Continuing our
digital progress
Next Fifteen Communications Group plc
Annual Report 2013
INTRODUCTION
Using your smartphone, scan this
code to access our online Review
of 2013.
Or visit: http://www.ar13.next15.com
THIS YEAR WE HAVE CREATED AN ONLINE
REVIEW OF 2013 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
ONLINE REVIEW ALSO EXAMINES HOW OUR
BUSINESS IS EVOLVING, FROM BEING LARGELY
CENTRED ON PRESS RELATIONS TO ONE THAT
IS DRIVING ONLINE INFLUENCE.
CONTENTS
OVERVIEW
Introduction
Highlights
Chairman’s statement
OPERATING REVIEW
Business Review
Financial Review
GOVERNANCE
Board of Directors
Directors Statement on Corporate
Governance
Remuneration Report
Report of the Directors
Statement of Directors Responsibilities
Independent Auditors’ Report
IFC
01
02
04
06
11
13
21
26
30
31
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
33
34
35
36
38
40
82
83
84
90
92
HIGHLIGHTS
Financial highlights
Revenue (£m)
Adjusted profit before tax (£m)1
Profit before tax (£m)
86.0
91.6
96.1
72.3
9.6
8.4
7.7
6.6
7.5
6.0
5.3
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
£96.1m
(2012: £91.6m)
£7.7m
(2012: £9.6m)
£2.1m
(2012: £6.0m)
2.1
Diluted adjusted earnings
per share (pence)2
Dividend per share (pence)
Net cash from operating
activities (£m)
10.07
8.74
7.53
6.65
1.85
2.05
2.55
2.30
8.8
7.5
8.5
5.1
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
6.65p
(2012: 10.07p)
2.55p
(2012: 2.30p)
£8.5m
(2012: £7.5m)
1 See note 5 to the financial statements.
2 See note 10 to the financial statements.
OPERATIONAL HIGHLIGHTS
Revenues increased by 5% to
£96.1m from £91.6m last year
Acquired an 80% shareholding in
Connections Media, a US-based
digital public affairs agency
Net debt3 decreased by £0.8m year
on year to £1.8m, despite spending
of £3.0m on acquisition-related
payments
Launch of Agent3, a new agency
that sells technology platforms and
data-based marketing services
Acquisition of Content and 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.
Next Fifteen Communications Group plc
Annual Report 2013 01
CHAIRMAN’S STATEMENT
“ WHILE THIS HAS
BEEN A TOUGH
YEAR, IT REMAINS A
YEAR OF PROGRESS
IN MANY WAYS.
RECORD REVENUES
AND THE STEADY
TRANSITION OF
THE BUSINESS WILL
UNDERPIN THE
FUTURE GROWTH
OF THE COMPANY. ”
The headline financial results for 2013
mask two very different outcomes for
the brands in the Next 15 Group.
On the one hand, Text 100, OutCast,
M Booth and The Blueshirt Group
each achieved their highest ever
revenues, driving record revenues of
£96.1m for the Group as a whole. The
US businesses in total delivered 10%
organic growth, providing
reassurance around the fundamental
business model and strategic
direction of the Group in its primary
market by scale.
On the other hand, the Bite Group, in
isolation, has had a difficult year
compounded by accounting issues in
two of its twelve offices.
1 Net debt excludes contingent consideration
and share purchase obligations. See note 19
to the financial statements.
02
Next Fifteen Communications Group plc
Annual Report 2013
In summary, the Group has reported:
(cid:206)(cid:3) Revenue up 5% to £96.1m from
£91.6m last year.
(cid:206)(cid:3) Adjusted profits before tax of £7.7m
compared with £9.6m
last year.
(cid:206)(cid:3) Reported profit before tax of £2.1m
compared with £6.0m last year.
(cid:206)(cid:3) Diluted adjusted earnings per share
of 6.65p compared with 10.07p last
year.
(cid:206)(cid:3) Net cash generated from operating
activities up 13% to £8.5m from
£7.5m last year.
(cid:206)(cid:3) Net debt1 down 31% to £1.8m
despite making £3.0m of
acquisition-related payments.
Revenue grew by 5% across the Group
to £96.1m compared with £91.6m last
time. The Group saw an improvement
in organic growth from 1% at the
interim stage to 2% for the full year,
following gains made in H2, led by our
North American businesses. During
the second half of the year the US
grew at an impressive 17% on an
organic basis and now accounts for
55% of Group revenues. Using the
new divisional splits introduced at the
interim stage, Integrated Agencies
(84% of Group revenues) grew by a
total of 3% and Specialist Agencies
grew by 15%. For the full year, the UK
saw its revenues decline by 3%
primarily due to net client losses at the
end of the prior year, EMEA remained
flat and APAC declined by 2% given
local currency movements. At the
same time, the US grew revenues
by 11%.
The Board of Directors is satisfied that
the adverse impact on this year’s
earnings has resulted from issues that
have been identified and are being
managed. The agency portfolio is
strong and our strategy is delivering
organic growth, particularly in our
largest market. Accordingly, the Board
is recommending a final dividend of
1.925p per share, which increases the
dividend for the year by 11% to 2.55p
(2012: 2.30p).
The marketing sector is being radically
changed by the way people discover,
consume and distribute content.
Thanks to the social and increasingly
mobile web, consumers share their
experiences of products and services
in real time, in ways that greatly
influence buying behaviour. Marketing
can no longer be a brand’s clothing; it
must be its skin. Advancing into
today’s new marketing techniques is a
natural step for this Group as it entails
the joining of conversations and
engaging people in fascinating
content, skills which are an extension
of Next 15’s PR heritage.
Next 15 is now essentially helping
clients to become publishers and
broadcasters, like Virgin whose new
site, virgin.com, was designed and
built by Beyond. A sophisticated
content engine underpins this new
site, creating reasons for Virgin
customers to return with greater
frequency and hold conversations
with others while they are visiting.
Symptomatic of the Group’s digital
transition, Beyond’s work included
sophisticated analytics that enable the
content on the site to adapt to
people’s interests.
The re-engineering of the Next 15
Group for this new marketing context
started several years ago and
excellent progress has been made.
Assignments for major brands such as
American Express, Virgin, IBM, Cisco,
Google and Facebook are no longer
simple media relations work. In some
cases, this has enabled the Group to
expand its relationship with key
clients (Google and American
Express). In all cases, sophisticated
social and digital programs tie into the
media relations content generated by
these businesses. In 2013, I am
pleased to report, Next 15 has made
real strides towards becoming an
integrated social and digital
communications group.
impacting both the Group’s adjusted
profit and profit before tax. Further to
this, impairment of the £2.0m
goodwill associated with Bite
Germany creates an overall reduction
on profit before tax of £3.6m. More
information on the source of these
charges is included within the
Financial Review.
The resulting charges have had a
significant impact on the Group’s
overall profitability this year.
Importantly though, they are one-off
issues that can be contained and
resolved, not evidence of a flawed
business model. Management has
moved quickly to adapt and the
business should emerge stronger as
a result.
Following David Dewhurst's
agreement to step down, the Board
has embarked on a search for a
replacement. Alicja Lesniak is leading
the search. In the meantime Peter
Harris, who has extensive media
industry experience with
Communisis, Centaur, the Engine
Group, 19 and Capital Radio, has been
appointed as Interim Chief Financial
Officer. A key aspect of the Finance
Director’s responsibilities will be to
further develop the finance and
accounting infrastructure within the
brands, and reporting lines to Group,
such that there is full financial
transparency but without impeding
the entrepreneurial nature of the
brands. This will build on the actions
already taken in response to the fraud
discovered in 2012, which included
the appointment of our Head of
Internal Audit, recruitment of lead
internal auditors in the US and UK, an
overhaul of treasury controls and the
roll out of a two- to three-year cyclical
review plan.
The Group has had to deal with
growing pains as it makes this
transition. Adjustments identified at
the year end within Bite Germany and
Bite UK reduced profits by £1.6m,
Looking ahead, the Group has a
sound balance sheet with low net
debt1 at £1.8m, giving it the
opportunity to add further agencies,
such as Connections Media which
became part of Next 15 six months
ago, adding depth to the portfolio of
client services. This Washington DC-
based digital agency provides
specialist digital services in the public
affairs arena, a reflection that every
area of marketing is being reinvented
in the digital revolution.
The Group is also keen to continue to
participate in the creation and
development of new businesses. In
the last year it invested in the start-up
of Agent 3, a digital marketing agency
founded by three employees. The
agency sells technology platforms and
data-based marketing services that
help companies connect their CRM
systems to their marketing activities.
