Vianet Group (LSE:VNET) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the VIANET GROUP PLC Interim Results Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, I would like to submit

0:33 the following poll, which would just appear on your screens now. And I would now like to hand you over to the team from VIANET GROUP PLC, James, Mark, Craig. Good morning, guys. Yeah. Good morning. Thank you, Jake. I'll kick straight into the the results. A good set of results despite the economic backdrop. I think what we've done is demonstrate the resilience of our core core hospitality division and in particular in particular, the least in tenanted sector. And we're gathering real men momentum in vending and demonstrating progress in new verticals, and this is all fueling our ambitious growth plans. For those of you who are new to VIANET, they will have a quick overview of what we do. Basically, we transform business performance.

1:21 We install hardware that allows us to capture data, and then that is processed with our management software to create dashboards and alerts that allow our customers to run more effective businesses to improve the productivity and performance. Two two divisions. There's the unattended retail division. That's where we provide a comprehensive, end to end vending management system, that that basically allows customers to really drive more efficient operations, and I'll come back to that in a bit more detail. And our second division is beverage metrics, our hospitality division, where we have the market leading comprehensive beverage and bar management system. How do we make our money? Well, we install the hardware, and we get paid a reasonable margin on our hardware, and then we enter into long term contracts for weekly and monthly fees to cover service packs, licenses, and and data management.

2:23 Majority of our customers are in five year contracts with with some with very few less than three years. We turn over to the financials. As I said, a good set of results, really encouraging given the inflationary backdrop and the, you know, the, I guess, the three g switch off and the, you know, the this drag created by that as customers made their minds up as to how they're gonna address the requirement to upgrade their devices from three g to four g, and also the the fact that we've been migrating customers to our smart vendor vendor management platform. Revenue revenue up to marginally to 7,190,000, flat generally because we've had a high high number of rental units going in during the period versus CapEx, which we traditionally have.

3:21 But what that has done, it's improved our gross margin. So, hence hence, the the the bottom line result being being positive. Recurring revenue remains very strong, 80 to 87% of turnover, and the the the the rental the the rent rental margins as a proportion of the mix has helped us drive the gross margins up to 69% from 64. So so that's been positive. Basically, very strong recurring revenues, strong gross margins, and very good operational cash generation, and that allows that's allowed us to return to dividend pay a dividend in the for the full year '23 and position us positions us well to pay a dividend in the in the current year.

4:18 But Mark will come back to that in a bit more detail, but I'll turn it over and touch on our growth ambitions. We've got a fairly ambitious top line growth agenda, and we've done significant groundwork. In fact, all through from from the start of the pandemic all the way through and ongoing, we've been doing groundwork. That's created the foundations for our ambitious growth aspirations.

4:46 The you know, I guess, the if we look at the key elements of our of of our sort of ambitions is, one, retain and attract, you people. It's a challenging employment market, and what we wanna do is actually ensure that we are seen as a trusted advisers by our customers. That means we have to have great people. That means we have to do all the right things to, you know, sort of attract them and engage them and keep them in our business, and we've been doing that very successfully. Touch on the commercial opportunity that goes with our ESG agenda. It's not just about, you saving costs ourselves and reducing our own carbon footprint, but the in both our hospitality division and in our vending division, we help customers, you know, reduce their carbon footprint, whether it's energy saving in pubs and bars or whether it's down to dynamic group planning that reduces the carbon footprint of each Mars bar that's being delivered to a vending machine, that's that's gives us a raison d'etre to drive forward with customers.

5:56 Our ambition over the next couple of years is to get to a 100,000 vending connections, currently at 56,000 at the end of September, another forty forty four thousand to go, and, we can do that with our existing customers and some of the progress we've been making in in in new verticals.

6:20 Then growth ambitions in in hospitality to go from 10,000 to 14,000, you hospitality sites, and we'll be doing that on the back of, you know, our beverage metrics, you know, in integrated with our own solution, the energy saving devices we're we're working on, and the work that we've been doing with brand owners to, you know, get more flow meters on their brands to demonstrate what's happening out in the marketplace for them. And we're making inroads into the managed sector as well. I think, you know, overall, you know, all the the proposition and the route to market, you know, they are both in place for both divisions, and we have the ability to expand in The USA and also, you know, drive new new verticals.

