Final Results

Next Fifteen Communications Plc Preliminary Results for the Year Ended 31 July 2007 (Unaudited) Next Fifteen Communications Group plc ('Next Fifteen' or 'the Group'), the global public relations consultancy group, today announces record preliminary results for the year to 31 July 2007. Financial Highlights: -- Net revenues increased 5.8% to £59.3m (2006: £56m) -- Revenue growth in constant currencies of 11% -- Headline profit before tax increased 26.7% to £5.61m (2006: £4.44m) -- Profit before tax increased 49% to £4.47m (2006: £3.0m) -- Adjusted net profit margin improved to 9.5% from 7.9% -- Adjusted operating profit margin, before head office costs, increased to 13.7% (2006: 11.9%) -- EBITDA increased 33% to £7.25m (2006: £5.44m) -- Adjusted earnings per share increased 33% to 7.08p (2006: 5.32p) -- Basic earnings per share increased 78% to 5.08p (2006: 2.86p) -- Net debt reduced from £1.4m to £70,000 -- Final dividend of 1.1p (2006: 1.0p), making a total dividend for the year of 1.5p (2006: 1.365p), up 10% Operational highlights: -- Group added Facebook, Boots, Cisco, Nokia and MySpace as major clients -- Acquired a further 25% stake in Lexis Public Relations in November 2006, taking holding to 76% -- New market research agency, Redshift Research launched in the UK -- Opened Bite subsidiaries in China and Hong Kong Commenting on the results, Will Whitehorn, Chairman of Next Fifteen, said: "The global public relations industry is in a period of expansion as more and more media moves online and as social media such as blogs and phenomena such as MySpace and Facebook continue to attract users. Against this background and due to its strength in these areas, the Group has again shown excellent growth at both the top and bottom line. Behind these results are a stronger UK business; a reduced tax- charge; further expansion in Asia; and the addition of significant new clients including Facebook, Boots, Cisco, Nokia and MySpace. This has been achieved despite a further 9% weakening of the US dollar, in which 44% of our revenues are earned. Shareholders should also note the healthy cash generation of the business, which provides a firm base for further acquisitions by the Group in the current year." For further information contact: -0- *T Next Fifteen Communications Group Tim Dyson, Chief Executive 001 415 350 2801 David Dewhurst, Finance Director 07974 161183 Merlin 020 7653 6620 Anja Kharlamova 07887 884788 *T -0- *T Attached: Chairman and Chief Executive Statement Consolidated Profit and Loss Account Consolidated Statement of Total Recognised Gains and Losses Consolidated Balance Sheet Consolidated Cash Flow Statement Reconciliation of Movements in Shareholders' Funds Notes to the Preliminary Statement *T Chairman and Chief Executive's statement Next Fifteen Communications Group plc ('Next Fifteen' or 'the Group'), the global public relations consultancy group, is pleased to announce its preliminary results for the year to 31 July 2007. The Group continues to perform well and has produced record results, with net revenue increasing 5.8% to £59.3m (2006: £56m) and headline profit before tax increasing 26.7% to £5.61m (2006: £4.44m) before goodwill amortisation, reorganisation costs and profit on disposal of a non-core business (see note 5). Adjusted earnings per share have increased 33% to 7.08p (2006: 5.32p), while basic earnings per share have increased 78% to 5.08p (2006: 2.86p). The Group has significantly improved its cash position, with net debt reduced from £1.4m last year to just £70,000 at the year-end. The Group's results were affected by currency movements during the year, particularly the weakness of the US dollar. Using constant currencies, the Group would have shown net revenues of £62.1m, an increase of 11%. On the back of these results the Board has proposed a final dividend of 1.1p per share, bringing the total dividend for the year to 1.5p, which represents an increase of 10% (2006: 1.365p). Revenue growth The Group has experienced growth in three of its four regions, most notably the UK, which grew 41%. The US business was affected by the weakness of the US dollar and the change that took place in the IBM account during the previous financial year. Excluding the IBM account, the US businesses showed organic growth of 11.6% in dollar terms. Continued investment in new operations During the final quarter of the year, the Group launched Redshift Research, a UK-based market research agency, and expanded its Bite business into Hong Kong and Beijing. The start-up costs for these businesses did not have a material impact on the Company's performance, and we expect that they will become profit-generative in the current financial year. Redshift has made a promising start and, even though our Bite business in mainland China is still in the investment phase, we are pleased that it has been appointed by such clients as Informatica and VMware. Rise of social media The expansion of social media, such as