Microlise Group plc (2DI.F) Earnings Call Transcript & Summary

Good morning, and welcome to The Microlise Group plc full 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, I would like to submit the following poll. I'd now like to hand you over to Nadeem Raza, CEO. Good morning, sir.

Good morning, and thank you all for attending today. Just a quick couple of introductions. My name is Nadeem Raza. I'm the Chief Executive Officer of Microlise Group Plc, been with the business for quite a long time and have done a variety of different roles before becoming CEO when we did a management buyout in 2008. I'll hand across to Nick to introduce himself.

Good morning, everybody. My name is Nick Wightman. I'm the CFO for Microlise Group. And I was appointed CFO in April 2023. Prior to that, I was FD, joined the business in 2012 and been involved in a number of the key milestones in Microlise's recent history, including various different acquisitions and took a leading role in the IPO back in 2021.

Thanks, Nick. Just a couple of slides giving you some background for those of you that are new to Microlise. So we're a leading provider of Transport Management Solutions to large enterprise companies. We sell to lots of smaller companies as well, but the large enterprise space is where we really specialize and where our sweet spot is. And we help those companies solve complex needs with some of our proprietary software and hardware solutions. We help them by automating a lot of their critical processes and giving them that real-time information throughout their operation. Our customers benefit from cost savings, reduction in emissions and a whole variety of other efficiencies, which we'll talk about in a minute. There are high barriers to entry, and we have a very, very sticky customer base and very long-term revenue visibility. Our contracts are typically 5 years, so hence, giving that very long-term visibility of future revenue. And we have a clear growth strategy, which we'll come on to later on in the slide deck as well. Just in terms of numbers, we've been around since '82. We have about 715 staff. We have about 400 of those large enterprise customers, as I said, but thousands of smaller customers. We have deployments literally in every country in the world. It's easier to tell you the countries that we're not in. That's North Korea. That's it. We are -- have systems deployed everywhere else throughout the world. About 640,000 subscriptions. We are a SaaS business, Software-as-a-Service. And as such, people pay us generally on a per vehicle per month price for all the different modules that we sell, and we'll talk about the different modules and our portfolio in a second. I mentioned earlier that we're very sticky with our customer base. We have a very low churn rate, it's sub-1%. And for FY 2023, we turned over GBP 72 million. We are award winning. We have a number of different awards, including historically, we've won 3 Queens Award for Enterprise in 2018, '19 and '20, 2 those for Innovation and 1 for International Trade. This is how we help our customers. So we help them by producing the mileage that vehicles travel by optimizing routes and optimizing exactly what loads go on to what vehicles. We also monitor drivers and look at exactly how a vehicle is being driven. We have 31 characteristics of driving that we measure and then we can tailor training down to an individual driver that specifically to improve their skill sets, that individual skill set, focusing on the areas that they need to improve on. Of course, if you're driving vehicles better and you're driving them fewer miles, then you also reduce the fuel that you use, and that also means that you reduce emissions. And that's really what earns us the Green Economy mark from the London Stock Exchange. By driving vehicles better and driving them fewer miles, you also reduce the wear and tear. So there is an improvement in maintenance costs. And of course, you have fewer accidents, and that also leads to a reduction in insurance premiums. Not unusual for customers to see a 25% reduction in second year insurance following implementation of our systems. Really, what we tend to do is help them improve the efficiency and the utilization of their fleet assets and that's drivers, trailers, vehicles, et cetera. So then that enables them to do more deliveries, more loads, more orders with the same number of vehicles and the same number of drivers. Of course, we operate in real time, and we eliminate all of that delivery paperwork and that means that, that real-time visibility goes all the way through to the end customer and that enhances the customer experience that they're able to provide. These are locations around the world. Obviously, we now, through acquisitions, have 4 offices in the U.K. And then we have sales offices in France and in Australia and our sales and development office in Pune in India just outside Mumbai. So the highlights of FY 2023 in comparison to FY '22. Revenue was up 13% to GBP 71.7 million. Recurring revenue was up 11% to GBP 45 million. Adjusted EBITDA was up 15% to GBP 9.4 million. We continue to grow our ARR up 12% to GBP 47.7 million. And that's reflective of the growth in subscriptions up to 640,000 worldwide, again, up 6.8% on last year. Churn remained very low, 0.7%, slightly higher than the churn rate for 2022 at 0.4%. But still extremely low compared to the industry standard. Cash was up slightly to GBP 16.8 million, and we'll have