Oxford Metrics plc (OMG.L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Oxford Metrics plc preliminary results investor presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And if you give that your kind attention, I'm sure the company will be most grateful. And I'd now like to hand over to CEO, Imogen Moorhouse. Good morning.

Good morning, everybody, and thank you for taking the time to join us today. And with me is David, our CFO, I'm sure you know well. But as you probably don't know me, some of you may, I'd just give a small short background of my history with Oxford Metrics. I joined Vicon Motion Systems in January of 2001, 3 months before the IPO, and worked in technical sales, predominantly in the life sciences market, traveling extensively in Japan, China, Hong Kong, Korea, Australia and New Zealand for a number of years and then moved through various roles working with Nick Bolton, the previous CEO, for 18 years, encapsulating Production Manager, Ops Manager and Managing Director, COO, and then in 2012, Operational CEO of Vicon. So I just want to reassure everyone the 5-year plan that was announced in October of 2021. I was heavily involved in agreeing those strategies with Nick and David and equally, in the background, involved in some of the M&A activity that we'll be covering today. So that's a pocket history of my background, and then moving into the joint plc Vicon roll as of the 1st of October this year. So, in the presentation today, we'll be covering -- David will cover the financial highlights of our year and then back to me to cover some of the progress we've made on our strategic plan, the opportunities that we see for the growth and executing on the 5-year plan, and then something on the outlook for the '24 year, and then opening up for Q&A. So without further ado, I'll hand over to David to take you through the financial highlights. David?

Thank you, Imogen. I would also like to add my welcome to this morning's [Audio Gap]. But firstly, the headlines, moving from top left to right, overall revenues were up 53.5% year-on-year at GBP 44.2 million. [Audio Gap] underlying growth was near 52.4%, [ so back to ] similar. As stated in the preliminary statement, adjusted for the GBP 3.5 million of orders carried over from FY '22, the underlying growth year-on-year was around 26%. We are also reporting an order book of GBP 11.5 million compared with GBP 24 million last year, which reflects a normalization of customer purchasing behavior. A headline profit after tax for continuing operations is reported at GBP 5.7 million compared with a profit of GBP 3.4 million a year ago. Moving to the second row, on an adjusted PBT basis, which excludes noncash-related items and exceptional costs, a profit of GBP 6.5 million is reported compared with GBP 2.6 million last year. A little later, I will explain the bridge between the 2 years in some more detail and include some insight into the first half-second half split. This all translated into an adjusted EPS of 4.57p per share compared with 2.55p a year ago. The headline cash position as of the 30th of September 2023 was GBP 64.8 million, so slightly down due to the deployment of cash for inventory purposes and the payment of the final dividend of GBP 3.25 million. Unsurprisingly, investors often ask why we -- what we plan to do with it, while the short answer is we intend to deploy it in M&A. To explain, it's worth rewinding a year or so, the cash is there as a result of the Yotta disposal. And following this, we went fishing, so to speak, in our own pond, looking for opportunities in our immediate space. Whilst there may be opportunity here, it soon became apparent [Audio Gap] look elsewhere since the number of opportunities were limited. Imogen suggested we consider engineering, where our core technology, in other words, vision science was being used in adjacent markets, which led us to explore businesses involved in smart manufacturing. In doing so, we identified IVS, along with many other potential opportunities. The acquisition of IVS was completed last month, which is immediately earnings enhancing. Extending the fishing analogy a little further, we are no longer fishing in a pond. We are now fishing in an ocean where there are many more opportunities. And so, the M&A pipeline today features smart manufacturing with the intention of building out our presence in this marketplace. Given the potential M&A opportunities we currently have, the cash will remain on the balance sheet. That said, the Board are and will continue to keep this under review. So, if at some point in the future, we feel that M&A opportunities does not warrant retaining the cash, the Board will, at that point, make the call in terms of returning cash to shareholders. So for now, the cash will stay where it is. Moving to the third row, a final dividend of 2.75p per share is proposed, representing a 10% increase over last year. Vicon has invested GBP 2.1 million in new IP during the year, representing around 30% of total R&D expenditure. Capitalized expenditure was down from GBP 2.8 million last year, which included the high-end Valkyrie camera. The inventory position at GBP 7.2 million was up from GBP 4.5 million last year. Given the supply chain challenges over the past few years, inventory components have [Audio Gap] around our ability to deliver on the order book. And in doing so, it also provides us with a hedge against any other unforeseen disruption. Going forward, the