Half-yearly Report

Half-yearly Report

Next Fifteen Communications Plc

Next Fifteen Communications Group plc

Interim results for the six months ended 31 January 2011

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 2011.

Financial Highlights:

  • Revenues increased by 19% to £40.8 million (2010: £34.2 million)
  • Profit before tax increased by 19% to £2.49 million (2010: £2.08 million)
  • Adjusted profit before tax increased by 62% to £3.69 million (2010: £2.28 million)
  • Earnings per share increased by 8% to 2.79p (2010: 2.58p) (see note 7)
  • Diluted adjusted earnings per share increased by 36% to 3.63p (2010: 2.66p)
  • Interim dividend increased by 8.4% to 0.515p per share (2010: 0.475p)
  • Net debt of £2.7m following £4.7m of acquisition related payments in the period (see note 8)
  • EBITDA increased to £4.5m from £3.6m in the comparative period

Corporate Progress:

  • Acquired 85% stake in US-based investor relations company, The Blueshirt Group
  • Acquired Type 3, a fully-integrated web design company in London and San Francisco and merged it with Context Analytics and Project Metal to create Beyond, the group’s first pure digital consultancy
  • Lexis acquired Glasshouse Partnership to strengthen its corporate practice in London
  • Bite acquired digital marketing agency, OneXeno in Hong Kong

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

“These strong results reflect the opportunities the Group is experiencing as a result of the market transition to digital. Our deep heritage in technology and investments in digital have put us in a great position to grow both our core customer base and into adjacent markets. During the period we expanded and added relationships with clients that include Zynga, Facebook, American Express and Google. The Group is also experiencing increased demand for solutions that involve more than one of the Group's agencies as more and more of our customers look for a broader set of integrated services. The Group will continue to invest in expanding its digital offering and also the key geographies in which it operates.”

For further information contact:

Next Fifteen Communications Group
Tim Dyson, Chief ExecutiveTim Dyson, Chief Executive
+1 415 350 2801 +1 415 350 2801

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

Bite Communications
Elijah LawalElijah Lawal
+44 (0)20 8735 9718+44 (0)20 8735 9718
+44 (0)7875 742995+44 (0)7875 742995
Elijah.Lawal@bitecommunications.com

Canaccord Genuity
Mark WilliamsMark Williams
Henry Fitzgerald-O’ConnorHenry Fitzgerald-O’Connor
+44 (0)20 7050 6500+44 (0)20 7050 6500

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 (“Next Fifteen” or “the Group”), the global public relations consultancy group, has reported strong results for the six months to 31 January 2011. During the period, the Group reported revenue up 19% at £40.8m (2010: £34.2m). On an organic basis, at constant currency rates, revenue grew by 7%. Profit before tax was up 19% to £2.49m (2010: £2.08m) and the adjusted profit was up 62% at £3.69m (2010: £2.28m) (see note 3). Basic earnings per share were up 8% to 2.79p (2010: 2.58p) and diluted adjusted earnings per share were up 36% to 3.63p (2010: 2.66p) (see note 7). During the period, the Group made acquisition-related payments of £4.7m primarily related to the acquisitions of The Blueshirt Group in San Francisco and Type 3 in London and San Francisco, and contingent consideration payments in respect of M Booth. As a result, the Group had a net debt of £2.69m at 31 January 2011. The Board has decided to increase the interim dividend by 8.4% to 0.515p (2010: 0.475p). This reflects the Board’s overall confidence in current trading.

These strong results reflect the opportunities the Group is experiencing as a result of the market transition to digital. Our deep heritage in technology and investments in digital have put us in an excellent position to grow both our core customer base and into adjacent markets. During the period we expanded and added relationships with clients that include Zynga, Facebook, American Express and Google. The Group is also experiencing increased demand for solutions that involve more than one of the Group's agencies as more and more of our customers look for a broader set of integrated services. The Group will continue to invest in expanding its digital offering and also the key geographies in which it operates.

