Fonix (LSE:FNX) — Final Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the FONIX Mobile PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could 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 will review all of the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Rob Wees. Good afternoon, sir. Thank you very much, and hello, everybody. My name is Rob Wees, I've got here with me Michael, who is our CFO.

0:50 I appreciate your time today as we talk about the business at FONIX mobile and give a bit of a briefing up to the year and what we do as a company.

1:00 So as I said, my name is Rob Whiston. I'd like to sort of start with a bit of a highlight to our year end, which was June this year. We've been trading on AIMS since October 2020. I'm pleased to say that I've completed another four years since June 2022. We've traded in line with expectations with an upgrade throughout the year. Each area of our business segments continue to grow as expected. I'll come on to what those segments are and how we do what we do in a bit. One of our core parts of our business is we've been historically very UK focused with a lot of opportunity and addressable market opportunity in The UK. And as we've grown our business in more recent times, there's been opportunities to potentially explore some of that internationally.

1:51 I will talk about that. We've managed to go live in a couple of markets internationally. We'll we'll talk about that. As a business, we found that we've been in a a great position to be able to build technology that enables us to both innovate and grow and as a company so we can sell more of what we do, expand what we do as a with our product feature and and development program whilst making money. So we we address this real combination of growing as a company and paying out dividends as a company because we recognize that we can do both things, which is something that we are committed to doing. Our business is very focused and focused being a keyword within the business and a manager within us with what we do on delivering clients who work with us in the long term. And they work with us in either recurring or repeat transactions and revenue. So therefore, when we work with a customer or or launch a customer, which can take time, we tend to work with them on an almost perpetual basis where we're running services for them. We're growing with them. We're looking to expand what we do with them. And over a period of time, we have ongoing repeat revenues with them, which allows us to have a lot more predictability than a lot of businesses, other types of businesses have.

3:19 We can look forward to see what trends we may experience. We liaise very closely with our clients to understand what we think they're going to do. So we have a really good handle on what can be a long term sustainable profitable business. And as a company, I mentioned already, you know, really we've got a very strong development team. There's a large part of our business. We're a small company. There's only 40 of us. And Mike will talk about how that's broken down in a bit. So as we are continuing to to develop and build some of our technologies out, really, we need to be selling it. So finding and investing in continued resources within our development team is critical for us. It's something we continue to do. And also building on our sales and commercial function to a, look after our customers and help grow our existing client base, but also look to win new customers in each one of our business segments and the sets we go after.

4:21 So what do we do? As a company, ultimately in a bit of a niche area. We plug into mobile operators and we technically integrate into those to to mobile operations. Some examples here in The UK, for example, Sky e o two Virgin three Vodafone. And we allow businesses to use that technology to do two things. One, you can communicate with customers via SMS, so inbound and outbound messaging. And two, transact. We allow clients to work with us to put charges onto consumers' mobile phone bills. And some of the brands down here on the slide on the left hand side are examples of clients we work with. So for example, picking common relief, you'll know on Red Nose Day, if you ever watch it, you will see the ability to call a phone number and give via credit card or debit card donation.

5:23 You can go online and do it via PayPal or credit card or debit card to to donate, or you can text in and donate ten, twenty, thirty, or forty pounds. The technology behind that is what FONIX does. And so therefore, you're simply texting in and you're requesting that you wanna put $10.20, £30 on your mobile phone bill. You're getting a message back saying thanks very much. We've done that. And FONIX in the background is making a request to the mobile operator, please take £20 off this person's mobile phone bill. And we're we're communicating back to the consumers to tell them to do that. So as I said, there are transactions for donations. There's transactions with media groups like BT Sport where it's a paywall. There is communications for, like, the radio stations where it's text to studio for DJs.

6:11 And there's a whole suite of use case where use case where we do it all the way through to things like car parking, the likes of English heritage, whether you're in a car park and you're feeling around and trying to download an app or finding the chase to be able to to to text to sorry, to pay for your car parking. Whereas you could simply text the car parking code on your number plate, get charged £4 to your phone bill, get a receipt back via text message and your phone your your payment's made. That is what we do. We are we are you'll see what we do in many areas of life with major brands, but we're the guys behind the scenes with the technology connecting the mobile operators into a single place and the software we use being intelligent not only to route and charge effectively, but also using that intelligence to make sure we're making the right decisions on behalf of consumers and those brands. So we're talking to consumers in the right way.

7:09 So beneath that really our business is broken into two areas. I talk about the messaging side. This is sort of our interactive services. So this is audience engagement. It's CRM. It's monetization where the the consumer is actually asking to be charged for something they want to do. And that platform, our campaign management tools, our CRM tools, our software that we give to our clients to do, run these services, means that all consumer transactions and data is coming through the platform. It's all stored within our platform. Our clients are using all of our reporting, all of our our analytics and and interaction filters and everything that we do to analyze that data and and make decisions on how they might communicate back to those customers, giving their customers better experience, saying the right things to the right consumer at the right time, increasing engagement and therefore, and often many ways increasing revenues because you're asking the consumer if they'd like to do something when we know that it's the time to do that.

