28 September 2023

Microlise Group plc

("Microlise", "the Group" or "the Company")

Interim Results for the Six Months Ended 30 June 2023

Microlise Group sees double digit growth as supply chain issues begin to ease

Microlise Group plc (AIM: SAAS), a leading provider of transport management software to fleet operators, announces its unaudited results for the six months ended 30 June 2023.

Financial Highlights

·    Continued good demand for Microlise solutions, with new customer acquisition particularly strong.

·    Microlise's main growth driver in the period was increased demand from OEM customers, contributing to ARR growth of 11%, of which 10.2% represented organic growth, to £44.8m (H1 FY22: 10.5% and £40.2M)

·    The delays to delivery for direct customers, together with the investments made last year in product development, operations, and sales & marketing, impacted EBITDA margin in H1

·    The Group's net cash at 30 June 2023 was £14.1m (31 December 2022: £16.7m), after net cash spend of £2.86m on acquisitions during the period, including initial consideration of £1.86m for Vita Software and the final deferred consideration instalment of £1.0m in relation to the 2020 acquisition of TruTac.

·    Several large receipts were received post period end, totalling £2.8m, this resulted in a cash conversion rate of 80% of adjusted EBITDA, which was lower than H1 FY22 (127%), reflecting this working capital phasing.

Operational Highlights

·    More than 250 new customers added during the period.

·    12 major multi-year renewals signed in the period including Tesco, Bidfood and Pall-ex.

·    Excellent customer retention with churn of just 0.5%.

·    First acquisition since IPO of Vita Software for £1.86m on cash free debt free basis.

·    Acquisition has expanded product suite to include resource & transport costing, subcontractor management and invoicing solutions with two upsells made already.

·    Growth in subscriptions of 10% during the six months to 626K.

Nadeem Raza, CEO of Microlise, commented: "Microlise delivered another strong performance during H1 2023 as we successfully executed our growth strategy. We secured new customers in our key geographies beyond the UK including France, Australia and New Zealand, expanded our customer base, and efficiently integrated our latest acquisition.

"We have successfully navigated the Company through global supply chain issues and subsequent delays in new vehicle availability, maintaining strong relationships with our valued customers. We are seeing significant improvements in all these situations, which we expect to have normalised by the start of 2024.

"During the second half of the year, our focus will remain on investing in growth, expanding our product portfolio, and growing our strong customer base and geographical presence. Whilst it is sensible to look to the future with a degree of caution, given the continuing global macro-economic challenges, the Company's positive trading performance during the period and proven ability to navigate these challenges, underpin the Board's confidence that the Group's performance for FY23 will be in line with market expectations."

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About Microlise

Established in 1982, Microlise Group Plc is a leading SaaS technology provider of fleet management and IIoT solutions. Its technology is designed to help businesses bring connectivity to its products and operations, improve efficiency, reduce emissions, lower costs, and increase safety on the road.

With a range of products and services used by more than 400 enterprise clients globally, Microlise helps companies of all shapes and sizes - across a wide range of industries - to better manage their entire logistics operation and products.

Backed by a team of experienced professionals who provide excellent customer service, the Group has won a number of awards, including three Queens Awards for International Trade (2018) and Enterprise (2019, 2020).

Headquartered in the United Kingdom, the company also has offices in France, Australia, and India with a global staff base of more than 690 industry professionals. 

Handling over 626,000 subscriptions annually, Microlise joined the Alternative Investment Market (AIM) in 2021, qualifying for the London Stock Exchange's Green Economy Mark.

Chairman's Statement

On behalf of the Board, I am pleased to announce Microlise's results for the six-month period ended 30 June 2023. Despite the prevailing macro-economic challenges, the Group continued to make solid progress toward its strategic goals, reflecting the dedication both of staff and management. This is best observed in the growth in revenue where Microlise delivered an increase of 10.5% during the period, from £30.7m in H1 2022 to £33.9m in H1 2023.

The Company, along with the broader transport industry, continued to grapple with global component shortages during the first half of the period, which in turn impacted the availability of new vehicles. However, we are pleased to report that we are seeing positive signs of improvement and are confident component availability will return to pre-pandemic levels in H2, with new vehicle lead times some three to six months later.

We were delighted to announce the acquisition of Vita Software, a provider of Transportation Management Systems, on 14 March 2023. This was a milestone event, as our first acquisition since listing which has already proved a success, resulting in new product sales.

Our strategic focus for the next six months remains unchanged, and we will continue to review additional M&A opportunities that complement our product suite and customer strategy. We remain focused on our international expansion with particular interest in France, Australia and New Zealand, and on ensuring our customers benefit through the broader use of our comprehensive, integrated product range.

