Good afternoon, everybody, and thank you very much for joining the interim results presentation from Tracsis. I'm Chris Barnes. I'm the Chief Executive Officer of the company, and I'm joined by Andy Kelly, who's the CFO of the company. This will be about a 30-35 minute presentation, which we will split between the two of us. At the end of that, under that process, we'll then open up for a session of Q&A. To start with an introduction of the period, the last 12 months has been a challenging period for the group, and that has resulted in a disappointing set of results for the first half of our financial year. That's been impacted by several near-term headwinds. All of those we believe to be short-term in nature, but they have obviously impacted us during the period.
We'll go through the details of those as we go through this presentation. In summary, the first of those is funding shortfalls that are affecting the wider rail industry as part of Control Period 7. The second of those was a specific impact of a cyber attack that happened with one of our large customers that impacted our revenue in the first half of the year. The third of those was an operational matter where we unfortunately didn't see the level of profitability that we expected to have seen through our traffic data and events business. As we go through this presentation, we'll explain the details behind those so that you can understand them in full detail. If you look against our strategic objectives, we're making really good progress in terms of growing recurring software revenues, particularly across our rail technology business.
We're also making good progress in driving transactional revenue growth as well, both of which are really important long-term drivers of growth for the company. Alongside that, we continue to look at international diversification, particularly in North America. Procurement timelines have been extended during the period, but we are continuing to win multi-year strategic contracts, and they both underpin the performance that we will see in H2 of this financial year and also into further years into the future. Andy will share with you how those contracts underpin the much stronger H2 performance that we are forecasting for the rest of the year. Given the uncertainty in the markets we're operating in at the moment, we are providing revised financial year 2025 guidance, and we have brought adjusted EBITDA guidance down into a range of GBP 12.5 million-GBP 13.5 million.
Andy will explain the basis of that, but basically that is built on order book that we have confirmed within the business today, and hence we have a very high level of confidence that we can deliver within that range for the rest of this financial year. Our growth strategy and our drivers of long-term growth remain unchanged, so we continue to make good progress against objectives looking at investment in R&D and investment in further acquisitions that will help continue to drive the growth of the group. Finally, in terms of an introduction, we also yesterday launched a GBP 3 million share buyback, which again underpins our confidence in the future growth trajectory of the group. Let's go through that in a little bit more detail. To start with, we'll look a little bit more at the growth strategy.
We are increasingly focusing around the growth of recurring revenue and transactional revenues, and they really come from four key areas of the rail technology side of our business. They are operations and planning, which are the software and products that are used by passenger and freight operators to run their business. They are in customer experience, which is where all of our transactional revenues come from, which is linked to smart ticketing and to Delay Repay. They are in infrastructure and asset monitoring, which is predominantly provided to asset owners, so people like Network Rail or big infrastructure owners in global rail markets.
Finally, in safety and risk management, which is really for us about digital workflow and making sure that when people are working on the railway, they are doing that with full knowledge of work instructions, safe work practices, and with full visibility of everything that they need to do to safely complete their work. In each of those areas, we have a portfolio of largely software, also some hardware, which sits within our remote condition monitoring business. Those software products are deployed across a broad spectrum of high-quality rail customers, a number of whom you can see on the page in front of you. As a result, they are very long-term. Those contracts are very long-term in nature. Now, why is it people use Tracsis? Why is it that we have been able to establish such a strong market position?
We're building the business as an innovative, agile, fast-to-market technology provider and one that provides mission-critical transport solutions. In other words, pieces of software or technology that are absolutely fundamental to a business being able to deliver its day-to-day operations or meet regulatory requirements. That means we're positioning ourselves as a trusted partner to transport and rail operators, to infrastructure providers, and to government. We're also building the business around deep industry expertise. It's about having people who really understand the rail and the transportation domain, but also having real technology leadership in the business that make sure we can deliver technology solutions that deliver long-term benefits to our customers.
Underpinning all of that, we also have a big data approach, which is about how do we use all of that rich source of data that we get from all of those different software platforms to actually help the industry make really insightful long-term decisions around capital investment and around its operational decisions on a day-to-day basis. The business has strong fundamentals. We have a large install base of software solutions, which drives around GBP 25 million a year of annual recurring revenue. We have high software license retention rates, many of which are on long-term multi-year contracts. The business has a very strong cash position, and that cash position means we're in a strong position to invest in R&D and M&A moving forward.
Importantly, we've also built the business around a really strong cybersecurity backbone that recognizes our position as a provider of software and services into areas where we've got critical infrastructure. Alongside that, we've got really strong governance over ISO 9001, 14000, and 27001, which again underpins the quality of the products and services that we're able to supply as a business. Moving forward, we've got a very clear strategy in terms of growing recurring revenues, driving strong cash flows, and also delivering long-term shareholder returns. They're focused in the following four areas. It's increasingly about pivoting the business to being a product-focused business, so having a smaller number of scalable best practice technology platforms.
