Hello from myself and Mickey, and thanks for joining. We're really pleased to be able to take you through our results for fiscal year '26 over the coming hour or so. We'll take you through everything, and then we'll leave time for Q&A. If you want the kind of one-minute summary, it's the fiscal year '26 as both being a very difficult year for Next 15, but also a very incredibly important one too. Despite a very choppy external environment and internal pressure that we've seen from these legacy issues, we've stabilized performance, we've simplified the group metering, and we're now seeing early signs of progress into fiscal year '26. As normal, you'll hear from myself and from Mickey. We'll look at the fiscal year overview.
I'll hand over to Mickey to look at the financials in more detail, then I'll come back to talk about strategy and the outlook, then we'll have time for Q&A at the end. Starting with the key headlines, what have we achieved so far? First, we've taken really decisive action to reset this business. We've simplified and realigned the portfolio. We've reduced the number of businesses in this year from 22 at the beginning of the year to 11 today. We've reduced costs, delivering GBP 26 million in annualized savings, and we've restored operating discipline through our unified but not uniform operating model. Second, we've seen performance stabilizing. We've delivered in line with expectations. We've protected our margins, and we've improved cash generation. We've seen a GBP 43 million inflow versus a GBP 7 million outflow fiscal year 2025.
Third, we're working really hard to drive the business to become a higher quality, more focused business with a clear shift towards data, technology, and AI in structurally growing markets. Fourth, our financial foundations remain really strong. We have low leverage, improved working capital, and as a result, we're maintaining our dividend. Fifth, the Mach49 arbitration remains ongoing. It does create some uncertainty, but we're managing it actively. We continue to maintain the earn-out liability on the balance sheet, but we remain really confident in our legal cases. Finally, we're seeing early signs of progress into fiscal year 2027, particularly in digital transformation. Across the whole portfolio, we're seeing a much more stabilized performance. With all that said, let's focus on the progress we're making in stabilizing that performance.
The group delivered net revenue in line with expectations, down 4%, from like-for-like, which I think is a pretty robust and encouraging number despite a challenging macroeconomic environment and a period of significant structural change for Next 15 as well. Within that, our core Track 1 businesses delivered growth of 4%, like-for-like on a net revenue basis and 7%, profit growth. We saw really strong growth in digital transformation. That was up over 40%, in the year and continued growth in retail media too. We've also materially improved the resilience of our client mix, gone from a heavy reliance on tech to actually a more balanced client mix with retail and FMCG, now actually our largest sector, government being our fastest growing. That performance was offset by declines in revenue from both our technology clients and our creative production revenue.
That's been driven by more cautionary spending from our clients as a result of the macroeconomic uncertainty we've seen. On execution, we've been really focused on building a better business. We've reduced our headcount by 16%, delivering, as I said, GBP 126 million of annualized cost savings. GBP 11 million of those were realized in the year. We've simplified the business and the portfolio from 22 to 11. There's more of that to come. We've exited Mach49, which was a significant legacy issue. Against that backdrop, we've managed to protect our margins at just over 15%. Taking all of that together, performance has stabilized. The business is in a much more controlled position. We're starting to see some really good early progress in fiscal year 2027. We've also materially improved the balance sheet.
We've delivered a significant improvement in our cash performance, GBP 44 million working capital inflow, that's driven by tighter operational control. The result, our net debt has reduced to GBP 35.6 million, puts our leverage at 0.4 times EBITDA. Our earn-out exposure as a result of the passing of time has also reduced, which increases our financial flexibility. As a result, we're maintaining the dividend. That reflects our confidence in the underlying business because we believe the balance sheet is strong, and it gives us more capacity and resilience moving forward. Let's dig into those numbers in some more detail, and then I'll hand over to Mickey to talk it through, and then I'll return soon to talk through about the strategy.
Thanks, Sam. Good morning, everyone. I'll take you through the financial review. I will start on the P&L, an overview of the whole P&L. Revenue, Sam said, is in line with expectations. That is against a backdrop of a challenging environment. Like-for-like revenue declined 4%, reflecting global economic pressures that we're all familiar with. We are somewhat weighted in the U.S. There were U.S. policy shifts that affected us and reduced technology client spend as well, which had an impact. That said, there was resilient growth within Transform, within SMG, and within our M Booth companies. They provided somewhat of an offset against some of that decline. Our margins, despite that revenue decline, we held our margins back firm. They were broadly in line with prior year. That was a result of restructuring and a continued focus on cost management.
