Vianet Group plc (VNET) Earnings Call Transcript & Summary

Good morning, and welcome to the Vianet Group plc full year results investor presentation. [Operator Instructions]. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the Chairman and CEO, James Dickson. Good morning to you.

Yes. Good morning, and thank you for joining us today. The Mark Foster, CFO, with me here, and Sara Benton, our Finance Director, to answer any questions that Mark and I might struggle with. We'll move straight into the results. We think there is a strong set of results despite the economic backdrop, very good momentum in unattended retail, and real progress in new verticals, as demonstrated by the wins in the forecourt sector with Rontec and Wilcomatic. And of course, we have the BMI acquisition, the Beverage Metrics acquisition, in May 2023 and the [ Vendekin ] integration, and that's going extremely well. And the hospitality division, we think it's turned a corner, and it's looking really positive going forward. The numbers themselves were ahead in all the key metrics, so we're in a good place for it to fill our ambitious growth plans. Bottom line is that, for the past couple of years, we've had a real focus on top line growth, and we're starting to see that come through now. For those of you who are less familiar with Vianet or new to Vianet, I'll do a quick summary of what we do. We basically help customers transform their business performance, in essence, let them do more with less. We install hardware that allows us to harvest data, and that's processed through our software platforms to create dashboards, alerts and traffic light systems to help people run more efficient businesses. We have 2 divisions: unattended retail division, which, by the end of June and early July, will be closer to 40,000 devices in vending and unattended retail machines out in the marketplace; and then the hospitality division, where we're in the best part of 10,000 pubs, bars and restaurants. In essence, we sell hardware, install hardware, and we get paid for installing that hardware. So we have CapEx sales or rental sales. And then we have weekly and monthly subscriptions, and that's for service packs, licenses and data processing, all long-term contracts with 3- to 5-year terms. I think one of the sort of important things to really highlight is that we have a high degree of recurring income. And unlike a lot of businesses, it's unless transactional income, it's subscription income. So there's very strong visibility on the levels of recurring income that we have. If we turn to the financial highlights. Without stealing any of Mark's thunder, I'll just touch on some of the key areas here. Strong financial results, ahead of expectations on the key metrics. And that's with a background of the mobile network operators' 3G switch-off. That created a bit of a distraction for customers, as customers try to determine what they're going to do to address the 3G switch-off. So that impacted the first 3 quarters of the year. But there was a strong rebound in the fourth quarter of the year, and that's came through in the results. And that's looking positive into full year '25 as well. Our hospitality turnaround. We're really pleased with the performance there, and we're set to see that grow further. Bottom line is the absolute focus on footprint expansion in new and existing customers to drive our top line, and basically, with our strong cash generation, it flows through to our earnings. I'll quickly touch on the revenues. Up 8% recurring revenue, 85% of turnover, down from 89% last year, really driven by the high proportion of hardware sales in the fourth quarter in Smart Machines. And of course, looking here, our cash generation is strong. Net debt is reduced substantially, and the EPS has risen strongly. And that's allowed us to propose a 50% increase in the final dividend, up to 0.75p per share. Moving on to Smart Machines. Basically, we ticked a lot of boxes in terms of we have excellent hardware, great customer support, award-winning customer support, cutting-edge management software platform, the most competitive transaction rates in the marketplace through our relationship with Suresite. And we've got highly competitive pricing because we see an opportunity to establish a much larger footprint and to drive recurring income from that footprint. We had a winning 3G switch-off strategy, which was all based about retaining our existing customers and gaining new customers. We were first out of the blocks with a comprehensive guide to the government's shutdown of 3G, the mobile network operators' response to that, what that meant for our industry and what that meant to unattended retail, in particular, and the solutions that they proposed for our customers. And having gone out of the blocks early, we built a lot of trust with customers. And we've still managed to establish longer-term contracts with our existing customers to upgrade the 3G to 4G and given them the level of pricing that encourages them to go to a statewide connectivity, which will again drive our recurring income. Importantly, too, we made an entry into buying groups, with some substantial wins in there, an area that we hadn't particularly been strong on historically. But we've come through strong, and that's really driving the growth as well. I'll leave everything else to Mark and move on to the forecourt sector. There's been 18, 24 months of really hard groundwork working with Suresite and utilizing key relationships that some of our personnel have within the forecourt sector. And taking advantage of the 3G switch-off, which has been impacted in unattended retail in the forecourt and creating a degree of dissatisfaction with the operators, with our competition, and that's opened some doors for us. As you can see here, there's a substantial U.K. self-serve market covering car washes, jet washes, vacuums and air towers. In general, these are higher-ticket -- new higher-ticket bins. Take some rollover car washes that you can be rolling up towards GBP 10 a car wash, and that's pretty substantial compared with average spends across the wider unattended retail market. That means you got to have a high degree of reliability. You've got to have hardware that is robust and functional, and you've got to have the support network. Because if a car -- ever the payment system is done in the car wash in a supermarket car park, then that substantial revenues, they are going to be losing. So reliability is key, and we tick those boxes. Suresite. Suresite are our partner of choice, and they've historically had a strong presence within the forecourt sector, where they've done a lot of payment processing on fuel transactions. And working with us, this is an opportunity to get involved in the unattended retail transactions on forecourts across the self-serve market. And to date, the good news for us is that Suresite actually act as one of -- as an arm