YouGov plc

Good morning, this is YouGov bringing you our half year results for the 2023 year and my name is Stefan Shakespeare, I'm the CEO and I would like to say this is the last time that I will be bringing you results as CEO and I'm very happy to say they are results that make me proud. our revenue for the half year is 131.4 million that is 30% up from the same last year the adjusted profit is 22.1 million that is 58% up on an underlying basis and the margin is up to 16.8% with adjusted EPS 19.2 81% up so these are terrific numbers to to report to you this morning. We have shown really top line growth of very strong proportions. This, I think, is very good evidence of the strength of our products and services and indeed our strategy, very in line with my trends and it's, I think, Worth saying that no matter what is thrown at us, whether it's COVID or uncertain markets, all sorts of concerns about all sorts of things happening in the world, the YouGov data streams are exactly what people want and it's very fit for market. So we are seeing good growth. Our sales pipeline is healthy. We haven't seen any material changes in the first half year from our clients in market conditions, although we have to say, of course, that some changes in Silicon Valley, which you'll all be aware of, may lead to some change. We can't predict that one way or the other at the moment. We haven't seen enough. We've had significant margin expansion. This is because of the operational leverage that's coming through. Over the years, we've invested significantly in panel, in analytics, in dashboards. We've templated a lot of solutions, which means customer search, big customer search is becoming more and more profitable. The margins are up and it is a bigger part of our business. And so all of these things are coming through from the investments that we've made. And there's a lot more to come on that. As you know, soon we'll be having a capital markets day and we'll say a lot more about that. We're keeping this presentation fairly simple so we're not going to say much more about what's coming from our investments but we have been investing throughout this period robust balance sheet and strong cash position maintained throughout and we are continuing to invest as I say in survey systems in panel build out to more regions and in further migration to Cenex you'll hear more about that from the CLO in a bit the board succession plan is going forward on time we have a good process and everything is set to deliver as expected and we have two new non-executive directors appointed who came to the last board meeting for the first time and it's a really strong strong board so just one more slide to look at before I hand over this is really a lovely slide this is where we started when we first started having five-year plans and four-year plans back in 2014 we had five percent margin we're up to 16 percent margin now we were 67 million in revenue and we're heading towards well 260 I guess is the is what you've been guiding to really very strong performance and it just keeps going and we expect it to keep going so it's a with great pride I show you that slide and now I hand over for more detail to the CFO Alex McIntosh thank you

