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Next Fifteen Communications Group plc
Annual Report 2012
DIGITAL
EVOLUTION
Next Fifteen Communications Group plc
The Triangle
5–17 Hammersmith Grove
London
W6 0LG
T: +44 (0)20 8846 0770
www.next15.com
Scan this code with one of the many
available QR reader apps on your
smartphone to access our online
Review of 2012
Or visit: http://www.ar12.next15.com
015789_Next15_cover (Working Copy).indd 1
26/11/2012 14:59
INTRODUCTION
Using your smartphone, scan this
code to access our online Review
of 2012.
Or visit: http://www.ar12.next15.com
THIS YEAR WE HAVE CREATED AN ONLINE
REVIEW OF 2012 TO COMPLEMENT THIS
ANNUAL REPORT, WHICH CAN BE FOUND ON
OUR WEBSITE, WWW.NEXT15.COM. THE SITE
FEATURES CLIENT CASE STUDIES, GIVING
EXAMPLES OF THE DIFFERENT TYPES OF
DIGITAL WORK WE ARE NOW DOING. THE
REVIEW OF THE YEAR ALSO EXAMINES OUR
PROGRESS ON TRANSITIONING THE BUSINESS
IN THE NEW DIGITAL WORLD.
CONTENTS
OVERVIEW
Introduction
Highlights
Chairman’s statement
OPERATING REVIEW
Business Review
Financial Review
GOVERNANCE
Board of Directors
Report of the Directors
Remuneration Report
Directors’ statement on Corporate
Governance
Statement of Directors’ responsibilities
Independent auditors’ report
IFC
01
02
04
06
11
13
16
21
27
28
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
Consolidated statement of cash flow
Notes to the accounts
Company balance sheet
Reconciliation of movements
in shareholders’ funds
Notes forming part of the Company
financial statements
ADDITIONAL INFORMATION
Five-year financial information
Financial calendar and contacts
30
31
32
33
35
37
78
79
80
85
87
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Next Fifteen Communications Group plc
Annual Report 2012
HIGHLIGHTS
Financial highlights
Revenue (£m)
Adjusted profit before tax (£m)1
Profit before tax (£m)
86.0
91.6
65.4
72.3
9.60
8.40
6.61
5.25
7.53
5.96
5.30
3.16
2009
2010
2011
2012
2009
2010
2011
2012
2009
2010
2011
2012
£91.6m
(2011: £86.0m)
+6%
£9.6m
(2011: £8.4m)
+14%
£6.0m
(2011: £7.5m)
-21%
Diluted adjusted earnings
per share (pence)2
10.07
8.74
7.53
6.46
Dividend per share (pence)
2.30
2.05
1.70
1.85
Adjusted earnings before
interest, tax,depreciation and
amortisation (£m)4
10.7
11.2
8.4
5.5
2009
2010
2011
2012
2009
2010
2011
2012
2009
2010
2011
2012
10.07p
(2011: 8.74p)
+15%
2.30p
(2011: 2.05p)
+12%
11.2m
(2011: £10.7m)
+5%
1 See note 5 to the financial statements.
2 See note 10 to the financial statements.
OPERATIONAL HIGHLIGHTS
Adjusted pre-tax profit margin
increased to 10.5% from 9.8%
last year
Net debt increased by just £1.0m
year on year to £2.6m, despite
spending of £5.7m on acquisition-
related payments3
Acquired 80% of the issued share
capital of two German-based
businesses, Trademark PR and
Trademark Consulting, to be
integrated within the Bite
Communications group
Acquired the remaining 20% of
CMG Worldwide Limited (trading
as Bourne) that the Group did not
already own
Acquired a 71.8% shareholding in
Paratus Communications Limited,
a small UK-based corporate and
consumer agency integrated
within Lexis
Acquisition of Content & Motion in
August 2012, providing Beyond with
a talented social media team
creating programmes that drive
engagement through blogger and
media outreach and clients' owned
social media presences
3 Net debt excludes contingent consideration
and share purchase obligations. See note 19
to the financial statements.
4 Operating profit before depreciation,
amortisation and the impact of
fraudulent activity.
Next Fifteen Communications Group plc
Annual Report 2012 01
CHAIRMAN’S STATEMENT
“ NExT 15’S
STRATEGy IS
ANIMATED by A
CORE bELIEF THAT
TECHNOLOGy IS
DRIvING
FuNDAMENTAL
CHANGES IN bEST
MARkETING
pRACTICES.”
Next 15, a worldwide digital
communications group, is pleased
to report that it has continued to
trade well with strong operational
performances from almost every
part of the Group. This success has
been underpinned by the Group’s
early transition from traditional PR
to digital and social marketing
services. As I reported last year, this
strategy is giving the Group access
to new revenue streams and helping
to drive growth in many global
markets. The transition is being
driven both through organic
expansion and targeted acquisitions.
While the global economy continues
to struggle, Next 15 continues to
deliver revenue and earnings growth
with a strong balance sheet. On a
separate note, the recent discovery
of a fraud in one of our operations
is covered in some detail later
in this statement
1 See note 5 to the financial statements.
2 See note 10 to the financial statements.
3 Operating profit before depreciation,
amortisation and the impact of fraudulent
activity.
02
Next Fifteen Communications Group plc
Annual Report 2012
and also in the Financial Review but
I’m pleased to report that the initial
investigation is now concluded.
The Group has reported revenue
up 6% to £91.6m (2011: £86.0m) and
adjusted profits1 before tax were
up 14% at £9.6m (2011: £8.4m).
Profit before tax was down to £6.0m
(2011: £7.5m), following the impact
of the fraudulent activity notified to
shareholders on 31 October 2012
(see below). Diluted adjusted
earnings per share2 increased 15%
to 10.07p (2011: 8.74p) and the Group
ended the year with a modest net
debt (excluding contingent
consideration liabilities and share
purchase obligations) of £2.6m.
This level of debt represents less than
25% of adjusted EBITDA3, being
£11.2m (2011: £10.7m). On the back of
these results the Board is
recommending a final dividend of
1.735p per share, which increases the
dividend for the year by 12% to 2.3p
(2011: 2.05p).
THE DIGITAL TRANSITION
Next 15’s strategy is animated by a
core belief that technology is driving
fundamental changes in best
marketing practices. This is evidenced
by the roles Google, Microsoft,
Twitter and Facebook now play in the
marketing activities of most major
companies. Whilst the pace of
adoption of new techniques varies
from company to company, the
Group is now equipped to advise
all clients on how to make best use
of digital and social opportunities
as they continue to emerge.
Next 15 has strong domain expertise
in the technology market and advises
many of the leading online marketing
businesses on the development of
their own online influence models.
The insights thus developed create
a core of expertise applicable to
traditional technology vendors as well
as broader consumer and business
to business brands.
The transition from traditional PR
services to more social and digital
activities will generate mixed levels
of growth across the business as
new service lines replace the old.
The digital investments made in the
Group continue to pay off, with
organic growth substantially greater
in those agencies that are further
along the digital marketing path.
This underpins the Board’s view that
continued investment – organic and
by acquisition – is merited in areas
that can accelerate the Group
through this extraordinary market
transition. For example the Group
generated only 3% of its revenues
from research and analytics in
the last year. This is an important
area of potential growth through
the sale of products and services
complementary to the core
service lines.
SEGMENTAL
PERFORMANCE
Technology PR, which remains at the
heart of the Group, representing 66%
of revenues, grew by just over 2%,
despite the loss of HP in our Bite
Communications business.
The Consumer PR division,
representing 16.5% of total revenue,
declined by just over 6% following a
tough year for Lexis, which has been
re-staffed and retooled considerably
during the year. This agency
completed the acquisition of Paratus
in May, strengthening its social
and corporate communications
capabilities. I am pleased to report
that these actions have resulted in
a return to growth for the agency
and respectable profit margins.
The Corporate Communications
division, which now represents
7.2% of Group revenue grew by an
impressive 31%, aided by a full-year
contribution from The Blueshirt
Group, while the Pure Digital/
Research segment which now
accounts for just over 10% of
revenues grew by 67%, assisted
by a full-year contribution from
Bourne, with organic growth of
an impressive 34%.
FRAuduLENT ACTiviTy
On 31 October 2012 we informed
shareholders that, in the latter stages
of finalising the audit, a fraud was
discovered in the San Francisco office
of Bite Communications. This has
now been thoroughly investigated
with the conclusion that this was an
act of personal embezzlement by a
long-standing member of the finance
team in a trusted position. The
required accounting adjustment has
been to write off as an exceptional
item $2.8m (£1.8m) (see note 4)
relating to unrecoverable assets and
unrecorded liabilities, reflecting cash
stolen from the business. The fraud
continued into the early part of the
current financial year, which will
require a further write-off of $0.2m
(£0.1m). This crime is now being
investigated by the FBI and the SFPD.
All steps will be taken to recoup lost
assets but it is too soon to estimate
the likely scale of any recovery.
The Board is undertaking a
comprehensive review of the internal
financial controls environment, the
details of which you can find in the
Financial Review. Meanwhile, as
indicated in the statement of
31 October, this regrettable event
will not impact the operational
performance of the Group or affect
its ability to make the investments
it has planned for the coming year.
PROSPECTS
The Group continues to recognise the
low global economic growth
prospects and unsettled currency
values, underlining the need for
continued fiscal prudence. That said,
it is well-positioned in the world’s key
markets, in particular the US, which
remains an excellent market for the
Diluted adjusted earnings
per share (pence)
10.07
8.74
7.53
6.46
2009
2010
2011
2012
10.07p +15%
(2011: 8.74p)
Dividend per share (pence)
2.30
2.05
1.70
1.85
2009
2010
2011
2012
2.30p +12%
(2011: 2.05p)
Group’s services. As highlighted
above, the Group is also well-placed
to benefit from the continued
shift of audiences and marketing
expenditures to digital and social
marketing platforms.
We continue to explore ways to
expand digital capabilities through
a mix of organic investment and
targeted acquisitions using our strong
balance sheet position.
As the new financial year begins, the
signs are encouraging. We remain
confident about the prospects for
Next 15 as the year progresses.
Richard Eyre
Chairman
26 November 2012
Next Fifteen Communications Group plc
Annual Report 2012 03
buSINESS REvIEW
Last year I devoted my review to the
opportunity facing our business.
I described the transition that the
marketing services industry was going
through as ‘the biggest, most exciting
industry transition we’ve ever seen’.
Twelve months on I can report that
the pace and energy surrounding
this transition has not decreased.
If anything, the industry is witnessing
an even greater reorganisation, thanks
in large part to the challenges thrown
at it by the technology market.
This year, Facebook is expected to
generate higher revenues than News
Corporation. Meanwhile, Google will
generate more revenues than all three
major US TV broadcast networks
combined. Put another way, the
growth of social and digital marketing
businesses such as Google, Facebook
and Twitter is a reflection of the way
companies are now spending their
marketing funds. The pace of this
transition has surprised many of the
major media businesses, some of
which are over a hundred years old.
Google, on the other hand, is one of
the oldest of the internet marketing
businesses, having recently celebrated
its fourteenth birthday and Facebook
is just seven.
Number of clients
1,077
(2011: 984)
+9%
Offices worldwide
53
(2011: 51)
+4%
Average number of staff
1,088
(2011: 1,067)
+2%
04
Next Fifteen Communications Group plc
Annual Report 2012
With marketing spend shifting away
from print and traditional broadcast
towards digital and social channels
such as the ones I’ve mentioned, we
are seeing companies change the way
they reach and influence their
customers. For a business like Next 15
this is a huge, once-in-a-lifetime
opportunity. We must add new skills
and new products, and change our
entire approach to helping clients.
But we must do this while also
delivering great PR consultancy,
a service that remains hugely valuable
if delivered through digital and social
channels. In other words, it is not an
‘out with the old and in with the new’.
Instead it is ‘re-engineer the old and
add the new’. As business challenges
go, it’s a great problem to have!
As we work through this transition,
we are being forced to make some
tough decisions but we are also
uncovering some exciting
opportunities. We are evolving away
from a business centred around
press relations to a business centred
around online influence. This still
demands fabulous media skills but
these skills are now a component
rather than the component. To help
us evolve, we have invested in social
media skills and the ability to create
digital, branded content in our existing
businesses. We have also created new
agency businesses, such as Beyond,
where customer engagement is
approached from a social media and
social network perspective rather than
a media perspective.
It would be easy to see the transition
as just a US or UK phenomenon.
But it’s also clear that emerging
markets such as India and China are
leapfrogging aspects of traditional
marketing, just as they are
leapfrogging certain technologies
and jumping straight to the leading
products and services. In Next 15 this
has resulted in solid growth of 8%
in our Asia business. Europe is also
moving to the new model but at a
slower pace. The slower migration,
coupled with a weak economy, have
held back our business across
mainland Europe, a situation we are
not expecting to change dramatically
in the coming year.
In the last 12 months we have seen
exciting growth coming from our pure
digital businesses. Indeed, this
segment of our business experienced
growth of 67%, while our overall
business grew by just over 6%.
In other words, we are seeing the sales
of traditional services remain at best
flat, while the sales of new digital
services are expanding rapidly. In the
next few years I expect this trend
to accelerate, but only if we continue
to make the right investments.
Digital is now very much at the core of
how we think at Next 15, but as we go
through this transition, we recognise
that high-value consulting is a
persistent need and we intend to
continue to expand our capabilities in
this respect, albeit with a digital twist.
We saw the fruits of this approach in
the last year where our corporate
businesses saw organic growth of
10%, and we expect them to continue
to grow in the current year.
Right now it would be easy for us to
stray away from our core business
and start selling a wide range of
unconnected but nevertheless digital
services. We will not do that. Instead
we will focus our investment around
businesses that complement the
agencies we already own. For
example, in the next year we intend
to invest in the ‘Insight’ space. Thanks
to social networks and the ever-
increasing amount of online content,
brands can use technology to scrape
the internet and learn a huge amount
about their customers and potential
customers in ways that the old
market-research industry could only
have done with huge budgets and long
“ WE ARE
EvOLvING FROM
A buSINESS
CENTRED
AROuND PRESS
RELATIONS TO
A buSINESS
CENTRED
AROuND ONLINE
INFLuENCE”
respected companies and
organisations. Put another way, even
against a tough economic backdrop,
I see an exciting future for Next 15.
Tim Dyson
Chief Executive Officer
26 November 2012
timelines. Today, gaining these insights
can be done at a much lower cost and
far more quickly, but it still requires a
mix of human analysis and creativity
to derive insights upon which a client
can act. If this can be achieved, brands
can market in real time, knowing their
spend is well-directed and has a
greater probability of being effective.
Overall, I’m very pleased with the
progress that the Group has made in
the last year. Transitioning the
business from its traditional PR roots
is going well, despite tough economic
headwinds in Europe. In some cases
we are exiting old client relationships
and in many cases we are hiring
people with social media and digital
skills. Through this kind of business
re-engineering, the Group is
expanding its potential market and
elevating its role within the client’s
business. Over the next 12 to 18
months we will continue to evolve the
skill base and services offered by the
Group. If we continue to execute well,
we will emerge from this transition
as a social and digital marketing
powerhouse that represents many
of the world’s most exciting and
Revenue by region (£m)
UK
Europe and Africa
US and Canada
Asia Pacific
Total
91.6
86.0
47.1
45.1
19.7
18.0
10.5
9.7
14.3
13.2
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Next Fifteen Communications Group plc
Annual Report 2012 05
FINANCIAL REvIEW
OvERvIEW
The year to 31 July 2012 was set
against very difficult global economic
conditions. We enjoyed some strong
performances within our portfolio of
businesses in the US, and had
another stable year in terms of the
relative strength of the dollar against
sterling. The only disappointment in
the US came in our Bite business,
where a change in leadership at its
client HP resulted in wholesale
changes in their marketing partners,
with Bite losing one of its largest
clients in the process. A similar fate
befell Lexis in the UK, where its
largest client, Boots, decided on a
change of course after five years.
The strength of the Group is
demonstrated by the fact that these
two sizeable account losses were
more than offset by increased
budgets from some existing clients
and new clients taking advantage
of our enhanced range of digital
services. These are provided both
by our Pure Digital and Research
division, whose revenue grew by
67% and also from the wide range
of hybrid digital services delivered
by our communications businesses
serving the technology and consumer
sectors. Revenue grew by 6% to
£91.6m (2011: £86.0m) but, when
adjusting for acquisitions and
currency movements, underlying
organic growth was 1%. There are
a number of accounting adjustments,
mainly non-cash in nature and
relating to acquisitions, that create
volatility and distort the visibility of
the underlying performance of the
Group, and in this review the adjusted
profit and earnings numbers have
been used to eliminate these factors.
The impact of the fraudulent activity
described in the Chairman's
Statement has also been excluded
from the adjusted figures. Adjusted
profit before tax increased by 14%, to
£9.6m (2011: £8.4m) (see note 5), and
the diluted adjusted EPS rose by 15%,
to 10.07p (2011: 8.74p) (see note 10).
The Group’s adjusted EBITDA1 was
£11.2m (2011: £10.7m) and it
generated £7.5m of cash from
operating activities (after tax) (2011:
£8.8m). However, £5.7m expended
on acquisition- related payments
resulted in a Group net-debt position
of £2.6m, compared to £1.6m in
20112. This level of debt represents
gearing of under 7%, and leaves the
Group with a strong base from
which to deliver future growth.
1 Operating Profit before depreciation,
amortisation and the impact of
fraudulent activity.
2 Net debt excludes contingent consideration
and share purchase obligations, see note 19
to the financial statements.
“ WE ENJOyED
SOME STRONG
PERFORMANCES
WITHIN OuR
PORTFOLIO OF
buSINESSES IN
THE uS”
06
Next Fifteen Communications Group plc
Annual Report 2012
Key performance indicators
Staff costs to revenue (%)
67.0
68.8
69.4
68.5
Adjusted profit before
income tax margin (%)
9.1
8.0
9.8
10.5
2009
2010
2011
2012
2009
2010
2011
2012
68.5%
(2011: 69.4%)
10.5%
(2011: 9.8%)
Net cash from operating
activities (£m)
8.8
7.5
4.8
5.1
Adjusted earnings before
interest, tax, depreciation
and amortisation (£m)1
10.7
11.2
8.4
5.5
2009
2010
2011
2012
2009
2010
2011
2012
7.5m
(2011: £8.8m)
11.2m
(2011: £10.7m)
Revenue by segment (%) of total
Technology PR
Consumer PR
Pure Digital/research
consultancy
Corporate
Communications
66.1
69.0
16.5
18.7
10.2
6.5
7.2
5.8
2012
2011
2012
2011
2012
2011
2012
2011
Adjusted operating profit by segment (%)3
Technology PR
Consumer PR
Pure Digital/research
consultancy
Corporate
Communications
65.7
63.1
22.7
14.4
9.2
5.3
10.7
8.9
2012
2011
2012
2011
2012
2011
2012
2011
3 As a % of total adjusted operating profit excluding head office costs and the impact
of fraudulent activity.
Next Fifteen Communications Group plc
Annual Report 2012 07
FINANCIAL REvIEW CONTINUED
SEGMENTAL, GEOGRAPHIC
AND CLIENT ANALySIS
At 31 July 2012, the Group had 53
offices in 17 countries and a further
five licensed partners.
The Technology PR segment remains
by far the largest part of the Group,
with 66% of the revenue, having
grown by 2%. This growth is coming
largely from OutCast and Text 100
in the US and from Bite in Asia. The
Consumer PR segment fell by 6% and
represents 16.5% of Group revenue.
This decline masks a solid
performance from M Booth in the US,
which was overshadowed by the
impact on Lexis from losing Boots at
the beginning of the year. This event
provided a catalyst to re-engineer the
Lexis brand to make it more digitally
and social-media focused, and
involved the acquisition and
integration of Paratus
Communications in May 2012. The
Corporate Communications segment
had a strong year, growing 31%, with
The Blueshirt Group, an investor and
media relations agency based in San
Francisco and New York, leading the
way in its first full year in the Group.
The final segment of the business
is Pure Digital and Research
Consultancy, which experienced very
significant growth of 67%. This came
from a combination of excellent
momentum from Beyond, based in
the US and UK and completing its
second full year of trading, and a
full-year contribution from Glasgow-
based Bourne, which joined the
Group in May 2011.
The proportion of the Group’s
revenue generated outside the UK
in the last year was 78.5%. The US
remained the largest geographic
region, accounting for 51.4% of
revenue. With the UK share of
revenue being 21.5%, the Group
generated around 73% of its revenue
in these two strongest markets for
communications and marketing
services. The US region grew by 4%,
to £47.1m (2011: £45.1m). UK revenue
increased almost 10% on the
previous year, and included the
full-year contribution from Bourne.
In Europe and Africa the businesses
experienced 7% growth, to £10.5m,
thanks to the addition of Munich-
based Trademark, which joined the
Bite Group in October 2011,
but mitigated by a 3% weakening
of the euro. The Asia Pacific region
grew by 8%, to £14.3m (2011:
£13.2m). The organic growth was
7%, benefiting from good results
posted by our operations in India
and Australia.
It is also pleasing to note that the
concentration of the Group’s key
clients reduced further. The top ten
clients now represent approximately
26% of the revenue of the business
(2011: 30%), with no single client
accounting for more than 5% of the
total. This broadening of the client
base comes as a result of the Group
having a more diverse range of
service to offer. The Group still has
an impressive list of global blue-chip
clients, with each of the top ten
clients generating annual fees in
excess of £1.3m. The total number
of clients rose by 9% to almost 1,100
aided by the acquisitions referenced
above, and project clients still
represent almost 40% of the total
by number. This reflects the nature
of the relationships held in the Pure
Digital and Research division as well
as the move to more project work
in the EMEA PR client base. The
average client size fell by 3%, to
£83,000, because of the number of
smaller clients in acquired businesses
and the nature of the market in
research, which is characterised by
small projects. We have around 200
international clients, representing
18% of total clients, but more
significantly they are more than three
times the size of the average client
and account for over 60% of group
revenue. The international nature of
our client base provides greater
scope for growth than reliance on
domestic clients only.
FOREIGN ExCHANGE RISk
The Group has established treasury
policies and procedures which
monitor exposure to the US dollar
and euro, which are the two main
operating currencies other than
sterling. Cover periods have
remained short, with cover based
on the expected surplus cash receipts
returned to the UK in the current
financial year only. As a result of this
policy, there should be much reduced
volatility in the accounting charges
arising from the requirement to
fair-value these contracts.
MARGIN PERFORMANCE
The adjusted profit before tax margin
of the Group increased to 10.5%,
from 9.8% last year, following the
continued recovery from global
recession in the Technology PR
segment and increasing momentum
from higher margin areas such as
Corporate Communications.
Excluding head office costs, the
adjusted operating profit margin was
15.5%, compared to 14.8% last year.
There have been some margin
pressures in some of the Group’s
businesses, but they have worked
very hard in difficult economic
circumstances to remain close to the
target minimum margin threshold
of 16% before head office costs.
The Technology PR segment achieved
15.5%, with Bite having the biggest
08
Next Fifteen Communications Group plc
Annual Report 2012
challenge in reaching target following
a significant client loss in the US and
its investment in some of its sub-scale
APAC businesses. The Consumer PR
segment achieved a margin of 13.6%,
following the problems at Lexis noted
above. The Pure Digital and Research
businesses achieved 14%, up from
12% last year as the digital businesses
become more established. The
Corporate Communications segment
achieved a margin of 23%, with the
full-year contribution from Blueshirt,
and in line with last year. From a
regional perspective, the US and UK
achieved the required target rates,
improving slightly on the prior year,
but EMEA’s margin suffered again
as the economy has stagnated,
and the APAC region is still very
much at a sub-optimal scale, with
the Bite India business still in the
development phase.