blogs and social networking sites, has provided significant growth opportunities for the PR industry, through both new client opportunities and the expansion of the services now required by clients. The Group is pleased to report that two of the most important social networking companies, MySpace and Facebook are now significant clients. The vast majority of clients are now including social media services in their PR activities. Margin improvement The Group saw its adjusted net profit margin improve from 7.9% to 9.5% during the year despite the investments made in new operations as mentioned above. Before head office costs, the businesses improved their operating margin from 11.9% to 13.7%. Growth strategy The Group's strategic focus continues to be on organic growth and selected acquisitions of specialist agencies that will either extend the international reach of our existing businesses or provide new markets or market-share for the Group. In November 2006, the Group acquired a further 25% of Lexis, taking its ownership of this UK consumer PR business to 76%. With minimal net debt, acquisition facilities now in place and the Group's EBITDA having risen 33% to £7.25m, the Group has considerable flexibility to pursue appropriate acquisition opportunities. Prospects The Group is well placed to benefit from the current expansion of the PR industry in the UK and other markets such as China, India and North America. During the last twelve months the addition of new clients, that include Nokia, Boots, Facebook and Cisco, has fuelled momentum and we are optimistic about our prospects for the current year. NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 JULY 2007 -0- *T 2007 2006 (Unaudited) (Audited) (restated)* Note £'000 £'000 Turnover 3 69,422 63,278 Other external charges (10,154) (7,271) ----------- ----------- Net revenue 3 59,268 56,007 Staff costs 39,930 38,735 Depreciation 1,465 1,449 Amortisation and amounts written off intangible assets 826 727 Reorganisation costs 4 295 700 Other operating charges 11,852 11,302 ----------- ----------- 54,368 52,913 ----------- ----------- Group operating profit 4,900 3,094 Share of operating profit of associate 56 174 ----------- ----------- Operating profit including associate 4,956 3,268 Interest receivable and similar income 113 47 Interest payable and similar charges (596) (312) ----------- ----------- Profit on ordinary activities before taxation 3 4,473 3,003 Taxation on profit on ordinary activities 6 (1,746) (1,494) ----------- ----------- Profit on ordinary activities after taxation 2,727 1,509 Minority interest (241) (179) ----------- ----------- Profit attributable to shareholders 2,486 1,330 =========== =========== Earnings per share 8 Basic 5.08p 2.86p Diluted 4.99p 2.77p *See note 2. *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 JULY 2007 -0- *T 2007 2006 (Unaudited) (Audited) (restated)* £'000 £'000 Group profit for the financial year 2,454 1,226 Associate undertaking 32 104 ----------- ----------- Profit attributable to shareholders 2,486 1,330 Translation differences on foreign currency net investments (187) (72) Translation differences on long-term foreign currency inter-company loans (124) (110) ----------- ----------- Total recognised gains and losses related to the year 2,175 1,148 =========== =========== *T *See note 2. NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2007 -0- *T 2007 2006 (Unaudited) (Audited) (restated)* Note £'000 £'000 Fixed assets Intangible assets 11,871 11,188 Tangible assets 2,991 3,063 Investments 124 92 ------------ ----------- 14,986 14,343 Current assets Debtors - due within one year 16,716 15,434 - due after more than one year 397 335 ------------ ----------- 17,113 15,769 Cash at bank and in hand 5,834 4,018 ------------ ----------- 22,947 19,787 Creditors: amounts falling due within one year 12,973 12,554 Net current assets 9,974 7,233 ------------ ----------- Total assets less current liabilities 24,960 21,576 Creditors: amounts falling due after more than one year 6,852 6,834 ------------ ----------- Net assets 3 18,108 14,742 ============ =========== Capital and reserves Called up share capital 1,334 1,303 Shares to be issued 190 558 Share premium account 5,157 5,157 Merger reserve 2,160 1,353 Share-based payment reserve 491 229 ESOP reserve (681) (1,487) Profit and loss account 9,259 7,629 ------------ ----------- Equity shareholders' funds 17,910 14,742 Minority interests 198 - ------------ ----------- 18,108 14,742 ============ =========== *T *See note 2. NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY 2007 -0- *T 2007 2006 (Unaudited) (Audited) Note £'000 £'000 Net cash inflow from operating activities 10 7,204 4,948 Returns on investments and servicing of finance Interest received 113 47 Interest paid (426) (303) Minority interest dividend paid - (69) ---------- -------- Net cash outflow from returns on investments and servicing of finance (313) (325) Taxation (1,992) (2,430) Capital expenditure