Preliminary results for the year ended 31 July 2005
08/11/2005
Next Fifteen Communications Group plc ("Next Fifteen" or "the Group"), the
international public relations consultancy group, today reports record
profitability and revenues for its financial results for the year ended 31 July
2005.
Financial highlights:
Revenue up by 15% to £43.2m (2004: £37.7m)
Pre-tax profit increased by 58% to £3.05m (2004: £1.93m)
Adjusted profit before tax, reorganisation costs and goodwill
amortisation improved by 28% to £3.29m (2004: £2.57m)
Basic earnings per share rose by 45% to 3.87p (2004: 2.67p)
Adjusted earnings per share up by 12% to 4.45p (2004: 3.98p)
Final dividend of 0.9p (2004: 0.8p), making a total dividend for the
year of 1.23p (2004: 1.1p), up 12%
Corporate progress:
Acquisition of OutCast Communications towards the end of the period
creating the market leading provider of technology PR in the US
Minority interest in Bite Communications, previously not controlled by
the Group, acquired in August 2005; expected to be earnings enhancing in
current financial year
25% stake acquired in Lexis Public Relations, a leading UK consumer PR
firm, post year-end; strengthens Group's presence beyond technology sector
with remaining equity to be purchased over next five years
Vendor placing of £2.5m in June 2005 to provide additional funding for
the acquisition of Outcast
Transfer of the listing of the Group's Ordinary Shares to AIM from the
Official List in March 2005
Commenting on the results, Will Whitehorn, Chairman of Next Fifteen, said:
"The Group's strategy is still focused on driving organic growth from its
existing PR brands, but it will still seek to supplement this with targeted
acquisitions that offer growth potential and complement the existing PR
businesses in the Group. Looking forward, the Group has made an encouraging
start to the new financial year, adding some impressive clients during the first
quarter including Philips and Sprint Nextel Corporation. These wins, combined
with Bite's Sun Microsystems success in the second half of last year, create an
excellent platform for further organic growth in the current financial year.
"The addition of OutCast and Lexis to the Group and the acquisition of the Bite
minority interest will add yet further earnings growth. Against this background
and a steadily improving general economic outlook for the Group's major markets,
we believe we have good cause to remain confident about our prospects for the
current year."
- Ends -
For further information:
Next Fifteen Communications Group
Tim Dyson, Chief Executive
001 415 350 2801
David Dewhurst, Finance Director
07974 161183
Merlin
020 7653 6620
Vanessa Maydon
Mob. 07802 961 902
Rebecca Penney
Mob. 07795 108 178
Attached:
Chairman and Chief Executive Statement
Consolidated Profit & Loss Account
Consolidated Statement of Total Recognised Gains & Losses
Company Balance Sheet
Consolidated Cash Flow Statement
Reconciliation of Movements in Shareholders' Funds
Notes to the Preliminary Statement
Chairman and CEO's statement
Next Fifteen Communications Group plc, which owns some of the world's most
respected public relations consultancies is pleased to announce record full-year
results for the year to 31 July 2005. Revenue for the last year rose by 15% to
£43.2m (2004: £37.7m). Pre-tax profit also increased during the year by 58% to
£3.05m (2004: £1.93m). Adjusted profit before tax and goodwill amortisation
improved 28% to £3.29m (2004: £2.57m). Basic earnings per share were 3.87p, up
45% from 2.67p last year. The adjusted earnings per share were 4.45p, up 12%
from the previous year's 3.98p. As a result, the Board is proposing a final
dividend of 0.9p, which will bring the total for the year to 1.23p (2004: 1.1p),
a rise of 12%.
Selective acquisitions
Towards the end of the financial year the Group made the acquisition of OutCast
Communications, a leading technology PR firm based in San Francisco and New
York. With the addition of OutCast, Next Fifteen becomes a market leading
provider of technology PR in the world's largest PR market, the United States
of America. The acquisition further strengthens the Group's client base with the
addition of such brands as Yahoo!, Dell and salesforce.com. These add to an
existing client list which includes IBM, Microsoft, Apple, Sun Microsystems and
Xerox.
