Tracsis plc (TRCS) Earnings Call Transcript & Summary

Welcome to the Tracsis Full Year 2024 results webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Chris Barnes, CEO; and Andy Kelly, CFO. Chris, over to you.

Thank you. Good afternoon, everybody, and thank you very much for joining today's results presentation. In terms of the format, it will be roughly a 30- to 40-minute presentation. Andy and I will share the presentation task as we go through this. We'll basically start by just giving an overview of the business and the last 12 months. We'll then give you a detailed update on the market, in particular, the legislation changes that are taking place in the U.K. and how that we think will impact the business moving forward. Andy will then give you a detailed overview of the financial results and also the transformation actions that we've taken during the past 12 months. And then we'll take a bit of a deep dive into some of the key contracts we've delivered over the period and what that will mean for our future pipeline. And then after a conclusion at the end, we'll open up for Q&A. So in terms of an introduction overview to the business, because I'm conscious some of you will be very familiar with Tracsis and others less so, is that our overall purpose is effectively to make transport work. So we operate across the transportation space, particularly in the rail sector. Another heart, we are trying to deliver leading-edge technology solutions that ultimately improve the performance of public transportation, drive greater usage of public transportation and therefore help governments decarbonize. So a really key sustainability agenda at the heart of what we do. How the business is split, it's roughly split into 2 halves. We have a Rail Technology & Services business, which is a product business, made up predominantly of software solutions, but also some hardware solutions. And its growth is built around high levels of annual recurring revenue, supplying products into train operators, freight operators, and infrastructure providers and also offering solutions for local transport authorities across our target geographies. The second half of our business is focused on Professional Services. So it's focused on the provision of people. And the expertise on this side of the business is built around collating data, the analysis that goes behind that data, how that can be used by local authorities, major event providers to shape policy decisions, to shape operational decisions when delivering major events or major pieces of infrastructure upgrade. So when you put the 2 of those together, one of the key differentiators we feel we have is we've got the -- we have the software and product knowledge and embedded installed base which generates a huge amounts of data, which then enables us with the data analytics and other skills that we have to be able to interpret that and help decision-makers make really important decisions around capital allocation, around sustainability and ultimately around improving the overall performance of the transportation space. So it's a really exciting combination. We've got a global workforce of over 500 people, a very talented team with deep industry expertise both in the industry verticals we operate in, but also in the technology that we supply as part of our products and services. So in terms of the past 12 months, so there's been a lot going on across the organization. We always planned to do a significant amount of operational transformation in the past 12 months, and that has been successfully delivered. The disappointing part is that we have had a pretty challenging last 4 or 5 months where we haven't hit the financial targets that we set ourselves for the -- for our financial year 2024. That was disappointing. Part of that was outside of our control, which was due to the timing of the U.K. general election, which came in month 12 of our financial year and left us with very limited options in terms of how we can mitigate the loss of revenue. And then the second part was a slower-than-expected transition of our pipeline or conversion of our pipeline in North America. That's more self-inflicted, but obviously still either way it's disappointing that we weren't able to achieve the targets that we had set for 2024. In terms of the real positives achieved, one of our key strategic metrics is growth in recurring revenue. Over the period, we delivered a further 10% increase in recurring revenue across our Rail Technology businesses. A great indicator that we've got products, services that really resonate with our client base. Importantly, alongside that, we've seen our rail software pipeline grow by 200%. That's both significant growth in North America and in the U.K. It's not focused in any one particular area, but it kind of covers all the different parts of our product portfolio. So again, it's a really healthy indicator of the business and where we sit in our target markets. We've established a new senior leadership team. We deliberately over the last 12 months have focused on having rail expertise at our core in terms of how we interface with our customers and how we understand their requirements and their operating challenges, but we've been deliberately adding more technology capability into our business to improve the way in which we can deliver high-quality, robust software and hardware to aggressive time lines with our customers and to a high level of quality. And that team is now well established and is making a significant difference to the business and to the quality of the decision-making and accountability that is going on within the organization. We had a really important product launch this year. In September, we went live with a brand new train dispatch product in North America. This opens up a whole new product sector for us. We've had great feedback from the customer, a very positive reaction from the industry, and we hope that's going to drive a new and important growth vector for us, both in the remainder of FY '25 and into future years. I've already touched on the operating model transformation, but what that has basically been about is about creating a global delivery model. So how do we bring all of the different parts of Tracsis together, so we've got much higher levels of collaboration. We're doing things one way to a best practice methodology and as part of that operating model transformation, we've brought in new heads of software development of test, of platforms, and we've also appointed a CTO. And that really helps us make sure that the technology decisions we're making are right for the longevity of the business and enable us as we grow to grow our profitability because we'll have platforms that we can repeat and deploy on multiple bases moving forward. And then finally, in terms of progress, we've now defined a carbon reduction plan for the business. That