On behalf of the Board, I would like to thank the Microlise management team and employees for their ongoing hard work and determination, and our shareholders for their continued support. The commitment of our stakeholders is instrumental to our success and we look forward to updating you at the end of the year with our Full Year results.

Jon Lee, Non-Executive Chairman

CEO Statement

Microlise has traded well in the first half of FY2023, showing continued growth in revenue and profitability. Although we are seeing supply chain issue and chip shortages normalise, lead times on new vehicles are not expected to recover to pre-pandemic levels until the end of the year.  Despite these headwinds, we continue to deliver against a strong order book from our OEM customers underpinning our confidence that we will achieve market expectations for the full year.

We continued to strengthen our global business, adding 250 new customers in the first 6 months of FY2023, while growing/extending contracts with 12 of our existing large enterprise customers. At the same time, we maintained an extremely low churn rate of 0.5%, demonstrating that once our solutions are established within our customers' operations, they become essential and invaluable to the success of their businesses.  

We acquired Vita Software in March 2023, to expand the Group's suite of technology solutions. The acquisition has proven to be immediately earnings enhancing, and the Company has already signed two contracts to provide Vita's solutions to Microlise's existing clients. 

In addition, the Microlise Transport Conference returned in May 2023, which included sessions specifically for investors and research analysts. The conference was a huge success and reinforced Microlise as a leading solutions provider and one that is central to the UK transport industry and beyond.

Market

At the start of H1 2023, our customers continued to face significant challenges posed by the current market conditions, including the war in Ukraine, unprecedented global supply chain issues, chip shortages and rising fuel costs. However, as expected, we saw the global supply chain and chip shortages begin to diminish towards the end of the period and expect this trend to continue through the rest of the year.

These supply chain issues significantly reduced the availability of new vehicles for our customers, creating a substantial order backlog, and resulting in delays in the delivery of projects to new customers. We continue to see signs of improvement in new vehicle lead times, and we expect this to continue with a lag behind supply chain improvements by three to six months. We are confident that this will be back to pre-pandemic levels by the start of 2024.

Customer Base

Securing new customers and establishing enduring customer relationships remains at the core of our business. We achieve this by continuously expanding and evolving our product offerings to cover new functionalities and geographical areas.

During the six months under review, we added over 250 new customers including Leeds-headquartered LF&E Refrigerated Transport, and Northern Ireland-based McCulla, both signing six-year contracts. Other key multi-year contracts include the ~£3.5M new business win with the UK's largest car transportation business, which sees a 1,405-vehicle implementation of products such as Fleet Performance with Driver Performance Monitoring, Safety Module, Remote Tachograph Download and Forward-Facing Camera Systems. This strong performance highlights the importance of the Microlise offering in helping fleet operators improve efficiencies, minimise costs and protect margins.

Post period end, we have signed major contracts with two of Australia's largest grocery retailers. These two significant contracts demonstrate progress made against our strategy of enlarging our geographical footprint, alongside the attraction of our product offering.

12 major multi-year renewals were signed in the year to date including Tesco, Bidfood and Pall-ex, with more targeted to close in Q4.

Microlise continued to have high rates of customer retention and extremely low churn of 0.5% during the period, reflecting the importance of the Company's solutions to its customers and the loyalty of our customer base.

Product Offering and M&A

Fleet operators face rising fuel prices, driver shortages and delays in new vehicle availability. Our solutions, which help make the most efficient use of assets, thereby reducing fuel, the time drivers are on the road, and wear and tear on vehicles, remain of crucial importance.

In March 2023, as part of the Company's strategic growth plan, Microlise acquired Vita Software for an initial consideration of £1.86 million cash payment, on a cash free, debt free basis, with the initial consideration funded from the Company's existing cash reserves. In addition, the Company will pay a deferred consideration of £0.2 million after 12 months subject to any claims. The acquisition expanded the Group's suite of technology solutions to include resource and transport costing, subcontractor management and invoicing solutions. It has proven to be immediately earnings enhancing, and the Company has made strong progress already with two upsells of Vita's solutions to existing clients. The software is applicable to fleets of all sizes, supporting our strategy to expand into smaller fleets.

The integration of the acquisition has progressed well, and we expect there to be significant opportunity for upsell and cross-sell into the Company's broader client base. This will enable the Company to strengthen customer relationships and reinforce Microlise's position as a leading provider of transport technology solutions.

Strategic Focus

Our strategy remains focused on growth and ensuring our solution remains best-in-class for HGV fleet operators. We remain focused on continuing to navigate current market challenges, including supply chain issues and reduced vehicle availability, while maintaining our strong trading performance.

