TIDMNFG
Next 15 Group plc
("Next 15" or the "Group")
Results for the year ended 31 January 2023
Record performance driven by strong organic revenue growth and
M&A execution across all four business segments
Resilient outlook; full year performance anticipated to be in
line with management expectations
Next 15 Group plc (AIM:NFG), the tech and data-driven growth
consultancy, today announces its final results for the year ended
31 January 2023.
Financial results for the year to 31 January 2023
Year ended Year ended
31 January 2023 31 January 2022 % change year on
GBPm GBPm year
Adjusted
results(1)
Net revenue 563.8 362.1 56%
Adjusted operating
profit after
interest on
finance lease
liabilities 114.2 79.3 44%
Adjusted operating
profit margin 20.2% 21.9%
Adjusted profit
before tax 112.5 79.3 42%
Adjusted diluted
earnings per
share (p) 80.4p 59.7p 35%
Statutory results
Net cash generated
from
operations(2) 95.2 88.8 7%
Revenue 720.5 470.1 53%
Operating profit 67.2 40.0 68%
Profit/(loss)
before tax(3) 10.1 (80.1)
Diluted
earnings/(loss)
per share (p) 1.5p (74.9)p
(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 the appendix.
(2) Comparatives have been restated to reclassify certain acquisition related
payments. Further detail is included on page 17.
(3) In the prior, the statutory loss before tax was principally due to
acquisition related accounting, the majority of which relates to the increased
earnout payable over the next five years to Mach49 equity holders.
Financial and Operational Highlights
-- Group net revenue growth of 56% to GBP563.8m and statutory revenue
growth of 53%, aided by acquisitions
-- Organic net revenue growth of 20.7% with strong growth across all
segments
-- Adjusted profit before tax up 42% to GBP112.5m
-- Statutory operating profit up 68% to GBP67.2m
-- Adjusted diluted earnings per share increased by 35% to 80.4p
-- Final dividend of 10.1p per share, representing an increase of 20%
-- Strong balance sheet with net cash of GBP26.1m at 31 January 2023
-- Significant new client wins and expanded assignments with Morrisons,
BiC and Mercedes-Benz
-- Completed seven acquisitions, including the acquisition of Engine
Acquisition Limited ("Engine") in March 2022 for consideration of
GBP67.3m, which has since been successfully integrated into the Group
-- Mach49 entered into a five-year strategic alliance with a global
technology and digital company, total fees over the initial life of the
contract expected to be in excess of $400m
Current trading and outlook
The new financial year has started well with performance year to
date in line with management expectations.
Performance continues to be robust across all four business
segments; underpinned by the significant Mach49 contract win in
early 2022, the acquisition of Engine in March 2022 and other new
client wins, such as Morrisons for Shopper Media Group ("SMG"),
giving us confidence for further growth in the year ahead. Whilst
we are mindful of the current economic and geopolitical backdrop,
given the strength of our business we remain confident in meeting
management expectations for the full year.
The Group's strong liquidity position 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:
"Last year we dramatically stepped up our growth by combining
organic wins with the successful execution of strategic M&A. We
completed our largest ever acquisition in Engine and saw
significant organic revenue growth across the business leading to a
record performance for the Group. The Board will continue its
disciplined approach when evaluating the Group's portfolio and
remains confident in Next 15's ability to continue its trajectory
this year. Against the backdrop of macroeconomic uncertainty, we
believe our agile structure and entrepreneurial mindset will serve
to deliver growth opportunities for our people, customers and
shareholders alike."
Tim Dyson, CEO of Next 15, said:
"This year has seen a very strong performance with all four
pillars of our business delivering strong levels of organic revenue
growth. Our US operations have shown exceptional growth with the
region now representing 52% of our total net revenues. We have also
benefitted from a significant contract win by Mach49 at the start
of the year and the acquisition of Engine which has been
successfully integrated into our Group and is now making a very
positive contribution to the Group's trading."
"Looking ahead, our positive trading has continued into our new
financial year with good levels of activity across all four parts
of the business. We have continued to see strong levels of spend
from all of our major customers. In addition, our work with the
public sector has remained strong and is anticipated to grow in the
current year. We therefore expect our results for the full year to
be in line with management expectations."
Name change
As announced on 18 April 2023, the Group has officially changed
its name to Next 15 Group plc (ticker: NFG). This reflects that the
Group no longer derives the bulk of its work from marketing
communications having evolved into a tech and data-driven growth
consultancy.
Webcast for analysts and investors
Next 15 will host an analyst and investor webcast at 9:30 today,
Tuesday 25 April 2023.
To access the webinar, please contact next15@mhpgroup.com
For further information contact:
Next 15 Group plc
Tim Dyson, Chief Executive Officer
+1 415 350 2801
Peter Harris, Chief Financial Officer
+44 (0) 20 7908 6444
Numis (Nomad & Joint Broker)
Mark Lander, Hugo Rubinstein
+44 (0)20 7260 1000
Berenberg (Joint Broker)
Ben Wright, Mark Whitmore, Richard Andrews
+44 (0)20 3207 7800
MHP
James McFarlane, Eleni Menikou, Pete Lambie
+44 (0) 20 3128 8100
Next15@mhpgroup.com
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. For acquisitions made in the prior
year, only the corresponding months of ownership are included in
the calculation of growth. Net revenue is reconciled to statutory
revenue within the appendix and a reconciliation of the movement in
the year is included in the net revenue bridge on page 7.
Adjusted operating profit margin
Adjusted operating profit margin is calculated based on the
adjusted operating profit after interest on finance lease
liabilities as a percentage of net revenue. Adjusted operating
profit after interest on finance lease liabilities is reconciled to
statutory results within the appendix.
This announcement contains inside information as defined in
Article 7 of the Market Abuse Regulation.
About Next 15
Next 15 (AIM:NFG) 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.
Our goal is to deliver above-market growth. Our net revenues
have grown by 186% over the last five years and we are aiming to
double the size of the business in the next four 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.
Chairman and Chief Executive's Statement
Review of FY23
This has been a very strong performance with all four pillars of
our business delivering strong organic revenue growth. The Group
grew at its fastest pace in over a decade to deliver net revenues
of GBP563.8m and adjusted profits of GBP112.5m. Adjusted earnings
per share grew from 59.7p to 80.4p. We completed six small
acquisitions, won the largest contract in our history, garnered
countless awards, raised GBP50m of funding to partly fund the
acquisition of Engine, our largest acquisition to date.
The statutory operating profit increased by 68% to GBP67.2m
(2022: GBP40.0m) and diluted profit per share was 1.5p, compared
with a diluted loss per share of 74.9p in the previous year.
Strategy
The Group is set up to solve the biggest challenge facing all of
our customers, which is driving sustainable growth. There are many
ways we help our customers grow, but we believe we have a unique
advantage in four areas:
-- Customer Insight
-- Customer Engagement
-- Customer Delivery
-- Business Transformation
Our customer insight business is set up to help customers
understand the opportunities and challenges they face and arm them
with the knowledge they need to make the best decisions.
Our customer engagement business is designed to help our
customers optimize their brand reputation and build the
mission-critical digital assets such as ecommerce platforms, apps
and websites that are the window through which much of the world's
commerce is now transacted.
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.
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 they need our help to
understand how to maximise the value of the organisation.
