Trufin (LSE:TRU) — Interim Results

0:01 Good afternoon, and welcome to the TRUFIN PLC Interim Results Investor Presentation. Throughout this quarter 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 in 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 received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to CEO, James Van Den Berg. Good afternoon to you,

0:33 sir. Good afternoon. Thank you very much, Alessandro. And also with me today is James Hassie, the CFO of oxygen oh, sorry, of TRUFIN. So today, what's gonna happen is James is gonna go through the first half year numbers. I'm gonna look at some of the highlights for each of the subsidiaries, and then we're gonna open for questions. So so for those of you who don't know TRUFIN, we're a holding company. We've got three subsidiaries, Oxygen, Citago, and Playstack, and we are majority shareholders in each of them. And today, we're going get spend some time going through each of these companies. Before I hand over to James, I think it's just worth spending a little minute on this slide. So it's no secret to anyone who's gone through our first half year numbers that we've had a fabulous first half.

1:25 We scaled dramatically. We've grown. But it's very important to add that we have the potential to be multiples of our current size. And crucially, we don't need any capital from shareholders to do that. So all our investment plans, our future growth is fully funded.

1:44 So hopefully, that sort of sets the tone for the presentation and our first half. And with that, I'm going to hand over to James Hussey. Thank you, James. And it's great to report on a record first half for TRUFIN. In terms of the revenues for the first half, the group reported 25,300,000, growth of 18,000,000 on the first half of the previous year. 17,000,000 of that growth related to PlayStack driven by the launch of a couple of games, and James will talk about that a bit later on. With that growth, PlayStack contributed £20,000,000 of the £25,000,000 of revenue. So fantastic performance by PlayStack, an excellent first half. In addition, Oxygen continues to perform to expectation and some excellent growth, reporting revenue growth of 26 over the first half of last year. And finally, Sotargo. And Sotargo's recurring revenues, they're broadly flat on on the previous year's first half.

2:46 And we'll talk about what's about Chicago and the recent time that a bit later on. As you would expect with such revenue increase, the net revenue increased, improved drastically as well. Last year, first half, we had net revenues of £5,000,000 This first half, just shy of £12,000,000 So excellent improvement there also. Below the net revenue line, other costs stay broadly similar to the first half of last year. Slight increase in some areas, but but not materially so. So the net result being that such growth in revenue and such improvement in the net revenue, a good good proportion is falling through to the bottom line bottom lines. So we reported our first profits for the first half at £200,000 as compared to a 5,300,000 loss in the first half of last year.

3:42 And an EBITDA now, positive EBITDA for the first half, under £3,000,000 as compared to 3,600,000 loss in the first half of last year. So record p and l for the first half. In terms of the balance sheet, a key figure, obviously, is cash. And the group cash as of the half year is £10,200,000 as compared to 10,100,000 as we left twenty twenty three. So cash very much the same over the last six months driven by the excellent performance and also despite missing in continued investment in working capital requirements with Stargos and also the future gains for PlayStack. So financially, an excellent first half for TRIZZEROOM.

4:31 Thank you, James. So Oxygen, yeah, what a what a wonderful business. It feels like Groundhog Day today as I report more clients. We now have over 900 clients billing more than 900 clients. We've got we're servicing more suppliers on behalf of our clients. We are paying over 22,000 suppliers in The UK early ahead of scheduled payment terms. More than 50% of our early payment clients purchase two or more products from auction. That's due to the incredible relationship that we, auction have with our client base. Dividend, the dividend is going to double this year on last year's dividend back from OXTRON to TRUFIN. So it's going to be a million pounds and, you know, we're expecting a doubling again next year.

5:21 So everything's in rude health in terms of the overall picture for auction. And what that results in, as James alluded to, the bottom line of auction is EBITDA for the first half of over GBP 600,000. And in July and August, the business has already recorded over GBP 400,000. So for the clever ones amongst you, you'll see that that's clearly an acceleration of EBITDA. So yeah, the business is clearly in fabulous shape. And and in terms of looking forward, you know, more of the same, we've got years and years of growth ahead of us. What we we told people is that we expect to grow the client base, the early payment client base by six to 12 clients a year. We've got over 100 clients in the pipeline. So, you know, that tells you how many years of growth we have ahead of us.

