Release Date: September 17, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• SMG had a strong performance, winning significant contracts like Asda and expanding in the US market.

• M Booth and M Booth Health also reported strong performances, contributing positively to the company's results.

• Despite challenges, the company maintained its interim dividend, signaling confidence in long-term business prospects.

• Next 15 Group PLC is making significant progress in AI, which is expected to create new revenue streams and improve operational efficiency.

• The company has a healthy pipeline for new business, indicating potential for future growth.

Negative Points

• Revenue was flat, and adjusted profit was down due to high operational gearing in tech-focused businesses.

• The technology market showed no signs of recovery, impacting the company's performance negatively.

• Net debt increased due to earn-out payments, affecting the company's financial position.

• The company experienced working capital outflows, particularly from high-growth areas like SMG.

• EPS was down 20%, reflecting the overall challenging financial performance in the first half.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with FRA:8LS.

Q: Can you elaborate on the impact of the lost big contract and how it affects your outlook for the second half? A: Timothy Dyson, CEO: The loss of a significant contract has continued the trends we saw last year, particularly affecting our technology sector. We had anticipated a recovery in the first quarter, but the second quarter showed no significant improvement. This has led us to remain cautious about tech spending in the second half.

Q: How is the performance of your different business segments, particularly in tech and non-tech areas? A: Peter Harris, CFO: We've seen a bifurcation in performance. Customer engagement segments are doing well, while tech-focused businesses like Activate have struggled. SMG had strong revenue growth, especially in the US, but this required significant investment, impacting margins.

Q: What are your plans for AI integration and its impact on operations? A: Timothy Dyson, CEO: AI is crucial for our future. We have numerous AI projects underway, including synthetic personas and media monitoring solutions. These projects aim to improve efficiency and create new revenue streams, but pricing will be key to maintaining value.

Q: Can you discuss your capital allocation strategy and any plans for acquisitions? A: Peter Harris, CFO: Our focus is on internal investment, particularly in AI and data. We remain cautious on debt and prefer bolt-on acquisitions. We are open to share buybacks and may use shares for earn-out payments if the share price improves.

Q: What is your outlook for the second half and beyond, considering current market conditions? A: Timothy Dyson, CEO: We are confident in meeting recently reset expectations. If the tech market improves sooner than expected, we could perform better. However, we remain cautious and are working to improve our position.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.