Half-yearly Report

Half-yearly Report

Next Fifteen Communications Plc

Next Fifteen Communications Group plc

Interim results for the six months ended 31 January 2010

Next Fifteen Communications Group plc ("Next Fifteen" or "the Group"), the global public relations consultancy group, today announces its results for the six months ended 31 January 2010.

Financial Highlights:

• Revenues increased by 2% to £34.2 million (2009: £33.5 million)
• Profit before tax increased by 44% to £2.08 million (2009: £1.44 million)
• Earnings per share increased by 51% to 2.58p (2009: 1.71p) (see note 7)
• Interim dividend increased by 5.6% to 0.475p per share (2009: 0.45p)
• Net debt of £1.4m following £4.3m of acquisition related payments in the period
• EBITDA increased to £3.6m from £2.6m in the comparative period

Corporate Progress:

• Acquired 100% of New York based M Booth & Associates, a leading consumer focused PR consultancy
• Acquired 55% of the marketing communications trading subsidiaries of Upstream Asia to create Bite Asia
• Acquired a further 30% of US policy communications business, 463 Communications, taking Group stake to 70%
• Created new digital consultancy, Project Metal
• Expanded relationship with a number of clients including HP and won new retained clients including Harmon International, Schneider Electric, Bloom Energy and NetFlix.

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

"This was always going to be an unusual period for comparing results as the global recession didn’t really hit our business until January 2009 and thus had little impact on the comparative period. That said, the business has now recovered to pre-recession revenue levels and is headed in a positive direction. Given current trading, the Board is confident that we will meet our targets, which would result in a record year for the Group.”

For further information contact:

Next Fifteen Communications Group
Tim Dyson, Chief ExecutiveTim Dyson, Chief Executive
001 415 350 2801 001 415 350 2801

David Dewhurst, Finance Director
[phone]+44 (0)7974 161183

Bite Communications
Liam JacklinLiam Jacklin
[phone]+44 (0)20 8735 9727
[phone]+44 (0)7709 304115
[e-mail]

Elijah Lawal
[phone]+44 (0)20 8735 9718
[phone]+44 (0)7875 742995
[e-mail]

Canaccord Adams
Mark WilliamsMark Williams
Henry Fitzgerald O’ConnorHenry Fitzgerald O’Connor
[phone] [phone]

Attached:
Chairman and Chief Executive’s StatementChairman and Chief Executive’s Statement
Consolidated Income StatementConsolidated Income Statement
Consolidated Statement of Comprehensive IncomeConsolidated Statement of Comprehensive Income
Consolidated Balance SheetConsolidated Balance Sheet
Consolidated Statement of Changes in EquityConsolidated Statement of Changes in Equity
Consolidated Statement of Cash FlowConsolidated Statement of Cash Flow
Notes to the Interim ResultsNotes to the Interim Results

Chairman and Chief Executive’s Statement

Next Fifteen Communications Group plc (“the Group”), the global public relations consultancy group, has reported results for the six months to 31 January 2010 which, combined with current trading, indicate the Group is heading for a record year. During the period, the Group reported revenue up 2% at £34.2m (2009: £33.5m). After one-off costs, profit before tax was up 44% to £2.08m (2009: £1.44m); without these one-off costs, adjusted profit was £2.28m (2009: £3.55m) (see note 3). Basic earnings per share were up 51% to 2.58p (2009: 1.71p) (see note 7). During the period, the Group made acquisition-related payments of £4.3m following the acquisition of M Booth in New York and the PR assets of Upstream Asia and a further stake in 463 Communications. As a result, the Group had a net-debt of £1.43m at 31 January 2010. The Board has decided to increase the interim dividend by 5.6% to 0.475p (2009: 0.45p). This reflects the Board’s overall confidence in current trading and the Group’s ability to meet its expectations for the full year.