business is now bigger, so inventory is likely to be higher than it was in the past, but we will be endeavoring to reduce inventory during the course of the next financial year to a more optimal level. I will now take a look at the FY '23 trading performance in some detail, starting with revenues, which I'll look at in 3 ways. Firstly, historic. The record revenues reported clearly stand out. But arguably, the presentation should perhaps be smooth, given the GBP 3.5 million of orders carried over into FY '23. That said, the overall trajectory is clear. Over the past 10 years, what you see here, with '22, '23 smooth out, is equivalent to a 9% CAGR, driven by the wider adoption of our technology across all markets and the introduction of a broader range of camera solutions. This is what we believe is [ background ] growth before getting into the exciting opportunities that lay ahead. So, looking at revenues second way, geographically, so the first thing to say is that we saw growth across all our geographic main markets, and the mix changed slightly, given particularly strong growth in North America and in Asia Pacific. In general terms, the U.S. benefited from the largest deal in engineering, which we alluded to at the last interim, so grew by 61%. And Asia Pacific continued to benefit from buoyant entertainment market, reporting a 74.8% improvement year-on-year. The third take on revenue analysis is by market segment. So, on the left is the reported performance, and on the right, the order book. The Engineering segment was up 56%, driven in part by the part shipment of the large order I just mentioned. And other notable deals included ITESM, a Monterey-based university, who purchased a Valkyrie system for drone tracking. Another university in Arizona purchased a Valkyrie system to track crazyfly drones. And Manitoba purchased a large a Valkyrie stem to track UAVs in the air and robots on the ground as they develop solutions for the agricultural marketplace. In Entertainment, reported revenues were up 82%. The market remains buoyant and accounts for nearly half of revenues and the order book. Notable deals this year included Cover Japan who installed 4 motion capture stages to allow V-tubers to capture content for their channels, a trend we mentioned this time last year. And Double Negative's partnership with Dimension Studio continued with the purchase of a virtual production stage for the use for content creation. Life Sciences revenues were up 40% year-on-year, including a strong showing in the second half. Notable deals here included the The Hospital Israelita Albert Einstein, [ bit of a nice old ] that one, now the largest gait lab in Brazil. The University of Padova in Italy installed a new system for high-speed analysis with the Italian Paralympic team. And elsewhere in Australia, Victoria University continue to provide gold standard testing for all of FIFA's research using Valkyrie 16 and 26 systems. And in the U.S., the University of Rochester Medical Centre installed multiple Valkyrie laboratories for spine and other biomedical research. Location-based entertainment reported revenues of GBP 2.5 million, so 5% down compared to last year, but this is not reflective of the underlying potential. As we have said before, this market has great promise, but the reality is our revenue growth is reliant on the pace of customer rollout and ultimately, the consumer acceptance of this exciting technology. And there is evidence this is happening. You can see for yourself by visiting sandboxvr.com. They recently announced their 45th center. And at immersivegamebox.com, you can see they have 30 more, all enabled by Vicon technology. Furthermore, Immersive also announced in October exciting news of their multi-million pound and multi-territory collaboration agreement with Merlin Entertainment. Their press release states, there is a huge potential for a significant rollout across the Merlin estate over the coming years, starting with Sydney and Oberhausen, Germany by the end of this year. Each site hosts 8 freestanding game boxes. So the opportunity for us with this collaboration is significant over the coming years. So, continue to watch this space. Finally, turning to the order book, the order intake this year was GBP 31.7 million, which compared with GBP 46.9 million in FY '22. Post-pandemic customer buying behavior changed, which definitely saw customers placing orders in advance to get in the queue. So it is fair to at least average the order intake over the past 2 years and arguably weighted slightly in favor of this year. Accepting this as a reasonable approximation of underlying order intake, the rate of order intake sits well with future expectations. The GBP 11.5 million may represent a more acceptable level for our customers in terms of lead time, and we will be seeking to maintain the order book at around this level in broad terms going forward. Together with the current sales pipeline opportunities, the business has visibility on well over half of next year's revenue expectations, a strong position that was previously unheard of prior to the pandemic. So, turning to adjusted PBT, the following bridge provides the opportunity to discuss how we achieved the GBP 6.5 million. So, on the left is the GBP 2.6 million from last year. And as we move to the right, the first item is FX. As it turned out, the overall impact of this year-on-year was a negative [indiscernible], so I will move on. We generated