Vianet Group (LSE:VNET) — Full-year results for the year ended 31 March 2025

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

0:31 Good morning, sir. Yeah. Good morning, and thank you, Lily, and thank you for joining us. I've got Mark Foster, CFO, and Sarah Benton, finance director with me today. We've got a strong set of results, and we've been seeing good momentum growing, into full year '26. Unattended retail division, device foot absolute focus on driving device footprint, create strategic market share, of recurring income. Our retaining game strategy with the three g switch off initiative is delivering results. And in four courts, we're seeing excellent progress, and the prospects are, you know, really strong for the for the next couple of years and beyond.

1:18 And in the hospitality division, again, continued delivery of growth. The team team have done a great job there, and the prospects in The UK and USA are looking really encouraging. So we're really a strong foundation in building to deliver our growth ambitions. Turning over the page, and this is for the benefit of, anyone on the call who's new to VIANET. Bottom line is, you know, we generate value, and we generate our own growth on the back of transforming helping customers transform their business performance. Basically, helping them get it right first time and enabling them to do more with less. In both divisions, hardware is simply an enabler that allows us to harvest data and then produce dashboards, alerts, alarms, and it also feeds our, you know, PCI compliant payment processes as well, helping customers reduce waste, reduce shrinkage, increase positivity, and the consumer experience and thereby, you know, driving sales.

2:32 Two divisions. We've got the, you know, unattended retail division, which is primarily at this time Vending and Forecourts, but any remote assets would fall within that division. The other division is, you know, our hospitality division, which is really all about beverage management. We have a comprehensive beverage management solution that that, you know, is primary focus historically has been The UK pub sector, but we've got seen some good, you know, growth opportunities in The United States, and, we look forward to seeing a bit more of that as we go through the presentation. In terms of our revenue model, basically, as I said, the hardware is enabler, so we're happy to make a little margin selling hardware or renting hardware to our customers.

3:24 But what we're really after is the, you know, subscription income from the, you know, the recurring subscription income that is basically is part of the three to five year contracts that we signed up with blue chip clients, all all focused on driving growing recurring income, and that's what makes us valuable. Turning to the results. I'm not gonna steal Sarah and Mark's thunder, but strong set of results, particularly given the economic uncertainty that is a backdrop to every business at this moment in time. Ahead in all the key financial metrics. Top line marginally ahead, but against the background of three g swap outs, vending machine state rationalization by our customers as part of the three g investment process, and our own pivot from ERP, you know, vending management software to being, you know, drive real absolute focus on expanding our device footprint and the pricing strategy that went be went with that. We're pretty darn pleased with the top line performance as well, and we're gonna see that rebound in in the current year.

4:46 Just pick up on a couple of points here. You know, really delighted with the strong cash and net debt performance and the ability to, you know, announce a dividend of 1 p per share, for the final dividend, which within together with interim dividend, that takes us to 1.3 p. We understand we have a number of investors who appreciate the the value of the dividend and, indeed, I'm one of them myself. Moving on to the unattended, you know, retail performance. The three g switch off was a risk and it was also an opportunity. We chose for it to be an opportunity. We're amongst our competitive set. We're first out of the blocks to explain to the the sector, the Indian sector, what the why the government was shutting down the three g networks, how the mobile network operators were going to respond to that, what that meant for the sector, what that meant for individual customers, and what the what the bespoke solution that we are proposing for each individual customer that we had.

5:59 And that really fed into a really strong retain and gain strategy, allowed us to secure all existing customers on new new long term contracts as part of the upgrade to four g, and also allowed us to gain new customers as well because we're first out of the blocks and we're giving innovate innovative new packages to our customers. And I I guess the the absolute focus on footprint expansion required a pricing strategy. We we took a decision, you know, that we would actually have absolute focus on it's not about making short term hardware margin. It's really about getting the hardware out there and having the subscription and income from the devices out in the field.

6:49 We also chose to pivot from ERP, vending management solution to really being about device management. We recognize that out there in the in the field, customers were experiencing poor device uptime and user you know, consumer user experiences with the competitive set. And we put absolute focus in ensuring that, you know, we have the best device uptime and the best user experience and and that's paid, you know, massive dividends for us. And we'll we'll probably share a couple of examples during during this presentation. So existing customer secures, real progress in buying groups. There's probably about 40,000 vending machines in buying groups, and we've never historically have been strong in in buying groups, but as part of this gain retain and gain strategy, we we've secured 16 new customers within buying groups, which bodes well for the future.

