Journeo plc (JNEO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Journeo plc Final Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received 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, we'd like to submit the following poll. I'd now like to hand you over to Russ Singleton, CEO. Good afternoon, sir.

Thanks, Paul. Good afternoon, everybody. Thank you for making time to listen to our presentation. So by means of introduction, I'm Russ, I'm an engineer, and I'm the CEO. My colleague on the right is Nick, who is our Chief Financial Officer. And we've got today a short slide deck with us to run through our FY '24 results, which we're pretty pleased with actually. So for everybody who is new to us, Journeo is really information systems and technical services business working predominantly in the transport sector. We've been growing strongly really over the last 5 years, and the results that we've announced build on that. So a strong growth in revenue, profit and cash. We've got a growing sales pipeline, which has gone up from GBP 50 million in '23 to GBP 60 million in '24, we're now running ahead of GBP 75 million of opportunities in the pipeline with qualified opportunities and prospects. We've been really busy last year whilst we've been executing our business plans and our strategy. We've also been beefing up the -- what we call the bench or the senior team around [indiscernible] so that we can absorb further growth and that we ourselves don't become a bottleneck on that. So we've made some high-level appointments, which we can cover later on. And we've also been investing in some of the systems behind that, so through CRM packages and HR software packages. And then sort of final point really there is that we've been developing an active M&A program with a number of businesses that we've been getting to know over the last 3 or 4 years or even longer than that such that we are able to bring businesses into Journeo Group that we understand with people that we know and we can trust. And we'll give you a bit more information on that later on. But the headlines are there, but -- so we'll come on to the financials a little bit later. So what Journeo is doing is we're bringing in sort of off-the-shelf IT products and software and really tailoring them for fleet operators businesses to help them drive cost and improve efficiency. And it's all about really making public transport and freight transport safer, more sustainable, of course, and more attractive where there's passengers involved to -- as part of a program really to get people out of personal used cars into public transport, which aid congestion and it's all part of the decarbonization agenda. And Journeo really focuses everything that it does into 2 course kind of application areas. One of them is on-vehicle systems where our IT solutions are on board the bus, the train, the train, the tram, the coach and also the infrastructure around the rail platforms, bus stations and parts of the inter-cities. And we do that currently through 4 operating companies. So the image on the left is a picture of a train actually, and that's obviously our Fleet Systems business where what we're doing there is providing integrated services. So it's a bundle of hardware know-how, external products and software, binding them all together and then providing over-air generally through cloud-based applications, access to the onboard systems, whether they are passenger counting, access maybe to the vehicles, telemetry information or security. Our Passenger Systems really is about public sector information delivery. And that business works with civil contractors, architects and specifiers. And it has a focus on real-time information delivery out to members of the public. And it's got some quite long-duration relationships with sort of local authorities and sort of government agencies. Infotec is market-leading manufacturer of rail information systems in the U.K. It's on about 80% of the network. And it has some quite sophisticated cloud-based software applications for managing the displays, particularly the graphical layouts and ingesting the different data streams that are connected to that. And the new business, Journeo A/S is based in Denmark. This has been formed from Journeo's operation in Stockholm, where we have engineering services business for the last 10 years and MultiQ and that's now run by the Managing Director of the business that we acquired, Mads Hansen. And the aim of Journeo A/S is to take everything that Journeo has to offer out into the Scandinavian market, but also bring back from that Scandinavian market a really modern aesthetic engineering approach to their products, which look really cool. This next slide really is about the fabulous list of companies that we work through -- sorry, we work for. And obviously, predominantly, these are in the U.K., but there's a number of them that are outside the U.K. where we're dealing with, for example, a large media agency called OUTFRONT Media who have the New York City contract for the subway, obviously, Dublin Airport. Skånetrafiken, which is the transport regional provider in Southwest Sweden and Copenhagen Airport and Vertiseit, which is the Swedish listed digital media company that we work with and their subsidiary, Grassfish. But really good selection of operator customers. And we're very happy to work with a small coach operator that may have 2 or 3 coaches right through to operations with many thousands of them. The bar at the bottom is a sort of snapshot of a few KPIs. We currently have 31,000 assets that could be buses, trains, coaches or displays or pollution-sensing equipment connected to our cloud-based platform. That's growing all the time. Our onboard systems are now connected to about 30% of the buses and coaches in the U.K. I won't go through all of these, but there's just over 200 people actually in the company as I sit here today. So revenue is about GBP 50 million, and that's all delivered through these business units and 200 people. So that's a quick introduction to what Journeo is about. I'll now hand over to Nick to run through the financial results.

