YouGov PLC
LSE:YOU
Earnings Call Analysis
Q2-2024 Analysis
YouGov PLC
The company has made a significant strategic move by raising the 25% operating profit margin goal and expanding the midterm 3- to 5-year revenue target by GBP 150 million, from GBP 500 million to GBP 650 million. This ambitious adjustment is a testament to the company's confidence in its growth trajectory and operational strategy.
A recent acquisition, described as a high-quality asset carved out from a larger group, is set to operate independently within the company for the next 12 months. Emphasizing technology investment, the company reduced spending on panel augmentation by GBP 1.4 million, allocating more funds towards technology enhancements. These investments aim to drive retention through an improved platform experience, which could reduce future expenses on external panel acquisition.
The company observes changes in client decision-making, with new clients coming aboard while existing ones take longer to deliberate. However, the core client base remains solid with strong renewals. The firm remains optimistic as they're pivoting towards an improving budget environment for clients as the year progresses and anticipates an uptick in sales, especially given their 12% growth rate in Q2 compared to a more modest Q1.
The KnowledgeHound acquisition has augmented the company's technical and AI capabilities, reinforcing the value proposition to clients. This strategic addition suits the company's aim of advancing its AI prowess and enhancing user experience in their service offerings.
The company has successfully navigated through a period of heavy activity, such as the CPS acquisition, while maintaining robust order books. They plan to steadily reduce the net debt of GBP 162.7 million and deleverage the operating gearing ratio by 0.5 turn annually from the current 1.6x EBITDA. Capital expenditures will be kept broadly consistent with the previous fiscal year, indicating a focus on maintaining stable investments with a particular emphasis on technology that drives future revenue growth.
Maintaining a prudent approach, the company emphasizes the necessity of continued investment in strategic areas while also seeking to improve margins and pursue opportunity-driven acquisitions. There's a clear expectation of a back-end weighted full year, suggesting that the company anticipates stronger performance in the latter half driven by the momentum gathered over the past months. The commitment towards strong cash balances and rapid debt payoff, as well as leveraging their recent acquisitions, positions the company favorably for navigating future challenges and seizing market opportunities.
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Good morning, everyone, and welcome to the YouGov's H1 FY '24 presentation. I'm Steve Hatch, the CEO here at YouGov, and I'm going to be joining the second by Alex McIntosh. And just for that kind of big thank you to panelists as [ Evy ] saw a few examples of them the people enable us to really build brilliant products and help us fulfill our mission.
If we go to the agenda slide, please. So across the next hour, in addition to Q&A, I'll be covering financial and operational highlights, giving an update on the priority progress that I set out at the end of the FY '23 presentation back in October. I'm now going to give an update on the transformative acquisition that we have in having the great colleagues and the business of CPS, the Consumer Panel Survey business joining YouGov at the beginning of January.
Alex McIntosh, our CFO, is going to be taking us through a financial review. And then I'll summarize and then we'll go straight open into questions. Thanks again for joining us this morning.
So our kind of highlights kind of looking across this half year, which has been a pretty busy one for the organization on many levels. So from a financial perspective, these numbers are obviously inclusive of kind of the CPS acquisition. We saw GBP 143 million just over in revenue from 9% reported, 2% on an underlying basis, and I'll talk a little bit more to that in a second.
Operating profit of just under GBP 30 million at GBP 27.9 million, a 19% margin, 23% reported, 4% underlying with a significant kind of investments we've made in this first half of the year to set us up well and an adjusted EPS of 20.4p, 4% reported there. I'm going to go into more detail into these things throughout the course of this morning.
But to see the investments that we've made in our products and particularly our optimization of our behavioral products and some innovation in our core flagship data products and services, making sure that we're investing appropriately into our panel to meet client demand and that demand is increasing ever more kind of day after day.
And using our platform basis to increase our member engagement, the vitality of our community and panelists, the interest that we have in our public platform, and I'll put out a couple of highlights we've had already so far in this half on that.
And then where we're seeing kind of growth of new advertisers in our self tool. From a people perspective, one of the big highlights has been the appointment of a new Chief Commercial Officer. I'll be candid. I expected this when I came in to roll to be an external appointment. However, I'm delighted that Tom Fisher has been appointed as our Chief Commercial Officer, Thomas, somebody with over 30 years of experience in market research. And laterally, within his time at YouGov has been a driving force behind our technology sector and our technology sector growth.
So very highly skilled individual in our sector, very, very kind of commercially sharp and has also been one of the key drivers through behind some of our product innovation. So delighted to have Tom enrolled, and we're really seeing the impact that he is making.
And then the most transformative moment in YouGov's history in recent memory, which is the completion of the acquisition of CPS, and I'll touch in more detail and was a smaller acquisition, the significant technology advantage that knowledge hand has brought to us, both of those occurring in the -- at the beginning of the year.
So that's our overall summary. Looking at how the year has been flighted and I thought into the kind of second half as well. Here are kind of numbers that we saw in '22, '23 and now as we are into '24, we had a pretty significant comp year-on-year against kind of particularly the increase that we saw in the technology sector, making as we've always said, our year will be back weighted, and that's proven to be the case against kind of the 30% kind of increase that we saw on the kind of previous years. Good news around that kind of in particular, as we've increasingly seen not only [ resin ] increased growth in our technology sector. So that momentum story is continuing quite consistently.
