Final Results

Next Fifteen Communications Plc Next Fifteen Communications Group plc Financial results for the year ended 31 July 2006 (Unaudited) Next Fifteen Communications Group plc ("Next Fifteen" or "the Group"), the international public relations consultancy group, today reports record profitability and revenues for the year ended 31 July 2006. Financial highlights: -- Net Revenue up by 30% to Â£56.0m (2005: Â£43.2m) -- Turnover growth of 44% in the US and 30% in the Asia Pacific region -- Group like-for-like organic turnover growth of 13.3% -- Headline pre-tax profit increased by 35% to Â£4.4m (2005: Â£3.3m) -- EBITDA grew 24% to Â£5.44m (2005: Â£4.38m) -- Adjusted earnings per share up by 17% to 5.25p (2005: 4.50p) -- Final dividend of 1.0p (2005: 0.9p), making a total dividend for the year of 1.365p (2005: 1.23p), up 11% Corporate progress: -- Strong performance by the Group's technology and non-technology focused businesses; further growth of existing client mandates and significant new client wins -- Successful integration of Credo Communications in the UK and Parachute Marketing in the US into Bite Communications -- Strong first year contribution from OutCast and significant revenue growth at Bite -- Stake in Lexis Public Relations increased to 51%; further 25% to be acquired in November 2006 Commenting on the results, Will Whitehorn, Chairman of Next Fifteen, said: "Next Fifteen is pleased to announce record full-year results for the year achieving its highest ever revenues, profitability and earnings; with net revenue for the year increasing 30% to Â£56.0m and profit before tax growing 35% to Â£4.4m. Much of the Group's growth continues to come from the expansion of our North American and Asian businesses with a strong flow of new business from companies such as eBay, Sprint Nextel, Sun Microsystems and Philips, and through the expansion of relationships with existing clients such as AMD, Adobe and Openwave. The Asia Pacific region also had another excellent year, with turnover growth of 30% where China, India and Singapore showed strong increases. The Group also continues to make significant progress in markets outside technology." "The Group's strategy remains focused on driving organic growth from its existing PR brands and is therefore pleased to report strong year on year organic growth of 13.3% from its businesses. The Group will also continue to make targeted acquisitions of specialist communications businesses that offer growth potential and complement the existing PR businesses." - Ends - For further information: -0- *T Next Fifteen Communications Group Tim Dyson, Chief Executive 001 415 350 2801 David Dewhurst, Finance Director 07974 161183 Merlin 020 7653 6620 Vanessa Maydon 07802 961 902 Rebecca Penney 07795 108 178 *T -0- *T Attached: Chairman and Chief Executive Statement Financial Review Consolidated Profit & Loss Account Consolidated Statement of Total Recognised Gains & Losses Consolidated Balance Sheet Consolidated Cash Flow Statement Reconciliation of Movements in Shareholders' Funds Notes to the Preliminary Statement *T Chairman and Chief Executive's statement Next Fifteen Communications Group plc, the international public relations consultancy group, which is celebrating its 25th year, is pleased to announce record full-year results for the year to 31 July 2006 achieving its highest ever revenues, profitability and earnings. Net revenue for the year increased 30% to Â£56.0m (2005: Â£43.2m). Headline profit before tax grew by 35% during the year to Â£4.4m before reorganisation costs, goodwill amortisation and IFRS foreign exchange adjustments (see note 5) (2005: Â£3.3m). This increase resulted in improved operating margins, up from 7.6% to 8.4%. After adjustments that include new accounting regulations, the reported profit before tax was Â£2.9m (2005: Â£3.1m). Meanwhile the Group's EBITDA of Â£5.44m was up 24% from Â£4.38m last year. Basic earnings per share were 2.63p, compared with 4.04p last year. Adjusted earnings per share were 5.25p, up 17% from the previous year's 4.50p. As a result of this strong performance, the Board is proposing a final dividend of 1.0p, which will bring the total dividend for the year to 1.365p (2005: 1.23p), a rise of 11%. The Group's strategy remains focused on driving organic growth from its existing PR brands and the Group is therefore pleased to report strong year on year organic growth of 13.3% from its businesses. The Group will also continue to make targeted acquisitions of specialist communications businesses that offer growth potential and complement the its existing PR businesses. Growth Much of the Group's growth continues to come from the expansion of our North American and Asian businesses. Indeed our US operations now account for almost half the Group's turnover and more than half of its profits. In this market, OutCast, Bite and Text 100 generated Â£30.5m of turnover compared