Good morning, ladies and gentlemen, and welcome to the Oxford Metrics plc preliminary results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Please simply type in your question at any time and press send. 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, we'd like to submit the following poll, and if you give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to CEO, Imogen Moorhouse. Good morning.
Good morning, everybody, thank you for taking the time to join us today. With me is David, our CFO, who I'm sure you know well. As you probably don't know me, some of you may, I thought I'd just give a small, short background of my history with Oxford Metrics. I joined Vicon Motion Systems in January of 2001, three months before the IPO, and worked in technical sales, predominantly in the life sciences market, traveling extensively in Japan, China, Hong Kong, Korea, Australia, and New Zealand for a number of years. Then moved through various roles working with Nick Bolton, the previous CEO for 18 years, encapsulating production manager, ops manager, managing director, COO, and then in 2012, operational CEO of Vicon.
I just want to reassure everyone that the five-year plan that was announced in October of 2021, I was heavily involved in agreeing those strategies with Nick and David, and equally, in the background, involved in some of the M&A activity that we'll be covering today. That's a potted history of my background, and then moving into the joint plc Vicon role as of the 1st of October this year. In the presentation today, David will cover the financial highlights of our year, and then back to me to cover some of the progress we've made on our strategic plan, the opportunities that we see for the growth and executing on the five-year plan, and then something on the outlook for the 2024 year, and then opening it up for Q&A. Without further ado, I'll hand over to David to take you through the financial highlights. David.
Thank you, Imogen. I would also like to add my welcome to this morning's session. Firstly, the headlines moving from top left to right. Overall revenues were up 53.5% year-on-year at GBP 44.2 million. This underlying growth was near 52.4%, so not that dissimilar. As stated in the preliminary statement, adjusted for the 3.5 Million of orders carried over from FY 2022, the underlying growth year-on-year was around 26%. We are also reporting an order book of GBP 11.5 million compared with GBP 24 million last year, which reflects a normalization of customer purchasing behavior. A headline profit after tax for continued operations is reported at GBP 5.7 million, compared with a profit of GBP 3.4 million a year ago.
Moving to the second row, on an adjusted PBT basis, which excludes non-cash related items and exceptional costs, a profit of GBP 6.5 million is reported compared with GBP 2.6 million last year. A little later, I will explain the bridge between the two years in some more detail and include some insight into the first half, second half split. This all translated into an adjusted EPS of GBP 0.0457 per share, compared with GBP 0.0255 a year ago. The headline cash position as of the 30th of September 2023 was GBP 64.8 million, so slightly down due to the deployment of cash for inventory purposes and the payment of the final dividend of GBP 3.25 million. Unsurprisingly, investors often ask what we plan to do with it.
The short answer is we intend to deploy in M&A. To explain, it's worth rewinding a year or so. The cash is there as a result of the Yotta disposal, and following this, we went fishing, so to speak, in our own pond, looking for opportunities in our immediate space. Whilst there may be opportunity here, it soon became apparent that we elsewhere since the number of opportunities were limited. Imogen suggested we consider engineering, where our core technology, in other words, vision science, was being used in adjacent markets, which led us to explore businesses involved in smart manufacturing. In doing so, we identified IVS along with many other potential opportunities. The acquisition of IVS was concluded last month, which is immediately earnings enhancing. Extending the fishing analogy a little further, we are no longer fishing in a pond.
We are now fishing in an ocean where there are many more opportunities. The M&A pipeline today features smart manufacturing with the intention of building out our presence in this marketplace. Given the potential M&A opportunities we currently have, the cash will remain on the balance sheet. That said, the board are, and will continue to keep this under review. If at some point in the future we feel that M&A opportunities that does not warrant retaining the cash, the board will, at that point, make the call in terms of returning cash to shareholders. For now, the cash will stay where it is. Moving to the third row. I think I may have just dropped out.
It's just your camera, David. Do carry on, and we'll bring you back up in a moment.
Okay. Moving to the third row, a final dividend of GBP 0.0275 per share is proposed, representing a 10% increase over last year. Vicon has invested GBP 2.1 million in new IP during the year, representing around 30% of total R&D expenditure. Capitalized expenditure was down from GBP 2.8 million last year, which included the high-end Valkyrie camera. The inventory position at GBP 7.2 million was up from GBP 4.5 million last year. Given the supply chain challenges over the past few years, inventory components have around our ability to deliver on the order book. In doing so, also provides us with a hedge against any other unforeseen disruption. Going forward, the business is now bigger, inventory is likely to be higher than it was in the past.
