LBG Media plc (S83.DU) Earnings Call Transcript & Summary

Okay. Good morning, and thank you for coming along today. This is LBG Media's 2025 set of results. For those of you that haven't met me, I'm Solly, Founder and CEO of LBG Media, and I'm joined by Dave Wilson, Exec Chairman, who's going to be joining me today to take you through this. So to kick things off, I'm going to give you a little walk through strategic highlights, what we've been up to, how it's changing, how it's evolving. And I'm going to hand over to Dave, who's going to take you through the financial review, and then back over to me to talk you through a bit of what we've been up to across those different areas of strategic focus. So to kick things off, I'm very excited today to talk you through what is very much a new chapter for us. There's a number of key things that we're focusing on and doubling down on. The first of those is going to be young adults. So we've continually focused in on this area. We're going to continue to double down on this. AI is a very exciting development, and we see it as a real opportunity. Of course, it comes with issues, it comes with threats. However, I'm a firm believer that the future of the market is very much embracing AI and the intelligence that, that will bring. We've got some great examples of that. We're also going to be focusing on repeatable IP, which we're seeing a lot of success in already, a high-growth area of the business. And also within that, very much focused on developing predictable revenue streams, which, again, today, I'm going to talk you through. So, just to kick off with, we've had a strong 2025. We've generated double-digit revenue growth and continued growth in our profit. And underlying that, we've seen high growth in the real areas of strategic focus for us around predictable revenue across the U.K. and U.S. market. We've continued to focus on young adults, and we continue to have serious scale, over 0.5 billion audience members, 2/3 of all U.K. and U.S. young adults. And we are growing at a rate of knots in the U.S., and we see the U.S. as a real accelerator to our business and a multiplier on some of the success that we've had in the U.K. Our direct business is more predictable growth, and we've continued to develop that to make it even more predictable, long-term and multiyear, and we've made some great progress on that this year. And we also have strong cash generation and a balance sheet that enables us to really kick on when it comes to investing in our future and strategic direction. So just before I kick on any further, what I wanted to do was just share some insights of what I'm seeing in the market, what we're seeing through the research that we've done, that has informed the direction of travel and where we're going. And for me, I see these as very exciting developments on what was already a high-growth market. We can see pockets starting to open up in a big way that very much work in our favor. The first, and you'll not be surprised to hear this, is consolidation of eyeballs when it comes to young adults across both social and streaming platforms. AI is very much accelerating winners now, and we can see that starting to come through. I think a number of years ago it was very much a buzzword and what we're starting to see now is businesses across the industry who have embraced it, very much utilizing it to accelerate as winners. The U.S. continues to be the largest advertisement market and general market in the world. And by 2030, Gen Z are set to be the wealthiest generation of all. And we're also seeing an ongoing shift from traditional means of consumption through to areas such as social and creators. And you can see this is really accelerating. In terms of predictable revenue, so, this is something that we've been very focused on over the last year. And we've seen real progress across a number of areas with this. The first is we're very much leaning into developing our direct revenue stream at a faster rate. It's more repeatable, it's high predictable. And also, we're across both markets, both in the U.K. and U.S., which is an opportunity. And again, you'll see in the numbers today, we've made real progress in terms of seeing some of that come alive into '25. We are very much set up to further benefit on that over the coming years. The way we've attacked that is we've created a clear tiering system across our clients. And what we do with that is we offer them exclusive products, white glove service in terms of client management, carefully understanding their business challenges and most importantly, ensuring that we are driving high ROI for their businesses and understanding their challenges and moving those forward. We're seeing more and more demand for multiyear commitments. So we've started to see more of those come through, which again gives us more predictable revenue streams. And we've seen high demand for our IP, which again is another form of income for us that is repeatable and predictable in the sense that is people sponsoring our world-renowned IP formats such as Snack Wars, [ Fun Debate ] and many others. We're also investing in our proprietary tech. And I've spoken about Mission Control previously. We are investing further in that. Our panel, LADnation, which is the largest youth panel in the country. And we see that as an opportunity to monetize with our clients moving forward, and we've seen good demand coming our way in terms of that. In terms of ROI, we've seen some very good case studies forming. We've seen clients see a return of anything from GBP 5 per pound spent with us up to GBP 10 in some cases. So, it wouldn't be an LBG event without a video. So, I'll kick off with a little bit of a video on what we've been up to. [Presentation]

