TPXimpact Holdings PLC

("TPXimpact", "TPX" or the "Group" or the "Company")

Unaudited preliminary results for the year ended 31 March 2024

Strong performance in line with the trading update made on 30 May 2024;

FY25 outlook unchanged

TPXimpact Holdings PLC (AIM: TPX), the technology-enabled services company focused on people-powered digital transformation, announces its unaudited preliminary results for the year ended 31 March 2024.

FY24 Financial highlights:

Operational and Impact highlights:

Post-period trading and outlook:

¹ Consensus figures for FY24: Revenue £83.0m, Adjusted EBITDA £4.5m (consensus prior to trading update on 30 May 2024)
²In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures, and include measures such as like-for-like revenue, adjusted EBITDA and net debt. All are defined in note 8.

Bjorn Conway, Chief Executive Officer, commented:

"I am delighted by the rapid progress the Company has made in the first year of our three-year plan. We have successfully executed the strategy we laid out a year ago and the numbers tell the story of that success, achieving all our financial targets and ahead of market expectations.

"The simplification of the business into our three core platforms of Digital Transformation, manifesto and KITS was achieved ahead of schedule and we have entered the new financial year with a more stable financial and organisational foundation for future growth and success.

"The current pipeline of new business opportunities is robust and despite the phasing effect of an early General Election, has not diminished the appetite for the digital transformation services that form the bedrock of our offering. Demand for the insightful, effective and thought-provoking advice and support that is at the heart of our capabilities is set to continue for the foreseeable future.

"Commercial success and opportunity, however, go hand-in-hand with our founding vision of believing business can fully contribute to a better world for all its citizens. With staff retention of 88%, we have a passionate, as well as talented, group of people ready to make the world a better place for all our stakeholders. Our successful accreditation as a registered B-Corp was a tremendous achievement which reaffirms our values and ways of doing business.

"With the General Election behind us, we look forward to another year of progress, where we will continue to demonstrate the value we can bring to our clients and, through them, the impact we can have on the world around us.

"My sincere thanks are due to all our people for their contribution to the success of the last year and what promises to be an exciting year ahead."

TPXimpact will be hosting a webinar for analysts at 9:00am BST today. If you would like to register for the analyst webinar, please contact [email protected]

The Group will also be hosting a webinar for retail investors at 11.30am today. Retail investors can register for the webinar using the following link: https://www.investormeetcompany.com/tpximpact-holdings-plc/register-investor

Enquiries:

About TPXimpact

We believe in a world enriched by people-powered digital transformation. Working in collaboration with organisations, we're on a mission to accelerate positive change and build a future where people, places and the planet are supported to thrive.

Led by passionate people, TPXimpact works closely with its clients in agile, multidisciplinary teams; challenging assumptions, testing new approaches and building confidence and capabilities. Combining our rich heritage with expertise in human-centred design, data, experience and technology, we work to create sustainable solutions with the flexibility to learn, evolve and change.

The business is being increasingly recognised as a leading alternative digital transformation provider to the UK public services sector, with over 90% of its FY24 revenues represented by public services clients.

More information is available at www.tpximpact.com.

CEO Statement 

I am pleased to report that we have successfully executed the first (and some aspects of the second) year of our three-year plan in line with our objectives. The business is now simpler to navigate and manage, distilled into our three core businesses of Digital Transformation, manifesto and KITS. A year ago, we were focussed on stability, reinvigorating the strength of our offering, and balancing commercial focus with our dedication to Purpose. With a stable platform now established, founded upon sound financial and operational management, we are now in a position to accelerate growth and take advantage of the opportunities a post-General Election environment will bring. Our recent B-Corp accreditation provides further affirmation of our Purpose credentials which are core to our stakeholder proposition.

The key financials are very positive: we have achieved or exceeded all our targets for the year, with like-for-like revenue growth of 21%, Adjusted EBITDA of £4.6m (double last year) and an Adjusted EBITDA margin of 5.5%. New business wins totalled a record £139m, including major wins early in the year with His Majesty's Land Registry (up to £49m over four years) and the Department of Education (up to £27m over two years). Net debt ended the year at £7.1m, the lowest level in over three years.

But the year was about much more than the numbers. Our story is about sustainable recovery, successful execution of strategy, and delivering on our promises to all our stakeholders, including our investors, our clients and, perhaps most importantly, our people. We have remained true to our PACT  (Purpose, Accountability, Craft and Togetherness) values and delivering a positive impact on the planet, people and places through our work. We have laid the foundations for success in the years ahead. But there is still plenty to be done.