Acquisitions
The Group has continued to grow its portfolio of businesses. In
March 2022, the Group acquired Engine, which operated as three
businesses. Post-acquisition the three businesses have been
separated and we have created MHP, which provides corporate
communications to a broad range of global clients. Transform, which
provides digital transformation consultancy to mostly Government
departments and House 337, which provides creative solutions to UK
clients and has since been merged with ODD. Engine's clients
include Astra Zeneca, the Department for Education and Sky.
The Group acquired Engine for GBP67.3m cash on completion,
partly funded by an equity placing which raised gross proceeds of
approximately GBP50m. Annualised head office synergies in excess of
GBP3m have been successfully realised ahead of expectations and all
London based Next 15 brands have been consolidated into Engine's
offices. Since acquisition, Transform and House 337 have both seen
a margin improvement through an improved operating model, with MHP
delivering encouraging revenue growth at an already strong margin.
The high-quality integration has been a success and the Group
expects to deliver a return on the initial investment of at least
20%, based on strong expected level of profits to be delivered
during FY24.
During the year Savanta, our Customer Insight business, acquired
Motif in the UK, and Infosurv, in the US.
Dividend
The Board is recommending the payment of a final dividend for
the year ended 31 January 2023 of 10.1p per share, which would
represent a total dividend of 14.6p for the year. The final
dividend represents an increase of 20% on the final dividend in the
prior year.
Review of Adjusted Results to 31 January 2023
In order to assist shareholders' understanding of the
performance of the business, the following commentary is focused on
the adjusted performance for the 12 months to 31 January 2023,
compared with the 12 months to 31 January 2022. The Directors
consider these adjusted measures to be highly relevant as they
reflect the trading performance of the business and align with how
shareholders value the business. They also give shareholders more
information to allow for understandable like-for-like year-on-year
comparisons and more closely correlate with the cash and working
capital position of the Group.
Year Ended Year Ended
ADJUSTED RESULTS(1) 31 January 2023 31 January 2022
GBP'000 GBP'000
Net revenue 563,799 362,103
Operating profit after interest on
lease liabilities 114,169 79,347
Operating profit margin 20.2% 21.9%
Net finance expense (1,631) (290)
Share of profits from associate - 211
Profit before income tax 112,538 79,268
Effective tax rate on adjusted profit 23.3% 21.6%
Diluted adjusted earnings per share 80.4p 59.7p
(1) Adjusted results have been presented to provide additional information
that may be useful to shareholders to understand the performance of the
business by facilitating comparability both year on year and with industry
peers. Adjusted results are reconciled to statutory results below and within
the appendix.
The Group has continued to trade very strongly over the last 12
months despite the macro-economic headwinds with all parts of the
business making a positive contribution to the Group's performance.
We had a particularly encouraging performance in the first half of
the year following the acquisition of Engine and the significant
contract win for Mach49. This continued into the second half albeit
at not quite the rate of the first half, as we were modestly
impacted by the global tech slowdown.
Profitability was also positively enhanced in the first half
given the nature of the Mach49 contract win whereby we accounted
for the contracted revenue equally across the year, but the costs
were phased in the second half as we geared up for a significant
increase in the revenue and deliverables in our new financial year.
This had the impact of increasing the Group's underlying profit in
our first half by approximately GBP5m which we reinvested in the
second half.
The trading performance was strongest in our Customer Delivery
and Business Transformation segments as clients focused on
maximising their revenue growth and adapting their business models
to a digital-first environment, whilst our Customer Insights and
Customer Engage segments also saw encouraging revenue growth.
Our total Group net revenues increased by 56% (2022: 36%) and
organic net revenue growth was 20.7% (2022: 26.1%). We acquired
Engine in March 2022, which was operating at a lower margin, which
depressed the Group's operating margin in FY23. This together with
the expected return of some costs post Covid has resulted in our
operating margin decreasing to 20.2% (2022: 21.9%). The current
financial year will be the first full year of our ownership of
Engine, and we expect to see the impact of our growth plan and the
synergies set out at the time of the acquisition. This is expected
to contribute to a modest increase in the Group's margin in the
current financial year.
Most of our agencies performed well last year with the standout
performances being from Activate, M Booth Health, Brandwidth and
Mach49, which each grew their revenue above 30% and showed good
margin progression. Our B2B agencies performed very strongly whilst
our B2C agencies continued to recover from the impact of the
pandemic in the prior year.
Net revenue bridge
Movement (% of prior year
Net Revenue (GBP'm) net revenue)
Year to 31 January 2022 362.1
Organic growth 75.1 + 20.7% (FY22: + 26.1%)
Acquisitions 93.6 + 25.8% (FY22: + 14.9%)
Impact of FX 33.0 + 9.1% (FY22: - 5.4%)
Year to 31 January 2023 563.8
Reconciliation between statutory and adjusted profit
For the year to 31 January 2023, the Group delivered net revenue
of GBP563.8m (2022: GBP362.1m), adjusted operating profit of
GBP114.2m (2022: GBP79.3m), adjusted profit before income tax of
GBP112.5m (2022: GBP79.3m) and adjusted diluted earnings per share
of 80.4p (2022: 59.7p).
Statutory revenue for the year was GBP720.5m (2022: GBP470.1m)
which resulted in an operating profit of GBP67.2m compared with
GBP40.0m in the previous year. Diluted earnings per share was 1.5p,
compared with a loss per share of 74.9p in the previous year.
While adjusted operating profit increased by 44% to GBP114.2m
(2022: GBP79.3m), reflecting the very strong trading of the Group,
we made a statutory profit before tax of only GBP10.1m (statutory
loss in 2022: GBP80.1m). The low statutory profit before tax was
mostly caused by the increase in the expected Mach49 earn-out as
well as acquisition related accounting, including the amortisation
of acquired intangibles.
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Profit/(loss) before income tax 10,109 (80,139)
Acquisition accounting related
costs(1) 89,261 151,856
Charge for one-off employee incentive
schemes 596 5,891
Costs associated with restructuring 2,302 -
Deal costs 5,521 486
Property impairment 4,749 233
Gains on investment activities - (455)
UK furlough grant - 1,396
Adjusted profit before income tax(2) 112,538 79,268
(1) Acquisition accounting related costs includes unwinding of discount and
change in estimate on deferred and contingent consideration and share purchase
obligation payable, employment linked acquisition payments and amortisation of
acquired intangibles.
(2) A full reconciliation and further detail is set out in the appendix.
Segment adjusted performance
Customer Customer Customer Business Head
Engage Delivery Insight Transformation Office Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 January
2023
Net revenue 274,951 102,096 51,985 134,767 - 563,799
Adjusted
operating
profit /
(loss) after
interest on
finance
lease
liabilities 55,432 30,191 11,049 43,855 (26,358) 114,169
Adjusted
operating
profit
margin(1) 20.2% 29.6% 21.3% 32.5% - 20.2%
Organic net
revenue
growth 9.3% 12.0% 10.2% 83.3% - 20.7%
Year ended 31 January
2022
Net revenue 187,566 79,951 42,109 52,477 - 362,103
Adjusted
operating
profit /
(loss) after
interest on
finance
lease
liabilities 40,434 28,501 9,023 15,221 (13,832) 79,347
Adjusted
operating
profit
margin(1) 21.6% 35.6% 21.4% 29.0% - 21.9%
Organic net
revenue
growth 15.7% 40.0% 18.6% 99.9% - 26.1%
(1) Adjusted operating profit margin is calculated based on the adjusted
operating profit after interest on finance lease liabilities as a percentage
of net revenue.
