Good morning, everyone. Welcome to the presentation on our annual report for FY 2024. Hopefully, you know both myself and Nick, the CEO, and Nick is the CFO. We're not going to go through all of the background on Microlise, given that we're now in year four, and hopefully you know what we do and how we operate by now. All of those slides are in the appendix to this presentation, which I think you'll have a copy of later. The highlights for 2024: revenue was up 13% to GBP 81 million. Our adjusted recurring revenue was at 54.7%, up 21%. EBITDA was up 20% to GBP 11.3 million. Annual recurring revenue is GBP 56.6 million, up 19%. We had a big increase in subscriptions, and our churn rates remained really low at 0.7%.
Cash was at 11.4%, down again, mainly through the acquisition that we did of ESS at the beginning of 2024 in January. Some of the operational highlights: we obviously completed our fourth acquisition with ESS, which we are really pleased with because we have managed to cross-sell the TMS solutions that we acquired through ESS and Vita to quite a few existing customers. We have also managed to get a lot of new wins with those TMS solutions as well. We have a new Chief Revenue Officer who joined us in August. We have a number of enhancements to our go-to-market strategy, which, as we are nearing the end of Q1 in 2025, we are very pleased with. We are seeing some great improvements in our order book because of that. Overall, in 2024, we gained 375 new customers, again, mainly in the mid-market.
That's the 100 to 500-vehicle fleet segment. We also renewed our contract with JCB, our largest customer. That goes all the way through to 2029 now. We have over 50 other significant contract renewals that we did in 2024 as well. Overall, EBITDA was ahead of market expectations, and we continue to grow both in the U.K. and internationally. Some of the wins in international markets were STEF in France, a fairly well-known brand name over there, and Foodstuffs South Island, which is one of the largest retailers in New Zealand. Excuse me. Probably worth mentioning the cybersecurity incident that we reported on at the end of October and that impacted us during November. We're pleased to say that we actually didn't lose any customers because of that. Our sales pipeline is ahead of pre-incident levels.
Our security and spending for 2025 has increased by about GBP 350,000 above what we had already planned for 2025. Service credits and any customer claims are being handled by our insurers, and we're working with them closely to cover all of those. I'm just going to ask Nick to explain some of the adjustments and cover off what's going on there.
Thank you, Nadeem. Yeah, so in terms of the reported numbers, we are going to report on the underlying numbers throughout the rest of this report, but I just wanted to kind of make clear that the statutory accounts do include a couple of adjustments. The first one is that there's a GBP 1.5 million reduction to revenue. Reported group revenue is GBP 79.5 million against the underlying of GBP 81 million. There is an impact of GBP 4.4 million to the EBITDA line, which includes that GBP 1.5 million. In addition to the GBP 1.5 million, there are some provisions that we've put in for customer claims of around GBP 2.5 million. We've also got a number of costs that we've incurred as part of the recovery. That will include professional services, obviously forensics works, internal overtime, etc.
We are expecting to recover all of those in full, with the exception of the excess that we'll have to pay. We are currently working with our legal partners and insurers with managing those claims from the customers and recovering any costs. Just to point out again, for the purposes of the presentation, we will be talking about the underlying numbers before these adjustments have been made. The reported P&L is in the back of the appendices for your reference if needed.
Yeah. I think it's important to emphasize that we do expect all of these adjustments to be netted out because all the claims will be covered by our insurance. There will be a follow-on adjustment through 2025 to essentially net all this lot out as well. We will report on that at the appropriate time. Some of the things that we're investing in, we launched our integrated product suite called Microlise One. That was launched last week at our annual conference. It's bringing together all of the products that we've acquired and all the products that we've built internally to provide a suite that customers can use across their entire operation. As you may recall, not everybody buys everything from us on day one. We tend to generally sell a portion of our suite and then expand that footprint with our customers over time.
This is part of our strategy to provide a much bigger, seamless solution that, again, customers can buy modules from over a period of time, and that builds an overall suite that covers their entire operation. Of course, we're continuing to invest in security. We're also doing quite a lot with AI and machine learning in several of our products. We've been developing AI solutions for about five years. It already exists in a number of our products. Of course, with recent advancements, that's expanding into more of our products. We're also continuing on with our strategy of providing more support for third-party hardware as well as our own. Last year, we launched solutions with other temperature monitoring companies. We've added several camera solutions to our portfolio, and that's going to be carrying on and expanding throughout 2025 as well.