some more details and color around the financials in Nick's slide shortly. We're also pleased to announce our maiden dividend. That will be paid at the end of June at 1.725p per share. Just to explain a little bit more about what we do. This is a slide showing the different groups of modules within our portfolio. We have lots and lots of modules, but we group them into these seven categories. We'll start off from the right-hand side here and talk about Fleet Safety. And you'll notice that the orange icons there, they're the different companies that we've acquired over the last couple of years and illustrate which parts of the product portfolio they fall into or actually contribute to. So Fleet Safety is all about trying to reduce accidents and deal with accidents when they do occur. So we have modules there, such as incident data recording, bit like an airplane black box recorder. We also have bridge strike avoidance application. So if you're operating a lorry of a particular height, we can warn you if you're approaching a bridge that you can't get under. And obviously, multi-camera solutions. So we have cameras externally on the vehicle, looking all around the vehicle and as well as cameras inside the vehicle, either looking at the load or looking at the driver to monitor for distractions or driver fatigue. Then we'll move on to fleet performance. So fleet performance is what you probably understand is vehicle tracking and telematics. So people often compare us with other tracking and telematics companies. As you can see from this slide, tracking telematics is a very small part of our overall product set. And it's really in this group of modules that we provide that telemetry. And that includes monitoring of the vehicle and where it is, but also things like temperature monitoring, door sensing, weight sensing, et cetera, as well. Then we have a compliance module, which again, covers all of the rules and regulations that you have to adhere to when you're operating a fleet of trucks, that includes the historical recording of any kind of maintenance and regular safety checking that you have to do on a truck as well as monitoring of all of the driving hours regulations that you have to adhere to as well. Then in the darker blue here, we have our Journey Management Solution and Connected -- Driver Connected Mobility. So these 2 elements really deal with the execution piece of the portfolio. So once you are actually operating in day with a plan and trying to deliver a variety of goods, lots of things can go wrong, and it's about making sure that you deal with those issues. If you're going to get stuck in traffic or if you're going to be delayed in making a delivery, being able to notify the customer automatically that, that delay is happening and also dealing with other scenarios, such as being not able to deliver because the customer wasn't there, or there was some kind of damage to the goods in transit. And then on the left-hand side, we have our Transport Management System, which really made up of the 2 acquisitions that we've done in the last few months with Vita and ESS. They really form part of the Transport Management System, which is -- which I'll explain on the next slide in terms of what that actually does. And then Planning and Optimization, which is a product that we developed ourselves internally over the last few years, which is all to do with planning the loads, the vehicles, the drivers and ensuring that you are doing your collections and your deliveries in the most efficient way using the least amount of vehicles, least amount of drivers and least amount of fuel and mileage to do all of those deliveries. So I'm going to go on and explain now a bit more about the acquisitions that we've done in the last period, mainly ESS, Vita in the TMS space and Flare, K-Safe in Fleet Safety space. So ESS and Vita actually operate in the Transport Management Systems space, and that really deals with the front end of how you deal with your customers in terms of quoting for work, dealing with order receipts and actually processing of those orders. So when you get some work in, in terms of taking some pallets from place A to B, working out exactly how much you're going to charge for that. You may have special rates with customers. You may also have special rates with subcontractors if you need to subcontractor that work out to somebody else, dealing with that and deciding what the best way of dealing with that potential order and quoting for that. And then if that work is ordered, working out exactly the most efficient and cost-effective way of executing that order as well. Then there's obviously load planning. If you're running a multi-depo operation deciding which depot you might fulfill an order from or potentially fulfill an order from multiple depots, planning what resources you're going to use, drivers, vehicles, trailers, subcontractors in some cases, couriers in some cases, multimodal operations in some cases as well. And then, of course, dispatching that order and dealing with returns, redeliveries in the case of failed deliveries, collecting the evidence of deliveries, dealing with any kind of additional costs that you may have incurred and how you're going to pass those on to the customer and, of course, then dealing with the final invoicing and cash collection as well. So a whole set of functionality that is a great addition into our portfolio. Then we come on to K-Safe and their product called Flare. So they