Pod Point Group Holdings Plc (PODP) Earnings Call Transcript & Summary

Good morning, and welcome to the Pod Point Full Year 2022 prelims announcement. Great to have you all on the call. I'm Erik Fairbairn, CEO and Founder of Pod Point, and I'll be kicking the session off. I've also got our new CFO, David on the call. David, do you want to just say hello?

Hello. Thank you, Erik. Yes, I'm David Wolffe, incoming CFO, just appointed to the Pod Point Board last month. Just to give you a thumbnail background on me and my experience, I've been a CFO in PLCs and private equity for the past 20 years. I've worked in consumer, media and technology sectors. And amongst other roles, I spent 5 years at AOL shifting the U.K. on to the Internet and then transitioning it on to broadband. I'd say my specialist subject is transformation and growth. And I joined Pod Point from Ted Baker PLC, where there was perhaps a bit more of the transformation bit. So it's really amazing to be joining Pod Point now when there's so much of the growth bit that lies ahead. Good to meet you all.

Fantastic, and we'll pass back on to David shortly. But if we can get into the presentation, if we can move please now on to Slide 3. And we start with my somewhat traditional slide. I always start with on Pod Point reminding everyone of the mission of Pod Point and what we're all about. And of course, Pod Point is fundamentally here to try and make a future where travel doesn't damage the earth. And we're trying to do that by building a network of smart charging points everywhere you park. And of course, we're well into that phase now. But also what we plan to do in the long term is to use our network of charging points to manage the flow of energy across the grid, and we'll touch on that as well. And then we've got 3 really nice KPIs, which allow us to sort of watch our progress against that mission. First off, in the last 12 months, we've saved about -- or avoided about 278,000 tons of CO2 equivalents, and that's an increase of 118%, and that's analyzing the CO2 of the electricity that's transferred across our network versus what we think would have been used by equivalent internal combustion engine cars. Linked to that, we've got 367 gigawatt hours of electricity transferred. That's up 113% on last year. And of course, the #1 thing you want to track when you're building a network, of course, is how is it being engaged with the electric vehicle drivers? How much is it being used? Then obviously, the energy transferred across it is pretty vital. And of course, we've also got now 195,000 communicating units attached to our network. And that's up about 42% on the figure that I shared with you all just a year ago. And generally speaking, that's about 2 billion kilometers of electric vehicle motoring provided by Pod Point. And if you do the sums on that, we are just a fraction under I think, and it's a rough number of this, but just under 1% of all miles driven in the U.K. by passenger vehicles charged on a Pod Point, which is a pretty cool stat. Moving on to the next slide, just to give you a few sort of key metrics. So we did GBP 71.4 million revenue last year. That's about 16% up year-on-year. And obviously, this stat was slightly ahead of the guidance that we gave in Q4 of GBP 70 million, and really, of course, on the background of a year defined by various supply chain challenges, which we'll mention a few times through this presentation as well. Perhaps the highlights of that is our commercial revenues of just a shade under GBP 24 million, 31% up year-on-year. Our Home up 3%, our Owned Assets up 108% and are Recurring up 107%. And of course, recurring whilst that's a relatively small part of the revenue story today, an extremely important part of our future. We also increased our gross profit up by 2% year-on-year. And obviously, that was -- that growth was restricted by all of the supply chain costs that we saw this year. And we've got an adjusted EBITDA loss of GBP 7 million and that's very much in line with what we said we're going to do in terms of continuing to invest in the sales and marketing and scaling. Of course, we think that we're very much still in the infancy of the electric vehicle charging industry. And of course, it's exactly the right time to be heavily investing in the business, ready for the growth that's ahead of us. And we ended the year with a really strong balance sheet, really important in our market, I think, GBP 74 million of cash or equivalents on the balance sheet and some really careful working capital management as we run through the year. And again, just slightly ahead of what we said in our previous update when we mentioned GBP 70 million. Now touching a little bit on what we've seen go on in the whole of the vehicle market. The vehicle market story for 2022 is all about the supply chain issues that we've mentioned. So it was actually a relatively poor year, 3% down on 2021. And 2021 in itself was a pretty poor year. So we've really seen plenty of challenge in the overall market, but perhaps the best bit was we saw plug-in vehicles growing at 21%. But we really think actually that growth, particularly in the second, third and fourth quarter has been really limited by the availability of plug-in vehicles. And that's specifically the supply chain causing challenge and the carmakers managing to get vehicles to market. And what we've seen is we think there is plenty of demand. And hence, what we've seen is, we've seen the typical vehicle lead times -- quite a lot of the brands now, if you try and order an electric vehicle, your lead time to delivery is anywhere between 12 and 24 months on a lot of the brands. And that's really giving that view that we've got plenty of demand going on here, and a lack of supply of vehicles. So we really think demand remains really strong. But in terms of looking forward into next year, I think we're going to see continuing impact of the supply chain issues on the market, but we really sort of are hoping that we are beyond the worst of that and we are on an improving trajectory, although I do expect the market to continue to be materially impacted by that into 2023. One of the things also to cover is that we've seen