a great deal more gross margin in absolute terms by [ adding ] more revenues, but we have seen some gross margin erosion due to [Audio Gap] pressure. Year-on-year, this reduced gross margin by around 2.5 points, amounting to around GBP 1.1 million of gross margin. As we've indicated in the preliminary statement, the supply chain situation has normalized, which means the inventory is gradually being replaced at a lower cost. And together with an increase in list prices on certain products, we expect next year's gross margin to be restored to near historic normals. From a cost base perspective, there was an increase of around GBP 6 million, which was due to a variety of reasons. Firstly, the GBP 2.8 million investment previously announced, which is included in the 5-year plan, is now fully baked in. Much of this was R&D and has been expended [Audio Gap], which is related to the [Audio Gap] of the markerless technology, which we can now finally talk about, having unveiled it publicly this year, and there will be a lot more on markerless from Imogen in a few moments. The business more generally has grown, and there's been operational adds during the year to strengthen the business. And there has been some cost of living-related increases, which included a salary review favoring lower paid employees in the business. And finally, given the overall performance this year, this did give rise to an increase in variable incentives, meaning commissions and bonuses. And the overall apparent increase was a little second half weighted. However, adjusting for costs incurred in the second half that are in effect related to the full year, the split of profitability between the 2 halves is, in fact, relatively even. So, continuing to the right, R&D capitalization was GBP 0.7 million lower and amortization was GBP 0.6 million higher, all largely due to Valkyrie amortization, following a high year of capitalization last year. And the final piece of the reconciliation is interest received, which adds GBP 1.6 million to complete the bridge to the reported adjusted PBT of GBP 6.5 million. So in summary, for me, a record revenue performance of GBP 44.2 million, delivered an adjusted profit of GBP 6.5 million, and we have an order book of GBP11.5 million, which, coupled with current sales pipeline, means we already have visibility on over half of next year's expected revenues. In light of this performance, the Board are recommending a final dividend of 2.75p per share. And the strong balance sheet, underpinned by the GBP 64.8 million in cash, means the business is in good shape and well prepared for exciting times ahead. Thank you.

Thank you, David. Okay. So let's move to the strategic progress area of the presentation. Firstly, just to recap of the company that delivered that GBP 44.2 million and what Vicon actually does. So the 5-year plan announced in October 2021 is to return 2.5x revenue with an adjusted profit before tax, a 15% margin with an organic and inorganic investment. So at the time the plan was announced, Yotta was still within the group. Vicon's contribution to that was the investment that was sought by myself to develop markerless technology, the GBP 2.8 million. So, that was my sort of contribution to that as the Vicon organic play, but also identifying companies in the pond that David talked about that we may wish to look at in terms of competitors, technical partners, third-party item manufacturers and so forth. So just to restate, that is where we would like to exit 2026, and there'll be a little bit more granularity in this presentation as to how we intend to do this. So firstly, Vicon, a 39-year-old business play. Vicon is in 3D motion capture of humans, animals and objects. We own all our IP. It's all in-house developed, including the cameras, embedded software, software and analysis of that software. We serve 4 main markets in order of history, life sciences was the bedrock market for the business. In the mid-'90s, the visual effects industry started to adopt motion capture in terms of CG, computer graphics. Then in the early 2000s, the engineering market came along where, in a lot of cases, the markets are being attached to objects, not to people. And then finally, the location-based entertainment market, which started to emerge in 2017, 2018. Next slide, please. This is just a snapshot of some of the customers that use Vicon technology. This is the LeBron James Center in Nike in the United States, at the time, our largest life sciences deal we've ever done as a business in 2019. The entire center is outfitted with Vicon tech for athlete rehab and performance, sports shoe and apparel design and testing. Moving to a pandemic-grown industry in visual effects, which was in-camera visual effects for virtual production. Nobody could travel, so you needed to bring the set to the lot, but in order to make the production, you needed to be able to track the Hero broadcast camera and bring all of this technology together, so the Vicon tech is looking at the Crown sitting on top of that camera. In games, AAA games, Vicon enjoys the top 20 companies in the world as customers. This is Ubisoft in Canada, shooting for Assassin's Creed, lots of people in dark suits wearing markers running around in front of cameras. This is NASA, the Ingenuity helicopter design and test with the Mars Rover as well. Again, you can see here, markers attached to objects, not to people. So this is being used to turn an object from -- to