We're also in a position now that we have 75% of our booked revenue from the entirety of the year, which again, gives us that ability to maintain our momentum, and I kind of thought it's fast into the second half. That's somewhat ahead of what we'd normally expect to see at this point in the year where kind of previous years, that would have been somewhere around kind of the high 60s. So last year, that was 68%. And you'd have heard me talk as well at different points either in kind of this presentation kind of back in October, about the need I saw for increased commercial rigor, not just in terms of [indiscernible], but overall in the organization. And what we saw when I came into the business was were seeing a reduction, a kind of slowdown in our revenue in the second half of FY '23.
Obviously, that's something that I wanted to correct. And we've seen that occur within the first half of the year with increased sales momentum. So our sales number within Q1 of year was minus 1%. And we've seen that move significantly at 13-point spread from Q1 into Q2 with 12% kind of sales growth into Q2. So again, seeing the momentum. Some of this is related to some of the economic backdrop. But I think we've also got to be very open and realistic that some of this is directly within our control. So it's great to see the kind of improvements that we're seeing both sales and forward-looking revenue security with the appointment of new people in place, new people in positions and new processes brought into play. I'll touch on those in a second as well.
And just to remind everyone, what are the moats in this business? What are the things that make the overall proposition of YouGov kind of so compelling? Well there are many. But if we had to boil them down to 3, there would be these. The fact that we have a 0 party panelist relationship. The long-standing kind of data and capabilities that we have are built on our panelists and how their willingness to go openly share in a very transparent way and their information with us. Now of course, that's always been valuable data. That's becoming increasingly important in the era of 0 cookies, which we are about to enter, but also in the era of kind of AI and ML. There's great kind of data capabilities again, I'll touch on those as well.
Our brand recognition and our brand reputation. How being one of the few public-facing organizations in our sector, we have both very strong B2C as well as the B2B brand and how that creates then a great flywheel for our organization in enabling us to recruit panelists at a substantially lower level and pricing that we see kind of more widely in the market, but also customers as well. And then thirdly, the kind of capabilities on product and technology innovation.
Again, back in October, I talked about how I had a good understanding of the products and the data quality kind of coming into the company while I didn't have as good an understanding is a very strong technology capability in the organization, in particular, the kind of strength in machine learning and data science. And all of these things make the [indiscernible] proposition, so incredibly kind of strong and robust.
And it's combining these things together that in our third strategic plan, we look to build this virtuous circle of what we call the YouGov platform. So our public platform where anybody with an Internet connection or anywhere in the world is they want to access millions and millions of data points for free to be able to make more informed decisions. Who just enjoy engaging into the conversation and the point of debate.
And that enables us to expand our public data, our member platform, so the community as they call themselves, out of our members that fill that in a sense of participation in the wider debate in the world and, of course, having kind of like great rewards that they get from being kind of members on the YouGov panel and our [ HI ] platform. So increasingly, we're seeing our clients access our services through our kind of digital -- kind of digital first environment and new clients coming to us as we scale up on our data services piece, our self-serve tools.
And when we were looking at the beginning of the year, kind of back in October, I highlighted 5 areas of focus for us over FY '24. 5 priorities and 5 opportunities. Panel quality and maintaining and increasing that, the bedrock of what the YouGov proposition is, product innovation that's fueled kind of YouGov's success in the past and continuation of that, a new one, a commercial rigor doubling down on our U.S. expansion and the opportunity that represents there and the continuing build of that flywheel that I just described of the YouGov platform.
And to update you on the progress that we've made in the past 6 months, and it's been a pretty busy one for the team. So I'd say, again, kind of huge thanks to them for all of the effort and work that they've shown since I joined.
On panel quality. For those who aren't following the industry that closely, there's certainly been an absolute wake-up call across the sector around panel quality and panelists quality. And whether there is -- and how a legitimate kind of are panelist and therefore, how accurate and real the results of those panelist have been. This is unquestionably a tailwind for us as an organization, and we've taken a definitive market-leading position on panel quality and panel integrity.
For those of you who are interested, I encourage you to take a look at the white paper that we issued back in November, which outlines YouGov's approach to maintaining panel quality and data integrity. And we believe this is market-leading combined with multiple techniques to ensure that the data that we're sharing and the panelists that we have are -- records are real and representative.
And again, we believe that the industry will benefit from adopting many of those approaches as industry standards. We've also looked to increase our key markets and our key demographics. There are some demographics that we genuinely cannot keep up with the client demand that we see. So increasing our kind of areas as particularly kind of a young man or underrepresented groups kind of in the U.S. And then back earlier in the year, we discussed, we predicted that whilst at this point, we haven't seen panel quality and panel integrity become a big focus of client requests.
We predicted that it will be, and that's proven to be the case. It is very unusual now for clients wanting to really understand at the deep level panel integrity and the techniques and the processes that you have in place to provide that. So again, seeing that widely feature in RFP, it shows the benefit of us being able to access and continue to invest in these areas.
And of course, that all helps in building great products. On product innovation, we have launched on first innovation on our core brand index product called Sector View, in essence, giving customers much deeper insight into their specific category, we're starting in the U.S. with autos, we'll roll more categories out initially in the U.S. and then other markets as you go throughout the year as well.
We launched our first AI focused client product, AI Qual Explorer, a way of combining together all of the qualitative comments that the businesses get at the end of their surveys is processed through live language models to enable them to access what are the key insights in the [indiscernible], taking something that was curious but not particularly kind of that useful aspect because of the large number of volume of inputs of information, but what's actually the kind of insight within them. AI Qual Explorer answers that problem, we got a great traction from clients already.
Expansion of our YouGov Behavioral, including YouGov Safe going into 9 more markets. We have an app store approval way on our mobile app development there. So again, kind of taken this into more user-friendly, more frictionless ways of people sharing their data. And in addition, the acquisition of KnowledgeHound has enabled us to do 2 things at speed. One is introducing AI technique of vector search into our Crunch database and vector search is a particular AI technique that's suitable for large-scale databases to build and create very accessible rapid associations and insights.