8:18 The other side is much more aligned with our pure play business payments business, we're ultimately a a form of an alternative payment where you might see a checkout on in a digital format where it's pay via credit card or debit card, PayPal, open banking, or in what we do, via your mobile phone. So this is very simply all you're doing is sharing your mobile number, you're clicking pay, we might do some confirmation with the consumers to see if you're putting this charge on your mobile phone bill. And that's what we do. We're a really viable alternative payment option. Why? Well, you're only, as I said, sharing your mobile numbers. It's really easy to do. You're simply putting 11 digits of your your mobile number and just click and confirm.

9:06 We're often finding when we've sat alongside credit card or debit card, etcetera, we are converting really effectively. There are many consumers that don't want to put on credit card and debit card or don't have PayPal accounts. The one thing that a mobile number is is it's ubiquitous. The one thing that everyone has in their pockets, and I'm sure everyone in the school has in their pockets or on their desks, is a mobile number. And it means that from a brand perspective is we we can talk about the fact that actually we've got ubiquity. We can do two magic things with that mobile number. We can transact with them as per this, but we also want that user engaged, we can communicate with them. And it's a real there are there's not really any other methods of communication that can do that. And so therefore, it's a very powerful tool when used in the appropriate ways.

10:00 In terms of bringing that to life in a use case, I refer to a client of ours, BT Sports. So a few years ago, if you ever went to the box office to watch the boxing or the UFC and they've trialed it for football matches or rugby on a on a pay per view basis, The only way you could do it is via credit card or debit card. And we introduced this a few years ago having liaison about the fact that there are users that don't want to do either. When they get to the payment page, they abandon it, they skip out and they go and do something else. These are often quite frivolous or impulsive purchases. So therefore you need to give consumers a really easy way of doing it and choice. This is all about consumer choice. I would choose to do this this way. And so we introduced the the the another option of do you want to charge a boxing fight, for example, via mobile phone bill.

10:53 It's been rolled out for a couple of years now. It's highly effective. And we've said that we've seen some incredible results working with BT Sport where they talk about being a highly effective part of their basket. They are saying that we've run actually we've run two events since our year end now. There were 25% of the digital basket payments come through carrier billing, which is fantastic. They're not seeing really any cannibalization from credit card or debit card. But what they're over even if there is some, what they're really seeing is a large reduction in basket abandonment. And that is really what we're about. We are a choice for the consumer and we're looking to address those areas where you want to give consumers another way of paying, which is really easy to do so.

11:47 This is why some of the biggest brands in the world, including Apple, Google, Facebook, Netflix, Spotify, all use CarryBing as an alternative payment. Now a question that's often asked, isn't this really big in the likes of Africa or the Far East Asia or South America where maybe there's more of a prevalence to the unbanked. And and and the short answer is yes. If you look at some of our peers in who who sell these services like the broker and banker, they're really big in that market and doing a fabulous job in those areas where they're they're they're offering solutions to those big brands for for that stuff. But we've seen that in in The UK and in more of those markets too. You know, the biggest carrier bidding businesses in The UK are Apple and Google. They offer it on the app stores as an alternative payment method, which only goes to show that this really is something that can be used in many areas something that we, as we talked through this presentation, other other markets we're talking to in The UK and therefore abroad. You could hopefully see there are multi billion pound sectors where we see this as a really viable payments method.

12:58 I'm going to hand you over to Michael now. He's going to talk to you about numbers before we move on to the strategy. Hello, everyone. So I'm the CFO of the business. I'm gonna start by taking you through some operational highlights. I'll then take you through some financial KPIs and then some broader stats on the financial performance. So firstly, the operational highlights. So the majority of these metrics are really to try and give you an idea of the scale of FONIX's business actually on anything else. So we did 718,000,000 consumer interactions in a year. So that's a combination of payments where people are transacting with us and also outbound marketing communications that we would send to consumers. And that was from 18,000,000 unique users or unique mobile numbers. And even you look to the previous stats in the previous financial year, you've noticed that consumer interactions is going up, but the number of users has increased, but it's stayed within the rounding difference of 18,000,000. That's because we were predominantly based in The UK.

13:52 Our growth this year came from additional transactions from the same same unique user base in The UK. But towards the end of the year, we expanded in internationally. Been particularly successful in Ireland in in coming to the new financial year, so we should start to see that unique user number or the note the number of mobiles that we reach start to expand in in the financial year. We had another record month of trading, so a single month of £35,000,000 worth of TPV. So that's a combination of commercial t b TPV and charity TPV. For any of you who aren't familiar with the sector, TPV is used as a term that means total payment value. Another way of looking at is the total value that consumers are transacting on their mobile phone bill through our business. During the year, we added 20 new customer contracts.