I'm going to hand across to Nick now to cover some more of the financial details.
Thanks, Nadeem. This financial overview slide, I'm not going to go through each metric individually, but I think what this does kind of show is that the key metrics are all increasing positively year on year. That is consistently good, strong performance that we're seeing from the group on an ongoing basis. I'll comment on the specific ones as I go through the following slides. Nadeem, if you just move on to the next slide for me, please. This is a slide that we shared before. This is our overall revenue line. It is split into the main constituent parts of our revenue, which are recurring revenue, which is currently at GBP 54.7 million. That is an increase of 21% on the year, which is obviously driven by partially because of the acquisition of ESS.
We've also seen benefits from rolling out a lot of the big wins that we've had at the back end of 2023 and also within 2024. Things like BCA, McCulla, LF&E, etc. We're really pleased with how that's gone. Obviously, particularly strong growth this year. The other section is hardware. That's currently at GBP 19.4 million. That has actually decreased in the period, and that is really due to the anticipated slowdown in the OEM market. That's been impacted by automotive market conditions along with construction market conditions. We did see a slight increase year on year from that perspective. What we are pleased to report is that we have seen really strong sales with direct customers. We have seen strong sales in Australia and France, particularly Australia because of the Woolworths rollout.
What that's actually done is obviously drive a real favorable mix that we'll see when we go on to the P&L in more detail. Our hardware margins have increased year on year. The final section is the services. The services tend to be split into two, two main constituent parts, which is professional services in relation to project management, customer success. There could be integration work in there, etc. We've also got some installation revenue in there as well. They have both increased year on year, really a result of increased work that we're doing with the likes of JCB, but also the installation revenue tends to be linked with direct customers rather than OEMs.
We have seen an increase in that revenue stream as well as we've continued to roll out these large deals and the contract wins that we've had through the year in the back end of last year. Just move on to the next slide, please, Nadeem. Margin enhancement is something that we are putting an awful lot of management focus into. We're very committed to increasing both our gross margins and our EBITDA margins. As you will see in the graph on the right-hand side, our EBITDA margin has grown from 13.2%- 14% in 2024. Our gross margins have increased from 61%- 66% in the year. We are seeing positive movement there. There is still a long way to go. I've listed out some of the things and the initiatives that we're looking at to drive that margin increase moving forwards.
Just to call out a few things is, obviously, we're focusing very, very significantly on direct sales. As Nadeem mentioned, we have a new CRO. Our go-to-market strategy has been refined and is paying dividends already. We've seen very, very good order intake in Q1. That in itself, with direct customer sales being higher margin than OEM sales, will in turn just drop straight through into gross margin and EBITDA. We're doing a lot of work in terms of hardware product enhancements and engineering redesign to take cost out of products. We're also focusing a lot of effort in terms of integration with third-party hardware solutions. We've previously reported success with the likes of Lytx, where we've rolled a significant amount of AI-related cameras out to our Australian customers.
Effectively, what that means is that with these integrations, it removes a barrier to entry when we're in a tendering position that, obviously, if a customer has to shell out a load of CapEx, then obviously that makes the approval process a little more difficult. If we've got these key integrations in place, then that obviously helps us to integrate to the existing hardware and obviously opens up the market to us considerably. We have done a number of hardware integrations throughout the last 12 months, and there's more on the roadmap as well. Obviously, the software sales in relation to the TMS, new acquisitions. You may recall the product suite and the main seven pillars of products that we've got. The TMS and plan optimization software solutions are much higher in terms of monthly subscriptions. Obviously, that will naturally just drop through into margins.
