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Half-year Report

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·20 min read
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LONDON, September 28, 2021--(BUSINESS WIRE)--

Next Fifteen Communications Group plc
("Next 15" or the "Group")
Interim
results for the six months ended 31 July 2021

Strong performance driven by double digit net revenue growth across all four business segments

Next Fifteen Communications Group plc (AIM:NFC), the tech and data-driven growth consultancy, today announces its interim results for the six months ended 31 July 2021.

Financial results for the six months to 31 July 2021 (unaudited)

Six months ended
31 July 2021
£m

Six months ended
31 July 2020
£m

Year on year change

Adjusted results1

Net revenue

165.9

126.2

32%

Operating profit after interest on financial lease liabilities

35.0

21.2

65%

Operating profit margin

21.1%

16.8%

Profit before tax

35.0

20.7

69%

Diluted EPS (p)

26.3p

17.4p

51%

Interim dividend per share (p)

3.6p

-

Statutory results

Revenue

208.8

153.1

36%

Operating profit/(loss)

14.9

(0.4)

Profit/(loss) before tax

3.1

(3.4)

Net cash inflow from operating activities

27.3

31.5

(13%)

Diluted loss per share (p)

(2.9)p

(3.6)p

19%

1 Adjusted results have been presented to provide additional information that may be useful to shareholders to understand the performance of the Group by facilitating comparability both year on year and with industry peers. Adjusted results are reconciled to statutory results within notes 2 and 3.

H1 Highlights

  • Group net revenue growth of 32% to £165.9m (2020: £126.2m)

  • Organic net revenue growth of 23%

  • Adjusted profit before tax up 69% to £35.0m (2020: £20.7m)

  • Adjusted diluted earnings per share increased by 51% to 26.3p (2020: 17.4p)

  • Statutory revenue growth of 36% to £208.8m (2020: £153.1m)

  • Statutory operating profit of £14.9m, up from a loss of £0.4m

  • Strong balance sheet with net cash of £6.6m (2020: net debt of £5.0m)

  • Successful refinancing, providing up to £100m of debt capacity to fund further acquisitions and capital investment

  • Significant client wins including Boots, Citibank, Diageo and Disney+

  • Acquisitions of Shopper Media Group ("SMG") and a controlling interest in Blueshirt Capital Advisers ("BCA"), both of which have performed strongly in the first half

  • Acquisition of business and assets of MSI International East Inc ("MSI") by the US arm of Savanta

Current trading and outlook
The Group’s strong trading has continued into the third quarter of our financial year, and we are currently seeing no sign of a slowdown in client demand. Despite being against a strong comparable period, we anticipate delivering double digit organic revenue growth in our second half. Our new positioning as a growth consultancy is clearly resonating with our clients and we are confident in a positive financial performance for the rest of the year.

The Group’s strong balance sheet provides scope for further investments both in the businesses and in M&A to accelerate our longer term growth.

Commenting on the results, Chair of Next 15, Penny Ladkin-Brand said:
"Our first half results have seen very strong organic revenue and profit growth across all segments and we continue to benefit from the same momentum in our second half. The increasing mix of digital services is providing strong operating leverage although we are also taking the opportunity to accelerate investment in talent and product development to continue to drive longer term growth."

Next 15 will host an analyst and investor webcast at 12.00 today, Tuesday 28 September 2021.

The registration link can be found here: https://us06web.zoom.us/webinar/register/WN_DbyvuhonThC-2cik4oUWmA

For further information contact:

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

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

Numis
Mark Lander, Hugo Rubinstein
+44 (0)20 7260 1000

Berenberg
Ben Wright, Mark Whitmore, Dan Gee-Summons
+44 (0)20 3207 7800

Powerscourt
Elly Wiliamson, Jane Glover
+44 (0)7970 246 725

Notes:

Net revenue
Net revenue is calculated as revenue less direct costs as shown on the Consolidated Income Statement.

Organic net revenue growth
Organic net revenue growth is defined as the net revenue growth at constant currency excluding the impact of acquisitions and disposals in the last 12 months.

Adjusted operating profit margin
Adjusted operating profit margin is calculated based on the operating profit after interest on finance lease liabilities as a percentage of net revenue.

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

About Next 15

Next 15 (AIM:NFC) is an AIM-listed tech and data-driven growth consultancy with operations in Europe, North America and across Asia Pacific. The Group has a strong track record of creating and acquiring high-performance businesses. For acquired businesses it offers an opportunity to take advantage of the Group’s global operational infrastructure and centralized resources to accelerate their growth. The Group has long-term customer relationships with many of the world’s leading companies including Google, Amazon, Facebook, Microsoft, IBM, American Express and Procter & Gamble.