We will be endeavoring to reduce inventory during the course of the next financial year to a more optimal level. I will now take a look at the FY 2023 trading performance in some detail, starting with revenues, which I'll look at in three ways. Firstly, historic. The record revenues reported clearly stand out, but arguably, the presentation should perhaps be smooth given the three and GBP 3.5 million of orders carried over into FY 2023. That said, the overall trajectory is clear.
Over the past 10 years, what you see here with 2022, 2023 smoothed out, is equivalent to a 9% CAGR, driven by the wider adoption of our technology across all markets and the introduction of a broader range of camera solutions. This is what we believe is background growth before getting into the exciting opportunities that lay ahead. Did you want me to reactivate my camera this end, InvestorMeet ?
You can, David, we'll have to just momentarily lose you. If you're happy, I'll refresh your browser now.
Yeah.
Thank you. Just give me one second, ladies and gentlemen. I'm just going to bring David back in, then the camera will be visible. If you just press allow there, David, we should be able to bring up both your microphone and your camera. Appreciate your patience. Thank you. There we go.
Okay. Continue to where we were. Right, you can see my office at home now. Anyway, we'll carry on. Looking at revenues the second way, geographically. The first thing to say is that we saw growth across all our geographic main markets, the mix changed slightly given particularly strong growth in North America and in Asia-Pacific. In general terms, the U.S. benefited from the largest deal in engineering, which we alluded to at the last interim, grew by 61%. Asia-Pacific continued to benefit from buoyant entertainment market, reporting a 74.8% improvement year-over-year. The third take on revenue analysis is by market segment. On the left is the reported performance and on the right, the order book. The engineering segment was up 56%, driven in part by the part shipment of the large order I just mentioned.
Other notable deals included ITESM, a Monterrey-based university who purchased a Valkyrie system for drone tracking. Another university in Arizona purchased a Valkyrie system to track Crazyflie drones, Manitoba purchased a large Valkyrie system to track UAVs in the air and robots on the ground as they develop solutions for the agricultural marketplace. In entertainment, reported revenues were up 82%. The market remains buoyant and accounts for nearly half of revenues and the order book. Notable deals this year included COVER Japan, who installed four motion capture stages to allow VTubers to capture content for their channels, a trend we mentioned this time last year. Double Negative's partnership with Dimension Studio continued with the purchase of a virtual production stage, for the use for content creation. Life sciences revenues were up 40% year-over-year, including a strong showing in the second half.
Notable deals here included the Hospital Israelita Albert Einstein, bit of a mouthful that one, now the largest GAIT lab in Brazil. The University of Padova in Italy installed a new system for high-speed analysis with the Italian Paralympic team. Elsewhere in Australia, Victoria University continued to provide gold standard testing for all of FIFA's research using Valkyrie 16 and 26 systems. In the U.S., the University of Rochester Medical Center installed multiple Valkyrie laboratories for spine and other biomedical research. Location-based entertainment reported revenues of GBP 2.5 million, 5% down compared to last year. This is not reflective of the underlying potential. As we have said before, this market has great promise. The reality is our revenue growth is reliant on the pace of customer rollout and ultimately the consumer acceptance of this exciting technology. There is evidence this is happening.
You can see for yourself by visiting sandboxvr.com. They recently announced their 45th center, and at immersivegamebox.com, you can see they have 30 more, all enabled by Vicon technology. Furthermore, Immersive also announced in October exciting news of their multimillion-pound and multi-territory collaboration agreement with Merlin Entertainments. Their press release states there is a huge potential for a significant rollout across the Merlin estate over the coming years, starting with Sydney and Oberhausen, Germany by the end of this year. Each site hosts eight freestanding game boxes, so the opportunity for us of this collaboration is significant over the coming years. Continue to watch this space. Turning to the order book. The order intake this year was GBP 31.7 million, which compared with GBP 46.9 million in FY 2022. Post-pandemic customer buying behavior changed, which definitely saw customers placing orders in advance to get in the queue.
It is fair to at least average the order intake over the past two years and arguably weight it slightly in favor of this year. Accepting this as a reasonable approximation of underlying order intake, the rate of order intake sits well with future expectations. GBP 11.5 million now represents a more acceptable level for our customers in terms of lead time, and we will be seeking to maintain the order book at around this level in broad terms going forward. Together with the current sales pipeline opportunities, the business has visibility on well over half of next year's revenue expectations, a strong position that was previously unheard of prior to the pandemic. Turning to adjusted PBT, the following bridge provides the opportunity to discuss how we achieve the GBP 6.5 million.
