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] Before we begin, as usual, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from SpaceandPeople plc. Nancy, good afternoon.

Good afternoon, and welcome to our 2025 interim results. Gregor, if you mind going on to the first slide. For those of you who don't know us, and I would imagine there's quite a few people on this call who do know us, we are a business that has been around for 25 years. And we provide space and services for promoting brands and selling products in high footfall venues across the U.K., in Germany -- in the U.K. and Germany, providing service solutions to retailers and brands and promoters and an exclusive partner to many of the biggest venue owners in both the U.K. and in Germany, including Network Rail, significantly in the U.K. and ECE, the biggest property developer in Germany. One of the things that is an absolute USP, and I will talk about later, is our specialized pop-up retail division, Rock Up and Pop Up, which we developed exclusively for the pop-up retail market and which works on the mid-mall. And we'll talk a bit about that later in the presentation. So moving on to our results. Gregor, if I can hand over to you.

Okay. Thanks, Nancy. Good afternoon, everyone. Just at a high level, before we go into the detail, we'd like to just point out some of our KPIs for the business for H1. You'll see across the board, all of these graphs show that the business has gained a lot of momentum over the last couple of years, and that has accelerated this year, which is very good news. We have increased our revenue in half 1 very significantly. driven mainly in the U.K. and in brand, which we'll talk about as well. But that's had a direct effect on our operating profit and our profit after tax this year, which for the first time since 2017 has been positive. We are normally loss-making or at best breakeven in H1 because the nature of our business has been skewed more towards second-half profit-making. So it's nice to be in that position where we are ahead of where we would normally be. That's also had an impact on our cash position, where we have a significant positive cash balance at the half-year-end at a time we would normally in the past have been in a net debt situation. Again, our cash is quite cyclical, where through the first half, we would probably be spending cash -- and in the second half, we will be more cash generative with our high point coming at year-end. And then just the last graph is our basic EPS, which like on profit, shows that we have blipped up to having a positive EPS rather than being loss-making per share in the first half year. On the financial highlights of the business, as I mentioned, revenue did increase by 26% compared to the first half of last year. Effectively, the U.K. Retail division was level with last year. Germany was fairly level as well, but it's the U.K. promotions division, which has surged ahead in half 1 with revenue in that division -- our net revenue being up to GBP 2.46 million from GBP 1.78 million last year. That has been driven primarily by brand events happening in the U.K. in H1, which I won't go into a lot of detail on because I know Nancy will speak about that when she's talking. That has driven gross profits up 29% and with a fairly stable overhead position during the first half year, that's meant that our operating profit has come in higher and our profit before tax coming in at a profit of GBP 44,000 compared to a loss of over GBP 200,000 in the same period last year. Although we've done a lot of business in the first half year, a lot of which has required us to pay out cash ahead of these events happening. I'm glad to say that our net cash inflow has been significant compared to the first half of last year, we've actually had a small positive cash inflow in the first half of this year compared to the usual large cash outflow. It means that at the end of the half year, we had cash of GBP 800,000 -- net cash of GBP 800,000 in the bank, which is a good position to be in as well as having our facilities that we have with the bank as well. Nancy?