This was always going to be an unusual period for comparing results as the global recession didn’t really hit the Group’s business until January 2009 and thus had little impact on the comparative period. That said, the business has now recovered to pre-recession revenue levels and is headed in a positive direction. Given current trading, the Board is confident that the Group will meet its targets, which would result in a record year for the Group. During the period, the Group acquired M Booth, a leading consumer agency in New York, and Upstream Asia’s PR businesses. The Upstream Asia businesses have been integrated into Bite, making it the Group’s second global agency brand. The Group has also created a core digital communications agency, Project Metal to capitalize on the strengths the Group has in areas such as social media, social networking and search. The new business pipeline remains strong and the Group is pleased to report the addition of HP (global client), Harmon International, Schneider Electric, British Airways, Budweiser, Bloom Energy, and NetFlix as retained clients.

The Group made a series of investments during the second half of the 2009 calendar year despite the tough economic environment. It believes these investments leave it well placed to capitalize as economies around the world improve. To date, the Group has seen a strong recovery in its US and Asia businesses with more moderate improvements in the UK and mainland Europe. A full recovery for all markets is expected by 2011. The Group would also like shareholders to note that, unlike many other comparable agency groups, it is not exposed to any significant government contracts. While such contracts may well have benefited the Group in 2009, indications are that government spending will be substantially lower in 2010 and beyond.

Prospects

The Group expects to meet its targets for the year, even after taking into account the investment it has made in Project Metal and some legacy restructuring costs that relate to trading conditions in the prior financial year, but which had to be booked in the first half of this year due to the final timing of the actions. The Group remains acquisitive, though its focus remains on growing its existing businesses and improving overall margins. For the full year the Group is expecting net margins of just below 10%, bringing it back towards pre-recession levels. It is also expecting to see its balance sheet strengthen further with positive cash flows eliminating its net debt, leaving it well placed to invest for further growth.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

		Â	Six months ended 31 January 2010January 2010 (Unaudited)(Unaudited)			Â	Six months ended 31 January 2009January 2009 (Unaudited)(Unaudited) (Restated)(Restated)			Â	Year ended 31 July 200931 July 2009 (Audited)(Audited)
	Note		£’000	Â	£’000		£’000	Â	£’000		£’000	Â	£’000
													Â
Billings					42,650				39,388				77,287
Â	Â	Â	Â	Â	Â	Â	Â	Â	Â	Â	Â	Â	Â
													Â
Revenue	2				34,188				33,462				65,394
													Â
Staff costs			23,769				22,344				43,792
Depreciation			469				612				1,168
Amortisation			503				99				513
Reorganisation costs			-				700				1,950
Other operating charges			6,816				7,815				14,121
													Â
Total operating charges					(31,557)				(31,570)				(61,544)
					Â				Â				Â
													Â
Operating profit	2				2,631				1,892				3,850
													Â
Finance expense	6				(579)				(697)				(839)
Finance income					31				98				147
Net finance expense	Â				(548)				(599)				(692)
													Â
													Â
Share of profit of equity accounted associate					-				151				-
Profit before income tax	2,3				2,083				1,444				3,158
													Â
Income tax expense	4				(625)				(512)				(884)
													Â
Profit for the period					1,458				932				2,274
													Â
Attributable to:
Owners of the parent					1,384				914				1,932
Non-controlling interests					74				18				342
													Â
					1,458				932				2,274
													Â
Earnings per share	7
Basic (pence)					2.58				1.71				3.67
Diluted (pence)					2.41				1.70				3.66

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

Â

Six months ended 31 January 201031 January 2010 (Unaudited)(Unaudited)

Â

Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited)

Â

Year ended 31 July 200931 July 2009 (Audited)(Audited)

Â

£’000

Â

£’000

£’000

Â

£’000

£’000

Â

£’000

Â

Profit for the period

1,458

932

2,274

Â

Other comprehensive income:

Exchange differences on translating foreign operations

441

3,295

1,540

Translation differences on long-term foreign currency intercompany loans

181

-

140

Â

Â

Â

Other comprehensive income for the period

622

3,295

1,680

Â

Â

Â

Total comprehensive income for the period

2,080

4,227

3,954

Â

Total comprehensive income attributable to:

