Aeorema Communications plc (AEO.L) Earnings Call Transcript

Good afternoon, and welcome to the Aeorema Communications plc Investor Update. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Steven Quah. Good afternoon.

Good afternoon, and thank you. Welcome, and thanks for joining us in our presentation. We're going to give a brief update on Aeorema and our progress, and then Jamie will give you some more detail on our results we announced on Tuesday. But for those of you who don't know us, we are a global award-winning strategic communications group. What do we actually do? It's around the live brand experience in a simple form, we have a brand to an audience, we connect them together via conference or brand activation or an exhibition or a dinner or a meeting. We have a Mothership office in London based also in New York, where I'm actually presenting from, and in the south of France in Cannes. Our mission simply put is to inspire audiences everywhere for the live medium. Myself, I'm the CEO, and together with Jamie, our Group FD, will present more details on our numbers. But a quick update. Delighted to say H1 for this year was our record 1st half and our best numbers ever. Further, activation at POSSIBLE Miami, which is another activation space, activation at South by Southwest, lots of multiyear contract signings and a record delivery of Cannes Lions. For those who don't know, it is a big exhibition in the south of France where we did 17 separate activations. Record revenue for the 1st half of GBP 17 million (sic) [ GBP 17.5 million ] . I'm delighted to say our profits of GBP 1.5 million. That is representing a 200% profit increase on our H1 year-on-year and absolutely our best profit achieved ever since we actually listed on AIM back in 2002. So a great achievement and thanks to the team regards doing that. And as we announced in the week, forecasting our best year ever again, record revenue of no less than GBP 23 million and our PBT of no less than just over GBP 1 million. And hopefully, these further upgrades as we develop projects as our year is not finished yet. Just want to point out a little AEO snapshot where we would say this, but we are undervalued. And it's probably just worth putting some numbers around the fact. Our market cap is GBP 6.9 million, but we have GBP 3.1 million of cash in the bank. So our enterprise value at GBP 3.8 million on a profit of GBP 1.06 million does, I think, believe that we are very undervalued in the market. Our share buyback scheme reflects that and our confidence going forward, which we launched earlier this year, and we will continue to do that and be successful. And obviously, for existing shareholders, obviously, your piece of the pie increases. It just underlines our confidence on ourselves, and we will look forward to doing more of that. Interim results, I'll hand over to Jamie, who will give you some more detail on the numbers, and I'll come back and give you a bit more snapshot of where we're going and a little bit of example of the work we're working at the moment. So thank you. Over to Jamie.

Thank you, Steve, and welcome, everybody. So yes, as Steve mentioned, record revenue for a 6-month period announced yesterday, GBP 17.5 million, and this compares to GBP 13.2 million for the same period last year. And this is very much off the back of a very strong Cannes Lions. For anybody who's not aware, Cannes Lions is a festival every June. And we delivered 17 activations with 17 different clients across that week, the most we've ever delivered. So that's really driven revenue this year and Cannes Lions for us continues to grow, but it was also supported by large events that we delivered throughout the period, including our 1st time we've activated at South by Southwest in Austin, Texas, and 1st time we've activated at POSSIBLE Miami for existing clients. So -- and also just to add that those 17 clients, all of them repeating plus a few that were new clients. So we're going very strong in Cannes Lions, and we expect that to grow as we move forward. And obviously, off the back of that record revenue, profit before tax was GBP 1.5 million, as Steve mentioned, a massive increase on last year, driven by revenue, but also driven by the efficiencies we've made, as Steve will cover later on; we cut headcount by 33% over the last 24 months and still been able to deliver that record revenue. So that's really supported the profit before tax. And as you can see, the underlying profit before tax margin has more than doubled as a consequence. So a record period and a very healthy strong cash position, GBP 4.8 million at the end of June, very much supported by the strong Cannes Lions. But as you can see, an average cash balance over that 12-month period of GBP 3.1 million. As a model, we typically charge our clients 50% to 90% upfront, which means that we're always in a strong, healthy position and tend to pay our suppliers post event. So we're always in a very healthy position in terms of cash position. And that's basically the interim. So let me pass you back to Steve.

