Northcoders Group PLC ($CODE)

Good afternoon, and welcome to the Northcoders Group PLC investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Chris Hill, CEO. Good afternoon, sir.

Thank you very much. And thank you, everyone, for joining us today. And I want to be very clear and transparent that full year '25 was a challenging year, not just for Northcoders, but the wider skills and recruitment sector, especially the technology-focused ones amongst some of the changes to the industry that we've been seeing. But for us directly, the shift in the U.K. government funding for skills from a national model to a regional one did fundamentally change the landscape, significantly reduced volumes, decision-making from those authorities was very delayed and it did really create a lot of uncertainty across the market. And we're not going to hide [Technical Difficulty] but I will start to talk about what I am proud of. And what I think really defines us for last year is how we responded to that disruption and uncertainty. We took very early decisive action. We made [Audio Gap] business, substantially reducing our cost base and protecting the gross margins despite incredibly significant downward trend in revenue. And one of the main thing that we focused on is preserving cash, which was the right decision rather than waiting for a different outcome in a market that we realized had structurally changed. They were not easy decisions, and they very much affected our team and required a lot of hard work across the business. But they were the right decisions. And I do want to take a moment just to say how proud I am of the Northcoders Group team and the way they handled the past year with professionalism, resilience and still with that focus on maintaining great quality for both our learners and our clients. They've all been truly exceptional. The last year wasn't just about defense. We continue to build what we believe is the future of the business. So what you see today is a company that's gone through a deliberate transition. And yes, revenue is down year-on-year, but we protected gross margin. We maintained a strong cash balance, significantly reduced our cost base, and we built real momentum within our new B2B offering, Counter. And that matters because it gives us plenty of options for the future. And as we go into this year, we are certainly not standing still. I'll take you through the rest of the investment deck in -- the results deck, apologies, in more detail, and we'll talk about those points further. So this is probably the last time that I will use this business model slide. However, it is relevant to the last full year how the business was set up when we went into the year. It's -- our Northcoders Group is made up of 3 core brands. I'll go through this relatively quickly. So I know many people have seen this before. Northcoders who has always been our training engine, training bootcamps, technology focused. Tech Returners who does a similar thing but for people returning to tech and now Counter. And the way that we operate our model is we have various training frameworks so people from all walks of life come and join us on a journey to become a professional technologist. And using the recruitment through Tech Returners and Northcoders, Counter embeds teams to organizations for the long term, culturally built in. We're working with some substantial clients across mainly financial services, critical infrastructure and the public sector also. So I'll start with the headline numbers. And as mentioned, it was a deliberate transition year for the business. As expected, revenue is down following the structural funding changes, but we protected cash and we reset the cost base as early as we possibly could in the year, which has put us in a much stronger position going into 2026. Revenue has fallen to GBP 4.9 million due to loss in government funding. However, restructuring the team has enabled us to keep the gross margin strong. Most of our team were full-time employed tutors. And although the 59% gross margin looks negative versus the 67%, that's also due to a change in sales split and the slight lag of the restructuring taking effect when compared with the prior year. So our EBITDA is a negative GBP 0.6 million, which does again highlight the amount of restructuring cost base that has changed. The revenue was pretty much half from the year before. So we did a lot to combat GBP 3.9 million drop in revenue from 2024. The cash balance remains strong and has improved year-on-year. And we took -- in terms of Counter, the revenue last year was up to GBP 1.5 million, it was GBP 0.8 million and within the year in terms of sales orders where we took pre-bookings counter contracts are 12 months in length, and we took a record GBP 2.5 million in the year on Counter sales orders, and I'll talk more later about trading in the current year. So again, yes, not shying away from that. I went over this in the introduction, but in a bit more detail in terms of what were the structural changes to the U.K. skills funding, it was very much a national volume-led contract that we believe would be in place for 6 years. That was how long that contract was, but the change in government decided that the allocation of skills funding was going to go to regional combined authorities, which took a lot of time to reach procurement and the award stage. A lot of the authorities didn't really know how to do any of this stuff. We have had good success here in London with Greater London Authority, which is a rewarding relationship that's continuing to power us through this year. But whilst the funding landscape has changed, by no means has the demand for digital skills gone away. Yes, there are changes to what employees and companies are wanting. It's shifting towards experience, AI capability and embedded delivery. So yes, in more detail on our response for the year. Our action when we knew that the national contract would no longer exist and we did envisage these -- the regional authority. We've done work across apprenticeships and other regional authorities type funding in the past few years of