Half-year Report

Next Fifteen Communications Plc

25 September 2018

Next Fifteen Communications Group plc

Interim results for the six months ended 31 July 2018

Next Fifteen Communications Group plc (“Next 15” or the “Group”), the digital communications group, today announces its interim results for the six months ended 31 July 2018.

Financial results for the six months to 31 July 2018 (unaudited)

			Six months ended 31		Six months ended 31		Growth in results
			July 2018		July 2017
			£m		£m
	Adjusted results
	Net revenue		106.8		93.5		14%
	EBITDA		17.7		14.5		22%
	Operating profit		15.4		12.3		25%
	Operating profit margin		14.4%		13.2%
	Profit before tax		15.1		12.0		26%
	Diluted EPS (p)		14.2p		11.4p		25%
	Statutory results
	Operating profit		10.5		7.2		47%
	Profit before tax		10.3		5.2		97%
	Diluted EPS (p)		9.4p		4.8p		96%

In order to assist shareholders’ understanding of the underlying performance of the business, adjusted results have been presented. The items that are excluded from adjusted results are reconciled to statutory results within notes 2 and 3 to the interim results.

Highlights

• Group net revenue growth of 14%, with organic revenue growth of 8.7%
• Adjusted profit before tax up 26% to £15.1m
• Adjusted diluted earnings per share increased by 25% to 14.2p
• Strong balance sheet with net debt of £25.6m (2017: £20.8m)
• Significant client wins including Capital One, Waze, Diageo and AIG
• Brandwidth, a UK-based innovation agency acquired in February
• Technical, a specialist technical content and digital marketing business, acquired in July
• Interim dividend up 20% from 1.8p to 2.16p per share

Commenting on the results, Chairman of Next 15, Richard Eyre said:

The pace of change in the marketing sector has shown no sign of slowing. Companies are increasingly focused on how consumers experience their brand through digital channels and especially mobile platforms. Next 15 remains committed to building and buying businesses that understand how to take advantage of these platforms, using technology and data to design and manage marketing programs. Our strong growth in the first half of the year is evidence of an effective strategy which we believe will continue to drive shareholder value.

For further information contact:

Next Fifteen Communications Group plc

Tim Dyson, Chief Executive Officer
+1 415 350 2801

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

Investec Bank plc

Keith Anderson, Neil Coleman, Darren Vickers
+44 (0) 20 7597 5970

Notes:

Organic revenue growth

Organic revenue growth is defined as the net revenue growth at constant currency excluding the impact of acquisitions, and the impact of the disposal of our Story business in the prior period.

Operating profit margin

Operating profit margin is calculated based on the operating profit as a percentage of net revenue.

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

Chairman and Chief Executive’s Statement

Next 15, the digital communications group, is pleased to report its interim results for the six months ended 31 July 2018.

During the period the Group’s net revenues increased by 14% to £106.8m (2017: £93.5m), while adjusted profit before tax increased by 26% to £15.1m (2017: £12.0m). Adjusted EBITDA for the six months period increased by 22% to £17.7m (2017: £14.5m), adjusted EPS increased by 25% to 14.2p and net debt remained relatively modest at £25.6m, following the acquisition of Brandwidth, an innovation consultancy, during the period. The group’s operating margin increased to 14.4% from 13.2% in the prior period.

Organic revenue growth was 8.7% for the six months led by our UK based agencies which recorded organic revenue growth of 14.9%. On a constant currency basis, the Group’s net revenue was up 19%.

The Group reported a statutory profit before tax of £10.3m compared with a statutory profit before tax of £5.2m in the prior period, while reported diluted earnings per share almost doubled to 9.4p compared with 4.8p in the prior period.

The strong trading performance has provided the Group with confidence that it is well placed to meet our expectations for the full year and as such the Board has increased the interim dividend by 20% to 2.16p per share.

Operational Review and Highlights

The group recently announced that it is merging its Text 100 and Bite businesses in the US and UK (Bite’s mainland Europe and APAC businesses were merged into Text 100 two years ago). The new agency will be headed by Bite CEO, Helena Maus.