In addition to that, they tend to be software-only sales as well. It also provides a positive revenue and margin mix from that perspective. The final two points are kind of pulling together in the respect that we are doing an awful lot of activities internally around taking cost out of the business. That is, again, relating to sort of redesign of hardware to make the solution more homogenized. There is not so much variation, which helps us to roll out projects quicker. There are lots of things that we are doing in terms of leveraging internal business systems to reduce manual inputs into processes and increase automation. The other kind of main point is, and we will see this in a moment, is around the cost reductions for our hosting environments. Particularly, this will be in relation to ESS. Their hosting solution is on a customer-by-customer basis.
It's bespoke for each customer. So it's not scalable. It's very expensive. There is a significant opportunity for us to transition away from that and bring the ESS customers into the Microlise hosted solution, which is work that we've embarked on and that we'll be working throughout the rest of 2025. If you can just move down to the next slide, please, Nadeem. This is the adjusted profit and loss. The adjusted revenue for the period is 12.9% year-on-year growth. Adjusted gross margin has grown 23%. We're pleased to be able to report increases in both gross margins for non-recurring and recurring. Non-recurring margins has increased around sort of 8%. Recurring margins, not as much. It's probably around 1%, which is, I mean, there's been a lot of work that's been done internally.
As I previously mentioned, the hosting solution that ESS has brought with it has obviously impacted that and netted that down somewhat. Like I say, there is significant opportunity to drive that moving forwards. Operating expenses have moved up 22% to GBP 43 million. The main increases in there are employment costs. We have obviously inherited a workforce with ESS, but we have also continued to invest in a number of key areas, including our graduate program. That covers many areas of our functional areas in our business, like development, product, operations, etc. We are also continuing to invest in our sales and marketing team. That is something that we did in 2024 that we will continue to do in 2025 as well. The other main point to call out on operating expenses is an increase in legal, professional, and IT costs.
We continue to invest in our security posture, with around another GBP 400,000 in the year going into that. We have also increased our software subscriptions with a number of other business solutions such as Salesforce and ServiceNow. That is to support the aforementioned initiative to really drive out the increase in efficiencies and reduce the requirement for manual processes or people to do jobs that we could actually automate. What that has meant is that our EBITDA has increased 20% to GBP 11.3 million. As I mentioned previously, the EBITDA percentage has increased from 13.2% to 14% in the year. I think the final point just to raise on this slide is that our depreciation and amortization charges have increased in the period, which is really down to the effect that we are seeing now of the capitalisation that we have done since we have listed.
That's starting to kind of wash through, and that should kind of plateau off over the next year or two. We've also seen an increase in amortization relating to the IFRS 3 business combinations, which is essentially the acquisition of ESS. If you could just move on to the next slide, please, Nadeem. From a cash flow perspective, cash flow conversion remains very strong at 91%. Adjusted cash flow from operations has increased 12%. CapEx on PPE has reduced in the year from GBP 2.1 million to GBP 1.4 million. The main factor driving that reduction is the cyber attack in the respect that a lot of our planned programs of improvement around the data centres was put on hold in Q4 for obvious reasons as we focused our efforts on the restoration and making sure that the cyber incident was dealt with thoroughly.
Key areas of spend from an M&A point of view, there's GBP 7.1 million, which relates to ESS. There is the deferred consideration for the Vita acquisition that we made back in March 2023. We also paid our maiden dividend in the year of GBP 2 million, and we've paid an interim dividend of GBP 700,000 back in November 2024. The final point is just to kind of call out that we have got a very positive cash balance, GBP 11.4 million, but we still have an undrawn facility of GBP 30 million with HSBC. That gives us a significant amount of capital to be able to deploy, particularly when we're looking at M&A activity. Thank you, Nadeem.
Thanks. Just covering off where we are and what we're seeing, market conditions, both externally and internally.
Externally, in the logistics space, we've continued to see consolidation, which again helps drive structural growth within our customer base. There's a greater drive for utilization and efficiency. The emissions and sustainability seems to be being put on the shelf at the moment as a lot of customers focus on delivering profits in what's quite a challenging economic environment for them. Both of those things are good news for us because they continue to buy our software to help them drive those efficiencies. In terms of our internal conditions, we're seeing minor supply chain issues, nothing significant, a few long lead time items on some electronic components and some IT equipment. Other than that, no real issues as far as supply chain is concerned. Of course, hiring the right talent, particularly in certain tech roles, continues to be a challenge.
