Vianet Group (LSE:VNET) — Results for the year ended 31 March 2023

0:00 Good morning, and welcome to the VIANET GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. Have the company more review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to James Dixon, executive chairman and CEO. Good morning,

0:31 sir. Good morning, and thank you for joining us. With me today, I've got Mark Foster, CFO, and Sarah Benton, finance director. We'll kick straight in. We think we've got an excellent set of results here demonstrating that we're gathering momentum, and more importantly, there's excellent pros prospects that are gonna fuel our growth ambitions going forward. Just to quickly recap, you know, what our business is about, we have two divisions. There is the smart machines division where SmartVend is the lead product where we have provided comprehensive vendor management system and contactless payment solutions.

1:17 And the other division is SmartZones where SmartDraft is the lead product. And following the recent acquisition of BeverageMetrics, we now have the sort of leading leading comprehensive beverage management solution for the on premise liquor trade. We basically install hardware into pumps, bars, vending machines, or other remote assets that allows us to capture data. That data is then processed to create dashboards, alerts, insights that allow enable our customers to transform their business performance, and that we deliver compelling returns on investment for those customers.

2:06 We make our money by the hardware sale or rental, but the important part is the long term contracts with blue chip customers where we have what's pretty much a software as a service model where we take weekly or monthly income on three to five year contracts. If we move over to this page, Mark, we've got strong portfolio of products. The markets we operate in are significant, and all the growth levers are working in our favor. If we look at the market, the vending market, the total addressable market in The UK is something like 300,000 vending machines. That's before we look at other verticals where we can apply our telemetry and contactless payment.

2:57 In the European Union, it's close to 3,000,000 worldwide. There are 15,000,000 vending machines or as we term it, unattended retail machines. In The U in our current business, we've got something in the region of 54,000 devices connected and 38,000 machines. So we're just scratching the surface at this moment in time. Taking a look at the hospitality market where the, you know, recent acquisition of BeverageMetrics gives us a comprehensive solution for draft beer, liquor, and a full inventory solution. The US hospitality market itself, the total addressable market is 382,000 units outlets that are serve serving alcohol.

3:47 And in The UK, if we look at just the sort independent leased managed pub groups, it's somewhere close to 50,000 as our addressable market. The growth the the the structural drivers for us are are really working our favor. I think everyone knows that contactless payment is on the rise. Recent during the year, we've added now working with VNET GROUP PLAYMENTS to our to our solution. We've then got the the whole unattended retail sector is continuing to grow, and that's only gonna continue to, you know, accelerate especially on the back of AI and its impact on on unattended retail and the the cost of, you know, manning manning manning the services with with people.

4:45 The demand for data and productivity only continues to grow as the cost of labor increases. And then the the other thing that's working our favor is this this continued drive towards increasingly digitalized solutions. And within that, the The UK, European, and indeed, you know, sort of the the global switch off of, you know, three g works in our favor. Whilst it's held us back a little bit in the the period just gone due to this distraction of planning the upgrades to four g,

5:21 going forward, that creates an opportunity for us because in our own as the state that we have within our existing customers, there's something close to 20,000 machines that are ready to upgrade to four g. And the solutions that we've put in place to help customers do that means that it's it's not a big step for them to extend the penetration within their existing, you know, machine part to to grow grow that. Good earnings visibility, strong recurring income, the high margins. You know, we we we really do generate and have good cash conversion. And as we grow the recurring revenue line, that's only gonna continue to throw cash off going forward. So we take a number of boxes, and we've also got a great team who are culturally sound and instinctively do the right thing and are highly incentivized to to deliver.

6:15 No remark. Yeah. Thank you. Yeah. We're on track to deliver sustained growth for a you know, for the for the coming years. We've got strong, you know, strong, healthy recurring revenue that underpins our growth, and the growth is only gonna we'll refuel that and that will continue to grow.

6:41 We look at smart zones. We're back to full billing. The data that we provide from helps our customers transform their business performance. And by adding the BMI solution in the inventory, it it really gives us a much larger addressable market than anything we've had historically. So that that that that's very positive news for us. Smart machines, 75 new contracts. That's gonna continue to feel the recurring income line so that overall, you know, increase in recurring income that we saw in the past period is only gonna accelerate going forward. Our new verticals were very close to, you know, commercial, you know, traction in forecourts and laundrettes, so that's positive.