On the left is the GBP 2.6 million from last year, and as we move to the right, the first item is FX. As it turned out, the overall impact of this year on year was negligible. I will move on. We generated a great deal more gross margin in absolute terms by dint of more revenues, but we have seen some gross margin erosion due to the Q2 income pressure. Year- on- year, this reduced gross margin by around two and a half points, equating to around GBP 1.1 million of gross margin. We've indicated in the preliminary statement, the supply chain situation has normalized, which means that inventory is gradually being replaced at a lower cost. Together with an increase in list prices on certain products, we expect next year's gross margin to be restored to near historic normals.
From a cost-base perspective, there was an increase of around GBP 6 million, which was due to a variety of reasons. Firstly, the GBP 2.8 million investment previously announced, which is included in the five-year plan, is now fully baked in. Much of this was R&D and has been expensively taken out this year to relate to the research phase of the Markerless technology, which we can now finally talk about, having unveiled it publicly this year, and there will be a lot more on Markerless from Imogen in a few moments. The business more generally has grown, and there's been operational adds during the year to strengthen the business, and there has been some cost of living-related increases, which included a salary review, favoring lower-paid employees in the business.
Finally, given the overall performance this year, this did give rise to an increase in variable incentives, meaning commissions and bonuses. The overall apparent increase was a little second half-weighted. However, adjusting for costs incurred in the second half that are in effect related to the full year, the split of profitability between the two halves is in fact relatively even. Continuing to the right, R&D capitalization was GBP 0.7 million lower, and amortization was GBP 0.6 million higher, all largely due to Valkyrie amortization following a high year of capitalization last year. The final piece of the reconciliation is interest received, which adds GBP 1.6 million to complete the bridge, to the reported adjusted PBT of GBP 6.5 million.
In summary from me, a record revenue performance of GBP 44.2 million delivered an adjusted profit of GBP 6.5 million, and we have an order book of GBP 11.5 million, which coupled with current sales pipeline means we already have visibility on over half of next year's expected revenues. In light of this performance, the board are recommending a final dividend of GBP 0.0275 per share, and the strong balance sheet underpinned by the GBP 64.8 million in cash means the business is in good shape and well prepared for exciting times ahead. Back to you.
Thank you, David. Okay. Let's move to the strategic progress area of the presentation. Firstly, just a recap of the company that delivered that GBP 44.2 million and what Vicon actually does. The five-year plan announced in October of 2021 is to return 2.5x revenue, with an adjusted profit before tax of 15% margin with an organic and inorganic investment. At the time the plan was announced, Yotta was still within the group. Vicon's contribution to that was the investment that was sought by myself to develop Markerless technology, the GBP 2.8 million. That was my sort of contribution to that as the Vicon organic play, but also identifying companies in the pond that David talked about that we may wish to look at in terms of competitors, technical partners, third-party item manufacturers, and so forth.
Just to restate, that is where we would like to exit 2026, and there'll be a little bit more granularity in this presentation as to how we intend to do this. Firstly, Vicon, a 39-year-old business. Could you please play the video? Vicon is in 3D motion capture of humans, animals, and objects. We own all our IP. It's all in-house developed, including the cameras, embedded software, and analysis of that software. We serve four main markets in order of history. Life sciences was the bedrock market for the business. In the mid 1990s, the visual effects industry started to adopt motion capture in terms of CG, computer graphics. In the early 2000s, the engineering market came along where in a lot of cases the markers are being attached to objects, not to people.
Finally, the location-based entertainment market, which started to emerge in 2017, 2018. Next slide, please. Could we play the video here? This is just a snapshot of some of the customers that use Vicon technology. This is the LeBron James Center at Nike in the United States. At the time, our largest life sciences deal we'd ever done as a business in 2019. The entire center is outfitted with Vicon tech for athlete rehab and performance, sports shoe and apparel design, and testing. Moving to a pandemic-grown industry in visual effects, which was in-camera visual effects for virtual production. Nobody could travel, so you needed to bring the set to the lot. In order to make the production, you needed to be able to track the hero broadcast camera and bring all of this technology together.
The Vicon tech is looking at the crown sitting on top of that camera. In games, triple A games, Vicon enjoys the top 20 companies in the world as customers. This is Ubisoft in Canada shooting for Assassin's Creed. Lots of people in dark suits wearing markers, running around in front of cameras. This is NASA, the Ingenuity helicopter design and test with the Mars Rover as well. Again, you can see here markers attached to objects, not to people. This is being used to turn an object to become autonomous, where you need to train the control systems, so it become untethered as it is in this design phase to the Ingenuity helicopter on Mars. Location-based entertainment.
