Half-year Report

Half-year Report

Next Fifteen Communications Plc

25 September 2018

Next Fifteen Communications Group plc

Interim results for the six months ended 31 July 2018

Next Fifteen Communications Group plc (“Next 15” or the “Group”), the digital communications group, today announces its interim results for the six months ended 31 July 2018.

Financial results for the six months to 31 July 2018 (unaudited)

                 
    Six months ended 31   Six months ended 31   Growth in results
July 2018 July 2017
      £m   £m      

Adjusted results

Net revenue 106.8 93.5 14%
EBITDA 17.7 14.5 22%
Operating profit 15.4 12.3 25%
Operating profit margin 14.4% 13.2%
Profit before tax 15.1 12.0 26%
Diluted EPS (p) 14.2p 11.4p 25%
 

Statutory results

Operating profit 10.5 7.2 47%
Profit before tax 10.3 5.2 97%
  Diluted EPS (p)   9.4p   4.8p   96%  

In order to assist shareholders’ understanding of the underlying performance of the business, adjusted results have been presented. The items that are excluded from adjusted results are reconciled to statutory results within notes 2 and 3 to the interim results.

Highlights

  • Group net revenue growth of 14%, with organic revenue growth of 8.7%
  • Adjusted profit before tax up 26% to £15.1m
  • Adjusted diluted earnings per share increased by 25% to 14.2p
  • Strong balance sheet with net debt of £25.6m (2017: £20.8m)
  • Significant client wins including Capital One, Waze, Diageo and AIG
  • Brandwidth, a UK-based innovation agency acquired in February
  • Technical, a specialist technical content and digital marketing business, acquired in July
  • Interim dividend up 20% from 1.8p to 2.16p per share

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

The pace of change in the marketing sector has shown no sign of slowing. Companies are increasingly focused on how consumers experience their brand through digital channels and especially mobile platforms. Next 15 remains committed to building and buying businesses that understand how to take advantage of these platforms, using technology and data to design and manage marketing programs. Our strong growth in the first half of the year is evidence of an effective strategy which we believe will continue to drive shareholder value.

For further information contact:

Next Fifteen Communications Group plc

Tim Dyson, Chief Executive Officer
+1 415 350 2801

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

Investec Bank plc

Keith Anderson, Neil Coleman, Darren Vickers
+44 (0) 20 7597 5970

Notes:

Organic revenue growth

Organic revenue growth is defined as the net revenue growth at constant currency excluding the impact of acquisitions, and the impact of the disposal of our Story business in the prior period.

Operating profit margin

Operating profit margin is calculated based on the operating profit as a percentage of net revenue.

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation.

Chairman and Chief Executive’s Statement

Next 15, the digital communications group, is pleased to report its interim results for the six months ended 31 July 2018.

During the period the Group’s net revenues increased by 14% to £106.8m (2017: £93.5m), while adjusted profit before tax increased by 26% to £15.1m (2017: £12.0m). Adjusted EBITDA for the six months period increased by 22% to £17.7m (2017: £14.5m), adjusted EPS increased by 25% to 14.2p and net debt remained relatively modest at £25.6m, following the acquisition of Brandwidth, an innovation consultancy, during the period. The group’s operating margin increased to 14.4% from 13.2% in the prior period.

Organic revenue growth was 8.7% for the six months led by our UK based agencies which recorded organic revenue growth of 14.9%. On a constant currency basis, the Group’s net revenue was up 19%.

The Group reported a statutory profit before tax of £10.3m compared with a statutory profit before tax of £5.2m in the prior period, while reported diluted earnings per share almost doubled to 9.4p compared with 4.8p in the prior period.

The strong trading performance has provided the Group with confidence that it is well placed to meet our expectations for the full year and as such the Board has increased the interim dividend by 20% to 2.16p per share.