And in addition, we're using kind of great capabilities and talent and the knowledge of our team to refresh the overall user interface and user experience for our core data products, something that I think was a little overdue for instance, something that I'm really glad we're now I'm focusing on now.
On commercial rigor, I've already mentioned Tom's appointment, it's kind of great to see that -- so realigned ourselves into more joined up teams that are regionally focused. That's one of the reasons why we've been able to see that step change in momentum of because of the minus 1 to the plus 12 quarter-on-quarter in our sales. We've introduced new technologies to sharpen our focus and help us understand our win-loss rates in much more granular detail follow-up. We've signed our largest ever deal as YouGov with a multinational media agency using YouGov's data is underpinning for their operating model and enabling them to develop new products alongside and we're beginning to see the first kind of green shoots of the cross-sell with our CPS colleagues.
And it has one of the largest kind of sale that we ever had, but have got a first on robust survey from a previous good CPS client. It was a milestone for the company, and we're continuing to see large-scale interest on YouGov's inside products coming from CPS clients.
And on the U.S., we're very pleased to see that technology continues to be a kind of growth sector for us. I think that has countered somewhat to what we're seeing in the rest of the industry. The elections are beginning to build momentum for us. We perhaps unsurprisingly, but it is true, we're now in a position where our YouGov's politics team in the U.S. have had kind of to date about the totality of their revenues that they would have seen in the previous year. So we're really beginning to see that ramp as we run up into November. And to do that, we're making sure that we're increasing our panel capability to be ready for this kind of U.S. expansion.
In fact, our kind of active panel capability in the U.S. is up 15% year-on-year. So we're really, really strengthening it up into this core area where we know our kind of growth -- where we want our growth momentum to continue. And in fact, even though it's our largest geography already, we expect single country, I should say, in [indiscernible]. We expect that the U.S. -- we predict that the U.S. will also be our largest growth area when we get at the end of FY '24.
And then finally, on platform, we see significant upticks on the engagement in our public platforms just last couple of weeks in the U.K. whenever we see kind of new government in the wider kind of news media, where we saw 145% spike in visits to our public platform which also included 40,000 people reading the very technically deep article on MRP, which is the machine learning technique. So the appetite clearly out there for really understanding well is very, very high.
And of course, it has the advantage of us for filling a public mission, enabling us to acquire panelist through an organic source and it raises our public profile maybe more clients become aware of YouGov something particularly in the U.S., we know is a great advantage to us.
We've seen increases in our member engagement on our member platform and their satisfaction level is just shy of the 87% goal that we set for the year were ready. So good to see that be maintained and in our self-serve tool, we have 150 new advertisers coming to the tool, still early days there, still kind of relatively kind of small spell compared to the rest move we are seeing a double-digit kind of increase in our revenues there, but some more work to do as we continue our self serve journey. But within that, and I touched it only just once and this slide already, the most significant kind of moment for us in quite some time, which is the successful completion and the joining of only 1,000 colleagues in CPS into the YouGov family.
So just an update on where we are on that position, you're kind of clearly seeing kind of the kind of financial outputs of that successful acquisition already, but there are much, much more of this to come. For those that kind of snapshot of what CPS is and just to pull back for a second, the strategic rationale and we were -- there were many, many reasons why this acquisition fitted so well with YouGov strategy.
But if we're boiling it down into one thing, it's the power of combining YouGov's attitudinal data, how people think and feel with the incredible deep capabilities that CPS has in people's behavioral capability, what people are buying and bringing these together into a single unit. This is what the market is demanding and increasingly expecting.
People understand the power of data, but they want that data to be more joined up than ever before in order to be actionable. So understanding what -- and not only what people are thinking of cleaning butt what they're buying and why is an incredible, powerful position. And in of itself, the CPS business is quite an extraordinary kind of organization with a level of scale I found increasingly as well professionalism that isn't matched by anyone.
So very glad to kind of have the -- [indiscernible] at the beginning of that journey. Also very pleased to say that the integration is progressing very well. The things that we thought were true were turned out to be very, very much the case. The quality of the panel, the kind of strength of the team and perhaps one of the pieces that is often kind of understated in either integrations, whether that you carve out or through acquisitions is the importance of understanding the culture of the organizations and making sure that we have a kind of mutual respect as we develop this kind of joint process together and there's no doubt that that's been a very kind of reassuring and great process as well as brands new insights for example, on the product client spectrum, YouGov is a very product-centric organization.
CPS historically has been a very client-centric organization, how they drive their innovation so bringing both those compatible skills together, I think there's no doubt going to make improvements for both parts of the organization. So lots of work done up until February. More work to do, but by the end of the year, we expect to be in a very, very strong place. Also working directly with AlixPartners, Alix helped us develop jointly are your target operating model, bring those kind synergies across the organizations as well as the opportunities for us to build brand new innovative products to help disrupt the market in a way that we know YouGov does very, very well.
And to give you some sense of time line, you got CPS joined. Great moment in our new [indiscernible] in the year. We've concluded that kind of getting to know each other phase, collaborating on kind of quick wins and developing our kind of early commercial strategy. We will be launching in the middle of this calendar year across kind of into kind of Q1 and Q2 of year, the future business in its entirety, and then we really get to build new great things together. So overall, I'm just very, very pleased to report that every single expectation we had has been met, if not exceeded on this, and that is progressing very well to date. Now what this does mean is it gives us that moment to revise our strategic growth plan.