EBIT was GBP 63.4, diluted EPS, at 44.4p, all in all in line with the movements in revenue. As Sam said, we've maintained our dividend for the last year at GBP 50.35. At the Capital Markets Day, we split out our businesses into different tracks and all those now: Track 1, Track 2, Track 3. We'll report on those for the foreseeable future. Track 1 comprises our core growth portfolio. Those are the higher quality data, technology, and AI-enabled businesses that operate in markets we think are going to show signs of longest-term growth. That's our area of focus, Track 1, and they delivered revenues of GBP 273.4 million. That's growth on last year of 4%, on revenue and adjusted operating profit up 7.2%. The businesses that we believe are our future are growing.
They're growing year-on-year, we believe they'll continue to grow for the foreseeable future. Track 2 comprises, is a managed portfolio, as we describe. It's those businesses which have some, but not necessarily all, the characteristics that are required to make it to Track 1. Track 2 revenues were GBP 160.9 versus GBP 191 last year, and adjusted operating profit GBP 32.4 versus GBP 43 last year. Track 3 businesses are those businesses that we've already divested. We've divested those businesses last year. That's Palladium, Beyond, BCA, and Blueshirt. We got a total consideration for those businesses of GBP 7.5 million, resulting in an aggregate net loss of GBP 3.2 million. Looking at the movement in revenue year-on-year, I'll take you through those key movements. First of all, just one point to note is there were disposals. That had an GBP 11.3 million impact on that revenue bridge.
focusing on like-for-like revenue, if we look at the second chart at the bottom half of this, like-for-like revenue, and we split that out into Track 1, and we split that out into Track 2. Track 1 revenue grew, as I said. The best performer there was Transform, which was up over 40%. SMG and M Booth also performed strongly in that Track 1, grew with it. Track 2 declined, result of headwinds from reduced technology client spend, fewer creative projects, and delayed project starts, impacting ELVIS and Marker in particular. We also took a bit of a hit, unfortunately, from currency. The weaker US dollar resulted in 4%, lower year-on-year, created GBP 8 million adverse FX effects. Same thing again, looking at the operating profit bridge.
Good news here is that despite that revenue decline, our margins are broadly the same year on year, which is all to do with cost management. If we just focus on that cost management for a second, staff costs were significantly reduced. They were driven by restructuring, so the benefits of restructuring savings from FY 2025, as well as ongoing improvements, cost savings, productivity improvements in FY 2026. Our headcount was reduced at the end of the year to 3,350, from 3,992 the year before, 642 employees. Annualised benefit of that is GBP 26 million. Breaking our business down into segments. We've covered the tracks. Now we have segments which are, again, new, and we covered those in the Capital Markets Day.
There are five operating segments. I'll take you through all of them. They all relate back to our new refreshed group strategy. Retail media, that was up 8.2%. That's all SMG in there. That continues to expand during the year. We continue to invest in the U.S. market. It's a significant medium long-term growth opportunity. That investment had a near-term impact on operating margin, which decreased to 18.2% from 25.3%. Data and research, which is the Savanta business, revenue declined by 8.5%, largely driven by client in-housing of research activities and reduced demand for traditional market research. We strengthened the leadership there last year with the appointment of the new CEO in June.
We also took some strong restructuring actions, the result of which is that despite the revenue decline of 8.5%, operating margin increased to 14.5%, from 12.7%. I've mentioned that retail media grew. Digital transformation grew at a phenomenal rate last year, at 41.8% year-over-year. That's all U.K. public sector focus. That's the entirety of that business. It was driven by a number of large contracts that grew during that period, including one that we announced at the end of last year, which is the Tunnel for Education. Marketing communications declined by 7.9%. This is our largest segment. It produced GBP 53.8 million profit, at a margin, an increased margin of 22.6%. The core reason for the decline was largely down to B2B, technology marketing.
That true to the rest of the industry, that sector saw quite a significant decline. Having said that, within that, we have a health marketing business, which has experienced very significant growth in the second half of the year, and we see that continuing in the first half of this year. Finally, our last segment is creative services. As you probably all know, that is a sector that is really facing a challenge at the moment, that declined in our group by 18.6%. Looking now at our customer base and our customer segments, I'll just take you through each of those. Consumer and retail is now our largest sector. That contributes 31%, total revenue. That spend is very heavily weighted towards the retail media segment through SMG. Technology client spend, it was our biggest segment.
