Final Results

Final Results

Next Fifteen Communications Plc

Next Fifteen Communications Group plc

Preliminary results for the year ended 31 July 2010 (unaudited)

Next Fifteen Communications Group plc (‘Next Fifteen’ or ‘the Group’), the global public relations consultancy group, today announces its results for the year ended 31 July 2010.

Financial highlights:

• Revenues increased by 11% to £72.3m (2009: £65.4m)
• Profit before tax increased by 68% to £5.3m (2009: £3.2m)
• Adjusted profit before tax increased by 26% to £6.6m (2009: £5.2m) (see note 3)
• Basic earnings per share increased by 84% to 6.75p (2009: 3.67p) (see note 8)
• Adjusted earnings per share increased by 30% to 8.45p (2009: 6.48p)
• EBITDA increased to £8.4m from £5.5m in the comparative period
• Final dividend of 1.375p per share (2009: 1.25p), raising the total dividend by 9% to 1.85p (2009: 1.70p)
• Net debt of £0.9m (see note 9) following £5.1m of acquisition related payments in the year

Corporate progress:

• Acquired 100% of New York based M Booth & Associates, a leading consumer focussed PR consultancy in North America
• Acquired 55% of the marketing communications trading subsidiaries of Upstream Asia to create Bite Asia
• Acquired a further 36% of US policy communications business, 463 Communications, taking Group stake to 76%
• Created new digital consultancy, Beyond
• Won new retained clients including TiVo, Allied Bakeries, Hershey’s, Alibaba, Trend Micro and Schneider Electric
• Announced today, the purchase of 85% stake in The Blueshirt Group, a financial communications company based in San Francisco serving the technology sector

Commenting on the results, Chairman of Next Fifteen, Will Whitehorn, said:

“The Group has recovered well from the economic slowdown and has continued to invest in its future, while maintaining one of the most conservative balance sheets in the UK marketing services sector. It remains highly ambitious and believes it has significant opportunities for growth over the medium term, both through organic growth and selective acquisitions. This is evidenced by the announcement today of the acquisition of The Blueshirt Group, a financial communications company based in San Francisco.”

For further information contact:

Next Fifteen Communications Group

Tim Dyson, Chief Executive

[phone]

Â

David Dewhurst, Finance Director

[phone]

Â

Bite Communications

Liam Jacklin

[phone]

[phone]

[e-mail]

Â

Elijah Lawal

[phone]

[phone]

[e-mail]

Â

Canaccord Genuity

Mark Williams

Henry Fitzgerald-O’Connor

[phone]

Â

Attached:

Chairman and Chief Executive’s statement

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated balance sheet

Consolidated statement of changes in equity

Consolidated statement of cash flow

Notes to the accounts

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 report its results for the year to 31 July 2010. The Group has emerged from the global recession to produce record results and continues to trade well despite the ongoing uncertainties in the western economies. The Group has reported revenues up 10.6% to £72.3m (2009: £65.4m). Profitability has recovered well with profit before tax up 68% to £5.3m (2009: £3.2m), while adjusted profit was up 26% to £6.6m (2009: £5.2m) (see note 3). Earnings per share rose 84% to 6.75p (2009 3.67p), with the adjusted basic earnings per share up 30% at 8.45p (2009: 6.48p) (see note 8). The Group continues to have a strong balance sheet, ending the year with net debt of £0.9m (2009: net cash of £1.8m) (see note 9), achieved after making £5.1m of acquisition-related payments. In view of these results and the current trading, the Board has proposed a final dividend of 1.375p per share, which sees dividends increase 9% to 1.85p for the year (2009: 1.7p). The Group has also agreed terms to acquire an 85% stake in San Francisco-based The Blueshirt Group LLC, an investor relations company that services the technology market (see note 11).

Corporate activity

At the start of the financial year the Group announced the acquisition of New York-based consumer agency M Booth & Associates Inc. This was followed in October 2009 by the acquisition of the Asian PR assets of AIM-listed Upstream Marketing and Communications Inc, which expands the Group’s operations in Asia Pacific. Upstream has been integrated into Bite’s business, to complement its existing US and European operations. During the year the Group purchased a further 36% stake in 463 Communications LLC, a US-based policy communication consultancy, increasing its holding to 76%. Just after the year end the Group launched Beyond, a digital agency which has offices in London, New York and San Francisco. This was created by combining the Group's existing Context Analytics business and Type3, a digital agency acquired in August 2010. This new venture has already secured clients that include Google, Cisco, Hilton Hotels and Virgin America. Lastly the Group recently acquired OneXeno, a digital marketing agency in Hong Kong, which has been integrated with Bite's operations in that region. The Blueshirt acquisition will give opportunities for cross referrals between the Group’s existing US businesses, whilst also opening up a revenue stream in a new sector of communications.

Segmental performance

The US and Canada PR business was strengthened by the addition of M Booth and now delivers around half the revenue for the Group and more than half its profits. The UK PR segment remains the second biggest despite a year on year decline, but grew 7.5% in the second half showing good momentum. Europe and Africa had stable revenue aided by a stronger euro but it was pleasing to see an improvement in the operating margin. The Asia Pacific segment showed 30% revenue growth aided by stronger currency and the acquisition of Upstream, which added £2m of revenue but as a break-even business had the impact of reducing segment margins this year. The Upstream business is now in profit, which will help segment margins improve in the future. The other segments are research and digital consultancy, where good progress is being made.

