Northcoders Group (LSE:CODE) — Interim Results for the six months ended 30 June 2025

0:00 Good afternoon. Welcome to the NORTHCODERS GROUP PLC investor results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on top right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and I would now like to hand you over to CEO, Chris Hill. Good afternoon to you. Good afternoon. Thank you. Hi, everyone. Thank you for joining this presentation. My name is Chris Hill. I'm the the founder and the CEO of NORTHCODERS GROUP and Hi, everyone. I'm Charlotte Pryor, CFO of NORTHCODERS GROUP.

0:51 So I'm gonna hand over to Charlotte now because we're gonna cover the h one financials first in this presentation, and then we're gonna we're gonna have a look at some operational matters and highlights from the period. And then I'm gonna go and talk a bit more about the direction in which we're we're taking the business forward from this point. Thank you. Pleased to report today revenue of 3,700,000. We have maintained a gross profit margin of 67%, showing that direct costs can be controlled in line with revenue. We've reduced group overheads by 20%, enabling us to have a more lean operating model going forwards. Underlying adjusted EBITDA was reported at naught 400,000 with net cash of naught 900,000 and a cash balance of 2.3.

1:42 Really comfortable position cash wise that will enable us to continue doing what we need to do over the next twelve to twenty four months with no need to raise at this stage. K. Onto operational highlights. The main highlights from the period have been from the progress we've made within our consulting division, challenger consulting division counter, which we'll talk more about later in the presentation. We have been incredibly successful within our client engagements, which the the main big names are Skip and Build Society and Manchester Airport Group. And we're also embedded in a a major government department where we continue to be successful, deliver great value on those assignments, and expand those the value of those contracts, and we'll announce new larger revenue as and when they come in to the business.

2:39 Outside of counter within the training, the government funding remains as unpredictable as it has been all year, much less predictable than we than than we thought it would be going into year with the changes that the new government have made. However, in terms of the strength of the company, we have been awarded outstanding by Ofsted, which puts us in the top six percent of providers. So when a time comes where the funding landscape is a bit more stable, we're very well positioned to to win in that area. However, we have made decisive decisions to take back control of the direction of the business, which we'll talk about later as well. We have got some skills boot camps have been coming through with 24 seats for Lancashire, and we're currently awaiting the outcome of the Greater London bid, which we are in communication with them and should hear about that shortly.

3:38 Oops. That's right. Oh, sorry. Sorry about that. Just to kind of run through the financials, I went over quite a lot of the highlights from the income statement in the financial highlights. Overall profitable for the period with an EPS of 0.88 and adjusted and an adjusted EPS of 1.28. EBITDA has been adjusted in the period for £47,000 worth of redundancy costs. On the statement of cash flows, cash inflow from operating activities stood at 383,000. We had a cash outflow from investing activities of 70,000.

4:24 This is mostly intangible asset spend of around 86,000 as we finalized our data and AI course, and then around 15,000 of interest received on cash balances. We had just under 1,500,000 of borrowings in the period with NatWest. This was a £1,000,000 loan at 2.5 above base. That's paid back over four years, and then just under 500,000 at 3.5% above base paid back over three years. The £500,000 was used to refinance an existing loan at that we had at 11%. We paid lease liabilities of 59,000. As you can see, that's quite dramatically down from previous periods due to us downsizing our Manchester office.

5:14 We also plan to downsize our Leeds office as well as we're seeing a more online version of delivering our course. This leaves us with a cash balance at the end of the period of 2,300,000. Moving on to the balance sheet. We currently have intangible assets of just under 2,000,000. We have tangible assets of 250,000 and goodwill valued at 1,300,000 with a deferred tax asset of 91,000. That's what makes up the non current assets. We have current assets of 4.2. There's 2,300,000 of cash in there, and then the rest is contract assets and trade receivables.

