SpaceandPeople plc (SAL.L) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the SpaceandPeople plc Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, and these will be available via your Investor Meet company dashboard. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the executive management team from SpaceandPeople plc, Nancy, Gregor, good afternoon.

I was going to start with a short introduction to SpaceandPeople for those of you who don't know much about the company, you may have joined this for the first time. So I apologize to regular investors. But this is just a quick run-through about SpaceandPeople as it is today. So it's a business which is nearly 24 years old, revenues of GBP 5.5 million in 2022, fully in-house, providing a complete service for property developers who want to outsource their commercialization. We're market leaders in terms of the sale of promotional space. And we represent the majority of high footfall venues across the U.K. We're also market leaders in the provision of high-value experiential activity and that we put into our properties, and we aim to concentrate and grow that every year. I think we're unique in that we have a full operations division, a warehouse and a team of staff who deliver, install and maintain units of the half of our property partners. And everything that we put into our venues is subject to a huge amount of due diligence and compliance. And we've got ISO accreditation to that effect. And as you know, we're listed on the London Stock Exchange. And therefore, we have full independent audited accounts. And essentially, we're Europe's largest agency supplying promotions into the retail and transport sector. And if I can just move on. So just talking through a few of our premium venues, you probably heard of some, if not all, of these Meadowhall in Sheffield, Metrocenter in Newcastle, Waterloo station, King's Cross station, Victoria Station, St David's in Cardiff. So a lot of major venues represented by the SpaceandPeople service. And this is what we're set up to do. 40% of what we do is in this area. I hope you can see my cursor because I'm circling, the brand experience side. And that is major one-off brands activations, road shows that go up an down the country and major sampling campaigns. That's 40% of what we do. The other 40% of what we do is retail. And that can be long-term retail on kiosk, mid-mile or it can be Pop Up retail. And the Pop Up retail can either be in units supplied by the operator or and we'll talk a lot more about this, our Rock Up and Pop Up service, which is a complete service for new retailers. And then a further 20% of what we do is local customer acquisition. We'll talk a bit about that. And then we also do some contract management, which is vending and digital advertising. So just to tell you a bit about brand experience, in the year that we're talking about 2023 -- last year, we launched our Experiential Space website, which is a website for agencies who want to find out more about our venues. We further enhanced that this year by offering live availability calendars on that. And just to show you the sort of brands that we're activating for at the moment, this is the brand that we've booked so far in 2023. And I'll flick through this. I don't want to take too much of your time. But as you can see, a huge number of major high-profile brands, often doing specific launch campaigns to support their advertising. When we talk about retail, as I said before, there are 2 types of retail. There is Pop Up retail where a retailer supplies their own stands, and these are just a few of the brands that has their own stands and book regularly into venues on our service. As you can see, there can be major U.K. retail brands or slightly less well-known brands, but still with a huge network and willing to invest in kiosks to activate and sell their products. Our new service is Rock Up and Pop Up. And this is a service where we supply the kiosk and we supply everything to do with that kiosk. We install it. We do all the graphics for it. We do the merchandise and we do the marketing planning, we do the business planning. And we even provide the staffing for an agency, if that's what the retailer required. And this is allowing us to put into venues what we believe venue owners, well we know the venue owners want, which is new and different than online retailers. And the whole idea of this service is to put retailers on the first step of the escalator into major footfall venues, going from being a start-up retailer in a venue to perhaps going on and investing in their own kiosk or even going into a retail unit in the long term. And this has been very much the focus of the business over the last sort of 6 to 12 months of getting this business up and running. And finally, just to say we don't just drive sales by our sales office. We do it also in a variety of methods, but with an awful lot of online reach out using Instagram, TikTok, et cetera, talking to new retail businesses. So that's a bit about the company. I think we're now going to go on and talk about our results. I'll just -- just as an introduction to that. Just to say this first 6 months has been a period of development for the company. We've been investing in staff. We've increased our London base and our brand experience team. We've also looked at our operations team, and we're reinforcing that. We've been looking at new systems and investing in new systems. We added the live availability onto our Experiential Space website. We've also been looking at new financial management systems. And we've been very product focused, out with the old, which is the RMU that we used to put into U.K. shopping centers and very much focused on the kiosk, which we manufacture in Germany and the Rock Up and Pop Up business, which is having good traction and looks set to grow and grow. We've also got our eyes on international expansion. So I'll let Gregor kick off the financial highlights.