Our US businesses saw organic revenue growth of 7%, with revenues increasing from $70.7m to $76.2m. Sterling’s strength against the US dollar and the disposal of most of the Story business resulted in a reduction in reported revenues of 2% to £55.8m from £57.0m. Beyond, M Booth, Outcast and Bite US grew their revenues significantly, whilst Text 100 US was held back after it ended its long-standing PR relationships with IBM and Lenovo. Operating margins reduced to 16.9% partly due to the investment in taking some of our UK brands to the US but also due to Beyond investing heavily in on-boarding a new signature client and in building out its capabilities in the US. We are expecting an improvement in our operating profit margin in our seasonally stronger second half.

Our UK businesses have increased revenues by 56% to almost £40.0m from £25.5m and the operating profit increased to £9.5m from £5.2m in the prior period. Operating margins have increased to 23.7% from 20.2% in the prior period due to a very strong performance from Beyond UK, Text UK, Twogether and our recent acquisitions. We have also benefitted from the operational restructuring we undertook in the prior period. Organic revenue growth was 14.9% in the period.

In EMEA we have seen an impressive improvement in both revenue and profitability, whilst in APAC we saw a modest decline in profitability due to client losses.

The Group is particularly pleased by the performance of its data and insight business, MIG Global, which accounted for approximately 8% of the Group’s revenue and is in an area of continued investment for Next 15.

	Adjusted results		UK £’000		Europe & Africa £’000		US £’000		Asia Pacific £’000		Head Office £’000		Total £’000
	6 months ended 31 July 2018
	Net revenue		39,958		4,202		55,812		6,804		-		106,776
	Operating profit		9,451		628		9,433		517		(4,663)		15,366
	Operating profit margin		23.7%		14.9%		16.9%		7.6%		-		14.4%
	Organic revenue growth		14.9%		9.0%		7.0%		0.2%		-		8.7%
	6 months ended 31 July 2017
	Net revenue		25,542		3,773		57,040		7,111		-		93,466
	Operating profit		5,165		287		10,321		602		(4,063)		12,312
	Operating profit margin		20.2%		7.6%		18.1%		8.5%		-		13.2%
	Organic revenue growth		3.5%		4.4%		1.5%		(0.8%)		-		1.9%

Dividend

The Board has resolved to pay an interim dividend of 2.16p per share, which is a 20% increase on the interim dividend for last year. This will be paid to shareholders on 23 November 2018 who are registered at close of business on 26 October 2018.

Current Trading and Outlook

Looking to the full year, the Board is encouraged by recent trading and the prospects for the second half remain good. As a result, the Board remains optimistic about the outlook for the Group and is confident that it will meet its expectations for the full year.

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ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS

			Six months ended		Six months ended
			31 July 2018		31 July 2017
			(Unaudited)		(Unaudited)
			£’000		£’000
	Net revenue		106,776		93,466
	Total operating charges		(89,094)		(79,008)
	EBITDA		17,682		14,458
	Depreciation and Amortisation		(2,316)		(2,146)
	Operating profit		15,366		12,312
	Operating profit margin		14.4%		13.2%
	Net finance expense		(280)		(333)
	Share of profits of associate		9		24
	Profit before income tax		15,095		12,003
	Tax		(3,017)		(2,401)
	Retained profit		12,078		9,602
	Weighted average number of ordinary shares		77,891,708		73,561,342
	Diluted weighted average number of ordinary shares		82,863,429		81,544,242
	Adjusted earnings per share		15.1p		12.6p
	Diluted adjusted earnings per share		14.2p		11.4p
	Cash inflow from operating activities		7,743		4,177
	Cash outflow on acquisition related payments		(15,527)		(9,976)
	Net debt		25,565		20,848
	Dividend (per share)		2.16p		1.8p

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CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