sell Flare to large enterprises that operate in the 2-wheel vehicle space. So on the left-hand side, people like Lime, TIER and Voi, who operate e-bikes and e-scooters. And on the right-hand side, their customers include people like JustEat and Deliveroo, who are operating the last-mile delivery solution. And the Flare business model breaks down into 2 segments, really. On the left-hand side, 2 companies that operate those large fleets of bikes, et cetera, they provide lone worker safety solution and an automatic accident detection solution. And of course, they do risk scoring, which helps with first notification of loss and also insurance cost reduction as well. So that's something that they sell to those large enterprises that run those large fleets of bicycles and e-scooters. And those are charged on a -- the model there is charging a per ride or a per journey basis. So again, very much a SaaS-type offering. And then on the right hand, the -- that data is also used in our more traditional truck space in providing an application for truck drivers that gives them proximity warnings and hazard warnings relating to cyclists in close proximity and in blind spots around the truck. So this is an application that we developed jointly with Flare over the last 18 months, prior to acquiring the business. This line gives you a range of our other customers. Not all of our customers are on here, but it gives you a view that the wide amount of really household brand names that we operate with and across a wide set of different industry sectors as well. So a very diverse range of customers and industry sectors. And again, there's a link there at the bottom of the slide that you can go to, to see further case studies if you're interested in understanding how we help those different types of customers. Some of the main highlights of 2023. Obviously, we acquired 3 businesses over the period with ESS completing just after the period in the middle of January. We've been successful with cross-selling and upselling those new products into our existing customers. We've sold 4 TMS contracts last year and also one to a brand-new customer as well. We've had really good growth in ANZ. It's our fastest-growing region. And with the win of the Woolworths contract, which we announced a couple of weeks ago, one of our largest contract wins, that means that we have the top 3 retailers in Australia. And again, we're hoping to replicate the success that we've had in the retail sector in the U.K., where we have a 90% market share. We've continued to have accreditation for Great Place to Work for the second year. So we're really proud of our employee engagement. And we continue to have that very low churn rate, which has meant we've had over 40 major multiyear renewals with the likes of Bidfood, Pall-Ex, Tesco, Sainsbury's and Cemex. Traditionally, customers tend to renew for 5 years, and it's also an area and an opportunity where we are able to upsell additional modules into those customer contracts as well. Over the last few years, we've also been focusing on that middle tier of business customers. So for us, an enterprise customer is somebody with over 500 vehicles. But more recently, we've also been focusing at the sort of 200 to 500 vehicle fleet size segment as well. And we've had great success with that. In 2022, we onboarded 250 new customers in that segment. And in the last 12 months, we've onboarded 450 new customers in that segment. So really good progress in that middle tier of enterprise customers as well, where we've been making further investments, and we plan to continue to make investments in 2024. Security is a big concern and something very important to our customers. We've seen a number of logistics companies fall victim to ransomware attacks and not survive. And we've seen about 5 or 6 companies in last year, effectively going into receivership shortly after ransomware attacks. Fortunately, none of them have been our customers. And so it's something that our customers are very aware of and very keen to ensure that we are looking after their data, and that's really part of the reason why we've been spending quite a lot on improving our security posture. Of course, we have, with our acquisitions onboarded a number of new products, and that means that we are working on integrating those products into the portfolio in a very seamless way to provide a consistent customer experience. We're branding that product Microlise Complete, which essentially covers all of the different types of operations that a logistics operation would need functionally. And so we're doing more work on that in 2024. Of course, we continue to innovate with new products. And another part of our strategy is to increase the number of third-party hardware products that we support. We want to make sure that a large CapEx spend is not a blocker for a customer in terms of buying our software and where they already have lots of hardware in place that are working. We don't want to force them into having to replace the hardware without hardware just so that they can use our software. So by implementing more support for third-party hardware, we're going to remove that blocker from them. We already support quite a few different third-party products, but we intend to increase our support in 2024 and thereby increasing the software sales that will enable us to sell into those customers. I'm going to hand across to Nick now to give us some more detail on the finance side.