The Customer Insights segment includes Savanta and Planning-inc.
Savanta performed well as its predominantly B2C client base
continued to recover from the pandemic. Their UK business was
strengthened by the acquisition of Motif, which expanded their
client offering in the financial services and healthcare markets,
whilst Savanta US grew by over 38% year on year helped by the
acquisition of Infosurv, which focuses on employee engagement
research. Planning-inc continued to grow their retail client base
and developed a suite of products which should facilitate further
growth over the next couple of years. Total net revenue increased
by 23.5% to GBP52.0m with organic growth of 10.2%, whilst the
adjusted operating profit increased by 22.5% to GBP11.0m at an
adjusted operating margin of 21.3%.
The Customer Engage segment includes M Booth, M Booth Health,
Outcast, Archetype, Brandwidth, MHP and House 337, which were both
acquired as part of the acquisition of Engine in March 2022. M
Booth Health, MHP and Brandwidth were the stand-out performers as
they expanded their relationships with a broad cross-section of
clients including P&G, Google, Astra Zeneca and Dow Chemicals.
The segment produced a very positive performance overall with net
revenue growing by 46.6% to GBP275.0m, with organic revenue growth
of 9.3%, and delivered an adjusted operating profit of GBP55.4m at
an adjusted operating margin of 20.2%.
The Customer Delivery segment includes our Activate, Agent3,
Twogether and SMG agencies. This segment is focused on solving
short-term revenue challenges for its clients usually through
digital products which are easier to determine their return on
investment. The Covid pandemic brought an exceptional performance
as online growth was often the only route to market for our
clients. Growth has moderated somewhat as more traditional routes
to market have resumed, but the segment still delivered net revenue
growth of 27.7% to GBP102.1m with organic revenue growth of 12.0%.
The adjusted operating profit increased to GBP30.2m at an adjusted
operating profit margin of 29.6%.
The Business Transformation segment includes Mach49, Blueshirt,
Palladium, and Transform, which was acquired as part of the Engine
acquisition. We saw a very strong performance from this segment as
the significant contract win for Mach49, which we announced in
February 2022, contributed significant revenue and profit growth
during the year. Transform made an encouraging start and their
operating margin has improved materially during the period.
Overall, the segment delivered net revenue growth of 156.8% to
GBP134.8m with organic revenue growth of 83.3%. The adjusted
operating profit increased by 188.1% to GBP43.9m at an adjusted
operating profit margin of 32.5%.
Regional adjusted performance
Asia Head
UK EMEA US Pacific Office Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended
31 January
2023
Net revenue 240,971 11,626 293,177 18,025 - 563,799
Adjusted
operating
profit /
(loss) after
interest on
lease
liabilities 42,460 2,826 93,463 1,778 (26,358) 114,169
Adjusted
operating
profit
margin(1) 17.6% 24.3% 31.9% 9.9% - 20.2%
Organic net
revenue
growth 11.3% 16.3% 28.2% 11.0% - 20.7%
Year ended 31 January
2022
Net revenue 137,491 10,041 199,348 15,223 - 362,103
Adjusted
operating
profit /
(loss) after
interest on
lease
liabilities 30,910 2,504 58,355 1,410 (13,832) 79,347
Adjusted
operating
profit
margin(1) 22.5% 24.9% 29.3% 9.3% - 21.9%
Organic net
revenue
growth 18.3% 21.3% 33.2% 11.9% - 26.1%
(1) Adjusted operating profit margin is calculated based on the adjusted
operating profit after interest on finance lease liabilities as a percentage
of net revenue.
In the year to 31 January 2023, total US net revenues grew by
47.1% to GBP293.2m from GBP199.3m which included organic growth of
28.2%. In February 2022, Mach49 announced a significant new
contract win which added approximately $65m of revenue during the
year. The rest of their business also showed very strong growth.
Our lead generation agency, Activate, had an exceptionally strong
performance throughout the year, whilst our B2C agency M Booth and
its sister agency M Booth Health grew their revenues predominantly
by winning new business from existing clients. We also benefitted
from a property consolidation which was prompted by the 'working
from home' initiative which arose during the pandemic. This has
reduced our establishment costs by 3% of revenues as our real
estate footprint has materially reduced, despite our growth in
scale. The adjusted operating profit from our US businesses
increased by 60.2% to GBP93.5m compared with GBP58.4m in the
previous 12 months to 31 January 2022, with the operating margin
increasing to 31.9% from 29.3% in the prior year.
The UK businesses have delivered an impressive performance over
the last 12 months, with net revenue increasing by 75.3% to
GBP241.0m from GBP137.5m in the prior period. This growth was
helped by the Group's acquisition of Engine in March 2022. Our UK
businesses achieved organic revenue growth of 11.3%. The adjusted
operating profit increased to GBP42.5m from GBP30.9m in the prior
year with the adjusted operating margin decreasing to 17.6% from
22.5% in the prior year due to the acquisition of Engine, which was
operating at a lower margin on acquisition. Operational
improvements will result in a much improved operating profit and
margin in the new financial year.
The EMEA business continued to perform very well with net
revenue increasing by 15.8% to GBP11.6m (2022: GBP10.0m) and
adjusted operating profit increasing to GBP2.8m at an impressive
adjusted operating margin of 24.3%.
In the APAC region net revenue increased by 18.4% to GBP18.0m
(2022: GBP15.2m). The operating profit increased to GBP1.8m at an
improved operating margin of 9.9%.
Balance Sheet and Net Debt
The Group's balance sheet remains in a strong position with net
cash as at 31 January 2023 of GBP26.1m (2022: GBP35.7m) and net
assets of GBP114.4m (2022: GBP61.5m). Since the previous year end,
intangible assets have significantly increased primarily due to
GBP47.3m of goodwill and GBP50.4m of acquired intangible assets
recognised as a result of the acquisition of Engine.
Contingent consideration also saw a significant increase due to
the reassessment of management's estimation of future amounts
payable to certain brands, in particular for Mach49, which has now
been estimated to hit the $300m cap on total payments. The
estimates around the contingent consideration are considered by
management to be an area of significant judgement, which could
result in a material adjustment to the value of these liabilities
in the future years.
The net cash inflow from operating activities before changes in
working capital for the year to 31 January 2023 increased to
GBP119.6m from GBP88.6m in the prior period. We had a net outflow
from working capital of GBP24.4m due to the unwinding of the
positive impact of short-term client payments during Covid as well
as the Engine acquisition and very strong revenue performance
increasing trade receivables. This resulted in our net cash
generated from operations before tax being GBP95.2m (2022:
GBP88.8m).
Over the year we incurred GBP111.6m in acquisition-related
payments and GBP7.0m in capital expenditure.