become autonomous where you need to train the control systems, so it becomes untethered as it is in this design phase to the Ingenuity helicopter on Mars. And location-based entertainment, this is the game box that, if you were at the Capital Markets Day in October of 2021, you would have been in these game boxes having fun with your colleagues and friends. So that's the 4 main markets for Vicon. Next slide, please. I think here's a snapshot of some of the customers we can talk to you about from a Vicon perspective. But moving on to the more exciting growth perspectives for Vicon, and David explained [indiscernible] marker-based tech, and that's around 9%. But in order for Vicon to have -- to address the organic growth play of Oxford Metrics' 2021 to '26 strategy, we need to break out that CAGR. So this is the investment in the markerless technology and why this is exciting. So markerless technology and markerless tracking is emerging as an adjacent tracker to marker-based. It is not competitive in terms of the way that we feel. It is another tracking modality that is an add to marker-based. Markerless tracking is at its beginning. It's in its beginnings. Its precision and accuracy are nowhere near that of marker-based. But in certain markets and in certain use cases, markerless is in a good enough state to be used. So what you see here is the CTO of Vicon, Mark Finch, being tracked without any special black suite or wearing any markers at all on a show floor in August of 2023 at SIGGRAPH, which is a computer graphic show in Los Angeles. And behind him is his Ken Doll avatar, which we just happen to have at the same time as the movie came out. And he is talking the audience through the markerless technology and how it works. And we spent a long time working on this technology in terms of R&D. We started actually 4 years ago with a very small seed team prior to the larger investment from Oxford Metrics. And the reason we needed that investment is the people and the brains that make this type of technology are not the same disciplines as those that make marker-based. This is a machine learning problem, an AI problem to solve, and it's a different discipline. So we've had to hire an entire team to come in to accelerate the development of this. The way to think about the machine learning aspects of this is this is system that needs to be trained to understand what it's looking at. In a marker-based system, you simply put the markers on, tell the system that the marker is on the left shoulder, and it knows that's the left shoulder. But how does this system know where Mark's left shoulder is if there's no marker? Well, it needs to understand, I'm looking at a human being stood up, moving their arms about. So, you train it. The way to think about this training, most people now are quite familiar with ChatGPT and large language models, which uses the Internet and techs to train itself. What we are building at Vicon is a large vision model. So we are ingesting data, both real and synthetic data, but this is data of movement of vision so that we can grow and train our system to understand more movements, types of movements, but also to improve the accuracy of the underlying modeling and solving of this. But this is a proprietary model. This is not an open source model as LLMs tend to be. So we're building that, and that requires us to work very, very closely with our customers as well as our R&D team. The way that we will gain this data and gain and move forward with this is via a cloud infrastructure. This system is a training system, so it needs to learn, get better and push the improvements back out to our customer base, and that will be done by the cloud. As soon as there's a cloud infrastructure in place, then we have the opportunity to discuss alternate commercial models with our client base. Vicon, to this point, is a very CapEx-related market, but we feel that there is a play in certain markets and certain use cases for an OpEx, subscription-style model of the software elements of this solution to improve the revenue visibility and quality of Oxford Metrics' software. We're very excited about this. And behind Mark, was a location-based entertainment experience with -- that we implemented with our partner, Dreamscape Immersive. What we wanted to test here was, does our markerless technology -- is it good enough for the LBE experience? And the reason that Dreamscape wanted to move to markerless is, during the pandemic, the economic model of the previous techs that they were using, which involved markers, proved not to be scalable on the size and scale that they wish to do. So we actually worked with Dreamscape quite a lot during COVID to develop this solution specifically for their LBE experience. So, when we went to the show, we had 2 tests: Mark walking around being tracked as a 3D avatar perhaps in a visual effects environment, and then behind him, the Dreamscape pod putting 6 people through at a time in their normal cloths, just wearing a headset and enjoying the Clockwork Forest experience. And I'm pleased to say that in all cases, we exceeded our expectation on our KPIs, putting over 250 people through the experience without -- with only one person who didn't calibrate because they were wearing some interest in cloths, so what we did was we just picked the skirt up a bit so that our calibration could see the feet and [indiscernible]. It was all fine. She was wearing a hoodie under the skirt down to the