Smart Parking Limited (SPZ) Earnings Call Transcript & Summary

Okay. Well, we're all conscious of everybody's time. Why don't we make a start? And first of all, I'd like to welcome you all to the Smart Parking FY '20 Results Conference Call. With me, I have Paul Gillespie based in the U.K., CEO; and Richard Ludbrook, the CFO, based in New Zealand. The format of today's call will be a presentation by Paul and Richard. [Operator Instructions] And on that note, I thank you again for joining us. I'll hand over to Paul. Thank you.

Thank you, Michael. Okay. Thank you, everybody, for joining this afternoon, or good morning, good afternoon, good evening. There's people from different parts of the world. As Michael pointed out a moment ago, I'm in the U.K. right now, in Birmingham, the U.K. operation. We're also joined by Richard, our CFO, who joins us from Auckland. As Michael pointed out, we'll obviously run through the presentation we've provided with the ASX a wee-while ago, and then we'll take questions after that. But before I turn to the detail, before I turn to the deck, since we spoke in June -- rather, just correct myself, I just wanted to highlight 1 or 2 key points before we run through the presentation. So since we spoke in June, the initial recovery from COVID-19 has continued to strengthen. PBNs issued in June were up 109% from the COVID lows in April. Today, we're up 350%. The car count was up 87%. And today, up 135%. At June 30, we had 496 sites under management, and today we're at 525. And on the back of that recovery and our streamlined cost base, we were EBITDA positive for July, which is encouraging. The second point I'd like to make is we have momentum going into the first half. With technology revenue deferred from Q4, which, of course, would fall into FY '21, we'll see the full benefits of a sustainable $2.5 billion (sic) [ $2.5 million ] cost savings we've made, certainly, in the last few months. We have $3 million of contracted technology orders to deliver, with a strong pipeline of over 200 sites in the U.K., which continues to grow. And the endorsement of an exciting new contract win with KFC, which we'll talk about later. And this, in particular, validates our value proposition to customers. The third point, I'd like to make is growth. We are in growth mode. We're expanding our addressable markets, we're early on our growth phase, and we are well placed to benefit from what we see as a positive structural tailwinds post COVID. In particular, the U.K. opportunity is still large at over 45,000 off-street parking sites. We're pleased to say we're expanding our managed service offering into New Zealand, where we can leverage our technology and existing knowledge of the market and operate in a similar fashion to the U.K. The technology business is a case of where technology meets opportunity. For some time, we've chased the market to adopt our technology, but we are early. It takes time to drive adoption, and we see COVID as a step change. Motorists want safety. They want to drive their own cars. They don't want to use public transports, and this -- there's going to be continued growing pressure on the curbside, and we have a solution. We're well placed to benefit from the structural trend in the new world. We're also using learnings from COVID such as open source data analytics to assist our growth, enhance our customer offering and become more efficient. We've been resilient through COVID, and we're determined to come out of this period stronger. We can turn now to Slide 2. We want to show SPZ at a glance and provide investors with an overview of what we do and also show some key points about our business, in particular our growth in U.K. sites under management and how we continue to win business despite C-19. Also, I want to provide some idea of scale. In that, we capture over 8 million cars per month through our ANPR cameras, and our IoT platform, SmartCloud, processes over 31 million transactions daily. This can be as simple as a car riding or leaving from a parking space to a payment being made through our paid parking application. And we're a global company operating in 10 territories with over 500 customers across the business. In short, we have a robust technology platform and systems that can handle high volumes across multiple countries and sites that we can scale for the future and for growth. If we look now to Slide 3, this is an update on the recovery of our U.K. business after lockdown. You'll recall, we provided this graph to the market on the 30th of June, and I'm pleased to say that the recoveries continued. We are seeing increased volumes of vehicles using our state, which in turn, has shown an increase in the issuance of PBNs, about 350% since the COVID lows back in April. As further restrictions lift, we believe the traffic volumes will continue to grow. It's also worth noting the government's encouragement to get people back into the workplace and schools that reopen in September. As this happens, again, we will see increase through our state and, of course, the increase of PBN issuance. If we look at Slide 4, please. I want to talk to the impact, the response and the recovery from C-19 crisis -- of the C-19 crisis. To be clear, I'm not going to overuse COVID as a catch-all for the last 4 months. In fact, I would say it's been business as usual for Smart Parking, albeit working from home, working remotely. I expect client speed service and growth to continue. The team has done a great job of doing that and finding solutions to move the business forward. If we look at the initial impact of COVID, as highlighted before today, we experienced a significant drop in car volumes, sharp drop in PBNs issued, higher cancellation rates and deferred technology installations. This change in trading conditions required a rapid response to how we manage the business, in particular, our cost base. As you can see, we took a number of measures that have seen us make sustainable cost savings over 2 -- which are over $2.5 million per annum. As mentioned a moment ago, pleasingly, the recovery is underway and gaining momentum with car volumes, site installations and technology projects and PBN issuance, all returning. Whilst we're not yet at pre-COVID levels, it is a continued increase, which, of course, is encouraging. I'll now hand over to Richard, who will talk you through the financial results.