7:50 I think the key for us, if we look at if we look at if we look at where our revenues are coming from within the unattended retail sector over the next two years, something like 90% of our revenues are gonna come from existing customers who are already secured where we expect to extend our coverage within their existing states.

8:16 Big win for us in addition to securing additional and and making that those inroads into buying groups against the competitive set. We won Luca's eight Suntory, and that's that was fantastic news for us, demonstrating close to an 18% uplift on sales versus the competitive set during pilots.

8:42 Again, you know, we've really focused on driving market share because by driving that market share, getting the long term contracts, it gives us really valuable strategic footprint that has real value, you know, to to the competitive set out there. So absolute focus on that. As part of that process, we've foregone, you know, ERP, you know, vendor management, you know, platform, you know, revenues for the sake of securing feature device recurring income, and we've foregone hardware margins again to get the device recurring income. But we expect we were experiencing and expect to see further rebound on those revenues in the current year.

9:33 Moving on to the forecourt sector. We partner with a business called Attenda, formerly called SureSight. They're originally a fuel card business and, they recognized an opportunity to get into payment processing for fuel transactions. As you might imagine, transactions are, you know, they're they're high value, so they have considerable volume of, you know, pound volume of transactions which allows them to negotiate, you know, fantastic transaction rates with the likes of Worldpay, etcetera. They partnered with us because they they recognized that beyond fuel, there's an opportunity to actually tie in, other four core assets, vacs, vacuums, car washes, and air air air machines.

10:28 But they didn't have a, you know, a cashless payment solution for those. And they recognized that we had a really good solution. We had to work work on that solution for the best part of, you know, probably started a couple of years ago. It's probably the best part of twelve months worth of work to ensure that the the the hardware was robust enough to cope with the harsh environment of a petrol forecourt. But we achieved that and we've, you know, managed to sort of really drive that business forward. Let's imagine, as I said, four quarts are high ticket versus snack and can. So the the the operate I guess the the and the customers be that Tesco, as the Sainsbury, Morrisons, or oil companies or independents, they wanna know that they've got you know, they're maximizing their device uptime and they have excellent user experience because that's gonna have a direct impact on their ability to, you know, drive transactions, and we've helped them achieve that.

11:37 You just look at that example down the bottom left hand side, That's Worldcomatic, with one particular supermarket chain. There was one site in particular, by introducing our hardware and payment processing, they experienced a 32% uplift in sales. Now that's quite dramatic. With Atenda, we're in all we're in Tesco's, Asda, Sainsbury's, Morrisons, all the major supermarkets. And then again, a a lot of our progress has been built around the fact that we have absolute focus on, you know, customer experience, customer support, great transaction rates, robust hardware, and, you know, we basically look after our customers to ensure they get maximum device uptime.

12:34 Just in terms of the the value of the we've we've we're in 2,000 plus. We've got 2,000 devices in four courts as we speak. That's across the car rule of a car washes, jet washes, air air machines, and vacuums. And we we make decent revenue of that. Now it is probably worth about the best part of £10 a month. So there's probably about £240,000 worth of turnover in in there. I thought it'd be useful to actually, you know, look give give you the opportunity to look at how our device footprint has grown over the years since since COVID.

13:31 It's it's been it's been a tough ride out there, but basically, we've had COVID. We came out of COVID. Everyone felt no good, then realized that work from home meant that there was probably about twenty, thirty, even 40% of traffic that you normally have going past vending machines was no longer there. So the vending operators had some loss making contracts, so they basically, you know, exit the contracts. So it wasn't about looking at individual machines. It was about actually looking at the contracts themselves and the profitability. So that that was that was breaks on the on the population growth. And then we move into the three g, four g upgrade. Now that's the different scenario altogether.

14:20 That's where the vending operators have to make a decision on where to invest. It's not about, you know, not it's not about taking a machine out to the market. It's about what machines do we invest in and take take the others out to the market.

14:36 And that and that's impacted us as well. The good news about that is that, you know, what we have at the moment is, you know, a vending pop a vending park out there across The UK and Europe that has gone through COVID. It's gone through three g to four g upgrade and it should be a pretty clean partner which positions us really well for growth going forward particularly as we have the security long term contracts with our customers. The other interesting thing here is that we continue to drive the mix towards cashless payment in favor of cashless payment versus telemetry only. Cashless payment is higher value, you know, trans know, try higher value subscription revenue for us, so that's good news.

15:29 As again, that growth that you see in full year '26 and full year '27, 90% of that is coming from existing customers. So what we're doing is driving valuable device market share.