Our organic original strategic target, our SP 3, again, that's our third strategic plan whereas a target in the midterm of GBP 500 million in revenue and to increase our operating profit margin to 25%. Now we have full ownership and understanding of the CPS business, pleased to revise -- to raise that target to maintaining that 25% kind of ambitious and kind of strong 25% operating profit margin goal, but increasing midterm 3- to 5-year revenue goal by an additional GBP 150 million from GBP 500 million to GBP 650 million. So thank you. It's been a very busy year, very kind -- and a first half for the company. We set ourselves up very strongly for the remaining half of the year. Now over to Alex for the full detail on the financial review. Thanks, Alex.
Thank you, Steve. Good morning, everybody. And we have flagged this for a few reporting cycles now, but this financial year, we are changing our divisional reporting structure to reflect how we now organize the group internally. Clearly, we also now have a significant addition to the group in CPS, which Steve has just updated on. So we'll now be looking at the group within 3 segments. We have data products, research and CPS. Just a point on CPS.
We are very much cognizant this is a high-quality asset. This is a carve-out that's coming out from a much larger group. And so the first year will be really careful, kept our work around making sure we've adequately separated the group. We will be under TSAs, Transfer Service Agreements with GFK in origin of some services for up to 12 months. So we will be running it as a stand-alone division certainly for the next 12 months. But as Steve highlighted, you'll start to see some of the synergy benefits coming through fairly quickly because of the work that AlixPartners is doing.
Now just as a reminder, data products. This includes the majority of the products we have previously in the definition of this, its brand index. It's our behavioral products in safe, it's profiles. In research, this is what was the old data services and customer segments brought together. There's a few things that have moved between what we're incubators before it's not one plus one, but it's nearly there. Really, this is to bring together those 2 teams, which have been run as very separate entities before separate divisions previously, now coming together to really help service our clients in a more comprehensive way.
Yes. As Steve mentioned, there's been some tough macro, but also some of the things within our control in terms of improving our performance going into the second half. It has been a challenging macro environment, and we're very pleased with reporting growth on an underlying basis. A lot of that is driven by some good work that the custom teams we're doing, particularly in the U.K., that's the positive. One of the things that has been difficult and Steve has already gone through that explanation, quite a difficult comparative period in the prior year to do the technology clients spending quite a lot in our November and December 2022, which is our half 1 2023.
We have seen a slowdown in growth in data products in part driven by just a lack of focus and commercial rigor that we've been mentioning. We used to have dedicated sales teams really driving data product sales. It's now in the portfolio of sales team. So there has been a little bit not as core focus has had been in the past. We've made some remedial actions around that. But I think it is fair to say this is one area, particularly new clients coming on. We are seeing clients taking longer to make decisions. We are seeing some nonrenewals in January, so in December were processing these ones are nice to have. That has been a little bit of a shift. We haven't seen that kind of behavior before in the past. I think we we're very pleased as our core clients that have been long-term subscribers continue to have this data very embedded into their workflow, and we have seen strong renewals from tenured clients. Pleased to see renewals are picking up into the new year. We are seeing budgets improving slightly with our clients. It's still early for the majority of our clients that have our 1st of January year-end. A huge focus for us will be increasing our sales into the second half driven by the launch of Sector View, which is a version of BrandIndex that allows clients to add by a package of BrandIndex, and we seek to use that as a way of also getting into larger subscriptions.
The research division, and just to remind you, this is in part data services where it's cost, tactical work and custom research, which is long-term strategic projects really, what we're seeing is the mix has continued to shift in the types of projects clients are doing. We're seeing an increasing amount of opportunity to pitch for large custom trackers where clients are looking for high-quality data, understanding where that provenance comes from very important for them, particularly as the industry is having quality issues around panel. But what we aren't seeing is a return to that foster run work. That is an area where clients seem to be not spending money on discretionary projects so the growth here is primarily driven by what is traditionally our custom business.
Very pleased to see the U.K. is driving a lot of that growth, a testament to a fantastic performance from the team here in the U.K. The U.S. is stable, but that is beginning to pick up as we come into the tail end of Q2. And that is in part because of the difficult comparisons with the technology clients. CPS is now in our numbers. We closed the deal on the 9th of January. So this is 20-odd days of revenue that we have in the group. So obviously, no trends to draw from yet, but we're very pleased to have closed the deal early in the year and really been able to kick off the calendar year with great momentum and a lot of fantastic collaboration that's already happening now that we own the asset.
You'll see in our sector splits, we've seen an increase in technology spends. We had pointed this out in October when we came out with our full year results. We have seen an increased opportunity across all of our big tech clients, and we're pleased to see that spend is continuing. We've also seen some progress in our media agencies, our agency group. Just as a reminder, the revenue that we generate from agencies is not directly linked to marketing activities. This is a lot of subscriptions, which are long-term contracts, and whether clients -- their clients are slowing spend or increasing spend doesn't affect their decision to renew -- to keep using our products. But we have seen some of our agencies actually expand going into new countries. And as Steve mentioned, we have a very large holding company that has signed a substantial contract with us, which includes a combination of data products and customer traffic.
We've had a couple of low lights in our sectors. Esports and Gaming are 2 sectors where we've seen our clients go through reorganization a little bit like what we had seen in the year before with technology clients, where through COVID, they've just extended themselves a little bit too much. And so there's a bit of softness in those 2 sectors, but we continue to be very well diversified across a number of sectors. Just to preempt some questions, given the majority of our polling work will probably happen in the second half of the calendar year. Yes, we're not seeing an uptick in our polling revenue yet. In these numbers, and it's unlikely it will be a significant contributor in the second half, but it's definitely going to be useful in building our brand and building momentum going into FY '25.