floor, which we haven't considered was a fashion statement and haven't trained our solution to be able to see that. So it didn't see it until we showed the feet. So, all good there. We've got the opportunity here with the markerless-based to sell to our existing client base. We have 10,000 customers, and we know very well that in a lot of cases, they will buy the technique and add it to their marker-based solution. So we have the sales, marketing and distribution power to go after that customer base very, very simply. And because we've got such a strong positive market reaction and technically, everything worked very well at SIGGRAPH, we have now a fairly aggressive time line to commercialize markerless within fiscal year '24 with some modest revenue expectations but is a real growth driver for fiscal year '25. So, now I'd like the people that went through the Dreamscape experience to tell you what they thought. These are industry professional [indiscernible] people. They understand good tracking, not consumer levels. So what we did was we filmed quite a few people coming out of the Dreamscape experience and asked them what they thought. So if you could play the next video with sound, then these guys can hear that. [Presentation]

Okay. Next slide, please. Great. Thanks. So now, I'd like to turn to our recent acquisition, Industrial Vision Systems. As Dave explained, we were looking within the Vicon area, but unfortunately, there was nothing in that area that was ultimately we could get over the line or passed our metrics in terms of acquisition. So looking at IVS, it is in the smart manufacturing. IVS use cameras. They use embedded software and software to solve a different vision problem to Vicon, that's the way to think about it, in a kind of an adjacent market in engineering and smart manufacturing. The way to think about the previous customer slide of Vicon's with IVS is if we had a mutual customer, the Vicon system would be in the R&D lab and the IVS systems would be out on the shop floor, on the production lines. So what IVS do is they use smart vision, machine learning and deep learning to inspect parts that are being manufactured, and they do that in markets that are highly regulated that require high levels of compliance such as pharmaceuticals, medical devices, contact lens inspection, automotive and so forth. The picture that you see there is a syringe inspection system. They arm pulls the syringes into the drum, which spins, and the red cameras that you can see are the IVS cameras, which are taking and inspecting those syringes for manufacturing defects, flaws, cracks, debris and dirt because obviously, in these sort of environments, you must have 100% right first time. Those sort of fault parts cannot leave the factory. And you can see some of the marquee names of customers that they have in that Slide 2. I'd like to highlight in -- Johnson & Johnson, particularly in contact lens inspection. Contact lens is a very, very large market indeed. And in fact, Johnson & Johnson's largest market is in Japan. The latest IVS machine is going to be shipped out to Japan. And it's used for cosmetic lens inspection, not for prescription because of the change in the color of the eyes for cosmetic reasons, which is kind of interesting. Next slide, please, and the video will be great. So I would like to show, not tell. This is an automotive inspection cell using IVS technology. But this is a dimensional tolerancing question on manufacturing defects. So the 2 IVS cameras, you can see, are on the robot arms. They're inspecting the device or the part, and they're taking multiple images and comparing those images against the CAD, computer-aided design, [indiscernible] and other devices that -- other data sources to ensure that this part is compliant. I want to go back to the markets that they're kind of serving in terms of their size at this point as well, as this video plays through. Contact lens market was valued at GBP 14.6 billion in 2021 has a CAGR of 5.5%; medical devices, syringes, GBP 1.33 billion with a CAGR of 8.8%; [indiscernible] GBP 9.8 billion market. And then total knee replacement parts -- if you recall, the previous slide, there was a striker. It was on there, a very large orthopedic company. IVS make a dimension tolerancing inspection system for them for parts used in total knee replacement, which is one of the largest growing operations worldwide with over 1 million being conducted in the United States alone. Next slide, please. Okay. So IVS are conducting themselves in some very, very, very large market sizes compared to perhaps motion capture. And we know very well that by furthering execution commercially of them rather than their products, which are excellent, we can grow them very successfully. Next slide, please. So this is a little bit of a technology of the future for IVS. This is the advanced manufacturing center. And it's a factory of the future concept of a technician working collaboratively with a robot, which is quite [ typical ]. But equally, this guy is wearing a pair of HoloLens glasses, which are instructing him of what to do, pick, place, assemble, where to put the part, where to put it on to the bench, and then the bench is also checking he has done it correctly. So it's a complete closed loop. And he is working with a robot here, and this robot -- he has to be safe working with that robot. So it's very important that he is. And I could imagine a Vicon markerless stem around this