By doing that, what that means is we can take product to market faster, we can implement it more quickly, it has less disruption to the customer, and also means that what we're doing is actually implementing best practice across the industry. What that will do, if you can follow, if you can implement that in a very effective basis, is you actually naturally grow your recurring revenue base. That drives longevity of your revenues and also more certainty in the financial outcomes for you as a business. If you can scale that correctly, it drives margin accretion, and that margin accretion then allows you to basically fund your investment in R&D and M&A and continue that cycle.
Where we have leading-edge products, we obviously need to make sure we stay at the front end of that marketplace, and that means we need to be investing in the next generation of those products. Where we want to enter new markets, that might be through either R&D in new products or it might be through acquisition to actually acquire a space into those markets. All of those things are part of the investment decisions that we make as a business. If you look back through our history, we have made a range of investment decisions where we have entered new markets. For example, we bought the iBlocks business in 2020, which has been instrumental in us winning the recent Tap Converter smart ticketing contract. As another example, we bought the RailComm business in 2022, which has provided us with entry into the North American market.
There are lots of different reasons and rationales for why we make investment decisions, but they're all based on the premise now of building out our product-based business model and driving long-term growth in either recurring or transaction revenues. In terms of the H1 2025 operational highlights, the really pleasing parts of the first half of this year is that we've seen a 7% increase in recurring software revenues and alongside that, an 18% increase in transactional revenues. Both of those are very strongly aligned with our long-term strategic growth objectives. Alongside that, the company's been extremely busy. We've delivered seven rail technology product deployments in the period, many of which are the culmination of multi-year contracts that have been awarded in previous years.
They demonstrate the quality and the fit that the Tracsis products and services have within the rail industry and the demand that there is for what we do. A really important contract win for us in this period was the Tap Converter pay-as-you-go smart ticketing contract. That was announced back in February. That is a multi-year contract to provide pay-as-you-go transactional services across the whole of the U.K. It is a back-office solution, so it is based on a B2B service provision. As pay-as-you-go smart ticketing is rolled out across the U.K., it will be the Tracsis engine that sits at the basis of that. Obviously, that is a really good vote of confidence in who Tracsis is as an organization and our ability to support the deployment of nationwide technology solutions in the U.K.
In terms of just giving a bit more color to those product deployments, the product deployments and new contract wins were across all of the different areas of our rail technology portfolio. If we start with the operations and planning part of our business, which is the software that we provide to train operators to run their rail services, we completed two TRACS Enterprise deployments in the U.K. with U.K. train operators. As a reminder, TRACS Enterprise is our end-to-end SaaS platform that you use to do everything from timetabling through to stock and crew allocation through to managing services on the day. We now have four operators in the U.K. who now use that end-to-end platform. Also importantly, in the United States, we launched our positive train control variant of our train dispatch software.
That is an important milestone in what we hope will open up a lot of new opportunities for Tracsis in the North American market. Moving forward, we're clearly going to protect and grow the recurring software revenue that we have in the U.K. We are going to be investing in next-gen platforms to make sure that we can actually increase the speed with which we can deploy this technology, but also open up opportunities into new international markets. Importantly, in North America, we'll be looking to convert the strong ongoing pipeline of opportunities that we have in the train dispatch part of our product portfolio. In customer experience, that was very much driven by pay-as-you-go smart ticketing.
ScotRail in January announced the expansion of their trial of the Hopster app, which is now live across a corridor between Edinburgh and Glasgow, covering almost 200 stations in Scotland. Transport for Wales expanded their pay-as-you-go contactless system across the whole of the South Wales metro region. That now covers almost 100 stations. That is very similar to the London-based system. We are seeing very strong user growth as people really start to understand the technology and the benefits that it drives. From a contract win perspective, we obviously won the Tap Converter contract that I spoke about a moment ago. Across this sector, our whole focus now is on delivering the Tap Converter program, which has about 18 months of development ahead of it.
Obviously focusing on how we can successfully launch both the Tap Converter alongside expanding the capability of the Hopster app and our other pay-as-you-go activities across the U.K. market. There is a really good opportunity there for us to grow our transactional revenue volumes and to do that on a consistent long-term basis. The third area is infrastructure and asset monitoring. This has been the area that has been hardest hit by Control Period 7 funding shortfalls in the U.K. In our remote condition monitoring business in the U.K., we have seen volumes almost 60% lower than we did this time last year. In the U.K., we are continuing to deploy remote condition monitoring, but it is very much in the replacement part of our business.
In other words, replacing units that are coming to end of life rather than installing new units associated with new investment in new track, new signaling, new level crossings, etc. That is the part of CP7 that we are not yet seeing the return to normalized levels, but that is something we are expecting to see over the next hopefully 6-12 months. Alongside that, in North America, we had another RCM contract win in the period, which has also been delivered, and that continues to build our presence in the North American market. In this sector, what we see as the real opportunity is really around predictive maintenance and predictive analytics. We obviously have a huge historic database of failure data and usage data across a whole range of rail assets.