Now we're pleased to report an increase in profit margin due to bringing in the CPS business, important for -- to note, the CPS division is a very high-quality asset, very cash generative and operates at a very high margin. That is masking some underlying -- some margin decrease in our core business mark due to a little bit of gross margin pressure. We've had some pricing pressure around data products. We've also had to use a little bit more external sample in a couple of countries where we're running big trackers for clients ordinarily, that would have been absorbed easily within the revenue growth, but the sort of the slowing down of our data products business has meant we're not able to adjust as much of that as we would have liked.
We're also capitalizing less -- we have increased the amount of development spend we are incurring. We are capitalizing less as a proportion of the overall technology spend. Obviously, that has an impact on OpEx, that's just a shift from that from balance sheet to the P&L. And we have increased head count in the period in part to reflect increasing investment in products making sure that we're building for sustainable growth into the next financial years and so with a sort of slowdown in revenue growth in the first half, that's obviously impacted the overall margins for the first half, but obviously, we expect to see that improving in the second half of the [indiscernible]. Good cash generation for the period, and we ended the period with GBP 53.4 million of cash in the bank compared to GBP 41.4 million last year. We have spent a considerable amount of money on deal fees to get the CPS acquisition completed. And so when we're looking at our cash conversion, we're adding that back up -- back into normalizing it. This has been a small decrease in overall cash conversion from maybe [ 7% to 81% ] in part, that's to do with lower revenue mix coming from data products growth. And as a reminder, if you're not familiar, data products, we typically invoice upfront, so has a very good cash generation profile. We'll obviously seek to increase that cash conversion ratio as we focus more on data products in the second half.
For the half, we have kept CapEx broadly flat, but you've seen there's a shift in the amount of money we're spending on panel augmentation that's decreased down GBP 3.4 million compared to GBP 4.8 million last year, but we are spending more on technology. Now in part, some of that technology spend is helping reduce our panel acquisition costs in part making the platform much easier for people to join organically, really driving more around retention. And we're seeing some of the benefits of technology investment, reducing our requirements to spend as much money on external panel build-out.
As part of the CPS acquisition, we took out a loan with an RCF and search the details of this. The group has a EUR 280 million facility that is signed. We have currently drawn down GBP 216 million. So our net debt amount is GBP 162.7 million. We are going to try delever our operating gearing ratio by 0.5 turn every year. We're currently at 1.6x EBITDA. We give you a profile of what our repayments are underneath. But clearly, we are fairly comfortable in servicing this, that is new for you because we haven't had this level before, but we are comfortably under our covenants or interest cover and gearing.
And just to recap, it has been a very busy year. We've had a slow start to sweep point out, but the order book is looking very robust. I want to make this point again, our growth rate in Q2 in sales was 12%, having been flat or a slight decline in Q1. That's coming from a number of areas, but it is continuing to be our large tech clients that are meeting before on that. And it is, I'll make a point, we're getting invited to pitch for ever increasingly larger customer research projects, which have a tracking component, which for us have a great margin profile. So feel really confident going into the second half of the year. Still a lot to do. We are very busy with the CPS acquisition and we're really pleased to report that's also trading in line with expectation, huge thank due to the CPS team. Very difficult to be going through the uncertainty of a carve-out running a sales process, but still delivering on the business and a huge testament to their skills and be able to handle quite a lot of ambiguity throughout that sale process.
But most importantly, continue to support clients and support the teams. So as we expected, we will see a backend weighted full year where we see growth in our revenue coming through in the second half as we consolidate on a lot of momentum that has been building over the last 3 months. In terms of the balance sheet, we will continue to be prudent in where we invest, and we are seeking to improve margins. We would like to keep strong cash balances that's very important. And we want to make sure that we still have optionality. We're looking for opportunities that are in the market to do with acquisitions that could continue to drive our strategic objectives but also we will be looking to pay down debt in a very rapid fashion as well. At this moment in time, we will be keeping our CapEx broadly in line with -- in FY '24 compared to FY '23, but make that point. We've had a little bit of a shift spending more on technology. We've made this point in the past, the more that we invest in technology whether that helps drive our future revenue growth in YouGov.
And so we will continue to be highly cash generative, and I make this point again, looking to delever our gearing ratio by 0.5 turn each year.
So thank you for sticking with us so far looking forward to answering your questions in a second, but just to summarize where we are. There's been significant kind of progress on our 5 pillar operational priorities in the first half of the year. And we've had all the success we could have expected to have from the CPS integration and that's trading, as Alex said, kind of very well, truly resilient brilliant team there, and it's great to have them as part of YouGov. Of course, we also have the kind of KnowledgeHound acquisition, which has brought technology capability and talent capability into the organization, enabling us to advance our AI capabilities and improve our kind of overall adds. Alex just mentioned, but we've got a very strong forward-looking revenue commitments ahead of where we were this year by -- at this point last year by some -- by some 5 to 6 points. And that's good to see that step change that's occurring.
But we're being laser-focused are continuing to really kind of push that commercial rigor. And very pleased to announce our revised target now as a combined entity, increasing our midrange revenue objective from GBP 0.5 billion to the GBP 650 million over the next 3 to 5 years. Lots of work to do, but lots of work done. And to -- just to conclude, a reminder of what really makes this company so impressive and so special, it is the great product, that is a great product that we build based on the brilliance of the panelists that we have. An aspect of our organization is becoming increasingly valued to clients and enabling us to really drive our platform, our public platform with an election cycle that's rapidly taking hold across the world, our member platform, enabling them to have greater engagement and understanding of the work that they're providing and our client platform, enabling them to access our services more digitally.