the business. So we did expect that. So we materially reduced the cost base, and that was across the board, not just around our bootcamps, but we -- any sort of discretionary spending, we literally made cut after cut after cut to make sure that we reduce the cost as much as we possibly could to preserve the cash in a year that we knew would be that would not hit the revenues of the cash generation of the year before. We've got some slide later on the revenue splits and how they've changed, but private and commercially funded training was an area that we focused on as well, of course, of Counter, where we're seeing positive traction last year and going into this year also. So yes, I'll talk about the kind of repositioning of the business. It's more led by Counter. And we feel like it's a much more balanced business model. We now, for example, when we're working on training bootcamps with Greater London that is giving us an opportunity to expand those people into Counter, and we are specifically tailoring the training that we do to the needs of our clients and training the people through both Tech Returners and Northcoders are required to fulfill the demand of Counter teams, which is enterprise-led and has a significant opportunity. We're carving a good market within a large department of public sector, and other peers on the market have recently reported significant demand for public sector technology service. But our very strategy within Counter fully aligns with the government strategy, which is to reduce the contractor headcount within the civil service for digital and convert that over to full-time employees to ultimately save the taxpayer money. And we're going about Counter incredibly professionally, and we are now listed on multiple frameworks, including getting our big ISO accreditation has been a huge achievement. So when procuring work through specialty financial services and public sector, those are certainly invaluable. Our excellence was recognized despite the disruption of restructuring and all the internals going on and we were rated Outstanding by Ofsted for our training services, which, of course, gives us credibility not only within skills [indiscernible] Skills England and new initiative go towards with these kind of modularized trading platforms that we create. I'm going to talk more about Counter. And yes, we -- I firmly believe that we've made strong progress in 2025, but the momentum has continued into this year. We're delivering increasing levels of embedded teams across both enterprise and public sector clients. Our accreditation, which I mentioned on the last slide are going to really open up more markets as well as the frameworks that we can both work with large consultancy businesses to kind of parachute our model in, but also now we can work directly with the public sector services themselves and the government's initiative is to save GBP 500 million a year, which is the reducing contractors figure. And literally, Counter does what it says on the [indiscernible]. We put people in to deliver immediate value, which is what the public sector needs, hence, the vast amount of like procurement and digital services which are procured by central government. But when the time is right and has been very successful within the public sector, they have hired every single person that they've taken to Counter and then we are receiving purchase orders now for longer extensions, more teams and that area is substantially growing. In terms of evolving the training division, the growth in private AI-led training, we're looking to create the next kind of generation of AI-native software engineering and data engineering talent, and that's what employers are asking us for. They're really asking for people to be able to use the tooling that I'm sure we've all heard lots about sort of significant disruption to the way that everything is being done through the focus on AI. And we've got a small agile team there. So we're really able to make those changes, be bespoke about it. And I think it's really important at this point to say we talk quite a lot about the growth of Counter and that being a strategic focus, but training individuals from all walks of life and giving them life-changing opportunities still remains core to what we do and always will do. But of course, we want to move that reliance away from that large government funding that we saw [Audio Gap] last year, focus on higher quality and just getting better outcomes, sort of less people, higher quality and focus on those people going into Counter teams rather than the recruitment market. So obviously, the Board is well aware that the A listing is a powerful way to investigate mergers and acquisitions and strategic options, and we will directly seek opportunities. Anything that is adjacent that may accelerate the scale of Counter or bring us into adjacent markets, complementary capability, earnings enhancing, we're looking to do whatever we can and certainly not considering these options, but heavily considering that to just bring good shareholder value. So I want to make sure that everyone knew that we were -- there were certainly options that we were seeking. Okay. So you'll notice I'm on my own this year. So I'm not quite as [indiscernible] as in the past, but got a good idea about where we sit. So I'm going to go through. Obviously, we've covered this in terms of the revenue drop in 2025 and the EBITDA loss of GBP 0.6 million. Obviously, the bottom line loss for the company is around GBP 3 million, which I'll talk about soon, but it's not -- it's mostly not cash-based losses. It's to do with the restructuring of the business and the assets on the balance sheet that are no longer required to run the training at such volume. Kind of for me, at least more interestingly is the change in the revenue split, 60% of last year's revenue was government funding and expanding not only the percentage, but the amount of revenue coming from direct to consumer or corporate trading as well. And with 30% of last year's revenue being Counter and that's the growth of -- the trend of Counter's revenue being a