Next 15 Group plc (NFG) Earnings Call Transcript & Summary

So hello from myself and Mickey, and thanks for joining. We're really pleased to be able to take you through our results for fiscal year '26 over the coming hour or so. We'll take you through everything, and then we'll leave time for Q&A. But if you want the kind of 1-minute summary, it's the fiscal year '26 as both being a very difficult year for Next 15, but also a very incredibly important one despite a very tough external environment and internal pressure that we've seen from these legacy issues. We've stabilized performance. We've simplified the group materially, and we're now seeing early signs of progress in fiscal year. So as normal, you'll hear from myself and from Mickey. And we'll look at the fiscal year overview. I'll hand over to Mickey to look at the financials in more detail, and then I'll come back to talk about strategy and the outlook, and then we'll have time for Q&A at the end. So starting with the key headlines. What have we achieved so far? First, we've taken really decisive action to reset this business. We've simplified and realigned the portfolio. We've reduced the number of businesses in this year from 22 at the beginning of the year to 11 today. And we've reduced costs, delivering GBP 26 million of annualized savings, and we've restored operating discipline through our unified but not uniform operating model. Second, we've seen performance stabilizing. We've delivered in line with expectations. We protected our margins, and we've improved cash generation. We've seen a GBP 43 million inflow versus a GBP 7 million outflow in fiscal year '25. Third, we are working really hard to drive the business to become a higher quality and more focused business with a clear shift towards data, technology and AI in structurally growing markets. Fourth, our financial foundations remain really strong. We have low leverage, improved working capital. And as a result, we're maintaining our dividend. Fifth, the Mach49 arbitration remains ongoing. It does create some uncertainty, but we're managing it actively. We continue to maintain the earn-out liability on the balance sheet, but we remain really confident in our legal case. And finally, we're seeing early signs of progress into fiscal year '27, particularly in digital transformation. And across the whole portfolio, we're seeing a much more stabilized performance. And with all that said, let's focus on the progress we're making in stabilizing that performance. So the group delivered net revenue in line with expectations, down 4% like-for-like, which I think is a pretty robust and encouraging number despite a challenging macroeconomic environment and a period of significant structural change for Next 15 as well. Within that, our core Track 1 businesses delivered growth of 4% like-for-like on a net revenue basis and 7% profit growth. We saw really strong growth in Digital Transformation. That was up over 40% in the year and continued growth in Retail Media, too. We've also materially improved the resilience of our client mix, gone from a heavy reliance on tech to actually a more balanced client mix, with retail and FMCG now actually our largest sector and government being our fastest growing. Now that performance was offset by declines in revenue from both our technology clients and our creative production revenue, and that's been driven by more cautionary spending from our clients as a result of the macroeconomic uncertainty we've seen. But on execution, we've been really focused on building a better business. We've reduced our headcount by 16%, delivering, as I said, GBP 26 million of annualized cost savings, GBP 11 million of those were realized in the year. We simplified the business and the portfolio from 22 to 11, and there's more of that to come. We've exited Mach49, which was a significant legacy issue. Against that backdrop, we've managed to protect our margins at just over 15%. So taking all of that together, performance has stabilized. Business is in a much more controlled position, and we're starting to see some really good early progress in fiscal year '26. We've also materially improved the balance sheet. We've delivered a significant improvement in our cash performance, GBP 44 million working capital inflow, and that's driven by tighter operational control. As a result, our net debt has reduced to GBP 35.6 million, puts our leverage at 0.4x EBITDA. Our earn-out exposure as a result of the passing of time is also reduced, which increases our financial flexibility. And as a result, we're maintaining the dividend that reflects our confidence in the underlying business because we believe the balance sheet is strong and it gives us more capacity and resilience moving forward. So let's dig into those numbers in some more detail, and I'll hand over to Mickey to talk you through, and then I'll return soon to talk through about the strategy.

