Tpximpact Holdings (LSE:TPX) — Interim Results

0:00 Good morning, and welcome to the TPXIMPACT HOLDINGS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Bjorn Conway, CEO. Good morning,

0:31 sir. Good morning. Thank you very much, Lily. Good morning, everybody, and thank you very much for joining us today. I'm Bjorn Conway. I'm the chief executive of TPXIMPACT. To my left is Steve, Steve Winters, CFO. To my right is Richard. Hi. Richard Griffiths, group Feet. And Luke. Hi. So thank you very much for joining us. We've got an opportunity now to give you an update on our half year results to the September 30 and also to talk a little bit about our outlook. In summary, as as many of you all know, we are halfway through a three year plan, a three year strategy, and that's essentially to simplify the business, to make it more joined up for our clients, and to also improve the way the business operates.

1:17 From a financial perspective, that's improving the conversion of revenue down to EBITDA. As we sit at this half year, we are ahead on all of our profitability metrics. We have had some headwinds, which we'll go into a little bit through the year, and we've talked about previously around the budgetary position, particularly in central government. But we're emerging from that strongly. We've seen a good progression in terms of our quarterly new business wins. So we're feeling that we're in a good place for meeting the needs of an ambitious government that has a lot to do in the digital transformation space over the next few years. So we'll go through the presentation, and then we'll be really happy to take any questions at the end. So in terms of our summary, we've on the left hand side, you can see what our current targets are for FY 2025.

2:10 So we're anticipating flat growth this year. And as you'll see from some of Steve's slides later, that is still a progression in the first half from two years ago, but flat relative to last year. Adjusted EBITDA, we indicated a range of 7,000,000 to $8,000,000 which we are holding. And in terms of our leverage ratio, we are estimating that will be approximately 1x EBITDA. So key things for us at the half year, revenue about $37,800,000 so it's about 9% down on where we were last year. We had very strong growth in the first half of last year. Over the full year, obviously, we see that coming back up, which will leave us flat in total this year.

2:55 In terms of our other metrics, there's some profitability metrics that we've got up there. So adjusted EBITDA margin is up by 15% on a like for like basis to last year. And the adjusted EBITDA margin at 6.1% is up 1.3 margin points. So good progression there. Our net debt is also in a good place at 7,900,000,000. And Steve, when he comes on to talk about financial and ESG metrics, will cover more about that and where it leads us with regard to our covenants. As I touched on when I was sort of introducing good sort of new business progression, we had a quite a quiet quarter in q one at about £9,000,000. That's when there was a lot of talk about elections and various other things. Q two did actually improve on that, so it got to 26,000,000.

3:44 And so far in q three, we're at 29,000,000, which does include the recently announced win. One of the things that's really important to us is not just the numbers, but it's the work we do and how we go about doing that work. We were exceptionally pleased to be to achieve B Corp accreditation at the start of this year, and that was founded on the work of lots of people over several years. So it's really the foundation of TPX. Our employee retention rate remains strong. 88% is about where we would expect to be for a business of this size and nature. We did make some headcount reductions in the summer, and we'll talk a little bit more about those later.

4:30 But just to give you an idea of scale, our permanent headcount reduced by about 4.5% and is currently at five ten people. We'll go through a range of metrics, ESG metrics, later in the presentation. But just to highlight a couple, it really still remains very strong focus for TPX, as you would expect for a certified B Corp. So female representation remains strong, and we've actually made some additional headway on our carbon footprint. In terms of the mix of the business, pretty much as we last updated, so we do have a significant weighting towards central government. That obviously impacted us in the summer when central government sort of activity slowed down a little bit, but it actually is very well positioned given the ambition and the agenda that the government has ahead of it. So sort of future prospects, I think, are very strong.

5:25 So in terms of our business and in terms of what really lies behind our three year strategy, strategy, it's about actually making TPXIMPACT a really high performing business. So focus on its clients' needs, focus on its people. And we talk about being a purpose driven digital transformation business because it's really important that we show up with a lot of empathy for what our clients are trying to achieve, and we also do that in a consistent and appropriate way. So our three year strategy is really to get TPX to where the point where we really call it a strong platform as an integrated digital transformation business because that then provides future options around how we grow and develop the business. So we should have a good platform for organic growth and growing into new areas in our existing client base and sort of expanding our services organically, but also a safe platform for making acquisitions and being able to onboard those in a safe way. So it will give us options as our financial position continues to improve.