14:40 So when you look at two client contract met or two client metrics, this is the number of contracts we signed in a period. It doesn't necessarily mean those those new merchants or customers are transacting with us in the period, but they're signed. It then takes six to eighteen months for those customers to go live. On the next slide, I'll show you the active customer metric, and that's where we have merchants that are transacting over a certain value with us each year, and that's probably the more important metrics to us. During the period, we were live in two international markets. So we talked about Ireland. We also had connectivity in Austria during the period, although the transactions there were relatively relatively minor in the period. And then like all other periods, we've had 100% back mark time during the period, and 99% of our income is of a repeating nature. So we don't really do subscriptions, but if the majority of our merchants trade with us on an ongoing basis, so they either have repeat transactions repeated on a monthly basis or in the case, particularly with charity clients, we tend to work with them annually and they would repeat on an annual basis.

15:40 If I then look at the KPIs, so these are the key financial metrics. So I've already talked about TBB as a total payment value. So it's the total value of transactions that went through our business during the year. And again, just to highlight that as both commercial TBB and charity TBB.

15:57 And that grew 11% during the year. Our active customer account or active merchants, the number of merchants that are working with us generating over a certain value for our business, that also grew 11% during the during the period. So those are relatively good lead indicators of our business. The main metric that we focus on wholeheartedly is a business that is gross profit. So I'll come on to talk to why revenue is not really relevant to us, but gross profit is the number one metric we look at. And you'll see that actually grew more strongly than than TPV and active customer growth during the period. And that's for a couple of reasons. One, when I come to look at the segment analysis in a minute, you'll see that mobile messaging was a big growth area for us with 30% during that period. That's where we're sending outbound marketing communications to users. That grew 30%, but doesn't contribute to TBB.

16:42 So we don't we're not taking a payment from the consumer at that point in time. So that grew strongly didn't impact TBB. The other thing is as a business, kind of as a long term strategy for the last few years, and we have talked about this in previous periods, is we've been focusing on how we optimize our margins and focus on growing more profitable business lines. And that's really started to come to fruition in this financial year, which is why another reason that gross profit is outstrip TBD. And then I might then move on to the next metric. So looking at EBITDA, another philosophy of our business is we look to grow our top line, which we consider to be gross profit, and our bottom line, which we consider to be adjusted EBITDA in parallel. So any opportunity to grow our overhead base, we make sure we can at least afford it with the growth that we've had in the top line. And we're constantly looking to invest in growth. So we've expanded the scope of our sales and marketing during the period as much as we can, but ensuring that we're maintaining the growth in our bottom line and the income that we pay out to shareholders.

17:42 And that's something that's actually we're continuing to pursue into the next financial year as well. So this slide is then just to give you an idea of a year on year growth in terms of compound growth. The thing probably it's not doesn't jump out from the slide here, but the thing to be aware of is there is an element of seasonality in our business. Actually, there's quite a significant element of seasonality in our business, and the h one tends to be bigger. Certainly, the last couple of years has been bigger than h two. That's because our larger media clients tend to skew their their broadcast schedules towards the first half of the year, particularly around Christmas. We're expecting that seasonality to repeat into future years, but another thing that we pointed out during the the when we did the interim results was that the queen obviously died during has dried during the current new financial year. That has had some impact on our trading. There's no doubt about it because media times effectively there was an embargo and they stopped trading for several weeks.

18:40 Our expectations are is that that traffic will be made up in the year, but some of that may skew into H2. So we might see a slight softening of our H1 and H2 split next year. But over the year, we're still confident we're trading in line with expectations. If I then look at the segmental analysis, so I've mentioned how gross profit is our number one indicator. I'll just elaborate on why that is. As a business, generally, revenue for us for internally is a rather meaningless number, if I'm honest, and we would encourage investors not to look at it. The reason for that is gross profit to us is the margin that we make from transactions. And we're a payments business. We take a share of a payment or or also marketing often a marketing business where we're sending out marketing marketing communications, and we take a share of the of the cost of that marketing transaction.

19:28 Revenue also includes the the margin that a mobile operator will make on those transactions. And that can vary dramatically from operator to operator, from price point to price point depending on it also varies depending on the service that underlying service that consumers are spending money on and also the mechanism which they in which they are making payments, whether they're paying via an SMS or they're paying via an online caravanning transaction or they're following up a premium line. So those are big variables that can impact revenue and cause it to skew around. And changes in our client and product mix also can cause it to move. So I would always focus everyone's attention on gross profit. It's the number one thing we look at. And again, that's grown really strongly at 17% during the year. As I've already mentioned, mobile messaging grew the most was the most grew the most out many of our business lines during the period, and that's because we have a campaign management product, which really allows setting up bigger media brands to interact and send out marketing communications to their consumers and and attract payments back from them at the same time.

20:31 And they've really started to drive adoption of that that application in the current financial year. We added new functionalities to make it easier and easier for our brands to send marketing communications. And as a result, that's that's growing more strongly than than some of the other business lines. And then mobile payments, as I said, more aligned to our TPV growth, slightly ahead of TPV growth because we've really focused on growing our more profitable profitable segments. And then the gross profit percentage is at the bottom. They're relatively meaningless as I said revenue tends to skew around for lots of different reasons. Managed service income, certainly the growth predominantly relates to our charity customers. So when we work with a charity partner, generally, we will take we wanna take a share of the of the consumer's donation. We will agree a fixed fee to run a campaign for them, and that that often falls into our managed service income.

