Microlise Group (LSE:SAAS) — HY Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the MICROLISE GROUP PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just 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 can review all questions submitted today, and we'll publish those responses where it is appropriate to do so. Before we begin, as usual, I would just

0:33 like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from MICROLISE GROUP PLC. Nadim, good afternoon, sir. Hi. Thank you, and thanks you to everybody joining us this afternoon.

0:51 Couple of quick introductions. My name is Nadim Raza. I'm the CEO for MICROLISE GROUP. And with me, I've got Nick, if you want to introduce yourself, Nick. Thank you, Nadim. Yeah. Good afternoon, everybody. My name is Nick Whiteman. I'm CFO of MICROLISE. I've been with the business just over twelve years now. I've been CFO since April 2023.

1:16 Thanks, Nick. Just a reminder of who we are. We're a leading provider of transport management solutions to large enterprise customers. When we talk about enterprises, we're talking about companies that have fleets of over 500 vehicles. That's our sweet spot. We sell to hundreds of companies of that scale. We also sell to smaller companies, particularly the mid market, which we classify as 100 to 500 vehicles, and we have thousands of customers in that space as well.

1:55 Just to give you a flavor for some of our numbers. So we've been around a while. We've been around since 1982. We have about 800 staff, about 450 of those large enterprise customers. We are truly global. We operate in a 197 countries around the world that we supply systems to. We have offices in in four, and we'll come on to that shortly. And the subscriptions in terms of active subscriptions is over 800 and 800,000. We have a very low churn rate, so we are very sticky with our customer base with a churn rate of of 0.5%. And some of the numbers there in terms of our 2023 financial year results of 72,000,000.

2:49 Excuse me. And we've been lots of awards. We we've won historically three queens awards for enterprise as well.

2:58 How we help customers is by providing them with better planning and optimization tools that helps them reduce the mileage that vehicles are traveling. We also help them improve the the skills of the drivers. Again, we we look at a number of different characteristics characteristics of drivers and the way that they drive and looking at how they can improve their skill sets. And that generally means that they use less fuel, typically between 412% improvements in in fuel once our implement is once our systems are implemented and utilized. Obviously, reducing fuel helps to reduce emissions, so it helps with our carbon footprint.

3:48 And also driving vehicles better helps to reduce the vehicle wear and tear and the number of accidents. Number of accidents being reduced also leads to reduced insurance premiums. Again, not unusual for customers to see a 25% reduction in second year insurance premiums. But the key thing and the the thing that really the reason why customers buy our products and services is to improve fleet efficiency and utilization, that ability to do more with the same number of vehicles and same number of drivers. Of course, we we eliminate all the paperwork, so everything is done in real time, and we give that real time visibility across the entire operation.

4:36 And that real time visibility just doesn't extend internally within the organization, but extends down to our customers' customer and partners, etcetera. And that then means that they're able to provide an enhanced level of customer service to their end customers. As I mentioned, we operate in a 197 countries around the world. We have systems and assets deployed pretty much everywhere other than North Korea, but we have several offices around the globe. So we're headquartered in The UK. We have offices in France and in Australia. Those are predominantly sales offices and local implementation support offices.

5:24 Then we have a large office in Pune in India, just outside of Mumbai, and that's where roughly half of our development software and hardware activities take place. The other half of our development activities are in The UK.

5:42 Some highlights. Again, you'll have seen these probably from the r and s from this morning. We have our revenue increasing for a this is for h one in comparison to h one twenty twenty three. Revenues at 39.1. Recurring revenue at 26.6. Adjusted EBITDA of 5.2. Annual recurring revenue run rate is at 54,000,000, and our subscriptions active subscriptions has gone up to 827,000. Still maintaining that very low churn rate of 0.5% and still growing cash. We're still cash generative even with the acquisitions and with the recent full year 2023 dividend payout that we did in in May earlier this year.

6:41 And talking about dividends, we we're also declaring a an interim dividend for 2024. So following the usual pattern of having two dividends a year, an interim one, and a full year dividend, will be paid for next year for for 2024. So moving on to some highlights. So we completed our ESS acquisition in January this year. That brought in a new TMS solution for us to upsell and cross sell, and we've done very well in do in in selling that across our existing customer base with several new contracts, but particularly one contract where that was sold for a ten year period.

