Half-year Report

LONDON--()-- 

29 September 2020

Next Fifteen Communications Group plc

Interim results for the six months ended 31 July 2020

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 2020.

Financial results for the six months to 31 July 2020 (unaudited)

 

Six months ended
31 July 2020
£m

Six months ended
31 July 2019
£m

Growth in results

Adjusted results

 

 

 

Net revenue

126.2

118.7

6%

Operating profit after interest on financial lease liabilities

21.2

17.5

21%

Operating profit margin

16.8%

14.7%

 

Profit before tax

20.7

17.2

20%

Diluted EPS (p)

17.4p

15.2p

14%

 

 

 

 

Statutory results

 

 

 

Revenue

153.1

145.2

 

Operating (loss)/profit

(0.4)

7.6

 

(Loss)/profit before tax

(3.4)

2.8

 

Net cash inflow from operating activities

31.5

19.3

 

Diluted EPS (p)

(3.6)p

1.8p

 

Adjusted results have been presented to provide additional information that may be useful to shareholders through facilitating comparability with industry peers. Adjusted results are reconciled to statutory results within notes 2 and 3.

H1 Highlights

  • Group net revenue growth of 6%
  • Adjusted profit before tax up 20% to £20.7m (2019: £17.2m)
  • Adjusted diluted earnings per share increased by 14% to 17.4p (2019: 15.2p)
  • Net cash inflow from operating activities increased to £31.5m (2019: £19.3m)
  • Strong balance sheet with net debt of £5.0m (2019: £3.6m)
  • Significant client wins including Mont Blanc, EY Global Consulting and Block One
  • £10.9m property impairment following review of the property portfolio due to flexible working from home initiative

Current trading and outlook

  • Taking into account the continued good performance across the business and the property related savings, we are confident of modestly exceeding market expectations for the year
  • Acquisition of Mach49 and CRE
  • Expectation that dividend payments will be resumed in 2021

Commenting on the results, Chairman of Next 15, Richard Eyre said:

Robust actions have been taken to secure current performance as well as build for the long-term. Safeguarding our people and maintaining our service quality have been the Board’s priority, but we also tasked ourselves to emerge from the crisis better than we entered it. This has resulted in new software products for our customers, increased usage of data driven products and a reduction of the group’s property portfolio as the Group shifts to a new working model.

The group’s strategic direction toward marketing technology is seeing success and our newest target, to build a substantial innovation-consulting division has been kick-started by the acquisition of Mach49. Taking all of the above into account, we are confident of modestly exceeding market expectations for the year.

N15 will host an analyst and investor webcast at 13.00 today, Tuesday 29 September 2020.

The registration link can be found here: https://numiscorp.zoom.us/meeting/register/tJUkcOugqjIjGNOoi0DBJx85EMhZDYcN6JHy

For further information contact:

Next Fifteen Communications Group plc
Tim Dyson, Chief Executive Officer
+1 415 350 2801

Peter Harris, Chief Financial Officer
+44 (0) 20 7908 6444

Numis
Mark Lander, Hugo Rubinstein, Nick Westlake
+44 (0)20 7260 1000

Berenberg
Ben Wright, Mark Whitmore, Arnav Kapoor
+44 (0)20 3207 7800

Notes:

Net revenue
Net revenue is calculated as revenue less direct costs as shown on the Consolidated Income Statement.

Organic revenue growth
Organic revenue growth is defined as the net revenue growth at constant currency excluding the impact of acquisitions and disposals in the last 12 months.

Adjusted operating profit margin
Adjusted operating profit margin is calculated based on the adjusted operating profit after interest on finance lease liabilities as a percentage of net revenue.

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 31 July 2020.

During the period the Group’s net revenues increased by 6% to £126.2m (2019: £118.7m), despite the challenging macro-economic backdrop, while adjusted profit before tax increased by 20% to £20.7m (2019: £17.2m). The positive revenue performance aided by tight control of our cost base resulted in the Group’s adjusted operating margin increasing to 16.8% from 14.7% in the prior period. Diluted adjusted EPS increased by 14% to 17.4p and the strong management of our working capital resulted in our net debt remaining very modest at £5.0m.

Against a sector backdrop of double-digit declines in revenues, the Group saw a more modest organic net revenue decline of 6.6% for the six months. We believe this resilient performance to the Covid-19 related disruption of economic activity is attributable to the high share (approximately 55%) of the Group’s revenue generated from Tech businesses. Our B2B agencies such as Agent3 and Activate particularly benefitted from clients’ focus on short-term revenue generation at the expense of long-term brand building and the fall-off in the live events industry. Our B2C agencies suffered from immediate Covid-related client deferrals but we are seeing encouraging signs of a recovery of revenue in this area.

During the pandemic, the Group has reviewed its property portfolio in the wake of the significant movement to a more flexible working environment. We have determined that approximately a third of our real estate in London, New York and San Francisco, approximately 100,000 sq ft, is now surplus to requirements and we are actively marketing the space. Accordingly, we have taken an impairment of £10.9m as at 31 July 2020 against the carrying value of our right-of-use property assets. This will, in time, yield significant on-going improvements to profitability, estimated to be £2.8m annually, and £1.5m for FY21. Primarily as a result of this charge, the Group reported a statutory operating loss of £0.4m compared with £7.6m profit in the prior period, while reported diluted earnings per share were (3.6)p compared with 1.8p in the prior period.