takes us through to clear carbon neutral targets for 2030. That plan will be published early in the new year and we'll give just a very clear road map around what we're looking to achieve and how we're going to achieve that as part of our commitment to sustainability. And in conclusion, we -- business still generates a significant amount of cash. We have around GBP 20 million on our balance sheet. We have no debt. That puts us in a very strong position to both invest in further acquisitions or to invest in R&D development within the group. And therefore, overall, we are really positive about the future that sits in front of us, and we move forward with a real degree of confidence in terms of what we're able to achieve over the coming months and years. So next, I'll turn to the market update. So there's a lot going on here in the U.K. at the moment, and there's a lot of information on this slide, which is there for reference, but I won't go through every detail at this particular moment. The key messages are as follows. So yesterday, the rail public ownership bill passed its way through U.K. Parliament. That is the first major step towards the creation of Great British Railways. So it's something that's been talked about for a period of time, but it's now starting to gain some momentum. Great British Railways will have responsibility for track and train under a single leadership team. So rather than today where network rail runs the infrastructure and the train operators are independent, this will all come together under a single body. As part of that road map, train operators will move into public ownership and a timetable for that will be presented very soon. Now if we look at all of the changes that we expect to come through over the coming months, we think, overall, they are net beneficial to Tracsis. So we think that moving train operators under a single ownership model will create faster decision-making and more clarity. And we very successfully operate under both models, whether it be private or public ownership. Network Rail has got clear funding for Control Period 7, and we think the key areas of focus align very clearly with the types of things that we do. There's going to be a real focus on on-time train performance, improving the customer experience, ensuring that that's done with the highest levels of safety. The only challenge at the moment is that Network Rail do have funding challenges in the first year of Control Period 7, largely driven by the scale of inflation. So that's something that we've got to very carefully watch along with the rest of the rail industry over the next few months. But overall, the reassurances are that the GBP 43 billion of funding will be spent over the course of Control Period 7 and will drive lots of work and opportunity for suppliers across the industry. The next area and the government already making significant progress here is around digital ticketing. So the government wants to move to a much fairer or best value fair approach to have people buy tickets and how they travel on the train. The view is if we can get that right, we'll get more people traveling by train. That would generate more revenue and that will be to everybody's benefit across the industry. We are the leading provider in the U.K. of pay-as-you-go smart ticketing and we think we are very well aligned with what the government wants to achieve. And again, I feel that's an area which can be a real benefit to us as an organization. And then the final part is that a lot of decision-making is going to be devolved. So it's going to move out to -- away from central government to local mayors to local transport authorities. That's a trend we've been seeing over a period of time now. We're well connected into a number of those areas. We work closely with Transport for Wales and Transport for Scotland and other authorities across the U.K. And again, we think that puts us in a strong position to continue to grow and build our business in partnership with them. So there's a lot going on. There's legislation that will be coming out in the next few months that will give us further definition of what's going to happen. But overall, we believe those changes will be a net benefit to us overall as an organization. In North America, the picture is different. So in North America, obviously, a general election has also happened, but we're not expecting that to impact our opportunities. The U.S. market is much, much bigger than the U.K., but it's structured in a very different way. You do not have a single infrastructure owner, but what you have is you have large Class 1 freight railroads, lots and lots of shortline freight operators largely connected to industrials, ports and very specific activities that sort of link together the Class 1 freight railroad across the U.S. You even have commuter railroads that deliver passengers into major cities. And then you have transit agencies that run sort of enclosed metro systems in -- and also across a number of large U.S. cities. And when you look at that landscape, it's the middle 2, which are our key focus. So in those 2 areas, they don't have huge engineering and technology teams within their organizations, and they do work very closely with external suppliers. And that's where we think the big opportunity is for us as an organization. Our focus is in software growth. It's particularly focused around train dispatch. We will continue to have yard automation activities in the U.S., which are focused more on our hardware supply but that's a business we think -- we don't think that business is going to grow particularly. That's just an important one to us for us to remain part of and for us to have as part of our portfolio. But it's the train dispatch software piece, where we think there's a really significant opportunity for us as a business to grow. We have got numerous conversations ongoing with particularly commuter railroads across North America, and that's an area where we think is a really exciting opportunity for us moving forward. So the reason North America is so important is that we need to make sure we've got a diversification of risk across more than just the U.K. We think the U.S. is a particularly strong growth engine for us, and we think it would very much help us moving forward to have similar-sized businesses in both the North America as we have in the U.K., but replicate the success in the model we have in the U.K. into North America over the coming years, through both acquisition and through export of technology and solutions that we already have successfully deployed in the U.K. So overall, we think -- well, there's a lot going on in the macro environment. We think from an overall perspective, it's all net beneficial to us. So we would continue to remain really positive that the demand is there, and that will drive future growth. Andy, I hand over to you.

