Microlise Group (LSE:SAAS) — Full Year Results

0:01 Good morning, and welcome to the MICROLISE GROUP PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you

0:31 over to Nadim Raza, CEO. Good morning, sir. Thank you, Lily, and welcome everybody to this presentation of our annual results ending December 22. Firstly, just a couple of introductions. My name is Nadim Raza. I'm the CEO for MICROLISE GROUP. I've been with the business for quite some time and became CEO in 2008 when we did a management buyout. My background is technology, soft life as a software engineer. But over the last thirty or so years, I've done a number of different roles within the business. So understand it very well both inside and out. I'm gonna hand across to Bill to introduce him to do introduce himself.

1:20 Just to note that we've got Bill and Nick here. Bill has been our CFO for a number of years, but is actually retiring in the next few weeks weeks, and Nick will be his successor. So I'll let them introduce themselves. So Bill first. Thanks, Nadim. Good morning, everybody. As Nadim says, my name is Bill Wynn. I'm the incumbent CFO. Been with MICROLISE since 2007. As Nadim says, I'm due to retire in the next couple of weeks, and

1:52 I'll I'll let Nick introduce himself. Me and Nick have been working together for the last ten years, so an ideal success for me. Nick, if you wanna introduce yourself. Thank you, Bill. Good morning, everybody. Yes. My name is Nick Wyman. So currently the finance director, but soon to be chief financial officer. I've been with the businesses August 2012, worked very closely with Nadim and Bill over that time,

2:16 been heavily involved in a number of key milestones in the business' history, including to do the recent IPO, the two acquisitions that we've completed, various rounds of debt restructuring, etcetera. So very much looking forward to the the the next stage of MICROLISE's life and being heavily involved in that. Thanks, Nick. Thanks, Bill. Okay. Just to lee give you a bit of background as to who we are. So we're a leading provider of transport management solutions to large enterprise customers. We have a number of those large enterprise customers, in fact, over 400 of them, but we also deal with lots and lots of smaller customers, but generally through resellers and OEMs.

3:02 Just a few bullet points about our history and and where we are today. So we've been around some time. The business originally started in '82 as a company providing software for running warehouse management systems. But in the early two thousands, moved into providing software for actually transporting that inventory from warehouse to store and from store to to homes. And that's now become the main core part of the business. Our software is sold on a SAAS model. So software as a service, so people typically pay us a per price figure based on per vehicle per month. And we have about 599,000 of those subscriptions active currently.

3:54 We're very, very sticky with our customers. I don't think you'll see many other companies that have a churn rate sub 1%. So, generally, when customers buy our product, they stick with us for a very, very long time, and in fact, usually add more modules as as they go along, and we'll talk a bit more about that in a future slide. We have about 700 staff around the world, five offices, and as I mentioned earlier, about 400 of those enterprise customers. Our revenue ending FY '22 was just over 63,000,000, and about two thirds of that 40 about 40,000,000 is recur annual recurring revenue, and we've got an ARR run rate of 42.6 now.

4:46 In The UK, we're very, very dominant. So when it comes to those large enterprise customers, and what we mean by that is vehicles that sorry. Customers that have fleet sizes of above 500 vehicles, we have a 58% market share. And in particular, industries like retail, we have a 90% market share. In fact, all of the top 15 retailers in The UK use our products for their primary distribution. We are actually deployed in lots and lots of countries around the world having worked with OEMs and with large international customers. We've deployed in a 197 countries around the world where we track assets, And we have a number of different awards, including three queens awards for enterprise, two for innovation, and one for international exports.

5:43 This gives you a a range of our product portfolio. There used to be six on this slide. We've really recently added the seventh, which is transport management systems here you can see on the left. And I'll I'll talk about that in a second. But going through the the more common ones that you may already be familiar with, we've got fleet performance, which is what people more commonly understand as tracking and telematics. However, our version of tracking and telematics includes a lot more collection of data, not only from the vehicle engine management system, but also through multiple other sensors that we put on the vehicle. For example, temperature monitoring sensors, door sensors, weight sensors, etcetera.

