Tracsis plc

Good afternoon and welcome to the Traxxas PLC final results investor presentation. Today we are joined by David Frost, CEO, and Andy Kelly, CFO. Questions are encouraged throughout this webinar and can be submitted via the Q&A box situated on the panel on the right-hand side of your screen. I'll now hand over to David to begin the presentation. Thank you.

Yes, thank you, Harry, and welcome, everybody. We appreciate you joining us today. It's a real pleasure to be here and presenting to most of you for the first time. Next slide. So onto the agenda. Andy and I will start by walking you through a review of performance in FY25. And we'll then talk about strategic direction, the growth opportunities, and the outlook for Traxxas in FY26 and beyond before we move on to take questions from you. Next slide. So just to set the scene for myself, a few key messages for FY25. Firstly, performance improved in the second half. which meant we were able to deliver full year results that were in line with the revised guidance that we gave back in April. As part of that, we resolved the profitability issues in traffic data and events, and we enter the new financial year in a much stronger position as a result of that. Secondly, we made good progress in the areas that matter most for the long-term success of the business. Recurring revenues are an important focus area for us and they continue to grow at a healthy rate. We won new strategic multi-year contracts, both in pay as you go and also in geo intelligence, which will support future revenue growth. And we also completed the transformation of our operating model. bringing the rail technology and services division under a single global leadership while investing into next generation product platforms, which will come on to later in the presentation. Market wise, we continue to see uncertainty in UK rail, which looks very likely to persist through FY26. Control period 7 funding remains constrained. and the proposed renationalization of the train operating companies, alongside the creation of Great British Railways, is having a negative impact on procurement timelines. While the recently announced Railways Bill is a step forward, there is still a long way to go before GBR is fully up and running. So we cannot control the timetable, but Traxxas continues to be well positioned to help deliver the government's long-term strategic vision for the future of the UK railway. In our planning for FY26, we had anticipated that these headwinds in the UK would continue, and so our expectations for the full year are unchanged and consistent with market expectations. In the immediate future, we're focused on building on our H2 performance with a major emphasis on execution. In parallel, we have a clear and focused strategy for driving longer term growth and margin accretion. We will share more later in the presentation. There's no real change in direction. It's more about building on foundations and tightening up on how we put the strategy into action. Next slide. Before we get into the detail of the presentation, I thought it was appropriate to share and reflect on my first 100 days with the business. My first observation is that the fundamentals of the group remain really strong. Traxxas has a combination of market leading technologies and deep domain expertise that differentiate us in the attractive transport and markets that we serve. We're continuing to win new strategic contracts and embed long term customer relationships, which in turn support growing levels of annual recurring revenue. And the progress of made in organizational transformation means we're now ideally placed to deliver our near term priorities while positioning the business for future growth. Those near term priorities are really clear for us. The leadership transition has been completed smoothly with a structured handover from my predecessor Chris Barnes. There have been no other changes to the senior leadership team, And we are now focused on continuing to build organizational capability to support both FY26 operational delivery and our longer term growth ambitions. It's all about progressing the drivers of organic growth transformation. Building the pipeline of future opportunity, investing in SAS native products and increasing penetration in international markets in a very disciplined way. We continue to believe that North America offers a significant long term opportunity for the group. I have actually been there twice during my first few months and have met with customers, industry leaders and railroad CEOs while spending time with the Traxxas team in the region. It's pretty clear to me that we have a high quality, well differentiated product offering in North America with our PTC enabled train dispatch software. The deployment with Northern Indiana that was completed in September of 2024 is operating well and from my recent conversation with other railroad leaders, it's clear there's a healthy pipeline of opportunities across passenger, freight and industrial operators with the industry actively looking for credible new technology providers. It's no secret that our progress in winning new opportunities has been slower than we anticipated, but procurement timelines can be lengthy. Behind the scenes, the team have been working hard to build and progress our pipeline. We do need to remain patient, but I firmly believe North America is a key growth opportunity for us. And finally, we're continuing to review our portfolio alignment, something I know many investors are interested in. And to be clear, M&A remains very much a key component of our growth strategy and something that we're focused on. So with that, let me hand off to Andy, and he will talk you through the financial highlights for the year.