So, I guess you've probably seen a couple of areas on very much laying out why it is that we win within that video. However, I just want to take a few minutes just to walk through that and why we're in a fantastic position to kick on in terms of those market trends that I mentioned before. So, the first thing is the scale that we have. We are the fifth largest digital reaching proposition here in the U.K. behind Microsoft, Amazon, Alphabet and Meta. So I'm not usually one for shouting about being fifth. But when it's in the company that we're talking about there, it's something I believe that we should be shouting about. And, of course, in terms of that scale, that also lives over the pond in the U.S. where we have 2/3 of all millennial and Gen Z young adults. We generate billions of views and engagements every single year. And we are by far the biggest place when it comes to entertainment and engagement for young adults. So we've got great scale. However, we also care massively about brand. And I had a fantastic example of that recently where we had one of my sons' parents over to the house in New York. We're just meeting new people, and they were asking where I worked. I didn't say what I did, but I mentioned LADbible eventually. And I got what was a very typical reaction, which is, "I love LADbible." And we see that across our portfolio, whether that's LADbible, Betches or others. And for us, we've built that up over time. Brand equity we see as extremely important and something that we see as a differentiator, especially in a space of lots of noise. There's lots of content out there. There's lots of noise to consume. However, having a brand that differentiates is massive. And we're very fortunate where we have IP that also supports in that nature to the likes of Snack Wars. We had Hailey Bieber reach out to us more recently to us to feature as part of that piece of IP. And the roster of names that we have that we either work with across those or reach out to us proactively is massive. So we will continue to build and grow our brand equity as well as the scale that differentiates us. On top of that, we've also been investing in our data and AI capabilities. So from a data standpoint, we have Mission Control, and I'll touch on that a little bit later on and how we're using that and how we're going to evolve it. But also from an AI standpoint, we are starting to create content. We are starting to utilize it to help our clients drive better results, and we see it as a real accelerator moving forward. And all of this is ultimately our product which we work with some of the biggest blue-chip advertisers on, as well as content going out on platforms, which we monetize. So, that's all from me for now. I'm going to hand over to Dave, who's rocking the Betches colors today.