of our sales team. They've got over 200 independent customers that they do fuel transactions with. And those customers all have some form of air tower [ vacuum ] or jet wash or carwash, and they can give us access to that. So we work with them. And to date, Suresite have taken in excess of 600 devices to install in that independent sector in the last 6 months or so. We've announced Rontec and, more recently, Wilcomatic, best part of 2,000 devices going on to machines with those operators. And we got further field trials underway across a number of players. There's also a link opportunity. The bottom line is that working with these operators in the U.K. sector has introduced us to some of the machining and car wash machine manufacturers and operators in Europe. So we're in discussions at this moment in time about ensuring our hardware is compliant with European operations. So it's a case of -- nothing built into our numbers at this stage, but it's a case of watch this space. And then we look at -- increasingly, there's going to be unmanned forecourts that are going to create vending opportunities. If you look at EV charging, when someone goes into an EV charging station and then we have to wait 20, 30 minutes to charge their vehicle. Now that's an opportunity for an unmanned EV charging to actually have something similar to when you're waiting for your MOT to be completed, where you can actually go and actually utilize a vending operation to make for a better experience, and that's going to be on the increase. So a significant U.K. and European opportunity that we're working hard on. Moving on to hospitality. Our core leased and tenanted operations are robust and that performed particularly well during the, I guess, the cost-of-living crisis. Why is that? That's because you've got an entrepreneur who's personally invested in an operation, and we'll work all the hours that are needed to make that operation successful. Managed operators don't quite have that same flexibility, where everyone is salaried while on 0 hours. We have a pretty substantial and solid installed base of over 9,600 pubs fast down 194 pubs in the year, which is the smallest decline in the pub sector that we've had for probably 10, 12 or more years. So the vast majority of the tail of the [ published dates ] has been moved on now. And we're -- we think we're in a pretty decent position there, and where we can start to actually look at turning the corner, and we're actually growing it. I think if we look at what Beverage Metrics brings to the party for us, through COVID, we reengineered our draft beer flow monitoring product to reduce the hardware costs, improve the ease of installation and reduce our ongoing cost with it. And also to ensure -- make it more intuitive, user-friendly for the -- for our customers and their operators. And that's been paying dividends. And now that, that's been integrated with Beverage Metrics, inventory platform, we have basically an all-encompassing solution for customers that is driving some real interest and engagement, which is positive for us. So revenues are up, operating profits up, recurring income is up. And with the BMI acquisition and integration and launch in the second half of last year, we're in really good shape. The other positive thing as well is that the inventory solution can be sold stand-alone. So it's not dependent on a pub or a bar or a hotel having strong draft beer sales. So it's also -- also does not require us to go to site to actually install and implement, it can be all done remotely from our offices. And the other positive with the BMI as well is that the point-of-sale shift variance analysis, where we're ensuring that every pint that's poured is going through the till. That, in itself, provides a return on investment before we start to look at any of the other productivity gains or reduction in waste. And effectively, if we can have one additional pint a day going through the tail, that gives -- that pays for the system. Turning over to the prospects for U.K. hospitality. Well, the key drivers work in our favor. Costs have gone up, whether that's wages, utilities, raw materials. Pub operators are under pressure from a cost perspective, and they're under a bit pressure on consumer pricing elasticity. Because as pricing has gone up over recent years, it's almost on a breaking point, where there's a limit to how much further they can increase their pricing to the consumer. With those limited options, that means they need to do more with less. So we can help them pay, ensure that they're actually getting the revenue going through the tills, that they're actually -- their every pour goes through the till and helping them do more with less, helping them increase their productivity. If you get a pint right first time, that means that it's in the consumers' hands right away, which means that the bar tender can move on to the next consumer. And that consumer has started drinking, which means that you increase your throughput as well as you increase your throughputs and increase your productivity by actually getting it right first time. And that goes for line cleaning at the bunker. It goes for left in keg and waste as well. We've got substantial U.K. business. Those 9,600 pubs. We've been in those for -- we've been in operation over 20 years. We're part of the landscape with little or no competition in the U.K. So a really strong base to, a, wear on Beverage Metrics products on our existing customer base and grow that and also move into other -- the wider pub market. I've touched on the -- what Beverage Metrics brings to the party. Our products and solutions are increasingly relevant to the wider pub and hospitality market. Looking at the pub market in isolation. It's almost 4x larger than our existing business, so that creates an excellent opportunity for us to grow utilizing the Beverage Metrics solutions. Bottom left-hand box, there are opportunities in current customers. There's probably still in the region of 1,000 sites, 1,000 pubs and bars to go at in our existing customers. And we're starting to see increased engagement and footprint expansion because customers are wanting to maximize their efficiencies. It's not just about securing your delivery your supply chain, it's also about maximizing efficiency in those pubs and making them much more successful. So that's playing into our hands. Beyond the leased and tenanted, we're making some inroads in managed. And one example is a pilot in a significant managed player in 30 contactless pay pilot in 30 pubs. And the results have been very encouraging, and we expect to sort of move that forward in due course. Another pilot is a 250-tap stadium trial in the [indiscernible]. And of course, you can imagine that if you've got a cricket match or an event on there, it's a onetime hit. So they want the information real-time. They don't want to wait until next day. Like most other customers, they