CASH FLOW
The net cash generated from
operations (before tax payments)
was strong once again, at £10.1m
(2011: £11.4m), which was 119%
of operating profit. The main
investment activities in the year
requiring a cash payment were
£4.4m for contingent consideration
for M Booth and Blueshirt, acquired
in August 2009 and September 2010
respectively, and £0.8m for the initial
payment for the 80% of Trademark
acquired in October 2011. Dividends
paid to Next 15’s shareholders
totalled £1.2m. The Group continues
to face pressure on payment terms
from some clients, particularly those
financed by debt. Typically these are
large companies with professional
procurement teams, who still offer
a good credit risk but who use their
size to negotiate extended payment
terms on a take-it- or-leave-it basis.
In the face of these pressures, the
finance teams within the Group
have done a great job in managing
the debtor profile and bad debt
exposure.
bALANCE SHEET
The key movements in the Group’s
balance sheet are the goodwill arising
from the acquisitions of the majority
interest in Trademark and Paratus,
and the Bourne minority interest and
the increased receivables and
payables consolidated following the
Trademark acquisition. The cash
balances were £8.4m, compared to
£8.5m last year, with the acquisition
payments partly funded by drawing
down £1.0m from the bank facilities
described below. The net debt
position after deducting bank
borrowings and finance leases was
£2.6m (2011: £1.6m). Net assets at
31 July 2012 were £37.2m
(2011: £32.3m).
TREASuRy AND FuNDING
The Group has a revolving-credit
facility from Barclays Bank of £16m,
expiring in December 2014.
The facility was used to help make the
upfront payments on the acquisition
of Trademark. The facility is available
in a combination of sterling, US dollar,
and euro, at an interest rate of 2.25%
over LIBOR. Also available is an
overdraft facility of £1.5m, available
in sterling, US dollar and euro. All of
the UK businesses are part of a
composite accounting system which
allows the offset of UK overdrawn
and credit balances. In the US,
the Group has consolidated facilities
with Wells Fargo, supported by a
$2.7m credit line for letters of credit
and working-capital purposes. In
addition, Wells Fargo provided a $1m
loan facility at the call-loan rate plus
2.5%, repayable over 5 years, which
was used to partly fund the purchase
of the additional stake in 463
Communications in 2009. The Group
aims to return any surplus cash to the
UK, subject to any local transfer
restrictions, and as far as possible to
hold only moderate non-deposit cash
balances in overseas subsidiaries,
subject to working-capital needs.
FRAuDuLENT ACTIvITy
As described in the Chairman’s
Statement, the Group has suffered
from an act of personal
embezzlement by a long-serving
employee in a trusted position
heading up the finance team in
the Bite office in San Francisco.
This entailed a cheque fraud over
a number of years, involving forging
signatures and producing forged
documentation. The weaknesses of
controls that allowed this to happen
were a lack of segregation of duties,
management override of controls
and inadequate review. Prior to 1
August 2010 the amounts were small
and were expensed through the
income statement, amounting to an
identified total of $300k (£190k). As
the amounts increased they were
accumulated in the balance sheet,
spread over two statutory entities.
The total amount of cash taken is
around $3m (£1.9m). We have
identified that $200k (£127k) was
taken after 31 July 2012 and will
therefore be expensed in the current
year. For the remaining $2.8m
(£1.8m), the ongoing investigation has
so far identified that around $1.4m
(£0.9m) cash was extracted in 2012,
and $1.4m (£0.9m) prior to 2012
($0.7m (£0.4m) in 2011 and $0.7m
(£0.4m) prior to 2011).
As at 31 July 2012, a total of $2.5m
(£1.6m) was held on the balance
sheet and represented by fictitious
Next Fifteen Communications Group plc
Annual Report 2012 09
DIvIDENDS
The proposed final ordinary dividend
per share is 1.735p, which takes the
total for the year to 2.3p, a 12%
increase on the total dividend of
2.05p last year. It will be paid on
8 February 2013, assuming that it is
approved at the AGM on 29 January
2013. The dividend is covered more
than four times by diluted adjusted
earnings per share. The Board
continues to view its dividend policy
over the medium term and aims to
strike a balance between the
importance placed on dividends by
shareholders and the needs of the
Company to invest for future growth.
David Dewhurst
Finance Director
26 November 2012
FINANCIAL REvIEW CONTINUED
Tax relief is expected in the year
ending 31 July 2013 in respect of the
$2.8m (£1.8m) charge relating to the
fraud. A deferred tax asset has been
recognised on the consolidated
balance sheet as at 31 July 2012
accordingly.
EARNINGS
Basic earnings per share, adjusted
for the highlighted items shown in
note 5, rose 12%, to 11.42p (see note
10). This rise reflects the increased
profit levels but was mitigated by the
increased number of shares used
in the calculation. This arises from
shares issued in relation to contingent
consideration earned during the year
for the acquisition of M Booth and
on the acquisition of the Bourne
minority interest. The calculation
is also affected by shares issued
from the ESOP during the year
when employees exercised share
options and on the vesting of
performance shares.
The diluted adjusted earnings per
share rose by 15%, to 10.07p, and this
is 12% lower than the adjusted basic
figure. This dilution comes from the
options and performance shares
outstanding under the Long-Term
Incentive Plan and also as a result
of taking into account shares that are
expected to be issued in the future as
part of the contingent consideration
for acquisitions. This level of dilution
is less than it was last year (14%) as
some of the LTIP shares were issued
during the year and some shares
were issued as payment for
acquisitions.
assets. Of that $2.5m (£1.6m), an
amount of $1.1m (£0.7m) had existed
at 31 July 2011. The Board have
concluded that allocating the impact
of the write off across each respective
prior year would not make a material
difference to an understanding
of the accounts.
A further $0.3m (£190k) was
identified relating to unrecorded tax
liabilities and associated penalties
and interest which have now been
accrued. The write off and
recognition of liabilities has resulted
in a total charge associated with the
fraud of $2.8m (£1.8m) being
recognised in the 2012 income
statement (see note 4).
In response to this fraud, the Board is
undertaking a comprehensive review
of the internal financial controls
environment, including cash
management involving both
payments and receipts. A decision
has been taken to create a dedicated
Internal Audit function, with
resources to be recruited in the
US and UK.
TAxATION
The total tax charge for the year
is £1.7m (2011: £2.3m) on consolidated
profit before tax of £6.0m (2011:
£7.5m). This represents an effective
tax rate of 28%, being 3% higher than
the standard UK rate, reflecting the
higher tax rates in the US, where an
increasing proportion of group profits
are made. There were also losses in
some of the individual Bite entities
in territories in which it would not
be prudent to recognise deferred
tax assets. The higher tax charge
also reflects a reduction in the
value of our UK deferred tax asset
further to the reduction in the UK
corporation tax rate to 23% effective
from 1 April 2013.
10
Next Fifteen Communications Group plc
Annual Report 2012
bOARD OF DIRECTORS
RICHARD EyRE
Chairman# Aged 58
TIM DySON
Chief Executive Officer* Aged 51
DAvID DEWHuRST, ACA
Finance Director Aged 49
Richard was appointed as Chairman
in May 2011. He is Chairman of
the Internet Advertising Bureau
and the Eden Project as well as being
a non-executive director of Grant
Thornton LLP, MGt Ltd and Results
International Group LLP. He was
formerly CEO of ITV Network Ltd and
Capital Radio plc and Director
of Content and Strategy for the
RTL Group.
David Dewhurst graduated from the
University of Birmingham in 1984.
He then joined KPMG as a trainee
accountant, qualifying in 1987. David
worked as a corporate and group
accountant for Hillsdown Holdings plc
between 1988 and 1992. In 1992,
David became Group Finance
Director for Strong & Fisher Holdings
plc before being appointed, in 1997,
to the same post at The Media
Business Group plc. He joined the
Board of Next 15 as Finance Director
in 1999 to take the Company through
its flotation in December 1999.
Tim joined the Group in 1984,
immediately after graduating from
Loughborough University, and
became its CEO in 1992. As one of the
early pioneers of tech PR, he has
worked on major corporate and
product campaigns with such
companies as Cisco, Microsoft, IBM,
Sun and Intel. Tim oversaw the
flotation of the Company on the
London Stock Exchange and has
managed a string of successful
acquisitions by the Group in recent
years, including M Booth in the US
and Upstream in Asia Pacific. Tim
moved from London to set up the
Group’s first US business in 1995 in
Seattle, and is now based in Palo Alto,
the heart of Silicon Valley. Outside
Next 15, Tim is on the advisory
boards of several emerging
technology companies. Tim also
writes a blog at http://timdyson.
wordpress.com/ where he comments
on news and topical issues affecting
the public relations industry.
# Member of the Audit, Remuneration
and Nomination Committees.
* Member of the Nomination Committee.
Next Fifteen Communications Group plc
Annual Report 2012 11
bOARD OF DIRECTORS CONTINUED
ALICJA LESNIAk, FCA
Non-executive Director and Senior
Independent Director# Aged 60
Alicja joined the Board in July 2011
and is currently a non-executive
director at Channel 4 Television
Corporation and SThree plc. Alicja
started her career as a Chartered
Accountant at Arthur Andersen but
rapidly moved into the financial,
commercial and operational
management of professional service
businesses. Since 1987 she has
worked in the marketing services
sector with global companies such as
WPP Group plc, J Walter Thompson
Group Ltd, Ogilvy & Mather
Worldwide Inc, BBDO Worldwide Inc
and Aegis Group plc, where she was
Chief Financial Officer. She has
extensive experience of working
internationally, including roles based
in New York and Paris.
MARGIT WENNMACHERS
Non-executive Director* Aged 47
Margit joined the Board in August
2011. She is a partner at Andreessen
Horowitz, a venture capital firm,
where she heads the firm’s marketing
efforts. Margit joined Andreessen
Horowitz in July 2010. Before that she
co-founded OutCast Communications
Corp, which became a subsidiary of
Next 15 in 2005. Prior to OutCast,
Margit spent over four years at Blanc
& Otus, where she managed several
of that agency’s largest client
accounts. Before joining Blanc &
Otus, Margit was based in Germany
and was responsible for European
marketing and communications for
Stardent Computers.
# Member of the Audit, Remuneration
and Nomination Committees.
* Member of the Nomination Committee.
12
Next Fifteen Communications Group plc
Annual Report 2012
REPORT OF THE DIRECTORS
The Directors present their Annual Report together with the audited financial statements of Next Fifteen
Communications Group plc (the ‘Company’) and its subsidiaries (the ‘Group’) for the year ended 31 July 2012.
This Annual Report includes the Directors’ Report and the audited financial statements for the year ended
31 July 2012. Certain information required to be disclosed in the Directors’ Report is provided in other sections
of the Annual Report. This includes the Financial Review, the Directors’ Statement on Corporate Governance,
the Remuneration Report and specific elements of the financial statements noted below and, accordingly, these
are incorporated into the Directors’ Report by reference.
Principal activity
Next Fifteen Communications Group plc is the parent company of a group whose principal activity during the
year continued to be the provision of communications services. The Group’s business is organised into four
reportable segments: Technology PR, Consumer PR, Pure Digital and Research Consultancy and Corporate
Communications. Within the Technology and Consumer PR segments, the Group operates five independent
PR brands that function as autonomous businesses, thus enabling them to service competing clients.
These are Text 100, Bite Communications, The OutCast Agency, The Lexis Agency and M Booth. The Group’s
Pure Digital and Research Consultancy segment comprises the Beyond, Bourne and Redshift brands. The
Corporate Communications segment comprises 463 Communications, a policy communications consultancy,
and The Blueshirt Group, an investor relations business.
Review of business and future prospects
A detailed review of the business, current trading and future developments of the Group is given in the
Chairman’s Statement, the Business Review and the Financial Review, the latter of which includes an overview
of the key performance indicators of the business. Details of the Group’s principal risks and uncertainties are
given in the Directors’ Statement on Corporate Governance on pages 21 to 26.
Results and dividends
The Group’s financial statements for the year ended 31 July 2012 show that profit before tax for the financial
year was £5,959,000 (2011: £7,527,000). The Group made a profit attributable to shareholders of the Company
for the year of £3,906,000 (2011: £4,997,000). The Directors have recommended a final dividend of 1.735p per
share (2011: 1.535p) for the year ended 31 July 2012, to be paid to shareholders on the register at 11 January
2013, which, together with the interim dividend of 0.565p (2011: 0.515p) paid on 1 June 2012, makes a total for
the year of 2.30p per share (2011: 2.05p).
Company’s listing
The Company continues to be listed on the Alternative Investment Market (AIM) of the London Stock Exchange.
Information required by AIM rule 26 has been provided on the Group’s website, www.next15.com.
Acquisitions
The following is a summary of Group acquisitions made in the year ended 31 July 2012, more detailed
disclosure of which can be found in note 26 to the financial statements. On 4 October 2011 the Group acquired
80% of the issued share capital of two German-based businesses, Trademark PR and Trademark Consulting
(‘Trademark’), which were incorporated into the Bite brand. The acquisition was a key part of the Group’s plans
to offer a global service to its clients by providing specialist communications and marketing expertise in the key
economies. The initial consideration for the share purchase was €1.38m (£1.20m) satisfied in cash with further
payments, at multiples of PBIT ranging between five and six, dependent on the PBIT and margin levels achieved
by Trademark over the following five years. The maximum consideration payable is €4.5m (£3.88m).
On 1 May 2012 The Lexis Agency Limited acquired a 71.8% shareholding in Paratus Communications Limited.
The initial consideration was £250,000 in cash paid on completion, with a further payment of up to £150,000
payable based on the revenue and profit of the acquired business in the 12-month period following
completion. The remaining shares will be acquired over the following five years.
On 5 April 2012 the Company acquired the remaining 20% of CMG Worldwide Limited (trading as Bourne) that
it did not already own. This was part of a variation to the original share purchase agreement, and the deferred
consideration for the original acquisition of 80% of CMG Worldwide Limited was also re-negotiated. Part of the
consideration for the 20% was the issue to the sellers of 309,729 shares in the Company.
Next Fifteen Communications Group plc
Annual Report 2012 13
REPORT OF THE DIRECTORS CONTINUED
Financial instruments
Information on both the Group’s financial risk management objectives and the Group’s policies on exposure
to relevant risks in respect of financial instruments is set out in note 19.
Directors
The names and biographical details of the Directors who held office at the date of this report appear on pages
11 and 12.
The Company’s Articles of Association require that one-third of the Directors must retire by rotation each year.
At the next Annual General Meeting of the Company, David Dewhurst will retire from the Board and offer
himself for re-election.
Additional information relating to Directors’ remuneration, service agreements and interests in the Company’s
shares is given in the Remuneration Report.
Other than service contracts, no Director has a material interest in any contract to which the Company or any
of its subsidiaries is a party. The Company has maintained insurance to cover Directors’ and Officers’ liabilities
and costs for claims in connection with any act or omission by its Directors or Officers in the execution of their
duties. No claims have been made against this policy.
Substantial shareholdings
The Company has been notified of the following interests in 3% or more of the issued share capital in
accordance with the Disclosure and Transparency Rules at 22 November 2012 and 31 July 2012:
22 November 2012
31 July 2012
Name
Total
%
Total
Liontrust Investment Partners LLP
Timothy Dyson
Herald Investment Management
Octopus Investments
BlackRock Investment Management (UK)
River and Mercantile Asset Management LLP
Mr Thomas Lewis
11,486,878
5,781,004
5,231,796
4,648,555
3,699,581
3,200,549
2,800,000
19.65% 11,486,878
5,781,004
5,231,796
4,648,555
3,699,581
2,733,049
2,968,538
9.89%
8.95%
7.95%
6.33%
5.48%
4.79%
The market price of the Company’s shares during the year was as follows:
Price at 1 August 2011
Highest price
Lowest price
Price at 31 July 2012
%
20.00%
10.25%
9.27%
8.09%
6.56%
4.85%
5.26%
84.0p
97.0p
73.0p
93.0p
Charitable donations
During the year the Group made charitable donations of £17,000 (2011: £47,000).
Political donations
It is the Group’s policy not to make donations for political purposes.
Payments to suppliers
It is the policy of the Group to agree suitable terms and conditions for its business transactions with all
suppliers. These terms and conditions range from standard written terms to individually drafted contracts.
Once such terms are agreed, it is the Group’s policy to adhere fully to them, provided the supplier has also
complied with the terms and conditions. The number of days taken by the Company to pay suppliers, on the
basis of trade creditors at 31 July 2012 and average daily purchases for the year, was 35 days (2011: 32 days).
Employee involvement
The Group operates a policy of regularly informing all employees of the Group’s financial performance, through
a combination of meetings and electronic communications. In addition, the Group’s employee share option
plans, long-term incentive plans and bonus schemes encourage employees at all levels to contribute to the
achievement of the Group’s short-term and long-term goals.
14
Next Fifteen Communications Group plc
Annual Report 2012
Equal opportunities
The Group gives full and fair consideration to all applications for employment made by people with disabilities,
having regard to their particular aptitudes and abilities. The Group’s policies for training, career development
and promotion do not disadvantage such people. The Group seeks to recruit, develop and employ throughout
the organisation suitably qualified, capable and experienced people, irrespective of sex, age, race, disability,
religion or belief, marital or civil partnership status or sexual orientation.
Health and safety
The Group recognises and accepts its responsibilities for health, safety and the environment. The Group is
committed to maintaining a safe and healthy working environment in accordance with applicable requirements
at all locations in the UK and overseas. The Finance Director is responsible for the implementation of the Group
policy on health and safety.
Annual General Meeting
The Annual General Meeting of the Company will be held at the Company’s offices at The Triangle,
5–17 Hammersmith Grove, London W6 0LG on Tuesday 29 January 2013 at 3.30 pm. The notice convening the
meeting accompanies this document for shareholders who requested a hard copy, and is also available on the
Company’s website at www.next15.com.
Post balance sheet events
On 7 August 2012 the Group acquired the entire issued share capital of Content and Motion Limited, to be
incorporated into its Beyond brand within its Social Acquisition and Engagement team. This acquisition rounds
Beyond’s service capability as a new style of socially-driven creative digital agency. The consideration paid on
completion was £420,000 in cash plus a 6.5% stake in Beyond. A further payment of up to £100,000 is payable
depending on the profit of the business in the first year following completion.
Corporate governance
The Company’s Statement on Corporate Governance is set out in pages 21 to 26 of these financial statements
and forms part of this Directors’ Report.
Share capital
The Company’s issued share capital comprises a single class of share capital which is divided into Ordinary
Shares of 2.5p each. All issued shares are fully paid. The share capital during the year is shown in note 20
to the financial statements. The rights and obligations attaching to the Company’s Ordinary Shares are set out
in the Company’s Articles of Association, copies of which can be obtained from www.next15.com, by writing
to Companies House in the UK, or by writing to the Company Secretary. Holders of Ordinary Shares are entitled
to speak at general meetings of the Company, to appoint one or more proxies and, if they are corporations,
to appoint corporate representatives. Holders of Ordinary Shares may also receive a dividend and, on a
liquidation, may share in the assets of the Company.
Auditors
All the current Directors have taken all the steps that they ought to have taken to make themselves aware
of any information needed by the Group’s auditors for the purpose of their audit and to establish that the
auditors are aware of that information. The Directors are not aware of any relevant audit information
of which the auditors are unaware.
BDO LLP have expressed their willingness to continue in office as Auditors and a resolution that they be
reappointed will be proposed at the forthcoming Annual General Meeting.
Approved by the Board on 26 November 2012 and signed on its behalf by:
David Dewhurst
Company Secretary
Next Fifteen Communications Group plc
Annual Report 2012 15
REMUNERATION REPORT
The Remuneration Committee and its role
The Remuneration Committee (the ‘Committee‘) comprises two non-executive Directors, Alicja Lesniak (who
also chairs the Committee) and Richard Eyre. For the year ended 31 July 2012, the Chief Executive Officer
attended certain meetings of the Committee by invitation to provide advice on Group performance and
strategy and the performance of other executives, as appropriate. The Committee takes professional advice as
and when it considers this necessary. No individual may participate in decisions relating to his or her own
remuneration.
The role of the Committee is to determine and recommend to the Board the general policy for the
remuneration of the executive Directors and senior executives, and make recommendations to the Board
concerning the allocation of bonuses and long-term incentive rewards to the two executive Directors and to
senior executives in the Group. Its key terms of reference are to:
• determine the total individual remuneration package of each executive Director;
• determine the policy for, and scope of, pension arrangements for executive Directors; and
• determine and approve the long-term performance incentives for executive Directors and senior executives
of the Group.
The Committee takes into consideration the performance of the senior executives and Directors and sets the
scale and structure of their remuneration and the basis of their service agreements, with due regard to the
interests of shareholders. The Committee’s terms of reference are published on the Company’s website.
Remuneration policy
The Group’s remuneration policy aims to be competitive, performance-based and aligned to shareholder
interests and seeks to:
• attract, develop, motivate and retain, at all levels, talented people of the calibre required to continue the
Group’s growth and development in a challenging business environment;
• ensure that key executives are appropriately rewarded for their contribution to the Group; and
• encourage the holding of Company shares as an effective way of aligning the interests of employees with
those of shareholders.
In framing this policy, the Committee and the Board have given consideration to the provisions of the
UK Corporate Governance Code and the QCA guidelines for Smaller Quoted Companies. In formulating
its recommendations, the Committee reviewed data of its key competitors.
Remuneration package for executive Directors
The policy for executive Directors’ remuneration is concerned to ensure that their individual contributions
to the Group’s performance are fairly rewarded. This is achieved through a combination of a competitive
salary and the opportunity to increase remuneration with short-term and long-term incentives. Executive
remuneration packages are reviewed each year. The remuneration package for executive Directors consists
of a basic salary, benefits, an annual performance-related bonus, pension and participation in a long-term
incentive plan. Details for each Director are set out below. As the Chief Executive Officer has a large
shareholding in the Company, this is also taken into consideration when decisions are made regarding
short-term and long-term incentives for him.
Short-term incentives
Executive Directors’ remuneration includes an element of performance-related pay so that awards can
be aligned to improvements in shareholder value. The level of bonuses is entirely at the discretion of the
Committee. Bonuses are based on the performance of the Group against market expectations, and the
Committee’s assessment of the performance of individuals.
16
Next Fifteen Communications Group plc
Annual Report 2012
Long-term incentives
The Committee recommends the award of share options and performance shares to executive Directors and
senior executives to incentivise and retain them. The current plan in place is the Next Fifteen Communications
Group plc Long-Term Incentive Plan (‘LTIP’), which provides share options and performance share awards to
Directors and senior employees.
Under the terms of the LTIP, participants are either awarded share options with a grant price equal to the
market price on the day before the grant date, or are awarded performance shares in the Company which
are released to the participant subject to the satisfaction of certain performance conditions and the participant
remaining an employee of the Group. During the year, the following performance shares were awarded
to Directors:
Name of Director
Executive Directors
Tim Dyson
David Dewhurst
Number of
shares
Grant date
End of
performance
period
150,000
150,000
9 May 2012 31 July 2015
9 May 2012 31 July 2015
The performance conditions for the above awards are based upon an adjusted earnings per share (‘EPS’)
measure. EPS growth is calculated from the information published in the Group’s accounts and is based
on the adjusted EPS measure. The awards vest when the annual report for the final financial year of the
relevant performance period is published on the Company’s website. For executive Directors, the performance
shares awarded under the LTIP are subject to the following conditions:
• The EPS growth of the Group must exceed the Retail Prices Index (‘RPI’) by an average of 10% or more per
annum over the performance period for 100% of the award to vest;
• If there is an average of between 3% and 10% EPS growth over RPI per annum over the performance period,
between 20% and 100% of the award will vest on a straight-line basis;
• If EPS does not grow at an average of 3% or more over RPI per annum over the performance period, the full
award will lapse.