Owners of the parent

2,006

4,209

3,612

Non-controlling interests

74

18

342

Â

Â

Â

Â

2,080

4,227

3,954

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED BALANCE SHEET

AS AT 31 JANUARY 2010

		Â	31 January 2010 (Unaudited)(Unaudited)			Â	31 January 2009 (Unaudited)(Unaudited)			Â	31 July 2009 (Audited)(Audited) Â
			£’000	Â	£’000		£’000	Â	£’000		£’000	Â	£’000
Assets
													Â
Property, plant and equipment			1,999				2,556				1,949
Intangible assets			27,767				19,167				18,441
Investments in equity accounted associate			-				365				-
Deferred tax asset			1,585				1,637				1,695
Other receivables			673				997				533
Total non-current assets					32,024				24,722				22,618
													Â
Trade and other receivables			21,484				17,358				14,595
Cash and cash equivalents			5,951				6,219				7,130
Corporation tax asset			870				1,173				1,115
Total current assets					28,305				24,750				22,840
Â
Total assets					60,329				49,472				45,458
													Â
Liabilities
													Â
Loans and borrowings			7,035				6,377				4,922
Deferred tax liabilities			1				9				42
Other payables			87				256				73
Provisions			309				-				282
Contingent consideration			4,008				-				-
Share purchase obligation			1,566				-				-
Total non-current liabilities					(13,006)				(6,642)				(5,319)
													Â
Loans and borrowings			163				-				156
Trade and other payables			17,916				13,952				13,679
Corporation tax liability			693				649				559
Contingent consideration			1,577				288				228
Derivative financial liabilities			410				2,005				615
Share purchase obligation			175				-				-
Total current liabilities					(20,934)				(16,894)				(15,237)
													Â
Total liabilities					(33,940)				(23,536)				(20,556)
													Â
TOTAL NET ASSETS					26,389				25,936				24,902
Equity
Share capital					1,401				1,381				1,381
Share premium reserve					5,157				5,157				5,157
Merger reserve					3,493				3,075				3,075
Share purchase reserve					(1,684)				-				-
Foreign currency translation reserve					1,790				3,104				1,349
ESOP reserve					(642)				(647)				(644)
Treasury shares					(595)				(594)				(595)
Retained earnings					16,453				14,460				14,424
					Â				Â				Â
Total equity attributable to equity holders of the Company					25,373				25,936				24,147
													Â
Non-controlling interests					1,016				-				755
													Â
TOTAL EQUITY					26,389				25,936				24,902

