Northcoders Group (LSE:CODE) — Full Year 23 Results

0:00 Good afternoon, ladies and gentlemen, and welcome to the NORTHCODERS GROUP PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab just situated on the right hand corner of your screen. Simply type in your question at any time and press send. The company may not be in a position to answer every question it receives during today's call. However, the company can review your questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation.

0:31 I'd now like to hand over to CEO, Chris Hill. Good afternoon. Thanks very much, and hi, everyone. My name sorry. I thought I said the microphone. My name is Chris. I'm the founder and the CEO of, NORTHCODERS GROUP, and I'm with Charlotte. Hi, everyone. Charlotte Prior, CFO, of NORTHCODERS. I'll just give a little bit of a back story for people who are new to new new to NORTHCODERS.

0:57 I founded NORTHCODERS, eight years ago now, and what we did is we took the need for skilled software engineers, and couple that with the facts that people looking for better careers, and we set up, one of the first coding boot camps in The UK. I'm a career changer myself. And, when I got my first corporate job at Sky, I recognized through some of the recruitment drives that we were doing within, like, university graduates coming to work for us that there was a gap between the underpinning knowledge, which some of that was excellent and very useful, but the

1:28 actual skills and the tooling that we were using on the ground, the modern technologies that we were that that that we were looking for people to work with. So we were kinda setting up these sort of mini training courses for for these individuals, and, obviously, that made it completely apparent given my background and given the people coming out of computer science degrees needing training that you didn't need to be a computer science graduate to become a software developer. So we went off and we started coding boot camp in Manchester, which trained 10 people on our first cohort, and it was incredibly successful. And we've built the business from that point forward. We now have multiple divisions and multiple courses, which we'll go on to further in the presentation.

2:12 So just go through some financial highlights. We are really pleased to report that group revenue has increased 27% to 7,100,000 in the period. This is driven by expansion into new geographic regions. We've now got a higher presence in London, Scotland, and throughout The UK.

2:33 We've also driven this revenue by teaching more courses and changing the way that we teach the courses as well. Gross profit has increased 13% to 4,400,000 with a gross profit margin of 63%. Adjusted EBITDA reported at 100,000, which was in line with the market expectation reset in September last year, and the loss after tax was 1,000,000. We had a cash balance of, 1,600,000 at the end of the period and then net assets, of 4.8. I will go into more detail on financials further in the presentation. Thanks, Charlotte. And in terms of operational highlights, we had a record growth in number of individuals that we have trained through our boot camps. That's now a lifetime of 2,852 people.

3:23 We have further strengthened our relationship with the UK government who do now provide funding, for these much needed courses and much needed skills through through the skills boot camp framework. And recently in January, we just agreed a £10,000,000 funding, round with with, the education skills funding agency to fund individuals, to do our courses. We teach these courses all across The UK, mostly in England, but we do have now have a very geographic spread of people coming from different regions to do our boot camps. It's not just the North anymore. We have around about 20% of our students are located in the South. And in terms of our corporate division business solutions, we began our first sense of government contracts in q four last year, and we have also been investing in the technology that we use to power our coding boot camps to see more efficiencies and higher profitability in the future and more on that later as well.

4:21 So as we said, the company is founded in, 2015, and we're on a mission to close the digital skills gap whilst creating life changing opportunity for individuals from all walks of life. In terms of the student enrollment numbers, we've healthily grown those year on year, and we've actually got around an average of 50% revenue growth derived from training boot camps year on year. We have four main courses. I'll give a bit more information about those courses later. And we now teach software development. Data engineering is growing rapidly. There's been quite a lot of hype and people adoption of AI. And behind of AI is the data engineering skills that we are teaching people day to day. So I'm sure everyone's aware of wireless service growth in in that area. And we also do, cloud, and we're beginning to do more different flavors of software development starting with Java just to make sure that we differentiate the outcomes of people coming, completing our courses.

5:17 So training boot camp, all training boot camps are thirteen weeks long. We have recently released a part time version of our course, which people can kind of learn while they earn by doing the the course in their own time, which will run for double the length. We specialize mostly most of our courses are in software development. As I said, the data engineering is growing substantially, and pretty much catching up with, software development. And then we also have our, business solutions division, which is our higher train deploy our consultancy, division of the company, which what we do with that is we take the best performing people from our training boot camps, and we actually put together ready made teams for corporate businesses. Whilst last year was a difficult year, we invested in sales and marketing activity in corporate solutions. We are now seeing, a bit more of a better outlook for for our business solutions division, which is obviously, very pleasing.