The Group has continued to grow its portfolio of businesses. In July, the Group acquired CRE, a web optimisation agency and in August Mach49, the Silicon Valley-based growth incubator for global businesses which becomes a cornerstone of our previously announced plan to create a $100m revenue innovation business. Mach49 which has annual revenues of approximately $13m, currently has offices in Silicon Valley, Boston, London and Singapore serving Global 1000 clients such as Schneider Electric, Pernod Ricard, TDK, Stanley Black and Decker and many others. CRE has annual net revenues of approximately £3.6m and current and previous clients include Facebook, Google and Jamf.

The Board is aware of the importance of payment of dividends for shareholders and expects to resume payments with a dividend for the year ended January 2021, paid following the AGM in early summer 2021.

Segment adjusted performance

 

Brand
Marketing

£’000

Data and
Analytics

£’000

Creative
Technology

£’000

Head
Office

£’000

Total
£’000

6 months ended 31 July 2020

 

 

 

 

 

Net revenue

69,297

23,897

32,964

-

126,158

Adjusted operating profit after interest on finance lease liabilities

15,863

5,965

4,158

(4,814)

21,172

Adjusted operating profit margin

22.9%

25.0%

12.6%

-

16.8%

Organic revenue growth

(7.9%)

3.6%

(9.5%)

-

(6.6%)

6 months ended 31 July 2019

 

 

 

 

 

Net revenue

63,873

20,869

33,981

-

118,723

Adjusted operating profit after interest on finance lease liabilities

13,080

5,734

3,278

(4,592)

17,500

Adjusted operating profit margin

20.5%

27.5%

9.6%

-

14.7%

Our Brand Marketing segment produced a resilient performance with a strong increase in absolute profitability and adjusted operating profit margin, as we reacted quickly to the onset of the pandemic by aligning our cost base to our reduced organic revenue expectations. Our M Booth and M Booth Health agencies saw an initial impact to their revenues, but trading has recovered over the last couple of months as consumer confidence has returned. Outcast, Archetype and Publitek’s revenues proved to be more resilient and their swift action on costs resulted in a strong profit and margin performance. We acquired M Booth Health and Nectar in the prior period, which helped the segment’s overall net revenue increase by 8.5% to £69.3m, with an organic revenue decline of 7.9%. The increase in the adjusted operating margin to 22.9% resulted in the adjusted operating profit increasing by 21.3% to £15.9m.

Our Data and Analytics segment has had a mixed performance with an exceptionally strong performance from our lead generation agency Activate, and whilst Savanta and Planning did experience short-term client revenue deferrals on the back of Covid-19 disruption, both agencies are now benefitting from a recovery in confidence from their clients. Overall, the segment’s net revenue increased by 14.5% to £23.9m, with organic revenue growth of 3.6% and an adjusted operating margin declined to 25%, producing an increase in the adjusted operating profit to £6.0m.

Our Creative Technology segment has seen strong performances from our B2B agencies such as Twogether, Velocity and Agent3. Beyond returned to profitability in the period following the actions taken by management, whilst our B2C agencies suffered from reductions in client revenue in large part due to Covid disruption. Overall, the segment’s net revenue declined by 3.0% to £33.0m, with an organic decline of 9.5%. The adjusted operating margin increased to 12.6% due to swift action on costs and the adjusted operating profit increased to £4.2m.

Reconciliation of Adjusted Financial Measures

 

 

Six months ended
31 July 2020
(Unaudited)

 

Six months ended
31 July 2019
(Unaudited)

 

£’000

 

£’000

 

 

 

 

(Loss)/profit before income tax

(3,402)

 

2,848

Unwinding of discount on deferred and contingent consideration and share purchase obligation payable

2,182

 

1,669

Change in estimate of future contingent consideration and share purchase obligation payable

(366)

 

2,041

Share-based payment charge

189

 

-

Employment-related acquisition payments

1,699

 

2,781

Restructuring costs

2,052

 

2,141

Deal costs

178

 

306

Property impairment

10,910

 

-

Amortisation of acquired intangibles

7,264

 

5,443

Adjusted profit before income tax

20,706

 

17,229

Adjusted financial measures are presented to provide additional information that may be useful to shareholders through facilitating comparability with industry peers and to best represent the underlying performance of the business. Adjusted results are reconciled to statutory results within note 2 and 3.

We had a net credit of £0.4m in relation to our estimate of future contingent consideration. As a Group, we are moving towards the inclusion of employment conditions for certain acquisition-related payments. As a result, we are required to build up a provision relating to these payments over time and therefore this has led to an accounting charge of £1.7m (2019: £2.8m).