One of the key areas we now see as an area of opportunity is how do you use that data to actually start to predict failures and to improve network and asset reliability by really being on the front foot with how you use machine learning and other algorithms to really interrogate and use that data to its full potential. Finally, we have our safety and risk management category. This category has not been affected at all by control period seven. RailHub is our big platform in this area, which is a platform that Network Rail has adopted across over 20,000 users. Our whole approach here is very much aligned to Network Rail's roadmap in this space.
We have won more work in this period to basically continue to deliver the RailHub through a series of different upgrades as new features and new content are added to that platform. A huge amount has been going on across the group in the period. Some of that, as I said, is delivering long-term contracts and actually bringing them to a conclusion. Others are about winning new contracts, which will underpin further revenue and profit growth opportunities into the future. There is a lot of uncertainty in the U.K. at the moment around the future direction of Great British Railways and the timing that goes around that transition. What we understand will happen is that what Great British Railways will do is bring together the train operators and Network Rail as the infrastructure owner under a single structure.
What this diagram on this page is designed to show is that part of our product portfolio is delivered to train operators, which is on the left-hand side, and parts of our product portfolio are delivered on the assets and infrastructure side. Actually, today, they are pretty separate. Today, there is very little interaction and crossover between those two different parts of the rail ecosystem. Where we think the opportunity will really open up with Great British Railways is where we have put the Tracsis logo in the middle of this page. We think there is a real opportunity really around the whole kind of network reliability space. How do you bring together everything that we know and the industry knows from a train operations perspective and join that up much more closely with everything we know from an assets and infrastructure perspective?
What we think that's all going to be about is really around data sharing, digital transformation, and the way you can use that information and that vast amount of data to make far more decisive and actionable decisions that ultimately improve the customer experience in terms of on-time train performance, reliability, train availability, those things that the customer will really notice. We think that's an area where we've got a very well-defined and unique proposition. Although at the moment uncertainty in the U.K. is driving longer procurement processes, we think ultimately we are still very well positioned to benefit from the long-term direction that's being set by the U.K. government in this area.
If we just compare that with North America, in North America, we're continuing to grow our reputation, but it is taking longer than we had hoped to win the next significant-sized train dispatch contracts. One of the key achievements in the first half of this year was the go-live of our positive train control variant of train dispatch with Northern Indiana in Northern Indiana. They held a webinar in February of this year to talk about this project and to share their feedback on what it was like working with Tracsis. What did they think of the Tracsis solution? Why was it important to them to work with us to bring this product to market? The messages that have come out of that are really resonating around North America in terms of generating new opportunities, new customer discussions.
We are hoping over the next few months that the pipeline of opportunities that we have in the U.S. will actually really start to move towards the contract award stage. We are making really good progress, but obviously we are still frustrated at the time it is taking for us to convert some of these orders. That is the update from my side. I will now hand over to Andy to go through the market update.
Thanks, Chris. Good afternoon, everyone. Before we get into the detailed financials, just in terms of the external market situation, Chris touched on the headwinds that we have been experiencing so far. If we just move the slide on, we do believe that these headwinds are temporary in nature and therefore there is no change in terms of the overall opportunity for the business.
Our planning assumption is that these headwinds will persist through the second half of FY25 and into FY26. In terms of CP7, there is a widespread experience across the supply chain in the U.K. of lower levels of funding during the first year of that control period. For Tracsis, that is impacting only our hardware volumes in the U.K. for our remote condition monitoring business. In the first half of FY25, revenue there was almost 60% lower than we saw in the equivalent period last year. We do expect that to return closer to historical levels over the five-year cycle of CP7, but the timing of that remains uncertain. From a planning perspective, we are just going to continue assuming the current run rate of volumes until we see that recovery.
More generally in the U.K., there is a consultation that's underway at the moment around the U.K. government's rail reform plans, including the creation of Great British Railways. In the near term, we are seeing some impact on procurement timelines as a result of that, particularly in the TOC space. Actually, in the longer term, we do believe that Tracsis's products and services are well aligned with the strategic goals of the U.K. government. Actually, having just gone through the main period of our annual renewal cycle, we are actually seeing some of the TOCs applying for multi-year renewals. In the near term, it's giving us an increasing level of revenue certainty over our installed base, even if the procurement timelines for new opportunities are extending slightly.
It is worth just reminding everyone that our customer experience and our safety and risk management product offerings are not impacted by these headwinds. We do expect both of those to show strong growth in the second half of the year. Similarly, our installed base of recurring revenue is not being impacted by these headwinds. In North America, clearly there is widespread macroeconomic uncertainty, in particular on the back of recent tariff announcements. It is not yet clear what, if any, impact that will have on our customer base, which does include rail operators in the freight space, with industrial operators, and with rail-served ports. That is a situation that we are monitoring closely. In terms of our financial performance for H1, as Chris mentioned earlier, it was a softer performance than we have seen in recent years. I will go through the detailed drivers of that in the next few slides.