6:15 So in terms of the things that we do within our training boot camps, this is our kind of recognized revenue over the years as well as our recognized and, sort of contracted revenue for this year. We do currently stand to have 97% of, the market expectation visible, which is fantastic. What we're doing within our training boot camps for further growth in the future is that we're diversifying our technical disciplines. We're staying within the areas that we know best, software development, data, cloud engineering, but we're going into different flavors of software development just so that we are having people coming out at the end of our courses with different skill set, which better appeals to the corporate market, programming languages and frameworks and so on. We're also investing in a follow on courses. So for career and professional development for individuals who have completed NORTHCODERS or completed any training boot camp to continue their journey and to keep learning and cross skilling into different areas to make themselves more valuable. And we still have further initiatives to grow our geographical expansion. We're investing in, places further field from England now and starting to see, more learners come on board from Ireland, Scotland, Wales, and further field, which also diversifies our revenue because we have different funding mechanisms in different locations.

7:30 In terms of, you know, our USPs, we are very much a quality above quantity. We have an exceptional reputation. We, last year, had 14,000 people apply to join the NORTHCODERS framework, and we had around about a 100 people a month less than actually going through our courses. So we are highly selective, and I can show you later some of more of that process and the way that we choose people. But ultimately, this is open for anybody to apply to do this course and to get a career in tech. All you've to do is learn some of the basics yourself just to prove that you're gonna be the right type of individual for us to get a good outcome for you through our course. We've got eight years of community building up. So one thing that we seeing now is we're starting to see more and more people going into more senior hiring managers, even starting their own businesses and coming back again to NORTHCODERS to, to hire from us. And we have a great reputation for our building up our relationship with corporate businesses over the years and, therefore, driving those job outcomes for individuals who do join North Coast.

8:29 So business solutions, we had somewhat more of a larger menu of different items that we're doing for different corporate businesses last year. We have really focused on making that much simpler as we go into this year, and we have our main product, which is a developer incubator. And what that is is that is a a team of, entry level, technologists, but they are managed by someone much more senior so that the ultimate proposition to a business is that you can, take these people into your organization without distracting the the more senior people, and we will look after that, process for you. It is, in terms we'll look at some of the competition, later on, but we have got a more profitable model whereby, a lot of people will have to hire, and pre train people, while they've got them on their payroll. What we do within our business solutions division is that we select people who are the best performing people coming out of our courses, and we then, talk to business about putting together, some bespoke requirements for them for those individuals.

9:28 And we don't then need to have a, like, a bench of people that are underutilized. We can literally engage with a corporate, start a contract, and deploy people almost immediately after being produced by North Coast. So it's a more profitable model than traditionally exists in the in the sector. We have got some nice new pilot programs starting soon that we're going to be looking to make sure that we can continue and get some renewals from. So we we are looking happier with the outlook on the business solution side than we were last year. So, yeah, in terms of the USPs for business solutions, it's kind of a bit of a, we say, a try before you buy off. And what that means is that you can have a team from NORTHCODERS which is completely managed before you begin begin to build build your own ecosystem because not everyone is used to taking people from, you know, different walks of life. That's something that we that that we are certainly heavily encouraging.

10:20 We don't have recruitment fees for businesses. You can build your pipeline through using our incubator. We're more than happy at the end of the contract for the individuals to go to oh, sorry. The light's just gone off for maybe for individuals to to join our partner companies. And, yeah, we are an onshore solution to the needs of technology businesses, but we are competitive with some of the kind of abroad sort of overseas models that have been fairly popular over the years. But we are seeing a lot more companies talking to us because they wanna bring, you know, their engineer engineering capability back to The UK, which is great to see. So the one of our investments set through the course of last year is our encore and what we call our JS basics, which is our core teaching platform for for our courses.

11:10 And we've prepared a little video just to show people what we've been working on and how we think this is going to, drive more profitability and automation of of of our business, in the future. So I'll move on to the next slide, and then, we're gonna play the the video.