The performance in relation to executive Directors’ awards is measured over a period of four consecutive
financial years of the Group, commencing with the financial year in which the award was granted. The level
of vesting is determined using the best three of the four years’ performance.
Next Fifteen Communications Group plc
Annual Report 2012 17
REMUNERATION REPORT CONTINUED
When senior executives are awarded performance shares under the LTIP, the performance conditions are
based upon two measures: an adjusted earnings per share (‘EPS‘) measure and a budgeted profit measure.
The conditions are as follows:
The EPS growth of the Group must exceed the Retail Prices Index (‘RPI’) by an average of 10% or more per
annum over the performance period for 50% of the award to vest;
If there is an average of between 3% and 10% EPS growth over RPI per annum over the performance period,
between 10% and 50% of the award will vest on a straight-line basis;
If EPS does not grow at an average of 3% or more over RPI per annum over the performance period, the full
50% of the award measured by reference to the EPS measure will lapse;
The remaining 50% of an award may vest if the profit of the particular business in which a participant
is employed meets its budgeted profit before management charges, interest and tax targets over the
performance period;
To the extent that the budgeted profit targets are not met, for every 1% below budget, 5% of an award
will lapse on a straight-line basis;
If a business’s adjusted profit before management charges, interest and tax is 10% or more below budget
over the performance period, the full 50% of the award measured by reference to the budgeted profit
measure will lapse.
For senior executives the level of vesting is determined using the best three of the four years’ performance for
each performance measure. Performance is measured over a period of four consecutive financial years of the
Group, commencing with the financial year in which the award was granted.
For more information on share options and performance shares, see notes 21 and 22.
Directors’ service contracts
All executive Directors have rolling contracts that are terminable on six months’ notice. There are no
contractual entitlements to compensation on termination of the employment of any of the Directors other than
payment in lieu of notice at the discretion of the Company. The executive Directors are allowed to accept
appointments and retain payments from sources outside the Group, provided such appointments are
approved by the Board in writing. Details of the executive Directors’ current service contracts are:
Executive Director
Tim Dyson
David Dewhurst
Date of current
letter of contract
1 June 1997
7 July 1999
Notice period
6 months
6 months
18
Next Fifteen Communications Group plc
Annual Report 2012
Non-executive Directors
The fee for each of the non-executive Directors is determined by the executive Directors, reflecting the time
commitment required, the responsibility of each role and the fees paid in other comparable companies. All
non-executive Directors are engaged under letters of appointment terminable on three months’ notice at any
time. Non-executive Directors are not entitled to any pension benefit or any payment in compensation for early
termination of their appointment. Details of the date of the current letters of appointment for non-executive
Directors are:
Non-executive Director
Richard Eyre
Alicja Lesniak
Margit Wennmachers
Directors’ remuneration
Date of current
letter of contract
12 May 2011
1 June 2011
17 August 2011
Notice period
3 months
3 months
3 months
Salary and
fees
2012
£’000
Performance-
related
bonus
2012
£’000
Pension
contributions
2012
£’000
Other
benefits
2012
£’000
Executive Directors
Tim Dyson
David Dewhurst
Non-executive Directors
Richard Eyre
Alicja Lesniak
Margit Wennmachers1
1 Margit Wennmachers was appointed as a non-executive Director on 17 August 2011.
80
43
35
389
192
–
–
–
–
–
39
19
–
–
–
32
3
–
–
–
Total
2012
£’000
460
214
80
43
35
Total
2011
£’000
519
244
18
4
–
Directors’ interests in share plans
No share options were exercised by the Directors in the year ended 31 July 2012 and none remained
unexercised at this date.
As at 31 July 2012, the following Directors held performance-share awards under the LTIP over Ordinary Shares
of 2.5p each, as detailed below:
Name of Director
Executive Directors
David Dewhurst
Tim Dyson
Number of
shares at
1 August 2011
Shares lapsing
during year
Shares vesting
during year
Shares
granted
during year
Number of
shares at
31 July 2012
End of
performance
period
Grant date
45,860
80,000
150,000
150,000
150,000
150,000
–
–
–
–
–
–
(45,860)
–
–
–
–
–
–
–
–
–
150,000
–
150,000
– 09.11.2007 31.07.2011
80,000 21.11.2008 31.07.2012
150,000 09.02.2010 31.07.2013
150,000 16.11.2010 31.07.2014
150,000 09.05.2012 31.07.2015
150,000 09.02.2010 31.07.2013
150,000 16.11.2010 31.07.2014
150,000 09.05.2012 31.07.2015
Next Fifteen Communications Group plc
Annual Report 2012 19
REMUNERATION REPORT CONTINUED
Directors’ interests in the shares of Next Fifteen Communications Group plc
The interests of the Directors in the share capital of the Company at 1 August 2011 and 31 July 2012 are
as follows:
Executive Directors
David Dewhurst
Tim Dyson
Non-executive Directors
Richard Eyre
Alicja Lesniak
Margit Wennmachers
* or date of appointment.
Ordinary Shares
LTIP performance shares
1 August 2011*
31 July 2012
1 August 2011
31 July 2012
299,438
5,781,004
320,000
5,781,004
425,860
300,000
530,000
450,000
–
–
–
29,500
–
–
–
–
–
–
–
–
Total shareholder return
The Company’s total shareholder return performance for the five years to 31 July 2012 is shown on the
following graph compared with the FTSE Media and Entertainment Index.
This graph shows the value on 31 July 2012, of £100 invested in the Company on 31 July 2007 compared with
£100 invested in the FTSE Media and Entertainment Index. The Directors consider that a comparison of the
Company’s total shareholder return to that of similar businesses on the Main Market is more relevant than
a comparison with the FTSE AIM All-Share index.
Approved by the Board on 26 November 2012 and signed on its behalf by:
Alicja Lesniak
Chairman of the Remuneration Committee
20
Next Fifteen Communications Group plc
Annual Report 2012
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE
The Board is accountable to the Company’s shareholders for good corporate governance. The Company is
committed to high standards of corporate governance throughout the Group and has adopted appropriate
measures for a company of its size. The Company is AIM-listed and is not required to comply with the
provisions of the UK Corporate Governance Code (the ‘Code‘); however, it seeks to comply with the Code
and with the Corporate Governance Guidelines for Smaller Quoted Companies (the ‘QCA Code‘) where
appropriate. The measures taken to apply principles of corporate governance are set out below.
The Board
The Board of Directors is responsible for the strategic direction, investment decisions and effective control
of the Group. During 2012 the Board comprised two executive Directors and three non-executive Directors.
All of the Directors served throughout the year with the exception of Margit Wennmachers, who was appointed
on 17 August 2011.
Directors’ biographies, including the Committees on which they serve and chair, are shown on pages 11 to 12.
As these biographies demonstrate, the Directors possess a broad range of skills, knowledge and experience,
enabling them to bring independent judgement on issues of strategy and performance.
During the year, nine Board meetings were held, which included five face-to-face meetings (the others being
by telephone conference). All Directors attended all meetings, except for Margit Wennmachers who was unable
to attend two meetings. Full details of each Director’s Board and Committee meeting attendance are given on
page 23.
As Tim Dyson and Margit Wennmachers are located in San Francisco, many of the Board meetings are held by
telephone conference. The Board meets face-to-face when possible and aims to do so at least quarterly. There
is a schedule of matters reserved for Board approval which is regularly reviewed and includes, among other
things, the Group’s annual budget, establishment of new subsidiaries, property leases, significant acquisitions
or disposals of fixed assets, and significant client contracts. The Board regularly reviews the identification,
evaluation and management of the principal risks faced by the Group and the effectiveness of the Group’s
system of internal control.
Prior to each Board meeting, every member of the Board receives an agenda, supporting documents and,
when relevant, monthly trading results, together with a detailed commentary. The non-executive Directors
are encouraged to ask for further information if necessary.
Chairman and Chief Executive
The division of responsibilities between the Chairman and Chief Executive Officer has been clearly defined.
The Chairman, Richard Eyre, is responsible for the leadership of the Board and the Chief Executive Officer,
Tim Dyson, is responsible for managing the Group’s operations.
Board balance and independence
The Board comprises two executive Directors, Tim Dyson, Chief Executive Officer, and David Dewhurst, Finance
Director. There are three non-executive Directors: Richard Eyre, Chairman, Alicja Lesniak, who is the Company’s
Senior Independent Director, and Margit Wennmachers, non-executive Director. At the time of his appointment
as Chairman, Richard Eyre was considered independent in accordance with the provisions of the Code. Alicja
Lesniak is also considered to be independent as defined by the Code.
The Board considers that the current Board structure is appropriate, and that it complies with the QCA Code.
Appointments to the Board
Appointments to the Board are the responsibility of the Board as a whole, upon the recommendation of the
Nomination Committee.
Next Fifteen Communications Group plc
Annual Report 2012 21
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Information and professional development
The Directors have adopted a number of policies and procedures to help them to operate effectively.
Appropriate training for new and existing Directors is provided where necessary. There is an agreed procedure
for Directors to take independent professional advice at the Company’s expense when considered necessary.
In accordance with the provisions on conflicts of interest in the Companies Act 2006, the Company has put in
place a policy for the disclosure and review of any conflicts, or potential conflicts, of interest which the
Directors may have and for the authorisation of such conflicts by the Board. In deciding whether to authorise
a conflict or potential conflict, the Directors must have regard to their general duties under the Companies Act
2006. The authorisation of any conflict, and the terms of authorisation, may be reviewed at any time and, in
accordance with best practice, a review of Directors’ conflicts of interest is conducted annually.
Re-election of Directors
In accordance with the Company’s Articles of Association, one-third of the Directors retire by rotation each
year. At the forthcoming Annual General Meeting, David Dewhurst will retire and, being eligible, offer himself
for re-election.
Remuneration
The Remuneration Report on pages 16 to 20 sets out details of the Directors’ remuneration and the work of the
Remuneration Committee.
Committees of the Board
The Board has established three Committees, each with its own delegated authority defined in terms of
reference. These terms are reviewed periodically. The Board appoints the members of all Board Committees.
The Audit Committee and Remuneration Committee comprise the two non-executive Directors, Alicja Lesniak
(Committee Chairman) and Richard Eyre. The Nomination Committee comprises Richard Eyre (Committee
Chairman), Alicja Lesniak, Margit Wennmachers and Tim Dyson. There were three Remuneration Committee
meetings and three Audit Committee meetings during the year and these were attended by all members. Due
to the appointment of the three non-executive Directors at the end of the previous financial year, no further
Nomination Committee meetings were held during the year. Details of the Remuneration Committee are
contained within the Remuneration Report on pages 16 to 20.
Audit Committee and auditors
The Audit Committee meets periodically and at least twice per year with the external auditors, and with other
Directors and management attending by invitation. The primary role of the Committee is to keep under review
the Group’s financial reporting procedures and financial systems and controls and to ensure the integrity of the
financial information reported to shareholders. Its key terms of reference are:
• reviewing the findings of the audit work undertaken by the Group’s auditors;
• reviewing the effectiveness of the financial reporting and internal control procedures;
• reviewing the relationship with external auditors; and
• determining the level of the auditors’ fees.
Its terms of reference are available on the Company’s website at www.next15.com. The independence and
objectivity of the auditors is considered by the Committee on a regular basis. The split between audit and non-
audit work for the year is set out in note 4 to the financial statements. The non-audit fees were in respect of tax
services, valuation advice and advice on the Company’s share option and long-term incentive schemes. This
work is not considered to affect the independence or objectivity of the auditors. The Committee also receives
an annual confirmation of independence from the auditors.
22
Next Fifteen Communications Group plc
Annual Report 2012
Nomination Committee
The Nomination Committee members are Richard Eyre (who also chairs the Committee), Alicja Lesniak, Margit
Wennmachers (appointed 17 August 2011) and Tim Dyson. The Committee’s duties include the regular review
of the Board’s structure, size and composition; identifying and nominating candidates to fill Board vacancies as
they arise and the consideration of succession planning for Directors.
The Committee engages external search consultants to assist in the specification of Board positions and their
selection of prospective candidates to ensure that there is a robust, measurable and orderly process. The
Committee believes that this process has led to the recruitment of talented individuals, significantly enhancing
the composition of the Board.
Due to the appointment of the three non-executive Directors at the end of the previous financial year, no
further Nomination Committee meetings were held during the year.
Board and Committee attendance
Richard Eyre
Tim Dyson
David Dewhurst
Alicja Lesniak
Margit Wennmachers
Board
9 of 9
9 of 9
9 of 9
9 of 9
7 of 9
Audit Remuneration Nomination
3 of 3
–
–
3 of 3
–
3 of 3
–
–
3 of 3
–
–
–
–
–
–
Financial reporting and going concern
The statement of the Directors’ responsibilities in respect of the financial statements is set out on page 27.
The Directors have reviewed the Group’s budget and cash requirements for the year ending 31 July 2013 and
considered outline plans for the Group thereafter. The Directors are satisfied 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 the financial statements.
Internal control and principal risks
The Directors have overall responsibility for the Group’s systems of internal control and for reviewing their
effectiveness. These systems have been in place for the full financial year. Controls are designed to provide the
Directors with reasonable assurance that assets are safeguarded, transactions are properly authorised and that
material errors and irregularities are prevented or, failing which, are discovered on a timely basis. The Group’s
system of internal control is designed to manage and reduce, rather than eliminate, risk. It is the responsibility
of management to implement Board policies on risk and control.
Business risk evaluation takes place at operating company and Board level. Having identified risks, operating
companies then monitor, review and update the risks regularly, assessing the extent and likelihood of each risk
and the effectiveness of the controls that manage these risks. The principal risks of the Group are subject to
review by the Audit Committee and the Board, which produces a significant risks review for the Group.
Internal controls review
In reviewing the business assurance arrangements during the year the Audit Committee had discussed what
form of Internal Audit would be appropriate for the Group. Following the discovery of personal embezzlement
in the Bite San Francisco office towards the end of the audit process, the Board has concluded that
strengthening the internal financial control environment of the Group needs to be accelerated. A decision has
been taken to form an Internal Audit function with resources to be recruited in the US and UK. This action is
part of a comprehensive review that will include controls around cash management involving both payments
and receipts, designed to improve authorisation controls.
Next Fifteen Communications Group plc
Annual Report 2012 23
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Risk identification and evaluation, including the nature, likelihood and materiality of the risks affecting each
Group business, is owned and assessed by management and reviewed periodically. The Board and Audit
Committee review risks and assess and monitor actions to mitigate them. On the basis of these assessments,
the risks outlined below are those that the Group believes are the principal and material risks. It should be
noted that additional risks, which the Group does not consider material, or of which it is not aware, could have
an adverse impact.
Area of risk
OPERATIONAL RISK
Client risk:
Unexpected loss of
clients for reasons
outside the Group’s
control
Employee risk:
The ability of the
Group to recruit new
talent with the
relevant skills
and retain existing
employees
Industry transition
to digital services
Acquisitions
Potential impact
Mitigation
The loss of significant clients continues
Ensuring a good marketing plan and
to be a risk to the Group. It has
successfully reduced its overall reliance
on a few key clients through a process
of adding new businesses to the Group.
However, losing a major client
unexpectedly can have a significant
impact on an individual business’s
resourcing, revenue and profit.
identifying new client opportunities is key to
all businesses. It is also critical to get regular
client feedback and take all appropriate
steps to retain existing clients.
The Group is very reliant on highly skilled
employees who are vital to its success in
building enduring client relationships
and winning new mandates.
Policies are regularly reviewed to ensure
high levels of staff motivation and
development. The Group’s Human
Resources teams regularly consider the
remuneration and benefits offered to
employees and seek to ensure that all
businesses provide exciting and challenging
career development.
As the marketing and communications
landscape evolves through the
opportunities provided by digital
channels, there is a risk that some
businesses will transition less
successfully than others.
The Group has pursued acquisitions
as part of its overall growth strategy.
Integration of these businesses, either
within the overall Group or as part of
existing businesses, can be challenging
and time consuming.
The Board has been focused on capitalising
on the digital opportunity for the last three
years. There has been notable success in the
creation of Beyond, a digital marketing
agency with revenue of over £6m. The
transition of the existing PR businesses
is progressing at differing speeds.
The Board is very careful when selecting
potential acquisition partners. Due diligence
procedures are performed prior to all
acquisitions to identify and evaluate
potential risks. Total consideration paid
for a business typically includes a significant
element of deferred consideration,
contingent upon future performance.
It is also the Group’s policy to encourage
vendors to retain a minority equity stake to
give them a greater incentive to remain with
the business upon joining the Group.
24
Next Fifteen Communications Group plc
Annual Report 2012
Area of risk
FINANCIAL RISK
Liquidity risk
Potential impact
Mitigation
With the Group having made a number
of acquisitions requiring deferred
payments, there is a risk that there are
insufficient funds for future investment
opportunities.
The Board has always maintained a prudent
approach to taking on debt. Acquisitions are
funded from a combination of a medium-
term bank facility and the strong cash flows
of the Group. The intention is that the scale
and timing of acquisitions is such that they
are funded over the business cycle without
excessive leverage. The net debt at 31 July
2012 represented just over 23% of adjusted
EBITDA.
The Board continues to consider if and when
hedging policies should be in place and to
take steps to reduce this risk where it is
considered appropriate. Ultimately, as a
global business, the Group is well-placed to
take advantage of opportunities arising in
different parts of the world, where economic
growth is stronger.
Currency risk
As a global business, currency
fluctuations continue to be a potential
impact on the Group’s translated results.
Most of the Group’s revenue is matched
by costs arising in the same currency,
but some global contracts are in a single
currency of the client’s choosing. The
Company is listed in the UK with sterling
as its functional currency but makes
much of its profit outside of the UK.
Economic downturn The global economic downturn of the
The Group has wide geographical spread of
past four years could result in fewer
client orders, longer procurement
processes and downward pressure on
budgets and pricing, which may impact
revenue growth and operating margins.
clients, minimising reliance on any one
economic environment. The Group has also
invested in the creation of digital products
and services, the demand for which is higher
than traditional services.
Legal and regulatory
compliance
The Group operates in a large number
of jurisdictions and, as a consequence,
is subject to a range of regulations. Any
failure to respond quickly to legislative
requirements could result in civil or
criminal liabilities, leading to fines,
penalties or restrictions being placed
upon the Group’s ability to trade
resulting in reduced sales and
profitability and reputational damage.
The Group has maintained an in-house legal
function over the whole of its life as a public
company and also uses external legal
counsel to advise on local legal and
regulatory requirements.
The risk management procedures and systems of internal control are designed to identify and assess the
significant risks which the Group faces and to manage them appropriately. However, such systems can only
provide reasonable and not absolute protection against material mis-statement or loss.
Environment
Due to the nature of its businesses, the Board considers that its direct or indirect impact on the environment
is minimal and of low risk. However, the Company still seeks to minimise the environmental impact of its
activities and its business practices support environmental good practice, such as reducing paper wastage
through reuse, recycling, use of electronic communications and reducing business travel by replacing
face-to-face meetings with conference calls where practical.
Next Fifteen Communications Group plc
Annual Report 2012 25
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Relations with shareholders
The Company maintains regular dialogue with institutional shareholders and analysts, and feedback received
is reported to the Board so that all Directors retain an understanding of the views of major shareholders about
the Company. Trading updates are issued as appropriate and the Company’s brokers provide briefings on
shareholder opinion and compile independent feedback from investor meetings. Copies of presentations given
at investor and analysts’ meetings, together with financial press releases, are available on the Group’s website.
The Chief Executive Officer and Finance Director attend one-to-one meetings with institutional investors
immediately after publication of the annual and interim results. While the other non-executive Directors do
not ordinarily attend meetings with major shareholders, they would do so if requested by the shareholders.
The Annual General Meeting is used by the Directors to communicate with both institutional and private
investors. The Chief Executive presents a summary of the Group’s progress throughout the year and invites
questions from attendees. Proxy votes are disclosed following a show of hands on each resolution.
Shareholders were encouraged to submit questions to the Board throughout the year.
The Company also publishes on its website its annual and interim reports, the Company’s regulatory news
announcements and video clips to explain the interim and full-year results further. These measures enable
the Company to circulate information to a greater number of investors and interested stakeholders.
Approved by the Board on 26 November 2012 and signed on its behalf by:
David Dewhurst
Company Secretary
26
Next Fifteen Communications Group plc
Annual Report 2012
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the
Directors have elected to prepare the Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union and the Company financial statements in
accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law). Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company
and of the profit or loss of the Group for that period. The Directors are also required to prepare financial
statements in accordance with the rules of the London Stock Exchange for companies trading securities
on the Alternative Investment Market.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject
to any material departures disclosed and explained in the financial statements;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring that the Annual Report and the financial statements are made
available on a website. Financial statements are published on the Company’s website in accordance with
legislation in the United Kingdom governing the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Approved by the Board on 26 November 2012 and signed on its behalf by:
David Dewhurst
Company Secretary
Next Fifteen Communications Group plc
Annual Report 2012 27
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF NEXT FIFTEEN COMMUNICATIONS GROUP PLC
We have audited the financial statements of Next Fifteen Communications Group plc (the ’Company’) for the
year ended 31 July 2012 which comprise the Consolidated income statement, the Consolidated statement of
comprehensive income, the Consolidated and Company balance sheet, the Consolidated statement of changes
in equity, the Consolidated statement of cash flow, the Company reconciliation of movements in shareholders’
funds and the related notes. The financial reporting framework that has been applied in the preparation of the
Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The financial reporting framework that has been applied in preparation of the parent
Company’s financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at
www.frc.org.uk/apb/scope/private.cfm
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs
as at 31 July 2012 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
the parent Company’s financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
28
Next Fifteen Communications Group plc
Annual Report 2012
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
adequate accounting records have not been kept by the parent Company, or returns adequate for our audit
have not been received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Scott McNaughton (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
26 November 2012
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Next Fifteen Communications Group plc
Annual Report 2012 29
CONSOLIDATED INCOME STATEMENT
for the year ended 31 July 2012
Billings
Revenue
Staff costs
Depreciation
Amortisation and impairment
Charge for misappropriation of assets
Other operating charges
Total operating charges
Operating profit
Finance expense
Finance income
Net finance expense
Share of profits of associate
Profit before income tax
Income tax expense
Profit for the year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Basic (pence)
Diluted (pence)
Note
2
3
4,12
4,11
4
2,4
6
7
2,5
8
10
2012
£’000
62,767
1,328
1,483
1,778
17,589
2012
£’000
108,453
91,583
(84,945)
6,638
(2,170)
1,477
(693)
14
5,959
(1,652)
4,307
3,906
401
4,307
6.85
6.04
2011
£’000
59,699
1,201
1,494
–
15,624
2011
£’000
105,163
86,035
(78,018)
8,017
(3,170)
2,680
(490)
–
7,527
(2,260)
5,267
4,997
270
5,267
9.10
7.82
30
Next Fifteen Communications Group plc
Annual Report 2012
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 July 2012
Profit for the year
Other comprehensive income:
Exchange differences on translating foreign operations
Translation differences on long-term foreign currency
intercompany loans
Net investment hedge
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Note
19
2012
£’000
4,307
2011
£’000
5,267
229
(1,022)
(80)
(235)
(86)
4,221
3,820
401
4,221
583
213
(226)
5,041
4,771
270
5,041
Next Fifteen Communications Group plc
Annual Report 2012 31
CONSOLIDATED BALANCE SHEET
as at 31 July 2012
Note
12
11
18
13,19
13,19
19
19
18
14,19
15,19
17,19
17,19
19
14,19
19
17,19
20
24
Assets
Property, plant and equipment
Intangible assets
Investment in equity accounted associate
Deferred tax assets
Other receivables
Total non-current assets
Trade and other receivables
Cash and cash equivalents
Corporation tax asset
Total current assets
Total assets
Liabilities
Loans and borrowings
Deferred tax liabilities
Other payables
Provisions
Contingent consideration
Share purchase obligation
Total non-current liabilities
Loans and borrowings
Trade and other payables
Corporation tax liability
Derivative financial liabilities
Contingent consideration
Total current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium reserve
Merger reserve
Share purchase reserve
Foreign currency translation reserve
Other reserves
Retained earnings
Total equity attributable to owners
of the parent
Non-controlling interests
Total equity
2012
£’000
2012
£’000
2011
£’000
2011
£’000
48,227
33,337
81,564
(20,106)
(24,230)
(44,336)
37,228
2,721
41,019
292
3,320
875
24,661
8,436
240
10,750
245
6
129
4,987
3,989
259
19,605
1,101
320
2,945
1,454
6,935
3,075
(2,673)
2,351
(133)
24,100
3,067
37,926
–
2,503
840
25,931
8,517
321
9,754
122
6
131
6,316
4,348
272
20,085
732
405
4,601
1,416
5,996
3,075
(4,261)
2,202
(525)
21,137
44,336
34,769
79,105
(20,677)
(26,095)
(46,772)
32,333
35,109
2,119
37,228
29,040
3,293
32,333
These financial statements were approved and authorised by the Board on 26 November 2012.