Thanks, Solly, for once I've got my branding right, I think. So let me take you through the financial section. So first one is the track record. Since IPO, LBG has nearly doubled its revenue, a revenue CAGR of 17% and EBITDA CAGR of 13%. I hope this demonstrates a strong and differentiated business model with great people delivering against a GBP 1.5 billion service addressable market opportunity. You may also see in the statement today that we're sharing revenue by division, which I'll talk you through shortly. This should give some background to highlight why we're accelerating our investment in growth, and I'll also provide you some guidance numbers later on. As outlined, we delivered a double-digit revenue growth at constant currency and continued profit growth. Revenue was up 10% at GBP 92.2 million, while adjusted EBITDA was up 3% to GBP 25.2 million. In the U.K. Direct, this was against a tough prior year comparator, as previously discussed, with the men's football Euros generating approximately GBP 3.5 million of the revenue in 2024, extra national insurance rates for the U.K. employees and approximately GBP 1 million worth of additional costs we invested. Sorry, also in '25, we added in around GBP 800,000 worth of senior hires out of our GBP 5 million accelerated cost of investment. So, I'll talk through this a little more later on. Moving on to adjusted revenue. This slide shows business unit performance by revenue, highlighting growth trends in key drivers, direct and indirect operations. Overall, Direct revenue continues to lead our performance, supported by strong U.K. and even stronger U.S. performance, while Indirect growth is primarily driven by web. Direct revenues grew 17% overall. The growth reflects deeper, longer term client relationships and successful deliveries around cultural and sporting moments, delivering innovative branded campaigns that reinforce our position as a trusted partner for advertisers. Calendar Q4 for both of these businesses continued to perform exceptionally well and our booked order pipeline moving into 2026 is almost 2 times higher than the previous year. These are all important signals showing why we're building bigger longer term relationships and why we have triggered significantly more investment in FY '25 and FY '26. Direct revenue grew 11% to GBP 30 million. Growth was against a tough comparison, as I discussed. Direct U.S. has performed exceptionally well. It grew 32% at constant currency. and Indirect revenues grew 3% overall. Web delivered a strong like-for-like growth of 17%, increasing revenues to GBP 21.4 million, helped by new Facebook content monetization initiatives for photos and text-based content, the source of which comes from our web business. Social declined on a like-for-like basis to 19.7%, mainly due to the reduced referral volumes following the Facebook policy changes. Overall, the money received from Facebook was in line with our overall growth, and we expect our single-digit platform reliance to continue to reduce to below 20% over time. That obviously is a consequence of our Direct business growing faster than the Indirect. Our Web book business, we currently have a very small market share. So we have good growth potential over time. We've recruited 2 senior hires into the business. And I know it's obvious, but we now have the right people, excellent content creation capabilities, more brand focus with outcomes being more controllable, and it also has a higher margin profile than the other areas of the business. Costs, our overall cost grew by 10%, in line with revenue growth. Content cost increased by 22%, reflecting larger campaigns, increased paid media investment, higher average deal sizes and expanded talent participation. Overall, our costs were well managed. Payroll increased by 3% and our other overheads 7%. The main increases in these areas are additional technology, marketing, to help our future growth in the Direct business. Explaining the accelerated investments in more detail, we have over the past 14 months invested GBP 5 million in 11 high-caliber hires as a significant investment to accelerate our growth. GBP 800,000 of this occurred in FY '25 with a further GBP 4.2 million has been incurred and will be recognized in FY '26. In addition to this, we'll continue to invest in the use of AI, technology, marketing and content. Solly will talk through some of these great hires that have joined us in our U.S. business later on. KPIs, the following highlight the KPIs and demonstrate the group's sustained progress and momentum over the year. LBG has grown through focusing on larger blue-chip clients and those in $1 million and above category. We've continued progress in the U.S. where the number of clients has increased to 3, evidencing the maturity in our client base. Our U.S. audience grew to 143 million and the average deal size, key measure on this grew to $178,000 from $62,000. Direct, so the brief conversion for the group, this is just the U.K., was 28%, up slightly on FY '24, while our repeat client revenues rose 8% to 82%. In the U.K., the client above $1 million reduced from 13 to 11. And this was -- 2 of these were because they placed business with us in the euros and the other one has done some restructuring, so it's pausing some spend with us at the moment. But they're still in our order pipeline. The global audience grew to 509 million, up from 503 million. And the -- while the daily web sessions saw a decline, the web yields per 1,000 sessions rose 6% to GBP 10.20. Moving to cash. Cash and cash equivalents at the period end amounted to GBP 30.8 million. Cash generated from operations, GBP 23.3 million for the period. We're committed to our employee benefit trust. We paid in GBP 4.7 million into that last year. We paid GBP 5.5 million or GBP 4.3 million earnout to Betches founders and are very pleased they have met their targets and this year gone -- exceeded their targets. And overall, which is a good indicator, our EBITDA to cash conversion is 93%, which continued to be over 90% as we've guided. On to capital allocation. Betches also exceeded the target, and we've got somewhere between $9.5 million and $13 million to pay in next year for them. We'll also look to reinvest for organic growth, example being the $5 million or $6.5 million we made -- we spent on senior hires. And we've also got a healthy acquisition pipeline and obviously, the strong balance sheet and some debt to support that moving forward. So on my final slide, I'd like to talk through the guidance of our accelerated growth in -- for -- accelerated investment growth. The Direct focus gives us more control. And as we move into bigger clients, this will help drive higher growth. We expect our Direct business to potentially reach 75% of our revenue mix. This shift both reflects both audience demand and advertiser spend moving decisively towards digital-led solutions in the U.K. and the U.S., the largest advertising market. Our indirect revenues will remain a key part of our flywheel business model and continue to build repeatable IP, applying our content insight and monetization engine to creators with the help of AI and first-party data. We anticipate direct revenue growth to be in low to mid-double-digit range with margins before central costs in the mid-20% range. We expect absolute EBITDA margins to remain in line with current guided levels, reflecting our accelerated investment strategy and the change of EBITDA to margin mix from Indirect to Direct. Over time, we expect the margin improvement in Direct and overall business to improve. And as we lower our central costs using AI, we'll benefit from operational leverage and higher-value IP and content as this is monetized across multiple channels. Our strategic investment costs will be partly offset by head count reductions we are making in social and web. This helps us moderate the rate of cost growth without limiting the group's ability to scale. We call this internally our growth engine. This investment strategy supports both our long-term range, more predictable growth and allows us to reduce our reliance on any single platform or revenue stream. Just to reemphasize again our acceleration investment for growth. We have over the past 14 months invested GBP 5 million in 11 senior hires, GBP 800,000 was in last year, GBP 4.2 million in financial year-ending September '26. And in addition to this, we'll continue to invest in AI, technology, marketing and content. These appointments as well as our strategic investment position the group to increase market share, promote sustainable growth and continue to entertain and delight young adults, making them laugh, think and act. That's it for me. I'd like to hand back to Solly to talk us through the operational review.