7:35 Again, a long standing customer, who's been with us for a while, and wanting to implement that t m TMS solution now and continue our relationship for a ten year period. We've also continued to grow in Australia and New Zealand and France. Particularly in Australia, you have seen our RNSs for the contract wins with Woolies, more recently, Foodstuffs South Island, which is the largest retailer in the Southern Part of New Zealand, and as well as Staff in France. Not necessarily a well known brand name in The UK, but staff is as a brand in France is as well known as as Stobart's are in The UK. So very pleased to have won some major brand names in those regions, which will obviously help us market to other customers in in those regions as well.

8:36 We continue to grow in The UK, so over 200 new customers, mainly in that mid market segment of 100 to 500 vehicles as well as lots of contract renewals. So, again, a lot of our large enterprise customers renewing with us for multiyear renewals, the likes of Bitfood, Palex, Tesco, Saint Bruce, and CEMEX. Hopefully, you'll also have noticed the RNS yesterday announcing our fifth contract extension with JCB that extends the agreement that we have with them through till September 2029, which means that machines that they manufacture in September 29, we will continue to see revenue from those through till September 2034.

9:27 So, again, very long term visibility of future contracted revenue there. We've also launched some new products with JCB, including JCB proximity beacons, which we launched a few months ago. And we're working on over 60 new model implementations. That's new machines that JCB are looking to bring to market over the next twelve months with a similar number planned for next year as well.

10:02 Just an overview of the platform that we sell. So, again, starting from the left hand side, transport management systems. This is predominantly the the products that we acquired through the enterprise and Vita acquisitions earlier this year and last year. It really controls all of the aspects of managing orders and the relationship with customers and subcontractors and really is the beginning of the supply chain journey. Data from that then flows into our planning and optimization product, which manages how vehicles are used, what orders go on to what vehicles, what deliveries they make, the routes that they take, again, to try and optimize and deliver the maximum number of of goods using the least number of drivers and vehicles and traveling the least distances, particularly useful when you've got thousands of vehicles and thousands of drivers.

11:10 We then have our journey management solution, which manages real time activity as it happens. So where you have failed deliveries or damaged goods at the point of delivery, we can automate a lot of those processes and make sure that you are delivering a great level of customer service to end customers and end delivery points. Of course, in order to be able to do that, you need to be able to communicate with drivers. And so we have a driver connected mobility, set of modules, including hardware, that sits in the cab and manages everything that the driver does, whether it's start at the start of his journey, his vehicle checks, his compliance paperwork, his satellite navigation, his traffic updates, etcetera.

12:05 Moving on, we then have our fleet compliance products, which, allow you to collect all of the information that you need to be able to demonstrate to the DVSA that you are running a compliant fleet and that you are not abusing any driving hours regulations. Again, everyone that has a truck has to have, some form of compliance tools to be able to report that you are observing all of the legislation both in The UK and in Europe. We then have our fleet performance products, and and this is essentially the part of the portfolio that is telematics. People often think that we're a telematics company, but this is just to highlight that actually that's less than a seventh of our of our product set.

12:59 And, essentially, this using hardware on on vehicles determines where vehicle is as well as all the information about engine performance, temperature if you're monitoring temperature controlled goods, door opening, door closing, weight sensors, etcetera. So a lot of information being collected about the driver, the trailer, the actual vehicle, and the assets and inventory on board. And then lastly, we have fleet safety where we have a number of safety products, including low bridge detection and and proximity warning systems as well as camera systems as well as accident incident data recorders and so on. So a a variety of of products really aimed at the logistics and transport space.

13:55 The color coding does have significance. The lighter shades on the right hand side are products that are fairly commoditized in the market and therefore are lower value and lower margins. Whereas as the shading gets darker, particularly to the left hand side, those are much higher value products in the market that drive a lot more margin. And it's important to say that that's really where we've been investing a lot of our r and d efforts over the last few years and particularly also our acquisition targets in the last few years because we believe those will generate far more margin going forward.

