Final Results

Next Fifteen Communications Plc Next Fifteen Communications Group Preliminary Results for the year to 31 July 2004 "Strong results and continuing future growth" Highlights -- Revenue rose by 7.2% to £37.7m (2003: £35.2m), despite translation effect of prolonged dollar weakness affecting our largest market -- Profit before tax up 18.4% to £1.93m (2003: £1.63m) -- Adjusted profit before tax, before re-organisation costs and goodwill amortisation up 4.2% to £2.57m (2003: £2.47m) -- Basic EPS improved 14.6% to 2.67p (2003: 2.33p) with adjusted EPS up 4.5% to 3.98p (2003: 3.81p) -- Final dividend of 0.8p (2003: 0.7p) - Total dividend for the year up 10% to 1.1p (2003: 1.0p) -- Substantial growth in US following successful integration and development of Applied and strong flow of new business to the Group -- Group presence in China strengthened by two new offices, in Shanghai and Hong Kong - leading to impressive new business wins across region Commenting, Tim Dyson, Chief Executive Officer, said: "The Group has made a strong start to the new financial year, with over £2m of increased annualised fee income in the first quarter, following recent new client wins in US and Europe. These successes, coupled with the general economic outlook for the Group's major markets, make us optimistic about our prospects for the current year." Chairman and Chief Executive Officer's Statement Next Fifteen Communications Group plc, which owns some of the world's leading public relations consultancies, is pleased to announce strong full-year results for the year to 31 July 2004 and expects further growth in the current financial year. Revenue for the last year rose by 7.2% to £37.7m, despite the weakness of the US Dollar; had currencies remained constant at 2003 levels, revenue would have risen by 11.5%, an additional £1.4m. Pre-tax profit also increased during the year by 18.4% to £1.93m (2003: £1.63m). Adjusted profit before tax, before reorganisation costs and goodwill amortisation improved 4.2% to £2.57m (2003: £2.47m). Basic earnings per share were 2.67p, up 14.6% from 2.33p last year. The adjusted earnings per share were 3.98p, up 4.5% from the previous year's 3.81p. As a result, the Board is proposing a final dividend of 0.8p, which will bring the total for the year to 1.1p (2003: 1p), a rise of 10%. The Group has made an impressive start to the current financial year, adding new clients in the first quarter that will increase annualised fee income by £2m. The Group's balance sheet remains very strong, with cash of £2.9m. Although this figure is £0.9m less than that at the previous year-end, it comes after funding £1.35m for the acquisition and working capital needs of the Applied Communications PR and research businesses ("Applied"), acquired in September last year. The Group has generated £0.6m cash since the half-year, and the ability of the Group to generate cash from its trading activities remains positive. Reorganisation costs for the year were £0.4m and amortisation of goodwill was £0.2m. The reorganisation costs relate to the last of the surplus office space, redundancies following the acquisition of Applied, and other costs arising from the reorganisation of AUGUST.ONE following its merger with Joe Public Relations and the transfer of its APAC operations to Text 100. Much of the Group's growth has come from the expansion of our North American and Asian businesses. In the US, we have seen substantial growth following the successful acquisition and subsequent integration and development of Applied, though this has been lessened by the impact of the weakening dollar. In this market, which now accounts for 43% of the Group's revenues, our Text 100 and Bite businesses generated revenue of £16.1m compared with £12.7m last year, an increase of 27%. (In dollar terms this growth would have been an even more impressive 39 %). £3.7m of US revenue in the year was recorded in the acquired Applied businesses, including £0.8m of new business wins during the year. The growth in the US has come from a combination of a strong flow of new business from companies such as Earthlink, McData, NEC and Sun Microsystems, and also through the expansion of relationships with existing clients such as FujiFilm, Juniper Networks, Peregrine, VeriSign and Xerox. In Asia we continued to expand our business into China with two new offices, first in Shanghai and then also in Hong Kong. This gives the Group a total of ten offices across the region. Through these businesses we have added