Smart Parking Limited (SPZ) Earnings Call Transcript & Summary

Well, good morning, and welcome, everybody, to the Smart Parking Second Half FY '21 Business Update. We have CEO, Paul Gillespie; and our CFO, Richard Ludbrook. Paul will present to the slides that were released to ASX last night. [Operator Instructions] And then once Paul has finished, we'd be delighted to take Q&A. Thank you again for joining us. And on that note, I'll hand over to Paul.

Thanks, Michael, and good morning, everybody, and thank you for joining me for Smart Parking's H2 FY '21 business update. I'm here in Melbourne, albeit rather wet and cold and rainy, but I don't mind, and I'm joined by our Group CFO, Richard Ludbrook, who's in our Auckland office. Today, I'll provide you with an update on our business activity for the second half of FY '21. And after that, we'll be very happy to take some questions. However, before we move forward, I want to focus on 3 key points I'd like to take away from today's presentation. First, a strong recovery is underway in the U.K. with the easing of COVID restrictions and an accelerated vaccination program. For us, that means that PBNs are up to 212% since January. And while we feel there's still further to go, you will see from these slides that we're rebounding well. The second point I'd like to make is we're expanding our addressable markets and future earnings potential. We've built a beachhead in New Zealand with 6 sites using our tried and tested U.K. ANPR service model. With the early success in New Zealand, we're now opening up in Australia, starting in Queensland. These are attractive markets where we can scale our core technology. We've hired additional resource and are busy signing sites in these new markets and expanding our estate. The third point I'd like you to take away, given our recovery, our target of 1,000 sites under management in the U.K. by June 2023 is affirmed. The pandemic has proved our technology is robust. The market opportunity is intact to with over 45,000 sites. We've actively grown our estate through COVID to 612, which is up 23%, and we should finish Q4 with around 630 sites under management. We believe we have the best solution in the market and a highly scalable platform. With $9.3 million in cash, we can self-fund our growth investments and generate attractive returns. Added to this, as we flagged at the half year presentation, we've been active in the market and bought 5.3 million shares in the buyback, and that should be taken as a sign of our confidence. If we can move now to the U.K. pandemic tracker, please. This is a chart that we've shared a number of times and updated for each presentation with the market. The graph shows the impact on recovery of the U.K. since the beginning of the pandemic. Looking specifically at H2 '21, PBNs have risen sharply from around 10,000 in January and February, which was in the middle of lockdown 3 or 3.0, it was also at the start of the vaccination rollout, to over 35,000 tickets issued in May. It's clear to us that confidence is returning, assisted by the fact that 42 million people in the U.K. have had their first vaccination. Now there is obviously a seasonal boost here with the holiday traffic. But encouragingly, the PBN issuance now exceeds our prepandemic levels, with May 2021 exceeded -- or so rather May '21 exceeded May '19 issuance, which was, of course, well before COVID. Added to this, as we speak today, we expect June to be a record month for us, with growth to continue as we execute our installation program. Also, we expect restrictions to ease further in the coming weeks. We need to remember that the indoor hospitality pubs, hotels and the like, they opened as recently as the 17th of May. And of course, from the 19th of July, all legal limits on social distancing and social contacts will be removed. In short, we have a record number of sites with issuance continuing to grow as restrictions ease and traffic returns, which means our exit run rate going into FY '22 is strong. If we can turn to the U.K. services page, please. Thank you. Growth in sites has continued, but notwithstanding operational challenges around the site access and business development, especially from January to April during the lockdown. As said, 123 new sites have been added in the U.K. so far in FY '21, with 13 being removed. We will add more sites in Q4 than we did in Q3, with 630 sites expected to be under management by June 30. So where should this growth trajectory take us? Well, given the recovery we are seeing, we are confident in affirming the 1,000 site target by June 2023. Over the next 2 years, we expect to add 180 net sites each year. And why are we confident hitting this target? Well, the addressable market in the U.K. is 45,000 sites, so there is plenty of room to grow. We see opportunities across multiple industries and sectors, and we'll continue to build a well-balanced and diversified estate. We do believe we have the best technology solution for site owners, and we have purposely built our model to scale. We have the cash to self-fund the $20,000 per site CapEx and an average 7 months payback. And the majority of contracts being 3 years in length, we expect to generate higher returns on invested capital. This target does not include our new markets in New Zealand and Australia, which -- and I'll talk about our progress there at a later date. But I will say today, we are confident that we can build scale, and the unit economics of the sites are good. It's difficult to accurately define the total addressable market in New Zealand today, but needless to say, 6 sites is just the start. In Australia, we can grow in Queensland to start with as the legal framework allows us to operate the model there, which is obviously very unique to us. If we can turn to the multiple growth drivers there, please. On Page 6, we expand a little on our positive outlook for FY '22. As I said, the exit run rate as we close FY '21 is strong and ahead of pre-COVID levels. In H2, PBNs have exceeded PCP by 29%. Average stay time increased by 16% during the half, and the average PBNs per site per month rose by 212%. These are encouraging numbers. The lead indicators are also improving, with average parking stay time and average PBNs issued per site per month as the chart show, but they still have further room for recovery back to pre-COVID levels. We expect the further easing of restrictions to support this ongoing improvement in market conditions. Added to this, there is something that's silver lining to these lockdowns. We are seeing a change in holiday destination behavior with travel restrictions. We're seeing more staycations where families and people are holidaying in the U.K. rather than travel abroad. Of course, this will help site traffic and support our financial performance as well. And finally on the slide, while we expect to add 180 net new sites per annum, the retention of sites is also improving. With a keen focus on account management and added resource in this area, we are losing less sites to competitors. And through the pandemic, our competitive position is now stronger than it was pre COVID, and that bodes well for our contract retention. So on the last slide and to close out this deck. As our markets recover, we will grow. But our strategy is not passive. We are actively focused on executing well to ensure we maximize our leverage to the recovery. On this slide, I'll lay out the key execution priorities for FY '22. You may say it's a little bit early to show this, but we know exactly what we have to do to win. To summarize, in FY '22, we need to -- we'll be driving hard to add attractive sites to the estate. We'll be busy expanding our new territories with our tried and tested successful ANPR model. We will leverage our core technologies and products to existing and new customers, and we will selectively look to supplement our strong organic growth with strategic acquisitions as the opportunities present themselves. In short, we have a strong recovery underway and are well positioned to capitalize on that. That concludes the short update presentation. Thank you for listening. I'll now ask Richard to open the lines for some Q&A.