7:11 So the key elements of a strong investment case are are coming together as we turn the page on to page five. The investment case is gathering momentum. We've got strong products, significant markets, and the growth levers are working in our favor, and that we consider ourselves to be undervalued as well. If we look at the markets in The UK, there's something like 300,000 vending machines, and that's only gonna grow as there's more unattended retail and micro markets out there in in in the marketplace. In The U EU, there's 3,000,000 vending machines, and worldwide, there's about 15,000,000. We look at hospitality in The UK here. We've probably got an addressable market of about 50,000 pubs and bars.

8:01 Probably 11,000 of those are gonna be in the leased and tenanted sector and probably another 12,000 in managed and the balance in independence. And in The US, that's a massive potential market for us where we're just starting to make some inroads. Three hundred three hundred eighty two thousand hospital licensed on premise outlets with alcohol beverages. If we look at the growth drivers, we're leveraging those contactless payments on the growth. We threw in the work that we're doing on QR payments as well, and we're well positioned to take advantage of the growth in contactless. The ongoing growth in unattended retail as the cost of labor increases, More and more, you know, facilities are moving to twenty four seven, you know, vending availability versus having canteens and kitchens open all hours.

9:00 And that's only gonna grow as technology becomes more sophisticated in terms of allowing hot meals. And the whole remote asset management people piece, if we can actually access data remotely and make, you know, service and maintenance operations and restocking operations more efficient, then that's gonna reduce carbon footprints and that ensure higher uptime as well. So that's that's they're all positive. Although an ongoing demand for data is only gonna grow, And whilst we're not doing a lot on AI at this moment in time, the the the data lake that we sit on has has value. You look at the business itself, strong recurring revenue, good earnings visibility from our five year contracts and the renewals that we've had, and the ability to expand the margins as we layer on additional products and services.

9:56 Strong cash flow generation as well, so in a very good position. Basically, we tick lots of boxes in terms of markets, the products we we have, the customers and the relationships and engagement we have with our customers and the partners that we've chosen in both the hospitality and vending arena. And lastly, our people. Basically, they do the right thing by instinct, and we are over the last four years, we've really set our stall out to become the trusted adviser for our customers, and that's been paying massive dividends.

10:36 If we look at look over the page and and how are we doing? Well, we're on track. I guess the investment that we made all the way through the pandemic and ongoing, that's into the investment in our product, in our infrastructure, our people, our customers, and our suppliers has created a lot of goodwill, and that's paying dividends for us as they we're become a preferred supplier for many of our customers. We've got a healthy pipeline that creates a good foundation to, you know, drive the business forward from. If you look at beverage metrics, you know, we we dominate the least intended sector in The UK. In fact, we don't really have competition in The UK, which is great, but it's important that we don't rest on our laurels and we're taking new products and services to the recent tenant sector and becoming even more relevant to them.

11:35 And in parallel, we have products and services that are now becoming more relevant in the managed sector, and we've been making good progress there where we've become a really good option to actually I guess, there's a limit to what the managed operators can do now to drive, you know, growth at what level about that level, primarily because there's the price and elasticity is being stretched to its limit, whereas for the cost of it, if you have one extra pint going through the till, that pays for our system, and we can do that to purely by, you know, reducing shrinkage at the till. Data demand and demand for contact list continues to grow, both in our core business and in new verticals.

12:25 I guess what we've been doing is that we've been demonstrating that the key elements are in place and provide us with a real growth platform.

12:36 We look over the page on to page seven. This is what drives, you know, this is what drives our vending operators to have a connectivity, but also contactless payment solutions in their vending machines. A vending machine is a small supermarket. It's just that it's remote and it's unmanned. So real time data is essential to provide dashboards, the alerts, and the dynamic planning that's required feed into their ERP systems so they can run more productive operations. I'm not gonna go into each of these benefits, but I guess those benefits in the middle sum it all up as to why our customers, you know, invest in connectivity and, you know, contactless payment.

13:23 It's about increasing machine part productivity and uptime. It's about having operational transparency that allows you to actually drive, you know, real time, you know, improvements, and it's about ensuring the maximum availability of stock. And, also, that maximum availability goes hand in hand with reducing the amount of stock you have in the warehouse, so you're actually reducing your working capital requirements. And then if you take some of our big coffee customers, they're also interested in quality. They wanna know that the machines are being cleaned, the milk is being cleaned. They wanna understand that that's their coffee that's going through the machine and not some, you know, bean roaster down the road. So everything kind of works in our favor.