6:26 For our clients, which is where this all starts, our aspiration is to be very clear about the proposition that we provide and to join up our capabilities internally. From the business perspective, our aspiration is to become simpler because if we become simpler, we become easier to deal with, we become better managed and easier to manage as a business. And as I've said, that provides us with the sort of safety and security to be a good platform for future growth. If we go on to the next slide, Luke. So this is the three year plan in terms of some of the key bullet points there. So very much in the first year around bringing to the fore the the need to balance commercial outcomes with some of the purpose driven outcomes to make sure we've got that in balance and that they're mutually enhancing.

7:16 In the second year, the primary bid of the second year was to actually do some of the internal changes, the internal transformation. As it turned out, we were able to do that at the end of FY twenty four, which meant we entered this year with a very clean business model of three business units. So digital transformation, manifesto, and kits. And I think that's stood us in good stead through the year in terms of being able to maintain the sort of the EBITDA performance of the business. Generally, over the three years, what we're trying to achieve is this simpler, better defined business. We want to be really rooted into delivering maximum impact for our clients. And when we think about our clients, we think about the systems that they operate in rather than just the client ourselves. So we have to bring real value and understanding.

8:06 We also want to maintain good ways of operating because I think it's really important to attracting the right people into TPX and encouraging them to stay in TPX. And it also shows up to our clients if we are a purposeful organization ourselves. And through that, I think we will get the mutual benefit of becoming a more commercially successful organization. So we set out an aspiration to improve our EBITDA margin at the end of the three year plan. There's some detail around that given the NIC announcements and the original budget, but our aspiration is still to maintain that margin progression year by year to make the business a better business.

8:49 In terms of recent progress, so I've mentioned the clarity around the three business units. To give you an idea, digital transformation is about 75% of our business by revenue. It deals, you know, key areas of expertise, which is founded upon the excellent legacy businesses that TPXIMPACT was formed from, are around things like user centered design and the insight that that can bring to problem solving and bring delivering the right solutions. And we also have now have a really strong data and technology group as well. So the two hand in hand can really be beneficial for our clients. Manifesto is a business that specializes in experience. So experience and engagement of of clients, predominantly focused in the charity and memberships and association sector.

9:40 And KITS is a business that specializes in some of the really thorny issues around legacy infrastructure, particularly in the public sector. So large data migrations, really difficult programs, and technical architecture challenges. I think as a team, we our aspiration and our plan has been to continually improve the business as we've gone through our three year plan. We met the revenue headwinds that we had in the beginning in the middle of the year, and we dealt with those by looking at what the business needs in the future. So we did have to make some cuts in the business, but we did that very selectively with a view on where we felt the demand was coming from, not just in the immediate term, but also where it would build during the course of this parliament.

10:28 The actions that we've taken will go Steve will touch on some of the the costs of some of those actions, but the the benefits of those in terms of the financial performance of the business will endure over multiple years. I've touched a little bit on staff retention rates and headcount. The 7% figure there reflects also a change in mix, so between permanent staff and associates. And through the year, we have increased the proportion of our work delivered by permanent staff, but we've retained a good associate mix because that actually provides us with a lot of flexibility in our business model. One of the things we also want to do is improve the engagement of people and the understanding of how they can actually contribute effectively to the business. That's why we've put a 160 people through a leadership essentials program.

11:24 That does a couple of things. One is it provides really good core skills, but it also provides relationships and builds relationships across our business. I'm really pleased that we've been accredited as a living wage employer and also really pleased that we've continued to put some of the foundational elements in place. So we've picked a couple of ISO accreditations here just as examples. So I think it's good progress in this year. I've got three examples of our client work just to give you a bit of a taste as we try and pick three different things every time that we come and talk. So the first one is in reference to our land registry client. So a very significant client for us, and also a client that is right at the center of the new government's agenda for unlocking infrastructure and unlocking house building.

12:11 So this is, in fact, relatively simple example, but as you can imagine, there are many hundreds of similar examples even in just an organization like that and across government, many thousands. So

12:23 land registry receives a lot of paper based applications, and when you submit application, it's very difficult to understand where it is in the process and whether it's being received and is being processed. So working with land registry and the TPXIMPACT team, we've come up with a digital response so that people can actually understand where their application is through the process and how it's being dealt with. The benefits of that are twofold, and these are sort of consistent things across our digital transformation business. So the first benefit is the user experience is enhanced because you you now understand what's happening and you understand where things are. So that's a that's a real benefit from a user perspective, a customer perspective. And the second benefit is it reduces the number of inbound inquiries.

