Norman Broadbent plc (NBB.L) Earnings Call Transcript & Summary

Welcome to the Norman Broadbent plc Final Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses when it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Kevin Davidson. Good afternoon to you.

Thank you very much, and welcome, everyone, to the presentation of our results for financial year 2024. I am Kevin Davidson, the Chief Executive Officer, and I'm joined by Mehr Malik, our Chief Financial Officer. Before diving into the results for last year, I think it's worth briefly reflecting on the journey we've been on since I joined the business at the end of 2021. There was a lot of work to be done. We've reset the culture. We've refocused the business. We've refreshed the brand, and we've modernized all systems and processes whilst driving organic growth as hard as possible. Despite an incredibly challenging market in 2023 and 2024, this turnaround delivered the company's best and second best years in over a decade. We were also delighted to report earlier today an incredibly strong start to 2025. Quarter 1 is up over 35% on the same quarter last year and is our best quarter on record. On top of this, we've maintained momentum entering quarter 2 with a stronger book of business than we started Q1 with. So for those of you who are less aware of the brand, Norman Broadbent is the oldest U.K.-headquartered Executive Search firm with over 45 years of rich heritage. Our physical offices are currently only in the U.K., but we serve clients globally across 79 countries to date. In recent years, we've focused our efforts back on building the core of executive and nonexecutive search, whilst also still providing and being committed to growing a broad range of related leadership advisory services covering interim management, leadership assessment and development and broader research and insight services. In terms of the breakdown of our business, we have established a well-diversified portfolio in terms of the market verticals we serve, the geographic spread of clients we partner with and our mix of service lines. Some points of note would be our international work as a proportion of our total is up from 30% to 35% between 2023 and last year. Industrial remains the largest and itself is the most diversified sector we serve. It represented 55% of total revenue last year versus 63% in 2023. Retail and consumer is up from 12% to 18%. Financial Services has expanded from 5% to 8%, and Life Sciences has grown from 3% to 7%. Here is a snapshot of some of the clients we partner with across our various sectors. I'd like to highlight a few. We've developed a much, much more structured and disciplined approach to strategic business development and key account management over recent years, and this has really started to pay off with a few clients such as Unilever. Unilever was identified as a strategic target account in early 2024. We secured a first mandate for some time with them in Q4 of last year, and we've been successfully growing the account since then. Zentiva, for those who aren't familiar, is a pharmaceutical company headquartered in Prague. They're owned by Advent International and were previously a division of Sanofi. Similar to Unilever, the team identified Zentiva as a strategic target early last year, and we secured our first mandate in Q3 and have grown the account since then. DAA International, Dublin Airport Authority. We've supported DAA, particularly across Saudi and the broader Gulf region on a number of executive appointments, including in Riyadh, Jeddah and the Red Sea International Airport. More broadly in the Middle East, we've been actively expanding our client network and deepening relationships with a number of companies such as ADNOC, the Abu Dhabi National Oil Company. They are the 12th largest oil company in the world, and they've also recently launched XRG, which is an $88 billion international gas, chemical and low-carbon business. Hevolution, a Saudi-based life sciences organization focused on human longevity. And Lamprell, formerly listed in London, part of the FTSE 250. Lamprell is a leading provider of project services to the energy industry, and we're delighted to be supporting them with both executive and nonexecutive appointments. Finally, on this slide, turning attention to the U.S. where we've also been very active. A few notable clients would be National Grid. We've supported National Grid plc in the U.K. and National Grid Ventures in the U.S. across their energy transition investments. McDermott. McDermott is a leading engineering and construction firm with revenues in excess of $2 billion; and Ferrovial, one of the world's leading infrastructure operators, also with revenues in excess of $2 billion. Despite the considerable success that we've demonstrated over the past 3 years, the Executive Search and broader recruitment sector has been extremely challenging. The chart on the left is from the Association of Executive Search Consultants, and it shows that following a near decade of sustained growth pre-COVID and then the considerable COVID bounce in 2021, the Executive Search and Leadership Advisory sector has been essentially flat for the past 3 years. Of this GBP 20 billion market, which does include Leadership Consulting, approximately 80% of it is Executive Search. Now panning out to the broader recruitment market. This chart is from the Recruitment and Employment Confederation, and it shows that we're in the most persistent downturn in recruitment activity for the past 30 years. You can see on the slide, the dot-com bubble, the global financial crisis, COVID. Each of those have been deeper, but they haven't been as enduring as the current downturn has been. The good news is that at the end of each of the previous downturns, there's been a sharp pickup in activity, which has typically lasted much longer than the preceding downturn. So given this context, we are incredibly proud of what we've achieved. We've turned around the business and delivered the 2 best set of results in over a decade. I'm now going to pass to my colleague, Mehr, to run through some of the detail around the financial year 2024 results.