this volatile market and supply chain issues really sort of changed slightly, one of the metrics that we track the penetration of our charging points. And that's the SMMT data in terms of vehicle registrations against a number of Pod Point home charge, but really important to say that our guidance for 2023 is unchanged, GBP 85 million to GBP 90 million of revenue. So what we've seen is in 2021, 18% market penetration. And in 2022, that was 15%. But we think there's a fair bit of detail there that's worth touching on. First of all, we have the conclusion of the OZEV grant, which we think caused a pull ahead of people buying their home charge earlier than they usually would in their cycle because of the ending of a grant, and that effectively boosted the number in 2021 and reduced it somewhat in 2022. Additionally, given this is a penetration statistic, not a share statistic, we have, of course, as the grant has gone away, seen the average price of a home charge in store go up and that was broadly in the region of GBP 550 for the industry, and now is in the region of GBP 900, but the majority of change to that being the change in grant. We also have seen this extended lead time on vehicles and go from sort of 12 to 24 months. And that means that we're seeing less correlation between people ordering a car and immediately ordering their home charge. They're also beginning to think, well, maybe I'll order my home charge a little bit closer to when my car delivery is occurring rather than ordering it when I order my car. And we've also seen because the car companies are -- got limited supply. Obviously, they're reducing the tactical marketing spend on each of their vehicles. And some of the car companies use that to effectively fund home charge in stores. And so on the basis of a lot, we do expect 2023 on this metric to be modestly lower than 2022, but with an improving trajectory through the year. And of course, we've got a whole bunch of activities lined up in 2023 here. We've got a revision to our solar unit that we're currently working on. We've got a whole suite of exciting smart charging feature sets coming to our app. We've got a new and improved online ordering process, which will make that an even slicker process. We think it's pretty slick already, but it's going to get significantly slicker, new improved in-store survey system, which is the sort of post sale activity where we -- before we get into in-store and some additional marketing activity in the plan with the OEMs. But probably the most important thing to say here is that the guidance for 2023 absolutely unchanged from what we said previously GBP 85 million to GBP 90 million and our adjusted EBITDA in the mid-single-digit loss for next year. Now going into the 4 segments that we tend to report in starting with Home. We saw a modest 3% revenue growth in Home on a slightly lower volume. And the big story here is we saw some adverse supply chain costs really. So we saw some pressure on our gross margin. However, we think actually we've done some really sound things on the underlying basis. So we've moved our production of our highest volume unit to our new production partner Celestica, which brings some significant cost savings with it. And we've also managed to increase the average basket spend. So the amount that each individual home charge customers is spending with us on average has increased. We also did 2 things which are worth mentioning because I don't think they're ubiquitous across the industry. The first one was that throughout the supply chain crisis, then we managed to make sure we always supply the units. So we've delivered to our customers all the way through that. And also, we've reengineered our product to meet the new 2023 U.K. charging regs. Additionally, through that, we've managed to keep really strong customer stack, so 4.3 out of 5 on trust pilot, 4.6 out of 5 on reviews to IO with a 91% recommendation rates. We remain very proud of those 2 stats still. And commercial, as I mentioned, is perhaps the highlight with the 31% revenue growth. And of course, we have seen some of our larger corporate customers being a little bit more careful with their spending with everything that's going [ under macroeconomics ]. So on the back of that, that strong growth, significant increase just under 15,000 units supplied or installed up from 11,000 last year and some improvement in our gross margin, and obviously, that's despite the challenges we've seen in our bill of materials cost. And also, we've been investing heavily on the commercial side into building a housing developer team. So of course, what we saw in the middle of last year was some new planning requirements. But now to build new developments, you have to have EV charging, including to get your planning commission, you don't immediately see that turn into orders for charging points. But of course, we can expect in the long term that to be a really interesting market. So we've been building up a team to address that. In terms of recurring revenue, so 107% up, so really solid growth there, a relatively small part of our P&L, but really important for the long term. And we've also managed to build our recurring revenue commercial unit from GBP 57 per commercial unit to GBP 89 per commercial unit per year. And of course, we've built up that network now to 195,000 units, up from 137,000. And of course, the long-term part of the Pod Point plan is to continue to monetize our network on a recurring basis. So although that's a relatively small part of the story today, it's a really important part of the future strategy. And we've also saw some sound performance from our owned assets, 108% increase in revenue. Total sites now 564 with 1,254 of which we've got 118 DC Rapids predominantly with our relationship with Tescos, but lots of solid usage of those from the EV driving community. And just put a few nice images on the bottom there, just to give you a few ideas of the sort of customers that we've won business with this year. And of course, that's only just a little snapshot of course. Good. So I'll now pass over to David, who will move on to Slide 9 and take us through the more detailed financial review of the year.