Focus & balance

The first year of our three-year plan was characterised as "Focus and balance". Key to this was to ensure more commercially-focussed decision-making, with an emphasis on top-line growth and improvement in profit margins, balanced with a continuing commitment to our purpose objectives.

With effect from 1 April 2024, the business is focussed on the three core strategic platforms where we see the greatest opportunities for future growth: Digital Transformation (comprising our Consulting, Data & Insights and RedCortex businesses): manifesto (formerly Digital Experience and comprising three legacy agencies) and KITS (our IT services business).

As a consequence, we made the strategic decision to sell our non-core overseas businesses (the Questers resourcing business in Bulgaria and our strategic consulting business in Norway), generating £7.5 million of gross proceeds that we used to repay debt.  Our new, simplified structure is more agile and provides a more focussed platform for delivering growth and improving the bottom-line.

Digital Transformation (c.75% of revenues) had an excellent year, driven by significant new wins in what was the Consulting business, and now has the scale to further build its client base in Central Government, whilst also increasing its presence in local government, health and social care, and the private sector. Our RedCortex business experienced some challenges, including reductions in spend in the health sector in Wales, whilst Data & Insights benefited from a three-year contract renewal with a major financial services client. RedCortex and Data & Insights capabilities are now fully integrated alongside those in Consulting under a single Digital Transformation leadership team, so our client proposition has even greater strength and depth, whilst our internal structure is more efficient and easier to manage.

Manifesto (c.15% of revenues) faced an environment of reduced spending from its core client base in the charitable sector due to pressures on donation and fund-raising levels, as well as reduced spend in the commercial healthcare sector. However, the re-branding from Digital Experience to manifesto has generated a significant amount of interest and opened up a number of opportunities for growth. Our ambition to be the UK's leading purpose-driven agency remains, built on the core sectors of charities and memberships & visits.

KITS (c.10% of revenues) remains a powerful support to Central Government clients in terms of robust management of IT services, and recovering programmes to transition legacy systems to modern solutions. Despite some client retrenchment in the year, performance has shown signs of improvement.

Making the business better

Key to our vision is to make the business better, which means a balanced approach to both commercial and purpose outcomes. We have improved our internal business information tools and management processes to monitor, predict and manage core KPIs with greater rigour and foresight, including staff utilisation, gross margin by engagement and capability team. This will enable our businesses to better manage internal and contractor resources and drive improved business performance.

The Company's Operational Board has continued to put into practice a number of policy and change initiatives to enhance operational efficiency, reduce risk and reinforce good governance. These included securing or renewing a number of external certifications including Cyber Essentials+, ISO9001 Quality Management, ISO27001 Information Security Management and, post year-end, ISO14001 Environmental Management and ISO45001 Occupational Health & Safety Management. These standards provide the necessary assurance to our clients that we operate in a safe, secure and well-governed way.

People, Places, Planet

TPXimpact was founded on the belief that businesses can and should be catalysts for social and environmental change. The attainment of B-Corp Certification in January 2024 was a milestone achievement for the Group, and a reflection of our long-standing commitment to conducting business responsibly, which also means ensuring social and environmental considerations are woven into the very fabric of our operations and, fundamentally, how we do business.

Central government contracts typically allocate at least 10% of assessment criteria to social value requirements, so the Company's track-record of delivering benefit to our immediate and wider communities, as well as the planet, is very aligned with client expectations. Our social value commitments are exemplified by our Future Leaders programme which offers coaching to young, aspiring entrepreneurs from under-privileged or under-represented socio-economic backgrounds. We recently welcomed the 2024 cohort into this inspiring programme.

Staff retention rates have continued to improve to 88% from 84% last year and less than 80% two years ago. We have narrowed our median gender pay gap to 8% from 14% last year and 20% the year before. Overall female representation was up slightly at 51% and senior female representation increased to 40% from 36%. Overall minority ethnic representation increased to 22% from 19%. Our ethnicity pay gap has, however, increased to 15% from 8% due to a decrease in ethnically diverse senior leaders. So whilst we have made good progress in some respects of Diversity & Inclusion (recognised by winning the 2024 Small Cap Award for Diversity, Inclusivity and Engagement), there is still work to be done.