This type of organic investment is an
important part of the long-term
growth of the Group. Overall, during
the year, the Group has invested an
additional £1m in its digital transition,
in line with guidance given at the
interims.
While this has been a tough year, it
remains a year of progress in many
ways. Record revenues and the steady
transition of the business will
underpin the future growth of the
company. Indeed, the Group has
made a good start to the current
financial year and has already added
work from clients such as Sainsbury’s
and HBO.
On behalf of the Board, I would like to
thank our staff in 11 agencies and 18
countries for their hard work,
creativity and ingenuity this year.
Richard Eyre
Chairman
6 December 2013
1 Net debt excludes contingent consideration
and share purchase obligations. See note 19
to the financial statements.
Next Fifteen Communications Group plc
Annual Report 2013 03
BUSINESS REVIEW
MBA students around the world
review case study after case study,
where the critical question is the
identification of the business a
company is really in. In other words,
the way management thinks about its
business determines the
opportunities and challenges it will
face and how it will tackle them.
At Next 15 we are in the influence
business, not the PR business. We
create ways for businesses to
influence their target audiences. This
is important. If you are a PR agency
you see every problem or opportunity
as a PR challenge. This means you
automatically generate solutions that
use PR-driven techniques. In today’s
social and mobile world, PR is just one
of the ways to influence people’s
behaviour. Increasingly, clients need
an integrated set of services that will
shift opinion, perception and
ultimately, behaviour.
I am pleased to say that our agencies
have all made this mental leap and
are charging ahead. The management
teams no longer describe the client
brief in PR terms. Instead they talk
about the client’s commercial
challenges and how to engage the
right people in the right conversations.
In some cases this means creating
content and content channels that go
direct to the consumer, in others it
means working with third-party
influencers such as social media
commentators, media and analysts.
However, this rethink of the business
model comes with some interesting
new challenges. Our clients are,
understandably, at different stages of
understanding and comfort with
these new approaches, but there is a
powerful solution to this: data. When
customers see evidence of the impact
our programs can have, they are
willing to engage. It’s for this reason
that I’m pushing our businesses to
invest in the development of products
and services that deliver actionable
insights to customers. With evidence
comes action.
In the last year you may have heard a
lot about ‘big data’ and how
businesses are trying to take
advantage of all the information they
now have on customers’ behaviour
and within their own operations.
This is at the heart of the challenge for
us. We need people that live and
breathe big data and ways of making
big data a marketing advantage for
our customers. Richard mentioned
our work with Virgin but we have also
used data to drive programs for Cisco,
American Express, Facebook and
Coca-Cola. The era of evidence-based
marketing is firmly upon us1. And the
fruits of work in this space are what is
behind the growth we are seeing in
North America and in other parts of
our business. It is why businesses
such as Text 100, M Booth, Blueshirt,
Beyond and Outcast all had
record sales.
Turning now to the challenges of the
last year, which can be simply
described. We have made mistakes in
executing the transition from a simple
PR group to a more broadly-based
communications group. In some
places, we have appointed highly-
qualified people who have not worked
out; in some cases people have been
in too much of a hurry to transform
the business, in other cases not fast
enough. In other areas, we have failed
to ensure that our processes keep
pace with the business. Thankfully,
these problems have been clearly
identified and are ones that can be
fixed. I am confident that, by this time
next year, we will have moved beyond
these challenges and will have
delivered yet another year of
revenue growth.
Number of clients
1,067
(2012: 1,077)
Offices worldwide
53
(2012: 53)
Average number of staff
1,146
(2012: 1,088)
04
Next Fifteen Communications Group plc
Annual Report 2013
1 As we notified in the half-yearly report we amended the segmental reporting structure. Where
necessary we refer to individual businesses and geographies, rather than reportable segments, to
give greater clarity over the performance of the Group.
“AT NEXT 15 WE
ARE IN THE
INFLUENCE
BUSINESS, NOT
THE PR BUSINESS.
WE CREATE WAYS
FOR BUSINESSES
TO INFLUENCE
THEIR TARGET
AUDIENCES.”
We have seen solid growth in a
number of businesses. We know what
it takes to achieve it – we need to stay
true to simple principles. We need to
focus and we need to learn from our
mistakes. We cannot be drawn into
work outside our core competences
and we must only work for customers
who will truly benefit from the
services we offer. We must steadfastly
refuse opportunities for short-term
revenue that take us nowhere;
instead, investing our resources and
talent in those that move us and the
client forward. We must also correct
the processes that let us down this
year by learning from the mistakes we
made and executing smart changes.
The changing marketing context
creates a massive opportunity to
grow this business. If we try and do
everything we will fail. If we do a few
things REALLY well, my report next
year will be very easy to write.
Tim Dyson
Chief Executive Officer
6 December 2013
Revenue by segment (%) of total
Integrated Communications
Specialist Agencies
83.9
85.3
2013
2012
16.1
2013
14.7
2012
Next Fifteen Communications Group plc
Annual Report 2013 05
FINANCIAL REVIEW
OVERVIEW
The year to 31 July 2013 was a year of
growth but also of challenges. We
delivered record revenues thanks to
excellent performances by some of
the Group’s businesses but we also
delivered a disappointing Group profit
due in large part to issues in one of
our eleven agencies. We enjoyed
some strong performances within our
portfolio of businesses in the United
States and this was helped by a
second half recovery in the relative
strength of the dollar against sterling.
The only disappointment in the US
came in our Bite business, where a
number of client losses and changes
in the leadership team contributed to
an unsatisfactory financial
performance. Outside of the US,
resolution of financial issues within
Bite Germany and Bite UK generated
year end adjustments resulting in
£1.6m being taken to the Income
Statement as an expense in addition
to a £2.0m write off of Bite Germany
goodwill. Further details are included
later in this review. Elsewhere, Lexis in
the UK suffered from the loss of a
large client at the beginning of the
year, and Beyond, our digital agency,
won some great client projects but
experienced some margin erosion as
it scaled up to deliver them.
The strength of the Group is
demonstrated by the fact that it now
has a balanced portfolio of businesses
which allows set- backs in some
businesses to be largely compensated
by strong performances elsewhere. In
terms of the numbers, revenue grew
by 5% to £96.1m (2012: £91.6m) but
when adjusted for acquisitions and
currency movements, underlying
organic growth was 2%. There are a
number of accounting adjustments
mainly 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. Adjusted
profit before tax decreased to £7.7m
(2012: £9.6m) (see note 5), and the
diluted adjusted EPS fell to 6.65p
(2012: 10.07p) (see note 10). The
adjusted Group EBITDA was £8.6m
(2012: £11.2m) (see note 5) and it
generated £8.5m of cash from
operating activities (after tax) (2012:
£7.5m). Despite £3.0m expended on
acquisition-related payments the
Group net debt position improved to
£1.8m compared to £2.6m in 20121.
This level of debt represents gearing
of under 5% and leaves the Group
with a strong base from which to
deliver future growth.
Revenue by region (£m)
UK
Europe and Africa
US and Canada
Asia Pacific
Total
96.1
91.6
52.5
47.1
19.9
19.7
10.5
10.5
14.0
14.3
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
06
Next Fifteen Communications Group plc
Annual Report 2013
1 See net funds analysis in the capital risk
management section of note 19 of the financial
statements.
Key performance indicators
Adjusted staff costs
to revenue (%)1
Adjusted profit before
income tax margin (%)
68.8
69.4
68.1
69.6
9.1
9.8
10.5
8.0
2010
2011
2012
2013
2010
2011
2012
2013
69.6%
(2012: 68.1%)
8.0%
(2012: 10.5%)
Net cash from operating
activities (£m)
Adjusted earnings before
interest, tax, depreciation
and amortisation (£m)2
8.8
7.5
8.5
8.4
5.1
11.7
10.7
10.0
2010
2011
2012
2013
2010
2011
2012
2013
£8.5m
(2012: £7.5m)
£10.0m
(2012: £11.7m)
Revenue by segment (%) of total
Integrated Communications
Specialist Agencies
83.9
85.3
2013
2012
16.1
2013
14.7
2012
Adjusted operating profit by segment (%)3
Integrated Communications
Specialist Agencies
78.2
83.8
2013
2012
21.8
2013
16.2
2012
1 Staff costs are adjusted to exclude
reorganisation costs and charges associated
with equity transactions accounted for as
share-based payments (note 5).
2 See note 5 to the financial statements
3 As a % of total adjusted operating profit
excluding head office costs, impairment and
the impact of the prior year’s
fraudulent activity.