Okay. Thank you, Nancy. Hello, everyone. I just thought I'd pick out some of the financial highlights from the report. And feel free to ask any questions you want about them. The first thing is net revenue went up about 5% in the first half year compared to last year. It's principally as a result of good growth in our German division, where we were up 38% on last year being offset really by a decline in our U.K. retail. We're in a bit of a transition period, which I know Nancy will come on to talk about more on the Rock Up and Pop Up side. The U.K. promo side, things were roughly flat, just a slight increase in our revenue there. This is usually and will be the lower half of the year in terms of our revenue. Revenues are higher in the second half of the year. So pretty much in line with what we had expected and forecast the first half to look like. That has meant that operating losses to have in the first half year have been roughly equivalent to last year as well, with a slightly higher gross margin than we had in the previous year, but we've invested more in recruiting sales staff with a view to driving revenue in the second half year. And we also had some overheads that we had increased in the first half just through inflationary pressures really. When you look at our cash position, we had a significant cash outflow in the first half year. When we did our full year results, we announced and then that we -- our cash position was looking pretty good compared to where we would have expected it to be, and that was because we owed a lot of money to one of our clients who hadn't invoiced this, as at the year-end. They invoiced us shortly after the year-end, and we paid that out in full, hence that a significant cash outflow, which was expected. In terms of where our cash is at the half year-end and since the half year end through to last Friday, we continue to have decent cash balances, plenty of cash headroom for us to be able to conduct the business. And the analysts have also updated where they think our year-end cash position will be which they've blipped up from about GBP 0.5 million of cash to about GBP 1 million of net cash at the year-end, just due to where we think our working capital will be and it being better than we anticipated initially. We continue to pay down the CBILS loans that we took out in line with the lending agreement, and that's up roughly GBP 323,000 a year that we do that, and we are complying with all of our covenants in relation to that.

Okay. So just running you through the operational highlights, which I alluded to earlier. As I said, we're going through a transformation in our U.K. Retail division. We recognized that post-COVID, there were an awful lot of online retailers struggling to get a share of voice in a busy online market. And that was what created the idea of Rock Up and Pop Up, which is a complete retail solution at every single level, meaning that a retailer -- an online retailer can turn up with a book of products, and we will basically turn that into a business. And on the left-hand side of the screen, you'll see a company called Just Bee Honey at The Trafford Center. That was a pure-play online business, selling Vitamin Honey as the Manuka Honey, never been done any physical retail before. And we set up their kiosk, did the branding for their kiosk, did all their merchandising and they're now looking to trade in 5 venues with us over Christmas. So just goes to show that if you offer people a solution in a market rather than just a product that actually they will buy it. Another operational highlight was the strong performance in the German Retail division, a 38% increase in the average number of occupied units led to the similar increase in revenue. And obviously, we announced last week that our network rail agreement has been extended for another year, which we're obviously delighted about. So just talking about the U.K. performance, a revenue increase of 4%. The retail business is very stable and good. And brand experience, we have a very good H2 last year on brands, and we're still getting to grits with brand in the post-COVID environment. This first half of the year has been lower than we wanted it to be and slightly lower than our expectations. However, we have seen in the last few months, brand experience come back, and we're beginning to think that this is now a trend that we will have a sort of poor H1 on brand, but actually a very strong H2 in this sector. If we look at the retail revenue, that is revenue where we supply the kiosk. That felt, that is mainly because the charity, utility company market that we put on to our own units, has been a bit depressed recently, particularly utility companies, but we're hoping that will come back. But also, obviously, we are phasing out our old RMU chaos in the U.K. and looking to relaunch with Rock Up and Pop Up. We had 10 kiosks, 10 retailers trading between January and June, and we're looking to more than double that in the run up to Christmas. When we look at German performance, as Gregor said, retail revenue increased by 38% to GBP 0.8 million, and the average number of kiosks up as well. The profitability looks very much like last year, but this year, we didn't have any central government support. So it's actually a better performance. And very much with the German business, we're looking to expand it out of Germany. We started trading in Austria with ECE at the end of last year, and we're still trading on the 2 retail units in Seiersberg. And we just signed a new trading agreement with Multi Germany, and we're in 2 of their centers, and there are further 10 that we're interested in. And we're also in advance talks with a number of other operators in the sort of Benelux countries. So looking at outlook. Obviously, we're looking for growth in our U.K. retail business. Our Rock Up and Pop Up kiosks are currently in a number of major shopping centers. I'm talking about both of the Westfield, Trafford, Lakeside, Braehead, Meadowhall, Metrocenter. And we're looking to expand that further. There is endless demand for this product. It's all about finding the right product for the right venue. We are looking at further European expansion. We started trading in Austria, but there are obviously plenty of additional territories we could grow into using our German base as the focus for that. And obviously, as I said before, we're delighted that we've retained the network rail business, but we're really looking to grow that business further and faster over the next 6 to 12 months.

