17th Oct 2006 07:00
Next Fifteen Communications Group plc Financial results for the year ended 31 July 2006 (Unaudited) Next Fifteen Communications Group plc ("Next Fifteen" or "the Group"), theinternational public relations consultancy group, today reports recordprofitability and revenues for the year ended 31 July 2006. Financial highlights: -- Net Revenue up by 30% to £56.0m (2005: £43.2m) -- Turnover growth of 44% in the US and 30% in the Asia Pacific region -- Group like-for-like organic turnover growth of 13.3% -- Headline pre-tax profit increased by 35% to £4.4m (2005: £3.3m) -- EBITDA grew 24% to £5.44m (2005: £4.38m) -- Adjusted earnings per share up by 17% to 5.25p (2005: 4.50p) -- Final dividend of 1.0p (2005: 0.9p), making a total dividend for the year of 1.365p (2005: 1.23p), up 11% Corporate progress: -- Strong performance by the Group's technology and non-technology focused businesses; further growth of existing client mandates and significant new client wins -- Successful integration of Credo Communications in the UK and Parachute Marketing in the US into Bite Communications -- Strong first year contribution from OutCast and significant revenue growth at Bite -- Stake in Lexis Public Relations increased to 51%; further 25% to be acquired in November 2006 Commenting on the results, Will Whitehorn, Chairman of Next Fifteen, said: "Next Fifteen is pleased to announce record full-year results for the yearachieving its highest ever revenues, profitability and earnings; with netrevenue for the year increasing 30% to £56.0m and profit before tax growing 35%to £4.4m. Much of the Group's growth continues to come from the expansion of ourNorth American and Asian businesses with a strong flow of new business fromcompanies such as eBay, Sprint Nextel, Sun Microsystems and Philips, and throughthe expansion of relationships with existing clients such as AMD, Adobe andOpenwave. The Asia Pacific region also had another excellent year, with turnovergrowth of 30% where China, India and Singapore showed strong increases. TheGroup also continues to make significant progress in markets outsidetechnology." "The Group's strategy remains focused on driving organic growth from itsexisting PR brands and is therefore pleased to report strong year on yearorganic growth of 13.3% from its businesses. The Group will also continue tomake targeted acquisitions of specialist communications businesses that offergrowth potential and complement the existing PR businesses." - Ends - For further information: \* TNext Fifteen Communications GroupTim Dyson, Chief Executive 001 415 350 2801David Dewhurst, Finance Director 07974 161183 Merlin 020 7653 6620Vanessa Maydon 07802 961 902Rebecca Penney 07795 108 178\* T \* TAttached: Chairman and Chief Executive Statement Financial Review Consolidated Profit & Loss Account Consolidated Statement of Total Recognised Gains & Losses Consolidated Balance Sheet Consolidated Cash Flow Statement Reconciliation of Movements in Shareholders' Funds Notes to the Preliminary Statement\* T Chairman and Chief Executive's statement Next Fifteen Communications Group plc, the international public relationsconsultancy group, which is celebrating its 25th year, is pleased to announcerecord full-year results for the year to 31 July 2006 achieving its highest everrevenues, profitability and earnings. Net revenue for the year increased 30% to£56.0m (2005: £43.2m). Headline profit before tax grew by 35% during the year to£4.4m before reorganisation costs, goodwill amortisation and IFRS foreignexchange adjustments (see note 5) (2005: £3.3m). This increase resulted inimproved operating margins, up from 7.6% to 8.4%. After adjustments that includenew accounting regulations, the reported profit before tax was £2.9m (2005:£3.1m). Meanwhile the Group's EBITDA of £5.44m was up 24% from £4.38m last year.Basic earnings per share were 2.63p, compared with 4.04p last year. Adjustedearnings per share were 5.25p, up 17% from the previous year's 4.50p. As aresult of this strong performance, the Board is proposing a final dividend of1.0p, which will bring the total dividend for the year to 1.365p (2005: 1.23p),a rise of 11%. The Group's strategy remains focused on driving organic growth from its existingPR brands and the Group is therefore pleased to report strong year on yearorganic growth of 13.3% from its businesses. The Group will also continue tomake targeted acquisitions of specialist communications businesses that offergrowth potential and