Thanks, Dave. I hope everyone appreciates the symmetry on haircut in share today, takes a lot of work to get that done. Anyway, so, I guess just to move on to the operational review. What I'd like to do is just talk you through some of the progress that we're making in the areas that we kicked off with before. So, a bit of a recap. AI is a major focus for us and something that we've seen a lot of progress on internally. I know when people talk about AI content, you typically think about AI slop and some of the rubbish that's out there. What I'm really excited about here is some of the technology that you can use, whereby I've seen the community that we're part of, producing content that could have come out of Disney or Pixar, some of the capabilities around creation of characters, animations, language translations and some of the different things that a company like us could never do in 1 million years because of the cost that's associated with it. So for us from a content creation standpoint, from the way that we're using it with clients, but also how we're using it to drive further intelligence is something that we're very, very optimistic about and investing in heavily. Other areas for us is the U.S. So, since the acquisition of Betches and coming together as a group, that market has been very lucrative for us. That business has doubled since we bought it and has a great leadership team in place. It's got great momentum, and I genuinely believe we're at the beginning of that journey of building into what is the largest advertisement market in the world. Creators. So this is a very exciting space and the economy within this space is growing at a rate of knots, and I'll talk you through a little bit later around that and the part that we play. IP monetization, so again, very much differentiating ourselves to the rest of the market, cutting through the noise through the IP that we've created. However, we are now starting to see some real progress and acceleration in the monetization of that, that is helping our drive towards more predictable revenue streams, which, again, I'll build on how we're developing that a little bit further through this. So just to kick off with AI. So, there's a number of key areas where we can see this coming to life quickly. The first is Mission Control. So Mission Control has tens of billions of different data points growing for it each year. And we use that tool to very much inform the decisions our 200-plus content creators make on navigating what's working, what's not working, what should we do more of. And off the back of this tool, we've seen uptick in engagement. We've seen uptick across a number of different areas by having insights that no one else has in market. So as it stands right now, it's a very well put together dashboard that people can access, use, slice and dice that information to make those decisions. However, we are very close to adding AI, a level of intelligence across that database that could just be prompted by our content creator teams and also in the future clients that we can work with, too. So, as smart as I believe our people are in the business, by giving them this tool with an intelligence applied on top of it, that can query that data in a way that we'd struggle to do. I'm really excited about the movement forward in an example such as that around what we do on a day-to-day basis. Other examples that we are using this for, we've created a production management tool, which, of course, makes our production more efficient. And we've developed a tool which can give us an idea on what's accelerating in culture and what's decelerating. So we can see very clearly based on inputs from Reddit and X, that feed LAD RADAR, this was a tool that we built. In terms of content creation, so, it's very early doors in terms of our testing here. And as I say, I believe we're right at the beginning phases of the more sophisticated use cases that we can do here. I was chatting to a filmmaker who started to use this to weave into films more recently. I think that is where we're going to see a real interesting movement forward in creativity and AI coming together. So we've started to experiment. And what's exciting about some of that, you'll see the bit on the right where we've got a real human, it's a human at the bottom, commenting on what's happened in a cultural moment above him. We tested out different forms of content. We tested our AI-generated content. We tested our footage that we licensed. And what we found is a 20% increase in performance with the AI-driven footage that we put in on top of him. So I just want to stress it. I think a lot of people think the left-hand side, completely AI-generated content when you talk about it, but I am very excited about how it can be weaved into existing storytelling mechanisms and enhancing that moving forward, and we're starting to experiment with that in a big way. [indiscernible] So, in terms of the U.S., we've got great progress. And to really move that progress forward further, we've brought on a number of brilliant people. So, Paul, Maggie, Lauren, Bill, all come from incredible pedigree. Maggie scaled the Axel Springer team out in the States and grew that sales operation as Chief Commercial Officer over there. Bill was over at Conde Nast, looked after a significant piece of business; and Paul joined us from a fantastic background of Warner Music and more recently, an ad tech business. So we are bringing on some excellent people to build on what is already a great team to help accelerate that further. And where we're seeing that come through is the growth of blue-chip longer term strategic relationships that we're building across there. We are seeing that grow in size. And what's really exciting about this business is we still haven't really brought over elements such as Mission Control and LADnation, our panel, across that market just yet. So we've implemented some elements of it, but there's huge opportunity moving forward as we add more into that, and we know the size and scale of the market. This piece is really interesting. I mean when you look at the market growth expected between now and 2034, the creator market is going crazy. We're talking about growing from GBP 30 billion to just short of GBP 120 billion within a short space of time. And we see it as a key area that we're going to be investing in moving forward. So the way that we're doing that is we are partnering with some of the biggest creators out there, one of them being John Nellis, TikTok Superstar, who was filming with Mr. Beast a couple of weeks ago. And the way that we're partnering with them is we've built a fantastic platform. We've got 100-plus sales team here in the U.K., over 30 in the U.S. We've got Mission Control, data and insight capability. And we very much understand how creators think and how they navigate platforms and the production around that. So we are using our platform to partner with some of the biggest creators in the world to enter that space, help them grow, but also enter that space in a very careful and considered manner that enables us to drive into that large market that's forming. IP monetization. So this is an area that we've been in for a while. We previously saw it as a very important brand-building exercise for us. However, over time, as people have migrated from traditional TV and their programming is more on the likes of YouTube and streaming platforms, we've seen this really explode both in terms of audience growth and consumption, but also demand from advertisers. So we now have multiyear commitments from advertisers to sponsor our programming. It's a very exciting new addition to our business, and we're expected to see minimum 5x growth revenue-wise year-on-year in terms of this area here, which, as I say, is a repeatable, predictable revenue stream that we've seen very high ROI when it comes to giving clients a return on their investment. And then just to take a little bit of time just to talk through how we think about this. So our top 20 clients typically make up for about 70% of our revenue. It's very well spread across those top 20, and we promote, and we relegate those different clients. However, the biggest development for us is the new tiering system that we've put in place across this. And I mentioned about exclusive products, white glove service and very much spending time on getting in with the most senior operators across these businesses to really understand their business challenge being very key. And we've got a brilliant set of clients in this top 20 who we have CMO relationships. I'm heading to dinner with 5 of them in a couple of weeks' time to talk about the future and AI and creativity and how marketing is going to evolve. And we are producing fantastic results, hence, why they keep coming back and why they are repeating business with us in a bigger way. So just in terms of M&A, we've got a great track record in this space. I talked about Betches, fantastic business, fantastic team, doubled in the 2 years since we brought them into the group. And we also have a great track record in terms of bolt-ons as well as bigger acquisitions previously. We are putting the infrastructure in place to accelerate our M&A activity and see it as a key lever in bringing forward our strategic direction in which we're taking. We've got a very strong pipeline. We've got 6 businesses in live discussion, very, very interesting businesses in a lot of the spaces that I've talked about today, who are also very serious about the potential of having some sort of activity with their business. So there's nothing to report on today in terms of anything that we've got imminently coming down the line. However, we do feel very confident moving forward about the cadence of M&A activity that we're looking to bring forward into the group. And just a couple of things to leave you with. A key one is we are very thoughtful about ensuring that we think about how we use our voice in the right way. And one of the topics that we've engaged with recently is a taboo and it's not widely talked about just yet. But I know in a couple of years' time, as we saw with mental health, this will become more broadly talked about, and that is porn addiction. It's very accessible in a way that it hasn't been previously to younger audiences, and there are some negative impacts to it. So we created a campaign that addresses this, which has been recognized by the House of Lords, the government, and we've worked very closely with them on this. This is a very important topic for them and something that we've managed to make a big difference on. So for us, that's something that we will continue to do and across a range of different topics as well as areas that we've continually looked to focus on now and in the future. So just to finish on, we've had strong double-digit growth, accelerating in key strategic areas of focus, both Direct U.K. and U.S. when it comes to revenues as well as profitable growth moving forward. We continue to do great things when it comes to scale with young adults. And I talked through some of the numbers before in terms of that. It is unparalleled, and we are absolute market leaders. We've also built brand recognition at scale that others struggle to compete with, and we'll continue to invest and build in that. And we are accelerating our predictable revenue streams, both across the Direct business and certain products that we have within that, such as our IP and technology that we're going to be looking to take to the market moving forward. We see IP, U.S. and the creator market as key multipliers for our business, and we've made great progress across all of those. And we've also got a strong pipeline of Direct business to reinforce that confidence moving forward, both in the near term and beyond. So, that's all from me. We'll hand over to yourselves for Q&A. I'm going to forget to say what I need to say on the mic, but I'm sure it will sort itself out.

