Vianet Group plc (VNET) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Vianet Group plc Interim Results Presentation. [Operator Instructions]. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, I would like to submit the following poll, which should appear on your screens now. And I would now like to hand you over to the team from Vianet Group plc, James, Mark, Craig.

Thank you, Jake. I'll kick straight into the results, a good set of results despite the economic backdrop. I think what we've done is demonstrate the resilience of our core hospitality division and in particular, the leased and tenanted sector. And we're gathering real momentum in vending and demonstrating progress in new verticals and this is all fueling our ambitious growth plans. For those of you new to Vianet, we will have a quick overview of what we do. Basically, we transform business performance. We install hardware that allows us to capture data and then that is processed with our management software to create dashboards that allow our customers to run more effective businesses to improve the productivity and performance. 2 divisions, there's the unattended retail division. That's where we provide a comprehensive and vending management system that basically allows customers to really drive more efficient operations, and I'll come back to that in a bit more detail. Our second division is beverage metrics, our hospitality division, where we have the market-leading comprehensive beverage and bar management system. How do we make our money? Well, we installed the hardware, and we get paid a reasonable margin on our hardware, and then we enter into long-term contracts for weekly and monthly fees, to cover service packs, licenses and data management. Majority of our customers are on 5-year contracts, with some -- with very few less than 3 years. We turn over to the sort of financials. As I said, a good set of results, really encouraging given the inflationary backdrop and the -- I guess, the 3G switch-off and the -- this drag created by that as customers made their minds up as to how they're going to address their requirement to upgrade their devices from 3G to 4G, and also the fact that we've been migrating customers to our smart vending management platform. Revenue up to marginally to GBP 7.19 million, flat generally because we've had a high number of rental units going in during the period versus CapEx, which we traditionally have, but what that has done, it's improved our gross margin. So hence, the bottom line result being positive. Recurring revenue remains very strong at 87% of turnover. And the rental margins as a proportion of the mix has helped us drive gross margins up to 69% from 64%. So that's been positive. Basically, very strong recurring revenues, strong gross margins and very good operational cash generation that's allowed us to return to dividend -- pay dividend in the -- for the full year '23 and positions us well to pay a dividend in the current year. But Mark will come back to that in a bit more detail, but I'll turn it over and touch on our growth ambitions. We've got a fairly ambitious top line growth agenda and we've done significant groundwork in fact, all through -- from the start of the pandemic all the way through and ongoing. We're doing groundworks, that's created the foundations for our ambitious growth aspirations. I guess if we look at the key elements of our ambitions, it's one, retain and attract people. It's a challenging employment market. And what we want to do is actually ensure that we are seeing as a trusted adviser by our customers. That means we have to have great people. That means we have to do all the right things to sort of attract them and engage them and keep them in our business, and we've been doing that very successfully. Touch on the commercial opportunity that goes with our ESG agenda. It's not just about saving costs ourselves and reducing our own carbon footprint. But in both our hospitality division and in our vending division, we help customers reduce their carbon footprint, whether it's energy saving in pubs and bars or whether it's sitting it down to dynamic route planning that reduces the carbon footprint of each [indiscernible] that's being delivered to a vending machine, that's -- gives us a raison d'etre to drive forward with customers. Our ambition over the next couple of years is to get to 100,000 vending connections, currently at 56,000 at the end of September, another 44,000 to go, and we can do that with our existing customers and some of the progress we've been making in new verticals. Then growth ambitions in hospitality, to go from 10,000 to 14,000 hospitality sites, and we'll be doing that on the back of our beverage metrics integrated with our own solution, the energy-saving devices that we're working on and the work that we've been doing with brand owners to get more flow meters on the brands to demonstrate what's happening out in the marketplace for them, and we're making inroads into the managed sector as well. I think overall, all the proposition and the route to market, they are both in place for both divisions and we have the ability to expand in the U.S.A. and also drive new verticals. So the key elements of a strong investment case are coming together as we turn the page on to Page 5. The investment case is gathering momentum. We've got strong products, significant markets and the growth levers are working in our favor and that we consider ourselves to be undervalued as well. If we look at the markets in the U.K., there's something like 300,000 vending machines, and that's only going to grow us. There's more unattended retail and micro markets there in the marketplace. In the EU, there's 3 million vending machines, and worldwide, there's about 15 million. We look at hospitality, in the U.K. here, we've probably got an addressable market of about 50,000 pubs and bars, probably 11,000 of those are going to be in the leased and tenanted sector and probably another 12,000 in managed and the balance in independence. And in the U.S., that's a massive potential market for us, where we're just starting to make some inroads. 