Next 15 Group plc

Good morning, everybody. Thank you for tracking out to this strange part of the world where normal businesses live. We have quite a lot to get through this morning, and here is the agenda. We've conveniently put page numbers, so if you want to jump back and forth, you're very welcome to do that. We're going to go through a little bit of a sort of like, okay, What's the environment in which we've delivered these results? What are the results? So that you can actually hopefully fully understand that. A little bit more about the investment case because I think our business has continued to evolve and I think it's important that you understand why anybody should invest in Next15. And also, you know, some updates on what we're doing from an operational and strategy perspective and then, not surprisingly, a bit on the outlook. The first slide here talks about the market. I think before I jump into that, it's important that you know that this is possibly the most challenging environment in which we run a company. And I'm old and I've done this for a very long time. And I've been through recessions and I've now been through a pandemic, as you all have. We are dealing with the aftereffects of the pandemic. We are dealing with the end of free money, crazy high interest rates, challenges still with the supply chain. For many businesses, we're still dealing with the hangover from a tech perspective of COVID where people bought way more technology than they were expecting to buy. and now they don't need as much. And so we're dealing with that sort of like it's almost like the snake digesting the deer. It'll eventually want to eat again, but for a while it doesn't need to. And we've done all of that, and yet actually we've managed to continue to grow. So from my perspective, the fact that we've accomplished that and the fact that we've managed to maintain the margins the fact that we haven't sort of fallen into some kind of pit is i think huge testament to the way that we run the business huge testament really to the businesses that we've got i don't think we can take a lot of credit for that i think they can take a lot of credit for that it's underpinned by some fairly simple things We do a really good job for clients and they stay with us. If you look at our client retention, it is phenomenal. We've talked about the fact that the technology industry is challenging and has been challenging. I actually think we're going to see a small improvement in the second half. And I think next year could actually be. another year of quite good growth in that area but if you look at our technology customer base they have stayed loyal even though there have clearly been areas where they've wanted to cut spend and in fact if you look at our top 20 customers many of whom we've had for a ridiculously long time overall their revenues have grown in the period You've got a few odd exceptions, people like Google whose revenues have gone backwards. I think Google was quite public about saying, we're going to just save everything we can save anywhere and invest in AI. Unfortunately, that applied to us as well. We did see some areas where their spend increased, but overall it went down. that sort of cornerstone of our organization is very firmly placed and i think is something that i'm not sure the shareholders always fully understand i think they sort of look at the complexity of our business and they sort of lose that data point in the process i think you know there are other things that have been going on in the market which are more subtle The demise of the cookie has accelerated a bunch of things but really all it's been doing is accelerating a digital shift anyway. So almost every purchase now in some way shape or form has a digital component to it. People look at something on Instagram, certainly if it's one of my kids that's the way that the purchase process starts and then they eventually buy it. They may buy it online or they may buy it in store but there is a digital influence to that purchase. there is a digital customer experience to that purchase. There just always is because there's some follow-up from the retailer or whatever it might be. And that applies now not just in the consumer world but very much in the B2B world. And so... That whole shift is changing where money is spent. It's moving it from a world where people would spend a lot of money on brand building. They're sort of the long tail, if you like, of marketing and saying, right, we're going to concentrate a ridiculous amount of money into that short window where people are looking to buy something and they purchase it. And that is actually kind of a significant restructuring of the industry that's taking place. And again, I'm not sure that shareholders have seen quite what that means, because I think people see structural shifts like, OK, TV advertising is on this significant decline and the rest of it. But it's why those things are happening. It's not just because people aren't watching TV in the way that they used to watch. It's because actually the purchase decisions change. are occurring in a very different way. And people are realizing that that last minute on Amazon, when they're going to buy this, but then, oh, I just decided to buy this because the recommendation engine pushed me to something else. They're realizing that that's not just an Amazon thing. That's a online thing. And if they fail, you know, this is where businesses are making or breaking their numbers is because somebody clicked this versus clicking that. And so that whole issue of where, you know, the decision point is now becoming absolutely crucial and they're realizing that whereas before that decision could have been swayed by just doing a really good build-up in brand building, that loyalty just is not there anymore. Other things to note really are just the environment in which businesses like ours are actually operating. Last year, wage pressure was a thing. Quiet quitting was a thing. There were a whole load of things on the whole staffing side of our organization that we were trying to navigate a lot of those pressures have pretty much vanished to be perfectly honest it seems that as people have returned more to in person if you sort of wander through the building after this which be free to do you might get kicked out by some people certainly one part of the building i'm not even allowed into you'll see a lot of people in the office and i think that has had something to do with it as well as people have sort of realized Okay, I actually am attached to a company. My