and financial investment (Payments for)/receipts from long-term deposits (78) 60 Payments to acquire tangible fixed assets (1,169) (1,280) Proceeds from sale of tangible fixed assets 2 17 ---------- -------- Net cash outflow from capital expenditure and financial investment (1,245) (1,203) Acquisitions and disposals Acquisition expenses 9 (10) (720) Purchase of associate undertaking - (11) Purchase of subsidiary undertakings 9 (1,948) (2,749) Cash at bank and in hand acquired with subsidiaries - 1,388 Payments to acquire trade and assets - (262) ---------- -------- Net cash outflow from acquisitions and disposals (1,958) (2,354) Equity dividends paid (691) (590) ----------- --------- Net cash inflow/(outflow) before financing 1,005 (1,954) Financing Issue of new share capital - 49 Proceeds from sale of own shares 952 183 Bank loans repayable after more than one year 539 3,716 Capital element of finance lease rental repayments (299) (20) Redemption of minorities - (1,009) ---------- -------- Cash inflow from financing 1,192 2,919 ----------- --------- Increase in cash in the year 10 2,197 965 =========== ========= *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 JULY 2007 -0- *T 2007 2006 (Unaudited) (Audited) (restated)* £'000 £'000 Profit attributable to shareholders 2,486 1,330 Dividends (691) (590) ----------- ----------- 1,795 740 Translation differences on foreign currency net investments (187) (72) Translation differences on long-term foreign currency inter-company loans (124) (110) Issue of shares 838 1,457 Shares to be issued (368) (10) Share based payment reserve 262 229 Disposal of own equity shares held in ESOP 952 183 Minority interests 198 - ----------- ----------- Net addition to shareholders' funds 3,366 2,417 =========== =========== Opening shareholders' funds 14,742 12,325 ----------- ----------- Closing shareholders' funds 18,108 14,742 =========== =========== *T *See note 2. NOTES TO THE PRELIMINARY STATEMENT FOR THE YEAR ENDED 31 JULY 2007 1. FINANCIAL INFORMATION The financial information for the year ended 31 July 2007 is not audited as defined by APB Bulletin 1993/1 and 1998/6. The financial information in this report does not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985 (as amended). The results for the year ended 31 July 2006 have been extracted from the financial statements of the Group on which an unqualified audit report has been received, it did not include reference to any matters to which the auditors drew attention by way of emphasis of matter, and did not contain a statement under section 237 of the Companies Act 1985 which has been filed the with Registrar of Companies. The preliminary statement is prepared on the basis of the accounting policies as set out in the last annual report, with the exception of the two accounting policies explained in note 2. 2. NEW ACCOUNTING POLICIES FRS20 "Share-based Payment" has been adopted in these financial statements. The main impact of FRS20 is the recognition of a profit and loss charge reported within staff costs, based upon the fair value of share options. This contrasts with the previous accounting treatment prescribed by UITF 17 "Employee Share Schemes", under which no profit and loss charge was incurred as the option price was equal to the share price on date of grant. In the case of the LTIP and conditional share awards, an annual charge was made to the profit and loss account for the period ended 31 July 2006, representing the fair value of the share award, spread evenly over the performance period and vesting period respectively. The treatment of foreign exchange differences on long-term foreign currency inter-company loans has been revised such that the differences are taken directly to reserves rather than through the profit and loss account. The 31 July 2006 comparatives have been restated to reflect the change, reducing the interest payable figure in the profit and loss account by £110,000 after the transfer of £110,000 of foreign exchange loss to reserves. There is no impact on the net assets at 31 July 2006. 3. SEGMENTAL INFORMATION Analyses of turnover, net revenue, adjusted profit before taxation, profit before taxation and net assets by geographical origin and destination are stated below. The turnover relates to one class of business, being the provision of public relations services. The directors consider these regions to be separate geographical markets and the markets within which the Group operates. -0- *T Adjusted Profit Profit before before Turnover Net Revenue taxation taxation Net Assets (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Year ended 31 July £'000 £'000 £'000 £'000 £'000 2007 Existing activities: UK 24,205 18,443 2,420 1,895 1,662 Europe and Africa 10,141 8,567 643 643 1,349 North America 27,293 25,922 4,208 3,593 13,283 Asia Pacific 7,783 6,336 613 613 2,200 Head Office - - (2,271) (2,271) (386) ------------ ------------ ------------ ------------ ----------- 69,422 59,268 5,613 4,473 18,108 ============ ============ ============ ============ =========== *T -0- *T Adjusted Profit Profit before before Turnover Net Revenue taxation taxation Net Assets (Audited) (Audited) (Audited) (Audited) (Audited) (restated)* (restated)* Year ended 31 July £'000 £'000 £'000 £'000 £'000 2006 Existing activities: UK 15,936 13,063 821 307 1,381 Europe and Africa 9,776 8,398 527 471 1,114 North America 30,475 28,984 4,661 4,014 10,912 Asia Pacific 7,091 5,562 575 565 1,959 Head Office - - (2,154) (2,354) (624) ------------ ------------- ------------- ----------- ----------- 63,278 56,007 4,430 3,003 14,742 ============ ============= ============= =========== =========== *T *See note 2. 