382,000 licensed on-premise outlets with alcohol beverages. If we look at the growth drivers we're leveraging those contactless payments on the growth. We threw in the work that we're doing on QR payments as well, and we're well positioned to take advantage of the growth in contact with -- the ongoing growth in unattended retail is the cost of labor increases, more and more facilities are moving to 24/7 vending availability versus having canteens and kitchens open all hours, and that's only going to grow as technology becomes more sophisticated in terms of allowing hot wheels. And the whole remote asset management people piece, if we can actually access data remotely and making service and maintenance operations and restocking operations more efficient then that's going to reduce carbon footprints and that can sure higher uptime as well. So that's all positive. And the ongoing demand for data is only going to grow. And whilst we're not doing a lot on AI at this moment in time, the data lake that we sit on has value. If you look at the business itself, strong recurring revenue good earnings visibility from our 5-year contracts and the renewals that we've had and the ability to expand our margins as we layer on additional products and services, strong cash flow generation as well. So in a very good position. Basically, we tick lots of boxes in terms of markets, the products we have the customers and the relationships and engagement we have with our customers and the partners that we've sort of chosen in both the hospitality and vending arena. And lastly, our people. basically, they do the right thing by instinct, and we are -- over the last 4 years, we've really set our starlight to become the trusted adviser for our customers, and that's been paying massive dividends. If we look at -- look over the page in -- from how you're doing, well, we're on track. I guess the investment that we made all the way through the pandemic and ongoing, facts into investment in our product, in our infrastructure, our people our customers and our suppliers has created a lot of goodwill and that's paying dividends for us as they were become a preferred supplier for many of our customers. We've got a healthy pipeline that creates a good foundation to drive the business forward from. If you look at beverage metrics, we dominate the leased and tenanted sector in the U.K., in fact, we don't really have competition in the U.K., which is great. But it's important that we don't rest on our laurels, and we're taking new products and services to the leased and tenanted sector and becoming even more relevant to them. And in parallel, we have products and services that are now becoming more relevant in the managed sector and we've been making good progress there, where we've become a really good option to actually I guess there's a limit to what managed operators can do now to drive big growth output level -- at output level primarily because there's -- the price and elasticity has stretched treated to its limit, whereas for the cost of -- if you have one extra pipe going through the till, that pays for our system, and we can do that to purely by reducing shrinkage at the till. Data demand and demand for contactless continues to grow, both in our core business and in new verticals. I guess what we've been doing is that we've been demonstrating, but the key elements are in place and provide us with a real growth platform. We look over the page on to Page 7. This is what drives our vending operators to have, a, connectivity but also contactless payment solutions in their vending machines. A vending machine is a small supermarket. It's just that it's remote, and it's unmanned. So real-time data is essential, to provide dashboards, provide alerts and the dynamic planning that's required to fit into their ERP system so they can run more productive operations. I'm not going to go into each of these benefits. But I guess those benefits in the middle sum it all up as to why our customers invest in connectivity and contactless payment It's about increasing machine part productivity and uptime. It's about having operational transparency that allows you to actually drive real-time improvements and it's about ensuring the maximum availability of stock and also that maximum availability goes hand-in-hand with reducing the amount of stock you have in the warehouse. So you're actually reducing your working capital requirements. And then if you take some of our big coffee customers, they're also interested in quality. They want to know that the machines are being cleaned, the milk is being cleaned, they want to understand it's their coffee that's going through the machine and not some bean roaster down the road. So everything kind of works in our favor. And then we look at the complexity of the payment system, our ability to interface with accounts package providers, whether that's Access, Xero, QuickBooks, you name it. That integration is important, and we have the ability to do that, and it's pretty complex because in the vending arena, you have revenue share agreements on some machines and some customers have rebates, so you want to stay on top of that. And the insights and analytics piece, which is really about understanding what sells where, when and to who and we can do that working with our partners. So the bottom line is we would help them reduce their cost