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

Good afternoon, and welcome to the Aeorema Communications plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during 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. And I would now like to hand you over to CEO, Steve Quah. Good afternoon to you.

Good afternoon. Thank you, and welcome viewers. We're back again. We have an update presentation from -- just to reemphasize our interims from 3 weeks ago we announced. And obviously, we did an RNS reach out message yesterday morning. So give you a color to that. Myself on the call, CEO, Steve Quah of Aeorema Communications; and Jamie, our Finance Director, will be doing the presentation. For those who don't know who we are, and welcome back to people who do know who we are. We're a global award-winning strategic communications group. Happy to say our London offices, New York and Cannes, over 60 employees and have been going for over 60 years with our management team. What does that actually mean as a group? So we're in marketing services, but we're in the live space and where an audience wants to be connected with a brand. That is what we do. We help business communicate around a conference or a brand excavation or a webinar or a meeting or an exhibition. That's what we do, and we do that globally. Happy to say that we have a footprint, as I say, in North America, strong in the middle of Europe and the rest of the world, which is great. Just want to make the investment case as we are a name that we are profitable, a robust business, generate cash. We pay dividends as we announced, we'll do a 3p dividend later this year in November. I do have a strong management team. We are seen as market-leading in our industry and win lots of awards all supported by a strong and sustainable policy. I will hand over to Jamie, who will do our update on our interim results to give you some more depth to that. And I'll follow up with some examples of our work and a little snapshot of where we are as a business.

Thank you, Steve, and welcome, everybody. I'm here to just provide an overview of the interim results we announced just over 3 weeks ago. Just to highlight that we did extend our year-end during the year. So our new year-end is the end of December, and we are reporting for the 12-month period to the end of June. So just to run you through the numbers. Revenue was broadly in line with last year at just over GBP 20 million. This was on the back of another strong June. That's our busiest period of the year, lots of work at Cannes Lions, but a lot of events around and in that period. And we also had quite a strong H1 in terms of revenue as well. Underlying profit before tax, so this is stripping out the restructuring costs that we -- I will talk -- discuss shortly, was GBP 615,000, a 41% increase on the profit before tax last year of GBP 437,000. Profit before tax, when including the restructuring cost was GBP 366,000 compared to GBP 437,000 last year, so a deduction. But just to cover the cost reductions that we've taken place during the year. We started this process late last summer, looking to build a more efficient and profitable business for the future. So we undertook a lot of redundancies during the year to create a leaner cost base and support improved efficiency and profitability moving forward into 2026. So those costs are what have been stripped out of the underlying profit. As always, we have a strong cash position. We invoice all our clients upfront, typically 75%, and this allows us to maintain a strong cash balance at the year-end -- period end, sorry, I should say, it was GBP 3.1 million, and this is broadly in line with last year as well. And probably a more important number is the average cash balance during the 12-month period was GBP 2.1 million. So a very healthy position, which gives us a lot of confidence and support going forward. And as Steve mentioned, the dividend policy was maintained. So an interim dividend of 3p per share was declared for the 12-month period, and this will be paid at the end of November. So a healthy period and lots more to follow, which Steve will now cover.