Thank you, Nadeem. So this slide is our recurring revenue cohort analysis, which shows that we consistently grow customer revenues year-on-year. As we pointed out in the headlines, we have a very low churn rate. So customer retention is very, very high. Existing customer revenue equated to around 98% of our total recurring revenues in 2023. So what that does is gives us really, really good visibility for our forecasting and planning. Obviously, we expect growth to continue. Obviously, some of the initiatives that we've called out already in terms of integration, both existing and the recent acquisitions will obviously give us the opportunity to cross sell and up sell even more and make it even more sticky and difficult to replace with our customers. In terms of our revenue breakdown, we consider ourselves as a software company, but there are other elements to our revenue as you can see here. If look at the graph on the right-hand side, it is broken down to 3 main components. The bottom component in blue is the software subscriptions. So that equates for around 63% of our total revenue. Pleased to say that we've seen continual growth in our recurring revenues over the last 5 years. It grew 11% year-on-year to GBP 45 million. The orange segment is the hardware. That's growing around about 10% this year to GBP 20 million. And the final segment is the services segment, and that's growing by around 46% to GBP 6.8 million in a year. The services segment is broken up into 2 main elements -- sorry, 3 main elements. We've got professional services in terms of project management. We've got professional services in terms of integration work, and we also have engineering installations. What we saw in the second half of 2023, you may recall in our half year announcement, we pointed out that we had a significant increase in our on-hand order book. It effectively doubled to around GBP 10 million. That really was a result of us being unable to deploy new contract wins because of customer vehicle availability. That's subsided considerably towards the back end of the year, and we're really starting to roll that out in Q4. So as a result, we did -- we saw quite a significant increase in direct customer activity. And what we tend to find with a direct customer activity is they're normally retrofitted. So our engineers will have to go out and retrospectively install to the fleet. And there's also other services like the project management that we need to effectively co-ordinate these installations because they tend to be quite large in nature and obviously quite complex because fleets do move around quite a bit. So I think the other thing to point out is the -- we've continued to see very, very strong demand for our OEMs. So we saw a record year in 2022. We've seen another record year in 2023, and we do expect that to continue into 2024 and beyond. Just moving on to the profit and loss account. So we've cut it off revenue that we -- overall, we saw a 13.5% increase year-on-year. Gross margin increased 16% year-on-year. We saw increases in our gross margin percentage in both nonrecurring and recurring revenues. The noncurring revenues was we saw a move towards a great proportion in the second half of the year with the direct customer rollouts, as I just mentioned. In terms of the recurring revenues and the margins associated to those, we've really put a lot of focus on rationalizing third-party services that we use. So within our products, we use things like map providers, obviously, airtime. We have mobile device management solutions, et cetera. We've got a lot of working to rationalizing those in terms of -- both from an operational standpoint and also from a commercial perspective. And overall, revenues -- sorry, operating margins increased from 60% to 61%. So that was impacted by a greater proportion of hardware in the second half of the year. So normally, we would expect, if we're seeing those kind of increases in the recurring revenues, the margins would be higher. But that has a consequence of rolling out the order book that we had at the back end of the second half of last year. Operating expenses increased 16% to GBP 35 million. The vast majority of that was related to employee costs. So we've continued to invest significantly in our sales force, and that's globally. We have sales forces in Australia as well as France and obviously the U.K. We tend to split the sales force into two. So we've got an account management team that focuses exclusively on existing customers and cross-selling and upselling to those customer bases to get a bigger share of the wallet. And we also have a dedicated team to win new business. In addition to that, we've obviously continued to invest in the product and development road map as well as security, which is also something that's going to be ongoing moving forward, given the things that Nadeem's pointed out. Adjusted EBITDA increased 15% to GBP 9.4 million from GBP 8.2 million in the previous year. Margin increased slightly to 13.2% to 13%. Efficiency in margin enhancement is something that we are really focused on internally. And so we've got programs of work that are going on in '24 and then will be ongoing into '25 and beyond. And that really is around making sure that our internal processes are streamlined and optimized and where possible automated to make the business more scalable, so we can continue to grow the business without adding additional overhead. In addition to that, part of the M&A strategy that we've adopted is to really seek out high-value software solutions. So Vita and ESS fall into that bracket. So the subscription per asset per month is very much at the very higher end, which will obviously will be able to be drop down and increase margins naturally. In addition, those 2 businesses are predominantly software. So there isn't any nonrecurring services to the extent that we see for the wider group. And in addition to that, there's the integration of third-party products that Nadeem referred to on previous slide. The Woolworths win in Australia that we recently announced was testament to the work that we've done there. We rolled out a very successful proof of concept middle of last year. And that was the precursor for the rollout across the entire fleet, and that was really around the AI cameras and the [ anti distraction ] cameras that have been received very, very well and proved to resolve the business case for the customer. In terms of cash flow, we are a cash-generative business. So we converted 98% of our adjusted EBITDA into cash in the year. That would have been higher if it wasn't for a couple of customers paying late in the year. So we had about GBP 1.2 million that landed with us very early in 2024. So if we adjust for that, it would be around 111%. We've invested more in the year in fixed assets. So predominantly, that is around investment in the infrastructure. So within the data centers, but also within the internal business systems to upgrade hardware. We have an ongoing hardware upgrade program that we replace on a rolling basis, on a continual basis. But we've also invested additional funds into security. So network and another safeguarding firewalls, et cetera, is something that we're having to increase the level of capital allocation in that area, and we will have to continue to do that in the future years as well. I think it's fair to point out that the comparative period where it says GBP 1 million in fixed asset investment was abnormally low. And that was really because the IT sector was suffering from the same component shortages that we've seen in vehicle sector. So it's a bit below [ base point ]. But I think the point is, is that we're going to continue to see CapEx levels that we're seeing here. Intangible assets is really around internally generated software IP. So that's increased year-on-year as a reflection of the integration work that we're doing with the existing platform, also the newly-acquired platforms and also ongoing investment again into security as well as the infrastructure and product road map. M&A spend obviously has increased in the year to GBP 3 million from the GBP 1 million in the previous year, and that is driven by the 2 acquisitions of K-Safe in December and also the Vita Software acquisition in March 2023. The remaining GBP 1 million was the third and final deferred consideration to the previous shareholders of TruTac that we acquired in March 2020. I think the final thing to point out from a cash perspective is that we -- last week, we renewed our HSBC facility on more favorable terms. So the margins are effectively what they charge is to have a facility in place has reduced. I think that's as a reflection of the businesses, strong credit status. We took the decision to reduce the RCF from GBP 20 million down to GBP 10 million. And that really was because we feel that we are able to generate enough cash internally to continuing to invest in the key strategic areas. So -- but we have managed to add in to the facility this time that wasn't in there previously was the addition of an accordion, which means effectively, we have access to approximately GBP 40 million worth of funds to support our strategic initiatives moving forward. I'll just move on to the next slide, and I think I'll hand it back to you, Nadeem.