I'm Jessica Pok from Peel Hunt. I've got 3, please. Can you talk a little bit about the economics on the direct side of the larger clients versus some of the smaller clients? What I'm getting at is as the business grows and expands, the larger clients potentially get larger. So are the margin -- is there any margin differentiation between the 2? And the second one is just on the U.S. Some of the costs have gone in FY '25 and you've got some costs going into '26 in terms of the salaries of the new hires. Is that it now? Have you got enough there in order for the next 2 to 3 years of growth? Or can we expect further hiring or investment going into the U.S. in the near term? And the final one is just on Betches. Betches U.S. is going very well. You launched Betches U.K. Can you talk a little bit about the traction there?

Shall I give a quick overlay on the Direct moving forward and then obviously underpin it with some detail from within. So on the Direct side, in some cases, larger clients can be lower margin. And the key driver to that is just the mix of capability that we offer them. So it might be that certain products are higher margin, others are lower margin. I wouldn't say there's a one size fits all on there. Where we are becoming more sophisticated in management of that is the tiering system that I mentioned before. So typically, the larger, the bigger investment, we can obviously include certain types of products that might be slightly lower margin, but getting that mix and the controls around that is obviously key and that system and the sophistication around that is something that we're investing in. And then the other element to that is just the demand we've got for Mission Control and our panel. And it's not something that we formally take to market, we utilize. But those are powerful tools that don't require a lot of people. They're not people-heavy tools or technologies to offer clients. A lot of that work is done -- invested upfront, which we're very excited about in terms of the possibility of adding more capabilities that grow that margin moving forward.