					Six months		Six months		12 months
					ended		ended		ended
					31 July 2018		31 July 2017		31 January 2018
					(Unaudited)		*Restated		*Restated
							(Unaudited)		(Audited)
			Note				£’000		£’000
	Billings				135,577		113,921		243,485
	Revenue				127,931		108,473		233,922
	Direct costs				(21,155)		(15,007)		(37,111)
	Net revenue		2		106,776		93,466		196,811
	Staff costs				73,070		65,880		136,346
	Depreciation				2,076		1,978		3,985
	Amortisation				4,004		3,381		7,413
	Other operating charges				17,094		15,075		31,842
	Total operating charges				(96,244)		(86,314)		(179,586)
	Operating profit		2		10,532		7,152		17,225
	Finance expense		6		(2,446)		(2,405)		(5,833)
	Finance income		7		2,251		468		1,878
	Share of profit from associate				9		24		26
	Profit before income tax		3		10,346		5,239		13,296
	Income tax expense		4		(2,265)		(1,044)		(4,000)
	Profit for the period				8,081		4,195		9,296
	Attributable to:
	Owners of the parent				7,773		3,874		8,632
	Non-controlling interests				308		321		664
					8,081		4,195		9,296
	Earnings per share
	Basic (pence)		8		10.0		5.3		11.6
	Diluted (pence)		8		9.4		4.8		10.5

* See note 13 for details regarding the restatement following the adoption of IFRS 15

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 JULY 2018

			Six months		Six months		12 months
			ended		ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Profit for the period		8,081		4,195		9,296
	Other comprehensive income / (expense):
	Items that may be reclassified into profit or loss
	Exchange differences on translating foreign operations		3,074		(1,804)		(5,427)
	Net investment hedge		(616)		551		1,190
			2,458		(1,253)		(4,237)
	Items that will not be reclassified subsequently to profit or loss
	Revaluation of investments		(430)		-		-
	Total other comprehensive income / (expense) for the period		2,028		(1,253)		(4,237)
	Total comprehensive income for the period		10,109		2,942		5,059
	Attributable to:
	Owners of the parent		9,801		2,621		4,395
	Non-controlling interests		308		321		664
			10,109		2,942		5,059

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CONSOLIDATED BALANCE SHEET AS AT 31 JULY 2018

					31 July 2018 (Unaudited)		31 July 2017 (Unaudited)		31 January 2018 (Audited)
			Note		£’000		£’000		£’000
	Assets
	Property, plant and equipment				15,931		14,819		13,567
	Intangible assets				102,242		91,926		94,843
	Investment in equity accounted associate				118		139		132
	Trade investment				1,387		1,216		1,211
	Deferred tax asset				9,806		10,515		9,794
	Other receivables				671		540		535
	Total non-current assets				130,155		119,155		120,082
	Trade and other receivables				64,996		54,762		49,538
	Cash and cash equivalents		9		21,527		16,589		24,283
	Corporation tax asset				807		940		784
	Total current assets				87,330		72,291		74,605
	Total assets				217,485		191,446		194,687
	Liabilities
	Loans and borrowings		9		40,031		35,911		34,465
	Deferred tax liabilities				4,216		3,426		3,869
	Other payables				4,934		4,683		4,290
	Provisions				439		116		141
	Deferred consideration		10		1,657		-		1,784
	Contingent consideration		10		10,421		15,228		13,271
	Share purchase obligation		10		1,020		2,839		955
	Total non-current liabilities				62,718		62,203		58,775
	Loans and borrowings		9		7,058		1,517		1,406
	Trade and other payables				54,903		46,128		45,003
	Provisions				651		699		1,405
	Corporation tax liability				2,009		2,617		2,154
	Deferred consideration		10		1,651		-		4,255
	Contingent consideration		10		2,359		6,053		5,368
	Share purchase obligation		10		630		-		-
	Total current liabilities				69,261		57,014		59,591
	Total liabilities				131,979		119,217		118,366
	TOTAL NET ASSETS				85,506		72,229		76,321
	Equity
	Share capital				1,965		1,848		1,892
	Share premium reserve				39,639		27,856		28,611
	Foreign currency translation reserve				7,885		8,434		4,811
	Other reserves				(1,570)		(1,593)		(954)
	Retained earnings				39,175		35,335		42,604
	Total equity attributable to owners of the parent				87,094		71,880		76,964
	Non-controlling interests				(1,588)		349		(643)
	TOTAL EQUITY				85,506		72,229		76,321