Thanks, Chris, and hi, everyone. So just turning to the financials, first of all. As Chris mentioned, our financial performance in FY '24 was impacted by the timing of the U.K. general election in month 12 of our financial year and by lower-than-expected conversion of our yard automation pipeline in North America. And as a result of both of those factors, we did deliver financial performance that was lower than we achieved in the prior year, but was in line with the guidance that we had provided in June. From a revenue perspective, we think the general election impact overall was approximately GBP 2 million against us. And in addition to that, we had approximately GBP 4 million of revenue in FY '23 that we knew wouldn't repeat in FY '24. Approximately half of that was in the Rail Technology & Services division, and that was perpetual license revenue that had risen in FY '23, and there was no repeat of that this year. And the other GBP 2 million was in the Data, Analytics, Consultancy & Events division to do with some data analytics GRS contracts that have been taken in-house by our customer. Absent those headwinds, we did deliver underlying growth around the business, and that was in excess of 6.5%. So the underlying drivers of growth are still coming through. In particular, we had a strong performance in the U.K. Rail Technology business, and that was a driving force behind the 10% growth in our overall recurring and repeat revenue in that division. And we had a record level of revenue in Traffic Data & Events despite the headwinds from the general election, and I'll talk about the divisional performance in a little bit more detail shortly. Our EBITDA performance alongside the impact of the election headwinds and not having the repeat of that high-margin perpetual license revenue also reflected quite a sharp decline in margins in our Data, Analytics, Consultancy & Events division in the second half of the year and that was particularly in our Transport Consultancy business. We've taken actions to restructure that business, including no longer pursuing some of those lower margin-dilutive activities. And therefore, we expect that margin to improve over the longer term as we go into FY '25. As Chris said, there's been a huge amount of transformation activity going on around the business this year. In total, we incurred GBP 3 million of exceptional transformation costs to deliver that. GBP 2.7 million of those were cash costs, GBP 2.3 million of those cash costs came through in FY '24. And those costs were principally related to headcount reductions where we had roles that we duplicated and were no longer required, investments in upgrading our IT operating model and improving our cybersecurity position, investments in our internal systems and processes and streamlining our operating footprint. The majority of that activity is now completed. We're not expecting to have material levels of exceptional transformation costs going forward and most of the savings from those activities have been reinvested in the business. So our operating cost base in FY '24 was actually 2% lower than it was in FY '23. So we think we've now got the cost base of the business in the position that is right for delivering that future growth and delivering that future growth in a margin-accretive way. So just looking at the divisional performance in a little bit more detail. So turning to Rail Technology & Services first. So as I said, there was about GBP 2 million of non-repeat perpetual license revenue in the prior year, and we think probably about GBP 1 million of the general election headwind was in this division as well. So absent those factors, there was underlying growth of around 7.5% and that all came out of the U.K. business as you can see from the charts below. So 10% growth in our Rail Technology U.K. business, and that was a driver of the 10% increase in recurring revenue that went up to GBP 25.5 million. What was pleasing on this side of the business was that despite the non-repeat of the high-margin perpetual license revenue, gross margins were maintained at a similar level to the prior year, but the adjusted EBITDA difference reflects continuing investment in our skills, capabilities in this side of the business that set us up well for future growth, including the significant growth in the pipeline that we've seen that Chris mentioned earlier. We did have a softer year in North America. That did include some of the perpetual license revenue, but we also had a lower overall level of project milestone revenue. And our activities in this part of the group really focused on delivering that new train dispatch product that Chris mentioned and we'll talk about in a little bit more detail later in this presentation. So a slightly different picture on the Data, Analytics, Consultancy & Events side of the group. Again, we had approximately GBP 1 million headwind from general election and another GBP 2 million of non-repeat revenue. So underlying growth here was closer to 5.5%. But here, we did see the impact of that margin decrease in the second half of the year. So 7% EBITDA margin is a very low level for us on this side of the business. We've taken cost out of the business, and we stopped doing some of those lower margin, margin-dilutive activities that were particularly in our Transport Consultancy business. So we fully expect that margins here will improve as we go into the FY '25. And then from a cash perspective, the group continues to deliver healthy levels of cash generation. So overall cash increased by GBP 4.5 million to GBP 19.8 million. You can see the GBP 2.3 million of exceptional cash costs in this chart with another GBP 400,000 to come in FY '25 just due to the timing of when those costs were incurred last year. We had GBP 0.5 million of R&D investment that was to complete the development of the Hopsta smart ticketing app and also something called Digital Track Warrant, which is another feature and functionality in our train dispatch product in North America. And as we'll talk about, as we go through this presentation, we expect that we'll continue to see increasing levels of R&D investment in this business going forward. We don't have any debt. We no longer have any material earn-outs. So all of the cash that we're generating as a business is available for us to deploy in delivering future growth, both organic and acquisitive. And as part of the organizational change in the business, we have a senior leadership role now fully focused on that capital deployment decision making. So both on the M&A and the R&D side, how do we deploy our capital, how do we make those buy versus build decisions. Just touching now on the transformation activity. So as we said, there's been a huge amount going on in the business this year, and this is all about getting us in position to deliver not just accelerated growth but sustainable and scalable growth in the long term. And the key driver for this is that those of you who follow us closely will know, we've been delivering good levels of revenue growth over the last 3 to 5 years, but our margin has been declining. And that's partly because of the level of duplication we were carrying in the business under the previous operating model and also because we just weren't fundamentally set up to deliver SaaS contracts in a scalable and in an efficient way. So we had to change that if we were going to deliver that long-term margin improvement. As part of that, we've now got a consistent approach to how we develop our products and how we deploy our product. And that's being overseen, as Chris mentioned, by a CTO who's joined the business, and he's overseeing all of that on the Rail Technology side. And this is really important because we're pivoting here from a model where we had a huge amount of customization when we were taking product to market, which is expensive to deliver and it's very difficult to replicate. And pivoting that to a much more product-focused approach where the product is more standardized, there's a level of configuration when it comes to deployment with the customer. But that's much faster to do. So we get the benefit, not only of a more efficient operating model that improves margins. We get the benefit of accelerated speed to market for new deployments. And it also gives us the opportunity as we move through this to consolidate our technology stacks and the architecture behind our products, so that we can make further efficiency improvements to our operating model. And we're continuing to invest in the skills and capability we need to achieve that. We've also invested over the last 18 months in the commercial side of the business. And we're seeing the benefits for that now with that fast growth in the opportunity pipeline. And under the bonnet, we have improved our internal processes. We've improved our internal systems. That includes rolling out a new finance system across the business this year. This is giving us a much more joined up and improved level of management information. And we are streamlining our operating model alongside that to match the new group organizational structure. So we've closed 5 operating locations. And that's helping us to bring our people together in a smaller number of offices, helping to drive that cross-group collaboration that's absolutely critical to our business going forward and ultimately embed, what Chris referred to earlier as that global delivery model that will really underpin how we take product to market going forward and achieve growth and margin improvement. And the final slide here, if we step back and reflect on where we are in the journey, this is a very simplified version of the vision out to 2030. But what we just wanted to show here is we are coming out of that transformational phase for the business that's been going on for the last couple of years. It's been very hard work, but it's been necessary, vital work to position us for the future. We're now coming out of that phase and starting to look towards much more of the scale phase for the business. So really driving the organic growth both in the U.K. and in North America. We need to embed the global product delivery model to do that. We need to invest in the next generation of products that open up what we can do and how we can apply our capabilities to international markets. And we're doing that with a focus on increasing the annual recurring revenue base of the business and supplementing that organic growth with margin-accretive, earnings-accretive M&A that will allow us to accelerate the growth of the group. And if we get all that right, and we can deliver that over the next few years, as we convert that pipeline of opportunities, that's where we'll really start to deliver the margin accretion in this business and turn around that trend that we've seen recently where revenue has been growing, but margin has been declining. So at the end of all of this, we think we're well positioned for that. As I say, it's been tough work. It's been hard work, but we're through that now, and we're now looking forward to how we can start to scale this business up. And on that topic, I'll hand back to Chris to start to talk through some of the operational progress that we've made through the year.

