Good morning all. Thank you all for coming along. Agenda's fairly straightforward: I'm going to give you the numbers that you've already read, Peter's going to go through the numbers that you've already read, I'll then come and talk a little bit about the color behind that and hopefully give you a better sense of how the business is doing behind those numbers and what you can expect going forward. The numbers that you've already read are on the left. You know, I think the number that probably stands out the most to me is the margin performance. You know, it is quite difficult running a business through the kind of cycle that we've just been through, and the fact that we've actually improved the margin I think should give you quite a good amount of confidence in the way that the organization is run.
It's one of those where, as you can see on this slide, our tax spend dropped 17%, which means some parts of our business must have gone backwards. And trying to run a business with a solid margin when revenues are not moving in a good direction is actually very, very difficult. It's quite easy to expand the margin as you're growing because you typically can't hire people quickly enough, so your margin actually benefits. When the opposite is happening, it's actually very hard to do because it's usually harder to get the costs out of the business at the same pace that the revenue might be dropping out. The good news on the revenue side was obviously that non-tech was up 11%. That's a good counterbalance. And of course, a fairly obvious question is when do we think tech is going to reverse from that position?
I think the good news for us is that we think that in the first half of this year tech is going to be pretty stable. I think we expect it to improve in the second half. Assuming that does come through, then actually you should see some pretty, you know, good organic growth in the second half of the year. Obviously, we're not betting the farm on that, and the way that the notes have been written is assuming a relatively steady state for tech, but assuming a relatively good performance outside of tech, which actually there are a whole bunch of very good reasons why we would expect that, partly the Mach49 contract, partly the work that's going on with SMG and the win of Asda, partly the impact of some of the acquisitions that were made last year and how those roll into things.
So, you know, there are good underlying reasons why we expect the non-tech side of the business to carry on doing OK, actually quite well. You know, if we expect the tech part to level out, then actually overall that should be good. If tech does show a good recovery in the second half, then hopefully we'll be coming to you with good news.
In terms of then the numbers on the left, you know, I think the real story again was we've seen quite a shift in our revenue base, and
the one good thing about tech is they pay very quickly. You know, they pay on 30 days very typically, whereas non-tech is notorious for paying very slowly. 120 days is, for them, being extraordinarily generous.
But the fact that we've managed our cash so well, the fact that our balance sheet is therefore also in a good shape, says the underside of the business is doing an incredible job. And, you know, there's a bunch of Next 15 people in the room who do that job, and a huge thank you to you for that.
In other words, I think the mechanics of the organization are actually really, really strong. You know, that gives you a platform upon which you should actually be able to add more businesses, you should be able to add more revenue, and get really good leverage out of that.
You know, this decentralized model is definitely something that we are benefiting from.
There is a point on here about Brand- to- demand. This is a sign that we're seeing emerging within our client base.
They are reorganizing around this, where effectively they're saying, you know, it's kind of weird that the brand side of the organization is run quite independently from the sales engagement side of the organization. They're saying, right, let's merge this. Google has undertaken this. Dell, IBM, a whole bunch of them in the tech organizations have said, we need to tie these two things together more directly. We think that's good news for us, and certainly so far what it seems to be showing up as good news for us. But we do think it's going to ripple through. Inevitably, once a few tech companies do it, they all tend to do it. Once tech companies do it in volume, then non-tech companies tend to do it in volume. That just seems to be the way our world works.
So I do suspect that you'll see that as a trend, and it will put pressure on organizations like ours to be much more
joined up in the way that we deliver solutions in that respect. So it'll mean that areas of our business that are working on branding will have to connect much more strongly with those that are working in areas like ABM or demand lead generation, that kind of thing.
The last point on here is to do with strong client retention, and there's a little bit of data later on to sort of talk about that.
The dividend increase of 5% is sort of literally rolling forward, the increase that we did at the interims. You know, we do have a share buyback program in place, and Peter will give you a bit more detail about how we're thinking about that later on.
But hopefully it gives you some confidence about how we're feeling about the business in the year ahead. At that point, I get to hand over to Peter.
Thank you, Tim.
Revenues up 2.5%, good increase in margin, which obviously led to a big increase in the operating profits. Tax rate increased to 26.3%. You know, that is mostly down to tax rates increasing around the world, particularly the U.K., which I think we're all aware of, an overall increase in diluted EPS. And that's taking account of all the dilution for all the sort of gross shares and other incentive plans by 1.5%. And as Tim said, we've increased the dividend by 5%. We've still got very strong cover. So again, I think we will be, you know, having probably modest increases in dividend going forward. But again, I'll talk about the capital allocation and how that all fits in together. On the revenue side, we had, you know, reasonable organic growth considering the market conditions. Acquisitions, you know, we did five bolt-ons last year.