R Eyre
Chairman
D Dewhurst
Finance Director
Company number 01579589
32
Next Fifteen Communications Group plc
Annual Report 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 July 2012
Share
premium
reserve
£’000
Merger
reserve
£’000
Share
purchase
reserve
£’000
Foreign
currency
translation
reserve
£’000
Other
reserves1
£’000
Retained
earnings
£’000
Equity
attributable
to owners
of the
parent
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
5,996 3,075
–
–
(4,261)
–
2,202
–
(525) 21,137
3,906
–
29,040
3,906
3,293 32,333
401 4,307
Share
capital
£’000
1,416
–
–
–
11
27
–
–
–
–
–
–
–
–
82
857
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,588
–
–
–
–
–
–
–
–
–
–
149
(235)
–
(86)
–
(86)
149
(235) 3,906
3,820
401 4,221
–
–
–
–
–
–
–
–
595
(595)
93
–
–
884
–
–
93
884
–
538
2,126
(1,549)
577
32
(30)
2
–
2
–
–
312
312
–
312
40
40
–
40
–
(1,208)
(1,208)
– (1,208)
–
–
–
254
254
–
1,454
–
–
6,935 3,075
–
(2,673)
–
2,351
–
–
(133) 24,100
–
35,109
(280)
(280)
2,119 37,228
At 31 July 2011
Profit for the year
Other
comprehensive
income for the year
Total comprehensive
income for the year
Shares issued in
satisfaction of vested
share options
Shares issued
on acquisitions
Share purchase
obligation settled
on acquisition of
non-controlling
interest
Movement due
to ESOP share
option exercises
Movement in
relation to share-
based payments
Deferred tax on
share-based
payments
Dividends to Owners
of the parent
Non-controlling
interest arising
on acquisition
Non-controlling
interest dividend
At 31 July 2012
1 Other reserves include ESOP reserve, treasury reserve and hedging reserve.
Next Fifteen Communications Group plc
Annual Report 2012 33
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 July 2011
Share
premium
reserve
£’000
Merger
reserve
£’000
Share
purchase
reserve
£’000
Foreign
currency
translation
reserve
£’000
Other
reserves
£’000
Retained
earnings
£’000
Equity
attributable
to owners
of the
parent
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
5,575 3,075
–
–
(1,359)
–
2,014
–
(868) 16,791
4,997
–
26,629
4,997
950 27,579
270 5,267
Share
capital
£’000
1,401
–
–
–
–
–
–
–
–
–
–
–
–
–
15
421
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(556)
–
(2,346)
–
–
–
–
–
–
–
–
–
–
–
–
(439)
213
–
(226)
–
(226)
(439)
–
213
–
4,997
(1,045)
4,771
(1,045)
270 5,041
(1,045)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(556)
4
(552)
–
(2,346)
–
(2,346)
–
–
–
2,346 2,346
436
–
436
449
449
400
400
–
–
449
400
130
(11)
119
–
119
–
183
183
(183)
–
–
–
–
–
627
–
(627)
–
–
–
–
1,416
–
–
5,996 3,075
–
(4,261)
–
2,202
–
–
(525) 21,137
–
29,040
(94)
(94)
3,293 32,333
At 31 July 2010
Profit for the year
Other
comprehensive
income for the year
Total comprehensive
income for the year
Dividends
Share purchase
obligation arising on
existing subsidiary
Share purchase
obligation arising
on acquisitions
Non-controlling
interest on business
combination
Shares issued
on acquisitions
Movement in
relation to share-
based payments
Deferred tax on
share-based
payments
Movement due
to ESOP share
option exercises
Movements on
reserves for non-
controlling interests
Movements on
reserves in respect
of translation
differences on
long-term
intercompany loans
Non-controlling
interest dividend
At 31 July 2011
34
Next Fifteen Communications Group plc
Annual Report 2012
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 31 July 2012
Note
2012
£’000
2012
£’000
2011
£’000
2011
£’000
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation and impairment
Finance expense
Finance income
Share of profit from
equity-accounted associate
Loss on sale of property,
plant and equipment
Income tax expense
Share-based payment charge
Movement in fair value of forward
foreign exchange contracts
Net cash inflow from operating
activities before changes in
working capital
Change in trade and other receivables
Change in trade and other payables
(Decrease)/Increase in provisions
Change in working capital
Net cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries and trade
and assets, net of cash acquired
Payment of contingent consideration
Acquisition of property, plant
and equipment
Proceeds on disposal of property,
plant and equipment
Acquisition of intangible assets
Net movement in long-term
cash deposits
Interest received
Net cash outflow from
investing activities
Net cash from operating and
investing activities
4,307
1,328
1,483
2,170
(1,477)
(14)
11
1,652
312
13
3,229
(2,960)
(2)
(1,101)
(4,563)
(835)
3
(90)
(35)
51
4,12
4,11
6
7
4
8
4,21
4
26
7
5,267
1,201
1,494
3,170
(2,680)
–
–
2,260
449
(13)
9,785
11,148
267
10,052
(2,520)
7,532
292
11,440
(2,618)
8,822
(3,301)
3,420
173
(6,304)
–
(1,920)
5
(77)
168
54
(6,570)
962
(8,074)
748
Next Fifteen Communications Group plc
Annual Report 2012 35
CONSOLIDATED STATEMENT OF CASH FLOW CONTINUED
Net cash from operating and
investing activities
Cash flows from financing activities
Proceeds from sale of own shares
Issue costs on issue of ordinary shares
Capital element of finance lease
rental repayment
Net cash movement in bank borrowings
Interest paid
Dividend and profit share paid to
non-controlling interest partners
Dividend paid to shareholders of the parent
Net cash (outflow)/inflow from
financing activities
Net (decrease)/increase in cash
and cash equivalents
Cash and cash equivalents at beginning
of the year
Exchange (losses)/gains on cash held
Cash and cash equivalents at end
of the year
Note
2012
£’000
2012
£’000
962
96
(8)
(72)
983
(521)
(280)
(1,208)
6
9
9
19
(1,010)
(48)
8,517
(33)
8,436
2011
£’000
118
–
(83)
1,993
(479)
(94)
(1,045)
2011
£’000
748
410
1,158
7,296
63
8,517
36
Next Fifteen Communications Group plc
Annual Report 2012
NOTES TO THE ACCOUNTS
for the year ended 31 July 2012
1 Accounting policies
The principal accounting policies applied in the preparation of the consolidated financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise stated.
A. Basis of preparation
The Group’s financial statements have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and Interpretations adopted by the European Union (‘Adopted
IFRSs’) and the parts of the Companies Act 2006 applicable to companies reporting under Adopted IFRSs.
B. New and amended standards adopted by the Group
No new standards or amendments that have become effective in the year have resulted in a material effect on
the Group.
C. Basis of consolidation
The Group’s financial statements consolidate the results of Next Fifteen Communications Group plc and all of
its subsidiary undertakings using the acquisition method of accounting.
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Group controls another entity.
In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date. The results of acquired operations are included
in the consolidated income statement from the date on which control is obtained.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
parent’s ownership interests in them. On an acquisition-by-acquisition basis, the Group recognises any non-
controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share
of the acquiree’s net assets. Each of these approaches have been used by the Group. Non-controlling interests
are subsequently measured as the amount of those non-controlling interests at the date of the original
combination and the non-controlling interest’s share of changes in equity since the date of the combination.
An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a
joint venture. Associates are accounted for under the equity method of accounting, where the investment in the
associate is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group’s share
of net assets of the associate. The Income Statement reflects the share of the results of the operations of the
associate after tax.
Intercompany transactions, balances and unrealised gains on transactions between Group companies
(Next Fifteen Communications Group plc and its subsidiaries) are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting
policies for subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Group.
D. Merger reserve
Where the conditions set out in section 612 or equivalent sections of previous Companies Acts 2006 are met,
shares issued as part of the consideration in a business combination are measured at their fair value in
the consolidated balance sheet, and the difference between the nominal value and fair value of the shares
issued is recognised in the merger reserve.
Next Fifteen Communications Group plc
Annual Report 2012 37
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
E. Revenue
Billings represent amounts receivable from clients, exclusive of VAT, sales taxes and trade discounts in respect
of charges for fees, commission and rechargeable expenses incurred on behalf of clients.
Revenue is billings less amounts payable on behalf of clients to external suppliers where they are retained to
perform part of a specific client project or service, and represents fees, commissions and mark-ups on
rechargeable expenses. Revenue is recognised on the following basis:
Retainer and other non-retainer fees are recognised as the services are performed, in accordance with the
terms of the contractual arrangement.
Project fees are recognised on a percentage of completion basis as contract activity progresses, if the final
outcome can be assessed with reasonable certainty. The stage of completion is generally measured on the
basis of the services performed to date as a percentage of the total services to be performed.
Expenses are recharged to clients at cost plus an agreed mark-up when the services are performed.
F. Intangible assets
Goodwill Goodwill represents the excess of the fair value of consideration payable, the amount of any non-
controlling interest in the acquiree and acquisition date fair value of any previous equity interest in the
acquiree, over the fair value of the Group’s share of the identifiable net assets acquired. The fair value of
consideration payable includes assets transferred, liabilities assumed and equity instruments issued. The
amount relating to the non-controlling interest is measured on a transaction-by-transaction basis, at either fair
value or the non-controlling interest’s proportionate share of net assets acquired. Both approaches have been
used by the Group. Goodwill is capitalised as an intangible asset, not amortised but reviewed annually for
impairment or in any period in which events or changes in circumstances indicate the carrying value may not
be recoverable. Any impairment in carrying value is charged to the consolidated income statement.
Software Licences for software that are not integral to the functioning of a computer are capitalised as
intangible assets. Costs that are directly associated with the production of identifiable and unique software
products controlled by the Group, and that are expected to generate economic benefits exceeding costs
beyond one year, are recognised as intangible assets. Direct costs include software development
employee costs. Amortisation is provided on software at rates calculated to write off the cost of each asset
evenly over its expected useful life of five years. Costs associated with maintaining computer software
programmes are recognised as an expense as incurred. No amortisation is charged on assets in the course of
construction until they are available for operational use in the business.
Trade names Trade names acquired in a business combination are recognised at fair value at the acquisition
date. Trade names have a finite useful life and are carried at cost less accumulated amortisation. Amortisation
is calculated using the straight-line method to allocate the cost of trade names over their estimated useful lives
of 20 years.
Customer relationships Contractual customer relationships acquired in a business combination are recognised
at fair value at the acquisition date. The contractual customer relationships have a finite useful life and are
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over
the expected life of the customer relationship of three to six years.
G. Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation. Depreciation is provided on all property,
plant and equipment at annual rates calculated to write off the cost, less estimated residual value, of each asset
evenly over its expected useful life as follows:
Short leasehold improvements
Office equipment
Office furniture
Motor vehicles
– Over the term of the lease.
– 20% – 50% per annum straight-line.
– 20% per annum straight-line.
– 25% per annum straight-line.
38
Next Fifteen Communications Group plc
Annual Report 2012
1 Accounting policies (continued)
H. Impairment
Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets
(excluding deferred tax) are subject to impairment tests whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable.
Where the carrying value of an asset exceeds its recoverable amount, which is measured as the higher of value
in use and fair value less costs to sell, the asset is impaired accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is
carried out on the asset’s cash-generating unit, defined as the lowest group of assets in which the asset belongs
for which there are separately identifiable cash flows. Goodwill is allocated on initial recognition to each of the
Group’s cash-generating units that are expected to benefit from the synergies of the combination giving rise to
the goodwill. The cash-generating units represent the lowest level within the entity at which the goodwill is
monitored for internal management purposes.
Impairment charges are included within the amortisation and impairment line of the income statement unless
they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for
goodwill is not reversed.
I. Foreign currency
Transactions entered into by Group entities in a currency other than the currency of the primary economic
environment in which they operate (their ‘functional currency’) are recorded at the exchange rates ruling when
the transactions occur. Foreign currency monetary assets and liabilities are translated at the exchange rates
ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets
and liabilities are recognised immediately in the income statement. In the consolidated financial statements,
foreign exchange movements on intercompany loans with indefinite terms, for which there is no expectation
of a demand for repayment, are recognised directly in equity within a separate foreign currency translation
reserve.
On consolidation, the results of overseas operations are translated into sterling at the average exchange rates
for the accounting period. All assets and liabilities of overseas operations, including goodwill arising on the
acquisition of those operations, are translated at the exchange rates ruling at the balance sheet date. Exchange
differences arising on translating the opening net assets at opening rates and the results of overseas
operations at average rates are recognised directly in the foreign currency translation reserve within equity.
The effective portion arising on the retranslation of foreign currency borrowings which are designated as a
qualifying hedge is recognised within equity. See note 19 for more detail on hedging activities.
On disposal of a foreign operation, the cumulative translation differences recognised in the foreign currency
translation reserve relating to that operation up to the date of disposal are transferred to the consolidated
income statement as part of the profit or loss on disposal.
On a reduction of ownership interest in a subsidiary that does not affect control, the cumulative retranslation
difference is only allocated to the NCI and not recycled through the income statement.
J. Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the Board of Directors.
Next Fifteen Communications Group plc
Annual Report 2012 39
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
K. Financial instruments
Financial assets and liabilities are recognised on the Group’s balance sheet when the Group becomes party
to the contractual provisions of the asset or liability. The Group’s accounting policies for different types of
financial asset and liability are described below.
Trade receivables Trade receivables are initially recognised at fair value and will subsequently be measured at
amortised cost less allowances for impairment. An allowance for impairment of trade receivables is established
when there is objective evidence (such as significant financial difficulties on the part of the counterparty, or
default or significant delay in payment) that the Group will not be able to collect all amounts due according
to the original terms of the receivables. The amount of the allowance is the difference between the asset’s
carrying amount and the present value of estimated future cash flows associated with the impaired receivable.
Such provisions are recorded in a separate allowance account, with the loss being recognised as an expense
in the other operating charges line in the consolidated income statement. On confirmation that the trade
receivable will not be collectable, the gross carrying value is written off against the associated allowance.
Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term call
deposits held with banks. Bank overdrafts are shown within loans and borrowings in current liabilities on
the consolidated balance sheet, except where there is a pooling arrangement with a bank that allows them
to be offset against cash balances. In such cases the net cash balance will be shown within cash and cash
equivalents in the consolidated balance sheet.
Derivative financial instruments Derivative financial instruments utilised by the Group are protection
contracts on US dollar interest rate contracts (cap-and-collar) and US dollar and Euro foreign exchange
contracts. Derivative financial instruments are initially recognised at fair value at the contract date and
continue to be stated at fair value at the balance sheet date, with gains and losses on revaluation being
recognised immediately in the consolidated income statement. The fair value of derivative financial liabilities
is determined by reference to third-party market valuations.
Hedging activities The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk-management objectives and strategy for undertaking various
hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing
basis, of whether the hedging instruments used in hedging transactions are highly effective in offsetting
changes in fair values of hedged items.
Where a foreign currency loan is designated as a qualifying hedge of the foreign exchange exposure arising
on retranslation of the net assets of a foreign operation, any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognised in other comprehensive income in a separate hedging
reserve included within Other Reserves. This offsets the foreign exchange differences arising on the
retranslation of the foreign operation’s net assets, which is recognised in the separate foreign currency
translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in
the income statement within finance income/expense.
Gains and losses accumulated in equity on retranslation of the foreign currency loan are recycled through the
income statement when the foreign operation is sold or is partially disposed of so that there is a loss of control.
At this point the cumulative foreign exchange differences arising on the retranslation of the net assets of the
foreign operation are similarly recycled through the income statement. Where the hedging relationship ceases
to qualify for hedge accounting, the cumulative gains and losses remain within the foreign currency translation
reserve until control of the foreign operation is lost; subsequent gains and losses on the hedging instrument
are recognised in the income statement. Where there is a change in the ownership interest without effecting
control, the exchange differences are adjusted within reserves.
Bank borrowings Interest-bearing bank loans and overdrafts are recognised at their fair value, net of direct
issue costs and, thereafter, at amortised cost. Finance costs are charged to the consolidated income statement
over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance
costs include issue costs which are initially recognised as a reduction in the proceeds of the associated capital
instrument and unwound over the term of the debt.
40
Next Fifteen Communications Group plc
Annual Report 2012
1 Accounting policies (continued)
K. Financial instruments (continued)
Deal costs Costs associated with acquisitions are recognised in the consolidated income statement within the
‘other operating charges’ line in the year in which they are incurred.
Contingent consideration Contingent consideration relating to acquisitions has been included based on
discounted management estimates of the most likely outcome. On initial recognition, the liability is measured
at fair value based on the present value of the ultimate expected payment with the corresponding debit
included within Goodwill. Subsequent movements in the present value of the ultimate expected payment are
recognised in the consolidated income statement.
Share purchase obligation Put-option agreements that allow the non-controlling interest shareholders in the
Group’s subsidiary undertakings to require the Group to purchase the non-controlling interest are recorded
in the balance sheet as liabilities. On initial recognition, the liability is measured at the present value
of the ultimate expected payment with the corresponding debit included in the share purchase reserve.
Subsequent movements in the present value of the ultimate expected payment are recognised in the
consolidated income statement.
Trade payables Trade payables are initially recognised at fair value and, thereafter, at amortised cost.
L. Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable
that the Group will be required to settle that obligation, and are discounted to present value where the effect
is material.
Provisions are created for vacant or sublet properties when the Group has a legal obligation for future
expenditure in relation to onerous leases. The provision is measured at the present value of the Group’s best
estimate of the expenditure required to settle the present obligation at the balance sheet date.
M. Retirement benefits
Pension costs which relate to payments made by the Group to employees’ own defined contribution pension
plans are charged to the consolidated income statement as incurred.
N. Share-based payments
The Group issues equity-settled share-based payments to certain employees. The share-based payments are
measured at fair value at the date of the grant and expensed on a straight-line basis over the vesting period.
The cumulative expense is adjusted for failure to achieve non-market performance vesting conditions.
Fair value is measured by use of the Black-Scholes model on the grounds that there are no market-related
vesting conditions. The expected life used in the model has been adjusted, based on the Board’s best estimate,
for the effects of non-transferability, exercise restrictions and behavioural considerations.
O. Leased assets
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred
to the Group (a ‘finance lease’), the asset is treated as if it had been purchased outright. The amount initially
recognised as an asset is the lower of the fair value of the leased asset and the present value of the minimum
lease payments payable over the term of the lease. The corresponding lease commitment is shown as a
liability. Lease payments are analysed between capital and interest. The interest element is charged to the
consolidated income statement over the period of the lease and is calculated so that it represents a constant
proportion of the lease liability. The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group
(an ‘operating lease’), the total rentals payable under the lease are charged to the consolidated income
statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised
as a reduction to the rental expense over the lease term on a straight-line basis.
The land and buildings elements of property leases are considered separately for the purposes of
lease classification.
Where Group assets are leased out under operating leases with the Group acting as lessor, the asset is
included in the balance sheet and lease income is recognised over the term of the lease on a straight-line basis.
Next Fifteen Communications Group plc
Annual Report 2012 41
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
P. Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the
balance sheet differs from its tax base, except for differences arising on:
the initial recognition of goodwill;
the initial recognition of an asset or liability in a transaction which is not a business combination and at the
time of the transaction affects neither accounting nor taxable profit; and
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the
reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be
available against which the asset can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are
settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax
assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority
on either:
the same taxable group company; or
different group entities which intend either to settle current tax assets and liabilities on a net basis, or to
realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets or liabilities are expected to be settled or recovered.
Where a temporary difference arises between the tax base of employee share options and their carrying value,
a deferred tax asset should arise. To the extent the future tax deduction exceeds the related cumulative IFRS 2
Share-Based Payments (‘IFRS 2’) expense, the excess of the associated deferred tax balance is recognised
directly in equity. To the extent the future tax deduction matches the cumulative IFRS 2 expense, the associated
deferred tax balance is recognised in the consolidated income statement.
Q. Dividends
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised
when paid. Final equity dividends are recognised when approved by the shareholders at an annual general
meeting.
R. Employee Share Ownership Plan (‘ESOP’)
As the Group is deemed to have control of its ESOP trust, the trust is treated as a subsidiary and is consolidated
for the purposes of the Group accounts. The ESOP’s assets (other than investments in the Company’s shares),
liabilities, income and expenses are included on a line-by-line basis in the Group financial statements.
The ESOP’s investment in the Group’s shares is deducted from equity in the consolidated balance sheet
as if they were treasury shares and presented in the ESOP reserve.
S. Treasury shares
When the Group re-acquires its own equity instruments, those instruments (treasury shares) are deducted
from equity. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue or
cancellation of the Group’s treasury shares. Such treasury shares may be acquired and held by other members
of the Group. Consideration paid or received is recognised directly in equity.
T. Significant estimates and judgements
The preparation of the consolidated financial statements requires the Group to make certain estimates and
assumptions that have an impact on the application of the policies and amounts reported in the consolidated
financial statements. Estimates and judgements are evaluated based on historical experiences and expected
outcomes and are believed to be reasonable at the time such estimates and judgements are made, although
actual experience may vary from these estimates.
42
Next Fifteen Communications Group plc
Annual Report 2012
1 Accounting policies (continued)
I. Impairment of goodwill. In line with lAS 36, Impairment of Assets, the Group is required to test the carrying
value of goodwill, at least annually, for impairment. As part of this review process the recoverable amount of
the goodwill is determined using value-in-use calculations, which requires estimates of future cash flows and as
such is subject to estimates and assumptions. Further details are contained in note 11.
II. Taxation. The Group is subject to income tax in numerous jurisdictions and significant judgement is required
in determining the provision for income taxes. The Group recognises assets/liabilities for anticipated tax issues
based on estimates of the tax treatment. Where the final tax outcome is different from the amounts that were
initially recorded, such differences will impact the income tax and deferred tax provisions.
The Group has provided in full for what it considers to be the likely outcome of ongoing overseas tax litigation
based on the evidence available at the present time. In the event that the overseas tax litigation is resolved in
the Group’s favour there will be a material credit to the Group’s income statement tax charge in a future
accounting period. The Group is hopeful that the overseas tax litigation will be resolved during the financial
year ending 31 July 2013.