Organic growth

The strong organic growth experienced by the Group arose largely from its operations in the US. This region, which accounts for more than half of the Group’s revenues, delivered organic growth of 11%. This growth arose from the rebounding of the US economy and the transition to digital. The UK and APAC have shown more modest organic growth at 4% while EMEA was flat.

Investments

The Group continues to demonstrate a strong track record on acquisitions. New York-based M Booth, which became a part of Next Fifteen eighteen months ago, has delivered strong organic growth thanks in part to its partnership with Next Fifteen’s newly created digital agency Beyond. Beyond, the fastest growing agency in the Group, was bolstered during the period by the acquisition of Type 3, a boutique web build agency with offices in San Francisco and London. The Group recently acquired The Blueshirt Group, an investor and media relations agency with offices in San Francisco and New York. It too is performing well and is benefitting from the uptick in tech IPO activity in the US. The Group is still pursuing organic opportunities and recently opened an office for Bite in India. This agency has already secured Swift, Siemens and HP as clients.

Prospects

As stated above, the Group is continuing to experience strong organic revenue and profit growth across the business. The Group remains acquisitive and expects to complete at least one further deal within the next few months. With this in mind the Group is in the process of renewing its banking facilities to provide additional funding through to the end of 2014, which when combined with the strong cash generation of the business, gives it ample scope to carry out such transactions. The Group continues to believe that it should remain only modestly geared so as to maintain a strong balance sheet.

Chairman search

As stated at the AGM in January, Will Whitehorn intends to step down as Chairman of the Group by the end of this financial year. The process of recruiting his successor is progressing well and it is anticipated that a new Chairman will be appointed within the next few months.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

       

Six months ended 31

January 2011

(Unaudited)

Six months ended 31

January 2010

(Unaudited)

Year ended

31 July 2010

(Audited)

Note £’000   £’000 £’000   £’000 £’000  

£’000

 
Billings 50,054 42,650 91,175
                             
 
Revenue 2 40,796 34,188 72,328
 
Staff costs 28,087 23,769 49,757
Depreciation 603 469 1,060
Amortisation 482 503 878
Other operating charges 8,163 6,816 14,125
 
Total operating charges (37,335) (31,557) (65,820)
     
 
Operating profit 2 3,461 2,631 6,508
 
Finance expense 6 (1,106) (579) (1,310)
Finance income 133 31 106
Net finance expense

 

(973)

(548)

(1,204)
 
     
Profit before income tax 2,3 2,488 2,083 5,304
 
Income tax expense 4 (746) (625) (1,591)
 
Profit for the period 1,742 1,458 3,713
 
Attributable to:
Owners of the parent 1,532 1,384 3,675
Non-controlling interests 210 74 38
 
1,742 1,458 3,713
 
Earnings per share 7
Basic (pence) 2.79 2.58 6.75
Diluted (pence) 2.41 2.41 6.02

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

     

Six months ended

31 January 2011

(Unaudited)

Six months ended

31 January 2010

(Unaudited)

Year ended

31 July 2010

(Audited)

    £’000     £’000     £’000
 
Profit for the period 1,742 1,458 3,713
 
Other comprehensive income:
Exchange differences on translating foreign operations

 

(362)

 

441

 

665

Translation differences on long-term foreign currency intercompany loans

 

282

 

181

 

459

Net investment hedge 84 - (111)
     
Other comprehensive income for the period 4 622 1,013
     
Total comprehensive income for the period 1,746 2,080 4,726
 
Total comprehensive income attributable to:
Owners of the parent 1,536 2,006 4,688
Non-controlling interests 210 74 38
     

 

1,746 2,080 4,726

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED BALANCE SHEET

AS AT 31 JANUARY 2011

       

31 January 2011

(Unaudited)

31 January 2010

(Unaudited)

31 July 2010

(Audited)