Year to Year to
31 January 2023 31 January 2022
Cash flow KPIs GBPm GBPm
Net cash inflow from operating
activities before changes in working
capital 119.6 88.6
Working capital movement (24.4) 0.2
Net cash generated from operations 95.2 88.8
Income tax paid (20.3) (14.1)
Investing activities (67.5) (18.5)
Dividend paid to shareholders 12.7 9.8
Bank refinancing
On 20 September 2021, the Group agreed a GBP60m revolving credit
facility ("RCF") with HSBC and Bank of Ireland. The facility had a
maturity date of September 2024 with an option to extend for a
further two years. As part of the arrangement, the Group had a
GBP40m accordion option to facilitate future acquisitions. At the
start of this year, GBP20m of this accordion was committed and
available within the RCF.
Subsequent to this and in relation to the Group's offer for
M&C Saatchi, the Group entered into an agreement amending and
restating the existing facility agreement on 20 May 2022. The total
amount available under the amended and restated facilities
agreement was GBP150m, comprising of a GBP50m term facility and
increasing the RCF to GBP100m. Under the amended and restated
facilities agreement, GBP57.5m was available on a certain funds
basis to be used for the acquisition of M&C Saatchi. As a
result of the offer to acquire M&C Saatchi lapsing, the GBP50m
term facility was cancelled and the GBP7.5m of the RCF was no
longer on certain funds.
The remaining GBP100m of the RCF facility is available for
permitted acquisitions and working capital requirements. It is due
to be repaid from the trading cash flows of the Group. The facility
is available in a combination of sterling, US dollar and Euro. The
margin payable on each facility is dependent upon the level of
gearing in the business. The Group also has a US facility of $7m
(2022: $7m) which is available for property rental guarantees and
US-based working capital needs.
Current trading and outlook
The new financial year has started well with performance year to
date in line with management expectations.
Performance continues to be robust across all four business
segments; underpinned by the significant Mach49 contract win in
early 2022, the acquisition of Engine in March 2022 and other new
client wins, such as Morrisons for Shopper Media Group ("SMG"),
giving us confidence for further growth in the year ahead. Whilst
we are mindful of the current economic and geopolitical backdrop,
given the strength of our business we remain confident in meeting
management expectations for the full year.
The Group's strong liquidity position provides scope for further
investments both in the businesses and in M&A to accelerate our
longer-term growth.
NEXT 15 GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Year ended Year ended
31 January 2023 31 January 2022
Note GBP'000 GBP'000
Revenue 720,500 470,055
Direct costs (156,701) (107,952)
Net revenue 2 563,799 362,103
Staff costs 391,798 258,945
Depreciation 12,187 9,442
Amortisation 25,053 19,317
Other operating charges 67,554 34,414
Total operating charges (496,592) (322,118)
Operating profit 67,207 39,985
Finance expense 5 (63,735) (121,384)
Finance income 6 6,637 1,049
Share of profit from associate - 211
Profit/(loss) before income tax 10,109 (80,139)
Income tax (expense)/credit 3 (7,123) 14,475
Profit/(loss) for the year 2,986 (65,664)
Attributable to:
Owners of the parent 1,623 (69,219)
Non-controlling interests 1,363 3,555
2,986 (65,664)
Earnings/(loss) per share
Basic (pence) 7 1.7 (74.9)
Diluted (pence) 7 1.5 (74.9)
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Profit/(loss) for the year 2,986 (65,664)
Other comprehensive (expense)/income:
Items that may be reclassified into
profit or loss:
Exchange differences on translating
foreign operations (1,323) (963)
Items that will not be reclassified
subsequently to profit or loss
Revaluation of investments (448) 7,466
Total other comprehensive
(expense)/income for the year (1,771) 6,503
Total comprehensive income/(expense)
for the year 1,215 (59,161)
Attributable to:
Owners of the parent (148) (62,716)
Non-controlling interests 1,363 3,555
1,215 (59,161)
NEXT 15 GROUP PLC
ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS (Unaudited)
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Net revenue 563,799 362,103
Operating charges (434,213) (270,641)
EBITDA 129,586 91,462
Depreciation and Amortisation (14,052) (11,072)
Operating profit 115,534 80,390
Interest on finance lease liabilities (1,365) (1,043)
Operating profit after interest on
finance lease liabilities 114,169 79,347
Operating profit margin 20.2% 21.9%
Net finance expense (1,631) (290)
Share of profits of associate - 211
Profit before income tax 112,538 79,268
Tax (26,254) (17,155)
Profit after tax 86,284 62,113
Non-controlling interest (1,363) (3,555)
Retained profit 84,921 58,559
Weighted average number of ordinary
shares 97,635,507 92,395,619
Diluted weighted average number of
ordinary shares 105,680,687 98,087,637
Adjusted earnings per share 87.0p 63.4p
Diluted adjusted earnings per share 80.4p 59.7p
Cash inflow from operating activities
before working capital changes 119,560 88,584
Cash outflow on acquisition-related
payments (111,573) (28,142)
Net cash 26,070 35,738
Dividend (per share) 14.6p 12.0p
Adjusted results have been presented to provide additional information that
may be useful to shareholders to understand the performance of the business by
facilitating comparability both year on year and with industry peers. Adjusted
results are reconciled to statutory results within the appendix.
Per the detail in the appendix (A2), charges for one-off employee incentive
schemes, employment linked acquisition payments, restructuring costs, deal
costs, property impairment, UK furlough grant and gains on investment
activities are adjusted for in calculating the adjusted operating charges and
amortisation of acquired intangibles is adjusted for in calculating the
adjusted depreciation and amortisation. Interest on lease liabilities and
unwinding of discount and change in estimate of future contingent
consideration and share purchase obligation payables are adjusted for in
calculating net finance expense. These measures are not considered to be
adjusted performance measures for the Company.