III. Contingent consideration, share purchase obligation and valuation of put options. Contingent consideration
and share purchase obligations relating to acquisitions have been included based on discounted management
estimates of the most likely outcome. The difference between the fair value of the liabilities and the actual
amounts payable is charged to the income statement as notional finance costs over the life of the associated
liability. Changes in the estimates of contingent consideration payable and the share purchase obligation are
recognised in finance income/expense. Further details are contained in note 17.
U. New standards and amendments not applied
Standards, interpretations and amendments to existing standards that have been published as mandatory for
later accounting periods but are not yet effective and have not been adopted early by the Group are as follows:
IFRS 9, Financial Instruments will eventually replace IAS 39 in its entirety. IFRS 9 as issued on 12 November
2009 (effective for accounting periods beginning on or after 1 January 2013) addresses the classification and
measurement of financial assets. Classification of a financial asset is on the basis of an entity’s business model
for managing them and the contractual cash flows characteristic of the asset. IFRS 9 outlines the conditions to
measure a financial asset at amortised cost and subsequent measurement at amortised cost or fair value as
well as subsequent reclassification between categories. IFRS 9 requires that changes in the fair value of
financial liabilities designated as at fair value through profit or loss which relate to changes in own credit risk
should generally be recognised directly in other comprehensive income.
All other standards, interpretations and amendments to existing standards published as mandatory for this
accounting periods or later accounting period would not have a material effect.
2 Segment information
Reportable segments
The Board of Directors has identified the operating segments based on the reports it reviews as the chief
operating decision-maker to make strategic decisions, assess performance and allocate resources. The Group’s
business is separated into a number of brands which are considered to be the underlying operating segments.
These brands are organised into four reportable segments, being the provision of public relations services in
the technology and consumer markets, digital and research consultancy, and corporate communications
consultancy. Within these reportable segments the Group operates a number of separate competing
businesses in order to offer services to clients in a confidential manner where otherwise there may be
issues of conflict.
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 fair value accounting charges,
including movement in fair value of financial instruments, unwinding of the discount on contingent
consideration and share purchase obligation, changes in estimates of contingent consideration and share
purchase obligations, amortisation of acquired intangibles, and goodwill impairment charges. Other
information provided to them is measured in a manner consistent with that in the financial statements.
Next Fifteen Communications Group plc
Annual Report 2012 43
NOTES TO THE ACCOUNTS CONTINUED
2 Segment information (continued)
Measurement of operating segment profit (continued)
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. They do review results by both service sector and also by geography, and so both are presented.
Technology PR
£’000
Consumer PR
£’000
Pure Digital/
research
consultancy
£’000
Corporate
Communications
£’000
Head Office
£’000
Total
£’000
60,556
15,080
9,340
6,607
–
91,583
9,350
2,053
1,308
1,522
(4,186)
10,047
59,323
16,103
5,583
5,026
–
86,035
8,022
2,884
670
1,146
(3,899)
8,823
UK
£’000
Europe and
Africa
£’000
US and Canada
£’000
Asia Pacific
£’000
Head Office
£’000
Total
£’000
19,744
10,470
47,113
14,256
–
91,583
3,345
907
9,312
669
(4,186)
10,047
17,986
9,746
45,142
13,161
–
86,035
2,935
855
8,693
239
(3,899)
8,823
Year ended 31 July 2012
Revenue
Segment adjusted
operating profit
Year ended 31 July 2011
Revenue
Segment adjusted
operating profit
Year ended 31 July 2012
Revenue
Segment adjusted
operating profit
Year ended 31 July 2011
Revenue
Segment adjusted
operating profit
A reconciliation of segment adjusted operating profit to profit before income tax is provided as follows:
Segment adjusted operating profit
Amortisation of acquired intangibles
Reorganisation costs (note 4)
Charge for misappropriation of assets (note 4)
Movement in fair value of forward foreign exchange contracts
Total operating profit
Unwinding of discount on contingent consideration
Unwinding of discount on share purchase obligation
Change in estimate of future contingent consideration payable
Change in estimate of future share purchase obligation
Movement in fair value of interest rate cap-and-collar contract
Share of profits of associate
Other finance expense
Other finance income
Profit before income tax
2012
£’000
10,047
(1,181)
(437)
(1,778)
(13)
6,638
(968)
(453)
532
584
84
14
(523)
51
5,959
2011
£’000
8,823
(819)
–
–
13
8,017
(1,007)
(322)
966
285
14
–
(479)
53
7,527
44
Next Fifteen Communications Group plc
Annual Report 2012
3 Employee information
Staff costs for all employees, including Directors, consist of:
Wages and salaries
Social security costs
Pension costs
Share-based payment charge
The average number of employees during the year, by reportable service
segment, was as follows:
Technology PR
Consumer PR
Pure digital/research
Corporate Communications
Head Office
2012
£’000
2011
£’000
56,246
4,966
1,243
312
62,767
53,587
4,372
1,291
449
59,699
2012
Number
2011
Number
774
150
104
44
16
1,088
763
162
87
38
17
1,067
2012
Number
2011
Number
The average number of employees during the year, by geographical location,
was as follows:
UK
Europe and Africa
US and Canada
Asia Pacific
Head Office
233
121
384
334
16
1,088
Key management personnel are considered to be the Board of Directors as set out on pages 11 and 12.
Directors’ remuneration, consists of:
Aggregate emoluments
Pension costs
Compensation for loss of office
Share-based payment charge
The highest paid Director received total emoluments of £479,000 (2011: £481,000).
2012
£’000
862
58
–
48
968
225
111
385
330
17
1,067
2011
£’000
860
57
44
52
1,013
Next Fifteen Communications Group plc
Annual Report 2012 45
NOTES TO THE ACCOUNTS CONTINUED
4 Operating profit
This is arrived at after charging/(crediting):
Depreciation of owned property, plant and equipment
Depreciation of assets held under finance leases
Amortisation of intangible assets
Loss/(profit) on sale of property, plant and equipment
Movement in fair value of forward foreign exchange contracts
Defined contribution pension cost
Share-based payment charge
Operating lease income
Operating lease rentals
– property
– plant and machinery
Charge for misappropriation of assets1
Reorganisation costs2
Foreign exchange loss
Fees payable to Group auditors
2012
£’000
1,119
209
1,483
11
13
1,243
312
(344)
5,478
168
1,778
437
92
455
2011
£’000
1,112
89
1,494
(5)
(13)
1,291
449
(266)
5,061
179
–
–
49
447
1 The charge for misappropriation of assets relates to a fraud whereby cash was extracted from the business by a long-serving employee in a trusted
position and hidden through recognition of fictitious assets and understated liabilities across two of the Group’s North American Bite subsidiaries.
Having now been identified, the overstated assets have been written off and liabilities re-instated. The impact on the Group is as follows:
Charge for write off of assets
Charge for recognition of understated liabilities
Pre tax expense
Tax
Post Tax expense (note 10)
Total impact on
Group Income
statement
£’000
1,608
170
1,778
(553)
1,225
2Reorganisation costs relate to the restructure of one of the Group’s subsidiaries, Lexis. During the year the company rebranded itself as
The Lexis Agency and shifted the direction of the business to give a more digitally-focused service offering which was aided by the acquisition of
Paratus Communications Limited. As part of this process, the senior management team was re-aligned to better fit the new direction.
Auditors’ remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the
Company’s auditors and its associates:
Fees payable to the Company’s auditor for the statutory audit
of the Company’s and consolidated annual statements
Other services:
The auditing of financial statements of the subsidiaries pursuant to legislation
Tax services
Other services
2012
£’000
77
291
23
64
455
2011
£’000
88
306
23
30
447
46
Next Fifteen Communications Group plc
Annual Report 2012
5 Reconciliation of pro forma financial measures
Profit before income tax
Movement in fair value of interest rate cap-and-collar contract
Movement in fair value of forward foreign exchange contracts
Unwinding of discount on contingent and deferred consideration
Unwinding of discount on share purchase obligation
Charge for misappropriation of assets (note 4)
Change in estimate of future contingent consideration payable
Change in estimate of future share purchase obligation
Reorganisation costs (note 4)
Amortisation of acquired intangibles
Adjusted profit before income tax
2012
£’000
5,959
(84)
13
968
453
1,778
(532)
(584)
437
1,181
9,589
2011
£’000
7,527
(14)
(13)
1,007
322
–
(966)
(285)
–
819
8,397
Adjusted profit before income tax has been presented to provide additional information which will be useful
to the reader to gain a better understanding of the underlying performance of the Group. The adjusted
measure is also used for the performance calculation of the adjusted earnings per share used for the vesting
of employee share options and performance shares.
6 Finance expense
Financial liabilities at amortised cost
Bank interest payable
Financial liabilities at fair value through profit and loss
Unwinding of discount on contingent consideration
Unwinding of discount on share purchase obligation
Change in estimate of future contingent consideration payable
Change in estimate of future share purchase obligation
Other
Finance lease interest
Other interest payable
Finance expense
7 Finance income
Financial assets at amortised cost
Bank interest receivable
Financial assets at fair value through profit and loss
Movement in fair value of interest rate cap-and-collar contract
Change in estimate on contingent consideration
Change in estimate on share purchase obligation
Other
Other interest receivable
Finance income
2012
£’000
513
968
453
118
108
2
8
2,170
2012
£’000
50
84
650
692
1
1,477
2011
£’000
472
1,007
322
746
616
7
–
3,170
2011
£’000
54
14
1,712
900
–
2,680
Next Fifteen Communications Group plc
Annual Report 2012 47
NOTES TO THE ACCOUNTS CONTINUED
8 Taxation
The major components of income tax expense for the year ended 31 July 2012 are:
Consolidated income statement
Current income tax
Current income tax expense
Adjustments in respect of (over)/under provision of current income tax
in prior years
Deferred income tax
Relating to the origination and reversal of temporary differences
Adjustments in respect of deferred tax for prior years
Income tax expense reported in the consolidated income statement
Consolidated statement of changes in equity
Tax credit relating to share-based remuneration
Income tax expense reported in equity
Factors affecting the tax charge for the year
The tax assessed for the year is higher than the standard rate of corporation tax
in the UK of 25.33% (2011: 27.33%). The difference is explained below:
Profit before income tax
Corporation tax expense at 25.33% (2011: 27.33%)
Effects of:
Disallowed expenses
Recognition and utilisation of previously unrecognised tax losses
Non-utilisation of tax losses
Higher rates of tax on overseas earnings
Deductions for overseas taxes
Adjustments in respect of prior years
2012
£’000
2011
£’000
2,709
2,284
(62)
247
(974)
(21)
1,652
(40)
(40)
5,959
1,509
(3)
(7)
116
989
(876)
(76)
1,652
(177)
(94)
2,260
(400)
(400)
7,527
2,057
(155)
(55)
54
839
(688)
208
2,260
The Group’s effective corporation tax rate for the year ended 31 July 2012 (28%) is slightly higher than the
standard UK rate (25.33%) due to acquisitions undertaken by the Group and the impact of the reduction in
the UK corporation tax rate. As a result of the acquisitions, a greater proportion of Group profit was generated
in higher tax regimes and losses arose in territories in which it would not be prudent to recognise deferred
tax assets.
As a result of the reduction in the UK corporation tax rate to 23% that was substantively enacted on 3 July 2012
and effective from 1 April 2013, the UK deferred tax balances have been remeasured. The UK corporation tax
rate is expected to reduce by a further 1% to 22% from 1 April 2014. This change had not been substantively
enacted at the balance sheet date and, therefore, is not recognised in the financial statements.
48
Next Fifteen Communications Group plc
Annual Report 2012
9 Dividend
Dividends paid during the year
Final dividend paid for prior year of 1.535p per Ordinary Share (2011: 1.375p)
Interim dividend paid of 0.565p per Ordinary Share (2011: 0.515p)
Non-controlling interest dividend¹
2012
£’000
881
327
1,208
280
2011
£’000
761
284
1,045
94
1 The Group acquired control of 463 Communications as at 1 August 2008. During the year, a profit share was paid to the holders of the non-
controlling interest of 463 Communications of £54,000 (2011: £75,000) and the Blueshirt Group LLC of £124,000 (2011: £19,000). A dividend was
paid to the non-controlling interest of Beyond of £102,000 (2011: £Nil).
The ESOP waived its right to dividends in the financial year ended 31 July 2012 (£192) and the year ended
31 July 2011 (£4,000).
A final dividend of 1.735p per share (2011: 1.535p) has been proposed. This has not been accrued. The interim
dividend was 0.565p per share (2011: 0.515p), making a total for the year of 2.3p per share (2011: 2.05p).
The final dividend, if approved at the AGM on the 29 January 2013, will be paid on 8 February 2013 to all
shareholders on the Register of Members as at 11 January 2013. The ex-dividend date for the shares is
9 January 2013.
10 Earnings per share
Earnings attributable to ordinary shareholders
Movement in fair value of interest rate cap-and-collar contract
Movement in fair value of forward foreign exchange contracts
Unwinding of discount on contingent consideration
Unwinding of discount on share purchase obligation
Charge for misappropriation of assets (note 4)
Change in estimate of future contingent consideration payable
Change in estimate of share purchase obligation
Reorganisation costs
Amortisation of acquired intangibles
Adjusted earnings attributable to ordinary shareholders
Weighted average number of Ordinary Shares
Dilutive share options/performance shares outstanding
Other potentially issuable shares
Diluted weighted average number of Ordinary Shares
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Diluted adjusted earnings per share
2012
£’000
3,906
(65)
10
968
453
1,225
(534)
(589)
336
803
6,513
2011
£’000
4,997
(10)
(9)
1,007
322
–
(966)
(285)
–
528
5,584
Number
Number
57,036,925
5,008,853
2,645,103
64,690,881
6.85p
6.04p
11.42p
10.07p
54,925,003
6,127,173
2,867,156
63,919,332
9.10p
7.82p
10.17p
8.74p
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
share options and performance shares. The only difference between the adjusting items in this note and the
figures in note 5 is the tax effect of those adjusting items.
Next Fifteen Communications Group plc
Annual Report 2012 49
NOTES TO THE ACCOUNTS CONTINUED
11 Intangible assets
Cost
At 1 August 2010
Additions resulting from
internal development
Acquired through business
combinations
Disposals
Exchange differences
At 31 July 2011
Additions resulting from internal
development
Acquired through business
combinations1
Disposals
Exchange differences
At 31 July 2012
Amortisation and impairment
At 1 August 2010
Charge for the year
Exchange differences
At 31 July 2011
Charge for the year
Disposals
Exchange differences
At 31 July 2012
Net book value at 31 July 2012
Net book value at 31 July 2011
Software
£’000
Trade name
£’000
Customer
relationships
£’000
Goodwill
£’000
Total
£’000
2,399
1,391
2,121
24,659
30,570
90
638
–
(46)
3,081
97
31
(3)
112
3,318
1,164
691
38
1,893
456
(3)
99
2,445
873
1,188
–
–
–
90
810
–
(70)
2,131
–
–
–
101
2,232
78
99
(4)
173
111
–
9
293
1,939
1,958
2,000
–
(114)
4,007
–
1,138
–
90
5,235
592
704
(30)
1,266
916
–
47
2,229
3,006
2,741
10,396
(709)
(729)
33,617
13,844
(709)
(959)
42,836
–
97
2,638
–
655
36,910
1,625
–
(47)
1,578
–
–
131
1,709
35,201
32,039
3,807
(3)
958
47,695
3,459
1,494
(43)
4,910
1,483
(3)
286
6,676
41,019
37,926
1 During the year, the Group acquired Trademark PR GmbH, Trademark Consulting GmbH, Paratus Communications Limited and the trade and
assets of Red Brick Media (note 26), recognising intangible customer relationships of £446,000, £223,000, £441,000, and £28,000 respectively.
In addition, an intangible asset associated with software was recognised in respect of Trademark PR GmbH of £31,000.
Impairment testing for cash-generating units containing goodwill
Goodwill acquired through business combinations is allocated to groups of cash-generating units (‘CGUs’) for
impairment testing as follows:
Bite (UK)
Lexis (UK)1
OutCast (US)
Bite (US)
Beyond (UK)
Beyond (US)
M Booth (US)
Bite Upstream (APAC)2
Blueshirt
Bourne
Trademark
2012
£’000
1,512
9,329
6,683
320
61
75
4,290
1,173
4,376
5,631
1,751
35,201
2011
£’000
1,512
8,625
6,441
323
58
73
4,048
1,152
4,176
5,631
–
32,039
50
Next Fifteen Communications Group plc
Annual Report 2012
11 Intangible assets (continued)
Impairment testing for cash-generating units containing goodwill (continued)
1 Includes £243,000 addition in respect of the acquisition of Glasshouse and £703,000 in respect of the acquisition of Paratus Communications
Limited.
2 Includes an addition of £31,000 in respect of the acquired trade and assets of ILS, £116,000 in respect of OneXeno and £9,000 in respect of Red
Brick Media.
Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to
benefit from the synergies of the combination giving rise to the goodwill. The cash-generating units represent
the lowest level within the entity at which the goodwill is monitored for internal management purposes. In the
case of Bite Upstream and Lexis, performance is monitored at the combined level (inclusive of the subsidiaries
listed in the footnotes). As such, goodwill is reviewed for impairment at the aggregated level.
Cash flow projections
The recoverable amounts of all CGUs have been determined from value-in-use calculations based on the pre-
tax operating profits before non-cash transactions including amortisation and depreciation.
The initial projection period is based on operating profits in the 2013 budget approved by the Board for each
cash-generating unit. After that initial projection period, the long-term forecasts are calculated using one of two
methods depending on whether a subsidiary is currently within an earnout period.
For those subsidiaries not subject to an earnout period, after the initial projection period, no further formal
forecasts are approved by the Board and so a steady long-term growth rate of 2.5% with no improvement in
operating margin has been applied to the operating profit cash flow forecast into perpetuity. This is considered
prudent based on experience and current expectations of the long-term industry growth rate and is used for all
CGUs unless conditions specific to a CGU indicate that growth rates will be lower than the steady long-term
rate. Beyond, M Booth, Upstream, Blueshirt, Bourne, Trademark and Paratus (part of Lexis) are all within their
earnout period.
For recent acquisitions where subsidiaries are still within an earnout period, formal Board approval is required
for those forecasts used in estimating the present values of future profitability and cash flows used in
estimating contingent consideration and share purchase obligations. These approved forecasts are used when
considering impairment for a period of no more than a further four years after the initial projection period.
After this, a steady long-term growth rate of 2.5% with no improvement in operating margin has been applied
to the pre-tax cash flow forecast into perpetuity.
Pre-tax discount rate
A pre-tax discount rate, being the Group’s weighted average cost of capital of 12% (2011: 12%), has been used
in discounting all projected cash flows.
The Board recognises that the WACC will be different for different industries and geographies where
subsidiaries operate. Based on the results of sensitivity analysis and an appreciation of the general
country/industry risk premiums, further consideration is given as to whether an industry and geography
specific WACC should be used. No instances where that would be necessary have yet been identified.
Sensitivity to changes in assumptions
The Board has considered reasonable possible sensitivities in key assumptions on which the value-in-use
calculations are based. If growth rates reduced to 0% for all subsidiaries not subject to earnout periods, or if
the discount rate increased to 18%, this would not cause the carrying values of the groups of CGUs to exceed
their recoverable amounts except for Lexis.
During the year, Lexis underwent a significant reorganisation (note 4). Changes in the senior management
team, direction of the company and integration of Paratus add an additional uncertainty over the FY13 budget
which forms the basis for the extrapolated long-term operating profit cash flow projections. Headroom over
goodwill is substantial at £2,207,000. Management have control over staff costs and so it is assumptions
around new business wins and client attrition where there is most scope for error in estimations. Even if
budgeted revenues were below the level which was actually delivered in FY12 no impairment would be
indicated. Assuming gross margins are kept constant, FY13 budgeted revenue can fall by 20% before headroom
falls to £Nil. The board considers that this is a sufficient level of headroom and does not indicate the existence
of any potential impairment.
Next Fifteen Communications Group plc
Annual Report 2012 51
NOTES TO THE ACCOUNTS CONTINUED
11 Intangible assets (continued)
Impairment testing for cash-generating units containing goodwill (continued)
Further sensitivity analysis on the extrapolation assumptions shows that if the discount rate is increased in
isolation to 14%, or if the growth rate fell to 0.25%, the estimated recoverable amount of Lexis is equal to
carrying value.
For goodwill associated with subsidiaries currently in their earnout, Bourne is the most sensitive. Growth rates
used in the Board-approved forecasts could fall to negative (9.5%) and the discount rate could increase to 16%
before headroom is reduced to £Nil.
There was no impairment of goodwill as the estimated recoverable amount exceeds the carrying value for
all CGUs.
12 Property, plant and equipment
Cost
At 31 July 2010
Exchange differences
Additions
Acquired through business
combinations
Disposals
At 31 July 2011
Exchange differences
Additions
Acquired through business
combinations
Disposals
At 31 July 2012
Accumulated depreciation
At 1 August 2010
Exchange differences
Charge for the year
Disposals
At 31 July 2011
Exchange differences
Charge for the year
Disposals
At 31 July 2012
Net book value
At 31 July 2012
At 31 July 2011
Short leasehold
improvements
£’000
Office
equipment
£’000
Office
furniture
£’000
Motor
vehicles
£’000
3,498
(53)
691
3
(505)
3,634
59
71
15
(57)
3,722
2,335
(37)
454
(501)
2,251
34
457
(57)
2,685
1,037
1,383
5,358
(51)
900
67
(206)
6,068
102
710
103
(166)
6,817
4,596
(82)
575
(203)
4,886
90
700
(158)
5,518
1,299
1,182
1,429
(37)
329
7
(58)
1,670
38
54
–
(81)
1,681
1,098
(31)
166
(58)
1,175
31
167
(75)
1,298
383
495
41
–
–
–
(5)
36
(3)
–
–
–
33
28
–
6
(5)
29
(2)
4
–
31
2
7
Total
£’000
10,326
(141)
1,920
77
(774)
11,408
196
835
118
(304)
12,253
8,057
(150)
1,201
(767)
8,341
153
1,328
(290)
9,532
2,721
3,067
The net book value of property, plant and equipment for the Group includes assets held under finance lease
contracts as follows: £7,000 of short leasehold improvements (2011: £29,000) and £66,000 of office equipment
and furniture (2011: £244,000).
52
Next Fifteen Communications Group plc
Annual Report 2012
13 Trade and other receivables
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
Accrued income
Non-current
Rent deposits
2012
£’000
2011
£’000
19,897
(409)
19,488
763
1,520
2,890
24,661
20,707
(350)
20,357
1,030
1,527
3,017
25,931
875
840
As of 31 July 2012, trade receivables of £409,000 (2011: £350,000) were impaired. Movements in the provision
are as follows:
At 1 August
Acquired through business combinations
Provision for receivables impairment
Receivables written off during the year as uncollectable
Unused amounts reversed
Foreign exchange movements
At 31 July
2012
£’000
350
–
226
(150)
(23)
6
409
2011
£’000
227
56
105
(29)
(4)
(5)
350
The provision for receivables impairment has been determined by considering specific doubtful balances
and by reference to historic default rates. Owing to the immaterial level of the provision for impairment of
receivables, no further disclosure is made. The Group considers there to be no material difference between
the fair value of trade and other receivables and their carrying amount in the balance sheet.
