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

Good morning, and welcome to the SpaceandPeople investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives in the meeting itself, but the company can review the questions received today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Nancy Cullen. Good morning.

Good morning, everybody. I apologize for our cameras being off today. We've had a slight technical glitch, so we're using sound only. I'd like to welcome you to our 2024 results. And we're starting off with a picture of one of our activations at London King's Cross, which was a big Sky event. If we can go on to the first slide, please. Okay. We are the leading provider of space and services, for those who don't know us, for promoting brands and selling products in high footfall venues across the U.K. and Germany. We've got a range of products and services, which are completely novel to the industry, which we now put into venues. And we're the exclusive partner for a number of major property groups, including Land Securities, British Land, Network Rail and ECE in Germany. The picture there that you can see is one of our activations, which is Swatch at the Metrocentre. It's a great example of the sort of activation that we do. Swatch were in for, I think it was 6 weeks at the Metrocentre, promoting their brand but also selling Swatch watches at Metro in Gateshead. I've put a bit about our values there. We're a trusted company. We've been around for 25 years. Increasingly, we use data to assist buying decisions, and we offer a full range of flexible solutions for buyers of our space.

Good morning, everyone. This is just a slide showing some highlights of our performance over the past few years as we've continued to grow the business from -- coming out of lockdown. You can see that across our revenue, our profit and our cash position, we've continued to improve where we were. We've delivered a higher level of revenue and profit than we have even in the years immediately preceding the pandemic. We continue to repay the loans that we have as a company. In fact, the first of the CBILS loans that we took out during the pandemic will be fully repaid this month with the last one being repaid probably at some point this year as we look to change the funding structure of the business. Basic EPS also performed very, very well as the forward-looking forecast for the business mean that the deferred tax assets that we had come back on to the balance sheet to an extent, which meant we had a significant tax credit in the year as well. The financial highlights are that we managed to increase our revenue in 2024 compared to the previous year by 15% to GBP 6.7 million. That was driven to an extent by a very strong first half of 2024, which is traditionally our weaker half year. A lot of the revenue, particularly in the retail side, ramps up in half 2. But having grown that significantly in half 1, we managed to maintain that growth in the second half of the year despite that having been a strong half year in 2023. To grow that again was very encouraging. As a result of the increased revenue, we've managed to increase our operating profit up to GBP 0.3 million compared to GBP 0.2 million in the previous year, which was at the top end of our expectations. And as I mentioned, earnings per share were up substantially as well. We maintained our cash position at the end of the year despite having paid off another GBP 322,000 of our debt during the year and also investing significantly in our new Rock Up and Pop Up kiosks during that time.

We secured a 5-year Network Rail contract. That was a very competitive tender. So we were delighted to continue to work with Network Rail through to 2029. We started back in 2015 with NR, so that will be 14 years in total by the end of the contract. Equally, ECE decided to continue to work with us in Germany. So we've worked with ECE since 2007. So that's a long, strong relationship. And for those that don't know about the German market, ECE is, by far, the largest landlord and manager of shopping centers with probably 70%, 80% of the German market under their control.

We continued our strong growth in business across the board, but particularly in U.K. brand experience. If you look at the picture there, it shows you the weird and wonderful briefs that we receive and that we respond to on a day-to-day basis. That is a LEGO activation at Battersea Power Station, and we were given the brief of a unique building, an iconic building for LEGO. And that was what we delivered them, a promotion that was massively proliferated on social media. So our Brand Ex division was up 36% during the year. We continue to grow our Rock Up and Pop Up kiosk program. That is when we put in new retailers with a full service. That is to say all they have to do is turn up, they deliver their products. We do everything else for them. They have a Pop Up shop on the mall. We grew that well with 25 kiosks operating in 14 venues by the end of 2024. In terms of the U.K. performance, as I said before, we had a strong sales performance across all the divisions in which we operate in, but we're particularly pleased about our continued ability to grow the Brand Ex market and to take a share -- a bigger share of that market. Again, another nice picture, Adobe at London Waterloo. And as I said before, we managed to continue to grow our unique end-to-end Rock Up service, and that is very much a focus for the business going forward. Our ability to bring in new retailers into shopping centers is something which our property clients really like about us. And our whole aim is to grow them from being on our -- one of our Rock Up kiosks to going on to their own kiosk and ultimately to taking a shop lease. One of the biggest things that we did during the year was launching our CORE insights database, and that enables buyers of our space to access anonymized performance data across hundreds of venues. So if I'm a sampling company, for example, we can tell you how many samples you'll be able to distribute at any venue in the U.K. or Germany in a 1-hour, 2-hour period. A few more insights for you. You probably read online, if you follow our social media, about the honey retailer that we had. They had a twofold objective of being in venues. One was to sell their honey, and they sold a lot of honey across 6 major U.K. venues, but also to build their database of online subscribers. And they built that by 20,000 people during the time they were in the venues with us. Other insights that we're giving brands and agencies and acquisition companies when they ring us, this -- if you look on the left-hand side, you can see that a company that took a Rock Up and Pop Up unit with us, distant to their physical store in a shopping center, managed to drive an additional 6,800 customers into their store as a result of their mid-mall presence. These are powerful statistics and they're what's driving our business moving forward.