Thank you. So just the basic highlights, and then I'll go into a bit more detail about the U.K., and Andrew will talk about Germany. So it was a strong performance across all the divisions in the U.K., including Germany and a standout performance from our brand division. Secondly, we relocated our operational hub. It was in Essex. We've moved it to Daventry. We've now got a large modern facility with a really well-skilled team, which is enabling us to support and develop our Rock Up business, which as you can see on the bottom point on that slide, is something which really seems to be exciting both retailers and the venues that we put it in. We've invested in staff this year, new hires in our brand division as we've seen revenues increase. And we've also commenced -- and again, we will speak a bit about that. We've commenced development of a complete digital transformation project. So if we look at the U.K. specifically, Gregor, would you mind going to the next slide? Thank you. So just a nice picture there of Sol de Janeiro doing a brand activation at Metrocentre. We saw a big increase in brand revenue in H1 in the U.K., much higher than previous years, a very strong Q1, enhanced by several high-profile one-off campaigns and a lot of demand from nicotine replacement brands wanting to promote in transit hubs, mainly the Network Rail stations, that gave us a significant cash boost in H1. Our kiosk business was steady in the first half of H1. However, we do see that as being the fastest-growing division in the business overall in 2025, and we're seeing a huge amount of that interest building for the following year as well. And the other thing we spoke about, I think, at our last presentation was our insights database, and that is now up and running with thousands of entry and is providing us and buyers of space with critical information, which enable them to understand sales numbers, sampling numbers, sign-up numbers and the number of social media impressions they could get by taking space in our venues. So yes, the U.K. performance was strong, but it was the brand revenue that drove strong H1 results. Looking at our Rock Up and Pop Up division. This is our full-service mid-mall business, which is our high-growth business. And I thought it was worth just covering off how we saw it and what's actually happened. When we developed this product, which basically means that you can turn up at a venue, any venue in the country and with a box full of products, and we will do -- we will turn you into a physical retailer, provide you with staff, merchandising, business planning, a kiosk, a branded kiosk and all the know-how of how you retail mid-mall in any venue. We envisage that as appealing to e-commerce online retailers. And that has been the case. We've got an awful lot of TikTok trending brands now on Rock Up kiosks around the U.K. A specific interest probably would be permanent jewelry and Korean beauty are both really showing a lot of interest in these -- in our venues. And there are just a couple of names there that you probably have never heard of, but these are the sort of people that are going on protein brands, [indiscernible] multivitamins and as I said, the beauty brands. What we didn't see were the following 3 columns, we didn't see that existing mall retailers would also look to us to provide them with kiosks to help fund their expansion plans, and that is something that we're doing. And what we really didn't see that there would be major retailers looking to use these kiosks for 2 reasons. First of all, to drive footfall in store. Many of them have in-center stores, in-line stores, and they're using our Rock Up service to both sell extra products at key times of the year, but also to push customers into their stores, which may be geographically distant to the kiosks that we're installing. And we've done that with Lush, Glasses Studio, Menkind. And we've also looked at brands who want to sort of trial a new venue and just see how it goes for them. And that was very much the case with THOMAS SABO that was on the front page of this presentation, where they started with the Metrocentre. They were in the Metrocentre pre-COVID, couldn't work out whether they wanted to go back in. So I thought they trial our Rock up and Pop Up stand and see how sales went. It was a small investment for them compared to a lease on an in-line store. And that has confirmed that they will be going back in the long term into Metrocentre, plus THOMAS SABO have taken various other kiosks with us around the country. So this is turning into a really interesting product for us and something that we're looking to grow over the next 12 months. I thought I'd also cover off the core insights in a bit more detail for you. People buy space for many reasons. And what has interested us over the last year is that actually, people are using the space not just to sell, but to gather data to push people into stores. And again, we spoke about the fact that major retailers are buying kiosk space with us to push footfall into their stores. And there is an example, one retailer did that and found a 60% year-on-year increase in in-store sales. But they're also using it to build their social media platforms and the permanent jewelry, which is when you get your jewelry welded to you. TikTok views of that retailer in Meadowhall, 150,000 TikTok views. They thought that was a complete success without the actual physical sales of the jewelry that they carried out on those weeks as well. And similarly, 10,000-plus Instagram views for an aesthetics retailer doing a promotion with us. And we always talk about this, but Network Rail stations remain extremely positive and extremely good way of getting samples out. We've distributed nearly 1 million samples in H1 in training stations. So that's a bit about the U.K. If I can hand over to Andrew to talk a bit about Germany.

The German performance has been on track with our expectations for H1. The interesting thing in Germany is the market is fragmenting. So ECE is still the major player by far, but there are new market entrants coming in to manage and to own shopping centers in Germany. A couple of them are coming from the U.K., and they are used to having agencies managing all aspects of commercialization for them. So that's what they're looking for us to deliver in Germany for them. So that's where we exclusively manage a venue, and that's all the different revenue streams except for the rental -- except for the shop rental stream. So all the additional revenue streams, whether it's vending or managing the advertising contracts including all the spaces, the Brand Experience spaces, the retail spaces, the acquisition spaces. So that's new for us in Germany. It's exactly the space and people was 25 years ago, ironically, but it's new for the German market. And the new entrants do appear to be interested in acquiring a number of venues. So we think that will probably hit 6 to 10 in the next 18 months, and we're hopeful that we will be managing all those centers going forward. In terms of European expansion, we are continuing our strategy of driving retail expansion into other European countries via the German retailers we know and the U.K. retailers we know. We've opened in Czech Republic and Netherlands, and we've got good pipeline for France for H2 this year.