The business operates across four segments, each of which describes how we help customers grow in different ways: Customer Insight helps them understand their opportunities and challenges; Customer Engagement optimises their reputation and digital assets; Customer Delivery helps them connect with customers to drive sales; and Business Transformation helps maximize long-term value through corporate positioning, business design and the development of new ventures.

At Next 15, success is underpinned by a people-led approach. Our purpose is to make our customers and our people the best versions of themselves, and our culture is empowering and respectful. We are seeking B Corp status as externally audited recognition of our commitment to our people and the planet alongside performance.

Our goal is to deliver above-market growth. Our revenues have grown by 106% over the last five years and we are aiming to double the size of the business in the next five years. This will be driven by the quality of the businesses, the strength of our customer relationships, the support our model gives them, and strong tech, data and digital tailwinds.

Chair and Chief Executive’s Statement

Next 15, the growth consultancy, is pleased to report its interim results for the six months ended 31 July 2021.

During the period the Group’s net revenues increased by 32% to £165.9m (2020: £126.2m), while adjusted profit before tax increased by 69% to £35.0m (2020: £20.7m). The positive revenue performance aided by the favourable revenue mix towards more higher margin services and improved operational gearing resulted in the Group’s adjusted operating margin increasing to 21.1% (2020: 16.8%). Our minority interest increased to £2.0m (2020: £0.3m) due to exceptional performances from Agent3 and BCA, both of which have significant management minority shareholdings. Our tax rate on adjusted profit increased to 22% (2020: 20%) due to the increased proportion of our profit coming from our US operations. Despite this, our diluted adjusted EPS increased by 51% to 26.3p (2020: 17.4p) driven by the strong performance at an adjusted operating profit level. Continued strong cash generation resulted in our net cash increasing to £6.6m. This is after the recent acquisitions of SMG and BCA, in addition to other earn out and tax related payments, leaving the Group well placed to make further investments and acquisitions.

We are pleased to announce that the Group has returned to paying an interim dividend post its suspension in response to the pandemic. An interim dividend of 3.6p will be paid to shareholders on 26 November 2021. This represents a notional 20% increase on the interim dividend which we would have paid last year.

The performance has been strong across all four areas of the Group with all delivering double digit organic net revenue growth. Business Transformation was our fastest growing segment following the recent acquisitions of Mach49 and BCA, with Delivery also showing exceptional organic growth as our clients reacted to the pandemic by increasing spend on more measurable products and services. Our Customer Insight and Customer Engagement segments also produced encouraging performances. A fuller financial analysis by segment is provided below.

Given the robust performance of the businesses, we are using the period to accelerate investment in productizing a number of areas of the Group and hire additional digital talent. While these investments will have a minor impact on margins this year, they are expected to help drive sustained long-term organic growth.

The Group reported a statutory operating profit of £14.9m compared with £0.4m loss in the prior period, while reported diluted loss per share was 2.9p compared with 3.6p in the prior period.

Segment adjusted performance

Customer
Engage
£’000

Customer
Delivery
£’000

Customer
Insight
£’000

Business
Transformation
£’000

Head
Office
£’000

Total
£’000

6 months ended 31 July 2021

Net revenue

91,170

36,295

18,760

19,724

-

165,949

Adjusted operating profit / (loss) after interest on finance lease liabilities

20,363

13,168

3,329

4,621

(6,476)

35,005

Adjusted operating profit margin

22.3%

36.3%

17.7%

23.4%

-

21.1%

Organic net revenue growth

14.6%

48.8%

22.3%

47.4%

-

23.1%

6 months ended 31 July 2020

Net revenue

82,711

22,623

15,299

5,525

-

126,158

Adjusted operating profit / (loss) after interest on finance lease liabilities

16,354

6,716

1,616

1,300

(4,814)

21,172

Adjusted operating profit margin

19.8%

29.7%

10.6%

23.5%

-

16.8%

Organic net revenue (decline)/growth

(11.4%)

12.7%

(8.0%)

2.9%

-

(6.6%)

Our customer engagement businesses are designed to help our customers optimize their brand reputation and build the mission-critical digital assets such as apps and websites that are the window through which much of the world’s commerce is now transacted. Revenue grew by 10% to £91.2m, with operating profit of £20.4m, an increase of 25%, delivered at an improved operating margin of 22.3%. We have had positive performances across the board but MBooth has been the standout performer benefitting from a recovery in revenues from its more consumer-oriented client base and its broad range of service offerings. Archetype and Beyond’s profitability have both risen significantly in the period due to resilient revenue performances and efficiency savings.