14:44 In terms of product investments, we continue to invest in security and and growing the moat in terms of our product set compared to a lot of the competitors out there. We're also integrating all of our acquired products into a brand called MICROLISE ONE that will be there to provide a a seamless experience for for customers and allow easy upgrade paths. Not all of our customers buy everything on day one. In fact, hardly anybody buys everything on day one. People generally tend to buy one or two products initially, and then we expand that footprint within the organization by upselling additional products.

15:29 And the aim of MARCRIZE ONE is to make that easier for customers to transact with us and take onboard those additional products and and also to drive more value for those combined products rather than people having

15:46 products point solutions from from different suppliers. We continue to innovate. We have a number of new products launched already this year and more planned later this year, particularly in terms of cost reduced hardware, which, again, we believe will provide an increase in margins going forward. As well as our own hardware, we're increasing support for third party hardware. So we are already providing support for third party camera solutions. We intend to extend that support further with more compatibility with more camera providers. And we're also providing solutions whereby we integrate with other hardware telematics units, for refrigeration and temperature controlled goods.

16:41 And what this means is is that we will be able to more easily sell our software solutions into customers that have other people's hardware because they won't have to replace the hardware in order to use our software, again, reducing barriers to entry for us going into other people's existing customer base.

17:08 This slide gives you a range of the industry sectors that we operate in and some of the well known brands that use our products in those spaces. Again, very, very dominant in in the haulage and retail and grocery sectors and very and becoming more dominant in food manufacturing and food services, but a whole range of different sectors that we operate in. If you'd like to learn anything more about any of those customers and what we do for them, then there is a link at the bottom of that slide that takes you to numerous case studies that we have on our website. I'm gonna hand across to Nick now just to go through more detail on the financial numbers. Thanks, Nadim.

17:54 Hi, everybody. So what what this this slide is is showing us is is a a revenue split. So we we consider ourselves a software company, but we do have other revenue streams. So if you just focus on the on the on the graph on the right hand side, the the revenue streams are represented by the different colored chunks within the bar. So the the largest bar at the bottom is software subscription revenue. The orange bar is the hardware aspect of of the portfolio, and the top bar represented in black is the services revenue. Services tends to be split into a couple of main areas, one of which is engineering installation. So this is normally associated with direct customers because we we generally retrofit with with direct customers.

18:47 Whereas with with our OEM OEM customers, they tend to be either part of the production build fitted line side or part of the predelivery inspection process. The other aspect within the services is professional services. So this can split into in into a few different areas. So there's there's customer success. There is profession project management, and there's also integration services, which will which we'll touch on a little bit more in in in a short while. Overall, as as Nadeem stated, we we've increased our revenue by 15.4% to 39,100,000. That is driven by really strong recurring revenue. So that's increased 21% in the period up to 26,600,000.

19:33 So 1111% of that 2121.5% is organic growth. So that that has seen with our organic growth has increased year on year as well. So our ARR has increased, from around 11% last year to 21%. So that's that's 54,000,000 as it stands at the end of June.

19:54 Hardware revenue has decreased by around 11% to 8,500,000, and that is really as a result of the anticipated reduction in in OEM shipments. And that's really as a result of high stock levels at at one of our our major customer, JCB, at the back end of last year. So whilst we've seen a reduction in in hardware revenue and hardware unit shipped, we haven't seen any reduction in the number of software subscription services that are associated with those hardware units. So that that is actually up year on year marginally compared to where we were this time last year. Services revenue has increased quite significantly up to 4,100,000, and that really is a is a direct result of a number of things. So we we've seen more hardware shipments into our direct customers, And we we've also seen an increase in the level of professional services. So that will be services around the implementation of new products, but it's also a reflection of the increased

20:58 integration work that we're doing with both direct customers and OEM customers. So as Nadim mentioned previously, the the number of different development programs that we're on with with JCB has increased by threefold. So we are seeing seeing that drop through. I I think the the important bit to point out on here as well is that we'll see when we move on to the next slide is is is around the impact that the mix of revenue can have on the business. So if you just move on to the next next slide for me, please, Nadim. So what what we've seen is is gross margin has has increased from has increased about 25% year on year. So of that, the organic growth is around 14%. So that that compares to around 12% previous year. So both both in on an organic and inorganic perspective, obviously, we've grown fairly significantly.