Next Fifteen Communications Group plc
Annual Report 2013 07
FINANCIAL REVIEW CONTINUED
BITE EMEA
Bite Germany has presented a
challenge for the Group since the
acquisition in October 2011. A
significant amount of senior resource
has been invested in resolving issues
but progress had been hampered by
cultural differences with the
management of that business and
staff turnover in key financial
positions. In 2013, the decision was
taken to remove the three managing
directors but as they were also
minority shareholders it was not until
August 2013 that the last of them
exited and real progress could be
made. Following internal investigation
of balances, a £1.1m expense related
to provisions, write offs and
recognition of liabilities has been
identified, much of which is historic.
With the old management out and a
firm financial base established, Bite
EMEA management have a solid plan
in place to rebuild that business and
expand within the German market.
Uncertainty does however exist over
the business’s future and the Board
recognise that the goodwill associated
with the original business acquired is
now impaired. As a result, a charge of
£1.95m has been recognised as a
write off of all of the goodwill related
to Bite Germany.
Bite UK also recognised some
significant year end adjustments
totalling £0.5m associated with
provisions, write offs and incorrect
application of revenue recognition
policies following the integration of
Bourne into the Bite Group. The cause
of these issues is being addressed by
both local and Group management,
alongside Internal Audit.
SEGMENTAL, GEOGRAPHIC
AND CLIENT ANALYSIS
At 31 July 2013, the Group had 53
offices in 18 countries and a further
five licensed partners. This year we
changed the reporting segments to
better reflect the nature of the
businesses in the Group. We brought
the Technology PR and Consumer PR
segments together to form Integrated
Communications. This segment
represents 84% of Group revenue and
has grown by 3%. This growth is
coming largely from Outcast, M Booth
and Text 100 in the US market and
Bite in Asia. The remaining businesses
form the Specialist Agencies segment,
which had a strong year growing 15%
with The Blueshirt Group, an investor
and media relations agency based in
San Francisco and New York, leading
the way.
From a geographic perspective, the
proportion of the Group’s revenue
outside the UK in the last year was
80%. US remained the largest
geographic region, accounting for 55%
of revenue. With the UK share of
revenue being 20%, the Group
generated around 75% of its revenue
in these two strongest markets for
communications and marketing
services. The US region grew by 11%
to £52.5m (2012: £47.1m), with 10% of
this growth being organic. In Europe
and Africa the businesses delivered
revenue broadly the same as last year
at £10.5m, dampened by a slight
weakening of the euro and a 13% fall
in the value of the South African rand.
The Asia Pacific region declined by 2%,
to £14.0m (2012: £14.3m), impacted
by significant currency weakness in
India (-7%) and Japan (-13%).
It is also pleasing to note that the
concentration of the Group’s key
clients reduced further. The top ten
clients now represent approximately
23% of the revenue of the business
(2012: 26%), with no single client
accounting for more than 5% of the
total. This broadening of the client
base is a result of having a more
diverse range of service to offer. The
Group still has an impressive list of
global blue chip clients with all of the
top ten clients generating annual fees
in excess of £1.1m. The total number
of clients remains above 1,000.
The average client size increased
marginally by 6% to £90,000 due
mainly to increased value of project
relationships. We have over 200
international clients representing 21%
of total clients but more significantly
they are more than three times the
size of the average client and account
for almost two-thirds 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.
08
Next Fifteen Communications Group plc
Annual Report 2013
FINANCIAL CONTROLS
Over the last nine months the Group
has begun a detailed review of the
internal financial controls
environment in its major operating
subsidiaries. An Internal Audit
function has been established with
qualified resources recruited in the US
and UK and a comprehensive
implementation plan created
following advice from outside experts
and a wide engagement with internal
stakeholders. The initial focus will
remain on risk mapping and
development/communication of
minimum financial controls for all
businesses around the group with the
roll out of two- to three-year cyclical
internal audit review process ensuring
adherence to those controls. If
significant control weaknesses are
noted during the risk mapping
process, such as those identified in
Bite UK and Germany at the year end,
immediate action will be taken to
address these weaknesses. Alongside
this, there has been an immediate
focus on cash management. This has
resulted in the implementation of
standardised banking controls.
Consideration of wider non-financial
risk management and business
performance improvement are the
medium-term goals.
MARGIN PERFORMANCE
The adjusted profit before tax margin
of the Group decreased to 8.0% from
10.5% last year, following the
disappointing performance from the
Bite Group. Excluding head office
costs the adjusted operating profit
margin was 13.5%, compared to
18.5% last year. There have been
some margin pressures in some of
the other Group 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 Integrated
Communications segment achieved
12.6% with Bite having the biggest
challenge in reaching target following
a significant client loss in the US,
operational difficulties at its German
and UK subsidiaries and the
investment in its APAC growth
markets. The Specialist Agencies
segment achieved a margin of 18.2%,
following the strong performance
from The Blueshirt Group. From a
regional perspective, the US was the
only region to achieve the required
target rates, with the UK and EMEA’s
margins continuing to suffer as the
economy stagnated, and the APAC
region is still very much at a sub-
optimal scale. The staff cost to
revenue ratio is critical to managing
margin performance but this
increased to 69.6% from 68.1% last
year (excluding adjusting items). The
longer-term target has been 65%, but
this is proving difficult to achieve with
higher staff cost ratios in the sub-scale
EMEA and APAC region offices and
salary pressures in some markets
running ahead of clients’ willingness
to increase budgets.
CASH FLOW
The net cash generated from
operations (before tax payments) was
strong once again at £11.2m (2012:
£10.1m), which was 145% (2012: 105%)
of adjusted profit before tax (note 5).
The main investment activities in the
year requiring a cash payment were
£2.1m for contingent consideration for
M Booth acquired in August 2009 and
£0.6m (net of cash acquired) for the
initial payment for the 80% of
Connections Media acquired in April
2013. Dividends paid to Next 15
shareholders totalled £1.4m. 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 acquisition of Connections
Media and the impairment of historic
goodwill on Bite Germany. The cash
balances were £8.1m compared to
£8.4m last year offset by a partial
repayment of the medium-term bank
facilities described below. The net
debt1 position after deducting bank
borrowings and finance leases was
£1.8m (2012: £2.6m). Net assets at 31
July 2013 were £38.2m (2012: £37.2m).
1 Net debt excludes contingent consideration
and share purchase obligations. See note 19
to the financial statements.
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Annual Report 2013 09
FINANCIAL REVIEW CONTINUED
TAXATION
The total tax charge for the year is
£1.4m (2012: £1.7m) on consolidated
profit before tax of £2.1m (2012:
£6.0m). Certain important factors are
having a significant effect on the tax
rate in FY13 as follows: (i) there were
losses in certain territories (£0.7m
negative rate impact), notably the UK
(£0.3m), Germany (£0.3m) and other
territories (£0.1m), where it would not
be prudent to recognize deferred tax
assets; (ii) charges made in the income
statement associated with
adjustments to acquisition accounting
for subsidiaries that are not taxable
(£0.7m negative tax rate impact); (iii)
higher rates of tax for overseas
subsidiaries (£1.0m negative rate
impact); (iv) the rate benefited from
deductions taken for overseas taxes
(£0.9m) and by the adjustment to the
prior year tax liability of £0.4m
following management revision of
estimates for future tax exposures.
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 payment on the acquisition of
Connections Media. 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 banking 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
LIBOR plus 2.5% repayable over five
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.
EARNINGS
Adjusted basic earnings per share was
7.49p (2012: 11.42p) (see note 10). The
basic earnings per share was 0.56p
(2012: 6.85p). Reductions in profit
attributable to members following the
Bite EMEA year end adjustments and
impairment (£3.6m) is the primary
cause of this fall. The diluted adjusted
earnings per share fell to 6.65p (2012:
10.07p) and this is 11% less than the
adjusted basic figure. This dilution is
coming 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.
DIVIDENDS
The proposed final dividend per
Ordinary share is 1.925p, which takes
the total for the year to 2.55p, an 11%
increase on the total dividend of 2.30p
last year. It will be paid on 7 February
2014, assuming that it is approved at
the AGM on 21 January 2014. 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.
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Annual Report 2013
BOARD OF DIRECTORS
RICHARD EYRE
Chairman (Age 59)
Chair of the Nomination and
member of the Audit and
Remuneration Committees
Richard was appointed as Chairman
in May 2011. He was formerly CEO of
ITV Network Ltd and Capital Radio plc,
and Director of Content and Strategy
for the RTL group. He is Chairman of
the Internet Advertising Bureau and
holds non-executive roles at Grant
Thornton LLP, PayWizard plc and
Results International Group LLP. In
2013 he was awarded the prestigious
Mackintosh Medal for outstanding
personal and public service
to advertising.
TIM DYSON
Chief Executive Officer (Age 52)
Member of the Nomination
Committee
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 Connections Media 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 sits 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.
