Aeorema Communications plc (AEO.L) Earnings Call Transcript & Summary

Good morning, and welcome to the Aeorema Communications plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Steve Quah. Good morning to you, sir.

Good morning. Thank you, and welcome, hopefully, some new viewers and old viewers. So this is an update on our investor announcement yesterday. I'm going to take you through kind of give some color to our last announcement. For those who don't know me, I'm the CEO of Cheerful Twentyfirst in Aeorema Communications. I'm the happy founder. You'll also meet Jamie Blackwell, who's our FD. I'm going to take through a little bit of an intro for Aeorema for those who don't know us. And those who do know us, it may be a bit of a repeat, but apologies for that. A little bit about the market trends at the moment. Jamie will give you some more color on the results and the actual numbers, a bit of an outlook for the future and some of our latest work, and then we'll have Q&A at the end. For those who don't know who we really are and what we do, we are a global award-winning strategic communications group. We have offices in London, New York and Cannes, over 60 employees. And 60 years' worth of experience in the management team. So we are -- we look quite young for age. What does that actually mean? What do we actually do? We get asked out a lot. So basically, in the simplest firm, if you're a brand or organization or have an audience need to connect in a live format, that's what we do. So be a conference, an exhibition, a brand experience, a webinar such as this, we connect brands with audiences. And our expertise in doing that is why brands come back to us and work with us. We operate globally. I'm happy to say that we pretty much have a global reach across the globe, working in pretty much all the markets that require our needs. Just a reminder on the investment case for the AIM fans, we are profitable. We have a robust growth plan. We make cash. We pay dividends. We have a great management team. We are seen as leaders in the market, and we win lots of awards for our great work, and we are very believe in diversity inclusion. Market trends. One must say there is quite a lot of disruption in the world. The geopolitical kind of landscape is ever evolving, and it is tough. But despite that, we are winning new work and new clients, and we continue to grow, which is reassuring for our shareholders. When we last spoke, there was focus and there was an election time, I think, last November, which kind of created some disruption in the market. But we -- how we responded to that was trying to maintain and retain our clients, which we've done very well. There are pressures in the margin. We'll show you a little bit later about how we're actually focusing on rebalancing our operational costs and looking at how we can improve our performance, being more agile and upping our commerciality. I'll hand over to Jamie now, who's going to talk you through our results that we announced yesterday morning. Thank you, Jamie.

Thank you, Steve, and good morning, all. I'm here to just run through the key highlights from the interim accounts that we released to the market yesterday. These are for the period July to December 2024. So let's take a look at revenue. So revenue was up 10% year-on-year at GBP 7.2 million. This is very much on the back of successful new wins, new clients in the U.S. So the U.S. is very much a growth area at the moment, 3 new clients, 3 new projects within H1, which helped to -- yes, to the record year. As you can see from this graph, a record H1 and year-on-year growth. Just a reminder that H1 is our weaker period in terms of revenue and H2 is always a stronger period, especially with the work that we do at Cannes Lions in June. But we're certainly seeing September become a busier month, and we expect that to continue going forward. And then just looking at the loss for the period, significantly down on last year. It should be noted that, as Steve mentioned, there is continued pressure on margins, inflationary pressure. We use a lot of freelancers and rates have certainly come up over the last few years, and there's been wage inflation over the last 4 years, which has put increased pressure on margins and just managing client expectations. But despite that, and despite the restructure that we went through during the period, we cut our head count by 20%, down 15 since the start of the new financial year. Despite that, the loss has fallen. That's been helped by a focus on driving down indirect costs, a focus on internal budgets and just a bit of financial discipline. So yes, the loss is down compared to the previous period. And the cash balance as of today of GBP 2.75 million and an average cash position over the last 12 months of GBP 2 million, which reflects our financial stability and strength. As announced in the market release yesterday, it's the Board's intention to begin a share buyback program. In due course, this will be up to equivalent of 5% of the group's share capital and an announcement will be made in due course with further details, but the Board felt this reflected its confidence in the business and the group's financial resilience, especially moving forward. As also announced, the group is changing its year-end currently 30th of June. We'll be moving to the 31st of December with an extended 18-month period to the end of 31st December 2025. This should help with reporting. As mentioned, June is our busiest period, and it's certainly a strain in terms of the audit and reporting to the market when the final week of the year is our busiest year -- busiest month, sorry. And also, as mentioned, the Board is very much committed to paying a dividend based on the interim results for the 12 months of 30th of June 2025 rather than waiting for the 18-month period ended 31st of December 2025. And I'll pass you back to Steve, who will go through the outlook.

