Oxford Metrics (LSE:OMG) — Preliminary Results

0:02 Good morning, ladies and gentlemen, and welcome to the Oxford Metrics PLC Preliminary Results Investor Presentation. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to CEO, Imogen Morehouse. Good morning. Good morning, everybody, and thank you for taking the time to join us today. And with me is David, our CFO, who I'm sure you know well.

0:47 But as you probably don't know me, some of you may, I thought I'd just give a small short background of my history with OXFORD METRICS. I joined Vicon Motion Systems in January 2001, three months before the IPO, and worked in technical sales predominantly in the life sciences market, traveling extensively in Japan, China, Hong Kong, Korea, Australia, New Zealand for a number of years, and then moved through various roles working with Nick Bolton, the previous CEO for eighteen years, encapsulating production manager, ops manager, managing director, COO, and then in 2012, operational CEO of Viacom. So I just want to reassure everyone that the five year plan that was announced in October 2021 was heavily involved in agreeing those strategies with Nick and David and equally in the background involved in some of the m and a that were activity that we'll be covering today.

1:46 So that's a plotted history of my background and then moving into the joint PLC Vicon role as of the first of October this year. So in the presentation today, we'll be covering David will cover the financial highlights of our year and then back to me to cover some of the progress we've made on our strategic plan, the opportunities that we see for the growth and executing on the five year plan, and then somewhat something on on the outlook for the twenty four year, and then opening it up for q and a. So without further ado, I'll hand over to David to take you through the financial highlights. David?

2:24 Thank you, OMG. I would also like to add my welcome to this this morning's session. Firstly, the headlines moving from top left to right. Overall revenues were up 53.5% year on year at 44,200,000. Our COGS and FX leases underlying growth was near 52.4%. So that's similar. As stated in the preliminary statement, adjusted for the GBP 3,500,000 of orders carried over from FY 'twenty two, the underlying growth year on year was around 26%. We are also reporting an order book of 500,000 compared with GBP 24,000,000 last year, which reflects a normalization of customer purchasing behavior. A headline profit after tax for continuing operations is reported at GBP 5,700,000 compared with a profit of GBP 3,400,000 a year ago.

3:16 Moving to the second row. On an adjusted PBT basis, which excludes noncash related items and exceptional costs, a profit of £6,500,000 is reported compared with £2,600,000 last year. A little later, I will explain the bridge between the two years in some more detail and include some insight into the first half, second half split. This all translated into an adjusted EPS of 4.57p per share compared with 2.55p a year ago. The headline cash position as of the 09/30/2023 was 64,800,000, so slightly down due to the deployment of cash for inventory purposes and the payment of the final dividend of 3,250,000. Unsurprisingly, investors often ask why we what we plan to do with it. Well, the short answer is we intend to deploy in M and A.

4:09 To explain, it's worth rewinding a year or so. The cash is there as a result of the yacht disposal, and following this, we went fishing, so to speak, in our own pond looking for opportunities in our immediate space. Whilst there may be opportunity here, it soon became apparent that we look elsewhere since the number of opportunities were limited. Imaging suggested we consider engineering where our core technology, in other words, science, was being used in adjacent markets, which led us to explore businesses involved in smart manufacturing. In doing so, we identified IVS along with many other potential opportunities. The acquisition of IVS was concluded last month, which is immediately earnings enhancing.

4:56 Extending the fishing analogy a little further, we are no longer fishing in a pond. We are now fishing in an ocean where there are many more opportunities. And so the M and A pipeline today features smart manufacturing with the intention of building out our presence in this marketplace. Given the potential m and a opportunities we currently have, the cash will remain on the balance sheet. That said, the board are and will continue to keep this under review. So if at some point in the future, we feel that m and a opportunities does not warrant retaining the cash, the board will, at that point, make the call in terms of returning cash to shareholders. So for now, the cash will stay where it is.

5:39 Moving to the third row, and I think I may have just dropped out. Just just it's just your camera, David. Do carry on, and we'll bring you back up in a moment. Okay. So moving to the third row, a final dividend of GBP 2.75 per share is proposed, representing a 10% increase over last year. Viacom has invested GBP 2,100,000 in new IP during the year, representing around 30% of total r and d expenditure. Capitalized expenditure was down from 2,800,000 last year, which included the high end Valkyrie camera. The inventory position at 7,200,000 was up from 4,500,000 last year. Given the supply chain challenges over the past few years, inventory of components have around our ability to deliver on the order book.

6:32 And in doing so, also provides us with a hedge against any other unforeseen disruption. Going forward, the business is now bigger, so inventory is likely to be higher than it was in the past, but we will be endeavoring to reduce inventory during the course of the next financial year to a more optimal level.