and their carbon footprint by making them more efficient when it comes to restocking service and maintenance, and they get compelling returns. We -- several examples in some of the larger customers of over 20% operational savings from installing our contactless and connectivity, and they're also seeing sales uplift from 100% uptime or 100% availability, and that we work with the winners. And the winners are the winners who are embracing the digital and embracing technology. So we're in pretty good position in that respect. And does that translate into our performance? I talked about the ongoing investment that we've been making over the last 3, 4 years into our product, people and customer experience, and being the trusted advisers is paying us dividends. We've got the heart. We've got leading hardware. We've got leading customer support. We've got great management software. Our transaction rates are probably the most competitive in the sector and our pricing is right. We've got clear blue ocean between ourselves and the competition, and we're starting to make inroads on the back of it. One example would be around about the network operators' 3G switch-off that's been taking place over the last 12 months, and will continue to take place over the next 12 months through to the end of '24. I think it's probably about 7 or 8 months ago, we provided this comprehensive 3G switch-off guide that explained everything, 16 pages, explained to customers exactly what was happening and what our response was to it. And I guess that we were probably about 6 months ahead of the competition on that, which really sort of underlined our position as a trusted adviser. And that fed into our retain and game strategy, but the 3G switch-off and the requirement for customers to upgrade devices from 3G to 4G could be seen as a risk or an opportunity, we decided we would make it and drive as an opportunity, A, by securing our existing customers on extended 5-year contracts for the 4G installations, but also going out there with a very compelling offers for competition -- customers who are with the competition, and we've been picking up new business on the back of that. I guess the first 6 to 8 months of this year, customers have been taking time to, A, understand the need to change or upgrade from 3G to 4G, and understanding the implications, pulling together their plans, and it's only really been in the last couple of months where we've really seen an acceleration of really pressing urgency to upgrade from 3G to 4G. And that's why we're feeling good about the headwinds in the first half are real tailwinds in the second half. So we were pleased about that. The other thing that we've done in the last several months is actually make real inroads into buying groups. Historically, we weren't -- we didn't have many customers in the buying groups, but we've really made inroads into the buying groups in the last several months. And that's going to pay dividends running through into the new financial year as well. The state is growing to 56,000 devices and that basically reinforces our recurring revenues, our operating -- our adjusted operating profit up to GBP 1.05 million, up to around 30% from GBP 810,000. So in good shape. We've also made strategic growth or gain in terms of a contract win within the forecourt arena. And what's working in our favor here is that for the -- perhaps 18 to 24 months, we'll be doing groundwork. We have key relationships, Craig, our Chief Operations Officer. His background was forecourts with Morrisons and [indiscernible] Business [ Hub ]. He's got lots of connections in the sector. And we've been working with those relationships hand-in-hand with the SureSite to allowed us to good market some fantastic transaction rates. And we've been -- I guess, we're in secured an 800 device order with a leading operator, and that's a 6-month rollout that started this month. So that's a great win for us. The SureSite transaction rates, that really makes us very competitive, and the competition struggle to deal with that. And I guess the other thing that's worked in our favor is that the whole, our proactive approach to 3G applies within the forecourt sector as well because there's been I guess there's the early adopters of connectivity and contactless in the forecourt sector, that's forecourt balloting. They've been, call it, well, I guess they would need to upgrade from 3G to 4G. And we're also -- there's a level of this dissatisfaction with the existing providers. So the other big positive about SureSite, they are, in effect, another arm of our sales force in the forecourt sector. So that's great news for us. It gives us a lot more coverage. Lots of live discussions going on. It's a significant opportunity here in the U.K. and in Europe. And I guess this -- by necessity, this slide is anonymized for competitive reasons because we're making real inroads and we don't want to give our hands away. Moving on to hospitality. Now basically, we give our customers significant benefits and compelling returns on investment, and that's by reducing waste, improving quality, improving sales and driving up productivity and by ensuring that our customers can give their drinkers an enhanced customer experience, I guess. It's part and partial of the factors that you see in these boxes here, they help create a beneficial circle rather than -- the opposite is also true. If you're not doing these things, you end up in a vicious circle, and you end up with a business that's in decline rather than being transformed. The other great thing about our -- the hospitality business and what we take to market is that -- now we can actually give a return for the customers from day 1 simply by hooking up our real-time core data with the