want it real-time. Because if there's an issue on-site, they want to be able to act on it immediately. So it doesn't detract from their -- from the day's takings. And moving on to the acquisition of Beverage Metrics itself. Well, I guess, we bought them because they have a perpetual inventory management platform that we're in the process of integrating with. And we have now, post acquisition, we fully integrated our draft beer management solution with the Beverage Metrics. So it's all-encompassing. The only thing that we lack at this moment in time is a wine and spirits monitoring solution, and that's something that is on our agenda. Bottom line is it's a configurable dashboard. It's intuitive, user-friendly, allows the operator to drill down and ensures that they're not overloaded with data so they get information paralysis. And as I touched on the bottom line is that the shift loss -- the shift loss report pretty much drives payments for the system. One additional pint a day going through the system pays for the system and everything else is a return on investment. And then if we can improve -- if we can help operators improve quality, where they're getting a perfect pint first time, every time, that means they're improving the productivity and also reducing the waste. And in the current environment, that's helpful. There's been a high degree of engagement, both in the U.K. and the U.S.A. because we're bringing something to operators and pub owners that they've not had before, and that makes a real difference. I'll turn over the page to cover our U.S.A. partnership and the opportunities that are arising in the U.S.A. Firstly, and very briefly, I'll touch on the U.S. addressable market. There's over 380,000 on-premise units across 4 key segments in the U.S. that are all sort of relevant for us. And if you take some of the customers that we're dealing with at this moment in time, either in discussion, on rollout or with pilots in place, Chili's have got all for 1,200 sites; Outback, over 700 owned sites; Applebee's, 1,600; and Darden, 1,800. And then you take Marriott in hotels with 1,300. So what we have here, it's a significant market. So the questions are, how do we access it? How do we serve that market? And that's where our partnership sort of comes into play with Fintech, which I'll touch on shortly. So in terms of our progress in the United States, our proposition is quite simple. We give a return on investment in 3 to 6 months. And as I said, that shift on the sale was, in return, pays for it and gives a return on investment before you start to look at productivity and quality. It's intuitive. An operator on who needs to look at our dashboard a minute every morning. And that allows him to figure out, a, traffic and light system will say, green, ignore, carry on; red, go ahead, people will act on this today. And the enterprise structures within our customers want to actually know the action is being taken upon those reds, and we help them do that. Margaritaville are a long-term Beverage Metrics customer. And we've now been, in the past month, we've become part of the technology franchise, technology stack as a first. Margaritaville have also had its [indiscernible] until the turn of the year that had an exclusive franchise agreement, where any new franchise site went to 1 operator in particular. That has now been freed up, and they've got aggressive plans to grow their franchises across the U.S., and that creates a wider opportunity for us. Chili's, we've had -- we've got 20-site footprint in Chili's, and they're in the process of upgrading all 20 of what was iDraught to our new Beverage Metrics platform. And that's really positive. There's another 1,200 to go at. So we're really pleased about what's happening there. Applebee's franchisee, the franchisee and themselves have 100 sites in the Northeast of the United States. Applebee's, in general, over 1,500. And the positive thing for us is that the pilot ROI, given our return investment, inside 3 months. So really positive and we're in negotiations at this moment in time. Out of that pilot, pre-COVID, we did a 10-site pilot with Outback. And that delivered great results. And then COVID hit, and the best thing, what we're doing now is we're going back in 10 new sites to -- with the Beverage Metrics platform to validate the results they got pre-COVID. So in reasonable shape. Bottom line is it only takes 150 draft beer sites and over 100 3D fast scan inventory sites to get us pretty close to breakeven, and we're on the way to doing that. Moving on to Fintech. Now who are Fintech? Well, Fintech was born of the 3-tier system in the U.K., where the brand owner, the brewer, the spirits manufacturer, is separated from the retailer by distributors. There is a clear separation. Every state and even within some states, different countries will have different rules and regulations that need to be followed. Fintech, for over 30 years, have been providing alcohol invoice, payment collection and payment reconciliation to the U.S. alcohol retail market. As you can see from these bullets, there's a -- they are a substantial player. 40% of all retail and hospitality establishments with alcohol licenses operate, deal with them in some way, shape or form. And they have over 240,000 retail customers on their system and 5,000 distributors and suppliers, so a substantial business. But that kind of gives us unique access to decision makers and change and to independents because it will be very difficult for Vianet to address the independent sector in the U.S. But Fintech have access to the independent sector who deal directly with them. And that unique access was amplified in -- at the National Restaurant Association show in Chicago 18th to 22nd of May, when Fintech shared a stand -- when we shared Fintech stand at this show. You might ask why the Fintech -- why are Fintech happy to partner with Vianet? Well, via the operational link to the retailer for a full cycle ecosystem for order invoice delivery seats. If we look at that, if we take the tail Vianet and Beverage Metrics have the ongoing perpetual inventory that allows us to create the automated suggested order, which is then submit to Fintech. And then Fintech transmits that order to the various suppliers that might satisfy that order and then that order ships, and we get from Fintech what that order consists of, what substitutions have been, what items are missing, and then we can automate a receipt of that. So effectively what we're doing is reducing the labor involved in the whole process for the retailer, which improves the productivity across ordering, receiving deliveries, invoicing and stock and inventory management. So it's real win-win. And of course, by doing this, it provides a source of competitive advantage for Fintech to -- in the face of anyone who might want to try and get in on their business. I'll move on to Mark now with the financials.