more significant proportion of the wider group revenue, we are seeing that come into this year, and we certainly do see it taking over. In terms of the income statement, we talked before about the gross profit margin. We do make a lower gross profit margin within Counter also than we do within Training. So as the Counter revenue becomes more significant than the training revenue, our margin will come down. But we've got long and high visibility contracts that last for last 12 months. And obviously, in terms of gross margin last year, there was a slight lag between restructuring taking effect and that actually hitting the P&L. So in terms of the -- what else is in the bottom line, minus GBP 2 million profit after tax is we -- is significant write-downs from the balance sheet to do with the trainers assets that have been procured and developed over the years because they just simply will no longer be required because they were there to run large-scale contracts to train 100, 150 people a month, it just wasn't right [indiscernible] much leaner business model, not only on cash costs, but just on P&L costs going into 2026. So we took a decision to no longer use some of those assets. And then, of course, there is restructuring. Restructuring comes one-off kind of nonoperational costs, and we did the best we could by everybody who was leaving the company in terms of fairness and in terms of the cost of that [indiscernible] and find new opportunities. So these slides in terms of more detail on the cash flow position and the financial position of the balance sheet. I'm not going to go through those in detail, but they are, of course, included in this, which will be shared with everybody. I'd like to talk about the outlook next. So a positive start to the year. We've got contracted revenue in place, and we've got a strong pipeline for Counter, also my apologies. So we've got GBP 1.5 million of revenue already contracted for Counter. We've got GBP 1 million literally at the final stage of closing. We are waiting on purchase orders and getting the team started. So that takes us up to around sort of GBP 2.5 million of which is fairly early in the year, 1/3 of the way through it. And we've got around about sort of GBP 600,000 of Bootcamp, and we think that will be about GBP 1 million. In terms of the expectation for H2, the courses that [indiscernible] now are now broken down into the more modular pieces. We're seeing employee-led demand for software engineers, data engineers to be trained in AI tooling kind of like reinvent themselves. So that's a significant opportunity area, which has already started. So high level, we estimate the breakeven point to be around GBP 5 million for the year to cover the current cost base. And we're assuming Counter -- when it comes to gross profit, we're assuming a Counter-led mix on that with good visibility of around GBP 3 million. And we do have high confidence in closing the remaining gap from a number of areas to continue to get that we see. Within Counter, the repeat business, contracts are always often extended and then there's an active pipeline of around about GBP 4 million worth of deals. And when I talk about an active pipeline, I mean that we are actively engaged at discussion points, discovery stage. We're in with the organization looking to close those deals, not just that we've kind of [indiscernible] months type of pipeline. Outside of that, there is also -- we have started to write bids to the kind of G-Cloud framework and the other frameworks that we're on for central government, which are larger. I think it will take some time to start seeing those things are probably a bit like the kind of regional authorities with the bootcamp funding generally take quite a bit of time, but we are now in a strong position, again, with like public sector cases which are imperative to be winning. So yes, we're confident about our full year '26, and we certainly believe we can cover that breakeven point. We believe in the strategy, and we are seeing traction, and we're working hard to convert sustainable growth and bring long-term shareholder value. So yes, just to finish up, it was a bold transition year '25, took early action to get ahead. Super proud of the team and retaining the quality of what we do with the excellence. You can see that through the repeat orders through Counter and the great opportunities that people have been going into -- who have gone through the training bootcamps that we ran last year. And we've entered 2026 as a leaner, much more focused business in a better position, and we're seeing real traction from that. I'm just going to break down the below-the-line costs as well, just so everyone knows. So we've got restructuring costs of GBP 150,000 [Audio Gap] and redundancy costs, GBP 1.5 million of impairment, and there was also a GBP 50,000 leasehold impairment write-off for dilapidation for -- that's the last of our leasehold buildings. We're now in super agile, again back to the restructured cost base, not just looking at people, we're looking at something to do. We're using much leaner in London and in Manchester flexible spaces that are much better for our needs and having these kind of large lease premises there are a thing of the past. The P&L amortization and depreciation last year was GBP 500,000. Obviously, we will be nowhere near that high for this year. [Audio Gap] share-based payments and then around sort of net interest cost, interest paid versus received around GBP 100,000 and then GBP 80,000 of tax expense also. So at the beginning of the year, we restructured our debt moving over to a loan we now have with NatWest, which is not subject to EBITDA debt serviceable cash flow covenants. It's secured against the intellectual property, which despite the balance sheet change, that's more just about the international accounting standard and the use of those assets. Those assets still exist, and they were revalued at the beginning of this year to certainly satisfactory level and the relation with NatWest is going well with further opportunities in the future. Okay. I'm going to go and open up the questions.