14:10 And then we move look at the the complexity of the payment system, our ability to interface with accounts package providers, whether that's Access, Xero, QuickBooks, you name it, that that integration is important, and we have the ability to do that. And it it's it's pretty complex because in the vending arena, you have revenue share agreements on some machines, and you have some customers who have rebates rebates, so you wanna stay on top of that. And the insights and analytics piece, which really about understanding what sells where, when, and to who, and we can do that working with our partners. So the bottom line is, you know, we would help them reduce the costs and the carbon footprint by making them more efficient when it comes to restocking service and maintenance, and they they get compelling returns.

15:06 We've you know, several examples in our some of the larger customers of over 20% operational savings from from installing our contactless and and connectivity, and they're also seeing sales uplift from a 100% uptime or a 100% availability. And we work with the winners, and the winners are the winners who are embracing digital and embracing technology. So we're in pretty good position in that respect. How does that translate into our performance? I've talked about the ongoing investment that we've been making over the last three, four years into our product, people, and customer experience, and that and being the trusted advisers is paying us dividends.

15:52 We've got the heart we've got leading hardware. We've got leading customer support. We've we've got great management software. Our transaction rates are not the probably the most competitive in the sector, and our pricing is right. We've got clear blue ocean between ourselves and competition, and we're starting to make inroads on the back of it. One example would be roundabout the the network operators three g switch off that's been taking place over the last twelve months and will continue to take place over the next, you know, twelve months through to the end of twenty four. No. I think it's probably about seven or eight months ago, we provided this comprehensive three g switch off guide that, you know, explained everything. 16 pages is explaining to customers exactly what was happening and what our response was to it.

16:47 And I guess that we were probably about six months ahead of the competition on that, which really sort of underlined our our position as a trusted adviser. And that fed into our retain and gain strategy. But it's you know, the the three g switch off and the requirement for customers to upgrade devices from three g to four you know, could be seen as a risk or an opportunity, we decided we would make it and drive it as an opportunity, a, by securing our existing customers on extended five year contracts for the full four g installations, but also going out there with, you know, very compelling, you know, offers for competition, you know, customers who are with the competition, and we've been picking up new business on the back of that.

17:40 I I guess, you know, the first first six, eight months of this year, customers have been taking time to, a, understand the need to change, you know, our upgrade from three g to four g, and understanding the implications, pulling together their plans, and it's really been in the last couple of months where we've really seen an acceleration of a really, you know, like, pressing urgency to upgrade from three g to four g, and that's that's why we're feeling good about the the headwinds in the first half are get are real tailwinds in the second half, so we're really pleased about that. The other thing that we've done in the in the in the last several months is actually make real inroads into buying groups.

18:28 Historically, we weren't we didn't have many customers in the buying groups, but we've really made inroads into the buying groups in the last, you know, several months, and that's gonna pay dividends running through into the new financial year as well. The state is going to 56,000 devices, and that basically reinforces our recurring revenues, our operating adjusted operating profit up to 1,050,000, up around 30 percent from 800 10,000. So in in in good shape, we've also made, you strategic move or get a gain in terms of a contract win within the four court arena. And what's working in our favor here is that for the past eighteen to twenty four months, we'll be doing groundwork.

19:22 We have key relationships. Craig, our chief operations officer, his background was forecourts with with Morrisons and set his own business up. He's got lots of connections in the sector, and we've been working with those relationships hand in hand with the SureSight who allowed us to go to mark some fantastic transaction rates, and, we've been I guess, we're secured

19:49 an 800 device order, with a leading operator, and that's a six month rollout that start that started this month. So that's a great, great win for us. The SureSite transaction rates, that really makes us very competitive, and, you know, the the competition struggle to deal with that. And I guess the the other the other thing that's worked in our favor is that the whole our proactive approach to three g applies within the forecourt sector as well, because there's been, you know, I guess, there's the the early adopters of connectivity and contactless in the in the forecourt sector. That's forecourt balloting. They've they've been they they they've been caught caught out well, I guess, they they will need to upgrade from three g to four and we're also there's a level of dissatisfaction with the existing providers.

20:48 So the the other big positive about SureSight, they are in effect another arm of our sales force in the in the forecourt sector, So that's great news for us. It gives us a lot more coverage. Lots of live discussions going on. It's a significant opportunity here in The UK and in Europe. And I guess, you know, this this by necessity, this slide is anonymized for competitive reasons because, you know, we're making real inroads, and, we don't want to give our hands away.