Just to add to that, the -- as the clients get bigger and more repeatable, as Solly said, we've got some clients who have regular quarterly income coming in. We can plan better our resources against there. So we will naturally become more efficient as we get bigger and we see that visibility. And shall I cover the cost one and you go on to the Betches U.K. So on the cost side, we've got the team that we want in the U.S., and we accelerated that from mid to late calendar year to get the right people in. They're all in play now. As you know, we want to get at least 20 clients where we're doing over $3 million each with us. So as those clients are coming on board, if we accelerate those, we need more senior people to be able to consult, converse and talk to them about the market dynamics. So we may have other senior people coming in, but we've got the right people at the top of the C level in the U.S. to do that.

I mean I'd just add that as the engine for growth. So we've got a dynamic model internally that gives us a red line on affordability. So if it's in high growth, we've got more space to invest in that against the forecasting. And of course, as I've talked about today, there's huge opportunity in the market, and we've always run the business in an affordable way. We've always been profitable since day 1, and we'll continue to do that. But there will be more based on the opportunity ahead, but it will all be done in a controlled and affordable manner.

And the other thing down line is that Solly talked about as we bring some of the capabilities we've got locally in the U.K. like the use of Mission Control and LADnation into the U.S. We will do that probably smoothly, but there will be, in particular years when we decide to move on that, we'd want to move faster to make best use of it. Yes. So we don't know when that's going to be yet, but it will be over time. And then the...

U.K. So I think in terms of Betches, fantastic brand, I was chatting to Lauren, who is featured on this one, the sales team out in the U.S. and she just joined us and she was explaining why she joined to me. And she said 70% of my friends follow Betches, which is just in saying the power of that brand and the equity behind it in terms of how synonymous is it reaches one in 2 women, millennial, Gen Z women over in the States. And for us here, we've had a massive uptake, both in terms of audience consumption, and it's been taken very well in the market, but then also demand from advertisers and clients has been brilliant. It feels like that space in terms of entertainment for young women in the U.K. is ready to be disrupted and Betches is a great entry point into that.

Roddy Davidson from Singers. A couple of sort of follow-up questions on the U.S., please. Firstly, just wondering if you're -- are there need to be any changes, any investment in your physical footprint out there to service the market? And in terms of sort of metrics, I mean, I'm not sure if you'd be prepared to share, but in terms of sort of things like average deal size, repeat client revenues, things like that, can you give a sense for where you would like those to sort of move to? And finally, just on M&A, which I guess is also sort of U.S. related, keen to understand what resources you have in terms of sort of assessing deals, how that sort of process happens? And also just what sort of acquisitions you're looking for and what sort of scale those might be?

Thank you. So in terms of physical footprint, I've physically moved out there, and hopefully, that gives you an idea of how serious we see that as an opportunity in the business. We have just moved into a new office, or moving into a new office, which we've identified to enable more growth and more people that we are looking to invest in over time to feed that growing market. And in terms of the right investments, we see that reinforcing the kind of capabilities I mentioned are working across here, research and insight and measurement of ROI for the work that we're doing with clients being a real area of opportunity to build further as well as development of their very successful products, which has got brilliant IP and other aspects to it that we'd like to do more of. So it's definitely going to be growing, but all within the engine for growth, which gives us sustainable, affordable growth.

On the -- just moving on the points, the deal size I talked in the presentation, it's moved from $62,000 up to $178,000. That is relatively small. So as we're moving into our top 20, we want 20 customers of over $3 million. So therefore, it depends on how they want to -- what campaigns they want to run over time, whether it's consistently every quarter or consistently every month or a block campaign or not. So that will be the dependence on it. So the value will increase and the frequency will also increase on that. And then on the -- on the deal size and the repeat revenue, it's obviously we want 20 or more -- when we get 20, we want 40, 40, 160, more clients repeating their revenue depending on their cycles of business. I think the other question was on the M&A resources. We've got a team of 20 people in the business that meet monthly to promote, talk about opportunities or targets of businesses because it's across the globe, and we come across businesses that we know are doing well, doing different -- or doing things. So that's how it all stems from a monthly session like that. And then internally we've got a person at the moment and quite a lot of Solly's time talking to the founders. So it's like a group effort, but then it's focused in on the conversations with individual targets at the right levels at the right time.

And just in terms of the sort of nature of the businesses that you are targeting, I think you alluded to sort of data, you sort of [indiscernible] presumably that would be the...

Yes. I think -- so type of investments, type of M&A potential opportunities. So I think Dave hit the nail on the head, which is the pipeline is the best quality that we've ever had it in the density of the quality of that due to the input from the team and the people that are on the ground. So the sales team who are competing, the audit teams who are also in the same. So the quality of that is there. In terms of the types of business, I mean, U.S., of course, is a factor in that. We are looking at a number of opportunities out in the U.S. to accelerate that. And then also absolutely brands that can enable us to have a wider conversation with clients, whether that's down to demographic in the U.S., we are heavily Betches. So we are looking at propositions that could complement that. Also in addition to that, we're looking at capabilities. So our clients are naturally leaning into certain things that we're offering them. And we are speaking to a number of businesses at the minute that we believe are enhancing. And also, we actually work with them currently across with our clients. So everything from geo, different demographic through to tech and capabilities that would add value is in the mix of that top 5 that we're in live discussions with at the minute.

