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Edited Transcript of EMIS.L earnings conference call or presentation 30-Aug-19 8:30am GMT

Half Year 2019 EMIS Group PLC Earnings Call

London Sep 17, 2019 (Thomson StreetEvents) -- Edited Transcript of EMIS Group PLC earnings conference call or presentation Friday, August 30, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew John Thorburn

EMIS Group plc - CEO & Executive Director

* Peter J. Southby

EMIS Group plc - CFO & Executive Director

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Conference Call Participants

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* Kai Folker Korschelt

Canaccord Genuity Corp., Research Division - Analyst

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Presentation

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [1]

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Hello. Good morning. Welcome to everyone in the room here in London, and welcome to everyone on the conference call. My name is Andy Thorburn. I'm the CEO of EMIS Group. I'm joined today by Peter Southby, our CFO, and we're pleased to be bringing you the results for H1 2019.

I'd just like to say a few opening comments, before I pass over to Peter, about how we feel about the period in question. So we feel we made positive progress in the first half, and we're pleased the financial results are both growing in the top line and also on the profit line. We're also pleased to maintain our historical dividend approach by increasing dividend in the period. And most importantly, for me is that we are very focused on executing our strategic plan, which gives us good mid-term growth opportunities. Evidence of that execution is the sale of Specialist & Care, which you heard about in the market in April time frame, that simplifies our business, takes us out of services. And most definitely focuses our business around technology and technology enablement for our customers, both directly to consumers or patients and for clinicians. So we're pleased with that.

In the operational overview, I will talk about the progress we're making building out our new technology and with particular reference to marketplace, which is our latest and greatest, and that's going very, very well.

And before that, I'm going to pass you over to Peter, he will take you through the detailed numbers and give you an insight into the performance of the group in the first half. Peter?

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [2]

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Thank you, Andy. Good morning, everybody. So if we turn to Slide 4, our financial highlights for the first half of the year. In summary, another encouraging period and improved level of revenue and profit growth on a like-for-like basis, excluding the Specialist & Care business, which we sold in April. And that's been delivered alongside significant investments in technology, in both patients and for the EMIS-X platform. So total revenue was 7% up to GBP 79.8 million, recurring revenue up 1% to GBP 60.2 million. Group operating profit 8% ahead on the headline adjusted numbers, so that's where the additional costs have incurred.

As usual, for the first half, cash generation was good. Although a little behind the 2018 first half comparative with cash flow timing differences from deals completed towards the end of the period. We generated GBP 27.5 million of adjusted cash from operations and ended the period with an GBP 11.1 million improvement in net cash from last year-end.

Adjusted EPS improved by 12% to 23.7p, and the dividend was up 10% with an interim dividend of 15.6p. And that reflects our confidence in the medium-term growth prospects for the business, given the group's strong recurring revenue base and ability to continue to grow while supporting an elevated level of development investment.

Turning to the income statement on Page 5. Here, you have the P&L performance over the past 3 half years. There's more on revenue and segmental performance in a moment. But to summarize, the results have been positive this period. We've continued to make progress at both top and bottom line despite the investment program. That's been achieved in line with the statement that we made at our Capital Markets Day last November by making sure that we pay the bills on the way through. But that means, in practice, a number of commercial license deals as part of the refocusing of the product portfolio as we've consistently done to extract value in the latter part of the product life cycle. We took one exceptional charge of GBP 2.2 million in the period, relating to the restructuring of the business into 2 represented segments and also to other organizational changes arising out of investments in improved internal systems. That will continue moving to the lower level in the second half with the savings arising reinvested into our key development areas.

Tax charge in 2019 is close to the average statutory rate for the period of 19.1%. Adjusted earnings are up 12%, as we saw, reported earnings held back a little by the exceptional charge was slightly higher than the comparative period.

Turning to the segmental analysis on Slide 6. As previously announced, we've reorganized the group into 2 segments following the sale of the noncore Specialist & Care business. EMIS Health covers the NHS facing, public sector side of what we do, and EMIS Enterprise, the consumer and private sector side of our business.

In EMIS Health, here, revenue increased with adjusted operating profit slightly lower than the comparative period, partly as a consequence of increased investment in developing the EMIS-X platform.

In the EMIS Enterprise division, here, we delivered a strong performance in the market, including a number of commercial license deals for both continuing and legacy products, helping to focus the product portfolio. That resulted in stronger growth in nonrecurring revenues, with this segment, in particular, moving enterprise up to 37% of the revenue and 43% of the profit of the group overall.

Adjusted operating profit then, at a group level, 8% ahead despite the investment that we've been making with a modest but important improvement in the operating margins versus the comparative period.

The revenue analysis on Slide 7. It gives a split of the revenues between the main revenue categories and also between recurring and nonrecurring, with more information on the revenue categories by segments reported in the results release. The recurring revenue move forwards more slowly this time. And that's a consequence of that product portfolio rationalization that I mentioned a moment ago. Nonrecurring revenue, there, the increase benefited from commercial license deals, as I said, and that comes through in the software and software licenses line. The reduction in maintenance and software support against the second half of last year. That's a consequence of exiting the legacy products. Other support services and hardware revenues are broadly unchanged against the first half of last year. And training, consultancy and implementation, there, the change increased this time versus the first half of 2018 is around the timing of the Egton patient record digitization projects.