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

	Â	Share capitalcapital	Â	Share premiumpremium reservereserve	Â	Merger reserve¹reserve¹	Â	Share purchasepurchase reserve²reserve²	Â	Foreign currencycurrency translationtranslation reserve³reserve³	Â	ESOP reservereserve4	Â	Treasury sharesshares5	Â	Retained earningsearnings	Â	Equity attributable toattributable to owners of theowners of the CompanyCompany	Â	Non-controlling interestsinterests	Â	Total equityequity
		£’000		£’000		£’000		£’000		£’000		£’000		£’000		£’000		£’000		£’000		£’000
																						Â
At 1 August 2008 (audited)		1,354		5,157		2,659		(1,380)		(191)		(663)		(504)		12,960		19,392		246		19,638
Total comprehensive income for the period		-		-		-		-		3,295		-		-		914		4,209		18		4,227
Acquisition of non-controlling interest		-		-		-		-		-		-		-		-		-		(264)		(264)
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		-		-		-		-		-		-		-		190		190		-		190
Movement due to ESOP share option exercises		-		-		-		-		-		16		-		5		21		-		21
Purchase of own shares		-	Â	-	Â	-	Â	-	Â	-	Â	-	Â	(90)	Â	-	Â	(90)	Â	-	Â	(90)
At 31 January 2009 (unaudited)		1,381		5,157		3,075		-		3,104		(647)		(594)		14,460		25,936		-		25,936
																						Â
Total comprehensive income for the period		-		-		-		-		(1,755)		-		-		1,158		(597)		324		(273)
Dividends		-		-		-		-		-		-		-		(900)		(900)		-		(900)
Non-controlling interest on business combination		-		-		-		-		-		-		-		-		-		431		431
Movement in relation to share-based payments		-		-		-		-		-		-		-		(247)		(247)		-		(247)
Deferred tax on share-based payments		-		-		-		-		-		-		-		7		7		-		7
Movement due to ESOP share option exercises		-		-		-		-		-		3		-		39		42		-		42
Purchase of own shares		-		-		-		-		-		-		(1)		-		(1)		-		(1)
Non-controlling interest dividend		-		-		-		-		-		-		-		(226)		(226)		-		(226)
Revaluation of investment in associate		-	Â	-	Â	-	Â	-	Â	-	Â	-	Â	-	Â	133	Â	133	Â	-	Â	133
At 31 July 2009 (audited)		1,381		5,157		3,075		-		1,349		(644)		(595)		14,424		24,147		755		24,902
																						Â
Total comprehensive income for the period		-		-		-		-		441		-		-		1,565		2,006		74		2,080
Increase in shareholding of subsidiary		-		-		-		-		-		-		-		-		-		187		187
Shares issued on acquisitions		20		-		418		-		-		-		-		-		438		-		438
Movement in share purchase obligation		-		-		-		(1,684)		-		-		-		-		(1,684)		-		(1,684)
Movement in relation to share-based payments		-		-		-		-		-		-		-		313		313		-		313
Deferred tax on share-based payments		-		-		-		-		-		-		-		249		249		-		249
Movement due to ESOP share option exercises		-		-		-		-		-		2		-		17		19		-		19
Non-controlling interest dividend		-	Â	-	Â	-	Â	-	Â	-	Â	-	Â	-	Â	(115)	Â	(115)	Â	-	Â	(115)
At 31 January 2010 (unaudited)		1,401	Â	5,157	Â	3,493	Â	(1,684)	Â	1,790	Â	(642)	Â	(595)	Â	16,453	Â	25,373	Â	1,016	Â	26,389

¹ Shares issued as part of the consideration in a business combination are measured at their fair value, and the difference between the nominal value and fair value of the shares issued is recognised in the merger reserve.

² This relates to the share purchase obligation of 463 Communications LLC (“463 LLC”) and Upstream Marketing and Communications Inc (“Upstream Asia”) (period to 31 January 2009: relates to Lexis Public Relations Limited. The obligation was settled in October 2008).

³ The foreign currency translation reserve is used to record exchange differences arising from the translation of financial statements of overseas subsidiaries.

⁴ The ESOP Trust's investment in the Group's shares is deducted from equity in the consolidated balance sheet as if they were treasury shares and presented in the ESOP reserve.

⁵ When the Group re-acquires its own equity instruments, those instruments (treasury shares) are deducted from equity and presented in the treasury shares reserve.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

	Â	Six months ended 31 January 201031 January 2010 (Unaudited)(Unaudited)			Â	Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited) (Restated)(Restated)			Â	Year ended 31 July 200931 July 2009 (Audited)(Audited)
		£’000	Â	£’000		£’000	Â	£’000		£’000	Â	£’000
												Â
Cash flows from operating activities
												Â
Profit for the period		1,458				932				2,274
Adjustments for:
Depreciation		469				612				1,168
Amortisation		503				99				513
Finance income		(31)				(98)				(147)
Finance expense		579				697				839
Share of profit from equity-accounted associate		-				(151)				-
Loss/(profit) on sale of property, plant and equipment		3				(12)				5
Income tax expense		625				512				884
Share-based charge/(credit)		313				190				(57)
Movement in fair value of forward foreign exchange contracts		(215)				960				(325)
												Â
Net cash inflow from operating activities before changes in working capital				3,704				3,741				5,154
												Â
Change in trade and other receivables		(6,102)				1,223				2,999
Change in trade and other payables		5,223				(2,604)				(2,174)
Increase in provision		27				-				282
				(852)				(1,381)				1,107
												Â
Net cash generated from operations				2,852				2,360				6,261
												Â
Income taxes paid				(662)				(760)				(1,476)
												Â
Net cash inflow from operating activities				2,190				1,600				4,785
												Â
Cash flows from investing activities
												Â
Acquisition of subsidiaries, net of cash acquired		(4,266)				(4,399)				(4,448)
Acquisition costs		(83)				(4)				(101)
Proceeds on disposal of property, plant and equipment		1				35				40
Acquisition of property, plant and equipment		(481)				(229)				(415)
Acquisition of intangible assets		(156)				(123)				(134)
Payments for long-term cash deposits		(117)				(176)				-
Receipts from long-term cash deposits		-				-				202
Interest received		31				98				147
												Â
Net cash outflow from investing activities				(5,071)				(4,798)				(4,709)