It isn't any longer. Client spend is subdued, and its share of total revenue declined by 4%. Going back to the 5 segments we have, we have a large component of tech spend in marketing and comms. You see the decline in marketing and comms. That's in large part driven by technology clients. Professional financial services, those declined due to client losses and reduced spend from existing clients. As I mentioned before, public sector is our fastest growing vertical. That's our Transform business, where government spend, their U.K. government spend, grew significantly, as I said before, we expect it to grow into 27%. Cash flow, looking at the major movements in cash flow in FY 2026, we had net inflows from trading of GBP 43 million. Then we had a very strong working capital inflow, a very strong one.
Not necessarily one that we could repeat every single year, but nonetheless, a really strong performance last year. GBP 43.8 came in. That's an immaterial improvement on the GBP 7 million that went out the prior year. What was that driven by? That was driven half, at least 50%, by strong disciplined working capital management across the whole group. The other half was due to the wind-down of Mach49 and the accruals related to the ongoing litigation. That was a really good result for us, one of the strongest elements in this presentation. That was partially offset by earnout payments of GBP 35 million, which we'll go into in a second. Looking at our leverage and our liquidity, our net debt/EBITDA ratio at 0.4 is well within our current limit.
It's a very healthy place. Even if we were to include in a full provision for the Mach49 earn-out, We'll you know, we'll talk about it in a second, even if we were to include that full provision, that still takes us to 1.5 times. Well within our comfortably within our limits. Total debt comprises an RCF of drawn RCF, loans and borrowings of GBP 57.3 million versus GBP 65.9 million, and an overdraft of GBP 66.7 million. On the RCF, we have GBP 118 million undrawn of the GBP 175 million facility. That facility lasts until December 2027. We have a further year at GBP 155 million until December 2028. On the earn-outs, the majority of the earn-outs have now been settled. We've got GBP 13 million of earn-out liability still to come, if you exclude the Mach49 liability.
The majority of that is expected to be settled in cash rather than shares. Just talking about Mach49, it is a discontinued operation. We announced in August 2025 that we were going to close and discontinue the operations. We've done that. They ceased operating on the 31st of January. We have reported it, therefore, as a discontinued line item. You won't see that in the numbers as within the numbers. It's a separate line item. Looking at the losses, the write-downs, and fees associated with all of that, the loss after tax was GBP 14.9 million versus a profit prior year of GBP 18.9 million. That comprises operating losses after tax of GBP 5 million, goodwill, and acquired intangible write-offs of GBP 10 million.
We incurred GBP 12.5 million of legal and advisory fees relating to the misconduct arbitration proceedings that you're familiar with, and the wind-down of Mach49. Finally, talking about how we've accounted for the remaining earn-out liability. I'll just go through it. We've announced on in June the serious misconduct, and we reported that to the relevant law enforcement agencies. We've made no further payment of the earn-out as a result of that. We are now in arbitration proceedings. Until we know the outcome of those proceedings, we are holding on the balance sheet that earn-out liability of GBP 63.4 million. We would expect ruling on that arbitration by the 31st of January, at the latest. We hold our position on the non-payment of the remaining earnout.
In our view, I'll just read this out. It's probably easier if I see it. The earnout we currently recognize that the earnout liability is probable, therefore no further that only the earn-out provision is probable, and we don't recognize anything beyond that. We've also finally counterclaimed for previously paid earn-out provisions. We had paid out GBP 120 million before. Although they have claimed for the earn-out that's due, we've claimed them for the earn-out that's already been paid.
Thanks, Mickey. Looking a little bit to the future and how we're progressing. I think we saw most of the year in the Capital Markets Day back in January. Thank you again for attending that. We set out at that day a new chapter for Next 15, one that was focused on data and an AI-led growth platform.
