Final Results

Final Results

Next 15 Group plc

 

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
31 January 2023
£m

 

Year ended
31 January 2022

£ m

 

% change year on 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 operations2

 

95.2

 

88.8

 

7%

Revenue

 

720.5

 

470.1

 

53%

Operating profit

 

67.2

 

40.0

 

68%

Profit/(loss) before tax3

 

10.1

 

(80.1)

 

 

Diluted earnings/(loss) per share (p)

 

1.5p

 

(74.9)p

 

 

1Adjusted 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.

2Comparatives have been restated to reclassify certain acquisition related payments. Further detail is included on page 17.

3In 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 £563.8m 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 £112.5m
  • Statutory operating profit up 68% to £67.2m
  • 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 £26.1m 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 £67.3m, 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 £563.8m and adjusted profits of £112.5m. 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 £50m of funding to partly fund the acquisition of Engine, our largest acquisition to date.

The statutory operating profit increased by 68% to £67.2m (2022: £40.0m) 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 £67.3m cash on completion, partly funded by an equity placing which raised gross proceeds of approximately £50m. Annualised head office synergies in excess of £3m 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.

ADJUSTED RESULTS 1

 

Year Ended
31 January 2023

 

Year Ended
31 January 2022

 

 

£000

 

£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

1Adjusted 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 £5m 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

 

 

Net Revenue (£m)

 

Movement (% of prior year 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 £563.8m (2022: £362.1m), adjusted operating profit of £114.2m (2022: £79.3m), adjusted profit before income tax of £112.5m (2022: £79.3m) and adjusted diluted earnings per share of 80.4p (2022: 59.7p).

Statutory revenue for the year was £720.5m (2022: £470.1m) which resulted in an operating profit of £67.2m compared with £40.0m 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 £114.2m (2022: £79.3m), reflecting the very strong trading of the Group, we made a statutory profit before tax of only £10.1m (statutory loss in 2022: £80.1m). 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
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£000

Profit/(loss) before income tax

 

10,109

 

(80,139)

Acquisition accounting related costs1

 

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
Engage

£000

 

Customer
Delivery

£000

 

Customer
Insight

£000

 

Business
Transformation
£000

 

Head
Office

£000

 

Total
£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 margin1

 

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 £52.0m with organic growth of 10.2%, whilst the adjusted operating profit increased by 22.5% to £11.0m 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 £275.0m, with organic revenue growth of 9.3%, and delivered an adjusted operating profit of £55.4m 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 £102.1m with organic revenue growth of 12.0%. The adjusted operating profit increased to £30.2m 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 £134.8m with organic revenue growth of 83.3%. The adjusted operating profit increased by 188.1% to £43.9m at an adjusted operating profit margin of 32.5%.

Regional adjusted performance

 

 

UK

 

EMEA

 

US

 

Asia
Pacific

 

Head
Office

 

Total

 

 

£000

 

£000

 

£000

 

£000

 

£000

 

£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 margin1

 

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 margin1

 

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 £293.2m from £199.3m 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 £93.5m compared with £58.4m 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 £241.0m from £137.5m 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 £42.5m from £30.9m 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 £11.6m (2022: £10.0m) and adjusted operating profit increasing to £2.8m at an impressive adjusted operating margin of 24.3%.

In the APAC region net revenue increased by 18.4% to £18.0m (2022: £15.2m). The operating profit increased to £1.8m 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 £26.1m (2022: £35.7m) and net assets of £114.4m (2022: £61.5m). Since the previous year end, intangible assets have significantly increased primarily due to £47.3m of goodwill and £50.4m 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 £119.6m from £88.6m in the prior period. We had a net outflow from working capital of £24.4m 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 £95.2m (2022: £88.8m).

Over the year we incurred £111.6m in acquisition-related payments and £7.0m in capital expenditure.

Cash flow KPIs

 

Year to
31 January 2023
£m

 

Year to
31 January 2022
£m

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 £60m 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 £40m accordion option to facilitate future acquisitions. At the start of this year, £20m 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 £150m, comprising of a £50m term facility and increasing the RCF to £100m. Under the amended and restated facilities agreement, £57.5m 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 £50m term facility was cancelled and the £7.5m of the RCF was no longer on certain funds.

The remaining £100m 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 YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

 

 

 

Year ended
31 January 2023

 

 

Year ended
31 January 2022

 

 

Note

 

£000

 

£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 YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

 

 

Year ended
31 January 2023

 

 

Year ended
31 January 2022

 

 

 

£000

 

£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
31 January 2023

£000

 

Year ended
31 January 2022
£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

 

£000

 

£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 YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

 

 

 

Share
capital

 

Share
premium
reserve

 

Share
purchase
reserve

 

Foreign
currency
translation
reserve

 

Other
reserves1

 

Retained
loss

 

Equity
attributable
to owners of
the Company

 

Non-
controlling
interests

 

Total
equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£000

 

£000

 

£000

 

£000

 

£000

 

£000

 

£000

 

£000

 

£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 placing2

 

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 £1.4m issue costs on issue of ordinary shares

NEXT 15 GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022
Restated1

 

 

£000

 

£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 YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022
Restated1

 

 

£000

 

£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

1Comparatives have been restated, to reclassify certain acquisition related payments. For the year ended 31 January 2022, cash payments amounting to £4.1m 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 £9.5m 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 END RESULTS

FOR THE YEARS ENDED 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
Engage

£000

 

Customer
Delivery

£000

 

Customer
Insight

£000

 

Business
Transformation
£000

 

Head
Office

£000

 

Total
£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 margin1

 

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 END RESULTS (Continued)

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

2) SEGMENT INFORMATION (continued)

 

 

UK

 

EMEA

 

US

 

Asia
Pacific

 

Head
Office

 

Total

 

 

£000

 

£000

 

£000

 

£000

 

£000

 

£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 margin¹

 

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 margin¹

 

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 £26,254,000 (2022: £17,155,000), 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 £7,123,000 (2022: credit of £14,475,000).