21:50 We have seen increases in gross margins from both recurring services and the nonrecurring services, particularly around the hardware. The mix around the hardware is obviously more biased towards direct customers, which attracts a higher gross margin when you compare that to the OEM customers because of from a volume perspective, you know, we we tend to charge lower prices. But also the professional services revenue tends to attract a much higher margin. So we can see that's dropping through in into the gross margin, which the nonrecurring margins have increased about 9% across the period. Recurring margins hasn't increased as much. We've seen about one percentage point increase there. That has been impacted by the acquisition of ESS.

22:38 The provision of their hosting service is done quite differently to how we do it at MICROLISE. We have a shared infrastructure that is easy to a lot more easy to scale up when we have new customers in. The ESS method has been very much a individual hosting provision per customer, which will include, you know, a whole host of individual licenses, a whole host of individual hardware. So that's a very it's a it's a complicated and expensive way to deliver hosting services. So as those as those contracts expire, we will be transitioning those onto the MICROLISE platform, which will drive significant margin increases on the on the recurring revenue revenue side. Overall, gross margins have improved from 61%, 65%.

23:26 Of that 65%, 64% of that is organic. Operating expenses have increased to 26%. 15 of that or 15 and a half percent is organic. So, obviously, the the impact of transitioning all the the overheads and the people over from from ESS as well as Vita and K Safe to a lesser degree has obviously impacted that that number. Outside of employment costs, we have seen increased investment in our marketing.

23:57 So we spent an additional around £400,000 this year in or sorry, in the half year up to the end of June on on marketing. So that is very much targeted at

24:07 the the the overseas geographies. So we're we're really focusing on increasing lead generation and presence generally in the market in France and Australia as well as continuing to invest in The UK. We've also incurred additional costs in relation to third party licenses. So we've seen a fairly significant increase in the cost of Microsoft licenses. So that'll obviously impact us from running our back office systems and, obviously, everyone aware of, you know, Word and and Excel and so on and so forth. So those licenses have carried quite a cost increase this year. But in addition to that, we've continued to invest in our cybersecurity posture. So we we've invested a number of third party services to help. That will include things like, you know, network infrastructure improvements, vulnerability simulations, phishing simulations, those types of things to make sure that, you know, we are positioned as best we can to protect the business from from any cybersecurity threats.

25:08 Adjusted EBITDA has increased 16.9% to 5,200,000. So we're we're continuing to see the EBITDA margin percentage grow. So that's growing to 13.4 from 13.2% year on year. And I've got another slide up in a couple of slides just to talk about margin enhancement in a little bit more detail. We we've seen increases in depreciation and amortization across the the three main elements, which is really as a as a consequence of increased investment in previous periods in plant and machinery. So it's effectively IT hardware infrastructure. We've also seen the the the amortization charge in relation to the development capitalized development costs. So internally generated software has increased.

25:57 And, obviously, the the the impact of the acquisitions that we've made is starting to drop through into into amortization as well. There are a a few classifications of exceptional costs that we've classified this year and pulled out separately. So that is really in relation to the acquisitions that we've made and and the restructuring and integration of those acquisitions into the business. So just move on to the next slide, please, Nadim. So from a cash flow perspective, as you saw previously, we continue to be cash generative. So our cash flow generated from operations is up 6% to 3,800,000. That has been impacted negatively by an increased inventory level that we've had to carry as a result of the some of the localized delays that we've seen in project rollouts.

26:47 So it's approximately 500,000 of additional inventory that we're that we're sitting on at the moment. That will unwind over over the next six

26:54 to eight months. Adjusting for that, our cash conversion rate would have been in excess of 80%. Investment wise, we we continue to invest in plant, property, and equipment. That is mainly into the IT infrastructure. So that will be we have an ongoing program within our data centers to make sure that we are utilizing the most energy efficient and license efficient hardware as well as, you know, the the the the hardware that's gonna give us the best security posture. So that's an ongoing rolling program that we have where we replace all the hardware over a set period of time. We've also increased the the investment and the number of solar panels that we have at HQ. And also, we've we've we've we've put in a number of additional electric vehicle charging points at HQ as well.