7:26 And, you know, once again that switch off of three g gives us a, you know, one off opportunity to upgrade and extend the footprint within our existing customers.

7:38 That thirst for data really is continuing to sort of drive growth for us, and we see the, you know, the the rise of AI is only gonna, you know, you know, improve the demand for our product. Data is the lifeblood of artificial intelligence.

7:59 Contact experiment continues to grow and, you know, for two years in a row, our solution has won the the the best payment solution at the Vending Industry Awards, and the latest was last week at the twenty twenty three awards. So all the components are in place to accelerate our growth. We turn over. Thank you, Mark. I'm not gonna touch too much on these results because I don't wanna steal Mark's thunder when it comes to finance section, but strong set of results. But what's really encouraging is that it's been against an inflationary backdrop, and we've had the issues to deal with in terms of component supply chain and the costs associated with that. And, also, during the year, we've been busy busy migrating our existing customers onto the SmartVend platform, which is a distraction for them and us.

8:54 And that migration will be complete in in q four of the current financial year. And the the other distraction has been the the time taken out plan for three g, you know, upgrade to four g. So that's held us back a little bit, but, you know, a real line of sight on growth and cash generation going forward. So very positive position. I think moving on to smart machines, we'd just like to refresh refresh you with a small short video of our solution. Okay, Mark.

11:10 Next slide. So basically, you know, what we provide our customers, you know, is we provide them the dashboards that they need to run their business. You consider, you know, basically, you know, a vending machine is a small supermarket, but it's remote. That's the best way to visualize it. And if you run the supermarket, you need lots of data to make sure you got, you know, your shelves are stacked, get your pricing right, you get the right product lines, you got the right consumer insights, and that's no different to vending machine. We provide the dashboards that our customers need to, you know, run an effective vending machine park and ensure productivity. And if we just look at the the the stock service and maintenance elements, we make those much more efficient, which helps the vending operator improve the carbon footprint.

12:07 It's about sending the right stock to the right machines at the right time, and we help them do that. And the sort of returns that we provide are in excess of 20% of, you know, reduction in operating costs for some of our larger customers, and that's pretty compelling before you start to look at the uplift from improved sales because you've got better stock availability and you've got the white lines and, you know, you you're not losing anything from coin mixing done, etcetera, etcetera. We turn over the page, Mark.

12:43 Again, I'm gonna leave a lot of this to Mark. I just wanna touch on the three g to three g switch off. That started this year in the Basingstoke area with Vodafone. Now all the all the mobile network operators will have switched off three g by the end of calendar twenty twenty four. Vodafone will have switched it off by the start of calendar twenty twenty four. And then the the the opportunity for us, it's it's less about the smart zones and the pump related business because our telemetry units can get by with two g. But if you're looking at a contactless payment solution, two g the the delay is something like a twenty second plus timeline to do a transaction on two g, and that's way too long and the transaction might fall off. So our customers are very keen to upgrade to four g rather than take the risk of losing sales on the back of, you know, fallback to two g.

13:52 And that's a big opportunity for us this year. What we've what we've put in place to help our customers is is what we call VIANET Assist, and that gives them financial assistance to allow them to do a changeover. But that financial assistance also also gives them the opportunity to actually apply that in the respect where they don't currently have telemetry or contactless payment. So it gives them incentive to extend the footprint. And together with the, you know, the smart bend, vending management software, that really allows them to, you know, transform the productivity and the sales profile, and that works works in their favor, and we're gonna see good growth from that in the current in the current year. So we help, you know, reduce waste, improve margins, and then, you allow them to, you know, drive their businesses forward.

14:48 Good look now at SmartZones.

16:09 Thank you. And moving on to next slide. So with the acquisition of BeverageMetrics, we now have a comprehensive drinks management solution that really does drive customer margins and profitability. We have the full dashboard and and the dashboards for our customers on the portal are configurable, they can actually set them up to suit their their particular business or whatever they they wanna look at. The

16:41 purely looking at improved sales, reduced waste, and the, you know, that in itself will pay for the system. But then you look at the all the areas where you can improve productivity. You know, like a keg change, for instance. Why would you have leave, you know, a quarter of a keg on on a Saturday afternoon when you're gonna go into trade a busy trading session when we can give them all out and say, right. Put a full keg on so that you don't have to change that keg during the middle of your trading session and thereby cost you sales. So there's there's a whole host of different areas that, you know, we're we're allowing them to reduce the waste, prevent them from cutting corners that really gives them a compelling return on investment.