21:28 Moving on to hospitality. No. Basically, we give our customers significant benefits and compelling returns on investment, and that's by reducing waste, improving quality, improving sales, and driving up productivity and by ensuring that our customers can give their drinkers an enhanced, you know, customer experience, I guess. It's part and parcel of, you know, the the factors that you see in these boxes here. They really are help create a beneficial circle rather than the opposite is all also true. If you're not doing these things, you end up in a vicious circle, and you end up with a business that's in decline rather than being transformed. The other great thing about, you know, other great thing about, you know, you know, our hospitality business and what we take to market is that, you we can actually give a return for the customers from day one simply by hooking up our real time, you know, poor data with the point of sale data to do shift loss analysis, and that that will drive that will drive, profitability from day one.

22:42 If we if we look at that, you know, the bottom line is that the integration having integrated the BeverageMetrics acquisition with our SmartZones business, that's enhanced our offering by giving us real time inventory and point of sale reconciliation that really makes us relevant to the managed sector as well. So we're in in in very good shape in that respect. The other thing as well is that the the bottom line is that, you have one extra pint going through your till a day that pays for our system. In terms of looking at the, you know, results for the the period, core leasing tenanted has been robust, and we're confident that we can sustain the the the performance in leasing tenanted and probably get it back into growth because leasing tenanted has been performing better than managed in other areas of the pub market during the cost of living crisis that we're going through.

23:45 We're making inroads in the managed arena, as I said, because they they have limited options. Pricing elasticity is, you know, getting closer to breaking point, and if we can give them a day one return from selling one extra pint a day, then that's that's that's positive. The the recent so we've in the last in the last two weeks, we've done done and completed a number of installations with energy management system for beer beer cooling systems and sellers that can reduce consumption by, you know, round about 50%, 50%. And that in itself, you know, pays for itself and the the an average pump probably benefits the tune of, you know, a 500 a year.

24:36 And I I guess, lastly, that that full beverage metrics integration piece, that's worked really well for us because it gives we we can give the pub unit manager or the regional manager everything they in seconds every day in the with with the dashboard. I don't wanna dwell too long on The States, but I'll touch on it. The bottom line is that we have the most comprehensive, scalable, proven, you know, drinks management solution following the integration of BeverageMetrics. In The U in The US, for instance, we had well, we don't have any real competition in The UK. But in The US, for instance, there's five players that do draft beer monitoring. There's probably 50 that provide inventory, and that's you know, a lot of those guys are point of sale providers, but there's, you know, none that provide the combined, you know, combined solution that we we provide.

25:35 As I said, that instant configurable dashboard that gives the unit manager everything we need in thirty seconds, and we give capture all the financial data. So certainly, whether that's the full cost, whether it's the point of sale loss, or whether it's margin analysis. Margin analysis, we can do at drink level, brand level, tap level, site level, or region level, and that's something that's very difficult for operators to get to otherwise. The only the other thing I'll pick up on here is VNET GROUP our partner in The USA. We've been doing an into full integration with them. When I say integration, it's we will capture an order. That order will be processed back through partners'

26:25 Brink's management system. Our partner, they do payment processing for in excess of 30% of on premise licensed on premise venues in The USA, which is, you know, a significant opportunity for us to actually integrate with them to actually give cover an end to end beverage management ecosystem that includes our inventory system.

26:57 I won't spend too much on the addressable market in The US, 382,000 licensed premises across four key segments. In the restaurant sector, big players are Applebee's with, you know, almost 1,800 new units, Brinker Stoke Chili's with a 200, and Bloomin' Brands with over a thousand. And these are all guys that we're talking to and in discussion with as we speak. And then you look at hotels, almost 1,400 married hotels with bars. So, thankfully, our relationship with our partner in The USA gives us access to these guys, but also to individual and smaller chains that allows us to drive our sales operation.

27:48 In terms of where we are, we're tracking to establish a successful U. S. Business with the objective of being monthly breakeven until year '25. The proposition is pretty compelling. Return on investment is three to six months and as it drives performance and productivity, and it's pretty much self funded. One pint a day going through the tail pays for the system. And we've got a number of you know, I talked on the part partner and the automatic ordering invoice and and receipt of goods that'll gives us a fully integrated in to in for drinks management. And that that that's really important for operators because that the amount of time that's taken at the moment for an operator to place an order, we will we effectively provide them with the suggested order.