point-of-sale data to do shift loss analysis, and that will drive profitability from day 1. If we look at that, the bottom line is that the integration, having integrated the beverage metrics acquisition with our Smart Zones business that's enhanced our offering by giving us real-time inventory and point-of-sale reconciliation that really makes us relevant to the managed sector as well. So we're in very good shape in that respect. The other thing as well is that the bottom line is that you have one extra pint through your till, a day that pays for our system. In terms of looking at the results for the period, core and leased and tenanted has been robust, and we're confident that we can sustain the performance in leased and tenanted and probably get it back into growth, because leased and tenanted has been performing better than managed in other areas of the pub market during the cost of living crisis that we're going through. We're making inroads in the managed arena, as I said, because they have limited options. Pricing elasticity is getting closer to breaking point, and if we can give them a day 1 return from selling one extra pint today, then that's positive. The recent -- so we've -- in the last 2 weeks, we've done and completed a number of installations with an energy management system for beer cooling systems and sellers that can reduce consumption by around about 50% -- 40%, 50%, and that itself pays for itself and the -- an average pub probably benefits to the tune of GBP 1,500 a year. And I guess, lastly, that full beverage metrics integration piece, that's worked really well for us because it gives -- we can give the pub unit manager or the regional manager, everything he needs in seconds every day with the dashboard. I don't want to dwell too long in the states, but [indiscernible] on it. The bottom line is that we have the most comprehensive, scalable, proven drinks management solution following the integration of beverage metrics. In the U.S., for instance, well, we don't have any real competition in the U.K., but in the U.S., for instance, there's 5 players that do draft beer monitoring. There's probably 50 that provide inventory, and that's -- a lot of those guys are point-of-sale providers, but there's none that provide the combined solution that we provide. And as I said, that instant convertible dashboard that gives the unit manager everything he needs in 30 seconds, and we can capture all the financial data. So certainly, whether that's a forecast, whether it's the point-of-sale loss or whether it's margin analysis. Margin analysis, we can do it. Drink level, brand level, tap level, site level or reaching level, and that's something that's very difficult for our operators to get to otherwise. The other thing I'll pick up on here is fintech, our partner in the U.S.A., we've been tuning into full integration with them, when I say integration, it's -- we will capture an order. That order will be processed back through our partner's drinks management system because our partner pay to parent processing for -- in excess of 30% of on-premise -- licensed on-premise venues in the U.S.A., which is a significant opportunity for us to actually integrate with them, to actually give cover an end-to-end beverage management ecosystem that includes our inventory system. I wouldn't spend too much on the addressable market in the U.S., 382,000 licensed premises across 4 key segments. In the restaurant sector, big players are Applebee's, with now almost 1,800 units. Brinker stocked Chilli's with 1,200, and Bloomin' Brands with over 1,000, and these are all guys that we're talking to and in discussion with as we speak. And then you look at hotels, almost 1,400 Marriott hotels with bars. So effectively, our relationship with our partner in the U.S.A. gives us access to these guys, but also to individual and smaller chains that allows us to drive our sales operation. In terms of where we are, we're tracking to establish a successful U.S. business with the objective of being monthly breakeven until year '25. The proposition is pretty compelling. Return on investment is 3 to 6 months as it drives performance and productivity, and it's pretty much self-funded, one pint a day going through the till, pays for the system. And we've got a number of -- I touched on the partner and the automatic ordering invoice and receipt of goods, that gives us a fully integrated end-to-end for drinks management, and that's really important for operators because the amount of time that's taken at the moment for an operator to place an order, we will -- we effectively provide them with the suggested order. They press to accept the order, that goes to our partner in the U.S. and then that goes -- gets farmed out to the various suppliers and then we get the e-invoices back and then we closed the loop when the goods are received. And when the goods are received, so that's when we do the point reconciliation and it becomes beneficial ecosystem. So very positive. Just touch on a couple, I'm not going to go through every sort of prospects here, but customer -- perhaps an existing customer that is rolling out a franchise, and we are on the franchise technology stack and that's going to deliver a growth in -- through the second half into full year '25. And then just looking at the payback that and the ROIs that our customers are getting, it should be a no-brainer going forward. It's just a case of, I guess, that point-of-sale shift was report -- delivers an excellent return on investment in its own right. And the options are narrowing for managed operators in any case. And so we are a quick way, address the point of sale, address loss and improve the productivity. I'll hand you over to Mark now, who will take you through the financials.