 
Note £’000   £’000 £’000   £’000 £’000   £’000
Assets
 
Property, plant and equipment 2,639 1,999 2,269
Intangible assets 34,190 27,767 27,111
Deferred tax asset 1,659 1,585 1,531
Other receivables 1,008 673 1,008
Total non-current assets 39,496 32,024 31,919
 
Trade and other receivables 22,914 21,484 21,892
Cash and cash equivalents 7,973 5,951 7,296
Corporation tax asset 918 870 282
Total current assets 31,805 28,305 29,470
 
Total assets 71,301 60,329 61,389
 
Liabilities
 
Loans and borrowings 8 681 7,035 2,852
Deferred tax liabilities 100 1 73
Other payables 27 87 56
Provisions - 309 -
Contingent consideration 9 4,341 4,008 4,232
Share purchase obligation 9 4,614 1,566 1,349
Total non-current liabilities (9,763) (13,006) (8,562)
 
Loans and borrowings 8 9,910 163 5,181
Trade and other payables 17,974 17,916 17,085
Corporation tax liability 958 693 475
Provisions 16 - 58
Contingent consideration 9 4,004 1,577 1,880
Derivative financial liabilities 410 410 419
Share purchase obligation 9 549 175 150
Total current liabilities (33,821) (20,934) (25,248)
 
Total liabilities (43,584) (33,940) (33,810)
 
TOTAL NET ASSETS 27,717 26,389 27,579
Equity
Share capital 1,416 1,401 1,401
Share premium reserve 5,575 5,157 5,575
Merger reserve 3,498 3,493 3,075
Share purchase reserve (4,648) (1,684) (1,359)
Foreign currency translation reserve 1,652 1,790 2,014
Other reserves (694) (1,237) (868)
Retained earnings 19,057 16,453 16,791
     
Total equity attributable to owners of the parent 25,856 25,373 26,629
 
Non-controlling interests 1,861 1,016 950
 
TOTAL EQUITY 27,717 26,389 27,579

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

 
 

Share

capital

 

Share

premium

reserve

 

Merger

reserve

 

Share

purchase

reserve1

 

Foreign

currency

translation

reserve2

 

Other

reserves3

 

Retained

earnings

 

Equity

attributable

to owners of

the Company

 

Non-

controlling

interests

 

Total

equity

 
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
 
At 1 August 2009 (audited) 1,381 5,157 3,075 - 1,349 (1,239) 14,424 24,147 755 24,902
 
Profit for the period - - - - - - 1,384 1,384 74 1,458
Other comprehensive income for the period   -   -   -   -   441   -   181   622   -   622
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   -   -   -   -   -   -   (115)   (115)   -   (115)
At 31 January 2010 (unaudited)   1,401   5,575   3,075   (1,684)   1,790   (1,237)   16,453   25,373   1,016   26,389
 
Profit for the period - - - - - - 2,291 2,291 (36) 2,255
Other comprehensive income for the period   -   -   -   -   224   (111)   278   391   -   391
Total comprehensive income for the period   -   -   -   -   224   (111)   2,569   2,682   (36)   2,646
Dividends - - - - - - (932) (932) - (932)
Increase in shareholding of subsidiary - - - - - - (1,120) (1,120) (548) (1,668)
Non-controlling interest on business combination - - - - - - - - 774 774
Movement in share purchase obligation - - - 325 - - - 325 - 325
Movement in relation to share-based payments - - - - - - 293 293 - 293
Deferred tax on share-based payments - - - - - - (83) (83) - (83)
Movement due to ESOP share options exercises - - - - - 480 (389) 91 - 91
Non-controlling interest dividend   -   -   -   -   -   -   -   -   (256)   (256)
At 31 July 2010 (audited)   1,401   5,575   3,075   (1,359)   2,014   (868)   16,791   26,629   950   27,579
 
Profit for the period - - - - - - 1,532 1,532 210 1,742
Other comprehensive income for the period   -   -   -   -   (362)   84   282   4   -   4
Total comprehensive income for the period   -   -   -   -   (362)   84   1,814   1,536   210   1,746
Non-controlling interest on business combination - - - (777) - - - (777)

