,700,000 of the prior year.

19:59 An increase in the net tax assets, that's deferred taxation reflecting changes mainly in The UK corporation tax rate. Provisions of 1,400,000 mainly comprise warranty, but also leasehold dilapidation provisions. That's down on the number from last year as the restructuring provisions have now wound out into cash. And then the lease liabilities there that relates to the IFRS 16 balances. No change there at 2,800,000 with an equivalent asset included in the fixed assets at the top of the balance sheet. So the net assets at 35,300,000 compared to the prior year at 37,000,000.

20:46 And then the the cash flow. So overall for the year, there was an outflow of cash of 2,200,000 compared to an inflow in the prior year of 3,300,000. And in the as you can see for 2020, we had a significant reduction in working capital contributing 8,100,000 in working capital. And that's been reversed to some extent during this year as we've seen an increase in activity, particularly in the second half. I'm expecting that to continue through this year. As I said, I'm not expecting us to require any use of the current facility. I expect us to remain in a positive net cash throughout the year. And you can also see there £1,300,000 of cash coming through in 2021 relating to the provisions for restructuring that were on the balance sheet at the end of twenty twenty.

21:42 So those are the main elements that have driven the the cash result for the year. Okay. So I'll now hand back to Paul, and he will take you through the the divisional performances in a bit more detail. Thanks very much, David. Okay. So, starting with the the systems division, quite different performances across different regions and different market segments, really reflecting directly global market conditions. And I'll show you that graphically on the next slide in a moment. During the period, most of our gaming markets were remained closed for most of the time. So public space and other high security operations, mostly in The UK, UK and Europe held up relatively well.

22:31 The oil and gas sector remained quite subdued through most of last year. We did, however, have a a sizable contract win in the second half of the year, which I'll show you in a moment, and feeling some green, green shoots of recovery in that market now going into 2022. Obviously, energy prices are quite high, and we're sensing more activity in that sector than we've seen for a number of years. As David covered a little while ago, the gross margins within the systems division are very strong, mainly reflecting the increasing software content of our solutions, modest savings in direct cost, but largely around mix. I don't I don't expect to see that gross margin percentage increasing from there. In fact, it'll probably soften back to more like 45% through this year as we get, hopefully, a return to some more large capital projects that have more hardware content in them. We're quite comfortable with the gross margins around the 45, 46 mark.

23:34 It's appropriate and reflects the mix of hardware, software, and professional services that make up most of our solutions. Encouraging to see some early adopters of of our latest generate latest generation software platform with some high profile customers taking solutions that are essentially software led or software only solutions. So that bodes really well for opportunities for growth in in the midterm. And we should see fairly strong profits growth over the next couple of periods. It's we expect recovery to some sort of normal trading in our casino markets, particularly in Asia.

24:16 I'll show you the performance in in a moment. And the the systems division is very highly operationally geared, so modest increases in revenue make a significant difference to the operating profit performance there.

24:31 So looking at the revenue performance across the regions and the market sectors in there, I'll go from the bottom up, but you can see significant impact in Asia Pacific on revenues there over the last couple of years. The the gaming market has been closed for the whole of the last two years. The the Asian gaming market was closed down before we were all locked down over here. So, yeah, very low levels of activity out there, so dramatic declines in revenues. But we had a very, very strong footprint in in Asian casino markets. We did done very well over the three or four years prior to the pandemic, with some very high profile, very large customers there.

25:18 So it's clearly a pent up demand for leisure activities and traveling to those resorts. So we would expect reasonably strong recoveries in those revenues as soon as leisure travel resumes in the region.

25:34 Difficult to predict exactly the timing of that, but we should see some progress within this year. But certainly, over the next year or two, there's significant opportunity for revenue recovery in that area. In North America, we've seen emerging recovery, a very tentative recovery in the last couple of months of last year. Obviously, that was quite heavily impacted through 2020 with the the the closure of all casino operations there. In in North America, our activities are almost exclusively in gaming. That said, there's the results in '21 benefited from a a decent size order for a new refinery in Mexico from what is a new customer for us. So that's a significant contribution to the uptick in revenues in 2021, say modest uptick with one large casino resource secured at the very end of the year.