Operational Review and Highlights

The group recently announced that it is merging its Text 100 and Bite businesses in the US and UK (Bite’s mainland Europe and APAC businesses were merged into Text 100 two years ago). The new agency will be headed by Bite CEO, Helena Maus.

Our US businesses saw organic revenue growth of 7%, with revenues increasing from $70.7m to $76.2m. Sterling’s strength against the US dollar and the disposal of most of the Story business resulted in a reduction in reported revenues of 2% to £55.8m from £57.0m. Beyond, M Booth, Outcast and Bite US grew their revenues significantly, whilst Text 100 US was held back after it ended its long-standing PR relationships with IBM and Lenovo. Operating margins reduced to 16.9% partly due to the investment in taking some of our UK brands to the US but also due to Beyond investing heavily in on-boarding a new signature client and in building out its capabilities in the US. We are expecting an improvement in our operating profit margin in our seasonally stronger second half.

Our UK businesses have increased revenues by 56% to almost £40.0m from £25.5m and the operating profit increased to £9.5m from £5.2m in the prior period. Operating margins have increased to 23.7% from 20.2% in the prior period due to a very strong performance from Beyond UK, Text UK, Twogether and our recent acquisitions. We have also benefitted from the operational restructuring we undertook in the prior period. Organic revenue growth was 14.9% in the period.

In EMEA we have seen an impressive improvement in both revenue and profitability, whilst in APAC we saw a modest decline in profitability due to client losses.

The Group is particularly pleased by the performance of its data and insight business, MIG Global, which accounted for approximately 8% of the Group’s revenue and is in an area of continued investment for Next 15.

                             
  Adjusted results   UK
£’000 		 

Europe &
Africa
£’000

  US
£’000 		  Asia Pacific
£’000 		  Head Office
£’000 		  Total
£’000 		 
  6 months ended

31 July 2018

                         
  Net revenue   39,958   4,202   55,812   6,804   -   106,776  
  Operating profit   9,451   628   9,433   517   (4,663)   15,366  
  Operating profit margin   23.7%   14.9%   16.9%   7.6%   -   14.4%  
  Organic revenue growth   14.9%   9.0%   7.0%   0.2%   -   8.7%  
  6 months ended

31 July 2017

                         
  Net revenue   25,542   3,773   57,040   7,111   -   93,466  
  Operating profit   5,165   287   10,321   602   (4,063)   12,312  
  Operating profit margin   20.2%   7.6%   18.1%   8.5%   -   13.2%  
  Organic revenue growth   3.5%   4.4%   1.5%   (0.8%)   -   1.9%  
             

Dividend

The Board has resolved to pay an interim dividend of 2.16p per share, which is a 20% increase on the interim dividend for last year. This will be paid to shareholders on 23 November 2018 who are registered at close of business on 26 October 2018.

Current Trading and Outlook

Looking to the full year, the Board is encouraged by recent trading and the prospects for the second half remain good. As a result, the Board remains optimistic about the outlook for the Group and is confident that it will meet its expectations for the full year.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS

    Six months ended   Six months ended
31 July 2018 31 July 2017
(Unaudited) (Unaudited)
  £’000   £’000  
Net revenue 106,776 93,466
Total operating charges   (89,094)   (79,008)  
EBITDA 17,682 14,458
Depreciation and Amortisation   (2,316)   (2,146)  
Operating profit   15,366   12,312  
Operating profit margin 14.4% 13.2%
Net finance expense (280) (333)
Share of profits of associate   9   24  
Profit before income tax 15,095 12,003
Tax   (3,017)   (2,401)  
Retained profit 12,078 9,602
             
Weighted average number of ordinary shares 77,891,708 73,561,342
  Diluted weighted average number of ordinary shares   82,863,429   81,544,242  
             
Adjusted earnings per share 15.1p 12.6p
  Diluted adjusted earnings per share   14.2p   11.4p  
 
Cash inflow from operating activities 7,743 4,177
Cash outflow on acquisition related payments (15,527) (9,976)
Net debt 25,565 20,848
 