777

-

Shares issued on acquisitions 15 - 423 - - - - 438 - 438
Acquisition of subsidiary - - - (2,512) - - - (2,512) - (2,512)
Movement in relation to share-based payments - - - - - - 242 242

-

242

Deferred tax on share-based payments - - - - - - 198 198 - 198
Movement due to ESOP share options exercises - - - - - 90 12 102

-

102

Non-controlling interest dividend   -   -   -   -   -   -   -   -   (76)   (76)
At 31 January 2011 (unaudited)   1,416   5,575   3,498   (4,648)   1,652   (694)   19,057   25,856   1,861   27,717

1 The share purchase reserve movement for the current period relates to The Blueshirt Group, LLC (‘Blueshirt’). In addition the share purchase reserve relates to 463 Communications LLC (‘463 Communications’) and Upstream Marketing and Communications Inc (‘Upstream Asia’).

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

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

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

 
     

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited)

 

Year ended

31 July 2010

(Audited)

£’000   £’000 £’000   £’000 £’000   £’000
 
Cash flows from operating activities
 
Profit for the period 1,742 1,458 3,713
Adjustments for:
Depreciation 603 469 1,060
Amortisation 482 503 878
Finance income (133) (31) (106)
Finance expense 1,106 579 1,310
(Loss)/profit on sale of property, plant and equipment (2) 3 11
Income tax expense 746 625 1,591
Share-based payment charge 242 313 606
Movement in fair value of forward

foreign exchange contracts

106 (215) (158)
 
Net cash inflow from operating activities before changes in working capital 4,892 3,704 8,905
 
Change in trade and other receivables (1,623) (6,102) (1,006)
Change in trade and other payables 2,003 5,223 (1,103)
(Decrease)/increase in provision (42) 27 (224)
338 (852) (2,333)
 
Net cash generated from operations 5,230 2,852 6,572
 
Income taxes paid (1,859) (662) (1,465)
 
Net cash inflow from operating activities 3,371 2,190 5,107
 
Cash flows from investing activities
 
Acquisition of subsidiaries, net of cash acquired (4,185) (4,266) (4,076)
Acquisition costs (85) (83) (175)
Proceeds on disposal of property, plant and equipment - 1 19
Acquisition of property, plant and equipment (872) (481) (1,178)
Acquisition of intangible assets (92) (156) (302)
Net movement in long-term cash deposits - (117) (475)
Interest received 18 31 68
 
Net cash outflow from investing activities (5,216) (5,071) (6,119)

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

 
     

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited)

 

Year ended

31 July 2010

(Audited)

     
£’000 £’000 £’000 £’000 £’000 £’000
Net cash outflow from investing activities b/f (5,216) (5,071) (6,119)
 
Cash flows from financing activities
 
Proceeds from sale of own shares 102 19 110
Net movement in bank borrowings 2,755 1,905 2,559
Capital element of finance lease rental repayment (45) (80) (150)
Interest paid (238) (227) (448)
Non-controlling interest dividend paid (76) (115) (256)
Dividends paid to shareholders of the parent - - (932)
 
Net cash inflow from financing activities 2,498 1,502 883

Net increase/(decrease) in cash and cash equivalents

653 (1,379) (129)
Cash and cash equivalents at beginning of the period 7,296 7,130 7,130
Exchange gains on cash held 24 200 295
     
Cash and cash equivalents at end of the period 7,973 5,951 7,296

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

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 2011. The financial information for the six months ended 31 January 2011 and the six months ended 31 January 2010 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 2010 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.

As a result of the acquisitions made in the period (note 10), the Group has amended its operating segments to align them to the internal reporting measure used by the chief operating decision maker. The Group now has four operating segments:

i) Provision of public relations services in the technology market;

ii) Provision of public relations services in the consumer market;

iii) Digital and research consultancy; and

iv) Corporate communications consultancy.