Good morning, everyone. Hope you're well. A good set of financial results progressively ahead of last year and H1 2024 market expectations. Turnover was up 7.5% year-on-year. The gross margin held strong at near 69% from the incremental recurring revenue growth and a lower cost base. Recurring revenue itself was resilient to 85% compared to last year at 89% and as Jim alluded to the sales mix around hardware that impacts that dynamic. All that resulted in an improved EBITDA, operating profit to GBP 3.47 million up nearly 12% year-on-year. The pre-exceptional EBITDA was up at over GBP 4 million, nearly 11% growth year-on-year. And the net PBT was up 73% to GBP 784,000. And it's important to note that, that is net of towards GBP 0.5 million of post-acquisition BMI people and license costs. So a very, very good result and that all played out into an improved EPS that we see at the bottom. We move on to the divisional stuff, smart zones, including the U.S. Turnover was up 5.5%. There was 260 new systems, as Jim touched on. Recurring revenue was still very good at 94%, GBP 8.1 million compared to last year, GBP 7.76 million, 95%. So good incremental growth. There were 3 new contracts, 8 resigned contracts, all 3- to 5-year duration. The rate of pub disposals declined quite markedly in the year. And the net reduction was 194 sites compared to last year's 344. Of gross, it was 454 compared to the previous year's 803. So [ pub estate ] now just showed 9,640 compared to now 9,758 last year. So a combination of the incremental recurring revenue growth in the unit sales reduced cost base that led to a GBP 0.6 million improvement in gross margin, nearly 10% year-on-year, and that played out into an improved operating profit of GBP 3.94 million, nearly 4% growth again, noting that's net of the post-acquisition cost of BMI. So it would have been [ not ] much more on a like-for-like basis. So very happy with that. In Smart Machines, obviously, Jim touched on the 3G lag from the network switch-off and then the move to 4G upgrades. There was a lag in H1, but turnover picked up in Q4 of H2. So we saw an overall GBP 0.6 million growth in turnover, nearly 10% year-on-year. There were 73 new contracts, all 3- to 5-year duration, but predominantly 5 years. It was 8,900 new units compared to last year's 6,554, 35% growth. And all that means is we've got a growing estate. Gross margin was up GBP 470,000, 15%. We've got a healthy recurring revenue 74%. And operating profit growth by GBP 450,000, 22% growth year-on-year. So that's all good and only set to continue with the plans that we have. From a cash perspective, the business continues to be a strong cash generator and this year was no exception and probably more a normal year compared to the last couple of years coming out, pandemic and world supply problems. Operating cash generation pre-working capital and share-based payments was GBP 3.83 million. That was up 10.8% on a like-for-like basis compared to last year's GBP 3.46 million pre the tax rebate we accrued for in last year's cash generation number. Pre share-based payments, this is 102% of EBITDA demonstrating a strong cash to profit conversion or profit to cash conversion. There was a working capital draw of GBP 259,000. It's very much more normalized at a sort level we expect to see outside of [ 0 ] mainly from increased trade debtors. And then we got the tax rebate over GBP 900,000 in '23. So that helped us deliver, of course, working capital tax generation position of GBP 4.492 million, a big step forward compared to the position from last year. Those funds were invested in R&D development costs in tangible assets overall GBP 1.7 million. But on a like-for-like basis, ignoring the impact of BMI in the year, it was GBP 1.4 million, which is a GBP 300,000 reduction on a like-for-like basis year-on-year. We refinanced the bank facilities, which I'll come again to the balance sheet. So overall, we had a GBP 2.92 million inflow for the year, which is very healthy compared to the GBP 1.37 million outflow last year, a good step forward and something that we can build on. From a balance sheet perspective, the balance sheet remains strong. It's been enhanced by the HSBC bank refinancing and the flexibility that affords. As we touched on in working capital trade, that's slightly increased because of the increased turnover in the year. Stock levels post the 3G lag now starting to unwind, which we said they would in due course. We have cash in the bank of GBP 1.8 million compared to GBP 69,000 of the year before. We don't have an overdraft now, but obviously, we have refinanced debt position. So across an RCF loan and the mortgage, we have interest rates of 2.42% to 2.62% above base, a very healthy competitive levels of borrowing which is considerably lower than the previous bank we were with by over 1%. And all that contributed to net debt being much reduced to GBP 1.52 million at the year-end compared to GBP 3.37 million the year before. So a significant reduction that helps support our growth plans.

