Next 15 Group plc

sunny day um it feels somewhat slightly representative of the macroeconomic environment right now um but it could be something that's happening and we have quite a bit to get through today um we've got a run through of last year um which interestingly in some ways I think we, we sort of normally at this point would use last year as a good predictor of the year that we're in. Um, but unfortunately, partly because of, you know, the loss of the large 49 contract and partly because somebody put it to me recently. There is this large orange man that is changing the world, um, partly because of incredibly prudent. It doesn't mean that we're not doing anything. And hopefully what you'll take away from today is actually that we're doing an awful lot across the business to put it in the right place for when normal business resumes, if you want to call it that, if such a thing is going to exist. Peter will walk through the results. which we can go through in glorious technicolor if required. We're going to spend quite a bit of time though on sort of what is next for Next 15. What are we up to? How are we focusing? What are we investing in? How are we investing in those things? Although I think how we see the world is driven much more by macro than anything else right now, just simply because of the way that our customers are seeing the world. At this point, I'll hand over to Peter.

Yeah, thanks Tim. Yeah, so just a few comments to me on the results. Revenue was down 1.4%. That was 4% down organically. One and a half percent of that was because we lost, obviously, the Mac49 contract in January, so it would have been two and a half percent down without that. We had a negative impact on currency. Last year, it was just over 125. Previous year, I think it was nearer 123. And we did have some acquisitions in the year two for MHP. one content business, one tech business, and then Transform, our government agency, did quite a big acquisition of a company called Cadence, which got them into more sort of strategic consultancy with the government. So overall, a reasonable year, but obviously you know, we'd like to have done better. Overall, our operating profit was down 11%, with the margin down to 18.9%. Again, we had good growth from some of our B to C agencies. SMG had a fantastic year. You know, they continue to be our sort of jewel in the crown. And the three Ms, as I described them, M Booth, M Booth Health, and MH all did pretty well and brand with had a good video so overall some good performance from b2c b2b tech continues to be slightly more challenging for us and one of the reasons the margin was down is because the tech tends to have more operational gearing sort of you know more use of tech and data less use of people and obviously more b2c agencies and more sort of people dependent so the mix of revenue i think wasn't wasn't helpful in terms of the margin Nigel Fieldersen- tax rate was 27.4% that's going to come down quite a bit next year, because just the mix of where the revenues coming from. Nigel Fieldersen- We had a hard much higher tax rate from the big contract so tax next year should be down to 25.5 cents and EPS fell to 9.3 because the profit and we decided to maintain the dividend is good cover and you know good cash. Nigel Fieldersen- When capital. I think people who were here six months ago, I beat myself up quite hard on working capital. We had a much better second half performance, you know, 31.9 down to seven working capital outflow was a much better performance. And, you know, it's a real focus going forward, given the markets. Earned out commitments that dropped a lot, partly because we paid a big chunk of Mac 49 in the year, but also we reduced the estimate for Mac 49 from, I think it was 105 at the intrams down to 91 and a half. And that's payable over the next three years. So, you know, kind of a nice sort of spread of that payment. Net debt reduced 38.4 from 74.8. We typically have a better wet cap performance in the second half. And particularly in January, we have a very strong cash performance. So that was sort of pleasing. A lot of restructuring costs, over 500 rolls were Sam Theobald, our HR Director, probably hopefully won't have another year like that because it was a pretty brutal year in that regard. £16 million of that related to Mac49 obviously loss of the contract. Of the remaining £29 million, £9 million related to last year and that was the cost saving last year and so the remaining £20 million this year We are reinvesting, you know, a fair bit of that back into AI and Tim's going to talk about our AI investments later. And also SMG, you know, the jewel in the crown, they are beginning to see some really encouraging signs in the US. They won the first big client, W.A. Smith US, and, you know, they've got quite a few consultancies on the horizon. So we really want to help them grow into the US and also into Europe as well. So, you know, we are not seeing all of that 20 million cost saving from investment and investment in SMG as well. So Tim.