some impressive new clients, notably Tektronix in China, Taiwan and Korea. IBM also extended its business with us in Mainland China and Hong Kong this year, while Infineon has become a client in Singapore. Cell phone giant Nokia has awarded us substantial project work in Singapore and Japan; and VeriSign, which is a client in the US and EMEA, has also become a client in Australia. The Board is currently exploring the possibility of moving the Group's listing to the AIM market, operated by the London Stock Exchange. Given the liquidity of this market for smaller-cap companies and the reduced regulatory burdens and costs relating to acquisitions for companies quoted on this market, such a move could offer significant benefits to the Group and its shareholders. The Board plans to finalise its review of this matter within the next quarter. The Group strategy is still focused on driving organic growth from its existing PR brands, but it will seek to supplement this with targeted acquisitions that offer growth potential and complement the existing PR businesses in the Group. Looking forward, the Group has made a strong start to the new financial year, adding over £2m of annualised fee income in the first quarter. This has come from new client wins that include Autodesk, Cadence Design Systems, Gartner and Siebel Systems in the US and Mothercare, Olympus, Yahoo! UK and Software AG in Europe. These successes, coupled with the general economic outlook for the Group's major markets, make us optimistic about our prospects for the current year. Will Whitehorn Tim Dyson Chairman Chief Executive Officer 14 October 2004 Next Fifteen Communications Group plc Consolidated profit and loss account for the year ended 31 July 2004 __________________________________________________________________________________________________ Note 2004 2004 2003 2003 (unaudited) (unaudited) (audited) (audited) (restated) (restated) £'000 £'000 £'000 £'000 Turnover Existing operations 2 39,105 39,740 Acquisitions 2 4,006 - Continuing operations 43,111 39,740 Other external charges (5,423) (4,582) _______ _______ Net revenue 37,688 35,158 Staff costs 26,014 22,604 Depreciation 1,277 1,687 Amortisation and amounts written off intangible assets 197 45 Reorganisation costs 3 447 794 Other operating charges 7,848 8,447 (35,783) (33,577) _______ _______ Operating profit Existing operations 1,839 1,581 Acquisitions 66 - Continuing operations 1,905 1,581 Interest receivable and similar income 76 102 Interest payable and similar charges (54) (55) _______ _______ Profit on ordinary activities before taxation 1,927 1,628 Taxation on profit on ordinary activities 5 (821) (692) _______ _______ Profit on ordinary activities after taxation 1,106 936 Minority interest (63) (41) _______ _______ Profit attributable to members 1,043 895 Equity dividends paid and proposed 6 (434) (371) _______ _______ Retained profit for the financial year 609 524 _______ _______ Earnings per share 7 Basic 2.67p 2.33p Diluted 2.51p 2.26p Adjusted 3.98p 3.81p _______ _______ Next Fifteen Communications Group plc Consolidated statement of total recognised gains and losses for the year ended 31 July 2004 __________________________________________________________________________________________________ Note 2004 2003 (unaudited) (audited) (restated) £'000 £'000 Profit attributable to members 1,043 895 Current translation differences on foreign currency net investments (290) 143 _______ _______ Total recognised gains and losses relating to the year 753 1,038 _______ _______ Prior year adjustment relating to the adoption of UITF 38 1 (56) _______ Total recognised gains and losses since last annual report and accounts 697 _______ Next Fifteen Communications Group plc Consolidated balance sheet at 31 July 2004 __________________________________________________________________________________________________ Note 2004 2004 2003 2003 (unaudited) (unaudited) (audited) (audited) (restated) (restated) £'000 £'000 £'000 £'000 Fixed assets Intangible assets 8 826 57 Tangible assets 2,043 2,603 _______ _______ 2,869 2,660 Current assets Debtors 8,839 7,371 Cash at bank and in hand 2,942 3,828 11,781 11,199 Creditors: amounts falling due within one year 6,598 6,234 Net current assets 5,183 4,965 _______ _______ Total assets less current liabilities 8,052 7,625 Creditors: amounts falling due after more than one year 200 96 Provision for liabilities and charges 196 521 _______ _______ Net assets 7,656 7,008 _______ _______ Capital and reserves