NEXT 15 GROUP PLC
CONSOLIDATED BALANCE SHEET AS AT 31 JANUARY 2023 AND 2022
31 January 2023 31 January 2022
Note GBP'000 GBP'000
Assets
Property, plant and equipment 10,882 7,506
Right-of-use assets 28,675 19,948
Intangible assets 274,067 183,050
Investments in financial assets 590 8,483
Deferred tax asset 67,058 46,350
Other receivables 830 821
Total non-current assets 382,102 266,158
Trade and other receivables 164,175 119,676
Cash and cash equivalents 8 47,320 58,216
Corporation tax asset 829 708
Total current assets 212,324 178,600
Total assets 594,426 444,758
Liabilities
Loans and borrowings 8 21,250 22,478
Deferred tax liabilities 14,152 3,187
Lease liabilities 29,482 22,285
Other payables 169 401
Provisions 14,150 14,733
Contingent consideration 9 151,237 125,045
Additional contingent incentive 9 3,829 5,202
Share purchase obligation 9 6,729 9,717
Total non-current liabilities 240,998 203,048
Trade and other payables 160,006 120,333
Lease liabilities 12,286 10,698
Provisions 15,673 7,778
Corporation tax liability 8,159 3,278
Deferred consideration 9 - 133
Additional contingent incentive 9 2,480 -
Contingent consideration 9 38,169 36,496
Share purchase obligation 9 2,255 1,535
Total current liabilities 239,028 180,251
Total liabilities 480,026 383,299
TOTAL NET ASSETS 114,400 61,459
Equity
Share capital 2,462 2,320
Share premium reserve 166,174 104,800
Share purchase reserve (2,673) (2,673)
Foreign currency translation
reserve 3,880 5,203
Other reserves 608 608
Retained loss (56,503) (50,429)
Total equity attributable to
owners of the parent 113,948 59,829
Non-controlling interests 452 1,630
TOTAL EQUITY 114,400 61,459
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Foreign Equity
Share Share currency attributable Non-
Share premium purchase translation Other Retained to owners of controlling Total
capital reserve reserve reserve reserves(1) loss the Company interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 January 2021 2,274 92,408 (2,673) 6,166 608 18,174 116,957 (76) 116,881
(Loss)/profit for
the year - - - - - (69,219) (69,219) 3,555 (65,664)
Other
comprehensive
(expense)/income
for the year - - - (963) - 7,466 6,503 - 6,503
Total
comprehensive
(expense) /
income for the
year - - - (963) - (61,753) (62,716) 3,555 (59,161)
Shares issued on
satisfaction of
vested
performance
shares 22 5,385 - - - (5,407) - - -
Shares issued on
acquisitions 24 7,007 - - - - 7,031 - 7,031
Movement in
relation to
share-based
payments - - - - - 5,565 5,565 - 5,565
Tax on share-based
payments - - - - - 2,757 2,757 - 2,757
Dividends to
owners of the
Parent - - - - - (9,832) (9,832) - (9,832)
Movement due to
ESOP share
purchases - - - - (3) - (3) - (3)
Movement due to
ESOP share option
exercises - - - - 3 - 3 - 3
Movement on
reserves for
non-controlling
interests - - - - - 67 67 (67) -
Non-controlling
interest
purchased in the
period - - - - - - - 585 585
Non-controlling
interest reversed
in the period - - - - - - - 171 171
Non-controlling
dividend - - - - - - - (2,538) (2,538)
At 31 January 2022 2,320 104,800 (2,673) 5,203 608 (50,429) 59,829 1,630 61,459
Profit for the
year - - - - - 1,623 1,623 1,363 2,986
Other
comprehensive
(expense)/income
for the year - - - (1,323) - (448) (1,771) - (1,771)
Total
comprehensive
(expense)/income
for the year - - - (1,323) - 1,175 (148) 1,363 1,215
Shares issued on
satisfaction of
vested
performance
shares 8 2,067 - - - (3,053) (978) - (978)
Shares issued on
acquisitions 21 10,780 - - - - 10,801 - 10,801
Shares issued on
placing(2) 113 48,527 - - - - 48,640 - 48,640
Movement in
relation to
share-based
payments - - - - - 6,711 6,711 - 6,711
Tax on share-based
payments - - - - - 1,898 1,898 - 1,898
Dividends to
owners of the
Parent - - - - - (12,679) (12,679) - (12,679)
Movement due to
ESOP share
purchases - - - - (3) - (3) - (3)
Movement due to
ESOP share option
exercises - - - - 3 - 3 - 3
Movement on
reserves for
non-controlling
interests - - - - - (126) (126) 126 -
Non-controlling
dividend - - - - - - - (2,667) (2,667)
At 31 January 2023 2,462 166,174 (2,673) 3,880 608 (56,503) 113,948 452 114,400
(1) Other reserves include ESOP reserve, the treasury reserve, the merger
reserve and the hedging reserve.
(2) Shares issued on placing is shown net of GBP1.4m issue costs on issue of
ordinary shares
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Year ended
Year ended 31 January 2022
31 January 2023 Restated(1)
GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) for the year 2,986 (65,664)
Adjustments for:
Depreciation 12,187 9,442
Amortisation 25,053 19,317
Finance expense 63,735 121,384
Finance income (6,637) (1,049)
Share of profit from equity accounted
associate - (211)
Impairment of RoU assets and leasehold
improvements 1,172 1,378
Loss on sale/impairment of property,
plant and equipment 68 (189)
Gain on exit of finance lease 2,811 (1,423)
Gains on investment activities - (455)
Income tax expense/(credit) 7,123 (14,475)
Employment linked acquisition
provision charge 11,971 15,167
Settlement of employment linked
acquisition payments (6,649) (4,101)
Share-based payment charges 6,711 9,463
Settlement of share based payment in
cash (971) -
Net cash inflow from operating
activities before changes in working
capital 119,560 88,584
Change in trade and other receivables (16,995) (26,842)
Change in trade and other payables (7,307) 27,014
Change in other liabilities (52) 4
(24,354) 176
Net cash generated from operations
before tax outflows 95,206 88,760
Income taxes paid (20,301) (14,109)
Net cash inflow from operating
activities 74,905 74,651
Cash flows from investing activities
Acquisition of subsidiaries and trade
and assets, net of cash acquired (70,268) (14,454)
Purchase of equity investments
designated at FVTOCI - (60)
Proceeds on disposal of investments in
financial assets 7,452 -
Acquisition of property, plant and
equipment (3,485) (3,107)
Proceeds on disposal of property,
plant and equipment 2 20
Acquisition of intangible assets (3,491) (2,694)
Net movement in long-term cash
deposits (13) (73)
Income from finance lease receivables 2,228 1,767
Interest received 113 69
Net cash outflow from investing
activities (67,462) (18,532)
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Year ended
Year ended 31 January 2022
31 January 2023 Restated(1)
GBP'000 GBP'000
Cash flows from financing activities
Payment of contingent and deferred
consideration (34,656) (9,527)
Issue of share capital 50,006 -
Issue costs on issue of ordinary
shares (1,365) -
Capital element of finance lease
rental repayment (16,510) (11,993)
Increase in bank borrowings and
overdrafts 100,281 32,091
Repayment of bank borrowings and
overdrafts (101,795) (22,518)
Interest paid (1,794) (424)
Dividend and profit share paid to
non-controlling interest partners (2,667) (2,538)
Dividends paid to shareholders of the
parent (12,679) (9,832)
Net cash outflow from financing
activities (21,179) (24,741)
Net (decrease)/increase in cash and
cash equivalents (13,736) 31,378
Cash and cash equivalents at beginning
of the year 58,216 26,831
Exchange gain on cash held 2,840 7
Cash and cash equivalents at end of
the year 47,320 58,216
(1) Comparatives have been restated, to reclassify certain acquisition related
payments. For the year ended 31 January 2022, cash payments amounting to
GBP4.1m that were classified as cash flows from investing activities which
related to employment linked post-acquisition payments have been reclassified
as cash flows from operating activities before changes in working capital. In
addition, the remaining cash payments of contingent consideration of GBP9.5m
which were classified as cash flows from investing activities have been
reclassified as cash flows from financing activities, as these payments are
considered to settle a long-term liability that financed the acquisition.
NOTES TO THE YEAR RESULTS
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
1) BASIS OF PREPARATION
The financial information in these 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 United Kingdom
(collectively Adopted IFRSs). The principal accounting policies
used in preparing the results are those the Group has applied in
its financial statements for the year ended 31 January 2023.
The financial information set out above does not constitute the
Group's statutory accounts for the years ended 31 January 2023 or
2022, but is derived from those accounts. Statutory accounts for
2022 have been delivered to the Registrar of Companies and those
for 2023 will be delivered following the company's annual general
meeting. The auditors have reported on those accounts: their
reports were unqualified, did not draw attention to any matters by
way of emphasis and did not contain statements under s498(2) or (3)
of the Companies Act 2006.
Going concern statement
The Directors have, at the time of approving this financial
information, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing this financial information. The
Directors have made this assessment in light of reviewing the
Group's budget and cash requirements for a period in excess of one
year from the date of signing of the annual report and considered
outline plans for the Group thereafter.