27:45 From an intangible perspective, as I mentioned previously, you know, we are we do it we we capitalize some of our development costs. So the the the internally generated software, which is 1,400,000, so marginally above where we were this time last year. So that's obviously in relation to the points that Nadim mentioned earlier. So the unification of the platform, integration of the acquisitions, as well as ongoing work regarding our our security posture. M and A, as as you're aware, we will we recently bought enterprise software systems that completed in January this year. So that that's £6,200,000 of the of the the the investment in in m and a there. So that's the net cash consideration that we paid.

28:32 And there's also a 200,000 deferred consideration payment in relation to Vita, the acquisition that we made in March 2023. Also, the other point to call out is is the dividend. So we we paid our maiden dividend, just before the half year, so that's 2,000,000. And as Nadim mentioned earlier, we we are intended to pay an interim dividend that we paid in November. There'll be approximately 700 k representing around about a third of the the third of the payment that we made relating to the financial year for 2023. And the final point on the cash flow side is really just to point out that we are cash generative. Have around at the half year, we have around £9,000,000 in cash, 8,900,000, but we also have access to an an RCF sort of 10,000,000 and an an additional accordion of 20,000,000.

29:22 So this was a a facility that we renewed with HSBC shortly before our full year reports this year. So in essence, we have we have access to around £40,000,000 of investment funds there to help us grow, whether that's organically or through acquisition. Let's just move on to the final slide, please, Nadim. So margin enhancement is something that we are putting a lot of time and effort into. So the the graph on the right hand side does show how our gross margin and EBITDA margins have increased over over the over five years. So these are the h one numbers for each of the sorry. The h one is the far right hand bar is is the is the h one for 2024, and then the the the remaining four bars are for the full year performance, the previous full year performance. So we can see that both EBITDA and gross margins are increasing consistently.

30:22 So we've obviously seen EBITDA grow to 13.4% from 13.2%. So relatively modest, but still, you know, consistent. We do think that there is significant opportunity for us to increase those margins. So there are a number of initiatives that we're working through currently, and I'll I'll just touch on some of those now. So as a natural consequence of increasing our sales to direct customers, generally, they they carry higher margins just due to the nature of the nature of the customer service we sell. You know, they're normally much more in-depth and wide product range that we sell to direct customers. So we have seen some of that and evidence of that in in h one twenty twenty four. So that will naturally drop through into to increase margins.

31:08 And, you know, we do feel as though there is a significant opportunity to cross sell and upsell into the existing customer base and also new logos that we think that we can win both in in the enterprise space and also in the mid market space. We have designed a number of new hardware solutions. So they are lower cost. So effectively, with design cost out of them, they will still be functionally rich. So that will mean that we can effectively charge, you know, the same or or or increased charges for those hardware and obviously drive increased margin. I've referenced the the cross sell and upsell opportunity. One of the areas that we have invested in over the last few years is integration into third third party products.

32:00 So we we saw success of this with the AI camera that we deployed into the Woolworths project. So that was a piece that we we utilize a third party AI camera from a company called Lytics that has been very, very successful. We're also finishing off and completing work that is that is being launched now that will integrate into temperature controlled units. So what this effectively means is that we can rather than having to, when when we engage with the customer, having to sell them additional hardware, which can often be a barrier to entry, we can just integrate directly into those. So there's not that that issue that, you know, a particular project team or operational team will have in having to get CapEx sign off. That removes in some part the need to do that.

32:46 Furthermore, obviously, part of the acquisition strategy that we've got is is to buy companies that that sell higher margin services. So as as we've demonstrated with the the acquisition of both Vita and ESS. So in in their own right, they will just drop through into into higher margin because, you know, they when when we charge for these subscriptions, they tend to be more in the region of 50 to £100, whereas some of the services that we that we offer on the right hand side of the the product suite that Nadim was showing earlier for all fleet performance or tracking and telematics, that's more like between 15 and £20 per subscription per month. So it's a it's a lot greater contribution to the bottom line.

33:33 In addition to that, there are I I referenced the the hosting environments that, you know, there's significant opportunity to rationalize that moving forwards. But we are also looking at a number of initiatives internally to make our product business processes more efficient and more effective. So that will be through the elimination of of manual tasks, you know, the the increase of utilization of of automation that we that we have available to us within our business systems. So that will effectively help us grow and scale more efficiently and more effectively without having to add that, you know, human beings into to do what we consider to not be value added tasks. Thank you, Nadine. So I'll just cover some of the things that's going on within our customers' market initially.