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

							Foreign						Equity
					Share		currency						attributable		Non-
			Share		premium		translation		Other		Retained		to owners of		controlling		Total
			capital		reserve		reserve		reserves1		earnings		the Company		interests		equity
			£’000		£’000		£’000		£’000		£’000		£’000		£’000		£’000
	At 1 February 2017 (audited)		1,834		25,681		10,238		(2,144)		31,962		67,571		926		68,497
	Profit for the period		-		-		-		-		3,874		3,874		321		4,195
	Other comprehensive income / (expense) for the period		-		-		(1,804)		551		-		(1,253)		-		(1,253)
	Total comprehensive income / (expense) for the period		-		-		(1,804)		551		3,874		2,621		321		2,942
	Shares issued on satisfaction of vested share options		1		-		-		-		(1)		-		-		-
	Shares issued on acquisitions		13		2,175		-		-		-		2,188		-		2,188
	Movement in relation to share-based payments		-		-		-		-		2,493		2,493		-		2,493
	Dividends to owners of the parent		-		-		-		-		(2,761)		(2,761)		-		(2,761)
	Movement on reserves for non-controlling interests		-		-		-		-		(232)		(232)		232		-
	Non-controlling interest dividend		-		-		-		-		-		-		(1,130)		(1,130)
	At 31 July 2017 (unaudited)		1,848		27,856		8,434		(1,593)		35,335		71,880		349		72,229
	Profit for the period		-		-		-		-		4,758		4,758		343		5,101
	Other comprehensive income / (expense) for the period		-		-		(3,623)		639		-		(2,984)		-		(2,984)
	Total comprehensive income / (expense) for the period		-		-		(3,623)		639		4,758		1,774		343		2,117
	Shares issued on satisfaction of vested share options		39		-		-		-		(76)		(37)		-		(37)
	Shares issued on acquisitions		5		755		-		-		-		760		-		760
	Movement in relation to share-based payments		-		-		-		-		3,031		3,031		-		3,031
	Dividends to owners of the parent		-		-		-		-		(1,360)		(1,360)		-		(1,360)
	Movement on reserves for non-controlling interests		-		-		-		-		916		916		(916)		-
	Non-controlling interest dividend		-		-		-		-		-		-		(419)		(419)
	At 31 January 2018 as previously stated (audited)		1,892		28,611		4,811		(954)		42,604		76,964		(643)		76,321
	Change in accounting policy (IFRS 9)2		-		-		-		-		48		48		-		48
	At 1 February 2018 as restated		1,892		28,611		4,811		(954)		42,652		77,012		(643)		76,369
	Profit for the period		-		-		-		-		7,773		7,773		308		8,081
	Other comprehensive income / (expense) for the period		-		-		3,074		(616)		(430)		2,028		-		2,028
	Total comprehensive income / (expense) for the period		-		-		3,074		(616)		7,343		9,801		308		10,109
	Shares issued on satisfaction of vested share options		55		7,764		-		-		(7,819)		-		-		-
	Shares issued on acquisitions		18		3,264		-		-		-		3,282		-		3,282
	Obligation to purchase non-controlling interest		-		-		-		-		-		-		(630)		(630)
	Movement in relation to share-based payments		-		-		-		-		1,105		1,105		-		1,105
	Dividends to owners of the parent		-		-		-		-		(3,535)		(3,535)		-		(3,535)
	Movement on reserves for non-controlling interests		-		-		-		-		(571)		(571)		571		-
	Non-controlling interest purchased in the period		-		-		-		-		-		-		(135)		(135)
	Non-controlling interest dividend		-		-		-		-		-		-		(1,059)		(1,059)
	At 31 July 2018 (unaudited)		1,965		39,639		7,885		(1,570)		39,175		87,094		(1,588)		85,506

¹ Other reserves include ESOP reserve, hedging reserve, share purchase reserve and merger reserve.
² Refer to note 13

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CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