We had -- sorry, the relocation of the U.K. operations base was key to our ongoing success in supporting the Rock Up business. So we relocated our warehouse from Barking, which, yes, if anyone knows the traffic around the M25 and Barking in particular, it's hell. And we relocated that to Daventry, which is the kind of golden area for warehousing and distribution.

And we renewed our key contracts, we've alluded to that. Our key contracts for the business including Network Rail, but also Metrocentre in Gateshead, which has gone through a complete transformation post-COVID.

So in Germany, we've had strong growth in profitability, and that's been driven by selling more units for higher prices. The picture you can see there is one of our Rock Up kiosks. So we manufacture these in Germany, and this has been key to gaining us better access in better malls. So the traditional German business is still the RMU business, but we're very much focusing on improving the quality of them, delivering Rock Up kiosks. So this has given us access to Paris, Prague and Utrecht with a strong pipeline going forward. This year, the plan is to build retail activity out with Germany as well as Brand Ex activity. So we've started our new European Brand Ex Manager, who reports into the U.K. business. And this will drive revenues going forward across Europe. We've already got briefs for the next few months in Ireland, Italy, Paris and others.

So going on to our outlook. I'm going to start at the bottom first thing as we were talking about Europe. Obviously, continuing our Europe expansion is really important to us, using Germany as the base and the fulcrum for that. As Andrew said, we've already started that work. We're going to continue to grow that during the year. If I carry on going from bottom to top. Moving us ahead digitally is a big project that we're undertaking for the business this year. We're undergoing a digital transformation. Our systems are reasonably old, but also there is a lot of new technology which we could, as a business, be using to streamline and optimize our business. And so we're embarking on a long-term digital transformation project. And we hope some of the results of that will be visible to people using our websites during this year. We're increasing our digital outreach as well, where our focus is less on telephone sales and more on digital marketing and digital outreach with very good results for the company. As I've said before, we're very much focused on delivering new and different for our property clients and for delivering services for retailers. So we're going to continue our focus on the Rock Up expansion. And you'll be pleased to hear we've also had a very strong start to this year, which we're delighted about, particularly with Brand Experience.

We've attached an income statement and -- or a summarized income statement and cash flow to the back of the statement, as always. That's just a replication of the information that you can see in our annual report and financial statements. So I won't spend any time really going through that.

I think we should probably move on to some of the questions that have been submitted both in advance of the meeting and while we've been chatting. So I will read them out and then either answer them myself or invite one of my colleagues to answer them, too. The first question was, half 1 2024 compared to '23 was up 35%, but that growth rate had slowed to 8% in the second half year. Why did the rate of growth decline in half 2? And have we seen the growth return in 2025? I suppose a declining rate of growth is still growth. And in our historically stronger half 2 throughout the years, that we wouldn't expect to see the same level of growth naturally in that period compared to possibly H1, where there is more scope to grow more quickly. We've certainly, as Nancy says, seen that growth continue into Q1 2025. So we are happy with that. The next question was, how are the European activities performing and what are the expansion plans? I think Andrew has already covered that in the European section of the statement. Unless there's anything you want to add to that, Andrew?

I don't think so, but happy to come back and answer more questions, if there are any.

Okay. Next question was, congratulations on great results. Where do you see most opportunity in international markets outside of Germany? And how CapEx intensive is that expansion? So I think possibly the second part of that question being the added bit to it there, and I can answer that. We, especially in the German and European market, we are making most of the units that go out there, if not all of the units that go out there ourselves in our manufacturing facility in Germany. The CapEx and the time spent is significant for doing that, but the rate of return and how quickly we get payback on that is not long at all. So while it is very much an investment for us, it leads to very quick returns and shouldn't be something which would be a drain on our cash, particularly over even the medium term. Another question was, alongside CORE, what other digital initiatives are we taking to help support growth? Nancy, do you want to take that one on?