Thanks for that, Jamie. I'm delighted to report our first record half H1, as Jamie says. So a little bit color about our growth journey and how we actually are growing the business. An interesting slide just points out that our average project size has been grown dramatically to about GBP 200,000. Lots of reasons behind that, our investment and our account team, but more of the fact that we're selling much more consultative services, more of our fees for our time and our thinking and growing our kind of client relationship over a period of 12, 24 months. So that's encouraging trend. The cost personalization, we have our 2 trading brands, Cheerful Twentyfirst being the mothership, our lead brand and agency in New York and Cannes and London and Eventful, who is our kind of more boutique specialist for incentive travel venue. They cost personalize beautifully. We work very well together. Sometimes unusually, that doesn't happen in a group. But for us, it's a very synergistic relationship, which proves very fruitful for our business. Diversity, we have quite a lot of noise around the work we're doing in Cannes Lions, that's because we can talk about that. But a large part of our business is also B2E, which is large conferences and working with different types of brands. So there is diversity in our revenue stream, which also kind of feeds into the strength of our performance. We're not reliant on one type of industry and one type of brand, which is very reassuring. Our client base is also quite mixed. 70% of our base is B2B and 30%, as I say, is in professional services. Again, 2 very different markets, but all global brands. Part of our growth success is we retain our clients and retain and develop and grow. And we are partners with a lot of our brands. And particularly in the last 24 months, we have pretty much nearly 100% retention rate, which has been the mission in these kind of politically uncertain times to continue business as normal. The outlook is strong. We predict and the industry generally globally is predicting an 80% increase in number of in-person events by brands, either power of in-person events, the power of live events and live experiences and the things that we do are actually paying fruits for the marketing and growth plans for our brands, which is very healthy. We're seeing a spend -- return to the -- sorry, seeing a return in spend to our technology sector. Last year, there was quite a lot of disruption with a lot of the big tech brands, probably everyone knew that in the news. That is settled down now, and we're seeing growth back with our technology clients, which is very encouraging. Just recently, within the last month, we've signed 3 large new multinational clients, one in the pharma sector, one in the fitness sector and one in the technology sector, which again just goes back to business is strong. And for those who are probably aware, we have a Temple kind of campaign, Cannes Lions, and we successfully were at the Davos beginning this year with the World Economic Forum, very successful, and we're getting bookings again for those next year. And we've done a lot of internal kind of reviewing of our proposition and audience above all is a super strong kind of rationale and proposition and it's kind of our DNA and how we operate, which we're launching the soft launch with some of our clients has been very successful, and we're going to go to market pretty soon more over. Confidence in our pipeline. H3, which is our extended year, which is the latter part of the year is very strong. So we're seeing good confidence with our clients. We're seeing buying patterns coming back, and we're seeing strength in bookings and needs, which is very encouraging. Financials, just to repeat. So we have cash in the bank, GBP 2.75 million. As Jamie said, our average has always been GBP 2 million. That does put us in a very strong confident position, one with our suppliers and our clients and ourselves. Dividends, we are a dividend-paying business, and we continue to do that. Our reputation is super strong with our clients also in the industries. So we still attract the best talent. Nimble is a feature now that you have to be in today's kind of agency world. becoming much more agile and adapting to changes we see, and that's shown in our results. Our pipeline is strong. Our relationships with our clients is super sticky, and our outlook is looking very good for the rest of this year. I will end on a case study of Smartly, which kind of optimizes how we work with the brand. Smartly came to us with a very small project. We have grown that relationship to multiple projects over the calendar year. And then that relationship in a contract over 3 years. It started with a small activation in CES Las Vegas. We then went to Cannes Lions with Smartly, and then we did a huge premier event for them in New York at the [ sales ] conference, resulted in signed a contract for doing it again this year and the year after. Smartly are a brilliant partner brand. They have absolutely locked into kind of our values. We understand them, and it's a true partnership. And this is how we're working with a lot of our brands. And going back to that growth in our average project size, that is the reason. We see it in a very much at the high-level decision process within the organization, and we can offer our value and our expertise. I will run you a video. Smartly, this was an event in November in New York. The American part of the business is growing very strongly, by the way. The 3 client wins I mentioned earlier have actually come out of the U.S. and that continues to be a big growth part of our business. Smartly was the premier first time they came up with an event, which is to talk to all their clients and existing connections. It was a C-suite high-profile event. It was the first time they've done it, and we work them from the ground up to develop, ideate, design and produce the event, huge success. Great to work with them as well. So it's like to have a bit of fun. We shall run the video, please. [Presentation]

A brilliant event, hugely successful. Great fun and as I said, building on a brilliant relationship going forward. I shall now remind everybody that again, the investment case is still super strong, particularly on AIM as we're paying dividends. We're very profitable. We're robust. We are cash positive, great management team, market-leading. We win lots of awards. And we respect the world around us. That is the end of our session, but let's have some questions and hand over to Q&A.