Good morning, everyone. Just starting on the headline, P&L performance. You can see that the turnover is marginally up year-on-year, held back by what Jim mentioned regarding the 3G impact and customers having to understand the impact of that, or that should improve in the second half, will be a driver for us. Gross margins are up due largely to the incremental recurring revenue growth. We have seen under reduced cost of operations that we delivered in the year. So there's an improving gross margin scenario there. EBITDA or operating profit is up 7% to GBP 1.2970 million. And that is net of course, acquisition costs of operations for BMI of around about GBP 0.2 million. If that was done on a like-for-like basis, then the growth would be expected to [ 23% ] year-on-year. The pre-exceptional PBT of GBP 159,000 there. That's back in the black, which is pleasing to see. And again, that is net of the GBP 200,000 BMI costs, so it would have been GBP 269,000. The exceptional costs that we did incur in the period largely related to the acquisition of BMI or we advised the cost and the legal costs in delivering that. So overall, we delivered a loss before tax of GBP 171,000. Again, net of the BMI, GBP 200,000, like-for-like and then it would be a small profit. And that translates into the [ GBP 0.5 million ] on the negative side but without BMI and the like-for-like position we made a all-positive GBP 0.22 EPS. And EBITDA on a like-for-like basis year-on-year would have been 3.7% growth. If we move on to the divisional performance. Smart Zones, turnover was [ GBP 0.1 million ] miles away from the prior year. We had 105 new systems in the period but the net it did reduce by [ 153 ] sites, but that is a slowing of the decline in the estate size. In the previous year, we had 356 sites lost towards. H2 will see new systems being delivered. So we do expect the estate to remain in and around current 9,700 that we have today that's Jim touched on earlier. Gross margin improved from a healthy recurring revenue base, but also a reduced cost of operation. We don't carry quite as many engineers, and we don't use and the intelligent flow meter as much for the development in solving the technology that we've had in the period. So there's a reduced cost to serve our customers. Year-on-year, overall, the profit is to be slightly behind last year, but that is net of GBP 200,000 BMI loss. So like-for-like in the U.K., the division returned a 4% uplift in profit growth. Recurring revenue remains strong as ever division remain resilient pro forma and cash generator. In terms of smart machines, you can see the turnover is ahead year-on-year, yet held back by the 3G to 4G network impact, as we discussed, for H2 will be an accelerator for that. We had 37 new contracts. We had 5,264 new connected devices and all that contributes to the estate growth of around 6%, and just shy of 56,000 connected devices as Jim referred to earlier. That all underpins the recurring revenue growth, you can see that 77% and the improved gross margin that we've got. And we have a slightly lower cost to serve in that division as well. So overall, we're seeing a continued growth in operating profit by around 29% to GBP 1.049 million here, despite 3G to 4G lag. So we're very pleased with the performance of the division and that is expected to continue. In terms of the cash flow, business continues to be a reliable cash generator. The preworking capital profit conversion was 97% or going to be 14% of EBITDA, of course, working capital conversion of property, to cash on an EBITDA basis was 105% which is a significant step forward from last year's position of GBP 0.67 million. The working capital in the period was flat and more normalized. We said that the stock investment that we were making in the prior periods were bit and it has done. So the broadly flat movement in working capital there, which is what we expected to see. So we have decent cost generation operationally post working capital of GBP 1.269 million there. We had a tax receipt of GBP 923,000, that pertains to tax losses we surrounded in March, and we received that money in May. So overall, we have an operating cash generation position of just shy of GBP 2.2 million, which is obviously very healthy. We've invested in new tangible assets around rental equipment and R&D. The R&D is tracking about GBP 0.3 million less than the year before. So that's, again, it's improving. And we obviously refinanced our bank facilities with HSBC and that's