Hence, we're investing more internally through training and bootcamps, etc., to develop a lot of those skills internally. We wanted to give you a bit of a case study on how some of our customers grow with us. Obviously, we've got a quite large product set. As I said, nobody buys all of it on day one. They tend to buy things that are solutions that are relevant to the problem that they're trying to solve at that point in time. We have a dedicated team of sales and account managers who go in and upsell additional products and services over a period of time. This is one example, LF&E, which became a customer in 2023. They bought a couple of our products originally and were focused on temperature monitoring.
In 2024, we helped them by introducing solutions for driver license checking and for compliance through tachograph analysis. In 2025, we're looking to expand that further with more additional software products. The fleet has grown. It's now about 400 vehicles. As the company has grown in its niche of transporting temperature-controlled goods and pharmaceutical and medical, we've grown with them. We've seen structural growth as well as products and services growth. Overall, since 2023, we've seen a 450% growth in revenue with them. It gives you an idea about how our strategy works with landing within a customer and then expanding that share of wallet over a period of time, usually several years. We're obviously continuing on our growth strategy where we're focusing on existing customer growth, new customer wins, and of course, M&A.
On the existing customer growth front, we're really pleased with success that we've had in cross-selling our newly acquired TMS solutions into existing customers. Our third-party hardware integrations are also helping us to expand our footprint in some existing customers and also reduce barriers in terms of acquiring new customers as well. We're still reporting that if everybody bought all of our product solutions, we'd see our recurring revenue increase to over GBP 300 million. That's still the case. There is a lot of white space for us to go at. We've managed to renew quite a lot of our significant contracts over the year, which again, is maintaining that really low churn rate of 0.7%. Of course, with our largest customer, JCB, we've extended that contract now through to 2029.
In terms of new customer wins, again, we're winning business in the U.K. and in our international markets, STEF in France, Foodstuffs, etc., and numerous others. Overall, 375 new customer wins. Again, good growth in new customers. Of course, in 2024, we completed our M&A acquisition of ESS. We are still continuing on that journey. We've got a pipeline of businesses to look at, and we'll obviously report more on that at the appropriate time. Key strategic priorities for me are that we're consolidating those acquisitions into the Microlise architecture. That's all about moving all of the hosting and technical stack across to our standard data centers. We've launched Microlise One, but that's not the end of the integration that we want to do. Again, I think there's a lot more value we can bring to our customers by integrating our products further.
We're improving our margins internally through greater efficiencies. We're also doing more work with partners. Again, that's not just by incorporating support for other hardware, but it's also incorporating support with other solutions and other businesses that we're working with. Of course, continuing our security infrastructure investment and international expansion is doing really well, particularly in the Australian market. Of course, layered upon top of that, we are continuing to look for target companies that meet our criteria. Just in terms of the investment case, just a reminder, the vast majority of our contracts are five-year contracts. We have really long-term visibility of contracted revenue. We have that extremely low customer churn rates, below 1%. We have lots of opportunity to grow with our customers. LF&E is just one example where we've been able to sell more products into the existing customer base.
That also makes us more sticky and also more difficult to substitute as well. We've got a margin enhancement program going on, lots of opportunity internationally. As you can see from the graph on the right-hand side, even through COVID years, etc., and supply chain issues, we've still shown a consistent growth in our recurring revenues. The year 2024, again, shows that slightly accelerating compared to previous years, but continues that trend of growth over a sustained period. In terms of outlook, we're now reaching the end of our Q1. We've had a really positive start to the year with our new CRO and go-to-market strategy. We're pleased with performance in 2020, sorry, performance in our first quarter. We're very confident that we'll deliver our full-year numbers for 2025. We're doing well with our acquisitions and cross-selling those and also selling them into new contracts.
Very pleased with how that's going. Of course, we continue to look at M&A. Hopefully, we'll give you more news on that at the appropriate time. There are various slides in the appendix, but I'll stop at that point and see if there are any questions that anyone wants to ask.
Thank you, Nadeem. If you do have a question, please remember to use the raise your hand function. We have the first question here from Harold. If you could take yourself off mute, we'd love to hear your question now, please.