Turning to the cash flow then on Slide 8. Adjusted cash from operations, which is before exceptionals but having absorbed all of our development costs, which is GBP 27.5 million. This is a little lower than the first half of last year, which was strong, as I mentioned, with a less pronounced working capital inflow, and that's due to the timing of certain cash receipts and I expect those to be back in line by the end of the year. The cash exceptionals here relate to the reorganization costs, as I said, a little more to come in the second half. Business combinations that relates to deferred contingent consideration for last year's Dovetail acquisition, and we also took a small 10% minority stake in an early stage pharmacy data business. Both good examples of our ability to invest in emerging technologies.

On the other side, the disposal of the Specialist & Care business resulted in a net cash inflow of GBP 6.2 million and as we've seen a small book profit. Elsewhere, in line with our share scheme policy, the Employee Benefit Trust acquired GBP 3.6 million worth of shares in the period, and CapEx was continued -- broadly unchanged.

Overall, therefore, we reported a net cash balance of GBP 26.7 million, and we'd expect the underlying second half cash flow overall to be close to neutral as last year.

Looking at the balance sheet then on Slide 9. The balance sheet continues to be strong with no debt, significant headroom on the facilities that we had extended through to June 2021 and 2022. We've also brought leases onto the balance sheet this time for the first time as required by IFRS 16. Initially, this was a grossing up of about GBP 3.5 million and post the Specialist & Care disposal about GBP 2.7 million.

Other than that disposal, the other main change since the year-end balance sheet, the seasonal increase in deferred income and that's unwind, of course, through the NHS here from April through to March, and that gives us good visibility on our future revenues.

Turning to Slide 10 then, some of the key factors affecting our future financial performance, just to touch upon. Reorganization costs. As I said, there will be some second half reorganization costs as we complete the program, and this will be at a lower level during the first half, we've completed the heavy lifting of that.

The staff costs, we'd expect a broadly steady level in the second half, with the cost of those who've left us during the reorganization, replaced by the increased investment in development, in particular. There may be a high level of wage inflation in 2020 for the specialist skills that we need.

With regards to development costs, we'd expect to see capitalization continue to move up a little going forward. But broadly speaking, for this to be in kilter with the amortization and development costs.

Share-based payments, these will continue to increase in the future with a high level of the LTIP awards that we made in the spring this year.

The tax rate, the P&L charge, we expect to remain very much in line with the statutory rate, now 19%, although the cash paid will increase in 2020 as a one-off as HMRC moved to an in-year tax installment regime.

CapEx should be consistent, as mentioned, subject to the transitional arrangements for GP IT Futures.

Working capital, we'd expect to be broadly neutral for the full year. Again, IT Futures may have some impact going forward. We're currently estimating this at up to GBP 5 million reporting those at December and June. Obviously, that would be a one-off adjustment as we shift to the new regime.

Dividends, we've GBP 9.8 million. That will be paid in November for our interim dividend.

And so to summarize the 2019 in terms of guidance there. Numis are currently looking at adjusted operating profit in the GBP 38 million for the full year. We are happy with that expectation as it stands.

Revenues for the full year, likewise, we'd expect to be consistent with market expectations. And from a profit perspective, therefore, what that means is a stronger second half as usual, giving underlying mid- to upper single-digit profit growth for the full year, and that's the level that we'd regard as being a minimum base for growth for the business looking out into the medium term.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [3]

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Great. Thanks, Peter. If we turn to Slide 12, and just to talk about what's going on inside the business and some good progress operationally. And one of the things following Capital Markets Day and our strategy refresh, it's all about execution for us. We've made our choices, it is now getting the work done. So good news, and we'll go through in some detail as patient marketplace was launched, as expected, in July. And just to remind everyone, that's where you've the ability to book supplementary services through the app. And the app grew dramatically from the upgrade from last May by about 33%. So we've now got 8 million users with the app, which represents about 14% of the adult population in the U.K. It's a really strong asset for us, and I'll take you through some detail around the potential for patient in the midterm.

The other thing, again, in our technology approach, we upgraded our ProScript Connect product some time ago. That's in our Community Pharmacy business. It continues to go very, very well, continues to grow well. We've now deployed that at 100% of our direct sites. So there's only 40 sites for our wholesale deal we have with 1 customer that need to be upgraded and the reception from our customers has been excellent and are very appreciative of the new technology. So that's gone very, very well. We're pleased with the execution there.

On GP IT Futures, I apologize, I'm not able to answer any detailed questions around the bid. We submitted on time, or the bid team would say, we submitted 2 days early and are proud of that. And it's now in evaluation by NHS Digital, who is the agent for NHS England. We continue to feel positive about our submission. We think we're very well positioned, but clearly no gift. Expectation of when the confirmation will -- and the framework will be is in the next few months. So it could be any time from start of September through to probably early November is our best estimate. There is no formal timetable from the customer. So that's our opinion. But they've got a lot of work to do to evaluate not just us but other people, of course. So lots of work to do there.

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [4]

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And does it slip the time, do you think?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [5]

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That's our best estimate. So that's the best we can give you at this point.

In terms of other execution, EMIS-X, which is our technology upgrades, so we've got a lot of technology upgrades that have been going on. So ProScript Connect is completed, so that was done really well by the team I've mentioned. Patient marketplace, all the heavy lifting is done on that. We upgraded when we built the platform, upgraded the app, upgraded the website. We've now launched the marketplace. So that heavy lifting is behind us, and the team has done an outstanding job in the technology upgrade there.