loyalty is now starting to reappear within those companies. And so people's sort of fluidity of job movement, which seemed to be certainly there during COVID, has very much dissipated. I think a lot of the reason that we've succeeded is because we are a collection of specialists. I think we get a lot of feedback out of investors, which is, you're complicated, you're difficult to understand, you have all these businesses. Yes, we are, and that is why we're good at what we do. It's because we actually have businesses that are incredibly close to the problem that a customer has to solve. They can adapt very quickly. We don't have to go running around saying to them, you need to cut this cost or invest in this product area or whatever. They do what is right for their customer. And I would much rather we have the problem of trying to explain our business to you than we have the problem of having some monolithic business that our customers don't understand. They understand our business because they understand the problem that they're trying to solve, and we have a very specialized part of our business that will go and solve that for them. And then when they don't need that, we can get out of the way. And that, to them, is a perfect supplier. And increasingly, with technology, that model is very effective for them. It used to be that big organizations in particular liked the laziness of saying, I'll have one company. If you can just do everything for me, that would be very helpful. And that was the proposition that the likes of WPP and even the large consulting firms tried to pitch. With technology, that's becoming less and less of a glue. Because the laziness doesn't matter anymore. It's much easier to manage a portfolio of specialist businesses than it was. And so, therefore, if we're doing a really good job for somebody somewhere, WPP is trying to make a bid to procurement to say, well, you know, we can do this package thing that gives you this much benefit. That part of the business will fight for us and say, no, I don't need to change. I'm very happy with them. They're doing a really good job for me. Saving 2% just isn't worth the hassle, the change, the disruption to the business, and all the rest of it. We are a very diversified group. We'll get on to that a little bit as we go into some of the issues to do with megatrends that we are sort of building the business around and the sectors that we're building around. The agility of the business model, as I said, people are just very close to the problems they're trying to solve, and that's super important. I think, again, that's part of the... Sort of investor case that gets lost is that people don't realize that actually being an agile business is so important these days if we cannot literally Change the product change the service quickly Then you know customers will move, you know, it's a bit like I was saying about people changing decisions on Amazon You know, it's like if you cannot offer the right thing then you're creating a point of weakness and so our agility is hugely important to me and Lastly, you know, this focus on organic growth, you know, and the disciplined approach to M&A, you know, I think we got criticized for the Saatchi bid, which, you know, I think we talked about being relatively opportunistic and really being focused on a few of their specialized businesses that we really liked. I don't think you will see us going off and doing anything like a Saatchi bid. I don't want to go through that nightmare again. And I know that we can do a lot of really interesting things without having to waste the time and the money that went behind that kind of thing. There are some other things that have been going on in the business behind the scenes that you may not have noticed. We continue to do small bolt-ons. We've added some into our Palladium business. We've added into our Brandwidth business. And these are really just bolstering existing capabilities. We're typically paying five to six times EBIT for those businesses. So they're very easily accretive, don't use a lot of cash. They just continue to help us build real good quality specialized organizations. In the center, Peter's team has done a phenomenal job of just really driving the efficiencies. A lot of the efficiencies that we expected to come out of the engine acquisition, you know, moving into this building, getting all of our real estate really much more concentrated in London, for example, has yielded a big saving that will be a lasting saving for the organization. But it's also we had duplicate head office structures between the engine business and ours. And, you know, there is a little bit more we can go on both of. the real estate front and on some of the operational savings. But I'll get into how I want to spend some of that money a little bit later. On the other side of here on the slide is the client wins. We do continue to win some really good clients. These clients add up to sort of roughly 5% of our revenue on an annualized basis. So we do continue to add some very good clients to the mix. And if you look at that, it's a pretty broad spread. Yes, you've got a pretty well-known technology brand in there, but you've got Morrison's, the Department of Education. We had nothing in public sector until we did the engine transaction. Now that is becoming quite a meaningful part to our business, as you'll see later. Financial highlights. By this point, you've already read all of the numbers, so I'm not going to go through them in detail. I think You know, we had this distortion that we did flag this time last year. You've probably forgotten about it, which was we got this sort of additional revenue coming out of the large MAC 49 contract win. If you were to strip out that $5 million that sort of added to both revenue and profit, quite frankly, it literally was a complete flow through. EPS is always going to be down this year to some extent because of the tax changes in the UK. I'm particularly proud of the fact that we're managing our balance sheet well. We've gone from, remember during COVID, people paid in two seconds. People have definitely returned to a more normal paying process. But our guys have done, I think, a pretty good job in managing that shift. The interim dividend is only up a modest 5%. We're never going to be a yield stock. I think we would have put it up more had we not announced the share buyback that we did today. And I think that's just down to competing uses of capital. At that point, I'm going to hand over to Peter and he can give you the wonderful cover on the numbers.