Thanks, Sam. Good morning, everyone. I'll take you through the financial review, and I will start on the P&L -- overview of the whole P&L. Revenue, as Sam said, is in line with expectations, and that is against the backdrop of a challenging environment. Like-for-like revenue declined 4%, reflecting global economic pressures that we're all familiar with. We are somewhat weighted in the U.S. So there were U.S. policy shifts that affected us and reduced tech client spend as well, which had an impact. That said, there was resilient growth within Transform, within SMG and within our M Booth companies. So they provided somewhat of an offset against some of that decline. Our margins, despite that revenue decline, we held our margins [ back-burn ]. They were broadly in line with prior year, and that was a result of restructuring and the continued focus on cost management. PBT was GBP 63.4 million, diluted EPS at 44.4p, all in line with the movements in revenue. As Sam said, we've maintained our dividend for the last year at 15.35p. At the Capital Markets Day, we split out our businesses into different tracks, and those are now, Track 1, Track 2, Track 3, and we'll report on those for the foreseeable future. Track 1 comprises our core growth portfolio. Those are the higher-quality data technology and AI-enabled businesses that operate in markets we think are going to show signs of longest-term growth. And so that's our area of focus, Track 1, and they delivered revenues of GBP 273.4 million. That's growth on last year of 4% on revenue and adjusted profit -- operating profit up 7.2%. So the businesses that we believe are our future are growing. They're growing year-on-year, and we believe they will continue to grow for the foreseeable future. Track 2 comprises a managed portfolio as we described. It's those businesses which have some but not necessarily all the characteristics that are required to make it to Track 1. So Track 2 revenues were GBP 160.9 million versus GBP 191 million last year and adjusted operating profit, GBP 32.4 million versus GBP 43 million last year. Track 3 businesses are those businesses that we've already divested. We divested those businesses last year. That's Palladium, Bynd, BCA and Blueshirt. And we got a total consideration for those businesses of GBP 7.5 million, resulting in an aggregate net loss of GBP 3.2 million. Looking at the movement in revenue year-on-year, I'll take you through those key movements. First of all, just one point to note is there were disposals that had an GBP 11.3 million impact on that revenue bridge. But focusing on like-for-like revenue, if we look at the second chart at the bottom half of this, like-for-like -- and we split that out to Track 1 and Track 2. Track 1 revenue grew, as I said, the biggest -- the best performer there was Transform, which was up over 40%. And SMG and M Booth also performed strongly in that Track 1 group. Track 2 declined result of headwinds from reduced tech client spend, fewer creative projects and delayed project starts impacting Elvis and Marker in particular. We also took a bit of a hit, unfortunately, from currency. The weaker U.S. dollar resulted in -- which was 4% lower year-on-year, created a GBP 8 million adverse variance. Same thing again, looking at the operating profit bridge. The good news here is that despite that revenue decline, our margins are broadly the same year-on-year, which is all to do with cost management. If we just focus on that cost management for a second, staff costs were significantly reduced. They were driven by restructuring savings -- the benefits of restructuring savings from FY '25 as well as ongoing improvements, cost savings, productivity improvements in FY '26. So our headcount was reduced at the end of the year to 3,350 from 3,992 the year before, 642 employees. The annualized benefit of that is GBP 26 million. Breaking our business down into segments. So we've covered the tracks. Now we have segments, which are again new and we covered those in the Capital Markets Day. There are 5 operating segments, and I'll take you through all of them, and they all relate back to our new refreshed group strategy. So Retail Media, that was up 8.2%. That's all SMG in there, and that continued to expand during the year. We continue to invest in the U.S. market. It's a significant medium, long-term growth opportunity, and that investment had a near-term impact on operating margin, which decreased to 18.2% from 25.3%. Data & Research, which is the Savanta business, revenue declined by 8.5%, largely driven by client in-housing of research activities and reduced demand for traditional market research. We strengthened the leadership there last year with the appointment of the new CEO in June. And we also took -- the business took some strong restructuring actions, the result of which is that despite the revenue decline of 8.5%, operating margin increased to 14.5% from 12.7%. I've mentioned that Retail Media grew. Digital Transformation grew at a phenomenal rate last year at 41.8% year-on-year. That's all U.K. public sector focused. That's the entirety of that business. And it was driven by a number of large contracts that grew during that period, including one that we announced at the end of last year, which is Department for Education. Marketing & Communications declined by 7.9%. This is our largest segment. It produces -- produced GBP 53.8 million of profit at a margin -- at an increased margin of 22.6%. The core reason for the decline was largely down to B2B technology marketing and that, true to the rest of the industry, that sector saw quite a significant decline. Having said that, within that, we have a health marketing business, which has experienced very significant growth in the second half of the year, and we see that continuing in the first half of this year. Finally, our last segment is Creative Services. And as you probably all know, that is a sector that is really facing a challenge at the moment, and that declined in our group by 18.6%. Looking -- now looking at our customer base and our customer segments, I'll just take you through each of those. Consumer and Retail is now our largest sector that contributes 31% of total revenue. And that spend is very heavily weighted towards the Retail Media segment through SMG. Technology client spend, it was our biggest segment. It isn't any longer. Client spend is subdued and its share of total revenue declined by 4%. And going back to the 5 segments we have, we have a large component of tech spend in Marketing and Comms. So you see the decline in Marketing and Comms. That's in large part driven by technology clients. Professional/financial services, those declined due to client losses and reduced spend from existing clients. And as I mentioned before, public sector is our fastest-growing vertical as our transformed business where government spend -- the U.K. government spend grew significantly. And as I said before, we expect it to grow into '27. Cash flow, looking at the major movements in cash flow in FY '26. We had net inflows from trading of GBP 43 million. And then we had a very, very strong working capital inflow, a very, very strong one. Not necessarily one that we can repeat every single year, but nonetheless, a really strong performance last year, GBP 43.8 million came in, and that's a material improvement on the GBP 7 million that went out the prior year. And what was that driven by? That was driven half at least 50% by strong disciplined working capital management across the whole group. The other half was due to the wind-down of Mach49 and the accruals related to the ongoing litigation. So that was a really, really good result for us, one of the strongest elements in this presentation. And then that was partially offset by earn-out payments of GBP 35 million, which we'll go into in a second. Looking at our leverage and our liquidity, our net debt-to-EBITDA ratio at 0.4x is well within our covenant limit. It's a very healthy place, even if we were to include the full provision for the Mach49 earn-out, and we'll talk about that in a second. Even if we were to include that full provision, that still takes us to 1.5x. So well within our -- comfortably within our limits. Total debt comprises an RCF -- of drawn RCF -- loans and borrowings of GBP 57.3 million versus GBP 65.9 million and an overdraft of GBP 66.7 million. On the RCF, we have GBP 118 million undrawn on the GBP 175 million facility. That facility lasts until December 2027. And then we have a further year at GBP 155 million until December 2028. On the earn-outs, the majority of the earn-outs have now been settled. We've got GBP 13 million of earn-out liability still to come if you exclude the Mach49 liability. And the majority of that is expected to be settled in cash rather than shares. Then just talking about Mach49, it is a discontinued operation. We announced in August 2025 that we were going to close and discontinue the operations. We've done that. The ceased operating on the 31st of January. And we have reported it, therefore, as a discontinued line item. You won't see that in the numbers -- within the numbers. It's a separate line item. Now looking at the losses, the write-downs and fees associated with all of that. The loss after tax was GBP 14.9 million versus a profit prior year of GBP 18.9 million, and that comprises operating losses after tax of GBP 5 million, goodwill and acquired intangible write-offs of GBP 10 million. We incurred GBP 12.5 million of legal and advisory fees relating to the misconduct, arbitration proceedings that you're familiar with and the wind-down of Mach49. And finally, talking about how we've accounted for the remaining earn-out liability, we -- so I'll just go through it. We've announced in June the serious misconduct, and we reported that to the relevant law enforcement agencies. And we've made no further payment of the earn-out as a result of that. We are now in arbitration proceedings. And until we know the outcome of those proceedings, we are holding on the balance sheet that earn-out liability of GBP 63.4 million. We would expect ruling on that arbitration by the 31st of January at the latest. We hold our position on the nonpayment of the remaining earn-out. And in our view, we -- I'll just read this out. It's probably easier if I say the earn-out because we currently recognize that the earn-out liability is probable and therefore, no further only the earn-out provision is probable, and we don't recognize anything beyond that. And we've also finally counterclaimed for previously paid earn-out provision. So we have paid out GBP 120 million before. So although they have claimed for the earn-out that's due, we claimed them for the earn-out that's already been paid.

