Release Date: July 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TPXimpact Holdings PLC (LSE:TPX, Financial) achieved or exceeded all of its financial targets for the last 12 months.
- Net debt was reduced to GBP 7.1 million, the lowest it has been for some time.
- Revenue grew to GBP 84.3 million, representing a 21% like-for-like growth.
- The company achieved B Corp certification, enhancing its reputation and appeal to clients and employees.
- New business wins amounted to GBP 139 million, providing a strong multiyear backlog of work.
Negative Points
- The company reported an operating loss of GBP 22.8 million due to goodwill impairment related to the Red Cortex business.
- Gross margin declined from 27% to 25%, partly due to the need to engage third-party partners for large government contracts.
- The ethnic minority pay gap increased from 8% to 15%, indicating room for improvement in diversity and inclusion.
- The company is heavily reliant on the public sector, which accounted for approximately 65% of its revenues, posing a risk if public sector spending decreases.
- Interest payments were GBP 2.2 million, driven by high borrowing levels and interest rates, although this is expected to decrease in the coming year.
Q & A Highlights
Q: With over 90% of FY 24 revenues from public sector clients, what is your plan to diversify this, especially in the private sector?
A: Public service includes the third sector as well, making public sector about 65% of our revenues. We plan to diversify but see significant opportunities in the public sector over the next two to three years. We've put in place sector strategies and teams for both the commercial and third sectors to deepen relationships and expand capabilities into new clients.
Q: Are you starting to monitor training hours impacting utilization or AI will always be to diversify subs or M&A?
A: We already monitor training hours and apply the same principles to AI as other work. We invest in permanent staff for repeatable skill sets and use associates for niche expertise. We have a good grounding in AI and will build teams as budgets and projects grow.
Q: Are there any conditions under which you'd consider reinstating a dividend payment?
A: The dividend policy is reviewed regularly at the board level. Given last year's financial challenges, dividends were taken off the table. Currently, our focus is on paying down debt and investing in growth. Dividends may be considered in the medium term as cash flow and profit growth improve.
Q: How do you plan to catch up with competitors like Kanos, who are showing higher growth rates?
A: Our gross margin declined due to issues with Red Cortex and the need for third-party partners on large contracts. We expect to reduce reliance on third parties and improve resource management. Our target is a 30% gross margin in the medium term, aligning with our three-year objective of a 10% to 12% EBITDA margin.
Q: What are your thoughts on the current share price and its impact on the business?
A: Our focus is on meeting our goals consistently and predictably, as outlined in our three-year plan. We believe the company is undervalued and aim to support growth in the share price by delivering on our promises and improving revenue, profitability, and margin.
Q: How is the ESG Committee structured and what are its priorities?
A: The ESG Committee reports to the Board and includes representation from non-executives and myself. The strategy is set by the ESG Committee, focusing on people, place, and the planet. We manage our priorities accordingly to ensure strong governance and control.
Q: How do you see the market opportunities in the public sector post-election?
A: The election has been a dominant factor this year, but we see good opportunities aligned with the new government's focus on planning, infrastructure, health, and social care. Our pipeline is busy, and we expect larger opportunities in the public sector over the next few years.
Q: What are your expectations for revenue growth and margin improvement in the coming year?
A: We reaffirm our targets for 10% to 15% revenue growth and a 2% to 3% margin improvement. We expect growth to be weighted more towards the second half of the year due to the timing of the general election. Our pipeline is robust, and we are well-positioned to achieve these targets.
Q: How do you plan to manage net debt and interest costs going forward?
A: We have reduced net debt to GBP7.1 million and renegotiated our debt covenants. Our focus is on using free cash flow to pay down debt and reduce interest costs. This will be a priority in the second half of the year, improving our financial position and reducing costs.
Q: What are your plans for future growth and strategic direction?
A: We aim to maintain our growth trajectory with 10% to 15% annual revenue growth and improving margins to 10% to 12% adjusted EBITDA by FY '26. We remain agile and responsive to market opportunities, particularly in the public sector, and continue to invest in our people and processes to support long-term growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