And our EMIS-X is going very well. We've decided -- normally, we just talked about what we've done. That's been our policy since I've been here. But we want to give you a little look in the future, and we're confident that the platform will be built in 2020. We've already achieved milestones. We've got one of the modules live, supporting marketplace. We've got another number that have been built and completed and signed off, and we are doing very well in the execution of the platform. So that will be a major milestone when we achieve that in 2020.

The other thing we decided to update the market on is the -- our GP app, so that's EMIS Web will be upgraded to be enabled in 2021. So we are really cracking on with the execution of the technology roadmap, and we've got great track record of doing that. And ProScript Connect is one evidence of that, marketplace is another. And now we've got X underway, and we're really pleased with the leadership and the team and how they're going about the task.

The other thing we decided to do is we want to move on many fronts in parallel. We've also added a couple of very senior people onto the team.

So if I could turn to Page 14 now on the deck for those listening. I'm delighted to say that Suzy Foster has joined us to lead our EMIS Health segment. Suzy ran the health care business for Microsoft in the U.K. for 4 years, is a very senior executive, and we're absolutely delighted to have her on the team. And she brings a really great knowledge of the health care market. And as you know, I came from a different industry, so it's great having her advice and guidance about the market dynamics, she has been with us now about 4 months and is really starting to make a difference for us. So it's super to have her on the team, and it's great that a company of our stature can attract senior executives from other industries. So very pleased about that.

We're also pleased to confirm that Ian Taylor, who's been with us a long time, runs the EMIS Enterprise side over new segments. Ian came as part of our acquisition of Rx Systems so Community Pharmacy in 2010. He's a great asset to the team as he's expanded his portfolio into enterprise. And it's great to have someone with a long-term experience in the company, balanced by someone with health care knowledge. So great leaders complementing other leaders we've got on the team.

The other great addition is Bob Brown. So Bob Brown joined us from Manchester District Council (sic) [Manchester City Council]. We felt we wanted someone who's been working inside public sector to give us that view. He did that job for 3 years. He was a Chief Information Officer, and he also connected the health care assets with district council assets into a single ecosystem. And he is bringing great skills, insight and process to the company, which is somewhere we want to, again, improve our processes just as we evolve and grow as a business. So a great team of existing members that have been in the company a long time with some newer members, which we talked about at Capital Markets Day.

If we flip over to Slide 16, and one of the big things, I believe, in a technology company, it is absolutely a race for talent. If you've great talent in building tech, you tend to win, and we are really focused and Jacqui Summons, who joined us at the end of '17 as a Group HR Director, is really instrumental in building our team, both developing our internal team, that have been here for a long time. She's the main expertise, and we're absolutely keeping the people we need to keep in the business and we're providing them with additional benefits. So as we win as a group, the individuals in the company also benefit. We've had some new share schemes out there to enable people to benefit from the share price as we execute our plan and hopefully grow the business for everyone involved.

On the new talent, we've talked about Suzy and Bob joining the team. We've also been investing in clinical teams. We've got a couple of new GPs that have joined us Ian and Ed, and they work 3 days in their GP practice and 2 days with us, and that gives us a real up-to-date insight on how they're using our technology, but also they're advising us along with the extended clinical team on product innovation, clinical safety, making sure we design for the future. So that's massively important for us as a group.

On a product management function, which is led by our Chief Medical Officer, Shaun O’Hanlon, who's been with us for 20 years. He does both clinical and product. We've brought in a Senior Product Manager to manage the execution, who is a real professional product management person, Rob, and he is making a great difference, putting in new processes and upgrading our approach to product life cycle management. So pleased that Rob's joined us.

On the development side, we continue to invest in our development engineers, software. So that's in marketplace. We've talked about -- and also in EMIS-X. And we're bringing talent in, in the U.K. and also India, where India team is up to about 300 now. And as we free up cash resources from elsewhere in the business, such as streamlining administration, the money is going directly into more development engineers. We're building for the future and building for growth. And therefore, as we change and unfortunately, some colleagues can't transfer skills from admin into development, they've had to leave us, but we're taking that money and we're putting it into new technology leadership, and we're looking for the best talent out there.

And just about our India operations, average age is 28, vibrant team, very, very good, delivering our promises, and we've got a long-term deep domain expertise here in the U.K., and we continue to build in the U.K. as well.

On the sales side, we're continuing to get close to customers and that's a constant movement as we develop our sales approach. So there's a good focus there.

On the cultural side, 2 things to mention. We're definitely building a more performance culture than historically here at EMIS, and we're taking that in an appropriate pace for the team that we have and that's going well. But we have determined not to lose the culture of the company, which is a caring culture, many of our employees are with us because of the mission in serving the NHS and having greater patient outcomes. And the staff have come up with a big initiative around Caring EMIS, it's called, where they invest their personal time to create money for charity, and their chosen charity is mind that's driven by the team, not by management. And there's been many initiatives last year and this year, and we really like that and it's good to give back as part of the group. Again, as I mentioned, we're paying for investment in new talent with being more efficient elsewhere in the business, and that's recognized in the numbers that Peter just took you through.