6:32 And we collect enormous amounts of information that can give a customer true insight into how their vehicles are being used and how well utilized they are. If you're running a fleet of trucks, you have to have an o license, an operator's license, and you regularly get audited by the DVSA to ensure that you are compliant, which is all about making sure that you are maintaining your vehicles as well as ensuring that your drivers are not exceeding their driving hours limits and are abiding by the rules that that that that covered for for driving hours compliance. In order to do that, when you've got large fleets and large numbers of drivers, you really need some software to help you record all of that data and ensure that you're compliant and have that available when you've come audited.

7:30 And this is a suite of fleet compliance software that we that we provide and was done as was added into portfolio as part of a an acquisition that we did in in 2020 for a company called TrueTac. Next, we have fleet safety. So, again, trucks and just like any other vehicles can be involved in accidents. Usually, they're more severe because 40 tons is, you know, is is a is a big vehicle. And you can have standard black box with our product so that you can record information about what the truck and driver were doing exactly at the point at which an incident occurred. We can also feed in camera data from all around the vehicle so you can see exactly what happened when there is any kind of incident. And we provide a whole load of other health and safety type applications including bridge strike avoidance application so that we warn a driver when he's approaching a bridge that the vehicle can't get under.

8:35 And we also monitor things like trailer brakes to ensure that they are working effectively and highlight any possible failures before they occur. Next is our planning and optimization suite. So where you have hundreds of vehicles then organizing what orders are delivered by which vehicle, what driver has sufficient hours available on his shift to be able to deliver those, and the routes that they take to still ensure that they meet the time windows required by the deliveries the delivery destinations. All of that calculation is is is is quite complex, and you need some very sophisticated software to plan all of that and then, of course, to optimize it so that you're using least number of vehicles, least number of driver hours, and you're traveling the shortest distances.

9:34 And we have a a planning and optimization suite that that essentially does that. And then once you have a plan and you start executing that plan, lots of things can go wrong. You know, a driver may not turn up for a shift. Vehicles get stuck in traffic. People are not there when you go to deliver goods. All of those sorts of issues can require a lot of man time to be able to deal with, but we have a suite of tools that allows you to automate many of those processes so you can deal with those issues very quickly and effectively and ensure that you continue to provide a great level of customer service to your end customers. In order to do some of those things, you need to be able to talk to or communicate with drivers, and we have a suite of software and hardware here on the right hand side called driver connected mobility that controls everything that the driver does during his day.

10:29 Everything from his starting and logging on to his shift, gives him his supply navigation for his route, gives him all his health and safety information, including all the risk assessments that he may need to do to enter particular sites and so on. And then lastly, I'll skip back over to the left. So transport management systems is is a package that we acquired a couple of weeks ago through the acquisition of a company called Vita Software. And and this package allows you to manage all the front end of that supply chain. So it's managing all the orders, quoting on those orders, calculating how much they're gonna cost you, agreeing terms with your end customer, and then going through and dealing with their actual processing of those orders, deciding whether you're going to do them yourself or whether you're going to subtract them out and dealing with any surcharges, etcetera. So, again, a very comprehensive suite of solutions. And generally speaking, what we find is that a customer will buy two or three of these solutions to start with. And then we have a dedicated team of account managers that go back into customer accounts and upsell additional product and solutions.

11:48 And to give you an idea, we calculated that if we sold all of our products to all of our existing customers, it would add approximately 60,000,000 onto our recurring revenue numbers. So there's still a lot of penetration for us to do in selling and upselling these products into our existing

12:12 customer base. And, of course, as we add new solutions into our portfolio, it gives us again more opportunity to go and upsell additional products into that customer base.

12:29 And and this is how we actually help our customers. So, of course, with if we plan routes, etcetera, better, that we can reduce the mileage that the vehicles are driving. By having all of that information about how how a vehicle is being driven, we can monitor that driver and ensure that they are driving it well. And where there are bad habits, we can detect those and provide automatic online training for that driver to help them improve the particular aspects of their driving that they need to improve. Of course, if you're driving less miles and you're driving vehicles better, you reduce the amount of fuel that is being used, and that essentially helps you reduce emissions from that vehicle. And and that's really what gives us the green economy mark from the London Stock Exchange.