11:30 So this is the this is the basic teaching platform, and the main use case internally for this at the moment is to help us automate that onboarding process. And we said we get down from sort of 14,000 applications out to about a thousand people. We do that now fully online through our through our own platform. So it starts off fairly simplistic and, you know, not exactly groundbreaking where we have interactive quiz based learning for people, and this is just because that is the best way to get people to begin to feel some success of reading some of the material you can see on the screen there. It looks incredibly complicated and beginning to make sense of it, and this is more about teaching people new things than it is about assessing their ability. Our platform then can run some outcoding algorithms and equations, do simple bits of code, lots of additions that we're that we're doing here, give feedback directly to the person using it, and they can go and attempt to make that correct and then move on from there. And this is one thing that we do to begin to get people feeling like, oh, yeah. I I'm writing some code now, and I'm seeing the results, and, you know, I'm keen to get into this and and and and take this journey further.

12:40 So we then get into assessments, which are a little more complicated. We're now using our system to analyze complete chunks of code function that our students are writing. And this is something that previously we used to have people sat with individuals or going on Zoom calls with the remote model. So on to actually help people to talk through, build their own assessments, and and and mark their software. But as we can see from from the video here, we're now doing that automatically. So we've also plugged this into we've built our own complete learner management system as a well known, LMS from scratch. Now this is the way that we manage our cohorts, on our courses, and we have built this ourselves because quite a lot of things that we do is bespoke, but the most interesting part of what we're doing is we're plugging in the evaluation from, from the from the coding courses and from the the code that people are writing. And whilst you can see here on the screen, one of our twos is using this software to do a manual review, and this is the process that we've that we've always done over the years.

13:41 And what what we're also doing in the background behind of this is we're also, if that automatically evaluating evaluating the submissions that they make. We're trying to gauge in our sort of data engineering team, you know, what parts are we getting right through the automation that we put in place and what parts are we still thinking that that we need to tweak slightly so that before we begin to release automated teaching to students, we know that we are doing the right thing. And ultimately, we were trying to do this to obviously make ourselves more profitable and save on some of our some of our costs, but make the experience better for the individuals. We should have to be able to spend more of our time rather than going around evenly distributing, you know, the knowledge of our instructors across the cohorts of people. We are able to intervene with larger groups, giving them more more focused time and giving them ultimately more learning to to get to where they wanna be and the reason why they they joined NORTHCODERS in the first place.

14:31 So we are we are using this software now on on our courses, and we're beginning to see some of the efficiencies that can build, and that should start showing into increased profitability from from the the training boot camps in the future. Thank you. So it'd be good to show people that one. So yeah. Well, let's talk about, you know, competition in terms of training boot camps. Now we are now considering our competition. These are some of these international companies because we think with the with the online model, we have taught people from Hong Kong. So we obviously have to keep an eye on what everyone else is doing. The main differentiator with NORTHCODERS is in terms of, you know, we we do have an amazing reputation, especially here in The UK. And what we are doing to make ourselves different is we're beginning to diversify in the areas that we teach. We're to break down not just software development, but into giving people more specialist areas to to focus on and be more skilled in. So we are gonna be better from that point at targeting the corporate businesses that require people with those kind of skill sets, and ultimately just being able to to take cohorts of a 100 people, let's say, and

15:37 we're coming out with, around everyone having the same skill set. We've got four groups of people which should make the outcomes better for the individuals, and obviously better for the business. So, yeah, business solutions, you know, we do come out of some big names on there, like Accenture, one of the biggest companies ever. But, you know, we we are in the consultancy space in terms of QA, FDM, Sparta, and Ten Ten. They are companies that have a very similar model to North Coast apart from the differentiator is that they are hiring people up front and training them, which is a large cost base to them. And also some of the ways that these individuals are contracted to earn outs and and and, you know, if they're not placed, they they they have to stay on for a a large amount of months where where they they they are contracted, but they don't really have a role. And it's just not really the culture that we're trying to build. We're trying to diff disrupt and differentiate in, in that sector. And in terms of companies like Accenture, we can also go in alongside some of the, expert businesses, and it's almost like that can be come from the strategy and the implementation.

16:35 And then what NORTHCODERS does is builds up the teams, for those businesses. So we're, yeah. We've got some as we said, we've got some pilots, pilot programs, coming through, which is really good. And we've got a rebranding exercise going on, which we're excited to announce for everyone, and we are much more confident in the outlook of the market, which I can go into next. Because we are seeing, the the hiring last year, the hiring market did get really tough. There was lots of redundancy in the tech sector, obviously. You know, ourselves, we we we lost some corporate contracts, our academy division did struggle with, the fact that businesses weren't, recruiting graduates because they were making redundancies at the other end. So, hence, the reason why, obviously, we we we sort of reset our expectations last year, but we we do feel much better about it. And there is, you know, especially lots of talk in the AI space and stuff we do within data engineering to make sure that, you know, that we're producing people that can that can work in those fields as well. We are happy to say that we have a a better outlook for this year.