So moving on to our outlook. It's been a really positive start to the year, and we continue to focus on unique products and services that space and people can offer. We've proved a point with Rock Up and Pop Up, and we're now looking to other products that we can offer our market. We're no longer about telesales. There's a huge emphasis in the business on digital -- on digital marketing channels as a way of increasing our sales funnels. And in order to maximize that, we've employed a new Group Head of Marketing, who is working with our sales teams to make sure that we're using digital outreach as extensively as we can to ensure that we're reaching the maximum amount of brands, agencies and promoters for the business. Aligned with that is a complete digital transformation of the business. We are acutely aware that people -- younger people no longer want to talk on the phone. We've seen it. They're all using live chat. They're using WhatsApp, and our business can already deal with all that. But we want to provide a better digital customer experience for people coming on to the space and people website. So we're investing significantly in that over the next 12 months. And we're also looking at our internal work processes and ways that we can use digital to streamline those and AI specifically. So this will be a big focus of effort for us in the next 12 months. And hopefully, by the next time we talk, perhaps at the interims, you will be able to see that on our websites, et cetera. And finally, our ability to service and produce new products is dependent on this great new operations hub, which will increase our operational efficiency already is and support us to deliver -- continue to deliver new end-to-end services.

Okay. Thanks, Nancy. The following slides are just details of the profit and loss and of the cash flow in the business, which I think we'll just take that everybody has seen them because we're getting some questions through already.

So I think if we move on, and Andrew, I'll just read out some of the questions that have come in, and we see if we can answer them. There's been a few questions saying around the same topic. But the first one here said, hi, excellent progress in 2025. As a significant shareholder, it's great to see. I think I asked this every year, but in light of rapidly reducing debt, is there any update on when a dividend will be seriously considered a couple of years away, never seems to get nearer as the comment. If you're happy, I'll answer that one. I think we have been asked this question in the past. And I think we've always said in the coming years rather than in a couple of years because we've been clear about the fact that we -- during COVID period when we had some write-downs in the carrying value of our investments, that had an effect on the retained earnings in the business. And as a result, the parent company, which would be paying dividends out to shareholders had negative retained earnings in there. That's a situation we're still in, but we anticipate that over this year, and although we don't have any forecast out for next year yet, if next year was the same, as we're predicting this year would be, then we'd be looking at our negative reserves having been eliminated at that point, and we could move towards looking to dividends following that. So possibly for the financial year 2027 with a dividend payable in 2028 is possibly something we could look at then, although we are -- there is no decision taken on that yet. I think that would also work with our ongoing desire to strengthen our balance sheet and have the business in a very stable position. We would be very comfortable if that gets passed, then we could look at resuming dividends. We have historically paid dividends, and there was an increasing dividend policy that we had in the pre-COVID era, and we haven't lost the desire to do that. Next question we have is with tech and wellness brands driving U.K. promotions revenue growth, how much of this growth has been driven by repeat business versus one-off campaigns? And how do you expect this mix to evolve? So without going into specific percentages or anything like that, just a general feel for how much is one-off business and how much is repeat business?

There was a significant amount, I think, as I mentioned in my presentation, this year in H1 from nicotine replacement. So that was repeat business. But the underlying trend in the business is still of growth even if we take that repeat business out. The interesting thing about the brand market is that actually, it's different brands buying all the time. There's no such thing as repeat business. What happens is as brands invest in media because they're doing new product launches, seasonal launches, they put money aside for experiential, and it's that, that we then receive a brief for. So yes, aside from the nicotine replacement, I'd say there's no repeat business really. There's sectors that show growth, for example, beauty, and that is something that we have seen over the last year, but there's very little regular repeat business in that market.

Okay. Another question -- thanks, Nancy. Another question that's come through is someone is asking, how do we market the space in venues and what can we do to increase the marketing of that space?

I'd say that was our day-to-day job is marketing space in venues. How can we improve it? Well, I think I've spoken about digital outreach about our core insights database. I mean there's always more we can be doing. But I think this year, the big push has been on moving into a digital era, looking at AI search engines, for example, to make sure we're maximized on those as opposed to just Google search. So I think they're the ways in which we're reaching a bigger audience in order to fill our venues more effectively.

