TruFin plc (TRU) Earnings Call Transcript & Summary

Good morning. Welcome to the TruFin plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd like to hand you over to James Van Den Bergh, CEO. Good morning, sir.

Good morning, Charlie. Thank you for hosting us today. So I'm James Van Den Bergh, I'm the CEO of TruFin. And with me today is James Hussey, the CFO of TruFin. Thank you all. Thank you all for joining us. So as you all know, hopefully, you all know, we are a holding company. We've got 2 businesses, majority stakes in two businesses, Oxygen and Satago. And we're going to go into both of those in more detail later. And we also have 25 -- approximately GBP 25 million of cash. So just to put that in perspective, that equates to 46.4p per share. So that's about half the current market cap. So we've got about half the current market cap in cash, and then we have majority stakes in Oxygen and Satago. So how do we get this cash? Well, we sold Playstack in June this year, GBP 125 million. And what do we do with the proceeds? Well, we did exactly what we said we would do. We returned the money to shareholders. So we returned it via buyback and via a dividend. We bought back 40.6 million shares of TruFin shares at GBP 1.40. And just to sort of step back a little bit, that means over the last 18 months, we bought back in total from internally generated proceeds and from our proceeds from the Playstack sale. We bought back 52.6 million shares. So we now have 53.9 million shares, and we bought prior this moment in time, we bought back 52.6 million shares. So over the last 18 months, we bought back 49.6% of the company. So it's about half the company, just under half the company, we bought back over the last 18 months. We also have given back GBP 22.5 million worth of dividends, which equates to 43p a share. So we've done what we said we were going to do. We've returned money to shareholders, which we're very proud of. So what now? Well, one of our children has flown the nest in Playstack. And so we are now going to present on the interim of the first half year performance for this year, excluding -- everything is excluding Playstack. So what does this chart show? This chart shows the first half year revenue performance for Satago and Oxygen. Again, top down, 5 years ago, we had revenue in the first half in 2021 of GBP 2.1 million. In this first half, it was GBP 5.9 million. So that's 23% compound annual growth rate, something most very pleased with. Specifically in this first half, Oxygen grew by 12% and Satago grew by 41% and more importantly, or as importantly, we've now hit an enormous milestone. This is TruFin Group H1 profitability. So this first half this year was the first half that TruFin Group was EBITDA profitable. And we're very much expecting and are going to aim to maintain that level of profitability and increasing profitability over time. So what about current trading? So for the first 2 months of this year -- sorry, the first 2 months of the second half, July and August, we recorded revenues unaudited in excess of GBP 2.1 million. So that's 28% growth year-over-year. So again, I think worth just noting in previous slides, first half this year, we grew 11% in the first half. In the first 2 months of this year, we've grown 28%. So a bit of an acceleration there. I'm not saying it's going to continue, but it's a very pleasing start to the second half. Right, James, I'm just going to hand over to James now, our CFO, who's going to go through the numbers in a bit more detail.

Thank you, James, and good morning, everyone. As James said, these numbers here that you see on this slide, they relate to the continuing operations. So the performance of the group that's left post the Playstack disposal. Obviously, the first half was very much dominated by the selling of Playstack but these numbers now are continuing operations, what is left. So for the first half of 2026, the total revenue was GBP 5.9 million as compared to GBP 5.3 million for the first half of last year. And if you drop down to the second bullet point, you can see of that revenue, Satago makes up GBP 1 million, and it's grown by 41%. Actually, that figure possibly is a little bit misleading in that the H1 figure for 2025 for Satago of around GBP 700,000 for last year included in excess of GBP 200,000 of interest income. As you may remember, Satago at that point was lending to its balance sheet, and there was interest income included last year. Now since that point, the loan book has been fully wound down. And so on a like-for-like basis, actually, Satago has gone from GBP 0.5 million of revenue last year to GBP 1 million. So in effect, it's doubled its performance, which has been fantastic. And just finishing off on the second bullet point, Satago, as it said it would do, it achieved EBITDA profitability in June. And now we are fully forecasting EBITDA profitability for the full year for Satago. So it's been an exceptional performance and a turnaround really, significant change in the cost base. And indeed, the increase in the revenue of GBP 300,000 year-on-year has resulted in an EBITDA improvement in excess of that, such has been the cost management within Satago, and they should be congratulated on that performance, which has been exceptional. The other business that we have, obviously, Oxygen, incredibly predictable, grew 11% year-on-year with the revenues for the first half just under GBP 5 million and great operational leverage as ever with a good proportion of those increased revenues feeding through to EBITDA and PBT. So predictable but nonetheless, still exceptional performance by Oxygen. And just in aggregate, if you look at the top 3 bullet points there, you can see that a GBP 0.6 million improvement in revenue has resulted in a GBP 0.7 million improvement in EBITDA and an over GBP 1 million improvement in adjusted PBT. So very good flow through of the improved revenues in the P&L. And the final number, obviously, the cash figure at the half year of over GBP 113 million, which includes the -- obviously, the proceeds from the Playstack disposal. Following the half year, obviously, we've made a dividend payment and completed the tender offer such that, that figure is now significantly dropped, as James pointed out on the very first slide, which said the cash was sort of the order of GBP 25 million. So a very good first half with the two businesses that we have left exceeding -- performing to expectation and in the case of Satago exceeding expectation.

