CHIEF EXECUTIVE'S REPORT

BUSINESS REVIEW

Our performance in FY 2022 showed strong recovery particularly within our photobooth operations. We have continued to benefit from our disciplined approach to cost management and our ability to increase pricing, as well as our ongoing marketing activity, all of which have underpinned the recovery in performance. The Group has delivered figures comparable to the performance achieved in 2019. This is despite some continued disruption from COVID-19 in the Period, and the macro-economic challenges impacting business.

We continue with a strategic focus on innovation, R&D and diversification which remain important factors in the Group's long-term growth strategy, ensuring the continued delivery of solutions and services that can address ever-changing consumer needs.

Financial performance

Reported revenue in the Period increased by 21.2% to £259.8 million, compared with £214.4 million in the prior 12 months ended 31 October 2021. This performance was primarily driven by a strong performance across Continental Europe and in the UK & the Republic of Ireland. The Group benefited from a recovery in activity levels from Q2 onwards, particularly for photobooths and laundry services, as well as substantial price increases in Germany and France during H2 2022.

Revenue for Continental Europe was up 22.6% and operating profit up 73.3%, mainly driven by activity in France. In the UK & Republic of Ireland, revenue was up 41.9% and operating profit improved by 132.0%. Activity in Asia Pacific was more subdued, due to pandemic restrictions remaining in place for longer than in the Group's other operating regions, with revenue and operating profit both flat year-on-year.

Profitability improved year-on-year across all regions, benefiting from a recovery in demand, our successful recent restructuring programme to remove unprofitable machines, and an increase in consumer pricing during the year. A breakdown of performance by region is set out in the Review of Performance by Geography.

Reported EBITDA (excluding associates) was £92.2 million, an increase of 41.6%% on the prior 12-month period, which delivered an EBITDA margin of 35.5%.

Reported profit before tax increased by £24.8 million (+86.7%) to £53.4 million (2021: 28.6 million). 

Capital expenditure in the Period was £38.2 million, primarily related to Machines costs (£28.2m), Plant and Machinery (£5.1m) and the rest is Intangible assets (Goodwill: £1.7m, R&D: £1.4m, Other Intangibles: £1.7m).

Further detail of the Group's financial performance is set out in the Financial Review.

Funding and liquidity

The Group continues to be highly cash generative. At 31 October 2022, the Group had gross cash of £136.2 million and a net cash balance of £34.0 million. This is net of £0.7 million cash investment in acquisitions and dividends paid during the year which amounted to £35.5 million.  We did not have the benefit of any government facilities in the Period.

The Group remains in a strong financial and liquidity position to fund future growth whilst continuing to navigate the broader macroeconomic headwinds. 

nnovation and diversification

We are proud of our track record in new product development and our innovative approach, supported by our team of 50 engineers located in our R&D centres situated in France (primary facility) and Vietnam. Our in-house R&D team is continuously working on new product innovation to meet ever-changing customer and consumer needs, providing them with a range of instant service equipment that is modern, convenient and user-friendly.

Our approach to innovation and diversification is focused on two key pillars:

1.   A state-of-the-art user experience, backed by the best proprietary technology, including the design of new, intuitive, and modern user interfaces across multiple product categories; the integration of digital payment systems across vending estate; and up-to-date functionalities, through an aggregate of the best of external technology providers

2.   An omnichannel approach, leveraging digital functionalities to enhance the user experience of our brands and explore new business models, including the use of a powerful CRM which offers a customised experience to end users; the launch of applications that connect to our machines to offer mobile-to-machine features; the remote management of our self-service vending equipment through a cloud-based infrastructure; multi-service functionality for the next-generation machines; and centralised operating system offers a seamless, connected user experience for the consumer

Overview of principal business areas

Below is an overview of the Group's four principal business areas: Identification (Photo.ME), Laundry (Wash.ME), Kiosks (Print.ME) and Food (Feed.ME). In addition, the Group operates other vending equipment.

Photo.ME

Photobooths and integrated biometric identification solutions

We saw a strong recovery in photo ID demand for passports and other official documentation restrictions were eased and consumers were able to travel and socialise, as well as other products delivered via our photobooth estate. Notably, demand was strong in Continental Europe, particularly France, from February onwards. The UK showed a similar trend from May onwards, despite the Government's ongoing acceptance of home-taken photos for official documents. The Asia market was subdued due to covid restrictions.