6:52 I will now take a look at the f y twenty three trading performance in some detail, starting with revenues, which I'll look at in three ways. Firstly, historic. The record revenues reported clearly stand out, but arguably, the presentation should perhaps be smooth given the three and a half million of orders carried over into f y twenty three. That said, the overall trajectory is clear. Over the past ten years, what you see here with 2223 smoothed out is equivalent to a 9% CAGR driven by the wider adoption of our technology across all markets and the introduction of a broader range of camera solutions. This is what we believe is is the background growth before getting into the exciting opportunities that lay ahead.

7:38 Did you want me to reactivate my camera this end, investor me? You you can, David, but we'll have to just momentarily lose you. If you're happy, I'll refresh your browser now. Yeah. Thank you. Just give me one second, ladies and gentlemen. I'm just gonna bring David back in, and then the camera will be visible.

7:59 If you just press allow there, David, we should be able to bring up both your microphone and your camera. Appreciate your patience. Thank you. There we go. Okay. Continue to webinar. Right. Yeah. Right. Well, you can see my office at home now. Anyway, we'll carry on. So looking at revenues second way geographically

8:25 So the first thing to say is that we saw growth across all our geographic main markets and the mix changed slightly given particularly strong growth in North America and in Asia Pacific. In general terms, The US benefited from the largest deal in engineering, which we alluded to at the last interim, so grew by 61%. And Asia Pacific continued to benefit from buoyant entertainment market, reporting a 74.8% improvement year on year. The third take on revenue analysis is by market segment. So on the left is the reported performance and on the right, the order book. The engineering segment was up 56% driven in part by the part shipment of the large order I just mentioned. And other notable deals included ITESM, a Monterrey based university, who purchased a Valkyrie system for drone tracking.

9:15 Another university in Arizona purchased a Valkyrie system to track crazy flying drones, and Manitoba purchased a large Valkyrie system to track UAVs in the air and robots on the ground as they develop solutions for the agricultural marketplace. In entertainment, reported revenues were up 82%. The market remains buoyant and accounts for nearly half of revenues and the order book. Note notable deals this year included Cover Japan who installed four motion capture stages to allow VTubers to capture content for their channels, a trend we mentioned this time last year. And Double Negative's partnership with Dimension Studio continued with the purchase of a virtual production stage, for the use, for content creation.

10:01 Life life sciences revenues were up 40% year on year, including a strong showing in the second half. Notable deals here included the Hospital Israelite Albert Einstein, bit of a mouthful that one, now the largest gate lab in Brazil. The University of Bordova in Italy installed a new system for high speed analysis with the Italian Paralympic team. And elsewhere, in Australia, Victoria University continued to provide gold standard testing for all of FIFA's research using Valkyrie sixteen and twenty six systems. And in The US, the University of Rochester Medical Center installed multiple Valkyrie laboratories for spine and other biomedical research. Location based entertainment reported revenues of 2,500,000, so 5% down compared to last year, but this is not reflective of the underlying potential.

10:50 As we have said before, this market has great promise, but the reality is our revenue growth is reliant on the pace of customer rollout and ultimately the consumer acceptance of this exciting technology. And there is evidence this is happening. You can see for yourself by visiting sandboxvr.com. They recently announced their forty fifth center. And at immersivegamebox.com, you can see they have 30 more, all enabled by Viacom technology. Furthermore, immersive also announced in October exciting news of their multimillion pound and multi territory collaboration agreement with Merlin Entertainment. Their press release states there is a huge potential for a significant rollout across the Merlin estate over the coming years, starting with Sydney and Oberhausen, Germany by the end of this year.

11:40 Each site hosts eight freestanding game boxes, so the opportunity for us of this collaboration is significant over the coming years. So So continue to watch this space. Finally, turning to the order book. The order intake this year was 31,700,000, which compared with 46,900,000 in f y twenty two. Post pandemic customer buying behavior change, which definitely saw customers placing orders in advance to get in the queue. So it is fair to at least average the order intake over the past two years and arguably weighted slightly in favor of this year. Accepting this as a reasonable approximation of underlying order intake, the rate of order intake sits well with future expectations.

12:26 The 11,500,000 now represents a more acceptable level for our customers in terms of lead time, and we will be seeking to maintain the order book at around this level in broad terms going forward. Together with the current sales pipeline opportunities, the business has visibility on well over half of next year's revenue expectations, a strong position that was previously unheard of, prior to the pandemic. So turning to adjusted PBT. The following bridge provides the opportunity to discuss how we achieve the GBP 6,500,000. So on the left is the GBP 2,600,000 from last year. And as we move to the right, the first item is FX. As it turned out, the overall impact of this year on year was negligible, so I will move on.