15:44 Moving on to the hospitality division. Basically, we have a very stable base. The least in tenanted sector has strong resilience and we're even seeing with the the increase in national insurance and the reduction in the national insurance threshold, coupled with the removal of rates relief and all other costs going up. The hurdle rate to run a successful profitable managed house has got higher, which is resulting in a number of, managed houses being converted back to leased and tenanted. So we're benefiting from that, and that that's allowing us to retain a a very resilient and stable least intended base. In addition, the the progress we're making with the introduction of beverage metrics has been really positive, in terms of being able to take that to our existing customer base and effectively give them an upgrade.

16:43 So really positive. Key financial metrics across the hospitality division are really positive. We've got that solid base of 9,600 pubs. Again, similar to the unattended division, we continue to secure renewed long term agreements and new agreements with customers. So that's that really underpins our recurring income stream from hospitality. Renewables with Heineken, Green King in the period and a new deal with Budweiser Brewing Group. Bottom line is that, you know, we're an essential tool. We help improve sales, we help reduce costs, and we help improve the consumer experience, and that's all important with the economic background that our customers in the hospitality sector are facing.

17:39 And BeverageMetrics, it really simplifies what they do. Significant savings available. It's an intuitive tool. A couple of minutes a day, look in the dashboard, tells the operator where they need to focus, and it pays it pays for itself if you can have one extra pint a day going through the till. On ongoing opportunities within for UK footprint expansion. Bottom line are the key drivers of cost for operators are increasing whether that's wages, utilities or cost of goods coming in, whether that's beer or whether that's electricity, you name it. Consumer price and elasticity is at breaking point, has been for the six, twelve months, which means that the the pub operator has got limited options.

18:39 They gotta find a way of doing more with less and that involves getting it right first time and that's exactly what we help them do. If we look at, the The UK pub market and the growth that's available to us, If we look at least and tentative, there's probably about 12,000 least and tenanted out there. We estimate that there's probably a further thousand sites within least and tenanted that we can access in the next twelve, eighteen months which will deliver the growth that we require. And that's before we look at the managed pilots that we have in place that are delivering really encouraging results. And then we look at, you know, the ability to learn on fast scan perpetual inventory and automated ordering in The UK.

19:28 Basically, helps helps the operate the pub operator run a more efficient business. And give the other thing that the beverage metrics brings to us is it gives us greater relevance in the wider hospitality market and it's allowed us to actually put a development roadmap in place that is particularly focused on The USA because it's a midship opportunity especially with our relationship with with fintech.

20:02 Moving on to The USA itself, really encouraging progress and levels of engagement, with an increasing number of customers. Really, foundations are in place to deliver against a significant opportunity. Off that 382,000 licenses across, you know, four key segments, our focus is really on chains, existing business with Chili's, Margheroux, Rutaville, mar Marriott franchisees. We got pilots in place with Outback, Darden, and then we've doing some really good news with we could work with World of Beer.

20:47 So really positive. I think what sets this opportunity apart is really the relationship we have with fintech. Basically, they have a payment reconciliation service, 50,000,000 alcohol invoices processed annually worth in excess of $50,000,000,000. Fintech was born of the three tier system in The States. That was post prohibition, you where where the government wanted to put in place a process and system and structure that would allow them to ensure the government regulations were being followed, taxes were being paid, and that new monopolies were being create vertical monopolies were being created.

21:37 And those those regulations differ by state and sometimes by county. But fintech's secret sauce is the fact that they have all these, you know, all these regulations in the algorithms, and they can actually oversee the the payment, you know, processing and reconciliation. Fintech gives us fantastic access to, you know, the decision makers and chains. And, you our integration with them, that really enables that full cycle p to p system, allows, you know, operators to significantly reduce labor costs and improve productivity across ordering, receiving, invoicing, and also inventory and stock with our FAST scan inventory solution.

22:25 Basically, if you look at our standalone proposition, it's pretty it's pretty strong. That comprehensive beverage management solution, you know, by itself shift point of sale loss, you know, addressing that, you know, gives the return on investment. And that's what, you know, that's what will drive drive us going forward. Bottom line is that the the product that we've got, you know, you know, in these customers as we speak is it's intuitive, it's user friendly, it's drilled down, it's no data overload. Everything has got to be simple. We cannot overload, you know, the operators with additional data and information. It's got to be simple and be in your face.

23:14 The commercial prospects with several pilots in place are really really strong and we're in advanced stage of conversations at this moment in time. Bottom line is that we're allowing customers to hit the call the right quality, get it right first time and that drives productivity. And that's we're expecting strong commercial traction and we expect to have significant loss reduction by the year end. And, we've got a high level of engagement that's really sort of driving that both with both with, fintech, but also across a number of clients within the, you know, The US chains. I'll hand over to Mark and Sarah now.