Client-base continues to improve

The Group has an impressive client base that includes IBM, Microsoft, Cisco, Facebook, HP, AMD, Unilever and Coca-Cola. This has been further improved by the addition of TiVo, Allied Bakeries, Hershey's, Alibaba, Bloom Energy, Trend Micro and Schneider Electric. The top 10 clients accounted for 32% of revenues at the year end. This compares to 36% in 2009. Unlike some other marketing services groups, Next Fifteen has no direct exposure to government spending and will therefore be largely unaffected as Western governments cut back on expenditure in this area.

Strategy

The Group continues to explore organic growth opportunities supported by selective acquisitions of specialist agencies in growth sectors, hence the acquisitions of M Booth, Upstream, OneXeno, Type3 and Blueshirt mentioned above. The creation of digital agency Beyond, which leverages the Group's existing capabilities in social media and related digital services, is further evidence that the Group continues to focus on long-term growth. With strong cash-generation from operations and existing acquisition facilities, the Group remains well placed to make additional targeted acquisitions of a size that would maintain a strong balance sheet, an approach that the Board continues to feel is prudent given the current economic climate.

Prospects

The Group has recovered well from the economic slowdown and has continued to invest in its future, while maintaining one of the most conservative balance sheets in the UK marketing services sector. It remains highly ambitious and believes it has significant opportunities for growth over the medium term, both through organic growth and selective acquisitions. The Group is experiencing an improvement in trading conditions, particularly in North America and Asia but it will continue to manage the business in a way that reflects the general uncertainty that surrounds the pace of economic recovery. That said, in the first two months of the current financial year, the Group has seen good momentum and the Board remains optimistic about the prospects for the year.

Will Whitehorn

Chairman

Â

Tim Dyson

Chief Executive Officer

Consolidated income statement

for the year ended 31 July 2010

	Â	Note	Â	2010 £’000	Â	2010 £’000	Â	2009 £’000£’000	Â	2009 £’000£’000
Billings	Â	Â	Â	Â	Â	91,175	Â	Â	Â	77,287
Revenue	Â	2	Â		Â	72,328	Â		Â	65,394
Staff costs				49,757				43,792
Depreciation				1,060				1,168
Amortisation and impairment				878				513
Reorganisation costs		3		–				1,950
Other operating charges	Â	Â	Â	14,125	Â	Â	Â	14,121	Â	Â
Total operating charges	Â	Â	Â	Â	Â	(65,820)	Â	Â	Â	(61,544)
Operating profit		2				6,508				3,850
Finance expense		6				(1,310)				(839)
Finance income	Â	7	Â	Â	Â	106	Â	Â	Â	147
Net finance expense	Â	Â	Â	Â	Â	(1,204)	Â	Â	Â	(692)
Profit before income tax		2,3				5,304				3,158
Income tax expense	Â	Â	Â	Â	Â	(1,591)	Â	Â	Â	(884)
Profit for the year	Â	Â	Â	Â	Â	3,713	Â	Â	Â	2,274
Attributable to:
Owners of the parent						3,675				1,932
Non-controlling interests	Â	Â	Â	Â	Â	38	Â	Â	Â	342
Â	Â	Â	Â	Â	Â	3,713	Â	Â	Â	2,274
Earnings per share		8
Basic (pence)						6.75				3.67
Diluted (pence)	Â	Â	Â	Â	Â	6.02	Â	Â	Â	3.66

Consolidated statement of comprehensive income

for the year ended 31 July 2010

Â	Â	Â	Â	2010 £’000	Â	2009 £’000£’000
Profit for the year	Â		Â	3,713	Â	2,274
Other comprehensive income:
Exchange differences on translating foreign operations				665		1,540
Translation differences on long-term foreign currency intercompany loans				459		140
Net investment hedge	Â	Â	Â	(111)	Â	–
Other comprehensive income for the year	Â	Â	Â	1,013	Â	1,680
Total comprehensive income for the year	Â	Â	Â	4,726	Â	3,954
Total comprehensive income attributable to:
Owners of the parent				4,688		3,612
Non-controlling interests	Â	Â	Â	38	Â	342
Â	Â	Â	Â	4,726	Â	3,954

Consolidated balance sheet

as at 31 July 2010

Â	Â	Note	Â	2010 £’000	Â	2010 £’000	Â	2009 £’000£’000	Â	2009 £’000£’000
Assets	Â		Â		Â		Â		Â
Property, plant and equipment				2,269				1,949
Intangible assets				27,111				18,441
Deferred tax assets				1,531				1,695
Other receivables	Â	Â	Â	1,008	Â	Â	Â	533	Â	Â
Total non-current assets						31,919				22,618
Trade and other receivables				21,892				14,595
Cash and cash equivalents		9		7,296				7,130
Corporation tax asset	Â	Â	Â	282	Â	Â	Â	1,115	Â	Â
Total current assets	Â	Â	Â	Â	Â	29,470	Â	Â	Â	22,840
Total assets	Â	Â	Â	Â	Â	61,389	Â	Â	Â	45,458
Liabilities
Loans and borrowings		9		2,852				4,922
Deferred tax liabilities				73				42
Other payables		9		56				73
Provisions for other liabilities and charges				–				282
Contingent consideration				4,232				–
Share purchase obligation	Â	Â	Â	1,349	Â	Â	Â	–	Â	Â
Total non-current liabilities						(8,562)				(5,319)
Loans and borrowings		9		5,181				156
Trade and other payables				17,085				13,679
Corporation tax liability				475				559
Provisions for other liabilities and charges				58				–
Contingent consideration				1,880				228
Derivative financial liabilities				419				615
Share purchase obligation	Â	Â	Â	150	Â	Â	Â	–	Â	Â
Total current liabilities	Â	Â	Â	Â	Â	(25,248)	Â	Â	Â	(15,237)
Total liabilities	Â	Â	Â	Â	Â	(33,810)	Â	Â	Â	(20,556)
Total net assets	Â	Â	Â	Â	Â	27,579	Â	Â	Â	24,902
Equity
Share capital				1,401				1,381
Share premium reserve				5,575				5,157
Merger reserve				3,075				3,075
Share purchase reserve				(1,359)				–
Foreign currency translation reserve				2,014				1,349
Other reserves				(868)				(1,239)
Retained earnings	Â	Â	Â	16,791	Â	Â	Â	14,424	Â	Â
Total equity attributable to owners of the parent						26,629				24,147
Non-controlling interests	Â	Â	Â	Â	Â	950	Â	Â	Â	755
Total equity	Â	Â	Â	Â	Â	27,579	Â	Â	Â	24,902