17:33 And I think, you know, what that they we've done a lot of work over the last two years to reduce the cost of our hardware and to make the give the solution more features, and the BMI acquisition gives us substantially more features. So going forward, our customers have a lower cost solution that gives them more features, and it's more relevant to the business. And if we just sort of turn over the page now, Mark. But the thing that I wanna pick up from here is that our leasing our existing recent tenanted business is very robust and that we have a good pipeline that's gonna sustain that.

18:19 And then we add on the inventory solution to our existing UK based solutions, and that gives us the opportunity to grow within the tenanted sector and sell inventory to, you know, the the publicans within the least intended. But more importantly, it allows us to go beyond least intended and have a solution that's directly relevant to independents and smaller managed operators. So that's a very we're in a very positive position in that respect. The other development that's, you know, in in in track at the moment is, you know, we're with Oxford partnership to work with the brand owners to build together a a low cost, you know, flow monitoring solution that allows them to monitor individual brands going forward and that's gonna allow us to extend their footprint. And then we, you know, once we've got a a comms platform and flow metering in there, you know, retail outlets on a number of brands, we can then upsell to get those flow meters onto other brands and then we can really sell in the industry as well. So we're in a very good position in that respect.

19:28 It really VMI really does strengthen our relevance to the the wider UK market. I think we sort of look a bit more of the, you know, what beverage metrics, you know, gives us in terms of the the the acquisition that we've just recently announced. We have a solution that's pretty comprehensive, covers everything from beers, wines, and spirits, all liquor within a non premise environment, and it's configurable. So the dashboard gives the unit manager everything he needs in thirty seconds every morning. So that's positive. And and that whole financial data, we can do it down to individual poor coast costs and do the margin analysis.

20:17 For each pint, we can give the margin analysis. For each cocktail, we've got the that we can, you give the margin analysis based on the predetermined product mixes. So we're, you know, you in a very strong position in that respect. And the the the the operational alerts that we can now provide in terms of line cleaning software, temperatures, and even producing we've we're in the process of developing quality grading so that our customers can look at their estate and then actually understand based on gradings where individual outlets are, where individual distributors are in terms of, you know, cleaning their own lines in the space. So it's very positive position to be in.

21:04 And the the other thing that we're doing, we're doing a lot of partnering with people, organizations who have access to what is a significant addressable market so that we can actually work with them to have a complete beverage management ecosystem in terms of the data. Everything from the distribute distributor all the way back to the kegs going back to distributor to make sure the keg deposit, you know, system is working in the favor of the retailer rather than in favor of the distributor. I'll just come back to the addressable market. It's substantial. In terms of the investment required, the unrealized losses of BeverageMetrics were about 600,000 a year, and we envisaged that there'll probably be another £200,000 of additional investment required to commercialize, but that will be offset by some an uptick in sales.

22:07 So we should be we should be getting somewhere moving towards monthly breakeven by the end of the end of the current financial year. But, you know, the reality is that small investment when you look at the, you know, total addressable market in The US. You take in the restaurant, that's the fast casual restaurants and and whatnot, and the bars, clubs, recreation, entertainment, you know, and hotels. There's a 382,000 on premise liquor venues with liquor licenses across those four segments. If we look at the restaurant sector, we're already, you know, involved with and doing work with Applebee's, Chili's, and Bloomin' Brands.

22:57 And the relationships we're that we're developing with partners in The US gives us access, you know, access to every single l you know, element, each each of those four segments. And importantly, it gives us access to the smaller chains, and the smaller chains make up a substantial proportion of the total market. And and our solution is geared towards them, so that that's particularly exciting. And, you know, look at Applebee's, I've got something like 1,000 we sell over 1,700 sites. Chili's over 1,200 and Blue Inn over a thousand sites. So we need to see a breakthrough in those guys.