6:10 So it's it's auction is obviously a highly attractive asset. Shell has rejected an offer of £26,000,000 for the business in 2022, late twenty twenty two, and that's when the EBITDA of the business was around GBP 1,000,000. This year, I won't say what we think it's going to be, but the analyst is forecasting around GBP 2,000,000. Next year, forecasting around GBP 4,000,000. So you can see the direction of travel for the business and the value that's going to accrue to shareholders as the business continues to grow. So yes, a fabulous first half from auction. So going on to Sotago. So the elephant in the room with Sotago is the Lloyd's contract. So let's just address that straight away. So you you might not be surprised here. There's gonna be no new revelations from you today.

7:02 You know, this is this is a, you know, a very sensitive topic. We have we're just gonna reiterate some previous statements. Lloyd is reprioritizing away from Citago. It's worth noting we still we still service a number a small number of Lloyd's customers on our platform, which I think should tell you something. So we are, you know, we are obviously very disappointed when we heard the news. It was totally unexpected to us, TRUFIN. And it's and it's definitely a major setback for for Sotargo. That said, you know, we are we very quickly took hold, you know, of the situation. We've right sized Sinead and had seen him make some very difficult decisions. We we have to right size the business right size the business so we can still execute on the opportunity set in front of us. That's crucial to know.

7:52 We're focused on breakeven. We're focused on focused on win on the winning partnerships that we have in place already with a number of our counterparts. And and most importantly, controlling and focusing on things that we can control because the time and experience with Lloyd's means that, you know, clearly, as the larger counterpart, we have to go to their pace. Now we are free to to control what we can control, and that's what we're gonna do. So that's the focus for the business going forward. And just just when you, you know, just to give you a bit of color around that. This this graph here shows you the usage of the credit control tool that we supply to SMEs in The UK. So the bar chart shows the number of credit control messages that we send out on behalf of our SME clients every month. So this month, last month, we sent over well over a 100,000 messages on behalf of our small and medium sized businesses in The UK.

8:54 And those are messages that are reminding those buyer those small businesses buyers to pay their invoices early, effectively chasing invoices down in a polite fashion, helping those small businesses in The UK receive payment early or receive payment on time. So it's an incredibly useful tool for Sesame's up and down The UK. It's as you can see, you know, it's growing fast. The number of active subscribers is also growing fast. So there's there's an awful lot of things going on behind Lloyd's underneath the surface of of of, you know, just below the surface of Instagro that I think is worth reminding shareholders about. So there's a lot to be there's a lot to be, you know, quietly confident about in but there's no point pretending this hasn't this certainly hasn't been, you know, a a great period for Citago.

9:44 And it is it is difficult to talk about it in in in a lot more detail. So forgive me if I've evade some of the questions you may have. So PlayStack. So clearly, what can I say is, it's had an extremely good first half? And it's a bit like Oxygen. A lot of the returns that we're generating now at PlayStack are as a result of the investments that we've made in the past. Games don't launch overnight. There's a multiyear period ahead of game launches as well. There's a considerable amount of investment done by the team, by TRUFIN shareholders. And I think again, it's worth reminding shareholders that the games industry itself is in a bit of turmoil. There's been even though it's in a wonderful industry, there's, you know, there's certainly a lot of redundancies in the space. There's been a lot of disappointment.

10:37 We, however, you know, we have more platform deals. We're in more conversations with global technology players than we've ever been before. So there's incredible interest in the IP that we have. The pipeline of games we have has never been bigger. So we're launching we secured launching eight more games over the next eighteen months. And we're investing in the future. So we are going to have outstanding in the form of developer advances over £7,000,000 which will be advanced by the end of twenty twenty four. That number will grow roughly 15% a year, maybe a little more. So at the end of twenty five, it would be over 10,000,000 over at the end of twenty six, would be over £15,000,000 So we are investing in this business. And that is all self funded.

11:23 Before anyone gets worried, we're we're not coming back to shelves asking for more money in order to make these sorts of investments. This is all as a result of the cash generation from the business. And the reason we're so confident in making these sorts of investments are for this slide here. So just a reminder for those who haven't seen this slide before, on the left hand side, you can see graphs of various games we've launched. So the green line shows the revenue, the net revenue to place that from a game. The purple little dot shows the investment we made in each game. And so obviously, where the green line, you know, surpasses the purple dot means that we are making money in that from from from that investment. So we have you know, you can see in game three, you know, we still haven't recouped the investment we made and we are unlikely to. We've lost 16 to put into context.