13:11 We generated a great deal more gross margin in absolute terms by dint of more revenues, but we have seen some gross margin erosion due to some pressure. Year on year, this reduced gross margin by around 2.5 points, abating to around GBP 1,100,000 of gross margin. As we've indicated in the preliminary statement, the supply chain situation has normalized, which means that inventory is gradually being replaced at a lower cost. And together with an increase in list prices on certain products, we expect next year's gross margin to be restored to near historic normals. From a cost base perspective, there was an increase of around GBP 6,000,000, which was due to a variety of reasons.

13:57 Firstly, the GBP 2,800,000 investment previously announced, which was included in the five year plan, is now fully baked in. Much of this was R and D and has been expensed this year to relate to the research phase of the Markerless technology, which we can now finally talk about having unveiled it publicly this year. And there will be a lot more on Markerless from imaging in a few moments. The business more generally has grown, and there's been operational ads during the year to strengthen the business. And there has been some cost of living related increases, which included a salary review favoring lower paid employees in the business. And finally, given the overall performance this year, this did give rise to an increase in variable incentives, meaning commissions and bonuses.

14:47 And the overall apparent increase was a little second half weighted. However, adjusting for costs incurred in the second half that are in effect related to the full year, the split of profitability between the two halves is in fact relatively even. So continuing to the right, R and D capitalization was GBP 700,000 lower and amortization was GBP 600,000 higher, all largely due to Valkyrie amortization following a high year of capitalization last year. And the final piece of the reconciliation is interest received, which adds 1,600,000 to complete the bridge to the reported adjusted PBT of 6,500,000. So in summary, for me, a record revenue performance of 44,200,000 delivered an adjusted profit of 6,500,000, and we have an order book of 11 and a half, which coupled with current sales pipeline means we already have visibility on over half of next year's expected revenues.

15:47 In light of this performance, the Board are recommending a final dividend of 2.75p per share. And the strong balance sheet underpinned by the £64,800,000 in cash means the business is in good shape and well prepared for exciting times ahead. Back to you. Thank you, David. Okay. So let's move to the strategic progress area of the presentation. Firstly, just to recap of the company that delivered that 44,200,000 and what Micron actually does. So the the five year plan announced in October 2021 is to return two and a half times revenue with an adjusted profit for tax of 15% margin with an organic and inorganic investment.

16:38 So at the time that the plan was announced, Yotto was still within the group. Viacom's contribution to that was the investment that was sought by myself to develop the Markless technology, the 2,800,000. So that was my sort of contribution to that as the organic play, but also identifying companies in the pond that David's talked about that we may wish to, to look at in terms of competitors, technical partners, third party item manufacturers, and so forth. So just to restate, that is where we would like to exit 2026, and there'll be a little bit more granularity in this presentation as to how we intend to do this.

17:27 So firstly, Viacom, a thirty nine year old business. Play the could you please play the video? Vicon is in three d motion capture of humans, animals, and objects. We own all our IP. It's all in house developed, including the cameras, embedded software software, and analysis of that software. We serve four main markets in order of history. Life sciences was the bedrock market for the business. In the mid nineties, the visual effects industry started to adopt motion capture in terms of CG, computer graphics. Then in the early two thousands, the engineering market came along where in a lot of cases, the markers are being attached to objects, not to people. And then finally, the location based entertainment market, which started to emerge in twenty seventeen, twenty eighteen.

18:20 Next slide, please. So could you if we could play the video here. This is just a snapshot of some of the customers that use FiCon technology. This is the LeBron James Center in at Nike in The United States. At the time, our largest life sciences deal we've ever done as a business in 2019. The entire center is outfitted with Vicon Tech for athlete rehab and performance, sports shoe, and apparel design and testing. Moving to a pandemic grown industry in visual effects, which was in camera visual effects for virtual production. Nobody could travel, so you needed to bring the set to the lot. But in order to make the the production, you needed to be able to track the hero broadcast camera and bring all of this technology together. So the Vicon tech is looking at the crown sitting on top of that camera.

19:21 In games, triple a games, Vicon enjoys the top 20 companies in the world as customers. This is Ubisoft in Canada shooting for Assassin's Creed. Lots of people in dark suits wearing markers running around in front of cameras. This is NASA, the ingenuity helicopter design and test with the Mars Rover as well. Again, you can see here markers attached to objects, not to people. So this is being used to turn an object from to become autonomous where you need to train the control systems so it become untethered as it is in this design phase to the Ingenuity helicopter on Mars. And location based entertainment, This is the game box that if you were at the Capital Markets Day in October 2021, you would have been in these game boxes having fun with with your colleagues and friends.