Great. Thank you, Andy. And just as a final point as well, a huge thank you to all of our team, there's been a huge amount of hard work that's gone in over the past 12 to 18 months to make the changes that Andy talked about. And that's what leads the next bit as in such an exciting position for the next part of the presentation. So this will take you through some of the key achievements of the team through the past 12 months. So the first one is those are getting -- of you who follow Tracsis will have heard of a product called TRACS Enterprise. It's a product that's been in development for 6 or 7 years now. We have now gone live with our third deployment of that product with an intercity operator in the U.K. And what that now means is we've got this system live with the U.K.'s largest commuter rail company. We've now got it live with the U.K.'s largest intercity operator. And we've also got it live with one of the U.K.'s biggest regional railways. And what that means now is we've got pretty much one of every flavor of each operator in the U.K. now using this system. And as a reminder for people, this is our enterprise solution that covers everything from train planning through to how you allocate stock and crew. So that's train crew onto trains. It's the allocation of rolling stock to those services. And then it's all the activities that go on in the day to manage those services, to manage service recovery when things go wrong and ultimately to ensure that the customer is able to deliver improving levels of train performance. So this is a high availability cloud solution and it's something that we hope over the next few years will increase its market share, in particular, across the U.K. market. So again, a great demonstration of what the team can do. The next case study is a North American-based one. This is our new variant of our train dispatch product. This was a 4-year program of work. When we bought RailComm, the program was halfway through its delivery. So the program has now come to a successful conclusion. A great demonstration of Tracsis' capability. It's a train dispatch system, is basically what you can see on the left-hand photo on this page. It's where train operators can understand where their trains are, the train pass in terms of where those trains are going to travel between one destination and another and it basically authorizes the release of trains onto the network. So something that every train operator needs to have. It's a very large market in North America. We have now provided more competition into that space. And it's something that we think is going to grow rapidly to our advantage over the coming months and years. And we are in dialogue with a number of operators in the U.S. about our system, how it differs from the incumbent systems and we hope over time that, that will see a significant pipeline of new opportunities that will enable us to build our presence across the U.S. market. At the moment, these are all procured on a perpetual basis. We would really love these over time to migrate to more of a cloud-hosted solution. But for now, that the -- we will get peaks and troughs in the U.S. in terms of when those perpetual licenses are deployed. We'll obviously see times in our revenue recognition where we will see peaks in our revenue linked to the deployment of those solutions. Clearly, over time, we would love to be able to smooth out that curve. A couple of years ago in the U.K., we launched RailHub. So RailHub is a software solution that basically takes or replaces a series of paper-based processes and turns them into a full digital workflow tool. So the product itself looks like the image on the right-hand side. It's basically like an app store, which brings together a whole host of planning activities that network rail and the supply chain need to do before they can deploy people onto the U.K. railway. The big driver behind this product was basically to drive an outcome, which is called zero lives lost. So in other words, how do we ensure that workers go onto the U.K. railway and can guarantee their safety and it's been great to see that since this product was launched, there have been no -- there have been 0 lives lost across the U.K. rail in this area. So a great achievement done by Tracsis in partnership with EY in partnership with Network Rail and a number of other people. And this is a product that we've got a very clear road map for CP7 for the next 5 years. And this is something that we'll continue to develop in partnership with Network Rail and the supply chain and is a great demonstration of the type of product that Tracsis is able to supply across the network. So in the U.K., about 45,000 people use this piece of software on a daily basis. So it's a great demonstration of what we can do. The next example is in the smart ticketing space. So we are the leading U.K. rail provider of pay-as-you-go smart ticketing. You can see on the map on the right-hand side, all of the deployments that we currently have in the U.K. So where there is white space, that is genuinely white space in that there is nothing currently being offered in those parts of the U.K. And everywhere else, you can see the different areas or different operators that we currently provide our systems to. So during the course of this year, we have added the red sector, which is Wales. We've added the purple sector, which is Merseyrail, and we've been working in partnership with ScotRail. And what our system does is the system is split into 2 sections. The Tracsis sort of magic, if you like, is in the blue box at the bottom of this page. So when somebody travels with pay-as-you-go, they will tap in and tap out at a railway station and they'll do that either with a smart card, which is just a piece of plastic. They'll do that with a bank card. So that will just be with your standard credit card, much like you do when traveling around London or it can be in the form of a mobile app, and we have a solution in that space called Hopsta. So we don't -- we're completely agnostic to which one of those tokens the traveler users, but what we do is we collect the tap in and tap out that they generate as they travel around the U.K. railway. And the magic we apply is in calculating the best fare for that journey. We understand whether that person is entitled to any discounts, any rail cards. We can understand their daily and weekly travel patterns to make sure that they get fair capping and they get the best value for what they do. And also, in many instances, we're able to link that together with our automated Delay Repay solution to give a customer a fully integrated experience. Now we know the U.K. government is -- sees us as a really important technology that they want to promote across the whole of the U.K. It's something we feel that we're very strongly positioned to be able to support. So the team -- this was a piece of technology we acquired in 2020 when we bought a business called iBLOCKS. And it's an area we see that is growing quickly and is an important demonstration again of the types of technology that Tracsis can bring to the rail market, both in the U.K. and internationally. And a specific example of this is what we've developed in partnership with Transport for Wales. So anybody that's familiar with going to London, will be very familiar with how you travel around London. You either tap your mobile phone or you have an Oyster card and you can move seamlessly around all of the different stations within London. Well, that technology is not available in the same way anywhere else in the U.K. So South Wales are the first to deploy contactless solution. So you can travel -- by the end of this year, you'll be able to travel across 95 stations in South Wales, so coming out from Cardiff, and you'll be able to travel simply by using your bank card across the South Wales metro area of their network. So this is the first deployment of this type outside of London. It is something we're keen to replicate and copy in other parts of the U.K. And ultimately, the intention is for this to become multimodal, so not just for rail, but also encompassing bus and other forms of transport. So that ultimately, you make the whole experience totally seamless for your customer. So again, another great product -- project that the team have been involved in and a really clear demonstration to the consumer of the benefits of these types of technologies. In our data analytics business, we very proudly won Data Innovation Product of the Year in a recent award ceremony in Ireland. And what was that for? Well, that was for a unique piece of earth observation technology that we've been developing that basically takes satellite imagery and then using machine learning algorithms, it actually identifies patterns in how land is used. And then that information is then fed back to the Irish government for them to understand land usage, how people can claim subsidies for how that land has been used through the EU and to basically make sure that the payments that are being made correlate absolutely with what's going on in terms of land use across Ireland. We think there's huge application potential for this type of technology in the wider transportation space, particularly in rail. You can use earth observation to look at ground saturation, you can look at flooding, you can look at vegetation, you can look at scenario analysis. And obviously, a rail network owns a huge amount of land. And in the U.K., in particular, we think there's a really interesting opportunity there for us to be able to take this technology and these solutions and apply them into our wider rail network -- rail client network within the U.K. So team doing a great job producing what is a market-leading piece of technology and getting the recognition through the award that they won. And then finally, our Traffic Data & Events business had a record year. We continue to be very successful in terms of winning large contract renewals on a multiyear basis for the contract -- for the events that we manage. When you go to big events now you'll start to see a lot of Tracsis branding because of the rebrand that we've had across the whole of the organization. And this part of the business continues to grow from strength to strength. We did, obviously, on our Data, Analytics, Consultancy & Events side of our business have disappointing margins this year. But the underlying demand is there for what we do and our challenge over the next -- over this coming period is to make sure we get the margin performance back where we want it to be back into double-digit margins, and we're confident we will achieve that. So on this side of the business, it's really about profit improvement, it's about the quality of delivery. And again, increasingly, it's about what can we do with the data and what insights does that provide in terms of how you can manage and successfully deliver some of these large-scale events that have hundreds and hundreds of thousands of people traveling to and from them in a very short space of time. So a really interesting portfolio of products. A huge thank you to the team for all the hard work that's gone into their delivery. And it's the successful delivery of those allows us to build our brand, to build our reputation and to have the confidence that we can continue to deliver year-on-year growth across the organization. So in conclusion, I'll just hand you back to Andy before we then open up for some questions for Q&A.