Thank you, Mark. Just to summarize where we are. We're in a pretty exciting position. We've got strong platforms in both hospitality and unattended retail delivering high-quality subscription incomes that are only going to grow. So we have a strong financial engine. Hospitality has turned the corner and is ready for growth both in the U.K. and the U.S.A. And in Smart Machines, we've got the real focus on footprint expansion in existing customers and the new ones that we just gained as part of the 3G switch-off initiative that we had. And that in itself will drive the growth that we require from machines before we consider the additional income that we can expect to receive from the forecourt sector. Bottom line is that there is increased demand for data and insights as customers across all sectors look to do more with less. They got to be more productive because there's a limit to what they can do in terms of pricing and costs. So it's about being productive. So strategically, we're very well positioned, got the right products. We've got great people, our finances are strong and they're only going to improve. We've focused really hard on being trusted advisers through COVID and post COVID doing the right thing and actually being honest with customers and driving the relationships and providing enterprise solutions. Bottom line is whilst we're keen to deliver dashboards and alerts and traffic light systems to help people run -- improve businesses, we're also not averse to pumping the data directly into large enterprises, so they can feed them into their own dashboards. And the market drivers are working in our favor and touched on those. So all in all, in a very exciting place and looking forward to the next months and years.

That's great. James, Mark. Thank you very much indeed for your presentation. [Operator Instructions] And James, Mark, as you can see, we have received a number of questions throughout today's presentation. And James, if I may now hand back to you to chair the Q&A, read out the questions were appropriate to do so, and I'll pick up from you at the end.