We gradually and successfully implemented price changes in H2 2022. The cost per use of our photobooths increased from €6 to €8 in France (10% of machines remained at €6 per use), and from €8 to €10 in Germany and Austria, which did not have an adverse impact on consumer demand. Subsequently, similar price increases were implemented across most of our operating markets during the second half of the year. We anticipate that the full benefit of these price increases will be evident in FY 2023.

Revenue increased by 25.2% to £154.3 million (2021: £123.2 million), driven largely by the increase in cost per use implemented across the Group's machine estate in certain territories along with increasing post-Covid demand. The average revenue per machine (excluding VAT) increased to £5,586 per year (2021: £4,421 per year).

Subsequently, EBITDA was £54.2 million, and represented 63.8% of Group EBITDA (excluding the property sale). EBITDA was 55.8% of the revenue during the Period.

Overall, this performance is a testament to the resilience and long-term future of our photobooth estate.

Capex in the Period decreased by 40.0% to £3.0 million, reflecting a deferral of investment in next-generation photobooths. The Group began the rollout and installation of next-generation photobooths during Q1 2023, initially with the deployment of 50 units in France. It is the Group's aim to deploy approximately 3,000 next-generation photobooths during FY 2023, with a view of rolling out c.10,000 units over the next three years. Consequently, the Group anticipates that Photo.ME capex will be significantly higher during FY 2023 in the range of £15.0 - £20.0 million. Whilst this is a material increase in capex, we expect our next-generation machines will achieve an attractive return on investment within one year.

At 31 October 2022, the number of photobooths in operation remained broadly flat at 27,625 units (2021: 27,867). Photo.ME operations accounted 62.9% of the Group's total vending units.

Growth strategy

Our photobooths meet the needs of consumers who are required to have official photo ID for documents such as passports and driving licences. This quasi-compulsory service and its strong market position give the Group pricing power for this service. Increasingly governments are seeking to improve and digitise photo ID security to combat fraud and terrorist activity. In addition, consumers are seeking multi-functional instant services through a single vending machine.

Alongside deploying our proven identification security technologies in existing and new countries of operation, we are continuously innovating with the aim of expanding the services available via our next-generation photobooth. This includes fun features and social media sharing functions providing customers with additional, diversified services. We are also targeting new strategic partnerships which will enable us to operate at high-footfall locations, including supermarkets, smaller retail shops and retail parks.

Strategy in action

Since February 2022, our face ID anti-spoofing technology secured compliance recognition under the international Biometrics Presentation Attack Detection standards (ISO/IEC 30107-3) by Cabinet Louis Reynolds (CLR), the French biometrics and security technologies experts. This recognises the Group's anti-spoofing technology, which helps to ensure that all ME Group photobooths are biometrically secure and mitigative against "fake" photo ID for official documents, as credible by regulatory standards.

The Board continues to believe that there are longer-term opportunities in the photo ID market across both existing and new geographic markets. Our new multiservice next-generation photobooth will integrate the consumer journey into specific omnichannel automated services.

Wash.ME

Unattended Revolution laundry services and launderettes

* There were 4,424 Revolution units in operation through the entirety of the 12 months ended 31 October 2022 compared with 3,765 in 12 months ended 31 October 2021.

Total revenue from our laundry operations grew by 14.0% % to £61.8 million, driven by an increase in the number of Revolution units in operation. At 31 October 2022, the total number of laundry units deployed (owned, sold) was up to 5,924.

La Wash, our Spanish B2B laundry service franchise business, was sold in November 2021. La Wash represented a minor part of the laundry business. Following this disposal, we no longer operate B2B laundry services except for a small level of activity in Ireland.

Continued growth of Revolution laundry operations

In line with our growth strategy, the Group installed an average of 70 machines per month, primarily in Continental Europe and the UK & Republic of Ireland. As a result, the number of units in operation grew by 16.1% to 4,754. Revolution laundry machines accounted for 10.8% of the Group's total estate by number of machines (2021: 9.3%).