As mentioned earlier, we have conducted a full review of our property requirements in light of the general move to a working from home culture going forward and we have determined that we have a significant amount of surplus property in London, New York and San Francisco. The leases have typically got three to four years left and we have therefore made an impairment of £10.9m against the carrying value of the right-of-use assets and leasehold improvements, which takes account of our assessment of the likely financial recovery against these surplus properties.

We incurred £2.1m of restructuring costs in relation to a restructuring of our cost base pursuant to the pandemic. We incurred £0.2m of deal costs in relation to acquisitions, and the amortisation of acquired intangibles was £7.3m in the period.

Cashflow

The Group delivered an excellent cashflow performance with the net cash inflow from operating activities increasing to £31.5m from £19.3m in the prior period. This resulted in our net debt being only £5.0m as at 31 July 2020.

Post Covid-19

We see opportunities for the Group to use our healthy balance sheet to increase the pace of acquisitions while maintaining low gearing; using growth in innovation consulting to drive growth across the Group; and to invest in internally developed software product solutions to our customers’ challenges. We believe that being a purpose-driven organisation matters, and this is the time to make meaningful improvements to the business. We are investing in DE&I and targeting a reduction in our carbon footprint. We believe an internal focus on ESG initiatives is crucial to excellent client delivery and attracting the best talent.

Dividend

The Board is aware of the importance of payment of dividends for shareholders and expects to resume payments with a dividend for the year ended January 2021, paid following the AGM in early summer 2021.

Current Trading and Outlook

Whilst the group remains cautiously optimistic about trading as we enter the second half of our financial year in what is still a highly uncertain general economic environment, the continued good performance across the business and the property related savings give us confidence of modestly exceeding market expectations for the year.

We will continue to tightly manage our cost base and conserve cash. The group is highly cash generative and has a strong balance sheet, with net debt as at 24th September of £2.4m.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTH PERIOD ENDED 31 July 2020

 

 

Six months ended
31 July 2020
(Unaudited)

Six months ended
31 July 2019
(Unaudited)

12 months ended
31 January 2020
(Audited)

 

Note

£’000

£’000

£’000

 

 

 

 

 

Billings

 

159,973

156,477

325,353

 

 

 

 

 

Revenue

 

153,100

145,192

300,711

Direct costs

 

(26,942)

(26,469)

(52,242)

Net revenue

2

126,158

118,723

248,469

 

 

 

 

 

Staff costs

 

88,836

83,693

171,180

Depreciation

 

6,618

6,302

13,196

Amortisation

 

7,960

5,915

13,211

Other operating charges

 

23,108

15,181

31,469

Total operating charges

 

(126,522)

(111,091)

(229,056)

Operating (loss)/profit

2

(364)

7,632

19,413

 

 

 

 

 

Finance expense

6

(4,985)

(5,569)

(16,672)

Finance income

7

1,888

698

2,611

Share of profit from associate

 

59

87

204

 

 

 

 

 

(Loss)/profit before income tax

3

(3,402)

2,848

5,556

 

 

 

 

 

Income tax expense

4

408

(1,273)

(2,717)

 

 

 

 

 

(Loss)/profit for the period

 

(2,994)

1,575

2,839

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of the parent

 

(3,330)

1,317

2,262

Non-controlling interests

 

336

258

577

 

 

(2,994)

1,575

2,839

Earnings per share

 

 

 

 

Basic (pence)

8

(3.8)

1.9

2.7

Diluted (pence)

8

(3.6)

1.8

2.5

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 July 2020

 

Six months ended
31 July 2020
(Unaudited)

Six months ended
31 July 2019
(Unaudited)

12 months ended
31 January 2020
(Audited)

 

£’000

£’000

£’000

 

 

 

 

(Loss)/profit for the period

(2,994)

1,575

2,839

 

 

 

 

Other comprehensive income / (expense):

 

 

 

Items that may be reclassified into profit or loss

 

 

 

Exchange differences on translating foreign operations

473

3,568

(136)

Net investment hedge

-

(372)

(411)

 

473

3,196

(547)

Items that will not be reclassified subsequently to profit or loss

 

 

 

Revaluation of investments

5

(335)

(562)

Total other comprehensive income / (expense) for the period

478

2,861

(1,109)

Total comprehensive (expense)/income for the period

(2,516)

4,436

1,730

 

 

 

 

Attributable to:

 

 

 

Owners of the parent

(2,852)

4,178

1,153

Non-controlling interests

336

258

577

 

(2,516)

4,436

1,730

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS

 

Six months ended
31 July 2020
(Unaudited)
£’000

Six months ended
31 July 2019
(Unaudited)
£’000

Net revenue

126,158

118,723

Total operating charges

(96,916)

(93,646)

Depreciation and amortisation

(7,314)

(6,774)

Operating profit

21,928

18,303

Interest on finance lease liabilities

(756)

(803)

Operating profit after interest on finance lease liabilities

21,172

17,500

Operating profit margin

16.8%

14.7%

Net finance expense excluding interest on finance lease liabilities

(525)

(358)

Share of profits of associate

59

87

Profit before income tax

20,706

17,229

Tax

(4,141)

(3,446)

Retained profit

16,565

13,783

 

 

 