We're already making good progress. The business is simpler, it's more connected, it's better aligned around strengths in data and technology. Over time, we see an opportunity to grow revenue and profit in increasing proportion coming from these high-growth areas. Let's dig into it a little bit, give you some examples of where we're making progress. Remember, we talked around this flywheel of growth: data that drives the differentiation, the technology that provides the insight and access to that data, and then finally, and critically, activation that delivers results that you can measure or data that keeps that flywheel spinning. That flywheel can be accelerated through AI and our people. We're already seeing this across the business in so many ways. Here are just a few examples.
if you look at M Booth, we partnered with Google on their Veo launch, which I'm sure a lot of you saw. We delivered the end-to-end creative, actually using their AI technology, Veo, and their associated tools across that workplace. All the way from concept through to production, we created a full campaign utilizing Veo AI tools, which Google used themselves to advertise their own AI tools. It performed incredibly well, over 1,000% performance versus the benchmark, and was one of the top-performing contents that Google had all year. This is an example of the new world of creative, where we're pioneering production through AI with one of the pioneers of AI. At the very core of our business, we're right at the forefront of this movement.
At Transform, a business that is highly specialized in creating AI tools, both for government and increasingly in private sector too, they've created a platform with Go Inspire, which takes huge amounts of data and creates self-service models that effectively allow you to change campaigns in flight. As campaigns are happening, usually as a marketer, you'd need to wait two weeks, three weeks to understand whether they work. You now understand that in seconds, the tool will help you to decide what to do next. Because it's connected agentically, it'll actually do that in flight. That reduces campaigns from weeks to minutes and improves performance and accuracy exponentially. At Savanta, we're using Snowflake-powered data and AI platforms to look at large volumes of campaign data and customer sentiment. These are the drivers of what we call brand impact, i.e., you know, "Do you like this?" essentially.
ITV are using that to optimize and scale their partnership strategy based on that real-time data and insight, rather than in the past relying more on intuition. At SMG, we've developed a really exciting AI-led planning and activation platform. You might remember from the Capital Markets Day, we talked about the huge dataset that SMG have around sales uplift and brand uplift. We're now able to use AI to generate recommendations about what to do next based on how those campaigns are performing, increasing our forecasting accuracy, our scenario modeling. Effectively, we're able to tell brands what's going to happen before it does, and then optimize those campaigns in flight. That is in place across some pretty major brands and some pretty major retailers like Co-op Morrisons, WHSmith in the U.S., and Boots.
The key point that I'm trying to make here is that whilst others are talking about what AI's going to do, we're actually pioneering it here. We're applying it across all of our business, especially across the Track 1 businesses that are delivering measurable outcomes for clients and value to the group today. We understand AI. We're applying it. That gives us confidence, not just in our capability, but how we can scale that into the group into the future. You're starting to see some of those numbers follow this trend. That feeds directly into our capital allocation. We're increasingly focusing our investment into our Track 1 businesses, where we see structural growth, strong capabilities, and attractive returns. Our Track 2 remains profitable, but performance is more mixed there.
What we're doing with our Track 2 businesses is we're working really hard to actively improve their performance, stabilize their performance. A lot of that work is being done. We're working alongside them to either reclassify them as Track 1 or unlock value through disposal. Each one of those businesses that you see in that Track 2 are in a time-box process to do exactly that. As a result of that prioritization, the group has become progressively more focused on our higher-growth, AI-led businesses. All of this is enabled by a change in our operating model. From a kind of highly federated model historically, we've moved to what we call a unified but not uniform operating model.
What that means is that we're bringing the group together where we think we can add real value, particularly around data sharing, technology, and also client delivery, while still preserving the entrepreneurial spirit that existed in the individual businesses. We've established a more connected operating structure. We now have a Track 1 operational board, which consists of all of the CEO's of those Track 1 businesses working together to remove silos and drive more joined-up decision-making. That's felt like a real change in the business. As a result, we're increasing sharing data, sharing technology, whether that's datasets or AI capabilities. There's a lot of things that each one of these businesses are doing that other businesses can benefit from. We can scale that quickly across our group. Importantly, we've also changed incentives.
We've aligned incentives more closely, so that we're not just rewarding individual business performance, but we're now rewarding collaboration and group-wide outcomes as well. We're starting to see early benefits of this. We're seeing more cross-selling. We're seeing better utilization of data. We're seeing faster deployment of AI-enabled solutions. Although it's really still early days, this model is already improving how the group operates. We see this as a key enabler in the future too. Our priorities. We're now just over nine months in, myself and Mickey, and we've moved quickly to fundamentally reshape the group. You know, although changes like this do take time, we're seeing the early benefits of that come through in our performance, in the quality of our portfolio, and how the business is operating. From here, our focus is actually quite simple, falls into three buckets.