This is the Gamebox that if you were at the Capital Markets Day in October of 2021, you would have been in these Gameboxes having fun with your colleagues and friends. That's the four main markets for Vicon. Next slide, please. Here's a snapshot of some of the customers we can talk to you about from the Vicon perspective. Moving on to the more exciting growth perspectives for Vicon. David explained the snapshot growth in marker-based tech, and that's around 9%. In order for Vicon to address the organic growth play of Oxford Metrics 2021 to 2026 strategy, we needed to break out of that CAGR. This is the investment in the Markerless technology and why this is exciting. Markerless technology and Markerless tracking is emerging as an adjacent tracker to marker-based.
It is not competitive in terms of the way that we feel. It is another tracking modality that is an add to marker-based. Markerless tracking is at its beginnings. Its precision and accuracy are nowhere near that of marker-based. In certain markets and in certain use cases, Markerless is in a good enough state to be used. What you see here is the CTO of Vicon, Mark Finch, being tracked without any special black suit or wearing any markers at all on a show floor in August of 2023 at SIGGRAPH, which is a computer graphic show in Los Angeles. Behind him is his Ken doll avatar, which we just happened to have at the same time as the movie came out. He's talking the audience through the Markerless technology and how it works.
We spent a long time working on this technology in terms of R&D. We started actually four years ago with a very small seed team prior to the larger investment from Oxford Metrics. The reason we needed that investment is the people and the brains that make this type of technology are not the same disciplines as those that make marker-based. This is a machine learning problem, an AI problem to solve, and it's a different discipline. We've had to hire an entire team to come in to accelerate the development of this. The way to think about the machine learning aspects of this is, this is a system that needs to be trained to understand what it's looking at.
In a marker-based system, you simply put the markers on, tell the system that the marker is on the left shoulder, and it knows that's the left shoulder. How does this system know where Mark's left shoulder is if there's no marker? Well, it needs to understand, I'm looking at a human being stood up, moving their arms about. You train it. The way to think about this training. Most people now are quite familiar with ChatGPT and large language models, which uses the internet and text to train itself. What we are building at Vicon is a large vision model.
We are ingesting data, both real and synthetic data, but this is data of movement of vision, so that we can grow and train our system to understand more movements, types of movements, but also to improve the accuracy of the underlying modeling and solving of this. This is a proprietary model. This is not an open source model as LLMs tend to be. We are building that, and that requires us to work very closely with our customers, as well as our R&D team. The way that we will gain this data and move forward with this is via a cloud infrastructure. This system is a training system, so it needs to learn, get better, and push the improvements back out to our customer base, and that will be done via the cloud.
As soon as there's a cloud infrastructure in place, then we have the opportunity to discuss alternate commercial models with our client base. Vicon, to this point, is a very CapEx-related market, but we feel that there is a play in certain markets and certain use cases for an OpEx subscription style model of the software elements of this solution to improve the revenue visibility and quality of Oxford Metrics software. We're very excited about this, and behind Mark was a location-based entertainment experience that we implemented with our partner, Dreamscape Immersive. What we wanted to test here was, is our Markerless technology good enough for the LBE experience?
The reason that Dreamscape wanted to move to Markerless is during the pandemic, the economic model of the previous tech stack they were using, which involved markers, proved not to be scalable on the size and scale that they wished to do. We actually worked with Dreamscape, quite a lot during COVID, to develop this solution specifically for their LBE experience. When we went to the show, we had two tests. Mark walking around being tracked as a 3D avatar, perhaps in a visual effects environment, and then behind him, the Dreamscape pod putting six people through at a time in their normal clothes, just wearing a headset and enjoying "The Clockwork Forest" experience.
I'm pleased to say that in all cases, that we exceeded our expectation on our KPIs, putting over 250 people through the experience, with only one person who didn't calibrate because they were wearing some interesting clothes. What we did was we just picked the skirt up a bit so that our calibration could see the feet, and off we went. It was all fine. She was wearing a hoodie and a skirt down to the floor, which we hadn't considered was a fashion statement and hadn't trained our solution to be able to see that, so it didn't see it until we showed the feet. All good there. We've got the opportunity here with the Markerless base to sell to our existing client base.
We have 10,000 customers, and we know very well in a lot of cases, they will buy the technique and add it to their marker-based solution. We have the sales, marketing, and distribution power to go after that customer base very simply. Because we got such a strong positive market reaction and technically everything worked very well at SIGGRAPH, we have now a fairly aggressive timeline to commercialize Markerless within fiscal year 2024, with some modest revenue expectations, but as a real growth driver for fiscal year 2025.