Weighted average number of ordinary shares

88,542,197

84,480,836

Diluted weighted average number of ordinary shares

93,197,615

89,070,220

 

 

 

Adjusted earnings per share

18.3p

16.0p

Diluted adjusted earnings per share

17.4p

15.2p

 

 

 

Cash inflow from operating activities

31,536

19,340

Cash outflow on acquisition related payments

(18,350)

(4,673)

Net debt

4,993

3,552

 

 

 

Dividend (per share)

-

2.5p

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED BALANCE SHEET AS AT 31 July 2020

 

 

31 July 2020
(Unaudited)

31 July 2019
(Unaudited)

31 January 2020
(Audited)

 

 

 

Note

£’000

£’000

£’000

Assets

 

 

 

 

Property, plant and equipment

 

10,048

16,002

14,224

Right-of-use assets

 

27,623

42,341

41,655

Intangible assets

 

157,332

132,274

155,408

Investment in equity-accounted associate

 

123

131

232

Investments in financial assets

 

1,080

1,308

1,075

Deferred tax asset

 

15,233

11,391

10,967

Other receivables

 

590

863

809

Total non-current assets

 

212,029

204,310

224,370

 

 

 

 

 

Trade and other receivables

 

68,634

76,642

70,260

Cash and cash equivalents

9

30,191

21,268

28,661

Corporation tax asset

 

1,943

1,195

734

Total current assets

 

100,768

99,105

99,655

 

 

 

 

 

Total assets

 

312,797

303,415

324,025

 

 

 

 

 

Liabilities

 

 

 

 

Loans and borrowings

9

30,184

19,820

33,007

Deferred tax liabilities

 

4,932

3,877

3,538

Lease liabilities

 

35,147

46,223

43,023

Other payables

 

1,193

18

16

Provisions

 

3,949

3,867

4,942

Contingent consideration

10

20,615

18,622

26,815

Share purchase obligation

10

1,670

133

2,098

Total non-current liabilities

 

97,690

92,560

113,439

 

 

 

 

 

Loans and borrowings

9

5,000

5,000

5,000

Trade and other payables

 

66,988

66,454

59,620

Lease liabilities

 

11,038

8,938

11,210

Provisions

 

2,700

327

1,522

Corporation tax liability

 

2,510

2,197

1,173

Deferred consideration

10

1,424

2,994

2,715

Contingent consideration

10

8,666

12,757

15,366

Share purchase obligation

10

1,263

1,328

1,269

Total current liabilities

 

99,589

99,995

97,875

 

 

 

 

 

Total liabilities

 

197,279

192,555

211,314

 

 

 

 

 

TOTAL NET ASSETS

 

115,518

110,860

112,711

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

2,265

2,130

2,163

Share premium reserve

 

90,838

68,956

76,019

Foreign currency translation reserve

 

8,034

11,265

7,561

Other reserves

 

(2,065)

(2,026)

(2,065)

Retained earnings

 

16,890

31,229

29,618

Total equity attributable to owners of the parent

 

115,962

111,554

113,296

Non-controlling interests

 

(444)

(694)

(585)

TOTAL EQUITY

 

115,518

110,860

112,711

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 July 2020

 

 

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 31 January 2019 (audited)

2,089

62,993

7,697

(1,654)

41,404

112,529

(1,076)

111,453

Change in accounting policy (IFRS 16) 2

-

-

-

-

(1,794)

(1,794)

-

(1,794)

Deferred tax on accounting policy change (IFRS 16)

-

-

-

-

400

400

-

400

At 1 February 2019 as restated

2,089

62,993

7,697

(1,654)

40,010

111,135

(1,076)

110,059

Profit for the period

-

-

-

-

1,317

1,317

258

1,575

Other comprehensive income / (expense) for the period

-

-

3,568

(372)

(335)

2,861

-

2,861

Total comprehensive income / (expense) for the period

-

-

3,568

(372)

982

4,178

258

4,436

Shares issued on satisfaction of vested share options

36

4,829

-

-

(4,865)

-

-

-

Shares issued on acquisitions

5

1,134

-

-

-

1,139

-

1,139

Movement in relation to share-based payments

-

-

-

-

437

437

-

437

Dividends to owners of the parent

-

-

-

-

(4,595)

(4,595)

-

(4,595)

Movement on reserves for non-controlling interests

-

-

-

-

(740)

(740)

740

-

Non-controlling interest purchased in the period

-

-

-

-

-

-

-

-

Non-controlling interest dividend

-

-

-

-

-

-

(616)

(616)

At 31 July 2019 (unaudited)

2,130

68,956

11,265

(2,026)

31,229

111,554

(694)

110,860

Profit for the period

-

-

-

-

945

945

319

1,264

Other comprehensive expense for the period

-

-

(3,704)

(39)

(227)

(3,970)

-

(3,970)

Total comprehensive income / (expense) for the period

-

-

(3,704)

(39)

718

(3,025)

319

(2,706)

Shares issued on satisfaction of vested share options

2

559

-

-

(561)

-

-

-

Shares issued on acquisitions

31

6,504

-

-

-

6,535

-

6,535

Movement in relation to share-based payments

-

-

-

-

330

330

-

330

Dividends to owners of the parent

-

-

-

-

(2,164)