6:00 We have current liabilities of 1,300,000, and our borrowings at the end of the period stand at 1,400,000, bringing us to a net asset value of 5,400,000. K. Let go. So as it's been, like, widely reported, the skills boot camp landscape has significantly changed, and it's been very tough for us to to to navigate these changes. A lot of the regional authority bids are incredibly low value, and we just had to walk away from from attempting to deliver on on on many of those because we we just can't, you know, deliver those type of courses at the really low price that they're wanting to pay for them. There has been some, you know, outlying, you know, sort of more forward thinking authorities where we've been able to bid for much higher skill level courses and are awaiting London to come through on that one. But there has just been further changed recently in government as well. There's been over the past year. We've heard a lot about skills England.

7:13 There's like the new government's initiative to kind of give rebirth to to skills and, you know, reforms to the apprenticeship levy and so on. But that's just been subject to multiple delays and silence in a lot of in a lot of cases. And then more recently, the government also have made a decision to move the skills agenda out of the department for education, and then they're putting that into the department for work and pensions, which when we look to this as a board, we just thought that's going to be, you know, probably yet another twelve months of complete uncertainty. So we have made a decision to, you know, given the landscape, take back control of our revenue, and we are focusing more now on on driving the business growth through through COUNTA, which will look at the strategy and the positioning of of COUNTA and the competitive landscape in just a moment.

8:08 One of the most appealing things for the business about Counter was that it's much more predictable sort of cost base. As with the boot camps, there's multiple different departments required internally to run these boot camps at scale. Without the funding coming through, we just found that the consumer income was going to be too unpredictable thought it best to focus on, you know, larger sort of high, you know, higher value contracts within within consulting encounter. But still underpinned by the amazing training engines that we have. We're still able to produce and still have graduate pools to recruit from to place onto those contracts. And our focus for this year has been restructuring and reorganizing the company to make sure that, you know, our balance sheet is ready to to to grow, count within 2026, and doing that in a way that, you know, in a comfortable position that we ensure that the next phase of business, we don't need to raise any money and dilute shareholders for capital at this time.

9:15 So in terms of, like, the momentum pipeline of counter, which has given us the confidence to go into this, as we discussed before, our current client contracts, once we win a client, they're they're they're proving to be very sticky due to the excellence of our delivery, and we have invested in that by bringing in specialist engagement leads from the sector with expertise to make sure that everything that we do with nCounter adds great value, and not only to continue the the to give longer term to the context that we have, but also get support from our clients to tell the story so that we can build case studies up with the likes of SKIPT and Building Society who who have been, you know, very fond of of the work we've done with NORTHCODERS who actually uprooted a larger consultancy from taking over the work that that they're doing and we're able to now tell that story to win more clients in the future. We do have a healthy pipeline of future businesses and engagements that we're that we're taking. We recently won a contract within a software as a service sector, which is new to us outside of finance and government.

10:21 And we do believe that the success that we can deliver and value to clients means that when we do win a new contract, we'll always see those growing over the years ahead. We reported last year that we have bid and want to go on to some frameworks. G cloud was the one, and and and we are now using those frameworks to discover new opportunities and also grow the current contracts that we've got. So in terms of the changes to the business model, we still have our training engines to NORTHCODERS and tech returners, and we run this in a very similar way where we have an attraction pool of people looking to break into technology or returns technology, and we've kept the real high quality bar of the pre assessment training and our and our selection pool.

11:10 But then the main reason for us delivering the training, and we'll be strategically using any skills boot camps, contracts that we win to put growth initiatives into COUNTA. We also have an incredibly strong alumni network across the people we've trained over the years that we're able to bring in tech leads from, which is you know, our our consultancy model is a sort of a zero bench. So we don't actually have, like, some costs of having, like, consultants that we've pre trained. They're waiting to go into engagements. One of the, you know, the our competitive advantages of of counter is that we work closely with our clients to hand pick and hand select people directly for each contract, which is obviously also better for the for the cost base because we don't have people on the books who are not generating revenue.