Thanks, Paul. I'll start with Slide 6, where you will see the group adjusted EBITDA loss, excluding one-off and nonrecurring costs of $0.9 million was down from an EBITDA profit of $0.3 million in FY '19. This does include an adjustment to EBITDA of $1.8 million on the adoption of IFRS 16 leases. There is a reconciliation on the impact of IFRS 16 and the supplementary schedules, and I'll speak to the results on a pre-IFRS 16 basis, unless otherwise stated, so you can understand the results on a like-for-like basis. Revenue of $21.5 million was down 21% on FY '19. As Paul noted, COVID-19 had a significant impact on the last 4 months of the year. In addition, in the FY '19, the company removed some key car parking sites, which were one-off in nature, and this flagged at the AGM and the half 1 results presentation. The company implemented cost-saving measures during the year with annualized personnel savings of $2.5 million. A restructure of the U.K. management team and field-based staff in December 2019, combined with changes made in the second half of the year, resulted in a 17% reduction in personnel costs compared to the first half of the year. However, the company has been careful to maintain core capabilities to take advantage of the recovery. After incurring losses as a result of COVID-19 in the last 4 months of FY '20, the group returned to profitability in July. Moving to Slide 7. Revenue in the Parking Management division decreased 21% to $17.2 million on the back of reduced parking bridge notices due to COVID-19 and the site removals in FY '19. Revenue for the last 4 months of FY '20 was down $5 million, or 71%, on the same period last year, as a result of COVID-19. While parking bridge notices were down 14% for FY '20, every year-to-date, they were up 27% compared to the prior corresponding period on an underlying basis. Sites under management increased by 28% during the year, and thus, along with the recovery from COVID-19, it's expected to drive revenue and earnings growth in FY '21. New site installations were put on hold during April and May. The Parking Management division furloughed 63% of staff under the U.K. scheme and is gradually bringing staff back to work as a part of the recovery. EBITDA of $3.1 million, including a $1.7 million adjustment related to IFRS 16, was down from $3.6 million in FY '19. Excluding the impact of IFRS 16, adjusted EBITDA decreased by 61%. Technology revenue of $6.7 million was down 12% and included revenue from Smart Parking installations at City of Wyndham, Moreton Bay, Livingstone Shire Council and City of Adelaide. The division also expanded its commercial customer base with new sensor installations with Burwood Brickworks, Queenstown Airport and Les Mills in Auckland. The company also installed its first site for Kaufland in Germany. The company has some orders for new installations of $3 million, and this includes Gatwick Airport, which will generate revenue of over $2.5 million over 5 years. The company continues to invest significant resources in R&D. Costs in this division was steady at $1 million. This included the next-generation indoor parking guidance system, which was deployed at new sites in FY '20 and the ongoing investment in the smart card platform. Slide 8 shows the group maintains a strong balance sheet and is well placed to self-fund recovery and growth strategies. The group has $6.3 million of cash, and the group was cash flow neutral in July. The company obtained a U.K. coronavirus business interruption loan of $2.7 million in July, which is undrawn. The term of the loan is 4 years from the date of drawdown and is interest-free for the first year. Principal and interest repayments commence 1 year from a date of drawdown. The group incurred $2.5 million of capital investment, related primarily to the deployment of technology in the U.K. And we will see the benefit of this in FY '21. Current liabilities include a $4 million provision related to the VAT dispute. This includes $2.5 million related to VAT assessments issued in August 2019, covering the 2 years to May 2019. The company has lodged notices of appeal contesting different aspects of the HMRC assessments, and this is now an industry-wide issue. In June, the company successfully applied to defer the payment of disputed amounts assessed in 2019 until the tribunal hearing, which is not expected to occur until 2022. I'll now hand back to Paul to provide a business update.