Okay. So 2024 was a very, very good year. Revenue was up 8% for the group to GBP 49.6 million. Another particularly pleasing bit was gross margin increased by 5% to 36%. So we touched on this at the interims, but we've improved margins significantly. And that flowed -- obviously, flowed through to gross profit where were up 24% to GBP 17.7 million. We flowed the profit well down to PBT. We're up 33% to GBP 5 million for the year. EPS was up to 26.29p, which is a 46% uplift. So we had a very low effective tax rate, which aided the uplift in EPS. So that's a combination of R&D tax claims and other piece we had a very low effective tax rate. And cash, we were very, very cash generative. We moved to GBP 14.3 million cash, up by GBP 6.2 million from the year before. We also paid deferred consideration of GBP 1.25 million during the year as well on acquisition made in 2023. So operationally, cash actually moved by about GBP 7 million just over in the year. We always talk about R&D and how much we spent there. So we spent just over GBP 1.5 million during the year. It all passes through the P&L., amortization matches capitalization. So the profit of GBP 5 million is after the write-off of GBP 1.5 million of R&D. Into the segments. So Russell explained each segment. So Fleet Systems was a phenomenal year. We were up 45% for revenue there, GBP 23.7 million. That's now doubled in 2 years. So very, very strong performance. Gross margin, it's actually got the lowest margins in the group, but we had a 4% uplift in margin. So we actually increased gross profit by 69% to GBP 6.7 million. And actually the really pleasing bit with Fleet is we had a bottom line in Fleet of GBP 2.5 million, so an operating margin of over 10% in Fleet. Passenger Systems, we were up 5% to GBP 9.5 million, consistent uplift with last year. We have good margins here. So we're in the 40s, and we increased it by 3%. So we're up to 47% margin, which means gross profit was up by 12% to GBP 4.4 million. Bottom line operating profit was a bit lower here. It's -- but has improved. We have a fairly fixed overhead base in there and it will only take -- takes a bit more of an uplift in revenue to move that to be a very variable operating margin. Into Infotec. So revenue decreased here to GBP 12.4 million. This is exactly what we expected. So we -- as we've mentioned before, we had a large contract in New York, which ended during the year. So the -- so that was fundamentally the movement in year-on-year revenue. If you just look at Infotec in terms of its like-for-like U.K. rail, it had its best ever year. So it's -- again, although the revenue decreased, it's as expected, and we are pleased with the performance. Again, margins were up significantly, 7% up. So gross profit I guess is a much lower decrease. We're at GBP 4 6 million there. And as an overall contribution for Infotec, it made just over GBP 2 million. So operating margin is just over 15% there. So very, very good result. Journeo A/S, which is the Danish business we acquired in 2023, previously called MultiQ. We just -- we had 3.5 to 4 months of it in 2023, a full year in '24. So revenue was up to GBP 4 million. Gross margins are very good here at 48% so it delivered a gross profit of GBP 2 million. And this business has the benefit that it has enough -- it has a good recurring revenue base, which means it's profitable without winning any new business. So it's got a very good fixed income to start the year off. Which then moves to group recurring revenue. So we were up 40% of group recurring revenue year-on-year. We moved from GBP 5 million to GBP 7 million. It's 14% of the total group revenue in the year. The SaaS element is about 40% to 45% of the total. The balance is more maintenance and services, but SaaS is the area which has had the biggest growth in the year. Next slide. So contract wins. So this is, I guess, a list of the announcements we made during the year. We have -- we did previously increase our announcement threshold. So we -- I guess we had less announcement than we have historically, but the threshold is higher. So they are large wins. The good thing with this list is it shows success across the group and the different areas. So the first one, GBP 4.7 million for Transport for London is fleet on bus. The next one, GBP 3 million, is success on train. So we've done well there. Metroline Manchester again is on bus. The following 3, so the Northern Transport Partnership, Swansea and Edinburgh are all within our Passenger Systems business, and that's a mixture of hardware and recurring ongoing income. And the bottom one is although below GBP 1 million, it shows a win for our Danish business UMove, which was a contract won by Journeo A/S. Operational highlights. As Russ said, we spent a lot of this year or last year getting ready for next steps. So we formed the Journeo Design Center for product development. In organizational developments, we made a number of key recruits in key areas to get us ready for the next step. We've implemented group-wide HR systems and support programs. As we've now over 200 people. So we've made steps there. And we retained all our ISO cybersecurity and information certifications.