13:09 So it actually frees up capacity in land registry that they can devote to other sort of value adding activities. So a very simple solution, but actually really beneficial. The second example we've got here is around the carbon footprint reduction. So for many years, governments have tried to encourage people to better insulate their homes because it's a way of reducing energy costs, reducing rent defaults, all sorts of other other things. So it's a really important aspect of improving our carbon usage as an economy and as a country. But it's actually been quite difficult to get adoption of that, and quite often, the funding has gone largely unused. So, again, we've taken a sort of user centered design approach to understanding what the issues are, what the barriers are to actually engaging in that. And we've also we have, as a result of that, mapped out a much clearer pathway for people to associate the improvements they might make with the benefits that they could be could be delivered for them. And the idea of that is to drive up adoption.

14:13 Again, user centered design digital techniques to do that. And the third example that we've got is an example from Welsh public sector activity, and this is really where we lend our insight and credibility as a convener to different groups. So here we're talking about digital leaders within the Welsh government setting and how we can bring them together and share some of our understanding and insight so that they can better appreciate the benefits of digital transformation and what it can bring. That helps in terms of properly scoping the sort of work that they're looking for, which in turn helps us to deliver maximum value. We see similar things across the sort of UK government as well with the digital center for government, which has been started recently.

15:04 So those are just a couple of examples of some of our work. Steve, I'm gonna hand over to you now just to talk through some of our finance and ESG results. Steve? Thanks, Bill. Good morning, everybody. So in summary, in the first half, despite our revenue being down 9% on a like for like basis due to the factors that Bjorn has explained around central government spend over the course of the summer, In spite of that, all our profitability metrics improved against last year. Gross margin at 28.3% was at 2.1 margin points against the first half of last year. That's largely driven by a reduction in the number of contractors in the business this first half versus a year ago. That number decreased by about onethree, improving gross margin. And at the same time, the prior year number was suppressed by some of the challenges we had in our Red Cortex business a year ago.

16:04 In terms of looking at the full year, the level of committed revenue, in terms of our full year forecast revenue, remember to be flat year on year, is around 90% at the present time, which gives us comfort around the achievability of that full year number and indeed the second half implicit growth rate of 9% or so in order to get there. That combined with our new business. Adjusted EBITDA of 15% at $2,300,000 really reflecting the benefits of that improved gross margin and improved productivity within the business. That led to an EBITDA margin of 6.1%, somewhat against last year, partly a function, of course, of a lower revenue number.

16:50 On a reported basis, a loss of 3,400,000 compares with a loss of $9,000,000 last year, largely due to an impairment charge taken a year ago that led to that $9,000,000 loss, again, on our Red Cortex business. No impairment in the first half of this year. Adjusted PBT, up almost doubled to GBP 1,100,000 due to the improvements in EBITDA and, of course, a lower interest charge as our borrowings decreased year on year, more of that in a moment. EPS, 1.2p, more than double than it was last year due to all the factors I just mentioned and indeed the fact that we have no headline tax charge in the first half of the year due to pull forward losses being utilized.

17:41 On the balance sheet, net debt, as Bjorn mentioned, pounds 7,900,000 at the end of September. A year ago, that was GBP 12,800,000, so a significant improvement there, largely driven by working capital improvements over the twelve months and a prudent use of cash. Gross borrowings, as you can see, 8,000,000 lower year on year. All of these factors meant that our banking covenants, we were well within those. Our leverage covenant is 2.5 times, net debt to EBITDA. And at the end of September, that figure was 1.6, well within that covenant. Our interest covenant is three times at the end of September, and we were at 3.3 times. Again, plenty of headroom.

18:28 In terms of revenue, here's an EBITDA three year history for you. Just to illustrate the point of the expectation for the full year, flat revenue implying a 9% growth in H2. But note, even though H1 twenty five revenues were down against the first half last year, they were still somewhat ahead of the first half of the year before.

18:52 On an EBITDA basis, you can see the progression there in absolute terms in profitability. Our targeted full year EBITDA figure of 7,800,000 on the far right would imply a margin based on consensus expectations of around 9%, just approaching that figure, continued growth over the last three years across EBITDA and margin.