If I could turn us now to Page 18. I think it's good to give you a bit of an update on the macros, surrounding us and as we move forward. So from the NHS public sector side, clearly, there's a lot going on in the political environment in the U.K. The first thing is we are predominantly a U.K. business. We've got very little outside the U.K. And in terms of direct impact in Brexit, we are fortune, there's very limited compared to colleagues running European businesses, which is clearly more complicated. However, we're very cognizant that our customer NHS is in the middle of this with potential concerns around staffing for foreign nationals. And we are keeping close with them to do our best to support them wherever we can. I think from the new Prime Minister and new administration, there's a positive approach to NHS with talk of new money coming into the business as from the leader of the opposition is a long-standing position there. And I think generally, my instinct is that the NHS will be supported well whatever the outcomes may be depending on the political circumstances. Clearly, that's a personal opinion. That's the best view I can take in a very complex world. So I'm sure you've all got your own opinions.

In terms of practical approach, there's no day-to-day change in budgets in NHS, so we're not seeing anything that would hold up deals, hold up progress, either through IT Futures or through the macroeconomic situation. So very much business as usual. We're not hearing anything at all on the ground negative. And indeed, this recent money released by the Secretary of State into the acute space for some onetime deals. So that's helpful in just moving the industry along.

Pragmatically, I mentioned, we're working with customers every day, to solve their problems and help them. We're just keeping the team focused on that. And also, from the overall strategy we mentioned at Capital Markets Day, we do want to, over time, balance public and private sector revenues. As Peter mentioned, in this period about 37% of our revenues came from the enterprise side, which is predominantly private sector, and we want to increase that to around about 50-50 in the mid-term. And we continue to look at both organic opportunities in enterprise and also we've got an eye on some bolt-on acquisitions. Nothing to mention there. The good news is, we don't need to be in the rush, definitely not in the rush. We'll try and pick off 1 or 2 interesting things and execute the plans if we can get the right price, and we think it meets the technology model we have. So we've got our eye on that. But as we said last time, we're not looking at any transformational deals at this point. But clearly, if something interesting comes along, we would be opportunistic if it made sense. But more bolt-tons with more focus on the enterprise side rather than the EMIS Health NHS side.

Moving over to 19, just on competitive environment. Just to give you an indication of what we're seeing on the ground. No major changes to-date. But what we are seeing world over is big investment in digital. And I think the credit to Chris, who was in my role and Peter before I joined, is they saw that and invested in patient. And we are most definitely undisputed leader in the app world around supporting GPs and also now extending into the marketplace. 8 million users without any marketing spend is a great result for the team. And I think we are a leader in the digital health care trend here in the U.K. as opposed to a follower. We're seeing big money going in, in the U.S. Babylon you'll see had a $500 million investment through the Saudi Investment Fund and they're going for a global play, where they've got GPs, if you like, online. We're not going to be in that business. We're in the technology enablement business, not in the clinical supply business. But it's good to see a lot happening in digital. We're glad we're leading, and we'll continue to support Jason, who runs that business and Ian who leads the segment. So we're very excited about digital, and we think we're well positioned.

In terms of what customers are saying, same old, same old, which is can you help us and can you do it at a more affordable level? And can you help us have better patient outcomes, and that's usually important, we are very focused on that.

If we'd like to -- go to 20 and really talk about health and enterprise, I don't think there's anything major else to say. We maintain our shares across the piece mostly up, one a little bit down, but broadly flat. And that's absolutely fine to where we are. Our focus is on mid-term growth in terms of building out our capabilities that we'll talk about in executing the strategy.

If we go to Slide 22. I mentioned that earlier in my introduction I think the words are easy, the execution is what it's all about and I want to give you some evidence about our execution. So here on patient access, and we'll talk about that in detail in the following slide. The patient platform's built, the patient marketplace is launched. Patient content is now within the app. The app was refreshed last year. As I mentioned, users up 1/3 from that relaunch to 8 million, we've got online video consultation platform now and we've got online triage. So we are executing our promises, and we've also got some plans for next year. They're pretty confidential at what we're going to do, but we're building meds management capability into the app more extensively. We really do repeat prescriptions, as you know, and that has grown over 60% year-on-year. So the adoption from our customers is great. We've got a major new initiative. We're not going to talk about it. We think it's going to be really interesting to keep our differentiation going. And we're going to continue to put new functionality in there. This is a big play for us in the mid-term. So we're really pleased with progress.

I mentioned earlier, ProScript Connect, and that's fully done, that's other evidence in our ability to execute upgrades, and EMIS-X is moving along really nicely. So to remind people, this is the Connected care platform that we're building, and we've already got 1 module live supporting the marketplace. That's our appointment engine, which is scalable and will be developed further as we go forward. We've also built a number of key modules in the platform, and those have been signed off. I asked about CTO, I was speaking to him last night, he was very pleased with progress. He's gone through a detailed review at the moment. So that's going well. We can confirm the platform will be up and running, V1 next year, and that's definitely ahead of expectation, and the team are doing a great job there. It's a complex project. Mostly, things go well. One or two things have to be dealt with on the way through, you would expect that. But we're really pleased with how the team is performing and our investment in the teams in the U.K. and India before we announced those is really paying dividends. We've got a lot of resource, and we'll continue to put more resource into the teams as we move forward.