Okay. Thanks, Nick. So really, this next couple of slides really are about what we see, why Nick and I put our own money into this business, why we actually believe that there's an opportunity if we can get the technology and the services right to scale this business up significantly. And I'm sure most of you are aware of the sort of smarter cities agenda, which has been going on for at least the last 20 years. And that has moved from being about congestion to be about globalization. So these kind of 5 major sort of descriptors that we've been using to say, well, actually, what are these trends? Are we just trying to fix a problem that's applicable just in the U.K. or is some of the solutions that we're developing, whether they're services or products or indeed software, does this have a potential for explosive growth in terms of worldwide deployment or certainly replicated in other major economies. And so these things are the urbanization, which is leading to more people coalescing on large cities. London is a good example of that. That's leading to further congestion, and that's obviously a problem. There's then the climate change agenda where lots of governments are looking at how they can decarbonize parts of society, and public transport and shipping are pretty major areas to go. You've got the shift in economic power and whilst the pandemic affected globalization and started to see sort of friend-sourcing or in-sourcing, there still is an inexorable move towards electric vehicle production in Asia, where China leads the world in renewable, both solar manufacturer and battery technology manufacturer and also the rare earth products for the motors. And obviously got some demographic changes now where young people are, in increasing numbers, deciding not to take driving license and actually to use public transport. And on the technological side, we can see things like with the IoT and the smarter cities agenda, where there just is going to be more connectivity between vehicles and the infrastructure and the signaling and things like highways monitoring as the world starts to adopt autonomous vehicles as part of this kind of change. And so what Journeo has been doing is we've been creating the integrated services platform where we can link together all sorts of disparate technologies. It doesn't matter what the operator has or what the local authority has. We will connect it up and give them access to that over a cloud, and that's kind of like a sort of a single-level access. But then what we're starting to do then is to overlay machine learning and AI into that so that we can start to pull meaning or valuable sort of insights out of this connectivity. And that's helping Journeo directly for things like our predictive maintenance schedules, but it's so much more that, that can be used for. So those are kind of like the things that's in the background, fragmented supply chain at the moment. And there are substantive government backing for a number of initiatives. And it's things like the Bus Open Data, which is effectively trying to make the information more accessible, try to get public transport to become the de facto choice. You've got what's left to the Williams-Shapps Plan and Control Period 7 for rail. And then there's effectively 2 quite important initiatives that the government has started. One is the Bus Service Improvement Plan which effectively put GBP 1.2 billion into the market to enable local authorities and fleet operators to form enhanced partnerships and have access to this. And in December, January this year, that was extended by another GBP 958 million, taking the total up to GBP 2.2 billion. So that's effectively going to provide a catalyst for further investment in clean energy vehicles for the next few years. And there's also something called City Regional Sustainable Transport Settlements, CRSTS, which is GBP 5.7 billion. And that's effectively going into mayoral authorities that are -- one of the aspects that we are very interested in there is that these mayoral authorities are -- a number of them are looking at adopting the franchising model which has been adopted, obviously, originally by Transport for London, but more recently by Transport for Greater Manchester, with great success. So -- and with these schemes come sort of integrated park and ride schemes, cycle lanes, clean pollution sort of free zones, all of which are opportunities for Journeo either through its public information businesses or through its fleet services businesses. And as a result of that, we're feeling that there's now a really good opportunity for Journeo to take another step forward and effectively double its revenues and take us through the GBP 100 million mark. And if we're able to continue to drive out -- cost out of our integrated supply chains and unified manufacturer, we believe that this could lead to sort of GBP 100 million market cap opportunity for us. And we're talking about a sort of 2- to 3-year time frame for that. And the way that we're going to achieve that is through organic growth. We won't be able to maintain the 45% in our fleet business. Obviously, that's