Okay. Thank you, Richard. All right. So if we turn now -- turn to the business update and obviously more operational matters. And so to Slide 10. Thank you, Andrew. All right. So the key points to highlight on the slide are, in particular, growth in site installations in the U.K. So despite 0 installations in April and May, we were still able to grow the installed base by 28% and we added 107 new sites throughout the year. We're expected to add 55 new sites in the first quarter of FY '21, with a focus on 200 new sites for the year. The recovery in PBN issuance in the first quarter of FY '21 is evident from this slide and shows we're gaining momentum. I'm excited to tell you that we're expanding our managed service offering to the new markets, and we've gained accreditation to operate in New Zealand, leverage our U.K. technology and extensive experience. Looking forward, we have a strong pipeline with over 200 sites in the U.K. and a team to execute our long-term growth plans. On Slide 11, we're seeing open source data in the top 2 graphs from the Department of Transport and the Office of National Statistics. This is showing that confidence in public transport is understandably not coming back so quickly in the wake of COVID. Importantly, people are using their cars, which is obviously good news for us in both sides of our business. The chart on the top left of this page shows that the structural trend -- shows that it's a structural trend to save transport. And of course, that's a tailwind for us. The 2 graphs below are data from our own state showing the increase in average stay times and the weekly cars in, both on the increase from the C-19 lows in April. Slide 12 highlights our growing customer base and new names, in particular, for FY '20, most notably KFC, which we'll talk about on the next slide. Earlier this year, we announced that we won a contract to manage the equity portfolio of car parks for the KFC U.K. and Ireland. Slide 13 is a case study of this opportunity, the scale and how we won, and most important, an endorsement from the customer sharing the right products and people to deliver a great customer experience. As highlighted in the announcement made, this contract also gives us the opportunity to install our parking solution or have the potential to install a parking solution at over 250 franchise KFC outlets, which, of course, is a key focus for us in FY '21. As with the services business, the Technology division was negatively impacted by the pandemic, mainly to the day of projects installations, most notably at Gatwick Airport. However, these projects haven't been canceled, and we'll be delivering these installations during FY '21. Further, we've continued our sales activity during lockdown and lockdown periods and been responding to a number of tender opportunities across all market sectors and operating territories. We have $3 million book to orders to deliver and a lean focused team to achieve this. Slide 15 shows our technology customer logos. We have some great customers, and I'm pleased to say this list of engaged partnerships is growing. It's fair to ask why would a city sign up for our solution. If we turn to Page 16, we show the City of Adelaide case study. This is a great client and a perfect example of what's driving demand. Adelaide has a 5-year vision to be a smart city and with an improved parking experience. Our technology provides that solution. It's a combination of our robust enterprise strength, back-end systems, data analytics and driver-friendly app that provide a compelling value proposition. The data we collect and provide allows Adelaide to make smart, educated business decisions for years to come in Adelaide city and on-street operation. In our R&D division on the next slide, we've been busy completing developments to our enforcement products and have used the lockdown period to plan our launch to market. We also have the team focused on supporting the delivery of the managed service solutions for New Zealand. Whilst we're leveraging our U.K. technology and experience, we do need to make this NZ ready, and it's a key project for the first half of FY '21. Clearly, we remain focused on the delivery of customer-driven product development, and we continue to invest in innovation and the future. If we turn now to the outlook on the final slide. Clearly, FY '20 has been an unusually challenging year, and the results reflect this. However, we've come through the worst in this pandemic with a strong, lean business that is fit to take on new challenges. We've started FY '21 with momentum, and we have a strong pipeline of new sites in the U.K. and committed orders in technology. We can grow without adding material fixed costs, so -- and our balance sheet is strong with undrawn debt facilities. So expanding our addressable markets, our market opportunity and we're well placed to benefit from the structural tailwinds of the new world post COVID. FY '21 should be an exciting and prosperous year to Smart Parking. That concludes our presentation. We'll now open the lines for some questions.