The first is to resolve this Mach49 arbitration and bring to a conclusion, that process and remove that uncertainty. Incredibly hard to make that happen. Second is to simplify and continue to take decisive portfolio actions and also fully embed the new operating model across the group. The third priority is to grow. As we talked in our Capital Markets Day, we're making investments in our Track 1 businesses. We're scaling our AI capacities, and we want that to drive organic growth in those Track 1 businesses and over time in the total Group 2. This is a business that's moved at pace. We're seeing early results. It's leaner, it's simpler. It's now very clearly focused on the next phase of delivery. As we look at the outlook, trading in history of 2017 is showing clear signs of progress.
We're seeing progression in our key growth areas, as Mickey said, particularly digital transformation, alongside early benefits, tangible benefits from our more focused investment approach. It's still really early in the year, but the direction of travel is positive. We're encouraged by the momentum we're starting to see across the business. On that basis, we expect our full-year performance to be in line with our expectations. As we've said, we've maintained the final dividend, which gives you confidence in how we see the business too. In summary, this has been a year where we've taken decisive action. We've addressed key issues, we've simplified, we've established control. Performance has stabilized, portfolio is materially improved, and the foundations are stronger. It's still early days. We've still got a lot of work to do, but we're seeing early progress, particularly in those growth areas.
The business is now, we believe, better positioned to move forward. There's uncertainty in Mach49, but the focus here is very much on execution. Simplify, scale, deliver against the strategy we've set out. We believe that this is a business now that is much more focused, much more disciplined, and moving in the right direction. We'll go to a Q&A. Steve, you put your hand up just first.
Thanks. Steve Liechti from Deutsche Numis. I'll both say three. One, SMG U.S. expansion. Can you just dig into that a bit more in terms of where you are, in terms of pitching, wins, aspirations in the near term there, relative to the costs you're investing there? Second, can you give us an update on Pretzl? This is kind of varied a bit. Okay. Incomes.
Yeah.
You put together a lot of businesses there.
Yeah.
It's early days, but just a bit more on how that's progressing across there. on trading today, I'm not going to ask you for a first quarter number necessarily, but maybe you can flesh out if market expectations are at. what is it like for like-for-like growth in the fourth year? What the shape of that will be between the first half and the second half? To give us, to try and bring your opinions about early days, but kind of good progress. Sure.
Should I take the first two and then?
Yeah, yeah.
SMG obviously, have a good foundation in the U.S. already with WHSmith, which is a client that's driving revenue and growing. It's developing a good case study. I think what I can say is that we're really encouraged by the progress the team is making, in pitching as well.
I would say that landing these retailers, this is a business that I built, so I've experienced it and know it takes time. Because what SMG do is incredibly structural. You're actually putting big teams of people into retailers. Once you land a big retailer, it's incredibly valuable. Whilst the new business cycle takes a bit of time, once it happens, it's really transformative. I'd say progress is encouraging. I said we said at the Capital Markets Day that we want to land one to two clients this year. We're still very much targeting against that. We're encouraged by the results we're seeing, so far.
Can I just ask? The KPI that we need to look for is retail client wins, because presumably the brand, it's pretty difficult to get the brands in the U.S.
Yeah, actually the brands follow the retailers. Right. Once you win a retailer, the brands follow. The KPI is, do we win new retailers in the U.S.? Yes or no? Even if we win a retailer in year one, sometimes it takes a little bit of time for that to really drive profitability, but it's, these are long-term contracts that are high value. That's obviously.
Yeah. Maybe one other thing, just until the pitches, you mentioned pitches. Decent pitch pipeline or still trying to get on the? No, but decent. It's like, very much the whole.
Pretzl, we've made really good progress over the course of last year. That group of businesses has significantly improved their profitability as a result of bringing them together.
We've seen some early progress in terms of value added from our clients of what we can do together. There's still a lot to do there. Bringing four businesses into one creates a ton of workflow changes. Also we're embedding AI in Journey Labs, which is our new AI model into that business too. You know, we're out of the businesses in Track 1. There's still a bit of work to do in that business, but we're pleased with the progress so far. A bit early signs for clients to encourage us.
Do you want to talk light out loud?
Yeah, trading today?
Yeah. Trading today has been good. We're three months into the year, and we're all pleased with where we're at. We are in line with the expectations that we set, that you are familiar with.