								Twelve months
				Six months ended		Six months ended		ended
				31 July 2018		31 July 2017		31 January 2018
				(Unaudited)		(Unaudited)		(Audited)
				£’000		£’000		£’000
	Cash flows from operating activities
	Profit for the period			8,081		4,195		9,296
	Adjustments for:
	Depreciation			2,076		1,978		3,985
	Amortisation			4,004		3,381		7,413
	Finance expense			2,446		2,405		5,833
	Finance income			(2,251)		(468)		(1,878)
	Share of profit from equity accounted associate			(9)		(24)		(26)
	Loss on sale of property, plant and equipment			230		10		147
	Income tax expense			2,265		1,044		4,000
	Share-based payment charge			1,078		2,019		4,284
	Net cash inflow from operating activities before changes in working capital			17,920		14,540		33,054
	Change in trade and other receivables			(9,430)		(11,514)		(5,860)
	Change in trade and other payables			2,677		795		2,143
	Change in other liabilities			(289)		2,261		(472)
				(7,042)		(8,458)		(4,189)
	Net cash generated from operations before tax outflows			10,878		6,082		28,865
	Income taxes paid			(3,135)		(1,905)		(4,284)
	Net cash inflow from operating activities			7,743		4,177		24,581
	Cash flows from investing activities
	Acquisition of subsidiaries and trade and assets, net of cash acquired			(6,358)		(5,073)		(9,824)
	Payment of contingent and deferred consideration			(8,617)		(4,439)		(5,062)
	Purchase of investment			(552)		(464)		(464)
	Acquisition of property, plant and equipment			(3,667)		(1,460)		(2,974)
	Proceeds on disposal of property, plant and equipment			23		3		7
	Acquisition of intangible assets			(927)		(504)		(1,193)
	Net movement in long-term cash deposits			(83)		120		(6)
	Interest received			188		42		117
	Net cash outflow from investing activities			(19,993)		(11,775)		(19,399)

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CONSOLIDATED STATEMENT OF CASH FLOW (Continued)

FOR THE SIX MONTH PERIOD ENDED 31 JULY 2018

								Twelve months
				Six months ended		Six months ended		ended
				31 July 2018		31 July 2017		31 January 2018
				(Unaudited)		(Unaudited)		(Audited)
				£’000		£’000		£’000
	Cash flows from financing activities
	Capital element of finance lease rental repayment			(3)		(13)		(17)
	Net movement in bank borrowings			10,512		3,970		4,484
	Interest paid			(469)		(375)		(831)
	Dividend and profit share paid to non-controlling interest partners			(1,059)		(1,130)		(1,549)
	Dividends paid to shareholders of the parent			-		-		(4,121)
	Net cash inflow / (outflow) from financing activities			8,981		2,452		(2,034)
	Net (decrease) / increase in cash and cash equivalents			(3,269)		(5,146)		3,148
	Cash and cash equivalents at beginning of the period			24,283		22,072		22,072
	Exchange gains / (losses) on cash held			513		(337)		(937)
	Cash and cash equivalents at end of the period			21,527		16,589		24,283

NOTES TO THE INTERIM RESULTS

FOR THE SIX MONTHS ENDED 31 JULY 2018

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 European Union (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 2018 except for the adoption of the following accounting standards effective for the Group from 1 February 2018:

• IFRS 15 Revenue from contracts with customers
• IFRS 9 Financial instruments

Refer to note 13 for further details on the impact on the Group’s results and the adjustments made to prior periods.

The comparative financial information for the year ended 31 January 2018 has been derived from the audited statutory financial statements for that period, adjusted as detailed in note 13. A copy of those statutory financial statements has been delivered to the Registrar of Companies. The auditor’s report on those accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

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, 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. Other information provided to them is measured in a manner consistent with that in the financial statements. 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.