I just want to expand first on on the revenue and seven pointed out a very strong performance in the year. we're going from 101.2 million in half 122 into 131.4 million in this this half of our financial year on a reported basis that 30% that we have had some effects. tailwinds contributing 11% of the revenue, 6% of revenue is coming from acquisitions, and then the rest is obviously coming from organic operations. I particularly want to point out the UK and the US continue to be strong drivers of revenue growth. When you get to operating profit, you'll see the same from that perspective. I just want to make a point. These are fantastic numbers in the context of the macro environment we happen to find ourselves in. Lots of questions come on how resilient we are to economic recessionary fears, particularly in the UK. And I think, as you can see here, we're more than resilient. We show that we can grow no matter what trading environment we find ourselves in. We've had a little bit of a slowdown in mainland Europe, partially due to lower data services revenue in that geography, and you'll see that when we get to the segmental note. As we go into the second half, really good visibility on the second half in terms of our sales momentum. That's by design. You've heard us talk about data products and custom trackers as a The economics of those offers give us high levels of visibility because clients are committed on long-term contracts. That's giving us a good base going into the second half to continue our growth trajectory. We continue to be well diversified across a number of sectors. We've seen growth in the half in our technology offer. Our West Coast Silicon Valley clients have continued to maintain spend or in some clients have expanded. I think it would be prudent to just put a cautionary word just to say, we're watching how this pans out over the second half. We have a high level of confidence. We will continue supporting those clients. but we still, last week Facebook announced cuts. We have a watch and brief on that. So I just want to make that point as some of you may have expected in the half that to drop. We maintain our agency revenue broadly in line with prior year. Another area where some of you may have thought we may be at risk with ad spend and ad budgets being cut. I just want to make the point within agencies, quite a lot of our revenue comes from subscription products. Those subscriptions are well embedded into daily workflow on the agency side. And what we've seen as we've gone through our renewal season is clients who have subscribed to data products have continued to use and continue to renew at very high levels. Great success in sports, esports and gaming. We have a product fit that suits that market and that sector very well. It's a very pleased to see continued expansion now becoming an increasingly significant contributor to the group performance. We've had a slight decline in banking in the FMG sector, in part that's clients slowing down decision-making a little bit. We're still seeing opportunities, but we're seeing them holding rather than growing at the same pace as the other sectors. And just a small point, we have a bit more contribution coming from the government sector due to our acquisition of Link last year, where they do quite a number of projects for various Swiss government departments. I just want to make a reference to the bars at the top right. You'll see the US and the UK are by far the biggest contributors to profit in the group. We continue to have a heavy focus on the US as the biggest market that we operate in. So we're extremely pleased to be delivering good growth plus good profitability within the region. We've seen an expansion of our operating margin from 14% to 17%. What that translates to is the group operating profit going from 14 to 22.1 in the half. I just want to make a small point to the segmental note. You'll see data products increasing and central costs increasing. As we are shifting towards more of a platform business, we're beginning to take resources that purely were dedicated to data products. They're now supporting the wider group as we prepare for our new segmental analysis, new segmental presentation, which we'll come up with in the second half. You'll hear much more about that at the capital markets table. We'll be talking about what the group looks like moving forward after this financial year. uh data products um despite some movement of costs we have seen increase in margins due to the operational leverage um data plus uh um automation that means we can capture a lot of drop through and profits when we do sell data products you'll also see an improvement in margin in custom and that really speaks to focusing on repeatable work the tracking work that we talk about allows us to capture a lot of efficiencies because we're using a lot of sample and we're using our technology either through automating the survey process or on the analytics side we're taking a lot of the heavy lifting that we used to have to do at our analytics platform crunch now allows us to do things much more efficiently Just a small point on cash. We have no exposure to Silicon Valley Bank or small regional banks. We are very conservative when it comes to cash deposits. In the year, we've had a slight decline in our cash generation percentage. In part, that's because in the half last year, we were about to do the link acquisition, and so we were aggressively pooling cash to reduce how much we would need to borrow in order to do that. I just want to make the point, we did have an RCF last year, which we have paid down since then, which is a good testament to the model. Our economic model produces good cash generation. We continue to invest. You'll see that we have spent £4.8 million on the panel that supports our existing operations. We've also spent 4.4 million on technology, in part continuing on what we were working on, but also as we move into a platform proposition, we're starting to put in place the pieces already. very similar to our last five-year plan, we started investing for the next plan whilst we were still in the current plan. Just a small point on financing cash flows, we spent £7.7 million on the dividend in the period, and we also spent £5.6 million on Treasury shares. We are anticipating Well, we are pooling shares to satisfy any LTIP payouts that we will make in the later half of this year. And the reason why we're doing that is to reduce the impact of dilution by having treasury shares to satisfy any option exercises that staff make. And with that, I will hand over to Salim Shahan.