19:20 In terms of the quarterly splits of revenue growth in the first quarter of this year, the penultimate bar on that graph, we were up just over 2%. The second quarter being impacted by all those factors around central government, meaning revenue was down 19%. But note that there was a very strong growth rate in Q2 of the previous year of well over or approaching 40%. So that has a drag on that number, too. In terms of reconciling those reported profit numbers to more adjusted or headline profits, there's the operating loss I mentioned, pounds 3,400,000 on the left hand side. In terms of that bridge, we add back the amortization of acquired intangible assets, a relatively small amount of depreciation.

20:10 This company has very little bit in the way of CapEx. Restructuring transformation costs of 1,500,000 Most of that 1,100,000 or so represents a provision at the end of September in relation to the business improvement activities that you mentioned that will lead to a reduction of headcount in Q3, not entirely reflected in our September numbers as the conclusion of that exercise happened in October. Share based payments reflecting the cost of incentive plans, 800,000. The full year number should be around double that. And that, added together, gives you the EBITDA number on a adjusted basis of $2,300,000 in the first half. In terms of net debt and the movement in the six months, we had an operating cash inflow of about $800,000 a relatively small working capital outflow of 300,000 seasonal and lower than the equivalent figure a year ago in H1.

21:13 Our debt today is now at 37 against 45 at the end of last financial year, continuing to demonstrate our focus on working capital management and generation of cash and careful husbandry of costs. Interest payments, 0.7, outflow representing the effect of lower borrowings, as I mentioned, over the course of the last twelve months. Lease liabilities of $05,000,000 are really in relation to the Hickman Building in London where we are now, which came into the business in August last year. Dollars 400,000 of inflow from a one off tax refund in relation to last year.

22:01 And the EBT purchases, all that free cash flow, we used 500,000 to buy shares on the market to invest in our employee benefit trust, which holds the shares to satisfy our share incentive plans that will vest over the coming years. All of those things added together, meaning that debt, net debt increased to $7,900,000 Our target of net debt to EBITDA remains one times at the end of March twenty five. In terms of some of the ESG statistics, remember, we're one of only four aim listed B Corps, which is quite an achievement. On headcount, in total, we had six twenty people at the end of September, including associates.

22:47 That ratio is about eightytwenty or so now of FTEs to associates. And as I mentioned, the associate number itself compared with a year ago is over 30% less. Permanent FTE five ten, slightly down in the first half of the year as some of those restructuring actions came into place, but the majority of that headcount change, as I said, will fall into Q3. Representation numbers are slightly higher, 52% on female representation and an often ethnicity basis, 21%, both slightly higher than a year ago. Our efforts to reduce our carbon intensity continue to take effect with both in absolute terms and on an employee basis, down around 10% against the first half last year. And as Bill mentioned, an important statistic for us is the employee retention rate, which improved again to 88% against 86% a year ago. And we have been newly accredited as a living wage employer and disability confident employer reflecting our strong ESG credentials.

23:53 Back to Tee. Okay. Thanks very much, Steve. So I'm going to talk a little bit about the market now. So this slide focuses very much on the digital transformation business, but I'll also touch a little bit on some of our other businesses as well. So where we sit with the digital transformation business, it's predominantly public sector facing. The things that really make a big difference in terms of overall revenue terms are very large contracts, predominantly in central government or in the arm flex bodies. So that's why I focused on this on this slide because just to give you an illustration of the sort of momentum in the business. These are the five missions that the government has set out as long term priorities for government. And underneath those are some examples of current clients and how they line up against those missions.

24:41 The the most obvious one to be able to talk about, particularly given the recent win, is Ministry of Housing Communities and Local Government.

24:49 We won a continuation of our work, actually an extension of our work in planning reform. And we won that on the basis of being able to provide insight, having really good people who they trust and have built a relationship with, but also we were competitive in a a very structured public procurement process. The growth agenda is underpinned by planning reform. That's what liberates a lot of the infrastructure investment that the country wants to do, and also will help with the house building program as well. So if you think of where particularly digital transformation and particularly TPX are involved, think about the Ministry of Housing, Communities, Local Government and Planning Reform. We also do a lot of work in the data area as well. And also our links with Land Registry, whether we're the digital transformation partner. I think that gives us a really good foothold in that area.