complement the its existing PR businesses. Growth Much of the Group's growth continues to come from the expansion of our NorthAmerican and Asian businesses. Indeed our US operations now account for almosthalf the Group's turnover and more than half of its profits. In this market,OutCast, Bite and Text 100 generated £30.5m of turnover compared with £21.2mlast year, an increase of 44%. £4.9m of this increase comes from the first fullyear contribution of OutCast, with the majority of the remaining increasereflecting the high level of organic growth at Bite and Text 100. The combinedturnover at Bite and Text 100 increased by 21% in the year under review as aresult of a strong flow of new business from companies such as eBay, SprintNextel, Sun Microsystems and Philips, and through the expansion of relationshipswith existing clients such as AMD, Adobe and Openwave. The Asia Pacific regionhad another excellent year, with turnover growth of 30% where China, India andSingapore all showed strong increases. Although the Group continues to be successful in increasing its business bywinning new technology clients and by expanding relationships with existingclients in this sector, it also continues to make significant progress inmarkets outside technology. During the year Lexis and August One achievedsignificant client wins including Coca-Cola, Capital One, nPower, Persil andNorwich Union. Margin improvement During the year, operating margins improved from 7.6% to 8.4%. The Group isworking hard to further improve its overall margins and those of its operatingbusinesses. In addition, towards the end of the year the Group completed areorganisation of its US businesses in order to improve operating and taxefficiency and to centralise treasury operations. These changes resulted inone-off professional fees of £200,000, accounted for within reorganisation costsin the Group Profit and Loss Account. Earlier in the year, Text 100 successfullyrestructured its business following a reduction in the marketing expenditure ofits largest customer, IBM, and took this opportunity to restructure the businessin order to improve the margins. This resulted in a one-off reorganisationcharge of £500,000. Having taken these steps, the Group is making excellentprogress towards its target of producing a 10% margin after all central costs. Acquisition success Over the last three years the Group has successfully completed and integratedfive acquisitions: Applied Communications, OutCast Communications, Lexis PublicRelations, Credo and Parachute Marketing. The last two of these were smallbusinesses successfully integrated into Bite during the last financial year. Itis pleasing to report that all of these acquisitions continue to perform welland are generating further growth for the Group. During the year the Group alsotook a 40% equity stake in 463 Communications, a new policy communicationsbusiness with offices in Washington DC and San Francisco. This business, whichis already profitable, has an impressive client list that includes: Cisco,VeriSign, TechNet, the Technology CEO Council, Applied Materials and Sun. Duringthe second half of the year, the Group acquired a further 26% stake in Lexis,taking its ownership to 51%. In the coming year the Group will look to make further acquisitions tostrengthen its international operations and also to provide additional servicesto offer its existing client base. In addition, the Group expects to acquire afurther 25% of Lexis to further strengthen its presence beyond technology,taking its stake to 76%. During the year, the Group increased its existingborrowing facilities to cover the short-term requirements of the OutCast andLexis acquisition payments. The Group's EBITDA grew 24% in the year to £5.44mand it would be comfortably able to support further debt to help fund futureacquisitions. Prospects The momentum has continued into the current financial year and the Group is wellpositioned to benefit from further significant growth. It has made an impressivestart by adding new clients including Dolby, Diageo's Bar.com, PCI SecurityGroup and Cisco. This success, coupled with the general economic outlook for theGroup's major markets, makes us optimistic about our prospects for the comingyear. Financial Review Overview The year to 31 July 2006 was another year of significant achievement. Revenuegrew 30% to £56m, headline pre-tax profit was £4.4m and the adjusted EPS rose17% to almost 5.25p. The Group remains modestly geared with year-end net