Comparative information has been restated in line with the revised segments.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

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 Group’s business is organised into four reportable segments, being the provision of public relations services in the technology and consumer markets, digital and research consultancy, and corporate communications consultancy. Within some of 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 Annual Report for the year ended 31 July 2010.

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 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 periods ended 31 January 2010 and 31 July 2010 has been restated as a result of the amendment in operating segments explained in note 1.

  Technology

PR

  Consumer

PR

  Digital/research

consultancy

  Corporate

communications

      Head Office   Total
£’000 £’000 £’000 £’000 £’000 £’000
                             
 

Six months ended 31 January 2011

(Unaudited)

Revenue

29,218

7,658

2,068

1,852

-

40,796

 
Segment adjusted operating profit   3,908   1,454   255   338       (2,042)   3,913
 

Six months ended 31 January 2010

(Unaudited and restated)

Revenue 25,524 6,787 696 1,181 - 34,188
 
Segment adjusted operating profit   3,470   1,077   128   309       (2,510)   2,474
 

Year ended 31 July 2010

(Unaudited and restated)

Revenue 54,201 14,402 1,642 2,083 - 72,328
 
Segment adjusted operating profit   8,098   2,392   120   535       (4,153)   6,992

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

2) SEGMENT INFORMATION (Continued)

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

 

 

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited and

restated)

 

Year ended

31 July 2010

(Restated)

£’000 £’000 £’000
 
Segment adjusted operating profit 3,913 2,474 6,992
Goodwill impairment charge - (58) (116)
Amortisation of acquired intangibles (346) - (526)
Movement in fair value of forward foreign exchange contracts

(106)

215

158

Total operating profit 3,461 2,631 6,508
Unwinding of discount on contingent and deferred consideration

(393)

(302)

(659)

Unwinding of discount on share purchase obligation

(237)

(40)

(140)

Change in estimate of future contingent consideration and share purchase obligation payable (238) - (63)
Movement in fair value of interest rate cap-and-collar contract 115 (10) 38
Other finance expense (238) (227) (448)
Other finance income 18 31 68
Profit before income tax 2,488 2,083 5,304

The following table provides an analysis of the Group’s revenue and adjusted operating profit by geographical market.

  UK  

Europe

and

Africa

 

US and

Canada

 

Asia

Pacific

 

Head

Office

  Total
£’000 £’000 £’000 £’000 £’000 £’000
                         
 
Six months ended 31 January 2011

(Unaudited)

Revenue 8,329 4,713 21,497 6,257 - 40,796
 
Adjusted operating profit   1,406   260   4,184   105   (2,042)   3,913
 
Six months ended 31 January 2010

(Unaudited and restated)

Revenue 7,229 4,782 17,575 4,602 - 34,188
 
Adjusted operating profit   1,233   415   3,260   76   (2,510)   2,474
 
Year ended 31 July 2010

(Unaudited and restated)

Revenue 15,125 9,723 37,272 10,208 - 72,328
 
Adjusted operating profit   2,394   1,237   7,360   154   (4,153)   6,992

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

3) RECONCILIATION OF PRO-FORMA FINANCIAL MEASURES

 

 

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited)

 

Year ended

31 July 2010

(Audited)

£’000 £’000 £’000
 
Profit before income tax 2,488 2,083 5,304
Movement in fair value of interest rate

cap-and-collar contract¹

(115)

10

(38)

Movement in fair value of forward foreign exchange contracts2

106

(215)

(158)

Unwinding of discount on contingent and deferred consideration3

393

302

659

Unwinding of discount on share purchase obligation4 237 40 140
Change in estimate of future contingent consideration and share purchase obligation payable5

238

-

63

Impairment charge - 58 116
Amortisation of acquired intangibles6 346 - 526
Adjusted profit before income tax 3,693 2,278 6,612

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 2010 is a credit of £115,000.