13:26 If you're driving less and you're driving better, you also reduce wear and tear, and you have fewer accidents. And having fewer accidents has has obviously obvious benefits for customers, but particularly as a side benefit, it also reduces insurance premiums as well. So we often find that customers save about 25% on their insurance premiums. But, really, why people buy our products and solutions is to improve the efficiency and utilization of their fleet, essentially allowing them to do more work, carry more orders with the same number of vehicles and the same number of drivers. Of course, we eliminate paperwork and everything as of all the information is available across the suite in real time. And that real time visibility of exactly what's going on throughout the operation also goes through to the end customer, thus allowing our customers to give their customers an enhanced customer experience.

14:33 As I mentioned earlier, we have five offices around the world. We are headquartered in The UK. Coventry is one of our subsidiaries that we acquired, TrueTac. And then we have two sales offices, one in France and one in Australia. And then half of our development is is done in India through a wholly owned subsidiary in Pune.

15:05 Some financial highlights. Revenue, was up 5% to 63,200,000. Our recurring revenue was up 10% to 40,500,000. EBITDA was slightly ahead of, market expectations at 8,200,000. We currently have an ARR at the end of December of 42,600,000. As mentioned earlier, subscriptions were just under the 600,000 mark for active subscriptions, and we continue to maintain that extremely low churn rate of naught point 4%. Cash was significantly ahead of market expectations at 16,700,000, up 27%.

15:52 Few other highlights. We focused some of our sales team on the mid tier market segment. So as I mentioned earlier, we tend to to focus on 500 vehicle fleets and above. However, we are moving down that scale. And during the last year, we set up a dedicated team to to focus on the 50 to 500 vehicle fleet segment and a great success in there adding over 250 new customers during that period. We also renewed a number of major contracts, including Tesco and ASDA. Both were renewed for an additional five years.

16:38 So that means they run through till 2027, and both of them were renewed at higher prices. A couple of weeks ago, we acquired beta software. That was obviously post year end in March 23. And during '22, we also received accreditation as being a great place to work. We actually ranked number 29 in the well-being league for large companies. Couple of products highlights to to talk about. We introduced a driver fatigue management camera. So this is an inward facing camera that monitors the driver for drowsiness, but also ensures that they're not talking on their phone, that they are actually looking forwards at the road, and that they are wearing their seat belt as well. And we also introduced some other technology for vulnerable road user detection, both for pedestrians and for cyclists.

17:44 So monitoring cyclists that are in proximity of the vehicle and also monitoring cyclists and pedestrians on the left and right hand sides of the vehicle to ensure they're not hit during left and right turns. I'm going to hand across to Nick now to cover some of the financial numbers. Thank you, Nadim. So first slide, this is our recurring revenue cohort growth, which shows our recurring revenue and how that has grown over the years with with the existing customer base. So, for example, the the the bottom blue line shows the growth in the customer base that we've had for customers added in financial year 2016 and prior. So this successfully shows how that we've managed to continue to build on the existing customer base, and that's coupled with the the low level of churn that Nadeep referenced earlier.

18:47 So we do that by upselling new products and services into the existing customer base with the the new model new modules and features that will be developed. Just one slight point to to mention is that there was a flattening off in 2021, which saw a dip in some of the volumes that we managed to ship to our OEM customer base because of the supply chain issues and shutdowns as a result of that.

19:15 This next slide is a revenue split of our total revenues, which shows an overall level that we've increased from 60,300,000 in calendar year 'twenty one to $63,200,000 in FY 'twenty two. Now the the bars represent the the the split of the various different revenue streams that we have. The black and yellow bars represent the nonrecurring revenue, which is hardware and services. The blue bar is the SAAS subscription revenue that we have contracted multiyear contracts. Now hardware revenue has increased 6% year on year, but we've seen a reduction in the services revenue. And that is predominantly because we've had to battle with the global supply chain issues that we've had, and we've had to sort of make a call to to really prioritize to our OEM customers.