4. REORGANISATION COSTS The reorganisation costs of £295,000 (2006: £700,000) relate to the transfer of trade of August One Limited into Text 100 Limited which occurred on 1 April 2007. The £295,000 comprises £199,000 of establishment costs and £96,000 of redundancy costs. The establishment costs relate to dilapidation charges, lease break penalties, and a loss on disposal of the fixed assets. The reorganisation costs of £700,000 incurred in the year ended 31 July 2006 related to a headcount reduction in Text 100 after spending cuts from IBM, and professional fees connected with a Group reorganisation in the US. 5. RECONCILIATION OF PRO FORMA FINANCIAL MEASURES -0- *T 2007 2006 (Unaudited) (Audited) (restated)* £'000 £'000 Profit on ordinary activities before taxation 4,473 3,003 Reorganisation costs 295 700 Amortisation and amounts written off intangible assets 826 727 Unwinding of discount on deferred consideration¹ 170 - Profit on sale of division² (151) - ----------- ----------- Adjusted profit on ordinary activities before taxation 5,613 4,430 =========== =========== *T Adjusted profit on ordinary activities before taxation has been presented to provide additional information on the underlying profits of the Group, which may be useful to the readers of the statement. ¹As required by FRS12 - "Provisions, Contingent Liabilities and Assets", an interest charge of £170,000 has been recognised during the period in relation to the deferred consideration payable for OutCast Communications. The £170,000 is reported within "interest payable and similar charges" in the Group profit and loss account. ²On 31 August 2006, Bite Communications Limited (a wholly owned subsidiary of Next Fifteen Communications Group plc) sold the business in and assets of its online division "Bullet" to a newly incorporated company owned by one of the founders of Bullet. The £151,000 profit is reported within "other operating charges" in the Group profit and loss account. *See note 2. 6. TAX ON PROFIT ON ORDINARY ACTIVITIES -0- *T 2007 2006 (Unaudited) (Audited) £'000 £'000 UK corporation tax on profits of the year 299 616 Overseas taxation 1,474 1,258 ----------- ----------- Total current tax charge for the year 1,773 1,874 Prior year under/(over) provision (UK) (130) (51) Prior year under provision (Overseas) 14 11 Deferred taxation 89 (340) ----------- ----------- Total tax charge on profit on ordinary activities 1,746 1,494 *T The current year tax charge is high due to the proportion of profits generated in the higher tax regime of the US. During the year the Group utilised brought forward overseas tax losses of £637,000. The amount of overseas tax losses available to carry forward at 31 July 2007 was £359,000. The estimated value of the deferred tax asset not recognised in relation to these losses, measured at 29%, the weighted effective rate of the countries with losses, was £104,000. The amount of UK tax losses available for carry forward at 31 July 2007 was £678,000. The estimated value of the deferred tax asset not recognised in relation to these losses at 30%, the UK tax rate, was £203,000. 7. DIVIDENDS A final dividend of 1.1p (2006: 1.0p) per share has been proposed. The interim dividend was 0.4p per share (2006: 0.365p), making a total for the year of 1.5p per share (2006: 1.365p). The final dividend, if approved at the AGM on 29 January 2008, will be paid on 1 February 2008 to all shareholders on the Register of Members on 4 January 2008. The ex-dividend date for the shares is 2 January 2008. 8. 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 22 - "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 three categories of potentially dilutive shares: a. share options granted where the exercise price is less than the average price of the Company's ordinary shares during the year, b. performance shares which are reasonably expected to vest based upon the performance condition, which relates to earnings per share ("EPS") growth over a 3 year period, being satisfied. c. conditional shares which are reasonably expected to vest based upon the condition that the award recipient, Aedhmar Hynes, CEO of Text 100, remains employed by the Group. Adjusted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders before the post-tax effects of adjusting items (as