not sustainable. There's a kind of cap where we can get that to. But we believe sort of 10% or more is realistic. There are opportunities, and obviously, we're going to come on to some questions shortly, but there are a number of opportunities for us in terms of consolidation where some service providers or niche providers of services, whether that's in street furniture or it's on vehicle, could make sense for us to acquire. And obviously, that would give us some sort of leverage in there because we have more sort of advanced technology and a nationwide service to expand those businesses. Our recurring revenue has grown. And obviously, that growth is a function of our sales. And it gives us sort of high-quality future visibility of our revenue. But we're also very interested now in businesses that are providing services to what we call adjacent markets where Journeo at the moment doesn't have within its extent of supply, not within our firm boundary. But it would make sense for us to have them within our firm boundary rather than be subcontract because obviously, when you're dealing with the subcontract, ultimately, you don't actually have control of the priorities of the subcontracted business. And this would enable Journeo to capture more of the spend on some of these larger infrastructure projects. So at the moment, the sort of summary picture for Journeo is that we delivered what we set out to deliver in FY '24. And in fact, it's ended up better than we originally expected, and that led to upgrades from Cavendish. Overall, an 8% increase in revenue to just GBP 50 million. The profit sort of GBP 5 million, very healthy cash generation, as Nick said, even after settling deferred consideration on the acquisitions. And there's a lot of momentum now, both in the U.K. and it's gathering momentum in our Scandinavian operations. So I think that's probably a good point for us to stop with the sort of presentation. And do we hand back to Paul now for the questions?

Fantastic. Thank you very much indeed for your presentation, Russ and Nick. [Operator Instructions] Just for the team to take a few moments to review those questions submitted today, I'd like to remind you the recording of the presentation along with a copy of the slides and the presentation will be available on the Investor Meet Company dashboard. Russ and Nick, as you can see, we've had a number of questions both presubmitted and throughout today's presentation, and thank you to all the investors who submitted those. If I may just ask you just to click on that Q&A tab and, where appropriate to do so, just read out the question to give your response. And I'll pick up from you at the end.

Do you want to go right up to the top -- there's quite a few. Okay. So it doesn't say who this is from, but who are your biggest competitors? And what is the main reason for customers choosing Journeo over there? So our competitors really, we don't have one sort of monolithic competitor that we're up against. There tends to be different competitors in each of our business segments. And that may be because we're sort of entering the market. So we try to dislodge an incumbent or it could be that we are the incumbent, and we've got people obviously trying to buy market share. So in our Fleet Systems business, which is predominantly bus, rail and coach, the businesses that some of you might heard of that we compete with are companies like Traxys on rail and to some extent Petards. In the bus and coach market, it tends to be smaller operator sort of privately owned companies that can sometimes offer a lower cost on a sort of one-off basis. In our passenger business, we don't really have many competitors because there aren't many people who can actually do the breadth of things that we do. So the companies sort of on the periphery of that, our specialists may be in ticketing. And so they perhaps provide ticket vending solutions and they're able to provide some passenger information systems. We may well find that there's a large contractor that picks up the whole contract, and they perhaps will bring in displays from, say, from the Far East and then connect them up. We don't see a lot of that. In Infotec, it's on about 80% of the U.K. rail network now. There are competitors come up from time to time. I try to think of one of them was a company called Black Box, who had a relationship, I believe, with Samsung for their displays. And from time to time, there are sort of different companies come in there. But as Infotec has also been growing, it's now starting to get involved directly with the very large 30- or 40-meter concourse wide displays. And there are very few businesses actually that can combine the sort of active digital media with the real-time information that they provide. So -- and a similar situation actually in Scandinavia. What we're finding is that there are not many companies that can actually provide both the in-street and the onboard technology. I must point out that in terms of onboard connectivity, the Scandinavian market is ahead of the U.K. So they have something called ITxPT, which is Internet for passenger or public