There, gents. Can you hear me?
Yes.
Safe to do for thanks. A couple of questions. One, just wanted to dig into the detail on subscription numbers up 36% to 873. Bit of detail, but is that the live numbers or the contracted numbers?
I'm just trying to think in terms of does that directly correlate to your ARR, or is that more in terms of number of vehicles that you've or subscriptions that you've contracted with or got contractual terms or visibility of?
Yes, I mean, contracted and live are pretty close to each other. We tend not to have that much variance between those two options. I think that you have to remember the 873 is obviously a big part of that increase was through the acquisitions. Some of the subscriptions are related to people, not just vehicles. A lot of our products are licensed on the basis of per vehicle per month. There are, through the acquisitions, several products that are also licensed on a per user per month.
I wouldn't necessarily say that the subscription number now, we've obviously reported it because we've been reporting it in the past, but I don't think it's a great indicator of other financial performance as it stands. We are looking at ways that we can provide a better KPI metric for people to look at.
That's useful. Thank you. Just one follow-up. I was just on TMS or slash ESS. I was wondering, in the past, you've mentioned this product or product type has a longer lead time. I was wondering to what extent it's therefore you managed to see growth in revenue terms from that business, or rather, you think there's going to be incremental to FY2025 because of how it's taken a bit longer to grow your pipeline with that type of product?
Yeah. I mean, we won several contracts in 2024 for TMS solutions.
It's fair to say not all of them are implemented. We will see more revenue coming through in 2025 based on the contracts that we've already won in 2024 because they do take longer to sell and also longer to implement as well. We're really pleased with the contract wins that we've done and the size of those projects. There's been some pretty large projects that we've won in 2024 through our TMS offering. We're also looking at how do we actually make them go faster. We are taking the opportunity to analyze the time spent during the sales cycle and also the time spent during the implementation phase to see how we can trim that and how we can deliver more of those projects more quickly.
Yeah, I think there's work that can be done absolutely on increasing the throughput on our TMS and also our P&O solutions.
Thank you. Just finally, with those TMS solutions which are won but not yet contracted, are you included or excluded from your ARR?
They're excluded from our ARR.
Okay. So you've got better visibility than what you've reported?
Going forwards, yes, because essentially, those projects are contracted. Let's be clear about that, they are contracted. However, because they haven't been implemented, they're not contributing to recurring revenue as of the end of December 2024.
All understood. Thanks very much.
Thanks, Harold. We now have Carl Smith next. If you could take yourself off mute now, and we'd like to hear your question, please.
Morning, guys. Just two questions, please. First, could you expand on some of the enhancements to the go-to-market strategy?
What are you doing differently there with the new Chief Revenue Officer? The second question is, would you be able to describe your view of the sort of market conditions for HGV OEMs at the moment and in terms of the demand for your hardware?
Sure. I think the first one, some of the changes that we've done is we've changed the commission structure. The way that our sales folks are incentivized is different to what it has been before. They're more focused on doing projects and delivering projects earlier. There's a change in emphasis there in terms of the incentive programs. Secondly, the structure of the team has changed. We're looking at more digital sales in that mid-market segment of the space that we offer and also customer pathways that allow us to build on initial sales and sell more to customers.
There is a variety of differences that we've done. Obviously, I don't want to say too much about it because some of this will be in the public domain. Again, we don't want to pass too much information to competitors. Yeah, there is a whole variety of changes going on in our go-to-market strategy. Sorry, what was the second part of your question?
Sorry, the background noise here. Yeah, yeah. It was just about the market conditions for the HGV OEMs and sort of how you see that. I mean, is it sort of are they suffering from sort of poor macro conditions or what's happening there?
Yeah.
What we saw was a slowdown in Q3 and Q4 of 2024, mainly down to lower orders in Q1 and Q2 at the beginning of the year that fell through to production volumes in the second half of the year. It was not massive, but it was noticeable that there was a slowdown. What we have been told based on forecasts that we are getting from our own partners is that they are looking for 2025 to be slightly higher than their 2024 numbers. As we are at the end of Q1, we are seeing a recovery in those numbers. I think we are confident that that sector will bounce back. It is generally being driven by economic conditions, I think, rather than anything else.