Thank you, Erik. So starting with the P&L and working our way down. Revenue at GBP 71.4 million is GBP 10 million or 16% up. In a year of disrupted EV and component supply, our Home segment at GBP 41.4 million is up 3% with ARPU up 5%, but with home installed units by Pod Point, down 2%. Commercial growth is strong at 31%, with total units up 34%. Within that, our direct wholesale units not installed by Pod Point were actually up 51%, showing one of our alternative routes to market for home units. We're continuing to see high growth in owned assets and recurring revenue up 108% and 107%, respectively. Headline gross profit was up 2% to GBP 16.6 million at a margin of 23%. With supply chain costs in parts sourcing impacting by GBP 2.3 million adverse and representing the majority of that net margin reduction. Home is where we saw the primary impact of those sourcing costs, driving margin down from 28% to 20%. Commercial margins improved a little from 20% to 22%, as the mix effect shifted a little towards those higher-margin supply-only units where we saw the higher growth. That takes adjusted EBITDA to a GBP 7 million loss where we had indicated in our Q4 guidance, reflecting the increases in 2022 investment in sales, marketing, customer service, all of which support scaling growth and a full year of PLC costs. All the headlines are in line with our trading update of November. Next slide on cash flow, please. So looking at cash utilization in the year, closing cash sits at GBP 74.1 million, indicating a cash use of GBP 22 million. And we have under our direct control, the rate of spend of the majority of that cash. So separating out the main components. After GBP 7 million of adjusted EBITDA loss, we invested GBP 10 million in capitalized software development. This is in tune with a strategy as laid out in the IPO to drive product and proposition development, to invest in software and to create the platforms that will lead to material recurring revenue growth in the future. Owned asset investment was GBP 2 million, where we are spending at lower levels than previously planned, and this is in response to a more challenging investment returns environment and a focus on tighter cash management and balance sheet strength. Cash management discipline comes through in the very limited cash consumption we're seeing on working capital despite the business growth, and that's only consumed GBP 2 million in the year. So whilst earned asset investment will remain more limited in 2023, investment in software development will increase to drive recurring revenue, and that's in line with our strategy. Next slide, please. Coming back to profitability and the shift from a breakeven number in 2021 to an adjusted EBITDA loss. The picture reflects increased spend on scaling the business. Operating profitability from the 4 segments in overall terms advanced by only around GBP 0.3 million as gross profit improvement of GBP 3.6 million across commercial owned assets and recurring revenue was impacted by a reduction of GBP 3.3 million in Home, influenced by that limited revenue growth and the margin impact on supply chain, as I mentioned. But we increased spend by GBP 4.6 million across customer service, software tools, sales and marketing, all important basis for driving future growth. We also carried a full year of costs associated with being a PLC, which added GBP 2.9 million. So whilst 2022 carried some challenges to it, we believe we're building the foundations to take us past EBITDA breakeven and on to sustained profitability. Next slide, please. Moving on to gross margin percent and its evolution. The headline reduction from 27% to 23% is actually a 3.4 percentage point reduction as gross margin moved from 26.6% to 23.2%. By far, the biggest driver of that reduction arises from the additional supply chain costs of GBP 2.3 million, representing a margin reduction of 3.3%. We saw some small adverse mix and other effects of around 0.8 percentage points, but we also saw a positive 0.7 percentage points contribution from bill of material cost savings as we shifted production to our new scale manufacturer, Celestica in the middle of the year, with around 1/3 of the year's volume shifted over. Looking forward into 2023, we would expect to see margin progression towards the mid-20s as we benefit from a full year of bill of material savings and reduced supply chain costs playing out. Next slide, please. Picking out then the financial and operating highlights by segment. In Home, we saw the challenges in limited revenue growth of 3% and the margin hits partially mitigated with that 5% ARPU improvement. As Erik laid out, we've developed a broad and funded plan for 2023 to drive our unit growth up and our market penetration forwards again, especially in the second half. In commercial, we saw strong growth of 31% improving margin by 2 percentage points and with that high growth in direct sale units, up 51% with total units up 34%. Owned asset deployment took total units up 27% to 1,254 units with 109% revenue growth and improved margins. Recurring revenue delivered 107% revenue growth along with margin improvement, taking our total communicating units up 42% to 195,000, providing that growing platform for us to drive increased grid load management and recurring revenues. Next slide, please. So looking ahead to 2023 full year, we see 3 clear themes. First, there continues to be significant volatility in a range of areas. Macroeconomic issues and energy pricing are obviously still in flux, supply of EVs is still constrained and the impact on timing of charge point installation demand is still evolving. We don't think that any of those issues will disappear in 2023, but there are indications that they may be at a lower level towards the end of the year. Second, we will continue to have a robust balance sheet. We are in control of the rate of our investment, whether that is software development or owned asset deployment, and we will continue to keep a good grip on working capital. Third, we are holding guidance for the year, as we laid it out in November, the revenues of GBP 85 million to GBP 90 million, a mid-single adjusted EBITDA loss and around GBP 50 million of cash at the year-end. That's after increased investment spend and we'll be raising by around 50% our investment in capitalized development as we focus on the growth opportunity ahead. Over to you, Erik.