It's Johnathan Barrett from Panmures. I've got a couple of basic questions for you, Dave, if that's okay, and then something for Solly. Just on Betches, could you give us a steer on where that's got you in revenue and EBITDA? And then just your constant currency revenue growth rate for this year and the D&A charge, I'm guessing that's going up a bit with the investment?

So the Betches figure in U.K. is GBP 19.4 million. So when I showed on the divisional split, which is Direct U.S., that's Betches, okay? So in terms of the guidance out there, so the margins on that in the -- I won't give the exact margin, but it will come out when we disclose it, is in the low 20s, just above 20% on that. And the guidance they've given is effectively at constant -- unless there's a big shift like there was in April last year with the Trump $1.25 up to $1.34. So if it moves a little bit, it won't affect our numbers much, but if it moves that way, hopefully, it will move back. So our numbers are better, but it may shift the other way. We never know. Yes. And then the depreciation is it's more likely to be relative to revenue, but we are capitalizing a small amount, a few hundred thousand pounds, which is the Mission Control. And also in the U.K., we're moving into new building. And in the U.S., we move to new build. They're building -- they're not significantly higher, but it will affect over 5 years that we show it.

Will keep stepping up...

Yes. In line with the revenue.

[indiscernible]

The -- If you net out the various guidance that I gave in -- it works out in mid-double digit, slightly above mid-double digit.

And then just for Solly. So, you've talked about working with proven creators. Just do we have to think about that differently now? Do we have to think that you have to give up some margin for working with the high-profile proven ones? Is there a logical trade-off for you there? Or does it not work like that? Is it a different thing?

I think it's probably still very early doors to see how that relationship is going to evolve. So we do a lot of work with creators anyway, either weaving them into our content, our formats day-to-day. It's a very symbiotic relationship, similar to the celebrity side of things where we often are paying celebrities to work with those. They come to work with us in that symbiotic manner. Similar with creators, we understand them, we can help them grow, build their businesses. And then in addition to that, we often represent creators for clients and work with them on that basis. So very early doors to say exactly how that business model is going to be in 3 years' time and how that evolves. But typically, we're quite selective, and we're not trying to work with everyone in market, and we'd rather work with a few and go bigger than try and do that. And that means we can be a little bit more selective where we deploy and I would say a little bit less exposed on that side.

And sorry, just one cheeky small one. Do you want your CFO to be based in the U.S. given the focus?

Dave is moving. So I think the U.S. is obviously a critical market for us. We've got a great team out there. Of course, we do have interest from investor base out there with the business that's growing. And therefore, as well as the operations, it probably would make sense for us to have more presence. In terms of location, I don't think it would matter either way in terms of that as long as travel is fine.

Andy Edmond, Equity Development. Just continuing the themes on a couple of questions that have already been asked, and let's stick on the margin thing because some of you were talking about the discussions and closure of longer term agreements with larger clients. So just curious, lots of benefits to visibility and repeatability of businesses. Is there another slight trade-off in margin in those discussions? And from a group level, it sounds like you're pretty confident medium-term on margins, Dave. If there is any deterioration with better agreements, might that just be offset by the cost controls that you've been talking about and greater use of technology on the cost base?

It's a great question. What I would say in regards to that is we're not mass market sort of stack and high, sell them cheap proposition. We've got a unique service, a unique proposition in terms of the scale, all the elements that I've talked about today. So we can afford to be selective about who we work with, how we work with them and vice versa often the clients are on the other side. So very much what's fair to us and fair to them in terms of what's right there and the right value exchange. And therefore, the tiering system that I mentioned before around the controls provides that -- those guardrails in place in and around that and something that we are developing to make sure that it is the case. In terms of the higher-margin elements, I suspect as we start to offer Mission Control more formally in market and then also the way in which we price LADnation and then also look to roll that across the pond. That could see some potential benefits in that, but we're very early doors, and we do have multiple levers to manage cost base. We've generally got goals in place around affordability, what we will, what we invest in order to protect those margins. So something we monitor carefully, but those, I'd say, are probably the biggest areas that will impact control and offer us opportunity in the future.

