26th Sep 2017 07:00
26 September 2017
Next Fifteen Communications Group plc
Interim results for the six months ended 31 July 2017
Next Fifteen Communications Group plc (“Next 15” or the “Group”), the digital communications group, today announces its interim results for the six months ended 31 July 2017.
Adjusted financial results for the six months to 31 July 2017
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | Growth | ||||
| Revenue | £93.5m | £80.5m | 16% | |||
| EBITDA | £14.5m | £12.8m | 13% | |||
| Operating Profit | £12.3m | £11.1m | 11% | |||
| Operating Profit Margin | 13.2% | 13.8% | ||||
| PBT | £12.0m | £10.6m | 13% | |||
| Diluted EPS | 11.4p | 10.5p | 9% | |||
| Dividend per share | 1.8p | 1.5p | 20% | |||
| Net debt | £20.8m | £12.2m |
In order to assist shareholders’ understanding of the underlying performance of the business, adjusted results have been presented. The items that are excluded from adjusted results include acquisition related costs, one-off and acquisition related share based payment charges, amortisation and certain other non-recurring items, consistent with previous periods. The adjusted results are reconciled to statutory results within notes 2 and 3.
Highlights
Group revenue growth of 16%, with organic revenue growth of 2% Strong August and September trading with high single digit organic revenue growth Adjusted PBT up 13% to £12m Adjusted diluted earnings per share increased by 9% to 11.4p Significant clients wins including LG Electronics, Grubhub, Marvell and NTT Data Velocity, a B2B content marketing agency, and Circle, a B2B market research consultancy, acquired in July Elvis, an integrated digital agency, acquired in September Acquisition of Charterhouse, a market research agency, announced todayCommenting on the results, Chairman of Next 15, Richard Eyre said:
Technology continues to change the business of marketing, opening up more and more channels between brands and audiences. Content can be highly-targeted and directly shoppable in a way not possible through traditional media. Today’s marketing deploys mountains of data, with a growing role for technology to understand and use it effectively. Next 15 agencies are well-placed to take advantage of this industry shift.
The Group has continued to invest in agile companies operating in this augmented value chain and in the first half, Group revenue grew by 16%. The addition of several businesses to the Group has been matched by some important client wins including LG Electronics, Grubhub, Marvell and NTT Data.
A 20% increase in the dividend reflects the Board’s confidence in the Group’s performance for this financial year.
Statutory financial results for the six months to 31 July 2017
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | |||
| Revenue | £93.5m | £80.5m | ||
| PBT | £5.2m | £4.2m | ||
| Diluted EPS | 4.8p | 3.5p |
For further information contact:
Next Fifteen Communications Group plcTim Dyson, Chief Executive Officer+1 415 350 2801
Peter Harris, Chief Financial Officer+44 (0) 20 7908 6444
Investec Bank plcKeith Anderson, Matt Lewis, Darren Vickers+44 (0) 20 7597 5970
Notes:
Organic revenue growth
Organic revenue growth is defined as the revenue growth at constant currency excluding the impact of acquisitions.
This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation.
Chairman and Chief Executive’s Statement
Next 15, the digital communications group, is pleased to report its interim results for the six months ended 31st July 2017. During the period the Group’s revenues increased by 16% to £93.5m (2016: £80.5m), while adjusted profit before tax increased by 13% to £12.0m (2016: £10.6m). Adjusted EBITDA for the six month period increased by 13% to £14.5m (2016: £12.8m) and net debt remained relatively modest at £20.8m, following the acquisitions of Velocity, a content marketing agency and Circle, a B2B market research agency, during the period.
Organic revenue growth of 2% was held back in Q1 partly by geopolitical uncertainty but also several large one-off projects in the corresponding period last year. The Group is pleased to report that improved trading in Q2 and Q3 has seen organic growth for August and September move back to high single digits which is expected to continue for the rest of the year.
The Group reported a statutory profit before tax of £5.2m compared with a statutory profit before tax of £4.2m in the prior period, while reported diluted earnings per share were 4.8p compared with 3.5p in the prior period, a growth of 37%.
The improvement in trading over the last three months has provided the Group with confidence that it is well placed to meet its expectations for the full year and as such the Board has increased the interim dividend by 20% to 1.8p per share.
Operational Review
Our US businesses have increased revenues by 12.5% to £57.0m from £50.7m. Beyond and M Booth have continued to perform very strongly, whilst our other brands were held back due to a combination of very strong trading in the comparable period and an uncertain political environment. Operating margins have reduced to 18.1% in large part due to the investment in taking some of our UK brands to the US. Trading in the July to September quarter has been much improved and we are expecting operating margins in the US to be in excess of 20% in the second half of our financial year.
