IVU Traffic Technologies: full speed ahead on a solid foundation

We like to focus on companies that deliver sustainable growth from a solid foundation, even in turbulent times. IVU Traffic Technologies is just such a stable compounder. For eight consecutive years, both revenue and operating profit have grown; pandemics, inflation shocks and interest rate hikes did nothing to change that — the company kept rolling out new software licences and invoicing annual maintenance. That predictable cash flow, derived from long-term contracts and high switching costs, fits seamlessly with our investment philosophy.

Berlin-based IVU, Europe's market leader in optimising the deployment of vehicles and staff for bus, tram and train operators, remains largely unknown to the general public. While you, as a passenger, only see that the bus leaves on time, IVU's software works in the background to calculate which route generates the most value, which driver to schedule, and how to align rolling stock and duty rosters. Where transport operators used to rely largely on self-developed software, they increasingly trust the modern software of external specialists. IVU's advanced software is essential to operators' day-to-day operations. Switching to another software provider is not something done lightly: migrating all data, training staff and rewriting processes takes time and money. This high barrier generates predictable, recurring licence and maintenance revenue and gives management room to invest in further growth.

The story is not just about resilience; it is also about acceleration. To fully capture its growth opportunities, the company has invested heavily in recent years in a scalable product, international sales and product innovation. This spending weighed on margins in the short term but has laid the foundation for the future, meaning that additional revenue now flows through to profit to a greater extent. From an investor's perspective, we see IVU at an interesting inflection point: the largest investments are now behind us, and the operating leverage on profitability lies ahead of us.

As an entrepreneurial and engaged major shareholder, we do more than simply report on our companies. At IVU, we are actively engaging with the chairman of the Supervisory Board on the composition of the Management Board and Supervisory Board. We advocate for a supervisory board with experienced software and public transport specialists, so that strategic discussions are informed by practical expertise. We are asking for greater attention to core financial metrics such as operating margin, working capital and return on invested capital, so that revenue growth translates directly into free cash flow to invest in new opportunities and reward shareholders with an attractive dividend. We are also encouraging management to report more frequently and more clearly on results achieved, so that external stakeholders too can follow the path toward greater efficiency. We are therefore pleased that an Investor Relations manager recently joined IVU to support this.

Our investment case is clear: IVU owns the best product in a market where cost efficiency and service quality are climbing ever higher on the agenda. Thanks to high switching costs, the company enjoys a strong, defensible competitive position, and now that the investment phase is largely behind it, we expect an improved profit margin. All of this makes IVU a solid company that adds value year after year, for operators, passengers and shareholders alike. We remain closely and actively engaged in following IVU's growth path.

Teslin holds a stake in IVU Traffic Technologies AG through Midlin and Gerlin Participaties.