17:39 Cool. Hello. Do want to have them answer your side? Yes. Thank you. So I will dive a bit deeper into the numbers. We just have some visuals here to kind of show the revenue increase year on year, and then, obviously, the movement in the EBITDA as well. 2020 being the COVID year and then our growth path really starting from there once we've kind of put together the online platform and the hybrid model, and then with 2023 being an investment year.

18:18 So p and l wise, revenue, 7,100,000, up 27%. The gross profit margin at 63% is slightly lower than where we like it to be. This is due to corporate solutions having having slightly lower profit margin. But going forwards, once we start to realize the efficiencies from the encore platform, we do forecast that that will be up back up to 70%. Adjusted EBITDA is down to naught 100,000. So the investments in the year that we made that unfortunately didn't pay back as quickly as we had hoped. With sales and marketing, we launched our London presence.

19:04 We invested into business solutions, and also into tech returners, was the acquisition that we made in February last year. And these these investments are all now starting to pay off, and it's it's really helped the business solutions pipeline as we come into quarter one of this year, and we are in line with market expectations for this year. So the difference between the adjusted EBITDA and the operating profit is adjusted for share based payment expenses and some business restructuring costs, depreciation, amortization, finance costs, there

19:44 is also a revenue adjustment in there as well for unrealized contingent revenue. If we go on to the cash flow, cash flow from operating activities is down due to the loss. We have a decrease in trade and other receivables, signaling a better cash relationship with the DFE. We're really into the swing of the DFE contract now, and it's become the the cash generation on that contract is really good. And then all of our other kind of revenue streams are cash generative from this point forward. Tax refund is from r and d activities. And then the cash used in investing activities consists of capitalized development costs, mostly the platforms that Chris has just been through, and some IT equipment, quite a low value, and then the tech element the cash element of the tech return as acquisition as well.

20:48 We didn't raise any money in the period, and we didn't take out any new bank loans. We're continuing to pay off our existing loans as well, and then we also have some lease liabilities and, obviously, the interest on those loans. Balance sheet wise, the noncurrent assets rose to 3,500,000. That is made up of goodwill from the tech returners acquisition, intangible assets, computer equipment, and there's a deferred tax asset in there as well. Current assets are mostly debtors and cash with a balance of 1.6 at the year end, and and bank loans now stand at just over 700,000. We've also got some nonfinancial results. So in the period, we received, just under 14,000 applications, and this was obviously up quite a lot from, the previous year.

21:54 38% of our students taught were, non university educated. The average starting salary that graduates went on to earn increased to, just under 30,000. Placement rates are strong at 89%, and we are still, offering funding options to our students. Although, we are keeping an eye on cash, and that can be kind of turned on and off whenever we need to. Cool. Thank you. So, yeah, I think Charlotte's goes well. You know, we are happily trading in line with market expectations this year, and we due to the kind of restructuring of that expectation of the academies, we don't envisage having a a h two weighted year this year. There is some pilot programs that we are looking at and some contracts within the solution space that could also

22:51 give an upside to to revenue and drop straight through to to profit this year. So it's good to be seeing momentum in that space. And we're still great momentum on the training boot camp. We've filled every call so far this year. Got around 3,000 applications coming in, and all this evaluates towards, you know, having 97% of our revenue target for this year with our profitability and our management accounts wise looking healthy, certainly, much healthier than than last year due to the to the rebudgeting. And, again, you know, it's just great to see for us the the the support from the UK government, and a lot of people ask us about, you know, what you're expecting a change in government and, you know, expecting this to be a massive change to the to the skills boot camp framework. I think the change in government everyone's expecting. I would say say there's probably it's more of a traditional area. We think about turning Blair on the apprenticeship reforms and and so on. So, you know, we're pretty confident in the the framework. We are performing incredibly well on on the government on the government funded side, and we will be able to continue to to grow that. They they are you know, we are we are doing very well supply. We've had our offset inspection and so on. And so we do think that that framework looks set to to continue for for some years to come. But, of course, you know, not taking our off the ball. We are diversifying into other areas to ensure that we that we keep up with that.

24:12 What was the question?