Called up share capital 1,121 1,121 Share premium account 2,714 2,711 ESOP reserve (1,851) (2,036) Profit and loss account 5,402 5,148 _______ _______ Equity shareholders' funds 7,386 6,944 Minority interests 270 64 _______ _______ 7,656 7,008 _______ _______ Next Fifteen Communications Group plc Consolidated cash flow statement for the year ended 31 July 2004 ________________________________________________________________ Note 2004 2004 2003 2003 (unaudited) (unaudited) (audited) (audited) (restated) (restated) £'000 £'000 £'000 £'000 Net cash inflow from operating activities 9 2213 3594 Returns on investments and servicing of finance Interest received 76 102 Interest paid (29) (55) Minority interest dividend paid (14) (75) Net cash outflow from returns on investment and servicing of finance 33 (28) Taxation (1,131) (1,948) Capital expenditure and financial investment (Payments)/ proceeds for long-term deposits (73) 17 Payments to acquire tangible fixed assets (837) (1,177) Proceeds from sale of tangible fixed assets 39 35 Net cash outflow from capital expenditure and financial investment (871) (1,125) Acquisitions and disposals Payments to acquire trade and assets (486) (40) Net cash outflow from acquisitions and disposals (486) (40) Equity dividends paid (391) (461) _______ _______ Net cash outflow before financing (633) (8) Financing Issue of new share capital 3 - Issue of shares to minorities 62 4 Net capital outflow from bank loans - (75) Payments to acquire own shares (66) (527) Proceeds from sale of own shares 186 16 Capital element of finance lease rental payments (226) (239) Redemption of minorities (12) (91) Cash outflow from financing (53) (912) _______ _______ Decrease in cash in the year 9 (686) (920) _______ _______ Next Fifteen Communications Group plc Reconciliation of movements in shareholders' funds at 31 July 2004 __________________________________________________________________________________________________ 2004 2003 (unaudited) (audited) (restated) £'000 £'000 Profit attributable to members 1,043 895 Dividends (434) (371) _______ _______ 609 524 Currency translation difference on foreign current net investments (290) 143 Issue of shares 3 - Disposal/ (purchase) of own equity shares held in ESOP 120 (511) _______ _______ Net addition to shareholders' funds 442 156 _______ _______ Opening shareholders' funds as previously stated 8,980 8,297 Prior year adjustment relating to the adoption of UITF 38 1 (2,036) (1,509) _______ _______ Opening shareholders’ funds as restated 6,944 6,788 _______ _______ Closing shareholders' funds 7,386 6,944 _______ _______ Next Fifteen Communications Group plc Notes to the preliminary statement for the year ended 31 July 2004 __________________________________________________________________________________________________ 1 Financial Information The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 31 July 2004 or 2003. The financial information for the year ended 31 July 2004 is unaudited whilst the financial information for the year ended 31 July 2003 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 July 2004 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting. The announcement is prepared on the basis of the accounting policies as stated in the statutory accounts for the year ended 31 July 2003 except as noted below: UITF 38 and UITF 17 (revised) have been adopted for the first time in the year to 31 July 2004. UITF 38 requires that the company's own shares held in an ESOP trust be deducted in arriving at shareholders' funds. The Group's previous accounting policy was to recognise the shares as a fixed asset investment, in accordance with UITF 13. In addition, UITF 38 requires that profits or losses on the sale of ESOP shares be charged directly to reserves rather than to the profit and loss account. The Group's previous policy was to recognise such profits or losses in the profit and loss account. A prior year adjustment has been made to remove the profit made on the sale of shares in 2003 and offset the cost of investment against shareholders' funds and hence the July 2003 profit and loss account, balance sheet, cash flow and other notes have been restated as appropriate. The net cumulative effect on the retained profit for the year to 31 July 2003 is a reduction of £16,000, the net cumulative effect on the recognised gains and losses for the year ended 31 July 2004 is a reduction of £56,000, and the net cumulative effect on the reserves at 1 August 2003 is a reduction of £2,036,000. Segmental 2 information Analyses of turnover, profit before taxation and net assets by geographical origin and destination are stated below. The turnover relates to one class of business, namely the provision of public relations services. 