12:16 We've lost £16,000 16, £16,000 in that game. So if you look at the aggregate of all the games that we've launched, so no cherry picking, an honest track record if you will. We have a hit ratio of more than 90%. So more than 90% of the games we've launched have returned the invested capital that we put into them. And on average, the return on invested capital is over 500% with an IRR of over 150%. So the obvious question is, you've had a great time with Morgan Stanley. You've had a great time with Vallachio. What happens if we remove those two

12:55 these stats? So if you remove those two games from these stats, the return on invested capital is still 172%, which is still an extraordinary performance. So we are we have an engine of growth. It's working. It's very scalable. The process works. By the end of next year, we'll have launched over 20 games and more than 64% of the revenue from PlayStat will be from the back book. So, yeah, it is a it's been a fabulous performance. And this is the reason these stats are the reason why we feel confident in investing in PlayStack.

13:37 So to summarize, Oxygen's operational leverage is coming through, as you saw earlier. So Targa is now very much free to focus on things that you can control and Playstack's on an absolute tear. It's got a proven methodology for growth. And we're very excited to see where that business goes in the coming months and years. We are investing

14:01 on behalf of you, our shareholders. Hopefully, you can see why we're investing in these businesses and why we're excited about the future. But we're investing money from cash we have on our balance sheet and from internally generated sources. So again, just to reiterate, we are not expecting to our shareholders for any more money ever again. So hopefully that gives you a very good feel for where we are. And with that, I'm going to open for questions. That's great, Sorry, I apologize. I'm going ask you to ask Andrew to open for questions. That's great, James. Thank you very much for the presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review some of the questions that have come in 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 your investor dashboard.

14:58 As you can see, we have received a number of questions. If I could hand over to you just to read out those questions where appropriate to do so, I'll pick up from you both at the end. Thank you, Raj. So some of these are quite amusing questions. So we'll have to leave some of them out, I think. But the first one, and there are sensitivities that I mentioned earlier, so we'll answer where we can. So why has Lloyd stopped using Citago? You know, I'll quote the legal phrase, they reprioritized at Lloyd's. That I'll leave it at that. What will the revenue impact be in Citago? It'll be negative. We haven't said exactly what it would be, but clearly, won't be positive. Until it have a negative impact. And what happens to that £5,000,000 investment? I assume you mean that equity investment.

15:43 So they retain roughly 17% stake in Chicago. We have a very friendly relationship with Lloyd's. We are working towards a solution for that stake and we'll update shareholders in due course. So that's a bit of a non answer, but that's where we are right now. And then second question is a recent RNS stated that TRUFIN should be EBITDA positive in 2024. Does the same apply to cash flow? So I'll ask James to answer that. So much is is no. As I think I mentioned early earlier, Key Air is really remain the investment in the by play stack in terms of future gains.

16:28 And so that won't be reflected in the EBITDA line. But as James mentioned earlier, we remain fully despite these discontinued investment, we remain fully funded to fund future growth of the group. Thanks, James. And this is off of it. So for Sattar, David asked, can you please comment further on the pipeline whether Lloyd's issues put any potential suitors off or made them more aggressive on terms?

16:59 The Lloyd's issue hasn't put any well, as far as we the pipeline has been unbelievably supportive. They remain extremely interested in Sotaga offering. You know, we're not naive enough to see this is not gonna put a dent in some people's confidence levels on the target, and it's our job to prove why the target offering remains best in class, etcetera. But but, no, the pipeline remains exceptional unless in terms of change of terms, etcetera, that hasn't fortunately, hasn't happened. I I didn't think expected will because we have a very unique offering. So it's it's not that people can look at other offerings and compare it to Target.

17:44 It's a very unique offering, which we feel is priced correctly. Can you give some color on oxygen on the phasing of revenues? The analyst note seems to suggest H2 will be a fair bit stronger than H1. Well, you can see in the EBITDA contribution from July and August of over GBP 400,000 that it really is stronger in the second half to the first half. So the way this business grows and Oxygen grows is the investment we've made in the past is the benefit you are getting receiving the Shell is now you're receiving the benefits of the investments we made three, four, five years ago. So it's almost unstoppable as a business. So the growth is coming because of the investments we made in the past. So there's an enormous amount of predictability in this business. So yes, the second half will be stronger than the first half. And guess what? The first half next year will be stronger than the first half this year. And so it goes on.

18:42 And so that's why I say it feels a bit like Groundhog Day with auction. But it's a now that the business is there, I mean, it is in a very enviable position, and that's why lots of people are interested in it as an asset. After H1 twenty twenty four EBITDA was an impressive 2.9. For full year, you said you'll be EBITDA positive. There we are. We were right. Based on H1, this is rather underwhelming prediction. Can you update expectations for H2 as you are usually H2 weighted? So we're happy with the numbers in the that the analysts have put out. If we feel a need to change market expectations, then we'll, you know, we'll make an announcement around that. But you're right, we've had a very positive start and, you know, it's great that we are ahead of expectations when it comes to EBITDA positive statement.