Thank you, David. And if we can move on to Slide 16, please. Then this is just to give you a little bit of our view of what's coming in terms of the outlook and this sort of slide I've got on 16, is to give you an idea of what we see happening. Of course, what we see is we've got a few key data points. We've got the government's internal combustion engine ban occurring in 2030. And also, we've got what looks like all of the car manufacturers really investing not in any new technology for internal combustions, but all of their investment in the electric powertrain. So we really see that we are on a trajectory to get to that internal combustion engine ban by 2030. And of course, we've seen a year of slightly less growth, as we've explained in 2022. So what does that mean? That means that we should have a very steep curve as we head into 2030 in terms of new vehicle registrations. So we think we go from where we are last year for something like 23% of new vehicle registrations are plug-in vehicles, up to materially all vehicle registrations are plug-in vehicles by 2030. So a very exciting growth on the new vehicle side. The other thing worth mentioning, of course, is that, that's only referring to new car sales. In the U.K., we have something in the region of 35 million cars in the country. So even when we get to 2030, all new vehicles are electric, that's only in the region of 2 million a year, we're looking well into the 2040s until we get to the point at which we've got all of the internal combustion engines of the U.K. phased over to electric vehicles. So what that means is we really see fundamentally really strong growth, strategic growth for the next 20 years coming out of the electrification of our transport. And of course, that's talking about the vehicles, but all of those vehicles need charging. So we really think we've got a fantastic long-term opportunity continuing to build the charging infrastructure to enable that massive adoption of electric vehicles. Now just moving on to the next slide, just touching on our strategy. Our strategy continues to evolve, but the 4 points that we've talked about in each of our market presentations, scaling our existing products and services, as David said, we're continuing to invest heavily on that because we see we've got this immense growth opportunity ahead of us. So we have to make sure we're ready for that scale and that includes internal systems and efficiency. We've also got a new derivative of our solo unit under development. We've got a whole bunch of interesting product innovations to come this year, and we've got our new home charge ordering process. Expanding within our routes to market, we have just this year, launched our fleet charging into beta, and that's a key part of expanding to allow companies to have a better charging experience where they run larger fleets. And we've mentioned already investing heavily into the housing developers opportunity, which we expect to be very exciting. And now with that planning commission, every new development has to have electric vehicle charging. On building our recurring revenues on our network, we shared how we've seen an increase in the average recurring revenue per unit on our commercial units this year, which is very positive, but that's really only just scratching the surface of what we want to do. What we plan to do is to use our entire network to manage the flow of energy on a national level and sell that capability into the likes of the National Grid and the distribution network operator. So we're building this year now a dedicated team, specifically focused on that opportunity. And that's really off the back of that stack we've mentioned a couple of times, which is we've now got 195,000 communicating units attached to our network, which gives us the scale to do that. Now we've also got an interesting trial going on with BMW and the National Park. So if you park and charge on the Pod Point of the National Park, that's a collaboration with ourselves and BMW and when you claim the charge cycle in our app and you get -- you see some advertising from BMW and we've got a little bit of recurring revenue coming back from that as well. So we continue to focus on building our recurring revenue per unit. In terms of our funded rollouts, so obviously, we talked a little bit about where that funded rollout got to earlier in the presentation. And we will do that by a lesser amount moving forward. So we are really moving to using our DC funded rollouts as a supporting strategy for AC. So really think of Pod Point as a multimodal charging player. We are the people that really do well for companies that need a range of charge and that could be some rapid charging for people who are just popping in. It could be some base charging for their staff. It could be some AC charging for people who are staying longer. It could be some charging for their company car scheme. That's where we do our best work, and that's where we're going to focus our owned asset strategy and expect that to be at a much lower level than we talked about before. And that has the significant benefit of also allowing us to maintain a much stronger cash balance. So if we could just flip 2 more slides forward to the final one. My summary of the year, really a strong performance in a challenging year, solid demand for EVs. You really see that EVs have really captured the sort of max market's attention now but the supply chain crisis has weighed fairly hard on the availability of that. And of course, when you've got a reduction in the availability of electric vehicles that has a knock-on effect of the EV charging industry, as you would expect. We do, however -- we'd like to think -- we can't be certain, but we'd like to think that the supply chain challenges are past their peak and that we will begin to see things easing over the next year, but certainly, they will be continuing to be a factor into 2023, but still think we've got this immense growth opportunity heading into 2030. I'm really proud of the improvements in average basket spend and cost of sales. So moving to Celestica, reducing the bill of materials, cost of our products, including basket spend, all of that, to a certain extent, offset by the supply chain cost this year, but all of the correct things to be doing on an underlying basis. Really good strong growth in commercial, really showing the desire for the corporates and the larger companies to make sure they've got EV charging as part of their offering, whether that's their customers or their staff. I can't overestimate the importance of the size of that network, 195,000 units and how important that is to our future recurring revenue. So really pleased with that. And of course, really continuing on the strategy we outlined IPO with some sensible evolutions to make sure that, that remains absolutely on point. We really think of this year and, to a certain extent, moving into next year, this is really about preparing Pod Point for what we think is going to be this 20 years of fundamental growth ahead of us. And if I can leave the presentation just with one thought for everybody, it's that battery electric vehicles in the U.K. are 1.5% of vehicles on our road. That means that there is 98.5% of the market still to go. This is a market which is in it's infancy, and we have got all of the excitement and growth ahead of us. So really pleased with what the future looks like for Pod Point. But with that, I pass over for any Q&A, and thank you for listening to our presentation.