Thanks, Kevin. As we've already stated, 2024 was our second best year in over a decade. Following the successful turnaround of the business, we have continued to strengthen our organizational foundations. As part of this, we have further enhanced our systems and processes to drive productivity gains. An example of this is the introduction of a business analytics tool that builds on our CRM and finance system. This provides us with powerful management information, improving decision-making and enabling a faster month-end close process. We relocated our office late in 2024, upgrading our facilities to support better collaboration and productivity. The move has boosted employee morale and is projected to yield long-term cost savings, contributing to both operational effectiveness and financial discipline. During the year, Norman Broadbent was recognized as an outstanding place to work by best companies. This accreditation recognizes organizations with outstanding workplace engagement measured through employee feedback. We now rank among the top 25 Best Companies to Work For in recruitment, the top 25 Best Small Companies to Work For in London and the top 50 Best Small Companies to Work For in the U.K. Culture has been an area of real focus through the turnaround, so it's gratifying to see this kind of third-party recognition. A new initiative focused on scoring client and candidate feedback was implemented during the year. It was pleasing to see that 100% of client and candidate respondents stated they would work with us again and over 95% of responses rated the quality of our briefing materials and post shortlist support as either very good or excellent. Despite market challenges during the year, we achieved NFI of GBP 9.3 million. While this is 11% down on 2023, it's 27% up on 2022, reflecting a strong long-term upward trajectory since the transformation of the business. We recorded an underlying EBITDA of GBP 0.3 million and a pretax loss of GBP 0.2 million, reflecting our current income position. However, we continue to be disciplined about costs whilst investing in the growth of the business through high-quality hires. We ended the year with a positive cash balance and net cash, excluding lease liabilities at the year-end was GBP 0.1 million. Our only debt is the CBILS loan, and that is now paid down to GBP 0.1 million. Headcount grew by 12%, predominantly from sales and related services with a deliberate focus on hiring higher-quality talent while maintaining stable support staff ratios. We maintained the 2:1 ratio of fee earner to research and insight staff and saw the cohort of established fee earners, those who have worked for the business for at least 18 months, grow by 66%. As we stated previously, NFI growth often isn't linear. And although 2024 was a difficult period, NFI increased quarter-on-quarter with Q4 being our strongest performance of the year. Q1 is typically our quietest period, but Q1 of 2025, our best quarter since the turnaround, over 35% up on Q1 of 2024. Although we expect the nonlinear quarter-to-quarter growth dynamic to continue, this exceptional performance in tough conditions further validates the changes we have made and gives us confidence we're on the right track. I'll now pass back to Kevin.