Nancy, there's been a number of questions submitted. So I think this might be a good time for us to go through these. So I can read them out and then we can cite whether you or I would like to answer them. The first one, which is pre-submitted this morning was, what impact the current train strikes having on the business? Also a lower post-COVID train passenger numbers and hybrid working, making train stations a less desirable marketing location.

Should I take that one?

Yes.

So yes, the transport did have a bit of an impact in Q1 on our business. It may explain the slightly depressed Brands experience numbers. Lower post-COVID train passenger numbers is interesting. Yes, the pattern has changed. The numbers, I don't think have changed significantly. So whilst we had a very strong Monday to Friday and a much poorer Saturday and Sunday, the whole pattern has kind of evened out which does actually make them equally attractive to agencies. You're right. It's a different pattern, but it's not a depressed pattern anymore. In fact train stations are looking very vibrant again.

Okay. The next question was the Network Rail extension was great news, but you were hoping for a multiyear deal. Have Network Rail given any steer on future contract length or why they are only renewing annually?

No, they haven't. We're assuming that at some point, there will be a tender, but we're happy enough that our good relationship with Network Rail has been extended for another year. I'm sure there will be a tender process. I know we're in line to go into tender, but they've got a number of other contracts that they're pitching at the moment. So ours will come up in due time.

Okay. The next question is probably one for me to answer. It's what are your major CapEx plans for the near term. Well, in terms of the near term for the remainder of 2023, our only significant CapEx is building and buying more of the Rock Up and Pop Up units for us to roll out this throughout the U.K. and Germany during the second half of this year. It's not an over capital expenditure amount and the payback period is relatively short. And we're also only really committing expenditure on them when we have committed contracts for people to want to occupy them. We're not building them speculatively. In the medium term, we anticipate spending next year on improving and further developing our systems, both client and promoter facing systems or a booking system and also refining some of our back-office systems as well just to make things run much more efficiently just as a software technology develops. They're in the pipeline, again, nothing which is massively expensive for us to do. We see that the growth of the business can be sustained without significant CapEx expenditure. We see our major expenditure requirements as the top line growth, actually just employing more sales staff to deliver the additional revenue. And the next question was U.K. retail revenue declined by 23%. Do you see this trend reversing anytime soon?

Do you want to take that one, Greg, just to explain the difference between retail revenues and whatever I say, retail revenues?