bench and making sure that the robot arm and the human arm never come into conflict because we know who would win in that situation. This is a real -- lowering the bar for technician training, factories of the future, smart work bench concept, which we think is a very exciting potential growth area for the part and smart manufacturing. Okay. Great. Thanks. Next slide, please. Okay, I'll take back over. So this is really how we intend to execute on the '26 plan. We will hunt and farm better in our marker-based tech stack of the Vicon business, as you know it today, by focusing on sales, marketing and product activities. We are taking many of the principals, modern principles of SaaS businesses such as customer success, sales enablement, lead gen, lead nurturing and applying those to Vicon. As we consider the SAM system or solution addressable market for Vicon is probably GBP 120 million to GBP 150 million. We still got a lot to go in terms of growing that from the GBP 44 million that we enjoyed in the previous year. We want to commercialize the markerless opportunities. You can see, we can sell -- we sell that to most of our existing customers. We can reinvigorate the Dreamscape partnership and others with the markerless tech stack and then equally, over time, talk to use cases where markers could never have been worn, which has always been a barrier in certain market conditions, and then getting slightly further down the line as the software becomes more mature, the possibility of detaching the software from the Vicon hardware and deploying it into existing video infrastructures, perhaps in shopping malls, airports, hospitals, care homes, et cetera. Then we will execute on smart manufacturing. It makes sense. We bought IVS to build in and around that, and there are more companies out there that we're having active conversations within that space, and equally develop them by commercial focus for them. They've been slightly less commercially focused in the past, but with Oxford Metrics to support them, we will develop their sales activities as a matter of urgency. And then in Power Up, that's kind of slightly -- we'll consider other things that help accelerate the other 3. It's not a disparate strategy play. It needs to make sense in terms of synergies. It needs to pull in, but perhaps an acquisition that maybe doesn't currently meet our current metrics, and David and I would have a long conversation about that, but if there was a path to profitability, but it was something that we felt that was the right thing to do, then we would consider it. So what I'm really saying there is we're open to other opportunities, and we'll talk about some of the potential targets in that in a couple of slides' time. But we must grow this group in a synergistic way. We mustn't overload it with costs where we don't need to. We need to grow and execute and scale sensibly, keeping a firm eye on that profit line. So the smart manufacturing, we want to keep this sense, analyze and apply philosophy behind what we're looking at. But on the right-hand side, the clearly stated metrics -- we've always said about our acquisitions, well, Power Up aside, earnings accretive. IVS tick that box. The able management teams who -- they are staying with the business. They want to see it grow and scale. They're excited about being part of that story. We must be able to buy at a fair price and scale using technical, commercial synergies. And then, the Power Up, some ideas on the right-hand side, the collaborative robots and VR are in Industry 4.0. VR is in [indiscernible]. There's no reason why it can't be in smart manufacturing. There's other measurement techniques out there, laser, X-ray, haptics and so forth that we will continue to consider. They all come with related analysis software, and obviously, those that have perhaps an enabler element will be equally attractive. GPU compression is a markerless play in its entirety, about handling video sensibly and efficiently. And both businesses have deep learning and AI in their solutions. So we will continue to keep an eye on companies and products in that space, both from an opportunity and a threat perspective. So, we ended 2021 -- this is with the Yotta number backed out -- with GBP 27.5 million coming from the Vicon motion capture industry. We'd exit '26 building that up to around GBP 52 million, building a markerless arm to the business of around GBP 8 million, and we'll see what mix of revenue that we can apply to that as we get further down the commercial negotiations on that, and building smart manufacturing arm of around GBP 10 million. We consider IVS is about GBP 3.5 million turnover. Then some more acquisitions and growth in that play means that, that should be entirely doable. So that's the conclusion, the main part of the presentation. In terms of outlook, just to reiterate some things that David said, we have very good visibility of over half the revenues that we need to execute on in fiscal year '24. We'll begin the commercialization of markerless working first of all with Dreamscape Immersive on a beta program, followed by visual effects customers very close behind. We will continue to see the right acquisitions for the right reasons at the right price. And we are well capitalized to work on this smart sensing opportunity, which is the Oxford Metrics Group philosophy. So thank you very much for your attention. That concludes the presentation, and we will take any questions now.