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Annual Report 2013 11
BOARD OF DIRECTORS CONTINUED
MARGIT WENNMACHERS
Non-executive Director (Age 48)
Member of the Nomination
Committee
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.
ALICJA LESNIAK, FCA
Senior Independent
non-executive Director (Age 61)
Chair of the Audit and
Remuneration and member of
the Nomination Committees
Alicja joined the Board in July 2011.
She 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. Alicja is
currently a non-executive Director
at Channel 4 Television Corporation,
where she chairs the Audit
Committee, and SThree plc, where
she is a member of three
sub-committees.
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Annual Report 2013
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE
The Board recognises that it is accountable to shareholders for the Group’s activities and is responsible for the
effectiveness of its corporate governance practices. 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 Board
The Board of Directors is responsible for the strategic direction, investment decisions and effective control of
the Group. During 2013 the Board comprised two executive Directors and three non-executive Directors. All of
the Directors served throughout the year. Directors’ biographies, including the Committees on which they serve
and chair, are shown on pages 11 to 12.
We believe that the Board retains a range of financial, commercial and entrepreneurial experience, and that
there is a good balance of skills, independence, diversity and knowledge of both the Company and the sector in
which it operates. The non-executive Directors have been appointed on merit and for their specific areas of
expertise and knowledge. This enables them to bring independent judgement on issues of strategy and
performance and to debate matters constructively. No single Director is dominant in the decision-making
process.
Board balance and independence
Following David Dewhurst’s agreement to step down as Finance Director on 29 October 2013, the Board is now
comprised of one executive Director: Tim Dyson, Chief Executive Officer. There are three non-executive
Directors: Richard Eyre, Chairman; Alicja Lesniak, who is the Company’s Senior Independent non-executive
Director; and Margit Wennmachers, non-executive Director. The Board has embarked on a search for a
replacement Finance Director and Alicja Lesniak is leading this process. In the meantime Peter Harris, who has
extensive media industry experience, has been appointed as Interim Chief Financial Officer. At the time of his
appointment as Chairman, Richard Eyre was considered independent in accordance with the provisions of the
QCA Code. Alicja Lesniak is also considered to be independent as defined by the QCA Code. The Board
considers that the current Board structure is appropriate in that it encourages independent challenge to the
executive Directors and senior management, and that it complies with the QCA Code.
Director appointment, election and re-election
Appointments to the Board are the responsibility of the Board as a whole, upon the recommendation of the
Nomination Committee.
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, Richard Eyre will retire and, being eligible, will offer himself
for re-election by the shareholders.
The Board is satisfied that the Director standing for re-election continues to perform effectively and
demonstrates commitment to their role, including commitment of time for Board and sub-committee meetings
as well as any other duties that may be undertaken by them from time to time. Changes to the commitments of
any Director are considered by the Board to ensure they are still able to fulfil their duties to the Company’s
satisfaction.
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Annual Report 2013 13
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Operation of the Board
There is a schedule of matters specifically reserved for decision by the Board which has been reviewed during
the year. It includes, among other things, the Group’s strategy and management, structure and capital, financial
reporting and controls, risk management and internal controls, major capital projects and material contracts,
Board appointments and remuneration and corporate governance matters. The schedule of matters reserved
for Board approval is displayed on the Group’s website at www.next15.com.
The division of responsibilities between the Chairman and Chief Executive Officer has been clearly defined. The
Chairman is responsible for leading the Board and ensuring it operates effectively. The Chairman is responsible
for setting the agenda for Board meetings and ensures that Board and shareholder meetings are properly
conducted. The Chief Executive Officer has day-to-day responsibility for all businesses of the Group and for
implementing the agreed strategy and policies of the Board.
Board papers are prepared and issued in advance of Board meetings, to enable Directors to give due
consideration to agenda items. When relevant, Board members receive monthly trading results, together
with a detailed commentary. The non-executive Directors are encouraged to ask for further information
when required.
During the year, ten formal Board meetings were held, which included four face-to-face meetings. Full details
of each Director’s Board and Committee meeting attendance are given on page 20. As Tim Dyson and Margit
Wennmachers are located in San Francisco, some of the Board meetings are held by telephone conference. The
Board meets face to face whenever possible and aims to do so at least quarterly.
Conflicts of interest
In accordance with the provisions on conflicts of interest in the Companies Act 2006 (the ’Act’), the Company
has implemented a policy for the disclosure 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 Act. In
accordance with best practice, a review of Directors’ conflicts of interest is conducted annually.
Information, professional development and support
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 and Directors may take
independent professional advice at the Company’s expense. All Directors have access to the Company
Secretary, who is responsible for ensuring that Board procedures are followed and that the Company complies
with all applicable rules, regulations and obligations.
Committees of the Board
The Board has established an Audit Committee, a Nomination Committee and a Remuneration Committee.
Each Committee has its own terms of reference, setting out its authority, composition, activities and duties. The
terms are reviewed and updated as necessary to ensure ongoing compliance with best practice guidelines.
Copies of the Committees’ terms of reference are available from the Group’s website at www.next15.com.
The Board appoints the Committee members. The Audit Committee and Remuneration Committee comprise
the two non-executive Directors, Alicja Lesniak (Committee Chair) and Richard Eyre. The Nomination
Committee comprises Richard Eyre (Committee Chair), Alicja Lesniak, Margit Wennmachers and Tim Dyson.
Attendance records of Committee meetings can be found on page 20.
The Remuneration Report on pages 21 to 25 sets out the work of the Remuneration Committee and details of
the Directors’ remuneration.
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Annual Report 2013
Relations with shareholders
The Board places great importance on the maintenance of effective communication with shareholders.
Feedback received from institutional shareholders and analysts 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, annual and interim reports, regulatory news announcements and video clips to
explain the interim and full-year results further, are available on the Group’s website at www.next15.com.
The Chairman and Senior Independent non-executive Director are available to discuss governance and strategy
with major shareholders should such a request be made and both are prepared to contact individual
shareholders should any specific area of concern or enquiry be raised.
At the AGM the Chief Executive Officer presents a summary of the Group’s progress throughout the year and
invites questions from attendees before the Chairman deals with the formal business of the meeting. After the
AGM, shareholders can meet informally with the Directors. Proxy votes are disclosed following a show of hands
on each resolution. Shareholders are encouraged to submit questions to the Board throughout the year.
Financial reporting and going concern
The Statement of Directors’ Responsibilities in respect of the financial statements is set out on page 30. The
Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Business Review on pages 4 to 5. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Financial Review on pages 6 to 10.
The Directors have reviewed the Group’s budget and cash requirements for the year ending 31 July 2014 and
considered outline plans for the Group thereafter. After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt the going-concern basis in preparing the
financial statements.
Internal control and risk management
The Board has ultimate responsibility for the Group’s system of internal control and for reviewing its
effectiveness. This control system is designed to manage rather than eliminate risk of failure to achieve
business objectives and to provide reasonable but not absolute assurance that assets are safeguarded against
unauthorised use or material loss, that its transactions are properly authorised and recorded and material
errors and irregularities are prevented or, failing which, are discovered on a timely basis. The Board delegates
responsibility to management to implement Board policies on risk and control, to consider and assess the
effectiveness of existing controls and to identify whether any new risks have arisen. Systems have been in place
for the full financial year.
The Group reviewed the effectiveness of its internal financial controls for the year ended 31 July 2013 and up to
the date of signing the Annual Report and Accounts to further safeguard investment and the Group’s assets.
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Annual Report 2013 15
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Internal controls review
The Group’s internal control and risk management activities are managed through two primary activities: Board
led business risk reviews plus a supporting set of internal controls, and an Internal Audit review of the design
and operation of internal controls.
Business risk reviews
Business risk evaluation takes place at operating company and Board level. Having identified risks, operating
companies regularly monitor, review and update the risks, 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 Board, which produces a significant risks review for the Group. 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.
Internal Audit
During the year, the Group formed an Internal Audit function to provide assurance over the Group’s control
environment. This has involved the appointment of a Head of Internal Audit, and recruitment of lead internal
auditors in the US and UK.
Internal Audit engaged PwC to aid in the design of the roadmap to implementation of an effective Internal
Audit function. That process involved communication to, and ensured buy-in from, a wide stakeholder group
consisting of the Board, the external auditors (BDO) and the CEOs and CFOs of each regional office for each
Brand. Approval for the final audit plan was obtained from the Audit Committee and the Board.
As part of the approved audit plan, a risk-based approach is used to prioritise the focus of Internal Audit.