Thanks, Chris. So to summarize and remind ourselves, our growth strategy is unchanged. It's focused on the 4 key categories that are highlighted in the dark blue boxes on the slide. And we've got very clearly defined outcomes that we're targeting for FY '25. So the first is around maximizing our existing product footprint. This is all about driving organic growth from our current product portfolio, continuing to grow the pipeline, convert the pipeline and deliver what's in the order book and doing that through the new operating model that we've got in the business. Alongside that, continuing to expand into new markets. So both through R&D investment in the next generation of our product portfolio that has a much more broader international application. And this continued diversification geographically and across our customer base is absolutely key to building the resilience in the business that will allow us to mitigate some of those near-term challenges that we've been experiencing this year. We are focused on M&A and supplementing that organic growth with earnings accretive M&A. We've been deliberately not chasing hard on that in the last couple of years whilst we've been going through this transformation process, but we're now fully focused on that. We've got very disciplined, very clear acquisition criteria. We're looking for high-quality businesses, profitable businesses that are accretive to the group's earnings and that come with a high-quality management team. And then finally, it's about really embedding the benefits of that transformation. So operating as one Tracsis, implementing that global delivery model, completing the consolidation of the rail technology activities under the single Tracsis brand and delivering our carbon reduction plan in line with the targets and the plan that Chris referenced earlier. So to summarize, we feel like the group is in a good place. The transformation activities are complete. It's been a lot of investment in upskilling the business, in improving our operating model, in improving our cybersecurity position, we believe that leaves us very well placed going forward. There are some short-term headwinds in the U.K. that will need to be carefully managed through FY '25, and we're being completely transparent about those at this stage with an abundance of caution as to how they could impact this year. But fundamentally, the long-term drivers of growth in the markets where we operate are strong, and we've got long-term tailwinds in both the U.K. and North America. So we've got great products. We've got great people. We've got strong long-term drivers of growth. And therefore, despite a challenging 2024, we look to the future with confidence. So that's the end of the formal presentation part of the -- of today. We'll now open up for any questions there might be, and hand back to Tamzin to chair that session.