As technology evolves, our customers demand ever-stronger assurances, and we are dedicated to meeting these demands. Therefore, we have invested in security measures for our blue-chip customer base including replacement enterprise firewalls using additional services to help us on our Zero Trust journey complimented with the Nvidia Mellanox Software Defined Network. We have leveraged our Exposure Management Platform tools and created Monitoring Dashboards for Software Vulnerabilities.

We will also continue to invest heavily in product development, ensuring that we remain at the forefront of our industry, bringing new, innovative solutions to our platform that benefit our customers.

During the period, we have remained focussed on international expansion, making solid progress across a number of key geographies including Australia and New Zealand. As described above we have signed two new contracts with leading Australian grocery retailers, demonstrating this progress, as well as the attraction of our expanded product offering and services.

M&A remains a core part of our strategy and we continue to have a robust pipeline of opportunities. Our acquisition of Vita Software during the period has already provided opportunities to further embed Microlise into customer operations. We continue to assess further acquisition opportunities and will act appropriately should they align with our immediate and long-term strategic focus.

Microlise Transport Conference

The Microlise Transport Conference in May was a resounding success, bringing together a remarkable assembly of industry leaders and innovators with the aim of addressing the current sector challenges and seizing the many promising opportunities available within today's market. With over 1,100 delegates, 48 exhibitors, and more than 50 distinguished speakers, the conference marked a significant milestone in our commitment to fostering collaboration and change within the industry.

This year, we also hosted our first investor-focused event as part of the conference, to showcase Microlise's solutions both to investors and investment commentators. We were pleased with the positive feedback we received and look forward to hosting similar events at future conferences.

People

During the period Nick Wightman was appointed to the Board as an Executive Director in the role of Chief Financial Officer. Nick replaced Bill Wynn, who announced his retirement after 15 years with the Company.

In August 2023 a new Strategy and M&A Director was appointed to the senior leadership team, who is responsible for enabling and accelerating the company's profitable, sustainable growth.

Shenny Remtulla has held senior leadership positions in several large, branded consumer multinational organisations, including Head of Strategy at SABMiller plc. He brings a long and successful track record of creating and executing corporate and commercial growth strategies and delivering performance improvement.

Prior to this, Shenny spent 10 years as a strategy consultant with Bain & Company across North America, Europe and Africa in a variety of sectors, including, FMCG / CPG, Consumer Products, Financial Services, Telecoms, Transportation, Natural Resources, etc., as well as a dedicated assignment within the Private Equity Practice.

ESG

Microlise is continuing to develop its ESG credentials. In April 2023, we achieved 'Great Place to Work' and 'Great Place to Work for Women' accreditation, recognising our commitment to improving the work experience of our employees and their wellbeing.

During the period, we completed the installation of 502 solar panels at our Nottingham HQ, which aims to reduce the sites annual carbon footprint by over 80 tonnes of CO2. We also have plans to expand our current on-site EV charging point infrastructure, as more staff take up the EV Salary Sacrifice Scheme the business has introduced.

Outlook

Microlise delivered another strong performance during H1 2023 as we successfully executed our growth strategy. We secured new customers in our key geographies beyond the UK including France, Australia and New Zealand, expanded our customer base, and efficiently integrated our latest acquisition.

We have successfully navigated the Company through global supply chain issues and subsequent delays in new vehicle availability, maintaining strong relationships with our valued customers. We are seeing significant improvements in all these situations, which we expect to have normalised by the start of 2024.

During the second half of the year, our focus will remain on investing in growth, expanding our product portfolio, and growing our strong customer base and geographical presence.

Whilst it is sensible to look to the future with a degree of caution, given the continuing global macro-economic challenges, the Company's positive trading performance during the period and proven ability to navigate these challenges, underpin the Board's confidence that the Group's performance for FY23 will be in line with market expectations.

Nadeem Raza, Chief Executive Officer

CFO's Statement

The financial results for the six-month period to 30 June 2023 reflect a further period of profitable growth for Microlise despite the challenges widely reported across all industry sectors.

Revenue

Despite supply chain issues having a significant impact on new vehicle availability for our customers, resulting in delays in the delivery of projects to new customers, revenue for the 6 months ended 30 June 2023 was £33.9m, an increase of 10% (£30.7m in H1 FY22) reflecting strong demand from our existing customer base. 