Okay. I'll read through the questions, and we'll answer them as far as we can. Question one, are you happy with the progress to date of Vianet Americas and comfortable with the level of investment up to now into BMI? Are you any closer to securing an Oxford partnership style contract in the States? I guess, number one, I'm very happy with the progress of Beverage Metrics. So what did we get? when we bought Beverage Metrics, we got some great people, and we got some excellent technology. And those people are fully integrated into our business now. Their CTO is now our group CTO, and he is a rockstar. So we're in great shape in that respect, a better place than we've ever been from a technology perspective. And we've got strong engagement with customers in the States to the extent of I spend a week, a month with try helping the sales team in the States, there's a lot to go at. It keeps us busy. Yes, we'd love to be further down the road, but we're making good progress. Oxford partnership is pretty much unique in the U.K. and that as you can imagine, we've got 10,000 pubs and bars, more or less in the state in the U.K. That creates a lot of data and allows Oxford partnership to produce some fantastic insights. In the U.S., we don't yet have the volume of installations and data to utilize Oxford partnership in the U.S.A. But working with Fintech, we hope to accelerate what we do. Of course, the other great thing in the States is that we don't necessarily need to sell in the draught beer monitoring module. We can sell in the inventory module that allows us to remotely implement a solution without having to create an infrastructure on the ground to go out directly to every single modern bar. Next question. Can you expand on the specific initiatives or trends that have driven growth in your markets? That's part A. Part B, how much embedded growth do you have within your existing client base? Okay. I will -- let's -- I will start with the first part of that question. Mark, just -- can we stick on the question? Yes. The drivers are pretty much the same, whether you're in unattended retail with a large vending park, or your -- you've got a forecourt operator with multiple self-serve machines on your forecourt or whether you're a pub operator at independent level all the way through to large [ pubco ], you need to be able to do more with less because there's less flexibility in terms of your ability to play with costs or pricing and that's where we can help. And that's -- that drives the pricing that we provide on our products because we price to ensure the -- our customers get return on investment. And the -- yes, how much embedded growth do you have within your existing client base? If we look at the Smart Machines in the U.K., the unattended retail in the U.K., excluding the forecourt sector, where there's still substantial growth opportunity Take our existing customers, there's an excess of 20,000 machines for us to go in terms of connectivity across their estates. So that in itself could deliver our growth in the next couple of years. And within hospitality, there's probably about another 1,000 pubs and bars within our existing customers that we could actually look to drive our solutions into. And that's before you start to look at the wider independent managed and hotels sporting club markets that become a target for us with our Fast Scan inventory solution. Next question. The U.S. operations can be potentially very positive. How do you see this opportunity playing out? How large is the opportunity? Who are you competing with? And what resources are needed? That's -- there's a number of questions there. I think I've touched on the scale of the market. No. And there's probably an immediately addressable market of about 50,000 bars and chains that we will be sort of targeting. Our access to the market through our relationship with fintech clearly helps and gives us an unique opportunity. There are loads of different inventory solutions out there that are generally linked to point-of-sale systems. I think what's unique about ours is that very detailed [ recipe ] buildup from the base, it's probably 3 years old. So it's been built using expertise that has been gained over a 3-, 5-, 6-year period by the Beverage Metrics team, and it's basically cutting edge. And here we're competing with of the one, there's probably only about 5 players that do draught beer in the United States, nobody here in the U.K. There's probably about 50 people that do point of sale and inventory and there's probably another 10, 15 do inventory only. But we are the only people who are doing the full end-to-end inventory and draught beer flow monitoring. So -- and we're the only people with that relationship with fintech. So we're in good shape. Regarding the business model. Are 100% of the vending machines sold rather than rented out? How much of the operating profit arises from sales. I'll hand you over to Sara for this one.