Our UK businesses have increased revenues by 27.9% to £25.5m from £20.0m. Operating margins have increased to 20.2% from 17.8% in the prior period due to a combination of high margin, high revenue growth acquisitions in Publitek, Twogether and Encore and operational improvements at our other UK businesses.
In EMEA we have seen a continued improvement in both revenue and profitability, whilst in APAC we have invested heavily in talent, infrastructure and technology, which we anticipate will lead to a much improved second half profit performance.
The Group is particularly pleased by the performance of its data and insight business, MIG Global which now accounts for approximately 6% of the Group’s revenues having been less than 2% of the Group’s revenues just two years ago.
The Group added LG Electronics, Grubhub, Marvell and NTT Data as clients.
The Group has undergone some minor restructuring to better serve customers and to address certain structural weaknesses in its portfolio of businesses. Our consumer PR agency Lexis has been merged into Text, while we have formally aligned Bite US and Bite UK to create one global brand. At the same time, BDA is being merged with Twogether. A small restructuring charge is being recognized as a part of these changes.
Continued Investment
On 11th July we announced the acquisition of Velocity, a B2B content marketing agency with a focus on technology clients which include multi-national technology groups, such as Sprint, Xerox and Informatica.
On 12th July we announced the acquisition of Circle, a B2B market research consultancy, through our data and insights subsidiary, MIG Global. Clients include Vodafone, Google, MasterCard, BSI, SITA, Maersk and Facebook.
On 15th September we announced the acquisition of Elvis, a UK based integrated digital agency with a focus on consumer brands, and today we announce the acquisition of Charterhouse, a market research agency focused on the financial services sector.
These investments are being financed out of our trading cash flows and we anticipate that our net debt will be below £15m by the year end unless the Group opts to make additional investments or acquisitions. This will represent less than 0.5x adjusted EBITDA.
Dividend
The Board has declared an interim dividend of 1.8p per share, which is a 20% increase on the interim dividend for last year. This will be paid to shareholders on 24 November 2017 who are registered on 27 October 2017.
Current Trading and Outlook
Looking to the full year, the Board is encouraged by trading in our third quarter and the prospects for the second half remain good. As a result, the Board remains optimistic about the outlook for the Group and is confident that it will meet its expectations for the full year.
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
ADJUSTED RESULTS: INCOME STATEMENT
| Six months ended 31 July 2017 (Unaudited) £’000 | Six months ended 31 July 2016 (Unaudited) £’000 | |||
| Revenue | 93,466 | 80,471 | ||
| Total operating charges | (79,008) | (67,655) | ||
| EBITDA | 14,458 | 12,816 | ||
| Depreciation and Amortisation | (2,146) | (1,737) | ||
| Operating profit | 12,312 | 11,079 | ||
| Net finance expense | (333) | (281) | ||
| Share of profits / (losses) of associate | 24 | (163) | ||
| Profit before income tax | 12,003 | 10,635 | ||
| Tax | (2,401) | (2,327) | ||
| Retained profit | 9,602 | 8,308 | ||
| Profit Attributable to Owners | 9,281 | 8,064 | ||
| Profit Attributable to Minorities | 321 | 244 | ||
| Weighted average number of ordinary shares | 73,561,342 | 71,039,309 | ||
| Diluted weighted average number of ordinary shares | 81,544,242 | 76,480,282 | ||
| Adjusted earnings per share | 12.6p | 11.4p | ||
| Diluted adjusted earnings per share | 11.4p | 10.5p |
ADJUSTED RESULTS: CASH FLOW
| Six months ended 31 July 2017 (Unaudited) £’000 | Six months ended 31 July 2016 (Unaudited) £’000 | |||
| Cash and cash equivalents at beginning of the period | 22,072 | 14,132 | ||
| Net cash from operating activities | 6,082 | 15,430 | ||
| Income taxes paid | (1,905) | (692) | ||
| Net cash outflow from investing activities | (11,775) | (19,432) | ||
| Net cash inflow from financing activities | 2,452 | 10,333 | ||
| Exchange (losses) / gains on cash held | (337) | 830 | ||
| Cash and cash equivalents at end of the period | 16,589 | 20,601 |