2004 2004 2004 2003 2003 2003 Profit Profit before before Turnover taxation Net assets Turnover taxation Net assets (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) (restated) (restated) £'000 £'000 £'000 £'000 £'000 £'000 Continuing activities: EMEA* 21,248 1,451 3,305 22,363 2,002 2,945 North America 13,357 1,343 2,587 13,569 529 2,018 Asia Pacific 4,500 263 1,272 3,808 -53 1,470 Head office - -1,171 496 - -850 575 _______ _______ _______ _______ _______ _______ 39,105 1,886 7,660 39,740 1,628 7,008 _______ _______ _______ _______ _______ _______ Acquisitions: EMEA* 174 -28 -28 - - - North America 3,832 69 24 - - - _______ _______ _______ _______ _______ _______ 4,006 41 -4 - - - _______ _______ _______ _______ _______ _______ 43,111 1,927 7,656 39,740 1,628 7,008 _______ _______ _______ _______ _______ _______ The directors consider these regions to be separate geographical markets and the markets within which the Group operates. The 2003 segmental analysis has been restated to show head office costs and unallocated assets separately. These costs and assets had previously been included within the results and assets of the EMEA region. The directors believe that the new allocation better reflects the true trading performance and assets employed in the EMEA region. In addition, the 2003 segmental analysis has been restated to reflect the changes in profit before tax and net assets as a result of adopting UITF38 - see note 1. * EMEA stands for Europe, Middle East and Africa Next Fifteen Communications Group plc Notes to the preliminary statement for the year ended 31 July 2004 (continued) __________________________________________________________________________________________ 3 Reorganisation costs Reorganisation costs of £447,000 (2003 - £794,000) relate to three elements. Firstly, the cost of office space, which is surplus to current requirements. Secondly, redundancy costs incurred in integrating the acquired businesses from Applied Communications. Lastly, redundancies and other closure costs incurred by AUGUST.ONE in transferring its APAC business to Text 100 and in adjusting headcount in the UK to the appropriate levels following the merger with Joe Public Relations. 4 Reconciliation of proforma financial measures 2004 2003 (unaudited) (audited) (restated) £'000 £'000 Profit on ordinary activities before taxation 1,927 1,628 Reorganisation costs 447 794 Amortisation and amounts written off intangible assets 197 45 _______ _______ Adjusted profit on ordinary activities before taxation 2,571 2,467 _______ _______ Adjusted profit on ordinary activities before taxation has been presented to provide additional information which may be useful to readers of the financial statements. 5 Taxation on profit from ordinary activities 2004 2003 (unaudited) (audited) £'000 £'000 192 365 Overseas taxation 756 539 _______ _______ Total current tax charge for the period 948 904 Prior year (overprovision)/ underprovision (UK) (329) 35 Prior year underprovision/ (overprovision) (Overseas) 41 (30) Deferred taxation charge / (credit) 161 (217) _______ _______ Total tax charge on profit on ordinary activities 821 692 _______ _______ 6 Dividends A final dividend of 0.8p (2003 - 0.7p) per share has been proposed. The interim dividend was 0.3p (2003 - 0.3p) per share, making a total for the year of 1.1p per share (2003 - 1.0p). The final dividend, if approved at the AGM on 26 January 2005, will be paid on 28 January 2005 to all shareholders on the Register of Members on 24 December 2004. The ex-dividend date for the shares is 22 December 2004. Next Fifteen Communications Group plc Notes to the preliminary statement for the year ended 31 July 2004 (continued) __________________________________________________________________________________________ 7 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the year, determined in accordance with the provisions of FRS 14, Earnings per share. