Interim Results

Next Fifteen Communications Plc NEXT FIFTEEN COMMUNICATIONS GROUP PLC INTERIM RESULTS HIGHLIGHTS (six months ended 31 January 2004) -- Net revenue up 7.3% at Â£18.5m (2003: Â£17.3m) -- Profit before tax up 4.1% at Â£1.06m (2003:Â£1.01m) -- Adjusted profit up 4.6% at Â£1.24m (2003: Â£1.19m) (see note 5 to the Interim accounts) -- Interim dividend per share 0.3p (2003: 0.3p) -- Basic earnings per share 1.59p (2003:1.57p) -- Adjusted earnings per share 1.92p (2003: 1.93p) (see note 8 to the Interim accounts) -- Net funds position remains strong (after acquisition funding) at Â£2.2m (2003: Â£3.1m) Commenting on the results Chairman Will Whitehorn said: "Recovery in our markets has been slow and patchy. Nevertheless the Group has produced pleasing results and, despite the adverse effects of the weakness of the US$ in the second half, we expect further good underlying progress." CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT Next Fifteen Communications Group plc, the global public relations group, is pleased to report an improved performance in the six months to 31 January 2004. The Group has benefited from an upturn in market conditions in North America and parts of Asia, although there is continued uncertainty in some European markets. Against this backdrop the company reports increases in both pre-tax profit and net revenue. Pre-tax profit rose 4.1% to Â£1.06m from Â£1.01m for the same period last year, while net revenue rose to Â£18.5m from Â£17.3m last year, a growth of 7.3%. In view of this performance and of the strong cash position of the Group, the Board is pleased to maintain the interim dividend of 0.3p. The results include Â£1.77m of turnover from the acquisition of Applied Communications' PR and research businesses in September of last year. However, during the later part of this period the Group suffered as a result of the decline in the value of the US dollar, as over 40% of turnover is in dollars or dollar-linked currencies. With a constant dollar, turnover from existing operations would have been 2.4% higher than reported. Since the company last updated investors it has seen its North American and Asian businesses continue to improve. Text 100's North American operations in particular produced a strong performance, increasing revenue by 10% in dollar terms, with new business secured from Fuji Film, Earthlink, and Bang & Olufsen. Outside North America, Text 100 has expanded its presence in Asia with the opening of its Shanghai office, the second in mainland China. This operation services clients including IBM and ARM. AUGUST.ONE, as mentioned in the AGM Trading Update, had a tough start to the year in the UK. The UK office saw several major client assignments delayed or cancelled resulting in poorer than expected performance. These setbacks caused the management at AUGUST.ONE and Next Fifteen to review the company's long-term focus, which led to a recent restructuring of its overseas operations, to enable greater management resources to be applied to the core UK business. AUGUST.ONE's businesses in Australia and New Zealand will be merged into Text 100's existing operations, a move that will make Text 100 one of the largest technology-led agencies in Asia Pacific. In the UK, as client spending restarts we expect AUGUST.ONE to recover as the second half unfolds but we anticipate it will hold back overall profit growth. The Group's acquisition of Applied Communications' operations is going well. The vast majority of these activities were merged into Bite Communications to expand its North American operations. Since the acquisition this business, which was in decline, has not only been stabilised but has also secured several new client wins including work from Alteris, Ximenta and Ironport, putting Bite's North American revenue ahead of our previous forecasts for the year, in dollar terms. The Group still has a strong balance sheet with net funds of Â£2.2m. The total cash outflow in the first half was Â£1.3m, of which Â£0.4m related to the acquisition of the Applied businesses and Â£0.7m for the working capital required to fund them. The Group also made tax and dividend payments weighted towards the first half. The Group was cash-positive at the operating level in the first half and expects to be strongly cash-positive overall in the second half as these non-operational factors reduce. The strong cash balance leaves the Group favourably positioned to continue its growth. Despite the issues at AUGUST.ONE and the negative impact of the weak dollar, the Group expects to show growth for the full year, both in revenue and in pre-tax profit. Looking to the remainder of 2004, the Group is optimistic that its North American businesses will continue to expand. Across Europe some markets remain challenging, but the Group believes that on balance its strength in North America and the improvement in Asia will offset the challenges it still faces in some European markets. Will Whitehorn Tim Dyson Chairman Chief Executive Officer 31 March 2004 NEXT FIFTEEN COMMUNICATIONS GROUP PLC INDEPENDENT REVIEW REPORT TO NEXT FIFTEEN COMMUNICATIONS GROUP PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 31 January 2004 which comprises the profit and loss account, the statement of total recognised gains and losses, the balance sheet, the cash flow statement and related notes 1 to 11. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 January 2004. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London 31 March 2004 NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31 JANUARY 2004 Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Turnover (Note 2) - Continuing Operations 19,282 19,242 39,740 - Acquisitions 1,772 - - ------- ----------- ----------- 21,054 19,242 39,740 Other external charges (2,531) (1,979) (4,582) ----------- ----------- ----------- Net Revenue 18,523 17,263 35,158 Staff costs (Note 3) 12,454 10,982 22,604 Depreciation and amortisation 737 813 1,732 Other operating charges: Reorganisation Costs (Note 4) 92 173 794 Other operating charges 4,193 4,306 8,447 ------- ----------- ----------- (17,476) (16,274) (33,577) ----------- ----------- ----------- Operating Profit - Continuing Operations 1,092 989 1,581 - Acquisitions (45) - - ------- ----------- ----------- 1,047 989 1,581 Interest receivable and similar income 36 52 102 Interest payable and similar charges (28) (28) (55) ----------- ----------- ----------- Profit on Ordinary Activities before Taxation (Note 2) 1,055 1,013 1,628 Tax on profit on ordinary activities (Note 6) (422) (385) (692) ----------- ----------- ----------- Profit on Ordinary Activities after Taxation 633 628 936 Minority Interests (17) (25) (41) ----------- ----------- ----------- Profit Attributable to Members 616 603 895 Equity dividends paid and proposed (Note 7) (122) (100) (371) ----------- ----------- ----------- Retained Profit for the Period 494 503 524 =========== =========== =========== Basic Earnings per Share (Note 8) 1.59p 1.57p 2.33p Diluted Earnings per Share (Note 8) 1.51p 1.54p 2.26p Adjusted Earnings per Share (Note 8) 1.92p 1.93p 3.69p NEXT FIFTEEN COMMUNICATIONS GROUP PLC STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 31 JANUARY 2004 Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Profit attributable to members 616 603 895 Currency translation differences on foreign currency net investments (293) 21 143 ----------- ------------ ------------- Total recognised gains and losses for the period 323 624 1,038 =========== ============ ============= NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED BALANCE SHEET AS AT 31 JANUARY 2004 31 January 2004 31 July 2003 31 January 2003 (Unaudited) (Audited) (Unaudited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 FIXED ASSETS Intangible assets (Note 9) 988 57 48 Tangible assets 2,146 2,603 2,731 ---------- ----------- ------------ 3,134 2,660 2,779 CURRENT ASSETS Debtors 8,651 7,371 7,338 Cash at bank and in hand 2,317 3,828 3,385 --------- -------- ------- 10,968 11,199 10,723 CREDITORS - Amounts falling due within one year (5,724) (6,234) (6,265) --------- -------- ------- NET CURRENT ASSETS 5,244 4,965 4,458 ---------- ----------- ------------ TOTAL ASSETS LESS CURRENT LIABILITIES 8,378 7,625 7,237 CREDITORS - Amounts falling due after more than one year (20) (96) (76) Provisions for liabilities and charges (813) (521) (285) ---------- ----------- ------------ NET ASSETS (Note 2) 7,545 7,008 6,876 ========== =========== ============ EQUITY CAPITAL AND RESERVES Called up share capital 1,121 1,121 1,121 Share premium account 2,711 2,711 2,711 ESOP reserve (Note 10) (1,821) (2,036) (2,036) Profit and loss account 5,283 5,148 4,999 ---------- ----------- ------------ EQUITY SHAREHOLDERS' FUNDS 7,294 6,944 6,795 MINORITY INTERESTS 251 64 81 ---------- ----------- ------------ 7,545 7,008 6,876 ========== =========== ============ NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 JANUARY 2004 Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities (Note 11 (1)) 398 1,594 3,594 Returns on investments and servicing of finance Interest received 36 52 102 Interest paid (15) (28) (55) Minority interest dividends paid (5) (69) (75) --------- -------- ------- Net cash inflow/(outflow) from returns on investments and servicing of finance 16 (45) (28) Corporation tax paid (900) (1,246) (1,948) Capital expenditure and investing activities (Payments)/proceeds for long term deposits (27) (21) 17 Payments to acquire tangible fixed assets (257) (363) (1,177) Proceeds from sale of tangible fixed assets 14 - 35 --------- -------- ------- Net cash outflow from capital expenditure and financial investment (270) (384) (1,125) Acquisitions and disposals Payments to acquire trade and assets (369) - (40) Equity dividends paid (274) (346) (461) ---------- ----------- ------------ Net cash outflow before financing (1,399) (427) (8) Financing Issue of shares to minorities 47 - 4 Net capital outflow from bank loans - (75) (75) Payments to acquire own shares - (527) (527) Proceeds from sale of own shares 149 11 16 