Togetherness is one of our key PACT values and captures the energy, fun, and collaborative approach that we embrace. We measure togetherness through employee inclusion surveys, and these scores have risen to 74% from 72% in the last year. We also conduct staff "Pulse" surveys to gain an understanding of employee engagement and satisfaction. The most recent Pulse survey indicated a score of 7.4 in February 2024 vs 6.7 in 2023 (our goal is 7.5 or more).

We continue to invest in training our people. We recently introduced a Leadership Essentials programme for around 130 leaders and managers in the Company (almost 25% of staff), which will provide them with a continuing framework for personal and professional growth. We have also developed a progression framework for all our job families that covers the skills, behaviours and impact that we expect from our people.

A key driver in bringing our people together in person is our hub strategy. This year, we have rationalised and improved our real estate portfolio, most notably moving into our new London headquarters at The Hickman Building (BREEAM-rated Excellent and Best New Place To Work in the Building London Planning Awards). Additionally, we have made improvements to our Chesterfield, Bristol and Manchester offices.

We continue to make good progress on our carbon footprint, despite the increasing scale of the business. All our offices now run on electricity that is entirely from renewable sources. On a like-for-like basis, our carbon intensity in the year decreased by over 15% to 15.33 tCO2e/£1m of revenue and by over 11% to 2.45 tCO2e/FTE.

Scope 3 emissions form the largest part of our carbon usage and are a continuing area of focus, given Scope 1 and 2 emissions are negligible. We have strengthened our procurement and sustainability team in recent months, so we are improving our grasp of the supply chain in terms of carbon usage and modern slavery, as well as cost-effectiveness. We have improved our MSAT (the Modern Slavery Assessment Tool created by Central Government) score to 70% from 43% a year ago and are aiming to achieve 90% next year.

Looking ahead

The announcement of the snap General Election was welcome as it removed uncertainty from our core client sector. With the outcome now known, we look forward to a more stable environment in which the skills and insights of our talented people will be even more in demand. Over the last month or so, despite the General Election, we have seen a significant expansion in the pipeline of new projects and the current volume of proposals is very encouraging for both TPXimpact and the Digital Transformation sector as a whole. We therefore expect the short-term disruption of the General Election to pass as we enter the second half of the financial year.

Digital transformation remains a critical focus for organisations aiming to streamline costs, enhance agility and improve productivity - expected to be a rapidly growing market in support of the new Government's growth agenda. As businesses shift investments from outdated systems to more nimble, modern solutions, the potential of responsible AI-enabled systems, contingent upon robust data quality, becomes increasingly relevant. Responsible AI also represents a key opportunity for TPXimpact as we can use our expertise to ensure AI systems operate safely and ethically. Like the clients we serve, we are dynamic and constantly evolving; and we are well-placed to respond to these changing needs with innovation, insight and agility.

Year Two of our three-year plan is characterised as "Form and Integrate". We have already achieved some key aspects of this ahead of schedule, including the integration of complementary businesses into the Digital Transformation platform and the launch of the manifesto brand for our Digital Experience businesses. Our people strategy increasingly embeds performance, commercial focus and purpose; and we'll continue to push the boundaries of what responsible, sustainable business genuinely means and can achieve.

We have successfully executed our strategy to date and are confident that we will continue to do so, founded upon robust client relationships and exceptional talent throughout the business, as well as a stable financial base. As our journey continues, the outlook is encouraging and we are on track to achieve our ambitions.

Bjorn Conway

CEO, TPXimpact

9 July 2024

Financial Review

The unaudited preliminary results for the year ended 31 March 2024 (FY24) are in line with the trading update issued on 30 May 2024 and show strong growth in revenues, Adjusted EBITDA and margins, as well as significant improvement in net debt. The Company achieved or exceeded all its financial targets for the year.

As a result of the sale of Questers and our strategic consulting business in  Norway in September and October 2023 respectively, the Group has treated both businesses as discontinued operations in the year and prior period comparatives have been restated accordingly. Like-for-like performance measures are based on the results from continuing operations. Both disposals were consistent with the three-year plan adopted a year ago to simplify the business and focus on our core strategic pillars of Digital Transformation, manifesto and KITS.