debt ofonly £1.4m. Before the impact of acquisitions the Group generated cash of £1.0mof which £590,000 was paid as an increased dividend to shareholders. Reorganisation costs Following the acquisition of OutCast in June 2005 and the purchase of the Biteminority interest in August 2005, in May 2006 the Group completed areorganisation of its US operations to create a more efficient structure under aNext Fifteen US holding company. This brings administrative, taxation andtreasury benefits and provides a structure that allows further businesses to beadded efficiently in the future. This was a complex process and involvedprofessional fees of £200,000. Earlier in the year, Text 100 successfullyrestructured its business following cuts in the marketing expenditure of itslargest customer, IBM. The company took this opportunity to improve futuremargins, resulting in a one-off reorganisation charge of £500,000. IFRS It is the Group's intention to follow the AIM market guidelines and adopt IFRSfor the year ended 31 July 2008. The Group's policy under UK accounting rulesrequires the goodwill arising from acquisitions to be amortised over itsestimated life. This resulted in a £727,000 charge against profits in the year,compared with £232,000 last year. The increase in the year comes from theacquisition of Lexis, the purchase of the Bite minorities, the acquisition ofCredo and Parachute Marketing and a full-year charge for OutCast. When the Groupadopts IFRS in 2008 there will be no annual amortisation charge for goodwill,which is why the charge is added back when calculating adjusted profit andadjusted earnings per share. In other areas, as UK GAAP introduces standardsthat mirror IFRS, the Group will adopt these as they become effective. In theyear to 31 July 2006, FRS 23, "The effects of changes in foreign exchange rates"became effective and this requires that all foreign exchange differences oninter-company funding loans are taken through the profit and loss account ratherthan as a reserve movement. The impact on this year's profit is a charge of£110,000 and the re-statement of last year increases profits by £69,000. FRS 23will increase the volatility of reported profits but it is a non-cash movementand will be adjusted for in calculating headline profits and earnings. In the current year, the Group will report under FRS 20, "Share-based payment",which requires the fair value of share options to be calculated and chargedagainst profits. The variables affecting this calculation cannot be accuratelyforecast at this stage but the impact of this is not expected to be significant,reducing total profits by less than 5%. Geographic and client analysis During the last year, the proportion of Group turnover generated outside the UKremained at 75%. The strongest region was North America (up 44% in Sterlingterms) which accounted for 48% of total turnover. With the UK market maintaininga 25% share of turnover, in the current year the Group is expecting to generatein excess of 75% of its turnover in these two strongest markets for publicrelations services. In Europe and Africa, the businesses continued to experiencemixed fortunes but overall turnover increased 2% to £9.8m. The Asia Pacificregion grew by 30% to £7.1m, thanks, in particular, to the strong results postedby our operations in China, India and Singapore. It is also pleasing to note that the spread of the Group's key clients hasbroadened again following the acquisition of a consolidating interest in Lexisin April 2006. The top ten clients now represent approximately 47% of thebusiness and no single client accounts for more than 10% of the total. Cash flow The underlying cash conversion from operating profit was strong once again buttwo significant investments caused the business to move from a net fundsposition of £2.4m in July 2005 to £1.4m of net debt a year later. Firstly, theGroup paid £2.8m in cash as part of the cost of buying a 51% stake in LexisPublic Relations. Secondly, the purchase of the Bite minority interests involvedcash payments of £1m. Without the acquisition-related cashflows the Group wouldhave generated £0.4m from trading and investing activities, after £0.6m ofdividends paid to shareholders. Balance sheet The Group balance sheet now reflects the consolidation of Lexis and the goodwillarising on this acquisition and on the Bite minority purchase. Net assets at 31July 2006 were £14.7m, (2005: £12.8m). During the year the Group received £232kfrom employees exercising their share