As at 31 July, the analysis of trade receivables that were not impaired is as follows:
Not past due
Up to 30 days
31 to 60 days
Greater than 61 days
At 31 July
2012
£’000
11,105
5,213
1,975
1,195
19,488
2011
£’000
10,333
5,698
2,609
1,717
20,357
Next Fifteen Communications Group plc
Annual Report 2012 53
NOTES TO THE ACCOUNTS CONTINUED
14 Trade and other payables
Current
Trade creditors
Finance lease obligation
Other taxation and social security
Short-term compensated absences
Other creditors
Accruals
Deferred income
Non-current
Finance lease obligation
15 Provisions
At 1 August
Additions
Used during year
At 31 July
Current
Non-current
2012
£’000
2011
£’000
3,365
25
1,533
1,814
2,009
6,136
4,723
19,605
3,110
56
1,907
1,683
3,402
5,467
4,460
20,085
6
6
2012
£’000
131
–
(2)
129
–
129
2011
£’000
58
109
(36)
131
–
131
Provisions comprise liabilities where there is uncertainty about the timing of settlement, but where a reliable
estimate can be made of the amount. At 31 July 2012 £23,000 of the provision covers the cost of dilapidations
on a property which Bite leased. A dilapidations provision of £106,000 has also been recognised by Lexis in
respect of obligations under the lease on its premises.
16 Amounts due under finance leases
Amounts payable:
Within 1 year
In 2 to 5 years
Less: finance charges allocated to future periods
Present value of lease obligations
Minimum lease payments
Present value of
minimum lease payments
2012
£’000
25
6
31
–
31
2011
£’000
2012
£’000
2011
£’000
57
7
64
(2)
62
25
6
31
–
31
56
6
62
–
62
54
Next Fifteen Communications Group plc
Annual Report 2012
17 Other financial liabilities
Contingent
consideration1
£’000
Share
purchase
obligation2
£’000
At 31 July 2010
Arising during the year
Changes in assumptions
Exchange differences
Utilised
Unwinding of discount
At 31 July 2011
Arising during the year
Changes in assumptions3
Exchange differences
Utilised
Unwinding of discount
At 31 July 2012
Current
Non-current
1 Contingent consideration on acquisitions – During the year, the Group acquired a controlling stake in the following companies: Trademark
Consulting GmbH, Trademark PR GmbH and Paratus Communications Limited. See note 26 for additional information on these acquisitions.
The Group also acquired the trade and assets of one stand-alone businesses, Red Brick Media, a small digital team based in Hong Kong, giving
rise to £19,000 contingent consideration.
2 Share purchase obligation – A share purchase obligation also arose on the acquisition of Paratus (note 26) adding to the existing share
purchase obligations.
3 Change in estimates – as seen in the table below, a significant amount of the change in assumptions comes from the addendum to the Bourne
acquisition agreement (note 26) rather than changes in underlying estimates. Net of that, the change in assumptions would have resulted in a
£158,000 credit for contingent consideration and a £495,000 credit for share purchase obligations.
6,112
7,510
(966)
(338)
(2,408)
1,007
10,917
1,430
(532)
295
(5,146)
968
7,932
2,945
4,987
1,499
2,917
(285)
(105)
–
322
4,348
516
(584)
134
(878)
453
3,989
–
3,989
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 form expectations based on an analysis of the approved FY13
budget with further consideration being given to current and forecast wider market conditions. An assumed
medium-term growth expectation is then applied which is specific to each individual entity over the course of
the earnout. Certain markets have been identified as more volatile than others, such as the IPO market for
Blueshirt. In such cases, applying an expectation for the average annual growth rate over the earnout period
can result in significant under/over-performance in any one year.
Next Fifteen Communications Group plc
Annual Report 2012 55
NOTES TO THE ACCOUNTS CONTINUED
17 Other financial liabilities (continued)
Sensitivity analysis has been provided below for each significant arrangement, focusing on two key metrics
of i) performance – where a basic assumption of a 10% uplift on the original forecast revenue in each year
of the earnout is assumed and ii) timing – a comparison is made between the present value of the obligation,
assuming settlement of the obligation is at the earliest opportunity, and at the latest opportunity, which is
the normal assumption. 10% growth in revenue is used in each case in order to allow a consistent comparison
of sensitivity across the different earnouts. It is also considered to be a realistic assumption for potential
maximum volatility in most cases over the course of earnouts.
Total
liability as
at 31 July
2011
£’000
Liability
arising on
acquisition
£’000
Unwinding
of discount
£’000
Change in
estimate of
share
purchase
obligation
£’000
Change in
estimate of
contingent
consideration
£’000
Effect of
FX during
the year
£’000
Settlement
during
the year
£’000
Income
statement
sensitivity
to a 10%
increase in
revenue
£’000
Income
statement
sensitivity
to timing of
settlement
£’000
Total
liability as
at 31 July
2012
£’000
–
–
–
–
–
–
19
1,231
696
1,946
451
124
86
326
52
264
–
103
15
1,421
5,477
1,498
618
4,242
500
2,613
317
–
–
15,265
Blueshirt
Upstream
Beyond
M Booth
463
Bourne
Other
Trademark
Paratus
(61)
167
211
45
(26)
–
–
–
–
336
1 Blueshirt and 463 differ from the other acquisitions in terms of the impact of timing. The assumptions around timing where the vendors have
put option windows for sale, we assume that the vendors will want to choose the option that maximises their returns. Where the assumed
annual growth rate is higher than an expected rate of return an individual could get elsewhere (e.g. bank interest rates), we assume the vendor
will delay exercise of the put option until the latest date. This is the situation in all earnouts. However, if that growth rate is lower than the
discount rate applied to acquisitions by the Group (12%), delaying payments also results in a present value benefit to the Group rather than a
cost. For Blueshirt and 463, the expected annual growth rate is below 12%.
3,512
1,169
802
2,504
492
1,537
138
1,056
711
(6,024) 11,921
(2,784)
–
–
(2,153)
–
(877)
(210)
–
–
11
(521)
98
–
(83)
(89)
–
–
–
(584)
(517)
(91)
(80)
–
(49)
–
–
(92)
(41)
(870)
108
–
–
(102)
–
(374)
8
(172)
–
(532)
249
68
–
191
23
–
4
(106)
–
429
Blueshirt
Blueshirt is considered the most sensitive to changes in revenue, both in terms of the magnitude of the
balances and the proportionate movements. Contingent consideration satisfied in cash will be made over the
course of four years based on a multiple of average profits and margin performance. There is an option for the
sellers to sell the remaining 15% stake in Blueshirt after five years from completion and an option for Next 15
to acquire the remaining 15% after six years from completion, provided that the value of the business at the
relevant time has reached a certain level. The length of time over which the earnout runs adds to the
judgemental nature of setting forecasts. A 10% uplift in revenues will result in an increase in the total liability
of £517,000 (15%). For timing sensitivity, the accounting treatment assumes settlement will take place at the
latest opportunity. If settled at the earliest opportunity, the liability would increase by £61,000 (2%)
representing an expense to the Group.
56
Next Fifteen Communications Group plc
Annual Report 2012
17 Other financial liabilities (continued)
The IPO market in which Blueshirt operates is considered to be the most volatile and makes it the most
difficult to predict of all earnouts. A complete dislocation of this market could result in material variances
from expected performance in any one year. A multiplier is applied to the calculation of earnout consideration
and based on the business reaching certain profit margins. The potential multiples are six or seven, which
further increase the scope volatility of estimates. Management therefore take a more medium-term view of
likely growth in the business when setting expectations for the earnout obligations. The FY12 liability reflects an
expectation of achieving the FY13 approved budget performance and thereafter achieving an average 10%
growth in revenues over the remaining earnout period (accepting that there can be variances either side of that
medium-term average in any one year). Consistent profit margins are anticipated each year with those
expected in the FY13 approved budget.
Beyond
Beyond is considered the most sensitive earnout to potential changes in timing of settlement for the obligation.
There is no contingent consideration associated with Beyond. The earliest date settlement could take place is
FY13 whereas the accounting assumes settlement will take place at the latest possible date, FY15. If settlement
of the liability happened in FY13, this would decrease the liability by £211,000 (26%), representing an income
to the Group. Multipliers exist based on the business reaching certain profit margins. The multiples range
between five and seven, which further increases the potential volatility of estimates.
Upstream, Trademark and Bourne
During the year, Upstream, Trademark and Bourne have each had significant movements in the liability due to
changes in estimate of future contingent consideration and share purchase obligations. For Upstream and
Trademark this follows a re-estimation of future performance based on lower than expected current year
results, approved FY13 budgets, and revised expectations for future market conditions over the course of the
earnouts. The total change in estimate for Bourne (£460,000) arises on the early settlement of the obligation
(see note 26). Part of the settlement was made in share options which had a fair value of £430,000. Under
accounting rules they were required to be accounted for as remuneration rather than consideration since the
terms of the option grant include continuous-employment conditions. Had that fair value been allocated to
consideration, the settlement for Bourne would have resulted in only a marginal £30,000 credit for changes in
estimate. See note 26 for further information on the Bourne settlement).
M Booth
Due to a ‘cap’ on the consideration payable through the earnout which has already been reached, further
increases in revenues of 10% have no impact on the current liability. A bye year election was available to the
vendors, it was not utilised therefore there is no impact on the present value of the liability.
Next Fifteen Communications Group plc
Annual Report 2012 57
NOTES TO THE ACCOUNTS CONTINUED
18 Deferred taxation
Temporary differences between the carrying value of assets and liabilities in the balance sheet and their
relevant value for tax purposes result in the following deferred tax assets and liabilities:
Accelerated
capital
allowances
£’000
Short-term
compen-
sated
absences
£’000
Share-
based
remunera-
tion
£’000
Provision
for
impairment
of trade
receivables
£’000
Excess
book
basis over
tax basis of
intangible
assets
£’000
Derivative
financial
instru-
ments
£’000
Other
temporary
differences
£’000
Write off
for miss-
apropria-
tion of
assets
£’000
579
439
421
81
(919)
113
744
(254)
109
216
12
(231)
(12)
431
(29)
(1)
–
–
–
–
–
–
–
–
–
400
296
547
1,037
(8)
(96)
–
327
–
–
–
–
85
–
–
–
–
73
(14)
–
–
(919)
101
1,234
Total
£’000
1,458
271
(61)
(14)
327
400
2,381
–
–
–
–
–
–
–
74
(9)
–
–
–
(38)
(21)
(7)
230
(27)
250
534
995
6
–
–
–
–
–
–
40
3
–
–
–
14
–
(341)
–
–
–
–
–
62
(80)
–
–
4
–
–
–
80
(80)
(341)
40
361
515
1,056
81
(1,016)
74
1,466
538
3,075
After netting off balances, the following are the deferred tax assets and liabilities recognised in the
consolidated balance sheet:
Net deferred tax balance
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
2012
£’000
2011
£’000
3,320
(245)
3,075
2,503
(122)
2,381
58
Next Fifteen Communications Group plc
Annual Report 2012
At 31 July
2010
Credit/
(charge)
to income
Exchange
differences
Acquired
through
business
combinations
Offset against
goodwill
Taken to
equity:
Share option
schemes
At 31 July
2011
Credit/
(charge)
to income
Exchange
differences
Re class from
current tax
Taken to
equity:
Share option
schemes
At 31 July
2012
18 Deferred taxation (continued)
Deferred tax has been calculated using the anticipated rates that will apply when the assets and liabilities
are expected to reverse based on tax rates enacted or substantively enacted by the balance sheet date.
The recoverability of deferred tax assets is supported by the expected level of future profits in the
countries concerned.
The estimated value of the deferred tax asset not recognised in respect of tax losses available to carry forward
was £116,000. The deferred tax asset not recognised in respect of tax losses available to carry forward includes
an amount relating to India (£42,000), which will fully expire by 2019, and to China (£142,000), which will fully
expire by 2017.
19 Financial instruments
Financial risk management, policies and strategies
The Group’s principal financial instruments comprise bank loans, finance leases, cash and short-term deposits
and derivative financial instruments. The main purpose of these financial instruments is to provide finance for
the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables
and payables, which arise directly from operations.
The Group enters into derivative transactions, primarily cap-and-collar interest rate and forward foreign
exchange contracts. The purpose of such contracts is to protect the profits and surplus funds arising in
principal markets from currency fluctuations and to manage the interest rate risks on the Group’s sources
of finance. Fair value gains and losses on the derivative cap-and-collar interest rate contracts are recognised
directly within the income statement within interest received/paid. Hedging gains and losses associated with
forward foreign currency exchange contracts are recognised directly within the income statement within other
operating expense/income.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign
exchange risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they
are summarised below.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term
debt obligations.
The Group’s policy is to manage its interest costs arising on variable rate debts by entering into interest rate
cap-and-collar and swap contracts. These agreements are designed to protect underlying debt obligations
against significant increases in interest rates as required under the terms of the Group’s revolving loan facility
with Barclays Bank. At 31 July 2012 borrowings of US$12m are held under an interest rate swap arrangements
with rates fixed at 2.09% through to December 2014.
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other
variables held constant, of the Group’s profit before tax at 31 July 2012, based on year end balances and rates.
United Kingdom
US
Movement in
basis points
+200
+200
2012
£’000
(211)
335
2011
£’000
(189)
457
A rise in US interest rates of 2% would give a positive movement of £345,000 (2011: £470,000) in the fair value
of the interest rate cap-and-collar and rate swap contracts in place.
The interest rate cap-and-collar contracts and rate swap contracts are categorised as a level two financial
instruments in the fair-value hierarchy.
Next Fifteen Communications Group plc
Annual Report 2012 59
NOTES TO THE ACCOUNTS CONTINUED
19 Financial instruments (continued)
Liquidity risk
The Group manages its risk to a shortage of funds with a mixture of long- and short-term committed facilities.
As at 31 July 2012 the Group had undrawn committed facilities of £6,180,000 (2011: £7,119,000). In addition,
the Group has an overdraft facility with Barclays Bank, of £1,500,000 (2011: £1,500,000) at a rate of 1.5%
(2011: 1.5%) above Barclays Bank’s base rate, available in sterling, US dollar and euro, and a credit line with
Wells Fargo Bank of US$2,735,000 (£1,746,000) (2011: US$2,735,000 (£1,666,159)) at the prime rate (currently
2.7%) available in US dollars. The Barclays Bank overdraft facility is reviewed at the bank’s discretion with
no expiry date. The Wells Fargo Bank overdraft facility is reviewed on an annual basis and expires in March
2013. At the balance sheet date, the Group had utilised £97,000 of the Barclays Bank facility, £nil of the Wells
Fargo overdraft facility.
The following table summarises the maturity profile based on the remaining period at the balance sheet date
to the contractual maturity date of the Group’s financial liabilities at 31 July 2012 and 2011, based on
contractual undiscounted payments:
As at 31 July 2012
Financial liabilities
Derivative financial instruments – cash inflows
Derivative financial instruments – cash outflows
As at 31 July 2011
Financial liabilities
Derivative financial instruments – cash inflows
Derivative financial instruments – cash outflows
Within
one year
£’000
Between two
and five years
£’000
22,370
–
126
22,496
24,150
–
196
24,346
19,695
–
174
19,869
24,824
–
62
24,886
Total
£’000
42,065
–
300
42,365
48,974
–
258
49,232
Currency risk
As a result of significant global operations, the Group’s balance sheet can be affected significantly by
movements in the foreign exchange rates against sterling. This is largely through the translation of balances
denominated in a currency other than the functional currency of an entity. The Group has transactional
currency exposures in the US, Europe, Africa and Asia Pacific region, including foreign currency bank accounts
and intercompany recharges. The Group uses currency derivatives to protect significant US dollar and euro
currency exposures against changes in exchange rates.
The following table demonstrates the sensitivity to reasonable possible changes in exchange rates, with all
other variables held constant, of the Group’s profit before tax at 31 July 2012 based on year-end balances
and rates.
US dollar
Euro
Australian dollar
Chinese renminbi
Hong Kong dollar
Indian rupee
Singapore dollar
Weakening
against sterling
20%
20%
20%
20%
20%
20%
20%
2012
£’000
(492)
(346)
(317)
29
51
(79)
166
2011
£’000
(509)
(223)
(794)
214
6
101
(30)
60
Next Fifteen Communications Group plc
Annual Report 2012
19 Financial instruments (continued)
The following table demonstrates the sensitivity to reasonable possible changes in exchange rates, with all
other variables held constant, of the Group’s equity at 31 July 2012 based on year-end balances and rates.
US dollar
Euro
Australian dollar
Chinese renminbi
Hong Kong dollar
Indian rupee
Singapore dollar
Weakening
against sterling
20%
20%
20%
20%
20%
20%
20%
2012
£’000
(4)
(37)
(35)
26
17
(63)
(35)
2011
£’000
(676)
(33)
(4)
27
13
(27)
(21)
Credit risk
The Group’s principal financial assets are bank balances and cash, trade and other receivables which represent
the Group’s maximum exposure to credit risk in relation to financial assets. The Group trades only with
recognised, creditworthy third parties. It is the Group’s policy that customers who wish to trade on credit terms
be subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis
with the result that the Group’s exposure to bad debts has not been significant. The amounts presented in the
balance sheet are net of provisions for impairment of trade receivables, estimated by the Group’s management
based on investigation into the facts surrounding overdue debts, historic experience and their assessment of
the current economic environment.
The credit risk on liquid funds is limited because the counterparties are reputable banks with high credit
ratings assigned by international credit-rating agencies, although the Board recognises that in the current
economic climate these indicators cannot be relied upon exclusively.
Maximum exposure to credit risk:
Total trade and other receivables
Cash and cash equivalents
2012
£’000
25,536
8,436
2011
£’000
26,771
8,517
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of the debt and equity balance. Total
capital of the Group is calculated as total equity as shown in the consolidated balance sheet, plus net debt.
Net debt is calculated as total borrowings and finance leases, less cash and cash equivalents. This measure of
net debt excludes any acquisition related contingent liabilities or share purchase obligations. The quantum of
these obligations is dependent on estimations of forecast profitability. Settlement dates are variable and range
from 2012 to 2018.
Total loans and borrowings
Obligations under finance leases
Less: cash and cash equivalents
Net debt1
Total equity
Total capital
2012
£’000
11,009
31
(8,436)
2,604
37,228
39,832
2011
£’000
10,026
62
(8,517)
1,571
32,333
33,904
1 Net debt includes external bank borrowings and finance obligations but excludes any acquisition-related contingent liabilities or share
purchase obligations. The quantum of these obligations is dependent on estimations of forecast profitability whereby if no profits are generated
from the businesses over the earnout period, contingent consideration would fall to £Nil. Settlement dates are variable and range from 2012
to 2018.
Next Fifteen Communications Group plc
Annual Report 2012 61
NOTES TO THE ACCOUNTS CONTINUED
19 Financial instruments (continued)
Capital risk management (continued)
Net debt
Share purchase obligation
Contingent consideration
2012
£’000
2,604
3,989
7,932
14,525
2011
£’000
1,571
4,348
10,917
16,836
Externally imposed capital requirement
Under the terms of the Group’s banking covenants the Group must meet certain criteria based on gross
borrowings to earnings before interest, tax, depreciation, amortisation and impairment, interest cover and
guarantee ratios on turnover, operating profit, total assets and total operating cash flows to consolidated gross
financing costs. There have been no breaches of the banking covenants in the current or prior year.
Fair values of financial assets and liabilities
Fair value is the amount at which a financial instrument can be exchanged in an arm’s-length transaction
between informed and willing parties, other than a forced or liquidation sale.
The book value of the Group’s financial assets and liabilities equals the fair value of such items as at 31 July
2012, with the exception of obligations under finance leases. The book value of obligations under finance
leases is £31,000 (2011: £62,000) and the fair value is £30,000 (2011: £63,000).
Financial instruments – detailed disclosures
Financial instruments recognised in the balance sheet
The IAS 39 categories of financial assets and liabilities included in the balance sheet and the heading in which
they are included are as follows:
As at 31 July 2012
Non-current financial assets
Other receivables
Current financial assets
Cash and cash equivalents
Trade and other receivables
Current financial liabilities
Loans and borrowings
Trade and other payables
Contingent consideration1
Derivative financial liabilities
Non-current financial liabilities
Loans and borrowings
Provisions
Obligations under finance leases
Contingent consideration1
Share purchase obligation1
1 See note 17.
At fair value
through
profit or
loss
£’000
Financial
liabilities at
amortised
cost
£’000
Loans and
receivables
£’000
–
–
–
–
–
–
–
2,945
320
3,265
–
–
–
4,987
3,989
8,976
–
–
–
–
–
875
875
8,436
24,661
33,097
259
19,605
–
–
19,864
10,750
129
6
–
–
10,885
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
875
875
8,436
24,661
33,097
259
19,605
2,945
320
23,129
10,750
129
6
4,987
3,989
19,861
62
Next Fifteen Communications Group plc
Annual Report 2012
19 Financial instruments (continued)
Financial instruments recognised in the balance sheet (continued)
As at 31 July 2011
Non-current financial assets
Other receivables
Current financial assets
Cash and cash equivalents
Trade and other receivables
Current financial liabilities
Loans and borrowings
Trade and other payables
Contingent consideration1
Derivative financial liabilities
Non-current financial liabilities
Loans and borrowings
Provisions
Obligations under finance leases
Contingent consideration1
Share purchase obligation1
1 See note 17.
At fair value
through
profit or
loss
£’000
Financial
liabilities at
amortised
cost
£’000
Loans and
receivables
£’000
–
–
–
–
–
–
–
4,601
405
5,006
–
–
–
6,316
4,348
10,664
–
–
–
–
–
272
20,085
–
–
20,357
9,754
131
6
–
–
9,891
840
840
8,517
25,931
34,448
–
–
–
–
–
–
–
–
–
–
–
Interest-bearing loans and borrowings
The table below provides a summary of the Group’s loans and borrowing as at 31 July 2012:
Current
Variable rate bank loan
Variable rate bank loan
Fixed rate bank loan
Effective interest rate
Wells Fargo Bank call-loan rate + 0.01%
Wells Fargo Bank call-loan rate + 2.88%
7.17%
Obligations under finance leases
Non-current
Variable rate bank loan
Variable rate bank loan
Variable rate bank loan
Fixed rate bank loan
3.42%
Barclays Bank LIBOR + 2.25%
Wells Fargo Bank call-loan rate + 2.88%
Wells Fargo Bank call-loan rate + 0.01%
7.17%
Obligations under finance leases
3.42%
2012
£’000
–
130
115
245
25
10,443
219
88
–
10,750
6
Total
£’000
840
840
8,517
25,931
34,448
272
20,085
4,601
405
25,363
9,754
131
6
6,316
4,348
20,555
2011
£’000
9
128
135
272
56
9,212
324
103
115
9,754
6
Next Fifteen Communications Group plc
Annual Report 2012 63
NOTES TO THE ACCOUNTS CONTINUED
19 Financial instruments (continued)
Hedge of net investment in foreign entity
A proportion of the Group’s US dollar-denominated borrowings amounting to US$7,000,000 is designated as
a hedge of the net investment in the Group’s US subsidiary M Booth & Associates, Inc. A further US$3,250,000
has been designated as a hedge of the net investment in the Group’s US subsidiary Blueshirt. The fair value
of the borrowings at 31 July 2012 is US$10,250,000 (£6,348,000) (FY11: US$8,500,000 (£5,178,000)). The foreign
exchange loss of £235,000 (FY11: gain of £213,000) on translation of the borrowing to functional currency at the
end of the reporting period is recognised in a hedging reserve, in shareholders’ equity.
20 Share capital
Called-up share capital
Ordinary Shares of 2.5p each:
Allotted, called up and fully paid
At 1 August 2011
Issued in the year in respect of contingent consideration and share purchase
obligations (note 17)
Issued in the year in satisfaction of exercised share options
At 31 July 2012
Number
£’000
56,651,849
1,416
1,058,532
438,580
58,148,961
27
11
1,454
21 Share-based payments
The Group uses the Black-Scholes model to calculate the fair value of options on grant date for new issues
and modifications. At each year end the cumulative expense is adjusted to take into account any changes
in estimate of the likely number of shares expected to vest. Details of the relevant option schemes are given
in note 22. All the share-based payment plans are subject to non-market performance conditions such as
adjusted earnings per share targets and continued employment. All schemes are equity-settled. The key inputs
are listed below and market price on each grant date is obtained from external, publicly available sources.