Dividend (per share) 2.16p 1.8p
 

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

      Six months   Six months   12 months
ended ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) *Restated *Restated
(Unaudited) (Audited)
Note £’000 £’000
 
  Billings       135,577   113,921   243,485  
 
Revenue 127,931 108,473 233,922
Direct costs (21,155) (15,007) (37,111)
Net revenue 2 106,776 93,466 196,811
 
Staff costs 73,070 65,880 136,346
Depreciation 2,076 1,978 3,985
Amortisation 4,004 3,381 7,413
Other operating charges   17,094   15,075   31,842  
Total operating charges   (96,244)   (86,314)   (179,586)  
Operating profit 2   10,532   7,152   17,225  
 
Finance expense 6 (2,446) (2,405) (5,833)
Finance income 7 2,251 468 1,878
Share of profit from associate 9 24 26
             
Profit before income tax 3   10,346   5,239   13,296  
 
Income tax expense 4 (2,265) (1,044) (4,000)
             
Profit for the period   8,081   4,195   9,296  
 
Attributable to:
Owners of the parent 7,773 3,874 8,632
Non-controlling interests   308   321   664  
  8,081   4,195   9,296  
Earnings per share
Basic (pence) 8 10.0 5.3 11.6
Diluted (pence) 8 9.4 4.8 10.5

* See note 13 for details regarding the restatement following the adoption of IFRS 15

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 JULY 2018

    Six months   Six months   12 months
ended ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
 
Profit for the period 8,081 4,195 9,296
 
Other comprehensive income / (expense):
Items that may be reclassified into profit or loss
Exchange differences on translating foreign operations 3,074 (1,804) (5,427)
Net investment hedge   (616)   551   1,190  
2,458 (1,253) (4,237)
Items that will not be reclassified subsequently to profit or loss
Revaluation of investments   (430)   -   -  
Total other comprehensive income / (expense) for the period   2,028   (1,253)   (4,237)  
Total comprehensive income for the period   10,109   2,942   5,059  
 
Attributable to:
Owners of the parent 9,801 2,621 4,395
Non-controlling interests   308   321   664  
  10,109   2,942   5,059  
 

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2018

     

31 July 2018
(Unaudited)

  

31 July 2017
(Unaudited)

  

31 January 2018
(Audited)
 
Note £’000 £’000 £’000
Assets
Property, plant and equipment 15,931 14,819 13,567
Intangible assets 102,242 91,926 94,843
Investment in equity accounted associate 118 139 132
Trade investment 1,387 1,216 1,211
Deferred tax asset 9,806 10,515 9,794
Other receivables   671   540   535  
Total non-current assets 130,155 119,155 120,082
 
Trade and other receivables 64,996 54,762 49,538
Cash and cash equivalents 9 21,527 16,589 24,283
Corporation tax asset   807   940   784  
Total current assets 87,330 72,291 74,605
             
Total assets 217,485 191,446 194,687
 
Liabilities
Loans and borrowings 9 40,031 35,911 34,465
Deferred tax liabilities 4,216 3,426 3,869
Other payables 4,934 4,683 4,290
Provisions 439 116 141
Deferred consideration 10 1,657 - 1,784
Contingent consideration 10 10,421 15,228 13,271
Share purchase obligation 10   1,020   2,839   955  
Total non-current liabilities 62,718 62,203 58,775
 
Loans and borrowings 9 7,058 1,517 1,406
Trade and other payables 54,903 46,128 45,003
Provisions 651 699 1,405
Corporation tax liability 2,009 2,617 2,154
Deferred consideration 10 1,651 - 4,255
Contingent consideration 10 2,359 6,053 5,368
Share purchase obligation 10   630   -   -  
Total current liabilities 69,261 57,014 59,591
             
