Vianet Group (LSE:VNET) — Full Year Results

0:01 Good morning, ladies and gentlemen, and welcome to the VIANET GROUP PLC Full Year Results Investor Presentation. 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 will publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we would just like submit the following poll. 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 VIANET GROUP PLC. James, good morning, sir. Yes. Good morning, everyone, and thanks for joining us. I will kick straight into the results. Strong progress in the year despite The UK and global macroeconomic backdrop, our continued growth in our pipeline and the device footprint out in the marketplace.

0:55 In our unattended retail division, we successfully managed to exit the ERP, vendor management software platform provision, to focus on device footprint expansion And, the three g, two g switch off, that's proven successful for us, through our retain and gain strategy, and that's paid dividends. Really pleased that hospitality has shown growth in all key metrics and we're delighted with that and I think even more so the fact that it's in great shape to continue that growth. We can continue to invest in innovation and technology and that's paid dividends and we've got very strong foundations to take the business forward.

1:42 Full year '26 has been a transitional year where we've moved to accelerate on the on the foundations that we've been building. So building a smarter, more stable scalable business. For those of you who are new to VIANET, I will quickly run through the the the two divisions. Basically, we aim to help customers get it right first time, allow them to do more with less. We have two complementary divisions where connected devices capture data, and then we can provide actionable analytics to our customers. Hardware is simply an enabler to allow us to harvest the data, and the data is the key one of our key assets. It allows us to actually apply the intelligence, the insights, the that allow customers to improve the productivity in those sales lines.

2:36 In in smart machines, though, we got over 36,000 connected machines, the majority of which are high value cashless payment devices, where we generate subscription subscription incomes from them. In the beverage metrics is a hospitality facing business, which is predominantly least intended in The UK, with breakthroughs happening in UK managed and United States fast casual dining. Basically, we have is a SaaS subscription model in both divisions, long term contracts, three to five years, 88% recurring income, and we've now got net cash on the balance sheet, and we've been in position to increase our final full year dividend by about 84%.

3:30 In the year, we've completed a planned leadership transition, basically consolidated group and trading company finance leadership, which has resulted in Sarah becoming the CFO in August. And the chairman and CEO responsibilities have been fully separated with the promotion of Craig, the chief executive. Both promotions are well deserved. Sarah has been FDA of the trading company, running also running procurement with a really strong commercial knowledge, you know, best part of six, seven years as finance director and ran the refinancing with HSBC and, has seen us through half year end and the full year end and the report and accounts. So, well deserved.

4:22 Craig's been with the business since 2009. He built a he built a facilities management platform that counted people like Morrisons and Sainsbury's as his customers, and we bought that to create a field facing business with three other acquisitions. And Craig helped me turn the other three round and sell it on. And after his noncompete period, he came back and joined us as, as operations director and has been chief operating officer for the past, you know, probably six years or so. Very deep operational and technical knowledge, strong commercial knowledge within the hospitality sector, and the the work that he's been doing running the technology team gives them a real understanding of what's happening in in the unattended retail business as well. So well deserved both of them.

5:19 So we're now aligned to the QCA governance code, but more importantly, the board structure and makeup gives us future optionality which is important. The the changes too, there's probably a cost saving, an annualized cost saving in the region of over £280,000 on the senior management restructuring that we completed And that that's we've had one off one off exceptional costs of about £250,000 to achieve that 280,000 upside. Moving on to the financial highlights, I'm not gonna steal Sarah or Craig's thunder, but I just wanna touch on a couple of things. The continued growth in our revenue and our recurring revenue, really strong underlying PBT growth of 1616%, which is really encouraging.

6:17 Balance sheet has moved from net debt to net cash for about £440,000 and in an excellent position and it's allowed us to give a total dividend of 2.4 p for the full year, which is an 84% increase. I'll move on from that and let Craig and Sarah sort of take you through the the the rest of the numbers. Craig? Yeah. In smart machines, cashless devices grew to 26,243, which is 9% on last year. Cashless devices now represent about 73% of the estate, and we have a key focus on increasing our cashless estate, which generates the higher margins.

7:06 Installation volumes were less than full year '25, but this was basically down to the three g device replacement programs that have been going across our customers' estates over the previous years. We secured 99 new contracts with the revenue filtering through into this year, and our connected base stands at 36,133, and that's after 3,000 devices have been warehoused and customer warehoused. Those are, free VEN devices and things like that. But we have we have in installed 1,100 new telemetry devices installed across the estate as well. As you can see from this graph, the higher margin cashless devices continue to grow.