And of course, on the heart of this, [ the body of YouGovers ] that are here. I just like to end by saying kind of enormous thank you to them for all of their hard work in this first half of the year, my first half in the company. And yes, we've got a lot of work to do over the next 6 months as well. But yes, I couldn't want to be doing it with a better team than we have now. So thank you. And I think we'll go over to Hannah and your questions.
Your first question comes from Steve at Numis. On 2Q like-for-like revenue, is 12% of realistic run rate going into the second half? Or is there any reason for this to change in the third and fourth quarter?
There's no reason for it to change. Just the quirks of when companies have the year ends, we do typically have a strong revenue Q4 as we sort of push through and try to get as much products through. So I think there's no reason to see a substantial change in client behavior. Obviously, we may have an event that causes client to support. I think the most important part is this is a new budget year for the majority of our clients and the trends that we're seeing early in the year, certainly comfortable seeing them extending for the next 4 or 5 months.
And linked to that the margin in core you got for the first half. What are the moving parts between the first and the second half?
Well, some of that is just recognizing we increased head count in the first half. And obviously, as we generate more revenue in the second half, we've got people who are now becoming more effective as they're getting embedded into the business. We're also looking to increase the amount of revenue we're generating from data products. I want to make the point. It does -- it is harder, the further you go into the financial year to generate significant revenues from that business because of the revenue recognition profile, but there are a number of things that we have that are very high margin, in particular, the more that we can drive in our behavioral data sales, which is a very high-margin product sector view, we'll have very high margins attached to it as well because it's a versioning of existing data that we have, part of that revenue -- sorry, part of the margin increase will be driven by just a change in mix.
And I want to also make the point the increasing amount of tracking work that we're going for as it kind of replaces a lot of the data services as a percentage of revenue generating in research also helps with that margin. We do generate significant amounts of margin compared to ad hoc project work when we're doing tracking studies for clients.
And linked to that Steve asked for the -- what is the customized tracker as a percentage of revenue and research in the first half?
Yes. For the first half it is about 50%.
And then on Data Products margin, there's -- you talked about gross margin pressure. Why is that happening? And is that temporary or meanwhile?
I think it is temporary. We have seen a bit of pricing pressure, and that is in part. We have one competitor in our profiles product, and one competitive to BrandIndex, where both raised significant amounts of money in 2021, 2022. And what we're seeing is they're reducing their prices pretty dramatically as they're trying to trade through those valuations and that, of course, is impacting us. We are seeing clients looking at getting better at comparing prices been into 2. What we do see, if we lose out to those other competitors is actually clients do come back later on when they understand the difference in quality. It's often a very difficult thing for clients to understand when you're assessing a new product is one is the actual underlying quality when you start using it in [ earnest ], are you getting the insights that you would be expecting and we do have strong confidence that our products continue to be the highest quality in the market.
Moving on to -- there's a question from Paul Richards, will you be able to link potentially on anonymous basis, data from YouGov panelist and data from CBS panelist?
Yes, thanks for the question, Paul. Yes, I mean, ultimately, our goal is to have one YouGov panel and for us to be able to do exactly that. And we also one of the kind of key aspects I found kind of coming into the company, and that's true with this process as well is the transparency that we have with our panelist in and around their data. YouGov sits at this cultural intersection of people wanting more and more control over their data, but at the same time, wanting more value from their data as well. So we sit right at the intersection of those 2 points. And this is how do we -- sorry, it's about migrating on to a kind of single YouGov panel in its totality for us to do exactly that. So to be able to combine together those different data sources. So we very much see the potential of having the kind of single perspective that enables us to take existing set of CPS data mesh that against the historic kind of data that we've got against YouGov to be able to combine both the qualitative data -- sorry, quantitative accumulative data set, so we have, together with the sales data sets going forward.
So our goal is to always do that with our panelists as well. So you hit exactly the heart of the benefit that we see of the acquisition and bringing single data sets together to make sure clients have even better information than they've ever had.
Thanks, Steve. Your next question comes from Andrew Ripper, Liberum. Can you explain how the Q1 of minus 1% and Q2 of plus 12% relates to the organic growth in the first half?
Okay. Well, because in one hand, we're talking about sales. And so the increase in sales that we've had in Q2, we won't have seen the benefit of the revenue coming through from that yet. So that's why we're making the point of growth, we'll be backend-weighted. It's the nature of the products that we're selling, products and services that we're selling. So if we've got an increased commitment from our tech clients, for example, on running more trackers, and those sales being recognized in January and February. Some revenue will be generated from those sales in month as we get those products up and running but the majority will come in the months coming off there. It depends if we're doing a quarterly tracker or an annual tracker in terms of what that profile of revenue recognition looks like.
So there is real a bit of a lagging effect of increasing sales mix, we will be generating the revenue in the coming months rather than being able to drive a lot in month and I make that point because that's where we're seeing this distinction between the mix and our research department is going more to strategic projects, which are longer in nature. We aren't seeing that very fast turnaround work where we would generate sales and then be able to generate the revenue associated with those sales rapidly. That business was the old data services business. There's just not as much of that work coming in as we've had in previous years. So this is -- and coming back to Steve's point about the flywheel is by building this momentum is very important for us. It's giving us this better visibility on our forward revenues and shifting into a model where we can be much more predictable in terms of what projects are coming in and how we win them.
Another question from Andrew on CPS. How should we interpret the CPS' 20-day contribution of GBP 14 million of sales in the first half? And where does that imply for as annualized rate and what's driven better than expected sales?