Okay. When will the upskilling courses -- my apologies given [indiscernible] been able to kind of go through these. Yes. So when will the upskilling courses go live and how much revenue are they expecting to generate? He was probably asking about the kind of the modular-based upskilling courses, they're already live and available, and we are seeing specific interest around AI engineering from employers, especially around upskilling teams of software developers and data engineers to becoming like that, kind of like AI native has become the term being used of people who are using AI tooling to write software and build software. from day 1. In terms of the courses, our primary focus will remain on scaling Counter, but those courses also form part of Counter's like broader framework for delivering value and winning in the marketplace and support the capability and the delivery. So in terms of how much we expect to generate, it's still very early from a revenue perspective, [indiscernible] versus the Counter contract, for example, they are much smaller in terms of the price and the revenue from those. But yes, so we're probably not able to guide on a specific number. But the initial engagement is encouraging. And then later on, I can make sure that, that is something that we focus on to tell shareholders and investors about as we begin to -- they become less so early stage. What are the biggest challenges you see to the Counter sourcing model competing against smaller [indiscernible] consultancies in and securing significant business for Northcoders? So yes, it's a competitive market. That's for sure. But we do firmly believe that versus some of the kind of unlike higher trained employ mechanisms, we have some serious value. We're engaged with the client from day 1. We kind of run recruitment drives alongside our clients. So people like to see Counter live from day 1, and we've got that real KPI and that focus of the individuals moving over to work for the client as opposed to work for us unlike in some consultancies where you have like kind of like transient advisers that they're kind of there to upsell more services from the consultancy as they are to deliver value. We're not focused on that and we have been told that it is a refreshing approach. I do believe that it's a new approach to combine, I just talked about those and upskilling modules and the question if combining -- upskilling those people during that time so that's viable to the organization. In terms of strength, competitive strengths, the presence on the frameworks and those ISO certifications were not easy to obviously helped by a lot being a listed business with all of the kind of compliance and things like that, that we have in place. So that gives us a strategic advantage. So yes, of course, competition exists and then there's a lot of competition. But yes, we believe we've got a strong platform to continue scaling Counter. What is the latest cash position? What is the latest cash position? So at the end of the year, cash was GBP 1.6 million. So the -- and obviously, the costs have been significantly reduced going into this year. Now one thing about like -- and we're seeing growth in revenue and immediately cash generative. So in terms of like the cash flows and cash [indiscernible] month-on-month, unlike some of the training that we've done in the past, we still do a very small amount of where we kind of rely on our balance sheet swallowing student loans and they repay back through these increased income agreements, we're not doing, so almost of our revenue is cash generative. So we're confident in the cash flows. And obviously, to mention those Counter student loans we've done quite a significant amount in the past. We also -- we do have cash coming in now with the revenue being recognized months and years ago that also strengthens the cash as well. Are there plans to find a new CFO? The plan was to review that post these results. We knew that we will be getting someone in to help with these results. However, we have a financial controller who's a qualified accountant who have been working very closely to put these results together and has done an excellent job with doing this. So though we will be reviewing that now that we knew that trying to get someone to do this year-end. And Charlotte has been here for quite a bit of that, obviously we wish Charlotte all the best. I know she's got other things going on. So I'm sure she's on team, but all the best for the future. But yes, there's -- I'll say for now that there's definitely plans to review that. So with established players in the Counter markets such as FDM and Sparta suffering revenue decline and strong headwinds, what makes Northcoders offering different and successful? Thanks for that question. I believe I covered that. The offering is different. And the way we embed and the way the we work with clients is different. There's been multiple problems, both of those brands mentioned there directly. The hire train deploy market, it's always been kind of like a grasp to get the best university students, give them these kind of training agreements and they kind of like suppress their income over years. It's a bit of saying we believe people are deployed into war zones, not careers that they love and that really kind of like comes through with Counter and people are actively applying. They have other opportunities to go to these roles, and we don't have this kind of like what's super high risk within revenue decline within the hire train deploy market, [indiscernible] wider recruitment market. Also I'm well aware of is this kind of bench of people you've got stuff there, you kind of -- you recruited x amount of graduates and they're on your payroll. Teams are assigned immediately to client when they come in through the Counter. We have a small amount of tech leads because the difference in our model also is it's a small incubator of individuals from Tech Returners and Northcoders or the wider market depending on we do look further field also depending on the contract. They're well looked after by that tech lead who is -- who returns to Northcoders at the end. So it's a very different model and much more agile and much more lean, and we are now getting great feedback on it and kind of look forward to updating everyone on how that grows. The share price is at an all-time low, what do you see as fair value? I don't think I'm able to