Next Fifteen Communications | Investors | Results and presentations

Given the prevailing economic circumstances, I’m pleased to report a satisfactory trading performance from the Group in the year to 31 July 2002, which was in line with the expectations we had at the half-year.

This year’s figures include the proceeds from the sale of our rights to the OneMonday name. The headline figures show a pre-tax profit of £4.07m, which includes a £3.13m contribution from the trademark sale. In a technology-led PR market that declined by 20%, annual turnover was £40.25m, down 10%. Operating profit from continuing operations, before reorganisation costs, was £2.20m, compared with £1.95m last year, a rise of 13%. This improvement in the face of the revenue decline reflected a welcome improvement in operating margins. For the second year running, however, our results are hampered by reorganisation costs, including redundancies, surplus office space provisions and brand closure costs, amounting to £947k (2001: £982k). The basic earnings per share were 5.94p (2001:0.04p) but the more relevant adjusted earnings per share were 2.18p, a rise of 22% on the previous year. In view of the recovery in the Group’s fortunes over the past year, the Board is proposing a final dividend of 0.9p, which is the total for the year (2001:0.3p) which will be paid on 29 January 2003 to all shareholders who are registered at the close of business on 1 November 2002. The Company’s shares will go ex-dividend on 30 October 2002. It is pleasing to see the Group return to stronger levels of profit; this is a very creditable recovery over the previous year, achieved in a deteriorating market. Of equal significance is the marked improvement in the Group’s net funds position, which improved by £5.1m over the previous year-end. £2m of this improvement came from cash generated through normal trading activities and the balance from the trademark sale.

To put these numbers into some context, the top ten technology PR firms saw their revenues drop by an average of 20% in 2001 (source: Council of PR Firms PR agency rankings). Against this backdrop I believe the decline in our turnover of slightly less than 10% reflects the strong performances of the Group’s PR brands. It is also encouraging to note that while the technology sector has not rebounded there are signs that the sector has stabilised and in the coming year, with many smaller competitors removed from the market, growth opportunities should re-emerge. In broad terms, trading conditions remain difficult. The US has been our strongest market, with the bedding-in of the IBM business backed by the addition of clients including NTT/Verio and IXOS, while trading in Asia Pacific remains relatively depressed. Progress in Europe has been patchy, with strong performances coming from AUGUST.ONE and Bite Communications in London, as well as from the Text 100 subsidiaries in Spain, Italy and Sweden. AUGUST.ONE in particular has enjoyed a strong new-business performance, winning assignments from companies including PeopleSoft, TotalFinaElf and AXA. Thanks to AUGUST.ONE, the Group this year also celebrates twenty years of working with Microsoft. This is a testament to the Group’s ability to retain major-brand clients even through periods of significant economic and technological change. This brings me on to the most remarkable component of this year’s figures, namely the sale of our rights to the name “OneMonday” for $5 million, which completed just before the year-end. This was a massive windfall for a company of our size; after deduction of the expenses involved in arriving at and implementing the new name, it contributed £3.13m to the year’s total pre-tax profit of £4.07m. Subject to shareholder approval at the EGM scheduled for 12 November 2002, the Group's new name will be Next Fifteen Communications Group plc, which was inspired by Andy Warhol's memorable remark, “in the future, everybody will be world-famous for 15 minutes.”

The windfall has been used to settle the Group’s limited borrowings and substantially strengthen its balance sheet, which showed net cash of over £4m at year-end. Since then, £0.5m of the proceeds has been used to fund the purchase of 2m of the Company’s shares by the Employee Share Ownership Trust, to allow us to continue to offer equity motivation to employees without further diluting existing shareholdings. The Board’s final dividend recommendation exceeds analysts’ expectations and will, I hope, provide some measure of compensation to our shareholders for their loyalty to the Group during atrocious market conditions. Looking forward, the Board hopes to reintroduce an interim dividend payment and expects that dividends will assume a greater importance for shareholders than was the case in the past. The last year has seen investors and analysts focusing closely on the extreme difficulties and dangers that lie in building a people-based service business by acquisition. Our emphasis on organic growth and start-up subsidiaries, which can seem unadventurous during boom times, looks a great deal more attractive under today’s difficult conditions. Our Group can look to the future without deferred acquisition payments in cash or stock, a strong balance sheet, and a young senior management team, which owns more than 30% of the business. All these factors give me great confidence that the Group will enjoy a bright future once a modicum of growth returns to world technology markets. More specifically, our Group will not spend the first years of an upturn struggling with a devastated balance sheet and the legacy of acquisition-led growth. Even if economic recovery remains a year or two away, the Group has demonstrated that in the worst market conditions the technology industry has ever experienced, it can still operate profitably and generate cash. The Group has performed satisfactorily in the first few months of the new financial year in market conditions that remain difficult. However, the Board is optimistic about the current financial year and believes that further progress will be made. Yours faithfully,

Tom Lewis Chairman