24:00 Thanks very much, James. Okay. Good morning, everybody. I'll take you through the profit and loss. What we see here is a strong set of results for the year ahead of last year and also meeting market expectations with turnover being up marginally not point 5% for all the reasons that James has already been through. We also have recurring revenue increasing at 1.8% year on year, being 86% of turnover with a 300,000 growth year on year. Our gross margin held strong at 68% despite the hardware sales that were going out at lower margin to win those recurring revenues. There was an increase in operating profit year on year. This went from GBP 3,470,000 to GBP 3,600,000, given a 3.6% year on year growth.

24:50 And adjusted EBITDA also grew at 3.1%, taking us to GBP 4,140,000 versus last year's GBP 4,000,000. Earnings per share increased for the period at 61% to GBP 2.92. So all in all, a pleasing set of results for the year ended March 25 as we head into '26. In terms of our segmental reporting, within the hospitality division, we saw a 4.7% growth in turnover, which is 400,000, and this was with 323 new systems installed versus last year's 260, so very positive. Recurring revenues remain robust at 94%, and in absolute terms, that's a £400,000 growth, 4.5% year on year.

25:38 We have four new contracts for the period and five major contract resigned, and gross margin was up 330,000, 4.8%. The disposals for this organization were at three six one versus last year's four five four, so they are slowing. All in all, good result of hospitality. In terms of our unattended retail division, device sales were 8,956 for the period ahead of last year, and recurring revenues remained strong at 75% versus last year's 74. Despite the three gs and the economic mix that we've got that James has already alluded to, we did resign seven contracts in that period, and we had a 120 new contracts within that period also.

26:27 Our estate remains strong at 36,000 device connections, and we did have some three g swaps to total in 2500 within that period. So all in all, a really good set results to move forward into financial year 2026 to build upon. Thanks, Sarah. Good morning, everybody. I'll take you through the cash and the balance sheet. The business continues to be a strong cash generator. Operating cash inflow pre working capital was up to 3,975,000, just over 1% from last year. This is 102.9% of net EBITDA or 96% of pre exceptional EBITDA, so a very strong cash conversion metric. The movement in working capital was a positive $636 from reduced stock, reduced debtors, slightly offset by some reduced creditors, but much better than last year's draw. Generally, we see $500,000 either way in working capital movement, but this year has been a pleasing positive movement.

27:25 Post working capital cash generation was up to GBP 4,600,000 from last year's GBP 3,600,000. That's nearly GBP 1,000,000 in growth, 26%, 119% normalized EBITDA. Overall, we had a a complete inflow of $955 ahead of last year like for like when you remove last year's refinancing with HSBC and the one off tax rebate we had. And that is after increased dividends and share buybacks in the year. So overall, we had a very healthy cash generation, and there's no reason why that should not continue.

27:59 In terms of the balance sheet, it's it remains a strong balance sheet. We've covered the the movements in working capital. Net debt reduced by 1,100,000, 75% down to $381 at the year end from 1,520,000 last year. Cash in the bank increased to 2,780,000 from 1,820,000 last year. That's, again, nearly a million pounds growth, 52%. The bank facilities with HSBC remain, and we have indeed extended the RCF to April 2028 on improved terms at 2.2% above base from what was 2.62% above base. And we expect to be in net cash at some point in this financial year. So all in all, a very healthy balance sheet to fulfill the ambitions that Jim's been talking about. To you, Jim. Thanks, Sarah. Thanks, Mark.

28:49 Bottom line is we're we're in a very exciting position. You know, the commercial, financial, strategic prospects are really strong. We have a really strong financial engine driven by the fact that now we've got, you know, very high recurring incomes and we've got two divisions that are gonna be continuing to deliver growth over the over the coming years. You look at the hospitality sector and beverage metrics in particular, we're gonna have a period of sustained growth, and that's before you start to look at what we what the potential that we have in The United States. Then and the unattended retail division, smart machines, 90% of the growth in the next two years is gonna come from existing contracts that we have have in place.

29:42 And what we're building is a really valuable strategic market share there, of long term, you know, recurring subscription income. And then, you know, the forecourts. Bottom line is that our absolute focus on device uptime, user experience, transaction rates, customer support, and, you know, having taken that two, two and a half years to build trust and maintain that trust and deliver for our customers is only gonna continue to actually give us more opportunities within the four corp sector. The the the I think as everyone's aware, the bottom line is that, you know, every business wants more data and they want the ability to handle the data. All sectors, you know, want to be able to do more with less, because the cost pressures are mounting and the pricing pressures are are on them as well. So it's about how how do we handle that.