So our momentum and why we're making such great progress. We are reaping the benefits of our rebalance. As Jamie said, we did a cost reduction in headcount and some other costs over 24 months ago. We're seeing the full benefit of that. And hopefully, those who are tracking us, you see our revenue has increased where our headcount dropped. So that's a good sign. And that means anything that comes in from an increase in revenue, we'll see our margin to continue to increase. That is a good solid base for us to work from. We flex the U.K. and U.S. mix because we have a U.K. HQ and we service a lot of our global clients that London have with an office in the U.S., we work in a very efficient way, but with our cost valuations around staff that we kind of manage from an effective point of view. Clients can buy very well from the U.S. and the U.K., and that can continue to give us a bit of an edge with like U.S.-based agencies. Cannes Lions is our dominant kind of market at the moment, but we're only holding only 30% of the top tier accounts. But it does feed into a lot of our other kind of tentpole events, I'll give you some much more color on it, it's a massive kind of growth engine for us. And to be clear, it's not just 1 event. We're doing 17 different brands and 17 different projects. So it's a nice bit of work. And more importantly, when it comes to our financial year change, it's now in the middle of our financial year, so not the end of our financial year. I'll give you some more detail on that going forward. As I said, Lions itself is actually a growth opportunity still for us. We have not hit all the market yet, and there's still a good 70% of the market that we can target, which is fantastic for us, and we continue to grow that. And as Jamie says, our repeat business is so strong. We can start forecasting more conference for next year, which we have done in the past. And it gives us a great platform to kind of build and be smart around how we actually plan the rest of the year. Just to kind of give you some more color around what we mean around Cannes Lions and those who don't know what that means. In our industry, they are called tentpole events. These are big exhibitions or Cannes Lions Festival or CES in New York [indiscernible] -- in Vegas, should I say, Advertising Week in New York, South by Southwest. This is a kind of ecosystem that all brands kind of go to. So from Cannes Lions, it does feed out to these other brands. And they all kind of cross-fertilize. So we're just scraping the surface with the other events, now POSSIBLE, within the first activation, World Economic Forum in Davos, and CES, and that continues to grow. So hopefully, from this slide, you can see how they're all interconnected, but Cannes Lions with 17 brands, we have 17 opportunities to reach now. And that's really just the tip of the iceberg. And a typical journey with our clients is that we start off with one of these smaller activations. So here is an actual real client of ours that we started in 2024, small activation in Vegas, then goes to a bigger activation in Lions, then we do a conference in New York, then we go back to Vegas and it goes back to Lions. And actually, the size of the activations and the kind of program with the clients make them very sticky with us. And this is kind of our growth plan. I'll give you some more color around the size of projects we do. Needless to say, we have a client list to die for, but also we are very cash positive. We typically ask our clients to pay 75% upfront. So we have a very derisked kind of growth plan and it's kind of self-financing. Needless to say, because of the quality of our clients, we look back, we've had net 0 bad debt in the last 15 years, which is quite remarkable. It's clearly important for you guys to know that the management and the Board will have 38% of the equity. So we've got a lot of skin in the game. So we're fairly motivated around kind of improving the shareholder value and all kind of owners of the business. As we have done in the past, we have a commitment to dividends and as a listed company, making profits with cash in the bank, paying dividends, but probably 1 of the exceptions, and we'll continue to do that and have a progressive dividend policy to repay the loyalty of our shareholders and the value in the business. This is quite an interesting slide. This shows you the frequency and size of average projects over the last sort of 5 or 6 years. If you look at 2020, we were doing like 131 projects and the average price was GBP 42,000 a project. Well, to where we are now, where our average price is just under GBP 0.5 million per project and we are doing 50 projects. So what does that mean? We are being smarter and more selective in going for bigger ticket projects. 