2) SEGMENT INFORMATION
Measurement of operating segment profit
The Board of Directors assesses the performance of the operating
segments based on a measure of adjusted operating profit before
intercompany recharges and net revenue, which reflects the internal
reporting measure used by the Board of Directors. This measurement
basis excludes the effects of certain acquisition-related costs and
goodwill impairment charges. 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.
Customer Customer Customer Business Head
Engage Delivery Insight Transformation Office Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 January
2023
Net revenue 274,951 102,096 51,985 134,767 - 563,799
Adjusted
operating
profit /
(loss) after
interest on
finance
lease
liabilities 55,432 30,191 11,049 43,855 (26,358) 114,169
Adjusted
operating
profit
margin(1) 20.2% 29.6% 21.3% 32.5% - 20.2%
Organic net
revenue
growth 9.3% 12.0% 10.2% 83.3% - 20.7%
Year ended 31 January
2022
Net revenue 187,566 79,951 42,109 52,477 - 362,103
Adjusted
operating
profit /
(loss) after
interest on
finance
lease
liabilities 40,434 28,501 9,023 15,221 (13,832) 79,347
Adjusted
operating
profit
margin(1) 21.6% 35.6% 21.4% 29.0% - 21.9%
Organic net
revenue
growth 15.7% 40.0% 18.6% 99.9% - 26.1%
(1) Adjusted operating profit margin is calculated based on the adjusted
operating profit after interest on finance lease liabilities as a percentage
of net revenue.
NOTES TO THE YEAR RESULTS (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
2) SEGMENT INFORMATION (continued)
Asia Head
UK EMEA US Pacific Office Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended
31 January
2023
Net revenue 240,971 11,626 293,177 18,025 - 563,799
Adjusted
operating
profit /
(loss) after
interest on
lease
liabilities 42,460 2,826 93,463 1,778 (26,358) 114,169
Adjusted
operating
profit
margin(1) 17.6% 24.3% 31.9% 9.9% - 20.2%
Organic net
revenue
growth 11.3% 16.3% 28.2% 11.0% - 20.7%
Year ended 31 January
2022
Net revenue 137,491 10,041 199,348 15,223 - 362,103
Adjusted
operating
profit /
(loss) after
interest on
lease
liabilities 30,910 2,504 58,355 1,410 (13,832) 79,347
Adjusted
operating
profit
margin(1) 22.5% 24.9% 29.3% 9.3% - 21.9%
Organic net
revenue
growth 18.3% 21.3% 33.2% 11.9% - 26.1%
(1) Adjusted operating profit margin is calculated based on the adjusted
operating profit after interest on finance lease liabilities as a percentage
of net revenue.
3) TAXATION
The tax charge on adjusted profit for the year ended 31 January
2023 is GBP26,254,000 (2022: GBP17,155,000), equating to an
adjusted effective tax rate of 23.3%, compared to 21.6% in the
prior year. The Group's adjusted corporation tax rate is expected
to remain higher than the standard UK rate for the foreseeable
future due to the higher rate of tax the Group suffers on its
overseas profits.
The UK statutory tax rate increase from 19% to 25% will have a
significant impact to the Groups adjusted corporation tax rate from
FY24 onwards. In addition to the UK statutory rate increase to 25%
(effective April 2023), we anticipate that overseas international
tax pressures will continue to increase the Group's adjusted
effective tax rate over the coming years.
The statutory tax expense for the year ended 31 January 2023 is
GBP7,123,000 (2022: credit of GBP14,475,000).
4) DIVIDS
A final dividend of 10.1p per ordinary share will be paid on 11
August 2023 to shareholders listed on the register of members on 7
July 2023. Shares will go ex-dividend on 6 July 2023. This makes
the total dividend for the year 14.6p per share (2022: 12.0p).
NOTES TO THE YEAR RESULTS (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
5) FINANCE EXPENSE
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Financial liabilities at amortised
cost
Bank interest payable 1,791 398
Interest on lease liabilities(1) 1,365 1,043
Financial liabilities at fair value
through profit and loss
Unwinding of discount on deferred and
contingent consideration and share
purchase obligation payable(1) 22,885 8,299
Change in estimate of future
contingent consideration and share
purchase obligation payable(1) 37,691 111,618
Other
Other interest payable 3 26
Finance expense 63,735 121,384
(1) These items are adjusted for in calculating the adjusted net finance
expense.
6) FINANCE INCOME
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Financial assets at amortised cost
Bank interest receivable 103 35
Finance lease interest receivable 50 65
Financial liabilities at fair value
through profit and loss
Change in estimate of future
contingent consideration and share
purchase obligation payable(1) 6,474 915
Other interest receivable 10 34
Finance income 6,637 1,049
(1) These items are adjusted for in calculating the adjusted net finance
expense.
7) EARNINGS PER SHARE
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Profit/(loss) attributable to ordinary
shareholders 1,623 (69,219)
Number Number
Weighted average number of ordinary
shares 97,635,507 92,395,619
Dilutive LTIP shares 2,279,528 2,389,017
Dilutive growth deal shares 2,373,445 916,215
Other potentially issuable shares 3,392,207 2,386,786
Diluted weighted average number of
ordinary shares 105,680,687 98,087,637
NOTES TO THE YEAR RESULTS (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
7) EARNINGS PER SHARE (Continued)
Basic earnings/(loss) per share 1.7p (74.9)p
Diluted earnings/(loss) per share(1) 1.5p (74.9)p
(1) In the prior year, the weighted average shares used in the basic loss per
share calculation has also been used for the reported diluted loss per share
due to the anti-dilutive effect of the weighted average shares calculation for
the reported diluted loss per share.
8) NET DEBT
On 20 September 2021, the Group agreed a GBP60m revolving credit
facility ("RCF") with HSBC and Bank of Ireland. The facility had a
maturity date of September 2024 with an option to extend for a
further two years. As part of the arrangement, the Group had a
GBP40m accordion option to facilitate future acquisitions. At the
start of this year, GBP20m of this accordion was committed and
available within the RCF.
Subsequent to this and in relation to the Group's offer for
M&C Saatchi, the Group entered into an agreement, amending and
restating the existing facility agreement on 20 May 2022. The total
amount available under the amended and restated facilities
agreement was GBP150m, comprising of a GBP50m term facility and
increasing the RCF to GBP100m. Under the amended and restated
facilities agreement, GBP57.5m was available on a certain funds
basis to be used for the acquisition of M&C Saatchi. As a
result of the offer to acquire M&C Saatchi lapsing, the GBP50m
term facility was cancelled and the GBP7.5m of the RCF was no
longer on certain funds.
The remaining GBP100m of the RCF facility is available for
permitted acquisitions and working capital requirements, and is due
to be repaid from the trading cash flows of the Group. The facility
is available in a combination of sterling, US dollar and Euro. The
margin payable on each facility is dependent upon the level of
gearing in the business. The Group also has a US facility of $7m
(2022: $7m) which is available for property rental guarantees and
US-based working capital needs.