[Operator Instructions] The first question comes from the line of Martin Young from Investec.

I've got a couple of questions, if I can, please. The first relates to the metrics that you use showing your percentage installs over the number of new vehicles on the road. I just wonder if there are 2 other things that we could think about there that perhaps you can comment on. One would be, how do you view the competitive dynamic in the home charger space and that plays into that percentage. And secondly, have you got a feel for the number of people who might be buying electric vehicles but not have access to their own parking space and have merely decided that they will be charging their vehicles at on-street, workplace or indeed at a local shopping center or similar. So that's the first question. And then the second question, as we think about this move to electric vehicles, providing services to the wider electricity system, and you've touched upon this to a degree. What type of things are you thinking about the vehicle being able to do? Which of the sort of the services that the National Grid seeks to procure and offers do you believe that you can tap into?

Martin, thank you for the question. So a few bits to touch on that, and I took a note so hopefully, I can touch on all of them. But if we start off the market penetration. So as you rightly said, this is a metric we've used historically, which is the total number of vehicles registered in the SMMT against the total number of home charge that we've installed. We do find that, that metric is not working enormously well for us in this year, where we've got some volatility in the market. And I gave you a few examples on that slide of the various things that we see are happening. And you mentioned competitive dynamics. Our view generally is that it's probably not fair to say there's no competitive dynamic at play there. But it's also probably not the predominant effect that we're seeing. So when you've got a penetration stat, you've also got things like total propensity for a customer to take a home charging product, which a bit links to your second question, affects that stat in the same way that any sort of competitive movement does. So I think it's not fair to say there's no competitive. But when we look across the market, there are -- we're not the only people that do home charge in the U.K., but neither that we see a sort of large shift in the competitive dynamic. We see ebb and flow and bits changing, but I don't -- I can't really point to a massive change there in terms of our competitive position that we're aware of right now. And in terms of the sort of white space that you were talking about, the opportunity for people that don't take a home charging units, and that's really, we think, a significant part of it as well, of course. So if we've got somewhere in the region of 15% of new plug-in vehicle registrations taking a home charge from us, some will take home charge from their competitors. But there's no way that adds up 100%. And there's a number of reasons for that. Home charges we define is really for people who have off-street parking in the U.K., the stat roughly is that 60% of the population have -- who own a car have off-street parking, but that doesn't necessarily map perfectly to this stage of the market because you've also got fleets of vehicles being bought by companies, who are charging at depots. You've got people who are living in car parks and charging perhaps on our supermarket network, a whole range of other things. So I think there's opportunity to build there, but you shouldn't expect that ever to be 100%. And the other thing to mention, of course, is, it is technically possible to charge your vehicle at home without a home charging unit, but it's generally not seen as a very good experience. It's extremely slow. And really your standard 13-amp socket that you have in your home is really not designed for charging electric vehicle. It really should be the domain of a specialist piece of equipment like one of our charging points. Moving on to your question on recurring revenues. And this is a bit I've touched on a couple of times in the presentation, of course. And this is the fact that what we plan to do is build recurring revenues on top of our network of units, and we've now got 195,000 smart units connected to our network. And there are 4 fundamental ways that we plan to monetize that. The first one is that we are can collect through our units information about how much energy flows into an individual's electric vehicle. We also have data about how much energy an individual uses on their whole household. So what we can do in the future is look at that information and compare that with the various different options of how you can buy energy. So we can be data-driven in recommending to EV drivers on how they should purchase their energy in the most efficient way. And of course, Pod Point can monetize that by the referral fees for moving people on to the correct tariff vis-a-vis their usage. So we think that could potentially be quite powerful because you're obviously using broad usage data to help people understand where they should be buying their energy. And the next one is that we think we can use our network of charging points at a national level and sell the capability of controlling the energy flow into the National Grid. The National Grid has its established balancing markets, and essentially procures additional generation or load reduction and Pod Point can sell in load reduction into the National Grid. And effectively, what we would be doing at times of very high demand, we would be pausing the percentage of the nation's vehicles, charging just for a few minutes in order to iron out spikes of demand and supply in the National Grid, and that's established markets that we would like to bid into in the future. The third one is distribution network operators. These are the people who own the copper and the substations and distribute the electricity around our country. In that case, they similarly are beginning to procure the ability to control load. So where they see localized increases in load or they've got overloaded substations or overloaded bits of copper in the ground than what we can work with those companies is in their constraint zones to manage load in those areas. And again, the distribution network operators will have a commercial model to pay people to provide that load shedding. The very final part of that and perhaps the most complex bit of that is we think in the long-term future, there is an opportunity to work with energy companies. Energy companies, as probably most of you are aware, tend to work in also commercially anyway on half hourly billing. And effectively, their success is often dictated by their ability to predict their half hourly usage versus what actually happens. And we think there's an opportunity to use the Pod Point network to help energy companies get that prediction right. So if their prediction is looking a little bit off in the last couple of minutes of a 30-minute window, we can put more energy into the nation's electric vehicles or slow down the flow of energy into electric vehicles and help monetize it in that way. I should say the plan is to do all of that without materially impacting the experience of the EV driver. And we think that's really a real opportunity because the typical driver is driving 21 miles a day. That means that they need to have their car plugged in for about an hour. And the average car person is obviously plugging their car when they come home from whatever they've been doing during the day and doesn't unplug their car until the morning. So often cars are plugged in for 12 or 10 hours across the night. And really, there's only a 1-hour window where they typically need charging. So that's an average position. Obviously, everyone's different in their behaviors, of course, but it means we think we've got great opportunity to monetize our network in a way which the EV driver doesn't get negatively affected by what we're doing.

The next question comes from the line of James Zaremba from Barclays.

I had 3 questions, please. Firstly, on the home installations outlook, the improving trajectory of the penetration through 2023 sort of if you could let us know, what was the trough for penetration in the second half? I guess what was roughly the exit rate to build on in 2023? That's the first question.

James. Nice to hear from you. So I mean, the stats we've got there, obviously, are the full year figures. So for the full year of 2021, we had 18%. And the full year of 2022, we had 15%. Our projection is going forward that, that will be slightly modestly lower in 2022. But as you rightly say, that's with an improving trajectory through the year, which means probably starting a little bit lower than that in the beginning of the year and then building as our various activities go. But I think that's about as much resolution as we've got on that because some of this is sensible behavior to continue building our market position, but also I think this is a KPI, which has really become significantly less clean with what we've been seeing in the last year. And hence, my general view is that it's the thing to rely on is the guidance that we've given. So we still think our guidance is absolutely unchanged to sort of GBP 85 million to GBP 90 million of revenue next year.

And then secondly, still on the Home division, it looks like the basket was over GBP 800 in the second half. Should we sort of expect further growth on this level in '23, and of the increases in '22, was that mainly kind of [indiscernible] installation?

David, do you want to sort of come in and answer that one in terms of what we've got planned for the basket spend?

Yes. So in that basket spend stats, you'll have seen the impact of a GBP 50 price increase that came through towards the end of the year. That was obviously a part year effect. So in the GBP 767 average revenue number for the year, you're only seeing part of that come through. And so we would expect to see for next year the average starting within 8 -- in the low 800s.

And then -- okay, that's very helpful. And then lastly, just, Erik, maybe I'm being stupid here. But you were saying about you might plug a car in for 12 hours, but you may only charge it for one. When I plug it in, does my car not get charged in the first hour and then for the next 11, there's no ability to reduce load because it's already charged. So am I kind of getting that wrong slightly?