Thank you, Mehr. So now looking ahead, this slide shows the strategic pillars that we've been consistently focused on over the last 3 years. I'm delighted to say that we've now transformed the business from the cultural foundations and modernizing and scaling the support infrastructure, we're now in a position to focus much more on the pillars of growth organically and inorganically, including further international expansion. As we have shown, the investments made in people and the platform are really working. The final 4 months of last year were the best 4 for new contract awards in the whole year. And Q4 last year was the best quarter of the year. So moving into this year, as we've said, our Q1 is a record-breaking one for us. The momentum has continued. The contract work that we came into the quarter with has grown, and we're moving into quarter 2 with more work in hand that we started quarter 1 with. Our growth so far has been entirely organic. We're going to continue to push this really hard, and that's going to be across all of our offices in the U.K., but we are also in some advanced discussions with a small number of potential new hires in the Middle East and the U.S. These markets are really critical, significant growth opportunities in both, and we're really excited to start to expand there. Approximately half of the [ GBP 20 billion ] global Executive Search sector is made up by a relatively -- is made up by relatively small and specialist boutiques that are focused on specific sectors or geographies or services. And there's a real opportunity for consolidation. We believe that our position as the only U.K.-listed search firm and actually 1 of only 4 globally, provides us with a really unique platform to participate in this. What we've delivered to date really is despite the market. It's entirely down to the quality of the people and their discipline and their commitment. We have undoubtedly got the team and the platform in place now to deliver on our previously stated target of GBP 1.25 million EBITDA. It's going to require some improvement in the market, which is currently very uncertain, as we all know. And we anticipate the challenging market continuing at least through the first half of 2025. So hopefully, all of that's given you a sense of why to invest in Norman Broadbent. But in summary, firstly, we've demonstrated that we can achieve really impressive results in a very depressed market. This has been the longest negative cycle in the recruitment sector for 3 decades, and it will end and when the recovery comes, it will likely be rapid and sustained. And despite the continued challenges, geopolitical and macroeconomic, we do believe that the balance of our business and the quality of our team will enable us to navigate this market and continue to grow. So with rich organic growth options and the potential for us to participate in this market consolidation, we do believe the future for Norman Broadbent is incredibly exciting. Secondly, we've got a somewhat unique but very powerful combination of heritage and modernity. Our brand remains one of the most recognizable in the whole Executive Search market, and it's increasingly respected once again at the highest levels of the profession. This brand value helps us enormously in securing strategic accounts and the recruitment of talent, and it's something that our competitors literally take decades to achieve. Coupled with this heritage, the transformation journey, which we've been on has completely modernized the business. We're now a dynamic, agile and technology-enabled business, very much fit for the future. Thirdly, our portfolio is very well balanced across sectors, clients and geographies. We're going to continue to grow the international mix of the business in a considered way. And as I've stated, this is going to include the U.S. and the Middle East. Despite the market in the U.S. at the moment, it does represent over 50% of the global Executive Search sector, and it's rich in opportunity as is the Middle East with incredible levels of investment seen across the region. And finally, our people, our ever-expanding team is really, really what sets us apart with the third-party awards recognizing the culture we've created, as Mehr highlighted earlier, it's the quality of our people and the way that they work together as a team that really does give us our biggest strategic advantage. We are so excited about the future. Thank you very much, and we're now happy to take any questions.

Fantastic. Kevin and Mehr, thank you very much indeed for your presentation this afternoon. [Operator Instructions] I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via Investor dashboard. And Kevin, as you can see, we have received a number of questions throughout today's presentation. And if I may now start the Q&A session with the first question we've got here. How are you performing better than your peers given how tough the market is?

It's a very good question. Thank you for that. Bottom line is it's the people. We've invested heavily in the team. We set about with the cultural transformation of the business 3 years ago when I joined. We have been modernizing, as we stated in the presentation, everything from the front office through to the back office. And we've been working very hard on the attraction and development of top quality talent. I think it takes time for that talent to bed in and to get some purchase. And I think we're really starting to see that now. So the appointments we made in 2023, the appointments we made in 2024, they typically take 6, 12, 18 months to establish some maturity, even where they're experienced Executive Search professionals when they move on to a new platform, it takes some time. So I think it really is just the transformation journey we've been on. We've completely turned this business around. And I think the fruits of that labor are really starting to come through, particularly at the tail end of last year and the beginning of this year.

Fantastic. Thank you, Kevin. The next question we've got is, with the start you've made to the year, are you expecting to return to profitability in FY '25?