Thank you, Alex. So I am the CEO and I'll take you through the operational updates across our three main divisions. So starting with data products. So those of you that followed us for a while will understand that this division houses our syndicated products, particularly brand index and of course profiles. very pleased to report it was a strong period and we saw underlying growth in the period of nine percent uh which was uh 20 as a headline figure uh just to uh reassure you this is also coming off a very strong hy 22 where we saw in the comparable period a growth of 32 percent We and the teams were driven very hard to maintain those high renewal rates, particularly coming through our peak renewal season. And we were very pleased with the results that we saw. We saw double digit growth across all the geographies, with the exception of mainland Europe. And the US remains our largest market and grew by 10 percent in the period. we have seen that the strength of our custom connected offer has meant that sometimes the subscription is in fact parked in favour of the connected solutions, which have really resonated with our clients in this macro environment. We saw a limited contribution from price increases in the period, which is obviously due to some of the tighter trading environments that we find ourselves in. We did see a significant improvement in the margin to 42%, and this is through a drop-through from higher incremental sales and a lower central cost allocation due to that lower growth. On to data services, we did see that growth in the period was actually down. We saw a decline of 9%. Excuse me, Alex, can I just... This was particularly due to declines that we saw in mainland Europe, and this was of course due to the political instability that we saw in Europe. Sorry, I have a slight cough. We also saw reclassification of some of that custom work. And as you know, that custom and data services are very closely linked. And we saw reclassification of some of that work into the Custom Research Division. We saw flat performance in the US and single digit growth in the UK and APAC. Now we saw a decline in the divisional margin as the inability to absorb that decline in revenues was was due to our investment in the overall business. In custom research, we saw the demand for our custom research due to the increased global coverage continue to really drive our performance. Excuse me, I have a bit of a cough here. Give me a proper cough. Excuse me, excuse me. Demand for that was driven by increased global coverage and the need for high quality data. Underlying growth in the period was up by 28 percent. And it's very pleasing to see overall revenues were hitting 65 million, which is comparable to what we saw in FY21. And the growth in our custom research offer has really been driven by the growth in the US, particularly from the tech and the gaming sector. And we have seen our differentiated offer, particularly using analytical tools, continue to really drive momentum in that market. We saw some great wins in the UK and mainland Europe, and we also saw some great wins coming off the back of our US election work. Very pleasing, we saw our divisional margin increase to 22%. This was off the back of the migration of our work to the Cenex and a greater focus on pricing. Those of you that are followers, you'll know that we've tried very hard not to leave, to take projects that are very high margin and to price them accordingly. And you can see the improvements in the margin as a result of that.

So we've already talked a little bit about where we think we're going. We have seen some change in the speed of decision making, perhaps as people are a bit concerned. We haven't seen an overall push back on anything major. We have high renewal rates as before and demand seems high. I mean, we do feel that the nature of our offer is one that is so highly suited to this market that it is perhaps less vulnerable than others in amongst our group, amongst our industry group we obviously are aware and this is the third time we're referencing it because we just don't know what the effects might be from certain silicon valley companies that are big clients of ours who may decide that we're the most efficient suppliers and and it continues or they may pause some work we literally have no view on of that we don't know But we are very confident overall because the strong performance in the first half of the year gives us very good sales momentum. In fact, we've never had at the end of the first half of the year as much as 70%, which is the current number at the end of the first half, 70% of our target revenue for the rest of the year already in the bag. as it were, already booked, that's a high level. So we are very confident that revenue and profitability will meet current market expectations for FY23. Some of you will have in mind the the stretch targets that we have and we're really not making any prediction on that because of the potential softness we have no confidence about that but neither do we think that that it's beyond us it's we will see what happens there uh we look forward to capital markets day uh when we will show you more uh of uh what's what's been happening with our continued investment uh in our technological capabilities as we truly build a platform uh not just something we call a platform but something that is truly a platform where everything is connected our analytics system our self-service dashboards our increasing panel and panel products and so forth it really is a platform that we look forward to demonstrating to you in May we remain disciplined in our investment approach wanting to ensure further margin improvements you know what our aim is there and we think our high aim for margin is very much within reach over the next year or so and we expect capital expenditures to be at a similar level next in this second half as in the first half or as in the previous year. And with that, we are ready for questions. Thank you.