with Â£21.2m last year, an increase of 44%. Â£4.9m of this increase comes from the first full year contribution of OutCast, with the majority of the remaining increase reflecting the high level of organic growth at Bite and Text 100. The combined turnover at Bite and Text 100 increased by 21% in the year under review as a result of a strong flow of new business from companies such as eBay, Sprint Nextel, Sun Microsystems and Philips, and through the expansion of relationships with existing clients such as AMD, Adobe and Openwave. The Asia Pacific region had another excellent year, with turnover growth of 30% where China, India and Singapore all showed strong increases. Although the Group continues to be successful in increasing its business by winning new technology clients and by expanding relationships with existing clients in this sector, it also continues to make significant progress in markets outside technology. During the year Lexis and August One achieved significant client wins including Coca-Cola, Capital One, nPower, Persil and Norwich Union. Margin improvement During the year, operating margins improved from 7.6% to 8.4%. The Group is working hard to further improve its overall margins and those of its operating businesses. In addition, towards the end of the year the Group completed a reorganisation of its US businesses in order to improve operating and tax efficiency and to centralise treasury operations. These changes resulted in one-off professional fees of Â£200,000, accounted for within reorganisation costs in the Group Profit and Loss Account. Earlier in the year, Text 100 successfully restructured its business following a reduction in the marketing expenditure of its largest customer, IBM, and took this opportunity to restructure the business in order to improve the margins. This resulted in a one-off reorganisation charge of Â£500,000. Having taken these steps, the Group is making excellent progress towards its target of producing a 10% margin after all central costs. Acquisition success Over the last three years the Group has successfully completed and integrated five acquisitions: Applied Communications, OutCast Communications, Lexis Public Relations, Credo and Parachute Marketing. The last two of these were small businesses successfully integrated into Bite during the last financial year. It is pleasing to report that all of these acquisitions continue to perform well and are generating further growth for the Group. During the year the Group also took a 40% equity stake in 463 Communications, a new policy communications business with offices in Washington DC and San Francisco. This business, which is already profitable, has an impressive client list that includes: Cisco, VeriSign, TechNet, the Technology CEO Council, Applied Materials and Sun. During the second half of the year, the Group acquired a further 26% stake in Lexis, taking its ownership to 51%. In the coming year the Group will look to make further acquisitions to strengthen its international operations and also to provide additional services to offer its existing client base. In addition, the Group expects to acquire a further 25% of Lexis to further strengthen its presence beyond technology, taking its stake to 76%. During the year, the Group increased its existing borrowing facilities to cover the short-term requirements of the OutCast and Lexis acquisition payments. The Group's EBITDA grew 24% in the year to Â£5.44m and it would be comfortably able to support further debt to help fund future acquisitions. Prospects The momentum has continued into the current financial year and the Group is well positioned to benefit from further significant growth. It has made an impressive start by adding new clients including Dolby, Diageo's Bar.com, PCI Security Group and Cisco. This success, coupled with the general economic outlook for the Group's major markets, makes us optimistic about our prospects for the coming year. Financial Review Overview The year to 31 July 2006 was another year of significant achievement. Revenue grew 30% to Â£56m, headline pre-tax profit was Â£4.4m and the adjusted EPS rose 17% to almost 5.25p. The Group remains modestly geared with year-end net debt of only Â£1.4m. Before the impact of acquisitions the Group generated cash of Â£1.0m of which Â£590,000 was paid as an increased dividend to shareholders. Reorganisation costs Following the acquisition of OutCast in June 2005 and the purchase of the Bite minority interest in August 2005, in May 2006 the Group completed a reorganisation of its US operations to create a more efficient structure under a Next Fifteen US holding company. This brings administrative, taxation and treasury benefits and provides a structure that allows further businesses to be added efficiently in the future. This was a complex process and involved professional fees of Â£200,000. Earlier in the year, Text 100 successfully restructured