7:57 Telemetry reduction is primarily driven by customer rationalization. Telemetry does remain a strategic important inflation for us due to the data points it creates. And those data points that the telemetry devices and the cashless devices can create gives us an even stronger opportunity now in AI driven developments and integrations with customers who are embracing that AI journey. And AI is only as good as the data that it delves into, so we're in a strong point there to support those ecosystems. The division, SmartVend division has remained resilient despite industry headwinds like COVID working from home, economic uncertainty, and the three g switch off.

8:50 Cashless adoption is still driving growth as you can see, and there's still a lot of cash out there. So there's still a lot to go up. There are still further opportunities also within our existing customer base with free VNET devices, where customers are looking to bring them on board and use those data points into their ecosystems and ERP systems, which we are key positioned to deliver for them. And there's also customer acquisitions going on in the industry, which again open up new doors. We have a healthy pipeline. The illustrative forecast of full year '27 is based around current opportunities and discussions we're we're having at the moment. So the business is well positioned for the next phase of growth.

9:41 Onto hospitality now. Another strong year despite challenging hospitality environment. Our installed base grew to 9,628 devices with new installations offsetting the closures that we saw in the industry. Our recurring revenue is over 90% of divisional turnover at 8,800,000, with an operating profit of operating profit at 4,500,000. Our growing beverage metrics platform now captures more key data points than ever before with the new features and the ongoing investment we have in developing the platform. And this is key again. This is key to driving the AI analytics that customers are using more and more. So it's not just about the platform, it's about the data points we collect and we drive into those ecosystems.

10:34 And with that, that opens up the wider hospitality market outside of L and C. So this slide gives an overview of the the current pub market. As you know, we are well embedded in the L and T part of the public industry with pretty much all major companies under long term agreements. And you can see that in the admiral taverns renewal, which is a five year renewal across circa 1,100 sites. And that's on the back of a two decade relationship we've had with them. And you can see why that relationship continues when we monitor nearly 9,000,000 pints per week, and we protect circa 2,200,000,000 of retail retail value.

11:26 So you can understand why we've got those strong relationships in L and T. But again, we've got a lot to go at and there's still significant opportunity in management independent with our new platforms and our new ways of capturing inventory data as long as as well as draft data and other key metrics in bar management. Thanks, Craig. Onto US operations. We're well on track to profitability. Losses was reduced from 390,000 to 240,000 in the year, and we expect to be moving towards fast fastly moving towards breakeven in full year '27. Major new enterprise agreement with a a significant customer in The United States on fast can inventory going into a brand within a a fast casual retailer that has over two almost 2,200 units in The States.

12:27 So that's a good start for us. By the end of June, early July, we should have completed the installation in those 100 sites in that single brand. And the important thing for us is that we've fully integrated with the customer's in house ERP system and, also with the third third party, you know, online marketplace. So we're well positioned to move into other brands within that customer. The the fintech partnership, now that gives us material access to a significant more addressable market. Fintech themselves have 240,000 licensed on premise customers and they're they have they have relationships with 90% of the major US chains, so they can give us real access and that's they work with us because we've integrated with them and, you know, we can what we have is an ecosystem where we can do predicted orders, they feed into the into fintechs, you know, payment reconciliation process, and then we can close the loop with inventory and we can help customers actually become more productive, by having zero touch supply chain operations.

13:55 The US will become a meaningful third pillar of growth in the the in the coming year. Touching on the size of the market, about 382,000 venues, that's substantially larger than The UK larger than The UK market. Initial focus is on 39,000 fast casual restaurant chains, Existing customer relationships that we have and contracts validate the value proposition that we have for customers, so we know that we've got the right product for the for the marketplace. In addition to the 39,000, you know, fast casual dining chains we're targeting, hotel chains are an expansion opportunity, and, we have, pilots underway in the Marriott franchisee.

14:46 I think it's important to highlight that we're not trying to go to market with a broad based strategy. It really is. It's focused. It's targeted because we wanna have to build build scale with large operators. Move on to Sarah. Thanks, James. So as we can see, we've got another solid set of results this year with turnover up one 0.5 230,000 in absolute terms, with our recurring revenue increasing 435,000 year on year, up to 13,600,000, given 88% of overall turnover. Gross margin remained strong, 68%, despite economic backdrops, three gs, key pricing, it's just underlining our operational efficiencies.