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
ADJUSTED RESULTS: SEGMENTAL (Unaudited)
| UK£’000 | Europe & Africa£’000 | US£’000 | Asia Pacific£’000 | Head Office£’000 | Total£’000 | |||||||
| 6 months ended 31 July 2017 | ||||||||||||
| Revenue | 25,542 | 3,773 | 57,040 | 7,111 | - | 93,466 | ||||||
| Operating profit | 5,165 | 287 | 10,321 | 602 | (4,063) | 12,312 | ||||||
| Operating profit margin | 20.2% | 7.6% | 18.1% | 8.5% | - | 13.2% | ||||||
| Organic revenue growth | 3.5% | 4.4% | 1.5% | (0.8%) | - | 1.9% | ||||||
| 6 months ended 31 July 2016 | ||||||||||||
| Revenue | 19,977 | 3,320 | 50,706 | 6,468 | - | 80,471 | ||||||
| Operating profit | 3,555 | 160 | 10,161 | 874 | (3,671) | 11,079 | ||||||
| Operating profit margin | 17.8% | 4.8% | 20.0% | 13.5% | - | 13.8% | ||||||
| Organic revenue growth | 2.9% | 4.0% | 17.2% | 6.6% | - | 12.8% |
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTH PERIOD ENDED 31 JULY 2017
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | 12 months ended 31 January 2017 (Audited) | ||||||
| Note | £’000 | £’000 | £’000 | |||||
| Billings | 113,921 | 94,625 | 200,745 | |||||
| Revenue | 2 | 93,466 | 80,471 | 171,013 | ||||
| Staff costs | 65,880 | 54,559 | 126,756 | |||||
| Depreciation | 1,978 | 1,564 | 3,482 | |||||
| Amortisation | 3,381 | 2,550 | 6,017 | |||||
| Other operating charges | 15,075 | 15,167 | 26,844 | |||||
| Total operating charges | (86,314) | (73,840) | (163,099) | |||||
| Operating profit | 2 | 7,152 | 6,631 | 7,914 | ||||
| Finance expense | 6 | (2,405) | (2,469) | (5,607) | ||||
| Finance income | 7 | 468 | 163 | 865 | ||||
| Share of profits / (losses) of associate | 24 | (163) | (272) | |||||
| Profit before income tax | 3 | 5,239 | 4,162 | 2,900 | ||||
| Income tax expense | 4 | (1,044) | (1,273) | (1,232) | ||||
| Profit for the period | 4,195 | 2,889 | 1,668 | |||||
| Attributable to: | ||||||||
| Owners of the parent | 3,874 | 2,645 | 1,138 | |||||
| Non-controlling interests | 321 | 244 | 530 | |||||
| 4,195 | 2,889 | 1,668 | ||||||
| Earnings per share | ||||||||
| Basic (pence) | 8 | 5.3 | 3.7 | 1.6 | ||||
| Diluted (pence) | 8 | 4.8 | 3.5 | 1.5 |
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 JULY 2017
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | 12 months ended 31 January 2016 (Audited) | ||||
| £’000 | £’000 | £’000 | ||||
| Profit for the period | 4,195 | 2,889 | 1,668 | |||
| Other comprehensive income / (expense): | ||||||
| Items that may be reclassified into profit or loss | ||||||
| Exchange differences on translating foreign operations | (1,804) | 2,583 | 5,128 | |||
| Net investment hedge | 551 | (753) | (1,378) | |||
| (1,253) | 1,830 | 3,750 | ||||
| Amounts reclassified and reported in the Income Statement | ||||||
| Net investment hedge | - | - | - | |||
| Other comprehensive (expense) / income for the period | (1,253) | 1,830 | 3,750 | |||
| Total comprehensive income for the period | 2,942 | 4,719 | 5,418 | |||
| Attributable to: | ||||||
| Owners of the parent | 2,621 | 4,475 | 4,888 | |||
| Non-controlling interests | 321 | 244 | 530 | |||
| 2,942 | 4,719 | 5,418 |
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2017
| 31 July 2017 (Unaudited) | 31 July 2016 (Unaudited) | 31 January 2017 (Audited) | |||||||
| Note | £’000 | £’000 | £’000 | ||||||
| Assets | |||||||||
| Property, plant and equipment | 14,819 | 15,548 | 15,764 | ||||||
| Intangible assets | 91,926 | 73,574 | 79,979 | ||||||
| Investment in equity accounted associate | 139 | 485 | 120 | ||||||
| Trade investment | 1,216 | 736 | 743 | ||||||
| Deferred tax asset | 10,515 | 4,693 | 9,987 | ||||||
| Other receivables | 540 | 1,034 | 817 | ||||||
| Total non-current assets | 119,155 | 96,070 | 107,410 | ||||||
| Trade and other receivables | 54,762 | 42,928 | 42,143 | ||||||
| Cash and cash equivalents | 9 | 16,589 | 20,601 | 22,072 | |||||
| Corporation tax asset | 940 | 1,317 | 601 | ||||||
| Total current assets | 72,291 | 64,846 | 64,816 | ||||||
| Total assets | 191,446 | 160,916 | 172,226 | ||||||
| Liabilities | |||||||||
| Loans and borrowings | 9 | 35,911 | 31,231 | 31,869 | |||||
| Deferred tax liabilities | 3,426 | - | 2,692 | ||||||
| Other payables | 4,683 | 6,156 | 5,537 | ||||||
| Provisions | 116 | 54 | 54 | ||||||