Capital element of finance lease rental payments (130) (127) (239) Redemption of minorities (12) (61) (91) --------- -------- ------- Net cash inflow/(outflow) from financing 54 (779) (912) ---------- ----------- ------------ Decrease in cash for the period (Note 11 (2)) (1,345) (1,206) (920) ========== =========== ============ NOTES TO THE INTERIM ACCOUNTS FOR THE SIX MONTHS ENDED 31 JANUARY 2003 1) FINANCIAL INFORMATION The financial information is for the six months ended 31 January 2004 and is not audited as defined by APB Bulletin 1993/1 and 1998/6. The financial information in this report does not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985 (as amended). The results for the year ended 31 July 2003 have been extracted from the financial statements of the Group on which an unqualified audit report has been received which did not contain a statement under section 237 of the Companies Act 1985 and which have been filed with the Registrar of Companies. The interim statement is prepared on the basis of the accounting policies as set out in the last annual report except as noted below. The ASB recently introduced UITF 38 - Accounting for ESOP Trusts. The UITF requires an investment in own shares, that is held by an ESOP trust, to be shown as a deduction from shareholders' funds rather than an investment within net assets. In addition, the UITF requires any profit or loss made on the exercise of share options to be charged directly to reserves rather than the profit and loss account in the period. In both cases a prior year restatement is required. Following the adoption of this UITF, the July 2003 and January 2003 profit and loss accounts, balance sheets and cashflow disclosures have been restated as appropriate. The restatement reduces the profits in the periods to 31 January 2003 and 31 July 2003 by Â£11,000 and Â£16,000 respectively and reduces the net assets at the end of both periods by Â£2,036,000. 2) SEGMENTAL INFORMATION Analysis of turnover, profit before taxation and net assets by geographic origin and destination. Profit before Turnover taxation Net Assets Â£'000 Â£'000 Â£'000 Six months ended 31 January 2004 Continuing activities: Europe, Middle East and Africa 10,483 238 6,655 North America 6,643 668 1,281 Asia Pacific 2,156 208 (331) -------------- -------------- -------------- 19,282 1,114 7,605 Acquisitions: Europe, Middle East and Africa 116 (25) (25) North America 1,656 (34) (35) -------------- -------------- -------------- 1,772 (59) (60) -------------- -------------- -------------- 21,054 1,055 7,545 ============== ============== ============== Year ended 31 July 2003 (Restated) Continuing activities: Europe, Middle East and Africa 22,363 1,152 6,128 North America 13,569 529 1,220 Asia Pacific 3,808 (53) (340) -------------- -------------- -------------- 39,740 1,628 7,008 ============== ============== ============== Six months ended 31 January 2003 (Restated) Continuing activities: Europe, Middle East and Africa 10,768 780 6,242 North America 6,678 259 883 Asia Pacific 1,796 (26) (249) -------------- -------------- -------------- 19,242 1,013 6,876 ============== ============== ============== The turnover relates to one class of business. The directors consider these regions to be separate geographic markets and the markets within which the Group operates. 3) STAFF COSTS Staff costs for the six month period to 31 January 2003 have been restated by adding Â£167,000 relating to medical benefits and the cost of temporary staff that had previously been categorised as other operating charges. This categorisation change has no impact on the operating profit. 4) REORGANISATION COSTS The majority of the reorganisation costs relate to further provisions for onerous lease costs where excess space cannot be sublet. 5) RECONCILIATION OF PROFORMA FINANCIAL MEASURES Six Months Six Months ended Year ended ended 31 January 2003 31 July 2003 31 January 2004 (Unaudited) (Audited) (Unaudited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Profit on ordinary activities before taxation 1,055 1,013 1,628 Reorganisation costs 92 173 794 Amortisation of goodwill 94 - - --------------- --------------- --------------- Adjusted profit on ordinary activities before taxation 1,241 1,186 2,422 =============== =============== =============== Adjusted profit on ordinary activities before taxation has been presented to provide additional information which may be useful to the readers of the statement. In the six months to 31 January 2004, amortisation of goodwill has been added back in arriving at adjusted earnings, as following the acquisitions in the period (see Note 9 below), amortisation now represents a significant charge to the profit and loss account. 6) TAX ON PROFIT ON ORDINARY ACTIVITIES The tax charge is based on the forecast effective tax rate for the year and is higher than a standard UK rate as a result of profits being generated in high tax regimes and the effect of unrelieved overseas losses. 