Risk-free rate
Dividend yield
Volatility1
2012
2.00%
2.22%
34%
2011
4.75%
2.53%
40%
1 Volatility is based on the Group’s share price movement between January 2003 and July 2012. In the opinion of the Directors this period is
appropriate, given the Group’s history of growth and acquisitions and external industry factors.
In the year ended 31 July 2012 the Group recognised a charge of £312,000 (2011: £449,000).
64
Next Fifteen Communications Group plc
Annual Report 2012
21 Share-based payments (continued)
Movement on options and performance shares granted (represented in Ordinary Shares):
Executive share option scheme
Long-Term Incentive Plan – options
Long-Term Incentive Plan –
performance shares
Bourne Acquisition Grant (note 26)
Restricted Stock Grant Agreement
Weighted-average exercise price (p)
Outstanding at
1 August
2011
Number
(‘000)
447
76
6,273
–
175
6,971
3.88
Granted
number
(‘000)
Lapsed
number
(‘000)
Exercised
number
(‘000)
–
–
(58)
–
(170)
(28)
1,610
1,340
–
2,950
–
(1,033)
(1,695)
–
–
(1,091)
1.96
–
(88)
(1,981)
4.49
Outstanding
31 July
2012
Number
(‘000)
Exercisable
31 July
2012
Number
(‘000)
219
48
5,155
1,340
87
6,849
2.35
219
48
–
–
–
267
60.38
A total of 1,941,000 share options were exercised during the year ended 31 July 2012 at a weighted average
market share price of 86p (2011: 402,000 at 75p).
Options over Ordinary Shares outstanding
Range of exercise prices (p)
Weighted average exercise price (p)
Weighted average remaining contractual life (months)
The fair value of options granted in the year calculated using the Black-Scholes model:
Fair value of performance shares granted under the LTIP (p)
Share price at date of grant (p)
Risk-free rate (%)
Expected life (years)
Expected volatility (%)
Dividend yield (%)
Dec
2011
71
85
2.00
4
34%
2.22
Apr
2012
81
97
2.00
4
25%
2.16
0 – 66
2.63
20
May
2012
88
96
2.00
4
25%
2.19
Performance shares issued by the Company under the Next Fifteen Communications Group plc Long-Term
Incentive Plan are granted at a nil exercise price.
Next Fifteen Communications Group plc
Annual Report 2012 65
NOTES TO THE ACCOUNTS CONTINUED
22 Share options
The Company has issued options over its shares to employees that remain outstanding as follows:
Share option type
Next Fifteen Communications Group plc
Executive Share Option Schemes
Next Fifteen Communications Group plc
Californian Executive Share Option Schemes
Next Fifteen Communications Group plc
Long-Term-Incentive Plan
Number
of shares
Option price
per share
Option grant date
30,000
30,000
158,334
30,000
188,334
18,271
29,545
47,816
59.5p
22 October 2003
59.5p
63p
22 October 2003
12 May 2004
56p
66p
11 November 2005
10 April 2006
Performance shares
Next Fifteen Communications
Long-Term- Incentive Plan
Bourne Acquisition Grant
Restricted Stock
Grant Agreement
Number
of shares
Performance
period start date
Performance
period end date
Performance
share grant date
1,122,653
1,255,000
35,000
1,222,000
1,130,000
390,000
5,154,653
613,402
108,247
618,557
1,340,206
87,595
6,582,454
1 August 2008
1 August 2009
1 August 2009
1 August 2010
1 August 2011
1 August 2011
1 August 2012
1 August 2012
1 August 2012
31 July 20121 21 November 2008
9 February 2010
31 July 2013
31 July 2013
4 June 2010
31 July 2014 16 November 2010
31 July 2015 22 December 2011
10 May 2012
31 July 2015
31 July 2016
31 July 2016
31 July 2017
5 April 2012
5 April 2012
5 April 2012
3 August 2009
3 August 2012
3 August 2009
1 Performance criteria modified on 26 January 2010.
66
Next Fifteen Communications Group plc
Annual Report 2012
22 Share options (continued)
Under the Next Fifteen Communications Group plc Executive Share Option Schemes (‘ESOP’s, save as explained
hereafter, all options are normally exercisable on or after the third anniversary of the date of grant and remain
exercisable until the tenth anniversary of the date of the grant, to the extent that they have vested. Options will
vest in respect of one-third of the shares on each of the third, fourth and fifth anniversaries of their date of
grant. Options granted to employees in California from 23 October 2001 are exercisable at a rate of 20% per
year over five years from the date of grant. The vesting of all share options granted after 30 November 1999 is
conditional on achievement of a performance criterion of the Group’s earnings per share growing over a three-
year period after the grant by at least 30%.
6,839,475 share options/performance shares/conditional shares awarded by the Company under the ESOP,
the Long-Term Incentive Plan and the Restricted Stock Grant Agreement are options/performance
shares/conditional shares over unissued shares. It is intended for the remaining 9,129 options/performance
shares/conditional shares to be satisfied with shares held by the ESOP (9,129). During the year the Company
satisfied part of the share option exercises through shares held in treasury (1,164,258). No shares are now held
in treasury (see note 23).
For all awards under the LTIP, performance will be measured over a period of four consecutive financial years
of the Group, commencing with the financial year in which the award was granted. The conditions are based
upon two measures – an adjusted earnings per share (‘EPS’) measure and a budgeted profit measure. The level
of vesting will be determined using the best three of the four years’ performance for each performance
measure. The growth of adjusted EPS of the Group must exceed the UK Consumer Price Index (‘CPI’) by an
average of 10% or more per annum over the performance period for 50% of the award to vest. If the growth of
adjusted EPS over CPI is between an average of 3% and 10% per annum over the performance period, between
10% and 50% of the award will vest on a straight-line basis. The remaining 50% of an award may vest if the
profit of the particular business in which a participant is employed meets its budgeted profit targets over the
performance period. To the extent that the budgeted profit targets are not met, for every 1% below budget,
5% of the award will lapse on a straight-line basis. Employees who work in group roles will be measured by
reference to whole group performance, rather than any particular business unit.
On 3 August 2009 the Group acquired M Booth & Associates, Inc. (‘M Booth’) and entered into a Restricted
Stock Grant Agreement of US$200,000. The number of shares granted was determined by reference to the
average of the mid-market price of the Company’s shares for the ten trading day period ended four days prior
to issuance, leading to a total of 262,796 shares granted. The fair value of the shares was based on the market
value at the date of grant. The grant shares will vest in equal amounts on each of the first three anniversaries of
the date of grant, provided that each participant remains a full-time employee of M Booth as of the anniversary
vesting date. On 3 August 2010 87,600 shares vested and on 14 November 2011 a further 87,600 vested in
relation to this agreement, leaving 87,595 restricted shares outstanding at 31 July 2012.
Next Fifteen Communications Group plc
Annual Report 2012 67
NOTES TO THE ACCOUNTS CONTINUED
22 Share options (continued)
On 5 April 2012 the Group acquired the remaining 20% non-controlling interest in CMG Worldwide Limited
(‘Bourne’). As part of the settlement, three grants of performance shares were awarded each of which has the
same fair value characteristics but different non market based conditions attached to them. 721,649 of the
options are based on budget targets over a 4-year period in line with the budget performance targets of the
standard LTIP options. These were issued in two separate grants, one for 108,247 and the other for 613,402.
The grant of 108,247 does not contain any continuous employment conditions and is treated as part of the
consideration settlement of the 20% non-controlling interest. The grant of 613,402 does contain a continuous
employment requirement over the 4-year vesting period commencing on 1 August 2012. As such, those options
are deemed to be remuneration with the charge spread over that vesting period.
The remaining grant of 618,557 performance shares contains a different performance condition based on
a pure profit target to be achieved which is based on the average of FY16/FY17 results. These performance
shares contain no continuous employment conditions and are treated as consideration for the acquisition
of the 20% non-controlling interest. See note 26 for more information.
23 Investment in own shares
Employee share ownership plan (ESOP)
The purpose of the ESOP is to enable the Company to offer participation in the ownership of its shares to
Group employees, principally as a reward and incentive scheme. Arrangements for the distribution of benefits
to employees, which may be the ownership of shares in the Company or the granting of options over shares
in the Company held by the ESOP, are made at the ESOP’s discretion in such manner as the ESOP considers
appropriate. Administration costs of the ESOP are accounted for in the profit and loss account of the Company
as they are incurred.
At 31 July 2012 the ESOP held 9,129 (2011: 98,729) Ordinary Shares in the Company, which represents 0.0%
(2011: 0.2%) of the Ordinary Share capital. The ESOP reserve of £233 (2011: £32,000) represents the cost
of these shares held by the ESOP in the Company at 31 July 2012. The nominal value of shares held was £228
(2011: £2,468), and the market value at 31 July 2012 was £8,489 (2011: £82,932). The right to receive dividends
on all shares has been waived.
During the year to 31 July 2012, a number of employees exercised their options. In total 2,000 (2011: 228,408)
ESOP options were exercised, for proceeds of £470 (2011: £118,487), as were 328,380 (2011: 86,159)
performance shares.
Treasury shares
At 31 July 2012, the Group held no treasury shares (2011: 1,164,258) at a cost of £Nil (2011: £595,000).
The nominal value of shares held at 31 July 2012 was £Nil (2011: £29,106), and the market value was £Nil (2011:
£977,977). The right to receive dividends on all shares has been waived.
68
Next Fifteen Communications Group plc
Annual Report 2012
24 Other reserves
At 1 August 2010
Total comprehensive income for the year
Movement due to ESOP share option exercises
At 31 July 2011
Total comprehensive income for the year
Movement due to issue of Treasury shares
Movement due to ESOP share option exercises
At 31 July 2012
ESOP
reserve1
£’000
Treasury
shares2
£’000
Hedging
reserve
£’000
Total other
reserves
£’000
(162)
–
130
(32)
–
–
32
–
(595)
–
–
(595)
–
595
–
–
(111)
213
–
102
(235)
–
–
(133)
(868)
213
130
(525)
(235)
595
32
(133)
1 The ESOP Trust’s investment in the Group’s shares is deducted from equity in the consolidated balance sheet as if they were treasury shares
and presented in the ESOP reserve.
2 When the Group re-acquires its own equity instruments, those instruments (treasury shares) are deducted from equity and presented in the
treasury shares reserve. During the year, all shares held as Treasury shares were used to satisfy the LTIP share option award vesting in
November 2011.
25 Commitments and contingent liabilities
Operating leases – Group as lessee
As at 31 July 2012, the Group’s total future minimum lease rentals are as follows:
In respect of operating leases which will expire:
Within one year
In two to five years
After five years
2012
Land and
buildings
£’000
4,842
11,129
381
16,352
2012
Other
£’000
170
219
–
389
2011
Land and
buildings
£’000
4,968
11,496
966
17,430
2011
Other
£’000
107
136
1
244
Next Fifteen Communications Group plc
Annual Report 2012 69
NOTES TO THE ACCOUNTS CONTINUED
26 Acquisitions
During the year the following transactions took place:
1. The acquisition of two German-based businesses previously trading under the Trademark brand name;
2. The acquisition of UK based business Paratus Communications Limited;
3. The acquisition of the remaining 20% non-controlling interest in CMG Worldwide Limited;
4. Part-settlement of the remaining M Booth and Blueshirt contingent consideration, full settlement for
Glasshouse, ILS and One Xeno acquisitions of the prior year and small acquisition of trade and assets of
Red Brick Media.
More details on each transaction are provided below.
1. Trademark Acquisition
On 4 October 2011, Bite Communications Group Limited (‘Bite’) acquired 80% of the issued share capital
of two German-based businesses Trademark Public Relations GmbH and Trademark Consulting GmbH
(referred to hereafter as ‘Trademark businesses’). The acquisition was made with a view to strengthen
Bite Group’s reach across mainland Europe.
The initial consideration paid in cash on completion was £1,199,000 (€ 1,378,000). A further payment of
£126,000 (€ 150,000) was paid on 30 March 2012 based on the agreed working-capital position of the
acquisition date balance sheet.
Contingent consideration will be payable subject to the achievement of certain revenue and staff metric
performance targets. The first payment is based on the 10 months of results from the date of acquisition
through to the financial year end of 31 July 2012. Additional payments may become due in each of the
4 subsequent years up to 31 July 2016, dependent on the achievement of performance targets. A final
payment may be payable based on the 2-month results to 31 September 2016.
The contingent consideration that may be payable will be satisfied by 50% cash and 50% Next 15 shares.
Management’s best estimate of contingent consideration payable at the date of acquisition was £1,823,000
(€ 2,113,000) undiscounted and £1,231,000 (€ 1,427,000) discounted. At the balance sheet date, the present
value of the obligation was £1,056,000.
Acquisition costs of £105,000 were paid in relation to the purchase of the Trademark businesses, and
recognised within the consolidated income statement in the period to 31 July 2012.
Goodwill of £1,922,000 (€ 2,228,000) arises from anticipated profitability and future operating synergies
from the combination.
70
Next Fifteen Communications Group plc
Annual Report 2012
26 Acquisitions (continued)
1. Trademark Acquisition (continued)
Intangible assets of £669,000 have been recognised in respect of customer relationships, which will be
amortised over five years. An associated deferred tax liability of £235,000 has been capitalised and is
included within the value of goodwill. The liability will be released over the same term as the amortisation.
Management considered whether there was any value associated with the trade name of the business
however, based on an understanding of the German market, competitors within the industry and
consideration of any likely purchaser of the stand-alone trade name, it was concluded that there was
no value in the stand-alone trade name. Value in the business is generated by the reputations of senior
management and their ability to attract lucrative client contracts and maintain strong client relationships.
The remaining 20% interest in the business at acquisition has been recognised as the non-controlling
interest’s proportion of the fair value of net assets (£159,000).
In the post-acquisition period, the Trademark businesses contributed £1,676,000 to revenue and £121,000
to profit before tax.
The following table sets out the estimated book values of the identifiable assets acquired and their fair value
to the Group.
Book value
at acquisition
£’000
Fair value
adjustments1
£’000
Fair value
to the Group
£’000
Non-current assets
Acquired intangible assets1
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets
Current liabilities
Deferred tax liability
Net assets acquired
Goodwill
Consideration
Cash consideration
Total contingent cash consideration
Excess working capital payment
Fair value of non-controlling interest
–
111
487
1,076
(1,315)
–
359
669
–
–
–
–
(235)
434
669
111
487
1,076
(1,315)
(235)
793
1,922
2,715
1,199
1,231
126
2,556
159
2,715
1 The fair-value adjustment relating to intangible assets is due to the recognition of € 775,000 (£669,000) in respect of customer relationships and
which have been independently valued. The customer relationships will be amortised over five years.
Next Fifteen Communications Group plc
Annual Report 2012 71
NOTES TO THE ACCOUNTS CONTINUED
26 Acquisitions (continued)
2. Paratus Acquisition
On 1 May 2012, The Lexis Agency Limited (‘Lexis’) acquired 71.8% of the issued share capital of
UK-based Paratus Communications Limited (‘Paratus’). The acquisition was made with a view to enhancing
the existing consumer and corporate PR capabilities and to bring in a new digital and social-marketing
division.
The initial consideration paid in cash on completion was £250,000. A top-up payment will be made based
on a mix of revenue and profit margin targets for the 12 months from acquisition, subject to a cap
of £150,000.
A further bonus payment of £1 will be made for every £1 by which profit is greater than £320k in the
12-month period, subject to a maximum of £30,000.
Lexis has entered into an option deed under which it has an obligation to acquire the remaining 28.2%
Paratus shares over a five-year period, based on the profitability of the acquired business.
The consideration that may be payable will be satisfied by 75% cash and 25% in Next 15 shares.
Management’s best estimate of consideration payable to settle the share purchase obligation at the date
of acquisition was £776,000 undiscounted and £516,000 discounted. At the balance sheet date, the present
value of the obligation was £531,000.
Acquisition costs of £33,000 were paid in relation to the purchase of Paratus, and recognised within the
consolidated income statement in the period to 31 July 2012.
Goodwill of £703,000 arises from anticipated profitability and future operating synergies from the
combination.
Intangible assets of £441,000 have been recognised in respect of customer relationships, which will be
amortised over five years. An associated deferred tax liability of £99,000 has been capitalised and is
included within the value of goodwill. The liability will be released over the same term as the amortisation.
Pre-acquisition, the Paratus business offered a low margin which did not indicate any value associated with
the trade name. With additional consideration to the market conditions, management concluded that a
third party would pay no consideration for the stand-alone trade name and so no value was associated with
it.
The remaining 28.2% interest in the business at acquisition has been recognised as the non-controlling
interest’s proportion of the fair value of net assets (£94,000).
In the post-acquisition period, the Paratus business contributed £368,000 to revenue and £19,000 to profit
before tax.
72
Next Fifteen Communications Group plc
Annual Report 2012
26 Acquisitions (continued)
The following table sets out the estimated book values of the identifiable assets acquired and their fair value
to the Group.
Book value
at acquisition
£’000
Fair value
adjustments1
£’000
Fair value
to the Group
£’000
Non-current assets
Acquired intangible assets1
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets
Current liabilities
Deferred tax liability
Net assets acquired
Goodwill
Consideration
Cash consideration
Total contingent cash consideration
Total share purchase obligation
Fair value of non-controlling interest
–
7
(73)
547
(485)
–
(4)
441
–
–
–
–
(99)
342
441
7
(73)
547
(485)
(99)
338
703
1,041
250
180
516
946
95
1,041
1 The fair value adjustment relating to intangible assets is due to the recognition of £441,000 in respect of customer relationships and which
have been independently valued. The customer relationships will be amortised over five years.
Next Fifteen Communications Group plc
Annual Report 2012 73
NOTES TO THE ACCOUNTS CONTINUED
26 Acquisitions (continued)
3. Acquisition of 20% non-controlling interest in Bourne
On 5 April 2012, Next 15 acquired the remaining 20% non-controlling interest in CMG Worldwide Limited
(trading as ‘Bourne’) early under an addendum to the original share purchase agreement. Next 15 originally
purchased 80% of the business on 12 May 2011 for which an earnout existed running to 31 July 2014.
The 80% earnout was also accelerated as part of the deal. The amendments to the deal were considered
beneficial by both parties resulting in reduced uncertainty over changes in consideration based on future
performance for both, earlier cash and share settlement as a preference for the vendors and ownership
of 100% of the future profits benefiting Next 15 going forward.
At the end of the prior year, the discounted fair value of contingent consideration for the initial 80%
purchased was £1,719,000 (£1,836,000 at 4 April 2012) and the fair value of the share purchase obligation
for the remaining 20% was £894,000 (£963,000 at 4 April 2012). This gave a total estimated liability of
£2,800,000 for consideration of 100% of the business immediately prior to the addendum.
The fair value of settlement on 5 April 2012 as detailed in the addendum to the original agreement has
been split between a consideration element and a remuneration element on the following basis:
Consideration – £1,900,000 maximum undiscounted cash consideration which is deferred and paid
in two tranches in January 2013 and October 2014 with a discounted value of £1,463,000;
Consideration – 309,279 Next 15 shares at an issued share price of £0.97 and total value of £300,000; and
Consideration – 726,598 Next 15 LTIP share options. Share options were valued using the Black-Scholes
Model (Note 21) and have been assigned a fair value of £577,000 based on a valuation of £0.79 per
share option.
Remuneration - 613,402 options include continuous employment conditions over the 4-year vesting
period and as such are considered under accounting rules to be remuneration rather than consideration
with the fair value taken to the P&L and spread over the vesting period. These share options have a fair
value of £487,000 (£430,000 based on Black-Scholes valuation of £0.79 and applying a leaver rate
expectation).
As at the settlement date, the total amount deemed to be consideration is therefore £2,340,000 giving rise
to a credit in the P&L for changes in estimate of consideration paid amounting to £460,000.
A further £430,000 is being treated as remuneration, given the continuous employment conditions attached
to those share options. The options vest over four years with the performance period starting on 1 August
2012. As such, the income statement charge associated with those options is spread over that
vesting period.
4. Settlement of contingent consideration and Red Brick Media acquisition
Payments in respect of contingent consideration totalled £4,563,000 during the year.
On 24 October 2011, the Group paid US$3,393,000 (£2,153,000) relating to year-two earnings-contingent
consideration for the purchase of M Booth. US$2,545,000 (£1,615,000) was satisfied in cash and
US$848,000 (£538,000) in shares (691,522 shares). M Booth is a wholly owned subsidiary acquired
in August 2009.
On 24 November 2011, the Group paid US$4,388,000 (£2,784,000) relating to year-one earnings-contingent
consideration for the purchase of Blueshirt. The entire payment was satisfied in cash.
During the period, subsidiaries of the Group settled obligations for Glasshouse, One Xeno and ILS
contingent consideration totalling £209,000. Cash payments for contingent consideration totalled £164,000
and part of the Glasshouse contingent consideration was settled by issue of 57,731 Next 15 shares at a
value of £45,000.
On 1 June 2012 £13,000 cash was paid for a small acquisition of trade and assets from Hong Kong-based
Red Brick Media.
74
Next Fifteen Communications Group plc
Annual Report 2012
27 Subsidiaries
The Group’s principal subsidiaries at 31 July 2012 are listed below:
Name
August.One Communications
International Limited
Beijing Text 100 Consulting Services Limited
Bite Communications (Canada) Limited
Bite Communications Corporation
Bite Communications Group Limited
Bite Communications Limited
Bite Consulting GmbH
Bite Communications GmbH
The Lexis Agency Limited
M Booth & Associates, Inc.
Next Fifteen Communications Corporation
Next Fifteen Communications
Hong Kong Limited
The OutCast Agency
Panther Communications Group Limited
Paratus Communications Limited
Redshift Research Limited
Text 100 AB
Text 100 BV
Text 100 Corporation
Text 100 SARL
Text 100 GmbH
Text 100 International Limited
Text 100 Italy Srl
Text 100 Japan KK
Text 100 Limited
Text 100 Pte Limited
Text 100 (Pty) Limited
Text 100 Pty Limited
Text 100 SL
Text Hundred India Private Limited
Vox Public Relations India Private Limited
Soundbite Communications SARL
Bite Digital Communications Private Limited
Blueshirt Group LLC
CMG Worldwide Limited
Bourne Marketing Group Inc
463 Communications, LLC
Bite Asia Holdings Limited
Bite Marketing Consulting Pte Limited
Bite Communications Hong Kong Limited
Bite Marketing Consulting Pty Limited
Upstream Asia (China) Consulting Limited
Beyond Corporation Limited
Beyond International Corporation
Country of incorporation
Directly owned by
the Company
Percentage voting
rights held by Group
England
China
Canada
USA
England
England
Germany
Germany
England
USA
USA
Hong Kong
USA
England
England
England
Sweden
Netherlands
USA
France
Germany
England
Italy
Japan
England
Singapore
South Africa
Australia
Spain
India
India
France
India
USA
England
USA
USA
England
Singapore
Hong Kong
Australia
China
England
USA
100
100
100
100
100
100
80
80
100
100
100
100
100
100
71.8
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
85
85
100
100
76
55
55
55
55
55
51
51
The above list does not include all the subsidiary companies of Next Fifteen Communications Group plc,
as the Directors consider that to give full particulars of all Group undertakings would lead to a statement
of excessive length.
Next Fifteen Communications Group plc
Annual Report 2012 75
NOTES TO THE ACCOUNTS CONTINUED
27 Subsidiaries (continued)
The principal activity of the subsidiary undertakings is communications consultancy specialising predominantly
in the technology sector, except for The Lexis Agency Limited, Paratus Communications Limited and M Booth &
Associates, Inc., which work for clients predominantly in consumer sectors, Redshift Research Limited, which is
a research company, Blueshirt Group LLC which is an investor and media relations agency, and Beyond
Corporation Limited, Beyond International Corporation and CMG Worldwide Limited (Bourne) which are digital
marketing consultancies.