Total liabilities 131,979 119,217 118,366
             
TOTAL NET ASSETS   85,506   72,229   76,321  
Equity
Share capital 1,965 1,848 1,892
Share premium reserve 39,639 27,856 28,611
Foreign currency translation reserve 7,885 8,434 4,811
Other reserves (1,570) (1,593) (954)
Retained earnings   39,175   35,335   42,604  
Total equity attributable to owners of the parent 87,094 71,880 76,964
Non-controlling interests   (1,588)   349   (643)  
TOTAL EQUITY   85,506   72,229   76,321  

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

        Foreign       Equity    
Share currency attributable Non-
Share premium translation Other Retained to owners of controlling Total
capital reserve reserve

reserves1

earnings the Company interests equity
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
 
At 1 February 2017 (audited) 1,834 25,681 10,238 (2,144) 31,962 67,571 926 68,497
Profit for the period - - - - 3,874 3,874 321 4,195
  Other comprehensive income / (expense) for the period   -   -   (1,804)   551   -   (1,253)   -   (1,253)  
  Total comprehensive income / (expense) for the period   -   -   (1,804)   551   3,874   2,621   321   2,942  
Shares issued on satisfaction of vested share options 1 - - - (1) - - -
Shares issued on acquisitions 13 2,175 - - - 2,188 - 2,188
Movement in relation to share-based payments - - - - 2,493 2,493 - 2,493
Dividends to owners of the parent - - - - (2,761) (2,761) - (2,761)
Movement on reserves for non-controlling interests - - - - (232) (232) 232 -
  Non-controlling interest dividend   -   -   -   -   -   -   (1,130)   (1,130)  
  At 31 July 2017 (unaudited)   1,848   27,856   8,434   (1,593)   35,335   71,880   349   72,229  
Profit for the period - - - - 4,758 4,758 343 5,101
  Other comprehensive income / (expense) for the period   -   -   (3,623)   639   -   (2,984)   -   (2,984)  
  Total comprehensive income / (expense) for the period   -   -   (3,623)   639   4,758   1,774   343   2,117  
Shares issued on satisfaction of vested share options 39 - - - (76) (37) - (37)
Shares issued on acquisitions 5 755 - - - 760 - 760
Movement in relation to share-based payments - - - - 3,031 3,031 - 3,031
Dividends to owners of the parent - - - - (1,360) (1,360) - (1,360)
Movement on reserves for non-controlling interests - - - - 916 916 (916) -
  Non-controlling interest dividend   -   -   -   -   -   -   (419)   (419)  
  At 31 January 2018 as previously stated (audited)   1,892   28,611   4,811   (954)   42,604   76,964   (643)   76,321  
  Change in accounting policy (IFRS 9)2   -   -   -   -   48   48   -   48  
  At 1 February 2018 as restated   1,892   28,611   4,811   (954)   42,652   77,012   (643)   76,369  
Profit for the period - - - - 7,773 7,773 308 8,081
  Other comprehensive income / (expense) for the period   -   -   3,074   (616)   (430)   2,028   -   2,028  
  Total comprehensive income / (expense) for the period   -   -   3,074   (616)   7,343   9,801   308   10,109  
Shares issued on satisfaction of vested share options 55 7,764 - - (7,819) - - -
Shares issued on acquisitions 18 3,264 - - - 3,282 - 3,282
Obligation to purchase non-controlling interest - - - - - - (630) (630)
Movement in relation to share-based payments - - - - 1,105 1,105 - 1,105
Dividends to owners of the parent - - - - (3,535) (3,535) - (3,535)
Movement on reserves for non-controlling interests - - - - (571) (571) 571 -
Non-controlling interest purchased in the period - - - - - - (135) (135)
  Non-controlling interest dividend   -   -   -   -   -   -   (1,059)   (1,059)  
  At 31 July 2018 (unaudited)   1,965   39,639   7,885   (1,570)   39,175   87,094   (1,588)   85,506  