7) DIVIDENDS An interim dividend of 0.3p (2003: 0.3p) will be paid on 28 May 2004 to shareholders on the register of members on 30 April 2004. Shares will go ex dividend on 28 April 2004. The Employee Share Ownership Trust has waived its rights to dividends of Â£17,000 in the six months ended 31 January 2004 (Interim 2003: Â£19,000; Full year 2003: Â£62,000). 8) EARNINGS PER SHARE Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Basic and diluted earnings attributable to ordinary shareholders 616 603 895 Reorganisation costs after taxation 64 138 522 Amortisation of goodwill after taxation 65 - - ------------- -------------- -------------- Adjusted earnings attributable to ordinary shareholders 745 741 1,417 ============= ============= =============== Weighted average number of ordinary shares 38,844,148 38,323,457 38,416,045 Dilutive share options 2,047,680 699,715 1,099,136 ------------- ------------- --------------- Adjusted weighted average number of ordinary shares 40,891,828 39,023,172 39,515,181 ============= ============= =============== Basic earnings per share 1.59p 1.57p 2.33p Diluted earnings per share 1.51p 1.54p 2.26p Adjusted earnings per share 1.92p 1.93p 3.69p Adjusted Earnings per share has been presented to provide additional information which may be useful to the readers of the statement. In the six months to 31 January 2004, amortisation of goodwill has been added back in arriving at adjusted earnings, as following the acquisitions in the period (see Note 9 below), amortisation now represents a significant charge to the profit and loss account. 9) ACQUISITIONS AND INTANGIBLES On 8 September 2003, the Company acquired the trade and certain assets of Applied Communications Group's ("Applied") Public Relations division. On 2 October 2003, the Company also acquired the trade and certain assets of Applied's research division. Under the agreements Applied retained accounts receivable, cash and certain intangible assets such as its brand name and intellectual property rights. The acquired activities are based in San Francisco and Amsterdam. The maximum consideration for the two transactions is Â£1,084,000 ($1,715,000) payable in cash over three years. Â£104,000 ($165,000) was paid on completion, Â£443,000 ($700,000) is being paid in equal instalments over the first two years and the remaining Â£537,000 ($850,000) is subject to performance criteria. The acquired net liabilities have a fair value of Â£24,000 ($39,000). Goodwill of Â£1,120,000 ($1,772,000) has been created on the above acquisitions. The goodwill balance includes capitalised legal and professional fees of Â£59,000 ($93,000) being the incremental fees incurred as a result of the acquisition and is reduced by a discount of Â£47,000 ($75,000) which arises when the deferred consideration is discounted to its net present value as required by FRS 12 - Provisions, Contingent Liabilities and Assets. The goodwill balance is being amortised on a straight-line basis over a five year period. 10) ESOP RESERVE This reserve represents an investment in own shares and is the cost of shares held by the Company Employee Share Ownership Plan Trust (ESOP) in the Company. The market value at 31 January 2004 was Â£3,894,000. The comparative balance sheets have been restated to show this investment as a deduction to reserves as required by UITF 38 as set out in note 1. 11) NOTES TO THE CASH FLOW STATEMENT (1) Reconciliation of Operating Profit to net cash inflow from Operating Activities. Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) (Restated) (Restated) Â£'000 Â£'000 Â£'000 Operating profit 1,047 989 1,581 Depreciation and amortisation 737 813 1,732 (Profit)/ loss on sale of tangible fixed assets (3) 15 202 Loss on sale of investment 68 - - Increase in debtors (1,115) (894) (388) (Decrease)/ increase in creditors (25) 846 362 (Decrease)/increase in provisions (311) (175) 105 ------------------ ------------------ ------------------ Net cash inflow from operating activities 398 1,594 3,594 ================== ================== ================== (2) Reconciliation of Net Cash Flow to movement in Net Funds. Six Months ended Six Months ended Year ended 31 January 2004 31 January 2003 31 July 2003 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Decrease in cash at bank and in hand in the period (1,345) (1,206) (920) Cash outflow from decrease in debt and lease financing 130 289 314 ------------------ ------------------ ------------------ Change in net funds resulting from cashflows (1,215) (917) (606) New finance leases - (87) (87) Translation differences (146) 35 185 ------------------ ------------------ ------------------ Movement in net funds in the period (1,361) (969) (508) Net funds at beginning of period 3,512 4,020 4,020 ------------------ ------------------ ------------------ Net funds at period end 2,151 3,051 3,512 ================== ================== ================== Contact: David Dewhurst Tim Dyson Next Fifteen Communications Group plc 020 8996 8500 Chris Steele 07979 604 687 Holborn 020 7929 5599

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