At the start of the current financial year the Group made two further important
investments. These were the purchase of the minority interest previously not
controlled by the Group in Bite Communications, which should enhance earnings in
the current financial year. Also there was the acquisition of a 25% stake in
Lexis Public Relations, a leading UK consumer PR firm. Lexis, named PR agency of
the year by Marketing Magazine in 2004, has a client list which includes
Unilever, Coca-Cola, Diageo and Barclays, thus strengthening the Group's
presence beyond the technology sector. Under the terms of the deal, Next Fifteen
will acquire the remaining equity in Lexis over the next five years. Lexis sits
alongside August One which the Group restructured this year so that it could
focus solely on clients outside the technology market.
Following the restructuring of August One, Next Fifteen elevated its third
technology PR brand in the UK, Inferno PR, to become a direct subsidiary of Next
Fifteen and its clients now include Microsoft and Computer Associates.
The acquisition of OutCast was funded through a combination of new equity and
existing bank facilities. The payments made after the year-end for the
acquisition of the Bite minority interest and the purchase of the initial stake
in Lexis were made from the existing bank facilities. This leaves the Group with
only modest levels of debt. During the year to 31 July 2005, the Group generated
cash of £0.4m before acquisition payments and financing, despite the
exceptionally high £1.9m capital expenditure resulting mainly from office moves
in the US and the UK.
Continued expansion in APAC and North America
Much of the Group's growth has come from the expansion of our North American and
Asian businesses. In the US, we have continued to see substantial organic
growth. In this market, which currently accounts for over 50% of the Group's
revenues and profits, Text 100 and Bite generated revenue of £19.3m compared
with £16.1m last year, an increase of 20%, despite a further 5% weakening of the
dollar. The growth in the US has come largely from a strong flow of new business
from companies such as Sun Microsystems, Yahoo!, eBay and AMD but also through
the expansion of relationships with existing clients such as Fuji and ARM. In
Asia, Text 100 is fast becoming the leading provider of technology PR. In the
last year Text 100 expanded its business in China with the opening of its fourth
office in the region this time in Guangzhou. Text 100 has also added AAPT and
Nokia to its client list in the region.
Group strategy in action
The Group's strategy is still focused on driving organic growth from its
existing PR brands, but it will still seek to supplement this with targeted
acquisitions that offer growth potential and complement the existing PR
businesses in the Group. Looking forward, the Group has made an encouraging
start to the new financial year, adding some impressive clients during the first
quarter including Philips and Sprint Nextel Corporation. These wins, combined
with Bite's Sun Microsystems success in the second half of last year, create an
excellent platform for further organic growth in the current financial year. The
addition of OutCast and Lexis to the Group and the acquisition of the Bite
minority interest will add yet further earnings growth. Against this background
and a steadily improving general economic outlook for the Group's major markets,
we believe we have good cause to remain confident about our prospects for the
current year.
Will Whitehorn
Chairman
Tim Dyson
Chief Executive Officer
8 November 2005
FINANCIAL REVIEW
Overview
The year to 31 July 2005 was a year where a number of milestones were passed.
Revenue exceeded £43m, pre-tax profit was over £3m and the adjusted EPS rose to
almost 4.5p.
The US was our strongest performing market and despite a further decline in the
dollar of over 5%, the US accounted for 44% of the Group's turnover and 58% of
profits, before head office costs. The US is set to grow even stronger in the
current year following the acquisition of OutCast in June 2005, which will help
to push US turnover over 50% of the Group's total. The acquisition was preceded
by a move of the Group's listing to the Alternative Investment Market (AIM), a
market which is more attractive for smaller, growing companies.
Geographic and client analysis
During the last year the proportion of Group turnover generated outside the UK
rose to almost 75%, from 70% the previous year. The strongest region was North
America (up 23% in sterling terms) and accounting for 44% of total turnover.
With the UK market accounting for 25% of turnover (down from 30% last year), in
the current year the Group is expecting to generate in excess of 70% of its
turnover in the two strongest markets for public relations services. In Europe
and Africa the businesses continued to experience mixed fortunes but overall
turnover increased 12% to £9.6m. The Asia Pacific region grew strongly to £5.4m
from £4.5m last year. The region posted strong results particularly in India and
added a third Mainland China office, in Guangzhou.