20:12 That's been coupled with vehicle availability for direct customers as well. So that has had an impact on the services line, which is effectively the engineering services and the professional services that we offer to our direct customers when we roll out new projects. So we don't have that challenge with OEMs because, generally speaking, the hardware units that we ship to our OEMs are built in line side. So it doesn't require any of that engineering and project management support. Recurring revenue has increased from 36,700,000 in calendar year 'twenty one to $40,500,000 in FY 'twenty two, and that is really a reflection of growth in both our OEM base and also our direct customer base. So even though we've we've had an issue with not being able ship as much hardware, we've still managed to build upon the the recurring software revenues with with the existing customer base with our our direct customers through, you upsell and and new features and functions that we've we've released.

21:18 Annual recurring revenue, so our ARR, has increased 10% year on year to 42,600,000. And and as I said, the the the services revenue has decreased 30% due to those those issues regarding project management and and installations revenue. So if I just move on to the profit and loss account, this shows that the excuse me. One second. So gross margins have increased from 57% to 60%, which represents a 9% increase in overall gross margins. We've managed to maintain hardware margins at 20% year on year despite

22:03 increase in the proportion of lower margin OEM sales and also the ongoing issues that we've seen with supply chains, which has resulted in premium pricing and other factors that have challenged the level of margins that we've been able to achieve. But overall, we maintain that at 20% year on year. As I mentioned previously, the the level of services has decreased because of the project management and installations. But overall, the individual revenue streams for the services, which is installations and engineering, has actually increased year on year. So that is really as a result of the initiatives that we've put in place to manage the costs. So and we've done that through investing in our internal resource pool of engineering staff. So previously, we'd we'd relied more heavily on third party engineering resource, but the the volumes now support, you know, initiative to bring additional resource in to be able to manage that internally, and that and that's resulted in increased gross margins.

23:07 Also affecting and improving the overall gross margins and increasing the SAAS revenues. So obviously, with that, that's higher margin, and that will drop straight through into gross gross margin. So that's also assisted. Adjusted EBITDA has been maintained at 13%. It's important to point out that there are a number of things going through administrative expenses that means that it's not a like for like comparison. So for example, in 2022, we, we reinitiated the MICROLISE Transport Conference, that was, that was absent for three years because of the the pandemic. So that that's a cost of around 6 to £700,000 a year. Also, in going through it, admin expenses will be the full year effect of the the the the cost to support the new listed status of the business. So broker fees, banking fees, and and other professional services that we'll have going through going through that line.

24:08 So just moving on to the cash flow. As Nadim referenced earlier, we've we've increased the cash year on year by 26 to 27%. One of the one of the contributing factors to that is the increased proportion and significant levels of OEM volumes that we've seen in in 2022. Generally, our OEM customers will pay for multiyear software contracts upfront. So we we can often bill them for contract periods of up to five years, and we we will we'll obviously take that cash and and reflect that as deferred revenue and margin sitting on the balance sheet. So, you know, anybody looking at the balance sheet will see a significant increase year on year in in deferred revenues.

24:55 But as it shows as a liability, that is actually good news for us because that is that is guaranteed revenue that we've got, and it's been paid for. In addition to the, the cash balance of 16,700,000, we also have, a a permitted RCF facility with HSBC, meaning that we have access to funds of 36,700,000. Within, 2022, we we invested, or via a convertible loan note, a million pounds into our associate company, Track Mate. So you'll be able to see that in the, loan advanced associate line. And we've also made the second deferred consideration payment in relation to the TrueTac acquisition that we made in March 2020. The final one has now been paid in March 2023.

25:46 Thank you. Over to you, Nadim. Okay. So I'm just gonna talk a little bit about where we are in the market and what's going on in the market and then about our growth strategy. So just one slide on what's going on in our customers' market. So we obviously operate in the logistics space, and there's still a lot of disruption going on, and there's still a lot of competition in that in that space where they are continually being put under pressure to deliver more volume of lower sized orders, but more cost effectively with greater level of customer service.