Now I'd like the people that went through the Dreamscape experience to tell you what they thought. These are industry professional mocap people. They understand good tracking, not consumer levels. What we did was we filmed quite a few people coming out of the Dreamscape experience and asked them what they thought. If you could play the next video with sound, these guys can hear that.
One of the things that we have to go through doing motion capture is we have to take all the time to put on all the marker suits, and it's a long process. I think both from the experience aspect and from the technical aspect, this is very promising, and I look forward to whatever development Vicon is going to bring to us.
The experience was great. I was really impressed to see six people all in the stage all at the same time, especially using Markerless. We have a Vicon system at my studio, we've been hearing a lot of rumors about Vicon developing their own Markerless system, it was awesome to get really one of the first chances to see it and test it myself.
I think they did a great job in the narrative of trying to utilize such a small space to make you feel like you have gone a great distance. Utilizing the trick of shrinking you and making the place feel more expansive, I think was a great use of the space. It was a really cool experience. It feels like this is where experiences are headed.
I've been coming to SIGGRAPH on and off since 1996. I was here almost every single SIGGRAPH in 2000. This is the best thing I've ever seen at SIGGRAPH. Hands down. Ever. It's an incredible experience.
Okay, next slide, please. Great. Thanks. Now I'd like to turn to our recent acquisition, Industrial Vision Systems. As David explained, we were looking within the Vicon area. Unfortunately, there was nothing in that area that was of ultimately we could get over the line or passed our metrics in terms of acquisition. Looking at IVS, this is in smart manufacturing. IVS use cameras. They use embedded software and software to solve a different vision problem to Vicon. That's the way to think about it in a kind of an adjacent market in engineering and smart manufacturing. The way to think about the previous customer slide of Vicon's with IVS is if we had a mutual customer, the Vicon system would be in the R&D lab, and the IVS systems would be out on the shop floor on the production lines.
What IVS do is they use smart vision machine learning and deep learning to inspect parts that are being manufactured. They do that in markets that are highly regulated, that require high levels of compliance, such as pharmaceuticals, medical devices, contact lens inspection, automotive, and so forth. The picture that you see there is a syringe inspection system. The arm pulls the syringes into the drum, which spins. The red cameras that you can see are the IVS cameras, which are taking and inspecting those syringes for manufacturing defects, flaws, cracks, debris, and dirt. Obviously, in these sort of environments, you must have it 100% right first time. Those sort of fault parts cannot leave the factory. You can see some of the marquee names of customers that they have in that slide too.
I'd like to highlight in Johnson & Johnson, particularly in contact lens inspection. Contact lens is a very large market indeed. In fact, Johnson & Johnson's largest market is in Japan. The latest IVS machine is going to be shipped out to Japan. It's used for cosmetic lens inspection, not for prescription, because of the changing the color of the eyes for cosmetic reasons, which can be interesting. Next slide, please, and the video would be great. I always like to show, not tell. This is an automotive inspection cell using IVS technology, this is a dimensional tolerancing question and manufacturing defects. The two IVS cameras you can see are on the robot arms.
They're inspecting the device or the part, and they're taking multiple images and comparing those images against the CAD, the computer-aided design, library photo shots, and other devices, other data sources to ensure that this part is compliant. I want to go back to the markets that they're kind of serving in terms of their size at this point, as well as this video plays through. Contact lens market was valued at GBP 14.6 billion in 2021 and has a CAGR of 5.5%. Medical devices, syringes, GBP 1.33 billion with a CAGR of 8.8%. Paracetamol and packaging of GBP 9.8 billion market. Then total knee replacement parts, if you recall the previous slide, there was a Stryker was on there, a very large orthopedic company.
IVS make a dimensional tolerancing inspection system for them for parts used in total knee replacement, which is one of the largest growing operations worldwide, with over a million being conducted in the U.S. alone. Next slide, please. Okay. IVS are conducting themselves in some very large market sizes compared to perhaps motion capture. We know very well that by furthering execution commercially of them rather than their products, which are excellent, we can grow them very successfully. Next slide, please.
We do have the video uploaded if you wish to play that.
Okay. Yeah, great
Happy for us to.