1 Other reserves include ESOP reserve, hedging reserve, share purchase reserve and merger reserve.
2 Refer to note 13

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

          Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Cash flows from operating activities
Profit for the period 8,081 4,195 9,296
Adjustments for:
Depreciation 2,076 1,978 3,985
Amortisation 4,004 3,381 7,413
Finance expense 2,446 2,405 5,833
Finance income (2,251) (468) (1,878)
Share of profit from equity accounted associate (9) (24) (26)
Loss on sale of property, plant and equipment 230 10 147
Income tax expense 2,265 1,044 4,000
Share-based payment charge 1,078 2,019 4,284
             
Net cash inflow from operating activities before changes in working capital 17,920 14,540 33,054
 
Change in trade and other receivables (9,430) (11,514) (5,860)
Change in trade and other payables 2,677 795 2,143
Change in other liabilities   (289)   2,261   (472)  
(7,042) (8,458) (4,189)
             
Net cash generated from operations before tax outflows 10,878 6,082 28,865
 
Income taxes paid (3,135) (1,905) (4,284)
             
Net cash inflow from operating activities 7,743 4,177 24,581
 
Cash flows from investing activities
Acquisition of subsidiaries and trade and assets, net of cash acquired (6,358) (5,073) (9,824)
Payment of contingent and deferred consideration (8,617) (4,439) (5,062)
Purchase of investment (552) (464) (464)
Acquisition of property, plant and equipment (3,667) (1,460) (2,974)
Proceeds on disposal of property, plant and equipment 23 3 7
Acquisition of intangible assets (927) (504) (1,193)
Net movement in long-term cash deposits (83) 120 (6)
Interest received 188 42 117
             
Net cash outflow from investing activities (19,993) (11,775) (19,399)
 

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW (Continued)

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

          Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
 
 
Cash flows from financing activities
Capital element of finance lease rental repayment (3) (13) (17)
Net movement in bank borrowings 10,512 3,970 4,484
Interest paid (469) (375) (831)
Dividend and profit share paid to non-controlling interest partners (1,059) (1,130) (1,549)
Dividends paid to shareholders of the parent - - (4,121)
             
Net cash inflow / (outflow) from financing activities 8,981 2,452 (2,034)
             
Net (decrease) / increase in cash and cash equivalents   (3,269)   (5,146)   3,148  
 
Cash and cash equivalents at beginning of the period 24,283 22,072 22,072
Exchange gains / (losses) on cash held 513 (337) (937)
             
Cash and cash equivalents at end of the period   21,527   16,589   24,283  
 

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 31 JULY 2018

1) BASIS OF PREPARATION

The financial information in these results 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 principal accounting policies used in preparing the results are those the Group has applied in its financial statements for the year ended 31 January 2018 except for the adoption of the following accounting standards effective for the Group from 1 February 2018:

  • IFRS 15 Revenue from contracts with customers
  • IFRS 9 Financial instruments

Refer to note 13 for further details on the impact on the Group’s results and the adjustments made to prior periods.

The comparative financial information for the year ended 31 January 2018 has been derived from the audited statutory financial statements for that period, adjusted as detailed in note 13. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor’s report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

2) SEGMENT INFORMATION

Measurement of operating segment profit

The Board of Directors assesses the performance of the operating segments based on a measure of adjusted operating profit before intercompany recharges, which reflects the internal reporting measure used by the Board of Directors. This measurement basis excludes the effects of certain acquisition related costs and goodwill impairment charges. Other information provided to them is measured in a manner consistent with that in the financial statements. Head office costs relate to group costs before allocation of intercompany charges to the operating segments. Intersegment transactions have not been separately disclosed as they are not material. The Board of Directors does not review the assets and liabilities of the Group on a segmental basis and therefore this is not separately disclosed.