It is worth reminding ourselves that despite that, the fundamentals for the group remain strong. We have a large installed base of software solutions and services with customers. That generates both recurring software license revenue as well as transactional revenue, so revenues generated by consumer usage of our products. In total, that was GBP 12 million in the first half of the year. As Chris mentioned earlier, we have seen very encouraging growth in both of those metrics. That installed base of customers, in turn, underpins healthy cash generation from the business. We closed the period with GBP 22.1 million of cash and no debt. Despite the softer financial performance, we remain committed to and excited about the long-term growth opportunities for the business. We therefore remain committed to our progressive dividend policy, and we have declared an interim dividend of GBP 1.2 per share.
That's up 9% on H1 last year. As Chris mentioned yesterday, we started a GBP 3 million share buyback as a signal of our confidence in the long-term prospects for the group. In terms of the detailed financial performance, despite those headwinds that we've been facing, we delivered a fairly robust revenue performance in the first half of the year. It was down 1% on a reported basis. Actually, if you take out the revenue from H1 2024 from the transport consultancy activities that we're no longer pursuing, those lower margin non-software related activities that we announced with the full year results last year, we saw 2% revenue growth for the group on a like-for-like basis with modest growth in both divisions. Our EBITDA performance was much more heavily impacted by those headwinds that Chris mentioned.
We estimate that in total, across the CP7 impact on remote condition monitoring and the lower activity levels from the traffic data customer who suffered the cyber attack, in total, there was approximately GBP 1.5 million adverse impact on EBITDA compared with the first half of last year. On top of that, we saw a sharp deterioration in profitability from our traffic data and events business, where there was an inflationary impact on input costs that was not fully recoverable in the period through pricing, in part due to the timing of when those activities are contracted. We have taken actions to address that, and we expect to see the initial benefits of that as we go through the second half of FY25.
Outside of those two factors, it was encouraging to see there was strong underlying growth in the rail technology and services division, in particular in the U.K. business. That is a part of the group that has undergone quite significant restructuring and transformation of its operating model over the last two years. It is very encouraging from our perspective to see the benefit of that starting to show through not only in financial performance, but also in our ability to win and secure those strategic multi-year future contracts, as Chris talked about earlier. During the first half, we have completed the headcount actions associated with the transformation activities that started in 2024. Those were completed in the period for operational reasons, and we incurred a final tranche of GBP 700,000 of exceptional costs associated with those actions.
Just looking in more detail at the divisional performance, starting with rail technology and services. As Chris mentioned, very encouraging growth in our recurring revenues. To make sure that there's real transparency of those long-term drivers of shareholder value in the business, we've given two metrics here. One is the recurring software license revenue. That was up 7% to GBP 10 million. The second metric is the revenue that we generate by providing our smart ticketing pay-as-you-go and our Delay Repay technology that's ultimately driven by the number of consumers who are using it. That grew by 18% to GBP 2 million.
You can see from the charts on the right-hand side that despite the challenges we saw in remote condition monitoring due to CP7, in the U.K. business, we did see very encouraging underlying growth in the rest of the business, in particular in our safety and risk management product category. In North America, we had slightly lower levels of revenue than H1 last year. That was associated with lower project revenue having completed that important train dispatch deployment in September 2024. The lower levels of EBITDA in this division and the reason that the margin decreased by three percentage points was really driven by the lower level of that high margin remote condition monitoring hardware revenue as a result of CP7. On the data analytics consultancy and events division, you can see from the slide here, we had a disappointing margin performance in this business.
Certainly was not helped by the one-off headwind from the cyber attack on our traffic data customer. That has now been resolved, but during that period, they were unable to place any work with us for a four-month period. That will pick up in the second half of the year. The real driver here was that issue that we have discussed previously in terms of inflationary cost pressure in traffic data and events. You can see from the charts on the right-hand side, we did nonetheless see strong revenue growth in that business, in particular on the events side, where we continue to see high activity levels. That business has got a full order book for the remainder of FY25.
On the professional services side, whilst we saw slightly lower levels of revenue, overall EBITDA was maintained at a similar level to the prior period through actions on cost. As I said at the start, we continue to have very healthy levels of cash generation. GBP 22.1 million of cash, that was GBP 2.3 million higher than the end of the previous financial year and GBP 5.3 million higher than the end of H1 2024, benefiting in the period from the unwind of a large trade receivables balance at the end of the prior financial year. This leaves us really well positioned to continue to invest in long-term growth for the business. Before I hand back to Chris, I just wanted to touch on how we've approached our guidance for the remainder of FY 2025.