21:23 So that that has grown strongly in the period of 28% because of the additional charging clients that we've brought on. If I then look at the broader financial performance, I've already talked down to gross profits. Probably the next big number to focus on is operating expenses. We are a very highly operationally leveraged business. So we're about 40 people in totality at the moment, obviously generating significant margin from a small number of people. 80% of our costs are staff. They have increased during the period, and and that's the main driver of the increase in our operating expenses. So we we invested more into sales and marketing. We've invested more into products where some of that's capitalized. And then we've kind of shored up our operations and then brought had more governance in the period because this is the first year where we've had full full governance costs since this thing is a business as a business.

22:16 Talk I've mentioned talked about capitalization. So we capitalize about 60% of our R and D expenditure. That's slightly up from the previous period, which is more than 56%. And that's because as our product has matured, we're really we're now really focused on innovating and adding new products. So that's a metric that I was I'm expecting to start to skew up slightly over time as we just invest more in new product than legacy products. And then it's just to point out our dividend policy, and it's relevant looking at cash flows of alternative move on to cash flow. So there's a really as well as understanding the difference between revenue and gross profit, another thing to be to clearly clear on our business is underlying cash flow sheet versus actual cash. So we've always worked in work with a negative working capital cycle with with our clients. So that means that we always ensure that we're being paid out by mobile operator and receiving the cash from the mobile operator before we then pay that money out to merchants.

23:15 That means we're always sitting on significant amounts of customer cash. And as a result, we encourage people to look at underlying cash rather than actual cash because actual cash can be skewed based on the timings of our payments for a charity campaign. If a charity doesn't ask us for money on time, we may end up sitting on that unintentionally at the year end, or if an operator for some reason delays by a couple of couple of days on a payment, our cash can our actual cash balance can skew quite a bit from month to month and from year to year. So underlying cash is the number one thing to focus on. It's highly predictable to us. It's grown strongly during the period. And as you see, we decided to increase our dividend policy because we felt at the end of the year, were sitting on excess cash as a business. We do not feel we need substantial amounts of cash to operate. We're highly profitable. We have a lot of security in our client base. We're not seeing any particular erosion of that business because of what's going on in wider world. So very confident coming into the new financial year, which is why we've moved through a progressive dividend policy and now increase our dividend for this year.

24:20 Thank you, Michael. So I'm going to talk a little bit about a bit more about our strategy before we probably start searching around on some of the questions that are flying in. So we've touched upon this already. What's really, really well noted is we're a 40 man business. We are a small company that is

24:43 always centered around being highly efficient in what we do, building technology that can be scaled incredibly effectively without having huge cost implications in the way we have to invest to grow our business. We can technically, we can double our business today trading wise and not have to put a single additional pennies worth of investment into what we do. It's the way we've built our business. It's cloud based. We've architected it in a particularly in a in a very carefully managed way so that we're we we we can enjoy that leverage, I suppose. Given that our clients are recurring and repeat, and we can often see with our existing client base where there's growth potential, our focus from a commercial, if you like, perspective of retaining and growing those existing clients, it it underpins everything we do. So our existing client base drives a huge percentage. The the vast majority underpins what our revenues are today and what our forecasts are in the future. So therefore, our focus on those areas of our existing clients are key and those that can grow are key. So we're very, very polarized into that. Within the sectors, which we're going to talk about in a minute, we know carrier billing and messaging,

26:13 we are experts in a number of core verticals.

26:16 And so therefore focusing on those sectors, we have masters in the media, charity, gaming, digital services. We've really we've really done understand those sectors and how to take these niche products into those sectors and what to say, what's the things that are gonna ensure those clients of ours get comfort that we know what we're talking about. So we we have become masters and we've got hero brands of those sectors, allowing us to not only look after those those big clients like the big media groups, the big charities, but also talk to new prospects with those credentials about what we can do for them. I've mentioned the fact that it's recurring revenue, which gives us which gives us a really good degree of certainty and and predictability about what's coming down the line. We have actually been through the last few years, which is, let's be frank, a bit of a roller coaster ride in terms of COVID and cost of living crisis.

27:14 Historically, and I've been in this industry for over twenty years and has been quite resilient to economic macroeconomic changes. And we feel pretty confident that we will maintain that level of resilience. To be frank, the crystal ball is murky, please, for every business, but we continue to see that our existing clients are holding up. We continue to see opportunities in the markets we're doing. And because of the spend and the performance spend, which is low level spend and often quite frivolous one off spends, they don't tend to be affected. And therefore, so we have real certainty around that. And because we've become really

28:04 well versed in The UK market, which is a good market for sensible motor operators with good regulation, with a great client prospects, we've got a template here that allows us to look at international markets. So going into those markets has been something that we've been exploring and gives us the ability to export our business. And I've already talked about the fact that our technology is repeat recurring about having a fifteen, sixteen man development team that are continually building products that all of our clients can benefit from. So combining that robustness and resilience that allows us to have a Lenny Henry stood on Red Nose Day on the BBC one going, please text and donate now. And we are getting tens of thousands of requests in a minute and being able to handle that in that environment, not impacting any of our other clients, ensuring we can feed in near real time all that data back to come really so they can go on there and say how much has been donated.