We don't break those out H1, H2, but we'll talk about those in a second. There have been a few strong performers in the year so far, a few strong businesses. You mentioned Transform over and over, but they deserve one more mention because they really are performing well. They're not the only one, but they are exceptionally strong so far this year. Steve, you asked about H1, H2. It's just shape of growth. Okay, I've not necessarily where they're at. Okay, growth occurs in H2. You may see the beginnings of it at the end of H1, but you'll see it in hopefully at full force in H2. That's when the growth really comes through. Having said that, there are a few brands that are really really pushing it in H1.
their logic is if we push hard in H1, no matter what happens in H2, we can secure a full-year result. we're very pleased with performance so far. it bodes well for full year.
Hi. good morning. Just pop your heads out free, please. Transform's performing very well. Can you just talk a little bit about the nature of the contracts, as in, you know, multi-year contracts or one-year contracts, and, you know, we're going to see benefits flow through, not just for this year, but into the next fiscal year? Yeah. the second one is on SMG. I mean, they're doing really well in the U.K. is it all about the U.S. expansion now? When we look at the U.K., is there potential to increase spend?
Current client base you have, or is it a matter of winning new clients now? Okay. Just the third one, versus back at the Capital Markets Day, how are you viewing the Track 2 assets as a whole? In a sense, they perform better than you ever expected. You know, are some assets moving towards goals, or are you making any progress towards that, if so?
Transform contracts, first of all. The reason Transform is making so much progress is because they have a big specialty in AI. The work that they can do in AI and technology, especially with the government, is helping them to drive efficiency, which is top of the agenda for governments at the moment. They've got great credibility in what they've delivered for departments across the government, including HMRC, Department of Education.
the contracts typically, multi-year contracts that, are up to a certain amount of revenue. Now, they're not guaranteed for that amount of time. you know, at any point, they can stop. typically, when they are awarded, they do continue for that period of time. it would give us confidence that the growth that we're seeing now will continue into this year and into next year too, as we win more of these foundational contracts that we're seeing. as we continue to win contracts and continue to deliver good work, we're seeing a real flywheel of growth with Transform, which is incredible to see. We've also got an excellent team there. I don't know whether you remember Emma, who presented at the Capital Markets Day. She's really, really good and doing a great job of that too. lots of confidence in Transform.
is the growth only in the U.S. in SMG, or is the growth in the U.K. too? I think the answer is we see growth in both. in terms of the acceleration of growth, I think the biggest kind of size of prize is in the U.S., but probably the hardest to get to. in the U.K., we've got a very strong foothold, with a number of great retail clients. later this year, we'll also be announcing some new technology, I hope, that will, give us an opportunity to expand our revenue beyond just the kind of direct-to-brand revenue that we're seeing at the moment. that creates a big opportunity to tap into brand budgets, tap into traditional above-the-line budgets, which create a new area of growth revenue in the U.K. too. we foresee some growth in the U.K. too.
Track 2 businesses, I'd say the performance among those businesses is mixed. Have some businesses surprised us? Yes, and actually positively. We've seen a couple of the businesses in that group, specifically Marker, performing really strongly in the first part of this year. We've seen the stabilization across the rest of the portfolio as well. We're actively working on the reclassification or disposal process. Obviously, I can't say too much about where we are with all of those, but we're pleased, I think, with the progress that we're making. We hope to be able to give you all news over the course of the year on progress in that space too, as of when we have an answer to the questions only then. Yeah. Thank you, guys. Okay.
Well, thanks. Well, our brand mode.
firstly, just on this sort of flywheel effect and the examples that you gave, just wondering about how sort of the impact that they're having in terms of, you know, you talked about the 1,000% return. Yeah. How are you sort of, I guess, pricing for those outcomes? Is that how you're thinking about pricing going forward? secondly, just in terms of the technology client spend down year-over-year. Yeah. what's the outlook for that, client set going forward? Okay. then finally, just in terms of capital allocation, there was a line in the statement about sort of shareholder returns and then, looking at bolt-on on the M&A. Yeah.
Just on the M&A piece, if you could sort of give us a bit more color on the type of assets that you're looking at, you know, where you are on my journey, what sort of, I guess, bolt-ons you're looking at?
Is AI performance the second question? Very well. Just tech clients. Tech clients. Yeah, okay. I'll take the first two. Sure. Yeah. yeah, that's a really interesting question, and we're still figuring it out. we've certainly moved almost entirely away from time and materials now, in a lot of our businesses. we're moving much more towards a more, fluid, performance-based model with our pricing. obviously, as creative production costs reduce, so for example that we gave with M Booth, obviously the process to create that is the cost is so much lower than it used to be.