Just to add to the -- what Solly said and the question that you asked is that Solly touched about it earlier, we have internally what we call a growth engine, that is each division has its own forecast and its own minimum margins. So if the forecast is growing above with a little discount for contingency, then they can reinvest as much or as little as they want to do against an agreed strategy plan. So all of those dynamics work in the business weekly, basically as a call every week where that's discussed. So that is embedded in the business. It was put in just over 1 year ago. And everyone is used to working to that. So the things that may come outside of that is like we've had discussions around bringing on C-level people for the U.S., we may give a little lenience on that to just bring it forward rather than waiting for the resource to be able to brought in. So we think major decisions like that, that we decide consciously to bring it forward. Now that may be in the year before we talk to people like yourself, but we'll always communicate it as soon as we know that. So we're in well -- our margins are well controlled across all elements of the business.

Great. And then on M&A, hearing a slightly different tone to the statement today, which talked about selective bolt-ons and you're sounding a lot more progressed and looking for another Betches, that has been fantastic, which seems to make perfect sense because you've got the cash generation, you've got the opportunity, you're right to be investing. I'm just curious, again, talk about control, Dave, if you're that far down, what are the financial metrics of things that you're looking at strategic fit and must come first and foremost, but not at any price? So can you give a little reassurance how you might operate under...?

So strategic fit, Solly talked to some of the points on there. Also a key thing is the cultural fit because the Betches business, we spent 3, 4 weeks presenting to each other before we reached the deal and that we knew that would work well on there. So the cultural fit is really important. On the financials, we'll work to a cash-based internal rate of return, which will be above 20% in line with the [ PET ] approach, private equity type approach. And we work like we did with Betches, we will have earnout targets if our valuation metrics are different than their wants in terms of sellers. And it's worked very well for us, and it works exceptionally well for Betches as well.

Caroline Gulliver from Equity Development. Could I just ask another follow-up question on your target client base? You talked about trying to get 20 clients over $3 million. And obviously, it seems like there's a huge amount of opportunity in the U.S. and the deal size is going up. But just in the U.K., I saw that it's gone down from 13 to 11 in terms of the number of clients over $1 million. Do you see that reversing? Do you see that then going back up? Or -- and is it from growing your existing clients to sort of significantly? Or do you expect to win lots more new clients? And that goes for the same for the U.S. as well. Is it -- just generally, is the pattern start small and they just grow and grow and grow with that repeatable revenue? Or are you putting as much effort into attracting new clients?

I think the key thing for us where we're seeing a big step-up is the amount of investment that we're getting from those top 20 and also how predictable it is in the sense that the names that you are seeing in the top 20 are chopping and changing less for us. And that for me is very much the efforts that we put into really understanding the business, building relationships up top, say, from the most senior level down. And that is, in turn, driving high value for them, which ultimately is the reason why they're spending money with us is to help them drive their businesses. And I mentioned about the GBP 5 to GBP 10 ROI, we're seeing more and more of that as we are focusing more. So for sure, I think across that top 20, I mean, in terms of advertisement spend, we're probably less than a couple of percent from those. So there's plenty to go at. But also, we are constantly nurturing that next wave coming through, and we'll promote and relegate based on it. But in terms of the service that we offer, the focus going deep, that's typically how we work. So Dave mentioned a number before. Just to demonstrate this, if we go from, say, GBP 40 million to GBP 80 million in revenue, the top 20, which makes up for about 70%, will need to go from about GBP 1.4 million on average to GBP 2.8 million. So for us, we've got a number of clients that are already spending well over that, quite a few. And so for us, building more of those is a focus on building deeper and better relationships where we can see we are driving ROI and tangible results for them and understanding their business better is a big focus.

Just to clarify those, that's 20 in the U.K. and 20 in the U.S. Obviously, U.S. values will be higher just because the marketing spends are higher. And out of those clients that haven't spent with us so far, 2 of them spent for the Euros. So they may come back and spend in the future. So we're early on the number of clients. And in the future, we'll have a KPI of showing how many clients are spending over $3 million, but it was too early in that cycle yet. It's about $4 million at the moment, but we're too early in the cycle. So if one doesn't, you'll say why not one doesn't. So we will build that KPI moving forward.

[indiscernible] I know they're at the very bottom of your demographic age range, but do you have much client interactions or your own concerns about social media bans for under 16s and the sort of gathering momentum that seems to have got globally?

I wouldn't say concern in terms of impact for us in regards to that space. I think it's an important topic. I think having 2 kids myself and understanding the space very well, I think it's important to have some governance across it. And in terms of the impact, I think naturally it will soften around the edges. There will be specific apps that are created for younger audiences where the controls are in place. And for us, I don't see that as a material impact because as they graduate towards older audiences being exposed to advertisement and other areas as well, which is where our sweet spot is, is natural. So it's obviously something to watch out for and to see how it progresses, but not something that we're losing sleep over.

I think that's it in terms of questions from the room and none from online either.

Thank you, everybody.

Yes. Thank you very much.

Have a good day. Thanks for attending.