options and becoming shareholders in theGroup. These shares largely came from the treasury shares held in the ESOP. Treasury, funding and exchange risk The Group extended its revolving term loan facility to £5m over five years,which it used to fund the purchase of Lexis and Bite minorities. The remainingportion will be drawn down in November 2006 to meet the next deferred payment onthe OutCast acquisition. The facility is available in a combination of Sterling,US Dollar, and Euro at an interest rate of 1.65% over Barclays Bank's call-loanrate. Also available is an overdraft facility of £1.5m at a rate of 1.2 % overbase rate, available in Sterling, US Dollar and Euro. All of the UK businessesare part of a composite accounting system which allows the offset of UKoverdrawn and credit balances. Towards the end of the year, following thereorganisation of the US businesses, the Group agreed consolidated facilitieswith Wells Fargo for all its US businesses supported by a $2m credit line forworking capital purposes. The Group aims to return any surplus cash to the UKsubject to any local transfer restrictions, and as far as possible to hold onlymoderate non-deposit cash balances in overseas subsidiaries. The Group is negotiating for further bank lending facilities to be in place tomeet the anticipated further payments to acquire the remaining 49% of Lexis andthe deferred consideration for OutCast. The facilities are also intended toallow the Group to make any upfront cash payments that might arise on futurebolt-on acquisitions. The Group has established treasury policies and procedures which ensure thatforeign currency exposure in the major currencies is continually monitored. Themajority of trade is denominated in the functional currencies of thejurisdiction in which trade is conducted. Where this is not the case thedirectors monitor the exposure to ensure that the foreign currency risk is notmaterial to the Group. To protect profit translation exposure from businessesdenominated in US Dollar and Euro the Group purchases treasury products designedto give some protection against a weakening of the US Dollar and Euro. Taxation The total tax charge for the year is £1.5m on consolidated profits of £2.9m.After adjusting for goodwill amortisation costs the underlying effective rate is43%, 3% higher than last year. The main reason for this increase has been theincreasing proportion of profits generated in the higher tax regime of the USand losses made in the UK, following the reorganisation costs arising in theyear. We anticipate that the reorganisation of our US businesses in May 2006 andthe return of the UK to profits in the current year will see a reduction in theunderlying effective tax rate to comfortably below 40%. Earnings Basic earnings per share (EPS), adjusted for goodwill amortisation charges,reorganisation costs and FRS 23 foreign exchange charges, rose 17% to 5.25p.This is in line with the medium-term target required by the Group's LTIP. Dividends The proposed final ordinary dividend per share is 1.0p, which takes the totalfor the year to 1.365p, compared with a total dividend of 1.23p last year. Itwill be paid on 26 January 2007, assuming it is passed at the AGM on 23 January2007. The Board continues to view its dividend policy over the medium-term andaims to strike a balance between the relevance placed on dividends byshareholders and the needs of the Company to invest for future growth. \* TNEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Note £'000 £'000Turnover Existing Operations 3 59,830 48,516 Acquisitions 3 3,448 - ----------- -----------Continuing operations 63,278 48,516 Other external charges (7,271) (5,290) ----------- ----------- Net revenue 56,007 43,226 Staff costs 38,735 30,100Depreciation 1,449 1,115Amortisation and amounts written offintangible assets 727 232Reorganisation costs 4 700 -Other operating charges 11,302 8,746 ----------- ----------- 52,913 40,193Group operating profitExisting operations 2,596 3,033Acquisitions 498 - ----------- -----------Continuing operations 3,094 3,033Share of operating profit of acquiredassociates 8 174 - ----------- ----------- Operating profit including associates 3,268 3,033 Interest receivable and similar income 47 46Interest payable and similar charges (312) (25)Translation differences on long-termforeign currency inter-company loans* (110) 69 ----------- ----------- Profit on ordinary activities beforetaxation 3, 5 2,893 3,123 Taxation on profit on ordinary activities (1,494) (1,332) ----------- ----------- Profit on ordinary activities aftertaxation 1,399 1,791 Minority interest (179) (183) ----------- ----------- Profit attributable to members 1,220 1,608 =========== =========== Earnings per share 7Basic 2.63p 4.04pDiluted 2.49p 3.89p *See note 2.