Consolidated statement of changes in equity

for the year ended 31 July 2010

Â

Â

Share capital £’000

Â

Share premiumpremium reservereserve £’000£’000

Â

Merger reservereserve £’000£’000

Â

Share purchasepurchase reservereserve1 £’000£’000

Â

Foreign currencycurrency translationtranslation reservereserve2 £’000£’000

Â

Other reserves3 £’000£’000

Â

Retained earningsearnings £’000£’000

Â

Equity attributableattributable to owners ofto owners of the parentthe parent £’000£’000

Â

Non- controllingcontrolling interestsinterests £’000£’000

Â

Total equityequity £’000£’000

At 1 August 2008

Â

1,354

Â

5,157

Â

2,659

Â

(1,380)

Â

(191)

Â

(1,167)

Â

12,960

Â

19,392

Â

246

Â

19,638

Profit for the year

Â

–

Â

–

Â

–

Â

–

Â

–

Â

–

Â

1,932

Â

1,932

Â

342

Â

2,274

Other comprehensive income for the year

Â

–

Â

–

Â

–

Â

–

Â

1,540

Â

–

Â

140

Â

1,680

Â

–

Â

1,680

Total comprehensive income for the year

Â

–

Â

–

Â

–

Â

–

Â

1,540

Â

–

Â

2,072

Â

3,612

Â

342

Â

3,954

Dividends

–

–

–

–

–

–

(900)

(900)

–

(900)

Acquisition of non-controlling interest

–

–

–

–

–

–

–

–

(264)

(264)

Non-controlling interest on business combination

–

–

–

–

–

–

–

–

657

657

Shares issued on acquisitions

27

–

416

–

–

–

–

443

–

443

Movement in share purchase obligation

–

–

–

1,380

–

–

391

1,771

–

1,771

Movement in relation to share-based payments

–

–

–

–

–

–

(57)

(57)

–

(57)

Deferred tax on share-based payments

–

–

–

–

–

–

7

7

–

7

Movement due to ESOP share option exercises

–

–

–

–

–

19

44

63

–

63

Purchase of own shares

–

–

–

–

–

(91)

–

(91)

–

(91)

Non-controlling interest dividend

–

–

–

–

–

–

–

–

(226)

(226)

Revaluation of investment in associate

Â

–

Â

–

Â

–

Â

–

Â

–

Â

–

Â

(93)

Â

(93)

Â

–

Â

(93)

At 31 July 2009

Â

1,381

Â

5,157

Â

3,075

Â

–

Â

1,349

Â

(1,239)

Â

14,424

Â

24,147

Â

755

Â

24,902

Profit for the year

–

–

–

–

–

–

3,675

3,675

38

3,713

Other comprehensive income for the year

Â

–

Â

–

Â

–

Â

–

Â

665

Â

(111)

Â

459

Â

1,013

Â

–

Â

1,013

Total comprehensive income for the year

Â

–

Â

–

Â

–

Â

–

Â

665

Â

(111)

Â

4,134

Â

4,688

Â

38

Â

4,726

Dividends

–

–

–

–

–

–

(932)

(932)

–

(932)

Increase in shareholding of subsidiary

–

–

–

–

–

–

(1,235)

(1,235)

(361)

(1,596)

Non-controlling interest on business combination

–

–

–

–

–

–

–

–

774

774

Shares issued on acquisitions

20

418

–

–

–

–

–

438

–

438

Share purchase obligation arising on acquisitions

–

–

–

(1,359)

–

–

–

(1,359)

–

(1,359)

Movement in relation to share-based payments

–

–

–

–

–

–

606

606

–

606

Deferred tax on share-based payments

–

–

–

–

–

–

166

166

–

166

Movement due to ESOP share option exercises

–

–

–

–

–

482

(372)

110

–

110

Non-controlling interest dividend

Â

–

Â

–

Â

–

Â

–

Â

–

Â

–

Â

–

Â

–

Â

(256)

Â

(256)

At 31 July 2010

Â

1,401

Â

5,575

Â

3,075

Â

(1,359)

Â

2,014

Â

(868)

Â

16,791

Â

26,629

Â

950

Â

27,579

1The share purchase obligation for the current year relates to 463 Communications LLC and Upstream Marketing and Communications Inc. The movement in the prior year relates to the settlement of the share purchase obligation of Lexis Public Relations Limited in October 2008.