Yes. Well, the focus of the business has adjusted slightly to the -- well, adjusted significantly, I would say, to the new online world. So yes, we are -- as I said, we've now got two specialist digital marketers working full time in the business, reaching out via social media, Google advertising, working on our SEO. So yes, in addition to our data insights, we're also marketing ourselves in a very different way to previous years.

Okay. The next question is, what do the new Network Rail and ECE deals mean for future growth? And could relying on these big contracts create any risk in terms of diversifying income? Andrew, I think both of those fall within your demise really, if you'd like to pick that one up.

Alongside the Network Rail contract or works that we do, has come 8 or 9 train operating companies as well. So I think the Network Rail contract just helps us win more transport hub contracts. And ECE, as I said, is the dominant player in Germany. So to be in Germany, it's critical to work with ECE. We are, of course, reaching out to all the other landlords in Germany, but they are significantly smaller, maybe a maximum of 10 malls each, whereas ECE, as I said, have 150 in their management.

Yes. ECE gives us the profitable base where we can then expand out, as you say, from that. Without having ECE as a central contract, it would be very difficult to gain traction and create a profitable business in Germany. It also helps us push out into other European countries as well because of that -- those logistics bases we have in various different sites in Germany, which are close to the borders with other countries as well. So it makes that quite straightforward. The next question is, it looks like a good update. Just wondering why trade receivables is over GBP 5.4 million. I think that probably relates to trade payables rather than trade receivables. That is trade and other payables. So there are normal things in there just for the general running of the business, for accruals and that kind of thing. But it is a high number even if you strip that out. I think what people have to be aware of when they're looking at our receivables and payables numbers is that when we disclose our revenue on our income statement, that revenue is, in the main, our net commission. However, we do invoicing and cash collection for the majority of our clients. And we collect that money and then pay it to the client in the following month or in the following quarter. Therefore, that amount that you're seeing as payable to clients is at a gross level rather than at a net level. If you extrapolated out our revenue to being the gross revenue that goes through the business, you would see that, that level of trade payable is in line with what we would expect for paying our clients monthly or quarterly in arrears, whatever the agreement is. The next question is, great to see the progression again. The Chairman often refers to seeking to pay a dividend when distributable reserves allow. Is that a likely outcome when retained earnings are GBP 1.77 million in arrears? Or will you look at this aspect and reorganize the share premium equity? That's a question we've been discussing with people over the last couple of days in investor presentations. As it stands just now, as a listed business, the process of going through a conversion of the share premium equity is costly and time consuming. And it's not something that we are particularly focused on just now. The -- I think it's more a stated desire for us to get there over the next couple of years and acknowledge that once we get through our negative distributable reserves, then we would very much look to be starting to pay dividends again in the future if that was the correct thing for us to do. In the interim, the focus is on improving the balance sheet and cash position, repaying our debt and then having cash to invest in the future growth of the business. And the resumption of dividends will come in due course. And then the last question really is, do you see any scope for M&A in this sector to accelerate growth for SpaceandPeople? Look, we are always conscious of looking at potential partners that we could have out there, and we have the feelers out constantly on that. We don't really have anything to say on that at present. But if somebody did come to us with an attractive proposition, we would certainly look at it. I think that is all of the questions. So I'll hand back to you, Alessandro.

That's great. Thanks very much, Gregor, and thank you to the team for answering all the questions from investors. Of course, the company can review all the questions that have been submitted today, and we will publish the responses out on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Nancy, could I just ask you for a few closing comments?

Yes. In a world where uncertainty reigns, I think SpaceandPeople is increasingly developing unique products, services and data insights which enable brands, retailers and acquisition companies to sell more products and build their customer base in the U.K. and across Europe's highest footfall venues on a short-term, swift turnaround basis. Property companies are continuing to benefit from our scale, our ability to source new and different retail offers for their venues and to bring them engaging and entertaining brand events, which generate income. Thank you very much for your time today.

That's great. Nancy, Gregor, Andrew, thank you once again for updating investors today. Could I please ask investors not to close the 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. On behalf of the management team of SpaceandPeople plc, we'd like to thank you for attending today's presentation, and good morning to you all.