Thanks, Nick. So just a couple of slides on what's going on in our customer space and in our space as well. So what we're seeing in our customers' market is that it's still pretty competitive and tough out there for them. So they're continuing to look for ways of increasing efficiency and reducing their costs. There is pressure mounting in terms of net 0 and reducing emissions. We have scope through reporting coming along and more activity now on accurately reporting emissions across different aspects of their operational businesses. Health and safety and compliance continue to increase some new standards, and some new rules and regulations coming in, in 2024 and next year as well. And our customers continue to invest in alternative fuels. So we've seen good growth in electric vehicle fleets and replacement programs in the smaller truck space, and in the larger trucks is still very much diesel or diesel and gas. There are a few trials going on with hydrogen, but it's still very embryonic at this point in time. The important thing to say is whatever type of technology, vehicle technology customers decide to buy, we already support all of those, including hydrogen. And with regards to the other pressures they're facing in terms of complexity and reducing cost and also emissions monitoring and health and safety compliance, that's what our products are geared towards. We can solve all of those different types of requirements that our customers are coming to us with. And we continue to work very closely with our customers and deal with any future issues that crop up as well. In terms of our own operational environment, last year, at this time, we were talking still about component shortages and supply chain issues. We projected that they would diminish by the second half of 2023, and we saw that happen last year. We also said that the availability of new vehicles would probably be 1 to 2 quarters behind that curve. And again, we're seeing that borne out as well. And as we speak now, we are kind of back to normal levels or pre-pandemic levels of lead times on new trucks. We're seeing some inflationary pressures coming through from our suppliers, but largely, that's netting out through price increases that we're passing through to our end customers. And we still see very strong demand for our products, basically with our recent acquisitions and some of our new enhancements, such as the AI cameras, where we've seen a lot of good traction in other geographies as well as the U.K., particularly in ANZ. So our growth strategy remains consistent. We -- we're continuing to cross-sell and upsell into our existing customers. We're seeing good growth with our OEMs. We are involved with over 35 new vehicle models for launching later this year and the beginning of next year with JCB and a variety of new models with MAN Trucks as well. When it comes to new customer wins, again, we're doing very well on that front as well with customer wins in the U.K. and Ireland with people like McCulla, LF&E, Creed, PD Ports, et cetera, and international wins like Woolworths and Metcash in Australia and really good growth in that medium-sized fleet segment with over 450 new customer wins in that space. And layered upon that organic growth, we have 3 acquisitions that we've done recently. And by no means that is not the end of our M&A story. We continue to look for further opportunities for businesses that can enhance our product set further, or give us an increase in our geographic footprint internationally. And so moving on to the investment case. So as I mentioned earlier, we're a SaaS business, and our typical contracts are 5 years. In fact, we have some contracts that are 8 years and some contracts that are 10 years. So again, really, really good long-term visibility of future contracted revenue. That, combined with really low customer churn, again, 0.7% means that we are very sticky and really confident about our future forecasts. We sell multiple products and a wide product set into existing customers. That makes us very sticky, and also quite difficult to substitute. We've got further work going on in terms of margin enhancement with new products and improvements in our supply chain and our direct customer sales. And there's significant market opportunity, particularly internationally where we're really only scratching the surface. And we've also got a track record of consistently growing. As you can see from the graph on the right-hand side, we've had 6 years of consistent growth in our recovering revenues, and we're expecting 2024 to be along similar lines. And then moving on to outlook statement. I said we've had a strong performance in 2023. Some of the headwinds that we've seen over the last 2 years with supply chain issues and long lead times on new vehicles slowing us down have diminished. We have OEM customers with strong forecast going forwards and continuing to break volume records. We've grown significantly with a lot of new wins in the last year. And of course, we should see some accretive revenue and margins coming through in 2024 from the acquisitions that we just completed in 2023. So we're looking forward to an exciting 2024, and we're confident of meeting our market expectations. And with that, I'll hand back to -- sorry, I'll hand back to Paul for a second.