So that's absolutely right in a non-smart charging world. So if you do nothing clever, exactly what you have said happens. So you plug in, your car starts charging immediately, it gets to full and then it stops. And as you say, in that scenario, you'd have an hour of demand when you plugged it in and then your car would effectively be set sort of idling from a charging perspective for the rest of the time. That's what happens if you have no smart control over that. But of course, what the Pod Point network is all about having all of those smart charging units is to allow us to have much more intelligent control over that. And there are lots of reasons to do that. One is as simple as just to make sure that everyone doesn't plug their car at the same moment and cause sort of demand challenges. It's fairly well understood that electricity demand peaks about 6:30 at night in the U.K. and that also correlates very well when people tend to plug their car in after the day's activities. And so if you leave that uncontrolled, you build a lot of additional demand that what is already the highest demand usage. So the first use of smart charging is to manage that and help move people charging later into the day. That also has a significant benefit. There's a reasonable correlation between carbon intensity of the grid and demand. So when there's lots of demand on the grid, carbon intensity is high. So by using smart charging, you can also help people reduce their carbon intensity by making them charge at a lower carbon intensity time. And of course, you're seeing lots of different -- a lot of things going on in the energy market, but underlying, there's various different tariffs over the past few years, which have allowed people to benefit from lower energy costs when demand is low. So smart charging can also help the pocket of the consumer. All of those things combined, we think, is a fundamental part of enabling the network of electric vehicles. But as you say, the behavior that you described is what happens when you don't apply any smart charging capability. But what we're really trying to do is build a fully smart network to mean that you, the consumer doesn't mind, your car is charged when you need it next, but we will make sure it charges in a way which is completely compatible with the grid, saves the customer as much money as possible and minimizes the carbon intensity.

Very clear. And then I guess, could you generate any recurring revenue in home units in '23? Or is it a bit too early for these developments?

So I think we would like to produce our first very small amount of revenue from that in the year '23. That's a sort of internal target, if you want. If we miss that by a few months, don't go to -- don't stare at that too closely, of course. But yes, we think that we are beginning to get on a path where that's real. All of our recurring revenues today are from commercial, and we are beginning to build the team that's dedicated to start those revenues happening on the home units. Of course, we've got a lot more home units than we've got commercial units. So it gets very interesting in the long term. So yes, my hope is you will see some of that in the 2023 results. If it ends up being a couple of months into 2024, then in the grand scheme of things, that would be absolutely acceptable to us as well, I think.

The next question comes from the line of Sanjay Jha from Panmure Gordon.

Just a couple of questions. I mean we are obviously here because you are a listed company and your market cap right now is about GBP 94 million. Now you said your guidance is for GBP 50 million end of next year and with all the development you'll be doing, and you already got a reasonable installed base. So market effectively is saying you're worth about GBP 40 million, give and take. So I'm just trying to understand, is this because there's kind of people think that it will take 2 or 3 years before you can build a second line of revenue? Or is there kind of a time line, when do you think that there's a realistic chance that you can start selling the secondary line of services to your existing customer base?

So I think, Sanjay, you're talking about the 2 parts of Pod Point. You referred to, I think, the primary line, which, of course, is building the network of charging points. And I think the first thing to remember before we come off that one, Sanjay, is, of course, we've only got enough charging in the U.K. for the 1.5% of vehicles on our roads, which are electric. That means we've got the 98.5% still ahead of us. So there is an enormous opportunity in the first part of the Pod Point business plan, which is just to continue building the nation's electric vehicle charging network across the homes, the works, the on-routes and the destination. That in itself is an immense opportunity, which we're extremely excited about. And the second part, of course, that you talk about is that we think there is an opportunity, not just to build that network but to use that network for load management, and I talked a lot about that when responding to Martin's questions earlier. And that really is an additional part of the business. But I don't really want people to think about we're transitioning from Part 1 to Part 2. That's absolutely not right. We have got 25 years probably of growth in the first part of our business to build the network of charging infrastructure and that alone is an exciting business. The other bit is an additional part on top of it. So I think it's really important to get people to think that, that's an additional bit but really still you've got a fundamental exciting growth story, I think, in just building the charging infrastructure, and the recurring revenue bit is some extra value on top.

I mean, it just -- then it looks like the share price is simply a function of the current capital structure because clearly, you have a lot of value here within the business. And as you said, you only got 1.5% penetration in EV. So there's a lot to go with that line of revenue plus all the other stuff that you guys can do. Clearly, your current capital structure makes it difficult for people to invest because we don't know what EV as a strategy is? Or is that -- would that be -- how we should think about it?

Well, I think probably, Sanjay, I can only really talk to what I see as the future opportunity in the business, and I gave a little bit of that in my previous response, isn't it? One of the sort of personal tests I do as an entrepreneur, as a person running a business, if you ask yourself the question, is this still the right thing to do? The answer to me category is absolutely. We are still at the infancy of an extremely exciting role into electrification. And I still think the future potential of Pod Point is absolutely wonderful. I'm really excited about it. I think we have seen a bit of a disconnect between my vision of the future and what's going on with the markets, and you've highlighted a couple of areas, which could be contributing to that. But I think I just remain confident that if we keep delivering, if we keep executing as a business, we allow some of these sort of external market volatilities that have come into 2022 to begin to roll off. We come back to the market in the next year or so and begin to show not just the recurring revenues coming from our commercial units, but you start seeing that coming from our home units. I still think Pod Point is an absolutely wonderful opportunity into the future. But as you said, there's a little bit of challenge in terms of share price and things, but I hope that if we continue doing what we're doing, the market will come with us over time.

Just one more question. Obviously, the -- there's been quite a -- people are now looking at electric bikes as another way of transportation. And is there any opportunity there? Because, I mean, I know that it's not a huge demand on a household, but there's kind of a lot of national cycle networks coming up around the country. And I was just wondering whether that's something that is a viable economic proposition? Have you looked at it or...?

Well, you're talking, Sanjay, to 2 individuals in myself and David, who think cycling around on 2 wheels is a great thing to do, and there is an electric bike tucked in my shed, which I use fairly regularly. So in principle, we're very much loving of cycling. But I think in terms of the opportunity for Pod Point, I'd like to keep the company really focused on what I think is the most significant opportunity here, which is the mass electrification of personal transport, sort of cars and light vans, that kind of thing. So my view on the strategy is, let's keep focused on that. It doesn't mean to the exclusion of others. I'd love to see all of the other parts of mobility happening, electric bikes, as you mentioned, all of those are good things. But I think expect Pod Point really to continue focusing on its core strategy, which is all about moving the majority of sort of light vehicles and vans on to electric vehicle over the next sort of 20 years or so.