23:44 Good morning, everyone. I'll just take you through headline numbers. As you can see, the turnover in the year increased by around 900,000 just shy of 7%. Recurring revenue remained robust at 89%. Last year, it was 88%. Gross margin held well despite the impact of around £450,000 of the stock premiums that we were hit by during the year. Without that stock premium impact, the margins would have been just shy of 70%. Operating profit was up $742, 31%. Net of the stock premium impact, You know, it would have been higher than that and the 40% on a like for like basis had we not had those. Pleasingly, profit before taxes back in the black from the big low of 2021 that you can see there, and we had a 2,800,000 loss.

24:34 We're back in the black now with $452. The EPS has been impacted by a tax charge this year. I'll give a bit more flavor on that later, but ultimately, we made a claim in March for some accrued r and d tax losses of $922. The impact of that with the deferred tax calculations gave us a tax charge of 290,000 compared to last year's tax credits. That's why the EPS is slightly down. But overall, this set of results, know, is very, very good, particularly from the low of 2021 to where we are now. If we move on to the divisional stuff in terms of SmartZones, SmartZones turnover is up 332,000, around about 4%.

25:20 As Jim said, all services are now back on stream. Recurring revenue again was robust at 95%. We did two fifty nine new units in the year compared two fifty two the year before. Gross margin was up 794,000,

25:36 around about 14.4% growth, again, due to the everything being back on for full billing and some, you know, good cost management through that. And that all played down to the bottom line being up $798 year on year, 26.7%. So very, very pleased with that. There was 11 new contracts. There were six re signs. I'm not gonna go into detail today, but the the metrics around recurring revenue per device and operating profit per device year on year are also up. So smart zones, a good set of results. Smart machines, turnover, as you can see, was up 568,000, 10.5%. As Jim said, 75 new contracts in the period. That that leads to increasing incremental recurring revenue growth year on year, and that works into the recurring revenue up to 80% compared to 77% the year before.

26:31 We added eleven eleven thousand sixty two new connected devices. The estate grew 11.6% from around 48,000 connected devices to just short of 54,000 connected devices in the year. The gross margin on the face of it was up $40, 1.3%, but that is after the impact of the stock premiums that affected this division, 450,000. Pre that, the gross margin would have been about 3,560,000, 14.8% on a like for like basis compared to last year because last year did have some stock premiums in as well. It would have been up $260, about 8%. The operating profit in this division was up a 195,000 k, 10.7%.

27:18 But again, stock premiums impacting that, putting that on like for like basis year on year, it would have been up $400 20%. Pleasingly and very importantly, this division, the operating profit is now well ahead of pre pandemic performance. So in March 2020, the operating profit in this division was 1,500,000. So we're nearly 500,000 higher, 31% up from that period. Again, the metrics around recurring revenue per device and operating profit per device are all very good heading in the right direction and up year on year.

27:55 If we go into the cash flow, if you look at the net operating cash inflow pre working capital line there that says 4,448. That's the headline cash generation that we achieved pre working capital, but that does include the one off accrual for the tax rebate claim we made in March of £922,000, which we received in full in May. So that is now with us. So the underlying cash generation pre working capital was £3,526,000 That's up 787,000 year on year, 28.7% growth. That represents about 114% of EBITDA or a 102 of EBITDA.

28:42 And what it says is we're back at the healthy levels of profit to cash generation that this business has always enjoyed over the years coming out of the pandemic period. So that's that's been very pleasing in the year. There was a working capital draw before the $922 rebate, which is included in the 2,411,000 number there. The draw was 1,489,000, mainly impacted by increasing stock levels to make sure we had stock on the shelf to manage the semiconductor global supply problem and paying the the stock premiums to our suppliers. We had to make sure we have the stock on the shelf so that our stock levels went up quite significantly over 700 k and obviously there was a movement in in credits this year on year that impacted that.

29:28 Stock levels are now unwinding, have been unwinding since around about January, and that should continue to theme throughout 2024. The cash generation post working capital of 2,037,000, We used that principally to invest in technology as we as we continue to do so, 1,700,000. That's down about $275 year on year. We obviously did some property improvements. We put a new solar panel project onto the headquarters that we have in Stockton, and we had some engineers' funds that we had to refresh that have been delayed through the pandemic. So that all combined to to create the investment that we did. The loan repayments, while still quite high there, year on year, we were lower because we finished the term loan for the an acquisition that we did in 2017.