20:13 So that's the three four main markets for Vicon. Next slide, please. And here's a snapshot of some of the customers we can talk to you about from the Vicon perspective. But moving on to the more exciting growth perspectives for Vicon. David explained there's a massive growth in market based tech, and that's around 9%. But in order for Vicon to have to address the organic growth play of OXFORD METRICS twenty twenty one to twenty six strategy, we need to break out of that CAGR. So this is the investment in the markerless technology and why this is exciting. So markerless technology and markerless tracking is emerging as an adjacent tracker to marker based. It is not competitive in terms of the way that we feel.

21:10 It is an it is another tracking modality that is an add to marker based. Markerless tracking is at its beginnings. It's in its beginnings. Its precision and accuracy are nowhere near that of marker based. But in certain markets and in certain use cases, Markerless is in a good enough state to be used. So what you see here is the CTO of Vicon, Mark Finch, being tracked without any special black suit or wearing any markers at all on a show floor in August 2023 at SIGGRAPH, which is a computer graphic show in Los Angeles. And behind him is his Ken doll avatar, which, you know, we just happened to have at the same time as the movie came out. And he's talking the audience through the Markerless technology and how it works.

22:02 And we spent a long time working on this technology in terms of r and d. We started actually four years ago with a very small seed team prior to the larger investment from OXFORD METRICS. And the reason we needed that investment is the people in the brains that make this type of technology are not the same disciplines as those that make marker based. This is a machine learning problem, an AI problem to solve, and it's a different discipline. So we've had to hire an entire, team to come in to to accelerate the development of this. The way to think about the machine learning aspects of this is this is a system that needs to be trained to understand what it's looking at. In a marker based system, you simply put the markers on, tell the system that the marker is on the left shoulder, and it knows that's the left shoulder. But how does this system know where Mark's left shoulder is if there's no marker? Well, it needs to understand I'm looking at a human being stood up moving their arms about.

23:09 So you train it. The way to think about this training, most people now are quite familiar with chat GPT and large language models, which uses the Internet and text to train itself. What we are building at Vicon is a large vision model. So we're ingesting data, both real and synthetic data, but this is data of movement, of vision so that we can grow and and train our system to understand more movements, types of movements, but also to improve the accuracy of the underlying modeling and solving of this. But this is a proprietary model. This is not an open source model as LLMs tend to be. So we are we are building that, and that requires us to work very, very closely with our customers, as well as our r and d team.

24:01 The way that we will, gain this data and gain and move forward with this is via a cloud infrastructure. This will this system is a training system, so it needs to learn, get better, and push the improvements back out to our customer base, and that will be done by the cloud. As soon as there's a cloud infrastructure in place, then we have the opportunity to discuss alternate commercial models with our client base. Viacom, to this point, is a very CapEx related market, but we feel that there is a a play in certain markets and certain use cases for an Opex subscription style model of the software elements of this solution to improve the revenue visibility and quality of OXFORD METRICS software.

24:50 We're very excited about this. And behind Mark

24:55 was a location based entertainment experience with that we implemented with our partner Dreamscape Immersive. What we wanted to test here was does our Markerless technology, is it good enough for the LBE experience? And the reason we that Dreamscape wanted to move to Markless is during the pandemic, the economic model of the previous tech stack they were using, which involved markers, proved not to be scalable on the the size and scale that they wish to do. So we actually worked with Dreamscape, quite a lot during, COVID to develop this, solution for specifically for their LBE experience. So when we went to the show, we had two tests.

25:41 Mark walking around being tracked as a three d avatar perhaps in a visual effects environment, and then behind him, the Dreamscape pod putting six people through at a time in their normal clothes, just wearing a headset, and enjoying the Clockwork Forest, experience. And I'm pleased to say that in all cases, we we exceeded our expectation on our KPIs putting over 250 people through the experience without with only one person who didn't calibrate because they were wearing some interesting clothes. So what we did was we just picked the skirt up a bit so that our calibration could see the feet and off we went. It was all fine. She was wearing a hoodie and a skirt down to the floor, which we hadn't considered was a fashion statement and haven't trained our solution to be able to see that. So it didn't see it until we showed the feet. So all good there.

26:35 We've got the opportunity here with Demarkless based to sell to our existing client base. We have 10,000 customers, and we know very well that in a lot of cases, they will they will buy the technique and add it to their marker based solution. So we have the sales, marketing, and distribution power to go after that that customer base very, very simply. And because we we we got such a strong positive market reaction and technically everything worked very well at SIGGRAPH, we have now a fairly aggressive timeline to commercialize Markalus within fiscal year twenty four with some modest revenue expectations, but as a real growth driver for fiscal year twenty five. So now I'd like the people that went through the Dreamscape experience to tell you what they thought. These are industry professional mocap people. They understand good tracking, not consumer levels.