So loads of questions. How should we expect the group's margins to evolve over the next few years?

So clearly, our margins have been lower than trend over the last couple of years. I think as we -- it's important to understand as we go into the first half of FY '25 I think we will -- we should expect to see margins at a similar level to where we've seen them this year and in the prior year. And that's because we're still -- we're moving from that transform phase into the scale phase. So the margin accretion is going to come from the future pipeline conversion. So H1, I think, will look very similar to what we've just been through in FY '24. Our targets for FY '25 on a full year basis are to be much closer to what we achieved in FY '23. And then as we look further out, we want to get the -- the overall EBITDA margin of the business back over 20% and continuing to grow as we move from that scale to margin accretion phase of the growth curve.

[Operator Instructions] On international growth, how could -- how big could Tracsis U.S. become? And would you go into Europe?

Two great questions. So I think if you look at what is our strategic intent for North America is to replicate what we did in the U.K. So on the rail technology side, that is. So that is to start with a very strong technology base, which is the train dispatch product. It's then to bring in core parts of our product portfolio from the U.K. So we already sell Remote Condition Monitoring in the U.S., not to the level that we'd like to, but we are selling some of that in the U.S. But in particular, with our focus on next generation of R&D and next generation of products it's to make sure we've got products that are globally scalable. So in other words, they're more modular, they're not hard code written to U.K. regulations, but they can be very quickly configured for other countries. And therefore, I think in totality, there is no -- there's sort of no bounds to what we could achieve in North America. I think over the next 5 years, we'll see the U.S. grow rapidly in size, and it wouldn't surprise me if at some point in the medium term, if the U.S. became a bigger rail market for us than the U.K. does. But if that doesn't, that's a great problem for us to have, and we'll enjoy that journey. What's important is we have got the global delivery model behind us so that we can flex resources across different geographies and manage the sort of peaks and troughs, if you like, in terms of delivery. So alongside that, we would very much like to go into Europe. I think that would largely be driven through acquisition rather than through organic growth. Obviously, the European market is quite fragmented. So it would need a very careful selection in terms of where we go and when. But it's very much something we're looking at in terms of our acquisition criteria. And if we could find the right business with the right characteristics, then that would be the stepping stone that we would look to take.

Great. And why is the U.S. still so focused on perpetual licenses?

That's a great question. I think it's largely linked to cybersecurity risks and protection of information. Every one of the large opportunities we are looking at in North America at the moment are on a perpetual license basis. We haven't yet seen the uptake in interest in cloud hosted, but that's something that we're going to be driving very hard from sort of a marketing and communications perspective over the coming months. We obviously now have a track record in the U.K. of multiple SaaS contract deliveries. We understand the trade-offs between the 2 different types of technology. So that's something we're going to be working hard to try and convince as many customers as we can to go down the cloud hosted route. Certainly, from our perspective, that's such -- so much of an easier, more flexible technology deployment than going through the on-prem approach.

Great. And is there anything you can do to mitigate the EBITDA impact and revenue -- well, P&L impact of the rising mix cost?

In the longer term, yes. So the reason that we've got quite a sharp impact in FY '25 is because the increase is going to effect in April just as we start to hit our busy season, the busy summer month, particularly in the Traffic Data & Events business. So that's why our estimate of GBP 0.5 million this year which is both the national insurance change and also the minimum wage change is quite sharp for FY '25. People shouldn't take that number and multiply it by 3 to get a sense of what the annualized impact is because it is seasonal for us. And certainly, over the longer term, we will be looking at ways that we can mitigate that through pricing and through other operational levers that we've got. But just as we go into FY '25 with contracts for the summer that we already signed up to and committed to, it is a headwind for us in the short term.

Great. And what are the biggest risks? So where are your weakest in terms of being displaced by a nationwide implementation in the U.K.?