2The foreign currency translation reserve is used to record exchange differences arising from the translation of financial statements of overseas subsidiaries.

3Other reserves include ESOP reserve, treasury reserve and hedging reserve.

Consolidated statement of cash flow

for the year ended 31 July 2010

Â	Â	Note	Â	2010 £’000	Â	2010 £’000	Â	2009 £’000£’000	Â	2009 £’000£’000
Cash flows from operating activities	Â		Â		Â		Â		Â
Profit for the year				3,713				2,274
Adjustments for:
Depreciation				1,060				1,168
Amortisation and impairment				878				513
Finance income		7		(106)				(147)
Finance expense		6		1,310				839
Loss on sale of property, plant and equipmentand equipment				11				5
Income tax expense				1,591				884
Share-based charge/(credit)				606				(57)
Movement in fair value of forward foreign exchange contractsforeign exchange contracts	Â	3	Â	(158)	Â	Â	Â	(325)	Â	Â
Net cash inflow from operating activities before changes in working capital						8,905				5,154
Change in trade and other receivables				(1,006)				2,999
Change in trade and other payables				(1,103)				(2,174)
(Decrease)/increase in provision	Â	Â	Â	(224)	Â	Â	Â	282	Â	Â
Change in working capital	Â	Â	Â	Â	Â	(2,333)	Â	Â	Â	1,107
Net cash generated from operations						6,572				6,261
Income taxes paid	Â	Â	Â	Â	Â	(1,465)	Â	Â	Â	(1,476)
Net cash from operating activities						5,107				4,785
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquiredcash acquired		10		(4,076)				(4,448)
Acquisition costs		10,11		(175)				(101)
Acquisition of property, plant and equipmentand equipment				(1,178)				(415)
Proceeds on disposal of property, plant and equipmentplant and equipment				19				40
Acquisition of intangible assets				(302)				(134)
Net movement in long-term cash deposits				(475)				202
Interest received	Â	7	Â	68	Â	Â	Â	147	Â	Â
Net cash outflow from investing activities	Â	Â	Â	Â	Â	(6,119)	Â	Â	Â	(4,709)
Net cash from operating and investing activities	Â	Â	Â	Â	Â	(1,012)	Â	Â	Â	76
											Â
Net cash from operating and investing activities						(1,012)				76
Cash flows from financing activities
Proceeds from sale of own shares				110				63
Acquisition of own shares				–				(91)
Net movement in bank borrowings				2,559				(1,462)
Capital element of finance lease rental repaymentrental repayment				(150)				(225)
Interest paid		6		(448)				(489)
Profit share paid to non-controlling interest partners				(256)				(226)
Dividend paid to shareholders of the parent	Â	Â	Â	(932)	Â	Â	Â	(900)	Â	Â
Net cash inflow/(outflow) from financing activities	Â	Â	Â	Â	Â	883	Â	Â	Â	(3,330)
Net decrease in cash and cash equivalents						(129)				(3,254)
Cash and cash equivalents at beginning of the year						7,130				9,525
Exchange gains on cash held	Â	Â	Â	Â	Â	295	Â	Â		859
Cash and cash equivalents at end of the year	Â	9	Â	Â	Â	7,296	Â	Â		7,130

Notes to the accounts

for the year ended 31 July 2010

1 Basis of preparation

The financial information for the year ended 31 July 2010 has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The financial information for the year ended 31 July 2010 is unaudited and does not constitute the Group's statutory financial statements for the year, as defined under section 434 of the Companies Act 2006. The comparative financial information for the full year ended 31 July 2009 has, however, been derived from the audited statutory financial statements for that year. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditors’ 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.

Changes in accounting policies

Except as described below, the accounting policies applied are consistent with those of the audited statutory financial statements for the year ended 31 July 2009, as described in those financial statements.

IFRS 3 (revised), Business Combinations is effective prospectively to business combinations made in the year to 31 July 2010. The revised standard was applied to the acquisition of M Booth & Associates Inc (‘M Booth’) on 3 August 2009 and Upstream Marketing and Communications Inc (‘Upstream Asia’) on 31 October 2009. Initial consideration paid in cash was recorded at fair value at the acquisition date with contingent consideration and share purchase obligation classified as debt to be subsequently re-measured through the income statement, which would previously have been recognised through equity. Acquisition costs were also expensed, rather than being included within the cost of acquisition. The Group has recognised the non-controlling interest in relation to the Upstream Asia business combination at its acquisition date fair value rather than the proportionate share of net assets.

IAS 27 (revised), Consolidated and Separate Financial Statements, requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost, which has not occurred in the year. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. There have been no transactions whereby an interest in an entity is retained after the loss of control of that entity; IAS 27 (revised) has been applied to the increased equity acquired in 463 Communications LLC (‘463 LLC’).

IAS 1 (revised), Presentation of Financial Statements. As a result of the application of this Amendment the Group has elected to present two separate statements, an income statement and a statement of comprehensive income; previously it presented an income statement and the statement of recognised income and expense. In addition, a statement of changes in equity is now presented as a primary statement where previously the information was included in a note. The Amendment does not change the recognition or measurement of transactions and balances in the financial statements.

IFRS 8, Operating Segments. Operating segments have been reported in a manner consistent with the internal reporting provided to the chief operating decision maker. Comparative information has been restated in line with the revised standard. The restatement amends the disclosure of segmental performance and does not have any effect on the Group’s overall reported results. The introduction of IFRS 8 has led to disclosure of an additional operating segment ‘Other segments’ as detailed in note 2. The segmental disclosures do not include total segment assets as they are not regularly reported to the chief operating decision maker, an exemption which has been adopted early following the 2009 IASB improvement project.