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all the potentially dilutive ordinary shares. The Group has only one category of dilutive potential shares, namely share options granted where the exercise price is less than the average price of the company's ordinary shares during the year. Adjusted earnings per share is calculated by dividing the earnings attributed to ordinary shareholders before reorganisation costs and amortisation of goodwill, after tax, by the weighted average number of ordinary shares during the year. 2004 2003 (unaudited) (audited) (restated) £'000 £'000 Basic and diluted earnings attributable to ordinary shareholders 1,043 895 Reorganisation costs after taxation 313 522 Amortisation of goodwill after taxation 197 45 _________ _________ Adjusted earnings attributable to ordinary shareholders 1,553 1,462 _________ _________ Weighted average number of ordinary shares 39,021,121 38,416,045 Dilutive share options 2,381,296 1,099,136 _________ _________ Diluted weighted average number of ordinary shares 41,402,417 39,515,181 _________ _________ Basic earnings per share 2.67p 2.33p Diluted earnings per share 2.51p 2.26p Adjusted earnings per share 3.98p 3.81p Adjusted earnings per share has been presented to provide additional information which may be useful to the readers of the financial statements. Next Fifteen Communications Group plc Notes to the preliminary statement for the year ended 31 July 2004 (continued) 8 Acquisitions and intangible assets On 8 September 2003 the Group purchased the trade and certain assets of the PR division of Applied Communications Group ("Applied"), and on 2 October 2003 the Group purchased the trade and certain assets of Applied's research division. The acquired businesses are based in San Francisco and Amsterdam. The maximum consideration for the two transactions is £1,084,000 ($1,715,000) payable in cash over three years. £104,000 ($165,000) was paid on completion, £443,000 ($700,000) is payable in equal instalments over the first two years and the remaining £537,000 ($850,000) is subject to performance criteria. The fair value of the assets acquired was £38,000 ($60,000). Under the agreements Applied retained accounts receivable, cash and certain intangible assets such as its brand name and intellectual property rights. The goodwill of £1,058,000 ($1,673,000) arising on the transactions includes capitalised legal and professional fees of £59,000 ($93,000) being the incremental fees incurred as a result of the acquisition and is reduced by a discount of £47,000 ($75,000) which arises when the deferred consideration is discounted to its net present value as required by FRS12 - Provisions, contingent liabilities and assets. The goodwill has been capitalised and is being amortised over its useful economic life of five years. On 14 November 2003, the Company effectively purchased a further 1.19% of the equity share capital of Bite Communications Group Limited by subscribing to new share capital with no corresponding subscription from the minority shareholders. The goodwill of £38,000 arising on this transaction has been capitalised and will be amortised over its useful economic life of five years. 2004 2003 (unaudited) (audited) £'000 £'000 Operating profit 1,905 1,581 Depreciation, amortisation and amounts written off intangible assets 1,474 1,732 (Profit)/ loss on sale of tangible fixed assets (2) 202 Loss on disposal of investments 59 - Increase in debtors (1,537) (388) Increase in creditors 616 362 (Decrease)/ increase in provisions (302) 105 _______ _______ Net cash inflow from operating activities 2,213 3,594 _______ _______ Next Fifteen Communications Group plc Notes to the preliminary statement for the year ended 31 July 2004 (continued) (2) Analysis of net funds At At 31-Jul Cash Exchange 31-Jul 2003 flow movement 2004 (audited) (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 £'000 Cash at bank and in hand 3,828 (686) (200) 2,942 Obligations under finance leases (316) 226 21 (69) _______ _______ _______ _______ Net funds 3,512 (460) (179) 2,873 _______ _______ _______ _______ (3) Reconciliation of net cash flow to movement in net funds 2004 2003 (unaudited) (audited) £'000 £'000 Decrease in cash in the year (686) (920) Cash outflow from decrease in debt and lease financing 226 314 _______ _______ Change in net debt resulting from cash flows (460) (606) New finance leases - (87) Translation differences (179) 185 _______ _______ Movement in net funds in the year (639) (508) Net funds at 1 August 3,512 4,020 _______ _______ Net funds at 31 July 2,873 3,512 _______ Date: 14 October 2004 Contact: David Dewhurst 07974 161 183 Tim Dyson 001 415 350 2801 Next Fifteen Communications Group plc 020 8996 4154 Chris Steele 07979 604 687 Tarquin Edwards 07879 458 364 Holborn 020 7929 5599

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