Meds management is embedding in everything we do. So that's the management of prescriptions, how they interface with consumers, how they interface with clinical reps, that's very important to us. And to give you a couple of stats last year, there was over 680 million prescriptions were actually the EMIS Web, and on ProScript Connect, there was more than 400 million fulfilled in the high street on ProScript. So we're operating at tremendous scale. And we're most definitely the leader in that market, and we continue to have the #1 market share in Community Pharmacy, #2 in Hospital Pharmacy. Massively strong part of our business and something we're investing in. We're building easier interfaces, so API, so interfaces to our technology for our partners. We've got over 100 partners today. That sits in EMIS Enterprise, and we'll bring on more partners as X comes up live through 2020 and beyond. And also, we can confirm we'll have an upgraded GP app, so that's EMIS Web. So we'll have the upgraded EMIS-X version in 2021. And we have got a firm commitment to do that with a customer, and we'll be talking about that, there will be something coming out very soon on that. With other applications, we're upgrading and developing. We've got some new things on the way, which, again, we'll update the market as we see fit.

On 23, just on patient marketplace. I mentioned some stats up on users. And actually, in the first few weeks, following the marketplace launch, our weekly downloads increased by 50%. So it's a great reception to that new marketplace. We'll see if that is sustainable or not, but early signs are positive. The usability, which is a big leading indicator. So prescription, this is repeat prescriptions online. GP appointments both up over 60% year-on-year, which is great. And most importantly, in the App Store, over 200,000 reviews and a satisfaction rating of 4.85 out of 5. And anyone who knows anything about the app business, that is very hard to do, and we sustained either #1 or #2 in the category for the last year. So that's, again, encouraging, and we think we're in great shape in the overall digital marketplace.

What is the marketplace? Just to remind you, this is the ability to book services where you are prepared to pay for from authorized environments from the NHS. So NHS have authorized Community Pharmacy to undertake, what I call, patient group directions, which are minor clinical procedures in a consulting room, I use a simple example of travel jobs, so you're off on Safari, going somewhat exhausting on business, you go to get a couple of jobs. You can now book into your pharmacy, we got booking fee and also over time the pharmacies will start promoting their services we expect will get listing fees. So we started monetization super early. We have good revenue in the marketplace, we're really pleased about that. We're not going to tell you how much because it's very early. And -- but it's great, and it is meeting our expectations, and I'm really pleased with the tech.

So what is the next stage in marketplace? With 8 million potential consumers, we've got to build out the supply side. We've got [Daluz] is our leading customer who've been amazing to work with. They are a great innovative leader in Community Pharmacy, and we've now got their competitors proactively coming on the network. To remind you, we've got 5,200 locations on Community Pharmacy, and we'd love to get the majority of them up to be service providers, and the consulting room is a strategic imperative for Community Pharmacy as their margins are under pressure from traditional prescribing revenues. And service is a big thing for them, and we are absolutely first movers in this, and we're leveraging the group from the patient access innovation, but also innovations through ProScript Connect and our Community Pharmacy business, and we think that's pretty smart to connect everyone up. So that's going very well. Much more on numbers when we see you in the March time frame, but we're pleased with the progress.

Just flipping through to the summary on 25. And -- so what's the overall summary. We're making good progress, a positive progress on the financial results, and we're really working hard to deliver our promise from Capital Markets Day, as we invest, we want to pay the bills as we go through. And we decided to take the hard road. The hard road there is to keep the team all moving forward, making the investments and also paying out a dividend, and we're really, really focused on doing that because we want to make sure that everyone benefits as we go through. It means it's a bit harder. We've got more operational risk in the business we have traditionally, but we think we will get superior returns for our shareholders, greater products and services for customers and a good result for our team if we do that.

So lots of moving parts, but our job is to management -- manage it and part of bringing Suzy and Bob in and another couple senior folks to help manage these parallel activities. So lots going on inside the company.

On IT Futures, I mentioned, we think we're well positioned. It's not in our gift. It's clearly a risk, but we remain confident in our position in the marketplace and hopeful of a positive result there. We'll hear that as it comes through in the coming weeks or months. And then finally, what's the mid-term promise? Well, the midterm promise is that we want to provide great returns for our shareholders. We're building our growth platforms, marketplace is one, EMIS-X is another. And we've also got 1 or 2 other things that we're working on inside the company that if we build some momentum, we will bring those to the fore for our investors. So we're investing on a number of fronts and we remain confident that we can do something pretty interesting in the midterm for the group. Evidence of that is what we've done in ProScript, what we've done in marketplace, and EMIS-X, on track, and now with some dates that you can follow and hold us to account on.

So yes, we're -- this is a good company, we're well positioned. We're doing a lot, we want to do the right thing. And I'm really pleased and thankful to the team for executing the plan.

So with that, I'll open up to questions. I know our friends and colleagues on the phone can't ask any questions, but we welcome you to stay around as we take questions in the room. Thank you.

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Questions and Answers

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Unidentified Analyst, [1]

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A few questions. ePMA, you've upgraded your solution and you won a couple of new contracts. There was a big play a year or so ago about funding GBP 75 million or so being approved for that. Have you seen any of that in the market yet? Or is that still to come?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [2]

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Yes. No, that money definitely came through. So that's evidenced, there's a couple of wins there, but we've got some other things we're looking at. So that money definitely came through. It's more just in terms of what it means to us. It's not a big revenue stream for us, but that money definitely came through, and that was encouraging because, sometimes, you just definitely look at the announcement into reality. So we have seen that, and that certainly helped the acute side of our business just to keep moving forward. So that definitely came through.