Recurring revenue increased 10% to £21.9m (H1 FY22: £19.8m), representing 64.5% of total revenues (64.6% in H1 FY22). New customer wins, together with growth in our existing customer's fleets and the recent acquisition of Vita Software resulted in 11% growth in Annual Recurring Revenue (ARR) to £44.8m as of 30 June 2023, of which 10.2% represented organic growth (H1 FY22: 10.5% and £40.2m). Non-recurring revenue for the period increased 11% to £12.0m (H1 FY22 £10.9m). This increase was driven primarily by strong OEM revenue with record orders, and the priority given to satisfying OEM hardware demand, where supply chain shortages caused constraints.

During the 6-month period, 250 new clients and a number of contract extensions and renewals were secured. In addition to winning new business and deepening existing accounts, the Group successfully maintained an extremely low rate of customer churn by value at 0.5% (FY22: 0.4%) reflecting the importance of Microlise's software solutions in our customers' operations.

Gross Profit

Gross profit for the period increased by 11.8% to £20.5m (H1 FY22: £18.4m), driven by improved recurring revenue and recurring margin. This resulted in an increase in gross margins to 61% from 60% in H1 FY22.

Operating Expenses

Operating expenses in the 6-month period ended 30 June 2023 increased 15% to £16.8m (H1 FY22: £14.6m). Operating expenses represents employee costs, premises costs, marketing costs, research & development costs (net of capitalised costs), finance charges, and administration costs.

The 14% increase in staff costs in the 6 months ended 30 June 2023 to £14.3m (H1 FY22: £12.5m) reflects our planned investment into our global sales force, which has seen headcount increase by an average of 18% in the period. The increase also reflects the costs associated with the implementation of our Employee Engagement strategy. As part of this strategy, we ensure market rate alignment for salary roles, the introduction of numerous cross-company social events and team collaboration events, the introduction of employee engagement initiatives, increased staff training and the introduction of a share option scheme for staff. Staff costs also include commissions reflecting the increased new customer win rate. Headcount in the period increased by 8.4% to 703 (H1 FY22: 644) overall.

Capitalised development costs in the period were £1.3m (H1 FY22: £0.8m), reflecting the investment the Group has made in the innovation and development of its range of products. Amortisation of capitalised development costs in the period was £0.5m (H1 FY22: £0.3m).

Adjusted EBITDA and Profit Before Tax

Adjusted EBITDA in the 6 months ended 30 June 2023 increased 4% to £4.5m (H1 FY22 £4.3m), with adjusted EBITDA margin for the period at 13.2% (H1 FY22: 14.0%). The decrease in the EBITDA margin was a result of the planned increase in operating expenses summarised above. To provide a guide to the underlying business performance, adjusted EBITDA excludes depreciation, amortisation, interest, tax and share based payments.

In the 6 months ended 30 June 2023 profit before taxation increased 5.7% to £1.5m (H1 FY22: profit of £1.4m).

EPS and Dividend

The Group made a profit after taxation in the period of £1.2m (H1 FY22: £1.1m), an increase of 12% over the same period in 2022.

As a result of the increase in profit after taxation, the reported basic earnings per share increased 12% to 1.05p (H1 FY22: 0.94p) and the diluted earnings per share increased 13% to 1.05p (H1 FY22: 0.93p).

The Board still does not feel that it is an appropriate time to commence paying dividends, as the Company continues to invest in its growth strategy.

Group Statement of Financial Position

The Group had net assets of £74.9m at 30 June 2023 (30 June 2022: £72.8m), with the increase primarily driven by the acquisition of Vita Software Limited.

Cashflow and Net Cash

The Group's net cash at 30 June 2023 was £14.1m (31 December 2022: £16.7m), after net cash spend of £2.86m on acquisitions during the period, including initial consideration of £1.86m for Vita Software and the final deferred consideration instalment of £1.0m in relation to the 2020 acquisition of TruTac. Investment in capital expenditure increased by 108% to £1.6m (H1 FY22 £0.8m) reflecting the acceleration of our investment programme on security measures. Several large receipts were received post period end, totalling £2.8m, this resulted in a cash conversion rate of 80% of adjusted EBITDA, which was lower than H1 FY22 (127%), reflecting this working capital phasing. Full year cash conversion rate expectations remain unchanged.

Banking Facility

The Group has remained comfortably within its banking covenants which relate to available headroom and EBITDA performance. The Group agreed a £20.0m committed revolving cash flow facility with HSBC Bank PLC upon IPO. The Group has not utilised any of this facility to date. The Group's gross cash of £14.1m and the undrawn £20.0m facility gives the Group access to £34.1m of capital, which the Directors believe is sufficient in order to support Microlise's growth plans as first set out at the IPO in July 2021.  The Board are currently in discussions with HSBC regarding the renewal of its facility which expires in July 2024.

Nick Wightman, Chief Financial Officer

Interim unaudited Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2023

Interim unaudited consolidated Statement of Changes in Equity