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 2010 is a charge of £106,000.

3A finance expense of £291,000 has been recognised during the period in relation to the unwinding of the discount on the contingent consideration payable for M Booth & Associates, Inc (‘M Booth’), a wholly owned subsidiary of the Group since August 2009, and £102,000 in relation to the unwinding of the discount on the contingent consideration payable for Blueshirt, an 85% owned subsidiary of the Group since 1 November 2010 (2010: in relation to M Booth and The OutCast Agency).

4A finance expense of £237,000 has been recognised during the period in relation to the unwinding of the discount on the share purchase obligation for Upstream Asia (£55,000), 463 Communications (£25,000), Blueshirt (£21,000) and Beyond Corporation Limited and Beyond International Corporation (together referred to as ‘Beyond’) (£136,000) (2010: in relation to 463 Communications and Upstream Asia).

5A finance expense of £238,000 has been recognised during the period in relation to a change in the estimate of the contingent consideration payable for M Booth (£86,000), and change in the estimate of the share purchase obligation for Upstream Asia (£264,000) and 463 Communications (credit of £112,000).

6A total amortisation of acquired intangibles charge of £346,000 has been recognised in the period in relation to M Booth (£167,000), 463 Communications (£63,000), AimPR Public Relations AB (£20,000), Upstream Asia (£19,000), Blueshirt (£64,000), Glasshouse Partnership Limited (‘Glasshouse’) (£8,000), and OneXeno Limited (£5,000).

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

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 2011 is expected to be higher than the standard UK rate due to acquisitions undertaken by the Group in previous financial years. 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.

5) DIVIDENDS

An interim dividend of 0.515p (Interim 2010: 0.475p) per ordinary share will be paid on 16 May 2011 to shareholders listed on the register of members on 15 April 2011. Shares will go ex-dividend on 13 April 2011. The Employee Share Ownership Trust has waived its rights to dividends of £1,000 in the period ended 31 January 2011 (Interim 2010: £3,000; Full year 2010: £9,000).

6) FINANCE EXPENSE

 

 

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited)

 

Year ended

31 July 2010

(Audited)

 
£’000 £’000 £’000
 
Financial liabilities at amortised cost
Bank interest payable 234 218 428

Financial liabilities at fair value through profit and loss

Unwinding of discount on contingent and deferred consideration 393 302 659
Unwinding of discount on share purchase obligation 237 40 140
Change in estimate of future contingent consideration and share purchase obligation payable

238

-

63

Movement in fair value of interest rate

cap-and-collar contract

- 10 -
 
Other
Finance lease interest 4 9 16
Other interest payable - - 4
     
Finance expense 1,106 579 1,310

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

7) EARNINGS PER SHARE

 

Six months ended

31 January 2011

(Unaudited)

 

Six months ended

31 January 2010

(Unaudited)

 

Year ended

31 July 2010

(Audited)

£’000 £’000 £’000
 
Earnings attributable to ordinary shareholders 1,532 1,384 3,675
Movement in fair value of interest rate cap-and-collar contract after tax

(83)

7

(27)

Movement in fair value of forward foreign exchange contracts after tax

77

(155)

(114)

Unwinding of discount on contingent and deferred consideration after tax

235

199

395

Unwinding of discount on share purchase obligation after tax

229

33

140

Change in estimate of future contingent consideration and share purchase obligation payable after tax

 

98

 

-

 

38

Impairment charge - 58 116
Amortisation of acquired intangibles after tax

220

-

377

     
Adjusted earnings attributable to ordinary shareholders 2,308 1,526 4,600
 
Number Number Number
 
Weighted average number of ordinary shares 54,826,142 53,585,842 54,444,622
Dilutive share options/performance shares outstanding1 6,242,072 3,843,456 4,767,099
Other potentially issuable shares2 2,489,100 - 1,866,697
     
Diluted weighted average number of ordinary shares 63,557,314 57,429,298 61,078,418
 
 
Basic earnings per share 2.79p 2.58p 6.75p
Diluted earnings per share 2.41p 2.41p 6.02p
Adjusted earnings per share 4.21p 2.85p 8.45p
Diluted adjusted earnings per share 3.63p 2.66p 7.53p

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.