Customer delivery businesses are deeply specialised to use creativity, data, and analytics to create the connections with customers to drive sales and other forms of interaction. This link in the chain is increasingly digital. Businesses want to anticipate what their customers want and when they will want it. It is perhaps not surprising that this is a high growth area for our Group. Revenue grew by 60% to £36.3m, with operating profit almost doubling to £13.2m at an improved operating margin of 36.3%. Activate has continued to excel as its technology led client base has continued to see the benefit of using Activate’s ROI driven lead generation services. Both Agent3 and Twogether have seen significant revenue and profit growth from their more integrated B2B client marketing offerings. We acquired Shopper Media Group, the commerce marketing activation business, in April which has made a very positive start as part of the Group.

Our customer insight businesses are set up to help customers understand the opportunities and challenges they face and arm them with the data and insights they need to make the best decisions. Revenue grew by 23% to £18.8m, with operating profit of £3.3m delivered at a much improved operating margin of 17.7%. Our Savanta business showed a strong recovery from a Covid-impacted comparable period. Within the period, Savanta acquired YouthSight, a UK based youth specialist agency, and MSI, a US based healthcare and financial services specialist agency in the period which will strengthen the performance in our second half.

Business transformation is where customers need our help to either redesign their business model or create entirely new ventures. It is also the area where we help our clients to understand how to maximise the value of the organisation. Revenue grew by 257% to £19.7m, with operating profit of £4.6m at an operating margin of 23.4%. Mach49, which we acquired in August last year, has performed exceptionally well as its clients have embraced its corporate venture building expertise and the business has evolved into a more retainer-based business. The Blueshirt Group and BCA, where we increased our shareholding to 51% in May 2021, both benefitted from the revival of the tech IPO market, while Palladium performed strongly as its focus on providing tech oriented due diligence and value creation services to the Private Equity market proved popular.

Reconciliation between statutory and adjusted profit

Six months ended
31 July 2021
(Unaudited)

Six months ended
31 July 2020
(Unaudited)

£’000

£’000

Profit / (loss) before income tax

3,135

(3,402)

Unwinding of discount on deferred and contingent consideration and share purchase obligation payable

3,343

2,182

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

7,885

(366)

One-off charge for employee incentive schemes

5,803

189

Employment-related acquisition payments

5,794

1,699

Restructuring costs

-

2,052

Deal costs

242

178

Property (write back)/impairment

(990)

10,910

Amortisation of acquired intangibles

8,440

7,264

UK furlough grant

1,396

-

Adjusted profit before income tax

35,048

20,706

Adjusted financial measures are presented to provide additional information that may be useful to shareholders through facilitating comparability with industry peers and to best represent the underlying performance of the business. Adjusted results are explained and reconciled to statutory results within note 2 and 3.

We had a net charge of £7.9m in relation to our estimate of future contingent consideration, due to stronger trading than expected from Mach49 and Agent3. As a Group, we are moving towards the inclusion of employment conditions for certain acquisition-related payments. As a result, we are required to build up a provision relating to these payments over time and therefore this has led to an accounting charge of £5.8m (2020: £1.7m). We also incurred a one-off £5.8m charge related to new incentive schemes for various brands.

Due to the success in subletting properties that were impaired in the prior year, a £1.0m credit has been incurred. Since the prior year end, we have repaid the furlough monies received from the UK government in full of £1.4m, which was also treated as an exceptional gain in the year to 31 January 2021. We incurred £0.2m of deal costs in relation to acquisitions, and the amortisation of acquired intangibles was £8.4m in the period.

Cashflow
Despite the unwinding of the benefits from government Covid-related schemes and a very strong revenue performance which negatively impacted our working capital, the Group delivered a resilient cashflow performance with the net cash inflow from operating activities of £27.3m compared to £31.5m in the prior period. This resulted in our net cash increasing to £6.6m as at 31 July 2021.

Bank refinancing
The Group completed a refinancing of its bank facilities on 2 September 2021. This involved a new three-year RCF with HSBC and Bank of Ireland for £60m, with two one-year extension options. As part of the arrangement the group has a £40m accordion option to facilitate future acquisitions.

Dividend
We are pleased to announce that the Group has returned to paying an interim dividend post its suspension in response to the pandemic. An interim dividend of 3.6p will be paid to shareholders on 26 November 2021, who hold shares on 29 October 2021. This represents a notional 20% increase on the interim dividend which we would have paid last year in the absence of the pandemic.