Yes. Okay. So one of the important things to remind people about is that there's 2 different revenue recognition policies in our financial statements. When you look at the segmental analysis and you look at promo, that is just our net commission that's shown in there. It's not the gross sales level in terms of what we pay over to the venues. When we look at the retail side, both in the U.K. and Germany, this is very much our gross revenue and then we pass over a proportion of that depending on our contract, through a cost of sales to the property owner. So that probably overstate the extent of retail if you're trying to do a straight comparison between promotions and retail. However, when the question still remains, it's a 23% decline. Do we see that reversing anytime soon. We have a significant expansion of a Rock Up and Pop Up offering proposed for half 2 of this year and then into next year as well. So we do see that turning around very quickly, probably in the next month or so that will start to increase quite significantly again, getting back to where we were and beyond that in the rest of this year and into next year. Next question is, what is your key financial performance indicator this year? Well, the key financial performance indicator for us, well, there's a couple of them. One is returning to profitability after a few years that have been severely affected by COVID. We have -- we no longer have any government support helping us, like every other company out there. So this is back to how we are able to trade ourselves. So both in terms of looking at an EBITDA level and profit before tax level, our aim is to get back to a positive profit before tax rather than a loss before tax for the full year. The other one is getting a position where we are eliminating our net debt and ending the year with a significant net cash balance in the business, which isn't there as a result of owing a major client money. It's actually a working capital facility itself. And then the next question that came up was, what are the remaining CBILS loans and over what time frame are they? Well you can see in our results in our balance sheet, both in terms of short-term and long-term loans, we're repaying CBILS loans at a rate of about GBP 322,000 per annum. As I stated now, we've got GBP 322,000 in the short-term borrowings. And then there's roughly just under GBP 1 million remaining from the long term. So about GBP 1.3 million to go out of the GBP 2 million that we had. We also had CBILS overdrafts or have CBILS overdraft facilities of an additional GBP 750,000 but they remain unutilized and have remained unutilized and just as new additional headroom, should something on to what happened and just to give us some leeway, but that gives us quite a lot of cash headroom. These 2 are repayable by the 2026, 2027. And in the full year results, there's a bit more analysis of what those amounts are when they're repaid. The latter one, the second GBP 1 million loan that we had, we're repaying at GBP 25,000 a quarter and there's a GBP 0.5 million balloon payment at the end of that, which we would look to pay off as it becomes due. The next question that was current liabilities remain significantly greater than current assets. Is this sustainable? It is sustainable just in terms of the way that our business works where we do our invoicing and cash collection for businesses. We can afford to pay all of our commitments to venues as they become due. If we are collecting money earlier, then that's fine. That's why that shows as a current liability. The headroom that we have allows us to sustain that as well. We are not behind in paying any of our current liabilities just now or future liabilities. So we're pretty comfortable with that. The next question to Nancy is, how much visibility on bookings do we have going into Q4?

We've got good visibility on the retail side of our business, that is retail kiosks and Rock Up and Pop Up. We have to have visibility on Rock Up, because obviously, there's a logistics side of that. On the brand side, we do -- we are beginning to get clarity on that. I have to say the brand business does book late, and I don't know if any of you saw [ Martin Sorrell's ] comments last week about the advertising market, saying it has gone very tactical. That is true. Having said that, we have got sites of quite a lot of our Q4 revenue. So yes, we are probably seeing about 75% of that at the moment.

Okay. And then another question to Nancy is 2 units plus a potential of another 10, sounds very encouraging. This is in relation to the multi-contract. Are you able to expand yet on the financial side of the multi-agreement? Could it be a material addition to revenue in the coming years? Do you want me to answer, Nancy?

Yes.

So this is quite an early stage where Multi are just seeing how it works with them. We see the sites is working well just now, and we would like to expand with them, but there's nothing firm in the current sales pipeline. If it were to expand out to 10 to 12 sites with our potential for multiple units at each site, then it would be a material addition to our revenue in Germany. But we are also looking at a number of other German property companies out there who we would hope to add as well. And ECE remain the dominant player in the German market due to their own property ownership and the miles that they manage on behalf of other people. So that's the key central relationship. But everything else that we can add to that certainly would be beneficial. And we don't have -- we will have to employ more staff as we win more contracts, which is a success problem to have. And we're in the process of looking for some additional staff just now in Germany. But anything that we add to the revenue in Germany will have a very positive impact on the profitability of that business, whether it be from Multi or any other. So we are very focused on growing that German business over the coming months and years. And I think that's all of the questions that we had. Nancy, would you like to just summarize?

Yes. So this is our first year of proper trading post-COVID. spending this last -- the first 6 months of the year developing products and developing our systems, et cetera. It is an exciting time to be an established company with relevant and exciting new products and with an international base, I suppose would be the summary. There are lots of things that we can do moving forward.

Nancy, Gregor, if I may just jump back in there, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session. You will now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of SpaceandPeople plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.