Yes. So the vending machines are actually 50-50, half are rented and have a CapEx model. So it depends what the customer wants, and they will be on contract from 3 to 5 years dependent on which they choose. In terms of the operating profit I think you've got that.

Yes. The operating profit it's a blend of the CapEx sales and the recurring revenue. So as we said we've got a recurring revenue of 74% in the year. That's down on the previous year. That's because there's been more hardware sales in the current year, but ultimately, there's been the growth in sales and growth in recurring revenue.

And the -- as you might expect, the subscription-type revenues that we drive from the in the recurring long-term contracts, they are higher margin than the hardware. The bottom line is we don't have to give away the hardware to generate that to extend that footprint. But if we really, really haven to, then we would but we don't have to. We make a reasonable margin on hardware and that's -- we should be able to stay in that. How much of the recurring revenue is for maintenance-type activities? And how much is for analytics?

In a nutshell, the customer gets charged the blended fee but predominantly most of it is for the insight that we provide to customers. There's very little if any maintenance around -- on the unattended retail side. And even then this is more in the hospitality sector, but it's more driven by the data analytics than anything else.

Now we have a question from Collin -- from Jeff. How do the recurring revenues for connected unattended machines compare with the other units? But I guess in unattended retail, we basically have contactless payment solution or we have a telemetry solution where there's no contactless payment required. And the contactless payment solution is probably 3x -- 2.5x, 3x the subscription price that you pay for telemetry. And obviously, pubs and bars, pubs are substantially larger than the vending machine. So it's not really comparable in that respect. How did the recurring revenues for connected unattended machines compare with the other units. I think we just had on that one. The next question is from Colin is Smart Zones being renamed as Beverage Metrics? Smart Zones is not being renamed as Beverage Metrics at this moment in time. Smart Zones increasingly will be -- would be called our hospitality division because it's all encompassing, it's about hospitality. It's not just about Smart Zones. What we have done is iDraught and SmartDraught will be increasingly known as Beverage Metrics. And within Beverage Metrics, you have an inventory module, you have a beer module, and we may have other modules in due course.

Perfect. That's great. James, Mark, Sara, thank you for that. I believe you have addressed all those questions for investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on Investor Meet Company platform but before we direct the investors to provide you with their feedback, which I know is particularly important to the company, James could I please ask you for a few closing comments.

Yes, just simply reiterate that we're in a really good place. The markets are moving in -- market drivers work in our favor. Our products are -- our products hit the market in terms of pricing and the return on investment -- and that return on investment that we give to customers will continue to drive our footprint expansion, which will drive our subscription incomes and give us the earnings and cash generation that we want. So an exciting place to be. And thank you for joining us today.

Fantastic. James, Mark, Sara, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order the Board can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Vianet Group plc, I would like to thank you for attending today's presentation, and good morning to you all.