its business following cuts in the marketing expenditure of its largest customer, IBM. The company took this opportunity to improve future margins, resulting in a one-off reorganisation charge of Â£500,000. IFRS It is the Group's intention to follow the AIM market guidelines and adopt IFRS for the year ended 31 July 2008. The Group's policy under UK accounting rules requires the goodwill arising from acquisitions to be amortised over its estimated life. This resulted in a Â£727,000 charge against profits in the year, compared with Â£232,000 last year. The increase in the year comes from the acquisition of Lexis, the purchase of the Bite minorities, the acquisition of Credo and Parachute Marketing and a full-year charge for OutCast. When the Group adopts IFRS in 2008 there will be no annual amortisation charge for goodwill, which is why the charge is added back when calculating adjusted profit and adjusted earnings per share. In other areas, as UK GAAP introduces standards that mirror IFRS, the Group will adopt these as they become effective. In the year to 31 July 2006, FRS 23, "The effects of changes in foreign exchange rates" became effective and this requires that all foreign exchange differences on inter-company funding loans are taken through the profit and loss account rather than as a reserve movement. The impact on this year's profit is a charge of Â£110,000 and the re-statement of last year increases profits by Â£69,000. FRS 23 will increase the volatility of reported profits but it is a non-cash movement and will be adjusted for in calculating headline profits and earnings. In the current year, the Group will report under FRS 20, "Share-based payment", which requires the fair value of share options to be calculated and charged against profits. The variables affecting this calculation cannot be accurately forecast at this stage but the impact of this is not expected to be significant, reducing total profits by less than 5%. Geographic and client analysis During the last year, the proportion of Group turnover generated outside the UK remained at 75%. The strongest region was North America (up 44% in Sterling terms) which accounted for 48% of total turnover. With the UK market maintaining a 25% share of turnover, in the current year the Group is expecting to generate in excess of 75% of its turnover in these two strongest markets for public relations services. In Europe and Africa, the businesses continued to experience mixed fortunes but overall turnover increased 2% to Â£9.8m. The Asia Pacific region grew by 30% to Â£7.1m, thanks, in particular, to the strong results posted by our operations in China, India and Singapore. It is also pleasing to note that the spread of the Group's key clients has broadened again following the acquisition of a consolidating interest in Lexis in April 2006. The top ten clients now represent approximately 47% of the business and no single client accounts for more than 10% of the total. Cash flow The underlying cash conversion from operating profit was strong once again but two significant investments caused the business to move from a net funds position of Â£2.4m in July 2005 to Â£1.4m of net debt a year later. Firstly, the Group paid Â£2.8m in cash as part of the cost of buying a 51% stake in Lexis Public Relations. Secondly, the purchase of the Bite minority interests involved cash payments of Â£1m. Without the acquisition-related cashflows the Group would have generated Â£0.4m from trading and investing activities, after Â£0.6m of dividends paid to shareholders. Balance sheet The Group balance sheet now reflects the consolidation of Lexis and the goodwill arising on this acquisition and on the Bite minority purchase. Net assets at 31 July 2006 were Â£14.7m, (2005: Â£12.8m). During the year the Group received Â£232k from employees exercising their share options and becoming shareholders in the Group. These shares largely came from the treasury shares held in the ESOP. Treasury, funding and exchange risk The Group extended its revolving term loan facility to Â£5m over five years, which it used to fund the purchase of Lexis and Bite minorities. The remaining portion will be drawn down in November 2006 to meet the next deferred payment on the OutCast acquisition. The facility is available in a combination of Sterling, US Dollar, and Euro at an interest rate of 1.65% over Barclays Bank's call-loan rate. Also available is an overdraft facility of Â£1.5m at a rate of 1.2 % over base rate, available in Sterling, US Dollar and Euro. All of the UK businesses are part of a composite accounting system which allows the offset of UK overdrawn and credit balances. Towards the end of the year, following the reorganisation of the US businesses, the Group agreed consolidated facilities with Wells Fargo for all its US businesses supported by a $2m credit line for working capital purposes. The Group aims to return any surplus cash