50 projects means less overhead to run than 131 projects. The size of the project itself leads you to be more engaged with the client because it's a high-value project, and then we tend to get more repeat business. And we are aggressively pushing for 3-year contracts, has been quite successful to kind of get that certainty going forward. And just reflects, obviously, the size and the value and the reputation in the industry, which is fantastic. AI and the impact of AI and the value of live formats are more important than ever. So in our medium and in the marketing space of a live event, a conference and exhibition and activation, a video, that value of that live engagement piece has been elevated and is very much at the top of the marketing table. Bellwether Report, events emerge as the leading category for greater market investments, outperforming all other segments. So that's TV, above the line, outdoor, social. So -- and that's the Bellwether Report. And for those who don't know, that is the industry standard for our industry. So we're in a fantastic place. We keep our clients for a very long time, our beautiful accounts team, which we spend a lot of time investing in, maintains and grows and looks after our clients. Our retention is super high. We don't lose clients. We just build and grow in a nice orderly fashion. And to that point that Jamie made about repeat business, because these tentpole events are fixed calendar events, clients plan for them. They're not ad hoc conference. So therefore, what tends to happen is we are working on an event in Cannes Lions for 2026, and then we're talking about 2027 as we finish the 1st event. So therefore, we're getting rebookings and reconfirmation pretty immediately. And as Cannes Lions grow and the other events grow, there's a certain amount of pressure from clients to book us early to get in with us, which is fantastic. Continuing to win awards. In our industry, the CN Awards are one of the highlights of the industry. We won Experiential Agency of the Year, which is the biggest award and the Creative Team of the Year award for the 7th year. I mean there's a nice story around that. So for 6 years in a row, we won Creative Team of the Year. It became known as the Cheerful Twentyfirst Aeorema award. Last year, we actually made a public statement saying we're standing down and let someone else win. Someone else won and we came back again this year, and then we won it again. So hopefully, that just shows the quality of the team, the quality of the work and our reputation in the industry. And as I now present from New York. We are having another busy September. September in New York seems to be again another peak period in the year. We're actually working for the 2nd year for Advertising Week. We are back again for Climate Week for the 3rd year. I think we announced we've got a 3-year contract with them, big huge activation here. Wall Street Journal and UNGA, we had Zelenskyy as our guest speaker yesterday for our 3rd year and back with Smartly ADVANCE with the 3rd big customer summit, which we're doing in 2 weeks' time. So that hopefully gives you a snapshot around our business. The kind of key highlights I would like to say is around the fact that we are profitable. We are cash rich. We pay dividends. We're strong. We win awards, are market-leading. I think I want to make a point around the 1st half and the difference it's made for us to change our financial year. Our financial year used to be June to July, where the last day of the last month was the busiest time. By moving our financial year to a calendar year, in our 1st 6 months, we've made our profits, we've done our turnover and move in the middle of the year, which means we can plan efficiently, don't have to be very efficient with our team and staff. And for the next 6 months, it will all add to the bottom line, which is quite a big change for us. So that's me done. So any questions, please, fire away.

David. How much of the recent margin improvement is structural and how much is driven by event timing and mix? I'd say it's both. I think the -- obviously, changing our operational costs and reducing that cost so it affects the margin. There's been a big push with our team as well to improve margins and the scale of the project and the quality of the work kind of feeds into that. David, what proportion of clients are engaging with Aeorema on a year-round basis and how much greater visibility does that provide? Great question. I would say the lion's share of our clients have moved to that model. I would say it's a good 80% or 90% that if they're doing more than 1 event in the year, they're talking to us about multiple events. It typically tends to stand -- start with an event at one of these tentpoles, it could be at CES, then move to Cannes Lions, or it goes to POSSIBLE. But it's a great mix from a planning point of view, from an account management point of view, from a quality point of view, so we can manage it going forward. So more questions? Anyone else want to ask any more questions?