Thank you David and good afternoon everyone. So as David mentioned, our performance for the year was in line with the guidance we gave back with the interims in April. And that includes a much improved second half trading performance following a softer first half of the year. The second half improvement included the recovery in our traffic data and events businesses, where actions that we took earlier in the year helped to improve profitability, as well as the benefit from delivering the first phase of development work on a tap converter contract that we announced in February 2025. The group is typically more profitable in the second half of the year. That reflects the seasonality of our revenue streams. And in H2 of FY25, we achieved an adjusted EBITDA margin of 19.2%, which is 331 basis points higher than in H2 of the prior year. And overall, we delivered modest revenue growth year on year, despite the market headwinds that we referenced earlier. Importantly, within this, we've continued to deliver stronger growth in recurring and transactional revenues. which are key long-term value drivers and in combination these increased by 8% over the prior year. The group's balance sheet remains strong. We saw a healthy improvement in free cash flow generation and we ended the year with £23.4 million of cash on the balance sheet having fully completed the £3 million share buyback that we announced in April. We put in place a new £35 million RCF in the second half of the year, and this remains undrawn. And on the dividend, we've maintained our progressive policy. We're recommending a final dividend of 1.4 pence per share, which would result in an 8% increase in the total dividend to 26 pence. So looking at the financial performance in more detail, as usual, I'll start with the group consolidated performance and then break out the divisional results in more detail. So total group revenue of £81.9 million was 1% higher than prior year on a reported basis. It was 3% higher on a like-for-like basis after adjusting for revenue from the lower margin non-software related consultancy activities that we exited at the end of FY24. Adjusted EBITDA of £12.6 million was slightly lower than last year. And this really reflects three main drivers. Firstly, the Control Period 7 funding headwinds impacted volumes of our remote condition monitoring hardware in the UK. Revenues here were 42% lower than in the prior year. And this had an adverse effect to profit, approximately £1.5 million. As you'll probably recall from the interim results, we have seen a significantly lower level of profitability in our traffic data and events businesses in the first half. Second half performance here was much improved. I'll talk more about that when we get to the divisional review. However, the total profit contribution from this part of the business was lower than we achieved in FY24. And offsetting these headwinds, the rest of the group delivered an EBITDA performance that was approximately £2 million higher than last year. That includes the benefit from exiting those lower margin consultancy activities, as well as healthy underlying growth across the rest of the UK rail portfolio, excluding remote condition monitoring. Over the last two years, we have completed a programme of actions to transform the group's operating model. that's focused in particular on integrating and enhancing our technology development and delivery capabilities and alongside this we've been working hard to upgrade operational systems streamline our operating footprint exit from lower margin activities and in some cases contracts and address other legacy issues that have restricted our ability to deliver revenue and margin growth Our FY25 results include the final tranche of costs associated with these actions, with £2.4 million of exceptional costs charged to the income statement, of which £2 million were cash costs. Our statutory profit metrics were improved versus prior year. In addition to a lower level of exceptional costs, this also includes over half a million pounds of additional interest income on our cash balances. And that includes the benefit from having centralised our cash management actions, which is one of the work streams that we completed as part of those transformation activities. So turning now to divisional performance, I'll start with the rail technology and services division. Total revenue in this division was 1% higher than the prior year. As I previously referenced, that did include a lower level of remote condition monitoring hardware revenue in the UK from CP7 headwinds. And excluding this, the rest of the portfolio delivered revenue growth of approximately 7%. And as you can see from the charts on the right-hand side of this slide, the quality of revenue in this division is improving. And in FY25, we delivered further growth in recurring and transactional revenues, which are the drivers of long-term value. Recurring software license revenue increased by 6% to £23.2 million, and transactional revenues from our smart ticketing and delayed repay products grew by 17% to £4.1 million. The balance of the revenue in this division includes that remote condition monitoring hardware revenue, as well as milestone-driven project and bespoke development work. This was overall 14% lower than in FY24, principally driven by the lower level of remote condition monitoring hardware in the UK. There was a lower level of project revenue in North America. That followed the go-live of our train dispatch product with Northern Indiana in September 2024. And from a divisional perspective, that was offset by the first phase of development work on a tap converter that started in the second half of FY25 and will continue throughout FY26. EBITDA of £9.6 million was 2% lower than the prior year. That includes the approximately £1.5 million adverse impact from remote condition monitoring, offset by growth across the rest of the UK portfolio. Turning next to our data analytics consultancy and events division. Revenue here was 5% higher than the prior year on a like for like basis after excluding the exited consultancy activities. This was principally driven by high activity levels in events where we achieved a record year with revenue in excess of 20 million pounds. That more than offset an overall lower level of revenue from traffic data. You may recall from the intrims we had approximately half a million pound revenue headwinds as one of our largest customers suffered a cyber attack in our first half of our financial year. That has been fully resolved. Activity levels and traffic data with that customer returned to normal in the second half of the year. However, we weren't fully able to recover that lost revenue from H1. We also saw a slightly lower revenue contribution from our geo-intelligence business based in Ireland. And after a very soft first half, full year profitability in this division was overall consistent with FY24. That includes a much improved performance in traffic data and events. And whilst the absolute EBITDA contribution from those businesses was still lower than the prior year, together they achieved an H2 EBITDA margin performance that was approximately 400 basis points higher than in H2 of FY24. And we expect to see a full year benefit from that in FY26. The lower EBITDA contribution on the traffic data and events side was offset by professional services. Our geo-intelligence business post year end has won a multi-year contract with the UK government and that underpins our growth expectations for FY26. And then turning lastly to cash, the group continues to deliver a healthy level of cash generation. Despite the slightly lower level of EBITDA, free cash flow generation in the year of £7.7 million was £2.3 million higher than in the prior year. That was driven largely by favourable working capital movements, including an unwind of the large trade receivables position that we had at the end of FY24. There was a lower level of cash outflows relating to transformational activities and higher net cash interest received. Of the £1.4 million cash outflows for exceptional items in FY25, £0.4 million of that relates to costs booked in FY24. And there's approximately £1 million of cash outflow that we anticipate in FY26 in relation to costs that have been booked in FY25. We've continued to invest in product development through the year, including feature enhancements for our train dispatch product in North America. We also invested to acquire and develop the AI platform that's used by our traffic data business. Overall, our total cash balance increased by £3.6 million to £23.4 million. That includes completing the full £3 million share buyback in the second half of the year. So this leaves us well positioned to continue to invest in a disciplined way, consistent with our capital allocation framework. And the new RCF provides us with additional headroom, flexibility and strategic optionality to invest for growth while continuing to maintain a robust balance sheet. So with that, I'll now hand you back to David to update you on the group's strategy and growth transformation opportunity.