Thanks, James. And I just want to pull out one thing from this slide, which James has talked about, but I think again, on Satago, we said in Satago previously, we said Satago will be EBITDA profitable in June this year, and it was. In fact, it was EBITDA profitable for the first half. And now we're saying it's going to be EBITDA profitable ahead of schedule for the full year this year. So I just want to reiterate my congratulations to Sinead and her team for achieving that very, very important milestone. So Oxygen, a fabulous business. Two things I want to point out, firstly. In a world of AI, we think, and I think everyone is increasingly beginning to become aware that distribution is king. Distribution, we want to talk about creating a free product, but if you can't distribute it, it's -- there's no point creating it. So distribution is becoming incredibly important, increasingly important. And a few years ago, one of our key missions, key KPIs for Oxygen was demonstrating the distribution we knew we had, the distribution capability we knew we had within Oxygen. So this is distributing products into our key client base, which is local authorities and councils in the U.K. And so one of the ways of doing that is to have more products and selling those products into our client base. A number of years ago, none of our early payment clients bought more than one product from us early payment. And now you can see in the second bullet point, more than 65% of our early payment clients buy two or more products from Oxygen last year, in the first half, it was 53%. So an enormous difference. And we believe this is one of the key USPs for Oxygen. It's all very well and it's a fabulous business. We've got a fabulous growing cash-generative business that dividends back to us and still grows. It's a wonderful business. Anyone would want to own this business, but we feel the distribution of Oxygen is one of its key values and assets. And it's wonderful to see that now more than 65% of our early payment clients buy 2 or more products, demonstrating our ability to sell. The second thing I want to point out is on the EBITDA graph at the bottom. So in 2024, the full year EBITDA was GBP 2.3 million. In the first half this year, it was GBP 2.1 million. So it was almost as much EBITDA in the first half of this year as it was in the full year 2024, which I think is just a nice thing to be able to point out. This graph, you might remember well certainly anyone who's been looking at TruFin for the last 12 months, a bit longer has seen. So this shows the tender volumes 30-day average rolling average tender volumes in the U.K. for our client base, excluding Greater London. So if you may remember that in February 2025, the Procurement Act came into force, and that made it -- phrase it was considering more governance and cumbersome to acquire products post the Procurement Act. So as a result, councils and local authorities prepurchased products, and that dragged forward a lot of the purchases for 2025. So in January, February, just ahead of the procurement, you see the big spike in the volumes. Post the tender, the Procurement Act coming into force, all that pull forward of supply of purchases resulted in a bit of a vacuum. And so tender volumes plummeted. And it stayed very subdued because there was a big pull-through of activity in January and February. And it remains subdued for quite a while. We said at the time, we expected it to normalize. We didn't know exactly we expected it to normalize within 18 to 24 months, which it now has, which is great to see. And you can see we sort of reentered normal territory in around June this year. So a, that's obviously a positive. It's great that things have returned to some sort of normality. And secondly, it's just worth pointing out that the H2 this year, so July, August onwards had a much easier comp in July -- in H2 last year. H2 last year, which you can see on this graph, we've highlighted. Obviously, trading volumes are very subdued. And now they're returning back. They have returned to normal, which means the comp for last year is obviously considerably easier for this year, which is just, I think, something we just wanted to point out. So this is a graph you've seen before. This shows you why this business is easy to predict and a wonderful business for us to earn or someone else to earn in the future. This shows that if we didn't win another client over the next 4 years, over 90% of the future revenue is already baked in to the revenue streams. So it's an incredibly predictable business because these are 5-year -- on average, 5-year contracts from the early payment side of our business. All the revenue we're generating today, the vast majority of the work for the revenue generated today was -- that work was done in previous years. And so for the next 4 years, almost all of the work done for the next 4 years has been done historically or is going to be done in the next 12, 24 months, but with clients we already have. So we've got incredible visibility in this business. This chart has hardly changed. You might think it doesn't change. It actually does change. We change we update it every time, but it looks very similar every time. But I can assure you we do update it, but it's a very consistent business because of this graph. So Satago. So I think the thing reiterating -- worth reiterating is that we said we were going to focus on where we are winning and we have. And we've also said we keep costs under control, which we have. So revenues have grown, as James mentioned, revenues grew 41% in the first half, and our cost base did not. And that's why we've got to this wonderful place where we recorded our first half, not just month but half of EBITDA profitability. And as I said earlier, now we've told the market we're expecting that to be -- we expect to achieve our first full year of EBITDA profitability at target as well. And here's why the revenues increased. We were focusing on what we said we would focus on what's working. And the credit control software side of our business, this is where we provide services to Sage customers and the return Sage pays us for the work we do and the products we deliver to their customers. We focused in on that area. And as you can see, there's been exceptional growth this year from that. In fact, it grew over 260% over the last 12 months. Now we're not too clear, we always try to sort of don't want to temper your enthusiasm, but we don't expect this sort of growth to continue over time, and we would love it to obviously, and we're going to work hard to ensure it to see if we can make that happen. But we don't want you thinking that this is set to continue adding. But it's wonderful to see -- and this revenue growth that's happened has resulted in revenues going up. And again, as I talked about the cost control that Sinead and her team have implemented has resulted in EBITDA profitability. So it's a wonderful position [indiscernible] for the TruFin. So to summarize, we got about GBP 25 million of cash. We've got two profitable businesses. We don't need any more money from shareholders. Oxygen, as you can tell, is in rude health with the Procurement Act, the impact of the Procurement Act subsiding means we're returning to a more normalized world, which is a good thing. And our focus is to allocate your capital as efficiently as possible. So we've been aiming we've done that, and we can aim to continue to do that in the future. And we have got multiple options for the capital that we have. And whatever capital we have, we are going to make sure that we aim to generate the highest return for you, the shareholders, your capital at all with the lowest risk. And there's lots of -- we can talk about the various different options we have. But as we did in our tender offer document. But I think what I think it's worth just reiterating that we are just very, very focused on looking at allocating capital as efficiently as possible. So with that, we'll stop to a TruFin. We're going to open we thought there might be quite a few questions. So we thought we'd leave quite a lot of time for questions. So we're going to open up to questions if that's right with you, Charlie. Now we go to the Q&A.