You just talked a lot about the sort of the hard financial data. This is sort of a look inside the beast that you like. We do still work for an awful lot of really big, important companies and play a very important role for those companies. And we carry on working for them. I think there is probably a sense of is something changing underneath the covers, if you like. And the reality is really not much has changed. This stat of 70% of our top 100 customers has been with us for five years or more. And in fact, many have been there for much longer than five years. That stat has remained constant. I went back and looked at it. previously and it matches almost exactly. So really what you're seeing is a remarkable level of consistency at a larger client level. Technology clients will now account for a third of our revenues in this year. The loss of the big contract skews back towards tech again. Staff retention remains amazing. You know, having over ten and a half years, Patrick Ruanecki- Having average tenure being over 10 and a half years that's quite a remarkable staff in our industry is typically an awful lot of turnover at that level and. Patrick Ruanecki- Operating margins, you know I know that there are a lot of people who would kill for a sort of roughly 19% operating margin in our sector, it is a difficult thing to do it requires you to be. and our businesses do an amazing job of that. We've talked about the fact that we are investing in AI and data. We've talked about that ad nauseum for the last few years. We're now moving into the next phase of that investment. We've done the phase where we've armed everybody with tools and we're really kicking them to use them, making sure that they use them every day. We're now into the phase that later. The other thing that we're doing is changing the board. You would have seen that we recently brought on Marcus Stair. We're today announcing that Sam Wren is joining the board. We do have three directors that are stepping down. This is us effectively looking at the board structure and saying, how do we have a board that is appropriate for the business going forwards? Some of it is we're recognizing that we're a slightly recognising that we need some slightly different skill sets, a more commercial board effectively. And I think Sam and Mark very much, I keep calling him Fred, by the way, and that's not a good thing. Sam and Mark are definitely good additions from that perspective. In terms of review of strategy, We talked a while ago about the fact that we were really trying to focus on how do we make the business simpler? How do we make it easier for you to understand? How do we make it easier for us to run the business? How do we make it better for our customers and better inevitably for our employees and in that process. And we have done a tremendous amount of work on that in the last year. A lot of it is stuff that you won't see. A lot of it is us working away in the background We're approaching simplification not as there's only one way to do it. It's you smash businesses together or whatever. We're approaching it as how do we deliver a better product to the customer to make our business better for them? How do we do this in a way that still keeps the integrity of customers will follow. We're looking at the operational structure of in the long term. And so what you'll see in the next section is where we want to really focus our efforts. But you can basically put it in two categories, AI and new capabilities. New capabilities really means either focuses on new geographies or focuses on new service lines that we think are going to be crucial for the future. We will do a small number of strategic acquisitions. We are not out much in the buying game. You will see us do that, but it will be very selective and very focused on my peanut butter comment. I think another piece of work that we are just starting is a real deep look at our incentive scheme. One of the things that I think has become very obvious to us in the last 12 months is that the decentralized model works brilliantly for those businesses and So sometimes we miss out on revenue and sometimes we don't do the best job we could possibly do for a customer because incentives don't drive the right behavior. And so we will have and that kind of thing. In terms of priorities, it looks like a lot here. I think what you should look at is the middle column, which is product service evolution. That's us trying to tell you And we need to really move to create a completely new solution for that market. Retail media, that's really us just saying the thing that we need to focus most on is really the US expansion. To some degree, the EMEA expansion is a function of us also driving US expansion. There are a number of European retailers that really want to do well in America. valuable and very big company on our hands. Data is an area that is really The comms collective, as I've described it, this is a new way of us thinking about the businesses that we have in the comms space. At the moment, they are run very independently. We do have a market than we currently do. We also know that that's an area where there are a couple of areas that if we could expand our capabilities, notably corporate comms and influencer, we can do extremely well. Corporate comms is just a very good door into five or six years ago into being of similar magnitude to the comms industry alone at this stage. And so it makes enormous sense for us to do that. It's a space that is growing and doing extremely well in the B2C world. It is growing rapidly, but from a very, very, very small base in the B2B world. We think in B2B we have a huge opportunity if we can get that right. That is an area that we are and still do extremely well. On consulting, that is probably going to get less focus from us this next year. It is an area where we are building AI accelerators for a lot of our clients. A lot of them are trying to figure out how do we use AI to innovate or to change our business. And they, in many cases, don't have the capability to do it themselves, so they're environment because they're very fearful that somebody will use it as a way to hack into their system. And so by doing it externally through us, they're very protected in that respect. And it's actually proving to be a pretty good place for us to operate. I've already talked through back office, so I won't labor there. I'm going to hand over at this point to JP and he can talk about the goose.