26:32 And you can see all of that pressure going on to some of our customers delivering goods, not just in retail, but also in parcels and post and many other industry sectors. What we are seeing now that some of these more immediate pressures on fuel pricing and drive shortages have have diminished a little, is this focus returning back onto environmental impacts and emissions. So we have the introduction of clean air clean air zones around the country, which were delayed for some time, but are now happening. And we've also got scope three reporting coming along in the near future as well. And, again, we're providing various solutions to help our customers through through both of those activities.

27:21 Health and safety is another area where we are spending a lot of time, and there's a lot of interest from customers. There is a new direct vision standard, which is currently in consultation due to come into play next year. And some of the regulations regarding identifying vulnerable road users and also identifying driver fatigue management looks like it's coming into EU law over the next few years as well. So, again, some of the products that we've launched last year are all about being ready for that those regulations when they come on board. Customers are also quite uncertain about what technology to back in terms of zero emission emission vehicles.

28:10 Currently, at the small trucks size, you're talking electric, and and a lot of our customers are buying electric vehicles in that seven and a half ton and below truck space. But in larger trucks, electric isn't really doesn't really give you the range, and that's one of the problems. So people are looking at hydrogen, but, again, we don't have the infrastructure available for hydrogen right now. So currently, diesel and gas are quite popular. Gas vehicles had a had a lot of issues last year in terms of being affordable given the massive increase in in gas prices. Customers who were planning on switching to gas held off through different part of last year. But now that gas prices have come down again, we're seeing customers buy into more LNG and CNG gas solutions as well. And then you've got recent media activity on synthetic e fuels given what was going on with EU regulations over the last couple of weeks on that front.

29:17 The important thing to note is we support all of these. So we've been supporting electric vehicles for about a decade, diesel and gas vehicles for five or six years. And even on some of the more recent hydrogen vehicles produced by our OEMs, you'll see our kit already built in and onboard those hydrogen vehicles to monitor how how they're being used. What's going on in our space? So for us, I think we you know, there's been widely reported headwinds of chip shortages and other supply chain issues throughout 2022. We certainly weren't immune to that and

30:04 reported that early on in 2022. The good news is that we're forecasting that chip shortage in supply chain issue should get back to normality by the second half of twenty twenty three. We're seeing that on our side in that decommits, which is essentially where you you the the supplier fails to give you the components that you actually ordered in the time frame that you actually ordered them. We're seeing at the early part of twenty twenty two, we had about 20 decommits per month. Second half of twenty two, we were looking at between ten and twelve per month. At the beginning of twenty three, we're seeing about four per month. So you can see that trend going down.

30:53 And, again, hence why we, in discussions with our suppliers and also with global industry forums like the Global Semiconductor Alliance, you're seeing all of those people giving a consensus that that they expect chip shortages to to become back to kind of normal pre pandemic levels by the time that we get into the second half of this year. Side effect of those chip shortages mean that that's meant that new vehicle availability has been directly impacted. So at the beginning of last year, if you were looking to buy a new truck, you could be talking twelve to fourteen months. By the second half of last year, you were looking at six to eight months.

31:38 Currently, we're seeing lead times of about four to five months. So it's still it's still trending down, but it's got some ways to go to get to the pre pandemic levels of of four to six weeks. But, again, we're hopeful that by the time we get towards the end of twenty twenty three, we'll see more more normal lead times for for new vehicles and new trucks as well. We don't really see any shortage in demand, So we've got strong demand across all our geographic regions, whether you're talking about The UK, France, or Australia. But, you know, it's the it's the availability of vehicles and our availability of chips that allows to sell our hardware that's really hampered sales to direct customers.

32:27 We are seeing inflationary pressures come through from suppliers, but we are increasing our pricing to our customers. And, obviously, some of that is going through on annual reviews of contracts. We have typically customers with five year contracts, but they are reviewed annually for price increases. And so we expect those inflationary issues to to wash through over 2023 and through to 2024 as inflation drops back down as is anticipated towards the end of twenty twenty three. In terms of growth, we are continuing to grow, and you can see in the diagram on the right hand side how we how we grow and how what is our strategy to grow. So as far as growing existing customers, excuse me, we we upsell and we create new products to sell into those existing customers. And and you saw from the earlier slide that Nick showed that, you know, we've had a lot of success over the last five, six years in growing revenue from existing customers.