| Contingent consideration | 10 | 15,228 | 9,816 | 10,971 | |||||
| Share purchase obligation | 10 | 2,839 | 2,740 | 3,033 | |||||
| Total non-current liabilities | 62,203 | 49,997 | 54,156 | ||||||
| Loans and borrowings | 9 | 1,517 | 1,507 | 1,589 | |||||
| Trade and other payables | 46,128 | 40,527 | 39,409 | ||||||
| Provisions | 699 | 2,499 | 2,647 | ||||||
| Corporation tax liability | 2,617 | 1,451 | 1,594 | ||||||
| Share purchase obligation | 10 | - | - | 400 | |||||
| Contingent consideration | 10 | 6,053 | 5,210 | 3,934 | |||||
| Total current liabilities | 57,014 | 51,194 | 49,573 | ||||||
| Total liabilities | 119,217 | 101,191 | 103,729 | ||||||
| TOTAL NET ASSETS | 72,229 | 59,725 | 68,497 | ||||||
| Equity | |||||||||
| Share capital | 1,848 | 1,804 | 1,834 | ||||||
| Share premium reserve | 27,856 | 24,976 | 25,681 | ||||||
| Foreign currency translation reserve | 8,434 | 7,693 | 10,238 | ||||||
| Other reserves | (1,593) | (1,519) | (2,144) | ||||||
| Retained earnings | 35,335 | 25,847 | 31,962 | ||||||
| Total equity attributable to owners of the parent | 71,880 | 58,801 | 67,571 | ||||||
| Non-controlling interests | 349 | 924 | 926 | ||||||
| TOTAL EQUITY | 72,229 | 59,725 | 68,497 | ||||||
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIOD ENDED 31 JULY 2017
| Share capital | Share premium reserve | Foreign currency translation reserve | Other reserves1 | Retained earnings | Equity attributable to owners of the Company | Non-controlling interests | Total equity | |||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||
| At 1 February 2016 (audited) | 1,763 | 21,523 | 5,110 | (766) | 24,418 | 52,048 | 743 | 52,791 | ||||||||
| Profit for the period | - | - | - | - | 2,645 | 2,645 | 244 | 2,889 | ||||||||
| Other comprehensive income / (expense) for the period | - | - | 2,583 | (753) | - | 1,830 | - | 1,830 | ||||||||
| Total comprehensive income / (expense) for the period | - | - | 2,583 | (753) | 2,645 | 4,475 | 244 | 4,719 | ||||||||
| Shares issued on satisfaction of vested share options | 3 | - | - | - | - | 3 | - | 3 | ||||||||
| Shares issued on acquisitions | 38 | 3,453 | - | - | - | 3,491 | - | 3,491 | ||||||||
| Movement in relation to share-based payments | - | - | - | - | 1,498 | 1,498 | - | 1,498 | ||||||||
| Dividends to owners of the parent | - | - | - | - | (2,165) | (2,165) | - | (2,165) | ||||||||
| Movement on reserves for non-controlling interests | - | - | - | - | (549) | (549) | 549 | - | ||||||||
| Non-controlling interest dividend | - | - | - | - | - | - | (612) | (612) | ||||||||
| At 31 July 2016 (unaudited) | 1,804 | 24,976 | 7,693 | (1,519) | 25,847 | 58,801 | 924 | 59,725 | ||||||||
| Profit for the period | - | - | - | - | (1,507) | (1,507) | 286 | (1,221) | ||||||||
| Other comprehensive income / (expense) for the period | - | - | 2,545 | (625) | - | 1,920 | - | 1,920 | ||||||||
| Total comprehensive income / (expense) for the period | - | - | 2,545 | (625) | (1,507) | 413 | 286 | 699 | ||||||||
| Shares issued on satisfaction of vested share options | 24 | - | - | - | (265) | (241) | - | (241) | ||||||||
| Shares issued on acquisitions | 6 | 705 | - | - | - | 711 | - | 711 | ||||||||
| Movement in relation to share-based payments | - | - | - | - | 8,729 | 8,729 | - | 8,729 | ||||||||
| Dividends to owners of the parent | - | - | - | - | (1,099) | (1,099) | - | (1,099) | ||||||||
| Movement on reserves for non-controlling interests | - | - | - | - | 257 | 257 | (257) | - | ||||||||
| Non-controlling interest arising on acquisition | - | - | - | - | - | - | 436 | 436 | ||||||||
| Non-controlling interest dividend | - | - | - | - | - | - | (463) | (463) | ||||||||
| At 31 January 2017 (audited) | 1,834 | 25,681 | 10,238 | (2,144) | 31,962 | 67,571 | 926 | 68,497 | ||||||||
| Profit for the period | - | - | - | - | 3,874 | 3,874 | 321 | 4,195 | ||||||||
| Other comprehensive income / (expense) for the period | - | - | (1,804) | 551 | - | (1,253) | - | (1,253) | ||||||||
| Total comprehensive income / (expense) for the period | - | - | (1,804) | 551 | 3,874 | 2,621 | 321 | 2,942 | ||||||||
| Shares issued on satisfaction of vested share options | 1 | - | - | - | (1) | - | - | - | ||||||||
| Shares issued on acquisitions | 13 | 2,175 | - | - | - | 2,188 | - | 2,188 | ||||||||