19:39 Are there any potential acquisitions or strategic partnerships in the pipeline that could significantly impact the group's growth trajectory over the next twenty twelve to eighteen months is from David S. So that we are always evaluating acquisitions.

19:58 Don't know, notwithstanding the fact what I said earlier, without asking shareholders for money necessarily, you know, but we've made a small acquisition last year for Oxygen, which has worked out tremendously. We made another acquisition for Oxygen for PlayStack a couple of years ago, which has been a really a lovely add on acquisition and so it goes on. Terms of significantly impacting the group's growth strategy, there are quite a few strategic partnerships we're working on that will have a, you know, if they come through, we'll have a big impact on the group. But if these things, you know, say we're all slightly burnt after the Lloyd's experience. But, you know, there there are quite a number of different potential opportunities within each businesses that we're exploring at the moment.

20:51 So Balactro, PlayStat. Can you give any views as to how the sales have trended over the period and ongoing player participation? Trying to gauge the longevity of sales in what's clearly a great game.

21:03 Yeah. So on average, users, players of Balactro have played this is as of yesterday, have played on average thirty hours of Balactro. Bear in mind, it's only been launched a few months ago. So the average player, including the players that bought the game yesterday and the game the players that bought the game on the first day, the average players over played over thirty hours, which is an extraordinary amount of hours played per game. And I think it gives you a little hint about the longevity of the game in terms of the retention of the game, which is really exciting. But, yeah, it's relatively early on in its life cycle, but everything's pointing in the right direction. ABO factor, do we have a full release date? It's keep think of it as q one next year.

21:52 It's we haven't officially announced it, but q one next year is is when we have a full release date. That game that's been a may take, you know, steal the line like this year, AV other fact has been another phenomenal game and contributor this year. And an update on the development of more shell and likely release date. We haven't said when the release date is. That's gonna be up for PlayStack to announce and to all the players, the millions of players that enjoyed Mortal Shell one. But I'd say it's great. Everything's on track. We're very happy with progress, and we're excited to be announcing the launch date for for that game, which will be announced later this year, early next year.

22:37 That's a long question. In May, the analysts say that all areas of the business were performing robustly. So I see this includes the target at the time. Yes, because but no, we believe the Lloyd's contract was terminated in July. This is for Pat K. H1 showed the target revenues down on the previous year despite the number of subscribers increasing. Lloyd's has given a reason for the decline. How this was announced after H1? Very good, Pat. So was the May RNS misleading wrong? Or was there a big decline in June? What are the expectations for H2 and longer? Is the Lloyd's revenue now zero going forward? So there's a lot of things questions in there, Pat. Again, given the sensitivities around Lloyd's, I'm going to sort of avoid some of the questions there. But they have terminated contracts. So yes, in time, at some point in time, you can expect revenues from Lloyd's going forward to be zero.

23:37 We the statement we made in May was not misleading.

23:41 But you can imagine that we had said previously James is touching me. Be careful, James. So you're thinking. In in in we had said previously that the majority of Lloyd's clients would be migrated by the year end. So you can therefore, for that to happen, you can therefore, you know, possibly predict that the migration wouldn't have happened in the last day of the year. It would have expected to have happened, you know, during the first half and the second half of this year, which obviously didn't happen. So when we made the statement in May, it was factually correct. But then things, you know, the plan obviously didn't happen as expected by us and Lloyd's. And that has obviously had an impact on the first half year as we move. Hopefully, that won't get to any lawyers on my back.

24:34 Anything you wanna add on that, James? Any update on the Lloyd's equity stake and what they'd like to do? No update that I can share with you at this time. Do you think it makes sense in the long from Temp D, do you think it makes sense in the long term to split the fintech and games business? Many investors wouldn't feel comfortable investing when they don't understand half the business. Yeah. That's definitely that's definitely an option. There's there's an awful lot of different options, Tempid, for the group. What we suggest is one of them, you know, sales of the assets. Another one, so there's an awful lot of different options we have. And as the businesses grow and increase profitability, it opens up an awful lot of possibilities.

25:21 And as our one of our shareholders who just spoke to now said, you know, good businesses get bought, they don't get sold. So, you know, there's an there's an awful lot of, you know, as we grow, as we as these businesses increase profitability, traction, deposition in the marketplace, we expect to have significant interest in these businesses. When you look from Matthew e, when you look at capital allocation, if you metaphorically found an extra pound down the back of the sofa, where are you most likely to invest it? I what area would additional investment most impactful, Matt? Thank you for that, Matt. It's a great question. So we're not crying out for equity for capital.