(2,164)

-

(2,164)

Movement on reserves for non-controlling interests

-

-

-

-

66

66

(66)

-

Non-controlling interest dividend

-

-

-

-

-

-

(144)

(144)

At 31 January 2020 (audited)

2,163

76,019

7,561

(2,065)

29,618

113,296

(585)

112,711

Profit for the period

-

-

-

-

(3,330)

(3,330)

336

(2,994)

Other comprehensive income for the period

-

-

473

-

5

478

-

478

Total comprehensive income / (expense) for the period

-

-

473

-

(3,325)

(2,852)

336

(2,516)

Shares issued on satisfaction of vested share options

64

9,253

-

-

(9,317)

-

-

-

Shares issued on acquisitions

38

5,566

-

-

-

5,604

-

5,604

Obligation to purchase non-controlling interest

-

-

-

-

-

-

-

-

Movement in relation to share-based payments

-

-

-

-

273

273

-

273

Dividends to owners of the parent

-

-

-

-

-

-

-

-

Movement on reserves for non-controlling interests

-

-

-

-

(359)

(359)

359

-

Non-controlling interest purchased in the period

-

-

-

-

-

-

-

-

Non-controlling interest dividend

-

-

-

-

-

-

(554)

(554)

At 31 July 2020 (unaudited)

2,265

90,838

8,034

(2,065)

16,890

115,962

(444)

115,518

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 2020

 

 

Six months ended
31 July 2020
(Unaudited)

Six months ended
31 July 2019
(Unaudited)

Twelve months ended
31 January 2020
(Audited)

 

 

£’000

£’000

£’000

Cash flows from operating activities

 

 

 

 

(Loss)/profit for the period

 

(2,994)

1,575

2,839

Adjustments for:

 

 

 

 

Depreciation

 

6,618

6,302

13,196

Amortisation

 

7,960

5,915

13,211

Finance expense

 

4,985

5,569

16,672

Finance income

 

(1,888)

(698)

(2,611)

Share of profit from equity accounted associate

 

(59)

(87)

(204)

Impairment of RoU assets

 

7,664

-

-

Loss on sale/impairment of property, plant and equipment

 

5,753

659

1,360

(Gain)/Loss on exit of finance lease

 

(2,327)

-

14

Income tax expense

 

(408)

1,273

2,717

Share-based payment charge

 

502

161

600

 

 

 

 

 

Net cash inflow from operating activities before changes in working capital

 

25,806

20,669

47,794

 

 

 

 

 

Change in trade and other receivables

 

1,607

(5,680)

1,971

Change in trade and other payables

 

6,962

6,279

(1,950)

Change in other liabilities

 

175

1,080

1,686

 

 

8,744

1,679

1,707

 

 

 

 

 

Net cash generated from operations before tax and interest outflows

 

34,550

22,348

49,501

 

 

 

 

 

Income taxes paid

 

(3,014)

(3,008)

(5,993)

 

 

 

 

 

Net cash inflow from operating activities

 

31,536

19,340

43,508

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Acquisition of subsidiaries and trade and assets, net of cash acquired

 

(4,237)

(1,333)

(18,501)

Payment of contingent and deferred consideration

 

(14,113)

(3,290)

(5,622)

Purchase of investment

 

-

(50)

(50)

Acquisition of property, plant and equipment

 

(1,028)

(1,841)

(3,460)

Proceeds on disposal of property, plant and equipment

 

2

13

23

Proceeds on disposal of subsidiary

 

-

466

466

Acquisition of intangible assets

 

(1,059)

(878)

(1,831)

Net movement in long-term cash deposits

 

120

(39)

(24)

Income from finance lease receivables

 

434

-

547

Interest received

 

33

56

112

 

 

 

 

 

Net cash outflow from investing activities

 

(19,848)

(6,896)

(28,340)

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW (Continued)

FOR THE SIX MONTH PERIOD ENDED 31 July 2020

 

 

Six months ended
31 July 2020
(Unaudited)

Six months ended
31 July 2019
(Unaudited)

Twelve months ended
31 January 2020
(Audited)

 

 

£’000

£’000

£’000

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Repayment of lease liabilities

 

(6,235)

(5,337)

(11,367)

Net movement in bank borrowings

 

(3,000)

(1,311)

13,039

Interest on borrowings paid

 

(578)

(414)

(979)

Dividend and profit share paid to non-controlling interest partners

 

(554)

(616)

(760)

Dividends paid to shareholders of the parent

 

-

(4,595)

(6,759)

 

 

 

 

 

Net cash outflow from financing activities

 

(10,367)

(12,273)

(6,826)

 

 

 

 

 

Net increase in cash and cash equivalents

 

1,321

171

8,342

 

 

 

 

 

Cash and cash equivalents at beginning of the period

 

28,661

20,501

20,501

Exchange gains on cash held

 

209

596

(182)

 

 

 

 

 

Cash and cash equivalents at end of the period

 

30,191

21,268

28,661

NOTES TO THE INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 July 20120

1) BASIS OF PREPARATION

The unaudited consolidated interim financial statements represent a condensed set of financial information and have been prepared using the recognition and measurement principles of International Accounting Standards, and in accordance with IAS 34, Interim Financial Reporting. 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 2020.