12:01 Just gonna go over counter and our sort of USPs and how we how we compete. So we have still have large pools of both alumni and newly trained NORTHCODERS and tech returners graduates. So we're able to select the very best people working closely with our clients to make sure that they get people that are not only sort of there to be delivered on a project, but gonna gonna become a part of our organization for the long term. It's a value that we add. We're able to turn these engagements around very quickly. So when we we do win a new contract, it can take us as little as six weeks to get that from from from winning to starting to deliver, starting to to generate revenue. And because of the training engines and the way that we have done this on a zero bench lean cost basis, our pricing is competitive with some of the offshoring and, you know, sending work abroad.

12:58 Counters able to compete with our price, but also deliver here on-site and give much more value for the future. Turn to our strategy for clients for for counter, we've been building a compelling brand in the North and creating those stories and those case studies. We have developed a go to market strategy, and we now have a product that's ready to bring in people who are able to find new engagement, salespeople, business development. And in terms of the the wider strategy for counter utilizing frameworks like g cloud and partnerships, we're looking to grow out some of the contracts to being part of much larger bids, you know, looking at, like, central government organizations and and bringing in bringing in those bigger contracts, supporting partners for that. And then in the future, you know, rolling, you know, counter can easily move to being national or even international.

13:59 We have all processes and brand in place to recruit tech leads, to recruit our coaches, and we're not only able to bring in our COUNTA consultants from NORTHCODERS training engines, but able to bring them in from from from multiple other sources as well. In terms of sort of credentials and, you know, it's larger companies who we've been working working with Encounter, so it's obviously impressive to organizations that are looking to to make a change and and and see the success that we've had so far. Plenty of household names and, you know, incredibly good feedback and the ability to spread that story and grow a counter. And the frameworks that we listed on at Crown Commercial Service, the one we've been utilizing most recently is is g cloud, which we're putting together some proposal and, you know, final stages of of some contracts using that at the moment.

15:00 So in terms of the competitive landscape, obviously, you know, the consulting sector is is rather large and mostly is divided up into, like, the big consulting firms that we've all heard of, like, the, you know, your Deloitte's and Accenture's and so on. Then there is also higher trained deploy provider, which are probably more of the specific competitor of of counter where you've got organization like FDM and Sparta who will recruit large pools of trainees, put them through training, and then they have these this this deploy mentality where a client signs up with them, then they directly deploy from their pool of people into to these contracts. But, you know, we see our model as being very much more of a partnership with the client from the very beginning that we're able to work with them to select as opposed to deploying kind of pre pre trained people. So we're sort of counter deployment is one of the ways that we are attractive to clients and also embedding value for the long term in terms of our accounts consultants who are able to transition over to to working with with those clients permanently, moving over the end of the assignments.

16:14 But often, we're finding new areas and businesses where we, you know, we can put put new teams in as opposed to losing the losing the contract. And this is all, you know, powered by the reputation that we've built up for training excellence over over the past ten years with, you know, with within NORTHCODERS and lack of quality and the diversity of the the people that we're able to train. And, you know, we're moving away from a model whereby we'd work with businesses to place trainees and boot camps free of charge to winning significant contracts with with the same engine. Looking at the summary and the outlook, Counter secured a new £500,000 contract, which adds another large logo to that list. That was with a leading provider of business management software solutions.

17:07 The group will continue to monitor overheads to align ensure that we're aligning costs with revenue and ensure that we have have the right overheads in place for the next stages of the business and the next stages of growth. We are always focused on quality client outcomes and that will be always that will always be something that we are monitoring. We all know that AI and digital transformation are rapidly reshaping the workforce. We are currently looking into what more we can be doing around AI, and what that means kind of on a level basis. We we teach a lot. We've taught a lot of juniors in the past. We're looking at what we can do, around the more mid to senior, levels as well.