Yes. So I'll go with better-than-expected trading performance because it's a step back. CPS is still on a 1st of January, 31st of December, year-end, and so we're in the process of shifting that. Where they've seen better trading performance is once we were announced as the preferred bidder that gave their clients some comfort in what was happening with the assets. They have seen clients having a little bit of let's wait and see what happens as part of the sales of the divestiture process. So just having clarity on where the asset was going, when clients were then committing to CPS.
And in fact, there was a little bit of pent-up demand because they've been holding back a bit. They've seen clients come and be more interested in other things that might be coming down the pipe at CPS now that they're owned by a strategic, which will be doing more investment in more toward to how they improve services. Obviously different to private equity ownership. CPS has a different revenue recognition profile than we do. So the majority of its business is providing reporting to clients. It provides us reports on a monthly, quarterly or annual basis. To the cost basis, they're collecting data continuously of the employee and all the stuff continuously but they have seasonality in their revenue -- in their revenue profile. They have a peak in January and they have a peak in July, and that's because you're getting a month's reporting, you get the quarterly reporting and you're going to call for half-year reporting to client will happening within that month.
We recognize that and ready to close the deal as early as we could do in January to capture as much of that margin as possible. But what that means is the revenue expectations for February and March are definitely going to be much lower than that So it's not something you can then just straight line out in the way that could be with our data products business and say this is what the run rate looks like for the rest of the year. When we get to the half year, that growth rate, it will be in the mid- to high single digits in terms of expected growth rate and for the most part, that's because we're still running CPS as it was, making sure that we're continuing to support the teams making sure that we're handling the integration as responsibly as possible, and it's a very high-quality asset and do not want to disrupt it and so as we point out, we continues to work with target operating product models in order to look at what does this new combined group look like, but for the most part, in the short term that the revenue profile will be the same as it has been historically.
Next question comes from Jess at Peel Hunt. How meaningful can political revenue be in FY '25 and any insight from previous elections?
Yes. Thanks for the question, Jess. Just a bit of context here like typically, we see our public revenues that includes both government work and political work roughly kind of 5% of our overall business. Alex shared earlier, that's increased by a point or 2. We should expect to probably see kind of maintain around those levels in FY '24. We do believe this room for a bit more optimism into FY '25 in this. Not least of all because we've seen some of the applications -- technology applications that we've been developing and have been developing our expertise on such as MRP, gain more and more traction come into that world. So we don't -- we're not putting a number kind of on this one into FY '25 yet. But clearly, the kind of August through to November opportunity, that the U.S. represent is a pretty big one for us.
I do just want to stress out when we talk about revenue with specifically how it relates to politics rather than government. We're principally talking about the U.S. There is some opportunity there in the U.K., but it's -- which from a politics perspective. But predominantly this is U.S. base, strong capabilities in the team. We're also gearing up for our -- we thought we've already started our election coverage. So you'll see many noted new givers, not least for chief scientists being involved in multiple kind of press interviews and all these things kind of help the flywheel of not only helping us increase our political revenue but grow our brand. And as I mentioned earlier, that's a great source of organic growth on our panelists, but it's also a great source of our commercial revenue. The reason being is that spontaneous brand recall is one of the key decision-making factors for organizations and marketeers when selecting who to say that on RFP2.
In the U.K., we are top 3 in spontaneous recall. In the U.S. we're top 3 in prompted recall but not spontaneous. Now the reason that's valuable is that you effectively become default for RFP requests with the higher level of kind of visibility and awareness that you had. So there's a combination both of the politics-politics revenue, Jess, and also the additional uplift we get from increased brand awareness and reputational awareness for us. But in this one we do think there's more to have in the academic sector here for us as well over time. We are the highest-ranked polling company in the very prestigious kind of 5 out of 8 rankings just recently. In fact, I think we're the only one of the top 5 outside of the university. So very, very kind of clear positioning for us as being definitive and certainly, from an academic perspective, the most accurate Polster that's there.
Your next question comes from Karen at Steinberg, in terms of operating margin in research, is any of the uplift of function of clients going to digital sales journey? Or is it too early to see that benefit.
Yes, I'll take you, it's too early on that one. We're still building this as a way. I think the industry is learning how to do this. We're learning how to do this at an accelerated rate. But for sure, kind of longer term, we see the potential of a digitally driven sales journey as being one that, of course, will be margin enhancing to us. Of course, what we do also see is the great role of our scaled operations that we see in our CenX centers around the world again, that helps us maintain our tech stack margin in our omnibus data services provision. Yes. Thanks, Karen. That's the journey. Not quite there yet, but certainly that's the definition we are heading for.
Next question from Brad Reback at Stifel. You have seen the pricing pressure in data products. What share of data products are renegotiated each year? And do you expect to continue to see pricing pressure?
That's a good question, Brad. You never looked at that from that perspective. I guess one way to look at it is what is the renewal rate. And so typically, we have about 15% to 20% of our clients turn out of data products and often its clients that have used it only for 1 year and haven't quite been able to embed it into their workflow. And so hard to make the distinction when you have 10-year customers, they do stick around for a very long time. So it's probably in the 15% to 20% where you're having a real sort of conversation around do they want to take it. And within that, you're going to get people to go somewhere else. Yes. You going to have people who just don't do anything in that space. So it's going to be, I would estimate probably 10% to 15% where you're having a conversation at the renewal stage where external pricing is coming to bear in part of that conversation. I would say it impacts us more on new clients, new subscriptions. That's where we're seeing some very aggressive pricing coming through from competitors.