Thanks, Mickey. So looking a little bit to the future and how we're progressing. So I think we saw most of you at the Capital Markets Day back in January. Thank you again for attending that. And we set out at that day a new chapter for Next 15, one that was focused on data and an AI-led growth platform. And we're already making good progress. The business is simpler, it's more connected, it's better aligned around strengths in data and technology. And over time, we see an opportunity to grow revenue and profit an increasing proportion coming from these high-growth areas. So let's dig into it a little bit, give you some examples of where we're making progress. Remember, we talked around this flywheel of growth, data that drives the differentiation, the technology that provides the insight and access to that data. And then finally and critically, activation that delivers results that you can measure or data that keeps that flywheel spinning, and that flywheel can be accelerated through AI and our people. And we're already seeing this across the business in so many ways. Here are just a few examples. If you look at M Booth, we partnered with Google on their Veo launch, which I'm sure a lot of you saw, and we delivered the end-to-end creative actually using their AI technology, Veo and their associated tools across that workflow. So all the way from concept through to production, we created a full campaign utilizing Veo AI tools, which Google used themselves to advertise their own AI tools. And it performed incredibly well, over 1,000% performance versus the benchmark and was one of the top-performing contents that Google had all year. This is an example of the new world of creative, where we're pioneering production through AI with one of the pioneers of AI. And so at the very core of our business, we're right at the forefront of this movement. And Transform a business that is highly specialized in creating AI tools, both for government and increasingly in private sector too, they've created a platform with Go Inspire, which takes huge amounts of data and creates self-service models that effectively allow you to change campaigns in flight. So as campaigns are happening, usually as a marketer, you need to wait 2 weeks, 3 weeks to understand whether they work. You can now understand that in seconds, and the tool will help you to decide what to do next because it's connected agentically, we'll actually do that in flight. And so that reduces campaigns from weeks to minutes and improves performance and accuracy exponentially. At Savanta, we're using Snowflake-powered data and AI platforms to look at large volumes of campaign data and customer sentiment. And these are the drivers of what we call brand impact, i.e., do you like this essentially. And ITV are using that to optimize and scale their partnership strategy based on that real-time data and insight rather than in the past, relying more on intuition. And at SMG, we've developed a really exciting AI-led planning and activation platform. You might remember from the Capital Markets Day, we talked about the huge data set that SMG have around sales uplift and brand uplift. We're now able to use AI to generate recommendations about what to do next based on how those campaigns are performing increasing our forecasting accuracy, our scenario modeling. So effectively, we're able to tell brands what's going to happen before it does and then optimize those campaigns in flight. And that is in place across some pretty major brands and some pretty major retailers like [ Co-op ], Morrisons, WHSmith in the U.S. and Boots. So the key point that I'm trying to make here is that whilst others are talking about what AI is going to do, we're actually pioneering it here. And we're applying it across all of our business, especially across the Track 1 businesses that are delivering measurable outcomes for clients and value to the group today. We understand AI, we're applying it. And that gives us confidence not just in our capability, how we can scale that into the group into the future. And you're starting to see some of those numbers to follow this trend. And that feeds directly into our capital allocation. We're increasingly focusing our investment into our Track 1 businesses, where we see structural growth, strong capabilities and attractive returns. Our Track 2 remains profitable, but performance is more mixed there. So what we're doing with our Track 2 businesses is we're working really hard to actually improve their performance, stabilize their performance. A lot of that work is being done. And then we're working alongside them to either reclassify them as Track 1 or unlock value through disposal. And each one of those businesses that you see in that Track 2 are in a time box process to do exactly that. As a result of that prioritization, the group has become progressively more focused on our higher growth AI-led businesses. And then all of this is enabled by a change in our operating model from a kind of highly federated model historically, we've moved to what we call a unified but not uniform operating model. What that means is that we're bringing the group together where we think we can add real value, particularly around data sharing, technology and also client delivery while still preserving the entrepreneurial spirit that existed in the individual businesses. We've established a more connected operating structure. We now have a Track 1 operational Board, which consists of all of the CEOs of those Track 1 businesses working together to remove silos and drive more joined-up decision-making. And that's felt like a real change in the business. As a result, we're increasing sharing data, sharing technology, whether that's data sets or AI capabilities. There's a lot of things that each one of these businesses are doing that other businesses can benefit, and we can scale that quickly across our group. Importantly, we've also changed incentives, where we've aligned incentives more closely so that we're not just rewarding individual business performance, we're now rewarding collaboration and group-wide outcomes as well. And we're starting to see early benefits of this. We're seeing more cross-selling. We're seeing better utilization of data. We're seeing faster deployment of AI-enabled solutions. And although it's really still early days, this model is already improving how the group operates. And we see this as a key enabler in the future too. So our priorities. We're now just over 9 months in, myself and Mickey, and we've moved quickly to fundamentally reshape the group. And although changes like this do take time, we're seeing the early benefits of that come through in our performance and the quality of our portfolio and how the business is operating. From here, our focus is actually quite simple, falls into 3 buckets. First is to resolve this Mach49 arbitration and bring to a conclusion that process and remove that uncertainty, incredibly hard to make that happen. Second is to simplify. We continue to take decisive portfolio actions and also fully embed the new operating model across the group. And the third priority is to grow. As we talked in our Capital Markets Day, we're making investments in our Track 1 businesses. We're scaling our AI capacities, and we want that to drive organic growth in those Track 1 businesses and over time in the total group, too. So this is a business that's moved at pace. We're seeing early results. It's leaner, it's simpler. It's now very clearly focused on the next phase of delivery. As we look at the outlook, trading in fiscal year '27 is showing clear signs of progress. We're seeing progression in our key growth areas, as Mickey said, particularly Digital Transformation, alongside early benefits, tangible benefits from our more focused investment approach. So it's still really early in the year, but the direction of travel is positive, and we're encouraged by the momentum we're starting to see across the business. And on that basis, we expect our full year performance to be in line with our expectations. And as we've said, we've maintained the final dividend, which gives you confidence in how we see the business. So in summary, this has been a year where we've taken decisive action, address key issues. We've simplified. We've established control. Performance has stabilized, portfolio has materially improved and the foundations are stronger. It's still early days. We still got a lot of work to do, but we're seeing early progress, particularly in those growth areas. And the business is now, we believe, better positioned to move forward. There's uncertainty in Mach49, but the focus here is very much on execution, simplify, scale, deliver against the strategy we set out. And so we believe that this is a business now that is much more focused, much more disciplined and moving in the right direction.