29:07 And innovating so that we can allow those clients to do more of that and in in more clever ways and more personalized ways to give consumers a better experience so that they feel they can do more of it is our core mantra of what we do.

29:25 I've talked about the sectors, I've touched upon a number of these. And I suppose in a big area when I'm looking at charity and gaming and media, transport and ticketing and digital, these are multi billion pound sectors in The UK alone, where they're multi billion pounds with the transactions going on. Charity alone, pounds 10,700,000,000 donated in The UK in 2021. What we're doing, we did just over £50,000,000 last year in

29:52 The UK market did about £50,000,000 I should say, in charity donations. You can see that you were just scratching the surface. If I look at what Cancer Research did, which is a client of us GBP $650,000,000 donated to Cancer Research last year, we only did a few million pounds for them. You know, can see real opportunity to do more and more for them as we grow our business. And that isn't just in The UK, extends beyond that. But also in each one of these sectors, there's many subverticals in media we're talking about,

30:25 not just what we do for the TV broadcast such as BBC and ITV and Channel five, but also and our radio clients, but also within that, there's pay per view, as I mentioned, the BT Sport thing. There's there's the way that Sky and their subscriptions and the way they have their sister brand now TV with a more bite sized buy what you want to. We can play a part in those areas. And I think there's real opportunity for us to do that. And so we will continue to explore those not just in The UK but beyond.

30:56 And as I talk about beyond, Michael has already mentioned the fact that we put the integrations in some areas and we've got really two pronged attack on how we do this, two tier approach to our international expansion. We mentioned the fact that we've integrated into our Austria and and Germany. That for us is a way we have a merchant that says, can you deliver us? What do you do in The UK, in Austria, or Germany? And the short answer is to do that, we need the connections to the mobile operators. We need to work out whether that's a good market for us to go. Easy market for us to penetrate. In those markets, the simplest way for us to do it, because it was one merchant or two or two merchants wanting that market, was to work with the local hero. It's quite common in our marketplace to do this.

31:48 FONIX have a whole range of customers that are businesses like FONIX internationally that use FONIX's connectivity to get access to the mobile operator landscape here. We're doing that in the likes of Austria and Germany, and that is an easy access way of us getting into that market quite quickly. It's a it's a matter of a couple of weeks development time, so nothing too untoward for us to do. And allows us to provide through a single connection back for our clients a way of going, yeah, you've got your connectivity to The UK. We've enabled Austria or Germany for you, away you go. That's a second tier strategy for us and one that we will continue to explore on a case by case basis. We want merchants that are going to deliver reasonable returns. But as we as I said, it's recurring and repeat revenues in the long term.

32:39 So for a couple of weeks development and additional administrative overhead as managed easily done through finance, we can do that. So away we go. The tier one approach, which is what we've done in Ireland, is where we have a client that we believe

32:59 can deliver more of a material, you know, strategy for us insofar as it's worth us probably looking to get direct connections with the mobile operators. It's worth us exploring that market beyond just putting in for a particular client, whereas we could actually go there and do what FONIX does in that market. And Ireland is a great example of that. We were asked to work with a local Irish radio broadcaster that was acquired by a UK broadcaster. We announced this a few months ago, which was Bauer in The UK that brought Premier Court in Ireland.

33:44 So it was enough for us to realize it would be worth us getting direct connections in the Irish market and giving Bauer in Ireland exactly the same experience as we can give them in The UK. So we've done that. We've put direct connections in and it's allowed us to go live there with other clients in The UK wanting Irish connectivity too. And obviously, Ireland is not the same size from a population basis as The UK, five, six million people, but gives us a fantastic template. We're live there. We're live at the end of June. We're trading there. And we've got a number of opportunities that we're working

34:26 through. And we we have a country manager there now based out of Dublin. There's a great template as to how we might export our business into other markets over the next two to three years on a case by case basis.

34:45 So obviously, we are nearing the I suppose almost starting to near the end of our H1 of FY 2023. As we've announced, we've had a trading positive trading start to the year. The Queen's death, as Michael mentioned, didn't mean that a lot of our major broadcast services paused for a for a few weeks, which was always going to be the case. That does naturally have an impact. If we're not running transactions, that's going to have an impact, but it was a moment in time and not something we're concerned about. We have a great list of existing clients that we are wholly focused on. We are incredibly proud of our track record that our our top 10 customers our average contract length for our top 10 customers is just over seven years.