30:38 And it's not just about, you know, harvest and lots of data, it's about what you do with the data and that's where AI can help us going forward. And then we, look at, you know, overall very well positioned to accelerate growth. We tick the boxes in terms of markets and market drivers, the solutions that we have, the people that we have in our business, and also the the reputation that we've built over the years and that we've we've guarded that preciously and we're trusted advisors. And the bottom line is that we win when our customers win, so we're absolutely focused on making sure our customers are winners. That concludes the presentation. We're going to move on to questions Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation.

31:47 Please If ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Okay. We'll kick straight in. Question one, presubmitted. What is the management stroke board stock ownership? Will you be buying more given the current share price levels? Well, I haven't checked the share price in the last half hour or so, but bottom line is that management and board hold excess of 20% of the business as we speak. And, we'll take a look at the share price, when we finish the finish the meeting and figure figure out what next. How are you using AI in the business? Well, at a at a at a very simplistic level, everyone in the business has access to Copilot to help them actually do their do their day to day job like emails, etcetera etcetera.

32:43 But we have we sort of got a a knowledge transfer partnership grant from the government and we're working with Keysight University and that's really about developing an AI enabled model, which includes a large language model and that's to help us automate our processes and really have our have our people, you know, doing the real value added, getting rid of the menial tasks and allowing them to really add value and actually, you know, get them fired up. And it's also to empower customers by giving them, you know, deeper real time insights that allows them to be more proactive and be more strategic as well. And again, all gets back to helping them transform the business performance so that they win and we win with them.

33:35 There's can you expand on the cloud based platform development? Well, the bottom line is that I guess we don't see that as competitive advantage. We see that as a minimum requirement to compete. You know, I think every business should be feeling the same way. So it's not really a point of competitive advantage. You but you're disadvantaged if you don't do it. Question from Martin h. Also, are you seeing customer concentration risks in either division? How diversified is your client base by geography and sector? Well, we're we're pretty reliant on The UK because probably probably as things speak, probably 98% 97, 98% of our business is UK based.

34:31 But if you look at, each division within those divisions, I'm I'm pretty sure that there's not one customer has more than 20% in either of the divisions, which is a fantastic situation to be in when you think back probably ten years or so ago, probably 60% of our business overall was either, you know, maybe it was a mixture of, punch and enterprise, so we are significantly more diversified than we ever have been. Is it possible to get sorry. I'm I'm gonna have to take a closer look at that. Is it possible to get an idea of the value of existing contracts in The US with Chile's Margaritaville and Marriott?

35:25 Also, it possible to provide more detail and timing of current trial projects? What are the forecast revenues for The US market for the end of this year and next? Okay. Well, I'm not gonna tell you when what what the timing is on any of it, but in the in the coming year, we expect expect to make substantial progress on, you know, three, possibly even four of the current pilots that we're working on. I'm not gonna share the existing revenues with Chile's either any of those customers because for me, individual customer revenue is privileged information and that's not something that I'd ever share. We can share the forecast revenues for the year.

36:16 1,000,000. 1,000,000 for the year dollars. Yeah. What is the expected timeline to profitability in The USA, and what are the main hurdles to achieving this? Well, the main hurdles to achieving it is really not it's really about when the customers are ready, you know, I think anyone that's ever run a business or run sales understands that, you know, you've only got the contract when this when the customer is ready to sign it and they'll do it at their pace, not your pace. So whilst we're ready, you it's a case of, you know, ensuring that the the customer is ready. Yeah. So we're we're probably looking at, you know, looking some breakeven in the second half towards the towards the end of the second half, but on on a monthly basis.

37:14 Okay. Is that the questions? Guys, thank you for answering all those questions you can from investors. And, of course, the company can review your questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you their feedback, which I know is particularly important to the company, James, can I please just ask you for a few closing comments? Yeah. Number one, thank you for joining us and taking time out to to to to be with us today, and I hope you found it useful. I think if you do have further questions, please go ahead and ask them. We can't always answer questions, but we try. Bottom line is that, you know, VIANET has never been in such good shape with such good prospects, and the team are really excited about the opportunities that's ahead of us.

38:04 And, you know, we're we're we're ready to break out. Thank you very much indeed. Thank you all for updating investors today. Now please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team of VIANET GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.