All subsidiary undertakings operate in the country in which they have been incorporated.
All subsidiary undertakings listed are included in the consolidated results.
28 Related-party transactions
The ultimate controlling party of the Group is Next Fifteen Communications Group plc (incorporated in England
and Wales). The Company has a related-party relationship with its subsidiaries (note 27) and with its Directors.
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not
disclosed in this note.
During the year to 31 July 2012 there were the following related-party transactions:
Bourne subleased property to another undertaking (Cargo Ecommerce Solutions Ltd) in which one of the
Directors of Bourne has an interest, total rental income was £8,250 (2011: £2,000). Bourne also provided
creative services for which they recognised income of £51,750 (2011: £nil).
Bite US provided PR, marketing and consulting services and sublease office space to Series C LLP. Next 15 have
a 20% interest in the company for which they paid $333,000 (£212,000) and for whom the President of Bite US
has a controlling interest. During the year £53,000 was recognised as an expense in respect of marketing and
consulting services provided by Series C and £21,000 as income in respect of rental and service charge. At the
year end, Bite recognise a receivable of £21,000 and payable of £15,000.
Text 100 received services from Du Crew Pty Ltd during the year for graphic design and branding. The husband
of a director at Text 100 is a director of Du Crew Pty Ltd. An expense of £26,000 was recognised in the year and
£Nil is outstanding at the year end.
Blueshirt received website design services from Danne Design Corp for website design. One director has an
interest in this company through their spouse. The cost of services provided was £5,000 and the balance
remains outstanding at the year end.
Bite Hong Kong acted as an agent for Asset Pioneer, an entity in which one of the Bite directors has an interest.
No income was recognised in the year, given that the agent principle has been applied. £2,482 remained
outstanding from the company at the year end.
Dividends were paid to Directors of the Company during the year in proportion to their shareholdings
in the Company. Tim Dyson, David Dewhurst and Richard Eyre received dividends of £121,401, £6,720
and £620 respectively.
76
Next Fifteen Communications Group plc
Annual Report 2012
29 Operating lease rental receivables
As at 31 July, the Group’s total future minimum lease payments receivable under non-cancellable leases
are as follows:
In respect of operating leases which will expire:
Within one year
In two to five years
2012
£’000
100
108
208
2011
£’000
141
106
247
30 Events after the balance sheet date
After the year end two transactions were entered into. Due to the immaterial nature of these deals, full post
balance sheet event disclosure is not required, however an outline of the transaction is provided below.
Outcast
On 1 August 2012, Next 15 established a long-term equity-based incentive scheme for the senior management
team at the OutCast Agency to help drive a commercial change in behaviour to focus attention on improving
the gross margin of the business, ultimately improving the overall profit margin of the business.
At the year end Next 15 owned 100% of the equity in OutCast LLC. On 1 August 2012, 15% of that equity was
allotted to certain members of the Outcast senior management team for £Nil consideration. The 15% interest
has defined terms around which it accrues value.
The holders of the 15% non-controlling interest have the option of selling 50% of their interest back to Next 15
commencing at the end of fiscal year 2015 or year 3 and the remaining 50% interest can be sold
by the participant at the end of fiscal year 2016 or year 4 or any subsequent fiscal year or held indefinitely.
Content and Motion
On 7 August 2012, Beyond Corporation Limited (‘Beyond’) acquired 100% of the issued share capital of Content
and Motion Limited (‘C&M’), a small social marketing agency based in the UK.
The initial consideration consisted of 6.5% of the issued share capital in Beyond and its US sister company
Beyond International Corporation and cash on completion of £420,000. Next 15 have a share purchase
obligation for the 6.5% holding. A top-up payment will be made based on a mix of revenue and profit margin
targets for the 12 months from acquisition, subject to a cap of £100,000. Acquisition costs of £38,000 were
paid in relation to the purchase of C&M, and recognised within the consolidated income statement in the
period to 31 July 2012.
Post acquisition, on 1 September 2012, the entire trade and assets of C&M were transferred to Beyond,
becoming part of the Pure Digital marketing agency.
Next Fifteen Communications Group plc
Annual Report 2012 77
COMPANY BALANCE SHEET
as at 31 July 2012
Note
2012
£’000
2012
£’000
2011
£’000
2011
£’000
Fixed assets
Tangible assets
Investments
Current assets
Debtors: amounts falling due within 1 year
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within 1 year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after
more than 1 year
Net assets
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Share-based payment reserve
ESOP reserve
Treasury shares
Other reserve
Profit and loss account
Equity shareholders’ funds
3
4
5
6
7
9
9
9
9
9
9
9
9
5,633
–
5,633
(6,741)
1,454
6,935
3,075
2,615
–
–
28,566
11,545
287
66,990
67,277
(1,108)
66,169
(11,979)
54,190
512
61,547
62,059
3,631
65,690
(12,845)
52,845
7,570
259
7,829
(4,198)
1,416
5,996
3,075
1,726
(32)
(595)
28,566
12,693
54,190
52,845
These financial statements were approved and authorised for issue by the Board on 26 November 2012.
R Eyre
Chairman
D Dewhurst
Finance Director
Company number 01579589
78
Next Fifteen Communications Group plc
Annual Report 2012
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 July 2012
Profit attributable to shareholders
Dividends
Issue of shares
Issue of performance shares on acquisition
Movement on share-based payment reserve
Disposal of own equity shares held in ESOP
Net addition to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
Company
2012
£’000
685
(1,208)
(523)
977
577
312
2
1,345
52,845
54,190
Company
2011
£’000
5,954
(1,045)
4,909
436
–
449
119
5,913
46,932
52,845
Next Fifteen Communications Group plc
Annual Report 2012 79
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 July 2012
1 Accounting policies
The financial statements have been prepared under the historical cost convention and are in accordance with
applicable accounting standards in the United Kingdom. As permitted by section 408 of the Companies Act
2006 the Company has not presented its own profit and loss account.
Merger reserve
Where the conditions set out in section 612 of the Companies Act 2006 are met, shares issued as part of an
acquisition the Company records the cost of the investment at the nominal value of the shares issued and
records the excess of fair value over nominal value as a merger reserve. This is applicable where equity
interest is greater than 90%.
Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation. Depreciation is provided on all tangible fixed assets
at annual rates calculated to write off the cost, less estimated residual value, of each asset evenly over its
expected useful life as follows:
Office equipment
Computer software
20% – 50% per annum straight-line.
20% per annum straight-line.
The carrying values of tangible fixed assets are reviewed for impairment periodically if events or changes
in circumstances indicate the carrying value may not be recoverable.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are expressed in sterling at the rate of
exchange ruling at the balance sheet date. Foreign currency transactions are expressed in sterling at the rates
of exchange ruling at the dates of the transactions. Exchange gains and losses and translation differences are
taken directly to the profit and loss account.
Financial instruments
Derivative financial instruments utilised by the Company are interest rate cap-and-collar contracts and
forward foreign exchange contracts. The Company does not enter into speculative derivative contracts. All such
instruments are used to alter the risk profile of an underlying exposure of the Company in line with the Group’s
risk management policies. Premiums payable under foreign exchange contracts are expensed over the life of
the contract and any gains and losses arising on these contracts are deferred and are recognised in the profit
and loss account only when the protected transaction has itself been reflected in the Company’s financial
statements.
Leasing transactions
Assets held under finance leases are included in the balance sheet. The amount capitalised is the present value
of the minimum lease payments. Depreciation on the relevant assets is charged to the profit and loss account
over the shorter of the estimated useful economic life and the period of the lease. The interest element on
these obligations is charged to the profit and loss account so as to approximate a constant interest rate over
the life of each agreement. Operating lease rentals are charged to the profit and loss account in equal amounts
over the lease term.
Pension costs
Pension costs, which relate to payments made by the Company to employees’ own defined contribution
pension plans, are charged to the profit and loss account as incurred.
Investments
Fixed asset investments are stated at cost less provisions for impairment.
80
Next Fifteen Communications Group plc
Annual Report 2012
1 Accounting policies (continued)
Deferred taxation
Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to
pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise, based
on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure
in tax computations in periods different from those in which they are included in the financial statements.
Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is
no commitment to sell the asset, or on unremitted earnings of subsidiaries where there is no commitment to
remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than
not that they will be recovered. Deferred tax assets and liabilities are not discounted.
Share-based employee remuneration
There are share options granted prior to 7 November 2002 which remain outstanding at 31 July 2012. Details
of all grants are disclosed in note 22 of the consolidated financial statements.
Fair value is measured by use of a Black-Scholes model on the grounds that there are no market-related vesting
conditions. The expected life used in the model has been adjusted, based on the Board’s best estimate, for the
effects of non-transferability, exercise restrictions and behavioural considerations. Details of the risk-free rate
and dividend yield used to underpin these assumptions are included in note 21 of the consolidated financial
statements. The market price on the grant date is obtained from external publicly available sources.
Employee share ownership plan
The cost of the Company’s shares held by the ESOP is deducted from shareholders’ funds in the Consolidated
and Company balance sheet. Any gain or loss made by the ESOP on disposal of the shares it holds is also
recognised directly in shareholders’ funds. Other assets and liabilities of the ESOP (including borrowings)
are recognised as assets and liabilities of the Company.
Finance costs
Finance costs are charged to profit over the term of the debt so that the amount charged is at a constant rate
on the carrying amount. Finance costs include issue costs which are initially recognised as a reduction in the
proceeds of the associated capital instrument.
Dividends
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised
when paid. Final equity dividends are recognised when approved by the shareholders at an annual general
meeting.
Dividends receivable from investments are recognised in the profit and loss account in the period in which they
are paid.
Treasury shares
When the Company re-acquires its own equity instruments, those instruments (treasury shares) are deducted
from equity. No gain or loss is recognised in the profit and loss account on the purchase, sale, issue or
cancellation of the Company’s treasury shares. Such treasury shares may be acquired and held by other
members of the Group. Consideration paid or received is recognised directly in equity.
Cash flow statement
The Company has applied the exemption allowed under FRS 1 and has not presented a cash flow statement.
The cash flow statement has been presented in the Group financial statements.
2 Profit and loss account of the Parent Company
The Parent Company’s profit after tax for the financial year was £685,000 (2011: £5,954,000).
Next Fifteen Communications Group plc
Annual Report 2012 81
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
CONTINUED
3 Tangible assets
Cost
At 1 August 2011
Additions
At 31 July 2012
Accumulated depreciation
At 1 August 2011
Charge for the year
At 31 July 2012
Net book value
At 31 July 2012
At 31 July 2011
4 Investments
Cost
At 1 August 2011
Additional acquired equity stake in subsidiary undertakings1
Additional investment in 100% owned subsidiary2
Change in estimate for contingent consideration1
At 31 July 2012
Office
equipment
£’000
Computer
software
£’000
583
53
636
531
48
579
57
52
1,507
–
1,507
1,047
230
1,277
230
460
Total
£’000
2,090
53
2,143
1,578
278
1,856
287
512
Company
equity interest
in subsidiaries
£’000
61,547
877
4,940
(374)
66,990
1 In the prior year on 12 May 2011, the Company acquired 80% of the Ordinary Share Capital of CMG Worldwide Limited (trading as ‘Bourne’), a
digital agency with offices in the UK and US. Initial cash consideration was £1,950,000 with a further £1,633,000 payable in contingent
consideration. On 5 April 2012, an addendum to the SPA was agreed under which Next 15 purchased the remaining 20% minority interest and
amended the terms of the original earnout agreement for the contingent consideration. Consideration for the 20% minority interest was made
up of £300,000 shares in Next 15 and performance share options with fair value of £577,000 as determined under the Black-scholes model
recognised within the Share-based payment reserve. Contingent consideration for the original 80% was capped at £1,900,000 with 100%
payable in cash. After the effects of discounting, this has given rise to a £374,000 decrease in the estimated settlement liability.
2 The additional investment in a subsidiary follows the issue of additional shares by the Company’s 100% subsidiary, August.One International
Limited. The additional shares were acquired at a premium in order to fund the settlement of a deferred consideration payment of £2,785,000
to M Booth & Associates, Inc. and an acquisition payment of £2,155,000 for Blueshirt Group LLC.
The Directors consider the value of investments in subsidiary undertakings to be not less than that stated in the
balance sheet of the Company.
The Group’s principal subsidiaries are listed in note 27 of the consolidated financial statements.
5 Debtors
Amounts falling due within one year:
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Deferred tax asset
Corporation tax
Other taxation
Total debtors
Company
2012
£’000
Company
2011
£’000
4,237
79
1,105
111
53
48
5,633
6,680
36
704
55
–
95
7,570
82
Next Fifteen Communications Group plc
Annual Report 2012
6 Creditors: amounts falling due within one year
Overdraft
Obligations under finance leases
Trade creditors
Amounts owed to subsidiary undertakings
Corporation tax
Other taxation and social security
Other creditors
Accruals and deferred income
7 Creditors: amounts falling due after more than one year
Bank loan1
Contingent consideration
Amounts owed to subsidiary undertakings
Company
2012
£’000
Company
2011
£’000
1,536
–
188
4,450
–
38
7
522
6,741
Company
2012
£’000
10,442
1,537
–
11,979
1,630
20
105
1,761
5
30
38
609
4,198
Company
2011
£’000
9,212
1,719
1,914
12,845
1 The 2012 Company figure of £10,442,000 is in relation to a £16,000,000 revolving-loan facility at an interest rate of 2.25% above LIBOR.
The bank loans are valued at the net proceeds drawn down at the exchange rates ruling at the time they are
drawn. The foreign currency element of the loans is revalued at the prevailing rate at 31 July 2012.
8 Related-party transactions
During the period the Company received/(paid) the following amounts in respect of Head Office costs and
intercompany interest from/to subsidiary undertakings which are not wholly owned:
CMG Worldwide Limited (’Bourne’)
Beyond Corporation Limited
Beyond International Corporation
Recharges
2012
£’000
30
24
25
Intercompany
Interest
2011
£’000
14
4
34
2012
£’000
2
(1)
–
At the 31 July the Company had the following intercompany amounts receivable from/(payable to) the
subsidiaries above:
CMG Worldwide Limited (’Bourne’)
Beyond Corporation Limited
Beyond International Corporation
2012
£’000
27
(66)
15
2011
£’000
1
5
–
2011
£’000
14
23
2
Next Fifteen Communications Group plc
Annual Report 2012 83
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
CONTINUED
9 Reserves
At 1 August 2010
Profit attributable
to shareholders
Dividends
Shares issued
on acquisitions
Movement in relation to
share-based payments
Movement due to ESOP
share option exercises
At 31 July 2011
Profit attributable
to shareholders
Dividends
Shares issued in
satisfaction of vested
share options and
performance shares
Shares and performance
shares issued on
acquisitions
Movement in relation to
share-based payments
Movement due to ESOP
share option exercises
At 31 July 2012
Share
capital
£’000
Share
premium
account
£’000
Merger
reserve
£’000
Share-
based
payment
reserve
£’000
ESOP
reserve
£’000
Treasury
shares
£’000
Other
reserve
£’000
Profit
and loss
account
£’000
Total
£’000
1,401
5,575
3,075
1,277
(162)
(595) 28,566
7,795 46,932
–
–
–
–
15
421
–
–
–
–
–
–
–
–
–
449
–
–
–
–
–
–
–
–
–
–
–
–
5,954
(1,045)
5,954
(1,045)
–
–
436
449
–
1,416
–
5,996
–
3,075
–
1,726
130
(32)
–
–
–
–
11
82
27
857
–
–
–
–
–
–
–
–
–
–
577
312
–
–
–
–
–
–
1,454
–
6,935
–
3,075
–
2,615
32
–
–
119
(595) 28,566 12,693 52,845
(11)
–
–
–
–
–
685
(1,208)
685
(1,208)
595
–
–
–
–
–
(595)
93
–
–
1,461
312
2
–
– 28,566 11,545 54,190
(30)
–
84
Next Fifteen Communications Group plc
Annual Report 2012
FIVE-YEAR FINANCIAL INFORMATION
for the year ended 31 July 2012 (unaudited)
Profit and loss
Billings
Revenue
Staff costs
Operating profit
Net finance (expense)
Profit before income tax
Income tax (expense)
Profit for the year
Non-controlling interests
Profit attributable to
owners of the parent
Balance sheet
Non-current assets
Net current assets
Non-current liabilities
Total equity attributable
to owners of the parent
Non-controlling interests
Total equity
Cash flow
Profit for the year
Non-cash adjustments and
working capital movements
Net cash generated
from operations
Income tax paid
Net cash from operating activities
Acquisition of subsidiaries net
of cash acquired
Acquisition of property,
plant and equipment
Net cash outflow from
investing activities
Net cash movement
in bank borrowings
Dividends paid to owners
of the parent
Net cash inflow/(outflow)
from financing activities
Increase/decrease in cash
for the year
Dividend per share (p)
Basic earnings per share (p)
Diluted earnings per share (p)
2012
IFRS
£’000
2011
IFRS
£’000
108,453
91,583
62,767
6,638
(693)
5,959
(1,652)
4,307
(401)
105,163
86,035
59,699
8,017
(490)
7,527
(2,260)
5,267
(270)
2010
IFRS
£’000
91,175
72,328
49,757
6,508
(1,204)
5,304
(1,591)
3,713
(38)
2009
IFRS
£’000
77,287
65,394
43,792
3,850
(692)
3,158
(884)
2,274
(342)
2008
IFRS
£’000
73,916
63,107
42,455
6,117
(718)
5,516
(1,655)
3,861
(198)
3,906
4,997
3,675
1,932
3,663
48,227
9,107
(20,106)
35,109
2,119
37,228
4,307
5,745
10,052
(2,520)
7,532
44,336
8,674
(20,677)
29,040
3,293
32,333
5,267
6,173
11,440
(2,618)
8,822
31,919
4,222
(8,562)
26,629
950
27,579
3,713
2,859
6,572
(1,465)
5,107
22,618
7,603
(5,319)
24,147
755
24,902
2,274
3,987
6,261
(1,476)
4,785
20,206
5,303
(5,871)
19,392
246
19,638
3,861
5,738
9,599
(1,090)
8,509
(5,664)
(6,304)
(2,875)
(4,448)
(829)
(835)
(1,920)
(1,178)
(415)
(1,591)
(6,570)
(8,074)
(4,918)
(4,709)
(2,808)
983
1,993
2,559
(1,462)
(1,208)
(1,045)
(932)
(900)
(337)
(807)
(1,010)
410
(65)
(3,330)
(2,215)
(48)
2.30
6.85
6.04
1,158
2.05
9.10
7.82
(129)
1.85
6.75
6.02
(3,254)
1.70
3.67
3.66
3,486
1.70
7.08
6.99
Next Fifteen Communications Group plc
Annual Report 2012 85
FIVE-YEAR FINANCIAL INFORMATION CONTINUED
2012
£’000
2011
£’000
2010
£’000
2009
£’000
2008
£’000
68.5
11,227
9,589
11.42
Key performance indicator and
other non-statutory measures
Staff costs as a % of revenue
Adjusted EBITDA1
Adjusted profit before income tax2
Adjusted earnings per share (p)3
Diluted adjusted earnings
per share (p)3
Net (debt)/cash4
1 Operating profit before depreciation, amortisation and the impact of fraudulent activity.
2 See note 5 of the financial statements.
3 See note 10 of the financial statements.
4 Net debt excludes contingent consideration and share purchase obligations. See note 19 of the financial statements.
69.4
10,712
8,397
10.17
68.8
8,446
6,612
8.45
10.07
(2,604)
8.74
(1,571)
7.53
(871)
67.0
5,531
5,249
6.48
6.46
1,785
67.3
8,139
6,582
8.62
8.51
3,410
86
Next Fifteen Communications Group plc
Annual Report 2012
FINANCIAL CALENDAR AND CONTACTS
Final dividend
Ex-dividend date
Record date
Annual General Meeting
Payment of 2012 final dividend
Interim dividend
9 January 2013 Interim results announcement
11 January 2013 Ex-dividend date
29 January 2013 Record date
8 February 2013 Payment of 2013 interim dividend
23 April 2013
1 May 2013
3 May 2013
31 May 2013
Preliminary results
Full-year results announcement
November 2013
Solicitors
Salans LLP
Millennium
Bridge House
2 Lambeth Hill
London
EC4V 4AJ
Bankers
Barclays Bank plc
Floor 28
1 Churchill Place
London
E14 5HP
Registrars
Capita Registrars
Northern House
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Advisers
Nominated Adviser
and Brokers
Canaccord Genuity Ltd
88 Wood Street
London
EC2V 7QR
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Investor relations contacts
David Dewhurst
Finance Director and Company Secretary
T: +44 (0)20 8846 0771
david.dewhurst@next15.com
Registrars
Shareholders can check their details and transaction histories via the Registrars’ website at
www.capitaregistrars.com. If you have a query about your shareholding, please contact the Registrars using
the contact information below. The Registrars should be informed of any changes in your personal details.
Capita Registrars
The Registry, 34 Beckenham Road, Beckenham Kent BR3 4TU
Telephone from the UK: 0871 664 0391
Calls cost 10p per minute plus network extras. Lines are open Monday to Friday (8.30 a.m. – 5.30 p.m.)
Telephone from overseas: +44 (0)20 8639 3367
E-mail: ssd@capitaregistrars.com
Registered Office
Next Fifteen Communications Group plc
The Triangle, 5–17 Hammersmith Grove
London W6 0LG
T: +44 (0)20 8846 0770
Company Number
01579589
Next Fifteen Communications Group plc
Annual Report 2012 87
NOTES
88
Next Fifteen Communications Group plc
Annual Report 2012
INTRODUCTION
Using your smartphone, scan this
code to access our online Review
of 2012.
Or visit: http://www.ar12.next15.com
THIS YEAR WE HAVE CREATED AN ONLINE
REVIEW OF 2012 TO COMPLEMENT THIS
ANNUAL REPORT, WHICH CAN BE FOUND ON
OUR WEBSITE, WWW.NEXT15.COM. THE SITE
FEATURES CLIENT CASE STUDIES, GIVING
EXAMPLES OF THE DIFFERENT TYPES OF
DIGITAL WORK WE ARE NOW DOING. THE
REVIEW OF THE YEAR ALSO EXAMINES OUR
PROGRESS ON TRANSITIONING THE BUSINESS
IN THE NEW DIGITAL WORLD.
CONTENTS
OVERVIEW
Introduction
Highlights
Chairman’s statement
OPERATING REVIEW
Business Review
Financial Review
GOVERNANCE
Board of Directors
Report of the Directors
Remuneration Report
Directors’ statement on Corporate
Governance
Statement of Directors’ responsibilities
Independent auditors’ report
IFC
01
02
04
06
11
13
16
21
27
28
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
Consolidated statement of cash flow
Notes to the accounts
Company balance sheet
Reconciliation of movements
in shareholders’ funds
Notes forming part of the Company
financial statements
ADDITIONAL INFORMATION
Five-year financial information
Financial calendar and contacts
30
31
32
33
35
37
78
79
80
85
87
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Annual Report 2012
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Next Fifteen Communications Group plc
Annual Report 2012
DIGITAL
EVOLUTION
Next Fifteen Communications Group plc
The Triangle
5–17 Hammersmith Grove
London
W6 0LG
T: +44 (0)20 8846 0770
www.next15.com
Scan this code with one of the many
available QR reader apps on your
smartphone to access our online
Review of 2012
Or visit: http://www.ar12.next15.com
015789_Next15_cover (Working Copy).indd 1
26/11/2012 14:59