35:40 And I can't think of a client that we've earned lost in the last since I started working in 2014. And certainly, our top customers, we are very focused on looking after those. And therefore, off that also looking to win new clients in each of those sectors. And we've got opportunities to win clients in those sectors, which we continue to work through. We will continue to invest in both development, product development and sales and marketing, because they're the two key areas which we can see will enable us to look after our existing clients and drive new business. And we hope through that, both in The UK and internationally, we will win new clients in those markets. And we have that pipeline of clients to go after. So we

36:29 are in very simple terms, a simple business that our secrets of our success about being sticking to our knitting, not being distracted with things that sound super shiny and might go off and change the world, but we believe in what we do. We're a small business that's highly focused and polarized and and understanding that. Always keeping a close eye on the areas we should potentially expand into, whether that's from a product perspective or a sector or territory perspective, and therefore keep a very close eye on that. And and we'll continue to innovate around those areas. So, I you know, on that basis, I I thank you rather go through the appendix and, potentially, it's probably at this time I can see a pile of questions coming in. Yes.

37:20 Rob, Michael, if I may just jump back in there and give you a moment. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted 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. Michael, Rob, we obviously did receive a number of presubmitted questions ahead of today's event. And as you can see in the q and a tab, we've also received a number of questions during the presentation itself as well. So thank you to all of those on the call for taking the time to submit their questions. And if I could just hand back to you to respond to those where it's appropriate to do so, and then I'll pick up from you at the end. Thank you.

38:07 No problems. What we'll do then is we will read the questions out, so that they address each question, and then I'm pretty comfortable with most of the questions you have in, so we can talk about all those. So the first, in no particular order, we're going from the top on how everyone bears with us. So there was a question about regulatory limits of spend. There is a to be clear, we are not regulated we're not licensed by the FCA. We back in the PSD2 regulation in 2017, I actually worked on the advisory panel with the treasury and our regulator, which is the Federal Trade Service Authority working alongside the FCA and we got excluded.

38:53 So we didn't have to have banking licenses to do what we do. The part of that exclusion was about capping what we can do in terms of charging consumers. Those caps are that a consumer can't spend more than £240 a month on their mobile phone bill and no single transaction can be more than £40. So that is why if you look at anything we do, there there those limits exist. If you think about it from a psychological basis, on a on a pure psychological basis, wanting a consumer to spend more than £240 per month on their mobile phone bill isn't particularly would fall out of kilter of what a consumer what consumer's average bill is, which is usually in the region of £30 a month.

39:44 So it the the services we provide are not for wandering into supermarkets, which is a little bit down the the question about whether we could go into things like retail. This what we provide aren't the services like wandering into supermarkets, doing your Tesco shop and putting on your mobile phone bill. Not unless we wanted to go and get regulated by the FCA. And to be frank, in my experience, I've seen a lot of people in our market think about those things. This is for lower transactional value. So sub £40 transactions, digital, largely digital or ticketing impulsive and frictionless services where you need an alternative payment and they're highly effective. So that's why we're quite calm about what we're doing and and and and the restrictions we have in place. And it's also why you see big swings of balance cash balances on our balance sheet because the cash flows through us. So so you see our underlying cash is is the important metric to look at. I'll take the next question. So there's a question. Is there a risk that mobile phone companies cannot cope or that it's not in their interest to allow such huge flows of cash through their accounts.

40:58 I guess, because people are worried that it impacts the cash flow. Reality is actually so we operate a negative working capital cycle where we don't pay out until we pay by the operators. That's what as Rob says, that's why we hold huge amounts of cash on our balance sheet. The operators effectively do the same thing. They they don't pay out to us before they receive that money from a merchant. So it's actually cash generative to an operator to run carrier, really. I don't think they necessarily rely on that cash, but that is cash positive to them. The merchant effectively is the person who's losing out here. So the merchant is having to wait up to sixty days to get paid for a transaction. That that and that understand that that's not necessarily competitive with with other forms of of other payment method, but the the benefits outweigh the costs of running carrier billing, and most of our merchants have kind of kind of afford that cash flow. So it's not a huge issue for them, but it doesn't impact us or the operator has such significant strings of cash.

41:50 That'll be the answer that question. Yeah. And there's a question around obviously competition really or threats to our business around the business looks like it's easy. It's a huge success story that doesn't need a huge amount of cash to grow or invest in. Are we attractive to a creditor or a bigger payments company? Well, I would say we do sit alongside being a payments business with kind of a bit of a marcoms company. We're a tech business. We are a media services company, I suppose. So there are many areas that we sort of touch upon in terms of competitive concerns.

42:37 You know, could someone take us out like a Google coming to market, which we get asked a lot about that question. You know, we are niche and we there is a lot of complexity in integrating with mobile operators. We are market experts. I mean, I'm x o two. My CTO is XT mobile nine zero two. There is tens of years worth of experience. It is incredibly complicated behind the scenes. And it's it it I would say it's very hard to do what we do, albeit it seems very easy on the outset. And building a business that is as effective as we are with the efficiency we've got is an art that we've mastered over being in being spot for twenty years. So that's that's basically, you know, where we're at. You know, we are only really focused on delivering our numbers and growing our business, combining smart investments and making income.