26:32 Revenues on that, some of that was traded last year, though that continues to be delivered as we come into 2022. And in Europe, EMEA, so in UK, some transport operations in Germany and some oil and gas business in The Middle East, more resilient. So a little disappointing. The revenues were down slightly in '21 over 2020, mainly timing of project deployment and execution, but relatively resilient and some really good programs going on there, deploying latest generation software, early adopters in in in City Of London, West Midlands, and ongoing work with Deutsche Bahn in Berlin. I'll come back and and share a little bit more on those in a in a few moments.

27:20 Within our systems division, all our technology development, resides. As David said earlier, it's not really r and d. We don't do much r. We, we develop solutions to meet our customers' current, emerging, and evolving needs. That's what we've been doing for thirty years. And we have talked about customer driven innovation. So we're not inventing things that we hope people then may buy. We're creating solutions for real needs through our deep sector knowledge and understanding.

27:51 Most of the activity during during the year was around developing the fourth generation of our synergy platform, Quite heavily focused on the delivery of a couple of large projects, notably London and the the Deutsche Bahn project in Berlin. But these aren't bespoke developments for those customers, but they are first adopters of new functionality, new technology in some cases that we've we've been developing and will be available for for all our clients and say lots of lots of positive opportunities on the back of deployments in those areas. I don't intend to go through all the individual features and functions that have been created during the year, but another feature of the last couple of years is a lot of that is now available on webinars and on our website, and we've had quite a lot of interest in in seeing the technology, seeing the new feature packs on that platform through social media or from our website.

28:54 And even some of our investor community have been joining our webinars on the technology. We the the development spend here remains a priority. It's one of our KPIs. It said that spend softened a little last year, but just

29:09 some natural timing changes. We would expect that to to increase increase back to twenty twenty levels. That is largely running at that rate again already. As David mentioned, we're very prudent. Most of our development spend is expensed during the year, and we capitalized very, very modest amount, think, 600,000 capitalized at the total spend of 3.4 in last year. So moving on to our security division. Really pleased with the the performance and turnaround there. It's a significant consolidation in that business, which we we've actually identified and embarked on at the just before the pandemic started in late twenty nineteen, but that that was implemented early in 2020.

29:55 Really pleased with the way that unified management team has sped it down and is performing. Significant turnaround of operating results on a tighter, smaller operating footprint. I'm really pleased with some really good revenue growth there as well. Mean, this division was formed principally by the the consolidation of our Quadrant Systems Integrated Business Security Integrator and SYNECTICS Mobile Systems, previously focused on bus and coach

30:27 deployments in the in The UK market. As David said earlier, the gross margins are where they need to be. 24, 25% is is appropriate gross margins in that sector. There's a lot of work in integration that's attracts only gross margins in the teams. We're very keen to keep focused on higher margin work. So our strategy here is profitability as opposed to revenue growth per se. That That said, said, we were really pleased with the revenue growth during the year. Expect to see some further progress on that this year. But in fairly short order, holding the margins, the gross margins at that sort of level, in fairly short order, we should see this business returning an operating margin at our target levels of six to 8%.

31:14 Again, as David mentioned earlier, quite a lot of collaboration with our systems business, so deploying the technology, developing systems into a few major customers there, London, West Midlands, and some transport projects in Ireland. So very pleasing to see that collaboration across the the two businesses. And some of the other highlights are, again, around public space and local authority works, major sporting venue in London and further upgrades in there. But really, I think now we feel that the team and that business is in good shape, and it's an excellent basis there to start expanding operations beyond the traditional heartlands. Typically,

31:57 town centers and public space, its heritage, UK bus and coach market, but really expecting and hoping to see some progress into infrastructure projects, maybe some further high security work, that should potentially attract better margins going forward. So expecting progress there over the next year. So I'll just cover some of the projects I've mentioned in passing. Really, really pleased with the the award at City Of London project a year or so ago. That's it's got ongoing deployment, but it's actually deployed and live working in the city of London. It's a it's a cloud based solution, cloud based recording, cloud based whole system. It's one of the first true enterprise level cloud deployments anywhere.