Continued growth. So what does our story say so far? Very happy to say that we do have exceptional client retention year-on-year, we rarely lose clients and continue to build with net new clients and also get much more embedded with our clients in very senior relationships that can tend to lead to more 12, 24 months kind of relationships. And that's part of our growth going forward, and that's part of our success, particularly in North America, which I'll come on to in a second. I think it's important to note that our average project size has increased fairly dramatically over the last 5 years. And there's a few key points here. That means we have a more efficient engine for less headcount for the size of the project. It does take the same amount of effort to kind of manage a smaller value project as well as a bigger project. So there's flex there. But more importantly, going back to the relationship piece, you tend to start with a smaller project with clients and as your account grows, your project grows in value, and that just shows our growth. Hence, why if you don't lose your clients, you will increase your value to projects, and that's quite significant for us. Also, we're quite keen not to be busy fools and then be more efficient with our use of our resources. I want to mention AI. First of all, that we are fully embracing all the AI advantages operationally internally with our creative team and our production team and our legal team, and that's making inroads to our efficiency positive. It's also worth noting that AI is our client, too, particularly in our tech sector. We're working with some of the leading AI developers and leading AI, if you like, platform providers are based on AI. So we are seeing a growth by fortune being in that section too. But probably more relevant is also contributing to the value of the live part of our business. In marketing services, you've heard a lot of digital disruption. We don't do digital. We do live. And I think I said several times before. In the marketing mix, the value of in-person communications with brands and marketeers is becoming even stronger, and we're seeing a growth in both value projects, important projects, and we've certainly not seen a reduction in projects. North America success. Our reach announcement yesterday, just gives you kind of some snapshot of a very busy September, just as busy in some ways as Cannes, which I think would be accompanying some of our shareholders. It's not just Cannes. We are busy in other areas. We've been in North America for 5 years now, and it is really starting to pay dividends and our success and growth, particularly around our net new clients to new client relationships. Here's a snapshot. Literally in the last 8 weeks, we produced 8 major events for 8 different brands of a whole broad range of genres from an advertising summit in New York, United Nations work for Wall Street Journal, an immersive consumer event in the city, global roadshow, Chicago, New York, Cincinnati event. Please read more here. So that's just the proof in the pudding where we were 0, 5 years ago for this month even to 8 in the last 8 weeks, and that continues to grow. For example, Instacart, and just a note here is putting our first foray into the more consumer world to use marketing jargon. Our existing client base is B2E, i.e., brands talking to their internal staff or B2B brands talking to their clients. In this case, Instacart are talking to their consumer clients. If you don't know who Instacart are, they're the U.S.' largest grocery delivery service, I guess, similar to a delivery route or an Ocado. Very short turnaround, conversations starting at Cannes, and we did produced the first kind of constant activation in New York with over 1,000 guests, turned out to be a hugely beneficial experience for them. It was seen them going back to the '90s, massive success, loads of news and a delighted client and just cements ourselves in kind of another genre of work for us. Wall Street Journal, as you people who know us, is an long-term client and it continues to expand. Again, UNGA, United Nations General Assembly, in New York. I think for the fourth year in a row, just to show continuity, we produced their activation in the Rockefeller Center. I think they have a number of guests coming through over a 3-week period -- 3-day period, should I say. Again, hugely success for us, one of several action -- activation to do for Wall Street Journal in the year. And I just want to point out the level of importance. For example, their guest is the Chief Sustainability Officer from Google, and you'll see it in our photo events where these are the most high-profile, highly valued and cannot fail events. It's just a testament part of our creativity and our delivery to the trust in our delivery. Smartly, a brilliant collaborative client with us. We helped launched their first advance event last year. We did it again for the second year in Brooklyn. Smartly are one of the leaders in AI creatively led kind of advertising services, a brilliant partner. We do multiple events for them in Cannes and CS, but advanced 2020 provides the second year in a row. Again, we have the most high-level kind of audience here. And within this, we also have other introductions. So we did 4 activations with TikTok, Snapchat, Pinterest and Adobe, not to name a few, [ we're just making trust ]. Climate Week, New York City, the Climate Group, again, massive global event, production company behind Climate Week that produced that event in New York. It's probably the biggest event in the calendar where New York has taken over. We did the opening ceremony. You can see this is Mark Ruffalo, producing one of these presentations. But again, it was the largest event they've ever done. The numbers speak for themselves, 200 speakers, over 100 journalists, just under 5,000 articles, 1,700 touch points within New York itself and an advertising reach of over 30 billion. Alongside that, we had a surprise event loaded on us, which is a Global Renewal Summit for Ursula von der Leyen and the President of Kenya, Prime Minister of Bahamas. So again, just shows the level of quality. These are events that cannot fail and they're streamed globally. Always nice to get good feedback. This is typical, our feedback. We have glowing reports over time. We have a whole book of great stuff. But it was nothing without the great team delivering. I must say I'm proud to have a really engaged embedded creative team and production team. The outlook is strong. We have a huge confidence in our pipeline as mentioned. We're looking at 2026. There is the fact that we are -- made quite a few decisions. Part of it, the 18-month period was to get a calendar year, so we can give forecasts. And as we close September, as we close contracts, we will be giving that forecast this side of Christmas, around November, hopefully, to give you guidance for the market going forward. And that's something we've been working to. So now with an annual year, with an annual contract and then the pipelines, we see a very strong pipeline going forward and are delighted with the growth in our existing clients and our net new clients. Just to emphasize, obviously, the products and the quality that we do is exemplary, but we have a really strong marketing and sales team and have a really strong account team, which is part of our success. So I hope you can see it's all starting to kind of really start paying fruition in North America, which is a massive growth part of our business. Just to remind ourselves, as Jamie says, we are cash positive and very strong, which gives us confidence in our investments, but also we nurture that cash. It's good security for our business and for our shareholders. Paying dividends is important to us because we're confident, but also with all the trust and engagement of our shareholders, which we enjoy. Our reputation continues to grow. We are certainly fared by our competition and love by our clients and longer that can continue. And nimble, I think we had a massive rapid growth, partly rebalancing to get back some of that nimblity, can't say that, or agility, but also being in the right size and scale to kind of do global events. Pipeline is strong, relationships are super strong, and our outlook is great, and we're looking and we will be doing forecast in the very near future. Thank you. So any questions?