33:40 But we still take on new customers, of course, and we took 250 new customers on over the last year. Again, focusing a lot on that mid tier segment, so 50 to hun to 500 vehicle fleets as well as light commercial vehicles. Of course, we're growing internationally, and that's mainly in France and in Australia with our direct sales teams. We also sell through resellers and OEMs in in lots of other parts of the world, and we're seeing growth in places like Dubai, Malaysia, and some of the the Central African and Western and Western African countries through our additional launches with MAN. We've also seen growth in The Middle East with our reseller over there, which is Emirates Logistics.

34:33 And important to note that we're seeing pipeline growth in in both of our main regions of France and Australia. And so we're growing the sales teams in both of those areas to take advantage of that opportunity. Excuse me. Also to note that some of the latest vehicles from our OEMs, which are either electric vehicles or hydrogen vehicles, have been integrated with our technology. So you'll find our technology on those as they come as they roll off the production line. And layering across that organic growth, we are still in m and a mode.

35:21 So we acquired one business a few weeks ago, but we have a number of others that we are engaged with. And so we certainly expect further acquisitions to happen over the over the coming month and years. And what we're looking for is targets that can add new products into our portfolio that we can then sell into our existing customer base and cross sell into our existing customer base or that give us additional footprint in new geographies. So those are sort of two key things that we we want to tick off when we're looking at acquisition targets. ESG is becoming more and more important to our investors.

36:12 And one thing to to note here is that under an independent ESG assessment by Integrum, We were rated as a, very good, and that was done in September 2022. But some of the detail around the things that we are doing from an ESG perspective, obviously, recruiting IT talent is is particularly difficult in the market. So we grow our own. We have our own academy, and we bring in software graduates and other apprentices. And we essentially put them through a training boot camp for nine months to get them to a point where they are fully productive and can go into working in our one of our development teams.

37:00 We do outreach programs in schools, colleges, and universities to promote our business and careers in I in IT, and that helps us prime people for for potential futures with us through our graduate program. We're doing a lot of the other things that you would expect. We're putting solar charging panels on our on our buildings. We've created a an EV car scheme for our staff, and we're also decarbonizing our own fleet and switching all of our vehicles to EV wherever possible or at least to hybrid where where EV isn't possible. We've got strong links to various charities as well. TransAid being the one that we support most through most of our efforts, but also Marie Curie, Scouts, and and various others as well, and and lots of local charities that are close to Nottingham.

37:58 Overall, for 2023, we're very optimistic and positive. As I've mentioned, the number of the headwinds that we've seen in '22, we we expect to dissipate during 2023. And there is no shortage of of demand from our sales pipelines that we can see. And lastly, Nick mentioned our transport conference. This is being held in in May. The May 17 is the main date. And the reason we're giving you this slide here is that for the first time, we're also gonna include breakout sessions and tracks for investors and analysts.

38:46 It is free to attend. If you just do a Google search for MICROLISE Transport Conference, you will see it and just just register. And as mentioned, there will be sessions for for investors. So you'll learn not just about us, but also a lot about the industry itself as we have speakers from the Department for Transport, the DVSA, National Highways, and various other industry leaders actually presenting. So, we look forward to welcoming you there if you can if you can attend. And I'm just gonna switch over now to answering some of the questions that have been put forward. Nadine Nadine, if I may just jump back in. Nadine, thank you very much for your presentation this morning. And if I may just bring back up your cameras.

39:33 Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, 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 investor dashboard. As you can see, we have received a number of questions throughout today's presentation, and thank you to all investors for submitting their questions. Could I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thanks, Lily. So first question was from Christie. It says, do you see recurring revenue element of your business growing? Yes. We do. In fact, I think you can see from the earliest slide that I think we've consistently grown at about 10% every year for the last few years. And, you know, our expectation is to continue growing that recurring revenue going forwards.