Current Trading and Outlook
The Group’s strong trading has continued into the third quarter of our financial year and we are currently seeing no sign of a slowdown in client demand, despite being against a tough comparable period in our second half. Our new positioning as a growth consultancy is clearly resonating with our clients and we are confident of a positive financial performance for the rest of the year.

The Group’s strong balance sheet provides scope for further investments both in the businesses and in M&A to accelerate our long term growth.

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE SIX-MONTH PERIOD ENDED 31 July 2021

Six months ended
31 July 2021
(Unaudited)

Six months ended
31 July 2020
(Unaudited)

12 months ended
31 January 2021
(Audited)

Note

£’000

£’000

£’000

Revenue

208,756

153,100

323,668

Direct costs

(42,807)

(26,942)

(56,782)

Net revenue

2

165,949

126,158

266,886

Staff costs

122,419

88,836

189,530

Depreciation

4,681

6,618

11,609

Amortisation

9,269

7,960

16,394

Other operating charges

14,705

23,108

35,665

Total operating charges

(151,074)

(126,522)

(253,198)

Operating profit/(loss)

2

14,875

(364)

13,688

Finance expense

6

(12,776)

(4,985)

(16,884)

Finance income

7

827

1,888

1,459

Share of profit from associate

209

59

431

Profit/(loss) before income tax

3

3,135

(3,402)

(1,306)

Income tax (expense)/credit

4

(3,998)

408

(2,643)

Loss for the period

(863)

(2,994)

(3,949)

Attributable to:

Owners of the parent

(2,844)

(3,330)

(4,938)

Non-controlling interests

1,981

336

989

(863)

(2,994)

(3,949)

Loss per share

Basic (pence)

8

(3.1)

(3.8)

(5.5)

Diluted (pence)

8

(2.9)

(3.6)

(5.3)

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 July 2021

Six months ended
31 July 2021
(Unaudited)

Six months ended
31 July 2020
(Unaudited)

12 months ended
31 January 2021
(Audited)

£’000

£’000

£’000

Loss for the period

(863)

(2,994)

(3,949)

Other comprehensive (expense) / income:

Items that may be reclassified into profit or loss

Exchange differences on translating foreign operations

(711)

473

(1,395)

(711)

473

(1,395)

Items that will not be reclassified subsequently to profit or loss

Revaluation of investments

329

5

(117)

Total other comprehensive (expense) / income for the period

(382)

478

(1,512)

Total comprehensive expense for the period

(1,245)

(2,516)

(5,461)

Attributable to:

Owners of the parent

(3,226)

(2,852)

(6,450)

Non-controlling interests

1,981

336

989

(1,245)

(2,516)

(5,461)

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS

Six months ended
31 July 2021
(Unaudited)
£’000

Six months ended
31 July 2020
(Unaudited)
£’000

Net revenue

165,949

126,158

Total operating charges

(124,879)

(96,916)

Depreciation and amortisation

(5,510)

(7,314)

Operating profit

35,560

21,928

Interest on finance lease liabilities

(555)

(756)

Operating profit after interest on finance lease liabilities

35,005

21,172

Operating profit margin

21.1%

16.8%

Net finance expense excluding interest on finance lease liabilities

(166)

(525)

Share of profits of associate

209

59

Profit before income tax

35,048

20,706

Tax

(7,739)

(4,141)

Retained profit

27,309

16,565

Weighted average number of ordinary shares

91,992,850

88,542,197

Diluted weighted average number of ordinary shares

96,443,000

93,197,615

Adjusted earnings per share

27.5p

18.3p

Diluted adjusted earnings per share

26.3p

17.4p

Cash inflow from operating activities

27,300

31,536

Cash outflow on acquisition related payments

(24,733)

(18,350)

Net cash/(debt)

6,622

(4,993)

Dividend (per share)

3.6p

-

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED BALANCE SHEET AS AT 31 July 2021