Do we have any questions? [Operator Instructions]

All right. I might kick it off with a question around the pipeline, the 200 sites that you referred to. Can you give us a feel for the size of those sites, whether they're above or below potentially average PBN issuance levels? Or is it just too early to say?

Little bit too early. But -- I mean all the sites we have in the pipe are -- they only make the pipeline -- make it onto that list if they are -- if they feel our criteria. So these are sites that we deal with customers already or the new customers. We've already surveyed the site, and we're happy to put it through our -- it clears our hurdles, if you like, to actually take that site on board and start to manage it. So these are -- until you go live, you're never really going to know, but of course, we've a pretty good model and a pretty good -- a very good understanding, very strong understanding of what makes a good site and location, what's close to, so on, so forth. So within there, there will be some great locations for us, but there'll also be some average ones. But of course, the challenge is to continue to add to that list, continue to see new customers. And as we bring more people back from our furlough process, we've got the salespeople back now, that pipeline will continue to grow. Do we have any other questions?

In the presentation, could I like just ask about the comment made about Kaufland as being a new possible partner? Perhaps you could give us a bit of color on that.

Sure. Can you tell us -- say who is asking the question, please?

My name is [ Dave Kettle ]. I'm in London.

Yes, absolutely. So Kaufland, we called this out at previous presentation. This is -- also we've done a bit of work in Germany already. So Kaufland is a very large retailer throughout Germany, and in Europe. And of course, they've got operations all over the place. So we've already started -- we've already completed one installation, which has gone very well, no issues to speak of, if you like. And I guess we're in a conversation with them on a weekly basis to look at new sites. We've surveyed a number of new sites with them as well. So it's a technology installation, Dave. It's obviously providing -- sensors installed, providing real-time information to their customers by an application. But also, they want to use it for enforcement purposes. You'll recall, we've done quite a bit of work in Germany over the last couple of years, and it seems to be an expanding area for us because they don't like to use camera technology in Germany for enforcement, but they want to be efficient, so therefore, sensing technology is good for them to assist in their enforcement operation. [Operator Instructions]

Okay. It's [ Clay Garry ] here. Just wondering if you could say how -- just on -- if you could give me a little bit of insight into whether you've had any discussions with your partners on the leases? And how they're structured in this environment?

In terms of our current car park leases or building leases?

Yes. Yes. Just I mean, I know there's a portfolio of them, and they're a little bit different. But I'm just interested to see or understand what sort of flexibility they have been willing to give you or what flexibility you have or whether there's been a need to review the entire portfolio and bring them to a different sort of -- or standardized sort of form or something. I just -- I'm not certain how that's all going to flow through, and whether you've reviewed that at all given the environment that we're just going through.