43:41 You know, many of the management team and shareholders, we've believed in this even when we were a private company, and we will continue to focus on that strategy as simple as it sounds running a good old fashioned business. I'll take the next question. So it's would you consider acquisitions to drive growth and what would you look for? So I'll kind of answer that in two parts. Firstly, the international expansion is kind of long term strategy for us. So at the moment, we've talked about Ireland, but the next couple of years are really going to be underpinned by growth in kind of opportunities we're seeing in The UK already, although we do always look at international opportunities at the same time. But in the future, it's likely the international markets will become a more important one area for us. It's natural that that will happen as we grow as a business. I think in that case, we're more likely to be considering acquisition opportunities where it allows us to effectively accelerate into market, to get connectivity with an operator, not necessarily to to take customers away from our from our business. So I think small bolt ons that give us additional reach into new markets is probably the most likely time that we might consider acquisitions. But at the moment, we've no other acquisitions on the radar. It's not really a core strategy for us. We basically look for we will look at it where there's, as I said, where there's an opportunity to accelerate something we're already doing.

45:00 So the next one is broken to a few questions. So I'll cover a couple of these Michael Shouts if you want. The first part of this was about our ability to be our operational scale. I think we've touched on this already, you know, 80% of our operating expenses are our staff costs. We've built a technology platform that is highly scalable and, you know, we'll continue to do that. We we believe that we can do that pretty effectively. There was a question around take rates and talking about charities and what do we take from charities. Do want ask that? Yeah. Yeah. So someone suggested that our take rate is about 5%. So I guess they mean by take rate, mean the share of a consumer transaction. It's actually worth pointing out here that the majority of the take rate, which you're not seeing in that part is the mobile operator.

45:50 So take rate can can be quite a bit higher to the merchant in terms of us and the operators who are taking a combined share of quite a significant combined share of a transaction. That's not unknown in our market. That's and as I said, the operator takes the vast majority of it. But the reality is that it's so effective as a payment method that all our merchants accept that. And this a this is a and the segments that we go after. So you may see competitors in the landscape that have lower take rates than us that are tending to go very, very big international merchants, often selling digital subscriptions, like Amazon and Apple, for example. They tend to have a much smaller take rate than us. Our understanding of that is that often those brands are negotiating directly with the operators rather rather than by the the technology provider. Whereas in our case, we own the connectivity to city operator.

46:41 We buy wholesale from those operators. We get this we get margin benefit where we're able to grow the the size of the pie where where we we effectively have more and more clients. We get better rates. So we have some alternatives to command better rates than them. And as a as a an aggregate payment method, as I it's highly effective. If you look, our take rates actually improved over time, and we don't we we think the rates are very sustainable. We don't really see ourselves as competing with traditional payment methods such as Apple or such as sorry. Not such as credit card or increasing Apple Pay or Google Pay because our value proposition is that we are helping merchants merchants convert convert those transactions that are otherwise failing. We're not competing with other payment methods, and that's always the picture we give to to merchants.

47:27 I think it's worth obviously make taking analogies about take rate versus the TPV and revenue. We have managed services in there. We've got messaging in there. They don't contribute to things like our transactional value. They are, you know, if you like communication licenses and messaging, which is which which which are different business line. The one there was one question about charity, which is a great example. We don't take any money on the transaction on charity. Our our business model tends to be around the campaign. So we would say to a charity, what do you want to do? And they'd go, we're gonna run a big telephone on this night and we need you to give us this much support. We go, okay. Okay. We'll charge you a fee for that. We'll give you all the donation money. So there isn't a a direct correlation between the amounts raised in charity and the take rate.

48:20 So so we did very much carve out. I think that that leads on to one of the other questions which is about client concentration. So someone's asked about client concentration. Can we expand on more than just talking about top two customers and talk about top 10 customers? So actually, there's two metrics that we release as a business, and that is that we have two customers that represent more than 10% of our our revenue. So two merchants represent more than 10%. And our top 10 customers represent about 85% of our gross profit. So there's no denying that customer concentration is an is an issue for our business, not that we're worried about it, but customer contract concentration, it does exist. We know there's no getting away from it. But we have we have we've never really lost we've never lost a client. We're big certainly a significant client other than ones the smaller ones that we've asked to to or we've pushed out the business by putting up their fees. So we have great confidence confidence in the longevity of our customers.

49:20 And and our top 10 customers actually changes from period to period. So it's not the the top 10 this year won't be the same as next year. So it's not like we're relying on the same. Yeah. On the year four. And I think also in terms of sensitivities about this because we are charging our clients, the mobile operator plus the FONIX margin and everything we do, our customers don't actually know the take the FONIX take. So we naturally need to be very cautious about how we comment on that. So I think Michael's covered that really well. Yeah. You there's a question around messaging and spoof messaging and cyber risk, etcetera. It's it's quite detailed technical question, that one. There is in in the world of messaging, there is a lot of dark arts where you can, as you've said, spoof and and and use gray roots, etcetera.