40:27 Second part of that question was the churn rate is remarkable. What are the key key reasons behind this? I think the key reason is is that what we're providing is some very effectively mission critical software for our customers. And once the they buy one, two, three, four modules from us, then it makes us very, very sticky within those accounts. And the fact that all those products are are tightly integrated drives a lot of value for our for our customers, and and that really helps to keep us embedded into those accounts. The next question was from Sam. It said, what did the acquisition of of TMS bring to the customer offering? So it's another piece of software that we can sell in that SaaS type format. So it's it will help to grow our recurring revenue. But more importantly, it's a high value piece of of software. So when I showed that slide with the seven different groups of modules that we sell, they have slightly different price ranges. So if you're talking about the the fleet performance module, which is tracking in telematics, it tends to be highly commoditized.

41:54 And therefore, you're only looking at sort of between ten and twelve pounds per vehicle per month. Whereas if you're looking at planning an optimization, you're looking at 40 to 50 pounds per vehicle per month. So it's a much higher value item that and service that we'd be able to sell. And TMS, similarly, is a high value service that we can sell to our customers. And hence, it will not only help grow our recurring revenue, but it's also high margin module too. So it should help grow our EBITDA percentage going forwards too. Next question was how are you managing recruitment and retention of your IT technical people?

42:41 Well, I think a couple of different things. One, getting the great place to work and doing all the things necessary to be able to achieve that means that we are looking after our staff and that they can see that, and hence, that really helps with retention. And secondly, investing in training. And thirdly, obviously, in terms of bringing in new people, that's really what our academy is for is is is trying to grow some of those people by bringing in graduates and apprentices and and training them in the skills and expertise that we're looking for. So that's our answer to to leading with those that skill shortage. The next question, are you using AI capability to improve efficiency or add functionality?

43:32 Yes. We are. In fact, we've introduced a number of AI solutions in our products. So our trailer brake performance management system that we introduced in 2021 has some AI and machine learning built in because that's how it learns to understand what's going on with the brakes on the trailer because each trailer is individually and unique. So it learns over a period of time how the brakes are performing and detects whether they're starting to drift out of normal operating tolerances. And then the second bit of AI that we've introduced in 2022 is our driver fatigue management system, which again looks at the the facial recognition and looking at blink rates and other factors to understand whether the driver is starting to feel tired or not. So there's a lot of vision AI technology built into into that product.

44:34 And we're also looking at a lot of other AI built into the back end of our systems, particularly need to do with data cleansing. So a variety of things that we've that we're doing. We have a data science and AI team within the business that essentially looks at those products. Next question is from Miguel who says he's very new to the company and wants to understand why when EBITDA was slightly ahead of expectations, why was cash significantly ahead of expectations. So the reason for that, Miguel, is that over 2022, because of those supply chain and chip shortages, we had to make a tough decision in terms of do we prioritize our OEMs or do we prioritize our direct customers?

45:27 And we chose to prioritize our our OEMs because you can always delay a a direct customer project by a week, but you can't shut a production line with a with an OEM down for a week, you know, through because delays, etcetera, everything has to be just in time. So we prioritized our OEMs. Our OEMs had massive order books, which was a follow on from the pandemic. And as such, we actually shipped more hardware than we ever did before. But our OEMs are very cash generative, so they tend to pay us upfront for the whole term of the contract on each vehicle. And hence, that's what's generated all of that high levels of cash.

46:12 So, hopefully, that that that clarifies that. And the other part of that question was was working capital better than expected, and how did you manage to increase ASDA and Tesco contracts on renewal? So ASDA and con and Tesco contracts were increased mainly through addition of new new products and new services. So, again, we were able to renew those and essentially increase our share of of their wallet by selling them additional things that they weren't using before. The next question is from Thierry who asks, how could you increase EBITDA margins and cash generation in in the medium term? So, yes, we are looking to continue to grow our EBITDA margins.