Have the video. I can then give you a little bit of the technology play on this one as well. This is a little bit of a technology of the future for IVS. This is the advanced manufacturing center, and it's a factories of the future concept of a technician working collaboratively with a robot, which is quite topical. Equally, this guy is wearing a pair of HoloLens glasses which are instructing him of what to do. Pick, place, assemble, where to put the part, where to put it onto the bench, and then the bench is also checking he's done it correctly. It's a complete closed loop. He's working with a robot here, and this robot, he has to be safe working with that robot. It's very important that he is.
I can imagine a Vicon Markerless system around this bench, making sure that the robot arm and the human arm never come into conflict, because we know who would win in that situation. This is a real lowering the bar to entry for technician training, factories of the future, smart workbench concept, which we think is a very exciting potential growth area for the part in smart manufacturing. Okay, great. Thanks. Next slide, please. Okay, I'll take back over. This is really how we intend to execute on the 2026 plan. We will hunt and farm better in our marker-based tech stack, that's the Vicon business as you know it today, by focusing on sales, marketing, and product activities. We are taking as many of the modern principles of SaaS businesses, such as customer success, sales enablement, lead gen, lead nurturing, and applying those to Vicon.
If we consider the SAM, system or solution addressable market for Vicon is probably GBP 120 million-GBP 150 million. We've still got a lot to go in terms of growing that from the GBP 44 million that we enjoyed in the previous year. We want to commercialize the markerless opportunities. You can see, if we sell that to most of our existing customers, we can reinvigorate the Dreamscape partnership and others with the markerless tech stack. Equally, over time, talk to use cases where markers could never have been worn, which has always been a barrier in certain market conditions. Getting slightly further down the line as the software becomes more mature, the possibility of detaching the software from the Vicon hardware and deploying it into existing video infrastructures, perhaps in shopping malls, airports, hospitals, care homes, et cetera. We will execute on the smart manufacturing.
It makes sense. We bought IVS to build in and around that. There are more companies out there that we're having active conversations within that space. Equally develop them by commercial focus for them. They've been slightly less commercially focused in the past. With Oxford Metrics to support them, we will develop their sales activities as a matter of urgency. In power up, we'll consider other things that help accelerate the other three. It's not a disparate strategy play. It needs to make sense in terms of synergies it needs to pull in. Perhaps an acquisition that maybe doesn't currently meet our current metrics, and David and I would have a long conversation about that.
If there was a path to profitability, it was something that we felt it was the right thing to do, we would consider it. What I'm really saying there is we're open to other opportunities. We'll talk about some of the potential targets in that in a couple of slides' time. We must grow this group in a synergistic way. We mustn't overload it with costs where we don't need to. We need to grow and execute and scale sensibly, keeping a firm eye on that profit line. The smart manufacturing, we want to keep this sense, analyze, apply philosophy behind what we're looking at. On the right-hand side, the clearly stated metrics we've always said about our acquisitions, well, power up aside, earnings accretive, IVS tick that box. The able management teams who, they are staying with the business.
They want to see it grow and scale. They're excited about being part of that story. We must be able to buy at a fair price and scale using technical commercial synergies. The power up, some ideas on the right-hand side, the collaborative robots and VR in Industry four. VR is in Vicon land. There's no reason why it can't be in smart manufacturing. There's other measurement techniques out there, laser, X-ray, haptics, and so forth, that we will continue to consider. They all come with related analysis softwares, and obviously those that have perhaps an AR element will be equally attractive. GPU compression is a markerless play in its entirety about handling video sensibly and efficiently. Both businesses have deep learning and AI in their solutions.
We will continue to keep an eye on companies and products in that space, both from an opportunity and threat perspective. Excuse me. We enter 2021. This is with the Yotta number backed out of it, with GBP 27.5 million coming from the Vicon motion capture industry. We exit 2026, building that up to around GBP 52 million, building a Markerless arm to the business of around GBP 8 million, and we'll see what mix of revenue that we can apply to that as we get further down the commercial negotiations on that. Building smart manufacturing arm of around GBP 10 million. If we consider IVS as about GBP 3.5 Million turnover, then some more acquisitions and growth in that play means that that should be entirely doable. That's the conclusion, the main part of the presentation.
In terms of outlook, just to reiterate some things that David said, we have very good visibility of over half the revenues that we need to execute on in fiscal year 2024. We begin the commercialization of Markerless, working first of all with Dreamscape Immersive on a beta program, followed by visual effects customers very close behind. We'll continue to seek the right acquisitions for the right reasons at the right price, and we are well capitalized to work on this smart sensing opportunity, which is the Oxford Metrics group philosophy. Thank you very much for your attention. That concludes the presentation, and we will take any questions now.