I wonder if bolt-ons is the right term. I think we see the strategic acquisitions for the, you know, businesses we really want to back going forward. For each of them, you know, it does bring new customers and new capabilities to the businesses impacted. We had modest FX headwind. So this year we were roughly 125, previously about 123. We are pretty geared to the US dollar exchange rates. On the segments, Insights had a, you know, reasonable year. I think what we saw there was quite a big investment in Plinc. Plinc is our data science business where they effectively do one customer view for some sort of big retailers and then, you know, do email marketing campaigns in the back of that. We had quite a big investment in some new product launches for them.
So, you know, that expectation is that margin will improve this year as that sort of investment in sales and marketing pays off. Savanta, you know, continues to grow both organically and by acquisition. They did quite a reasonable size acquisition for them in Canada, which first acquisition in Canada, and that was in sort of shopper media marketing. So again, we're hoping that SMG and Savanta will develop a sort of good relationship through that process. Engage was our weakest segment. Again, quite a mixed performance. M Booth and M Booth Health, you know, the ladies, Stacey Bernstein and M Booth Health, presented at the Capital Markets Day. You know, they continue to do extremely well. In fact, they've had a fantastic start to this year.
MHP, I've got to say, because quite a few of them in the room today, doing very well, you know, very good margin, you know, very well-run business. I think again, the more focused on sort of tech customers, the tougher times. And, you know, so I think an overall mixed performance. But I think, you know, the biggest thing as Tim mentioned earlier was the margin. It is tough to run a business where you're not quite sure what the revenue is, and all the businesses anticipated quite sort of tougher times and therefore managed their cost base accordingly. On delivery, that was very much led by SMG, who had a phenomenal year, and, you know, this year is going to be incredible for them. Morrisons was one, I think, about two years ago.
The way that contract works is that you get a monthly retainer, and then at the end of their financial year, which is October, you get an over-target performance. They had a phenomenal performance from Morrisons, so that led to a very nice sort of kicker in October. This year we're spreading the sort of profits more evenly over the year, so it'll be slightly more sort of evenly based for the first half, second half. Then the one Asda, which we announced, I think, in January, that's more of a sort of cost-plus model where there's going to be some kicker for revenue outperformance, but maybe not as much as Morrisons. And they've also got a crazy pipeline, so I think SMG will continue to do extremely well for us.
Activate was slightly slower, particularly in H2, and we're expecting, as Tim mentioned earlier, probably a better second half performance than the first half. But overall, you know, we still feel very pleased with that segment. Business transformation, obviously dominated by Mach49, the growth out of that big contract. And Transformer had a very good performance led by the Department for Education, which they won in the first half. And interestingly, they, you know, DfE spent a lot of money in the first half, and then as often happens with government, they realize they probably overspent, so they pull back a little bit in the second half. But, you know, overall, you know, we think Transformer's doing well. Blueshirt Group is probably our most unpredictable business because they're very dependent on tech IPOs, and that was obviously very quiet last year.
But they were involved in the Reddit float and were hoping that, you know, that's going to sort of kick a better performance in the second half. And the final business there is Palladium, which is very much around due diligence for PE. And again, with all that kind of go- privates, you know, they're getting a bit busier. The final number, which I was, you know, very pleased with, was the head office cost, which was quite elevated last year, partly because of the engine transaction and, you know, we inherited slightly crazy head office cost with engines, so we worked very hard to reduce that down to a sensible level.
You know, we took GBP 6.5 million out of that cost base, and that margin number is the head office cost as a percentage of total revenue, and you can see how that's sort of reduced from 4.7% last year to 3.4% this year. On cash flow, I think as Tim mentioned earlier, we've done a much better job on working capital. I think last year was quite tough because during COVID everybody paid on time. It's almost as sort of the world changed in terms of people started sort of, you know, respecting their suppliers and then paying on time. Last year was much more challenging. I think this sort of concept of tech paying 30 days, FMCG paying 120 days has definitely had an impact.
And again, I think the GBP 10.7 million outflow was partly a result of that, but, you know, we worked incredibly hard, particularly in January, to kind of get us back into a better place. Cash tax was under our accounting tax because we have some offsets in the US where you can use goodwill amortization to actually reduce your cash tax rate. So I can see that continuing to be maybe 3% or 4% below the accounting tax rate, and all the other numbers were pretty much as expectation. Again, quite a big change here where we made the first big Mach49 earn-out payment, which that GBP 45 million was mostly Mach49. Every year we have to do a very full analysis in terms of what we think the earn-out payment's going to be for all of our acquisitions.