17:53 It was announced today that I have notified the board of my intention to step down as CFO and director of the company, and that will be after my six month notice period. I am leaving to take a bit of a career break. I want to start a family, but we'll be working with the business from now till then to ensure that the succession plans are all in place and ensure a smooth handover. We are taking decisive steps now. This will enable us to capitalize on significant long term growth opportunities. And as Chris was saying before, really bring a bit of control back, really kind of soften our cost base at a time when there is a lot of uncertainty within government funding.

18:38 We are concentrating on areas of revenue that that we can really push and we can really control. Thanks, Charlotte. Okay. We'll move on to questions now. K. So I've got a question here. How will the company generate shareholder interest so that people are minded to invest in NORTHCODERS? Trading volumes on London Stock Exchange are very low, and the share is relatively illiquid. Without people buying shares, then there's unlikely to be a meaningful appreciation in the market cap and the share price. So for me, yeah, we understand that the trading volumes are low, and, of course, we want to be able to generate value for shareholders by making the share more liquid. But I think that starts with, you know, successfully releasing new stores of business growth, new contracts, and, you know, profits and and and and growing the business from within and, you know, getting out whatever news that we can so that people can see the progress that we're making and with it, hopefully, begin to buy shares, invest in the company as they can see, you know, more more opportunity in the upside. We do our best to engage with people wherever possible, wherever we're also allowed to in terms of, like, rules of the some of the questions that that people ask that, you know, we're not able to not able to answer, but we're, you know, we're we're very open and and and happy to engage with with shareholders. And I I just think, you know, we we will release as much

20:08 news as we possibly can through our advisers and and within the rules and show some good progress and, hopefully, that will attract more people to to to invest in the business. Next question. You've kept gross margin at 67%. How sustainable is this level if b to b counter becomes a larger share of revenue? So, yes, that that gross profit margin is expected to drop slightly with a new revenue mix. We are currently working at around 50% gross profit margin on counter contracts. That is kind of an introductory level. We are still in quite the infancy, so we should be able to push that margin in future years.

20:54 And then because of the reduced number of boot camp seats that we're going to be doing, we can do that over a much with a much leaner cost base. So we're expected around 75% gross profit margin on boot camps, which will obviously pick that 50% up. But no. You're correct. If if the revenue mix is changing and counter becomes a much larger portion of revenue, then, yes, we will see that 67% drop. K. Is that all? Yeah. How sensitive is profitability to further government funding delays in h two twenty twenty five? So we have made really good progress on reducing our cost base, which means that kind of moving into h moving into quarter four twenty twenty five, we're in a good position with regards to cost. But, yes, quarter three was quite sensitive to that drop in revenue.

21:57 K. Do you see international expansion opportunities or is The UK skills got large enough to sustain growth? So, yeah, we're focused on the the the The UK primary well, primarily the the the North Of The UK at this time. As we mentioned before, you know, skills boot camps contracts in the South that will be used to strategically power the expansion of of of counter. We're gonna deliver those contracts as, like, their own their own projects with with with that in mind. And what we're doing with, like, the training engines and the kind of the the the brand that attracts the returners, the brand that attracts the beginners and the university graduates and and people for tech leaders, building the the business in a way so that if there is opportunities to take on a contract further afield offshore, then we would we'd have the recruitment engine that would have the ability to attract the people to to deliver on those. It's all about, you know, positioning the operations and the brand and prospects so that it's possible to to to deliver those training courses, which is also obviously being able to deliver those training courses without relying on the the the large numbers coming through the England based training engine does offer that opportunity for the future.

23:16 K. How aligned the management incentive with shareholder value creation over the next two to three years? So management incentives need to be reviewed and looked at. They are probably the ones that we have in place were incentives from from from where the business was before, the training company before all the government disruption. So I completely agree that senior people in the company need to be have have, you know, their incentives linked to creating value for shareholders and increasing the increase the share price. What proportion of costs are now variable versus fixed after the overhead reductions? We do still have, obviously, full time full time employees, but the the reduction in staff has been quite dramatic.