      Europe and     Asia   Head  
UK Africa US Pacific Office Total
£’000 £’000 £’000 £’000 £’000 £’000
                             
Six months ended 31 July 2018 (Unaudited)
Net revenue 39,958 4,202 55,812 6,804 - 106,776
Adjusted operating profit / (loss) 9,451 628 9,433 517 (4,663) 15,366
Adjusted operating profit margin 23.7% 14.9% 16.9% 7.6% - 14.4%
  Organic revenue growth   14.9%   9.0%   7.0%   0.2%   -   8.7%  
Six months ended 31 July 2017 (Unaudited)
Net revenue 25,542 3,773 57,040 7,111 - 93,466
Adjusted operating profit / (loss) 5,165 287 10,321 602 (4,063) 12,312
Adjusted operating profit margin 20.2% 7.6% 18.1% 8.5% - 13.2%
  Organic revenue growth   3.5%   4.4%   1.5%   (0.8%)   -   1.9%  
Twelve months ended 31 January 2018 (Audited)
Net revenue 58,329 7,851 115,941 14,690 – 196,811
Adjusted operating profit / (loss) 12,984 752 23,181 2,002 (8,893) 30,026
Adjusted operating profit margin 22.3% 9.6% 20.0% 13.6% – 15.3%
  Organic revenue growth   7.6%   3.4%   5.1%   (0.7%)   –   5.2%  
 

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

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

        Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
 
Segment adjusted operating profit 15,366 12,312 30,026
Amortisation of acquired intangibles (3,764) (3,212) (7,036)
Share based payment charge (note 3) (578) (1,452) (3,050)
Charges associated with office moves (note 3) - - (525)
Restructuring costs (note 3) (172) (427) (1,700)
Deal costs (note 3)   (320)   (69)   (490)  
Operating profit   10,532   7,152   17,225  
 

3) RECONCILIATION OF ADJUSTED FINANCIAL MEASURES

        Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
 
Profit before income tax 10,346 5,239 13,296
Unwinding of discount on deferred and contingent consideration and share purchase obligation payable 1,282 1,068 2,510
Change in estimate of future contingent consideration and share purchase obligation payable (1,367) 536 731
Share-based payment charge1 578 1,452 3,050
Restructuring costs 172 427 1,700
Charge associated with office moves - - 525
Deal costs2 320 69 490
Amortisation of acquired intangibles   3,764   3,212   7,036  
Adjusted profit before income tax   15,095   12,003   29,338  
 

Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader, and it is a measure of performance used in the calculation of the adjusted earnings per share. This measure is considered to best represent the underlying performance of the business and so it is used for the vesting of employee performance shares. The adjusting items are consistent with those in the prior period.

1 This charge relates to transactions whereby a restricted grant of brand equity was given to key management in ODD Communications Limited and Twogether Creative Limited (2017: Text 100 LLC, Bite Communications LLC and The Outcast Agency LLC) at nil cost which holds value in the form of access to future profit distributions as well as any future sale value under the performance-related mechanism set out in the share sale agreement. This value is recognised as a one-

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

off share-based payment in the income statement. The charge also includes acquisition related payments linked to the continuing employment of the sellers which is being recognised over the required period of employment.

2 This charge relates to third party professional fees incurred during acquisitions, see note 11.

4) TAXATION

The tax charge for the six months ended 31 July 2018 is based on the Group’s estimated effective tax rate for the year ending 31 January 2019 (20%).

5) DIVIDENDS

An interim dividend of 2.16p (six months ended 31 July 2017: 1.8p) per ordinary share will be paid on 23 November 2018 to shareholders listed on the register of members on 26 October 2018. Shares will go ex-dividend on 25 October 2018.