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

	Â	Six months ended 31 January 201031 January 2010 (Unaudited)(Unaudited)			Â	Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited) (Restated)(Restated)			Â	Year ended 31 July 200931 July 2009 (Audited)(Audited)
			Â				Â				Â
		£’000		£’000		£’000		£’000		£’000		£’000
												Â
Net cash outflow from investing activities b/f				(5,071)				(4,798)				(4,709)
												Â
Cash flows from financing activities
												Â
Proceeds from sale of own shares		19				21				63
Acquisition of own shares		-				(90)				(91)
Proceeds of bank borrowings		2,750				-				-
Repayment of bank borrowings		(845)				(500)				(1,462)
Capital element of finance lease rental repayment		(80)				(242)				(225)
Interest paid		(227)				(256)				(489)
Non-controlling interest dividend paid		(115)								(226)
Dividends paid to shareholders of the parent		-				-				(900)
												Â
Net cash inflow/(outflow) from financing activities				1,502				(1,067)				(3,330)
Net decrease in cash and cash equivalents				(1,379)				(4,265)				(3,254)
Cash and cash equivalents at beginning of the period				7,130				9,525				9,525
Exchange gains on cash held				200				959				859
				Â				Â				Â
Cash and cash equivalents at end of period				5,951				6,219				7,130

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

1) BASIS OF PREPARATION

The financial information in these interim 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 interim results are those the Group expects to apply in its financial statements for the year ending 31 July 2010. The financial information for the six months ended 31 January 2010 and the six months ended 31 January 2009 has not been reviewed, is unaudited and does not constitute the Group's statutory financial statements for those periods, 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.

Reclassification of open forward foreign exchange gains and losses

The income statement for the six months ended 31 January 2009 presented gains or losses on forward foreign exchange contracts that were settled during the period within other operating charges. The movement in the fair value of open forward foreign exchange contracts at the opening and closing balance sheet dates was presented within finance expense. The income statement for the period ended 31 January 2009 has been restated to ensure that both these items are presented within other operating charges. This resulted in a decrease in finance expense and a corresponding increase in other operating charges of £960,000. There is no impact on profit or cash flow for the period.

Changes in accounting policies

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

IAS 1, Presentation of Financial Statements (revised). The revised standard prohibits the presentation of items of income and expense (that is ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes in equity. All ‘non-owner changes in equity’ are required to be shown in a performance statement. The Group has elected to present two statements: a consolidated income statement and a consolidated statement of comprehensive income. The interim financial statements have been prepared under the revised disclosure requirements.

IFRS 8, Operating segments. IFRS 8 replaces IAS 14, Segment reporting. The standard requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes. Operating segments are reported in a manner consistent with the internal reporting to the chief operating decision maker, which has been identified as the Board of Directors. The amendment to IFRS 8 'Operating Segments' that is included in the April 2009 issue of 'Improvements to IFRSs' has been adopted. This amendment removes the requirement for disclosure of total segment assets if they are not regularly reported to the chief operating decision maker.