24:11 We are running a really slim boot camp business with and the plan going forwards will be that once those boot camps grow again, we will be doing that on more of a on a more variable basis. We will do that. We will look at contractor model rather than fixed term employees as we kind of move through the next twelve months. And the offices have basically reduced down to being really small. So there's obviously a large proportion of fixed cost there that have gone. But we we do still have some fixed cost that we we just can't do anything with, listing costs, stuff like that. But but there is a much higher proportion now of variable costs.

24:58 Kate, you mentioned FDM as a counter competitor. They've seen an extent share price drop due to the difficult market. Do you believe the counter can realistically compete, especially given the much smaller size? So I would yes. I think FDM have and many consulting businesses has been some news released by Deloitte this morning over the, you know, their their technology consulting arm being underperforming on their first line revenue drop within within fifteen years. So it's come off the back of that. But the way that I see it with COUNTA is COUNTA is a a new approach, and that's the reason why it's called COUNTA. You know, it's counter deployment. It is different. And we are also a much smaller size. So in terms of the market that we find difficult, we're able to be much more agile and some of the you know, we if we were to be able to win 10 contracts within counter, that would be a a huge amount of growth for us rather than, you know, large organizations that kind of if they've lost a couple of big accounts and, yeah, it's gonna be hugely detrimental to their revenues and probably drop straight through to their profits because there is a lot of cost.

26:04 There is a lot of non direct costs like linking the teams assigned to clients with the employment of the of the individuals and the recruitment is, you know, is a big plus in terms of the kind of operating model for for for COUNTA and, you know, in terms of the proposition proposition there. So I do you know, I I do believe that that that we have had come come you know, we've competed against other organizations directly for contracts, we have won. Of course, not every time. But so so yeah. It's I hope it answers that question. Good afternoon. Following the the recent question, what else is the company doing to promote its business to institutional investors?

26:53 Are you looking to expose your business to other markets, I. E, Europe, USA, China, India, etcetera? So we in terms of investors, we haven't we we do see institutional investors. We have people that follow the story, and they're probably more looking for to to to invest in the business on like when there is a transaction, which, you know, we're not looking at anything at this time. But, yeah, as we, you know, as we grow the business and it opens up, you know, investors from further field, we'd be more than to to have those conversations. But I think the the the the same as the first question, I think that, you know, focusing on, you know, taking back control of the business and and, you know, winning contracts, showing that, you know, showing that we have the that we can that we can do that, getting that news out there to create a bit more excitement around the story again, you know, before we before we do too much in you know, it's kinda like when we want when we go to see investors, we wanna be seeing them from a strong position of of success and and and and, you know, availability to sort of, you know, predict the future growth, and that's what this year has been all about. You know, the the the changes on the transitions and the restructuring to to make sure that we're in a position to to be able to do that in the future.

28:13 I can take this one. Is the 1,300,000 of intangible asset justified given the change in market you described and the low margins? Will there be a write down? So we we obviously monitor impairment. We do our full impairment review at year end. And there there obviously will be, a different outlook at the end of this year that will play a part in in impairment of assets. It's, that may cause a temporary, yes, a temporary write down of assets, but the level of that will will be known at year end. The plan is to kind of continue and and pick back up on boot camps in the future. So depending on on where our forecasts are at the end of the year will depend on on the level of impairment of intangible assets.

29:06 Okay. Thank you. There is a there is a question around forward looking forecast, which we're we're we're unable to answer. So I think at this point, that's the end of the the questions. And I just like to say thank you very much for joining us and continuing to follow the story, and we will we'll we look forward to to to bring in news news out when when we win contracts and when growing the business. And and and it's been a it's been a year of change and, yeah, we're looking forward to next size about the future and believe we can deliver great value. Thank you. That's great. Thank you. Thank you, Chris and Charlotte, for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations.

29:56 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of NORTHCODERS GROUP PLC, we would like to thank you for attending today's presentation, and good afternoon to