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Unidentified Analyst, [3]

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Great. And IT Futures, understanding you're not going to talk about for good reason. My understanding were there were 73 different companies who've submitted to be part of that. Clearly, only a handful of those will be for the core solution and most will be around the edges. Just wondering how that maps up with the 100 or so companies that you've got in the ecosystem? And whether those -- what the balance is, I guess, between the opportunity for EMIS and the competitive threat toward EMIS from those companies?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [4]

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So let me explain generically what's going on in the bid process kind of the 3 (inaudible) commercial details. There are 2 things running in parallel. One is the system, so we are a system provider, and with a number of people, there's 4 providers are authorized to sell clinical systems to GPs today. And so there'll be a number of people that will apply to be on that system, okay, and be considered as a system provider.

However, even if you're listed there, it doesn't mean you can necessarily operate. You've got to be approved and there's an approval process that sits on the other side of it called the catalog, right? So the 4 providers that there today, I would expect them all to turn up post framework, right? I don't know, but that's what I'd expect. There may be some other people throw their hat in the ring and they will have to prove their clinical credentials, et cetera, after that. So they can be placed on there, subject to being formally approved, okay? So until we see who those people are, but there's not going to be 70-odd people in the system side, I can tell you that now, there will be some people that might want to take part of that, and part of the approach from NHS will be to modularize that either over time, but that happens over some time.

The other side is what's called the catalog. And the catalog is anything and everything that you would want to sell into the primary environment. And that can be from one simple module into something more complicated. And there's lots and lots of people, including us, are putting their portfolio on to the catalog. And that provides upside opportunity for us to sell more through the catalog and also part of our road map, we share some road map things with you, but we clearly are working on other things that we don't want to share commercially yet. And so there's upside opportunity through the catalog for us to sell bolt-on products or services, as we do today through Egton predominantly into the customer base.

So overall, we see the whole bid is an opportunity to keep what we have. And we've always said, if we get roughly the same for the same, or the same for slightly more, that's a great result for us as a market leader. But on the catalog side, we see growth potential. And there's a number of agents we are quite interested in. And we're busy thinking about how we're going to execute that. But until the overall thing plays out, we don't know exactly the landscape. So the 79, majority of them were in the catalog, individual product side, and then we expect a limited number of people on the system side, which is what you'd expect.

In terms of our partners and who's playing, some of our partners are on the catalog, some prefer to go through us, that's fine. It's a complex ecosystem. Sometimes you compete, sometimes you go to market with EMIS. We do that today. That's pretty normal.

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Unidentified Analyst, [5]

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A couple of (inaudible). One on patient, one on EMIS-X. On patient, is it -- is your monetization method or planned monetization method, is that restricted to the marketplace? Or do you see an opportunity as well on this sort of using, I'm not sure whether you turn where people are going, use asset descriptions, the connection between charging GPs extra because they're -- you're providing an extra service, I'm not sure...

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [6]

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No. So on the -- we're not looking to make money from the repeat prescription business or around that actually, right? So we see that as added value in having the right then to offer some new things to the consumer, right? And that's been built. That's about supporting our current base. So in EMIS where we've always go to all the GP, so we want to support them and make them more efficient. So patient access is a benefit to them because it's more efficient. You don't have to go into the practice for your repeat meds, they can do it online and providing they're happy with, may have to give them -- some information online, but they can then authorize you for 6 months more. Very efficient. All done online. So we're not looking to monetize that. That's our NHS side of the business, we're supporting NHS, and we see that as part of the overall ecosystem of what we do. So we're not looking to monetize that.

On the new side, is we're saying to consumers, look, the first things that you need access to as part of the overall government policy, or if you want to pay for a physio appointment, you're here in London, you can -- we've got location-based app now, we can book you here, here and here and you can go online and book straight away. And EMIS-X appointment engine is how you book. So we're looking to monetize on that side and continue to support efficient use for GPs, both on EMIS Web, which is the application for GPs, but also patient access.

So everything we're doing on the NHS side across the group is joining up assets we've got to help people. So we've now got -- you've got relationship between patient access in EMIS Web in the GP practice, you've got relationships between patient access and community pharmacy in the consulting room. And so we are constantly thinking about how do we help each other in the ecosystem, and we're uniquely positioned to do that. No one else does what we do in the U.K.

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Unidentified Analyst, [7]

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And just on EMIS-X in terms of with the revenue profile broadly in terms of what it look -- Web looks like compared to X. Is there any comparison you can give in terms of is it basically apples-for-apples? Or are you looking for an uplift or is it -- and is the upgrade basically automatic, irrespective of day 4 -- or perpetual before is, basically mandatory for -- do you want to compare the 2?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [8]

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So the way to think about EMIS-X in the short-term is the GP app, which will certainly be EMIS-X, is more of the same, is the same revenue stream if you use term retention, right? So it's keeping our customers upgraded. And it's going to be identical to what we did in ProScript, with ProScript for community Pharmacy. We've now got ProScript Connect. It looks the same, it feels the same, but it's more modern. So we're putting the GP app face in more modern settings. So the first thing to think about there is just we keep the same customers, right? So that's mission one.