As we sort of announced in the statement, we looked at Mach49, and 12 months ago, you know, the big contract was going very well, the rest of the business was doing incredibly well as well. We assumed that that would continue probably in a sort of overly aggressive way. So we assumed that the total earn-out payment was going to be $300 million. Based on how they performed this year, which was still very strong, but maybe not as strong as we expected and the expectations for the next sort of couple of years, we've actually reduced the total earn-out payment estimate from $300 million down to $250 million. Now, there's still quite a lot of judgment in there. The calculation is very dependent on revenue growth, profitability, etc.
But, you know, when we had a sort of full review of all the numbers, we reduced that down. So that's two factors. One, the first earn-out payment plus the reduction in the expected total payment is behind that reduction from $244 million down to $177 million. So on adjustments, the biggest number there, or the most unusual, is on restructuring. I think Tim's mentioned just how proactive the businesses are in terms of right-sizing the cost base to reflect, you know, demand to which our companies see. So in total, we took out roughly 200 roles with an annual saving of $15 million, which I think was very much behind, you know, the fact that, you know, we kept the margins where they were. Deal costs is very much the cost of the bolt-ons.
We had quite a few new incentive plans, mostly for the Engine brands, where effectively they share in the sort of increase in value they create over the next sort of five years. So that's a one-off cost which we put into that. It's based on very much the performance of each of the businesses. The reduction in terms of acquisition accounting related costs from 1989 to 2024 was very much reflecting that reduction in the Mach49 earn-out. Capital allocation, we haven't changed our priorities, so this is really restating them. Your first priority is to, you know, invest in existing capabilities and very much around sort of data and AI, and, you know, Tim will talk a little about that. We're still very keen to do large strategic acquisitions.
I think we recognize that is tougher given where our share price is and, you know, very voracious appetite from PE to compete in these areas. So I think the focus for the immediate future is going to be continuing to do bolt-ons. You know, we really did one for MHP this year. You know, there's quite a few in the hopper, and, you know, we have an aspiration to, you know, spend a fair bit of our cash on bolt-ons.
But if we recognize that we can't do that and the share price continues to be a little bit soggy, then we will continue with a bolt-on. And we announced in January that we were going to spend GBP 10 million or up to GBP 10 million u p to the end of April, partly because the share price being a bit stronger than we thought it was going to be.
We've only spent GBP 2.1 million of that GBP 10 million, and what we've announced today is we're going to roll on that buyback program to the end of July and effectively spend up to another GBP 7.9 million if the share price is where it is. We haven't got an alternative use of our capital.
Now you're back to me, I'm afraid. I mentioned earlier about one of the features of our organization is how good we are at keeping customers. We have this sort of habit of winning customers as relatively small customers and turning them into relatively big customers. This sort of slide shows you how many customers are now over $1 million. The logos at the bottom are not all of them. That's only some of the customers that have been with us for more than five years. I could have produced an equally long list of others as well, an equally good list of others. You know, I think that is one of the things that keeps our business in really good health. It's this ability to, you know, essentially not lose customers.
And I think that's one of the difficult parts of running a business like ours is a tremendous amount of work goes into winning a customer. And so if you have what we describe as a leaky bucket problem, then that means you're running twice as fast to stand still. And we don't want to run a business that way. So we put as much emphasis within the organization, if not more, on the customers that you already have than we do on the customers that you want to win. I think a lot of sort of agency-type businesses, you know, glorify the account win. We try and glorify the account kept and the account grown. And I think that actually serves us extraordinarily well.
There are a few, you know, wins here on the left as there you know I think has been talked about quite a lot to do with SMG. Workday is a client where we're sort of actually spanning across the whole brand-to-demand area that I mentioned earlier. Sega, we're rebuilding their dot com. Our sort of ability to sort of just get our teeth into these customers, if I look at Workday, it's already grown really quite substantially since we first took it on as a customer, and we haven't had them very long. We are seen as a relatively complicated business by a lot of people.
They sort of look at us and say, "Wow, you're you're a little bit different from everybody else, and couldn't you simplify this?" And I I think our argument is we give customers what they really need, and we only integrate where they really need us to integrate. And by doing that, the customer gets a really good outcome, and they stick around. They don't get things that they don't need. They're not paying for parts of the organization that are unnecessary. They're really only paying for the parts that are actually helping their businesses. And that works. You know, so I think we'll carry on being annoying and being complicated. In terms of, you know, acquisitions, you know, Peter's already mentioned we've done quite a few in the last year, Explorer, Williams, Rush, Whites pace, and onefourzero.