| Movement in relation to share-based payments | - | - | - | - | 2,493 | 2,493 | - | 2,493 | ||||||||
| Dividends to owners of the parent | - | - | - | - | (2,761) | (2,761) | - | (2,761) | ||||||||
| Movement on reserves for non-controlling interests | - | - | - | - | (232) | (232) | 232 | - | ||||||||
| Non-controlling interest dividend | - | - | - | - | - | - | (1,130) | (1,130) | ||||||||
| At 31 July 2017 (unaudited) | 1,848 | 27,856 | 8,434 | (1,593) | 35,335 | 71,880 | 349 | 72,229 |
1 Other reserves include ESOP reserve, hedging reserve, share purchase reserve and merger reserve.
NEXT FIFTEEN COMMUNICATIONS GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTH PERIOD ENDED 31 JULY 2017
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | Twelve months ended 31 January 2017 (Audited) | ||||
| £’000 | £’000 | £’000 | ||||
| Cash flows from operating activities | ||||||
| Profit for the period | 4,195 | 2,889 | 1,668 | |||
| Adjustments for: | ||||||
| Depreciation | 1,978 | 1,564 | 3,482 | |||
| Amortisation | 3,381 | 2,550 | 6,017 | |||
| Finance expense | 2,405 | 2,469 | 5,607 | |||
| Finance income | (468) | (163) | (865) | |||
| Share of (profit) / loss from equity accounted associate | (24) | 163 | 272 | |||
| Loss on sale of property, plant and equipment | 10 | 139 | 110 | |||
| Income tax expense | 1,044 | 1,273 | 1,232 | |||
| Share-based payment charge | 2,019 | 1,025 | 8,989 | |||
| Net cash inflow from operating activities before changes in working capital | 14,540 | 11,909 | 26,512 | |||
| Change in trade and other receivables | (11,514) | 3,363 | 8,430 | |||
| Change in trade and other payables | 795 | (858) | (2,861) | |||
| Change in other liabilities | 2,261 | 1,016 | 763 | |||
| (8,458) | 3,521 | 6,332 | ||||
| Net cash generated from operations before tax outflows | 6,082 | 15,430 | 32,844 | |||
| Income taxes paid | (1,905) | (692) | (1,978) | |||
| Net cash inflow from operating activities | 4,177 | 14,738 | 30,866 | |||
| Cash flows from investing activities | ||||||
| Acquisition of subsidiaries and trade and assets, net of cash acquired | (5,073) | (9,718) | (14,546) | |||
| Payment of contingent and deferred consideration | (4,439) | (2,216) | (6,622) | |||
| Purchase of investment | (464) | (662) | (777) | |||
| Proceeds on disposal of associates | - | - | 330 | |||
| Acquisition of property, plant and equipment | (1,460) | (6,453) | (8,284) | |||
| Proceeds on disposal of property, plant and equipment | 3 | - | 7 | |||
| Acquisition of intangible assets | (504) | (95) | (612) | |||
| Net movement in long-term cash deposits | 120 | (332) | (292) | |||
| Interest received | 42 | 44 | 204 | |||
| Net cash outflow from investing activities | (11,775) | (19,432) | (30,592) |
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | Twelve months ended 31 January 2017 (Audited) | ||||
| £’000 | £’000 | £’000 | ||||
| Cash flows from financing activities | ||||||
| Capital element of finance lease rental repayment | (13) | (29) | (55) | |||
| Net movement in bank borrowings | 3,970 | 11,302 | 11,589 | |||
| Interest paid | (375) | (328) | (695) | |||
| Dividend and profit share paid to non-controlling interest partners | (1,130) | (612) | (1,075) | |||
| Dividends paid to shareholders of the parent | - | - | (3,264) | |||
| Net cash inflow from financing activities | 2,452 | 10,333 | 6,500 | |||
| Net increase in cash and cash equivalents | (5,146) | 5,639 | 6,774 | |||
| Cash and cash equivalents at beginning of the period | 22,072 | 14,132 | 14,132 | |||
| Exchange (losses) / gains on cash held | (337) | 830 | 1,166 | |||
| Cash and cash equivalents at end of the period | 16,589 | 20,601 | 22,072 |
NOTES TO THE INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 JULY 2017
1) BASIS OF PREPARATION
The financial information in these results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The principal accounting policies used in preparing the results are those the Group has applied in its financial statements for the year ended 31 January 2017. The comparative financial information for the year ended 31 January 2017 has been derived from the audited statutory financial statements for that period. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor’s report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.