1Relates mainly to performance shares on which the performance criteria are expected to be met and will vest.

2Relates to an estimate of the contingent consideration satisfied in shares, payable to M Booth and Glasshouse, and share purchase obligation payable in shares to Beyond.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

8) NET DEBT

The Barclays Bank revolving credit facilities expire during 2011, and therefore the outstanding balance of £9,614,000 has been classified in current borrowings. The Group is in the process of renewing its banking facilities, to provide additional funding through to the end of 2014.

 

 

31 January 2011

(Unaudited)

 

31 January 2010

(Unaudited)

 

31 July 2010

(Audited)

 

 

£’000

£’000 £’000
 
Total loans and borrowings 10,591 7,198 8,033
Obligations under finance leases 73 184 134
Less: cash and cash equivalents   (7,973)   (5,951)   (7,296)
Net debt/(funds)   2,691   1,431   871

9) OTHER FINANCIAL LIABILITIES

 

 

Deferred

consideration

 

Contingent

consideration1

 

Share purchase

obligation2

 

 

£’000

£’000 £’000
 
At 1 August 2009 (Audited) 228 - -
Arising during the period 9 4,998 1,663
Exchange differences (2) 285 38
Utilised (249) - -
Unwinding of discount   14   302   40
At 31 January 2010 (Unaudited)   -   5,585   1,741
 
Exchange differences - 121 (259)
Utilised - - (83)
Unwinding of discount - 343 100
Change in estimate   -   63   -
At 31 July 2010 (Audited)   -   6,112   1,499
 
Arising during the period - 4,226 3,311
Exchange differences - (133) (36)
Utilised - (2,339) -
Unwinding of discount - 393 237
Change in estimate   -   86   152
At 31 January 2011 (Unaudited)   -   8,345   5,163
Current - 4,004 549
Non-current - 4,341 4,614

1Contingent consideration on acquisitions

On 1 November 2010, the Group acquired 85% of the voting equity instruments of Blueshirt. The acquisition of Blueshirt includes a contingent consideration arrangement that requires additional consideration to be paid by the Company based on a multiple of average profits and margin performance. The fair value of the contingent consideration of US$6,082,000 (£3,790,000) was recognised.

On 1 September 2010, Bite Communications Hong Kong Limited (‘Bite’) acquired the trade and assets of OneXeno. Contingent consideration payable based on the revenue of retained clients over the 12 months following completion has been recognised, estimated at £122,000 at acquisition.

On 1 September 2010, Lexis Public Relations Limited (‘Lexis’) acquired the entire issued share capital of Glasshouse. Contingent consideration payable based on the achievement of certain revenue and staff metric performance targets has been recognised, estimated at £222,000 at acquisition.

On 4 August 2010, Beyond acquired the UK and US-based Type 3 Limited companies. The excess working capital payment balance of £92,000 was recognised in contingent consideration.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

9) OTHER FINANCIAL LIABILITIES (Continued)

2Share purchase obligation

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, leading to a share purchase obligation of US$1,245,000 (£777,000) arising on the acquisition date.

On 4 August 2010, the Group entered into an option deed under which the non-controlling interest holders of Beyond 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. By October 2015 the Group will have acquired half of their shareholding, bringing the Group holding to 75.5%, leading to a share purchase obligation of £2,534,000 arising on the acquisition date.

See note 10.

10) ACQUISITIONS

1. 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. On 1 September 2010 the trade and assets of the Type 3 companies were transferred into each acquiring company. 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. A balance of £141,000 excess working capital acquired (of which £92,000 was paid after the reporting period date) is also treated as consideration. 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 Type 3, of which £76,000 were recognised in the consolidated income statement in the year ended 31 July 2010, and £13,000 were recognised in the consolidated income statement in the period to 31 January 2011.