Those actually spread pretty much across all of the segments in which we do business. Studio La Plage is actually an MHP acquisition for MHP. All of them have a very strong data and digital aspect to them. There's nothing in here where you're saying, "Okay, you know, you're looking at some traditional acquisition and that's it." I was mentioning before we came in that we need to stop referring to these things as bolt-ons because it makes them sound like they're just things we don't really care about. And, you know, they may be small, but they're actually extraordinarily valuable to the organizations that they join. And, you know, they join for a very good reason. They help us get into a new vertical market. They add a new product or a new service.
They change that organization in a way that would take quite a lot of time otherwise. So we see them as crucial. The good news is, though, that it's not a particularly expensive way to grow. You know, you can see the multiple range that we paid up on the right-hand side there. That is still a very lucrative way for us to grow the business, and you will see us continue to do that. You know, we have a lot in process at the moment. We never guarantee that we do everything. We're very ruthless on due diligence. But there are plenty of businesses out there that we can bring into Next 15. It's not a shortage of opportunity, and there's no real meaningful pressure on pricing. So from our perspective, you should expect to see us continue to sort of grow the business in that way as well.
It says at the bottom what those businesses added. Clearly, they're not unimportant to us. I'm now going to talk about AI, my favorite topic. So I think everybody's lauding this at the moment. You know, this quote from Jamie Dimon at the bottom, I don't know how many of you read his show or the letter, but I think he devoted pretty much the whole thing to AI in one way or another. He is essentially saying this is probably as important as any other major shift that, you know, the modern world has undertaken. It's like the Industrial Revolution, but even bigger. It's like the boom that, you know, we saw from tech when it really started to impact businesses. We do think of it as being that impactful, and we are embracing it as an organization in literally every way we can think of.
You know, we're training everybody. We're giving them the tools. We're making sure that it's embedded into their work. You know, we have this concept of if you're not using it, you're not going to go anywhere within the organization. Because quite frankly, it is going to be an embedded part of the way that we do things. We've already developed three products that we're actually selling that have AI built into them. And pretty much every new product that we are bringing to customers at the moment has some level of AI built into it or utilizes AI in some clever way to make that product better. You know, we're seeing great improvements in efficiency. And again, I think that's partly why our margins can stay in a good shape.
And the Next 15 Labs, which is our central function where we are investing on building products on behalf of the businesses in addition to the products that they're building, is proving a really, really good resource. And JP, our COO, is driving that, and I have to give him a lot of kudos for the work that's already been done there. In terms of, you know, one of the outputs for this is what we're calling Maestro. This is a way to effectively supercharge our people. You know, Jamie Dimon talking about every role being augmented. This is really kind of giving everybody a sort of a superhero cape and saying, "Right, you now have AI. It will make you better at doing your job.
It will enable the people in your team to get there much more quickly." So what you're doing is pulling things internally and externally that will help you with that. So we're taking practitioner expertise. You know, we're going to our best people and saying, "How would you do this? How can we learn about the process that you follow to get to that outcome? Why do you ask those questions of a customer when you're interrogating them on something?" We're then taking all of the methodologies that we already use to do the work practices, embedding those into the system. Then we're looking at case studies where work has been done, where we know that was a really good job. That really helped the customer move the needle in whatever way was asked.
Then lastly, we're taking a whole bunch of external data on how are other people doing things extremely well so that we can then effectively create a learning system that, you know, effectively means, you know, an event like today, for example, somebody at MHP could use this to create the plan for that at the push of a button. It won't be perfect, but it will be 80% of the way there, which will get people to an outcome far more quickly and produce best-in-class work, again, much more quickly. There are other things that we're doing in the labs. Another thing that is my personal favorite at the moment is synthetic personas. This is where, you know, using data that's coming out of, at the moment, our BrandVue product, which sits within Savanta. BrandVue is a brand tracking tool.
So what it does is, you know, on a daily basis, it goes out and asks people, you know, tons of questions about very different brands in different vertical markets, finds out what their perception of those brands is. You know, are they moving up or down? If you have that data over a long period of time, you can actually break it down into very distinct personalities that are interacting with those brands. You can put them into different categories if you like. And by doing that, if you model the data in the right way, you can actually start to have conversations with virtual versions of those people and actually have some really quite compelling conversations.