That's a great question. So if you -- let's just think that through. If you were to look at the area that's moving fastest, it's in smart ticketing, especially in pay-as-you-go smart ticketing. We obviously have 5 or 6 now deployments live in the U.K. Clearly, if there was a national solution procured there that we didn't win, then that would clearly be a loss to us. But that wouldn't be an immediate loss, that would be a loss over a period of time as that work transitioned to a different provider. That along with the Delay Repay is probably the areas that are likely to move the quickest but we -- again, we have 90% market share of the Delay Repay market in the U.K. We have 100% market share of the pay-as-you-go smart ticketing market in the U.K. at the moment. So we are in a very strong position to defend that and to win that, should that happen. I think in the other areas, we obviously have RailHub, we have that as a nationwide solution. So that's very well established. We have a dominant position for Remote Condition Monitoring. The only other area that could be challenged over time is on the train operator side in terms of the operating systems that they use, but each of the operators has different operating methodologies. They've got different trade union agreements. It's hugely, hugely complex. So yes, over a period of time, there could be an opportunity for all of those to come together under a single operating system. But again, I would argue that we're probably one of the best placed organizations to deliver that should the government have a desire to do that. So I think in all of our different sectors, we are very cognizant of there's both an opportunity under the new Great British Rail regime for the industry to standardize and to choose a single supplier. That could be us. That could be somebody else. But our job is to make sure we're well positioned to be winner wherever we can be if those decisions are made.

Does the government have the capability to bring in-house any of the offerings -- product offerings that you've got?

They would have to rely on external expertise to deliver them. I'm trying to think if there's anything I can think of which -- so I think from a policy perspective, from making sure that we've got a single best practice approach to solving some of the challenges in the industry. I think they absolutely have that, and that will come together within Great British Railways. But I think they're going to have to work in partnership with the private sector to bring -- either deploy -- either more widely deploy existing technology solutions that work or to create more standardization so that they can get better scale economies from those technologies. But certainly, the things that we supply today are going to be needed for the foreseeable future.

Great. And what's your capital allocation policy around share buybacks?

Our view is we've got a lot of opportunity in the R&D space and in the M&A space. So our priorities are to focus capital allocation on those activities. So we're not looking to execute a buyback anytime soon. We've got a lot of investment opportunities that we think would deliver a much better return for shareholders driving future growth.

Great. And could you give some insight on the M&A pipeline and in terms of both value in countries and capability, what sort of things you're looking for?

So we're looking primary geographies are the U.K. and the U.S. We've got very clearly defined acquisition criteria. I think there's about 10 or 12 very specific things that we are looking for. What I mean by that is not just product areas or capability areas. But financial performance, revenue type, is that [ alone ] from software, hardware, services, what might that look like. So we've got very clear criteria. So we're looking for long-term profitable businesses. So we're not looking at hockey stick start-ups. We are looking business that have got a long track record of success, have proven product that has recurring revenue behind it, that's got a defensible market position and the management team to want to stay with the business and want to be part of the great story. And there are a number of other things, but they're the primary things. So what that means is there's not a huge number of targets for us that fit those criteria. But where we find them, we're happy to pay a premium for those targets. So we've got a dedicated senior member of our leadership team now who has a role focused on R&D and M&A and that role is defined really to drive our capital deployment strategy. So make versus buy. If we can find an acquisition that gets us the capability or the product enhancement that we think we need, then we'll pursue an acquisition, assuming it meets those criteria. And if it doesn't, and we can't find one, then what does the investment case look like behind investing our own money in the next generation of a product or a new product. So as everybody be fully aware, there's some really interesting advances going on at the moment in machine learning, in predictive analytics capabilities, in all sorts of things that we would like to add into our technology platform. There are acquisition opportunities for some of those areas, but equally, there's also an opportunity for us to develop some of those ourselves. So we're looking at a whole range of things. Things like that we do infrastructure side Remote Condition Monitoring. So what about onboard Remote Condition Monitoring? We do a lot of stuff in visualization, while there are opportunities to grow that side of our business. There's a whole host of software activities in the U.S. that we don't do that other competitors do. So it's across a broad range of rail technology capabilities that we're currently looking at from an acquisition point of view.

Great. And you were due to run a Capital Markets Day, and I think the election got in the way. What are your future plans for a Capital Markets Day?

Yes, that's a really good question. So yes, our Capital Markets Day was planned for July 4, and Rishi Sunak didn't ask my permission when he picked that date for the general election. But joking aside, we think that's one of the key missing pieces for shareholders at the moment is we've obviously taken exceptional costs. We planned last summer to share what our future strategy was, so that everybody can see very clearly the payback from that investment and what that was going to look like in terms of revenue and profit growth over the next 5 years. That 2030 strategy fully exists. It's been rolled out inside our organization, but we are conscious that that's not been presented to shareholders yet. We were planning on waiting for U.K. legislation to be fully defined for Great British Railways, but we're not yet sure of what that time line is. So rather than keep waiting, I think we're likely to look at putting a Capital Markets Day together in early 2025. So we're going to make a decision on that in the next couple of weeks and then we'll let everybody know. But we are conscious that that's something we want to do. We want to introduce our wider leadership team. We want people to see what our growth and ambition is all about and help people really understand the complexities of our business and what the addressable markets look like and why we are so confident in the future growth prospects that sit behind the business.