The primary brief of the function was to assess the failure in controls that led to the fraud in the prior year and
to implement new controls and processes in that area to strengthen any weaknesses. The ongoing activity of
the function is to assess the overall control environment around the Group and to design, develop and roll out
new minimum controls across all businesses. Once in place, adherence to those minimum controls will be
reviewed on a two-to-three year cyclical basis. Where significant or immediate risks are identified, a process of
more regular monitoring will be implemented.
The Board gain assurance over the adequacy of design and operation of internal controls across the Group
through the following process:
(cid:120) The annual audit plan is presented to the Audit Committee for approval each year. That plan provides an
assessment of the current control environment, consideration of the key risks faced by the business and the
timetable for on-site assessment/development of controls and audit of adherence;
(cid:120) Findings from each Internal Audit engagement are reported to management, the Executive Directors and the
Audit Committee. Reporting covers significant risk exposures and control issues, including fraud risks,
governance issues, and other matters needed or requested by the Board;
(cid:120) Depending on the risk associated with any weaknesses noted, recommendations made are followed up and
reported on routinely;
(cid:120) Internal Audit independently reviews the risk identification procedures and control processes implemented
by management and advises on policy and procedure changes.
Internal Audit presents findings of reports to the Audit Committee at each Audit Committee Meeting. The Head
of Internal Audit has direct access to the Audit Committee Chair.
As part of the year end process, the Internal Audit review of financial records identified errors totalling £0.3m
and £0.9m within Bite UK and Bite Germany respectively. Continued work from external audit on other
financial statement areas identified a further £0.4m across these businesses. During the year, Internal Audit
have also devoted resource to restructure the Bite US finance team, processes and controls and have
completed projects ensuring assurance over integrity of financial data used to determine earnout payments.
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Annual Report 2013
Whistleblowing and Bribery Act 2010
Whistleblowing procedures are in place for individuals to report suspected breaches of law or regulations or
other malpractice. The Group has implemented an anti-bribery code of conduct which is intended to extend to
all the Group’s business dealings and transactions in all countries in which it or its subsidiaries and associates
operate.
Principal risks and uncertainties
The system of risk management used to identify the principal risks facing the Group are described on page 16.
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. The matters described below are not intended to be an exhaustive list of possible risks and
uncertainties and 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.
Potential impact
Mitigation
The loss of significant clients continues
Ensuring a good marketing plan and
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
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.
The Group is very reliant on highly-
skilled employees, who are vital to its
success in building enduring client
relationships and winning new
mandates.
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.
Acquisitions
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.
identifying new client opportunities is key to
all businesses. Creating a portfolio of brands
which is diversified across different
geographic and communications markets
and disciplines. It is also critical to get
regular client feedback and take all
appropriate steps to retain existing clients.
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.
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 former PR businesses is
progressing, albeit 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.
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Annual Report 2013 17
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
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
2013 represented 18% of adjusted EBITDA
(note 5).
Currency risk
As a global business, currency
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 than the UK.
The Group has initiated a project to replace
these disparate systems with a common
platform. It has arrived at a shortlist of
potential systems, which are under detailed
review and user testing, in order to make a
final selection decision.
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 the
majority of its profit outside of the UK.
The Group has grown both organically,
including adding additional geographic
locations, and by acquiring new
businesses. This has led to a mixture of
accounting and operating systems in use.
Some of the legacy systems in the
acquired businesses have more basic
functionality. The Group would gain better
control by seeking to move the majority of
businesses to a common platform with
appropriate software controls that exist in
more sophisticated systems.
Financial and
operating systems
Economic downturn Turbulence in the macroeconomic
environment could result in fewer client
assignments, longer procurement
processes and downward pressure on
budgets and pricing, which may impact
revenue growth and operating margins.
Strategic financial communications
businesses operating in the IPO market
can see significant volatility in revenues
year on year.
The Group has a wide geographical spread
of clients, reducing reliance on any one
economic environment, but the Board
acknowledges a high current dependence on
the US. The Group has also invested in the
creation of digital products and services, for
which the growth in demand 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.
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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.
Audit Committee and auditors
The Audit Committee members are Alicja Lesniak (who also chairs the Committee) and Richard Eyre. The Board
is satisfied that the Committee members are sufficiently competent in financial matters. Alicja Lesniak has
relevant financial experience and up-to-date knowledge of financial matters. The Committee meets periodically
and at least twice per year with the external auditors, and with other Directors and management attending by
invitation. Attendance records of meetings held during the year can be found on page 20.
The Committee’s responsibilities include:
(cid:120) monitoring the integrity of the financial and regulatory reporting process of the Group and reviewing the
Group’s accounting policies, financial reporting standards and disclosure practices;
(cid:120) monitoring the performance and independence of the external auditors;
(cid:120) reviewing the effectiveness of the Group’s internal controls and risk management systems;
(cid:120) reviewing the relationship with the Company’s external auditors, considering the objectivity and effectiveness
of the external audit process and making recommendations to the Board in relation to the appointment and
remuneration of the external auditors; and
(cid:120) monitoring the effectiveness of the Company’s Internal Audit function.
During the year the Audit Committee met to discuss a number of matters including:
(cid:120) assessment of the Group’s risk environment, internal controls and risk review process;
(cid:120) implementation of an Internal Audit function and review of Internal Audit reports;
(cid:120) roll out of the Group’s whistleblowing policy;
(cid:120) compliance with the UK Bribery Act and other legal and regulatory requirements;
(cid:120) appointment of external auditors;
(cid:120) key accounting matters including judgement areas around tax provisions, goodwill impairment and earnout
liabilities;
(cid:120) half-year and full-year results and the Annual Report and Accounts.
The Committee’s terms of reference were reviewed during the year and amendments were made to reflect the
latest FRC recommendations and other relevant guidelines. The terms of reference are available on the
Company’s website at www.next15.com.
The independence and objectivity of the auditors is considered regularly by the Committee. 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 Company
has in place a policy on the engagement of external auditors for non-audit services. The objective of the policy
is to ensure that the provision of non-audit services by the external auditors does not impair, or is not
perceived to impair, the external auditors’ independence or objectivity. The policy will be reviewed from time to
time and its application will be monitored by the Audit Committee.
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Annual Report 2013 19
DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE CONTINUED
Nomination Committee
The Nomination Committee members are Richard Eyre (who also chairs the Committee), Alicja Lesniak, Margit
Wennmachers and Tim Dyson. The Committee meets at least once per year, with other Directors and
management attending by invitation. Attendance records of meetings held during the year can be found below.
The Committee’s duties include:
(cid:120) reviewing the structure, size and composition of the Board;
(cid:120) identifying and nominating candidates to fill Board vacancies as they arise; and
(cid:120) the consideration of succession planning for Directors.
The Committee engages external search consultants to assist in the specification of Board positions and the
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.
The Committee’s terms of reference were reviewed during the year. A copy is available on the Company’s
website at www.next15.com.
Board and Committee attendance
Richard Eyre
Tim Dyson
David Dewhurst
Alicja Lesniak
Margit Wennmachers
Board
10 of 10
10 of 10
10 of 10
10 of 10
9 of 10
Audit
Remuneration
Nomination
5 of 5
–
–
5 of 5
–
4 of 4
–
–
4 of 4
–
1 of 1
1 of 1
–
1 of 1
1 of 1
20
Next Fifteen Communications Group plc
Annual Report 2013
REMUNERATION REPORT
Remuneration Committee report
This report of the Remuneration Committee (the ‘Committee’), prepared on behalf of the Board, sets out the
policy and disclosures on remuneration for the executive and non-executive Directors of the Board. It takes
account of the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies (the ’QCA Code’).
Terms of reference and activities in the year
The Committee is responsible for setting remuneration policy for the executive Directors and for key senior
executives. The main duties of the Committee include:
(cid:120) reviewing the ongoing appropriateness and relevance of the remuneration policy;
(cid:120) applying formal and transparent procedures regarding executive remuneration and remuneration packages;
(cid:120) making recommendations concerning the total individual remuneration package of each executive Director;
and
(cid:120) reviewing the implementation and operation of the Company's bonus schemes and Long-Term Incentive
Plan (’LTIP’).
The Committee is authorised by the Board to investigate any matters within its terms of reference. It meets as
frequently as needed, with a minimum of one meeting per year. In the financial year ended 31 July 2013 the
Committee met four times. Subsequent to the year end, one further meeting has taken place.
The Committee’s terms of reference are reviewed regularly to ensure continuing compliance with evolving best
practice guidelines. The terms of reference are available from the Company’s website at www.next15.com.
Composition of the Remuneration Committee
The Committee comprises two non-executive Directors, Alicja Lesniak (who also chairs the Committee) and
Richard Eyre. During the year ended 31 July 2013 meetings were attended by the Chief Executive Officer and
the Finance Director on all matters except those relating to their own remuneration. The Committee is
authorised to take professional advice as and when it considers this necessary.