6) FINANCE EXPENSE

        Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Financial liabilities at amortised cost
Bank interest payable 467 375 831
Financial liabilities at fair value through profit and loss
Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable 1,282 1,068 2,510
Change in estimate of future contingent consideration and share purchase obligation payable

695

962

2,492

 
Other
Other interest payable   2   -   -  
Finance expense   2,446   2,405   5,833  
 

7) FINANCE INCOME

        Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Financial assets at amortised cost
Bank interest receivable 45 29 98
Financial assets at fair value through profit and loss
Change in estimate of future contingent consideration and share purchase obligation payable 2,062 426 1,761
Other interest receivable   144   13   19  
Finance income   2,251   468   1,878  
 

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

8) EARNINGS PER SHARE

        Twelve months
Six months ended Six months ended ended
31 July 2018 31 July 2017 31 January 2018
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
 
Earnings attributable to ordinary shareholders 7,773 3,874 8,632
Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable 1,264 1,019 2,445
Change in estimate of future contingent consideration and share purchase obligation payable (1,349) 607 822
Share based payment charge 572 899 2,498
Restructuring costs 139 345 1,241
Costs associated with office moves - - 354
Amortisation of acquired intangibles 3,053 2,468 5,506
US rate change - - 817
Deal costs 317 69 489
Adjusted earnings attributable to ordinary shareholders 11,769 9,281 22,804
 
Number Number Number
 
Weighted average number of ordinary shares 77,891,708 73,561,342 74,344,883
Dilutive LTIP shares 1,156,602 2,737,223 1,297,444
Dilutive Growth Deal shares 3,084,835 4,338,031 5,336,533
Other potentially issuable shares 730,284 907,646 1,099,352
     
Diluted weighted average number of ordinary shares 82,863,429 81,544,242 82,078,212
 
 
Basic earnings per share 10.0p 5.3p 11.6p
Diluted earnings per share 9.4p 4.8p 10.5p
Adjusted earnings per share 15.1p 12.6p 30.7p
Diluted adjusted earnings per share 14.2p 11.4p 27.8p
 

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 performance shares. The only difference between the adjusting items in this note and the figures in notes 2 and 3 is the tax effect of those adjusting items.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

9) NET DEBT

The HSBC Bank revolving credit facility of £40m expires in 2022 and therefore the outstanding balance has been classified in non-current borrowings. The £20m loan drawn from HSBC is repayable in annual instalments (see note 11) and is classified in non-current borrowings with the exception of the instalment due in less than one year.

    31 July 2018   31 July 2017   31 January 2018
(Unaudited) (Unaudited) (Audited)

 

£’000

£’000 £’000
 
Total loans and borrowings 47,089 37,428 35,871
Obligations under finance leases 3 9 5
Less: cash and cash equivalents   (21,527)   (16,589)   (24,283)  
Net debt   25,565   20,848   11,593  
Share purchase obligation 1,650 2,839 955
Contingent consideration 12,780 21,281 18,639
Deferred consideration   3,308   -   6,039  
  43,303   44,968   37,226  
 

10) OTHER FINANCIAL LIABILITIES

    Deferred   Contingent   Share purchase
consideration consideration obligation
£’000 £’000 £’000
                 
  At 1 February 2017 (Audited)   -   14,905   3,433  
Arising during the period - 7,578 -
Change in estimate - 859 (323)
Exchange differences - (40) (50)
Utilised - (2,910) (400)
  Unwinding of discount   -   889   179  
  At 31 July 2017 (Unaudited)   -   21,281   2,839  
Arising during the period 500 708 -
Change in estimate - 281 (86)
Exchange differences - (65) (77)
Utilised (360) (809) -
Written off - (21) -
Reclassification 5,586 (3,789) (1,797)
  Unwinding of discount   313   1,053   76  
  At 31 January 2018 (Audited)   6,039   18,639   955  
Arising during the period 842 973 630
Change in estimate - (1,293) (74)
Exchange differences - 16 79
Utilised (4,255) (6,095) -
Reclassification 445 (445) -
  Unwinding of discount   237   985   60  
  At 31 July 2018 (Unaudited)   3,308   12,780   1,650  
Current 1,651 2,359 630
Non-current 1,657 10,421 1,020
 

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

11) ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

HSBC Facility

On 5 February 2018 the Group extended its facilities agreement with HSBC to include a loan of £20m in addition to the RCF of £40m which is available until 5 July 2022. The £20m was drawn down on 9 February 2018 and is repayable in equal annual instalments. The last repayment is due in December 2021 and the loan bears interest at the same margin plus LIBOR as the RCF.