Firstly, we will deliver an improved financial performance in the second half of the year. We do have some seasonal activity levels that always give us a slightly higher performance in the second half of the year, both in terms of profitability, but also in terms of cash generation. That is also underpinned by a healthy order book for H2 delivery across our Railtech UK business, including the benefit from the Tap Converter contract that was secured in February of 2025 and from winning the next program of work for our RailHub product. As I said before, we have also got the benefit to come from the actions we have taken to improve profitability in our traffic data and events business. That said, those near-term headwinds will persist through the period. The main impact we are seeing here is an extension of procurement timelines.
Our data points indicate that for some of those large multi-year opportunities, it is somewhere between four and six months longer for us to get to contract signature on those opportunities than it was 12 or 18 months ago. That does not mean that the opportunities are not there. It does not mean that the size of the opportunity has changed. It does make it more challenging for us to be able to predict exactly when those opportunities will land. In that context, we have done a detailed exercise to revisit our expectations for the rest of FY25 with a view of trying to give some certainty to investors of where the business can get to for this financial year.
In doing that, we've assumed that there's no material change in that period in CP7 funding levels and therefore no material change in our run rate of U.K. remote condition monitoring hardware revenue. We haven't anticipated any new material contract wins in the train operator space, either in the U.K. or in North America. For those parts of our business that still don't have full order book visibility for Q4, we've just assumed run rate activity that's consistent with the historical trend. On that basis, we expect that the group will deliver a full year adjusted EBITDA in that range of GBP 12.5 million-GBP 13.5 million. We'll continue to apply this more prudent framework for forecasting as we go into FY26 as well. That's everything from my side on the financials. I'll pass back to Chris to wrap up before we open up for Q&A.
Okay, thanks, Andy. In conclusion, we remain very confident in our long-term growth prospects. There are three fundamental reasons for this. The first one is the tailwinds in the U.K. and North America really push the industry in the direction of adopting more digital technology and more digital solutions to drive improvements in efficiency, to drive improvements in performance, and to ultimately drive better outcomes for consumers across the transportation space. Across our broad portfolio of software offerings, we are in a really strong position to support the industry on that transition. In addition, our value proposition is very well aligned to the direction of travel in the U.K. market.
We're working very closely with Great British Railways, with the Department for Transport, and other government bodies to understand what the likely changes are going to be moving forward and also the timetable for those changes and making sure that Tracsis is well positioned to support the industry through those changes. We've worked very hard over the last two to three years to really give Tracsis a differentiated market position. As we talked about earlier in this presentation, we've invested a significant amount over the last two to three years in bringing experienced technology and business leaders into the group to really make a difference in terms of being able to have those really deep industry conversations with our customers, but at the same time, being able to deliver technology solutions that are fast to market and deliver real benefit to the consumer in the fastest possible time.
That enables us to build a partnership with our customers and to really make sure we are very much part of their business decisions moving forward. Alongside that, we have a very clear plan and a very clear strategy of what we need to do to deliver sustainable growth. As I have said throughout this presentation, we are focused on growing recurring revenue. We are focused on growing transactional revenues. We are focused on building a product-based business built around a small number of scalable technology platforms that enables us to continue to build that reputation for fast market delivery and for high-quality products and services. If we do that right, it will generate or continue to generate the cash and the investment that we need to continue to grow this business and continue that cycle of further enhancements in recurring revenue and transactional revenue.
We could not do this without the strong team of people that we have around us in the organization. It is very much a team effort. In terms of the key takeaways, H1 results were disappointing. We are doing everything we can to improve that situation, and H2 performance will be significantly improved on that. We are working to understand the market uncertainty and obviously take the necessary decisions in the business to mitigate the risks associated with that, but also to make the most of the opportunities that will arise from that. Group fundamentals remain strong, underpinned by that GBP 25 million of recurring revenue across our rail technology business. We are making good progress in implementing our long-term growth strategy.
If you put all of that together, that gives us real confidence that we, despite the challenges we have at the moment, are heading in the right direction and we will be able to deliver long-term sustainable growth across the Tracsis business. Thank you very much, everybody, for joining this presentation. We are now going to open up for Q&A, and I will hand across to Rosie now.
Thank you, Chris, and thank you to everyone for their questions. There has been a high volume of questions pre-submitted and submitted live. Just as a reminder, if you'd like to ask a question, please type them into the Q&A box situated on the right-hand side of your screen. Our first question is, do you believe that there is the potential for the floodgates to open upon government decisions?
If yes, how are you preparing for the company to be in a position to take full advantage of it?
Okay, what we're doing as an organization is because we have grown up as a buy and build historically, we have historically traded under lots of different sub-brands. When you look across the rail industry, not everybody has the same understanding of who Tracsis is or what it is that we do. As part of the changes that we've been making over the last 12 to 18 months, we will be launching in the next few weeks a repositioning of Tracsis where all of our businesses will become known and trading under the Tracsis brand. Alongside that, we've been working on what the corporate narrative is that goes with that.