reduced the onerous repayment profile what we used to have, and I'll come on to that when we go into the balance sheet. So that's again, improved the cash position of the business. So in summary, the combination of the results we've delivered, the cash-generative nature of them, the tax receipt we've done and the refinance of the bank facilities gives you a very healthy cash inflow position that is set to be maintained. If we move on to the balance sheet. The balance sheet is being strengthened with the more flexible bank facilities we have now with HSBC. We have a less [indiscernible] risk parent profile, which support the growth ambitions of the business. In facilities, we now have a 2 million committed -- 3-year committed RCF at 2.62% above this and 0.84 million mortgage 15 years, at 2.42% [indiscernible] and GBP 0.6 million term loan for 4 years of 2.52% [indiscernible], all very competitive variable rates of interest and at least 1% lower than our previous provider. What that does for us is it reduces the amount we're repaying in bank debt by about GBP 350,000 to GBP 400,000 per year, which we would rather invest that in the business. And we used to be spending around GBP 800,000 a year in bank repayments. So it's strengthened the balance sheet, reduced the cash outflow and debt repayments. It's a very healthy position to build from. Our net debt has reduced significantly to GBP 2.09 million from GBP 3.56 million, GBP 6 million last year. So it's a strong position to follow it and realize our growth plans, as Jim has touched on. And I'll hand back to Jim.

Thank you, Mark. We've demonstrated that we are in a position to drive growth in earnings. The markets and trends are positive for us, and they're very favorable levers as we sort of drive forward. The cost of living crisis and inflationary backdrop, that actually means our solutions are increasingly relevant because people need to run more efficient businesses and be more productive, do more with it, and that's what we allow people to do. And with it, we give a very compelling return on investment. If we look at the unattended retail division, we've secured long-term renewals with our existing customers, and we've made inroads -- making inroads into buying groups, driving new business as well, that's all helped by working with partners, take SureSite and the really attractive transaction rates that were enable us to go to market with. And then you got Vendekin, who give us QR technology that we can actually look for it at the next phase of development in the understanded retail sector. And if we sort of look at the hospitality division, the leased and tenanted is resilient, over the coming years, we'll probably see more managed operations return to leased and tenanted, for some years, there was a move from this leased and tenanted into managed manage, but was probably -- say reverse. Why is that? Because the cost of employing people is only going to increase the part of the red tape is only going to increase as it makes it. I think you got some outside London, you got to be making GBP 6,000, GBP 7,000 a week before you can justify another in the managed output. So that's going to help drive our existing leased and tenanted, but we've also got a product that's now relevant for managed [ tenant ] in a very, very real way. So we're expecting to see growth in both the U.K. managed and in the U.S.A. And then the demand for data and our ability to commercialize our existing platforms and technical capability has allowed us to make that strategic move into forecourt balloting and providing connectivity and contactless payment there, and we see that as being a big win for us over the next year, 2 years, and we're making good inroads. And energy saving in pubs and bars, if we can now -- with an energy saving management tool that can allow your average pub to reduce -- to enhance the bottom line by 1,000, 1,500 tonnes a year, then it's worthwhile having and it gives a really good payback. So in a very good position. And the quality of our recurring income is only going to improve, and we're going to be creating a lot of cash and be in a position to actually pay an improved dividend going forward. And the bottom line is it gets back to people and working with the right partners and ensuring that we remain trusted advisers and partners with choice with our customers, and that's key it's fundamental to everything we've achieved over the last 3 years, and it's going to be our focus going forward as well.