to the UK subject to any local transfer restrictions, and as far as possible to hold only moderate non-deposit cash balances in overseas subsidiaries. The Group is negotiating for further bank lending facilities to be in place to meet the anticipated further payments to acquire the remaining 49% of Lexis and the deferred consideration for OutCast. The facilities are also intended to allow the Group to make any upfront cash payments that might arise on future bolt-on acquisitions. The Group has established treasury policies and procedures which ensure that foreign currency exposure in the major currencies is continually monitored. The majority of trade is denominated in the functional currencies of the jurisdiction in which trade is conducted. Where this is not the case the directors monitor the exposure to ensure that the foreign currency risk is not material to the Group. To protect profit translation exposure from businesses denominated in US Dollar and Euro the Group purchases treasury products designed to give some protection against a weakening of the US Dollar and Euro. Taxation The total tax charge for the year is Â£1.5m on consolidated profits of Â£2.9m. After adjusting for goodwill amortisation costs the underlying effective rate is 43%, 3% higher than last year. The main reason for this increase has been the increasing proportion of profits generated in the higher tax regime of the US and losses made in the UK, following the reorganisation costs arising in the year. We anticipate that the reorganisation of our US businesses in May 2006 and the return of the UK to profits in the current year will see a reduction in the underlying effective tax rate to comfortably below 40%. Earnings Basic earnings per share (EPS), adjusted for goodwill amortisation charges, reorganisation costs and FRS 23 foreign exchange charges, rose 17% to 5.25p. This is in line with the medium-term target required by the Group's LTIP. Dividends The proposed final ordinary dividend per share is 1.0p, which takes the total for the year to 1.365p, compared with a total dividend of 1.23p last year. It will be paid on 26 January 2007, assuming it is passed at the AGM on 23 January 2007. The Board continues to view its dividend policy over the medium-term and aims to strike a balance between the relevance placed on dividends by shareholders and the needs of the Company to invest for future growth. -0- *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Note Â£'000 Â£'000 Turnover Existing Operations 3 59,830 48,516 Acquisitions 3 3,448 - ----------- ----------- Continuing operations 63,278 48,516 Other external charges (7,271) (5,290) ----------- ----------- Net revenue 56,007 43,226 Staff costs 38,735 30,100 Depreciation 1,449 1,115 Amortisation and amounts written off intangible assets 727 232 Reorganisation costs 4 700 - Other operating charges 11,302 8,746 ----------- ----------- 52,913 40,193 Group operating profit Existing operations 2,596 3,033 Acquisitions 498 - ----------- ----------- Continuing operations 3,094 3,033 Share of operating profit of acquired associates 8 174 - ----------- ----------- Operating profit including associates 3,268 3,033 Interest receivable and similar income 47 46 Interest payable and similar charges (312) (25) Translation differences on long-term foreign currency inter-company loans* (110) 69 ----------- ----------- Profit on ordinary activities before taxation 3, 5 2,893 3,123 Taxation on profit on ordinary activities (1,494) (1,332) ----------- ----------- Profit on ordinary activities after taxation 1,399 1,791 Minority interest (179) (183) ----------- ----------- Profit attributable to members 1,220 1,608 =========== =========== Earnings per share 7 Basic 2.63p 4.04p Diluted 2.49p 3.89p *See note 2. *T -0- *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Â£'000 Â£'000 Profit attributable to members 1,220 1,608 Translation differences on foreign currency net investments (72) 201 ----------- ----------- Total recognised gains and losses related to the year 1,148 1,809 =========== =========== *See note 2. *T -0- *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Note Â£'000 Â£'000 Fixed assets Intangible assets 11,188 6,917 Tangible assets 3,063 2,961 Investments 92 - ----------- ----------- 14,343 9,878 Current assets Debtors -due within one year 16,012 11,602 -due after more than one year 335 418 ----------- ----------- 16,347 12,020 Cash at bank and in hand 4,018 2,960 ----------- ----------- 20,365 14,980 Creditors: amounts falling due within one year 13,132 8,821 ----------- ----------- Net current assets 7,233 6,159 ----------- ----------- Total assets less current liabilities 21,576 16,037 Creditors: amounts falling due after more than one year 6,834 3,259 Provision for liabilities and charges - 5 ----------- ----------- Net assets 3 14,742 12,773 =========== =========== Capital and reserves Called up share capital 1,303 1,244 