25:46 In health as well, there's a lot of opportunity in health. I mean, Wes Streeting talks a lot about digital transformation, the need to actually bring those things into the health service. It's not all about diagnostics. It's actually about how to make them more efficient and a better serving health service as well. So we see opportunities there. Just in terms just very briefly touch on a couple of our other businesses. So Manifesto, as I said, predominantly in the charities and sort of museums and visits space. We are seeing really positive impact from the rebranding that we took out in manifesto earlier in the year. We're seeing momentum there. And as it says in the release that we put out, we are seeing some green shoots there, which is really positive and good to see. And our kits business remains resilient.

26:34 We extended quite significant contract with the main client in kits, another three years extension, and we've got a good level of interest in that business as well. So across all three of our businesses, we're very positive about the outlook. I think in terms of the major influence on this year's figures has been some of the slowdown in terms of our ability to spend our backlog, which are contracts I've won, and our ability to access new contracts with some of the budgetary challenges, but we can see that changing. So we are hopeful during the balance of this year and into FY twenty six to see a lot more activity in the central government space as well.

27:16 I've got one slide which talks a little bit about our outlook. And so in terms of where we are in October trading, so October trading is positive, so it's in line with our internal forecast, which is good. I talked a little bit before about that progression in new business wins. So from q one, which was quite quiet at 9,000,000, then to 26,000,000 in q two, and so far in q three, being at 29,000,000 is a good progression. And that's more the sort of level that we would like to see continuing to sort of underpin this year and next year. The it's really good to win the three year deal with Ministry of Housing Communities and Local Government. It's been really beneficial to us over the last couple of years to win these longer term deals, the longer term contracts, because it provides us that visibility into future years and gives us confidence.

28:06 As Steve's mentioned, we've got 90% of the full year revenues are now committed or in backlog, which gives us good line of sight to the year end figures that we've been talking about. And the pipeline, which we touched on more when we last did one of these updates, it's quite it's still quite diverse. It's got a lot in it. In terms of numbers, it's quite significant. We did see pipelines slow down during the summer, and we are starting to see some signs of things starting to move again and sort of accelerate a little bit. In terms of our outlook, we are seeing improved visibility. And, again, talking about the central government area because that's the area of the larger contracts. We did see sort of a sort of an uptick in confidence after the October budget and the spending reviews that were undertaken by the departments.

29:00 Some of our clients was with a client on Monday, and they're projecting out activities out to twenty twenty nine now as they're doing the submissions under their comprehensive spending review. So I think we'll see that sort of visibility and confidence step up again as we go through sort of April when the comprehensive spending review completes. I think in terms of how the business is shaping up, through the changes we've made, we're better integrating our proposition and certainly communicating that to the market. And we're trying to do that through all the mechanisms we've got to improve our social media presence, improve our website, and also in conversations and in person events with clients. We're trying to be more joined up and bring more of what the value that TPX can bring to our clients.

29:46 We are holding with our EBITDA guidance for this year of 7,000,000 to $8,000,000 So that's on a reduced revenue forecast to when we started the year, and that's reflective of some of the actions we took in the summer, but also a general improvement in the way that the business is being run. So we're very pleased to see that progression. As we look into next year, we do see good growth in the business. So we're confident around our 10 to 15% growth target, and we also see margin progression.

30:19 We felt that it was appropriate to be very transparent, and that's what we've always tried to be around the impact of the national insurance, employees' national insurance changes. That will impact every business in our sector. Our clients generally require us to have UK based people delivering services for them. So every business will be affected similarly. We felt it was appropriate just to call that out to make sure that you've got full visibility of what's driving the business. So I think that's the end of the sort of formal presentation. I can see there's some questions already building up in the sidebar, and we're really happy to answer any questions and perhaps expand on any of the points that we've talked about so far.

31:05 Thank to you. Thank you. Thank thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd

31:19 like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed by our investor dashboard. And I'd now like to hand you over to Luke to host the Q and A. And as you can see, we received a number of questions throughout today's presentation. And could I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. We start from the top? Wonderful. Thank you very much. Yes. Quite a few questions coming in, so thank you. Could you please comment on the potential profit from each of the business units contributing to the bottom line, I. E, manifesto kits and DT? I think the way we would answer this is to say, you know, think of the the way we look at it anyway is based on gross margin rather than EBITDA because we have a central cost base that manages some critical functions across the group, whether it's IT or talent, other areas.

