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

Good morning, and welcome to the Norman Broadbent plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Kevin Davidson, CEO. Good morning, sir.

Thank you very much, Lilly. Good morning, everybody, and we're delighted to be presenting Norman Broadbent's full year '25 interim results to you today. With you from Norman Broadbent, you have myself, Kevin Davidson. I've been the Chief Executive since September 2021; and Mehr Malik, who joined as CFO in early 2023. We're delighted to be updating you on a very strong set of numbers and to update you on the successful turnaround of the business. We'll also cover our views on outlook and how with the turnaround delivered, we're looking forward with real confidence, excited about the opportunity we have to scale our business. The key headlines from today are our record-breaking H1 results. These are the product of us delivering against the turnaround strategy, which we set when I joined in late 2021, more of which we will cover during the presentation. We have effectively completed our turnaround plan, the platform of the business is completely transformed. This, along with our much more robust cash position, will enable us to invest in scaling the business to deliver the next stage of growth. 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. We serve clients globally across 79 countries to date. In recent years, we focused our efforts back on building the core of executive and nonexecutive search, whilst also still providing a broad range of related leadership advisory services, covering interim management, leadership assessment, development and broader research and insight services. It's also worth noting that we're the only U.K.-listed executive search firm. And for anyone less familiar with the model, unlike general staffing and recruiting businesses, all of our work is at the senior end of organizations. Our executive search work, which represents the bulk of our revenues is all retained with our fees being paid in 3 stages: firstly, at project instigation, then at delivery of shortlist and finally, upon placement. This provides us with some visibility of future revenue streams and ensures that our resources are committed to commercial projects. Here's a snapshot of some of the clients we partner with across the industry sectors we focus on. You'll see a lot of recognizable brands, many of which we've preferred supplier status with and deliver multiple projects for every year. In the first half of 2025, 72% of our revenue came from clients that we had previously worked with. This demonstrates a healthy repeat business platform whilst also underscoring our commitment to new business development. I'm now going to pass over to Mehr to run through our H1 financial highlights.

Thanks, Kevin. Our results for the half year were in line with the trading update issued in July. We are proud of these numbers and let the team can see the results of their hard work reflected in this performance. As these graphs demonstrate, there was a long-term trend of improvement in our financial KPIs and results represent our best half year financial performance. Our net fee income was GBP 6 million, which is 34% up year-on-year and almost double the NFI from half year 2022. Executive Search NFI, which represents core part of our business was up 36% year-on-year, and it was pleasing to see interim revenue increase by the same period by 20%. To have delivered this growth in the current market environment is testament to the quality of our people and the strength of our business model. Our continued focus on operational effectiveness and efficiency whilst remaining disciplined on costs, along with stronger trading has translated into positive underlying EBITDA and profit before tax of GBP 0.8 million and GBP 0.5 million, respectively. It is worth noting that the first half benefited from a one-off rates rebate of GBP 0.1 million, which was utilized to make early repayment of the remaining CBILS loan of GBP 0.1 million. It is encouraging to see the increase in underlying EBITDA, resulting in a strong double-digit margin of 14%, an 1,100 basis point increase from the 3% recorded in the previous year. As Kevin said in his earlier comments, we are also delighted to report a stronger cash position with net cash, excluding lease liabilities of GBP 0.2 million. This is a GBP 0.9 million positive swing from net debt to net cash and the invoice financing facility was in credit during the period, meaning the company had no outstanding debt, excluding lease liabilities as at the end of the half. Net cash generated by operations was GBP 0.3 million, a GBP 1.3 million positive variance year-on-year, reflecting strong trading and a sustained focus on working capital. On working capital, it's worth noting the progress we have made in reducing DSO from 60 days in half 1 2023 to 48 days in half 1 2024 to 43 days in half 1 2025. Overall, we have traded well during the prolonged downturn in our markets. And this, along with our focus on strong working capital management, means we are operating with a stronger and cleaner balance sheet and have put the business in a position where it can sustain healthy levels of EBITDA and cash generation. This slide shows our NFI from quarter-to-quarter. Just to recap, net fee income is the total search fees generated from placing permanent candidates and the margin we earn from our interim placements. As you can see, whilst NFI can vary quarter-on-quarter, the NFI generated during this half is our strongest performance since the turnaround began. This is double the NFI generated during half 1 2022, and we have already exceeded the annual NFI achieved before the turnaround commenced. You can see the overall positive direction in NFI growth we have achieved during the turnaround period. This improvement in NFI, as we have stated previously, is testament to the quality of fee earners we are able to attract. We expect established fee earners to be more profitable than new joiners as it takes some time to get up to speed and build their book. Year-on-year, the average number of established fee earners has grown by 14% and the average NFI earned by each established fee earner by 19%. Our performance in tough conditions further validates the changes we have made and gives us the confidence we're on the right track. I will now pass you back to Kevin.