Shares to be issued 558 568 Share premium account 6,510 5,112 Share based payment reserve 229 - ESOP reserve (1,487) (1,667) Profit and loss account 7,629 7,068 ----------- ----------- Equity shareholders' funds 14,742 12,325 Minority interests - 448 ----------- ----------- 14,742 12,773 =========== =========== *See note 2. *T -0- *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) Note Â£'000 Â£'000 Net cash inflow from operating activities 9 4,556 3,818 Returns on investments and servicing of finance Interest received 47 46 Interest paid (303) (12) Minority interest dividend paid (69) (26) ---------- -------- Net cash (outflow)/inflow from returns on investments and servicing of finance (325) 8 Taxation (2,038) (996) Capital expenditure and financial investment Receipts from/(payments for) long-term deposits 60 (40) Payments to acquire tangible fixed assets (1,280) (1,932) Proceeds from sale of tangible fixed assets 17 17 ---------- -------- Net cash outflow from capital expenditure and financial investment (1,203) (1,955) Acquisitions and disposals Acquisition expenses 8 (720) - Purchase of associate undertaking 8 (11) - Purchase of subsidiary undertakings 8 (2,749) (3,408) Cash at bank and in hand acquired with subsidiaries 1,388 85 Payments to acquire trade and assets (262) (311) ---------- -------- Net cash outflow from acquisitions and disposals (2,354) (3,634) Equity dividends paid (590) (444) ----------- --------- Net cash outflow before financing (1,954) (3,203) Financing Issue of new share capital 49 2,431 Issue of shares to minorities - 68 Proceeds from sale of own shares 183 169 Cash inflow from long-term bank loan 3,716 511 Capital element of finance lease rental repayments (20) (69) Redemption of minorities 8 (1,009) (4) ---------- -------- Cash inflow from financing 2,919 3,106 ----------- --------- Increase/(decrease) in cash in the year 9 965 (97) =========== ========= *T -0- *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 JULY 2006 2006 2005 (Unaudited) (Audited) (restated)* Â£'000 Â£'000 Profit attributable to members 1,220 1,608 Dividends (590) (444) ----------- ----------- 630 1,164 Translation differences on foreign currency net investments (72) 201 Issue of shares 1,457 2,521 Shares to be issued (10) 568 Share based payment reserve 229 - Disposal of own equity shares held in ESOP 183 169 Revaluation of ESOP reserve - 3 ----------- ----------- Net addition to shareholders' funds 2,417 4,626 =========== =========== Opening shareholders' funds 12,325 7,699 ----------- ----------- Closing shareholders' funds 14,742 12,325 =========== =========== *See note 2. *T NOTES TO THE PRELIMINARY STATEMENT FOR THE YEAR ENDED 31 JULY 2006 1. FINANCIAL INFORMATION The financial information is for the year ended 31 July 2006 and is not 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 2005 have been extracted from the financial statements of the Group on which an unqualified audit report has been received which did not contain a statement under section 237 of the Companies Act 1985 and which have been filed with the 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 With effect from 1 August 2005, the Group has fully adopted two new UK accounting standards: FRS21 - "Events after the Balance Sheet Date" and FRS23 - "The Effects of Changes in Foreign Exchange Rates", both requiring a restatement of the comparative figures. FRS 21 prescribes that dividends declared after the balance sheet date may no longer be reflected as a liability at the balance sheet date. FRS23 requires translation differences on long-term foreign currency inter-company loans used to finance overseas subsidiaries to be recognised in the profit and loss account, rather than as a movement in reserves under the hedging allowance within the previously applied SSAP 20. 3. SEGMENTAL 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, 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 Profit before Turnover taxation Net Assets (Unaudited) (Unaudited) (Unaudited) Year ended 31 July 2006 Â£'000 Â£'000 Â£'000 Existing activities: UK 12,553 (221) 1,519 EMEAÂ¹ 9,776 471 1,114 North America 30,410 3,929 10,868 Asia Pacific 7,091 564 1,958 Head Office - (2,412) (624) ------------- -------------- -------------- 59,830 2,331 14,835 Acquisitions: UK 3,382 477 (137) North America 66 85 44 ------------- -------------- -------------- 3,448 562 (93) ------------- -------------- -------------- Continuing activities 63,278 2,893 14,742 ============= ============== ============== *T -0- *T Profit before Turnover taxation Net Assets (Audited) (Audited) (Audited) (restated)* (restated)* Year ended 31 July 2005 Â£'000 Â£'000 Â£'000 Continuing activities: UK 12,269 620 4,074 EMEAÂ¹ 9,581 584 1,310 North America 21,214 2,442 4,984 Asia Pacific 5,452 644 1,536 Head Office - (1,167) 869 ------------- -------------- -------------- 48,516 3,123 12,773 ============= ============== ============== Â¹EMEA means Europe (excluding the UK), Middle East and Africa. *See note 2. *T 4. REORGANISATION COSTS The reorganisation costs of Â£700,000 (2005: Â£nil) relate to two elements. Firstly, during the year a one-off restructuring charge of Â£500,000 was recognised in respect of a headcount reduction programme to realign the cost base of Text 100 following spending cuts from its largest customer, IBM. Secondly, towards the end of the year the Group completed a reorganisation of its US businesses in order to improve operating and tax efficiency and to centralise treasury operations. These changes resulted in one-off professional fees of Â£200,000. 