Trading Update and Board Changes

RNS Number : 2323B

TPXimpact Holdings PLC

30 September 2022

 

This announcement contains inside information

30 September 2022

TPXimpact Holdings PLC

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

Trading Update and Board Changes

Ahead of its AGM being held at 11am today, the Company provides an update on its first half performance and significant Board Changes.

Trading update

As the Group approaches the end of the first half of the current financial year it today provides an update on trading in the year to date. Trading for the first half of the year has been below our expectations, which will impact the Group's full year results.

As the financial year commenced, management were committed to building sufficient resource to enable strong top-line growth in both the short and long-term. This primarily involved investment in talent in a central sales, growth and bid management team, as well as increased investment in marketing initiatives. This was particularly important in the context of the rebranding of the Group as TPXimpact and the integration of the separate businesses into a more co-ordinated divisional structure.

As the first half progressed, it became evident that management underestimated the impact of the integration project on its people and, in particular, that moving to a centralised sales, growth and bid management team had led to some internal inefficiencies and was not working as effectively as had been anticipated. This resulted in a Q1 order book lower than expected, impacting revenues in Q2, as was referenced at the time of the announcement of TPX's preliminary results on 19 July 2022. In Q2, the Group took action to reposition the sales, growth and bid management team into the specific divisions (largely the Consulting division) in order to bring them closer to the account management and delivery teams driving ongoing and upsell revenue. The Board remains of the view that the integration of the separate businesses that form the Group is the correct strategy so as to enable long-term, sustainable growth and the sales, growth and bid team are an intrinsic part of this strategy. The Board is also committed to making further investment in talent to enhance the Group's back-office (including finance, HR, and IT) so as to be able to support the Group's continued expansion and growth.

These investments have resulted in a significant increase in the Group's operating cost base which has impacted profit in H1, and will continue to do so on an ongoing basis. In addition, there has been a short-term impact on productivity and efficiency of client-facing staff which has impacted gross margins in the first half.

During Q2, the order book has shown marked improvement, generating new business in excess of £26m, reflecting the benefit of repositioning the sales, growth and bid management team in that quarter. This new business provides a solid foundation for H2 revenue expectations.

Given the above, the Board is now expecting full year revenues of around £90m, broadly split 45%/55% between H1/H2. This reflects marginally more weighting to H2 than last year (48%/52% H1/H2 on a proforma basis) but is also a return to a more normal phasing of revenue across the year. H1 last year benefitted from an acceleration in public sector spending on digital projects as the UK emerged from the COVID-19 pandemic, which has not recurred this year.

The Board is also encouraged to note that approximately 75% of the H2 revenues needed to achieve its revenue expectations are represented by committed client spend as at today's date. The remainder represents a realistic assessment of pipeline opportunities that are currently (or will shortly be) in flight.

Gross margin is now forecast to be around 30% for the full year (31% last year), although H1 gross margins will be below this average, before being expected to recover in H2.

On that basis, the Group now expects full year Adjusted EBITDA to be in the range of £7.0-7.5m, reflecting the investment in talent and operating costs outlined above. H1 Adjusted EBITDA is expected to be around £1.0-1.5m, reflecting the pressures on H1 performance as outlined above. Nevertheless, the Board remains convinced that a fully integrated operating model is strategically the most effective way in which to address the market and leverage the depth of expertise and talent at its disposal. The Group will continue to remain well within its banking and debt covenants with this new outlook.

Given the momentum in new business evident from orders won during the course of the summer, the level of committed spend within the reforecast and a healthy pipeline of new projects, the Board is confident that H2 will show the anticipated recovery in performance.

The Board continues to believe the digital transformation market in the UK - in both the public and private sectors - remains vibrant and attractive, with plenty of potential for continued growth. The Group expects to return to more normal market trends in growth in the next financial year. Given an expected like-for-like growth rate of around 10% in H2 this year, the Board expects to achieve like-for-like top-line growth of around 10-15% next year and an adjusted EBITDA margin of around 12%.

Board Changes

The Board also announces that Neal Gandhi and Oliver Rigby, co-founders & CEO and CFO respectively, will both be stepping down from their executive roles with effect as of 1 October.