					Europe and				Asia		Head
			UK		Africa		US		Pacific		Office		Total
			£’000		£’000		£’000		£’000		£’000		£’000
	Six months ended 31 July 2018 (Unaudited)
	Net revenue		39,958		4,202		55,812		6,804		-		106,776
	Adjusted operating profit / (loss)		9,451		628		9,433		517		(4,663)		15,366
	Adjusted operating profit margin		23.7%		14.9%		16.9%		7.6%		-		14.4%
	Organic revenue growth		14.9%		9.0%		7.0%		0.2%		-		8.7%
	Six months ended 31 July 2017 (Unaudited)
	Net revenue		25,542		3,773		57,040		7,111		-		93,466
	Adjusted operating profit / (loss)		5,165		287		10,321		602		(4,063)		12,312
	Adjusted operating profit margin		20.2%		7.6%		18.1%		8.5%		-		13.2%
	Organic revenue growth		3.5%		4.4%		1.5%		(0.8%)		-		1.9%
	Twelve months ended 31 January 2018 (Audited)
	Net revenue		58,329		7,851		115,941		14,690		–		196,811
	Adjusted operating profit / (loss)		12,984		752		23,181		2,002		(8,893)		30,026
	Adjusted operating profit margin		22.3%		9.6%		20.0%		13.6%		–		15.3%
	Organic revenue growth		7.6%		3.4%		5.1%		(0.7%)		–		5.2%

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

A reconciliation of segment adjusted operating profit to operating profit is provided as follows:

							Twelve months
			Six months ended		Six months ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Segment adjusted operating profit		15,366		12,312		30,026
	Amortisation of acquired intangibles		(3,764)		(3,212)		(7,036)
	Share based payment charge (note 3)		(578)		(1,452)		(3,050)
	Charges associated with office moves (note 3)		-		-		(525)
	Restructuring costs (note 3)		(172)		(427)		(1,700)
	Deal costs (note 3)		(320)		(69)		(490)
	Operating profit		10,532		7,152		17,225

3) RECONCILIATION OF ADJUSTED FINANCIAL MEASURES

							Twelve months
			Six months ended		Six months ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Profit before income tax		10,346		5,239		13,296
	Unwinding of discount on deferred and contingent consideration and share purchase obligation payable		1,282		1,068		2,510
	Change in estimate of future contingent consideration and share purchase obligation payable		(1,367)		536		731
	Share-based payment charge1		578		1,452		3,050
	Restructuring costs		172		427		1,700
	Charge associated with office moves		-		-		525
	Deal costs2		320		69		490
	Amortisation of acquired intangibles		3,764		3,212		7,036
	Adjusted profit before income tax		15,095		12,003		29,338

Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader, and it is a measure of performance used in the calculation of the adjusted earnings per share. This measure is considered to best represent the underlying performance of the business and so it is used for the vesting of employee performance shares. The adjusting items are consistent with those in the prior period.

¹ This charge relates to transactions whereby a restricted grant of brand equity was given to key management in ODD Communications Limited and Twogether Creative Limited (2017: Text 100 LLC, Bite Communications LLC and The Outcast Agency LLC) 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. This value is recognised as a one-

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

off share-based payment in the income statement. The charge also includes acquisition related payments linked to the continuing employment of the sellers which is being recognised over the required period of employment.

² This charge relates to third party professional fees incurred during acquisitions, see note 11.

4) TAXATION

The tax charge for the six months ended 31 July 2018 is based on the Group’s estimated effective tax rate for the year ending 31 January 2019 (20%).

5) DIVIDENDS

An interim dividend of 2.16p (six months ended 31 July 2017: 1.8p) per ordinary share will be paid on 23 November 2018 to shareholders listed on the register of members on 26 October 2018. Shares will go ex-dividend on 25 October 2018.

6) FINANCE EXPENSE

							Twelve months
			Six months ended		Six months ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Financial liabilities at amortised cost
	Bank interest payable		467		375		831
	Financial liabilities at fair value through profit and loss
	Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable		1,282		1,068		2,510
	Change in estimate of future contingent consideration and share purchase obligation payable		695		962		2,492
	Other
	Other interest payable		2		-		-
	Finance expense		2,446		2,405		5,833

7) FINANCE INCOME

							Twelve months
			Six months ended		Six months ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Financial assets at amortised cost
	Bank interest receivable		45		29		98
	Financial assets at fair value through profit and loss
	Change in estimate of future contingent consideration and share purchase obligation payable		2,062		426		1,761
	Other interest receivable		144		13		19
	Finance income		2,251		468		1,878