28:47 They press press to accept the order. That goes to our partner in The US, and then that goes gets farmed out to the various suppliers, and then we get the e e invoices back, and then we close the loop when the goods are received. And that when the goods are received, the that's when we do the full inventory reconciliation, and it becomes, you know, beneficial ecosystem. So very positive. Just touch on a couple. I'm not gonna go in through every new sort of prospect here, but customer a, that's an existing customer that is rolling out a franchise, and we are on the franchise technology stack, and that's gonna deliver us growth in through the second half into full year, you know, full year '25.

29:40 And then just looking at the the the payback that and the the ROIs that our customers are getting, it it it should be a no brainer going forward. It's just a case of I guess, that that that point of sale shift loss report delivers an excellent return on investment in its own right, and the options are narrowing for managed operators in any case. And so we are a quick win, address the point of sale, address the loss and improve the productivity. I'll hand you over to Mark now, who will take you through the financials. Good morning, everyone. Just starting on the headline P and L performance, you can see that the turnover is marginally up year on year, held back by what Jim referred to regarding the three impact and customers having to understand the impact of that. So that held us back, but that should improve in the second half, be a driver for us. Gross margins are up due largely to the incremental recurring revenue growth we have seen and the reduced cost of operations that we've delivered in the year. There's an improving gross margin scenario there.

30:48 EBITA or operating profit is up 7% to 1,297,000, and that is net of post acquisition cost of operation for BMI of roundabout no point 2,000,000. If that was done on a like for like basis, then the growth would be 23% year on year. The pre exceptional PBT of $159 there, that's back in the black, which is pleasing see. And again, that is net of the $200 BMI costs, so it would have been $359. The exceptional costs that we did incur in the period largely relate to the acquisition of BMI, all the advisory costs and the and the legal costs in delivering that. So overall, we delivered a a loss before tax of $171. Again, net of the BMI $200, like for like, there'll be a small profit, and that translates into the EPS of point five eight on the negative side, but without the BMI, the like for like position would have made a small positive point zero two EPS.

31:50 And EBITDA on a like for like basis year on year would have been 3.7% growth. If we move on to the divisional performance, smart zones, turnover was not a million miles away from the prior year. We had a hundred and fifth hundred and five new systems in the period, but the net state did reduce by a 153 sites. But that is a slowing of the the decline in the estate size. In the previous year, we had 356 sites, lost to us. H two will see new systems being delivered, so we do expect the estate to remain in and around the current 9,700 that we have today, and James touched on earlier. Gross margin improved from a healthy recurring revenue base, but also a reduced cost of operation.

32:37 We don't carry quite as many engineers, and we don't use the the intelligent flow meter as much with the development in tech in flow meter technology that we've had in the period. So there's a reduced cost to serve our customers. Year on year, overall, the profit must be slightly behind last year, but that is net of the 200 gram BMI costs. So like for like in The UK, the division returned a 4% uplift in profit growth. The recurring revenue remains strong as ever. The division remains a resilient performer and cash generator. In terms of smart machines, you can see the turnover is ahead year on year, yes, held back by the three g to four g network impact as we've discussed, but h two will be an accelerator for that.

33:25 We had 37 new contracts. We had 5,264 new connected devices, and all that contribute contributes to the estate growth of around 6% being just shy of 56,000 connected devices that Jim referred to earlier. That all underpins the recurring revenue growth you can see there to 77% and the improved gross margin that we've got, and we have a slightly lower cost to serve in that division as well. So overall, we're seeing a continued growth in operating profit by around 29% to 1,049,000 year despite the three to four g lag. So we're very pleased with the the performance of the division and that is set to continue. In terms of the cash flow, the business continues to be a reliable cash generator.

34:14 The pre working capital profit to cash conversion was 97% or 104 of EBITDA. The post working capital conversion of profit to cash on an EBITDA basis was 105%, which is a significant step forward from last year's position of $670,000 The working capital in the period was flat and more normalized. We said that the stock investment that we were making in the prior periods were based and it has done. So they they got a broadly flat, movement in working capital there, which is what we expected to see. So we have decent cash generation, operationally post working capital of 1,269,000 there. We had a tax receipt of $923. That pertains to tax losses we surrendered in March, and we received that money in May. Overall, we had an operating cash generation position of just shy of 2,200,000, which is obviously very healthy.