[Operator Instructions] I'd just like to remind you that a recording of this presentation, along with a copy of the Q&A and the published recording will be available via your Investor Meet Company dashboard. Imogen and David, as you can see, we've had a number of questions from investors during today's presentation, as well as a few that were pre-submitted that I think you've touched upon during your presentation. If I may just hand back to you just to read out those questions and give response as appropriate to do so, and I'll pick up from you at the end.

Sure. I think there's a fair number of questions or comments in and around how we assess M&A, David. So do you want to cover that off?

Yes. I was just going to cover off just a couple of some of the pre-submitted questions. So somebody out there actually made a comparison of Vicon today with Vicon back in 2019, commenting why the operating margin has fallen [ in couple of ] years and what's the forecasts going forward. Well, I think the answer is really very [Audio Gap] this year. Firstly, the investment in the 5-year plan, which is GBP 2.8 million, is fully baked into this year's profit and loss account, which wasn't there 4 years ago. We have seen gross margin erosion. I've spoken about that in relation to this year. But it's also relevant compared to '19, where actually we had a gross margin of 74% [Audio Gap], which I think is probably [Audio Gap]. In terms of outlook, as we've said, the gross margin [Audio Gap] next year, a combination of improved cost of goods and list price increases. And in terms of the outlook going forward, well, we are building out a dedicated markerless facility in Oxford this year. But other than that, there are no other major changes to the cost base anticipated in the year ahead. Someone also commented why net cash had fallen. I think I've covered that. We increased inventory to protect ourselves against supply chain disruption and so forth. We obviously paid a dividend. And the reader of the accounts will probably also notice AR was a little higher, but that was really purely down to the trading pattern that we saw during the course of the year. But overall, the cash did generate business at an operating level. And then, moving on really into the sort of M&A area, somebody asked, could you give us an update on M&A activity? And are valuations coming down? I think the first point I kind of covered in terms of where we're now looking for acquisition opportunities. And in relation to valuations, yes, there is evidence that they are coming down to more sensible levels. Historically, we do try and tend to avoid auction situations, especially where private equity might be in the mix. So a few years ago, we simply couldn't compete with the very, very deep pockets. But where we're looking now, we believe we are actually probably under the radar to a large extent. We tend to approach a private owner, find the businesses. We seek to establish a relationship with the vendors that leads to a period of exclusivity. And in fact, IVS is a perfect example of that, that led to the acquisition at an attractive multiple. There are some other questions [Audio Gap] M&A related in the list. [ Christopher Teal ] asks what key criteria do you look for when looking at M&A? Well, the new focus is very much smart manufacturing. So we're obviously looking for a technical read across so that in time, there will be technological synergies and so forth. I think for me, the golden rule, the deals need to be price/earnings enhancing. And if they're not, we would have to be convinced that, that was going to happen very, very soon afterwards. Do you want to do a few questions, Imo, whilst I review the other questions?