Mission 2, though, is the underlying platform, EMIS-X, allows us to extend our offers into different care settings and join them up, and we think there's new money and new opportunity for us. But we wouldn't get to that for a little time, that's why we're talking about midterm. We've got to build the platform, we've got to deal with the GP side. And in parallel, we're building new capability, and we'll start seeing some new revenue opportunity down the line. So that's -- as we think about Peter...

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [9]

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Yes, absolutely. Yes. And I think the other point, just to remind you about is that the vast majority of our customers today are on subscription basis. So we have regular subscription revenues that come through for the vast majority of what we do. That will continue in the EMIS-X world, it will gradually be transitioned across from the existing product portfolio on to EMIS-X over time. And as Andy says, there will be opportunities to build that revenue as we bring greater breadth of service and have greater connected care opportunities that flow from that.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [10]

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Yes. And the big thing for our customers, and we've learned this, and the team did a brilliant job in ProScript Connect and also when EMIS Web was first created is the look and feel has got to be very similar because you're running a practice, community pharmacy and a GP practice. So all of the team, whether it be the nurse, whether it be the receptionist, the GPs, are all used to the workflows and everything else. So what you want to do is bring that same look and feel as they upgrade, but in a more modern setting with more functionality options down the line and more efficient for us to run. And that's one of the things. So we make a seamless upgrade for them, and that's the big focus. The team we've got a track record of doing that, so that's not new news for us. That's something we've done before.

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Unidentified Analyst, [11]

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So what does success look like for EMIS Web 12 months and on?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [12]

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Success for EMIS Web is we continue to be the market leader and we continue to look after customers and be successful there. We've got high market share. So I don't measure in increasing market share terms. I think we'll do very well. We want to continue to do that. I think as we extend to the new setting, it's more about EMIS Web and the GP app communicating with other assets and extending that care setting across everywhere.

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Unidentified Analyst, [13]

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And EMIS-X is to move.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [14]

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Yes, EMIS-X similarly, and EMIS-X design principle is that we've got is it's a platform that can be deployed anywhere. So we're building out the assets in there that you can scale to tremendous scale as we're sitting on [Amazon] and also be able to deploy that, for example, in international setting. But we don't have a plan for that today. But that is an opportunity of the group at some point. And the design principles are about, this is a clinic, if you use the term clinical operating system. It's going to have the database, it's going to have condition pathways, it's going to have a clinical library, it's going to have patient access from different settings. You could lift that and put that somewhere else.

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [15]

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And it's a 5-year transition from Web to X?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [16]

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Yes. So we haven't got a formal timetable. If you look at common sense, the GP app will be up in 2021. So then if you decide to start changing the state from 2022, it'll take you a bit of time is that 2 years, is it 3 years, is it 18 months. It depends what's appropriate. So it'll take a little time. EMIS Web is a live, very important system. We're investing in it. We're absolutely focused in upgrading that, and we're building out the X platform. So we've got to do both, and that's normal. But we want to show our customers we've got a future in modern tech. That's all part of it. So you have to take some time making it.

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Unidentified Analyst, [17]

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So can I just confirm that the EMIS Web app for GPs as it stands would meet all the requirements of IT Futures pre going to EMIS-X.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [18]

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Absolutely. With the IT Futures and EMIS Web, that is what we've bid, that's what it is. And the requirements for a bid such as IT F, there's always things that a customer would ask for, and you need to comply with those, and we know what those are, and we know what we're doing about it. We don't expect any issues there at all. Absolutely. So IT -- so EMIS Web equals IT Futures. And EMIS-X is the next-generation of tech, and that's a platform to connect not just GPs with community, acute, social care, pharmacy over time. And then the app -- the GP application itself will evolve through the life of IT Futures. So absolutely. And EMIS Web is incredibly important, we're investing in it, we've got a big team on it. So we've got a big focus on that, and we'll continue to do that. Absolutely.

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Unidentified Analyst, [19]

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You made a reference to a particular customer on the EMIS-X upgrade. Are you able to say any more about that? No?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [20]

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Sorry. I realize what you made there.

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Unidentified Analyst, [21]

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Could you put a little bit more meat on the nonrecurring items, please? Because it's a fairly big chunk in the first half, isn't it?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [22]

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Peter, do you want to...

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [23]

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Yes. So as we said at the Capital Markets Day, part of the balancing that we're doing in the business is making sure that we pay the bills for the investments that we're making on the way through. And that is also being achieved by rationalizing our product portfolio. So we're looking at the sort of significant range of products that we have. Plotting out which of those, do we see a pathway into the EMIS-X platform going forward, and which frankly we don't. And where we don't see that pathway, then we'll have greater conversations with customers who, in many cases, are very keen to continue to use that piece of software and we'll come to a commercial arrangement with them, so that they can continue to use this. We'll potentially take a one-off intellectual property revenue, if you want to call it that. But then going forward, obviously, the sort of recurring streams that would have been there historically will pull away. So we're doing that across the portfolio for some of the smaller products that we have, striking commercial deals that help us to: A, focus our portfolio into the product streams that we want to be part of EMIS-X platform going forward; but b, generate some one-off revenue now that helps us to pay the bills as we're going through that investment program.