31 July 2021
(Unaudited)

31 July 2020
(Unaudited)

31 January 2021
(Audited)

Note

£’000

£’000

£’000

Assets

Property, plant and equipment

8,753

10,048

8,904

Right-of-use assets

22,967

27,623

26,008

Intangible assets

183,763

157,332

163,777

Investment in equity-accounted associate

-

123

254

Investments in financial assets

1,343

1,080

955

Deferred tax asset

15,875

15,233

15,314

Other receivables

823

590

860

Total non-current assets

233,524

212,029

216,072

Trade and other receivables

115,612

68,634

77,530

Cash and cash equivalents

9

27,342

30,191

26,831

Corporation tax asset

776

1,943

1,215

Total current assets

143,730

100,768

105,576

Total assets

377,254

312,797

321,648

Liabilities

Loans and borrowings

9

-

30,184

7,810

Deferred tax liabilities

2,729

4,932

3,229

Lease liabilities

26,456

35,147

31,812

Other payables

1,482

1,193

1,576

Provisions

7,455

3,949

7,140

Contingent consideration

Other contingent liability

10

10

20,694

3,927

20,615

-

36,194

-

Share purchase obligation

10

8,183

1,670

5,302

Total non-current liabilities

70,926

97,690

93,063

Loans and borrowings

9

20,720

5,000

5,000

Trade and other payables

115,455

66,988

77,319

Lease liabilities

10,851

11,038

10,957

Provisions

5,721

2,700

5,656

Corporation tax liability

1,612

2,510

604

Deferred consideration

10

125

1,424

1,262

Contingent consideration

10

28,683

8,666

9,700

Share purchase obligation

10

1,480

1,263

1,206

Total current liabilities

184,647

99,589

111,704

Total liabilities

255,573

197,279

204,767

TOTAL NET ASSETS

121,681

115,518

116,881

Equity

Share capital

2,317

2,265

2,274

Share premium reserve

103,952

90,838

92,408

Foreign currency translation reserve

5,455

8,034

6,166

Other reserves

(2,065)

(2,065)

(2,065)

Retained earnings

10,793

16,890

18,174

Total equity attributable to owners of the parent

120,452

115,962

116,957

Non-controlling interests

1,229

(444)

(76)

TOTAL EQUITY

121,681

115,518

116,881

NEXT FIFTEEN COMMUNICATIONS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 July 2021

Share
capital

Share
premium
reserve

Foreign
currency
translation
reserve

Other
reserves1

Retained
earnings

Equity
attributable
to owners of
the Company

Non-
controlling
interests

Total
equity

£’000

£’000

£’000

£’000

£’000

£’000

£’000

£’000

At 31 January 2020 (audited)

2,163

76,019

7,561

(2,065)

29,618

113,296

(585)

112,711

(Loss) / profit for the period

-

-

-

-

(3,330)

(3,330)

336

(2,994)

Other comprehensive income for the period

-

-

473

-

5

478

-

478

Total comprehensive income / (expense) for the period

-

-

473

-

(3,325)

(2,852)

336

(2,516)

Shares issued on satisfaction of vested share options

64

9,253

-

-

(9,317)

-

-

-

Shares issued on acquisitions

38

5,566

-

-

-

5,604

-

5,604

Movement in relation to share-based payments

-

-

-

-

273

273

-

273

Movement on reserves for non-controlling interests

-

-

-

-

(359)

(359)

359

-

Non-controlling interest dividend

-

-

-

-

-

-

(554)

(554)

At 31 July 2020 (unaudited)

2,265

90,838

8,034

(2,065)

16,890

115,962

(444)

115,518

(Loss) / profit for the period

-

-

-

-

(1,608)

(1,608)

653

(955)

Other comprehensive expense for the period

-

-

(1,868)

-

(122)

(1,990)

-

(1,990)

Total comprehensive (expense) / income for the period

-

-

(1,868)

-

(1,730)

(3,598)

653

(2,945)

Shares issued on satisfaction of vested share options

5

909

-

-

(914)

-

-

-

Shares issued on acquisitions

4

661

-

-

-

665

-

665

Movement in relation to share-based payments

-

-

-

-

3,775

3,775

-

3,775

Movement on reserves for non-controlling interests

-

-

-

-

153

153

(153)

-

Non-controlling interest dividend

-

-

-

-

-

-

(132)

(132)

At 31 January 2021 (audited)

2,274

92,408

6,166

(2,065)

18,174

116,957

(76)

116,881

(Loss) / profit for the period

-

-

-

-

(2,844)

(2,844)

1,981

(863)

Other comprehensive (expense) / income for the period

-

-

(711)

-

329

(382)

-

(382)

Total comprehensive (expense) / income for the period

-

-

(711)

-

(2,515)

(3,226)

1,981

(1,245)

Shares issued on satisfaction of vested share options

20

4,763

-

-

(4,783)

-

-

...

Shares issued on acquisitions

23

6,781

-

-

-

6,804

-

6,804

Movement in relation to share-based payments

-

-

-

-

6,346

6,346