So that ends sort of my presentation. We move on to questions now. And we have some pre-submit questions here, which are all regard... Number one, my question relates to the expansion opportunity in the U.S. In the U.K., it tends to be that the majority of pubs are owned by breweries and chains. Well, actually, in the U.K., I think there is something like 11,000 pubs in leased and tenanted and probably in the region of 12,000 in the managed arena and the balance are independents. In the U.S., basically, what we have here is a total market of 382,000 on-premise licensed venues, about 64,000 those are in chains of more than 10 outlets and there's just the pubs, bars and licensed restaurants. There's something like 0.25 million in less than 10 sites, how does that impact our route to market? Well, we get access to no -- just access to decision-makers in the big chains is important because that's the level at which we'll make decisions to invest in our equipment and our services, and implies existing relationships and partnerships, we've got increasing access to those change in the U.S. in addition to the ones that we've been working with for some time. And working with one of our partners, in particular, that gives us access to the, I guess, the independent of smaller operators. And that's something that not many people can have access to. So that's -- it's quite unique. Question two, [indiscernible] ask about how Stella's appointment came about, please? Well, I guess, number one, Chris Williams, our Chair of Audit, was retiring after a good period of time with us. So we needed to find someone who we share our audit. And we're also looking for someone with city and financial experience. And it just so happened that we've known Stella a long time. She was one of our first investors when we IPO-ed in 2006. And over the years, she's been one of our most challenging investors, perfectly prepared to give us a hard time. And that's as a leader in this business, that's -- I don't want -- yes people in my business. I want people tell me how it is. And we're fortunate in that Stella became available and basically have the conversation with her, and she accepted the role. So we're very pleased about that, and it's working out really well and real value-added. Question three, in Smart Machines, you talk about the sizable addressable market of [ $37 ] billion and your growth connection and you're growing connections by 6% to 56,000 connections. Over the next 2 years, looking at your share of market, what is the realistic number of new connections you are targeting? We're targeting to be at 100,000 connections within the next 2 years, which would be another 44,000 new connections, and we can get there through a competition of existing customers where there's still significant scope for growing the footprint and new customers. And that's before we look at the opportunity within forecourts. Question 4, how big is the unattended forecourt market? What specific other new verticals are you targeting? And how far advanced are they? Well, the U.K. forecourt market number's about 8,300. Half of there was some form of balloting, whether that's air systems, backs or jet wash or car washes. If you look at that 8,300, a 1/3, there's probably somewhere in the region of about 2,000 at the was still operating cash only. So that's a big -- there are 2 opportunities here, conversion of cash only to our new 4G systems. And the other opportunity is in place, early adopters, 3G devices with our 4G units, and that's what we're focused on. So a significant opportunity. And in terms of new verticals. We're in discussions and have proof of concepts in a number, everything from stand-alone toilet modules through to EV charging, you name it, it's endless. Our platform is capable of actually a technology is capable of addressing a number remote asset management opportunities. Question 5, given that you sold an additional 105 new Smart Draught systems, why is your turnover lower than H1 '23? Well, turnover number was margin lower because we -- the net pub closures was 152 not 153, in the first half. I expect to see that turn around to a net gain in the second half. So overall, in the year, we'll probably not with the -- hopefully somewhere that's pretty close to flat in terms of the number of pubs that we have in our estate during the year. Point 6. Given you previously have had exposure to the U.S. market through AMC. Can you explain in greater detail why you're confident that the acquisition of BMI will now enable you to unlock the market, is AMC still a client, how many active discussions are underway in the U.S. And what number of system sales are you targeting in the next 12 months? I think there was one at a time the integration of beverage metrics with the leader in draught beer solution in worldwide creates, for drinks management solution. And operators can get a return on investment purely from the point of sale shift loss data, day 1 to point us that the systems installed we see an uplift in what's going through the point of sale. So basically, people know that there's a system in there, so they start compliant, behaving. So that in itself drives the return on investment, and that's before you start to look at the productivity gains that are available. You think about it. If you pour the perfect pint, you're not wasting time topping it up, you're not wasting time with full -- you're not wasting time. You're not having a customer standing behind the bar waiting on that pint. So he gets his pint [indiscernible], he starts drinking out there and you start to serving the next one. We have a much more productive operation before you look at the waste [indiscernible]. In terms of the AMC, AMC was a bit of a set back for us because AMC asked with all theaters during COVID they found it