Absolutely. I mean we review every single lease, as you can imagine, building lease, car park lease. But leases are good for us, right? And these have always been successful car parks and profitable car parks for us. Of course, during the lockdown period or the early stage of lockdown period, because we are the leaseholder, if you like, they never closed. They were always open, and they maintained some traffic going through them, obviously, at far greater reduced levels. But we had some very good positive conversations with all of our landlords around whether we could reduce payments, defer some payments. We've been successful with some of that, but ultimately every one of our landlords has been very flexible in how we deal with them, how we pay the rents, and so on, so forth. We've had no issues to speak of. It's been a, certainly in the early part of lockdown, a very positive experience, dealing with these landlords. It wasn't negative at all. And we still have a good relationship today. And all of our leased car parks are open and it's coming back -- and coming back quite strongly because they're in pretty good locations.

And where the landlords sort of told you to go slow on issuing the notices, et cetera. I have forgotten the term to use of that. Is there an offsetting sort of implication for the lease? Would you just have to wear it? Or how does that work?

Leases don't get impacted in the same way. So obviously, we are -- essentially, we're the leaseholder and therefore the customer as well, if that makes sense. So we can manage the tariff. We can manage the enforcements. It's on us to do that. So the landlord doesn't have a say in that side of things. I think what you're referring to simply might be the -- where we have managed contracts. And the majority of our sites are managed contracts, and you might get the retailer says, look, during this period, like to go easier or provide free parking to NHS and frontline workers, which we did. We've canceled a lot of tickets for NHS workers, I'm pleased to say. So that's a different situation to the leases here. And at least, we can control that. And it's really just down to our relationship with the landlord about when we pay the rents and rates and so on, so forth.

I get you. Sorry. So those situations, you're on a different arrangement together, and that makes sense.

Paul, it's [indiscernible]. Just on the managed parking opportunity. Can you sort of talk through the unit economics? What's the CapEx? What's the PBNs you expect per sign sort of from the economics perspective generally?

Sure. Well, very early days. So in terms of New Zealand, we gained accreditation very recently. And I guess the key element to remember here is the U.K. is quite unique. And I said this a number of times, quite a unique place for enforcement. In that, we can query -- take a picture of the numberplate and then query the Driver License Agency, the DVLA, to essentially get that numberplate, name and address from that numberplate and send them a ticket in the post. So we've been -- as part of our kind of business development activity, been looking for other territories where we can do this. And of course, we did look at New Zealand in some time. And we actually applied some years ago, 2012, or let's say, to the equivalent of DVLA, it's called motor check, and we were unsuccessful. However, we've been in conversation with, again, over the last, probably, 6 to 12 months. And now we have the accreditation, we gained that quite recently. And so we've been successful in gaining the accreditation, which means we can now operate like we do in the U.K. So of course, is it going to be the same in the U.K.? No, they are very 2 very different places. And of course, New Zealand is much smaller. So I think it would be a bit early days. And we just start saying we believe it's going to be average number of tickets of X and so on and so forth. What I can say is the CapEx will be very similar, CapEx per site. Because cameras cost very similar in the U.K. as they would in New Zealand, but probably what -- we will be using the same camera supplier. And we're going through a period of testing at the moment because, of course, New Zealand plates are different to U.K. plates. So we have to make sure we're capturing these correctly. We're busy setting up our appeals process, payment page, all those kind of good things that we do today. We're obviously replicating New Zealand. But as I said, it has to be NZ ready to ensure that we can operate correctly in that environment. I think it'd be a bit early days. We just start quoting. We expect X number of PCNs per site and so on and so forth, but the CapEx and costs will be similar.

Just given the amount of white space that remains in the U.K. market, why do you feel now is the right time to almost divert your attention with another arm to the business when there's so much organic growth option may be in the U.K. business?