Remuneration policy
The Group's remuneration policy aims to be competitive, performance-based and aligned to shareholder
interests and seeks to:
(cid:120) 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;
(cid:120) ensure that key executives are appropriately rewarded for their contribution to the Group; and
(cid:120) encourage the holding of Company shares as an effective way of aligning the interests of employees with
those of shareholders.
The Group's approach is to set remuneration which takes account of market practice, economic conditions and
the performance of the Group, its businesses and individuals. The Committee consults with the Chief Executive
Officer and pays due regard to his recommendations for other senior executives. Individual Directors are not
involved in decisions concerning their own remuneration. In framing remuneration policy, the Committee and
the Board have given consideration to the provisions of the UK Corporate Governance Code and the QCA Code.
The Committee believes that its policy provides a balance between fixed remuneration, short-term cash bonus
and long-term share-based incentives. The Committee is committed to keeping remuneration policy under
regular review, taking into account changes in the competitive environment, remuneration practices and
relevant guidelines.
Next Fifteen Communications Group plc
Annual Report 2013 21
REMUNERATION REPORT CONTINUED
Remuneration package for executive Directors
The policy for executive Directors’ remuneration seeks 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 annually. The remuneration package for executive Directors consists of a basic salary,
benefits, an annual performance-related cash bonus, pension and participation in a long-term equity 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 Committee determines the level of any bonuses paid.
Bonuses are based on the performance of the Group against market expectations, and the Committee’s
assessment of the performance of individuals.
Long-term incentives
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. The LTIP’s
objectives are to:
(cid:120) align the long-term interests of shareholders and management;
(cid:120) reward achievement of long-term stretching targets; and
(cid:120) recruit, retain and motivate management of the required calibre.
The LTIP was approved by shareholders in 2005 and is the sole long-term incentive arrangement operated for
the executive Directors. The Committee recommends the award of share options and performance shares to
executive Directors and to senior executives who are not Board members but who have a significant influence
over the Group’s ability to meet its strategic objectives.
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 vest
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
175,000
175,000
7 January 2013
7 January 2013
31 July 2016
31 July 2016
*David Dewhurst agreed to step down as Finance Director on 29 October 2013
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 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 awards vest when the Annual Report for the final financial year of the relevant performance
period is published on the Company's website. The level of vesting is determined using the best three of the
four years' performance.
22
Next Fifteen Communications Group plc
Annual Report 2013
For executive Directors, the performance shares awarded under the LTIP are subject to the following
conditions:
(cid:120) For 100% of the award to vest, 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;
(cid:120) 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;
(cid:120) 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.
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:
(cid:120) 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;
(cid:120) 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;
(cid:120) 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;
(cid:120) 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;
(cid:120) 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;
(cid:120) 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 and a payment for compliance with post-
termination restrictions. 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. The dates
of the executive Directors’ current service contracts and notice periods are:
Executive Director
Tim Dyson
David Dewhurst*
*David Dewhurst agreed to step down as Finance Director on 29 October 2013
Date of current
letter of contract
1 June 1997
7 July 1999
Notice period
6 months
6 months
Next Fifteen Communications Group plc
Annual Report 2013 23
REMUNERATION REPORT CONTINUED
Non-executive Directors
The remuneration for each of the non-executive Directors is payable solely in cash fees and is not
performance-related. Fees are 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. The dates of the current letters of appointment and notice periods for
non-executive Directors are:
Non-executive Director
Richard Eyre
Alicja Lesniak
Margit Wennmachers
Directors’ remuneration
Executive Directors
Tim Dyson
David Dewhurst
Non-executive Directors
Richard Eyre
Alicja Lesniak
Margit Wennmachers
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
2013
£’000
Performance-
related
bonus
2013
£’000
Pension
contributions
2013
£’000
Other
benefits
2013
£’000
447
220
80
43
36
–
–
–
–
–
42
22
–
–
–
30
3
–
–
–
Total
2013
£’000
519
245
80
43
36
Total
2012
£’000
460
214
80
43
35
Directors’ interests in share plans
No share options were exercised by the Directors in the year ended 31 July 2013 and none remained
unexercised at this date.
As at 31 July 2013, 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 2012
Shares lapsing
during year
Shares vesting
during year
Shares granted
during year
Number of
shares at
31 July 2013
End of
performance
period
Grant date
80,000
150,000
150,000
150,000
–
150,000
150,000
150,000
–
–
–
–
–
–
–
–
–
–
(80,000)
–
–
–
–
–
–
–
–
–
–
–
–
175,000
–
–
–
175,000
– 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
175,000 07.01.2013 31.07.2016
150,000 09.02.2010 31.07.2013
150,000 16.11.2010 31.07.2014
150,000 09.05.2012 31.07.2015
175,000 07.01.2013 31.07.2016
24
Next Fifteen Communications Group plc
Annual Report 2013
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 2012 and 31 July 2013 are
as follows:
Executive Directors
David Dewhurst*
Tim Dyson
Non-executive Directors
Richard Eyre
Alicja Lesniak
Margit Wennmachers
Ordinary Shares
LTIP performance shares
1 August 2012
31 July 2013
1 August 2012
31 July 2013
320,000
5,781,004
320,000
5,000,000
530,000
450,000
625,000
625,000
29,500
–
–
75,129
–
–
–
–
–
–
–
–
*David Dewhurst agreed to step down as Finance Director on 29 October 2013
Total shareholder return
The Company’s total shareholder return performance for the five years to 31 July 2013 is shown on the
following graph compared with the FTSE Media Index.
This graph shows the value on 31 July 2013, of £100 invested in the Company on 31 July 2008 compared with
£100 invested in the FTSE Media 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.
Next Fifteen Communications Group plc
Annual Report 2013 25
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 2013.
This Annual Report includes the Directors’ Report and the audited financial statements for the year ended
31 July 2013. Certain information required to be disclosed in the Directors’ Report is provided in other sections
of the Annual Report. This includes the Chairman’s Statement, Business Review, Financial Review, Directors’
Statement on Corporate Governance, 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 two
reportable segments: Integrated Communications and Specialist Agencies. Within the Integrated
Communications segment, the Group operates five independent communications 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 Specialist Agencies segment
comprises Beyond, with a focus on digital, Redshift which specialises in research, 463 Communications and
Connections Media focusing on public affairs and policy communications, and The Blueshirt Group which
operates in the investor and analyst relations field.
Review of business and future prospects
The Group is required to produce a business review complying with the requirements of section 417 of the Act.
A detailed review of the business, current trading and future developments of the Group is given in the
Chairman’s Statement, Business Review and 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 13 to 20.
Corporate governance statement
The Company’s Statement on Corporate Governance is set out in pages 13 to 20 of these financial statements
and forms part of this Directors’ Report.
Group results and dividends
The Group’s financial statements for the year ended 31 July 2013 show that profit before tax for the financial
year was £2,085,000 (2012: £5,959,000). The Group made a profit attributable to shareholders of the Company
for the year of £328,000 (2012: £3,906,000). The Directors have recommended a final dividend of 1.925p per
Ordinary share (2012: 1.735p) for the year ended 31 July 2013, to be paid to shareholders on the register at 10
January 2014, which, together with the interim dividend of 0.625p (2012: 0.565p) paid on 31 May 2013, makes a
total for the year of 2.55p per share (2012: 2.30p).
AIM 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 2013, more detailed
disclosure of which can be found in note 26 to the financial statements.
On 1 April 2013, Next Fifteen Communications (US Holdings) LLC (‘Next Fifteen USH’) acquired 80% of the
issued share capital of US-based Connections Media LLC (‘Connections Media’). The acquisition was made with
a view to enhancing both the digital service offering of the Group and extending the capabilities in the public
affairs and policy communications field. The initial consideration paid in cash on completion was £1,202,000
($1,846,000).
On 1 August 2012, Beyond Corporation Limited acquired the entire issued share capital of UK-based Content &
Motion Limited for initial consideration of £425,000. On 1 September 2012 the trade and assets of Content &
Motion Limited were transferred into the acquiring company. The acquisition will enhance Beyond Corporation
Limited’s services capability as a new style of socially-driven creative digital agency.
26
Next Fifteen Communications Group plc
Annual Report 2013
Financial instruments
Information on the Group’s financial risk management objectives, policies and activities and on the Group’s
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 during the year and at the date of this
report appear on pages 11 and 12.
Additional information relating to Directors’ remuneration, service agreements and interests in the Company’s
shares is given in the Remuneration Report on pages 21 to 25.