So what I would say is, I'd echo what Kevin said, is that, we've laid some really strong foundations since we've joined the business, and we're confident that we've made some really good progress. If you look at the last few years, 2021, we had a loss of GBP 0.6 million that halved in 2022 to GBP 0.3 million. And by 2023, we delivered a profit of GBP 0.3 million, which is quite a big swing. So I mean, there's no getting away from the fact that 2024 was a tough year for everybody in this space. But we've made a really strong start to the year. We've got some good momentum going into quarter 2. And so the market is still predictable and there are some factors outside of our control, but we're going to just continue to focus on the right things, and we're looking to deliver profitable growth. And like we said earlier on that market is a bit tricky, but -- and the timing will depend on when the market stabilizes, but we'll continue to focus on growing and developing the business.

If I just add to that, Mehr and her team particularly have been focused on productivity improvements and cost reductions wherever possible. We moved offices last year, as Mehr stated in her presentation, and we've upgraded the quality of the offices by far. They're in a much better location, but there is a cost saving as well, which will start to flow through this year. The productivity of our research team has also improved. So the number of fee-earning consultants that each researcher supports has got progressively more over the last 3 years. So the productivity of the team has enhanced as well as some of the underlying fixed costs around offices having reduced.

Perfect. Kevin, Mehr, thank you. The next question is on revenues. How do you look to diversify revenue streams? And how concentrated is the revenue generated by the top employees?

So I would say we've got a very well-balanced business. There's not particularly high concentration risk. This is something that we do look at all times. So we've got a balanced business, both in terms of clients and individuals. The top 10 employees would represent less than 50% of the revenues, which for a business of our size is fairly healthy in terms of concentration risk. We actually worked with more clients last year than we did the year before, but the volume of work that we got from each client given the depressed market was less. So our concentration risk by any individual client is not high. I think our highest client last year was circa 6% or 7% of the total revenue. In terms of service lines, we're unapologetic about the fact that we're more heavily focused on Executive Search. I think the business somewhat lost its way in terms of its brand identity when I joined 3 years ago, and Executive Search does need to be at the heart of any broader leadership consulting environment. As I stated in the presentation, approximately 80% of the broader Executive Search and leadership consulting market is Executive Search. It is the nose cone. It is the business which you can much more readily hang the other service lines on. So we've deliberately focused heavily back on getting Norman Broadbent back up at the top of the Executive Search market. And increasingly, we are at that point, again, recognized both by our clients and potential hires for ourselves. So I think the process now of broadening out the service lines does certainly begin, but it's been a deliberate strategy, which we've stated over the last 3 years to get focus back on the core. Norman Broadbent has always been known as an Executive Search firm, and I'm thankful to say that it's very much known for that again. And recognized as being one of the premier brands.

Fantastic. Well, Kevin and Mehr, thank you for addressing those questions for investors today. And of course, if there are any further questions that come through, the company can review these, and we will publish those responses on the Investor Meet Company platform. But Kevin, before we redirect investors to provide you with their feedback, which I know is particularly important to the company, could I please ask you for a few closing comments to wrap up?

Yes. I would say thank you for everyone for their time and attendance. Just to reiterate the first slide that we presented, this has been a transformation journey in the teeth of a very difficult market. It's been the most depressed 3 years in over 30 within the broader recruitment market. So we do feel incredibly proud of the turnaround we've delivered. And then delivering the best 2 financial performances in over 10 years over the last 3. I think given the end to last year and the beginning of this year, not just having the record-breaking GBP 3 million net fee income in Q1, but having come into Q1 with GBP 2.1 million of work in hand and having come out of Q1 with GBP 2.43 million of work in hand shows that the momentum is just gathering pace. So I think despite the challenging market, which is going to endure for a little while longer, we've demonstrated that we can deliver exceptional results in this market. And I think as and when that market does recover, I think our growth can be somewhat exponential. So thank you again, everyone, for your time.

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