Great. And can you give a little bit of context about the revenue at lower margins that was chopped and whether it was any of your sort of top 10, top 15 clients?

So the activities that we're not pursuing anymore were -- a lot of them were to do with deployment of labor, deployment of people. And it was a business model that we just couldn't scale up. So we were finding that the charge-out rates were squeezing margins more and more, and we just couldn't move the pricing with our customers. And it wasn't a model that was going to be scalable for us. And some of those activities were fairly marginal in terms of the contribution they were making. So we've taken the active decision to move away from them. We believe it doesn't leave us short of any capability in the business. It doesn't leave us exposed in terms of servicing our customers or damaging customer relationships, but it just leaves us with a portfolio now that's much more focused in areas where we can add real demonstrable value to our customers, where we can make the margins that we need for our shareholders and that we can continue to scale and grow as we move this business forward.

Yes, one thing to add to that. One of the key lessons learned from the last few years from the enterprise software delivery is not about -- it's not all about the software. It's about the change and the transformation that goes with it. And they are the core capabilities we've maintained within the organization. So a really important part of a successful large-scale software deployment is the ability for the whole team to manage the training, the technology deployment, the negotiations around working practice change and all of those type of things. So those things are really valuable, both to us and to the customer. So it's those areas which we are still focused on. But as Andy said, we've taken actions to both reduce -- to reduce our cost base in line with where we see the revenue risk, to make sure that we are not carrying unnecessary risks moving forward.

And in the results, reference is made to a post year-end win with a North American transit. Will that project be delivered in this financial year coming?

Yes, that was the -- I think if remember the reference rightly, that was in Remote Condition Monitoring, so that has been delivered in the first half of FY '25.

And do you expect to get any new contracts in the U.K. despite the uncertainty related to Great British Rail?

Absolutely, we're winning a significant amount of work every month in the U.K. A lot of that on relatively small software wins and additional contract wins. But we -- yes, we are winning work all of the time. The big multiyear contracts are harder to secure. They take a lot longer to negotiate. It's harder to identify right now, sometimes who the budget holder is and how we get approvals through the system. But yes, that's part of our core challenges is making sure we're able to navigate to the decision-makers. There's absolutely demand across all the different parts of what we do. The challenge is just getting that approved and getting the purchase orders so we can deliver the work. Yes, lots -- plenty of opportunity. There's lots of obsolescence in systems that train operators and others use. There are lots of legacy products that need to be updated and replaced. There's an increasing desire for IoT-type systems and data visualization and decision making, and they are all things that we can -- we're at the heart of in terms of supporting the industry and its future needs.

And just to finish, we've got lots more questions. But just to finish, in terms of the pipeline of opportunity, can you just give us a bit of a stare in what the pipeline is and what's likely to come in, in '25, '26?

I wish I could give you an exact time line for when I expect some of these things to land because that's our biggest challenge right now. But we have got a series of multi-year software contracts that are basically either at final offer stage or at the very end of the process in terms of getting funding confirmation, such that we can then move forward and be contracted for some of those opportunities. So that's both in the U.K. and in North America. We have largely derisked our forecast for this year, so that we're not relying on some of these big binary opportunities coming in on a particular time scale. I don't know if you want to add to that, Andy, in a moment. But we -- the one thing we're most cognizant of is that it's very hard to predict the closure timings on some of these opportunities. So what it's really about is having enough variability in your pipeline and enough optionality in your pipeline such that if anything does move, slip or get delayed, you've got 2 or 3 other options behind you. So that's really the biggest change that's happened in the past 12 months. So that 200% increase in pipeline just means we've got so much more optionality in our pipeline. If that was to all come off, then great, we've got a delivery challenge and an opportunity to move ahead of the curve. And if it moves in the other direction, we obviously believe we've taken a very cautious approach to factoring that into our future forecasts. Andy, is there anything else you'd add to that?

No. I mean, I'm conscious that we don't disclose our pipeline size, and we're not going to. So just to reassure people, the 200% growth isn't a very small number to a slightly less small number. They are meaningful numbers. As Chris said, the key for this business is to continue to grow that pipeline and to grow the level of diversification we've got across our customer base to a point where we've got that inherent resilience, that we can ride out some of the timing challenges and some of the funding challenges and some of the other things that we experience in our markets. 2024 has been tough in that respect and it continues to be, but we're getting to that stage now where that pipeline is growing to the size where we can have confidence that there's enough there that we can ride through it. And if everything comes our way, then we're in an even stronger position.

Thank you very much, indeed. We have loads more questions, but we've run out of time. So Chris, do you have any closing remarks?

Thank you very much, everybody, for your interest in the business. Andy and I are -- we're very proud of the hard work the team has put in. It does feel really tough right now. Our objective is to bring the fund back over the next few months. And we believe we've got everything in front of us to do that. We've got the product. We've got the technology. We've got the people. We've got a market that is looking for digital transformation and for new entrants and new ideas. And therefore, yes, we have real confidence in what we're able to deliver moving forward and are very excited about what the future holds for us. So thank you very much, everybody, for joining us today.

Thank you very much, Chris and Andy. And to everyone listening, you'll now be taken to a web page to give feedback on the presentation. If you can't complete it now, you'll get a follow-up e-mail. Chris and Andy would be really grateful if you could give a few -- take a few minutes to complete. Many thanks indeed for joining. This is the end of the webinar.