26:07 We have enough capital to invest in the opportunity set at PlayStack. And with Oxygen, if we invested £1 now, we won't get a return on that investment for many years' time because of the nature of the contract as we described earlier. If you win a contract today, the revenue and the return on that investment won't be for many years. So you're all enjoying now, Oxygen enjoying the returns of the investments we made years previously. It doesn't necessarily answer the question, but I would say that when you're getting 500% return or 172 return on invested capital from games games as a target and that's a secret take even stripping out the two major ones, it's still a 172% return.

26:52 That's very hard to beat in a relatively low risk way. So that would be, you know, what I would say that, James, you may I don't wanna be disloyal to cyber oxygen, but I think that's some Pat k, another one, could place that be spun off into a stand alone company. Yeah. Of course, yeah. Absolutely. Pat, it could be I mean, it's getting there. You know, look, we've had a it's had a great first half. Things are going really well. To be a standalone business, you need to have a certain scale, certain profitability, and it's absolutely getting there. So, yes, that's that's that's an option. I may have missed it, but can you describe Jordan r? Do you want ask that question there? So Jordan r, I may have missed it.

27:45 Sorry. But can you describe what the noncontrolling interests represent on the income statement? Basically, it's non it's it's the proportion of business is not owned by TRUFIN. So place that is a 100% owned, but oxygen has a percentage related to management. And so Targo has a percentage relating to management and also as well. And so depending on the underlying terms of various arrangements that will relate to those non truthful shareholders. Thank you, James. So Jeffrey W says, congratulations on the progress. Good work. However, his real issues are the announcement of Lloyd's retrenchment.

28:35 I think, actually, I probably won't I'm not sure if this is I think Jeffrey's understandably frustrated as we all are by the share price performance. I think, you know, we need that, Jeffrey, for another. I'm happy to talk to you about that if you want, but I can't I you have to assume that the announcements we make and the timing the timings of those announcements are very carefully managed with our Nomad. So if if, you know, the termination of the Lloyd's contract, there was an announcement that had to be announced, and these are not being seen from time. So I apologize if that doesn't shine with your or how you think we should have handled those those announcements.

29:22 So Jordan has a follow-up question around publishing revenue share. So we are very much in line with other publishers for PlayStack. And sorry, this thing keeps moving. You've got a lot of questions. Hang on. And can these games be poached away by bigger publishers? You know, the publisher agreements are rock solid. So, you know, are and we feel very comfortable in in in our position with our titles. Pat says, again, when you turn down approach of auction, you said it's undervalued. What is fair value? Well, Pat, here we are. It's the basic stat. There's a million EBITDA that suited was offering £26,000,000.

30:09 And, obviously, that was the time when they expected EBITDA to scale. The analyst thinks it's gonna be 2,000,000 this year, 4,000,000 next year. So, you know, you can do you you can you can determine what you think is is fair value for that business. So some sensitivities around Jordan around our exact agreement with Balatro around the $999 price for the mobile launch of Alactro. But it's Apple the Apple store take 30% and then split between Alactro and sorry, PlayStack and the developer. That we've never released, and we're going to release.

30:56 But think of it as a normal publishing agreement. And from Jordan, and congratulations on the phenomenal quarter. Thank you, Jordan. So I think that is the end of the questions. Yeah. Thank thank you very much for answering the questions you can from investors. Of course, the company can review the questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors, provide you with their feedback, which is particularly important to you both. James, could I just ask you for a few closing comments? Yes. Thanks, Alexandra. So thank you very much for your time. Thank you for your support of TRUFIN. It obviously has been a wonderful first half. And and, yeah, I'm, you know, I'm we're really excited for the future. It's exciting to be able to so confidently talk about our cash position, about the revenue growth.

31:53 And, yeah, it's it's TRUFIN has never been in better shape. So thank you all for your time today. And and and Jeffrey, I'm happy to answer your, you know, answer your frustration. Let's see. I I recognize your frustrations around the share price. We're doing all we can as management team, as our broker, Liberum, you know, to go meet new shareholders, etcetera. But what we can control is what's going on in the businesses. And what's going on in the businesses is excellent. So but I I, you know, I I acknowledge your frustrations. So I'll I'll leave it at that. Thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order management team could better understand your views and expectations?

32:38 This will only take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of TRUFIN PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thanks, Hans.