Except for Directors’ service contracts, no Director has a material interest in any contract to which the Company
or any of its subsidiaries is a party. In accordance with the Articles, the Company has the power (at its
discretion) to grant an indemnity to the Directors in respect of its liabilities incurred as a result of their office. In
respect of those liabilities for which Directors may not be indemnified, the Company maintained a Directors’
and Officers’ liability insurance policy throughout the period. Although their defence costs may be met, neither
the Company’s indemnity nor the insurance policy provides cover in the event that the Director is proved to
have acted dishonestly or fraudulently. No claims have been made against this policy.
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, Richard Eyre will retire from the Board and offer himself
for re-election.
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 2 December and 31 July 2013:
2 December 2013
31 July 2013
Name
Total
%
Total
Liontrust Investment Partners LLP
Octopus Investments
Herald Investment Management
Timothy Dyson
Hargreaves Hale Limited
River and Mercantile Asset Management LLP
Mr Thomas Lewis
JO Hambro Capital Management Group
11,486,878
5,847,256
5,231,796
5,000,000
3,785,000
3,200,549
2,804,000
1,846,000
19.22%
9.79%
8.76%
8.37%
6.33%
5.36%
4.79%
3.09%
11,486,878
5,847,256
5,231,796
5,000,000
3,173,000
3,200,549
2,804,000
3,112,833
The market price of the Company’s shares during the year was as follows:
Price at 1 August 2012
Highest price
Lowest price
Price at 31 July 2013
%
19.22%
9.79%
8.76%
8.37%
5.31%
5.36%
4.79%
5.21%
93.0p
115.0p
79.5p
88.0p
Charitable and political donations
During the year the Group made charitable donations of £35,209 (2012: £17,000). It is the Group’s policy not to
make donations for political purposes and, accordingly, there were no payments to political organisations
during the year (2012: £Nil).
Supplier payment
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 that suppliers also
comply with all relevant terms and conditions. The number of days taken by the Company to pay suppliers,
on the basis of trade creditors at 31 July 2013 and average daily purchases for the year, was 45 days
(2012: 35 days).
Next Fifteen Communications Group plc
Annual Report 2013 27
REPORT OF THE DIRECTORS CONTINUED
Employee involvement
Employees are key to the Group’s success and we rely on a committed workforce to help us to achieve our
business objectives. The Group’s employee share option plans, Long-Term Incentive Plans and bonus schemes
seek to encourage employees at all levels to contribute to the achievement of the Group’s short-term and
long-term goals. In addition, the Group operates a policy of regularly informing employees of the Group’s
financial performance, through a combination of meetings and electronic communications.
Equal opportunities
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. 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 people with disabilities.
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.
Post balance sheet events
Blueshirt
On 29 October 2013, Next Fifteen (US Holdings Corporation) Limited settled part of its contingent consideration
liability to Blueshirt. $3,126,000 (£1,942,000) was paid to the Vendors in cash.
M Booth
On 30 October 2013, part of the final contingent consideration earnout liability was settled. Next Fifteen
Communications Limited paid $852,000 (£530,000) cash in part settlement of the liability. Upon completion of
the close period, a further $451,000 (£280,000) will be issued in the share capital of Next 15. The final portion
of the contingent consideration earnout liability will be paid out within the next 12 months. The remaining
balance of $500,000 can be settled in the share capital of Next 15 or in cash at the discretion of the Group.
Beyond
On 9 August 2013, David Hargreaves tendered his resignation as a Director of Beyond Corporation Limited and
Beyond International Corp (‘Beyond’). At that date, Next 15 and David Hargreaves entered into a deed of
covenant to acquire the entire share capital of Beyond held by David Hargreaves which consisted of 10.4% in
Beyond. On 23 August 2013, 240 shares of common stock of Beyond International Corporation were
transferred to Text 100 LLC in exchange for £80,000 in cash consideration. At the same date, 240 shares of
capital stock in Beyond Corporation Limited were transferred to Next Fifteen Communications Group plc in
exchange for cash consideration of £321,000. This acquisition of shares takes Next 15’s direct and indirect
ownership of both businesses to 61.4%.
BiteDA
On 28 August 2013, a previously dormant entity within the Bite Group changed its name to BiteDA Limited.
On 1 October 2013, certain trade and assets within Bite Communications Limited were transferred to BiteDA
Limited with consideration set equal to net book value. The business will continue going forwards as a creative
digital marketing agency engaged to design and build email content and websites.
Group Finance Director
On 29 October 2013 the Group Finance Director, David Dewhurst agreed to step down from his position.
The Board has embarked on a search for a replacement Finance Director and Alicja Lesniak is leading this
process. In the meantime Peter Harris, who has extensive media industry experience, has been appointed
as Interim Chief Financial Officer.
28
Next Fifteen Communications Group plc
Annual Report 2013
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.
Directors’ statement regarding disclosure of information to auditors
The Directors who held office at the date of approval of this Directors’ Report confirm that, as far as they are
each aware, there is no relevant audit information of which the Company’s auditor is unaware. Each Director
has taken all the steps he or she ought to have taken as a Director to make himself or herself aware of any
relevant audit information (that is, information needed by the auditors in connection with preparing their
report) and to establish that the Company’s auditors are aware of that information.
Annual General Meeting
The notice convening the Company’s 2014 AGM at the Company’s offices at The Triangle, 5–17 Hammersmith
Grove, London W6 0LG on Tuesday 21 January 2014 at 3.30 p.m. is set out in a separate document and
accompanies this report for shareholders who requested a hard copy. It is also available on the Company’s
website at www.next15.com.
Independent auditors
At the 2013 AGM, shareholders appointed BDO LLP as auditors for the Group. BDO LLP have expressed
their willingness to continue in office as auditors and, on the recommendation of the Audit Committee, in
accordance with section 489 of the Companies Act 2006, resolutions are to be proposed at the AGM for the
appointment of BDO LLP as auditors of the Company and to authorise the Board to fix their remuneration.
Approved by the Board on 6 December 2013 and signed on its behalf by:
Tim Dyson
CEO
Next Fifteen Communications Group plc
Annual Report 2013 29
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 and Company 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:
(cid:120) select suitable accounting policies and then apply them consistently;
(cid:120) make judgements and accounting estimates that are reasonable and prudent;
(cid:120) 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;
(cid:120) 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 6 December 2013 and signed on its behalf by:
Tim Dyson
CEO
30
Next Fifteen Communications Group plc
Annual Report 2013
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 2013 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 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 and express an opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Financial Reporting Council’s (FRC’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 FRC's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
(cid:120) 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 2013 and of the Group’s profit for the year then ended;
(cid:120) the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union;
(cid:120) the parent Company’s financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
(cid:120) 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.
Next Fifteen Communications Group plc
Annual Report 2013 31
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONTINUED
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:
(cid:120) 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
(cid:120) the parent Company financial statements are not in agreement with the accounting records and returns; or
(cid:120) certain disclosures of Directors’ remuneration specified by law are not made; or
(cid:120) we have not received all the information and explanations we require for our audit.
Don Williams (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London
United Kingdom
6 December 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
32
Next Fifteen Communications Group plc
Annual Report 2013
CONSOLIDATED INCOME STATEMENT
for the year ended 31 July 2013
Billings
Revenue
Staff costs
Depreciation
Amortisation
Impairment
Charge for misappropriation of assets
Other operating charges
Total operating charges
Operating profit
Finance expense
Finance income
Net finance expense
Share of (losses)/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
4,11
4
2,4
6
7
2,5
8
10
2013
£’000
68,261
1,540
1,589
1,950
526
19,198
2013
£’000
113,360
96,069
(93,064)
3,005
(3,331)
2,490
(841)
(79)
2,085
(1,364)
721
328
393
721
0.56
0.49
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
Next Fifteen Communications Group plc
Annual Report 2013 33
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 July 2013
Profit for the year
Other comprehensive income / (expense):
Exchange differences on translating foreign operations
Translation differences on long-term foreign currency
intercompany loans
Net investment hedge
Other comprehensive income / (expense) for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Note
19
2013
£’000
721
951
(118)
(229)
604
1,325
932
393
1,325
2012
£’000
4,307
229
(80)
(235)
(86)
4,221
3,820
401
4,221
34
Next Fifteen Communications Group plc
Annual Report 2013
CONSOLIDATED BALANCE SHEET
as at 31 July 2013
Note
12
11
18
13,19
13,19
19
19
18
14,19
15,19
17,19
17,19
17,19
19
14,19
15,19
19
17,19
17,19
20
24
Assets
Property, plant and equipment
Intangible assets
Investment in equity accounted associate
Trade investment
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
Deferred consideration
Contingent consideration
Share purchase obligation
Total non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Corporation tax liability
Derivative financial liabilities
Share purchase obligation
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
2013
£’000
2013
£’000
2012
£’000
2012
£’000
49,457
37,593
87,050
(18,467)
(30,390)
(48,857)
38,193
3,165
41,369
1
219
3,662
1,041
26,646
8,064
2,883
9,131
1,388
88
345
1,319
2,945
3,251
591
24,218
62
1,811
206
295
3,207
1,494
7,557
3,075
(2,673)
3,184
(583)
23,954
2,721
41,019
80
212
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
48,227
33,337
81,564
(20,106)
(24,230)
(44,336)
37,228
36,008
2,185
38,193
35,109
2,119
37,228
These financial statements were approved and authorised by the Board on 6 December 2013.