And that's where they're using that pricing and try to differentiate themselves. And I do make that distinction. Once you're already using the product and you're getting a lot of value out of it, the price is not something that's going to necessarily move you away, being already a favorite would be what the data looks like, how that works for you is just as important to clients.
Follow up question from Jess on Q3 trading, how has sales been in Q3 so far, it's been similar to Q2, or has moderated?
We haven't finished the quarter. So as much as I can say, I think we saw definitely a continuation of that into February. We have very unusual Q-on-Q. So first of August to end of October is our Q1 so the 1st of February was the beginning of our Q3. We did have a really strong push in January. January was a record sales month for us. And we saw, compared to the February last year, we saw similar levels of double-digit growth in the month, now clearly, we still got the rest of the quarter to finish, but we have similar continuation of that.
We've got a couple of questions on CPS and the roll out into new geographies from different people. So it's a combination of -- the combination of YouGov and CPS is usually powerful. How would you look to replicate this offering in geographies where CPS doesn't operate and how far you've got with planned roll out as CPS into the U.S.
Yes. I'll tell the U.S. question at last. But in terms of the -- our planned rollup into nonexisting geographies for us, definitely see a kind of role for build, definitely see a role for JVs and definitely see a role for acquisition. In fact, we're looking at kind of all of these areas. Again, just to go back to the original strategic rationale, by far, the biggest challenge in investing into new territories is panel. Now that's one thing we, of course, already have. The second thing clients want to see is historic data. So you actually kind of have to prove yourself in a way for a year to then grow. So we're looking at initially, how do we bulk out in the areas that we're already double operating in. So YouGov plus kind of CPS within EMEA specifically, then the areas they exist within the EMEA but we can roll out. And then it's the U.S. Now we do believe that the U.S. offer is a big opportunity for us.
However, we also believe that in order to really make the most of that, we need a differentiated product. So this is about not just saying we've got a me-too version relative to others, but a product that is the combination of the attitudinal data and the purchase data for us to take into the U.S. And our strategy, the way we've kind of operated previously, whether that's in growing kind of panel or indeed specific products is to have effectively kind of anchor client, a sponsor client that understands the value of the proposition, get quite excited about it and wants to replicate that into other markets. So expect us just to -- so that our plan is -- yes, we'll look to kind of partner to -- we'll strengthen our existing geographies. We'll expand out into other EMEA geographies through a combination of potential acquisitions in kind of smaller markets, but continuing some of the JVs that are there as well.
And the U.S. is developing a whole new side proposition. And with our goal of finding the right client is kind of built out with us.
Question from Dan at HSBC. Can you update on the roll out of the [ structural ] in incremental revenue, use of growth?
Yes, sure. So we -- as I mentioned that we saw 150 net new advertisers. That's net new to YouGov, by the way, not net new to the self-serve part of YouGov. So it's definitely working to attract in new customer, we are seeing growth rates that are kind of understandably kind of ahead of in double digits, so they're kind of ahead of what we're seeing elsewhere. But again, I would stress, it's still relatively small in the business. We had that kind of hockey stick moment just there, but are working through that, and we've seen kind of like good momentum in January and into February as well.
We're slightly over. So last question from [ Kiran ] at Berenberg. In terms of the updated targets, can you clarify that the increase in revenue profit is purely from the contribution of CPS and can you talk us to the drivers of increasing the margin to 25%?
Yes. Well, I'll take the first part of that, and maybe Alex, you want to finish on the second. So the first part of that is yes. So we're not planning any additional kind of acquisition kind of into it if we do have a significant acquisition, it's not our current plan. But again, if an extraordinary value unicorn like CPS arrives, we wouldn't roll it out, our ambitions are pretty big. However, I can confirm that additional is existing YouGov organic goal, GBP 500 million, plus the CPS goal of GBP 150 million gives us our new revised target of GBP 650 million revenue.
Yes, a couple of points on the margin. We are anticipating to lift the CPS margin. So that's -- the driver of that will be increasing the depth of data they can go to in countries where they currently are operating, we do that using the existing YouGov panel assets so that broadens out the potential universe of clients that can sell to, but also being able to support geographic roll out as well. So there's a piece [ error ] of using existing YouGov assets much more effectively as part of CPS roll out. Now in terms of the YouGov rest of the core business, it's going to be a combination of increasingly driving sales through those digital sales channels, but also driving sales through to data products, whether they be data slices, behavioral data where we have really large sort of drop-through in terms of operating leverage going for an increasing amount of custom projects where we're doing that in multi countries.
There's a multiplier effect that we get in those types of projects, which we can benefit from using our panel using our technology. And then the third part of that, which links the technology is looking at ways of being more efficient and to increase the amounts of automation, being able to use technology to do different types of things in the data, Stephen -- sorry, Steve talked about. Vector search, that's going to be a very powerful analytics tool for our clients to use our products and our large customer trackers much more intensively and we'll be able to drive incremental revenues off of that.
There will be some opportunity for AI. We aren't sort of baking that in too heavily. We're definitely at the early stages of assessing what do we use AI for and where does that sit within our technology stack but there's some clear opportunities for us to increase some efficiencies there using AI-enabled products and services to make it easier for panelists to interact with us, easier for clients to get to their data, make it easier for ourselves to process increasingly large amounts of information as well.
Great. Well, thank you Hannah for that and thank you to all of those who are joining as well this morning and your continued interest in YouGov. I'd say, it been in many ways, kind of transformative part and a very busy half. But it's only other half. So we know we've got lots of work to do. And again, thank you to all of the [ YouGovers ] out there. And again, thanks for your interest in the time this morning. We look forward to continuing updating in 6 months' time. Thank you all. Bye-bye.