30:21 That payment finished in April 2022. So cash generation, very good, the the outflows there for you to see. In terms of the balance sheet, the balance sheet remains very healthy. We've talked about stock, debtors, and creditors, especially stock. The debtors there does include the $900 tax rebate without which the movement in debtors was only a 169,000. Creditors are lower. The the trade creditors figures is about $265 lower year on year, and we had less need for accruals and provisions at this year end, so they were lower at the year end. The loans themselves have reduced as we have paid down our mortgage, which completes in July 23 and as we have paid down our coronavirus business interruption loan, which completes in June 26, and we finished the acquisition loan for VNET PLC April 22.

31:17 Net debt at the balance sheet date was 3,370,000, but post the tax refund at the end of May, that net debt had reduced to 2,370,000. As you'll have seen in the announcement, we are moving banks, so I'll give you a little bit of detail around that. The civil loan that we currently have is very aggressive in terms of the repayment profile. We borrowed 3,500,000 around about May 2020, and that incurs a $700 capital repayment a year plus interest, which is quite aggressive. And in the last two years, we've paid back 2,655,000 in loans coming out of a very tough trading period for us through COVID as we as we as you saw on the p and l. What we needed and wanted was a more flexible bank facility that reduced the outgoing repayments to to loans and puts more money back into the business for the growth of the business. So the new facility we will have with HSBC, which will be signed off in the next two weeks or so, is a 4,000,000 committed RCF for three years.

32:23 The interest rate for that is 2.62% above base. An $840 mortgage, the interest rate for that is 2.4% or 2% above base. And the term loan of 600,000 for four years, the interest rate of which is 2.52% above base. So you can see the cost of debt versus the existing debts we have is much lower. So it's the marginal cost of debt is is coming down. Overall, what does that do? Broadly, it

32:53 means $400 less in bank repayments per annum than where we are today for us to invest in the business as as we see fit. When the actual transition happens, so as I said, we will sign the legal documents for this in the next two weeks. But the transition will happen on the August 1. We will draw down probably about 2,000,000 of the RCF, which leaves about 2,000,000 of headroom to use should we need it for further investment into the business. And what this all does, it enhances the balance sheet flexibility, it removes an onerous repayment profile that we had and it supports business growth. Thank you, Mark. I hope we've gone some way to demonstrating that we've got clear line of sight to accelerate growth and really driving the earnings going forward.

33:46 I mean, in terms of the the we have very favorable, you know, markets and trends working working for us. And if you look at where we are with the vending side of the business, our partnerships with SureSight and Vendikin for QR codes, the ability to reduce our transaction fees, coupled that with having, you know, robust, you know, leading telemetry and award winning, you know, contactless payment hardware coupled with, you know, having a a digital digital platform like SmartVend, coupled with our the customer experience that we give our customers. We have a, you know, a very good customer experience scores.

34:33 So really building relationships within within the vending sector and and and a in a positive position really. And the fact that, you know, pretty little particularly important for us is that we we we're aimed to own food service and and dominate coffee. So we're in a good position in that respect. I've probably said enough about smartphones and the beverage management solution, but the what what what's also important is our core platform supports entry into new verticals. Our our existing platform and the technology we have allows us to move into new verticals, allows us to address remote assets beyond the vending and the vending and the hospitality sector. And in the next in the during the course of the next few months, we'll see some breakthrough in forecourts as we then, you know, really get some commercial traction.

35:28 I think, you know, the the one thing that's clear is that, you know, working our team, working with the products that we have, the customers we have, and the strong markets, we've established ourselves as the trusted adviser and the partner of choice. And that's something that, you that the the whole pandemic helped us to do that by actually, you know, producing data to customers and getting closer to them and be being discussed around the board tables and actually becoming a valued partner. We turn it over, Mark. In in terms of our aspirations, now we've got top line growth agenda. We've got ambitious aspirations for the next two and a half years.

36:15 We're focused on doing the right things really well.