Perfect. Steve, Jamie, thank you very much for your presentation. [Operator Instructions] But just while the company take a few moments for you the questions have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And Steve, if I could hand back to you just to chair the Q&A, that would be great, and then I'll pick up from me at the end.

Thank you. So I should read the question out. Revenue has increased compared to the previous period. What are the key drivers behind this change? Two factors. Our American operation continues to grow. And the new wins in H1 were actually down to our American office, which contributed to basic to new clients and also growing our client relationship with some existing clients with the drivers behind them, but it's new wins and new business primarily behind them. Are there any specific business activities, sectors outperforming or underperforming expectations? Well, no one is underperforming, but happy to say the American operation is going strong. And obviously, there's a lot going on in America. So despite that, we are pleasantly surprised that kind of business as usual and brands are just getting on with the business of their business. The interims mentioned specific cost-saving measures, operational changes, how effective have these been so far? Are there more to come? The changes we made were actually probably impacted more just the beginning of our first half of this year. So we activated them this year. They are having a benefit. They're going to reap the full benefits of the cost reductions next year. Are there more to come? We are constantly reviewing kind of the operational model. I don't think there'll be more significant operational changes, but that's paying dividends now and will pay benefits in the future. There's a question [ Jonathan C ], is the fall in margin stabilizing? Or is the decline likely to be an ongoing issue? Or do management believe they can recover to previous levels? The margins are stabilizing. We're seeing an improvement this year. Our ambition is to get back to those levels of previous margins. There's a certain amount of margin pressure on suppliers. Suppliers can easily put their prices up immediately. It's harder for us to pass that on to our clients, but over a period of time, that will rinse itself out and our ambition is to get back to around previous levels, if not improve those. Does the change of year-end mean broker [indiscernible] will be more likely? Absolutely more likely. Many reasons why we changed our end of year. For those who know our business, the busiest day and the busiest month was actually the last day of our financial year, which puts all sorts of pressures on management of the actual projects, also reporting and accounting. So now we have now put the busiest part of our year in the middle of our year, we hopefully have some better foresight and forecasting, which we can share with the market. Is the company investing in AI technology or digital transformation to enhance efficiency and service quality? Yes, we are. We have our internal AI steering group to keep an eye on developments, but we are certainly using it in our production line, in our process line and our creative line. People are becoming advocates of ChatGPT and AI tools. It is making so many impacts in inroads operationally. The other side of the coin is that it's actually impacting how we actually run our events and actually the technology we can use at events, which is very exciting. Are there any competitive threats, new market entrants or sector consolidations that could impact the business? Well, there's always challenges in the market. There's always people chasing after us. We are still seen as a little bit of a leader and brand groundbreaker and a little bit of an outlier in the agency will continue to do. I wouldn't say there's any unusual threats that are beyond normal running a business. I do hear that other agencies are finding it slightly tougher in the market. So -- and because we are in a strong financial robust position, we could be more considered in running our business, which makes us even more stronger. Which industries or geographies are showing the strongest growth and which are lagging? Have I asked that question? No. America. America is showing great growth. The rest of the business as usual despite the sort of geopolitical disruption at the moment, both in home and abroad. And we're obviously looking to -- I think that's most of the questions. I don't see if there's any more. Maybe a repeat. How is the cost reduction rebalancing program contributed? That's fine. Sorry. Okay. I think that's all, one more, yes. Impressive revenue growth and indirect cost management, but your gross margin is obviously the area that is declining. Are there levers you can pull to improve gross margin either through increases in price and cost delivery or will clients not somewhat increased prices? As I said before, there is a focus on getting back to kind of the margins that we used to enjoy in previous years. The pressure on margins is leveling out, and we're going through a process around how we rationalize and improve our fee structure to improve that position. It is across the industry, by the way. It's not unique to us. We're actually doing better than most as a margin percentage, but we will improve that. Will clients [indiscernible] increase prices? [indiscernible] prices so they see the value. It's not just a matter of improving your number. We can demonstrate better value, we'll get better margins back. Okay. I think I've answered all the questions.

Perfect. Steve, Jamie, thank you very much for answering those questions from investors. Of course, the company can review all the questions that have been submitted today, and we will publish the responses on the Investor Meet Company platform. But just before redirecting investors to provide you their feedback, which is particularly important to you both. Steve, could I just ask you for a few closing comments?

Yes, the agency as we are at the moment is in a very strong, robust position, just to reemphasize that, we are seeing great growth in our pipeline going forward. A lot of outside shareholders assume that the world we live in is having a direct impact on everything we do. It is. But as I've said before, we are making internal changes to improve our margins. We're getting a good strong pipeline, and we're changing kind of how we operate, which is fantastic. So bring it on.

Steve, Jamie, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Aeorema Communications plc, we'd like to thank you for attending today's presentation, and good morning to you all.