The comparative financial information for the year ended 31 January 2020 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 2020 (Unaudited)

 

 

 

 

 

Net revenue

46,773

4,228

68,657

6,500

-

126,158

Adjusted operating profit / (loss)

9,063

882

15,385

1,181

(4,583)

21,928

Adjusted operating profit / (loss) after interest on finance lease liabilities

8,955

868

15,011

1,152

(4,814)

21,172

Adjusted operating profit margin1

19.1%

20.5%

21.9%

17.7%

-

16.8%

Organic revenue growth

(11.9%)

(3.3%)

(2.6%)

(6.2%)

-

(6.6%)

Six months ended 31 July 2019 (Unaudited)

 

 

 

 

 

Net revenue

47,974

4,332

59,361

7,056

-

118,723

Adjusted operating profit / (loss)

9,466

763

11,541

866

(4,333)

18,303

Adjusted operating profit / (loss) after interest on finance lease liabilities

9,324

747

11,188

833

(4,592)

17,500

Adjusted operating profit margin1

19.4%

17.2%

18.8%

11.8%

-

14.7%

Organic revenue growth

4.6%

(0.6%)

(6.0%)

2.1%

-

(1.3%)

Twelve months ended 31 January 2020 (Audited)

 

 

 

 

 

Net revenue

97,377

8,820

127,563

14,709

-

248,469

Adjusted operating profit / (loss)

20,366

1,619

27,155

2,367

(9,051)

42,456

Adjusted operating profit / (loss) after interest on finance lease liabilities

20,094

1,587

26,421

2,299

(9,541)

40,860

Adjusted operating profit margin1

20.6%

18.0%

20.7%

15.6%

-

16.4%

Organic revenue growth

0.3%

0.4%

(4.6%)

4.8%

-

(2.0%)

1 Adjusted operating profit margin is calculated based on the operating profit after interest on finance lease liabilities as a percentage of net revenue.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

2) SEGMENT INFORMATION (continued)

 

Brand
marketing

Data and
analytics

Creative
technology

Head
Office

Total

 

£’000

£’000

£’000

£’000

£’000

 

 

 

 

 

 

Six months ended 31 July 2020 (Unaudited)

 

 

 

 

 

Net revenue

69,297

23,897

32,964

-

126,158

Adjusted operating profit / (loss)

16,252

5,975

4,284

(4,583)

21,928

Adjusted operating profit / (loss) after interest on finance lease liabilities1

15,863

5,965

4,158

(4,814)

21,172

Adjusted operating profit margin1

22.9%

25.0%

12.6%

-

16.8%

Organic net revenue growth

(7.9%)

3.6%

(9.5%)

-

(6.6%)

Six months ended 31 July 2019 (Unaudited)

 

 

 

 

 

Net revenue

63,873

20,869

33,981

-

118,723

Adjusted operating profit / (loss)

13,478

5,744

3,414

(4,333)

18,303

Adjusted operating profit / (loss) after interest on finance lease liabilities1

13,080

5,734

3,278

(4,592)

17,500

Adjusted operating profit margin1

20.5%

27.5%

9.6%

-

14.7%

Organic net revenue growth

(4.9%)

21.4%

(1.1%)

-

(1.3%)

Year ended 31 January 2020 (Audited)

 

 

 

 

Net revenue

135,036

45,054

68,379

-

248,469

Adjusted operating profit / (loss)

30,750

12,722

8,035

(9,051)

42,456

Adjusted operating profit / (loss) after interest on finance lease liabilities1

29,930

12,697

7,774

(9,541)

40,860

Adjusted operating profit margin1

22.2%

28.2%

11.4%

-

16.4%

Organic net revenue growth

(5.7%)

19.3%

(2.1%)

-

(2.0%)

1 Adjusted operating profit margin is calculated based on the operating profit after interest on finance lease liabilities as a percentage of net revenue.

A reconciliation of segment adjusted operating profit to operating profit is provided as follows:

 

 

Six months ended
31 July 2020
(Unaudited)

Six months ended
31 July 2019
(Unaudited)

Twelve months ended
31 January 2020
(Audited)

 

£’000

£’000

£’000

 

 

 

 

Segment adjusted operating profit after interest on finance lease liabilities

21,172

17,500

40,860

Interest on finance lease liabilities

756

803

1,596

Segment adjusted operating profit

21,928

18,303

42,456

Amortisation of acquired intangibles (note 3)

(7,264)

(5,443)

(12,099)

Share-based payment charge (note 3)

(189)

-

(374)

Employment-related acquisition payments (note 3)

(1,699)

(2,781)

(5,029)

Restructuring costs (note 3)

(2,052)

(2,141)

(4,596)

Property impairment (note 3)

(10,910)

-

-

Deal costs (note 3)

(178)

(306)

(945)

Operating (loss)/profit

(364)