Revenue increased by 26.6% to £ 56.7 million, which represented 21.8% of Group revenue. The average revenue per machine (excluding VAT) was £12,816 per year (2021: £11,899 per year). EBITDA was £29.1 million and contributed 34.3% of Group EBITDA (excluding property sales). EBITDA was 34.7% of revenue in the Period.

Revolution capex increased to £20.2 million (2021: £15.9 million) reflecting an increase in production and installation costs, along with the redeployment of selected machines to more profitable locations.  Additionally, the Group has entered a period of machine refurbishment and maintenance, the first since we launched our laundry operations in 2012.

Growth strategy

Revolution laundry services remain a key growth driver for the Group and revenue from this business area is expected to continue to increase as a proportion of total Group revenue. 

Our strategy is to further expand our operations through new and existing partnerships with site owners in target territories to address consumer demand for convenient and competitively priced high-capacity laundry services. Our R&D teams will also continue to innovate to improve and upgrade our product range and commercialise new formats aimed at specific market segments.

In FY 2023, we plan to invest approx. £23.0 million in Wash.ME and our aim is to increase Revolution installations to 80-90 units per month, targeting a return on investment of approx. 18 months.

Strategy in action

During the Period the Group launched two newly developed laundry machine formats - the Revolution Compact V3 which offers a more environmentally friendly solution by using less energy and detergent, and the Revolution Flex which offers a compact format that can be deployed inside co-living locations.

We continue to innovate and over time we will deploy lower-cost models which will offer substantial savings in production costs and flexibility of deployment, along with improved energy efficiency features that aim to reduce water and electricity consumption.

We have continued to deliver on our sustainability commitment and reduce our impact on the environment. To date, we have installed 223 Photovoltaic solar panels on Revolution units primarily in France and expect to roll this out into other geographies in time.

Our strategy to expand existing and secure new long-term partnerships with site owners has enabled us to expand our Revolution estate in the key UK market and extend our footprint across major, high-footfall locations bringing our laundry services to even more existing and potential customers. We have begun pilot testing of our new indoor and outdoor "Flex" laundry machine format. We believe there is a large-scale opportunity in the European market for this compact machine format.

Print.ME

High-quality digital printing services

Our estate of digital printing kiosks offers a wide range of competitively priced print formats and personalised products. Our key markets are France, where most machines are situated, the UK and Switzerland.

At 31 October 2022 the Group had 4,785 kiosks in operation, down 7.5% compared with the prior year. Kiosks accounted for 10.9% of the total number of vending units in operation.

Revenue decreased slightly to £10.7 million from £11.7 million in the prior year, due to a reduction in the number of digital printing kiosks in operation, following the removal of unprofitable machines. Print.ME revenue represented 4.6% of Group revenue. EBITDA was £3.6 million and contributed 4.2% of Group EBITDA in the Period.

The average revenue per machine (excluding VAT) was £2,279 per year (2021: £2,146).

Capex for the Period was £1.3 million in line with our strategy to focus our investment on expanding our growing Wash.ME and Feed.ME businesses during FY 2022. During the second half of the year, this capex was invested in 500 new kiosks to refresh our machine portfolio in France. The replacement of machines began in H2 2022 and will complete during H1 2023. The expected return on investment is 18 months and the benefit is expected to be evident in FY 2023.

Growth strategy

There remains demand for high-quality printing services reflecting the increased use of smartphones and digital sharing across social media networks. Print.ME's convenient, affordable and easy-to-use instant printing services enable consumers to print direct from smart devices.

The Group is considering opportunities to further extend its digital kiosk services offered through its instant-service machine network, as well as a focus on identifying product partnership opportunities within existing territories. Our next generation photobooths are multi-functional and will have similar functions as our digital printing kiosks, in line with our innovation and diversification plan for our services.

Feed.MEVending equipment for the food service market

Feed.ME business model is different from our other business areas. It is primarily based on equipment sales, and on a smaller scale on operating machines in Japan (214 orange juice machines). There is currently no significant capex requirement for this business area.