2) SEGMENT INFORMATION
Measurement of operating segment profit
The Board of Directors assesses the performance of the operating segments based on a measure of adjusted operating profit before intercompany recharges, which reflects the internal reporting measure used by the Board of Directors. This measurement basis excludes the effects of certain acquisition related costs and goodwill impairment charges. Other information provided to them is measured in a manner consistent with that in the financial statements. Head office costs relate to group costs before allocation of intercompany charges to the operating segments. Intersegment transactions have not been separately disclosed as they are not material. The Board of Directors does not review the assets and liabilities of the Group on a segmental basis and therefore this is not separately disclosed.
| UK | Europe and Africa | US | Asia Pacific | Head Office | Total | |||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||
| Six months ended 31 July 2017 (Unaudited) | ||||||||||||
| Revenue | 25,542 | 3,773 | 57,040 | 7,111 | - | 93,466 | ||||||
| Adjusted operating profit / (loss) | 5,165 | 287 | 10,321 | 602 | (4,063) | 12,312 | ||||||
| Six months ended 31 July 2016 (Unaudited) | ||||||||||||
| Revenue | 19,977 | 3,320 | 50,706 | 6,468 | - | 80,471 | ||||||
| Adjusted operating profit / (loss) | 3,555 | 160 | 10,161 | 874 | (3,671) | 11,079 | ||||||
| Twelve months ended 31 January 2017 (Audited) | ||||||||||||
| Revenue | 42,638 | 7,166 | 107,008 | 14,201 | - | 171,013 | ||||||
| Adjusted operating profit / (loss) | 8,042 | 647 | 22,347 | 2,162 | (8,228) | 24,970 |
A reconciliation of segment adjusted operating profit to operating profit is provided as follows:
|
| Six months ended 31 July 2017 (Unaudited) |
| Six months ended 31 July 2016 (Unaudited) |
| Twelve months ended 31 January 2017 (Audited) |
| £’000 | £’000 | £’000 | |||
| Segment adjusted operating profit | 12,312 | 11,079 | 24,970 | ||
| Amortisation of acquired intangibles | (3,212) | (2,378) | (5,505) | ||
| Share based payment charge (note 3) | (1,452) | (1,883) | (10,507) | ||
| Restructuring costs | (427) | - | (676) | ||
| Deal costs (note 3) | (69) | (187) | (368) | ||
| Total operating profit | 7,152 | 6,631 | 7,914 |
3) RECONCILIATION OF ADJUSTED FINANCIAL MEASURES
|
| Six months ended 31 July 2017 (Unaudited) |
| Six months ended 31 July 2016 (Unaudited) |
| Twelve months ended 31 January 2017 (Audited) |
| £’000 | £’000 | £’000 | |||
| Profit before income tax | 5,239 | 4,162 | 2,900 | ||
| Unwinding of discount on deferred and contingent consideration and share purchase obligation payable | 1,068 | 1,032 | 2,182 | ||
| Change in estimate of future contingent consideration and share purchase obligation payable | 536 | 993 | 2,062 | ||
| Share-based payment charge1 | 1,452 | 1,883 | 10,507 | ||
| Restructuring costs | 427 | - | 676 | ||
| Deal costs2 | 69 | 187 | 368 | ||
| Amortisation of acquired intangibles | 3,212 | 2,378 | 5,505 | ||
| Adjusted profit before income tax | 12,003 | 10,635 | 24,200 |
Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader, and it is a measure of performance used in the calculation of the adjusted earnings per share. This measure is considered to best represent the underlying performance of the business and so it is used for the vesting of employee performance shares. The adjusting items are consistent with those in the prior period.