36:19 Start at the beginning. It's a challenging employment market out there. There's a scarcity of great people and people who have left employment, UK employment market. So we need we're gonna create, you know, an attractive environment for people to work in, and that's what we're doing. And then, you know, sustainability. We see see sustainability as commercial opportunity both internally internally in terms of our own efficiency, but also, you know, with our customers where we help them reduce their carbon footprint by providing them with the, you know, insights and data. We look at, you know, what we wanna achieve from a, you know, a financial and revenue perspective over the next, you know, couple of years or so, about 100,000 vending connections, well, our existing vending customers, if we get, you know, a state penetration with them, we'll deliver that by the end of full year '25.

37:21 And additional things in addition to what we've already talked about that are gonna help that is the integration work we've been doing. There are different ERP providers out there that have fairly clunky products. Now we're integrating with them that allows them to use our our payment systems and telemetry to give them better data. And that's gonna that's gonna drive increased penetration. We're also integrating with some payment providers as well so they can utilize our SmartVend. So SmartVend becomes the the tool of choice out out in the vending sector. The the other driver for us in in our UK vending will be the the whole three g to four g and what we've what we've done to help our customers. We've sat with all our major customers and developed their plan and strategy going forward for three g to four g.

38:17 And, you know, that is gonna give us also, it may have slowed things down in the year just gone. It's gonna give us acceleration in the current year.

38:27 And then if you look at The UK, you zones, The UK hospitality market, the addition of inventory and the work that we're doing with, you know, Oxford partnership with brands is gonna give us growth in our core leasing tenant business before we start to look at expansion into independence and managed. Down the bottom right, the the thousand the thousand, we're certainly aiming for more than a thousand USA smart draft estate by the end of twenty twenty five. Because a thousand sites, you know, at anywhere from a 120 to a $150 per month per site generates great revenue, and we have decent margins.

39:17 Margins not quite so high as The UK

39:19 in terms of percentage terms, but, you know, in terms of, you know, cash money, they're they're they're they're strong. So really in a good position. And then the contracts and new verticals looking to achieve at least 500 of gross margins. So you know, and we're close to, you know, commercial announcements, you know, in in additional sectors. So we're in very good shape and,

39:45 you know, I think they just turned it over. And then we've got growing roster of awards, case studies, customer testimonials, and accreditations. We're really making a a strong fist of actually demonstrating to the industry that we are the trusted adviser. We will be the partner of choice.

40:06 That pretty much sums sums up the the the presentation. I'd now like to move on to questions. James, Mark, thank you very much for your 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. Just for the company to take a few moments to read those questions submitted today, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today's presentation. And if I

40:37 could just ask you to read out those questions and give responses where it's appropriate to do so, I'll pick up from you at the end. Okay. We'll kick off the following the acquisition of BMI, could you please give more details on the type of investment it will require, and how do you see the offering being used in The UK? I think I've already touched on that's gonna cost and and and the the carrying the carrying the existing losses, the loss making business going forward is about 600,000, then probably in the region of 200,000 of additional commercial investment. That's so that's about, you know, $8,800,000 in the in in the calendar year. But we'll expect to see that the the the monthly losses dropping. Can you read the question up there, Mark?

41:26 And how do I see that offering being used in The UK? Well, the addition of inventory to our existing, you know, draft beer monitoring solution and leasing tenanted should make a useful tool for the publicans within least intended. But more importantly, it gives us an offering that we can take to, you know, the independence and small and medium sized management operators. Next question. Where do you see the focus of the business going forward in light of The USA acquisition? The focus is very clear from where we sit. We've got a fantastic opportunity to, you know, I guess, dominate UK vending and, you know, and and really, you know, drive growth in new verticals in The UK and in Europe for the machines division.

42:25 And, you know, in terms of The US acquisition, it really does give us an opportunity to get hospitality operations into growth in The UK and more importantly, you know, make some inroads into what's a substantial market in The USA. What is your ambition for the company in three years' time? Based on our, you know, our growth aspirations, you know, we'll have a business that's, you know, generating over £80,000,000 worth of recurring income and throwing off lots of cash. So that that's our focus at this moment in time. Basically, you know, continue to drive that recurring income line, and that will drive share price and it'll drive shareholder returns, and we'll take anything else as it comes.

43:21 Might we see more m and a? If we find the right opportunities, we will be prepared to make acquisitions, and and that's one of the, you know, one of the one of the reasons why we've changed banks. Because in addition to having supportive shareholders, we want to have a bank that's really commercial and will support us if we do find the right opportunities. Question. Next question. Do you feel vulnerable given the lower rating and the clear recovery track you're on? I think the answer is no because I think that increasingly we'll be able to demonstrate the value that we have in this business and the current share price is way too low.