The next question comes from the line of Marianne Bulot from Bank of America.

I was wondering if you could maybe give us a bit of a guideline on what you expect in terms of gross margin in 2023? And maybe back on what you commented in terms of switching suppliers, maybe some kind of timeline of what you expect into '23 and the impact on gross margin?

I think I can pass on to David for that one.

Thank you, Erik. Let me just talk about the kind of the influences on our gross margin evolution that we're seeing in 2023 and then where we think that will take us to. So the various component parts, we think, that are going to influence include, firstly, the price increase. So we put through a GBP 50 price increase on our home units later in the year that obviously had a part year effect in 2022 and will have a full year effect in 2023. So that's an upward pressure on margins. We've moved to Celestica, the scale manufacturer in Romania for their scale economies and an improved bill of materials cost. And again, we only had around 1/3 of our units shifted over in 2022 to Celestica. So there's a full year effect of those BOM improvements to come through. We are working not only on the product proposition, its smart software features, but also reengineering the costs that go into the next generation of Pod Point solo units. That's also going to lead to some bill of material savings perhaps only kicking in towards the very end of 2023 and more likely to have an effect in 2024. And of course, the big factor that hit our margins in 2022 was the additional part sourcing costs on supply chain, GBP 2.3 million. And whilst we're not completely out of the woods yet on supply chain disruption, we think there's a much lower likelihood of that sort of cost coming through in 2023. So all of those are margin-enhancing factors that we think will contribute to an overall improvement in gross margins for 2023. And what we're indicating is that the average that we reported for 23% gross margin will move up into the mid-20s percent gross margin to give you a rough indication for this financial year.

Next question comes from the line of Anne Margaret Crow from Edison Group.

I've got a couple of questions, and they're both connected to the commercial side of the market. So firstly, wondering within the commercial side of the market, who you feel your main competitors are? And then secondly, wondering with ultrafast charging points, are there any restrictions associated with the capability of the grid that make -- that actually make it difficult for your customers or for you to locate charging points in specific parts of the U.K. because of grid limitations?

Margaret, thanks for the question. So yes, 2 in there, as you say. So in terms of commercial, I mean, I broadly say there are 2 groups of people who compete with Pod Point, you've got a reasonable long tail of early-stage private companies, generally speaking, smaller than Pod Point that we see in our market. And I think probably there is some opportunity over the next few years to see that long tail consolidate into a smaller number of players. And you've also got the obvious petrochemical players who, I think, in truth, make more noise than they do work in terms of EV charging, but you've got to keep an eye on those in terms of electric vehicle competitors as well. In terms of the ultrafast question, so your point is absolutely right. We find that depending how much charging infrastructure you want to put in, the grid connectivity to those locations can be restricted. And we have 2 fundamental approaches to that. And the first one is, we have a thing called an array system. What that does is allow us to put lots and lots of AC charging points into a particular location. And the system then manages how energy flows. So take an example where you've got enough electricity there to charge 10 cars simultaneously. You can put maybe 50 charging points in and the system balances the load between all those to allow you to get lots and lots of car charged with the restricted grid connection. But still, even with that sort of smart approach to things, you can still get to locations where you got that. So if I take one of our big supermarkets examples where we've got somewhere in the region of just over 500 locations with charging infrastructure in, one of the things -- we've got different forms of charging infrastructure at each of those locations. Some have got DC rapid charging, some have just got AC -- different number of AC charging. And most of that decision in truth is based on the existing availability of energy electricity, so the grid connection to those sites. And obviously, if you want to then move to the next stage and start making grid upgrades, then that has a bit more impact in terms of the civil activities that need to go on there and also has a bit more impact in terms of cost. So fundamentally, I would say that the first thing that we do and is the right activity as you install smart charging, which allows you to optimize the amount of grid capability that exists. But also do expect see that the distribution network operators are going to be busy over the next few years because there will be numerous examples of commercial locations where lots of electricity and lots of charging needs to go in. And of course, you will need to see some upgrades to the grid occur in those locations.

The next question comes from the line of Ken Rumph from Goodbody.

Apologies for any background noise. If only, it was only electric cars going past. Couple of questions on software development. Firstly, just to try and get an idea from you of what different products you're working on for the app, for future grid services and so on? Just where is that effort being directed? And specifically a question on that sort of consumer charging switching service. Should I assume that rather like the kind of money saving expert, energy club type things where the e-mails dried up, that won't really be sort of a commercial proposition again until prices are kind of back below the cap. There isn't a lot of switching opportunity at the moment, maybe that's strong with kind of night rates and so on. And the final question was, is everything you do that I would think of as kind of home or private user coming into that market share figure coming into that category? Does some of it go under fleet commercial stuff? I'm just trying to understand sort of whether that market share figure you mentioned some of the kind of reasons why it can fluctuate, but just to try and understand whether everything you're doing kind of for private owners is in that category?