No other standard or amendments that have become effective in the year have resulted in a material effect on the Group.

2 Segment information

Description of the types of services from which each reportable segment derives its revenues

The Board of Directors has identified the operating segments based on the reports it reviews as the chief operating decision maker to make strategic decisions, assess performance and allocate resources.

The main activity of the Group is the provision of public relations services in key regions across the globe. Other operating segments are research and digital consultancy.

The Group’s business is organised into four reportable segments, being the provision of public relations services in the UK, Europe and Africa, US and Canada, and Asia Pacific. Within these segments the Group operates a number of separate competing businesses in order to offer services to clients in a confidential manner where otherwise there may be issues of conflict.

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 reorganisation costs and intercompany recharges, which reflects the internal reporting measure used by the Board of Directors. This measurement basis excludes the effects of non-recurring charges, such as movement in fair value of financial instruments, unwinding of the discount on contingent and deferred consideration, unwinding of the discount on the share purchase obligation, amortisation of acquired intangibles, 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.

Segmental information for the year ended 31 July 2009 has been restated as a result of the change in accounting policy as explained in note 1.

Â

Â

UK

Â

Europe and Africa

Â

US and Canada

Â

Asia Pacific

Â

Other segments

Â

Head Office

Â

Total

£’000

Â

Â

Â

Â

Â

Â

Â

Year ended 31 July 2010

Revenue

14,484

9,723

36,261

10,208

1,652

–

72,328

Â

Segment adjusted operating profit

Â

2,385

Â

1,237

Â

7,296

Â

154

Â

73

Â

(4,153)

Â

6,992

Â

Year ended 31 July 2009 (restated)

Revenue

16,055

9,774

30,456

7,843

1,266

–

65,394

Â

Segment adjusted operating profit

Â

3,012

Â

1,156

Â

6,308

Â

405

Â

35

Â

(5,186)

Â

5,730

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

Â	Â	2010 £’000	Â	2009 £’000£’000
Segment adjusted operating profit	Â		Â
Reportable segments		11,072		10,881
Other segments		73		35
Head office	Â	(4,153)	Â	(5,186)
		6,992		5,730
					Â
Reorganisation costs		–		(1,950)
Goodwill impairment charge		(116)		(116)
Amortisation of acquired intangibles		(526)		(139)
Movement in fair value of forward foreign exchange contracts		158		325
					Â
Total operating profit		6,508		3,850
					Â
Unwinding of discount on contingent and deferred consideration		(659)		(61)
Unwinding of discount on share purchase obligation		(140)		(34)
Change in estimate of future contingent consideration payable		(63)		–
Movement in fair value of interest rate cap-and-collar contract		38		(255)
					Â
Other finance expense		(448)		(489)
Other finance income		68		147
Â	Â	Â	Â	Â
Profit before income tax	Â	5,304	Â	3,158

3 Reconciliation of pro forma financial measures

Â	Â	2010 £’000	Â	2009 £’000£’000
Profit before income tax	Â	5,304	Â	3,158
Movement in fair value of interest rate cap-and-collar contract1		(38)		255
Movement in fair value of forward foreign exchange contracts2		(158)		(325)
Reorganisation costs3		–		1,950
Unwinding of discount on contingent and deferred consideration4		659		61
Unwinding of discount on share purchase obligation5		140		34
Change in estimate of future contingent consideration payable6		63		–
Impairment charge7		116		116
Amortisation of acquired intangibles8	Â	526	Â	–
Adjusted profit before income tax	Â	6,612	Â	5,249

Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader, and for the performance calculation of the adjusted earnings per share used for the vesting of employee share options and performance shares.

¹Interest rate cap-and-collar contracts held by the Group are recognised at fair value on the balance sheet at each reporting date and the movement on such contracts is recognised within finance income/expense in the income statement. These financial instruments comprise financial products used to manage the interest rate risks of the Group’s long-term debt obligations. The movement in fair value of the interest rate cap-and-collar contract since 31 July 2009 is a credit of £38,000 (2009: charge of £255,000).

²Forward foreign exchange contracts held by the Group are recognised at fair value on the balance sheet at each reporting date and the movement on such contracts is recognised within operating expenses in the income statement. These financial instruments comprise financial products used for hedging currency exposure on US dollar and euro. The movement in fair value of the forward foreign exchange contracts since 31 July 2009 is a credit of £158,000 (2009: credit of £325,000).

³Reorganisation costs in the year to 31 July 2010 are not considered significant. The reorganisation costs of £1,950,000 in 2009 related to redundancies across the Group, the closure of the Text 100 Seattle office and the costs associated with the merger of Inferno Communications Limited into Bite Communications Limited (‘Bite’) on 1 May 2009.

⁴A finance expense of £645,000 has been recognised during the year in relation to the unwinding of the discount on the contingent consideration payable for M Booth, a wholly owned subsidiary of the Group since August 2009, and £14,000 in relation to the unwinding of the discount on the deferred consideration payable for OutCast Communications Corporation (‘OutCast’), a wholly owned subsidiary of the Group since June 2005 (2009: in relation to OutCast only). The final deferred consideration payment for OutCast was made in October 2009.