1 This charge relates to a transaction whereby a restricted grant of Brand equity was given to key management in Text LLC, The Outcast Agency LLC and Bite LLC (6 months to 31 July 2016: Agent3 Limited, The Lexis Agency Limited, M Booth & Associates LLC and Vrge Strategies LLC) at nil cost. This value is recognised as a one-off share-based payment in the Income Statement. The charge also includes acquisition related payments linked to the continuing employment of the sellers which is being recognised over the required period of employment. In the prior period it also included a charge for the acquisition of the 20% minority interest in Bourne whereby performance shares were issued as partial consideration.
2 This charge relates to third party professional fees incurred during acquisitions, see note 11.
4) TAXATION
The tax charge for the six months ended 31 July 2017 is based on the Group’s estimated effective tax rate for the year ending 31 January 2018 (20%). This is 2% lower than the Group’s effective tax rate for the previous period (22%), due to the increasing proportion of profits the Group expects to realise in lower tax jurisdictions such as the U.K.
5) DIVIDENDS
An interim dividend of 1.8p (six months ended 31 July 2016: 1.5p) per ordinary share will be paid on 24 November 2017 to shareholders listed on the register of members on 27 October 2017. Shares will go ex-dividend on 26 October 2017.
6) FINANCE EXPENSE
|
| Six months ended 31 July 2017 (Unaudited) |
| Six months ended 31 July 2016 (Unaudited) |
| Twelve months ended 31 January 2017 (Audited) |
| £’000 | £’000 | £’000 | |||
| Financial liabilities at amortised cost | |||||
| Bank interest payable | 375 | 313 | 685 | ||
| Financial liabilities at fair value through profit and loss | |||||
| Unwinding of discount on future contingent consideration and share purchase obligation payable | 1,068 | 1,032 | 2,182 | ||
| Change in estimate of future contingent consideration and share purchase obligation payable | 962 | 1,110 | 2,723 | ||
| Other | |||||
| Finance lease interest | - | 4 | 7 | ||
| Other interest payable | - | 10 | 10 | ||
| Finance expense | 2,405 | 2,469 | 5,607 |
7) FINANCE INCOME
|
| Six months ended 31 July 2017 (Unaudited) |
| Six months ended 31 July 2016 (Unaudited) |
| Twelve months ended 31 January 2017 (Audited) |
| £’000 | £’000 | £’000 | |||
| Financial assets at amortised cost | |||||
| Bank interest receivable | 29 | 23 | 40 | ||
| Financial assets at fair value through profit and loss | |||||
| Change in estimate of future contingent consideration and share purchase obligation payable | 426 | 117 | 661 | ||
| Other interest receivable | 13 | 23 | 164 | ||
| Finance income | 468 | 163 | 865 |
8) EARNINGS PER SHARE
| Six months ended 31 July 2017 (Unaudited) | Six months ended 31 July 2016 (Unaudited) | Twelve months ended 31 January 2017 (Audited) | ||||
| £’000 | £’000 | £’000 | ||||
| Earnings attributable to ordinary shareholders | 3,874 | 2,645 | 1,138 | |||
| Unwinding of discount on future contingent consideration and share purchase obligation payable | 1,019 | 935 | 2,028 | |||
| Change in estimate of future contingent consideration and share purchase obligation payable | 607 | 825 | 2,070 | |||
| Share based payment charge | 899 | 1,651 | 8,075 | |||
| Restructuring costs | 345 | - | 511 | |||
| Amortisation of acquired intangibles | 2,468 | 1,821 | 4,187 | |||
| Deal costs | 69 | 187 | 337 | |||
| Adjusted earnings attributable to ordinary shareholders | 9,281 | 8,064 | 18,346 | |||
| Number | Number | Number | ||||
| Weighted average number of ordinary shares | 73,561,342 | 71,039,309 | 72,306,063 | |||
| Dilutive LTIP shares | 2,737,223 | 2,483,255 | 2,103,789 | |||
| Dilutive Growth Deal shares | 4,338,031 | 1,755,159 | 2,905,385 | |||
| Other potentially issuable shares | 907,646 | 1,202,559 | 973,882 | |||
| Diluted weighted average number of ordinary shares | 81,544,242 | 76,480,282 | 78,289,119 | |||
| Basic earnings per share | 5.3p | 3.7p | 1.6p | |||
| Diluted earnings per share | 4.8p | 3.5p | 1.5p | |||
| Adjusted earnings per share | 12.6p | 11.4p | 25.4p | |||
| Diluted adjusted earnings per share | 11.4p | 10.5p | 23.4p |
Adjusted and diluted adjusted earnings per share have been presented to provide additional useful information. The adjusted earnings per share is the performance measure used for the vesting of employee performance shares. The only difference between the adjusting items in this note and the figures in notes 2 and 3 is the tax effect of those adjusting items.