Fantastic, Nadeem, Nick. Thanks indeed for the presentation. [Operator Instructions] I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A can be accessed by your investor dashboard. As you can see, we've had a number of questions submitted throughout today's presentation, and thank you to all the investors who have submitted those. And 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 and give your response. I'll pickup from you at the end.

Okay. Thanks, Paul. So first question from Stephen. With the focus on international expansion evident in recent contracts, what are the challenges and how big are the opportunities you see here? Is this a case of just sales function reselling core product? So in some cases, in some geographies, that is the case. Australia, obviously, we don't have issues with language in comparison to France. But there are product enhancements that we have to do. Australia, for example, still a different currency. It has 5 different time zones, where operations have to deal with deliveries, et cetera, that go across time zone boundaries. There are different types of transportation, particularly with large truck trains that they have with multiple box cars on the back of being pulled by the same tractor units. So there are a variety of differences. And so localization is an area that we do invest some R&D spend into to make sure that our products are appropriate and solving the problems that exist within a particular geography. Sometimes we have to do more of that than in other areas. So Australia, we have to do some fronts and in other parts of Europe, we have to do a lot more because there are a lot more variety of different types of transport operations in those regions. But generally speaking, it's about having more sales people on the ground, and they have to be local within country to be able to go off and make those sales. So that's why we're continuing to invest both in our sales and in our marketing in each of those regions. The next question from Ben was to do with he says, you look to have increased the pace of acquisitions and is this something we can expect to continue versus organic expansion? I think we remain consistent with our view on M&A, which is that it's important to make the right deal. And that means that the product set has to fit, the cultural aspects of the business have to fit, the numbers have to fit, and you have to tick those important boxes. Does it enhance our products there? Is it accretive? Does it enhance our geographic footprint in some way? So there's a number of things that have to be right for us to proceed with an M&A deal. So I can't sit here and say that we're going to do 5 or 6 in the next year. I don't think that's appropriate for me to make that kind of comment. But what I can say is that we are still very much active on the M&A front, and we are looking for businesses that meet our criteria. Our criteria hasn't changed, and we'll continue to look for businesses and make sure that we are doing the right deal rather than just a deal. The next question is from Andrew. It says, what rate of organic growth does the company believe it can achieve given the large number of enterprise customers? Is geographic expansion required to achieve this? What operational leverage does company exhibit? And what are implications for EBITDA margins? So a few different points there. I think the first point is that we believe that our organic growth can be better than we've seen in 2022, 2023, and that's really given that we had a number of headwinds over those periods. And so we are focusing on improving our organic growth in 2024. I think that it's going to be a combination of geographic expansion as well as more wins in the U.K. So I think both of those things will apply. And in terms of operational leverage and implications for EBITDA margins. So we are very focused on increasing our EBITDA margins. We know that they can be higher. And part of that is the consequence of the mix that we sell. So hardware obviously has far lower margins than software services. And so where we sell lots of hardware, particularly the OEMs, particularly towards the end of last year, direct to customers through the backlog of orders that we had, that tends to depress margins. The work that we're doing in investing in high-value, higher-margin products and selling more of those combined with third-party hardware assets that we can implement our software without having to sell new hardware to the customer, all of those things will help increase and grow our margin. Next question is on CapEx payments. And Nick, I don't know if you want to answer that question?