IFRS 3 (revised), Business combinations and consequential amendments to IAS 27, Consolidation and separate financial statements (revised). The revised standard continues to apply the acquisition method to business combinations, with significant changes. The key impact to the Group in the period is that all acquisition costs must be expensed, contingent consideration must be measured at fair value at the acquisition date and any subsequent movements must be recognised in the consolidated income statement. In addition, equity interests held prior to control being obtained must be re-measured at fair value at the acquisition date, with any gain or loss recognised in the consolidated income statement. Increases in ownership interest in a subsidiary that do not result in a change of control are treated as transactions amongst equity holders and reported within equity. Both the revised IFRS 3 and amendment to IAS 27 are applied prospectively; no restatement is required.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

2) SEGMENT INFORMATION

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

In accordance with IFRS 8, Operating Segments, 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 accounting policies of the operating segments are the same as those described in the Group Report for the year ended 31 July 2009.

The Board of Directors assesses the performance of the operating segments based on a measure of operating profit. Other information provided to them is measured in a manner consistent with that in the financial statements.

For segmental reporting purposes, operating profit is stated before foreign exchange gains and losses, reorganisation costs and elimination of inter-segment transactions. This reflects the internal reporting measure used by the Board of Directors. Group costs relate to head office costs that cannot be allocated to the operating segments.

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

Â

UK

Â

Europe and Africaand Africa

Â

US and CanadaCanada

Â

Asia PacificPacific

Â

Other segmentssegments

Â

Total

Â

£’000

£’000

£’000

£’000

£’000

£’000

Â

Six months ended 31 January 2010 (Unaudited)

Â

Â

Â

Â

Â

Segment revenue

6,979

4,782

17,132

4,602

696

34,191

Segment operating profit

1,645

880

2,514

524

98

5,661

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Six months ended 31 January 2009 (Unaudited and restated)

Â

Segment revenue

8,658

5,086

15,179

3,948

671

33,542

Segment operating profit

1,983

475

2,161

312

75

5,006

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Year ended 31 July 2009 (Unaudited and restated)

Segment revenue

16,055

9,763

30,548

7,822

1,275

65,463

Segment operating profit

2,523

946

4,084

626

9

8,188

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

Â

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

2) SEGMENT INFORMATION (Continued)

Reconciliation of reportable segment revenues and profits to the Group’s corresponding amounts:

	Â	Six months ended 31 January 201031 January 2010	Â	Six months ended 31 January 200931 January 2009	Â	Year ended 31 July 20092009
						Â
		£’000		£’000		£’000
Revenue
Total revenue for reportable segments		34,191		33,542		65,463
Consolidation adjustments		(3)		(80)		(69)
		Â	Â	Â	Â	Â
Group revenue		34,188	Â	33,462	Â	65,394
Â
Profit before income tax
Total operating profit for reportable segments		5,661		5,006		8,188
Group costs		(1,988)		(1,762)		(2,237)
						Â
Other adjustments:
Reorganisation costs		-		(248)		(484)
Consolidation adjustments		(1,257)		(144)		(1,942)
Movement in fair value of forward foreign exchange contracts		215	Â	(960)	Â	325
Group operating profit		2,631	Â	1,892	Â	3,850
						Â
Finance expense		(579)		(697)		(839)
Finance income		31		98		147
Share of profit of equity accounted associate		-	Â	151	Â	-
Group profit before income tax		2,083	Â	1,444	Â	3,158

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

3) RECONCILIATION OF PRO-FORMA FINANCIAL MEASURES

Â	Â	Six months ended 31 January 201031 January 2010 (Unaudited)(Unaudited)	Â	Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited)	Â	Year ended 31 July 200931 July 2009 (Audited)(Audited)
						Â
		£’000		£’000		£’000
						Â
Profit before income tax		2,083		1,444		3,158
Movement in fair value of interest rate cap-and-collar contract¹		10		360		255
Movement in fair value of forward foreign exchange contracts2		(215)		960		(325)
Unwinding of discount on contingent consideration3		302		48		61
Unwinding of discount on share purchase obligation4		40		33		34
Impairment charge5		58		-		116
Reorganisation costs		-		700		1,950
Adjusted profit before income tax		2,278		3,545		5,249

Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader.