50:17 To be clear, FONIX is directly connected to mobile operators, and we use those direct mobile operator connections, we are a high value, high quality messaging provider. And on that and you there is plenty of alternative routes for stuff in the world of messaging. It's not of interest to us because of the nature of the clients we've got. We are providing high value propositions. If that means that we're more expensive, so be it, but we rely wholly on quality. Okay. The next couple of minutes too, I'm just quickly physically. I think I think once someone's were in TTP, I think they mean TPB. So that's about take rate again. So we got to the moment about M and A we've answered.

51:06 And next question, you mentioned that you have expanded into Germany by a third party. Is this a competitor? How are you differentiated against incumbents in Europe? Do want to answer that one? Absolutely. So yes, there is it's a good question. So as I said, it's quite natural that in our market that people use each other. Getting connectivity to a mobile operator is tough in certain markets and it takes time. I've mentioned our tier one strategy of Ireland, which is which we win. And that was a good it was a six month roadshow of us ensuring that we gave credibility to those mobile operators. We were working direct connections. It's something we do as a business to look for direct connectivity in the right markets. We interestingly enough, the business we've used in Germany and Austria use us in The UK. So it's very much whilst it's not reciprocal arrangements, we use each other for the markets we're directly connected in and that's quite common.

52:06 And therefore, we've got mutual interest in keeping each other in in good shape. So so that's something that we're not really worried about. It's natural that should we see Germany or any market we're talking where we are indirectly connected as a really viable option for us to go directly into, we would potentially seek that. And that is also a common practice in our market. And so whether that is feasible or not is not a case by case basis. There's something I'm not worried about. It's something we do. As the next question is how we stayed resilient during a recession. I think that's probably more how our merchants stayed resilient. So as our own business, we say we're 40 people, highly operationally leveraged and we're very, very profitable. So we have complete confidence in the stability of our own business. In terms of our our merchants, this sector has been around for quite some time. So it's kind of since our bigger segments such as media have been around for maybe to to kind of twenty odd years, and they've some of those have spanned into previous recessions.

53:12 Generally speaking, I think our view as a management team is that the segments that we go off tend to be quite resilient during recession. Undoubtedly, perhaps there will be some impact from recession on consumers and consumer spend, and maybe some of that will flow through into increased bad debt and small and kind of smaller small changes for individual merchants. But at the moment, we're not really seeing any significant impact from on our merchants from the recession, and we feel quite confident about the robustness robustness of those businesses and their own underlying services that they're selling. So we don't feel we have a huge exposure to a big downturn in the economy. So I've got another question on earning interest earnings.

53:58 Are you now earning material levels of interest on large cash balances? We haven't been up until relatively recently earning significant levels of interest because it takes a while for the banking partners to catch up. But certainly, it's become a much more competitive landscape and we do sit on significant amounts of cash all the time. So that is something that will come through naturally in the next towards probably in second half of this financial year. I think it's worth stating there that we don't sit on client monies for very long. Yeah. The only time we're actually settled the money is because the mobile operators pay us at different times. So whilst the cash balances at moments in time are high, they tend to be coming in and out pretty quickly. Yeah. So one of the things that we must always ensure is that cash where where it sits needs to go straight out.

54:50 So those balances can be high, but they also can be widely varied. We would naturally look to make sure it's most appropriate place at any given time. Yeah. Yeah. That's right. Capitalizing of IT. There's a question about how much So we capitalize we capitalize 60% of our development expenditure. So we have now and we're at the current time, we have about 17 people in our development team out of 40 in the business. We capitalize about 60% of that cost, and we amortize in a straight line basis over three years. There's quite a lot going on in our balance sheet, but if you could see through all the kind of cash and working capital held on behalf of merchants, it's a very, very clean balance sheet. We have actually quite a limited amount of capitalized R and D sitting on the balance sheet because we amortize it so quickly and on a straight line basis.

55:43 Hopefully, that's the to that question. Yeah. Rob, Michael, if I may just jump back in there, thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors this afternoon. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended for you to review and then add any additional responses where it's appropriate to do so. Rob, perhaps before redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, If I could please just ask you for a few closing comments to wrap up with, that would be great. Of course. I mean, I'm sure it's really summarizing what we've said in the last hour. I think as a business, we we've always been so focused on delivering high quality business, recurring and repeat revenues.

56:30 We've spent the last ten years building real credibility in our markets. We've got mobile operators looking at us as sort of a standout player in The UK as how we do what we do. That's why we've built such a great reputation with both the mobile operators on the supply side and the clients on a client side basis. Really proud. The reason one of the large reasons why we're looking internationally is our reputation with our UK client base. They're asking us to do this abroad. And so therefore, there is a real opportunity over time to do that. I think time is key. If there's any challenges in the world, things take time. I think everybody experiences that.

57:16 But we've got a brilliant underlying client base. I talk about predictability and recurring and repeat revenues. We're a small business, but we're highly focused on delivering against those and and delivering that sustainability, which is something we're all highly invested into. So for all those shareholders, we appreciate that. And and and, you know, we we look forward to what the future holds. Rob, that's great. And, Michael, as well, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This may 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 FONIX Mobile PLC, we would like to thank you for attending today's presentation.

58:05 That now concludes today's session. So good afternoon to you all. Thank you very much.