Tim, so we wanted to give you a bit of a case study of how we're thinking both about simplification but also evolving the services that the group offer. So we've got four UK B2B marketing agencies in the group. The first three there together, Velocity and Agent 3, are all focused on enterprise tech, the software that large companies tend to buy for their own use. And historically, those have shared a lot and they tended to compete with each other. The fourth, their public tech is more focused on deep tech. But the thing that has united them is that they've had quite a challenging trading environment over the last couple of years. And we sat down with the chief execs of those businesses last summer to dig into that a little bit and find out why, and more importantly, what we could do about that. And a number of things emerged from that. First was that in a more profit-focused environment, the clients of those businesses were much more focused on the return on investment. How much were they getting in terms of sales from their marketing spend? And that was forcing them to be more choosy about who they worked with and which tactics they picked. And the second was that actually the way that B2B marketing functions is breaking down a bit. The old ways of doing it don't work. We dug a bit more into that, and that's because the traditional way of marketing stuff is what's called the funnel, which involves putting out a lot of activity at the top of the funnel. You might send out 10,000 emails to potential customers for your CRM system and hope that some of those might be in the market and interested right now. And you would hope that they might fill in a form and ask for a demo or ask for a white paper. Most of those people don't. We're all familiar with marketing that we know. And through a process of sort of refinement and engaging with those people, you hope that a small number of people will engage, take a demo, maybe ultimately buy from you. But it doesn't work like that anymore for a couple of reasons. Firstly, if you are thinking of buying a piece of software for your company, then you will look on the web. You'll research that. You'll research that decision. You'll go and look at what Gartner's saying about that thing. You'll probably ask ChatGPT these days when it thinks. You'll talk to some colleagues and you will do a lot of that you might have decided to talk to. And actually a lot of the research now shows that 80% of those buying decisions have been made before anyone actually talks to the potential vendor. And that creates a space called the dark tunnel. That's an area that if your sales force or work day You don't control what's going on in that 80% because it's going on without you ever interacting with your potential customers. And because you don't control it, you're not sure what of your marketing activity is having an influence in that space. The other problem is that unlike personal buying decisions, when you're buying software in an organisation, it's not just one person or two people, three people making that decision. There are now up to 15 people involved in a decision. So it might be the CFO, cto but you might have your dpo your head of legal involved as well and to sell a piece of software you've got to get all of those people pointing in the right direction at the same time super time so what's the answer well the a technique called journey mapping has been around for a few years and what that involves is working through who are the people in an organization that are likely to be part of that decision working out what matters to them the person who first thought of it but it might be is this going to comply with my regulatory requirements for the dpo and then when you've worked that out and what are the things that accelerate and hold back those people you can then work out what are the marketing interventions that are going to work for them so it might be uh for the cfo it might be a peer-to-peer event where they can discuss with like-minded people how they've solved the same problem for the dpo it might be a white paper about regulatory compliance and how their needs are solved So that's a technique that we have been using, that journey mapping technique is a technique we've been using in our businesses, but it's very manual and time intensive. So it's expensive for clients, it generates much better results. So back to the four chief execs of those businesses. The decisions we quickly came to last summer, or that they came to, was that firstly, journey mapping has to be way forward the funnel no longer works and is increasingly a bad approximation for how things get so journey mapping is the way forward but to make that work we need to automate it we need to provide apply ai and a lot of data to that process to make it work although also that scale matters so if we want this business to be key player, particularly in the US market, that there is no point competing with each other, competing for funding, for investment, competing for clients, that doing it as one makes more sense. So what have we been doing about that? Since last October, when Project Goose, as Tim was calling it, came to life, we've done two things. We have merged those businesses. So as of today, they are operationally merged. Clients are still trading with those different brand names, but under the bonnet it's a single organisation under the leadership of Clive Armitage who was formerly chief executive of Agent 3. And that's already led to significant increases in profitability for the combined business and they've started winning new work that they couldn't have won on their own because they have a broader range of services to offer. that's fantastic but it is not our goal to build a better classic agency the other thing that we've been doing is we've been working on a platform called journey labs which takes the journey mapping technique and it applies ai and automation and some of the technology that we've been working on the next 15 ai labs like synthetic personas that tim was talking about and brings that together into a platform that makes journey mapping journey mapping affordable and achievable for for our clients And that is, we've already, we've been testing that with clients over the last few months. We've got prototypes of parts of the process already out in the market. And what comes next after this is that by the end of the summer, we will have a first version that we can use end to end internally. We will relaunch that business under a new brand and those existing brands will get retired later this year. So what's in it for our customers, what our customers because we can use this new technique to achieve that and we've proven we can do that. But also we can show them which bits of their marketing are actually working. They don't see that. What do we get out of it? We get a competitive advantage in, particularly in the US market where the dominant players are funneled fillers effectively. They're tied very much into the old way of doing things. But it also moves us away from sort of project process that's always learning from the data that it's generating to improve and optimise marketing performance. And that means that we can benefit from subscription revenues and stickier relationships because it will be always optimising for our clients once we're in. And that takes us more towards, gives us a path towards a higher margin product in the future. So there's a lot more to come about Project Goose.