⁵A finance expense of £140,000 has been recognised during the year in relation to the unwinding of the discount on the share purchase obligation for Upstream Asia (£92,000) and 463 LLC (£48,000) (2009: in relation to Lexis Public Relations Limited only).

⁶A finance expense of £63,000 has been recognised during the year in relation to a change in the estimate of the contingent consideration payable for M Booth.

⁷The carrying value of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate impairment. An impairment charge has been made for the goodwill recognised by Bite on acquisition of Credo Communications Limited (‘Credo’) on 31 December 2005. The operations were transferred into Bite and as a result the decision has been made to write down the goodwill by £116,000. As a result of this write down, the Credo goodwill is now fully impaired.

⁸A total amortisation of acquired intangibles charge of £526,000 has been recognised in the year in relation to M Booth (£334,000), 463 LLC (£125,000), AimPR Public Relations AB (£38,000) and Upstream Asia (£29,000). These are significant non-cash charges which arise as a result of acquisitions, and were not considered significant in the year to 31 July 2009.

4 Income tax expense

The tax charge is based on the effective tax rate of 30% for the year (2009: 28%). The higher rate reflects the increased proportion of profits coming from the US, losses in some of the acquired Upstream Asia operations and the reduced value of the UK deferred tax asset following the reduction in the UK corporation tax rate.

5 Dividend

A final dividend of 1.375p per share (2009: 1.25p) has been proposed. This has not been accrued. The interim dividend was 0.475p per share (2009: 0.45p), making a total for the year of 1.85p per share (2009: 1.70p). The final dividend, if approved at the AGM on 25 January 2011, will be paid on 4 February 2011 to all shareholders on the Register of Members on 7 January 2011. The ex-dividend date for the shares is 5 January 2011. The Employee Share Ownership Trust has waived its rights to dividends of £9,000 (2009: £18,000).

6 Finance expense

Â	Â	2010 £’000	Â	2009 £’000£’000
Financial liabilities at amortised cost	Â		Â
Bank interest payable		428		454
Financial liabilities at fair value through profit and loss
Unwinding of discount on contingent and deferred consideration		659		61
Unwinding of discount on share purchase obligation		140		34
Change in estimate of future contingent consideration payable		63		–
Movement in fair value of interest rate cap-and-collar contract		–		255
Other
Finance lease interest		16		35
Other interest payable	Â	4	Â	–
Finance expense	Â	1,310	Â	839

7 Finance income

Â	Â	2010 £’000	Â	2009 £’000
Financial assets at amortised cost	Â		Â
Bank interest receivable		53		144
Financial assets at fair value through profit and loss
Movement in fair value of interest rate cap-and-collar contract		38		–
Other
Other interest receivable	Â	15	Â	3
Finance income	Â	106	Â	147

8 Earnings per share

Â	Â	2010 £’000	Â	2009 £’000£’000
Earnings attributable to ordinary shareholders	Â	3,675	Â	1,932
Movement in fair value of interest rate cap-and-collar contract after tax		(27)		184
Movement in fair value of forward foreign exchange contracts after tax		(114)		(234)
Reorganisation costs after tax		–		1,339
Unwinding of discount on contingent and deferred consideration after tax		395		–
Unwinding of discount on share purchase obligation		140		71
Change in estimate of future contingent consideration payable after tax		38		–
Impairment charge		116		116
Amortisation of acquired intangibles after tax	Â	377	Â	–
Adjusted earnings attributable to ordinary shareholders	Â	4,600	Â	3,408
					Â
Â	Â	Number	Â	Number
Weighted average number of ordinary shares		54,444,622		52,585,175
Dilutive share options/performance shares outstanding1		4,767,099		133,987
Other potentially issuable shares2	Â	1,866,697	Â	–
Diluted weighted average number of ordinary shares	Â	61,078,418	Â	52,719,162
Basic earnings per share		6.75p		3.67p
Diluted earnings per share		6.02p		3.66p
Adjusted earnings per share		8.45p		6.48p
Diluted adjusted earnings per share	Â	7.53p	Â	6.46p

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. The only difference between the adjusting items in this note and the figures in note 3 is the tax effect of those adjusting items.

¹Mainly relates to performance shares on which the performance criteria are expected to be met and will vest. In the year to 31 July 2009, it was deemed that the performance criteria would not be met and therefore the performance shares were not expected to vest. At the Next Fifteen General Meeting held on 26 January 2010, shareholder approval was obtained to modify the performance conditions relating to all new awards under the Next Fifteen Long-Term Incentive Plan from February 2010 and to apply the changes to grants made in the financial years ended 31 July 2008 and 31 July 2009.

²Relates to an estimate of the contingent consideration satisfied in shares, payable to M Booth in years two to four following completion.

9 Analysis of net debt

Â	Â	2010 £’000	Â	2009 £’000£’000
Current assets	Â		Â
Cash and cash equivalents		7,296		7,130
					Â
Non-current liabilities
Bank borrowings		(2,852)		(4,828)
Finance facility		–		(94)
Obligations under finance leases		(56)		(73)
					Â
Current liabilities
Bank borrowings		(5,085)		–
Finance facility		(96)		(156)
Obligations under finance leases	Â	(78)	Â	(194)
Net (debt)/cash	Â	(871)	Â	1,785

10 Acquisitions

1. On 3 August 2009, the Group acquired 100% of the share capital of New York-based M Booth & Associates Inc. (‘M Booth’), a leading PR consultancy in North America, as part of the next step in the Group’s strategy to build a global consumer agency. The initial consideration paid in cash on completion was $4,000,000 (£2,554,000). A balance of $790,000 (£504,000) excess working capital acquired which was paid to the vendors is also treated as consideration. Further consideration of up to a maximum of $13,250,000 (£8,461,000) may be payable over the course of the next four years subject to the achievement of certain revenue and profit performance targets. The total maximum consideration is therefore $17,250,000 (£11,015,000). The first $11,250,000 (£7,184,000) of contingent consideration that may be payable can be satisfied by cash or up to 25% in shares, at the option of the Group. The final $2,000,000 (£1,277,000) that may be payable can be satisfied 100% in shares, at the option of the Group.