32:52 The the London have got a smart a secure city program, and they've got a cloud first policy. So it it's not inexpensive to deploy cloud based at this scale. The amount of storage and bandwidth required is quite significant. That cost will only come down. But, you know, London being the first adopter of that in there, we're really really pleased to be part of that program. And we've done a lot of work working directly with Microsoft in in optimizing the way high levels of video, high resolution, but also large quantities of video footage are stored in the cloud in an efficient and a cost efficient way. Doing that enterprise scale where you need immediate availability of all images and all of the instant response based from a cloud system, it is quite challenging. There are some significant technical challenges.

33:50 It's relatively simple these days to put a few cameras in your home or in your office and record them in the cloud, but having that available on an enterprise scale and on a instant response basis is challenging. So we're really, really pleased to be involved in that industry first On a similar similar basis, but not cloud based, but using our our latest generation, SYNECTICS suite, we were really pleased last year to get the award of a new event control suite for Westwinds Police. That's already been installed. It's live and operating and ahead of the the Commonwealth Games to be held in the region later this year. What's interesting though is this is really set in a a sort of benchmark and a precedent for multi agency collaboration.

34:39 So the police, local authorities, transport authorities, stadia operators, you know, various private venues, all having all of the the systems all connected together and joined into one overarching situation awareness instant management suite. This is sort of funded by and ready for the common love games, but it will really set the benchmark and a fantastic reference for the future for multi agency collaboration across across large urban areas. So really pleased with that. Very very happy to be working with Westwood Police and expand expanding their operations across other agencies.

35:28 I mentioned earlier a nice project win in the oil and gas sector. This is a large refinery in Mexico secured with a local integration partner in Mexico. Managed to get our latest generation four k resolution explosion protected cameras specified and selected by who is a new customer for us, the the Mexican National Oil Company. Big initiative there to build energy infrastructure in Mexico to reduce their reliance on imports from The US. So selected best in breed latest generation product. We're really pleased with that award. As I said, green shoots in the oil and gas market, we're seeing an uplift in activity, and hopefully, that translates into projects and audits in in a relatively short term. I must say when we launched the four k resolution camera in the middle of last year, if you'd ask me to bet where the first large department would be, I probably wouldn't Mexico, but we're really, really pleased and proud to to be supplying cameras into that new development there.

36:37 And finally, in terms of projects, I mentioned very late in last year, the the last quarter of last year, we secured the first new project in the gaming sector for two years. Fallsview Casino Resort, it's a it's the largest casino in in Canada. They took the opportunity and secured the the funding to use the lockdown to rebuild, expand, revamp their gaming floor. So we're really pleased and proud to be selected our assistant to be selected as that's reopened now in a in a revamped facility. So, again, early signs of recovery in the North American market, but very proactive from the operator of this Niagara Casino in in in terms of upgrading their suite whilst whilst everyone was locked down.

37:33 Okay. So before I come on to summarize and give you some final thoughts, Just wanted to take some time to reflect on the sort of core values of our business. We are really proud of the behaviors and the core values that all of our staff exhibits and the way we work with each other, with our customers, and with all our stakeholders. And sometimes when we're in turbulent times like we've had in the last year or two, it's a real thing of spend free to to have some fundamental principles that we can that we can lean back on and fall back on. But we took some opportunity during the year to reexpress the way we or to refresh the way we express those values. It's allowed us to communicate and remind our staffs of the importance of some of these behaviors. And all our recognition within the business is all based around living our values.