\* T \* TNEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* £'000 £'000 Profit attributable to members 1,220 1,608 Translation differences on foreign currency net investments (72) 201 ----------- ----------- Total recognised gains and losses related to the year 1,148 1,809 =========== =========== *See note 2.\* T \* TNEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Note £'000 £'000Fixed assetsIntangible assets 11,188 6,917Tangible assets 3,063 2,961Investments 92 - ----------- ----------- 14,343 9,878Current assetsDebtors -due within one year 16,012 11,602 -due after more than one year 335 418 ----------- ----------- 16,347 12,020 Cash at bank and in hand 4,018 2,960 ----------- ----------- 20,365 14,980 Creditors: amounts falling due within one year 13,132 8,821 ----------- ----------- Net current assets 7,233 6,159 ----------- ----------- Total assets less current liabilities 21,576 16,037 Creditors: amounts falling due after more than one year 6,834 3,259 Provision for liabilities and charges - 5 ----------- -----------Net assets 3 14,742 12,773 =========== =========== Capital and reserves Called up share capital 1,303 1,244Shares to be issued 558 568Share premium account 6,510 5,112Share based payment reserve 229 -ESOP reserve (1,487) (1,667)Profit and loss account 7,629 7,068 ----------- ----------- Equity shareholders' funds 14,742 12,325 Minority interests - 448 ----------- ----------- 14,742 12,773 =========== =========== *See note 2.\* T \* TNEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) Note £'000 £'000 Net cash inflow from operating activities 9 4,556 3,818 Returns on investments andservicing of finance Interest received 47 46 Interest paid (303) (12) Minority interest dividend paid (69) (26) ---------- -------- Net cash (outflow)/inflow from returns on investments and servicing of finance (325) 8 Taxation (2,038) (996) Capital expenditure and financial investment Receipts from/(payments for) long-term deposits 60 (40) Payments to acquire tangible fixed assets (1,280) (1,932) Proceeds from sale of tangible fixed assets 17 17 ---------- -------- Net cash outflow from capital expenditure and financial investment (1,203) (1,955) Acquisitions and disposals Acquisition expenses 8 (720) - Purchase of associate undertaking 8 (11) - Purchase of subsidiary undertakings 8 (2,749) (3,408) Cash at bank and in hand acquired with subsidiaries 1,388 85 Payments to acquire trade and assets (262) (311) ---------- -------- Net cash outflow from acquisitionsand disposals (2,354) (3,634) Equity dividends paid (590) (444) ----------- --------- Net cash outflow before financing (1,954) (3,203) Financing Issue of new share capital 49 2,431 Issue of shares to minorities - 68 Proceeds from sale of own shares 183 169 Cash inflow from long-term bank loan 3,716 511 Capital element of finance lease rentalrepayments (20) (69) Redemption of minorities 8 (1,009) (4) ---------- -------- Cash inflow from financing 2,919 3,106 ----------- ---------Increase/(decrease) in cash in the year 9 965 (97) =========== =========\* T \* TNEXT FIFTEEN COMMUNICATIONS GROUP PLC RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* £'000 £'000 Profit attributable to members 1,220 1,608Dividends (590) (444) ----------- ----------- 630 1,164 Translation differences on foreign currency net investments (72) 201Issue of shares 1,457 2,521Shares to be issued (10) 568Share based payment reserve 229 -Disposal of own equity shares held in ESOP 183 169Revaluation of ESOP reserve - 3 ----------- -----------Net addition to shareholders' funds 2,417 4,626 =========== =========== Opening shareholders' funds 12,325 7,699 ----------- -----------Closing shareholders' funds 14,742 12,325 =========== =========== *See note 2.\* T NOTES TO THE PRELIMINARY STATEMENT FOR THE YEAR ENDED 31 JULY 2006 1. FINANCIAL INFORMATION The financial information is for the year ended 31 July 2006 and is not auditedas defined by APB Bulletin 1993/1 and 1998/6. The financial information in thisreport does not constitute statutory financial statements within the meaning ofsection 240 of the Companies Act 1985 (as amended). The results for the yearended 31 July 2005 have been extracted from the financial statements of theGroup on which an unqualified audit report has been received which did notcontain a statement under section 237 of the Companies Act 1985 and which havebeen filed with the Registrar of Companies. The preliminary statement is prepared on the basis of the accounting policies asset out in the last annual report, with the exception of the two accountingpolicies explained in note 2. 