Fantastic. Thanks, Ken. Nice to hear from you. Yes, so 3 questions in there. So I think if I start on the first one, which is all around our software strategy, wasn't it? So our software strategy is about delivering 3 fundamental things across all our routes to market. Using a Pod Point should be as easy as possible. That's an obvious one. Using a Pod Point should reduce the average cost of charging your car over time, and using a Pod Point should reduce the average carbon intensity of using your car over time. So you will see, over the course of this year, a number of product innovations that fit within those 3 things. And you'll see those predominantly as sort of various different feature drops as we deliver that to the customer, and we're really trying to make sure that the customer has got a great experience, not just when they get their Pod Point, but they know that their Pod Point constantly is easy to use, helps minimize their charging costs and helps minimize their charging carbon intensity. And the second part is, of course, we're using our software development to expand the routes to market. And a great example of that is our fleet charging solution. So it's in beta at the moment with a couple of big customers. That's really providing a suite of software for companies who have large fleets of electric vehicles. And of course, they have quite different requirements in terms of monitoring, understanding, tracking all of the usage of those electric vehicles. And hence, we've got specific fleet charging activity. And then, of course, there's a big part, which is all about the future, all about that future recurring revenues, whether that's bidding into the National Grid, the distribution network operators or indeed the bit that you've mentioned using that data to help people choose their -- which tariffs they should be on. And that's probably a good segue, Ken, onto your second question, isn't it, in terms of consumer charging switching. So I think in reality, it's something -- our road map for this year is to really start getting one of the grid load management revenue streams running and we -- happily, we'll move on to consumer charging perhaps the year after. Why? Two reasons. Obviously, there is a limit to how much we can develop simultaneously, but also exactly to your point, the electricity markets are in a bit of a strange position and hence, it doesn't really make sense to have that sort of energy swap type model really active at the moment. My assumption is, and we should wait and see whether this assumption is right that we will see stability and normality return to the electricity markets, whether that's in '24 or '23 or even '25, I don't know. But I still think that's fundamentally -- if you've got the data of how people use electricity across their electric vehicle and their home and bearing in mind that electric vehicle driver typically is using double the amount of electricity as a non-electric vehicle driver at their home that is a useful thing to help guide the customer in how best to use their electricity and how best to purchase that electricity. And in terms of your final question, your final question, Ken, was actually very pertinent really. You sort of asked, does the home section, as we report it, include everything that goes into homes. And the answer, frankly, is no, it doesn't really and potentially something we'll look to address into next year, really. So the home part that we report on is where we have supplied and installed a home charge for our customer. And obviously, we do a lot of that. But also, we get home charge into customers through our distributors. So we work with the likes of Rexel and ES Electrical, and they end up in customers' homes. In many ways, they're equally valid home charge units. And similarly, the thing that we're building with housing developers is a good point as well. So as you're putting charging infrastructure in as houses get built, that is home charge as well. So I think one of the other things which -- that market penetration stat that we've used, I think that needs to probably develop over the next year or so. And probably, we need to have a think internally about slightly changing the definition to make sure that our home revenue part really does report on everything, which is ending up as a home charging unit, of which there are multiple routes to get there.

No, that makes sense. Certainly, to me, if you sell to a housing developer someone's house, that's part of your market share in home. So that would make sense. Can I just follow up? You mentioned the kind of low-carbon thing. And I noticed, I think some of the U.S. smart thermostat people are now selling -- people are -- you can press a low-carbon button, I presume actually, low carbon and low cost and the right time to charge your car kind of is the same thing usually or would be here. When there's a lot of renewables on the grid and low demand would be the cheap and low carbon thing. But is that right?

Generally, yes. So generally, cost and carbon on the wholesale grid track quite nicely together. It's not absolutely inherent. So I'm generalizing, but what you said, Ken, is right in general terms. Of course, we can be a bit more nuanced than that in terms of watching what the carbon intensity of the grid is in real time and watching what the wholesale cost is in real time. But in principle, your statement is not far off.

The next question comes from the line of Carl Smith from Zeus.

So I just got 1 question. As far as I understand it, part of the recurring revenue from commercial is revenue share on customers charging their vehicles at these commercial sites. So just wondering what share of the recurring revenue increase has come from the increase in energy costs. Was this a bit of a windfall for you and might fall back when energy costs -- energy prices come down?

Thanks for the question. So generally speaking, our model is a cost plus on the cost of energy. So what we mean by that is our revenue share is not enormously changing with the underlying cost of energy. So obviously, the cost of the consumer is moving as the energy price is fluctuating around. But generally speaking, that isn't a strong influence on the revenue that we get. David, is it worth any further clarification or anything I've missed on that point?

Yes. I think what we're seeing here is not dependent on energy pricing. I think the shock of energy pricing is leading to a progressive transition that I think is permanent from our partners offering free charging to charging. And I think customers will now believe that paying something for your charge is still worth it given the convenience of having it available in your workplace or your hotel or your retail outlet. So I think what we're seeing is the market transitioning to the norm of paid charging, which we get a slice of rather than this being a one-off effect in relation to an energy shock. So I think we're confident that this is a trend that will continue.

The next question comes from the line of Paul de Froment from Bryan Garnier.

Just a quick question on competition. Did you observe any change in your competitive landscape in 2022, [indiscernible] from new players entering the EV charging market?

Paul, I think generally speaking, I would say the competitive landscape is broadly similar to a year ago. If you really go deep into that long tail, there's a constant sort of launch of new start-up companies doing little interesting things, none of which are material to what we're doing at this stage. But broadly, I still think you've really got to keep half an eye on the big petrochemical players and you've got this sort of range of different private companies who frankly haven't changed enormously in the last year. So we haven't seen any disruptive new entrants into the market, really, we've just seen a general progression of the same players that were in the market a year ago.

I'm now handing the call back over to your host for closing remarks.

Good. Okay. Well, thank you very much for a very engaged Q&A session. Good to have so many questions, and I hope we did a good job of giving you an overview of everything that happened in '22 and I hope the Q&A helped to provide additional information on that. And really on Slide 20, if the slides are still on your screen, is the one that I always like to leave on. I really want everyone to go away from this call on the memory that we are 1.5% done. We've only got 1.5% of vehicles on the road, electric so far. We've about 98.5% to go and every single one of those cars needs charging. So I really think we've got a massively exciting next couple of decades ahead of us, and I'm really looking forward to continuing on Pod Point's mission to make travel not damage the earth. And so with that, it's very much a thank you from myself and David and look forward to speaking to you all again in the near future.

Thank you.