Sure. Yes, I can pick that up, Nadeem. So share-based payments seem an issue for me as a shareholder. Can you explain for what the -- what these are, and who they are for? So there's a long-term incentive scheme in place for the executive team and the senior management team, which consists of 8 people. So there are share options issued. Well, the strategy is that we'll issue them each year for those individuals. They are based on 2 main performance criteria, which are total shareholder return. So effectively that is share price and obviously, now the newly introduced dividend as well. But we've also introduced a carbon reduction metric as well. So 90% of the recent options are allocated to share price performance, and 10% is the carbon reduction target. They've increased because effectively, what we've done since IPO is issued a set of options each year. So because they are -- there's a 3-year vesting period, effectively. We've kind of done one in '21, one in '22 and one late in '23. And then effectively, the ones that were issued in 2021 will now drop off. So in essence, what we're saying is that share price, the share-based payment charge should stay at a similar level to what it's now at. I think it's important to say that this isn't a cash payment. This is purely an accounting payment based on the options.

Okay. I think next question is from [ Nevel ] about the split of revenue growth between price and volume. I don't think I can give you an accurate figure on that, but I'd say the majority -- the vast majority of the growth was down to increasing volume or selling more to existing customers or new customers rather than just a price increase coming through.

If I can just interject on that. So effectively, we've seen the 11% annual recurring revenue, around 3% of that 11% will be down to price inflationary increases. Okay.

Next one is from Thierry. Why don't you expense your software development costs rather than capitalizing them to provide a better view of your EBITDA? I think it's fair to say that a large majority of our development is actually expense rather than capitalized. I don't know if you want to say any more on that, Nick?

Yes. Well, under the International Financial Accounting Standards, you have to capitalize development costs, you can't expense it. So that's predominantly the reason why we capitalize it.