In other words, whether you're talking to somebody in government, whether you're talking to somebody in a train operating company, whether you're talking to somebody in Network Rail, whether you're talking to an investor, whoever you're talking about, how do we create a really common understanding amongst the entire stakeholder community of what Tracsis is, what we stand for, and the role that we can play in helping really shape the future direction of improvements in transportation, both in the U.K. and overseas. That's what we're doing. For all the reasons we talked about in this presentation, I think we're really well positioned to support the industry on that journey. Yeah, of course, as with any uncertainty, there's always risks.
I think as well, if we play to our strengths and we very much support the industry and the transition that is going to come ahead of it, which is going to be challenging, there are significant opportunities for us to continue to grow our footprint and the influence that we have across the rail industry.
Thank you. How should we think about the percentage of revenues derived from recurring and transactional sources over the next five years? How might this impact EBITDA margins?
You should think about them as our target is to grow them. That is the fundamental goal of our growth strategy, and that is the fundamental goal of where we are taking the business. If we get that right, that will in turn lead to margin improvement. It will lead to increased levels of cash generation. That is the direction of travel for the business.
We're not giving any sort of hard metric targets on that at this stage, in particular against the market environment and the uncertainty we're operating in at the moment. Fundamentally, when it comes to investment decisions we're making in terms of R&D, when it comes to investment decisions we're making in terms of M&A, and when it comes to organic growth opportunities, our fundamental focus now is on making sure that the recurring revenue base of the business grows. That allows us to sustain the cost base that's required to ensure we've got the governance and the processes that we need to deliver our products and services, but done on a scalable basis that also allows us to deliver margin improvement going forward.
Is there anything in 2026 forecasts for the PAYG National Rail contract?
What we've included in our forward forecast, the way that contract is structured is we've got a 12-18 month period of development work that's guaranteed and that we're paid for. That is included in our forecast. That's in our order book. We haven't included any increase in transactional revenues that will come from the future deployments of that technology on a nationwide rollout. At this stage, we just don't know what the timing of that looks like. We don't know what the customer uptake will look like and therefore what the quantum looks like. We've been prudent in terms of the transactional revenues, but we have included the development revenue that's in our order book.
Recurring revenue is very encouraging, but how are you protecting yourself from competition?
There are two key elements to this.
One of those is built on what we've been doing for the last two to three years, which is simply getting our delivery structure and technology structure right within the business such that when we promise to deliver to a particular timescale, we absolutely hit those timescales with the quality of deliverables that the customers need. You can imagine, in most situations, the software we're providing is actually running critical parts of the U.K. infrastructure. It has to deliver, and it has to deliver on time. The first one is all about continuing to build your reputation, continuing to be seen as a partner working with the industry, which we're doing. The third part of that is really continuing to invest in our leading-edge technology position.
If you just take a step back and think about the investment decisions you can make, at times you can go and acquire a particular piece of technology or enter a new market. If you've got the leading product in that space, you can't go and acquire the next gen of that product because you actually dominate that market space. A key piece for us is to make sure that we are continuing to evolve the technology platforms we have, continuing to make them easier to implement, continuing to make sure that they actually adopt new elements of things like machine learning and AI in the appropriate areas, recognizing we're in a safety-critical environment across the rail industry. They are the key steps we're taking to protect ourselves against competition.
Fundamentally, the key success factor when you're a software business is protect your recurring revenue, make sure you maintain the strength of your market position, and then grow from that base. I think we're doing everything we can to maintain our position. It's all now about adding in new contract wins like Tap Converter, the new RailHub program, hopefully a big train dispatch program in North America in the near future. All of that will then continue to build out that recurring revenue base and give us an even stronger position.
You talk about international diversification. Can you expand on this? Where is the potential and the barriers to access?
Okay, we have a largely dominant position in the U.K. We chose to enter the U.S. market through the acquisition of RailComm in 2022.
That is because we see a significant opportunity around digital transformation in the U.S. As we have spoken about in this presentation, we are not quite there yet in terms of where we would like to be in terms of the speed of growth and the speed of new contract wins, but that remains a key focus. There is a huge market also in mainland Europe. Now, today, the products we have developed for the U.K. are not easy to transfer or to translate into the European market because they solve a different challenge just given how the U.K. rail market is structured and the challenges that we solve here in the U.K. What we are looking at as we look to develop the next gen of technology is how do we develop those platforms in such a way that they open up those markets to us.
In addition, we're also seeing the Middle East start to show a lot of interest. They have gotten a lot of, kind of, if you want to call them, greenfield rail investments that have been made in recent times. They are looking at what type of technology solutions are there across more advanced rail nations. That puts us in a really interesting place to showcase some of the things that Tracsis does and to potentially open up new opportunities for us there as well. If you go back to that point about protecting your market position, the U.K. is very much about protecting our position, using that as a reputation and as a sort of, sorry, a reputation sort of case study for other markets.
There is still growth opportunity in the U.K., but that reputation that we've established here really then gives us an opportunity to branch out and diversify into new markets.
What have been the key learnings in North America and how do you ensure that you're investing enough to grow the dispatch pipeline?