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Unidentified Analyst, [24]

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So these are really disposals.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [25]

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I'll give you one example, that would be great. So we were doing custom development for a particular customer in the U.K. The IP was ours. And we've been doing that for some time. We don't want to be in custom development. We want to be invested in software. And we decided that, strategically, we didn't want to do that. So we sat down with the customer and said, look, we don't want to do this anymore, but we'll transfer the license over to you and you can continue to develop. That's the exact example. So what you're not doing there is you're not taking a major asset and selling it off. What you're saying is we don't want to be in that business, what's a clever way of keeping the customer happy and bringing in some money to help us pay for the investment for the [revco] products. And that, I can't say who it is for that, but that was a onetime thing. And in the group, since I've come here, we've looked, and there's a few things that are slightly non-mainstream.

So as we -- we did 1 last year with we exited the contract in Australia, which we mentioned in the results, and we did a nice exit deal. So we're being commercially sensible. We're picking those off one by one. We don't want to upset anyone, and we want to be smart, and therefore, it brings in a lot of that money that we can then take and apply to the new tech. So that's a classic example.

And the company has been doing that for some time, and we continue to do that. But we'll be smart. The other thing on the recurring and nonrecurring, clearly, selling spaces in (inaudible) was 20 million recurring, so our mix is slightly different now because traditionally, it's been over 80%, but that was a low-margin business. So as we change our business, there'll be a little bit of difference between recurring and nonrecurring for a while, but our plan is as new revenue streams come on, there will be recurring, or in patient situation there will be transaction revenue, which would be a slightly different mix for us, so you'll see that change as we go through. And we're (inaudible), we've disposed of Specialist & Care. We've done a couple of things like that. I've just mentioned. And then as we either buy things or bring on new streams, that mix will change again. But we like high recurring. But as we transition, there's going to be a little bit of change in the mix as we go forward for a period of time.

Okay. Conscious of time, probably 2 or 3 minutes.

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Kai Folker Korschelt, Canaccord Genuity Corp., Research Division - Analyst [26]

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Kai from Canaccord. Just a couple. The first one was on the software revenues. Can you let us know roughly how much of that is perpetual versus subscription?

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [27]

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The majority of that is perpetual, to say the majority of what we do is subscription or on a subscription basis. The only area of our business where there's a little bit more of a traditional revenue recognition approach is in the acute part of our business. So there, it tends to be a little bit more lumpy with a license to the upfront and then a smaller support and maintenance stream that follows. But in the other parts of our business, primary care, community, it's all on a subscription basis. What you do have coming through in that software licenses part of our revenue, it's some of those one-offs that we were just talking about there. So where we've done an intellectual property deal, and that would typically come through in that area. So historically, that will have been almost 100% recurring in that license stream. This time, it's a little bit lower than that.

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Kai Folker Korschelt, Canaccord Genuity Corp., Research Division - Analyst [28]

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Yes. Okay. And then apologies if you've sort of mentioned it maybe at the Capital Markets Day, the GP IT Futures bid, sort of roughly what is the opportunity for your guidance, sort of single digit, double digits?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [29]

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Yes. So it represents more than 25% group's revenue, right? So -- and the way to think about -- the first way we think about it is retention. So -- and that's what I talked about, it was roughly the same for the same, or same for doing a little bit more for the customer is a great result for us. And that's been our strategy from when we entered the pre-phase, which was way back in November '17. So we've been working this for a long, long time. And when you think about the catalog and all these new opportunities, we have -- I wouldn't put an upside growth number on that, but we do see opportunities to grow, and those will be incremental and take some time. So I wouldn't put a percentage uplift there, but we definitely see opportunities there, providing the whole thing plays out as we expect.

So yes, so overall, we think it's an opportunity. Let's get the retention done first and then move on from there.

Okay. We'll have time for one more question before we finish up. Anything else?

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Unidentified Analyst, [30]

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(inaudible) a talent story play out, whereby you're getting rid of GP pull and you're hiring fewer, more expensive people. What is the sort of number in, let's say, 2 years' time in terms of the FTE population?

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [31]

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I don't have a forecast for that. If we think about where we're at now, I don't think we have a substantial increase in people next year compared to where we've been historically. What we've done is there's 360 people left with Specialist & Care, so when you look at the headcount change, you'll see that's a big change actually is the disposal. And then we've -- there's some more folks who have left. And we're investing. And depending where we invest in the U.K. or India will dictate how many. So I wouldn't want to put a forecast on headcount, but we're very conscious, as Peter says, about balancing the books as we go through. So if we are going to hire more talent, we're going to save money somewhere else. And that's what we're doing. So we're very focused on efficient use of our spend internally. We're putting systems in to automate internally to free up, again, cash to spend, and we'll be sensible of the balance between U.K. and India and the economics there. So I can't put a number on it and I apologize. But it's really we're trying to pay -- if we'll hire 10 engineers over there, we're going to find the money somewhere else, that's the goal, and we're working hard at that.

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Unidentified Analyst, [32]

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So could year-end headcount be higher than half year headcount?

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [33]

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We're trying second half staff costs to be very similar to first half. So overall, probably pretty similar, fairly balanced.

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Unidentified Analyst, [34]

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Because you lost 100-and-something heads in the first half.

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Peter J. Southby, EMIS Group plc - CFO & Executive Director [35]

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In the first half, yes, correct, with the disposal. Correct. Correct. Yes.

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Andrew John Thorburn, EMIS Group plc - CEO & Executive Director [36]

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Good. Okay. Well, let's wrap up there. So for everyone on the phone, thank you for joining us. Hopefully, you found it interesting. For everyone in the room, thanks very much. Thanks for your questions. We'll you see next time. Thanks a lot.