Goodwill of £109,000 arises from anticipated profitability and future operating synergies from the combination. The initial accounting for this transaction has been estimated in the interim results and will be finalised in the annual report for the year ending 31 July 2011.

2. 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 which will strengthen the Lexis corporate practice and enhance business development options. On 1 October 2010, the trade and assets of Glasshouse were transferred to Lexis.

The initial consideration paid in cash on completion was £80,000, and a balance of £129,000 excess working capital acquired which was paid to the vendors is also treated as consideration. 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.

Acquisition costs of £15,000 were paid in relation to the purchase of Glasshouse, and recognised within the consolidated income statement in the period to 31 January 2011.

Goodwill of £233,000 arises from anticipated profitability and future operating synergies from the combination.

Intangible assets of £60,000 have been recognised in respect of customer relationships, which will be amortised over three years.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

10) ACQUISITIONS (Continued)

3. 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 (£88,000), 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.

Goodwill of £182,000 arises from anticipated profitability and future operating synergies from the combination.

Intangible assets of HK$445,000 (£35,000) have been recognised in respect of customer relationships, which will be amortised over three years.

4. On 1 November 2010, the Group acquired an 85% stake in US-based investor and media relations company The Blueshirt Group LLC (‘Blueshirt’). The acquisition of Blueshirt complements the Group’s existing businesses by providing financial and corporate communications expertise. The initial consideration paid in cash on completion was US$3,000,000 (£1,873,000). A balance of US$448,000 (£280,000) excess working capital acquired which was paid to the vendors is also treated as consideration. Contingent consideration satisfied in cash 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 US$8,000,000 (£4,994,000). 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 of US$91,000 (£57,000) were paid in relation to the purchase of Blueshirt, which were recognised in the consolidated income statement in the period ended 31 January 2011.

In the post acquisition period, Blueshirt contributed US$1,567,000 (£996,000) to revenue and US$312,000 (£198,000) profit before tax.

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

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

  Book value   Fair value   Fair value
at acquisition

adjustments1

to the Group
£’000 £’000 £’000

Non-current assets

Intangible assets - 1,873 1,873
Property, plant and equipment 12 - 12

Current assets

Cash and cash equivalents 336 - 336
Other current assets 377 - 377
Current liabilities (150) - (150)
Deferred tax liability - (749) (749)

Net assets acquired

575

1,124

1,699

Goodwill 5,028
Consideration2
Cash consideration 1,873
Excess working capital payment 280
Total contingent cash consideration 3,797

5,950

Fair value of non-controlling interest3

777

6,727

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JANUARY 2011

10) ACQUISITIONS (Continued)

1The fair value adjustment relating to intangible assets is due to the recognition of US$1,700,000 (£1,061,000) in respect of customer relationships and US$1,300,000 (£812,000) in respect of the Blueshirt trade name, which have been independently valued. There is related deferred tax liability fair value adjustment of US$1,200,000 (£749,000). The customer relationships will be amortised over five years, and the trade name will be amortised over its useful economic life of 20 years.

2The acquisition of Blueshirt includes a contingent consideration arrangement that requires additional consideration to be paid by the Group based on achievement of a multiple of average profits and margin performance, over the course of the four years post acquisition. The fair value of the contingent consideration recognised on the acquisition date of US$6,082,000 (£3,797,000) was estimated by applying the income approach, by calculating the fair value of the future estimated payments.

3The fair value of the non-controlling interest of US$1,245,000 (£777,000) was estimated by calculating the fair value of the future payment obligations.

5. On 29 October 2010, the Group paid US$3,740,000 (£2,335,000) relating to year one earnings contingent consideration for the purchase of M Booth. US$3,046,000 (£1,902,000) was satisfied in cash and US$694,000 (£433,000) in shares (599,197 shares). M Booth is a wholly owned subsidiary acquired in August 2009.

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