5. RECONCILIATION OF NON GAAP PERFORMANCE - HEADLINE PRE TAX PROFIT -0- *T 2006 2005 (Unaudited) (Audited) (restated)* Â£'000 Â£'000 Profit on ordinary activities before taxation 2,893 3,123 Reorganisation costs 700 - Amortisation and amounts written off intangible assets 727 232 Translation differences on long-term foreign currency inter-company loans 110 (69) ----------- ----------- Adjusted profit on ordinary activities before taxation 4,430 3,286 =========== =========== Headline profit on ordinary activities before taxation has been presented to provide additional information which may be useful to the reader. *See note 2. *T 6. DIVIDENDS A final dividend of 1.0p (2005: 0.9p) per share has been proposed. The interim dividend was 0.365p per share (2005: 0.33p), making a total for the year of 1.365p per share (2005: 1.23p). The final dividend, if approved at the AGM on 23 January 2007 will be paid on 26 January 2007 to all shareholders on the Register of Members on 5 January 2007. The ex-dividend date for the shares is 3 January 2007. 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 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 reorganisation costs, amortisation of goodwill and translation differences on long-term foreign currency inter-company loans, 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 2006 2005 (Unaudited) (Audited) (restated)* Â£'000 Â£'000 Basic and diluted earnings attributable to ordinary shareholders 1,220 1,608 Reorganisation costs after taxation 470 - Amortisation of goodwill after taxation 670 232 Translation differences on long-term foreign currency inter-company loans after taxation 77 (48) ----------- ----------- Adjusted and diluted adjusted earnings attributable to ordinary shareholders 2,437 1,792 =========== =========== Number Number Weighted average number of ordinary shares 46,457,657 39,806,952 Dilutive shares 2,601,295 1,477,007 ----------- ----------- Diluted weighted average number of ordinary shares 49,058,952 41,283,959 ----------- ----------- Basic earnings per share 2.63p 4.04p Diluted earnings per share 2.49p 3.89p Adjusted earnings per share 5.25p 4.50p Diluted adjusted earnings per share 4.97p 4.34p Adjusted and diluted adjusted earnings per share have been presented to provide additional information which may be useful to the reader. *See note 2. *T 8. ACQUISITIONS a. On 4 August 2005, the Company acquired a 25% stake in the UK public 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, for a total consideration of Â£1,272,000 fully satisfied in cash. A further 26% stake in Panther was acquired on 6 April 2006 for a total consideration of Â£1,786,000 of which Â£1,265,000 was satisfied in cash and the remainder in shares, taking the Company's total stake to 51%. During the period from 4 August 2005 to 5 April 2006 Lexis was treated as an associate undertaking in the Group accounts under the equity method of accounting as required by FRS 9 - "Associates and Joint Ventures". As a result, an operating profit of Â£99,000 has been reported within the "Share of operating profit of acquired associates" line in the Group profit and loss account representing the Group's share of Lexis' profit during this period. From 6 April 2006 to 31 July 2006, Lexis has been treated as a subsidiary undertaking of Next Fifteen Communications plc, with its results for the period fully consolidated into the Group accounts. Based upon the acquisition balance sheets at 4 August 2005 and 6 April 2006, goodwill of Â£3,587,000 has been capitalised, including Â£261,000 of legal and professional fees. The goodwill 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 four years. b. Between 10 August 2005 and 24 October 2005 the Company purchased the minority interest in Bite Communications Group Limited ("Bite"). As at 31 July 2006 the Company controlled 100% of Bite. Under the terms of the agreement and prior to the purchase of the minority interest, all existing share options over Bite shares were exercised, increasing the minority interest and effecting a part disposal of Bite by Next Fifteen Group, on which a Â£100,000 gain was made at Group level. The total consideration payable for the minority interest was Â£2,212,000, of which Â£1,108,000 was satisfied in cash and the remainder