very, very tough during the pandemic, and they're barely survived and they couldn't afford to pay us. So we see service, and we've basically started building up our momentum from scratch. We're 120 sites in the U.S. as we speak. And our goal by the end of full year 2025, that's in the next 15 months, we're looking to be at breakeven in the states. We figure that takes 300 draught sites where we've been doing draught beer monitoring, and 250, where we have the 3D fast scanning inventory solution being sold. So that was the pre submit. I'm just looking now to see if we can see the live, can you please comment on the composition of your customer base and how it has evolved over the last 12 months? How do you ensure that sufficient levels of customer satisfaction and retention? I guess that's 2 questions there. How do we ensure the customer satisfaction? Well, unlike the -- we take the vending, unattended retail market, Unlike the majority of our competition, we continue to invest in our customer experience. We have our own field engineering, and we continue to invest in our products and solutions and people. And that will drive that ongoing engagement and keep it -- retain as the customer as the trusted adviser who's delivering that experience. The other thing we there's a compelling return on investment. There's real stickiness. If you get in there and you actually look at your customer, they're not going to want to change because the cost of change is substantial. So that's why 3G to 4G has been so important for us and tracking opportunity to really take advantage of a need to change and couple that with some dissatisfaction with existing providers and that really opened some doors for us. In terms of customer composition, I don't have it at hand, but what we have seen is we've seen a growth of the vending operators in our top 10 customers. people like [indiscernible] Direct, [indiscernible] breaking into the top but that's something that we will publish on our website in terms of more detail on that. Next question. Earlier in the presentation, you referenced, you do not see much competition in the U.K. Why do you think that is? And what steps do you take to remain competitive in the market? Well, there is some competition in unattended retail space. There are global players that compete with and compete very well with for the reasons I've just covered. But if we look at the hospitality market, we don't have any competition in the hospitality market, but we don't rest on laurels. We don't abuse the dominance that we have. The bottom line is that we focus on giving our customers a return on investment and give them a great service and by doing that, that means they'll stick with us, and that makes it if anyone, there are over the years, there have been a number of players who've tried to come to the U.K. and enter the market and they all have failed [indiscernible] on a risk on a in the face by moving from someone who is a trusted advisor, delivering the service and then take the risk of basically no fairly. That's all the questions. Is there another one coming? Well, there's another question just coming. Thank you for your presentation. Can you comment on the value of upsell i.e., the expansion rate and customer churn, please? Where are you able to increase prices in 2023? So the bottom line is that all our contracts have RPI built into them. But as you can imagine, when RPI was -- that are up 11%, 13%. We didn't abuse our position. We capped it I think at 6% on takes. And I guess the cap is now down beneath that because -- so that's pretty much where we are. In terms of upsell, let's say hospitality in terms of the upsell, 9,700 pubs and bars here in the U.K. We probably have the ability to sell energy management solutions into each of those pubs and bars because there's a good upside in terms of an extra GBP 1000, GBP 1500 going to the bottom line and an average pub could make a difference. So that's one example of upsell. And I guess there's other opportunities as well. But what we haven't done is we haven't even filled in our inventory solution in the U.K. So there's further upsell at the [indiscernible]. And then there is with our access to what we have in pubs and bars. There's an opportunity for us to move to add retail compliance to what we do. It's a fairly easy bolt-on. Yes. And I think that's the question's not finalized.

Absolutely. James, Mark, Craig, thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so, and we'll publish those responses on the platform. But James, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Well, I guess I just hope that we've demonstrated that we're in a position to really drive growth in earnings, whether it's layering within our core leased and tenanted whether that's the -- our successful entry into the managing in the U.K., whether it's the progress we're making in the states and are working with their partners there. The proactive approach to the 3G switch-off, how we've made progress there and the strategic entry into forecourts. Some really big positive things that over the next the 6, 12, 18 months, are really going to shift top line and bottom line, and that's important. And I think bottom line is that if you look at management, management at 20% to the stock in the business, and we're invested in this business, and we want to see have the ability to pay a decent dividend end up. So really appreciate your time, and we're always available if anyone has questions down the road. Thank you.

Perfect. James, thank you for that and thank you again for updating investors this morning as well. Could I please ask investors not to close this session, which will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of Vianet Group plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.

Thank you.

Thank you.