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

8) EARNINGS PER SHARE

							Twelve months
			Six months ended		Six months ended		ended
			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Earnings attributable to ordinary shareholders		7,773		3,874		8,632
	Unwinding of discount on future deferred and contingent consideration and share purchase obligation payable		1,264		1,019		2,445
	Change in estimate of future contingent consideration and share purchase obligation payable		(1,349)		607		822
	Share based payment charge		572		899		2,498
	Restructuring costs		139		345		1,241
	Costs associated with office moves		-		-		354
	Amortisation of acquired intangibles		3,053		2,468		5,506
	US rate change		-		-		817
	Deal costs		317		69		489
	Adjusted earnings attributable to ordinary shareholders		11,769		9,281		22,804
			Number		Number		Number
	Weighted average number of ordinary shares		77,891,708		73,561,342		74,344,883
	Dilutive LTIP shares		1,156,602		2,737,223		1,297,444
	Dilutive Growth Deal shares		3,084,835		4,338,031		5,336,533
	Other potentially issuable shares		730,284		907,646		1,099,352
	Diluted weighted average number of ordinary shares		82,863,429		81,544,242		82,078,212
	Basic earnings per share		10.0p		5.3p		11.6p
	Diluted earnings per share		9.4p		4.8p		10.5p
	Adjusted earnings per share		15.1p		12.6p		30.7p
	Diluted adjusted earnings per share		14.2p		11.4p		27.8p

Adjusted and diluted adjusted earnings per share have been presented to provide additional useful information. The adjusted earnings per share is the performance measure used for the vesting of employee performance shares. The only difference between the adjusting items in this note and the figures in notes 2 and 3 is the tax effect of those adjusting items.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

9) NET DEBT

The HSBC Bank revolving credit facility of £40m expires in 2022 and therefore the outstanding balance has been classified in non-current borrowings. The £20m loan drawn from HSBC is repayable in annual instalments (see note 11) and is classified in non-current borrowings with the exception of the instalment due in less than one year.

			31 July 2018		31 July 2017		31 January 2018
			(Unaudited)		(Unaudited)		(Audited)
			£’000		£’000		£’000
	Total loans and borrowings		47,089		37,428		35,871
	Obligations under finance leases		3		9		5
	Less: cash and cash equivalents		(21,527)		(16,589)		(24,283)
	Net debt		25,565		20,848		11,593
	Share purchase obligation		1,650		2,839		955
	Contingent consideration		12,780		21,281		18,639
	Deferred consideration		3,308		-		6,039
			43,303		44,968		37,226

10) OTHER FINANCIAL LIABILITIES

			Deferred		Contingent		Share purchase
			consideration		consideration		obligation
			£’000		£’000		£’000
	At 1 February 2017 (Audited)		-		14,905		3,433
	Arising during the period		-		7,578		-
	Change in estimate		-		859		(323)
	Exchange differences		-		(40)		(50)
	Utilised		-		(2,910)		(400)
	Unwinding of discount		-		889		179
	At 31 July 2017 (Unaudited)		-		21,281		2,839
	Arising during the period		500		708		-
	Change in estimate		-		281		(86)
	Exchange differences		-		(65)		(77)
	Utilised		(360)		(809)		-
	Written off		-		(21)		-
	Reclassification		5,586		(3,789)		(1,797)
	Unwinding of discount		313		1,053		76
	At 31 January 2018 (Audited)		6,039		18,639		955
	Arising during the period		842		973		630
	Change in estimate		-		(1,293)		(74)
	Exchange differences		-		16		79
	Utilised		(4,255)		(6,095)		-
	Reclassification		445		(445)		-
	Unwinding of discount		237		985		60
	At 31 July 2018 (Unaudited)		3,308		12,780		1,650
	Current		1,651		2,359		630
	Non-current		1,657		10,421		1,020

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

11) ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

HSBC Facility

On 5 February 2018 the Group extended its facilities agreement with HSBC to include a loan of £20m in addition to the RCF of £40m which is available until 5 July 2022. The £20m was drawn down on 9 February 2018 and is repayable in equal annual instalments. The last repayment is due in December 2021 and the loan bears interest at the same margin plus LIBOR as the RCF.