So I am, and I do apologize, I was informed that I was doing the Q&A halfway through my presentation, which was slightly through me, so I will actually start the Q&A. So there's a question from Bryony Barrett from Stifar. The first question is costs. OPEX, i.e. excluding cost of sales, increased circa 25% in H1. Can you help us understand how much of the cost increase was from the acquisition, how much was from wage increases and how much was from investment? Alex, do you want to start us off?

I'm going to give very, very rough numbers. Most of the Most of the increase will be coming from hiring that we made in FY22. You'll see in some geographical sections we didn't grow profits as fast, and that's because we had slightly overhired in a few places. So I do want to make a small point. We did make some cuts, particularly in the UK, to try and rebalance some of that. Slight over-hire. I wouldn't say we went too far, but we just got a little bit over-exuberant as people were reacting to the great resignation. So about 10% of the increase broadly is coming from new heads coming in. We're getting the four-year impact of that. About 7% of that is going to be coming from businesses. addressing the cost of living crisis that we had. We ensured that the widest group of employees we could possibly support received pay rises in line with inflation. To address that, I think we've done a great job of that. You'll see our retention rates have been Very high for staff as we've gone through the last six months. That's important. We've hired quite a number of people over the last two years. Having people embedded and contributed is particularly important. The remainder is going to come from balance of FX and the acquisitions.

Okay, this question from Daniel. There's a couple more questions that we'll come back to. It was a question from Daniel. Tax effective rate of 21% in first half 23. Is that sustainable for FY23 and beyond?

Yes, it is. I just want to make a point. Last year, the full year, we had an FX loss, an unrealized FX loss in part due to a high number of intercompany balances that we had in the group as we were establishing a more formal transfer pricing policy between the group to better manage our tax. One of the things is as we mature as a company, we get more sophisticated at that and that policy now is in place which is helping us reduce our tax exposure obviously in a legitimate way in certain geographies you'll see there's a good benefit that we've been able to realize from that and we do expect that to maintain for the rest of the year

There's another question from Bridie, which I'll pick up on. Since you moved to a more account-focused sales process, can you update as to how this is going in terms of cross-selling or the average sales values per client? So where we have seen success, Bridie, is actually in our very large clients. So we have been particularly successful in some very large international clients buying across the piece. I still think there's a lot of work to do on the long tail, and that's something that we're really looking for the teams to improve on in H2 and beyond.

um question from andrew ripper why didn't the 18 growth in uk sales drop through to profit uh yeah i'll take that um mix really matters at a ge at a geography geographical level in the uk our data services team was very very high margin when you looked at the division at a group level that margin was diluted, the other teams weren't as profitable as the UK team had been in the past. Our growth rate in data services in the UK has slowed. And so what has historically been a very large contributor to high margin profit growth, obviously a reduction in revenue means As we then allocate central costs to the UK, it's harder for the UK to absorb all the allocations in the way that it had done in the past. We have a slight similar challenge with data products. We didn't quite get the new sales for data products that we're expecting in the UK again. a product that has high operating leverage, a very high margin. And so whilst the UK overall has performed well, that mix plus the increase in overall central costs, which we have to allocate to the UK, has meant they've not been able to absorb those allocations as much as they had done in the past.

Stefan, can you give us an update on new products such as SurveyDirect and Euler Finance?

We're going to wait for Capital Markets Day to talk more about that and to demonstrate more about that but we are pleased with the progress there and indeed there will be other things that we'll be talking about in the new products area. I haven't seen a question on AI, but obviously we are a very data driven company. We produce vast amounts of data and different kinds of data. So we are very excited about the new developments in artificial intelligence, the bots and so on. And yeah, we will have things to say about that in the capital markets day. Thanks, Stephanie.