defined in note 5), by the weighted average number of ordinary shares during the year. Diluted adjusted earnings per share is calculated by dividing the adjusted earnings attributable to ordinary shareholders by the dilutive number of ordinary shares during the year. -0- *T 2007 2006 (Unaudited) (Audited) (restated)* £'000 £'000 Basic and diluted earnings attributable to ordinary shareholders 2,486 1,330 Reorganisation costs after taxation 207 470 Amortisation of goodwill after taxation 766 670 Profit on sale of business after taxation (106) - Unwinding of discount on deferred consideration after taxation 112 - ----------- ----------- Adjusted and diluted adjusted earnings attributable to ordinary shareholders 3,465 2,470 =========== =========== Number Number Weighted average number of ordinary shares 48,954,264 46,457,657 Dilutive shares 819,624 1,544,997 Diluted weighted average number of ordinary shares 49,773,888 48,002,654 ----------- ----------- Basic earnings per share 5.08p 2.86p Diluted earnings per share 4.99p 2.77p Adjusted earnings per share 7.08p 5.32p Diluted adjusted earnings per share 6.96p 5.15p *T 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 share options and performance shares. Per FRS 22 - "Earnings per share", the 2006 dilutive shares have been restated to exclude conditional and performance share awards which have not vested by the period end. *See note 2. 9. ACQUISITIONS a. On 31 October 2006, the Company paid £569,000 ($1,078,000) relating to the deferred consideration for the purchase of OutCast Communications Limited ("OutCast") in June 2005. The £569,000 comprised cash of £323,000 ($613,000) with the remainder in shares. b. On 30 November 2006, the Company acquired a further 25% stake in the UK public relations company Lexis Public Relations Limited ("Lexis"), by the acquisition of a 25% stake in Panther Communications Group Limited ("Panther"), the parent company of Lexis. The stake was acquired for a total consideration of £2,071,000 of which £1,553,000 was satisfied in cash and the remainder in shares, taking the Company's total stake to 76%. Based upon the acquisition balance sheet at 30 November 2006, goodwill of £2,039,000 has been capitalised, including £10,000 of legal and professional fees, and will be amortised over its useful economic life of 20 years. It is the intention of the Company to acquire the whole of Panther by 2010 and Panther's existing management has agreed to sell further stakes in the company over the next three years. c. On 1 January 2007, the Company paid £143,000 as deferred consideration for the purchase of Credo Communications Limited ("Credo") in December 2005. The £143,000 comprised cash of £72,000, with the remainder in shares. 10. NOTES TO THE CASH FLOW STATEMENT -0- *T (1) Reconciliation of operating profit to net cash inflow from operating activities 2007 2006 (Unaudited) (Audited) (restated)* £'000 £'000 Group operating profit 4,900 3,094 Depreciation, amortisation and amounts written off intangible assets 2,291 2,176 Loss on sale of tangible fixed assets 151 4 Loss on sale of minority interest - (100) Share-based payment charge 262 229 Increase in debtors (2,294) (2,668) Increase in creditors 1,894 2,218 Decrease in provisions - (5) ------------ ----------- Net cash inflow from operating activities 7,204 4,948 ============ =========== (2) Reconciliation of net cash flow to movement in net debt 2007 2006 (Unaudited) (Audited) £'000 £'000 Increase in cash at bank and in hand 1,970 1,192 Cash outflow/(inflow) from decrease/(increase) in bank overdraft 227 (227) ------------ ----------- Increase in cash in the year 2,197 965 Cash outflow from decrease in lease financing 299 20 Cash inflow from increase in bank loans repayable after more than one year (539) (3,716) ------------ ----------- Change in net debt/funds resulting from cash flows 1,957 (2,731) Increase in lease financing (434) (299) Bank loans acquired with subsidiary - (724) Translation differences (154) (134) ------------ ----------- Change in net debt/funds resulting from non-cash movements (588) (1,157) Movement in net debt/funds in the year 1,369 (3,888) Net (debt)/funds at 1 August (1,439) 2,449 ------------ ----------- Net debt at 31 July (70) (1,439) ============ =========== *T (3) Analysis of net debt -0- *T At 31 July Cash Exchange Other non- At 31 July 2006 flow movement cash 2007 movements (Audited) (Unaudited) £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 4,018 1,970 (154) - 5,834 Bank overdraft (227) 227 - - - ---------- -------- ---------- ----------- ----------- 3,791 2,197 (154) - 5,834 Obligations under finance leases (279) 299 - (434) (414) Bank loans repayable within one year (320) - - - (320) Bank loans repayable after more than one year (4,631) (539) - - (5,170) ---------- -------- ---------- ----------- ----------- Net debt (1,439) 1,957 (154) (434) (70) ========== ======== ========== =========== =========== *T

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