35:08 We've invested in, new tangible assets around rental equipment and r and d. The r and d is tracking about 300,000 less than the year before. So that's again is improving. And we obviously refinanced our, bank facilities with HSBC, and that's reduced the, onerous repayment profile that we used to have, and I'll come on to that when we get into the balance sheet. So that's again improved the cash position of the business. So in summary, you know, the combination of the results we've delivered, the cash generative nature of them, the tax receipt we've done, the refinance of the bank facilities gives you a very healthy cash inflow position that is set to be maintained. If we move on to the balance sheet, the balance sheet has been strengthened with the more flexible bank facilities we have now with HSBC.

36:00 We have a less foreign risk payment profile which support the growth ambitions of the business. In facilities, we now have a 2,000,000 committed three year committed RCF at 2.62% above base, a 840,000 mortgage for fifteen years at 2.42% above base, and 600,000 term loan for four years at 2.52% above base, all very competitive variable rates of interest and at least 1% lower than our previous provider. What that does for us is it reduces the amount we're repaying in bank debt by about 350 to $400 a year, which we'd rather invest that in the business. And we used to be spending around $800 a year in bank repayments. So it's strengthened the balance sheet, reduced the cash outflow and debt repayments, and it's a very healthy position to build from. Our net debt has reduced significantly to $2,090,000 from $3,560,000 last year. So it's a strong position to go forward and realize our growth plans as Jim has touched on. Now I'll hand back to Jim. Thank you, Mark.

37:09 Although we've demonstrated that we are in a position to drive growth in earnings, the markets and trends are positive for us, and they're they're very favorable levers as we sort of drive forward. The the cost of living crisis and inflationary backdrop, that actually means our solutions are increasingly relevant because people need to run more efficient businesses and be more productive, do more with less, and that's what we allow people to do. And with it, we give a very compelling return on investment. If you look at the unattended retail division, we've secured long term renewals with our existing customers, and we've made inroads making inroads into buying groups, driving new business as well.

38:03 And that's all helped by working with partners that take SureSight and the, you know, the really attractive transaction rates that we're allowed enable us to go to market with. And then you got VNET GROUP who give us QR technology that we can actually look for the the next phase of development in in in the in in the the unattended retail sector. And if we sort of look at the the hospitality division, well, at least in tenant, it is resilient. Over the next over the coming years, we'll probably see more managed operations, you know, return to least in tenanted. For some for some years, there was a move from least in tenanted into managed, but we'll probably see it reverse.

38:49 Why is that? Because the the cost of employing people is only going to increase. The point of red tape is only going to increase, and it makes it you know, I think you got somewhere outside London. You could be gotta be making 6,000, 7,000 a week before you can justify an output being a managed output. So that's gonna help drive our existing lease and tenanted, but we've also got a product that's now relevant for managed in in a very, very real way. So we're expecting to see growth in both The UK managed and in The USA. And then, you know, the the the the demand for data and our ability to commercialize our existing platforms and technical capability has allowed us to make, you know, that strategic move into forecourt valeting and providing, you know, connectivity and conductless payment there, and we see that as being a big win for us over the next, you know, year, two years, and we're making good inroads.

39:55 And energy saving in pubs and bars. If we can if we can you know, with with an energy saving, you know, management tool that can allow, you know, average pub to reduce to enhance the bottom line by a thousand, £1,500 a year, then it's worthwhile having and, you know, gives a really good payback. So in a very good position.

40:23 And the the quality of our recurring income is only gonna improve, and we're gonna, you know, be creating a lot of cash and be in a position to actually, you know, pay, you know, an improved dividend going forward. The bottom line is it gets back to people and working with the right partners and ensuring that we remain trusted advisers and partners of choice with our customers, and that's key. It's fundamental to everything we've achieved over the last three years, and it's gonna be, you know, a focus going forward as well. So that that that ends sort of my the presentation. We move on to questions now, We have some pre submit questions here, which I'll read out.

41:12 Number one, my question relates to the expansion opportunity in The US. In The UK, it tends to be that the majority of pubs are owned by breweries and chains. Well, actually, in The UK, I think there is something like 11,000 pubs in leasing tenanted and probably in the region of 12,000 in the managed arena, and the balance are independents. In The US, you know, basically, what we have here is we've got, you know, a total market of 382,000 on premise licensed venues. About 64,000 of those are in chains of more than 10 outlets, and there's if you look just at pubs, bars, and licensed restaurants, there's something like quarter of a million in, you know, in less than 10 sites.