Revenues from continuing operations were up 21.0% to £84.3m in the year, ahead of our target of 15-20%. This growth was driven by our Consulting business (now the largest part of our Digital Transformation business) due to significant new business wins with Central Government in the second half of FY23 and first quarter of FY24. Revenues in our Digital Experience (now manifesto) business eased due to clients in the charitable and commercial healthcare sectors holding back spend. Our RedCortex business (now part of Digital Transformation) faced some challenges, including a contraction in spend in the health sector in Wales.

Sequentially, on a like-for-like basis, Group revenues increased by 7.4% in Q1, 38.3% in Q2, 31.6% in Q3 and 10.8% in Q4, demonstrating sustained positive momentum throughout the year. New business wins amounted to a record £139m in the year, including two very significant wins in Central Government: up to £49m over four years with His Majesty's Land Registry (HMLR) and up to £27m over two years with the Department for Education (DfE).

Public service clients represented over 90% of revenues, reflecting the increasing significance of Central Government (c.65% of revenues) to the Group, as well as the disposal of our Questers and Norway businesses, whose client base was largely in the private sector. Management believe the private sector represents a significant growth opportunity for the Digital Transformation business, founded upon our long-standing relationships with a number of clients in the financial services and utilities sectors, amongst others. Our top 10 clients represented 68% of 2024 revenues.

As revenues grew, so did the cost of sales, which were up over 24% to £63.1m from £50.8m last year. Gross profit therefore increased by 12.3% to £21.2m from £18.9m. Full year gross margins of 25.1% (2023: 27.1% like-for-like) reflected the H2 impact of the challenges at RedCortex, combined with the impact of some sub-contractor arrangements contractually required to service certain new business wins. We expect this limited dependency on external partners to reduce over time and, consequently, gross margins to improve.

We have made good progress in re-balancing the weighting of permanent and contractor staff. Permanent FTE headcount increased by 9% on a like-for-like basis to 533 people at 31 March 2024, whilst the number of contractors reduced by over one-third to 133 people. Total headcount, including contractors, was therefore around 670 people at the end of the financial year.

This shift in resource mix should lead to increased efficiency in the cost base in FY25 and beyond. Productivity also improved with increased utilisation rates, particularly in our Consulting (now Digital Transformation) business. Staff retention showed continued improvement to 88% for the year, compared with around 75% two years ago.

Adjusted EBITDA of £4.6m was double the £2.3m figure for 2023 and our adjusted EBITDA margin of 5.5% was significantly ahead of last year's 3.3% on a like-for-like basis. All of our businesses met or exceeded budgeted FY24 Adjusted EBITDA margin expectations, with the exception of RedCortex.

The Group made a reported operating loss from continuing operations of £(22.8)m against an operating loss of £(19.0)m last year. Administrative expenses of £44.4m (2023: £38.4m) include a non-cash goodwill impairment charge of £14.5m (2023: £10.0m) largely in relation to RedCortex, and a charge for impairment of acquired intangible assets of £1.7m (2023: £1.8m). Charges for share-based payments increased to £1.4m (2023: £0.1m) due to the full year impact of share incentive awards granted in the second half of 2023. Restructuring and transformation costs of £1.4m (2023: £2.5m) arose from the aggregate impact of the rationalisation of our London property portfolio, systems transformation initiatives and selective action on staff costs to support the Group's strategic goals. Amortisation of acquired intangible assets increased to £7.7m (2023: £6.2m) as we shortened the expected useful life of a number of these assets.

Excluding these items, the core administrative expenses of the Group were down slightly on last year at £17.7m despite revenue growth of 21%, reflecting further investment in back-office resources, offset by reductions in discretionary spend.

The Group made an adjusted profit before tax from continuing operations of £1.8m (2023: £0.8m) and a reported loss before tax of £(24.8)m (2023: loss of £(20.1)m). Finance costs increased to £2.0m (2023: £1.1m) due to increased average borrowings and higher interest rates. Taxation amounted to a credit of £2.7m (2023: £1.5m credit) largely due to deferred tax credits on amortisation of acquired intangible assets. Adjusted profit after tax from continuing operations was £1.9m (2023: £0.9m).

The disposal of Questers in September 2023 gave rise to a gain on disposal of £3.7m which has been included in the income statement within profit after tax from discontinued operations. The disposal of TPXimpact Norway in October 2023 for nominal consideration gave rise to a goodwill impairment charge of £1.8m as a cost of discontinued operations. Total profit after tax from discontinued operations was £1.8m (2023: £1.1m).