The spread of the Group's key clients has broadened following the Bite win of
Sun Microsystems in the US. The top ten clients now represent approximately 54%
of the business and no single client has more than 15% of the total.
Cash flow
The underlying cash conversion from operating profit was strong once again but a
number of significant investments caused the business to move from a net funds
position of £2.9m in July 2004 to £2.4m a year later. Firstly, the Group paid
£1.9m in capital expenditure largely related to office moves to accommodate the
expanding US business and in the UK following office moves to house the enlarged
Inferno business and to utilise previously surplus space. Secondly the initial
$6m payment for OutCast was partly funded from a successful share placing and
partly from the existing net cash balance. The share placing raised £2.5m before
costs of £0.1m and represents the largest equity injection ever for the company,
surpassing the £1.7m raised on flotation in 1999. Without the
acquisition-related cashflows the Group would have generated £0.3m from its
trading and investing activities.
Balance sheet
The biggest change in the Group balance sheet is the goodwill and other
intangible assets arising from the acquisition of OutCast and the additional
share capital raised to partially fund it.
Net assets at 31 July 2005 were £12.4m, (2004: £7.7m), of which £2.4m is net
cash. In August 2005, these funds were invested in a 25% stake in Lexis PR and
the purchase of the remaining minority interest in Bite Communications. The
Lexis investment is the first part of a phased purchase which will see the Group
own a minimum of 51% in 2006, 75% by 2008 and the whole business in 2010. The
purchase of the remaining Bite shares will be earnings enhancing for the Group
and gives key members of the Bite management team shares in Next Fifteen,
putting them on a similar equity incentive to other senior management within the
Group. During the year the Group received £169k from employees exercising their
share options and becoming shareholders in the Group.
Treasury, funding and exchange risk
The Group has established treasury policies and procedures which ensure that
foreign currency exposure is continually monitored.
The Group has a £3m revolving 3-year term loan facility, which it began to use
with the OutCast acquisition. The facility is available in a combination of
Sterling, US dollar, and euro at an interest rate of 1.65% over Barclays Bank's
call-loan rate. Also available is an overdraft facility of £1m at a rate of 1.2
% over base rate, available in Sterling, US dollar and euro. All UK businesses
are part of a composite accounting system which allows the offset of UK
overdrawn and credit bank balances. The Group aims to concentrate any surplus
cash in the UK subject to any local transfer restrictions, and as far as
possible to hold only moderate non-deposit cash balances in overseas
subsidiaries.
The majority of trade is denominated in the functional currencies of the
jurisdiction in which trade is conducted. Where this is not the case the
directors monitor the exposure to ensure that the foreign currency risk is not
material to the Group. To protect profit translation exposure from businesses
denominated in US dollar and euro the Group purchases treasury products designed
to give some protection against a weakening of the US dollar and euro.
Taxation
The total tax charge for the year is £1.3m on consolidated profits of £3.05m, an
effective rate of 43.6%; one percent higher than a year ago. After adjusting for
goodwill amortisation costs the underlying effective rate is 40.9%. The main
reason for this increase has been the increasing proportion of profits generated
in the higher tax regimes of US and India. We anticipate that the reorganization
of our US businesses following the acquisition of OutCast and the Bite minority
interests will begin to see a reduction in the effective tax rate to just below
40%.
Earnings
Basic earnings per share (EPS), adjusted for goodwill amortisation charges, rose
11.8% to 4.45p (see Note 6). The purchase of the Bite minority will have a
positive impact on future earnings as this minority interest was growing as
employees became eligible to exercise their options and the business became more
profitable.
Dividends
The proposed final ordinary dividend per share is 0.9p, which takes the total
for the year to 1.23p, compared with a total dividend of 1.1p last year. It will
be paid on 27 January 2006, assuming it is passed at the AGM on 24 January 2006.
The dividend is covered almost three times by the profit attributable to the
members during the year. The Board continues to view its dividend policy over
the medium-term and aims to strike a balance between the relevance placed on
dividends by some shareholders and the needs of the Company to invest for future
growth.
David Dewhurst
Finance Director
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