42:02 How does that impact our route to market? Well, we get access to, you know, just you know, access to decision makers in the in the big chains is important because that's the level at which we'll make decisions to invest in our our equipment and our services. Utilizing existing relationships and partnerships, we're getting increasing access to those change in The US in addition to the ones that we've been working with for some time. And working with one of our partners in particular, that gives us access to the, I guess, the the the independence and smaller operators, and that's something that not many people can get access to. So that's that's it's quite unique.

42:51 Question two. Can I ask about how Stella Panu's nonexec appointment came about, please? Well, I guess number one, Chris Williams, our chair of audit, was retiring after a good period of time with us. So I we needed to find someone who could share our audit, and we're also looking for someone with city and financial experience. And, it just so happened that, you know, we've known Stella a long time. She was one of our first investors, when we IPO ed in 2006. And over the years, she's been one of our most challenging investors, know, perfectly prepared to give us a hard time.

43:37 And that's us as a as a leader in this business, that's I don't want yes people in my business. I want people to tell me how it is. And we're fortunate and that Stella became available, and I basically, you know, had the conversation with her, and she accepted the the role. So we're very pleased about that, and it's worked out, and it's working out really well and real value added. Question three. In smart machines, you talk about a sizable addressable market of $377,000,000,000 dollars and you have growth connection, and you've grown connections by 6% to 56,000 connections. Over the next two years, looking at your share of market, what is the realistic number of new connections you are targeting?

44:26 We're targeting to be at at a 100,000 connect new connect connections within the next two years, which would be another forty four thousand new connections. And we can get there through a combination of existing customers where there's still significant scope for growing the footprint and new customers, and that's before we look at the opportunity within forecourts. Question four, how big is the unattended forecourt market? What specific other new verticals are you targeting, and how far advanced are they? Well, the The UK forecourt market number is about 8,300. Half of those have some form of valeting, whether that's air systems, backs, or jet wash or car washes.

45:15 If you look at the eight thousand three three hundred, third, there's there's probably somewhere in the region of about 2,000 of those still operating cash only. So that's a big there are two opportunities here. Conversion of cash only to, you know, our new four g systems, and the other opportunity is to replace, you know, early adopters three g, you know, devices with our four g units, and that's what we focused on. So a significant opportunity. And in terms of new new verticals, we're in discussions and have proof of concepts in a number of everything from everything from stand alone toilet modules through to, you know, through to EV charging, you name it. There it it's it's endless.

46:11 Our platform is capable of actually, you know, and technology is capable of, you know, addressing a number of, you know, remote asset management opportunities. Question five. Given that you sold an additional 105 new smart draft systems, why is your turnover lower than h one twenty three? Our turnover was marginally lower because we the the net of closures was a 150 not a 153 in in the first half. I expect to see that turnaround to a net gain in the second half. So overall in the year, we'll probably end up with, you know, being, you know, hopefully somewhere that's pretty close to flat in terms of the the number of pubs we have in our in our estate during the year.

46:59 Point six. Given you previously have had exposure to The US market through AMC, can you explain in greater detail why you're confident that the acquisition of BMI will now enable you to unlock the market? Is AMC still a client? How many active discussions are underway in The US, and what number of system sales are you targeting in the next twelve months? I'll take those one at a time. The integration of BeverageMetrics with, you know, the leading draft beer solution, in in worldwide, creates a full drinks management solution, and operators can get a return investment purely from the point of sale shift loss data.

47:47 Day one, the point is the the system is installed, we see an uplift in what's going through the point of sale. Now, basically, people know that there's a system in there, so they start complying, behaving. So that in itself drives, you know, the return on investment, and that's before you start to look at the productivity productivity gains that are available. You think about it. If you pour the perfect pint, you know, you're not wasting time topping it up. You're not wasting time with foam. You're not wasting time. You're not having a customer standing behind the bar waiting on that pint. So he gets his pint earlier, he starts drinking earlier, and you start serving the next one. We have a much more productive operation before you look at the waste waste forward.

48:36 In terms of the AMC, AMC was a bit of a setback for us because AMC, as with all theaters during COVID, they they found it very, very tough during the pandemic, and they they they they barely survived. And they couldn't afford to pay us, so we're we ceased service. And then we've basically started, you know, building up our momentum from scratch. We're at a 120 sites in The US as we speak, and our goal by by the end of by the end of full year 2025, that's in the next fifteen months, we're looking to be, you know, breakeven in The States.