44:10 And I think historically, we've had a, you know, supportive roster of institutional shareholders that will wanna wanna see the value delivered and that think you know? But that that's that's where that's my thinking of it. I don't feel vulnerable. I think it's an opportunity. Can you do to expand on the dividend policy and how does this impact the r and d investment? Well, the reality is that, you know, we're not gonna pay dividends at a level where it's gonna compromise our investment in research and development. You know, that that's the bottom line. We'll only pay what we can afford to pay, but, you know, you've seen from the presentation, we expect to be driving the, you recurring income line and, you know, and the earnings that go alongside that, which is, you know, enable us to be able to, you know, increase dividends going forward, you know, after we've done all the r and d that we need to do.

45:14 But next question is, by the by the Americans, do you think you are now ready to establish a collaboration with a major US subco similar to Oxford partnership? What are the obstacles to achieving this? Well, we're talking to a number of potential partners in The USA that gives us improves our access to The U US, what is a substantial US marketplace, and it's a case of watch this space in that respect. And the the obstacles no. It's it's not a matter of obstacles for me. It's a it's not a matter of if. It's a matter of when. Next question.

46:02 Congrats on the progress. Are there any negative gross margin implications from partnerships, growing importance in client wins for SmartZone, or is it a win win with higher revenues for VIANET at a constant margin? Well, we I expect the margins to remain high. If there's an opportunity to work with a partner and, you know, give a give a proportion of margin to, you know, accelerate growth of our footprint, then, you know, we'll do that. We'll take each opportunity as it comes, but today, we haven't had to eat into our margins with any of our existing partnerships that we've announced in the last sort of last twelve, eighteen months.

46:50 But I would say, you know, I'd much rather have a, you know, a a small slice of a very large pie than a large slice of a small pie. Why was BeverageMetrics contingent consideration based on turnover, not on profitability, stroke cash generation? That's quite simple. The reality is it's it keeps it keeps it simple, keeps it open, keeps it transparent. And if if we're generating the turnover at those levels that are anticipated or factored into the the beverage metrics asset purchase agreement, then we'll we'll be very happy people and our shareholders will be happy as well, and we'll be throwing off lots of cash.

47:43 Next question. What percentage of your March 2025 revenue of 25,000,000 can you achieve organically? Well, the reality is that we can achieve a 100% of that, you know, organically, and that's that's that's what's currently in the plans. That doesn't include any further acquisitions beyond the Beverage Vectrics acquisition. Next question. What is the up to date position around the VNET GROUP PLC progress? There's a limit to what I can say on this, but what I can say is that we've already, you know, completed a number of installations with one of our larger customers where it where it where it, you know, is is something that this customer really wants to do and expand within the respect.

48:39 And, you know, once we've proven that, it becomes a, you know, a bigger opportunity than simply The UK. Next question. Can you confirm that you expect the cost reflected in the stock premium are expected to or are now declining? Well, the the the the I'll hand this over to Sarah, actually. I've done enough talking. Yes. Okay. We do expect that they will decline. The prices will not go back to where they were pre pandemic. We do expect that they are settling, and we have seen some new quotes coming through now with that selling figure. So next year, we would expect maybe a 100 to 150,000, but that would be within the actual cost of the product and the consumable and not a premium at that point. Yeah.

49:26 So off off that $4.50, we're we're we're factoring in that, you know, a 150 of that will become permanent. So, you know, there's about 300,000 that we, you in theory, you could add add back to see what real performance was. So that'd been closer to 2.3, 2,400,000 for smart machines had we not had that in the current year. Okay. Now can you please explain what you mean by stock premiums? I'll hand this back to Sarah again. Yes. So when we came out of the pandemic, obviously, globally, there was an issue with semiconductor markets and actually getting those parts into our production line. It it was known across all of the businesses. It wasn't just VIANET that were affected.