answer that question, but I suppose, yes, of course, very low share price, but that's pretty understandable. I think it's also a large loss-making year. But we not only look at organically growing our business, but we also look at using the fact that we're a listed as a superpower to bring back shareholder value and it's always our focus is to increase that. Is AI risk to the group's businesses and are there any AI opportunities? Yes, I would say both. I believe that it is -- certainly do believe that it is an opportunity, and that's what we're seeing from employees. I know that, again, widely reported kind of graduate recruitment market is struggling significantly. So that is probably where that question is coming from because I think companies are holding off from like large recruitment to try to figure out kind of how AI native they're becoming. But there has also been reports of software development being an all-time requirement at time. But what I believe is you're going to blend those 2 things together, people have to become more efficient and more understanding that how we use the AI tooling. But there is, of course, risks in that. Cybersecurity risks is certainly pretty insignificant and again, a potential large area where automated software engineering will be much more vulnerable. We're going to see multiple stories around organizations falling foul of that. So I do think it's something that we have to do and we have to do properly. But yes, empowering people with kind of AI-native engineering skills alongside the kind of problem solving brain is certainly the way forward for us. In H2, you see some of the government funding business coming back by local government. So we do have government funding from -- we're currently doing Greater London Authority, and that's going very, very well. We have around 2,000 people apply for cohort. So we've got super great engaged people from the team. We've been doing that stuff, some of that rebuilding community, doing that in person out of near Tottenham Road. And that has -- we're seeing super strong results of people coming out. And then we had already one repeat cohort from London, and we're super confident in the KPIs, and we know that the budgets have been allocated. So yes, I think in H2, there will be some of that talked about that trying to get that figure to GBP 1 million, and I certainly believe that we can do that. What's the best estimate for the current year's P&L [indiscernible] Okay. So we don't have -- where we don't have formal numbers in the market, I know the research went out from the Zeus analyst this morning saying that once we see the visibility and we feel like we're in a better position to that we certainly believe. I went over the breakeven point of the company. And when I talk about breakeven at that point, that was certainly bottom line breakeven and kind of sort of a breakeven cash flow position also. And obviously, that was -- there's a question just come in also about the will you be able to service NatWest loan from the operating cash flow? Yes, the operating cash flow takes into account the servicing, which is paid down monthly of the NatWest loan. It looks too high for the given stage of business following the reset is that the biggest business risk. As we are seeing the revenues growing and the revenue is cash generative, so that's well managed, the kind of cash position. So I think that answered both those questions. And I'll take this last one, which is can you update us on the current management structure. So we have myself and Amul, ultimately sort of [indiscernible] very early-stage investor business and currently leads and heads up Counter and is super focused on that as opposed to doing anything with the [indiscernible] in the investment market, 2 nonexecutive directors, one Chair. And again, in terms of like CFO, we have a very well-seasoned ex CFO on Nick Parker, sitting on our Board. So there's been some great support there. Then within the company, we have a kind of a technology leader. We have a training leader. We have a someone who leads the -- does all of the administration and the kind of the leads on public sector training and because there's lots of box ticking required to do for that. Human resources, we have human resources [indiscernible] and then yes, so at the moment [indiscernible], currently recruiting for a new head of marketing to bring the new and current products to market. Counter's made up of tech leads that kind of former management team that do work within the training group at Counter especially when it comes to the project side of those. And then, yes, we have 2 or 3 teams at Delivery that journey like customer journey for training in terms of careers, in terms of onboarding [indiscernible] people recruited to start our courses. And then some people who directly teach as well. So it's a small team in terms of the non-cost of sales stuff because obviously Counter is cost of sales is individuals. We're now around 30 people. So there's quite a lot. It is quite tough, but it's fully about right for the size of the business at present. And as we look to -- yes, we'll certainly be looking at being much more kind of headcount efficient through some of the ways and means that popular as we grow the revenue, I don't see why we need to start significantly growing. That's a pretty good overhead base to certainly get through us this year. And then resource will be primarily focused on sales and marketing, go-to-market, which we do also have a lead for that in Manchester and a lead for that for Counter. Okay. Thank you. That's all of the questions.

That's great. 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 most particularly important to the company, Chris, could I please just ask you for a few closing comments?

Absolutely. Thank you again for your time today and alongside that, your continued support. I've got across well that we've taken decisive action over the past year and that we're entering this year as a much more resilient business, and we're being super laser-focused on what we believe will succeed. I'm seeing encouraging traction within that across both Counter and Training. And yes, thanks again, and I look forward to continuing to update everyone on our progress.

That's great. 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, we'd like to thank you for attending today's presentation, and good afternoon to you all.