49:22 We figured that takes 300 draft sites where we've been doing draft beer monitoring and 250 where we have the three d fast scanning inventory solution being sold. So that was the pre submit. I'm just looking now to see if I can see the live. Can you please comment comment on composition of your customer base and how it has evolved over the last twelve months? How do you ensure that sufficient levels of customer satisfaction and retention? I guess that's two two questions there. How do we ensure the customer satisfaction? Well, unlike unlike if we we take the vending we take the vending, you know, unattended retail market, unlike, the majority of our competition, we continue to invest in our customer experience. We have our own field engineering, and we continue to invest in our products and solutions and people.

50:19 And, that will drive that ongoing engagement and keep, you know, with Dennis as the customer, as the trusted adviser who's delivering that that that that that experience. The the other thing, we there's a compelling return on investment. There's real stickiness. If you get in there and you actually look after your customer, they're not gonna want to change because the cost of change is substantial. So that that's why three g to four g has been so important for us and cracking opportunity to really take advantage of a need to change and couple that with some dissatisfaction with existing providers, and that's really opened some doors for us. In terms of customer composition, I don't have it at hand, but what we have seen is we've seen a growth of the vending operators in our top 10 customers, people like Jacob, Dorek, Berkshire, Lavette breaking into the top, but that's something that we will we will publish on our website now in terms of more more detail on that.

51:27 Next question. Earlier in the presentation, you referenced you do not see much competition in The UK. Why do you think that is, and what steps do you take to remain competitive in the market? Well, there is competition in the unattended retail space. There are global players that we compete with, and we compete very well with for the reasons I've just covered. But if we look at the hospitality market, we don't have any competition in the hospitality market, but we don't rest on laurels. We don't abuse that dominance that we have. The bottom line is that we focus on giving our customers a return on investment and giving them a great service, and by doing that, that means they'll stick with us, you know, and it make that makes it if anyone there are over the years, have been a number of, you know, players who've tried to, you know, come to The UK and enter the market, and they've all failed from Ireland because who would want to risk having egg in the face by moving from someone who's a trusted adviser delivering a service and then take the risk of, you know, basically, you know, failure?

52:40 That's all the questions. Is there another one coming? Oh, there's another question just come in. Lauren, thank you for your presentation. Can you comment on the value of upsell by the expansion rate and customer churn, please? Were you able to increase prices in 2023? Many thanks. So The bottom line is that all our all our contracts have RPI built into them, but as you can imagine, you know, when RPI was, you know, up 13%, we didn't abuse our position.

53:25 We capped it, I think, at 6% at one stage. Yeah. No. And and I guess the cap is now down beneath that because so that that's pretty much where we are. In in terms of upsell, up up let's take hospitality in terms of an upsell, 9,700, you know, you know, pubs and bars here in The UK. We probably have the ability to sell energy management solutions into each of those, you know, pubs and bars because there's a, you know, a good good upside in terms of an extra thousand, £1,500 going to the bottom line in an average pub could make a difference.

54:14 So that that's one example of upsell, and I guess there's there's other opportunities as well. But what we haven't done is we haven't, you know, we haven't sold in our inventory solution in The UK yet, so there there's further upsell available. And then there's you with our access to what what we have in pumps and bars, there's an opportunity for us to move to add retail compliance to what we do. It's a it's a it's fairly easy bolt on. Yeah. And I think that's the questions now finalized. So Absolutely. James, Mark, Craig, thank you very much indeed for addressing all of those questions that came in from investors this morning. 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 just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses on the platform.

55:13 But, James, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. Well, I I guess I just hope that we've demonstrated that we're in a position to really drive growth in earnings, whether it's whether it's, you know, layering within our core leasing tenanted, whether that's the, you know, our successful entry into the managed arena in The UK, whether it's the progress we're making in the space and are working with our partners there, the the proactive approach to the three g switch off, you know, how we've made progress there, and the strategic entry into forecourts.

55:59 Some really big positive things that over the next six, twelve, eighteen months are really gonna, you know, shift our top line and bottom line, and that's important. I think, you know, the bottom line is that if you look at management, management have 20 of the the the stock in the business, and, we're we're invested in this business, and we wanna see, you know, have the ability to pay a decent dividend end off. So really appreciate your time, and we're always available if anyone has questions down the road. Thank you. Perfect. James, thank you for that, and thank you once again for updating investors this morning as well. 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 really better understand your views and expectations?

56:52 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of VIANET GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all. Thank you. Thank you.