34:21 So what we're seeing is that there's a significant consolidation going on there with larger players trying to gain cost advantage through scale and a lot of smaller players in the sort of 10 to 50 vehicle space actually going out of business. There's typically been about one company going to administration every week over the last few months and really just not having recovered their sort of cash balances from from the COVID years. In terms of net zero, again, we're seeing a slight pullback from that whereby customers our customers are attending to focus more on profitability in the short term rather than some of their net zero investments.

35:21 We're seeing that there's a continual stream of compliance regulations coming along, and we're we're in a good place as far as that's concerned in that we already support quite a lot of future legislation and regulation, excuse me, that's coming along. So we're able to help our customers meet those new new compliance regulations. And in terms of zero emissions vehicles, obviously, there has been uncertainty around what type of fuel to go for. But at the moment, we're seeing people buying more diesel vehicles as opposed to continuing with their EV replacement programs.

36:11 So people are still buying EVs, but not at the same level as they were last year. There's a bit of a slowdown there, but the sales of new vehicles in general is still okay. However, it's more in traditional diesel fuel technologies rather than EVs. In terms of our operational environment, again, things are looking very good. Vehicle availability is back to normal in The UK, Europe, etcetera. We are seeing some headwinds in Australia where particularly temperature controlled vehicles seems to have long lead times, and that's slowing down some implementations in Australia.

37:05 However, we are expecting that to get back to normal in in q four this year based on conversations that we've been having with our customers and their suppliers. We're seeing great demand for our products, particularly our recent acquisitions in TMS space. And I think we can demonstrate some good execution of that cross sell and upsell into our existing customer base with those recent acquisitions and those products. And we're doing really well with AI cameras. Had had significant wins in in Australia with those, and we're also seeing good growth with them here in The UK as well.

37:54 Our growth strategy remains the same. We continue to execute on that. We're we're growing with our existing customers who continue to consolidate and expand. We're growing with our a OEMs, particularly with JCB, hence the announcement yesterday. We're continuing to add new customers to our portfolio with some great wins in Australia and New Zealand, particularly in the retail sector, and that's also continuing in The UK with the addition of One Stop, which is owned by Tesco, who we've had nearly a twenty year relationship with. And that's layered on top with m and a activity. And although we've done a number of acquisitions recently, that's by no means the end of our m and a ambitions.

38:43 We are still actively looking and evaluating further targets. So there will be more m and a to come. And then just a reminder of the of the investment case. So we have long term contracts. Most of our contracts are five years, but we're now starting to see more ten year contracts. So, again, lots of visibility of future contracted revenue. That combined with a a low churn rate, 0.5%, just shows how sticky with the we are with our with our customer base. We are still actively selling and upselling more products into our customer base.

39:33 Not many of our customers have the whole product set, and so there's still lots of white space to go at within our existing customer base. As well as that, we've got margin enhancement activities going on to grow that margin, which is something that Nick outlined in his slide. And this is still significant opportunity for us to grow internationally. You know, we're fairly dominant in The UK, but outside of The UK, we still have lots and lots of room and market to grow. And that combined with a great track record, you can see from the the slide and the graph on the right hand side that, you know, we've had a consistent growth in our annual recurring revenue, and, you know, we're confident that we can continue that trend in 2024 and beyond.

40:25 So just to summarize, we are very confident of meeting our full year forecast for 2024. We have an order backlog from h one that goes into 2024, h two, and also into 2025. So, again, we've got the orders to deliver to to cover those forecasts. We've added 200 new customers. Obviously, the recurring revenues for those will come in in h two and into 2025. And, you know, we've just signed a five year extension with our with our largest OEM. So we're very confident and very pleased with our performance and looking at continuing that going forward.

41:16 I think we can go on to answering any q and a at this point. Perfect. Nadim, Nick, if I may just jump back in there. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can all be accessed via your investor dashboard. Guys, as you can see there, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But, guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Thank you.

