Transense Technologies plc

Good afternoon, ladies and gentlemen. Welcome to the TransSense Technology plc interim results investor presentation. Throughout the recorded meeting, investors will be in listen-only mode. As usual, questions are encouraged. They can be submitted at any time. Just simply type in your question using the Q&A tab situated on the right-hand corner of your screen. The company may not be in a position to answer every question it receives in the meeting itself. Help the company can review all questions submitted there, and we'll publish those where it's appropriate to do so. I'd now like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to Executive Chairman Nigel Rogers. Good afternoon.

Good afternoon, Mark, and good afternoon, everybody who's attending. Thank you for joining us. Those who haven't seen us before, I'm Nigel Rogers, Executive Chairman. I have with me Ryan Moore, Managing Director, and Melvin Siegel, who's CFO of the company. We're going to work on the assumption today that most people have seen the company before. We've got four or five introductory slides, which I'm going to take very quickly. And then I'm going to lead into the highlights from the RNS that we announced this morning with our interim results for the period to 31st of December, 2024. and then Melvin will go through those interim results in a bit more detail from the financial perspective and then Ryan's going to put some meat on the bones of what's been happening within Translogic and within SourceSense during the six-month period and look at sort of current activities and outlook towards the end presentation has been running at around half an hour slightly more maybe when we've been doing it earlier today so i would imagine that we'll be able to have plenty of time for your questions at the end we've got about a dozen questions pre-submitted but do feel free to keep them coming and we'll try and compare that at the end so um moving first of all into an introduction this might be a bit of a recap for some it might be an introduction for others but as i said i'm going to take it fairly quickly we've been listed on the alternative investment market since 1991 Current market caps around about 27 million slightly lower than that at the moment. And I'll talk about that a little bit more on the share price graph there on the bottom right hand corner. We have a number of significant shareholders, the largest ones being Chrysler and Dowgate. The board itself holds about 3% of the shares in the company. The board of directors, myself, Ryan and Melvin, you'll meet today. Steve Parker and Craig Wilson are non-executive directors who've joined the business in the last couple of years and both have a wealth of experience in industrial engineering. The headcount of the company, as you're about to hear, has increased quite significantly over the last 12 months, around 30 now, so slightly more. Strong financial track record of good growth and revenue, adjusted EBITDA and profit before tax, as you can see there. and the share price after having had a really good run over the last few months and where the company's had something of a re-evaluation I think on the stock market has come off a little bit of late as many people will have heard me say before the stock market is a weighing machine in the long term but it's a voting machine in the short term and over the short term certainly this morning we had slightly more votes against does that give us any cause for concern well yes but only on the days when we are buying or selling and the rest of the time we try and run the business for long-term value and let the share price take care of itself over time the company controls two operating businesses source sense which is a specialist design and supply in of advanced sensor solutions for the accurate measurement of torque, force, pressure and temperature. Put simply, we have a very advanced sensor system which is able to take measurements on a very rapid basis and use those to control industrial equipment, aeroplanes, machinery, motor vehicles and the like. Ryan will talk more about how that works and the progress that we're making on commercial penetration later in the presentation. We also own Translogic, which is the developer and supplier of smart connected tire inspection tools so these are tools which are used to measure tire tread depth and tire pressure mainly used by large fleet users of commercial vehicles again more of that to come A third leg to our business was a part of the business called iTrack which was sold to Bridgestone in 2020 and the consideration for that deal was in the form of a 10-year royalty on their revenue on the sale of the iTrack product and this graph here shows the success that that has had in the marketplace in the first five years the royalty revenues grown from less than a million to more than three million pounds in the current financial year You can see there that over the next five years, that graph flattens slightly because the unit rate of royalty per installation starts to reduce in FY26 and then again in FY28. But there is still a significant amount of money to be collected from that transaction. Broadly speaking, we're probably about halfway there. By the end of this calendar year, we'll have collected about 13, 14 million. And arguably, they'll be the same again to collect over the second half. That's important to us because it provides the backdrop of financial stability for us to be able to work really hard on developing SourceSense and Translogic into businesses which we think have very significant long-term financial value. They have some very interesting characteristics. We are in very dynamic global markets. We have very high quality blue chip customers. They're mostly household names. Some of the market leaders and some of the biggest and highest growth industries around, particularly as I've said, aerospace, electric vehicles, robotics. We've got some lots of very interesting positions in some very high growth markets. We also have innovative and highly engineered products which command premium margins and also provide us with the opportunity for sticky business. Once our products are specified in on design, then it's unlikely that they will be designed back out again. So that gives us very long term visibility of earnings, particularly in source ends. and we also meet the green agenda our products are consistent with sustainability they tend to work to improve efficiency and to improve the longevity of products and consequently do meet with the green agenda and put all that together with our value focus and the strength of our people we think we've got a very long-term valuable business model Let me move into the current presentation now then on the highlights. So these are the highlights for the first half of the financial year in which you'll see strong revenue growth. You'll see an investment in our team to provide customer facing people on both sides of the business who will be around to resource future growth in revenue you'll see that despite that investment our EBITDA and our PBT are virtually unchanged since the prior year so we've been able to make that investment without sacrificing current profitability within SourceSense the conversion of our sales pipeline is well underway lots of interesting development projects and also some good progress within the motorsport sector where you're about to hear about a record order book as at the 1st of January this year We're also well advanced now in planning the introduction of our pilot production line at Western on the Green. You're about to see a schematic of that and an explanation of the benefits that it's going to bring to our business. And within Translogic, We've seen some very good growth from revenue from our existing run rate customers, particularly the global tire majors, but also the completion of a software partnership to enable us to bundle our hardware together with software and sell on a subscription model with the first deal under that model, as we said in the RNS this morning, imminent. we've also been working hard on the development of an international distribution network and closed two deals during the period and one very important landmark deal post period end in north america again ryan will be able to fill you in on much more of that so i will now if i may pass over to melvin um melvin the cfo will take you through the interim financial results thank you nigel