Thank you.
Thank you, Carl. We now have the next questions from Tom. If you could take yourself off mute next, please.
Yeah.
Morning, all. I've got three, but I'll take them one by one if that's okay. Just the first one. I know that at your conference last week, you had a couple of hours set aside for Microlise One. Just wondering if you're able to pass along any more color that came from that session, ambitions, and how that's been landing with customers so far.
I think there's more. We obviously launched it, but I think, again, we're releasing incrementally. There is more value that we think we can bring for customers by doing more enhancements. That's more data sharing across our different products. It's providing a more seamless pathway to move across and use different functionality within our products and also to provide more automation and greater ability to extract data out of our products as well.
Again, those were things that a lot of customers asked us about. The response and feedback from the conference was really positive. We had a lot of praise and a lot of excitement from our customers. Obviously, we have several customers already using it, and they've been providing us great feedback. We are now rolling it out to all our customers so they have the ability to use it, essentially using a switch to turn on the additional functionality. Over time, over the next few months, it will become a standard part of the portfolio.
Great. Thank you. Second one is the telematics and software market's been particularly active. I think Berg said there's been 14 acquisitions in Europe alone last year. What are you seeing on the M&A front?
I know you've obviously appointed a new director, but are there any geographies or products we should be particularly mindful of that are likely to come in the short term?
I think there's, I mean, we have seen lots of telematics companies on the market. We're not particularly looking at just buying another telematics business. We don't think that would be a great return on investment for us given that we have a lot of tech and products in that space already. I think we're looking at other areas. There's quite a lot of tangential areas that have got a lot of great growth.
For example, AI cameras is a huge growth market in several areas, not so much in France and Germany at this point in time because of cultural issues and privacy laws and concerns there, but certainly doing really, really well in the U.K. and in Australia. There is a variety of other products that we're also looking at as potential acquisition targets as well.
Great. Just lastly, you mentioned Australia. Just on ANZ as a whole, obviously, had the big win with Woolworths, but what are you seeing in the market at the minute? I know that Teletrac and EROAD seem to be posting quite strong growth. It seems to be a market that's a tiny bit behind the U.K., so maybe growing faster and catching up. What are you sort of seeing on the ground in Australia and New Zealand at the minute?
Yeah, I mean, I think it's a great market. We're growing really well over there. Yes, you're right. From a maturity perspective, it's a few years behind the U.K. There are a lot of greenfield opportunities as opposed to second, third user opportunities. Yeah, there's a lot of expectation, certainly from our part, that we'll continue to see really strong growth over there.
I think the fact that we've got obviously some very strong anchor accounts over there in the respect that we've got Coles and Woolworths that are obviously the primary retailers out there. The pipeline in Australia is very healthy. We're getting a lot of introductions because of the relationships with both Coles and Woolworths.
Great. Thank you both.
Thank you, Tom. We have one more written question here, which I will ask.
What percentage of sales are currently direct, and what are the margin difference when non-direct?
It's about 65 to 35 split in favor of direct. The margins differ significantly. For example, from an OEM point of view, the services they tend to take are engineering-based. They're not kind of operationally based. Generally, the subscription per month is lower. The other point to mention as well is that obviously, from an OEM point of view, the volumes are very, very high. Hardware-wise, it's a white label product. The margin is, from a hardware point of view, depends on the OEM in question, but between 10%-15%. From a direct perspective, they've got a full product suite to take anything from compliance through to journey management, plan optimization, and TMS.
Those subscriptions can range from GBP 5 to GBP 10 per month on the commoditized side right to GBP 50 to GBP 100 per subscription per month. From a software perspective, that variance is quite significant. Obviously, from a hardware point of view as well, depends really what they take. Obviously, things like AI cameras and ruggedized tablets, etc., the margins are significantly higher.
Thank you. That now marks the end of the Q&A section. I will quickly pass back to Nadeem for some closing comments. Thank you all for attending.
Yeah. Obviously, if we have not shared the slides with you, then we will do that shortly. If you do have any follow-on questions, please feel free to reach out through SEC, and we will be happy to cover them. Thank you for your time this morning.