38:27 So as David said earlier, our employee engagement dipped a little last year, disappointing. So we are really, really keen to do everything we can to keep everyone engaged and understanding, realizing where we're all going moving forward. Okay. So in summary, just to summarize and to recap what I've been taking you through, we returned to profits in the second half of last year. We're really pleased on a a solidly restructured cost base. So fundamentally restructured, a lot of that was structural as opposed to just reducing costs. So really pleased that those savings have come through, and you can see that in the operating operating performance with a significant reduction in losses from the prior year.

39:13 It's good that the we're in a position to have a solid solid cash position. The balance sheet's in good shape, and the order book's pretty healthy. Nice that we've got some early adopters, some high profile customers taking our new latest generation software based solutions that bodes really well for growth potentials in the midterm and beyond the recovery we're expecting in our current markets. So pleased to be in a position to recommend a final dividend in recognition of the the profits in the second half, the modest profit in the second half, admittedly, but also as a sign of confidence that we will make further progress during this year. And we will make further progress during this year, albeit the timing of recovery in some of the markets is a little uncertain. So we do expect the progress this year to be second half weighted to a significant degree.

40:12 And as I said, our security division is in good shape now, and we're expecting further progress there. As some final thoughts, we're really feeling quite bullish and positive about the recovery and growth opportunities over the next few years. Just wanted to share some of our thoughts of why we're feeling so confident. Fundamentally, we're operating in markets that are attractive with the the global security market for increasingly sophisticated software software centric solutions is is attractive and has really solid long term growth prospects as well as our established and market leading positions in global gaming casino markets and a very, very strong position in The UK public space.

41:00 Some of the recent high profile customers really give us a good platform to to move into some of the growing infrastructure security markets on an international basis. So with strong recovery expected in in profits as we see a return to normal business in the casino operations, particularly in Asia, you should see really strong profits growth in the core systems division. Say that it's very highly operationally geared. And just thought it'd take a moment to share their performance in the in the years pre pandemic because we've lots of focus in those years on on growth, on improving the performance within the systems division. So you can see on that graph on the right hand side based from improvements in the underlying operating profits of that business over the four or five years. Now some of that's been masked if you just look at our headline PLC results because we had some less good performance in some of our integration businesses in those latter years. But the underlying performance in the systems division is, yeah, very encouraging in terms of the opportunity for recovery and growth in the future.

42:16 That's made up of two two two elements actually that profits growth there. Yes. Some revenue growth during that period, but relatively modest revenue growth during that five year period. But that's coupled with a quite a big shift in the the gross margins in the business. In the the first few years of that period, a lot more hardware content typically in our in our security solutions. Gross margins were in the mid mid to high thirties at that point in time. And now it's increasing shift of mix towards more software, higher gross margins, more repeat support services in there. That gross margin coupled with some revenue growth means we're at really strong operating profits expected in the near future.

43:08 So with that, plus the good performance in security continuing A fantastic customer base. We've got a high degree of advocacy amongst our our customers and some fantastic reference sites. So we're all itching to get back out there, travel around, and present our solutions to new prospects and feeling really bullish and confident that we'll see strong strong recovery and growth over the next few years. That's great. Paul, David, thank you very much indeed for your, presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. But as Paul and David take a few moments to review those questions submitted already, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

43:55 So please do continue to submit your questions. Paul, David, as you'll see, there's a number of questions there submitted. May I hand back to you just to read out those questions and, where appropriate, to give a response? Yeah. Thanks, Mark. So, David, I think you could probably answer the first one. A question from Michael that's about supply chain issues and how that's impacted the business and how impactful cost inflation has been. Sure. Absolutely. Well, cert certainly, the tightness in supply chain related to the well known global chip shortage has had an impact. Fortunately, it hasn't impacted our ability to deliver to any of our customers.