Okay. Thank you. Another question is the German business sounds exciting. Is that run by the local team? And also, how do we manage the other European markets that we're moving into?

It's run by a local team. We have a couple of offices in Germany and then a regional team that supports the operations side. But we work -- they work closely with the U.K. business, particularly on Brand Experience.

Okay. Another question we have is the valuation of the company is around GBP 3.5 million. What's the Board's thoughts on driving that valuation? Would you like me to take that?

Yes.

We talk about, but probably -- we are very focused on the value of the business to the shareholders. our principal focus on being able to drive that is to increase the profitability of the business year-on-year. And we've been carrying out this plan for a few years now of the recovery from the COVID period, and we feel we're progressing the way we have done that we had intended and certainly in line with what we've been telling the market. And then this year, we've already increased our market expectations from what they were at the beginning of the year. We are keen that the quality of our revenue and our earnings is seem to be robust, and it's not something where it's going to be cyclical, and we will have a boom year and then a bust year. We want to be able to deliver sustained growth. And part of our -- the reason for investing in new systems across all of the company is to help support that growth. and also drive margin improvement. We are very focused on driving what we have at a gross profit level through to being a higher percentage when we get -- that is current when we get to our profit before tax level just to run the business more efficiently. Part of that comes with being able to expand the business without adding significant additional cost, but also creating efficiencies internally to drive more profit out of what we are already doing. And that is very much a focus of what the Board and management are looking at. One of the other questions is that the forecast for this year for revenue is GBP 8.3 million. What can we do to beat that number?

Probably very little more than we are actually doing. But yes, the important thing for us to do now is to make sure that our team understands all of the opportunities that are available to them in all of our venues for brands, very important. And that we've got the biggest and we have got our biggest ever Brand team ready to take briefs from media buyers. They tend to buy at the very last minute. So we need to be prepped and ready to transact that business. Similarly, on our Rock Up business, the whole move to Daventry, the operational efficiency and the ability to quickly get units turned around and put units into venues, we drove the business into the new operations hub so that it will be ready for this Q4. And again, we're seeing the pipeline for Rock Up growing because of that. So I think everything we've done is about trying to beat that revenue target.

Thanks, Nancy. And then one last question that we have is that on the digital transformation process that we've been talking about, how much of what we are doing is externally focused rather than just for internal efficiencies? And can we talk about the potential CapEx for that? I can talk about that. The CapEx, although we're just about ready to push the button on it now, the final amount hasn't been settled upon, but it will be soon. But it's a significant amount of money for a business our size because we want to drive improvements across virtually everything we are doing on the digital side of our business, whether that be outward-looking through our website or how we engage with customers through our marketing, our CRM and also our booking system. Also how we report internally, both in terms of quality of the reporting and the timeliness of that reporting so that we can have real-time dashboards and drive the business forward very quickly and that we have a single source of information as well. So it's been a while since we've had a major spend on developing our systems, but we think this project will be transformational for us. We looked at a number of products that are out there in the market. I think we scored every single one that works as a SaaS-type product in our environment. And we feel that what we've done and what we are going to do is at a different level to what these products are providing to their clients. We have a huge amount of accumulated experience ourselves. We have a system that we have developed ourselves, but which needs to be radically transformed. And we think what we will do over the next 9 to 12 months will be game-changing in our industry and certainly very different to what anybody else is offering. We also think that the return on investment on it will not be long-term, we think we will see returns very quickly in terms of how we can create efficiencies in the business, but also drive new revenue by directing people all the way through our channels very quickly and very efficiently. I think it will make the journey that people enjoy a lot easier than it has been in the past. I think that's us on the questions we've received.

Perfect, guys. Thank you very much indeed for being so generous of your time and addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Nancy, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments, just to wrap up with, that would be great.

Yes. I think one thing I would say is that customers nowadays face a sort of fragmented journey to making buying decisions. And it's our aim as a business to support brands, retailers and agencies to achieve success by providing them with the products and services that they need to carry out physical activations. And that strategy seems to be working. We're really delighted with our interim results. And as you can see, we've got a lot of really exciting plans for the next 12 months. Thank you all very much for listening. It's been great to speak to you all.

Perfect. Nancy, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it 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.

Thank you.

Thanks.