42:06 Thanks. So the first question is from Michael. To what extent is AI an opportunity or a risk? Well, we see AI as an opportunity for a number of our products. So we already use AI in several products. So in our fleet performance product, we we're using AI machine learning in, monitoring the brakes, also for monitoring the batteries and giving advanced warning of any kind of battery failure. We're using AI tools and vision in some of our vision systems. So, cameras in particular, using AI to detect, internally whether the driver is fatigued, they're wearing a seat belt, whether they're focusing on the road. Externally looking at whether they are keeping within lanes, looking at where they're tailgating, monitoring for pedestrians and other obstacles around vehicles.

43:05 So AI is very much already in play in several of our products, and we believe that we'll continue to enhance that and also incorporate that into several other products as well. The next question is also from Michael. What percentage of sales relate to JCB? So, Nick, I don't know whether you're able to answer that question. Yeah. It's at the half year, it's thirty percent. So that that's dropped from 36% in the same period last year. So we've we've seen it. We have seen an increase in JCB recurring revenues still. So I think that's an indication, obviously, that the the sales to direct customers, the proportion is is increasing. Okay. Next question, I think, is also one that you probably wanna answer, Nick, from John. Cash and cash equivalents has dropped by 36.4% largely due to acquisitions and a dividend payout.

43:59 How do you balance growth investments with maintaining a healthy cash reserve? Is there a potential for further dividend increase, or would funds be more focused on strategic acquisitions? So around dividends, we we are intending to continue to pay a dividend. So it will be it is a progressive policy. So, you know, there will be probably modest increase on that moving forwards. In terms of the the sorry. Bear with me one second. Me just read the rest of the question. See, all growth investments are analyzed and and assessed on their own merits. So, obviously, the the the key things that we're that we're really kind of focusing on moving forward is is will be additional m and a, which is very much in in and on the radar. You know, we we recruited a strategy and m and a director last year.

44:51 We have an ongoing pipeline that we are constantly reviewing. So, you know, we we've assessed, you know, significantly more than a 100 opportunities, obviously, and completed completed four in recent years. So, you know, we the capital allocation that we're looking at moving forwards, we we expect that we will be continuing on the same level of of capital expenditure. Obviously, investment in in development resource will continue at a similar level. But in terms of, you know, the the reason why we've got the facility with HSBC is to actually fund that growth should we need it. But, obviously, we are cash generative. So, you know, over the last couple of years, we cash flow from operations has been between 9 and 10,000,000. And I think just to add to that, you know, I think there's a balance between both dividend payments so that, you know, we attract IHT investors as well as holding on to cash for strategic acquisitions.

45:57 It's fair to say, you know, we have we have about 40,000,000 available to us to do acquisitions. So I think we're in a good place with, you know, with with capabilities in terms of acquisitions as well as doing modest dividends as well. The next question is from Hugh. Have overheads grown in anticipation of future growth, or is some trimming required, I e, number of UK locations? I think that both of those things have happened. There are areas within the business, particularly in sales and marketing and some development areas where we are growing overheads in anticipation of future growth and in some cases to drive future growth.

46:50 There is some trimming that we have already done towards the tail end of h one. And, obviously, there's there's further work that we're doing as we're doing process improvements internally with the business to make ourselves more efficient. So a bit of both going on. Next question is also from Hugh. I know that Samsara is valued at 20 times ARR while UK valuations are unlikely to align with those of The US. Your shares would appear to be significantly undervalued. I think we would we would agree with that. I think that, you know, we've shown a consistent track record of growth, and I think there's more more of that to come as well as growing top line. We're also looking at growing our EBITDA and profit numbers as well with some of the margin enhancement activities that Nick's mentioned. So hope hopefully, that will be reflected in in in the market share price, but, obviously, there's lots of external factors that drive UKA market valuations as well.

47:59 Next question is from Andrew. Services revenue at June 24 was 10% of total revenues. What does management think this can be going forward, say, years? So so my view on on this is is that services revenue is, as Nick mentioned, is a combination of installation activities, installing hardware, as well as project management training and other consultancy services. We expect that, you know, our installation services will continue to grow as we supply more hardware, but but, of course, we are growing our software business, which doesn't require hardware installation. So we expect there to be modest growth in installation services.