24:16 That's great. Chris, Charlotte, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions just using the q and a tab situated on the right hand corner of the screen. But just while Chris and Charlotte take a couple of moments to review the questions submitted already, I'd just like to remind you that the recording this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. Chris, Charlotte, as you can see, you've had a number of questions from investors throughout today's presentation. So firstly, thank you to everybody for your engagement. Could I just hand back to you, Chris, maybe just to to read out the questions where it's appropriate to do so, and I'll pick up from you at the end. Yeah. Absolutely. So in terms of Ben's asked a question here about changing government funding, how reliant is Northcoders on on public funding. I think any changes to the government funding frameworks, like, for example, for skills boot camps would not only affect NORTHCODERS, they would affect everybody.

25:07 So there would certainly be some backdrop backdrop to the the other plate ways that we used to rely on funding the training boot camps. But, we are diversifying into into other areas. We're looking for sales for the field to make sure we keep up with that that private market, and we are, you know, making into the the corporate space. We are much more confident about the outlook of that this year. So, again, that's diversifying away from from those areas. So are there any other potential acquisition targets or partnerships on the horizon that could complement your current offering or expand your tech reach? So I think we're focusing on, internally, on on growth and oh, sorry. I was just what's up? Yeah. We're focusing on the internal business and organic growth, certainly for this year.

25:56 I'm not sure in the future what would or wouldn't be on the horizon, but we, do expect anything to be announced anytime soon. Want to say something? Yeah. Can I shall yeah? Yeah. So what unique factors or services give you a competitive edge in the crowded tech education market? So, yeah, the tech education market is quite crowded. It's very fragmented. We are seeing some new players in the field, and then we're kind of seeing the the original kind of players, obviously, still around. We have always focused on quality over quantity, and I think that is probably one of the reasons why we've managed to keep the reputation that we have. And we've built up years and years of testimonials and relationships with corporates, and I think that that gives us the edge when somebody decides to spend £8,000 or to kind of give up three months of their lives to to sit our course.

26:57 It's quite a considered decision. And I think going to a coding boot camp that has

27:03 been around for for quite a few years and that does have the testimonials and the outcomes that we do, is quite comforting for people. And so we at the minute, we are not not shy of applications and the demand far out out see exceeds the capacity that we have. And so, yeah, we're I think that's what gives us the edge. Excellent. So I'll do this one here. So could you say more about placement rates? Is that of the total intake of 1,100? And do you anticipate any difficulty given the job market affecting future intake? So the way the outcomes are calculated is they're actually on a trailing since graduation six month basis because that's about the time that that we give ourselves to work with an individual to, to get a job. We do see some people getting outcomes, further past that point, but that's the way that we calculate it. So intakes, as you can see from so from the graph earlier in the presentation, the intakes have grown. So it's not of the total amount of enrollments last year. It's the percentage of people that are placed within that period.

28:06 The yeah. The market was difficult last year. You know, the the the market the market was difficult for the tech space, but, you know, we keep working with individuals and people obviously also do are keen to find roles themselves. So working with people to give more advice, need careers, workshops, we're always there to support whenever we can. In terms of affecting future intakes, you know, they are they are going the the intakes are set for this year, but, yeah, it's something that that we review. But, yeah, the outlook we do feel is is improving in in in that space and especially diversifying the outcomes of the individuals. We're giving people, you know, differentiating skill sets at the end of our courses as well as, you know, the the data engineering space, I think, is a higher growth trajectory as well, and we're we're we're doing more grow growth ourselves into that area. So we do adapt to, the needs of the market in terms of, the the types of skills that that we that we teach people.

29:04 And I think that's all of us since. Yeah. You've taken all the questions. So thank you once again to everybody, for their engagement. Chris, Charlotte, I know investor feedback will be important to you. I'll shortly redirect, the shareholders on the call, the investors on the call to give you their thoughts and expectations. But, Chris, before doing so, can I just ask you for a couple of closing comments? Yeah. Thank you. Yes. So thank you everyone for joining our presentation today. And, you know, we we look forward to further updates, throughout the year. We have got exciting things happening in the corporate space as well as we do feel, and we, yeah, we feel happy with the progress we're making this year, within the training boot camp. So we're excited about the things to come such as the the part time offering to be able to help people act you know, access careers and technology that can't give up their jobs for three months and things like that. So, yeah, we're looking forward to, getting back to business and, and growing the company. That's great. Chris, Charlotte, thanks once again. Ladies and gentlemen, please have asked you not to close the session as we're now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations.

30:08 This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of NORTHCODERS GROUP PLC, we'd like to thank you for attending today's presentation, and good evening to Thank you. Thank you.