The improvement for brands from the creator can still be the same. There's so much more value for the clients in that work. They're, you know, they are willing to share more of that with us if you're really good at doing it. Because we're pioneering a lot of this with some of the biggest brands in the world, you know, M Booth is one example, but if you look across some of our other businesses, we're working with a lot of big, you know, forward-facing tech brands. We're increasingly seeing value from that come through to our bottom line, and that's helping to drive our margins. You know, Track 1 businesses, obviously, the profit growth is ahead of the revenue growth, which gives you a hint as to why that is.
talking of tech, to your second question, we spoke in the last results, we didn't want to call it too early, but we're starting to see a recovery in our tech clients. a lot of the losses that we saw in those businesses were in the first half of last year. we saw that improve in the second half, and in the early part of this year, continue to improve. the trend is positive there. we're not quite at a stage where we're seeing like-for-like growth, but it's certainly improving in terms of the headwinds that we've been facing. on your question on capital allocation and shareholder returns, M&A. first, we've said this before, we've said it again, we need to sort out the Mach49 arbitration, get that out of the way.
as soon as that's out of the way, we can really concentrate on what we do next with capital. we're nearly there with everything. there is a choice between shareholder returns and M&A at the moment, it's just as human as 50/50, until such time as we actually get there. what kind of M&A would we be looking at? It would be that M&A that sits squarely within our new operating segments, probably focusing on those segments that are going to grow the fast. Even all of our Track, anything in Track 1, they're all growing fast, but those that we think are going to grow the fastest. We have seen a few businesses that are really interesting, that would fit really neatly within the Track 1 businesses.
interestingly, you know, there are, we can get them for really good value. They would be very accretive. We would love to do them now, but we're not going to. We have to sort out the things that we say we're going to sort out. As soon as that's done, we can turn our attention to those.
Thanks. I'll stream through the next day. Perhaps firstly, to follow up on that, just on the M&A point, would you be willing to pay multiples above your current multiple, though? I guess, you know, you see the multiples of the sort of chaoses of the world pivoting towards a transformation might take you into a sort of higher multiple out of the market. You know, are you sort of willing to consider that? Secondly, you mentioned sort of early progress on cross-selling.
do you have any sort of metrics for that, either now or where that could get to as we're on with it? Then the sort of, I guess, two together on the financial front for Mickey. push on to working capital and this big inflow last year. I know that won't be repeated, but would we expect more inflows, potentially? related to that, you sort of highlighted the fees to sort of lawyers and advisors, any chance of recouping some of that if there's a favorable outcome?
I'll take the first two. Sure. I think the answer to the first question is yes, we might. Probably not, big assets at high multiples. What we'd probably be looking at is bolt-on assets for the businesses that add our capabilities or our data, that we can see driving our revenue, and the profitability.
It totally depends on the asset, obviously, and whether it's strategically important, but we would consider it, is the answer. We don't have any specific metrics yet on cross-selling because, previously it was zero. I would like to start reporting on that as we progress. We are starting to see some really interesting progression, with the Track 1 brands working together, and there are shared clients, but there probably hasn't been the connections up to now to create value out of that. That's one of the things that we see big value in.
On the question of working capital fees, you're right. We said it. We had a very, very significant inflow this year, GBP 44 million, and that was against an outflow last year. The swing is very, very significant. You can't fight gravity continuously.
I think our modeling would suggest that we've got neutral working capital, maybe a slight outflow next year. That's probably quite conservative, but that's the way we've modeled it. You also asked the question of whether we could recoup any fees, legal fees, for the dispute that we're in. Potentially, yes. We have insurance and we're looking at the extent to which that insurance can give us some of the money back for our legal fees.
Yeah. Sorry. In lieu of which, actually, one is a follow-up on retail lead in SMG. If we, obviously, we've seen a dipping margin for this year as the investment was going into the U.S. expansion.
If we were to think long, longer term and look back at the margins that our business has delivered as previous expansion, should we see that as a template for sort of margin profile that our business should be successfully made at the U.S.? Just a further one on that, if we were to look at our business ex-U.S., would we see a similar margin profile to that was reported historically? On the next question, it's just on the cost savings we talk about at GBP 26 million for the annualized benefit. Should we think about that as being a relatively contained exercise, i.e., we shouldn't therefore assume there could be further cost savings that could be made beyond that?