47:02 Over the last few few years, years, we've gone from 9% to 11 to 13%. Our aim is to continue to grow that in the short and medium term to 15%, and then medium to long term beyond 15%. And we have a number of programs ongoing to do with improving those margins mainly around cost down and reduction of costs on some of our hardware, renegotiating volume discounts with some of our suppliers, and also just generally introducing many other efficiencies within the business to in order for us to be able to do that. So we are focused on trying to grow our EBITDA EBITDA margins going forwards.

47:49 The next question was, can you explain the business rationale for your investment in TrackMate and your long term ambitions for what does not seem to be a very profitable investment? Well, I think I I I can't talk too much about track make as I'm a non exec on that board as well. But I think the the key things to point out is that although people often think we're competitors, we're not. We actually operate in very different markets, and there are synergies and benefits that we can see from the both from the hardware manufacturing and also other collaborations that we're doing that are of benefit to both companies.

48:37 And and what happens longer term, well, I'm afraid you you'll just have to see what happens on that. It's not something I can comment on at this point in time. Next question is from Scott that says, how do you see the growth of AI affecting your service offering in the next five years? Well, we we we're already seeing AI affecting our service offerings because we are introducing it into some of our products, and we'll see more of that happening over over the coming years. We will be doing some product launches at our conference, but I'm I'm not gonna preannounce anything else from a product perspective on this call. Next question was from SAP.

49:25 It says, of the 30 new graduates, how many in The UK? Was 20 it was 21 in The UK. Yeah. And the other remaining are in India. Next question was, could you please discuss the strategic rationale for the investment in track? Well, I think I've I've already answered that question. So the next one was what level of price increase have you agreed with the existing customers? So, typically, we are increasing pricing in line with CPI or or RPI. So, obviously, there's usually some negotiation with customers on on exactly that number, but it will you know, the the prices that are going through are around that sort of between 812% figure.

50:15 And the last question that we have is from David that says, I understand prioritizing the OEMs, but does that compromise your relationship with your directs? Well, it's important to say that there was no orders that were lost due to us not supplying to our direct customers. And I think it's also important to say that the maximum lead time that we we had with our direct customers where we had to delay orders were was really about three or four weeks. So that combined with the fact that many of our direct customers had to delay projects anyway because they couldn't get hold of new vehicles, I don't think that we've really compromised any of our relationships with our direct customers. And we continue to measure things like our NPS score with our with our customers, and it tends to be at least average, if not above average overall.

51:25 So we're we're confident that we've not really had any difficulties or impacted the relationships with our with our direct customers. And I think there was one, sorry, one last question. One final question this will be. So who are your major competitors, and how has your performance match their experience? So we have a variety of different competitors depending on which segment of our portfolio you're talking about. So there isn't really one key competitor that we'd look at as a comparison. And I think it's fair to say that, you know, if you look across the the market, I think we've done better than than number of our customer sorry. Better than a number of our competitors.

52:19 And I think that really goes down to the resilience of our business model and also the the hard work of a lot of our staff. I'm gonna hand the crass back across to Mark and Lily for any other final items. That's great. Nadim, Nick, Bill, thank you very much indeed for updating this afternoon. Nadim, I know investor feedback is important to you and we'll surely redirect investors to give you their thoughts and expectations. Before doing so, I wondered if I may, and again, just ask you for a few closing comments before we redirect investors for feedback. Sure. Thank you. I think the main key points that we wanted to get across with this presentation is that, you know, albeit there have been a number of headwinds during 2022.

53:09 I think we've shown our resilience and through a lot of hard work from our staff. We've we've managed to still meet our expectations for EBITDA and recurring revenue growth. And looking forward to 2023, we're looking at you know, we're looking positively and optimistically as some of those headwinds diminish, and hopefully, we will have another positive year of of great growth. And and lastly, obviously, the slide on screen, if you do want to talk to Bill, Nick, and myself in or any of our other operations teams and also our customers, then our transport conference is a great opportunity to do that. And we look forward to welcoming you there for those of you that are able to attend.

54:03 Nadim, that's great. Thank you very much indeed. And to Nick and to Bill, thank you for your time this morning. Ladies and gentlemen, please could I ask you not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team at MICROLISE PLC, we'd like to thank you for attending today's presentation. Good morning to you all.