There's a question from Paul. Alex, I'll start this off, and maybe if you want to take the second part. Please, can you provide some additional colour on the profile of your technology clients? Are they predominantly established profitable companies, startups, or a mixture of the two? And can you provide the colour on the type of relationship that you have with them with regard to split between subscriptions and custom? also as a whole um it's a it's a relatively easy answer we uh we sell right across the piece uh but these are companies that you would be familiar with um and so in terms of certainly some of the larger established companies uh in silicon valley but even now in terms of some of the newer entrants i'm very pleased to say that our team is very well known in the tech sector so even relatively relatively small tech companies with high profiles are still using our services. So right across the piece and obviously at the very top end, we have very large scale relationships with the big boys per se. Alex, can you tell the audience a little bit about the relationship you have with regard to the split between subscriptions and custom?

Yeah. For the majority of our tech clients, I'd say it's probably 50-50 subscription and some form of custom tracking. I say typically, what we are starting to see the benefit of is clients, people who have been using our products and services on the client side, as they have moved around, have moved to other smaller technology companies, which still have a a high level of brand awareness globally, who have then started picking up, usually starts with data products. So we have a little bit of a network effect of being able to pick up more subscriptions as people move around the industry. Some of our technology clients started with data products, but now are more weighted towards custom trackers. And that's something that we expect to see across an increasing number of our clients. The data products allow us to build credibility immediately with a new client because it is the best quality data. Clients typically spend the majority of their budget on custom trackers. And so this is a great way of us essentially leapfrogging a couple of steps that we would historically have had to manage to try and get to big tracking work. So some of our larger technology clients it is more weighted towards custom trackers and what they're doing is many different types of projects that they're doing on a monthly or quarterly basis but also then doing those in lots of countries and so that scales up pretty quickly.

There's a question from Jonathan. I think, Jonathan, you said, well, the question is, can you explain why the UK data sales didn't materialize as expected? I suspect that might be UK data services sales. I'll start it off. It's to my slide on data services. We did see an impact across the piece on data services due to essentially the war in Ukraine. What happens then is that political instability means that the newspapers are dominated by the news, and we do have a long tail of PR clients in that sector, and they obviously cut back on spending. There was also a cutback in terms of some of the government spending that we saw as well, and they are also a big buyer of those services. There's a question from Fiona. Has there been a stabilisation in data services in Europe? Again, I'll pick that up, Fiona. To Alex's point, what we do see is that there is a very grey area between data services and custom, and increasingly, our work is essentially, could be bucketed in one or either of those divisions. I think going forward, we may start looking at that as we search. I'll pick it up. Yeah. I'll tell Alex. You say. No, I'll pick up. Oh, sorry, finish your point. And so what we have seen is that we're pleased with how that's progressing in H2, but increasingly it's less about classifying it as data services or as custom as more about research.

Yeah, and let me just build on that. In the past, we've tried to explain the differences between particularly types of custom that we're doing and also how that compared to data services. We are coming out, as you know, with an expansion of what our new strategy will be in Capital Markets Day. In that, you'll see a an evolution of how we go to market. And I just want to make this point. We will report under this segmental analysis for this year, but we are now stretching this in terms of internally, we increasingly look at customer data services as one team. I'll make a point in the UK that has just recently been reorganized into one team. uh the reason why that's an important point to make historically we had dedicated sales teams for each uh division now we have a sales team that sells across the beast and so part of uh um part of the weakness in some geographies is not it's not true weakness what it is is clients like pr clients slowing down in the past we would have just ground out more sales and data services um we're taking the path of least resistance within within our sales team and selling more custom because that's that's where it's uh we're getting um obviously good performance there so i i wouldn't read too much into these numbers uh in terms of this is all completely market driven and because it's just the nature of our sales team and our marketing team where we're increasingly just positioning as it's research that you're buying from us

um question from fiona has the cenex program got more to deliver uh i'll start fiona um so um cenex has still got areas of the business with in which it can essentially uh help deliver more and i think we're still scratching the surface particularly on the tech side So that really is a focus for us in the remainder of H2 and beyond, and also on the graduate side as well. So we do have large teams now across all of the Cenexes, but one of the areas where we've not focused on is in that early careers pathway. So certainly in terms of holistically, there is more that can be offered there.