[Operator Instructions]

Paul, it's Ed here from [indiscernible] Can you just provide some detail on the average PBN per site increase or decrease from May 2019 to May 2021? So pre COVID to post COVID. Not in the chart.

Sure. Can we go to the chart, please, Angela? Thank you. So you've got a line there across the top, Ed. So what you're seeing on these 2 charts here on Slide #6, you're going from July '19. So starting from start of FY '20 -- so you're right, this doesn't include May. What I would say, average stay time prior to July '19 is similar, around about 90-minute mark, which is what that line says today. And this goes to the end of May. So we're closing in on that 90-minute mark, which is obviously very, very important for us. And average stay time is clearly -- is part of the -- goes towards our contravention rate, which means more PBNs being issued. What I would say is, and as we -- as I said a moment ago, with tickets being issued or PBNs being issued in May, we're ahead of that by -- from May '21 by 10% and June is already tracking to be 30% up on '19. Average tickets per month, we should be around 80% to 90%, is -- we've got an average line up there. So we've still got some way to go to get to that average number of tickets per site per month to the pre-COVID levels. But they go hand -- and these are leading indicators, right? So with the average stay time getting back up to 90 minutes, you will then see that average ticket per site per month go back up to 80%, which is where [ we finished ].

And what's the business model in Queensland? Can you just elaborate on that and what the payback and return profile looks like?

So Queensland's [ great ] news. We obviously -- we've got 2 new markets that we said there, Ed, which is, obviously, New Zealand where we've already started. We're running -- we've got sites on the go, resource out there, Ed, selling, which is great and those unit economics are -- for us, are exciting. In Queensland, we just -- literally just started. We've got 2 new people up there in -- based in Brisbane. We've got our first contract signed, which I'm very pleased with. The sites are not yet live, but [ just ] be live by the end of this month and will be issuing PBNs at the start of FY '22. So a slightly different model in the way we go about accessing the keeper details. But it's very, very similar to what we do in the U.K. It's the same model essentially of enforcement, parking management enforcement, which is not active in Australia at the moment.

So Ed, if we think about New Zealand, so obviously, we've now got sites in New Zealand that are actually earning. So we were expecting approximately a 10- to 12-month payback. So obviously, in the U.K., it's 6 or 7 months, and the reason the payback was longer was because the ticket value is lower than in the U.K. Now we've obviously got a relatively small number of sites, but we're seeing a payback of around 4 months. Now obviously, a small number of sites and it's early days, but certainly, the early signs are very encouraging.

Do we have any other?

Paul, it's [indiscernible] In the New Zealand and Queensland markets, are there competitors you're coming up against for the management business?