¹ See note 6

² Forward 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 other operating charges in the income statement. These financial instruments comprise financial products used for hedging currency exposure on the US dollar and euro. The movement in fair value of the forward foreign exchange contracts since 31 July 2009 is a credit of £215,000.

³ An interest charge of £302,000 has been recognised during the period in relation to the unwinding of the discount on the contingent consideration payable for M Booth & Associates Inc (2009: in relation to OutCast Communications Corporation).

⁴ An interest charge of £40,000 has been recognised during the period in relation to the unwinding of the discount on the share purchase obligation for 463 LLC and Upstream Asia (2009: in relation to Lexis Public Relations Limited).

⁵ An impairment charge has been recognised for the goodwill in Bite Communications Limited (“Bite”) on the acquisition of Credo Communications Limited on 31 December 2005. The operations were transferred into Bite and the decision has been made to write down the goodwill by £58,000 due to the redeployment of key directors elsewhere in the Group.

4) TAXATION

The tax charge is based on the forecast effective tax rate of 30% for the year. The Group’s corporation tax rate for the year ending 31 July 2010 is expected to be slightly higher than the prior year and standard UK rates due to acquisitions undertaken by the Group in the current financial year. As a result of the acquisitions, a greater proportion of Group profit is forecast to be generated in high tax regimes and losses are anticipated to arise in territories in which it would not be prudent to recognise deferred tax assets.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

5) DIVIDENDS

An interim dividend of 0.475p (interim 2009: 0.45p) per ordinary share will be paid on 1 June 2010 to shareholders listed on the register of members on 7 May 2010. Shares will go ex-dividend on 5 May 2010. The Employee Share Ownership Trust has waived its rights to dividends of £3,000 in the period ended 31 January 2010 (Interim 2009: £5,000; Full-year 2009: £18,000).

6) FINANCE EXPENSE

Â	Â	Six months ended 31 January 201031 January 2010 (Unaudited)(Unaudited)	Â	Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited) (Restated)(Restated)	Â	Year ended 31 July 200931 July 2009 (Audited)(Audited)
						Â
		£’000		£’000		£’000
						Â
Financial liabilities at amortised cost
Bank interest payable		218		238		454
Unwinding of discount on contingent consideration		302		48		61
						Â
Financial liabilities at fair value through profit and loss
Unwinding of discount on share purchase obligation		40		33		34
Movement in fair value of interest rate cap-and-collar contract		10		360		255
						Â
Other
Finance lease interest		9		18		35
		Â		Â		Â
Finance expense		579		697		839

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

7) EARNINGS PER SHARE

	Â	Six months ended 31 January 2010January 2010 (Unaudited)(Unaudited)	Â	Six months ended 31 January 200931 January 2009 (Unaudited)(Unaudited)	Â	Year ended 31 July 2009July 2009 (Audited)(Audited)
						Â
		£’000		£’000		£’000
						Â
Earnings attributable to ordinary shareholders		1,384		914		1,932
Reorganisation costs after taxation		-		465		1,339
Unwinding of discount on contingent consideration after tax		199		29		37
Unwinding of discount on share purchase obligation after tax		33		24		34
Movement in fair value of interest rate cap-and-collar contracts after tax		7		259		184
Movement in fair value of forward foreign exchange contracts after tax		(155)		691		(234)
Impairment charges		58		-		116
		Â		Â		Â
Adjusted earnings attributable to ordinary shareholders		1,526		2,382		3,408
						Â
		Number		Number		Number
						Â
Weighted average number of ordinary shares		53,585,842		53,315,691		52,585,175
Dilutive shares		3,843,456		138,998		133,987
		Â		Â		Â
Diluted weighted average number of ordinary shares		57,429,298		53,454,689		52,719,162
						Â
						Â
Basic earnings per share		2.58p		1.71p		3.67p
Diluted earnings per share		2.41p		1.70p		3.66p
Adjusted earnings per share		2.85p		4.47p		6.48p
Diluted adjusted earnings per share		2.66p		4.46p		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.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