in shares. Of the Â£1,108,000 cash consideration, only Â£1,009,000 was paid externally to the Bite shareholders after deducting amounts owing to the Group in respect of the exercise of Bite share options immediately prior to the buyout. Goodwill of Â£1,560,000 arising on the purchase has been capitalised and is being amortised over its useful economic life of 20 years. c. On 31 December 2005, the Company indirectly purchased 100% of the share capital of Credo Communications Limited ("Credo"). The total consideration payable to the previous shareholders of Credo is Â£373,000 with Â£212,000 paid in cash on completion and the balance to be satisfied in both cash and shares by 31 December 2006. The operations of Credo have since been transferred into Bite Communications Limited, a wholly owned subsidiary of Next Fifteen Communications Group plc. The operating profit apportioned to the Credo trade and assets for the period from 1 January 2006 to 31 July 2006 has been calculated as Â£54,000. Goodwill of Â£263,000 arising on the purchase has been capitalised and is being amortised over its useful economic life of 5 years. d. On 31 January 2006, the Company indirectly invested Â£11,000 ($20,000) for a 40% stake in 463 Communications LLC ("463"), which is a start-up venture based in San Francisco and Washington DC, working to position technology companies, organizations and coalitions in global policy debates. 463 has been treated as an associate undertaking in the Group accounts under the equity method of accounting as required by FRS 9 - "Associates and Joint Ventures". The Group share of 463 operating profit for the period from 1 February 2006 to 31 July 2006 of Â£75,000 has been reported within the "Share of operating profit of acquired associates" line in the Group profit and loss account. It is the long-term intention of the Group to own 100 per cent of 463. e. Â£720,000 of acquisition costs were paid in the year, of which Â£420,000 related to the purchase of OutCast Communications ("OutCast") in June 2005. All Â£420,000 of these costs have been capitalised as part of the OutCast acquisition and Â£326,000 were accrued in the July 2005 balance sheet. The Â£420,000 comprises a tax charge of Â£250,000 resulting from the conversion of OutCast from an S Corp to a C Corp and Â£170,000 of legal and accounting fees. The remaining Â£300,000 of costs relate to legal and professional fees in respect of the acquisition of Lexis (Â£261,000), the Bite minority interest (Â£30,000) and 463 (Â£9,000). 9. NOTES TO THE CASH FLOW STATEMENT (1) Reconciliation of operating profit to net cash inflow from operating activities -0- *T 2006 2005 (Unaudited) (Audited) (restated)* Â£'000 Â£'000 Group operating profit 3,094 3,033 Depreciation, amortisation and amounts written off intangible assets 2,176 1,347 Loss on sale of tangible fixed assets 4 15 (Profit)/loss on sale of minority interest (100) 15 LTIP and conditional share award charge 229 - Increase in debtors (2,668) (2,425) Increase in creditors 1,826 2,024 Decrease in provisions (5) (191) ----------- ----------- Net cash inflow from operating activities 4,556 3,818 =========== =========== *T (2) Reconciliation of net cash flow to movement in net (debt)/funds -0- *T 2006 2005 (Unaudited) (Audited) Â£'000 Â£'000 Increase/(decrease) in cash at hand and in bank 1,192 (97) Increase in bank overdraft (227) - ----------- --------- Increase/(decrease) in cash in the year 965 (97) Cash outflow from decrease in lease financing 20 69 Cash inflow from increase in bank loans repayable after more than one year (3,716) (511) ----------- --------- Change in net funds resulting from cash flows (2,731) (539) Increase in lease financing (299) - Bank loans acquired with subsidiary (724) - Translation differences (134) 115 ----------- --------- Change in net funds resulting from non-cash movements (1,157) 115 Movement in net funds in the year (3,888) (424) Net funds at 1 August 2,449 2,873 ----------- --------- Net (debt)/funds at 31 July (1,439) 2,449 =========== ========= *T (3) Analysis of net funds/(debt) -0- *T At 31 July Cash Exchange Acquired with Other non- At 31 July 2005 flow movement subsidiaries cash 2006 (excluding movements cash) (Audited) (Unaudited) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash at bank and in hand 2,960 1,192 (134) - - 4,018 Bank overdraft - (227) - - - (227) ---------- -------- ----------- ------------- ------------- ------------- 2,960 965 (134) - - 3,791 Obligations under finance leases - 20 - (31) (268) (279) Bank loans repayable within one year - - - (320) - (320) Bank loans repayable after more than one year (511) (3,716) - (404) - (4,631) ---------- -------- ----------- ------------- ------------- ------------- Net funds/(debt) 2,449 (2,731) (134) (755) (268) (1,439) ========== ======== =========== ============= ============= ============= *T

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