32:10 So we tend to performance measure the businesses based on GM. You've seen the 28 or so GM figure for the first half. Based on our projections for the balance of the year, we expect that to increase to over 30% in the second half. And what I would say to you is in terms of how that's distributed across the three businesses, it's not actually that dissimilar in terms of the gross margin that they're making in terms of their revenue. So they're sort of all similarly profitable and on a gross margin basis, you know, contributing to the success of the business in a proportionate way, give or take. Thank you very much, Steve. Bjorn, looking to the recent £19,000,000 contract with the MHCLG, looking towards the pipeline, how many similar opportunities do you see out there? Okay. Thanks for the question, Lee.

33:02 So in terms of winning that contract, it was a it was a typical government contract. So you've got to win based on technical capability. You've got to win based on price, and you've got to win based on social value.

33:16 We particularly I think the way that business is set up helps us around the social value space. Because this is an area that we understand and know really well, we we did very well on a technical basis, and we understand the market pricing, so we were able to price it appropriately. I think the things that really made the difference for us was the insight of the team and the team we managed to get behind this and their passion for making a difference in this area as well because that does come through when you're talking to clients, presenting to clients, and and submitting bids. In terms of how many similar opportunities out there like this, so our pipeline, typically, in any month, we we win lots and lots of engagements, many, many, many engagements, but they tend to be quite small.

34:04 So we will continually have that sort of pace of engagements going through, and then we have a number of these larger engagements that we're bidding at any one time. One of the things that we saw during sort of the summer was those bigger engagements slowed down because there there wasn't a clarity around for departments to commit to two or three year contracts. We're seeing that clarity come back, and we're we're seeing both the ones we know about in our pipeline are starting to progress, so we're actively working on opportunities of a similar scale to this. But we're also having those conversations. You tend to have pretender engagement conversations between departments and suppliers where they are thinking of doing things. And these are things that will come through in the early part of the next financial year.

34:54 So we're seeing a real uptick in terms of those sort of conversations as well. So, yeah, so I expect, you know, as we've seen in the past, our pipeline will still be a mix of, you know, many, many smaller things. And those, by small, I can mean anything up to about 10,000,000. So they're still fairly significant. And then a few of these larger multiyear contracts coming through that are in our sweet space and we choose to bid. Thank you very much. Putting on to Steve here. With a strong revenue line and gross margin, how operationally leveraged is the business to close the gap between EBITDA and gross margin? What should investors be looking for? So you can sort of do the math based on our projections of EBITDA margin improvement and gross margin improvement that we've laid out in terms of the outlook, not just based on the second half of this year but also next as well. In terms of operational leverage, remember that most of our we continue to be searching for efficiencies.

35:57 Most of that operational cost base is staff costs, indirect staff costs, the support functions of the business, whether it's, as I mentioned, finance, HR, talent, marketing, etcetera, but also particularly IT and operations. And there's a certain degree of cost that I view as fixed in terms of ensuring we have appropriate governance and controls for the public company that we are. We have made inroads into IT costs over the course of the last twelve months or so. There is a significant number of legacy systems that we have gradually made inroads on. I think going forward, you have to bear in mind that as the company grows, we will be looking to invest in potential improvements in systems over the course of the next year or two, which may well lead to some degree of increasing cost. But that's also driving efficiencies, which are more likely to appear in the gross margin percentage as we continue to expand that. So as I said, gross margin in the second half, we're expecting it to be well over 30% and continue to improve over the coming year or two as we try and close the gap without competition, you have relatively high gross margin rates compared to ourselves. And that is an ongoing process. So I think in answer to your question, you have to bear in mind the mix of things, but the improvement in profitability that drops through to the bottom line is really going to be driven by that improvement in gross margin

37:27 over the next year or two. Thank you very much, Steve. Now that profitability is coming through, obviously, we need to continue to grow the top line for both of you. Where do you see the opportunities coming from? Obviously, quite weighted in government. Do you see government and commercial? What does that look like going through? Yes, it's a really good question. So thanks for the question on that, Luke. You're absolutely right. Top line growth, as Steve just explained, has all sorts of benefits. It allows us to recruit amazing people. It allows us to better leverage some of our central expenses as well and improve our overall EBITDA performance. I think government is probably quite a good place to be at the moment in terms of the services we offer and the sort of demand that's gonna come through.