Brandwidth

On 6 February 2018, Next 15 purchased the entire issued share capital of Brandwidth Group Limited and its subsidiaries (‘Brandwidth”), a UK-based innovation agency bringing significant digital skills to the Group, for initial consideration of £6.2m. Further consideration is payable based on the profit before interest and tax of Brandwidth for the year to 30 June 2018 of up to £3.3m in September 2018 and £0.8m in April 2020.

Technical

On 12 July 2018, Next 15 purchased Technical Associates Group (“TAG”) through the entire issued share capital of Technical Publicity Limited, a specialist technical content and digital marketing business focused on the industrial engineering sector, for initial consideration of £2.2m. Further deferred consideration of £0.6m is payable in April 2020. Contingent consideration based on the combined EBIT performance of TAG and Publitek, an existing Next 15 business, is also payable in April 2020.

12) EVENTS AFTER THE BALANCE SHEET DATE

The group announced that it is merging its Text 100 and Bite businesses in the UK and US (having previously merged the businesses in APAC and continental Europe). This action is likely to lead to material restructuring costs in the second half.

13) CHANGE IN ACCOUNTING POLICY

This note explains the impact of the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on the group’s financial statements and also discloses the new accounting policies that have been applied from 1 February 2018, where they are different to those applied in prior periods.

IFRS 9

IFRS 9 has been adopted without restating comparative information. The adjustments arising from the impact of IFRS 9 are not reflected in the balance sheet at 31 January 2018 however they are recognised in the opening balance sheet on 1 February 2018.

The adoption of IFRS 9 from 1 February 2018 resulted in the following changes for the Group.

The Group’s financial assets that are subject to IFRS 9’s new expected credit loss model are its trade and other receivables and cash balances. The Group has revised its impairment methodology as a result. The impact of the change in impairment methodology on the Group’s brought forward retained earnings is immaterial.

The Group has opted to continue to account for its net investment hedges under IAS 39 rather than transition to IFRS 9.

NOTES TO THE INTERIM RESULTS (Continued)

FOR THE SIX MONTHS ENDED 31 JULY 2018

The Group has opted to designate its investment in equity instruments at fair value through other comprehensive income (“FVTOCI”) as allowed under IFRS 9 as they are not held for trading. An adjustment has been made to opening retained earnings to reflect the adjustment to fair value for these unquoted investments at 1 February 2018:

			As previously stated at		Adjustment required		As restated at 1
			31 January 2018		under IFRS 9		February 2018
			£’000		£’000		£’000
	Trade investments		1,211		48		1,259

IFRS 15

The group has adopted IFRS 15 Revenue from Contracts with Customers from 1 February 2018 which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in IFRS 15, the group has adopted IFRS 15 retrospectively and has restated comparatives for the 2018 financial year. In summary, the following adjustments were made to the reported financial performance.

			Six months ended		Twelve months ended
			31 July 2017		31 January 2018
	Impact on profit for the period / year		£'000		£'000
	Revenue
	Increase due to principal versus agent considerations (i)		15,007		37,111
	Direct costs
	Increase due to principal versus agent considerations (i)		15,007		37,111
			.
	Impact on net revenue		-		-

(i) Under IFRS 15 the group is considered principal for certain third-party costs which are billed onto clients, where the Group previously accounted for these costs as agent. An adjustment to increase revenue has therefore been made to reflect this change, with a corresponding increase in direct costs. As a result, there has been no impact to net revenue or profit for the prior periods.

The Group also assessed whether the adoption of IFRS 15 had any impact on the timing of revenue recognition. Under IAS 18 the Group recognised revenue based on stage of completion whereas under IFRS 15 the recognition should be when a customer obtains control of the goods or service. Following assessment of the contracts held by the Group, it was determined that the impact of aligning the Group’s revenue recognition with performance obligations to the customer did not have a material impact on the revenue in the prior periods. Therefore, no restatement has been made.

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