Reported diluted earnings per share from continuing operations was a loss of (24.5) pence per share (2023: loss of (20.6) pence per share), reflecting the reported losses in the period, including the goodwill/intangible asset impairment charges of £16.2m. On an adjusted basis, diluted earnings per share from continuing operations more than doubled to 2.1 pence per share (2023: 0.9 pence per share).

Whilst the Board has decided there will be no dividend in respect of FY24, the improvement in performance is encouraging and dividend policy will continue to be reviewed on a regular basis.

Net debt and Cash flow

Net debt (excluding lease liabilities) at 31 March 2024 was £7.1m (the lowest level in over three years and significantly better than our £11m target) compared with £17.5m at 31 March 2023. Net cash generated from operations amounted to £7.3m, reflecting the cash benefit of improved trading and effective working capital management. Debtor days were 43 at year-end compared with over 70 days a year ago.

The disposal of Questers and TPXimpact Norway gave rise to a net cash inflow of £6.1m (£7.5m of gross cash proceeds less cash deconsolidated from the Group balance sheet). Other cash outflows included interest payments of £2.2m, long-term lease payments of £0.7m and capital expenditure of £0.2m, with an inflow of £0.2m due to a corporate tax refund. Free cash flow therefore amounted to £10.5m.

The Group used £8.3m of this free cash flow to repay debt, so gross borrowings reduced to £16.2m at 31 March 2024 (2023: £24.5m). Since year-end, a further £4.0m has been repaid, so gross borrowings at 30 June 2024 amounted to £12.2m, a 50% decrease on a year ago.  The leverage ratio (net debt/12M Adjusted EBITDA) at 31 March 2024 was 1.54x and the Group has comfortably satisfied its banking covenants since they were reset a year ago.

Debt facility

As announced on 24 June 2024, given the significant improvement in the Group's debt position over the last year, the Company and its bankers agreed to extend the maturity of the Group's revolving credit facility (RCF) by one year to July 2026 and reduce the amount of the facility from £30m to £25m, to better reflect the ongoing needs of the business. The existing accordion of £15m continues to be available if required.

In addition, the borrowing conditions (covenants) of the RCF have been eased, one quarter ahead of schedule. These favourable amendments to the Group's financing arrangements represent a return to a more normal framework for debt and cash management and will allow management greater freedom to manage and invest in the business effectively.

Balance sheet

The Company holds a minority stake of c. 11% of equity (on a diluted basis) in OpenDialog AI Limited ("ODAL"), a conversational AI software business. As illustrated by the successful Series A capital raise in early 2024, this investment provides the Company with an exciting exposure to the conversational AI market and we look forward to supporting its continued, rapid development.

Current trading

Like-for-like revenue growth for the two months ending 31 May 2024 was over 11%, which is in line with our full year target range of 10-15%. Profitability was in line with budget and ahead of the same period last year. £9m of new business was won in the first quarter and the current pipeline of opportunities is very strong, despite the General Election.

Outlook

In the trading update released on 30 May 2024, the Board reaffirmed the 2025 full-year targets of 10-15% like-for-like revenue growth and further improvement in Adjusted EBITDA margins of 2-3% on top of the 5.5% achieved in 2024. We expect the July General Election to lead to a heavier second-half weighting of revenue and profitability than usual. This is likely to mean more subdued top-line growth in the summer months (against tough comparatives), with a subsequent acceleration commencing in Q3. Backlog or committed revenues represent around 70% of targeted full year revenues.

Management are also targeting a leverage ratio of c.1.0x at 31 March 2025, which would allow for share repurchases of £1-2m into the Company's EBT during the second half of the year. These shares will be used to satisfy long-term employee share incentive awards due to vest next year.

With respect to 2026, management continue to target like-for-like revenue growth of 10-15% and an Adjusted EBITDA margin of 10-12%, in line with our previously announced, three-year strategic goals. The ongoing, successful execution of our strategy provides a solid foundation for achieving our targets and we firmly believe that the fundamental demand for our skills and services will remain strong for the foreseeable future.

Steve Winters

CFO, TPXimpact

9 July 2024

Unaudited preliminary results for the year ended 31 March 2024      Consolidated Income Statement

For the year ended 31 March 2024

¹ Prior year figures have been re-presented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, as described in note 4.

Consolidated Statement of Financial Position

At 31 March 2024