That's great. Imogen, David, thank you once again for updating investors. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right-hand corner of your screen. Just while Imogen and David take a few moments to review those questions submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the Q&A and the published recording, will be available via your investing company dashboard. Imogen, David, as you can see, you've had a number of questions from investors, during today's presentation, as well as a few that were pre-submitted that I think you've touched upon during your presentation. If I may just hand back to you just to read out those questions and give a response where it's appropriate to do so, I'll pick up from you at the end.
Sure. I think there's a fair number of questions or comments in and around how we assess M&A, David. Do you want to cover that off?
Yeah. Shall I just cover off some of the pre-submitted questions very, very quick?
Yeah. Sure.
Somewhere out there, somebody out there actually made a comparison of Vicon today with Vicon back in 2019, commenting why the operating margin had fallen four years and what the forecast going forward. I think, the answer is really very simple this year. Firstly, the investment in the five-year plan, which was GBP 2.8 million, is fully baked into this year's profit and loss account, which wasn't there four years ago. We have seen gross margin erosion. I've spoken about that in relation to this year. It's also relevant compared to 2019, when actually we had a gross margin of 74% in that year, which I think is probably the high. In terms of outlook, as we said, the gross margin next year, combination of improved cost of goods and list price increases.
In terms of the outlook going forward, we are building out a dedicated Markerless facility in Oxford this year. Other than that, there are no other major changes to the cost base anticipated in the year ahead. Someone also commented why net cash had fallen. I think I've covered that. We increased inventory to protect ourselves against supply chain disruption and so forth. We obviously paid a dividend, and the reader of the accounts will probably also notice AR was a little higher, but that was really purely down to the trading pattern that we saw during the course of the year. Overall, the cash did generate business at an operating level. Moving on really into the sort of M&A area. Somebody asked, could you give us an update on M&A activity and are valuations coming down?
I think the first point I kind of covered in terms of where we're now looking for acquisition opportunities. In relation to valuations, yes, there is evidence that they are coming down to more sensible levels. Historically, we do try and tend to avoid auction situations, especially where private equity might be in the mix. A few years ago, we simply couldn't compete with their very, very deep pockets. Where we're looking now, we believe we are actually probably under the radar, to a large extent. We tend to approach private owner founder businesses. We seek to establish a relationship with the vendors that leads to a period of exclusivity. In fact, IVS is a perfect example of that led to the acquisition at an attractive multiple. There are some other questions M&A related in the list. Let's see.
Criteria.
Yeah. The criteria. Christopher T. asked what key criteria do you look for when looking at M&A? Well, the new focus is very much smart manufacturing, we're obviously looking for a technical read across so that in time there will be technological synergies and so forth. I think for me, the golden rule, the deals need to be price earnings enhancing. If they're not, we would have to be convinced that that was gonna happen very, very soon afterwards. What else we got? Do you wanna do a few questions, Imogen, whilst I review the other questions?
Yeah, sure. There's a little bit in and around competitors and IVS and things like that. Well, just they asked them that question, they kind of said, well, when we get spec'd in, none. It's very much a technical spec play. They get spec'd in by J&J or whoever it is, then once they're in, that's it. They tend to be the incumbent technology or they seek to replace existing. There's so many companies in this space globally, they do, at the present time, focus very much on the U.K. and Ireland geographical markets. Some of their competitors are similar size, some of their competitors are billion-dollar corporations, famous names, they don't have the same solutions as IVS does.
In the Markerless space, well, there's lots of emerging products, possibly is a loose enough term, technologies in Markerless, quite a lot of them addressing consumer B2C, people who are making content for their own channels, very simplistic animations. Less so in the top end. Animators are very keen about the quality of the work that they produce. It's very important. At the area in where we are currently dealing, we don't currently see much competition. The prioritization of getting our solution out there is clear, but we keep an eye on all activity in that space.
How will AI and ML affect Oxford Metrics's business? Well, it's going to grow it because we've got it in all our solutions. We do keep a very clear eye on opportunity and threat in that space as well. There's a question around fair price in smart manufacturing space in terms of multiples, David.
Yeah, I'm just looking at that one. I expect obviously, we seek to acquire at multiples lower than our own. In the case of IVS, for example, the multiple there was around 10, I think, of adjusted PBT. That's what a fair price looks like, and if it's that's great. Other question somebody asked, would we use debt for M&A purposes? Well, yes, we are. Given the cash balance quite a way off. Somebody also asked, why was the interest received so tiny? Well, I would argue that GBP 1.6 million isn't tiny, but over the past year or so, I should say, when tranches of cash came up for deposit, I normally opt for the best rate I could get for the longest period whilst being mindful of actually when we might need the cash.