2. NEW ACCOUNTING POLICIES With effect from 1 August 2005, the Group has fully adopted two new UKaccounting standards: FRS21 - "Events after the Balance Sheet Date" and FRS23 -"The Effects of Changes in Foreign Exchange Rates", both requiring a restatementof the comparative figures. FRS 21 prescribes that dividends declared after thebalance sheet date may no longer be reflected as a liability at the balancesheet date. FRS23 requires translation differences on long-term foreign currencyinter-company loans used to finance overseas subsidiaries to be recognised inthe profit and loss account, rather than as a movement in reserves under thehedging allowance within the previously applied SSAP 20. 3. SEGMENTAL INFORMATION Analyses of turnover, profit before taxation and net assets by geographicalorigin and destination are stated below. The turnover relates to one class ofbusiness, being the provision of public relations services. The directorsconsider these regions to be separate geographical markets and the marketswithin which the Group operates. \* T Profit before Turnover taxation Net Assets (Unaudited) (Unaudited) (Unaudited)Year ended 31 July 2006 £'000 £'000 £'000 Existing activities:UK 12,553 (221) 1,519EMEA£ 9,776 471 1,114North America 30,410 3,929 10,868Asia Pacific 7,091 564 1,958Head Office - (2,412) (624) ------------- -------------- -------------- 59,830 2,331 14,835Acquisitions:UK 3,382 477 (137)North America 66 85 44 ------------- -------------- -------------- 3,448 562 (93) ------------- -------------- --------------Continuing activities 63,278 2,893 14,742 ============= ============== ==============\* T \* T Profit before Turnover taxation Net Assets (Audited) (Audited) (Audited) (restated)* (restated)*Year ended 31 July 2005 £'000 £'000 £'000 Continuing activities:UK 12,269 620 4,074EMEA£ 9,581 584 1,310North America 21,214 2,442 4,984Asia Pacific 5,452 644 1,536Head Office - (1,167) 869 ------------- -------------- -------------- 48,516 3,123 12,773 ============= ============== ============== £EMEA means Europe (excluding the UK), Middle East and Africa. *See note 2.\* T 4. REORGANISATION COSTS The reorganisation costs of £700,000 (2005: £nil) relate to two elements.Firstly, during the year a one-off restructuring charge of £500,000 wasrecognised in respect of a headcount reduction programme to realign the costbase of Text 100 following spending cuts from its largest customer, IBM.Secondly, towards the end of the year the Group completed a reorganisation ofits US businesses in order to improve operating and tax efficiency and tocentralise treasury operations. These changes resulted in one-off professionalfees of £200,000. 5. RECONCILIATION OF NON GAAP PERFORMANCE - HEADLINE PRE TAX PROFIT \* T 2006 2005 (Unaudited) (Audited) (restated)* £'000 £'000 Profit on ordinary activities before taxation 2,893 3,123 Reorganisation costs 700 - Amortisation and amounts written off intangible assets 727 232 Translation differences on long-term foreign currency inter-company loans 110 (69) ----------- -----------Adjusted profit on ordinary activities before taxation 4,430 3,286 =========== =========== Headline profit on ordinary activities before taxation has been presented to provide additional information which may be useful to the reader. *See note 2.\* T 6. DIVIDENDS A final dividend of 1.0p (2005: 0.9p) per share has been proposed. The interimdividend was 0.365p per share (2005: 0.33p), making a total for the year of1.365p per share (2005: 1.23p). The final dividend, if approved at the AGM on 23January 2007 will be paid on 26 January 2007 to all shareholders on the Registerof Members on 5 January 2007. The ex-dividend date for the shares is 3 January2007. 7. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares duringthe year, determined in accordance with the provisions of FRS 14 - "Earnings pershare". Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of all thepotentially dilutive ordinary shares. The Group has three categories ofpotentially dilutive shares: a. share options granted where the exercise price is less than the average priceof the Company's ordinary shares during the year, b. performance shares which are reasonably expected to vest based upon theperformance condition, which relates to earnings per share ("EPS") growth over a3 year period, being satisfied. c. conditional shares which are reasonably expected to vest based upon thecondition that the award recipient, Aedhmar Hynes, CEO of Text 100, remainsemployed by the Group. Adjusted earnings per share is calculated by dividing the earnings attributableto ordinary shareholders before the post-tax effects of reorganisation costs,amortisation of goodwill and translation differences on long-term foreigncurrency inter-company loans, by the weighted average number of ordinary sharesduring the year. Diluted adjusted earnings per share is calculated by dividingthe adjusted earnings attributable to ordinary shareholders by the dilutivenumber of ordinary shares during the year. \* T 2006 2005 (Unaudited) (Audited) (restated)* £'000 £'000 Basic and diluted earnings attributable to ordinary shareholders 1,220 1,608Reorganisation costs after taxation 470 -Amortisation of goodwill after taxation 670 232Translation differences on long-term foreign currency inter-company loans after taxation 77 (48) ----------- -----------Adjusted and diluted adjusted earnings attributable to ordinary shareholders 2,437 1,792 =========== =========== Number Number Weighted average number of ordinary shares 46,457,657 39,806,952Dilutive shares 2,601,295 1,477,007 ----------- -----------Diluted weighted average number of ordinary shares 49,058,952 41,283,959 ----------- ----------- Basic earnings per share 2.63p 4.04pDiluted earnings per share 2.49p 3.89pAdjusted earnings per share 5.25p 4.50pDiluted adjusted earnings per share 4.97p 4.34p Adjusted and diluted adjusted earnings per share have been presented to provide additional information which may be useful to the reader. *See note 2.\* T 8. ACQUISITIONS a. On 4 August 2005, the Company acquired a 25% stake in the UK public relationscompany Lexis Public Relations Limited ("Lexis") by the acquisition of a 25%stake in Panther Communications Group Limited ("Panther"), the parent company ofLexis, for a total consideration of £1,272,000 fully satisfied in cash. Afurther 26% stake in Panther was acquired on 6 April 2006 for a totalconsideration of £1,786,000 of which £1,265,000 was satisfied in cash and theremainder in shares, taking the Company's total stake to 51%. During the period from 4 August 2005 to 5 April 2006 Lexis was treated as anassociate undertaking in the Group accounts under the equity method ofaccounting as required by FRS 9 - "Associates and Joint Ventures". As a result,an operating profit of £99,000 has been reported within the "Share of operatingprofit of acquired associates" line in the Group profit and loss accountrepresenting the Group's share of Lexis' profit during this period. From 6 April2006 to 31 July 2006, Lexis has been treated as a subsidiary undertaking of NextFifteen Communications plc, with its results for the period fully consolidatedinto the Group accounts. Based upon the acquisition balance sheets at 4 August 2005 and 6 April 2006,goodwill of £3,587,000 has been capitalised, including £261,000 of legal andprofessional fees. The goodwill will be amortised over its useful economic lifeof 20 years. It is the intention of the Company to acquire the whole of Pantherby 2010 and Panther's existing management has agreed to sell further stakes inthe company over the next four years. b. Between 10 August 2005 and 24 October 2005 the Company purchased the minorityinterest in Bite Communications Group Limited ("Bite"). As at 31 July 2006 theCompany controlled 100% of Bite. Under the terms of the agreement and prior tothe purchase of the minority interest, all existing share options over Biteshares were exercised, increasing the minority interest and effecting a partdisposal of Bite by Next Fifteen Group, on which a £100,000 gain was made atGroup level. The total consideration payable for the minority interest was£2,212,000, of which £1,108,000 was satisfied in cash and the remainder inshares. Of the £1,108,000 cash consideration, only £1,009,000 was paidexternally to the Bite shareholders after deducting amounts owing to the Groupin respect of the exercise of Bite share options immediately prior to thebuyout. Goodwill of £1,560,000 arising on the purchase has been capitalised andis being amortised over its useful economic life of 20 years. c. On 31 December 