Well, you're right. There is a lot more organic growth here and that's not going to dilute our focus. And we've got a good operating base in New Zealand, as you know. So we have a technology team based there, R&D based there, we've salespeople there. We have installation teams based there, who all understand technology installations, right? So -- and if you think about the shared skills and shared or transferable skills with the team we have there, it's not a big jump to be able to have the operations team install cameras, install pay machines and those kinds of things to actually get the hardware up and running. And essentially, we have a team there already and an experienced team in technology sales installation. Well, the sales team are pretty excited about this new opportunity. Yes, we will have to hire some new staff in the future as it grows. But today, we can handle with what we've got. So I don't see it diluting U.K. business at all. I see it is essentially adding to the New Zealand business and the strong base that we've already got there.

I guess just another question. On the 525 sites in the U.K. currently, are they all open?

They are -- it's a good question. They are all open. Yes. I mean there are some sites that are having limited operating. And I'll give you a couple of examples. So -- might if you know the Wales in the U.K. has been further behind England in terms of opening up and restrictions, right, in particular, pubs. And we have 1 or 2 installations in pubs in these, sort of, leisure environments. And of course, with restrictions and COVID, rather than going into pubs, they've expanded their beer garden to include the car park. So there are more tables and chairs out in the car park and a marquee and things like that, so we've got restricted access at some of those sites, but not many. Other sites, I mean 1 or 2 NHS sites that we have, that have, again, restricted access. So -- and there's a higher number of cancellation or white listing, if you like -- if there's more place on the white list, so we don't issue. But other than that, it's -- with the height of COVID, in the April and early May, we had a lot of sites off and customers who did not want to do anything. Of course, there was no traffic either. So it didn't matter whether it's on or off. But in the last, certainly, since the back end of May and early June, and we'll see mid-June -- retail opening in mid-June, pubs opening early July and more restrictions lifting, and we've seen more and more sites open up. So it's been a bit of a journey, getting everything back open, but pleased to say we're a long way down the road now, which is good. Do we have any further questions? I'll take that as a no. Well, of course, yes, myself and Richard are going to be on the virtual road for the next few days with meetings today, tomorrow and Wednesday with potential shareholders. So any other questions do you have, I'm happy to accept them and take them off-line. But I guess if there are no more questions, I'll -- I guess I'll close the meeting and just summarize really where we're at. I mean as I said, in terms of where we're at, in terms of recovery -- actually, Andrew, would you mind us bring out Slide #3, please? Thank you. In terms of our recovery, and of course, we talked about this graph back in June. And I guess this really highlights the drop where things really happened in terms of -- when the lockdown really kicked off, the sharp fall in cars, sharp fall in tickets and so on and so forth. But of course, the gradual reopening as restrictions lift is, this is a really perfect graph to show you exactly where the -- how things are coming back together, which is great news. And as I said a moment ago, the PBNs dropped significantly, came back 109% in June. And today, we're back up to 350% from the COVID lows in April. Same with car counts, we're now back up to 135% of where we were. Installations continued. So despite the 0 installations in April, May, we are now today at 525 sites, and we're focused on that 200-site delivery. This momentum is really starting to build into the first half of FY '21 in the first quarter, in particular with the growth in tickets. We are focused on the 200 new sites for the year. We've clearly been active and proactive in our cost management and our cost savings with a $2.5 million of cost saves or annualized cost savings, sustainable going into this year. And of course, we've got some wonderful endorsements from new customers, in particular KFC, which we're excited about. Other things of note, things to remember and take in this call is the fact that we are expanding our managed service offering in New Zealand. And for us, expanding that and growing that operation in another territory is a big win for us, and so we're excited about. So in short and just to close us both, despite the challenges, despite COVID, despite all these issues, we have come through this, and we are leaner and more versatile than we were before. We're absolutely committed to growing both our services and technology business and expanding our addressable markets. And we're excited by what the year can bring to us. With that, I think I'll close the call. And I can say if there are any other further questions, I can take them off-line, and I'll look forward to catching up with people over the next few days. Thank you very much for your time. Thanks, Richard.

Goodbye.