So we'll go to Q&A. Steve, you put your hand up just first.

So Steve Liechti from Deutsche Numis. I'll take 3. So one, SMG U.S. expansion, can you just dig into that a bit more in terms of where you are in terms of pitching wins, aspirations in the near term there relative to the cost you're investing there? Second, can you give us an update on Pretzl? You put together a lot of businesses there. It's early days, but just a bit more on how that's progressing across there. And then on trading today, I'm not going to ask you for a first quarter number necessarily, but maybe you could flesh out if market expectations, what is like-for-like growth in the full year? What the shape of that will be between the first half and second half to give -- to try and bring your point about early days, but kind of good progress?

Shall I take the first two?

Yes, yes.

So SMG obviously have a good foundation in the U.S. already with WHSmith, which is a client that is driving revenue and growing. It's developing a good case study. And I think what I can say is that we're really encouraged by the progress the team is making in pitching as well. I would say that landing these retailers, this is a business that I built. So I've experienced it and know it takes time because what SMG do is incredibly structural. You're actually putting big teams of people into retailers. But once you land a big retailer, it's incredibly valuable. And so whilst the new business cycle takes a bit of time, once it happens, it's really transformative. I'd say progress is encouraging. I said at the Capital Markets Day that we want to land 1 to 2 clients this year. We're still very much targeting against that. We're encouraged by the results we're seeing so far.

Can I just ask -- so the KPI we need to look for is retail clients because presumably the brand it's pretty difficult to get the brands in the U.S.

Yes. And actually the brands follow the retailers. So once you win a retailer, the brands follow. So the KPI is, do we win new retailers in the U.S., yes or no. And even if we win a retailer in year 1, sometimes it takes a little bit of time for that to really drive profitability, but it's -- these are long-term contracts that are high value. Is that helpful, Steve?

Maybe one other thing, just in terms of pitches, you mentioned pitches, decent pitch pipeline or still kind of get on the...

No, decent pitch pipeline, very much at the moment.

Pretzl, we've made really good progress over the course of last year. That group of businesses has significantly improved their profitability as a result of bringing them together. And we're seeing some early progress in terms of value added from our clients and what we can do together. There's still a lot to do there, bringing 4 businesses into 1 creates a ton of workflow changes. Also, we're embedding AI and [ Journey Labs ], which is our new AI model into that business, too. And so we're -- the business is in track one. There's still a bit of work to do in that business, but we're pleased with the progress so far. And the early signs from clients is encouraging. Do you want to talk on the other one?

Yes, trading to date?

Yes.