Okay, key learnings in North America. I guess when you enter any market, it takes time to build the right relationships and to build the right reputation. We obviously bought RailComm in 2022, and they had well-established relationships. We then introduced the Tracsis brand into the market the following year. The main reason as to why things have taken longer than we had hoped is that the train dispatch go live that happened in September of last year was actually around nine months later than we had originally planned.
That was for a range of operational reasons. As a result, the industry's kind of been waiting to see the evidence of that new product launch and to gain the confidence that the product we'd been developing to come to market was actually robust and could deliver the kind of outcomes that other train operators wanted to see. That product is project or the outcomes of that launch are now really starting to be well understood across the market in North America. I think we've got a clear R&D roadmap for our dispatch product. I think that's very well aligned to what the industry is looking for. What it's very much about now is understanding the procurement processes of our key customers, many of which have to go through public procurement in North America.
We're working hard to understand those steps and to make sure we're positioned as well as we can be to obviously translate what is a strong pipeline of opportunity into our order book such that we can then start to recognize the revenue from those opportunities. Alongside that, we've also invested in a new sales team who've got long-term experience of winning and closing new opportunities in North America. As part of bringing all of that together, it will hopefully bring us the success we're looking for.
Are you able to quantify the size of the overall opportunity and pipeline in North America?
That's a question. Yes, we have. We've done some work looking at the addressable market.
I can't remember the numbers immediately off the top of my head, but we've done it as a comparator to the size of the U.K. market, and it's a significant quantum bigger in terms of the addressable size. The challenge in North America is that in the U.K., you've got one network provider, Network Rail. In the U.S., you've got about 600. You have to be really careful in the U.S. around picking the right customer and understanding that they're the right organization to partner with. The approach we've taken in the U.S. is there are large elements of the U.S. market we're not focusing on at the moment. The two areas we are focusing on are the commuter rail space, which are the passenger rail services that run in and out of large North American cities.
We're focusing on the short line and sort of industrial space. That is where you've got people running smaller rail networks who actually are mainly linked to a port or an industrial plant or manufacturing facility who are smaller in size and therefore don't have large in-house engineering or development teams. They're the ideal partners for us. We're talking to multiple operators across both the transit space and the freight space around our train dispatch product. That opportunity is sizable, and it's one that we think is strategically really important as we look to offset kind of the uncertainty that we currently face in the U.K.
Could M&A in North America help make inroads into this market?
It could, but there is not a huge number of targets in the space that we're looking for in North America.
I think our approach is very much one of, let's get our current strategy implemented and fully working so we can see the returns that we expect from that acquisition we made in RailComm in 2022. We're continuing to make steps to finish the integration of our global delivery model. What that will mean is we don't just need a team of people in America delivering American projects. We can have people from Europe delivering American projects and vice versa. We can become much more flexible at sharing resources and expertise across the group. I think M&A at the right time with the right type of business will clearly help us. I think for now, we're very much focused on delivering the growth and the strategy plans that we have in front of us.
We will make that reassessment once we start to see the success we need in the North American market.
Thank you. Is the GBP 3 million buyback the best use of funds? Does that mean you're not confident of finding more constructive uses?
No, it absolutely does not mean we're not confident of finding more constructive uses. When you do a share buyback, there are rules and there are limitations in terms of the volumes that you can actually buy on a daily basis that is linked essentially with the run rate of trading volumes. Working with our brokers, we believe the GBP 3 million will roughly take us to the end of this financial year in terms of the buyback. That will largely be funded out of cash flows that the business will generate through that period.
The reason we've gone with that amount is it gives us that flexibility to review the situation at that point in time. Against GBP 22 million of cash on the balance sheet, it in no way inhibits our ability to continue to look for other investment opportunities for growth, both in terms of R&D and in terms of M&A.
Thank you. Under what circumstances would you consider increasing the GBP 3 million allocation?
As I said, I think we've got the flexibility to review that at the end of this financial year. The reason we decided to implement the buyback was because we've got confidence in the long-term growth opportunity of the business. As a board, we felt that that was not fully valued in the share price at the moment.
We will continue to monitor that in terms of how the share price evolves and in terms of how our other investment opportunities line up as we move through. It's something that always stays there as an opportunity for us. As we've outlined in the announcement and as we've talked about today, investing in growth for the business also remains a key part of our capital allocation planning.
How has your reputation for delivering complex enterprise deployments evolved since you began working on TRACS Enterprise?
This is probably one of the areas I'm most proud of in terms of the achievements we've made over the last two years. We have obviously made some fairly significant changes across our operational businesses in terms of how we deliver complex enterprise projects. You need a particular skill set and understanding of the complexities involved in delivering SaaS solutions.
We have worked really hard to get the delivery model right to make sure that we're delivering high-quality code on time that's delivering to an industry roadmap. That is one of the biggest changes we've made. Rather than having TRACS Enterprise as a bespoke customized product for every customer, what we are working towards is an industry roadmap where we can deliver best practice capability on behalf of the whole industry based around the prioritization set by our customers.