9) NET DEBT
The HSBC Bank revolving credit facility expires in 2022 and therefore the outstanding balance has been classified in non-current borrowings with the exception of £1.5m which is due for repayment within one year.
|
| 31 July 2017 (Unaudited) | 31 July 2016 (Unaudited) | 31 January 2017 (Audited) | |||
|
| £’000 | £’000 | £’000 | |||
| Total loans and borrowings | 37,428 | 32,738 | 33,458 | |||
| Obligations under finance leases | 9 | 46 | 26 | |||
| Less: cash and cash equivalents | (16,589) | (20,601) | (22,072) | |||
| Net debt | 20,848 | 12,183 | 11,412 | |||
| Share purchase obligation | 2,839 | 2,740 | 3,433 | |||
| Contingent consideration | 21,281 | 15,026 | 14,905 | |||
| 44,968 | 29,949 | 29,750 |
10) OTHER FINANCIAL LIABILITIES
| Contingent consideration | Share purchase obligation | |||
| £’000 | £’000 | |||
| At 1 February 2016 (Audited) | 8,344 | 3,734 | ||
| Arising during the period | 5,951 | - | ||
| Change in estimate | 779 | 214 | ||
| Exchange differences | 192 | 88 | ||
| Utilised | (1,059) | (1,509) | ||
| Unwinding of discount | 819 | 213 | ||
| At 31 July 2016 (Unaudited) | 15,026 | 2,740 | ||
| Arising during the period | 1,985 | 400 | ||
| Change in estimate | 827 | 242 | ||
| Exchange differences | 120 | 56 | ||
| Utilised | (4,021) | - | ||
| Written off as sold | - | (187) | ||
| Unwinding of discount | 968 | 182 | ||
| At 31 January 2017 (Audited) | 14,905 | 3,433 | ||
| Arising during the period | 7,578 | - | ||
| Change in estimate | 859 | (323) | ||
| Exchange differences | (40) | (50) | ||
| Utilised | (2,910) | (400) | ||
| Unwinding of discount | 889 | 179 | ||
| At 31 July 2017 (Unaudited) | 21,281 | 2,839 | ||
| Current | 6,053 | - | ||
| Non-current | 15,228 | 2,839 |
11) ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS
HSBC Facility
On 5 July 2017, the Group entered a new extended five year £40m revolving credit facility with HSBC. The facility is primarily used for acquisitions and is due to be repaid out of the trading cash flows of the Group. The facility is available in a combination of sterling, US dollar and euro at an interest margin ranging from 1.5% to 1.9% dependent on the level of gearing in the business.
Velocity
On 10 July 2017, Next 15 purchased the entire share capital of Velocity Partners Limited (“Velocity”), a B2B content marketing agency with a focus on technology clients, for initial consideration of £5.9m. Further consideration is payable based on the average profits of Velocity for the years ending 31 April 2018, and 31 January 2019, 2020, 2021 and 2022.
Circle
On 11 July 2017, Next 15 purchased the entire share capital of Circle Research Limited (“Circle”), a B2B market research consultancy, for initial consideration of £5.2m which includes £2.2m for the net assets of the business. Further consideration is payable based on the average profits of Circle for the years ending 31 January 2019 and 2020.
12) EVENTS AFTER THE BALANCE SHEET DATE
Elvis
On 14 September 2017, Next 15 purchased the entire share capital of Elvis Communications Limited (“Elvis”), an integrated digital agency, for initial consideration of £5.0m. Up to £0.5m is payable as deferred consideration.
Charterhouse
Today we announce that Next 15 have purchased the entire share capital of Charterhouse Research Limited (“Charterhouse”), a market research consultancy, for initial consideration of £1.8m. Further consideration is payable based on the profits of Charterhouse for the years ending 31 January 2019 and 2020.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170925006597/en/
Copyright Business Wire 2017
Related Shares:
NFC.L