4) DIVIDENDS

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 END RESULTS (Continued)

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

5) FINANCE EXPENSE

 

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£000

Financial liabilities at amortised cost

 

 

 

 

Bank interest payable

 

1,791

 

398

Interest on lease liabilities1

 

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 payable1

 

22,885

 

8,299

Change in estimate of future contingent consideration and share purchase obligation payable1

 

37,691

 

111,618

Other

 

 

 

 

Other interest payable

 

3

 

26

Finance expense

 

63,735

 

121,384

1These items are adjusted for in calculating the adjusted net finance expense.

6) FINANCE INCOME

 

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£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 payable1

 

6,474

 

915

Other interest receivable

 

10

 

34

Finance income

 

6,637

 

1,049

1These items are adjusted for in calculating the adjusted net finance expense.

7) EARNINGS PER SHARE

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£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 END RESULTS (Continued)

FOR THE YEARS ENDED 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 share1

 

1.5p

 

(74.9)p

1In 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 £60m 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 £40m accordion option to facilitate future acquisitions. At the start of this year, £20m 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 £150m, comprising of a £50m term facility and increasing the RCF to £100m. Under the amended and restated facilities agreement, £57.5m 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 £50m term facility was cancelled and the £7.5m of the RCF was no longer on certain funds.

The remaining £100m 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

 

£000

 

£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 END RESULTS (Continued)

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

9) OTHER FINANCIAL LIABILITIES

 

Deferred
consideration

 

Contingent
consideration

 

Additional
contingent
incentive

 

Share
purchase
obligation

 

 

 

 

 

 

 

 

 

 

£000

 

£000

 

£000

 

£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 £26.6m, primarily driven by changes in estimate of £33.8m 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 END RESULTS (Continued)

FOR THE YEARS ENDED 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 £77.5m, with £67.3m paid on completion in cash, of which £50.4m 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 £50m (before expenses). We have recognised goodwill of £47.3m on this acquisition due to the anticipated profitability and operating synergies.

APPENDIX – ALTERNATIVE PERFORMANCE MEASURES

FOR THE YEARS ENDED 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
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£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

APPENDIX – ALTERNATIVE PERFORMANCE MEASURES (Continued)

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

A2: RECONCILIATION OF ADJUSTED RESULTS

 

 

 

Year ended
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£000

Profit/(loss) before income tax

 

10,109

 

(80,139)

Unwinding of discount on deferred and contingent consideration and share purchase obligation payable1

 

22,885

 

8,299

Change in estimate of future contingent consideration and share purchase obligation payable1

 

31,217

 

110,703

Charge for one-off employee incentive scheme2

 

596

 

5,891

Employment linked acquisition payments3

 

11,971

 

15,167

Costs associated with restructuring4

 

2,302

 

-

Deal costs5

 

5,521

 

486

Property impairment 6

 

4,749

 

233

UK furlough grant7

 

-

 

1,396

Amortisation of acquired intangibles8

 

23,188

 

17,687

Gains on investment activities9

 

-

 

(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 schemes2

 

596

 

5,891

Employment linked acquisition payments3

 

11,971

 

15,167

Costs associated with restructuring4

 

2,302

 

-

Deal costs5

 

5,521

 

486

Property impairment 6

 

4,749

 

233

UK furlough grant7

 

-

 

1,396

Gains on investment activities9

 

-

 

(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 £0.6m) (2022: Brandwidth Marketing Limited and Publitek Limited total of £0.6m) 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 £5.2m 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.

APPENDIX – ALTERNATIVE PERFORMANCE MEASURES (Continued)

FOR THE YEARS ENDED 31 JANUARY 2023 AND 31 JANUARY 2022

A2: RECONCILIATION OF ADJUSTED RESULTS (Continued)

3This 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.

4In 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 £1.3m staff costs and £1.0m of other costs relating to rebranding and creating the new businesses from the Engine Group which was acquired.

5These costs are directly attributable to business combinations and acquisitions, mainly our acquisition of Engine and our unsuccessful offer for M&C Saatchi.

6In 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.

7As 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.

8In 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.

9In 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 £0.9m. 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

31 January 2023

 

Year ended

31 January 2022

 

 

£000

 

£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

31 January 2023

 

Year ended

31 January 2022

 

 

£000

 

£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
31 January 2023

 

Year ended
31 January 2022

 

 

£000

 

£000

 

 

 

 

 

Revenue

 

720,500

 

470,055

Direct costs

 

(156,701)

 

(107,952)

Net revenue

 

563,799

 

362,103

 

UK 100

Latest directors dealings