Our food vending equipment operations, which further diversify our vending services, are the Group's newest business area. Activities are focused on (i) self-service fresh fruit juice equipment market and (ii) pizza vending machines aimed at the B2B retail and hospitality markets. The Group currently has such operations in Belgium, France, Japan and Switzerland.

The Group sells its vending equipment to customers, typically with a maintenance agreement for the Group to service the equipment. Customers typically (but not exclusively) choose to enter into a sale and leaseback arrangement with a third-party financing company for a period of 15 months for fruit juice machines and five years for pizzas machines. At the end of a sale and leaseback contract, the Group has the option to buy the machine back and to refurbish it. The machine can then be sold again. The renewal rate for existing customers is over 70%. The Group does not operate food vending equipment in Japan except for fresh fruit juice vending machines.

Revenue solely from the sale of equipment was £9.9 million, adding other revenue (£2.6m), the total revenue of Feed.ME is £12.5m which reflected the good strategic progress made in the Period. This business area contributed 4.8% of total Group revenue.

EBITDA was £3.4 million and contributed 4.0% of Group EBITDA (excluding the property sale).

Growth strategy

There is a growing demand for vending services within the food sector, particularly for fresh fruit juice and pizza. Our growth strategy is built around new product innovation and is focused on three key areas (i) expanding our presence in the self-service fruit juice equipment market, (ii) establishing a larger presence in the pizza-vending equipment market, and (iii) building new partnerships with site owners to sell or deploy food vending equipment.

Strategy in action

·      Fresh Fruit Juice equipment

Our new product innovation capabilities have enabled us to further expand our presence in the self-service fruit juice equipment market through a wider variety of self-service fresh juice options. We have installed new professional apple, pineapple and grape juice vending machines in France, Belgium and Japan, as part of our juice wall concept. The orange juice vending model in Japan continued to grow with very satisfying results. There are now 214 machines active in Japan which are operated by ME Group, the only geography where the Group does operate food vending equipment.

Following delays due to the pandemic, the Group's professional apple and pineapple machines were installed across France and Belgium. Furthermore, nine of the Group's innovative 'juice wall concept' were deployed in the Period, which offers consumers different fruit juice options.

·      Pizza vending equipment

Our pizza vending machines, which are sold to site owners, offer consumers ready to eat pizza in four minutes available 24 hours a day, seven days a week. In line with our strategy, we accelerated the rate of machine sales during the year to an average of 20 machines per month in France. We have started to deploy further machines in Spain, Belgium and the Netherlands in the second half of the year.

In May we announced a new technological partnership with Digitiz.me, a ground-breaking digital platform, enabling the Group to accelerate development in the fast-growing connected food vending market. Through this new partnership, omnichannel software offering an all-in-one complete solution will be rolled out across all ME Group pizza vending equipment to offer consumers an easy and integrated experience, whilst also improving our ability to remotely manage units. We believe this will revolutionise the way our food vending machines function and deliver value for our partners. The deployment of this technology will start in H1 2023.

We continue to invest in new product innovation to enhance our product range. In June, we launched our second-generation pizza kiosk, which is aimed at the independent pizziaolos market as well as global hypermarket key accounts. In October, we launched 64-pizza Muliquattro V3 and 96-pizza capacity kiosks. These new design machines, and our new industrialisation process, have enabled us to decrease production costs and optimise logistics costs. The Group has started with the development of a new pizza vending machine unit, offering a smaller one-pizza format designed for more compact locations.

Our strategy is to enhance our presence in the pizza vending equipment market, with the aim of becoming a leader in the European market. We are also exploring new business models and opportunities to accelerate expansion of our presence in the growing food service vending equipment market.

Other vending equipment

At 31 October 2022, the Group operated 6,483 (2021: 6,624) other vending units in addition to our four principal business areas. This included 2,489 children's rides (Amuse.ME), 3,456 photocopiers (Copy.ME) and 538 other miscellaneous machines.

These machines are typically located in high-footfall locations alongside the Group's principal activities, thereby benefiting from existing site owner relationships and operating synergies.  The Group will continue to operate other vending units where profitable. 

Other vending equipment accounted for 15.3%  of the Group's total vending estate by number of units, down 0.2%  compared to the previous year and represented 2.0%  of the total Group revenue. 