7,632

19,413

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

3) RECONCILIATION OF ADJUSTED FINANCIAL MEASURES

 

 

Six months ended
31 July 2020
(Unaudited)

 

Six months ended
31 July 2019
(Unaudited)

 

Twelve months ended
31 January 2020
(Audited)

 

£’000

 

£’000

 

£’000

 

 

 

 

 

 

(Loss)/profit before income tax

(3,402)

 

2,848

 

5,556

Unwinding of discount on deferred and contingent consideration and share purchase obligation payable1

2,182

 

1,669

 

3,552

Change in estimate of future contingent consideration and share purchase obligation payable1

(366)

 

2,041

 

8,086

Share-based payment charge2

189

 

-

 

374

Employment-related acquisition payments3

1,699

 

2,781

 

5,029

Restructuring costs4

2,052

 

2,141

 

4,596

Deal costs5

178

 

306

 

945

Property impairment 6

10,910

 

-

 

-

Amortisation of acquired intangibles7

7,264

 

5,443

 

12,099

Adjusted profit before income tax

20,706

 

17,229

 

40,237

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 The Group adjusts for the remeasurement of the acquisition-related liabilities within the adjusted performance measures in order to aid comparability of the Group’s results year on year as the charge/credit from remeasurement can vary significantly depending on the underlying brand’s performance. It is non-cash and its directional impact to the income statement is opposite to the brand’s performance driving the valuations. The unwinding of discount on these liabilities is also excluded from underlying performance on the basis that it is non-cash and the balance is driven by the Group’s assessment of the time value of money and this exclusion ensures comparability.

2 This charge relates to transactions whereby a restricted grant of brand equity was given to key management in Savanta Group Limited. (2019: M Booth & Associates LLC) at nil cost which holds value in the form of access to future profit distributions as well as any future sale value under the performance-related mechanism set out in the share sale agreement. This value is recognised as a one-off share-based payment in the income statement in the year of grant as the agreements do not include service requirements, thus the cost accounting is not aligned with the timing of the anticipated benefit of the incentive, namely the growth of the relevant brands.

3 This charge relates to payments linked to the continuing employment of the sellers which is being recognised over the required period of employment. Although these costs are not exceptional or non-recurring, the Group determined they should be excluded from the underlying performance as the costs solely relate to acquiring the sellers business.

4 In the current period the Group has incurred restructuring costs which primarily relates to Covid-19 redundancy costs taken in the period in response to the pandemic. These costs relate to these specific transformational events; they do not relate to underlying trading and therefore have been added back to aid comparability of performance year on year.

5 This charge relates to third party professional fees incurred during acquisitions.

6 In the current period the Group has recognised charges relating to the reorganisation of the property space across the Group. The majority of the charge is impairment of right-of-use assets and leasehold improvements. As a result of Covid-19, the Group has identified excess property space within the portfolio and therefore taken an impairment charge relating to those offices. The Group has adjusted for this cost, as the additional one-off impairment charge does not relate to the underlying trading of the business and therefore added back to aid comparability.

7 In line with its peer group, the Group adds back amortisation of acquired intangibles. Judgement is applied in the allocation of the purchase price between intangibles and goodwill, and in determining the useful economic lives of the acquired intangibles. The judgements made by the Group are inevitably different to those made by our peers and as such amortisation of acquired intangibles been added back to aid comparability.

4) TAXATION

The tax charge for the six months ended 31 July 2020 is based on the Group’s estimated effective tax rate for the year ending 31 January 2021 (20%).

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

5) DIVIDENDS

Given the macroeconomic backdrop due to Covid-19, the Group has decided to suspend the interim dividend, although it expects to resume payments with a dividend for the year ended January 2021, paid following the AGM in early summer 2021. For the six months ended 31 July 2019, an interim dividend of 2.5p per ordinary share was paid.

6) FINANCE EXPENSE

 

 

Six months ended
31 July 2020
(Unaudited)

 

Six months ended
31 July 2019
(Unaudited)

 

Twelve months ended
31 January 2020
(Audited)

 

£’000

 

£’000

 

£’000

Financial liabilities at amortised cost

 

 

 

 

 

Bank interest payable

575

 

411

 

977

Interest on finance lease liabilities

756

 

803

 

1,596

Financial liabilities at fair value through profit and loss

 

 

 

 

 

Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable1

2,182

 

1,669

 

3,552

Change in estimate of future contingent consideration and share purchase obligation payable1

1,470

 

2,683

 

10,545

 

 

 

 

 

 

Other

 

 

 

 

 

Other interest payable

2

 

3

 

2

Finance expense

4,985

 

5,569

 

16,672

1 These items are adjusted for in calculating the adjusted net finance expense.

7) FINANCE INCOME

 

 

Six months ended
31 July 2020
(Unaudited)

 

Six months ended
31 July 2019
(Unaudited)

 

Twelve months ended
31 January 202
(Audited)

 

£’000

 

£’000

 

£’000

Financial assets at amortised cost

 

 

 

 

 

Bank interest receivable

19

 

20

 

99

Finance lease interest receivable

20

 

24

 