Trading to date has been good. We're three months into the year, and we're all pleased with where we're at. We are in line with the expectations that we set that you are familiar with. We don't break those out H1, H2, but we'll talk about those in a second. There have been a few strong performers in the year so far, a few strong businesses. I mentioned Transform over and over, but they deserve one more mention because they really are performing well. And they're not the only one, but they are exceptionally strong so far this year. Steve, you asked about H1, H2.

Just shape of growth.

Yes. Shape of growth. Okay. Not necessarily where they are. Okay. So growth occurs in H2, you may see the beginnings of it at the end of H1, but you'll see it in hopefully full force in H2. That's when the growth really comes through. Having said that, there are a few brands that are really, really pushing it in H1. Their logic is if we push hard in H1, no matter what happens in H2, we can secure a full year result. So we're very pleased with the performance so far. It bodes well for full year.

Jessica Pok from Peel Hunt. Three please. Transform is performing very well. Can you just talk a little bit about the nature of the contracts as in multiyear contracts or 1-year contracts and we're going to see benefits flow through not just for this year but into the next fiscal year? The second one is on SMG. I mean, doing really well in the U.K. So is it all about the U.S. expansion now when we look at the U.K.? And is there potential to increase that current client base you have? Or is it a matter of winning new clients now? And then just the third one, versus back at the Capital Markets Day, how are you viewing the Track 2 assets as a whole? In a sense, they perform better than you have expected. Are some assets moving towards or are you making progress towards that if so?

So Transform contracts, first of all. The reason Transform is making so much progress is because they have a big specialty in AI. And the work that they can do in AI and technology, especially with the government is helping them to drive efficiency, which is top of the agenda for governments at the moment. They've got great credibility in what they've delivered for departments across the government, including HMRC, Department of Education. And so the contracts typically are multiyear contracts that are up to a certain amount of revenue. Now they're not guaranteed for that amount of time. So at any point, they can stop. But typically, when they are awarded, they do continue for that period of time. And so it would give us confidence that the growth that we're seeing now will continue into this year and into next year, too, as we win more of these foundational contracts that we're seeing. And as we continue to win contracts and continue to deliver good work, we're seeing a real flywheel of growth with Transform, which is incredible to see. We've also got an excellent team there. I don't know whether you remember Emma, who presented at the Capital Markets Day. She's really, really good and doing a great job. So lots of confidence in Transform. Is the growth only in the U.S. in SMG or is the growth in the U.K., too? I think the answer is we see growth in both. In terms of the acceleration of growth, I think the biggest kind of size of prize is in the U.S., but probably the hardest to get to. In the U.K., we've got a very strong foothold with a number of great retail clients. Later this year, we'll also be announcing some new technology, I hope, that will give us an opportunity to expand our revenue beyond just the kind of direct-to-brand revenue that we're seeing at the moment. And that creates a big opportunity to tap into brand budgets, tap into traditional above-the-line budgets, which create a new area of growth for SMG in the U.K. too. So we foresee some growth in the U.K. too as well. And then Track 2 businesses, I'd say the performance amongst those businesses is mixed. Have some businesses surprised us? Yes. And actually, positively, we've seen a couple of the businesses in that group, specifically Marker performing really strongly in the first part of this year. And we've seen the stabilization across the rest of the portfolio as well. We're actively working on the reclassification or disposal process. Obviously, I can't say too much about where we are with all of those, but we're pleased, I think, with the progress that we're making, and we hope to be able to give you all news over the course of the year on progress in that space too as and when we have it. That answers the questions there.

Will Larwood from Berenberg. Firstly, just on this sort of flywheel effect and the examples that you gave. Just wondering about how sort of the impact that they're having in terms of -- you talked about the 1,000% return. How are you sort of, I guess, pricing for those outcomes? Is that how you're thinking about pricing going forward? Secondly, just in terms of the technology clients, obviously down year-over-year. What's the outlook for that going forward? And then finally, just in terms of capital allocation, there was a line, statement about sort of shareholder returns and then looking at bolt-on M&A. Just on the M&A piece, if you could sort of give us a bit more color on type of assets that you're looking at, where you are on that journey? What sort of, I guess, consequences we're looking at?