There is a positive year-on-year increase in total revenues, up by 36%, from 1.8 million to nearly 2.5 million. Gross profit has risen by 40%, and in the current period excluding ITRAC, the margins have moved up from 61% to 72%, reflecting the change in sales mix, in this case the large increase in sole revenues in this half year. I should also note that following the successful move bringing Translogic production in-house, Translogic margins on product sales should improve in H2 by around 10%. Operating expenses are up 73% with the major part of that increase going towards building the Transense team from a headcount of 18 to 31 and also providing the facilities to support that enhanced team. Profit before tax is slightly down year-on-year and operating margin has dropped from 34% to 22%, reflecting the build-up of operating costs in H1. I just saw the headline today on Alliance News in ADVFN that says Transense Technology profits fall as costs outpace revenue growth. The statement is correct, but also misleading as the step up in operating costs is in response to the accelerated growth we are seeing in both actual sales and sales pipeline. And importantly, the point they miss, which makes it misleading, is that the new cost base should be broadly sufficient to support the anticipated growth in revenues over the next few years. In other words, it's more of a one off increase. Finally, I should always mention we have valuable tax losses of around 20 million available to carry forward, which in tax terms is worth about 5 million pounds. Onto the next slide, the graph on the left shows the geographical breakdown of revenues. Setting aside the blue swath on the right representing ITRAC income and looking at the rest of the business, overseas sales represent 70% of those revenues across all continents, which in times of economic uncertainty means the risk of any single market reliance is greatly reduced. The balance of 30%, which is the green part at the top of the bagel, is substantially UK motorsport income. Therefore, there is a large domestic market still to be addressed, particularly in terms of Translogic. With regards to the ITRAC share of revenues at 63%, this probably represents a peak level and I would expect it to be around 55% at the year end and in the next two years as the royalty rate drops in the 30s. The graph on the right shows a five year history of total revenues in half yearly bites. Two points arise from this. Firstly, the fact that we have nearly achieved continuous growth throughout the five years and ten half yearly periods. And secondly, and importantly, the impact that H2 has on our four year results. Extracting iTRAC from these numbers in FY23 and FY24, we experienced strong growth in H2. In fact, FY24 H2 came in 75% ahead of H1. This gives us confidence in the current year we could achieve a near doubling of our H1 numbers for SourceSense and the ProVit and TransLogic numbers. Looking now at the segmental analysis, Translogic has grown by 7% to over half a million pounds. iTrack has increased by a healthy 26% to just under 1.6 million and demonstrating the increased traction in SOAR, that segment enjoyed growth of 360% at 380,000 pounds, representing over 83% of FY24's four-year number. Since iTRAC was rebranded to incorporate Bridgestone's name, we have seen an average monthly incremental truck increase in H1. This clearly bodes well for next year when the royalty rate drops. Looking at segmental contributions, with the exception of iTRAC, you will see some reductions year on year representing the build-up of human resources in both SOAR and TransLogic, as I've already covered. Addressing now the cash flow, there was a small fall in cash at the end of H1, ending at just under 1.2 million and rising to nearly 1.9 million at the end of January following receipt of the quarterly royalty. The reduction in December reflects increased investment in working capital, including a rise in inventory levels of about 120,000. Additionally, there was capex spend of about 280,000. There is further capex spend planned which is not yet finalised but is likely to be around £2 million split broadly 50-50 between plant and machinery producing a working production line and intangibles relating to the next generation ASIC and AQP. The new capex spend could be funded from cash resources however to leave cash headroom I have opted to seek asset finance for the plant and machinery element and a clear sign of how far Transense has moved forward and the confidence that exists in our future performance, we have had no issue in securing 100% funding for this expenditure. Appointing Cavendish as our new broker has provided an opportunity for their research team to issue a research note which is certainly an important read for both investors and potential investors alike. From when I joined Transents in 2007 through nine fundraisers in 12 years, Transents today is unrecognizable. We are a profitable, cash generating, financially secure business working with numerous blue chip customers. The new offices and equipment already in situ and with new machinery to come has changed the office appearance from a cottage industry look to a highly professional respected organization which is augmented by the strong team that has been put together. We have been confident enough to support a new research note covering three years from FY25 through to FY27, including the two years when we experienced a fall in the ITRAC royalty rates. FY25 was revised following the known upward changes in both revenues and overheads. and FY26 and 27 are in our view very achievable numbers culminating in research numbers for FY27 showing revenues in excess of 7 million and PBT at 2 million. Finally as a board our focus goes well beyond FY27 and an important part of today's presentation is listening to the narrative from both Nigel and Ryan understanding how far our company has progressed even in the last few years and even more so how far we can progress in the short to medium term with both the SOAR and Translogic business segments continuing to mature. On that note I will pass over to Ryan.