31 January 2023 31 January 2022
GBP'000 GBP'000
Total loans and borrowings 21,250 22,478
Less: cash and cash equivalents (47,320) (58,216)
Net cash (26,070) (35,738)
Share purchase obligation 8,984 11,252
Contingent consideration 189,406 161,541
Deferred consideration - 133
Additional contingent incentive 6,309 5,202
Net debt and acquisition related
liabilities 178,629 142,390
NOTES TO THE YEAR RESULTS (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
9) OTHER FINANCIAL LIABILITIES
Additional Share
Deferred Contingent contingent purchase
consideration consideration incentive obligation
GBP'000 GBP'000 GBP'000 GBP'000
At 31 January 2021 1,262 45,894 - 6,508
Arising during the
year - 9,073 3,888 -
Exchange
differences - 3,795 170 35
Utilised (1,300) (10,199) - -
Unwinding of
discount 38 6,306 1,144 811
Change in estimate - 106,805 - 3,898
Reclassification 133 (133) - -
At 31 January 2022 133 161,541 5,202 11,252
Arising during the
year - 1,779 - -
Exchange
differences - 13,302 467 136
Utilised (160) (43,009) - (46)
Unwinding of
discount 27 20,649 784 1,425
Change in estimate - 35,144 (144) (3,783)
At 31 January 2023 - 189,406 6,309 8,984
Current - 38,169 2,480 2,255
Non-current - 151,237 3,829 6,729
The estimates around contingent consideration and share purchase
obligations are considered by management to be an area of
significant judgement, with any changes in assumptions and
forecasts creating volatility in the income statement. Management
estimates the fair value of these liabilities taking into account
expectations of future payments. During the year, earnout
liabilities increased by a net GBP26.6m, primarily driven by
changes in estimate of GBP33.8m relating to the Mach49 business.
This change in estimate was driven by revised assumptions for the
underlying revenue and profit growth of the Mach49 business. The
management of the business has agreed to cap the earnout liability
at US$300m on an undiscounted basis.
Changes in the estimates of contingent consideration payable and
the share purchase obligation are recognised in finance
income/expense. If the judgements around future revenue growth,
profit margins and discount rates change, this could result in a
material adjustment to the value of these liabilities within the
next financial year. An increase in the liability would result in
an increase in finance expense, while a decrease would result in a
further gain.
Litigation
During the year, a former minority shareholder and employee of
the Group's largest US agency filed a legal claim against the other
founding shareholders of the subsidiary and the Group amongst
others, relating to their entitlement to a share in the business.
The claim is in its early stages of legal proceedings. The Group
strongly disputes these claims and is defending the claim. The
Group has appointed legal advisors and having discussed the claim
with them, determines a future outflow is not probable and
therefore no provision has been made in relation to the claim.
No specific amount has been claimed and at this stage the
outcome of this claim is inherently uncertain. IAS 37 Provisions,
Contingent Liabilities and Contingent Assets requires the
disclosure of an estimate of the financial effect of any contingent
liability, separate from the effect of any possible reimbursement.
Whilst no specific estimate of potential gross outflow can be made
given the stage of this claim, the claimant may seek a proportion
of the earnout valuation of this agency, which is disclosed
elsewhere in this note. Given the Group is only subject to certain
claims, it is not clear what proportion of the earnout valuation
this will represent, and how any such claim would be apportioned
between the Group and other parties were it to result in a future
outflow.
NOTES TO THE YEAR RESULTS (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
9) OTHER FINANCIAL LIABILITIES (Continued)
The Group cannot credibly estimate the timing or quantum of any
outflow, but the Directors believe that any financial outflow
against Next 15 will be primarily offset by reimbursement through
an indemnity given at the time of the acquisition and therefore any
overall financial impact for Next 15 would be immaterial.
10) ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS
Engine
On 8 March 2022 Next 15 acquired Engine Acquisition Limited
('Engine'). Engine is a broad-based digital transformation,
communications and creative business with approximately 600 staff
and 300 UK and international clients. The acquisition of Engine for
an enterprise value of GBP77.5m, with GBP67.3m paid on completion
in cash, of which GBP50.4m related to the Engine intragroup
indebtedness.
The Acquisition was funded from the Company's debt facilities
and the proceeds of a placing of new ordinary shares in the
Company. A total of 4,505,000 new ordinary shares in the capital of
the Company of 2.5 pence each have been placed by Numis Securities
Limited and Joh. Berenberg, Gossler & Co. KG at a price of
1,110 pence per Placing Share, raising gross proceeds of
approximately GBP50m (before expenses). We have recognised goodwill
of GBP47.3m on this acquisition due to the anticipated
profitability and operating synergies.
APPIX -- ALTERNATIVE PERFORMANCE MEASURES
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
Introduction
In the reporting of financial information, the Directors have
adopted various alternative performance measures ('APMs'). The
Group includes these non-GAAP measures as they consider these
measures to be both useful and necessary to the readers of the
financial statements to help understand the performance of the
Group. The Group's measures may not be calculated in the same way
as similarly titled measures reported by other companies and
therefore should be considered in addition to IFRS measures.
Purpose
The Director's believe that these APMs are highly relevant as
they reflect how the Board measures the performance of the business
and align with how shareholders value the business. They also allow
understandable like-for-like, year-on-year comparisons and more
closely correlate with the cash inflows from operations and working
capital position of the Group.
They are used by the Group for internal performance analyses and
the presentation of these measures facilitates better comparability
with other industry peers as they adjust for non-recurring or
uncontrollable factors which materially affect IFRS measures.
A1: RECONCILIATION OF ADJUSTED OPERATING PROFIT TO STATUTORY
OPERATING PROFIT
A reconciliation of segment adjusted operating profit after
interest on finance lease liabilities to segment adjusted operating
profit and statutory operating profit is provided as follows:
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Total operating profit 67,207 39,985
Interest on finance lease liabilities (1,365) (1,043)
Segment adjusted operating profit 65,842 38,942
Amortisation of acquired intangibles
(A2) 23,188 17,687
Charge for one-off employee incentive
schemes (A2) 596 5,891
Employment linked acquisition payments
(A2) 11,971 15,167
Property impairment (A2) 4,749 233
Costs associated with restructuring
(A2) 2,302 -
UK furlough grant (A2) - 1,396
Gain on investment activities (A2) - (455)
Deal costs (A2) 5,521 486
Segment adjusted operating profit
after interest on finance lease
liabilities 114,169 79,347
APPIX -- ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
A2: RECONCILIATION OF ADJUSTED RESULTS
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Profit/(loss) before income tax 10,109 (80,139)
Unwinding of discount on deferred and
contingent consideration and share
purchase obligation payable(1) 22,885 8,299
Change in estimate of future
contingent consideration and share
purchase obligation payable(1) 31,217 110,703
Charge for one-off employee incentive
scheme(2) 596 5,891
Employment linked acquisition
payments(3) 11,971 15,167
Costs associated with restructuring(4) 2,302 -
Deal costs(5) 5,521 486
Property impairment (6) 4,749 233
UK furlough grant(7) - 1,396
Amortisation of acquired
intangibles(8) 23,188 17,687
Gains on investment activities(9) - (455)
Adjusted profit before income tax 112,538 79,268
Operating profit 67,207 39,985
Depreciation of property, plant and
equipment 4,433 3,296
Depreciation of right-of-use assets 7,754 6,146
Amortisation of intangible assets 25,053 19,317
EBITDA 104,447 68,744
Charge for one-off employee incentive
schemes(2) 596 5,891
Employment linked acquisition
payments(3) 11,971 15,167
Costs associated with restructuring(4) 2,302 -
Deal costs(5) 5,521 486
Property impairment (6) 4,749 233
UK furlough grant(7) - 1,396
Gains on investment activities(9) - (455)
Adjusted EBITDA 129,586 91,462
(1) The Group adjusts for the remeasurement of the acquisition-related
liabilities within the adjusted performance measures in order to aid
comparability of the Group's results year on year as the charge/credit from
remeasurement can vary significantly depending on the underlying brand's
performance. It is non-cash and its directional impact to the income statement
is opposite to the brand's performance driving the valuations. The unwinding
of discount on these liabilities is also excluded from underlying performance
on the basis that it is non-cash and the balance is driven by the Group's
assessment of the time value of money and this exclusion ensures
comparability.