This follows a rigorous process to identify the optimal structure to take the business through its future ambitions of annual revenues of £200m and beyond. Both Neal and Oliver have achieved great success in growing the Group from scratch to its current position but believe that different skill sets are required in order to lead the business through its next phase of sustainable growth. As such, the Board is pleased to announce that Bjorn Conway will be joining the Company as CEO. Between 2011 and 2016, Bjorn led EY's UK Government and Public Sector team operating across central government, local government, health and infrastructure. The business doubled in size over 5 years and was EY UKI's largest market segment. Since then, Bjorn has concentrated on building a number of private businesses, including Dx3 where, as Founding Partner, he has focused on building integrated, full-spectrum digital transformation businesses.

Steve Winters, currently Deputy Group CFO, becomes Group CFO. Steve joined in April 2022 on an interim basis and has been heavily involved in the transformation of the divisional and central finance teams, expanding the quarterly re-forecasting and management reporting process, as well as contributing to the FY22 Annual Report and audit. Prior to joining TPXimpact, Steve was a long-standing member of the leadership team at WPP plc where he worked for over twenty years, most recently as Deputy Group CFO, and prior to that, as Group Chief Accountant.

Both Bjorn and Steve will take up their roles as of 1 October and will be appointed to the Board of the Company following the completion of the necessary regulatory background checks. Further announcements will be made at the appropriate time.

Neal Gandhi will remain on the Board as a Non-Executive Director. Oliver Rigby will step down from the Board as of 1 October but remain with the Group as Director of Corporate Development.

Mark Smith, Chairman, commented:

"Neal and Olly have done a remarkable job in founding and then growing the Company to more than 900 people, including associates, in such a short period of time. Following the important strategic decision to unify all businesses, the Group is now well placed to become a multi-hundred million pound revenue business in the coming years. Having begun discussing their futures with the Board some months ago, Neal and Olly have demonstrated exceptional self-awareness in recognising their strengths and weaknesses and understanding that a different type of leadership is required if the Company is to achieve its full potential.

"Bjorn Conway has an excellent track record in the UK Public Sector and has the relevant skills needed to take the business forward. I am excited to welcome him to TPXimpact. Steve Winters has impressed since he joined in April and, through his time at WPP, is used to working with large, complex and multi-faceted reporting structures. As a Board we are confident that the combination of Bjorn and Steve alongside our Senior Leadership Team will be ideally placed to achieve our growth ambitions."

Neal Gandhi, Founder and Non-Executive Director, commented:

"It has been a great privilege to lead TPX and I am incredibly proud of all that Olly and I have achieved at the helm. Although the trading in the first half is clearly disappointing, the cause has been identified and resolved, as can be seen through the excellent sales performance in the second quarter.

I have been impressed with Bjorn throughout the recruitment process and believe that he can drive TPX as it benefits from the continued commitment to digital transformation in the UK Public Sector. As a Non-Executive Director and major shareholder I look forward to helping him and the rest of the Board and ensuring that the Company continues to marry purpose with financial success."

The person responsible for this announcement is Neal Gandhi, CEO

TPXimpact Holdings Mark Smith, Chairman Steve Winters, Deputy Group CFO Stifel Nicolaus Europe Limited (Nomad and Joint Broker) Alex Price Fred Walsh Ben Burnett	Via Alma PR [phone]
Dowgate Capital Limited (Joint Broker) James Serjeant Russell Cook	[phone]
Alma PR (Financial PR) Josh Royston Kieran Breheny Matthew Young	[e-mail] [phone]

About TPXimpact

TPXimpact exists to transform the organisations, services and systems that underpin society and that drive business success. It applies strategic and creative thinking, technology, innovative design and user-centred approaches to bring about numerous improvements which together multiply the impact of change.

The Company works closely with its clients in agile, multidisciplinary teams that span organisational design, technology, and digital experiences. It shares a deep understanding of people and behaviours and a philosophy of putting people and communities at the heart of every transformation.

The business is being increasingly recognised as a leading alternative digital transformation provider to the UK public services sector, with c.72% of its client base representing the public sector and c.28% representing the commercial sector.

More information is available at www.tpximpact.com .

 

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