Thank you, Mehr. At the outset of this successful turnaround phase, we identified 5 strategic priorities. All of these foundations are essential in any successful Executive Search business. And a great deal of work was required across each if we were to deliver on the ambitious transformation agenda we set ourselves. Firstly, our people and culture has and will continue to be the heart of everything we do. This enables us to retain, attract and develop the best quality people. Having completely reset our culture around shared values at the end of 2021, we are delighted to have achieved outstanding accreditations for our workplace culture from best companies in both 2024 and 2025. We also ranked in the top 25 best small companies to work for in London, the top 25 best recruitment companies to work for in the U.K. and in the top 50 Best Small Businesses to work for in the U.K. We have grown overall headcount since the end of 2021 to June '25 from 39 to 59. This includes significant upgrading and restructuring with only 15 of the pre-transformation teams still here. In addition to headcount growth, we have considerably improved the productivity of the team with income per consultant growing 64% over that period. Our next strategic priority has been brand and market positioning. Like our culture, we have completely transformed the brand and the market positioning of the firm in the past 3 to 4 years. From our logo, website and all of our marketing collateral through to our thought leadership activities and social media presence, the image of the firm is much more modern, dynamic and positive than ever before. This, along with the quality of the team, has a direct impact on the seniority of roles we are mandated to work on. Within 18 months of beginning the turnaround process, our average fees per search had doubled and remain at very healthy levels, reflective of our position back at the senior end of the market. The next strategic priority is research and delivery. This is critically important in any successful search firm. We have made significant investments in building the research team and all supporting systems, processes and technologies, some of which are highlighted here. These investments have delivered higher levels of productivity with the number of fee earners each member of the research team supports going from 1.4 to 1.7 to 2 over the past 3 years. That's a 43% productivity gain. Next has been financial stability and performance. As these results demonstrate, the business is on a fundamentally different financial footing now compared to the beginning of the turnaround period. Mehr has covered this previously, but highlights for me are the fact we've effectively doubled annual net fee income this year compared with 2021. We've delivered positive EBITDA in every year from 2022 onwards. The business is generating sustained profitability and positive cash flows. And finally, we've strengthened the balance sheet and repaid all debt, providing us with the platform to invest in growth. And our final strategic priority has been business focus. Executive Search growth has been a key element of the turnaround phase, and we're delighted with the progress we have made with H1 2025 NFI already ahead of what was delivered in the full year of 2021. We've also refocused our interim management business, aligning consultants with their executive search sector team colleagues. This has enabled much more effective collaboration and has diversified our client base. We have successfully reestablished a Board practice, which provides fuel for growth across all sectors as our credibility and influence within the nonexecutive community increases. And finally, internationalization of the business has significantly contributed to our balanced growth in recent years. We have done this from the U.K. to date, growing international revenues as a proportion of total from 34% in 2022 to 44% in the first half of '25. To continue to grow international markets, we are delighted to have made our first international hires in 2025 with one based in the United States and one in the UAE. With the turnaround complete and the right team in place, we are prepared for the next phase of growth. Now looking ahead, 2025 will be another successful year for the business. EBITDA is expected to remain positive in H2, though below the record-breaking first half, underscoring our resilience and ability to perform in a challenging market. Looking beyond 2025, we are planning disciplined investment to scale the business and drive the next stage of growth, building on the strong platform we have now established. So finally, why invest in Norman Broadbent? Firstly, we have demonstrated what we can achieve in a very depressed market. This has been the longest negative cycle the recruitment sector has seen for 3 decades. Despite continued geopolitical and macroeconomic challenges, we do believe the balance of our business and the quality of our team will enable us to scale and successfully grow in the years ahead. Secondly, we have a somewhat unique and powerful combination of both heritage and modernity. Our brand remains one of the most recognizable in the executive search market, and it's increasingly respected once again at the highest levels of our profession. This brand value helps enormously in both our pursuit of strategic accounts and in our recruitment of talent. It's something our competitors take decades to achieve. Coupled with this, the transformation journey we've been on has completely modernized the business, which is now a dynamic, agile and technology-enabled firm fit for the future. Thirdly, our portfolio is well balanced across sectors, clients and geographies. We will continue to grow the international mix of our business in a considered way, which will include the U.S. and the Middle East. Despite current market uncertainty in the U.S., it does represent over 50% of the global executive search sector and is a market rich in opportunity for us as is the Middle East with the incredible levels of investment seen across the region. And finally, our people. Our ever-expanding team is really what sets us apart. With third-party awards recognizing the culture we have created, it is the quality of our people and the way they work together as a team that gives us our biggest strategic advantage. Thank you, everyone, and we're now happy to take any questions.