27:32 So what we did was we filmed quite a few people coming out of the Dreamscape experience and asked them what they thought. So if you could play the next video with sound, then these guys can hear that. One of the things that we have to go through doing motion capture is we have to take all the time to put on, like, all the marker suits and it's a long process. So I think both from the experience aspect and from the technical aspect is is very promising, and I look forward to whatever development Vicon is is going to bring to us. The experience was great. I was really impressed to see six people all in the stage all at the same time, especially using markerless.

28:19 We have a Vicon system at my studio, and we've been hearing a lot of rumors about Vicon developing their own markerless system. And it was awesome to get really one of the first chances to see it and test it myself. I think the they did a great job in the narrative of trying to utilize such a small space to feel make you feel like you have gone a great distance. Utilizing the trick of shrinking you and making the place feel more expansive, I think, was a great use of the space. It was a really cool experience. Like, it it it feels like this is where, like, experiences are headed. I've been coming to SIGGRAPH on and off since 1996.

28:54 I I was here almost every single SIGGRAPH in two thousands, and this is the best thing I've ever seen at SIGGRAPH, hands down, ever. It's an incredible experience.

29:18 Okay. Next slide, please. Great. Thanks. So now I'd like to turn to our recent acquisition, Industrial Vision Systems. As David explained, we were looking within the Vicon area, but, unfortunately, there was nothing in that area that was of of ultimately we we could get over the line or or past our our metrics in terms of acquisition. So looking at IVS, this is in the smart manufacturing. IVS use cameras. They use embedded software and software to solve a different vision problem to Vicon. That's the way to think about it in a kind of an adjacent market in engineering and smart manufacturing. The way to think about the previous customer slide of Vicon's with IBS is if we had a mutual customer, the Vicon system would be in the r and d lab, and the IVS systems would be out on the shop floor on the production lines. So what IVS do is they use smart vision, machine learning, and deep learning to inspect

30:21 parts that are being manufactured. And they do that in markets that are highly regulated that require high levels of compliance, such as pharmaceuticals, medical devices, contact lens inspection, automotive, and so forth. The picture that you see there is a a syringe inspection system. The arm pulls the the the syringes into the drum, which spins. And the red cameras that you can see are the IVS cameras, which are taking and inspecting those syringes for manufacturing defects, floors, cracks, debris, and dirt. Because, obviously, in these sort of environments, you must have a 100% right first time. Those sort of fault parts cannot leave the factory. And you can see some of the marquee names of customers that they have in the in that slide too. I'd like to highlight in in Johnson and Johnson, particularly in contact lens inspection.

31:20 Contact lens is a a very, very large market indeed. And in fact, Johnson and Johnson's largest market is in Japan. The latest IVS machine is going to be shipped out to to Japan. And, it's used for cosmetic lens inspection, not for prescription, because of the change in the color of the eyes for cosmetic reasons, which is kind of interesting. Next slide, please, in the video would be great. So I always like to show, not tell. This is an automotive inspection cell, using IVS technology, but this is a dimensional tolerancing question and manufacturing defects. So the two IVS cameras you can see are on the robot arms.

32:06 They're inspecting the device or the the the part, and they're taking multiple images and comparing those images against the CAD, the computer aided design, library photos, shots, and other, devices to other data sources to ensure that this part is compliant. I want to go back to the the the the markets that they're kind of serving in terms of their size at this point as well as this video plays through. Contact lens market was valued at 14,600,000,000 in 2021 and has a CAGR of 5.5%. Medical devices, syringes, 1,330,000,000 with a CAGR of 8.8. Paracetamol packaging of 9,800,000,000 market. And then total knee replacement parts, if you recall the previous slide, there was a striker.

32:55 It was on there, a very large orthopedic company. IVS make a dimension tolerancing inspection system for them for parts used in total knee replacement, which is one of the largest growing operations worldwide with over a million being conducted in The United States alone. Next slide, please.

33:19 Okay. So IVS are, conducting themselves in some very, very, very large market sizes compared to perhaps motion capture. And we we know very well that by furthering execution, commercially of them rather than their products, which are excellent, we can, we can grow them very successfully. Next slide, please. We we do we do have the video uploaded if you wish to play that. It's Okay. Yeah. Great. Be happy to have the video. I can then give you a little bit of a technology play on this one as well. So this is a little bit of a technology of the future for IVS. The the this is the the advanced manufacturing center, and it's a factories of the future concept of a technician working collaboratively with a robot, which is quite topical.

34:12 But equally, this guy is wearing a pair of HoloLens glasses, which are instructing him of what to do. Pick, place, assemble, where to put the part, where to to, put it onto the bench, and then the bench is also checking he's done it correctly. So it's a complete closed loop. And he's working with a a robot here, and this robot, you know, he has to be safe working with that robot. So it's very important that that he is. And I can imagine a Vicon Markler system, around this bench and making sure that the robot arm and the human arm never come into conflict, because we know who would win in that situation. This is a real, you know, lower lowering the bar to entry for technician training, factors of the future, smart workbench concept, which, we we think is a a very exciting potential growth area for for the part in smart manufacturing.