Yes. But they're obviously -- they're offering different products. So what we see in -- if we take New Zealand, for example. We have traditional parking operators there who run a manned solution, so people who patrol car parks. Pretty much what we used to do back in 2012, '13 in the U.K., right? So we still see some sort of manned patrols in that part of the world or in this part of the world, I should say. Added to that, they might have an ANPR mobile LPR solution, whereby obviously, people driving a car -- [ I know they have ] cameras attached to the cars that go into a car park and do a sweep and obviously capturing places they drive through, go away and then come back 2 hours later and do the sweep again. Of course, if cars have overstayed their time, their maximum stay time, whether it be an hour or 2 hours, the person gets out of the car and puts a ticket on the windscreen. So of course, that's quite -- it's very different to what we offer, which is a static camera sitting on the entry and exit to the car parking sites. They capture every single place, okay? So it's far more efficient, what we do. Now there is one other provider in the New Zealand market that's something similar, slightly different but similar, but no one else in Australia doing this right now. So -- and none of the traditional operators are -- it's more important that larger vehicles [ that's unsecured ] aren't doing this. So to us, we feel we've got a -- the whole experience in a congested market in the U.K., which is hard to do. We visit a lot of competition, which we do well to fight against and obviously do well every month, succeed against and are successful against a lot of those competitors. These markets in Australia and New Zealand are not congested. You have different operators -- large operators and some of them just providing different products and different solutions. So I see this as an opportunity for us to really take our expertise from the U.K., which is a far more active and congested marketplace, a more challenging marketplace than it is here, to bring that expertise and actually do well in this part of world.

All right, Paul. And in Australia, it's certainly the Queensland market that's probably -- that has the market access for your solution.

Sorry. Can you say that again, [indiscernible]?

Queensland market is the only state where there's been changes to regulation but that allows your solution?

It's not the only one, but it's the first one. It's -- how can I put this. It's probably -- there are fewer barriers to access those keeper details. Now there are other states that allow us to operate in a similar way, but we feel Queensland is the best place to start. It's the most straightforward, if you like. And we want to get this up and running. We want to prove the model in Australia, and we've proved it in New Zealand. And we're now busy -- our GM in New Zealand is busy hiring more salespeople to actually get out there and start scaling. That's very important to us. So what we want to do in Australia is we've already got the first couple of contracts signed. We want to get the camera installed, prove the model and then we can really start to accelerate. So Queensland's first cab off the rank. Want to make sure that, that state's proven and goes well, and then we'll be looking at other states. And I don't want to say much just yet as to where we'll go next. But Queensland is where we're going to be focused for the next 3 to 6 months.

Okay. And whilst you've proven the economic model, would you look to acquire one of these more legacy providers that has a manned solution and you could convert them to a technology-based solution?

I mean -- as I said, I mean, if opportunities present themselves and they are at the right price and they're going to be good for our business, then absolutely, we'd look at it. We feel -- we're pretty good at this organic side of things. And it's quite -- it's a good use of our capital to go and spend that $20,000 CapEx per site to really get -- to get the returns we want. Now of course, like I say, if there's another operator that has a lot of sites under management or some sites under management that's all manual, then of course, it's upside for us in terms of technology, and that will be attractive to us at the right price. If it's accretive and at the right price, then of course, we'll be interested in looking at it. So yes, that's on a case-by-case basis, [indiscernible].

Okay. Last question, just on the technology division. Can you provide an update where the cost base versus the revenue sort of sits today, whether that's sort of breakeven or are you sort of slightly at a slight loss for that division?

So there's still running loss. And now -- as we pointed out at the half year, of course, one of the big -- 2 -- obviously, 2 quite different businesses that we have: one, services, using technology to issue a PBN; the other one being a technology solution that we're selling to customers around the world. Now whilst COVID impacted the services business because there's no traffic on the road, right? You can't -- there's no traffic, your car parks can't issue any PBNs. The challenge we've had with our -- challenge with businesses, capital projects have been delayed through COVID, and we're still seeing that within a number of areas. That said, what we have done is, and as I pointed out, the half year and then the full year last year, worked very hard on our cost base in that business. That hasn't increased, I'm pleased to say, in the last 6 months and since we last spoke to the market. What we are doing now is deploying our new enforcement smart compliance management platform, which is a product we've taken -- first customer being [indiscernible] Council who's being deployed by the end of this month, which is exciting because they're already a sensor customer. So we're deploying our enforcement solution there, which I'm very pleased with. Also deploying to a private enforcement company here using our technology to enforce their car parks, their handheld device and our enforcement platform, and we're busy pitching that product to existing customers here -- both here in Australia, U.K. and also in New Zealand -- particularly in New Zealand. So I'm excited by that product release. We did a lot on social media around that. You may have seen it, the Tessera product in the compliance management platform. And that all falls part of SmartCloud, right? So it's another application that sits on SmartCloud that people can view as another piece of software they can just start paying for. So we've pitched that on a number of public tenders as recently, and that's 3 weeks ago. So it's challenging. There's no doubt about it. I'm telling you, this is challenging, but it's also exciting. We've got products out there, and we're able to change the way we work in that business.