Kevin, Mehr, thank you for your presentation and if I may just bring back up your [indiscernible]. [Operator Instructions] I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q&A can be accessed by investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you again, Lilly, and thank you, everyone, for your attention. We have a few questions coming in. There's one, what are you seeing on the ground in terms of business environment and perhaps link that to another, how sustainable is the growth in the current macro environment? Well, it's not getting much easier, I must say. And I don't think we are a bellwether for the broader economy given the size of our business. However, I don't -- if anything -- our performance that we've demonstrated over the last few years shows that even in a difficult market environment, we can deliver exceptional results, and I would see that continuing. Part of that is based on the exceptional delivery that we mentioned during the presentation that 72% of our work in the first half of the year was with clients that had worked with us before. It makes us very sticky with the clients that we do work with, enabling us to bring in new accounts as we go along. But on that platform, a very, very strong repeat business. There are 1 or 2 areas probably worth highlighting in the first half of this year where we've seen some real uptick in terms of the volumes of work delivered in infrastructure, be that utilities, ports, rail, transportation and logistics, we've definitely seen more work in that area and also in aviation, both on airport operations and within airlines. So in terms of how sustainable do I see it being, I think the market isn't getting worse, and I think the market inevitably is going to get better, but we've demonstrated our ability to deliver great results in the market that we've seen persisting for the last 3 or 4 years, and there's no reason that, that won't continue. Second question here. What are your expectations for the second half of the year? Look, we remain incredibly positive. I think we stated in our trading update at the end of the half that we came into Q3 with a growing book of contracted revenue. So we do remain very confident in the remainder of this year. We cautioned in our outlook statement to just not annualize H1 because H1 was obviously a record half for the business, but we remain incredibly confident about this year and the future. There is a question here on let's see -- you've repaid debt and the balance sheet is in a good place. You have improved working capital and you're in a better cash position. What's your view on taking on more debt? I'll pass that over to you, Mehr, if you don't mind.

Yes. So I think it's worth sort of reiterating what we said earlier on the CBILS was GBP 250,000, which we repaid the final balance of that this year, which was GBP 100,000 left on that. The invoice financing is in credit at the moment, and it was at the end of the half. So we got facilities available to us if we need them, where generating good amounts of operating cash. So we see ourselves self-funding the growth for the short term and the medium term, but we've got the invoice financing facility if we need to. So I don't see us needing to take on more debt right now.