2005, the Company indirectly purchased 100% of the sharecapital of Credo Communications Limited ("Credo"). The total considerationpayable to the previous shareholders of Credo is £373,000 with £212,000 paid incash on completion and the balance to be satisfied in both cash and shares by 31December 2006. The operations of Credo have since been transferred into BiteCommunications Limited, a wholly owned subsidiary of Next Fifteen CommunicationsGroup plc. The operating profit apportioned to the Credo trade and assets forthe period from 1 January 2006 to 31 July 2006 has been calculated as £54,000.Goodwill of £263,000 arising on the purchase has been capitalised and is beingamortised over its useful economic life of 5 years. d. On 31 January 2006, the Company indirectly invested £11,000 ($20,000) for a40% stake in 463 Communications LLC ("463"), which is a start-up venture basedin San Francisco and Washington DC, working to position technology companies,organizations and coalitions in global policy debates. 463 has been treated asan associate undertaking in the Group accounts under the equity method ofaccounting as required by FRS 9 - "Associates and Joint Ventures". The Groupshare of 463 operating profit for the period from 1 February 2006 to 31 July2006 of £75,000 has been reported within the "Share of operating profit ofacquired associates" line in the Group profit and loss account. It is thelong-term intention of the Group to own 100 per cent of 463. e. £720,000 of acquisition costs were paid in the year, of which £420,000related to the purchase of OutCast Communications ("OutCast") in June 2005. All£420,000 of these costs have been capitalised as part of the OutCast acquisitionand £326,000 were accrued in the July 2005 balance sheet. The £420,000 comprisesa tax charge of £250,000 resulting from the conversion of OutCast from an S Corpto a C Corp and £170,000 of legal and accounting fees. The remaining £300,000 ofcosts relate to legal and professional fees in respect of the acquisition ofLexis (£261,000), the Bite minority interest (£30,000) and 463 (£9,000). 9. NOTES TO THE CASH FLOW STATEMENT (1) Reconciliation of operating profit to net cash inflow from operatingactivities \* T 2006 2005 (Unaudited) (Audited) (restated)* £'000 £'000 Group operating profit 3,094 3,033Depreciation, amortisation and amounts written off intangible assets 2,176 1,347Loss on sale of tangible fixed assets 4 15(Profit)/loss on sale of minority interest (100) 15LTIP and conditional share award charge 229 -Increase in debtors (2,668) (2,425)Increase in creditors 1,826 2,024Decrease in provisions (5) (191) ----------- -----------Net cash inflow from operating activities 4,556 3,818 =========== ===========\* T (2) Reconciliation of net cash flow to movement in net (debt)/funds \* T 2006 2005 (Unaudited) (Audited) £'000 £'000 Increase/(decrease) in cash at hand and in bank 1,192 (97)Increase in bank overdraft (227) - ----------- --------- Increase/(decrease) in cash in the year 965 (97)Cash outflow from decrease in lease financing 20 69Cash inflow from increase in bank loans repayable after more than one year (3,716) (511) ----------- ---------Change in net funds resulting from cash flows (2,731) (539) Increase in lease financing (299) -Bank loans acquired with subsidiary (724) -Translation differences (134) 115 ----------- ---------Change in net funds resulting from non-cash movements (1,157) 115 Movement in net funds in the year (3,888) (424) Net funds at 1 August 2,449 2,873 ----------- ---------Net (debt)/funds at 31 July (1,439) 2,449 =========== =========\* T (3) Analysis of net funds/(debt) \* T At 31 July Cash Exchange Acquired with Other non- At 31 July 2005 flow movement subsidiaries cash 2006 (excluding movements cash) (Audited) (Unaudited) £'000 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 2,960 1,192 (134) - - 4,018 Bank overdraft - (227) - - - (227) ---------- -------- ----------- ------------- ------------- ------------- 2,960 965 (134) - - 3,791 Obligations under finance leases - 20 - (31) (268) (279) Bank loans repayable within one year - - - (320) - (320) Bank loans repayable after more than one year (511) (3,716) - (404) - (4,631) ---------- -------- ----------- ------------- ------------- -------------Net funds/(debt) 2,449 (2,731) (134) (755) (268) (1,439) ========== ======== =========== ============= ============= =============\* T Copyright Business Wire 2006Related Shares:
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