One example that we showed to one of our customers was the idea in the retail banking area, for example, of being able to say, "Right, you can have a conversation with them where you're literally saying, 'So how much would it take you to switch? You're with Barclays right now. You want to move to our bank. If we how much money would we have to give you to make it worth your while to make that switch?'" It was Peter that asked the question in a demo just because we were curious to see what the number would be, and it came out at GBP 200. That is a pretty important number for them to be able to calculate. That would have been a very difficult thing to do. You could have got there through focus groups. But you risk with focus groups that people get tired.
They get bored. They start answering questions just to shut you up and get out of the meeting. With this technology, people never get tired. You know, we can test content with them. We can literally put 1,000 different versions of the content in front of them, and they'll tell us which is the one that they're going to react best to, if you like. It's a much more intuitive way of being able to interact and learn about, you know, what works, why it works, why something doesn't work, and so on. So I think you're going to see from us quite significant progress in both of those areas.
I think, you know, if you think about it in terms of how can we use AI to create better data to inform the decisions that our customers want to make or the programs that they need to run in order to achieve their business goals, then synthetic personas is a really good way to do that. You think about how we can essentially make our skill base much stronger, much better as an organization, more efficient, and Maestro is the tool that we'll be using to do that. We're not alone. I think this is going to be a race. I think it's not one of these where it's necessarily a amount of money. Because the good thing with the AI toolsets is they're not crazy expensive. We're not focused on trying to build tools, which would be a very expensive thing to do.
We're focused on how we leverage those tools, how we combine those tools in interesting ways to create products that, you know, basically solve the problems that we think our customers face. I'm going to talk here about megatrends. You know, I mentioned brand-to-demand earlier. Another thing that we're seeing is the connected customer experience. There's been a lot of siloed work done in areas like e-commerce or CX, and to a lesser degree in connected commerce. We're seeing that those areas will start to merge. We're also seeing that underneath all of that, B2B, which has been a relative laggard compared to the consumer end of the spectrum, is going to accelerate its investment quite significantly. Some businesses in that space have already done that, but there's a tremendous number that have not, even with COVID.
We see that social commerce, though, is going to continue to dominate in the consumer area. It just seems like there is a never-ending amount of growth coming from that particular part of the business. AI, I've already bored you to death, I think, probably with that, but it is going to be the biggest shift that our business is going to have to go through in the next four or five years. You know, we are throwing everything that we can think of at it. We are, you know, not holding a meeting with our businesses without discussing it with them, making sure that we're confident of the plan that they have, we're confident of their usage. As I mentioned earlier, usage is the biggest way that you change behaviors and they change patterns within organizations.
If your people are not using this technology every day, then you can't expect anything to change. If they're not using Copilot or GPT or DALL·E or any of the tools, then good luck to you because you can throw products at them, but usage is king. There will be this new arms race on data as well. I think, you know, informing the models is crucial. That's where we are seeing that our Savanta business could be extremely useful to us, especially in areas like brand tracking where you can repurpose that data to create some very, very interesting applications. ESG, I think quite a lot of people have sort of said, "Oh, ESG, we don't care about that anymore." Our customers do. It's extremely important to us that we pursue this. And it's also incredibly important to our people.
They want to work for organizations with a sense of purpose, a belief that it's equitable, a belief that, you know, it is trying to make its mark from an environmental perspective. Governance, you know, there are some important shifts taking place in that respect, and we have to make sure that we are moving with the tide in that area. You know, this gives you a sense of some of the things. You know, the fact that Peter, myself, JP, now are measured on eNPS as a part of our bonus and that kind of thing shows that we're taking these kinds of things seriously. And actually, so are the executives that lead the individual businesses in our organization. We haven't just kept it for ourselves. That takes me to Outlook.
I was conscious while Peter was doing his part that I probably sounded a bit downbeat, and I don't want to. I think what you should take away from this is our business is actually in remarkably good health. You know, the machine is running really very efficiently and doing very well. We have some incredible businesses within the portfolio that, you know, are going to deliver some very good growth in this year. We have some businesses that have had a more challenging time because of the changes in tech. But even those, I think, will have a better year this year. It would only take a relatively modest improvement in tech spend for our business to show quite a marked uplift. In other words, that is still a meaningful percentage of our revenue. It's 30% of our revenue.
Even a small improvement in that space, it has a profound impact on the growth from a revenue perspective and most definitely from a margin perspective. So I want you to take away that actually we are quite nicely confident about how this year will shape out. I think the consensus, if I'm not wrong, is something like 5% organic growth for this year. That feels very deliverable as we sit here today. I think we could do better than that if tech recovers in the second half, and hopefully it does. But it's not a business that is sitting there going, "I have no idea how we're going to hit that target." It feels very, very doable as we sit here today. I think I'm going to end on that note.