I got the demo of one of the key bits of the product about a week ago. And the bit that I got really excited about was the moment when, if people look at all of the content that they're producing, process, we might have a content at the beginning of the process. We start to run out of content at the end. And the example that they used to me was they basically put in Cisco as a customer said, right, okay, Cisco is selling this product, this organization. Let's look at that journey as a buying journey. And let's look at the content that currently exists And what you see is Cisco does an amazing job at the beginning of the journey and then just hoped basically like at the end of the journey, they're like on ether. There is like nothing there. So the person who's trying to make the buying decision at the end of it has literally like they're looking for stuff and there's nothing to find. So they're just wanting to push over the line and say, yes, I should buy this product. But it's kind of like, I'm sorry, you got to go right to the stuff I sent you at the beginning, which is like, yeah, but that was really general. And that just really told me like broad at this stage in the journey. So it's a much more sophisticated way of looking at the buying journey and the problem. And what it does is it not only can reflect that for Cisco and say, right, we're weak here. What it can also say is Cisco, you're competing with Huawei or whoever it is you're competing with. Let's look at how they do in this buying journey and see where you're weak versus them. That again is just something that all at the moment, all they can do is look at very basic data and compare and contrast and look like, we look like we're good, but they have no idea where they're weak versus those other people. And that is, I think that's a pretty exciting place to be. I don't get out much. Capital allocation. You know, I think the thing that you probably notice It's not a case of us saying that we want to be heavily leveraged. I think it's just a recognition of we are going to be a very slightly smaller group this year, still a 500 million revenue business. It's not tiny, but we do recognize that we do still want to do some things and we don't want to be brutal about the balance sheet and the hopefully do not linger anywhere close to that. All the other things are very much unchanged. We basically want to be a business that prioritizes investment for internal capabilities, and where we have cash that we don't need, we will give it back to shareholders. There are lots of things that we are looking at. There is nothing within the organization that we're saying, you know, consider, you know, taking the whole company private, all sorts of things. There is nothing that we are not looking at, not trying to say we're about to take the company private, just to be completely clear. But it's, we are going to do what is right for the business and for the shareholders in that process. And we know that there are parts of our business that, you know, over time will become less core. and it'll make sense for us to say maybe those parts of the business you know should move on to a better owner for a long time we have been like a private equity company we buy things we turn them into better businesses what we don't do is sell them and i think that's the one question that has sort of been raised in our minds is is that something that we should do is there a point I'm not indicating anything by that. I'm just simply saying that is a new question that we're asking ourselves as we move forward. Outlook. As you'd expect, this got crafted and recrafted and recrafted. I think more time went into 100 words or whatever this is on this than it did into the rest of the document. You know, essentially what I'm trying to say here is our business is fundamentally in a good place. We think long-term we have a great group of businesses with a really good outlook. There is nothing that really scares us from that perspective. We have a really great customer base. We have a really good group of employees. We are modernizing the product in all of And that is creating pause for a lot of people. And it feels stupid of us to say, everything is fine. The sun is out. It's all fabulous. It feels like the smart thing to do right now is to say, let's just be cautious because anybody who can tell me what Apple's results are going to be, what Nvidia's results are going to be, what even Procter and Gamble and so on, I think is, well, they're either a genius or a fool. So therefore, it feels to us like we should just be prudent. It feels a lot like going into COVID, if I'm completely honest. When we stepped into COVID, we felt like we have no idea what's going to come here. We don't know what our customers are going to do. We do not know how they're going to react to change and so on. And a lot of them are, put it mildly, freaking out. At one level, it could be as high as $1,250. So how do you launch a product not knowing what it's going to cost, not knowing how many people therefore might be able to buy it, therefore not knowing how many to manufacture? It has all sorts of ramifications, right? So until that world starts to become more normal, and it will at some point in the next few months, it just has to. The market will break otherwise. And when it does, we can go back to being a place where we can give you more comfort and guidance. At this point, it just feels like we have pulled our numbers back because we know a currency at the moment. He seems to want to destroy the US dollar. I certainly don't know if it's deliberate, but he's doing a very good job of it if it's not. And that is a headwind for us. And then there is this other macro headwind, which we just have to deal with. Does it mean that I have, you know, fears about the long term of the business? No.