So AI performance the second question tech clients, yes. I'll take the first two -- so yes, that's a really interesting question, and we're still figuring it out. So we've certainly moved almost entirely away from time and materials now in a lot of our businesses, and we're moving much more towards a more fluid performance-based model with our pricing and obviously, as creative production costs reduce. So for example, that example that we gave with M Booth, obviously, the process to create that is -- the cost is so much lower than it used to be. The improvement for brands from the creator can still be the same. So there's so much more value for the clients in that work. And so they are willing to share more of that with us if you're really good at doing it. And because we're pioneering a lot of this with some of the biggest brands in the world, M Booth is one example. But if you look across some of our other businesses, we're working with a lot of big [ odd basing] tech brands. We're increasingly seeing value from that come through to our bottom line, and that's helping to drive our margins. Track 1 business is, obviously, the profit growth is ahead of the revenue growth, which gives you a hint as to why that is. And talking of tech to your second question, we spoke in the last results. We didn't want to call it too early, but we're starting to see a recovery in our tech clients. A lot of the losses that we saw in those businesses were in the first half of last year. We saw that improve in the second half and in the early part of this year, continue to improve. And so the trend is positive there. We're not quite at a stage where we're seeing like-for-like growth, but it's certainly improving in terms of the headwinds that we've been facing.

And then on your question on capital allocation and shareholder returns, M&A. First, we said this before, we said it again, we need to sort out the Mach49 arbitration to get that out of the way. As soon as that's out of the way, we can really concentrate on what we do next with capital. We're nearly there with that, we think. And there is a choice between shareholder returns and M&A at the moment, just assume it's 50-50 until such time as we actually get there. And what kind of M&A would we be looking at? It would just -- it would be that M&A that sits squarely within our new operating segments, probably focusing on those segments that are going to grow the even all of our -- anything in Track 1 are all growing fast, but those that we think are going to grow fastest. We have seen a few businesses that are really interesting that would fit really neatly within the Track 1 businesses. And interestingly, we can get them for really good value. They would be very accretive. We would love to do them now, but we're not going to. We have to sort out the things that we say we're going to sort out. As soon as that's done, we can turn our attention to those.

[indiscernible] from Investec. Perhaps firstly, to follow up on that, just on the M&A, would you be willing to pay multiples of your current multiple? I guess you see the multiples of the sort of chaos of the world pivoting towards a transformation might take you into a sort of high multiple out of the market. Are you sort of willing to consider that? And secondly, you mentioned sort of early progress on cross-selling. Do you have any sort of metrics for that either now or where we get to -- and then the sort of, I guess, 2 together on the financial front for Mickey. First on to working capital and the big inflow last year. I know that won't be repeated, but would we expect more inflows potentially? And related to that, you sort of highlighted the fees to sort of lawyers and advisers. Any chance of recouping some of that if there's a favorable outcome?

I'll take the first two.

Sure.

So I think the answer to the first question is yes, we might, but probably not big assets at high multiples. What we'd probably be looking at is bolt-on assets for the businesses that add our capabilities or our data that we can see driving our revenue and our profitability. So it totally depends on the asset, obviously, and whether it's strategically important, but we would consider it is the answer. We don't have any specific metrics yet on cross-selling because previously, it was zero. And so -- but I would like to start reporting on that as we progress. We are starting to see some really interesting progression with the Track 1 brands working together, and there are shared clients, but there probably hasn't been the connections up to now to create value out of that, that's one of the things that we see value in.

On the question of working capital, you're right. We said we had a very, very significant inflow this year, GBP 44 million, and that was against an outflow last year. So the swing is very, very significant. You can't fight gravity continuously. So I think our modeling would suggest that we've got neutral working capital, maybe a slight outflow next year. That's probably quite conservative, but that's the way we've modeled it. You also asked a question of whether we could recoup any fees, legal fees, for example, for the dispute that we're in. Potentially, yes. We have insurance, and we're looking at the extent to which that insurance can get some of the money back for us in fees.

Iain Daly from H2 Radnor. Two actually. One is a follow-up on Retail Media and SMG. So we -- obviously, we've seen a dip in margin for this year as the investment has gone into the U.S. expansion. If we were to think longer term and look back of the margins that business has delivered pre U.S. expansion, should we see that as a template for sort of margin profile of that business, should the success be made in U.S.? And just a further one on that. If we were to look at that business ex U.S., would we see a similar margin profile to that historically? Next question is just on the cost savings. We talked about a GBP 26 million annualized benefit. Should we think about that as being a relatively contained exercise, i.e., we shouldn't therefore assume there could be further cost savings beyond that? Should we just think about that GBP 26 million really is where expectation should sit around the efficiency taken out of group at this point in time?