Should we just think that GBP 26 million is where expectation should sit around the efficiency of taking out a group at this point in time?
Okay. Starting with the margins on SMG, it's historically been a very high-margin business. We are investing in its growth in the U.S., because we see the potential you talked about. Should you take that investment out, it would be a very high-margin business. You know, we expect that as that U.S. arm of the business grows, that actually the margins would improve materially in our business over the course of the next two to three years, even more so than they were in the U.K. The way that the model works there is that it generates those businesses that SMG works for are generating high revenues at high margins, and SMG take a small percentage of that.
Increasingly, as we do more and more of that through AI and technology, that obviously reduces cost basis for us too. The model is highly margin-generative. On cost savings, we can both answer this. My opinion is no, that's not the end of it. We are continuing to look at the business in every way, and working our way through, and continuing to optimize. As we see more and more of the work that we do, become more efficient as a result of the technology that we're using and the tools that we're using, we see a path to further cost savings in the businesses that we have.
Hi. It's John McAners. There's not much more to ask really, but, just possibly comment on, the nature of the in-house and your market research that you've seen.
Has that been a couple of clients, or has that been sort of more widespread an issue for you? just coming back on the working cap question, I think you're running about 110, 120 days on receivables. that is, do you think at your neutral level with the structure of your business? would we expect a change if you execute the Track 2 changes or the Track 2 exposures? last question, just on U.S. policy shifts, could you give us some context of what you're seeing there now and how that's manifesting itself? What if it's got a weight now and the clients are just conditioned to this?
Okay. just to clarify the first question, you're talking specifically about in-housing of market research. within the Savanta business, we've got two competing forces.
You've got the positional market research business, which is declining at 10 to 15%. You've got the data and product business, which is growing at a faster rate, but from a lower base, which is why you're seeing a kind of overall decline in that business in the segment. That's driven, as you say, by in-housing and market research, by the availability of tools externally. How we're counteracting that is through things like the launch of virtual personas that we talked about at the capital market today, which gives the data that Savanta have and the data that we have a new way of in-housing, of self-serving, that is higher margin for us and more accessible for the client as well.
that is a trend, Jonathan, but it's something that we're ahead of, and that's driving some of the growth in the Savanta business as we see. actually, we see that as far more scalable than the traditional models. we can launch that well. virtual personas launched earlier in this year. We've already got a strong set of beta clients using it every day. we're getting some really great feedback. Some of the businesses that you can compare it with, maybe we can talk this offline, are generating huge amounts of funding for similar technology. we are very lucky that we developed it in-house and we want to regrow that. working capital? Yeah, working capital. you asked a question on, test days. You said 110 days. You need 20 days. Is that right?
will that change if we have a greater weighting towards Track 1 versus Track 2? the business that probably has the greatest working capital strain is our retail media business. The nature of that business, it, you know, our clients pay late, pay later than most. That's the way retailers work. having said that, the timing of our year-end works to our advantage because they tend to like to pay at the end of the year. it all comes good at the end of the year, typically, for retail media. You don't really see that in the numbers at year-end. as retail media gets bigger, that invariably puts a greater weighting on those pay days. Having said that, if Transform continues to grow the weight where it grows, it counteracts that.
It, it's sort of a set, it balances off the retail media side of things. I don't think we're going to see a discernible change from where we are at the moment.
Those phases in Transform are radically different. Yes. Whereas sorry, at the moment you're roughly neutral, so a huge amount of current mix phase zero are about right?
Yeah. Then on U.S. policy shifts, I think the biggest impact that we saw last year was in our technology clients, the way that they have shifted their capital focus into more of the CapEx side between data centers and AI development. I do think of that settling. I think we've seen some headwinds from macroeconomic uncertainty over the course of the last 12 months. I think clients are getting more used to the uncertainty, and they're planning accordingly.
without making any conduit, it would be better without the uncertainty. You know, we're seeing a stabilized picture, I think. Any other questions in the room?
One question, from the webcast from Kai Korschelt, Canaccord. On Transform, some of your peers have talked about margin pressure and higher contract use. Are you seeing this as well?
No. Actually, the opposite. I think as we're starting to scale our Transform business, it's allowing us to make more efficiencies in our cost base. As a result, we're seeing margins improve. The short answer is no, we're not seeing.
Any further questions?
Okay. Thank you all very much. Thank you.