On a pure percentage basis, what we're earning at the moment is lagging what you might expect. Of course, if interest rates begin to decline in the future, we'll be ahead of the game in terms of interest that we're earning. There is some cash regarding the business working capital purposes. Close that. Answered. There's a question here from Stephen R. about can you give us target hopes for revenues in the current year? I think you've covered that because we obviously our analysts. There is a research note available at oxfordmetrics.com to give you a bit of a steer. Ultimately, our focus is on achieving the GBP 70 million and 15% return by the end of the five-year plan.
Agreed.
if you want a little bit more information, have a look at the note that is available on the website. Yeah. Someone, George O., has asked about target inventory days, any kind of ballpark figure that might be available. I think it's slightly awkward to answer because even, not just today, but always, there are certain critical components in the camera at the center, for example, which we have to carry strategically. That is always going to mean the inventory is going to be a bit on the higher side. I'm just doing a, literally, I'm doing a live calculation here. Yeah, our stock turn at the moment then is around four times. Let's just say we're seeking to the year ahead, and I would hope that we could probably release GBP 1 million to GBP 1.5 million inventory over the next 12 months.
Is there any geographic preference in M&A opportunities? Well, I think it's always good if they're on your doorstep. IVS is obviously quite near to us. We are an international business with offices in the U.S. and New Zealand and elsewhere. I don't think there is. I think if we found an IVS type business, in Germany, for example, there'd be no reason why we wouldn't want to execute against that. I think overall, the answer is probably no, there isn't a geographic preference. Then Gerard O. commented that the GBP 10 million turnover for smart manufacturing in 2026 seems too low, given your ambitions. Well, it is a goal, isn't it, Imo? Clearly, we're hoping to deploy cash for M&A purposes. Yeah, hopefully there'll be a good opportunity to exceed that number in the future.
Main competitors. Do any of these have Markerless technology? Our main competitors in Vicon is OptiTrack, who are owned ultimately by the Chinese, and Qualisys, who are a Swedish business. In all cases, they've partnered with other people on Markerless to this point. One might suspect everyone's working on it because if they're not, that's probably a misstep. No signs of their own homegrown solution yet. Given the level of investment required to build the Markerless team that we've got at Vicon, and that was my third attempt to get the money. It's a different set of disciplines, and you've got to be able to accept a number of years of research before the product comes out. Fortunately, Oxford Metrics board was supportive of that. Average time from clients showing an interest in your technology to an order being received.
The record is 15 years to close an order. That was a long time ago with a hospital in the U.K. We've closed deals in less than a month and everything in between. That's just the nature of the beast. Vicon market share, I'd say we're probably half of the marker-based tech stack. Margins from Markerless and smart manufacturing clearly needs to fit the targets of the group. I think we've covered most of them. Hopefully the same and different from Nick's strategies. I've hopefully answered that one. Cash prudent to keep in hand after making acquisitions. Maybe we'll answer that one later. Anything else, David, you want to cover?
I didn't realize I was on mute. On the margins question, there's two separate questions there, really. Smart manufacturing, if we look at IVS, they obviously look very much like Vicon in terms of their business model, their gross margins, their deal sizes, and so forth. I think the real opportunity ultimately will be Markerless. Given that is a cloud-based solution and the opportunity to charge customers on a subscription basis will mean there will be an underlying improvement in gross margins at that level. It will all depend on the mix, and I think you may have already said, Imo, that obviously we wait to see exactly how that's going to bake out in the future. Hopefully it should be good news.
Great.
I think.
I think if I may jump in there, Imogen, David, for every question you seem to answer, there's another two or three that come at you. I think just in the interest of time, we'll make any further questions available to you post today's meeting, and we can always add responses there if it's appropriate to do so.
Okay. Yeah.
Imogen, David, I know investor feedback will be particularly important to you both, and I'll shortly redirect those on the call to give you their feedback. I wonder before doing so, if I may, Imogen, just come back to you just for a couple of closing comments, and then, as I say, I'll redirect investors for their thoughts.
Okay. Thank you very much for attending today. I hope you found it interesting, and we'd be certainly happy to answer any future questions. I'll just also mention that there will be a capital markets day for Oxford Metrics sometime in April of 2024. Thank you.
That's great. Imogen, David, thank you once again for updating investors this morning. Could I please ask investors not to close this session, as we'll now automatically redirect you to the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Oxford Metrics PLC, we'd like to thank you for attending today's presentation and wish you all a very pleasant morning. Thank you.