Okay. So starting with the margins on SMG. It's historically been a very high-margin business. we are investing in it's growth in the U.S. because we see the potential that we all talked about. Should you take that investment out, it would be a very high-margin business. And we expect that as that U.S. arm of the business grows, actually the margin will improve materially in that business over the course of next 2 to 3 years, even more so than they were in the U.K. The way that the model works there is those businesses that SMG work for are generating high revenues at high margins and SMG take a small percentage of that. And increasingly, as we do more of that through AI and technology, that obviously reduces cost base for us. And the model is highly margin [ accretive ]. On cost savings, we can both answer this. My opinion is no, that's not the end of it. We are continuing to look at the business in every way and working our way through and continuing to optimize. And as we see more and more of the work that we do, become more efficient as a result of the technology that we're using and the tools that we're using, we see a path to further cost savings.

Johnathan Barrett from Panmure. There's not much more to ask, but just possibly comment on the nature of the in-housing and market research you see. Has that been a couple of clients? Or is that being sort of more widespread issue for you? And then just coming back on the working cap question, I think you're running that one about 110, 120 days on receivables. Is that -- do you think that your neutral level structure your business? And would we expect to change if you execute the two changes of Track 2 exposures? And then last question, just on U.S. policy shifts. If you could give us some context of what you're seeing there now and how that's manifesting itself if it's got a way out and the clients just conditioned.

Okay. So just to clarify the first question, you're talking specifically about in-housing of market research. So within the Savanta business, we've got two competing forces. You've got the traditional market research business, which is declining at 10% to 15%. And you've got the data and products business, which is growing at a faster rate, but from a lower base, which is why you're seeing a kind of overall decline in that business in this segment. That's driven, as you say, by in-housing and market research, by the availability of tools externally. How we're counteracting that is through things like the launch of Virtual Personas that we talked about at the Capital Markets Day, which gives the data that Savanta have and the data that we have a new way of in-housing of self-serving that is higher margin for us and more accessible for the client as well. So that is a trend, Johnathan, but it's something that we're ahead of, and that's driving some of the growth in the Savanta business as we see. And actually, we see that as far more scalable than the traditional models. We can launch that well. Virtual Personas launched earlier in this year. We've already got a strong set of beta clients using it every day. And we're getting some really great feedback from some of the businesses that you'd be familiar with and we can sort this offline. They're generating huge amounts of funding for similar technology. And we're very lucky that we developed it in-house, and we want to grow that. Working capital?

Yes, working capital. You asked a question on debtor days. You said 110 days, 120 days right? And will that change if we have a greater weighting towards Track 1 versus Track 2? The business that probably has the greatest working capital for [ drain ] is our Retail Media business, the nature of that business. Our clients pay later than most. That's the way retailers work. Having said that, the timing of our year-end works to our advantage because they tend to would like to pay at the end of the year. So it all comes good at the end of the year, typically for Retail Media. We don't really see that in the numbers at year-end. But as Retail Media gets bigger, that invariably that puts greater weighting on those debt dates. Having said that, if Transform continues to grow the way it grows, it counteracts that. So it's sort of a -- it balances off the Retail Media side of things. So I don't think we're going to see a discernible change from where we are.

As in Transform radically, and so at the moment, you're roughly neutral about -- kind of current mix about -- right?

Yes.

And then on U.S. policy shifts, I think the biggest impact that we saw last year was in our technology clients, the way that they shifted their capital focus into the CapEx side of data centers and AI development. I do think that, that's settling. And I think we've seen some headwinds from macroeconomic uncertainty over the course of the 12 -- last 12 months. I think clients are getting more used to the uncertainty and they're planning accordingly. Without making any comment, it will be better without the uncertainty, but we're seeing a stabilized picture, I think. Any other questions in the room?

One question from the webcast from [indiscernible] from Canaccord. On Transform, some of your peers have talked about margin pressure and higher contractor use. Are you seeing this as well?

No. Actually, the opposite. I think as we're starting to scale our Transform business, it's allowing us to make more efficiencies in our cost base. And as a result, we're seeing margins improve. The short answer is no, we're not seeing.

There are no more questions.

Okay. Thank you very much. Thank you.