Yes, of course. Thank you for updating investors today. [Operator Instructions] James, as you did say, we have received a number of questions during today's presentation. So at this point, if I could just hand back to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

So yes, so I'll ask this question first, which I expect many other people would want to dodge. The obvious question is what's next? We can't afford to pay TruFin and staff for too long. That's you and me, James, while only overseeing 2 small companies with their own competent management teams. Why should I stay a shareholder? What are the plans for the big pile of cash? And what types of business are you looking? And have you any time frame in mind? Thank you for your great work to date. So thank you for that question. Just taking one by one. What is next? Well, we're going to look to allocate your capital as efficiently possible. So we've said in our tender document what the potential plans for the future are buying another platform business, acquiring bolt-on acquisitions for Oxygen. As you know, we're not afraid to return money to shareholders via dividend or tender offer. All these things are options that are open to us. You can't afford to pay TruFin staff. It noted, I think we finished -- completed the Playstack sale in June. As a Board, the Board are absolutely focused on making sure that the costs of the group are appropriate for the size of the group. So I think that's very much a live topic. So yes, thank you very much for that noted though. And what are your plans for the big pile of cash? Well, as we said, we can look to allocate that capital in all sorts of different ways. But I think it's just worth pointing out, yes, we have half of the business is in cash. Why should you stay a shareholder half of the business in cash and we own two profitable businesses now. So I'd say you should stay a shareholder. I'm not going to advise you, but as you noticed today, I may have noted, I bought some more shares in TruFin. So I'm buying more shares in TruFin today. I believe these businesses are undervalued with half the business in cash and two, in my view, undervalued businesses. I think we are a competent management team. I think there's many reasons to stay a shareholder of TruFin. Next, James, why don't you take the next question?

Okay. Of course. So Matthew is asking, as Satago transitions from core servicing towards a higher-margin subscription and LaaS model, what do you see as the long-term margin profile of the business? And how much visibility do you currently have on the size, timing and conversion of the existing LaaS pipeline? So I think that's right, Matthew. I think higher-margin subscription business is what we look like going forward. As we add subscription numbers to the existing revenue profile, we would expect there to be significant flow-through of those revenues to the bottom line. So depending on where we get to, I expect margins to improve and there to be a very small sort of cost settlement relating to increased subscription numbers. What is absolutely true though of Satago is that it's very lean today with the cost management it's gone through, we lost a significant number of staff. As the business moves forward, there would inevitably as revenues grow from where it is today, that was GBP 1 million for the first half, there will need to be investments in the team at some point in addition to the headcount that they currently have. But in terms of variable costs relating to increased revenues, I expect that to be quite not significant. And on the pipeline and the size and timings, there is a significant pipeline that Satago is working through. And there is confidence that there will be success with some of these items within the pipeline. In terms of timing, I think we've said with the LaaS pipeline that it's a very difficult pipeline to manage in terms of timings. So we'll see how that evolves. But what is absolutely true is that Satago is in a much better place than it has been, and it looks to the future with optimism and increased opportunity and increased pipeline.