35:09 Okay. Great. Thanks. Next slide, please. Okay. I'll take back over. So this is really how we we intend to execute on the twenty sixth plan. We will hunt and farm better in our market based tech stack, that's the BiCom business as you know it today, by focusing on sales, marketing, and product activities. We are taking as many of the principles, modern principles of of SaaS businesses such as customer success, sales enablement, lead gen, lead nurturing, and applying those to Vicon. As if we consider the the the SAM system or solution addressable market for Vicon is probably a 120 to a 150,000,000. We still got a lot to go in in terms of growing that from the 44 that we enjoyed in the previous year.

35:59 We want to commercialize the market less opportunities. You can see we can sell we sell that to most of our existing customers. We can reinvigorate the Dreamscape partnership and others with the Markless tech stack. And then equally over over time, talk to use cases where markers could never have been worn, which has always been a a barrier in certain in certain market conditions. And then getting slightly further down the line as the software becomes more mature, the possibility of detaching the software from the Vicon hardware and deploying it into existing video infrastructures, perhaps in shopping malls, airports, hospitals, care homes, etcetera. Then we will execute on the smart manufacturing. It makes sense. We bought IVS to build build in and around that.

36:48 And there are more companies out there that we're having active conversations within that space and equally develop them by, commercial focus, for them. They've been slightly less commercially focused in the past, but with OXFORD METRICS to support them, we will develop their sales sales activities as a matter of urgency. And then in PowerUp, that's a kind of slightly we'll consider other things that help accelerate the other three. It's not a desperate, strategy play. It needs to make sense in terms of synergies. It needs to pull in, but perhaps an acquisition that maybe doesn't currently meet our current metrics, and David and I would have a long conversation about that. But if there was a path to profitability, but it was something, you know, that we we felt it was the right thing to do, then we would consider it. So what I'm really saying there is we're open to other opportunities, and we'll talk about some of the potential targets in that in a couple of slides time.

37:45 But we must grow this group in a synergistic way. We mustn't overload it with costs where we don't need to. We need to grow and execute and scale sensibly, keeping a firm eye on that profit line. So the smart manufacturing, we wanna keep this sense, analyze, apply, philosophy behind what we're looking at. But on the right hand side and the the clearly stated metrics, we've always said about our acquisitions, well, power aside, earnings accretive, I'll tick IBS, tick that box. The able management teams who you know, they are staying with the business. They want to see it grow and scale. They're excited about being part of that story. We must be able to buy at a fair price and scale using technical commercial synergies.

38:32 And then the power ups, some ideas on the right hand side, you know, the collaborative robots and VR in industry four. VR's in Vicon land. There's no reason why it can't be in smart manufacturing. There's other measurement techniques out there, laser, x-ray, haptics, and so forth that we will continue to consider. They all come with related analysis softwares, and obviously those that have perhaps an ARR element will be equally attractive. GPU compression is a markerless play its entirety about handling video sensibly and efficiently. And both businesses have deep learning and AI in their solutions, so we will continue to keep an eye on companies and products in that space, both from an opportunity and threat perspective.

39:20 Excuse me. So we entered 2021. This is with the YOTA number backed out a bit with 27,500,000 coming from the Vicon motion capture industry. We're exit '26, building that up to around 52,000,000, building a markless arm to the business of around 8, and we'll see what mix of revenue that we can apply to that as we get further down the commercial negotiations on that. And building smart manufacturing arm of around 10,000,000. If we consider IBS as about 3,500,000 turnover, then some more acquisitions and growth in that play means that that should be entirely doable. So that's the conclusion, the main part of the presentation.

40:05 In terms of outlook, just to reiterate some things that that David said, we have very good visibility of over half the revenues that we need to execute on in fiscal year twenty four. We break in the commercialization of Markalus, working first of all with Dreamscape Immersive on a beta program followed by Vigil Effects customers very close behind. We'll continue to seek the right acquisitions for the right reasons at the right price, and we are well capitalized to work on this smart sensing opportunity, which is the Oxford METRICS group philosophy. So thank you very much for your attention. That concludes the presentation, and we will take any questions now. That's great. Image and David, thank you once again for updating investors. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while Imogen and David take a few moments to review those questions submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the Q and A and the published recording will be available via your investment company dashboard.