REVIEW OF PERFORMANCE BY GEOGRAPHY

Commentary on the Group's financial performance is set out below, in line with the segments as operated by the Board and the management of the Group. These segmental breakdowns are consistent with the information prepared to support the Board's decision-making. Some commentary below relates to the performance of specific products in the relevant geographies.

Vending units in operations

As expected, the total number of vending units in operation at 31 October 2022 increased slightly 0.2% to 43,910 compared with the prior year (2021: 43,817), reflecting the Group's strategy to remove unprofitable machines as part of the restructuring programme initiated in April 2021. This was compensated by the number of new installations.

Key financials

The Group reports its financial performance based on three geographic regions of operation: (i) Continental Europe; (ii) the UK & Republic of Ireland; and (iii) Asia Pacific.

Revenue by geographic region

Operating profit by geographic region

The Group delivered a 21.2% increase in total revenue to £259.8 million driven by recovering markets, price increases as well as the successful completion of the Group's restructuring programme.

Operating revenue evolution (last 12 months by quarter)

The table below provides a detailed breakdown of changes in operating revenue by geographic region and business area for the Period, compared with the similar period in the 12 months ended 31 October 2022.

Operating revenue is sales revenue generated by vending units, less VAT. It excludes sales of machines and parts and other ancillary revenue streams.

Continental Europe

Continental Europe is the Group's largest region by both number of machines and contribution to Group revenue.

Revenue increased 22.6% to £177.8 million driven by a strong recovery in photobooth and laundry activity throughout the Period. Kiosk demand improved in Q3 and Q4. Operating revenue for Photo.ME was up 33.6%, Wash.ME was up 12.2% and Print.ME up 4.6%.  Operating profit increased by £21.7 million to £56.8 million.

France performed particularly strongly, benefiting from the recovery in activity alongside an increase in consumer pricing.

In April 2022, the Group sold an office building for £7.1 million, which had a positive impact on the region's operating profit.

In November 2021 we sold La Wash, our Spanish B2B laundry service franchise business at a loss of £(0.5) million. This item was not included in Continental Europe's operating profit but was reported in other net gains and losses, below operating profit.

At 31 October2022, 25,331 units were in operation in Continental Europe which represented 57.7% of the Group's total estate. Continental Europe contributed 68.5% of total Group revenue.

UK & Republic of Ireland

Revenue in the UK & the Republic of Ireland grew by 41.9% to £42.0 million driven by a strong recovery in photobooth and laundry activity in the second half of the year, the Group's key business areas in the region. The significant increase in demand for photo ID for passports and official documents led to a 70.2% increase in Photo.ME operating revenue in the Period.  Wash.ME performance was consistently strong, with operating revenue growth delivered each quarter which resulted in operating revenue for the year up 19.0%. The Group's other vending equipment in the region benefited from increased footfall matches in the second half of the year, following the lifting of pandemic restrictions.

Profitability in the region improved, with an operating profit of £ 11.6 million, compared to £ 5.0 million in the prior year. This performance reflected the successful restructuring programme in the region (completed in April 2021), which included the removal of unprofitable machines and bolstering of the management team in the region.

As at 31 October 2022, there were 6,858 units in operation in the UK & Republic of Ireland, a decrease of 5.3%, representing 15.6% of the Group's total vending estate.

Asia Pacific

The Group's operations continued to be impacted by extended COVID-19 restrictions which severely limited consumer demand, notably in Japan and China. This particularly affected photobooth activity, our largest business area in the region, with Photo.ME operating revenue down 6.5% compared to the prior year. Our laundry operations were more resilient with operating revenue up 50.0% year-on-year.

Despite these challenges, revenue in the region grew slightly by 0.3% to £39.9 million whilst operating profit was flat year-on-year at £2.0 million.

As at 31 October 2022, there were 11,721 units in operation which represented 26.7% of the Group's total vending estate.

In October, Japan eased restrictions and since then trading has started to rebound as anticipated.

Key performance Indicators (KPIs)

The Group measures its performance using different types of indicators. The main objective of these KPIs is to monitor the Group's cash generation, long-term profitability, preservation of the value of its assets, and of returns to shareholders.