We're getting really, really positive feedback from our customers around the step change they're seeing in the performance of the organization, about the quality of challenge they're getting from Tracsis in terms of not just simply reusing a process or a methodology just because it's been used for 20 or 30 years, but actually really thinking about how you can use modern tech solutions to really help drive better decision-making, better asset allocation, better performance. That is something that I think the team deserve huge credit for. There's a lot, a lot of work going on by a lot of people to really make sure that we've got a reputation that really stacks up in that area because it's going to be absolutely key to us moving forward.
What is your current market share within TRACS Enterprise?
Would you expect further contract wins in this area from the remaining operators using legacy systems?
Yeah. If you look across, if you broaden that question out to be operations and planning software across the U.K., we've got something like a 75% market share. If you were to draw a map of train operators versus the products and services we provide, we are providing one, if not many solutions to all operators. Now, you might therefore say, where's the growth opportunity? The growth opportunity comes from actually then replacing those on-premise solutions with the TRACS Enterprise solution, which is the end-to-end solution. As we stand today, we've got four operators that are fully live with that solution.
We've got a number of others that have been talking to us about it, where they've got legacy software or they've got obsolescence going to be coming up in the coming period of time. There is obviously a challenge at the moment with transitioning operators from the private sector to government ownership in terms of exactly how do you get the investment approved because of who's approving the payback on those investments. We've got lots of conversations ongoing. It might be a little bit slower over the coming period to translate some of those opportunities into immediate contracts. Certainly, what we've achieved today and where we sit means that I would expect us to win more deployments in that space as we move forward. I don't think we'll see a situation where the U.K. moves to a single supplier in this space.
I think what you'll end up seeing is different operators continuing to use different solutions, which means that that will still make up a significant market opportunity for us in the future.
Should we expect public TOCs to be more active in procurement than private TOCs? Is there any incentive for private TOCs to invest to make operational improvements given that they will shortly be handing over control?
Yeah, that's a really good question. Now, the private TOCs are obviously more difficult for them right now because they, in some cases, are not completely sure of the transition timetable in terms of being nationalized.
What we are seeing is something I spoke about earlier, which is we're seeing a number of operators contract with us on a multi-year basis for our renewals to give them a level of certainty and us a level of certainty as they go through this change process. I'd certainly say historically, the publicly owned operators seem to be able to access funding more quickly because they're more familiar with the model. They're well established within the sort of government decision-making process. There is definitely a slight bias towards the speed with which publicly owned train operators can operate. I would say across the board at the moment, it is difficult. The approval process is unclear, I think, for a lot of train operators. That's what's causing the delays.
As we move to more clarity around how Great British Railways is going to work, who the senior leaders are going to be in that new structure, that should enable those roadblocks to be removed. Obviously, we'll be trying to stay as close to that as we can so that we can understand how to get funding approval for those types of projects through as quickly as possible. We've got time for a couple more questions before our 2:00 P.M. deadline. Final two questions. Tell us more about how AI is affecting the business. Give me two minutes. Wow. That is a core topic of conversation right at this moment. We are looking at a whole range of things, including how do you build AI and machine learning into predictive analytics for maintenance based on remote condition monitoring.
We're looking at it from a GenAI point of view in terms of can you put it at the front end of support to actually understand and channel support inquiries more quickly in terms of is it a bug? Is it a functional issue with a piece of software? What is it? How do you get support to a customer really quickly? We're looking at it from an internal tools and processes point of view. Lots going on. We are about to go through a process of formalizing that and actually building that into our R&D plans. Great question and one I could go on about for a long time. That's a very short and succinct way of trying to answer that question.
Thank you. Final question then.
Is the delay in CP7 funding due to the slow sorting out of the Great British Railways project or due to the Treasury not providing timely cash? How much longer can the delays continue for?
It's neither of those. CP7 is a distinctly separate piece of funding that is approved by the regulator. The Office of Rail and Road sets the regulatory framework and the funding framework for Network Rail. Network Rail has GBP 43 billion of ring-fenced funding for a five-year period called Control Period 7. It is completely disconnected from the rest of the sort of Great British Railways transition because Network Rail just has an ongoing obligation to maintain, improve, upgrade the rail infrastructure around the U.K. It appears to be primarily down to miscalculation of inflation. This is all in the public domain.
Also, an overspend at the end of CP6 has meant that the first year of CP7 has had to be more constrained than they had planned. The feedback we are getting is that over the five-year cycle, the GBP 43 billion will be spent. If you have lost out in year one, you will see that investment coming back in future years. We are hoping to see that start to unwind in the coming months. We have not seen it yet, but that is what we are hoping will happen.
Thank you very much, Chris and Andy. Thank you for joining us today. That concludes the Tracsis presentation. Please could everyone take a moment to complete a short survey following this event. I hope you enjoyed today's webinar.