From 3 August 2009 to 31 July 2010, M Booth contributed $11,500,000 (£7,343,000) to revenue and $1,688,000 (£1,078,000) profit before tax.

Acquisition costs of $184,000 (£117,000) were paid in relation to the purchase of M Booth, $154,000 (£98,000) recognised in the income statement for the year ended 31 July 2009 and $30,000 (£19,000) recognised in the income statement for the year ended 31 July 2010.

Goodwill arises from anticipated profitability and future operating synergies from combining the operations with the Group.

The fair value of the assets acquired includes trade receivables of $3,692,000 (£2,357,000). The gross amount due under contracts is equal to this balance, and is all expected to be collectable.

The following table sets out the book values of the identifiable assets acquired and their fair value to the Group.

Â	Â	Book value at acquisition £’000	Â	Fair value adjustments1 £’000	Â	Fair value to the Group £’000
Non-current assets	Â		Â		Â
Acquired intangible assets		-		2,547		2,547
Property, plant and equipment		91		-		91
Current assets
Cash and cash equivalents		482		-		482
Other current assets		3,017		-		3,017
Current liabilities		(1,970)		-		(1,970)
Deferred tax liability	Â	-	Â	(691)	Â	(691)
Net assets acquired	Â	1,620	Â	1,856	Â	3,476
Goodwill	Â	Â	Â	Â	Â	4,983
Consideration2
Cash consideration						2,554
Excess working capital payment						504
Total contingent cash consideration						4,190
Total contingent equity consideration						1,211
Â	Â	Â	Â	Â	Â	8,459

1 The fair value adjustment relating to intangible assets is due to the recognition of $1,818,000 (£1,161,000) in respect of the M Booth trade name and $2,171,000 (£1,386,000) in respect of customer relationships, which have been independently valued. There is a related deferred tax liability fair value adjustment of $1,082,000 (£691,000). The trade name will be amortised over its useful economic life of 20 years, and the customer relationships will be amortised over five years.

2 The acquisition of M Booth includes a contingent consideration arrangement that requires additional consideration to be paid by the Group based on achievement of certain revenue and performance targets, over the course of the next four years. The range of undiscounted amounts the Group could pay under the contingent consideration agreement is between $0 and $13,250,000. The fair value of the contingent consideration recognised on the acquisition date of $8,459,000 (£5,401,000) was estimated by applying the income approach, by calculating the fair value of the future estimated payments.

2. On 31 October 2009, the Group acquired a further 30% stake in 463 Communications LLC (‘463 LLC’), taking the Group’s total holding to 70%. The Group is now obliged to purchase 100% of the business over a seven-year period. The holding was acquired for a total consideration of $2,139,000 (£1,365,000), of which $1,426,000 (£910,000) was satisfied in cash and $713,000 (£455,000) in shares (805,095 shares).

On 28 May 2010, the Group acquired a further 6% stake in 463 LLC, taking the Group’s total holding to 76%. The holding was acquired for a total consideration of $120,000 (£77,000) which was satisfied in cash. There were no acquisition costs incurred in relation to the further interest acquired.

No goodwill has been recognised on the acquisition of the further equity interest in 463 LLC. The effect of this transaction is recorded in equity as there is no change in control.

3. On 27 October 2009, the Group acquired the marketing communications trading subsidiaries of Upstream Marketing and Communications Inc (‘Upstream Asia’), which has been integrated into the Bite Communications Group. The initial consideration was US$900,000 (£575,000) paid in cash and the assumption of US$200,000 (£128,000) of Upstream Asia’s liabilities (of which US$120,000 (£77,000) were paid on completion). The Group owns 55% of Upstream Asia, and a Hong Kong based company Asset Pioneer Limited (‘Asset Pioneer’) owns the residual 45%. The Group has entered into an option deed under which it has a obligation to acquire Asset Pioneer’s shares over a five-year period based on the profitability of the acquired businesses.

In the post acquisition period, Upstream Asia contributed £2,016,000 to revenue and £18,000 loss before tax. If the acquisition had been completed on the first day of the financial year, group revenues for the year would have been £73,000,000 and profit before income tax would have been £5,298,000. These amounts have been calculated using the group’s accounting policies and pro-rating the nine-month results across 12 months.

Acquisition costs of US$123,000 (£79,000) were paid in relation to the acquisition of Upstream Asia, and recognised within the consolidated income statement.

Goodwill arises from anticipated profitability and future operating synergies from the combination.

The fair value of the assets acquired includes trade receivables of £549,000. The gross amount due under contracts totals £582,000, of which £549,000 is expected to be collectable.

The following table sets out the book values of the identifiable assets acquired and their fair value to the Group.