transport. They've had that for quite some time. So their systems tend to be more deeply integrated. And Journeo has benefited from that because we've had sort of advanced warning for many years about the kind of technology that we should be bringing into the U.K. So we've used that to our benefit actually. So I hope that's enough on that one. Let's take the next one. Some of them are the same question, aren't they? Okay. I'll take this one. Are you able to put a specific figure on your sales pipeline for this year? In the same presentation last year, we said the sales pipeline was GBP 60 million. Yes, I can answer that. And as you can see there, our sales pipeline actually when we started the year, January 1, was actually GBP 79 million. What we've been doing, we've recruited a new group sales director working across Journeo, supporting the managing directors or the divisional directors of each of our 4 businesses. And we've put in something called HubSpot, which is a unified CRM system. So prior to this, Journeo fleet and passenger, we're using something called Pipedrive for CRM. The Danish and Swedish business we're using Salesforce.com and Infotec used something called EFACS, which is an ERP-based system. And by putting all of the sales opportunities and pipelines together, the pipeline is now heading towards twice the figure that we've revealed here. The only reason, in fact, that we haven't included in this presentation is it's not on a like-for-like basis. So the actual overall sales pipeline is very significantly higher than GBP 75 million. Okay. What is the geographical split for the business? That's perhaps one for Nick to answer.

So U.K., we are about GBP 40 million. So 80% of this last year was U.K. and 20% was overseas. Of the overseas, about half of it is Scandinavia, so a mixture of Danish business we acquired and our Swedish business that we already have. So there's about GBP 5 million of other overseas revenue. GBP 3.6 million related to the end or the last part of the U.S. contract with Infotec. And we have about GBP 1.5 million roughly of sales to predominantly bus builders overseas. So there's a number in China, there's Egypt, there's others. So I guess the original source of the business is our U.K. operators, but the actual sale will be to either Chinese or Egypt or other overseas builders.

Okay. One here. Can we provide more color on the display to the New York City implementation? So Infotec secured a contract with a media company called OUTFRONT Media based in the U.S. to provide displays on board the new New York City metro. The OUTFRONT Media has the exclusive marketing rights on board the new metro between 2020 and 2030. And as part of that contract, they are installing digital media screens on the new trains. The first phase of -- so the 1,600 new -- we call them subway cars, 1,600 of them being supplied under a $6 billion contract from the MTA and the vehicles are being manufactured by Kawasaki, a Japanese company, who set up a manufacturing presence in Nebraska. OUTFRONT Media placed a contract with Infotec to provide about 5,000 displays for these first 500 trains to roughly 100 of these digital media screens per train. And the contract was about USD 18 million. And that was already partway through when we acquired Infotec and the project went through to completion in 2024. The subsequent phase is for about 600 additional trains, and Kawasaki have made announcements to say that they have received the PO to start building them. But our customer, OUTFRONT Media has advised us that they're not currently taking up their option to fit the digital media screens on these next batch of trains because the passenger footfall on the metro has been suppressed since the pandemic. So they signed the contract in 2020 and obviously, the pandemic hit. And as a result of that, they haven't had anywhere near the same passenger footfall in order to monetize the displays on the screens. So the trains are going to be built and they're going to be prewired so that they can be retrofitted with digital media screens at some point in the future. And whilst it's not concrete at this point in time, because we speak to our customer twice a week, what they are saying to us is that President Trump has made statements about people returning to offices and that anecdotally, the metro is getting busier. So if the passenger footfall metrics sustain the kind of tipping point that our media customer needs, then they would start to install the media screens. And we've had some conversations with them about that, nothing definitive at this stage. So that's the decision.

Okay. So there's a couple of questions about the, I guess, market consensus for us. So one question is the consensus revenue for FY '25 is GBP 52 million, which is prudent. So we're comfortable with the forecast that is in the market for us. I guess that's the best answer to that. There's another question referencing are we likely to be H2 weighted this year? We have been in many years, we weren't last year. I expect there's a small chance we might be slightly H2 weighted. So yes, it's possible as historically, we have been...