48:49 We are doing more work in terms of consultancy and project management training with our customers. So we expect that to grow further and a little faster than installation services. But, also, we are trying hard to make our products very, very self-service such that we can deploy them much more quickly and scale up the SaaS revenue for those products. So we expect services revenue to grow, but we don't necessarily expect them to grow as fast as some of our other metrics. Nick, is there anything you wanna add to that? Yeah. I was just gonna say, obviously, in in addition to that, what we are trying to do is is drive cost out of any services that we provide.

49:36 So the the the margin contribution that we get from those services will increase over time as well. Yeah. Next question was from Rosita. I hope I pronounced that correctly. I think you said you had 827,000 contracts in 187 countries, yet the company is only worth 153,000,000. I'm wondering whether you are spread too thinly, whether your charges are too low, and how you see the way forward for real growth. So I think it's fair to say that a large portion of that 827,000 is through OEMs, which will be lower value and because they only take a subset of that entire portfolio, particularly around fleet performance. So, again, that drives the average down quite a lot, whereas, you know, our more recent acquisitions and internal developments like, you know, and TMS, we believe will drive much higher revenues, and therefore, you'll see increases in top line that'll be disproportionate to the number of subscriptions increasing.

50:49 So, yes, we do expect the average to go up as we do as we drive more direct sales as well as direct sales of those particular high value products. Neville gives us a a one word question, which is competition. So I'll try and answer that based on what I think you're asking for, which is so, yes, there is lots of competitors out there, but it's fair to say that those competitors are in each of those seven product categories. What we don't have is a competitor that actually covers all of the things that we do. And that is how we sell and how we compete is that we provide that story to to customers whereby they can have an all encompassing product set that covers all of their operational needs and is integrated and just works out of the box rather than them having to buy individual products from different suppliers and then trying to get them to to work together.

52:04 And that's generally how we win against our competition. Darren asks, how many customers do you have in North America? And is this an area you are looking to target with m and a and organic growth? We don't have many customers in in North America. It's fair to say we have a lot of customers through OEMs, but not many direct customers in North America. We it it is a huge market. However, it is a complicated market, and it's has lots of failed UK businesses there. We we were in The US in the period sort of 2002 to 2010.

52:52 And what we learned from that experience was that you really need to go in big and go in and scale up very, very quickly with a lot of investment to try and create a sustainable operation over there. So we are not likely to do that from the ground up, and it's more likely that we will attack North America with with an with an acquisition as the foundation to build from. So watch this space on that one. Next question, also from Darren. Do you normally see significant increase in costs from m and a, or was h one an outlier? I think that in terms of increasing costs, it's it's essentially bringing in the people, and then it takes a a bit of time to introduce efficiencies, integrate those people, integrate processes, etcetera. So I think that that's generally true of most acquisitions.

54:01 So I think we will see improvements and accretive results coming through from those activities going forward, and we'll obviously see that accelerating over time as we have done with the acquisition of TrueTac that we saw in in 2020. It it takes a bit of time to integrate it and and get those efficiencies in, but then it tends to accelerate quite well in sort of in later years. William asks, is JCB your largest client as well as your largest OEM? Yes. That that is correct. They are our largest customer and also our largest OEM. Next largest OEM is MAN Trucks.

54:49 Next question from Andrew. Does the company disclose the size of the order book and how this has grown recently? No. We don't report that externally, but it is fair to say that our order book has been consistently growing over the last few years and has grown this year as well and more and even, more future looking than that. Our pipeline, are also, growing and have also grown this year, particularly in France and Australia, which have significantly larger pipelines than they have previously. And I think that's the end of the questions.

55:35 Absolutely, Nadim. Nick, if I may just jump back in there, and thank you very much indeed for being so generous for your time there and addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Nadim, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Great. Yeah. So I I think I'd probably just like to leave you with the slide on the investment case, which is essentially, you know, I think to state that we have some very long term contracts with our customers, five to ten years, very low churn, lots of white space to go out, lots of opportunities with international growth, and lots of continued margin expansion and a great track record.

56:39 And we're looking to continue that going forwards and in many cases, those metrics accelerating that growth and accelerating those margins as well. Thank you very much for your time, everyone. Perfect. That's great. Nadim, Nick, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? Will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of MICROLISE GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.