38:18 I think just in that space, we can still do more. I mean, we are actively recruiting to strengthen our new business team, our growth teams. In government, we're actually actively recruiting across our businesses actually in the growth area. And we're also looking to engage with a broader number of government departments as well, so to expand our footprint in that way. We do look at the commercial sector. So one of our very large clients is a commercial client, financial services client. We've been looking to deepen the relationship within that client. We've also been looking to move across to other similar clients. A lot of our services are oriented in some respects best suited to public sector. So we're also working to refine some of our service offerings and look at where we're dealing with a public sector challenge.

39:12 There will generally be an ecosystem around that. So there'll be public sector players. There'll be near public sector players. So, you know, in housing space, perhaps people like housing associations, but there will also be clearly commercial organizations as well. And we're actively engaged in conversations with those people because we see that as a good way of expanding our footprint whilst building on the insight and strengths that we've got. Long term, there's definitely we're just about to we're in sort of our planning process for next year. So we're going through our planning process for next year. We are then into the third year of our strategic plan. So we will be also casting our strategic thinking further forward, and we'll be looking at, you know, with our improved financial position, the improved clarity in the business, what's the best way of growing the business.

40:06 And we'll be considering things like, you know, where to make those investments to get into, you know, perhaps more commercial clients or into new areas of government or perhaps trying to extend our service offering. K. Thank you very much. Okay. Thank you. I'd just like to invite any more questions. We are coming to our last question at the moment. Are there any restructuring charges to be a regular thing, or is this now? The restructuring or business improvement program we conducted over the summer was very much one off in nature, so we have no intention of repeating that exercise at the present time. By the very nature, they're one off. As I said, that process has concluded in October. The provision we took of £1,000,000 is the final number.

40:56 And the benefit is the well over £3,000,000 on an annualized basis, which will benefit this year and also going forward. So we always have some sort of transformation cost in the sense of we are, as I mentioned just a moment ago, actually just thinking about our systems and ways in which we may make investments to improve maybe resource management towards project management and so on. But that's something that, we do look at from time to time. But in terms of a significant exercise to look at a very focused, selective group of people, as Bill mentioned, from a restructuring or business improvement point of view, that process is indeed behind us.

41:45 Perfect. We've got a question there from George who's just come in. Do you want to? Yeah. Just coming from George, Progressive. Thank you very much. Did the restructuring change the shape of the staff? Yeah. So it's a very good question, George. And I thought I saw a question earlier a little bit about the training and about the the number of people trained versus the overall population. So what we're trying to do is we're trying to progress to across the business, what would be closer to a standard sort of span. We talk about spans and layers, so that's a number of managers to people who report to them. So that was that was quite a narrow range eighteen months ago. And as part of the restructuring, yes, we have looked at, you know, how those spans and layers operate, and we did take a couple of areas and sort of merge them together, which provided us some management efficiencies.

42:41 The thing that's always in the front of our mind, though, is is how do we deliver the right service for our clients. So that's that's the first thing in front of our mind. How do we improve line management, leadership in the organization so that we can better we can support people better, and we can be more consistent in the messaging through the organization? And then we will continue to look at, you know, the appropriate way of actually holding people in teams, how those teams should be managed, and sort of fine tuning that shape. So an organization like ours, our clients' needs change all the time, so we will need to change all the time. It won't necessarily be through restructuring activity like we did in the summer, but there will always be small changes that we make to refine and optimize our model.

43:34 So Thank you. More questions? No. That comes to the end of our questions. Thank you very much. Thank you all for answering those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, beyond, could I please just ask you for a few closing comments? Yeah. Well, my closing comments really are, as I said at the start, Steve and I and the team have worked over the last two years really to try and put the business onto a very strong footing to make it resilient, to build a platform for future growth. We think we've made a lot of progress in that. And I think you know, when we did have headwinds in the summer, we were able to respond to those, which I think is good. We've maintained momentum, and I think we're in a really good place.

44:25 The important thing that gives us is it starts to give us options that we didn't have two years ago. You know, we had a significant level of debt. We had a very complex business. We've simplified the business. Financially, the business is in a lot better position. So that means we can go with confidence into next year, and also we can confidently look at where this business can go over the next two or three years. And I think just one final reflection, we've done a number of calls today. I think the quality and the interest of questions has been really good. So thank you very much for your engagement and your time today. Thank you. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

45:11 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 TPXIMPACT HOLDINGS PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you.