8) ACQUISITIONS

1. On 3 August 2009, the Group acquired 100% of the voting equity instruments 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 (£2,496,000). Further consideration of up to a maximum of $13,250,000 (£8,269,000) 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 (£10,765,000). The first $11,250,000 (£7,021,000) of contingent consideration that may be payable may be satisfied by cash or up to 25% in shares, at the option of the Group. The final $2,000,000 (£1,248,000) that may be payable may be satisfied 100% in shares, at the option of the Group.

From 3 August 2009 to 31 January 2010, M Booth contributed $5,487,000 (£3,424,000) to revenue and $792,000 (£494,000) profit before interest, tax and amortisation of intangibles.

Acquisition costs of $184,000 (£115,000) were paid in relation to the purchase of M Booth, $154,000 (£96,000) recognised in the income statement for the year ended 31 July 2009 and $30,000 (£19,000) recognised in the income statement for the period ended 31 January 2010.

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

	Â	Book value	Â	Fair value	Â	Fair value
		at acquisition		adjustments1		to the Group
		£’000		£’000		£’000
						Â
Non-current assets
Intangible assets		-		2,489		2,489
Property, plant and equipment		89		-		89
Current assets
Cash and cash equivalents		471		-		471
Other current assets		2,457		-		2,457
Current liabilities		(1,926)		-		(1,926)
Deferred tax liability		-		(697)		(697)
Net assets acquired		1,091		1,792		2,883
Goodwill						4,892
Consideration2
Cash consideration						2,496
Total contingent cash consideration						4,095
Total contingent equity consideration						1,184

¹The fair value adjustment relating to intangible assets is due to the recognition of $1,818,000 (£1,135,000) in respect of the M Booth trade name and $2,171,000 (£1,354,000) in respect of customer relationships, which have been independently valued. There is a related deferred tax liability fair value adjustment of $1,117,000 (£697,000). The trade name will be amortised over its useful economic life of 20 years, and the customer relationships will be amortised over 5 years.

²The acquisition of M Booth includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on achievement of certain revenue and performance targets, over the course of the next four years. The range of undiscounted amounts the company 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 (£5,279,000) was estimated by applying the income approach.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2010

8) ACQUISITIONS (Continued)

2. On 27 October 2009, the Group acquired the marketing communications trading subsidiaries of Upstream Marketing and Communications Inc (‘Upstream Asia’), which will be integrated into the Bite Communications Group. The initial consideration was US$900,000 (£562,000) paid in cash and the assumption of US$200,000 (£125,000) of Upstream Asia’s liabilities (of which US$120,000 (£75,000) were paid on completion), making a total of US$1,100,000 (£687,000). 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 right to acquire Asset Pioneer’s shares over a five-year period based on the profitability of the acquired businesses.

The fair value of acquired assets valuation is ongoing and will be disclosed in the Group Report for the year ending 31 July 2010.

From 27 October 2009 to 31 January 2010, Upstream Asia contributed £598,000 to revenue and £6,000 loss before interest, tax and amortisation of intangibles.

Acquisition costs of US$103,000 (£64,000) were paid in relation to the acquisition of Upstream Asia, and recognised within the consolidated income statement.

3. On 9 October 2009, the Group paid $312,000 (£195,000) 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.

4. On 30 October 2009, the Group paid SEK569,000 (£48,000) 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.

5. On 31 October 2009, the Group acquired a further 30% stake in 463 Communications LLC, taking the Group’s total stake to 70%. The Group is now obliged to purchase 100% of the business over a seven-year period. The stake was acquired for a total consideration of $2,139,000 (£1,334,000), of which $1,426,000 (£890,000) was satisfied in cash and $713,000 (£444,000) in shares (805,095 shares). The fair value of the shares was determined by reference to the average of the mid-market price of the Company’s shares for the ten trading day period ended four days prior to issuance.