Â	Â	Book value at acquisition £’000	Â	Fair value adjustments1 £’000	Â	Fair value to the Group £’000
Non-current assets	Â		Â		Â
Acquired intangible assets		-		192		192
Software intangible assets		12		-		12
Property, plant and equipment		63		-		63
Current assets
Cash and cash equivalents		388		-		388
Other current assets		1,054		-		1,054
Current liabilities		(1,263)		-		(1,263)
Deferred tax liability	Â	-	Â	(52)	Â	(52)
Net assets acquired	Â	254	Â	140	Â	394
Goodwill	Â	Â	Â	Â	Â	1,032
Consideration
Cash consideration						575
Assumption of liabilities paid on completion						77
Â	Â	Â	Â	Â	Â	652
Fair value of non-controlling interest2						774
Â	Â	Â	Â	Â	Â	1,426

1 The fair value adjustment relating to intangible assets is due to the recognition of US$300,000 (£192,000) in respect of customer relationships which have been independently valued. There is a related deferred tax liability fair value adjustment of US$82,000 (£52,000). The customer relationships will be amortised over five years.

2 The fair value of the non-controlling interest of £774,000 in Upstream Asia was estimated by calculating the fair value of the future payment obligations.

4. On 9 October 2009, the Group paid $312,000 (£199,000) in cash relating to the final deferred consideration for the purchase of OutCast Communications Corporation (‘OutCast’). OutCast is a wholly owned subsidiary acquired in June 2005.

5. On 30 October 2009, the Group paid SEK569,000 (£50,000) in cash relating to the final deferred consideration for the purchase of the business and certain assets of AimPR Public Relations AB, a company based in Stockholm, Sweden. This business was integrated into Bite’s existing Swedish operation.

11 Events after the balance sheet date

Type 3 Limited

On 4 August 2010, Beyond Corporation Limited (previously Project Metal Limited) acquired the entire issued share capital of UK-based Type 3 Limited, and on the same date, Beyond International Corporation (previously Context Analytics Corporation) acquired the entire issued share capital of US-based Type 3 Limited. Both Type 3 companies offer a fully integrated web design service, and were acquired as part of the Group’s strategy to build a digital consultancy. The initial consideration paid in cash on completion was £300,000. The Group owns 51% each of Beyond Corporation Limited and Beyond International Corporation (together referred to as ‘Beyond’), while the residual is owned by three employee shareholders. The Group has entered into an option deed under which the non-controlling interest holders have the option to sell half of their shareholding back to the Group in either October 2013, October 2014 or October 2015, based on the profitability of each business. The consideration is uncapped. By October 2015 the Group will have acquired half of their shareholding, bringing the Group holding to 75.5%.

Acquisition costs of £89,000 were paid in relation to the purchase of Beyond, of which £76,000 were recognised in the consolidated income statement for the year ended 31 July 2010, and the remainder recognised in the consolidated income statement in August 2010.

Glasshouse Partnership Limited

On 1 September 2010, Lexis Public Relations Limited (‘Lexis’) acquired the entire issued share capital of UK-based Glasshouse Partnership Limited (‘Glasshouse’), a corporate communications and marketing agency. The initial consideration paid in cash on completion was £80,000. Contingent consideration may be payable on the first and second anniversary of completion, subject to the achievement of certain revenue and staff metric performance targets. The contingent consideration that may be payable will be satisfied by 60% cash and 40% Next Fifteen shares, and is uncapped. On 1 October 2010, the trade and assets of Glasshouse were transferred to Lexis.

Acquisition costs of £15,000 were paid in relation to the purchase of Glasshouse, and recognised within the consolidated income statement in August 2010.

OneXeno Limited

On 1 September 2010, Bite Communications Hong Kong Limited (‘Bite’) acquired the trade and assets of digital marketing agency OneXeno Limited (‘OneXeno’), a Hong Kong company. The business was integrated into Bite’s existing Asia Pacific operation, and will offer clients new levels of service, expertise and digital communications tools in the region. The initial consideration paid in cash on completion was HK$1,105,000 (£91,000), with further uncapped consideration payable based on the revenue of retained clients over the 12 months following completion.

Acquisition costs of HK$14,000 (£1,000) were paid in relation to the purchase of OneXeno, which were recognised in the consolidated income statement in the year ended 31 July 2010.

The Blueshirt Group LLC

The Group has agreed terms to acquire an 85% stake in US-based investor relations company The Blueshirt Group LLC (‘Blueshirt’), due to complete on 1 November 2010. The acquisition of Blueshirt complements the Group’s existing businesses by providing financial and corporate communications expertise. The initial consideration to be paid in cash on completion is $3,000,000 (£1,916,000). Contingent consideration will be made over the course of four years based on a multiple of average profits and margin performance. These contingent payments are estimated to total $8,000,000 (£5,108,000). There is an option for the sellers to sell the remaining 15% stake in Blueshirt after five years from completion and an option for Next Fifteen to acquire the remaining 15% after six years from completion provided that the value of the business at the relevant time has reached a certain level.

Acquisition costs were recognised in the consolidated income statement in the year in which services were provided.

Blueshirt generated an adjusted profit of $1.0m (£0.6m) from $5.3m (£3.4m) revenue in the 12 months ended 30 September 2010. The net assets at 30 September 2010 were $1.0m (£0.6m).

Information required in order to calculate and recognise goodwill, fair value of assets and liabilities, non-controlling interest and acquired intangibles in relation to Type 3 Limited, Glasshouse, OneXeno and Blueshirt is not yet available, and will be shown in the Interim Report for the six months ending 31 January 2011.