40

Financial assets at fair value through profit and loss

 

 

 

 

 

Change in estimate of future contingent consideration and share purchase obligation payable1

1,836

 

642

 

2,459

Other interest receivable

13

 

12

 

13

Finance income

1,888

 

698

 

2,611

1 These items are adjusted for in calculating the adjusted net finance expense.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

8) EARNINGS PER SHARE

 

Six months ended
31 July 2020
(Unaudited)

 

Six months ended
31 July 2019
(Unaudited)

 

Twelve months ended
31 January 2020
(Audited)

 

£’000

 

£’000

 

£’000

 

 

 

 

 

 

Earnings attributable to ordinary shareholders

(3,330)

 

1,575

 

2,262

Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable

1,848

 

1,468

 

3,138

Change in estimate of future contingent consideration and share purchase obligation payable

(612)

 

1,554

 

6,395

Share-based payment charge

189

 

2,781

 

572

Restructuring costs

1,884

 

1,757

 

3,746

Property impairment

8,670

 

-

 

-

Employment-related acquisition payments

1,682

 

-

 

5,010

Amortisation of acquired intangibles

5,720

 

4,342

 

9,607

Deal costs

178

 

306

 

882

Adjusted earnings attributable to ordinary shareholders

16,229

 

13,525

 

31,612

 

 

 

 

 

 

 

Number

 

Number

 

Number

 

 

 

 

 

 

Weighted average number of ordinary shares

88,542,197

 

84,480,836

 

85,284,663

Dilutive LTIP shares

609,071

 

777,184

 

755,018

Dilutive Growth Deal shares

1,711,629

 

2,415,165

 

2,983,371

Other potentially issuable shares

2,334,718

 

1,397,035

 

1,913,430

 

 

 

 

 

 

Diluted weighted average number of ordinary shares

93,197,615

 

89,070,220

 

90,936,482

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

(3.8)p

 

1.9p

 

2.7p

Diluted earnings per share

(3.6)p

 

1.8p

 

2.5p

Adjusted earnings per share

18.3p

 

16.0p

 

37.1p

Diluted adjusted earnings per share

17.4p

 

15.2p

 

34.8p

Adjusted and diluted adjusted earnings per share have been presented to provide additional information which may be useful to shareholders through facilitating comparability with industry peers. 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 note 3 is the tax effect of those adjusting items.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

9) NET DEBT

The HSBC Bank revolving credit facility of £40m expires in 2022 and therefore the outstanding balance has been classified in non-current borrowings. The £20m loan drawn from HSBC is repayable in annual instalments and is classified in non-current borrowings with the exception of the instalment due in less than one year.

 

31 July 2020
(Unaudited)

31 July 2019
(Unaudited)

31 January 2020
(Audited)

£’000

£’000

£’000

 

 

 

 

Total loans and borrowings

35,184

24,820

38,007

Less: cash and cash equivalents

(30,191)

(21,268)

(28,661)

Net debt

4,993

3,552

9,346

Share purchase obligation

2,933

1,461

3,367

Contingent consideration

29,281

31,379

42,181

Deferred consideration

1,424

2,994

2,715

 

38,631

39,386

57,609

10) OTHER FINANCIAL LIABILITIES

 

Deferred
consideration

Contingent
consideration

Share purchase
obligation

 

£’000

£’000

£’000

 

 

 

 

At 31 January 2019 (Audited)

4,646

24,712

1,736

Arising during the period

350

4,194

-

Change in estimate

-

2,038

3

Exchange differences

-

1,069

103

Utilised

(2,205)

(2,028)

(453)

Unwinding of discount

203

1,394

72

At 31 July 2019 (Unaudited)

2,994

31,379

1,461

Arising during the period

-

10,251

-

Change in estimate

-

4,129

1,916

Exchange differences

-

(1,795)

(96)

Utilised

(462)

(3,397)

-

Unwinding of discount

183

1,614

86

At 31 January 2020 (Audited)

2,715

42,181

3,367

Arising during the period

-

417

-

Reclassification

2,405

(2,405)

-

Change in estimate

-

258

(624)

Exchange differences

-

3

7

Utilised

(3,811)

(13,057)

-

Unwinding of discount

115

1,884

183

At 31 July 2020 (Unaudited)

1,424

29,281

2,933

Current

1,424

8,666

1,263

Non-current

-

20,615

1,670

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 July 2020

11) EVENTS AFTER THE BALANCE SHEET DATE

On 1 September 2020 Next 15 purchased the entire issued share capital of Mach49, the Silicon Valley-based growth incubator for global businesses. This signals an important strategic move, as Mach49 will become the cornerstone of the previously announced plan to create a $100m revenue innovation business to work alongside our market leading data, technology and brand marketing businesses to help global leaders create and execute disruptive growth strategies, shake up existing markets and open new ones. We expect there to be goodwill arising as a result of this acquisition due to the anticipated profitability and operating synergies.

Category Code: IR
Sequence Number: 715812
Time of Receipt (offset from UTC): 20200928T190532+0100

Contacts

Next Fifteen Communications Plc

Contacts

Next Fifteen Communications Plc