15:37 Profit before tax, pre exceptional, as Jim has touched on, increased to GBP 1,300,000 in the year, 16% increase on last year and 8.4% margin versus last year's 7.3% margin. Whilst statutory PBT did fall with EPS, this was due to a one off charge in exceptionals, which will be repeated next year and is associated with positioning us for growth for the future as we move forward. We look at this slide, it illustrates the profit before tax, pre exceptional and after exceptional, and this shows the growth of 16% year on year, and in the last two years, a growth of 40%. So very good underlying profitability for the business, which reflects how we're doing in the marketplace.

16:31 In terms of the divisions itself, Greg's already touched on quite quite a bit there, but I'll just reiterate that if we look at the smart machines division in isolation, you do see that there's been a slight reduction in profit and turnover, and this is solely down to the impact of the three g devices going out, rattling wise in his stead, and the discounted ERP revenues that Jim's already touched on. However, if you were to take out those ERP revenues in their entirety from '25 and for until year '26, you will see growth in both revenue recurring and actual profit. Profit would have grown 2% and recurring revenues would have grown 6.9% without the IV revenues included. And with 99 contracts signed within the year, this is a good foundation to move through to FY '27 and further with contracted revenues already in place.

17:24 In terms of hospitality, they delivered an excellent result within the year. Their growth of 6% or £573,000 in turnover was an excellent result, and the profit grew 7.7. Recurring revenues were 92%, last year 94%, and that is purely down to the mix of hardware revenue throughout the year. In terms of our cash, very good cash generated business as always. We can see this year that we've got operating cash pre working capital of 3,800,000. We have a controlled working capital movement of 300,000, and this is slightly down on last year just due to stock unwinding.

18:10 As Craig has touched on, more devices did go out last year to do with the three g and the swapping of devices in the field. Net operation cash inflow was 4.07 post working capital, and we finished the year with £3,400,000 in the bank versus last year's 2,800,000. So we've got lower finance costs there due to the refinancing with HSBC on better rates and a generally lower base rate this year. Even after paying our dividends and some share buybacks, you can see we still had an inflow of GBP 600,000 within the year. In terms of our balance sheet, this remained resilient and very strong. We finished the year, as I said, GBP 3,400,000 in the bank, and we managed to finish in a net cash position of GBP 440,000 with a naught £820,000 swing from net debt last year at naught point three eight. It's an excellent result.

19:09 The stock unwound, and we have excellent robust balance sheet to move forward. We do have some tax charges there, which obviously we have each year. So nothing out of the ordinary and an excellent balance sheet to move forward into 2027 and support our growth. We generate £4,000,000 in cash in the year, and we convert 96% of our EBITDA into cash. So for that cash, we will be looking to reinvest that within R and D as we move through financial year '27. We will continue to pay our debt, and we will continue to pay dividends. Then we leave our options open for any m and a activity that may be potentially there for us to look at.

19:57 Thank you, Sarah. Just touching on our aspirations in relation to shareholder returns. We're proposing a total dividend of 2.4p, which is up 84%. That reflects our confidence in the sustainability of our earnings and our cash flow. We'll always look to balance shareholder return with investment requirements. We know that the dividend is supported by strong recurring revenue and cash conversion and the growth opportunities that we have support our medium term ambition to move towards a 5% yield. Full year 2026 has strengthened the foundations of the business. Our products, technology stack, organization, customer value proposition are stronger than they ever have been.

20:51 Recurring revenue, cash generation, balance sheet have all improved, and we have really strong identifiable growth opportunities for both divisions, and, that includes in particular The United States opportunity that we have. I think we've embraced, you know, AI, and we understand that the data that we capture is really the the nuggets, the the the value, that our ability to capture and warehouse critical data, allows us to utilize AI to enable analytics and insights. We've entered full year '27 with a strong momentum and a healthy opportunity pipeline. Just touching on our strategic priorities for the business.