44:42 We have a relatively small number of key suppliers areas such as cameras, storage, and we work very closely with that supply chain. Share in in regular contact, we we share our forecast with them. We have seen some lengthening in lead times. And in in some cases, we we have had to commit to larger volumes going out into the future just to make sure we keep our place at the front of the queue for product. So we haven't had to take product before we before we need it, but we have had to give some some sort of further commitments into the supply chain. We haven't really seen much input cost inflation so far.

45:31 What we're not getting is the year over year savings that we would have expected, you know, over the last that we saw over the last few years. But the business is in a good position because each project is priced up, is costed up individually, and, you know, we're in a good place to pass on those or any increased costs to the customers, and we're absolutely determined that we're gonna maintain our our levels of margins. Where we have seen some some some inflationary impact is on the on the wages side. So, you know, not not untypical, I think, across the the economy. So our wage inflation for the the year just gone on a like for like basis has come in at just over 4%.

46:21 So quite a bit more than we were used to seeing. But we are very focused on making sure we retain key key talent in the business. And again, you know, we we are able to pass that on as we are pricing up and bidding bidding for work. Thanks, David. Question from Simon. Moving through the year, what divisions and geographies do you see driving growth the most? Well, I'll I'll take that one directly. There's aspects, really, recovery and growth, and our whole internal sales plan and strategy is around recovery and growth. So see that the opportunity for recovery in the the gaming sector, particularly Asia, is gonna drive that is the most immediate drive.

47:12 But beyond that, for further growth, we really see opportunities in infrastructure deployment based on some of the technologies we've been deploying with a couple of early adopters. So I think initially, growth, I. E, recovery from gaming markets, Asia, and then beyond that growth in infrastructure projects in Europe, UK, and North America. So Sebastian's asking, David, can you comment on recurring revenues, recurring revenue levels, any change over recent years? Okay. Well, certainly, over time, we've seen an increasing proportion of sales relating to recurring revenues.

47:58 So round round about 25% of the of the sales last year were were coming off. So, you know, con contracted services. But round round about a third of the the sales now are are coming from ongoing support and service. So that that's an important and grow growing part of of of the business. And it's also higher margin, of course. Thanks, David. There's a there's a technical question from Sebastian here, which I think is more appropriate for you to answer offline. It's a technical question on the financial statements? I'm sure you'll answer that subsequently. Ashton's asked, in the long term, given the higher gross margins and structural cost savings, should the systems business be capable of achieving higher operating margins than the previous peak margins?

48:57 Well, I'll answer from my context first and then ask David to supplement that. At those at the gross margin levels, our target for the systems business is mid teens operating margin, and we think that's reachable with with revenue growth that's in our sights. So we would expect to, in the next couple of years, to be achieving operating margins in the mid teens in the systems business. Anything further to add to that, David? Yes. So as a result of the restructuring we've done in systems and that high level of operational gearing, we're going to be able to achieve that level of operating margin at at turnover lower than the the previous peak.

49:45 So I think I think that that puts us in a in a really good position in in in terms of delivering significant improved profit performance from systems. Thanks. That's great. David, Paul, I think you've taken pretty much all the questions from investors. And, course, if any other questions do make themselves available, we'll we'll obviously show you those after the meeting has concluded. Paul, David, I know investor feedback is important to the company, and I'll shortly redirect investors for the opportunity to provide their thoughts and expectations. But before doing so, if I may, Paul, could I just ask you for a few closing comments, and then I'll redirect the investors on the Yeah. Thanks, Mark. Well, thank you for giving us the opportunity to present this to so many people on this platform this afternoon. Thanks to everyone for your interest in that.

50:33 Return to profit has been a really big drive for us in the second half last year after a very difficult and disruptive couple of years, but we're confident that our really fantastic customer relationships and and brilliant teams of people means that we'll see strong recovery and growth over the next few years. That's great. Paul, David, thank you once again for updating investors this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations? This will only take a few moments to complete, I'm but sure will be greatly valued by the company. On behalf of the management team of SYNECTICS, I'd like to thank you for your time and attendance this afternoon. Good afternoon to you all. Thank you, everyone.