41:05 Imogen, David, as you can see, you've had a number of questions from investors during today's presentation as well as a few that were pre submitted that I think you've touched upon during your presentation. If I may just hand back to you just to read out those questions and give a response where it's appropriate to do so, and I'll pick up from you at the end. Sure. I think there's a a fair fair number of questions or comments in and around how we assess m and a, David. So do you wanna cover that off? Yeah. I was just gonna cover off shall I just cover off some of the pre submitted questions very, very Yeah. Sure. So somewhere out there somebody out there actually made a comparison of Vicon today with Vicon back in 2019 commenting why the operating margin had fallen for years and what forecast going forward. Well, I think the answer is really very simple this year.

41:58 Firstly, the investment in the five year plan, which is 2,800,000 is fully baked into this year's profit and loss account, which wasn't there four years ago. We have seen gross margin erosion. I've spoken about that in relation to this year, but it's also relevant compared to 2019, where actually we had a gross margin of 74% in that year, which I think is probably the number. In terms of outlook, in terms of that, as we've said, the gross margin next year in a combination of improved cost cost of goods and list price increases. And in terms of, you know, the the outlook going forward, well, we are we are building out a dedicated marketless facility in Oxford this year. But other than that, there are no other major changes, to the cost base, anticipated in the year ahead.

42:54 Someone also commented why, net cash had fallen. I think I've covered that. We we increased inventory, you know, to protect ourselves against supply chain disruption and so forth. We obviously paid a dividend. And the reader of the accounts will probably also notice AR was a little higher, but that was really purely down to, you know, the trading pattern that we saw during the course of the year. But overall, you know, the cash did generate business at an operating level. And then moving on really into the sort of m and a area, somebody asked, could you give us an update on m and a activity and our valuations coming down? I think the first point I kinda covered in terms of, you know, where we're now looking for acquisition opportunities.

43:42 And in relation to valuations, yes, there is evidence that they are coming down to more sensible, levels. Historically, we do try and tend to avoid auction situations, especially where private equity might be in the mix. So a few years ago, we simply couldn't compete with their very, very deep pockets. But where we're looking now, we believe we are actually probably under the radar to a large extent. You know, we tend to approach private owner founder businesses. We, you know, we seek to establish a relationship with the vendors that leads to a period of exclusivity. And in fact, IVS is a perfect example of that that led to the acquisition at an attractive multiple.

44:29 There are some other questions What are some other questions? And a related in the list. Let's see. Criteria. Yeah. The the criteria Christopher t asked what key criteria do you look for when looking at m and a. Well, the new focus is very much smart manufacturing. So we're obviously looking for a technical read across so that in time, there will be, you know, technological synergies and so forth. I think for me, you know, the golden rule, you know, the deals need to be, you know, price earnings enhancing. And if they're not, we would have to be convinced that that was gonna happen very, very soon afterwards.

45:17 What else we got? Do you wanna do do a few questions in, mate, whilst I review the other question? Yeah. Sure. There's a little bit in and around competitors and IBS and things like that. Well, just they asked them that question, and they kinda said, well, when we get specked in, none. So that it's very much a technical spec play. They get specked in by J and J or whoever it is, and then once they're in, that's that's it. They tend to be the incumbent technology or they seek to replace existing. There's so many companies in this space globally, and they do, at the present time, focus very much on The UK and Ireland geographical markets. Some of their competitors are similar size. Some of their competitors are billion dollar corporations, famous names, but they don't have the same solutions as as IBS does. And in the Markalus space, well, there's lots of emerging products possibly is a loose enough term technologies in Markalus.

46:22 Some addressing quite a lot of them addressing consumer b to c animate people who are making content for their their own channels, very simplistic animations. Less so in the top end, animate animators are very, very keen about the quality of the work that they produce. It's very, very important. So at the area where we're currently dealing, we don't currently see much competition. So the the prioritization of of getting our solution out there is is clear, but that we keep an eye on on all activity in that space. So how will AI and ML affect OXFORD METRICS business? Well, it's going to grow it because we've got it in in all our solutions, but we do keep a very clear eye on opportunity and threat in that space as well.

47:20 Question around fair price in smart manufacturing space in terms of multiples, David. Yeah. I'm just looking at that one. So I I spent another call with, obviously, we seek to acquire at multiples, you know, lower than our own. In in the case of IBS, for example, the multiple there was around 10, I think, of adjusted PBT. So that's that's what a fair price looks like. And if it's it's off the board, that's great. That's great. Other questions somebody asked, would debt for m and a purposes? Well, yes. We are certainly, certainly, given the cash balance cash balance are quite a way off. And somebody also asked why was the interest received so tiny?

48:08 Well, I would argue that 1,600,000 isn't tiny, but the the I do or not be over the past year or so, I'm sure you're saying, when when charges of cash came up for deposit, I'd normally opt for the best rate I could get for the longest period whilst being mindful of actually when we might need, you know, the cash. So on a pure percentage basis, what we're earning at the moment is lagging what you might expect. But then, of course, if interest rates begin to decline in the future, we'll be ahead of the game in terms of interest that we're that we're earning. There is no cash required in the business online for capital purposes. So close that.