Yes, Steve, Jamie, thank you very much indeed for your presentation. [Operator Instructions] I would 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 investor dashboard. Steve, Jamie, as you can see, we have received a number of questions throughout today's presentation. And Steve, if I now hand back to you and kindly ask you to read out the questions where appropriate, and I'll pick up from you at the end. Thank you.

Okay. I'll answer the first. I think myself and Jamie can answer. Our forecast for '26 is now available. As we said, we are working on that as we closed a busy September. We now have contracts and site of next year, and we will be doing forecasting in the future. The share buyback has clearly not worked. Will you consider a tender if you believe the shares are cheap. I'll pass that to Jamie to answer that.

Yes. I mean the share buyback that we announced in May has been disappointing. The limitations on price and volume, which we can purchase that have been a restriction and I've had multiple discussions with our brokers, and we will continue to evaluate that. In terms of a tender, it has been raised with me previously by investors. I have shared that with the Board -- the discussion. And the opinion was that it's probably too expensive at this time. But again, all cards are on the table, and we will continue to evaluate our options moving forward.

Yes. Just the high fees around the tender, again, we were looking at, but I think the value -- it's probably only worth it if we have a bigger scale thinking further down the line. But again, it's on the table. Next question. Where do you see growth coming from? Well, organically, with all our clients, going back to the client retention piece. So just naturally, we're keeping much more sticky with our clients. We are negotiating 12, 24-month contracts, which gives us more confidence in forecasting. And America now really is gaining traction. You can see the actual volume of work that's going through and we see North America. And North America brands as well, particularly as a growth market for us. It's a good question. Will U.S. tariffs have much impact on you? It hasn't really had any impact on us as such, again, by fortune. Most of our U.S. clients, one, are U.S.-based, and obviously, we have a U.S.-based office. So we are an American brand anyway. Their manufacturing and the supply chain aren't affected by them because they're offering services like we are. So we haven't seen any direct impact in that at all. It was great to receive the update on Monday, Ken, about your growing success in North America. Can we expect more updates of this kind as you gain more traction there and elsewhere? Absolutely. I think just news out to the market, we will try and use that channel as much as we can. We have kind of gone, as we say, some rebalancing. So now we're kind of on our next phase in outward broadcasting. So absolutely, there'll be more comments from us. One for Jamie, actually. With a healthy cash balance, are you looking to -- no, this is more for me actually. With a healthy cash balance, are you looking to do any acquisitions anytime soon? If so, what areas might you look to strengthen? Well, obviously, we're always looking at opportunities. I've said it before, but we're very cautious about that. I believe that most acquisitions are quite high risk. But the considerations are the obvious ones, is it geographically advantageous to us? Is it a new market sector or new industry? Or is it great talent or is it a good offer? Some of our agencies aren't doing as well as we are. With the healthy cash balance to -- that's it. This is one for Jamie. With the healthy company -- basically, Jamie, are we doing anything with our money while we have it as a cash on hand?