Indeed, indeed. Morning, everybody. Yeah, Tim's covered off some of these, but yeah, revenue was up 5%, 1% decline in organic, which would have been sort of up a little bit if it wasn't for the Mac49 situation. Again, operation profit down a little bit, distorted by the Mac49. The only real sort of highlights or lowlights maybe is tax is now 27%, mostly because of the government going from 19% to 25% in the UK, but also a high portion of our profits coming out of the US, which typically has slightly higher tax rates. We've increased the dividend a little bit. We'll talk a bit more about sort of capital allocation later. Revenue bridge, yes, at 1% decline. We had 4% growth from acquisitions. That was mostly engine, which we acquired in March last year. So we had six months in the sort of half year this year versus five last time. So that's about sort of seven, eight million of that. And then as Tim said, we've done a few bolt-ons, which have sort of continued to grow and a little sort of modest tailwind from acquisitions, sorry, from Forex. on segments so we have pretty good growth from insight again that's where bolt-ons tend to be concentrated savanta we've grown from a million revenue when we acquired it eight years ago to roughly a run race of sort of 50 million good organic growth but lots of bolt-ons i think will continue to grow canada is a market they would really want to grow into so hopefully you know a couple of bolt-ons in the area in the next sort of month or so On margin down a little bit, that was really from investment in planning, which is also a data science business. They developed a couple of products and we've hired someone to really drive a sales function. So we think there's a lot of opportunity with, you know, particularly retailers to get some sort of products into that space. So I think that investment will continue for the next six months and really start paying off next year. So I think the margin will be slightly below 20% this year because that investment should get back up above 20% next year. Engage, quite a broad church in here. MHP has done very well. I'm happy to say that because we're in the room, but they've had a good, strong period. And Booth has done well. Some of our sort of Google revenues, Tim highlighted this off a little bit, you know, as they've gone from, you know, sort of brand building type work we typically do for them to AI. But overall, I was very pleased that we retained margin at 20%. Again, I think that margin should be a little bit better in the second half. We tend to have a stronger second half of the group with September, October, November being our strongest months overall. Customer delivery, we've got two sort of standout businesses in this space. Activate continues to do very well. I mean, they had a phenomenal period during COVID where online lead generation, you know, grew like absolute weeds. We were slightly sort of nervous. Would it be, you know, quite a sort of a down period for them? But actually, they've maintained their revenue up against people like TechTarget. You've had very strong organic declines and Madison Logic. So, yeah. you know, that business feels a bit more optimistic. In fact, we had a sort of very optimistic email from a couple of days ago. So, again, I think we're beginning to see, you know, signs of growth back in that business. And SMG, who've had a phenomenal period since we acquired them two, three years ago, they, you know, won Morrisons, which is an interesting from an accounting perspective because the way that contract works is they get a monthly retainer, which pretty much pays their costs. And then the first year, we're going to account for all their sort of commission revenue in a lump sum because they're When we started the contract and started the financial year, we didn't quite know how they're going to do. As it turns out, actually, the business has done better than expected. We had a very positive board meeting with them yesterday. And I think there'll be a nice maybe sort of couple of million sort of benefits in the second half just from that contract win. So I think, again, customer delivery, I can imagine, will be second half weighted and hopefully the margin up a little bit in the second half. Business transformation, a sort of tale of two halves, really. We have two businesses in that space. Blue Shirt Group and Palladium, who have both suffered from a bit of market weakness. Blue Shirt is very much focused on tech IPOs. There weren't a huge number of them last year. We expect, you know, on the back of ARM and a couple of other sort of US tech IPOs, which have seemed to have gone well, that market will open up. But, you know, that won't really come into being until next year. So, again, I think that part of the business will be quietish. Similarly, Palladium, which does sort of DD for PE firms. And, again, that's been a bit quiet recently. On the other side, Transform, which again, you know, joined as part of Engine, had a phenomenal first half very much on the back of demand for education win and, you know, we're beginning to do good growth there. And also they've sorted their margin out. When we acquired it, it was roughly a 5% margin business. It's now sort of 15%. Really did some sort of fairly basic sort of housekeeping and getting sort of better systems in. That part of the business is doing very well. And MAC 49, obviously, on the back of the contract win, has done exceptionally well, very high margin. And, you know, I can see that continuing to grow and deliver well over the next couple of years. And finally, head office costs, I think you mentioned we've done a good job in terms of reducing them as a percentage of revenue. Cash flow, we've slightly sort of tweaked this because acquisitions in statutory accounting for acquisitions with earn-out payments have to go against the normal cash flow. So we think this is a better comparison in terms of how we've done. So we have a small working capital outflow, which is very much based around bonuses. We accrue bonuses at the end of January and pay them in sort of April, May, and then a start accruing as the year goes on. So that's probably the biggest impact here. we typically have a little bit of working capital outflow normal trading in h1 and you know we're working very hard as tim says to kind of pull that back in the second half so It will be less by the second half, genuinely. And tax, as I said, is going up a little bit. CapEx, I think, is fairly modest. And the acquisitions, because of the share price, paying cash for earnouts rather than shares, that number's a little bit higher than we alluded to six months ago. And I think overall, with small bolt-ons, et cetera, I'm expecting numbers to be about $70 million for the full year. But even with the buyback, which I think will probably be about $10 million this side of the financial year, we should be sort of positive net cash for the year-end.

Yeah, as we understand it, the buyback piece, we'd like to do as much as we can, but there are limits on how much you can buy given volumes and so on. So realistically, only about 10 million will come out this year.