Brandwidth

On 6 February 2018, Next 15 purchased the entire issued share capital of Brandwidth Group Limited and its subsidiaries (‘Brandwidth”), a UK-based innovation agency bringing significant digital skills to the Group, for initial consideration of £6.2m. Further consideration is payable based on the profit before interest and tax of Brandwidth for the year to 30 June 2018 of up to £3.3m in September 2018 and £0.8m in April 2020.

Technical

On 12 July 2018, Next 15 purchased Technical Associates Group (“TAG”) through the entire issued share capital of Technical Publicity Limited, a specialist technical content and digital marketing business focused on the industrial engineering sector, for initial consideration of £2.2m. Further deferred consideration of £0.6m is payable in April 2020. Contingent consideration based on the combined EBIT performance of TAG and Publitek, an existing Next 15 business, is also payable in April 2020.

12) EVENTS AFTER THE BALANCE SHEET DATE

The group announced that it is merging its Text 100 and Bite businesses in the UK and US (having previously merged the businesses in APAC and continental Europe). This action is likely to lead to material restructuring costs in the second half.

13) CHANGE IN ACCOUNTING POLICY

This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on the group’s financial statements and also discloses the new accounting policies that have been applied from 1 February 2018, where they are different to those applied in prior periods.

IFRS 9

IFRS 9 has been adopted without restating comparative information. The adjustments arising from the impact of IFRS 9 are not reflected in the balance sheet at 31 January 2018 however they are recognised in the opening balance sheet on 1 February 2018.

The adoption of IFRS 9 from 1 February 2018 resulted in the following changes for the Group.

The Group’s financial assets that are subject to IFRS 9’s new expected credit loss model are its trade and other receivables and cash balances. The Group has revised its impairment methodology as a result. The impact of the change in impairment methodology on the Group’s brought forward retained earnings is immaterial.

The Group has opted to continue to account for its net investment hedges under IAS 39 rather than transition to IFRS 9.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

The Group has opted to designate its investment in equity instruments at fair value through other comprehensive income (“FVTOCI”) as allowed under IFRS 9 as they are not held for trading. An adjustment has been made to opening retained earnings to reflect the adjustment to fair value for these unquoted investments at 1 February 2018:

    As previously stated at   Adjustment required   As restated at 1
31 January 2018 under IFRS 9 February 2018
£’000 £’000 £’000
Trade investments 1,211 48 1,259
 

IFRS 15

The group has adopted IFRS 15 Revenue from Contracts with Customers from 1 February 2018 which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in IFRS 15, the group has adopted IFRS 15 retrospectively and has restated comparatives for the 2018 financial year. In summary, the following adjustments were made to the reported financial performance.

    Six months ended   Twelve months ended
31 July 2017 31 January 2018
Impact on profit for the period / year £'000 £'000
 
Revenue
Increase due to principal versus agent considerations (i) 15,007 37,111
 
Direct costs
Increase due to principal versus agent considerations (i) 15,007 37,111
  .      
Impact on net revenue   -   -  
 

(i) Under IFRS 15 the group is considered principal for certain third-party costs which are billed onto clients, where the Group previously accounted for these costs as agent. An adjustment to increase revenue has therefore been made to reflect this change, with a corresponding increase in direct costs. As a result, there has been no impact to net revenue or profit for the prior periods.

The Group also assessed whether the adoption of IFRS 15 had any impact on the timing of revenue recognition. Under IAS 18 the Group recognised revenue based on stage of completion whereas under IFRS 15 the recognition should be when a customer obtains control of the goods or service. Following assessment of the contracts held by the Group, it was determined that the impact of aligning the Group’s revenue recognition with performance obligations to the customer did not have a material impact on the revenue in the prior periods. Therefore, no restatement has been made.

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