50:11 It went across different countries. And what that meant was that big players like your Apples and and your Samsungs were basically taking up the market and buying all the components that other people required. And what happens then is those components go on to what we call a gray market, and with that becomes a stock premium where you're paying over the odds for certain products that you need in order to make your finished goods, and this happened to a lot of organizations during that time. What we'll see now is that these products are back on the market in the normal levels, so therefore the prices come down, and we buy from our normal suppliers at that point. Yep. Thanks, Sarah. Next question. Can you explain why the profit margin in smart machines is lower than in smart zones and how whether you can raise margins in smart machines to match those in smart zones.

51:01 Mark? Yeah. I mean, they're they're very distinct and different divisions and and commercial metrics in each division. I think the important thing is the recurring revenue footprint that we're getting in both is high. It's growing in smart machines. You know, year on year, I think the recurring revenue in smart machines was up something like £600,000 in hand note terms. But in the in the machine sector, you have a bigger proportion of revenue streams that are rental. So you don't you don't get the CapEx margin upfront, so it's, you know, spread over the life of the contract. But the, you know, the commercials are are very different, but it's about driving that top line recurring revenue footprint that plays itself down to the bottom line that you see. And bear in mind, the smart machines division is the one that took the impact of the stock premiums.

51:51 And while that would have raised the margin we see, it wouldn't quite be at the same level as SmartZones. We didn't have that, but it's just the metrics of how the commercials work in that division, which are very distinct from the other division. I think I'd add to that that from a strategic perspective, we wouldn't want to hardware margins to get in the way of growing our footprint in the trade. It's effectively as the way I see it, it's know, there's a land grab out there so we can actually get extend our footprint into the machine, you know, the vending machine park and actually secure the recurring income that's gonna flow going forward. Next question. What is your foreign exchange exposure? What percentage of your revenues was denominated in pounds, and what percentage of your cost base is Yeah. In pounds? Yeah. Most most of our revenue is over 90% of our revenue is in pounds. We have very little exposure from a foreign exchange basis, to be honest with you.

52:53 You know, most of our supply chain is in pounds, so that there is not a lot of exposure at all. So cost base there, I would say 9095% of our cost base is in pounds, so it's it's not material at all. Next question. How do you think about your capital allocation priorities? If you had an extra pound to spend, for example, how would you look to invest it investment in the business, external growth opportunities, capital returns, or a combination? Well, good good question. Historically, you know, we've continued to invest in our research and development and investing in the, you know, commercial team and, you know, for as long as there's an opportunity to actually, you know, deliver, you know, return on investment in in products, solutions, and people, then that's where the priority would be.

53:59 But, you know, the the priorities historically have been obvious. We look forward to the position going forward where we're throwing off so much cash. We've got where we've got to think really hard about what we do with our with our pound. Next question. Can you please discuss the challenges of customer usage of vending machines, especially in relation to connectivity and and ease of use for customers? I'm not entirely sure what the question is referring to, but the challenges for our customers are to ensure that vending machines have a 100% uptime with a 100% product availability and that they they minimize the cost to, you know, serve those to serve those vending machines.

55:03 And with without end to end solutions like ours, it's pretty much impossible to do that effectively. So if you then look at if you look at it from a a customer's perspective, then, you know, the reality is that you want to be able to go there, see what you wanna buy, and, you know, basically have a, you know, a hassle free transaction, you know, ideally using contactless. And that's that's where the three g switch off really comes into play because, you know, when the the the network falls back to two g, that means it's a real hassle because the transaction time is gonna go beyond twenty seconds, and it's probably gonna time out, which means that you're gonna have a frustrated customer and, you know, you you you probably will lose a sale. So that's gonna drive the upgrade of comms to to four g LTE, which, you know, long term evolution.

56:07 The next and that's all the questions. So Yes. James, Mark, Sarah, thank you for that. I think you actually managed to address every single question from the investors, and of course the company will review all the questions submitted today and we'll publish those responses on the Investor Meet company platform. But just before we direct investors to provide you with their feedback, which I know is particularly important to the company, James, can I just ask you for a few closing comments? I'd just like to say thank you for bearing with us for the past hour, and hope you've seen that we have we've made down good progress and that we've got fantastic opportunities across smart machines, smart zones, but also new verticals, and that we're really, you know, using every tool in the box to accelerate our growth, and we're gathering real momentum.

56:57 So thank you very much indeed. James, Mark, Sarah, thanks once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can 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 the management team of VIANET GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.