Yes, absolutely. We tend to spend -- sorry, spend -- we tend to move most of our money to the U.S. where we get a healthier interest rate. And obviously, that just it's recurring interest off top of my head, it's roughly 4%, 4.5%. And yes, we're always looking out for opportunities. And I think there's scope to work closely with some of the Board members to see if there's opportunities to improve that, improve that moving forward. But absolutely, yes, we -- there's always room for improvement, I guess. But yes, we do move it to where the interest is highest, and we will continue to evaluate that.

Some more questions coming in, about payback. Okay. David S, you mentioned less clients but moving to high-value projects. So what happens if a client comes out with a smaller or similar project, are you just turning the business away? Well, there's always a commercial decision about turning the business away. We are certainly turning around businesses projects that we don't think are of value to us. Client relationship and size of projects aren't necessarily hand in hand. We will do small projects that we see as an upside. And most of our clients have grown that way. It's just that our projects have just got bigger in general as in our perception of the type of work we do, but also, I think kind of the type of client we're working as well and their needs. How do you see growth in the U.S. locations going in the next few years? Obviously, starting East Coast. West Coast is quite a focus for us. The learnings we've had in America is having boots on the ground and locations is very important. But geographically, your team can be based anywhere. They're so used to flying across from East Coast to West Coast is further away in London. So there will be more to do where we think some of our tent poles are. And as you know, a lot of events happening in New York, which we're activating on. Now we're seeing more in San Francisco, California, and we're probably looking at that. In the announcement this week, you mentioned you have the 21st version, a major step to brand to consumer experiences. Do you see this as an area of the industry expanding to further? So that's referring to the Instacart event that we did in New York. Yes, again, that B2C is something that we have all the skills and capability of. It's just something we have pushed for. And as we look at expanding our portfolio of services, B2C is certainly in our remit. Going back to that acquisition question, that will be one of the kind of the basics, and are they strong in B2C, but we're seeing that as an organic growth going forward. I think I'm running out of questions guys. You don't mention eventful very often. Is it growing? Are you happy with the performance? Eventful is a small little boutique agency that does wash its face, but feeds us loads of clients. And the impact is actually more in Cheerful Twentyfirst actual revenue. And as a portfolio of services, it's a very good door open to say we offer everything from venue search to actual delivery. Why was the company -- so I'm going to ask -- I'll ask your tougher questions. Why was the company so unagile that the cost of restructure was GBP 250,000? Yes. So I think we have said it before. We had a rapid growth plan, and our growth year-on-year was increasing. And it was called the Trump election and labor election and the tech sector going have a lot of turmoil 2 years ago that impacted our plans, okay? So we had too much capability. So we've adjusted that. That's the reason. So therefore, we adjusted quite quickly, and you see that coming back, and you'll see that in our forecast going forward. Good question. Jonathan, I know who you are anyway. I think that's the end of that session, guys.

That's great, Steve. Jamie, thank you for addressing all those questions from investors today. And of course, the company can review your questions submitted today, and we will publish those responses on the Investor Meet Company platform. But Steve, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments?

Look, as I say, in our position as one of the profitable dividend sharing companies in name, but look at our growth and look at our success. We are feeling very confident about the future. The fact that we're going to be putting forecast out and the fact that we rearrange kind of our calendar year, the fact that we actually get more streamlined, the fact that we're keeping the business proofs in the pudding. So again, I do thank our shareholders for the support and we have great dialogue with them. We do listen. So hopefully, the feedback and how we present ourselves to make an impact. As I've mentioned, Alan joining us and the Board has been a great thing for us to give us new kind of fresh eyes in how we approach the market. But yes, the future looks very strong and very bright as we have said, and we'll continue to say so. Stand by. Thank you.

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