I would just add that with the self-service platform, and obviously this is more for Capital Markets Day, but in very general terms, we are looking for, and this also speaks to the data services number, becoming sort of spread across higher level custom and actually automated custom in self-service that we are expecting to have an offer that really takes you from no help at all purely automated self-service from the dashboard all the way to the you know, very customized expert help that you get from our biggest clients that have specialist trackers and so on. In the middle of that, there is a much more templated solution for a lot of customers. and that will be increasingly handled by Cenex by people who are expert at using very specific standardized formats which are somewhere between self-service and full customization so Cenex has a vital role to play there and that will I think be a fairly unique offer as well that complete range from one platform

A question from Daniel. Alex, do you want to take this one? It's, what scope is there to raise prices across the various parts of the business? And how receptive are clients to increases?

uh i would say it's um it's mixed and so it's easier obviously for us to do with new products new and new sales to uh uh to new clients um one area where we're pushing up slower is in renewals uh quite often it's more of a negotiation particularly if we've we've had clients that have been uh uh clients for a very long time in the subscription business so in that um we're taking a slightly softer approach rather than being very hard line and we're more negotiating increases where we can do. At certain intersections there is a high level of competition in our world. The challenge for us is not to raise prices but to demonstrate to clients You can't just compare price per question between one supplier and the other. There's a quality component that obviously drives what we do. So we are increasing prices in certain parts of our data services business, and we're doing that because we have established ourselves as the quality player. we don't have that reputation in every single market. In some markets, the brand is very strong and people come to us because they want quality rather than they're coming because they're driven by price. I think over time, we will increasingly get more sophisticated as this, As a group, we have obviously a huge number of operations in lots of countries. I can't say we're universally great at this, but I think in a few markets we are definitely improving and taking advantage of the ability to increase prices.

Thank you, Alex. Two questions here from Friday. Alex, if you take the first one and then Stefan, I'll give you the second one. Just coming on the back end of the first question, what do we expect OPEX in H2 to look like compared to H1?

Relatively similar, with the exception, we don't quite, I'm going to be a slightly hashed answer here. We are increasingly trying to hire developers. It's still a very tight labor market. So when we look at where are we trying to add roles for the rest of the year, it is in that technology team. Elsewhere, we are hiring into the Cenex to support future growth, which is not as difficult as it has been to get all the developers that we need. And in that, there'll be a mix of the type of work that they're doing, whether it's OpEx or whether it's CapEx. So we anticipate a slight increase in OpEx going into the second half. But we are, I do make the point, we made some selective cuts over the last few weeks, just to balance some of our geographies.

Stefan, second part of Bridie's question. Now that Link is integrated, are we on the lookout for other bolt-ons?

well as you know our acquisition strategy has been both strategic and opportunistic by that I mean that we are open for and looking for things in the data and tech space that fit what we're doing that's on the strategic side and when something comes along that speed us up in a region that we want to speed up we'll be interested in that as well but I won't say we're actively looking for the second time it is that kind of depends what comes along because our focus is obviously heavily on the US and secondarily the UK and so that we're not actively looking for that but worth something to come there. We've had good experiences of that and we could do more of that. The other space I think is more strategic for us which is data and technology.

Thanks Stefan. And I think this is the final question unless someone sends one in pretty quickly and it's a good one to end on. Stefan, I think this is for you. How many CEO candidates do you currently have in the search process? Sorry, this is a question from Andrew. And when do you expect the process to conclude?

yeah so we've we've got a very good process in place that we've worked out with our advisors Egon Zender it's a strong process we are very much on time with that and we've said that the handover will occur sometime around but probably exactly on August the 1st so we're confident in the process we're confident that we're going to in the timetable that we're going to make that date and that's obviously all I'm going to say at this point thanks with that I think we'll end because we have no further questions and it's been great talking to you and it's been a good whatever it is 23 years of of doing this so well not quite in the public bit but anyway terrific to see you thank you very much bye