(2) This charge relates to transactions whereby a restricted grant of brand
equity was given to key management in Elvis Communications Limited and
Publitek Limited (total of GBP0.6m) (2022: Brandwidth Marketing Limited and
Publitek Limited total of GBP0.6m) at nil cost which holds value in the form
of access to future profit distributions as well as any future sale value
under the performance-related mechanism set out in the share sale agreement.
The remaining GBP5.2m of the charge in the prior year relates to an additional
new incentive scheme for the sellers of Activate. This value is recognised as
a one-off charge in the income statement in the year of grant as the
agreements do not include service requirements, thus the cost accounting is
not aligned with the timing of the anticipated benefit of the incentive,
namely the growth of the relevant brands.
APPIX -- ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE YEARSED 31 JANUARY 2023 AND 31 JANUARY 2022
A2: RECONCILIATION OF ADJUSTED RESULTS (Continued)
(3) This charge relates to payments linked to the continuing employment of the
sellers which is being recognised over the required period of employment.
Although these costs are not exceptional or non-recurring, the Group
determined they should be excluded from the underlying performance as the
costs solely relate to acquiring the business. The sellers of the business are
typically paid market salaries and bonuses in addition to these
acquisition-related payments and therefore the Group determines these costs
solely relate to acquiring the business. Adjusting for these within the
Group's adjusted performance measures gives a better reflection of the Group's
profitability and enhances comparability year-on-year.
(4) In the current year the Group has incurred restructuring costs which
primarily relate to rebranding and redundancy costs taken in respect of the
acquisition of Engine Acquisition Limited ("Engine"). These costs related to
specific transformational events creating the three new brands from Engine,
being MHP, Transform and House 337. They did not relate to underlying trading
of the relevant brands and have been added back to aid comparability of
performance year on year. These costs are made up of GBP1.3m staff costs and
GBP1.0m of other costs relating to rebranding and creating the new businesses
from the Engine Group which was acquired.
(5) These costs are directly attributable to business combinations and
acquisitions, mainly our acquisition of Engine and our unsuccessful offer for
M&C Saatchi.
(6) In the current year the Group has recognised charges relating to the
reorganisation of the property space across the Group. The majority of the
charge is impairment of right-of-use assets and leasehold improvements. As a
result of the acquisition of Engine and understanding of the ongoing office
space required, the Group has identified excess property space within the
portfolio and therefore taken an impairment charge relating to those offices.
The Group has adjusted for this cost, as the additional one-off impairment
charge does not relate to the underlying trading of the business and therefore
added back to aid comparability.
(7) As a result of Covid-19, a number of the UK agencies received government
support from the UK furlough scheme. During the prior year the Group has
repaid all amounts received from the UK government. As a result of the receipt
and repayment being accounted for in two separate years, the amounts are added
back to aid comparability of the Group's profitability year on year.
(8) In line with its peer group, the Group adds back amortisation of acquired
intangibles. Judgement is applied in the allocation of the purchase price
between intangibles and goodwill, and in determining the useful economic lives
of the acquired intangibles. The judgements made by the Group are inevitably
different to those made by our peers and as such amortisation of acquired
intangibles been added back to aid comparability.
(9) In the prior period the Group acquired a controlling interest in BCA and
became a subsidiary of the Group, previously accounted for as an associate. As
a result of this change, the Group recognised a gain on the revaluation of the
previously held investment in equity-accounted associate of GBP0.9m. The
remaining charge relates to the loss on disposal of a separate controlling
interest, whereby the Group retained an associate interest at the year end.
The overall credit relates to specific transformational events and do not
relate to the trading of the relevant brand and therefore have been added back
to aid comparability of the performance year on year.
Adjusted profit before income tax and adjusted EBITDA have been
presented to provide additional information which may be useful to
the reader. Adjusted earnings to ordinary shareholders is a measure
of performance used in the calculation of the adjusted earnings per
share. This measure is considered an important indicator of the
performance of the business and so it is used for the vesting of
employee performance shares.
APPENDIX -- ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022
A3: RECONCILIATION OF ADJUSTED TAX EXPENSE
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Income tax expense/(credit) reported
in the Consolidated Income Statement 7,123 (14,475)
Add back tax on adjusting items:
Costs associated with the current
period restructure and office moves 1,210 1,422
Unwinding of discount on and change in
estimates of contingent and deferred
consideration 12,978 27,287
Share-based payment charge - 414
Amortisation of acquired intangibles 4,943 2,507
Adjusted tax expense 26,254 17,155
Adjusted profit before income tax 112,538 79,268
Adjusted effective tax rate 23.3% 21.6%
A4: RECONCILIATION OF ADJUSTED EARNINGS PER SHARE
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Profit/(loss) attributable to ordinary
shareholders 1,623 (69,219)
Unwinding of discount on future
deferred and contingent consideration
and share purchase obligation
payable 22,885 8,299
Change in estimate of future
contingent consideration and share
purchase obligation payable 31,217 110,703
Charge for one-off employee incentive
scheme 596 5,891
Costs associated with restructuring 2,302 -
Property impairment 4,749 233
UK furlough grant - 1,396
Amortisation of acquired intangibles 23,188 17,687
Employment linked acquisition payments 11,971 15,167
Deal costs 5,521 486
Gains on investment activities - (455)
Tax effect of adjusting items above (19,131) (31,629)
Adjusted earnings attributable to
ordinary shareholders 84,921 58,559
Number Number
Weighted average number of ordinary
shares 97,635,507 92,395,619
Dilutive LTIP shares 2,279,528 2,389,017
Dilutive growth deal shares 2,373,445 916,215
Other potentially issuable shares 3,392,207 2,386,786
Diluted weighted average number of
ordinary shares 105,680,687 98,087,637
APPENDIX -- ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022
A4: RECONCILIATION OF ADJUSTED EARNINGS PER SHARE
(Continued)
Adjusted earnings per share 87.0p 63.4p
Diluted adjusted earnings per share 80.4p 59.7p
Adjusted and diluted adjusted earnings per share have been
presented to provide additional information which may be useful to
shareholders to understand the performance of the business by
facilitating comparability both year on year and with industry
peers. The adjusted earnings per share is the performance measure
used for the vesting of employee performance shares.
A5: RECONCILIATION OF NET REVENUE
Year ended Year ended
31 January 2023 31 January 2022
GBP'000 GBP'000
Revenue 720,500 470,055
Direct costs (156,701) (107,952)
Net revenue 563,799 362,103
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CONTACT:
Next 15 Group plc
SOURCE: Next 15 Group plc
Copyright Business Wire 2023
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