21:41 In machines, the short medium term focus remains on the cashless opportunity that is here and now to drive that footprint and the recurring income that's generated from the subscription service that we provide. In the medium to long term, telemetry remains an important part of the business for us. That data capture and free vending machines and on other assets, Guten allows us to utilize AI enabled analytics to drive customer productivity and allow them to do more with less. On beverage metrics, it's clear that we're in a good position to broaden the footprint beyond the least intended. Our managed pilots have been successful and are managed we've actually got managed contracts in The USA to really take the business forward.

22:33 Major focus, you know, and it's something that we're all sort of fully focused on is converting The USA enterprise pipeline. It's massive, and it did create a third pillar of the our revenue in the business. Full year '27 is about accelerating growth from the full year '26 foundations that we've just taken you through. If you look at the investment case, the high quality recurring revenue, strong cash generation, net cash on the balance sheet, an HSBC refinancing, there's very little risk associated with their business. We're positioned for shareholders to benefit from rapidly growing dividend.

23:23 The USA provides a meaningful medium to long term upside for the business that's clearly not factored into our share price. So you look at it, combination of recurring revenues, cash generation, growth up growth optionality creates a bit for compelling investment proposition. Effectively, anyone getting in now is paying 50 p to buy a pound. That concludes the presentation. We're gonna move on to questions. Okay. Question one. What do you think investors most misunderstand about VIANET? I think investors are starting to understand the quality of our recurring income, and our cash generation.

24:15 I think if there's maybe a couple of things, maybe one general sentiment about the hospitality sector, but I think we're in a position where we're starting to prove that whilst it's tough for hospitality out there, it really underlines that there's more and more need to have our solutions in place to help them drive productivity and reduce their costs. One of the biggest challenges to scaling in The US market, sales cycle, integration, complexity, competition, or customer adoption. I can use that. Yeah. Go ahead, Greg. And there's another question that is pretty much in line with this question that's being asked. So hopefully, this will cover both of them.

25:06 I think what it has what we have at the moment with our inventory model, which is without the draft is a SaaS model. So it's all about, you you know, the integration of that platform and utilizing it without installation cost. It's just deployment. We've done quite extensive training modules. And, again, even now using AI tools, it's even more streamlined to be able to get the information into the hands of the customers and how to use the systems, how to adopt the systems, and things like that. The complexities of integration, again, with the AI technologies out there, these complexities which could've took months and years to get right and understand people's ecosystems and how we integrate are done within weeks. These you know, we can we can put the models in, the models tell us what we need to do, how we need to integrate, and how we need to deliver that integration into those. So in terms of scalability into The US, it's dare I say, it's never been as easier.

26:09 Thanks, Greg. And I think just to underline that, basically we've got two real solutions. We've got the FAST CAN inventory solution that does not require us to send anyone to your customer site. That can all be done online. The beer module, that does require physical installation on-site and and that perhaps is the the the single, you know, it's it's fairly easy to do, but it's relatively costly. Moving on. Could AI driven analytics become a premium offering for customers or will the main benefit come from improving efficiency and customer retention? I think that's over to you, Craig. I think there's two parts to this. I think some of it will be used for retention, because we don't wanna be behind the curve in what potentially other people are doing and what the industry is is expecting.

27:06 However, there with every kind of AI comes a limit, so there there will be a commercial model around how that AI is used from a basic to a interacting with other AI models which can say, you know, what sporting events are on this week, what did I sell this last month, when when this team played the week before? What were I selling particularly well and then what time? So when you start to go into those interactive AI components, that's where we can start to look to commercialize and build. That looks like it completes the questions for today. Jake? Absolutely, guys. If I may just jump back in there. Thank you very much for your presentation and for addressing those questions that came in from investors this morning. And, of course, there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But James, perhaps before really now 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 could please just ask you for a few closing comments just to wrap up with, that'd be great.

28:13 Yeah. I think closing comments are really about reiterating that full year '27 is about accelerating growth from the full year 26 foundations that have been made by the team, reiterating the fact that high quality recurring revenue, cash generation, net cash on the balance sheet, refinancing with HSBC, very limited risk associated with our business and really positioned for shareholders to benefit from rapidly growing dividend that's associated with that increased cash generation. And, and the the great thing is that in in that cash return, that that high yielding stock, you've also got an upside opportunity with meaningful, pillar of growth in The United States. So, I think, we're in a pretty good position.

29:04 And thank you all for joining us. Yes. Thank you. James, that's great. And thank you all once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management team of VIANET GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.