49:06 Answered. There's a question here, I know, from Steve and R about can you give us target hopes for revenues in the current year? I think you've covered that because we obviously, our analysts and there is there is a research note available at oxfordmetrics.com to give you a bit of a steer. But, ultimately, our focus is on achieving the 70,000,000 and 15 percent return by the end of the five year plan. But if you want to Agree. Want a little bit more information, have a look at the the note that is available on the website.

49:59 Yeah. Someone Georgia always asked about a target inventory days, any kind of ballpark figure that might be available. I think slightly diff slightly awkward to answer because even not just today, but always, you know, there are certain critical components in the camera, like a center, for example, which we have to carry strategically. So that is always going to present it's always gonna mean the inventory is gonna be be a bit on the higher side. But I'm just doing literally, I'm doing a live calculation here. So, yeah, I'll stop turning at the moment then in the rain before. So let's just say we're seeking to run the year ahead, and I would hope that we could probably release, you know, a million to 1,500,000 inventory over the next twelve months.

51:11 Is there any geographic preference in m and a opportunities? Well, I think it's always good if they're on your doorstep. You know, IBS is obviously obviously quite near to us. But, you know, we are we are an international business in you know, business with offices in The US and New Zealand and elsewhere. So I don't think there is. I think if we found an IVS type business, you know, in Germany, for example, there'll be no reason why you wouldn't want to execute execute against that. So I think overall, the answer is probably no. There isn't a geographic preference. And some and Gerard A commented that the 10,000,000 turnover for smart manufacturing in 2026 seems too low, given your ambitions.

51:58 Well, it may it is a goal, isn't it, IMO? And, you know, clearly, we're we're hoping to deploy cash for m and a purposes. And, yeah, hopefully, there will be a good good opportunity to exceed that number in the future. Main competitors. Do any of these have markless technology? Our main competitors in Vicon is Optatrack, who are owned ultimately by the Chinese, and Colasys, who are a Swedish business. In all cases, they partnered with other people on to this point.

52:45 One might suspect everyone's working on it because if they if they're not, that's probably a misstep. But no sign no signs of a of their own homegrown solution yet. And given the level of investment required to build the the Marklist team that we've got at Vicon, And that was my third attempt to get the money. So it's it's it's a different set of disciplines, you've got to be able to to accept a number of years of of research before the the product comes out. And unfortunately, OXFORD METRICS board was supportive of that. Average time from clients showing an interest in your technology to an order being received, anything the record is fifteen years to close an order. That was a long time ago with a hospital in The UK.

53:34 And we've closed deals in less than a month and everything in between. That's just the nature of the beast. Vicon market share, I'd say we're probably half of the marker based tech stack. Margins from Markless and Smart Manufacturing clearly needs to fit the the targets of the group. I think we've covered most of them. Hopefully hopefully, they're same and different from next strategies. I've hope hopefully answered that one. Cash, prudent to keep in hand after making acquisitions. Maybe we'll answer that one later. Anything else, David, you wanna cover? Yeah. I'm just gonna I realized I was on mute. But on the margins question, there's there's two separate questions there, really. Smart manufacturing, if we if we look at IBS, they they obviously look very much like Viacom in terms of their business model, their gross margins, their deal sizes, and so forth. But I think the real opportunity ultimately will be markless.

54:31 And, you know, given that it's a cloud based solution and the opportunity to, you know, charge customers on a subscription basis will mean there will be an underlying, you know, improvement in, you know, gross margins at that level. It will all depend on the mix, and I think you may have already said, Emma, that obviously we wait to see exactly how that's gonna bake out in the future. But, hopefully, it should be good news. Great. I think I think if I may jump in there, Image and David, for every question you seem to answer, there's another two or three that come at you. So I think just in the interest of time, we'll make any further questions available to you post today's meeting. We can always add responses there if it's appropriate to do so.

55:18 Imogen, David, I know investor feedback will be particularly important to you both, and I'll shortly redirect those on the call to give you their feedback. But I wonder before doing so, I may, Imogen, come back to you just for a couple of closing comments. And then as I say, I'll redirect investors for their thoughts. Okay. Okay. Well, thank you very much for attending today. I hope you found it interesting, and we'd be certainly happy to to answer any future questions. And just to also mention that there will be a Capital Markets Day for OXFORD METRICS sometime in April 2024. Thank you. That's great. Image and David, thank you once again for updating investors this morning. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team of OXFORD METRICS PLC, we'd like to thank you for attending today's presentation and wish you all a very pleasant morning. Thank you.