Okay. Another question from Thierry. Could you please comment on your pricing strategy on your various modules? Yes. So it's -- it varies a lot across the different modules. Obviously, as I mentioned earlier, on the ones on the right-hand side picture that you saw, I'll try and go back to it. Here, the ones in the lighter blue shade are heavily commoditized. There's lots of competition out there, lots of people doing similar sorts of things. And they've been around for 15 years or so, those particular modules. So that solution space is very well served. And so those products, you're looking at anywhere between sort of GBP 5 and GBP 15 per vehicle per month as a price. Whereas products on the left-hand side, the Planning and Optimization, Transport Management System side, in the market, you're looking at between GBP 50 and GBP 100 per vehicle per month type pricing for some of those modules. So again, we're investing very much more on the products on the left-hand side and bringing more of those types of products to our portfolio, thereby enhancing our top line and also our EBITDA margins. Okay. Next question from Darren, please can you comment on the average fleet size and the difference in margins, et cetera, winning contracts with smaller businesses? Smaller businesses tend to have higher. You tend to be able to generally speaking, sell them at a slightly higher price. However, the cost of sales is also far higher in [ proportion to that ] we spend as well. So there are particular sizes of fleets that we just don't down [indiscernible]. So it's very, very unusual for us to directly sell to anybody sort of below 100 vehicles. And we do have effectively OEM reseller channels and a couple of other reseller channels. There's some products are sold to small fleet, but generally we tend to operate in the 100-vehicle fleet segment. Thierry asked, could you please comment on both market and direct and indirect strategy? Most of -- in most cases, we operate I mean direct to customers. There are a few resellers for certain products, particularly in the fleet compliance space and in the fleet performance space. But the products like Planning and Optimization and TMS and [indiscernible] because we tend to sell direct because they're not very easy for a reseller to sell on. Most resellers sell the simpler product on the right-hand side of this slide. Darren asked what's the impact of CapEx spending on security firewall, et cetera, and how will this change over time? I'm just cautious, Darren, so I'll quickly give you a simple answer to this, which is that, we expect to continue to spend in that security area this year. We don't expect the trend to be higher than it was last year. But nevertheless, we are continuing to invest in that space. That's what our customers expect from us. Next one is from Darren. Will new contract wins require hardware updates? And what is the split in new hardware and the use of third-party hardware? No, they don't require new hardware in a lot of cases, particularly where we're renewing customers and to reuse the continued using the hardware that we've already supplied them. We support hardware for a very long time. I'm talking 8, 9, 10 years. Usually, our hardware outlast the vehicle itself. So yes, we continue finding support for hardware quite a long time. The exception to that is in the handheld devices, and that's really [indiscernible] Android operating systems that are deployed on them don't tend to our first security patches beyond sort of 5 or 6 years. And so that really tends to be the reason why customers have to replace handhelds, but a lot of our other sensors and other devises tend to last a very long time and as I said, tend to outlast the actual vehicle itself. Another question from Thierry. Are you sure that saying you want a SaaS business is the best way to stress you have a strong recurring revenue base? Well, I think by definition, we are a SaaS business in terms of the way that we sell things we are -- we do sell them as a service and consistent to the software businesses we tend to sell either by licensing by vehicle, by person, by driver. And there are a few parts of our product portfolio that is done on a per order or per transaction basis. But essentially, we host all of our software, and we provide it as a service to end customers. And hence, we tend to describe ourselves that way. And we are very focused on growing our recurring revenue. That's also important to say that we expect that to continue to grow successfully as it has been over the last 5, 6 years. I think just going through some of the other questions. I think a question from Bill, how much of your revenue is generated outside the U.K. and why are you concentrating on countries on the other side of the world like Australia rather than potential clients in Continental Europe? So it's quite difficult to look at our statutory accounts and look at exactly how much of our revenue is generated outside of the U.K. because a lot of our deals are with U.K. companies that then deploy our software and solutions internationally. Nick, I don't know if you can give a statutory figure?

The statutory number is around 8%.

It's international and the 92% is U.K. based. Yes. I think in reality, the international revenue is probably higher than that if you actually looked at where we are actually deployed, but that's the statutory number. The reason why we ended up in Australia is mainly twofold. One, it's English-speaking. And two, a lot of our retail contacts from the U.K. have historically immigrated over to Australia and run businesses like Woolworths, like Coles. You find that some of the senior management in those organizations are people from the U.K., who have immigrated over there, who have then looked at those business and said, well, you should just be deploying these tools that they've already deployed very successfully in the U.K. market. And that's really the reason why we've ended up in those geographies. But that's by no means to say that we aren't interested in Europe, we absolutely are, and we continue to see Europe as being a great opportunity for us going forward. I think that's the end of the questions that we cover at this time. So back to Paul.

Thank you for taking so many of the questions, and thank you all the investors for submitting those. And of course company can review any further questions that are submitted and may publish responses where appropriate to do so on the Investor Meet Company platform. And before we re-direct investors to provide you the feedback, which is particularly important to you and the company, Nadeem, can I just ask you just a few closing comments, please?

Yes. So firstly, thank you, everyone, for attending the presentation. If you do have any further questions, then you can reach us through a number of other means. And yes, we look forward to an exciting 2024, and we will obviously update you further with our half year results in coming months.

Fantastic. Nadeem, Nick, thanks indeed for updating investors today. Can I please ask investors not to close the session as you will be automatically re-directed to provide your feedback in order the team can better understand your views and expectations. It's going to take a few moments to complete and that's greatly valued by the company. On behalf of the management team of The Microlise Group plc, we would like to thank for attending today's presentation. That concludes today's session, and good morning to you all.

Thank you.