Thank you, Mehr. There's still a few others here. Notwithstanding improved financial performance, the company's market cap is way below the level needed to attract institutional investor interest, thus contributing to a low valuation for the business. How does the Board plan to address this? Well, it's a good question, very good question. We have actually attracted institutional investor interest, particularly over the last couple of years with some new institutional shareholders coming in. We do, however, recognize the small cap nature that we have and the challenges that, that brings. Hence, our ambitious growth plans and the objective to scale the business through self-funded organic growth, but continuing to look at opportunities for inorganic growth. This is an industry that's ripe for consolidation, and we would like to see ourselves playing a part in that consolidation. So we're building the future on a very strong organic -- self-funded organic growth platform, but with the opportunity for inorganic growth where that does present itself. A few other questions here. International fee income increased further as a proportion of group NFI. Do you envisage this trend continuing over the medium term? I would say yes. I mean, in part, as I did indicate, the U.S. is representative of over 50% of the global executive search market. We've served U.S. clients consistently over the past 4 years since I joined. And our momentum is continuing to grow. And now that we have got some boots on the ground there, so to speak, I would definitely envisage the international fee income continuing to grow over time. Another one here. You have just appointed the first international consultants based in the U.S. and UAE. What are the targets for overseas-based hires by the year-end and in 3 years' time? Will M&A play a factor in further international expansion? By the year-end, it's not the type of information we would be comfortable sharing in terms of what we'd expect them to do by the year-end. They are performing well and integrating well with the rest of the team. And by the end of 3 years, again, we're modeling now what the options for scaling look like over the next 3 years. And as I answered before, I think international will play an ever-increasing part. So to pin a number on it, I think I would be hesitant to do that right now. Will M&A play a factor in further international expansion? Yes, as I said, we are exploring M&A, and we're exploring M&A both in terms of service line and geography. As we indicated in the presentation, we focused our efforts thus far in the turnaround on Executive Search. It's the biggest part of the leadership advisory market. It's the Executive Search business that gives you the access and the trust of senior decision makers. So we are in a position now where we can more effectively grow other advisory offerings. So the M&A that we would consider is both within those different service lines and other geographies. So international expansion is definitely not dependent on any M&A because we have got a robust, as I said, organic growth plan, but it could be supported by some synergistic acquisitions. What is the seasonality of the business? And is this the reasoning behind a quieter H2 in NFI EBITDA expectations? I don't think we're necessarily saying quieter. We were just giving a bit of caution to not annualize the record H1 performance. There is a seasonality to the business. As we've said in previous years, our growth isn't linear. You tend to have -- Q4 is actually the strongest quarter. Q3 can be a challenging quarter with the summer months, but it's not always the case. So yes, there is some seasonality, but the reasoning behind the expectation was just one of caution given H1 was a record quarter, a record half for us.

And we also had GBP 100,000 of rates rebates in half 1 that positively sort of impacted EBITDA.

And there is a final question unless any others come in, can you offer more detail on the scope for the minority activities of the business, interim management and Leadership Consulting? Well, I think I've covered that slightly earlier, but there is massive opportunity for growth, both in interim management and Leadership Consulting, but we've deliberately focused our efforts on the Executive Search part of the business, as I said, in the turnaround phase, which we believe is largely complete now ready for the next stage of growth in the journey. So yes, definitely opportunity in interim management and broader leadership consulting services.

Kevin, Mehr, thank you for answering all those questions you can from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to yourself and the company, Kevin, could I please just ask you for a few closing comments?

Yes. Thank you, Lilly. Thank you, Investor Meet Company, and thank you, everyone, for your attention. We look forward to sharing our progress with you in the months ahead. Thank you very much.

Kevin, Mehr, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team 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 morning to you all.