In terms of the target of 1,000 sites by June 2023, so we're sticking to add at least another 360. Now each new site that we add generates approximately $4,000 worth of revenue per month, and there's incremental EBITDA on those sites of about $3,000. So I guess just a reminder of what the model is, obviously, it's very profitable and that's how we generate the rapid payback.

Do we have any other questions?

Well, I might. I'll ask a question, which is when you look at the 1,000 site target, do you have a view as to which sectors or areas or any other kind of sources of those sites? So that we can get a feel for how the book may look at 1,000 sites.

I mean what we've worked hard at is making sure we are diversified, okay? In the past, some years ago, 5 years ago, if you like, it wouldn't be 5 years ago. It feels like a lifetime ago. But we had a lot of exposure to the retail sector, in particular, we have supermarkets in the U.K. with one particular customer, and they're very challenged to deal with these large Tescos, as to those types of people or those types of customers. And we made a decision back then, we want to diversify the base, which we've worked hard to do and we've done very well. But we still take retail customers, right? We've still got a good number of retail customers that are successful. We don't have anything as large as a Tesco, as a -- or as an Asda, and we're not actively chasing them in that market today because the economics is not as good as what we can get elsewhere. But if we break it down, we clearly have a lot of retail customers, but not those large ones. Managing agents are very big for us. So the likes of the Savills, BNP Paribas, Knight Franks, Jones Lang LaSalle, those types of people, we've got a lot of sites with. But of course, it's across a number of different managing agents. So again, we're diversifying, but the managing agent market is very big for us, okay? So we actively chase that. Obviously, people know about KFC. So fast food is -- it's very big for us, lots and lots of sites across the U.K. Unit economics work well for us because of their high footfall, high turnover of traffic. Clearly, it's been quiet in the last 6 months because of COVID. But that said, normally, McDonald's, KFCs, those types of people, BURGER KING are very, very busy and obviously good sites for us. So that's another area we're working hard at. We do very well in the event space or entertainment space, I should say, so a lot of the kind of seasonal sites. We do very well in the coastal areas, fun parks. Those kinds of places, we've done very well in the past and continue to do well. So if we break it down, clearly, retail is still a large portion, fast food or leisure, if you like. And then within that, you've got some pubs, those types of sites. There's an awful lot of them, and those car parks at these central locations get abused. Added to that, you've got the hotel sector, which we've been successful in, and then managing agents and, of course, the entertainment, more fun parks, those types of places. So it is quite a broad spectrum that we operate in, but that's good for us because it limits risk. We've not got a lot of -- a certain percentage of our portfolio is not all concentrated in one area or on one customer, which is obviously -- presents a risk than what we had in the past, which we no longer have to pay. So right across the spectrum, Michael, but there's -- like I said, there's a lot of opportunity out there that we focus on there on a daily basis.

Thanks, Paul. That's very helpful.

Any other questions we have today? I guess if there are no further questions, feel free to e-mail myself or Richard or call me. If people got my details, they can obviously get in touch. I'm very happy to talk through these slides at more length if that's required. But I guess just to round off and finish the call, I mean, I do really want to just close out by reiterating the 3 points I made at the top of the presentation. I'm really -- the key things I really want people to take away from this is -- number one is obviously the recovery in the U.K. With the easing of restrictions, accelerated vaccination program, the PBNs, up 212% since January across the half. As I said, there's clearly some way to go to get back to prepandemic levels in some areas, but we are rebounding well, and that's very important for people to take with them. A second point I want to make, expanding our markets. We have really taken that successful U.K. ANPR services model, successfully starting in New Zealand. We're now at the point where we tried it. We've tested it. It's working well at 6 sites, and we're scaling the installation of that. So that's something that's very exciting to us. We're building the team. The team are energized and we'll be rolling out more sites in New Zealand. Added to that is the second or a third market, I should say, which is Australia, aside from Queensland, which we'll be starting at the end of this month. So again, we've built the teams, we've built the machine. We now just need to feed it. And the third point is really, given the recovery, given everything we're witnessing in the U.K. but also our new markets as well, that target of 1,000 sites under management is absolutely within our grasp. That -- the pandemic has proved us to be a robust and resilient business and our technology, robust. The market opportunity is intact at 45,000 sites. And we're going to be actively growing that estate [indiscernible] to 612 now, which is up 23%, and we will finish Q4 around 630 sites. We've got $9.3 million of cash, so we can self-fund the CapEx. And of course, that generates good and attractive returns. Added to this, and as we said at the half year, we've been steady. We've been deliberate in the buyback. We spent just under $1 million so far, 5.3 million shares. So that really is a sign of our confidence of the management and the Board's confidence in this business and how we take it forward. And of course, our exit run rate into FY '22 is looking strong as a result. So those are 3 key points. And thank you very much for joining us today. That concludes our presentation. Michael?

Very good. Thanks, Paul. Thanks, Richard. And I look forward to updating you in August, if not before. Thanks for joining again.

Thank you very much.