T Dyson
Chief executive officer
Company number 01579589
Next Fifteen Communications Group plc
Annual Report 2013 35
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 July 2013
Share
capital
£’000
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
72
27
13
550
1,454
–
(2,673)
–
6,935 3,075
–
At 31 July 2012
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
Movement due
to ESOP share
purchases
Movement due
to ESOP share
option exercises
Movement in
relation to share-
based payments
Deferred tax on
share-based
payments
Share-based
payment charge for
disposal of equity in
a subsidiary to
employees
Dividends to Owners
of the parent
Non-controlling
interest arising
on acquisition
Non-controlling
interest dividend
At 31 July 2013
1 Other reserves include ESOP reserve, treasury reserve and hedging reserve.
–
7,557 3,075
–
(2,673)
–
1,494
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,184
2,351
–
(133) 24,100
328
–
35,109
328
2,119 37,228
721
393
833
(229)
–
604
–
604
833
(229)
328
932
393 1,325
–
–
–
–
–
(245)
24
–
–
–
–
99
563
–
–
99
563
(245)
–
(245)
24
–
24
–
569
569
–
569
–
(84)
(84)
–
(84)
–
450
450
–
450
–
(1,409)
(1,409)
– (1,409)
–
–
–
176
176
–
–
(583) 23,954
–
36,008
(503)
(503)
2,185 38,193
36
Next Fifteen Communications Group plc
Annual Report 2013
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
5,996 3,075
–
–
(4,261)
–
2,202
–
(525) 21,137
3,906
–
29,040
3,906
3,293 32,333
4,307
401
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
–
312
312
–
40
40
–
–
–
2
312
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
Next Fifteen Communications Group plc
Annual Report 2013 37
CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 31 July 2013
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation
Impairment
Finance expense
Finance income
Share of loss / (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
Movement 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
Note
4,12
4,11
4,11
6
7
4
8
4,21
4
7
2013
£’000
721
1,540
1,589
1,950
3,331
(2,490)
79
82
1,364
1,019
–
(1,178)
2,910
269
(961)
(2,058)
(1,786)
–
(161)
(166)
48
2013
£’000
2012
£’000
2012
£’000
4,307
1,328
1,483
–
2,170
(1,477)
(14)
11
1,652
312
13
9,185
9,785
2,001
11,186
(2,686)
8,500
267
10,052
(2,520)
7,532
3,229
(2,960)
(2)
(1,101)
(4,563)
(835)
3
(90)
(35)
51
(5,084)
3,416
(6,570)
962
38
Next Fifteen Communications Group plc
Annual Report 2013
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
Purchase of own shares
Capital element of finance lease
rental repayment
Net cash movement in bank borrowings and
overdrafts
Interest paid
Dividend and profit share paid to
non-controlling interest partners
Dividend paid to shareholders of the parent
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning
of the year
Exchange gains/(losses) on cash held
Cash and cash equivalents at end
of the year
Note
2013
£’000
2013
£’000
3,416
95
(5)
(221)
(59)
(1,286)
(483)
(503)
(1,409)
6
9
9
19
(3,871)
(455)
8,436
83
8,064
2012
£’000
96
(8)
–
(72)
983
(521)
(280)
(1,208)
2012
£’000
962
(1,010)
(48)
8,517
(33)
8,436
Next Fifteen Communications Group plc
Annual Report 2013 39
NOTES TO THE ACCOUNTS
for the year ended 31 July 2013
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 of the Companies Act 2006 or equivalent sections of previous
Companies Acts 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.
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:
(cid:120) Retainer and other non-retainer fees are recognised as the services are performed, in accordance with the
terms of the contractual arrangement.
40
Next Fifteen Communications Group plc
Annual Report 2013
1 Accounting policies (continued)
(cid:120) 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.
(cid:120) 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 and
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 it is 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.
Non-compete Certain acquisition agreements contain non-compete arrangements restricting the vendor’s
ability to compete with the acquiring business during an earnout period. The non-compete arrangements have
a finite useful life equivalent to the length of the earnout period and are carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method over the length of the arrangement.
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% to 50% per annum straight-line.
– 20% per annum straight-line.
– 25% per annum straight-line.
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.
Next Fifteen Communications Group plc
Annual Report 2013 41
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
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 Non-controlling interests (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.
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.
42
Next Fifteen Communications Group plc
Annual Report 2013
1 Accounting policies (continued)
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 loans 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.
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 On initial recognition, the liability for contingent consideration relating to
acquisitions is measured at fair value. The liability is calculated 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 fair value and is calculated
based on 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.
Next Fifteen Communications Group plc
Annual Report 2013 43
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
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.
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;
(cid:120)
the initial recognition of an asset or liability in a transaction which is not a business combination and at the
(cid:120)
time of the transaction affects neither accounting nor taxable profit; and
(cid:120)
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).
44
Next Fifteen Communications Group plc
Annual Report 2013
1 Accounting policies (continued)
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:
(cid:120) the same taxable group company; or
(cid:120) 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.
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. 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.
Next Fifteen Communications Group plc
Annual Report 2013 45
NOTES TO THE ACCOUNTS CONTINUED
1 Accounting policies (continued)
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 period or later accounting periods 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 two reportable segments, being those providing Integrated Communications
and those considered to be Specialist Agencies. Integrated Communications incorporates the two segments
reported in the prior year of public relations services in the technology and consumer markets. Specialist
Agencies incorporate results of the digital and research consultancy, and corporate communications
consultancy reported separately in the prior year. Within these two 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, 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. Head office costs relate to Group costs before allocation of intercompany charges to the
operating segments. Inter-segment 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.
Year ended 31 July 2013
Revenue
Segment adjusted operating profit
Year ended 31 July 2012
Revenue
Segment adjusted operating profit
Integrated
Communications
£’000
Specialist
Agencies
£’000
Head Office
£’000
Total
£’000
80,570
10,170
78,100
11,934
15,499
2,828
13,483
2,299
–
(4,778)
–
(4,186)
96,069
8,220
91,583
10,047
46
Next Fifteen Communications Group plc
Annual Report 2013
2 Segment information (continued)
Measurement of operating segment profit (continued)
Europe and
Africa
£’000
UK
£’000
US
£’000
Asia Pacific
£’000
Head Office
£’000
Total
£’000
Year ended 31 July 2013
Revenue
Segment adjusted
operating profit
Year ended 31 July 2012
Revenue
Segment adjusted
operating profit
19,119
10,504
52,468
13,978
–
96,069
1,146
(217)
11,804
265
(4,778)
8,220
19,744
10,470
47,113
14,256
–
91,583
3,345
907
9,312
669
(4,186)
10,047
A reconciliation of segment adjusted operating profit to profit before income tax is provided as follows:
Segment adjusted operating profit
Amortisation of acquired intangibles
Impairment of goodwill (note 11)
Reorganisation costs (note 4)
Charges associated with equity transactions accounted for as share-based
payments (note 4)
Charge for misappropriation of assets (note 4)
Income from recovery and subsequent re-sale of assets (note 4)
Cost associated with investigation and response to fraudulent activity (note 4)
Movement in fair value of forward foreign exchange contracts
Total operating profit
Unwinding of discount on contingent consideration (note 6)
Unwinding of discount on share purchase obligation (note 6)
Change in estimate of future contingent consideration payable (note 17)
Change in estimate of future share purchase obligation (note 17)
Movement in fair value of interest rate cap-and-collar contract (note 7)
Share of (losses)/profits of associate
Other finance expense (note 6)
Other finance income (note 7)
Profit before income tax
2013
£’000
8,220
(1,379)
(1,950)
(779)
(581)
(265)
318
(579)
–
3,005
(797)
(370)
(254)
901
114
(79)
(483)
48
2,085
2012
£’000
10,047
(1,181)
–
(437)
–
(1,778)
–
–
(13)
6,638
(968)
(453)
532
584
84
14
(523)
51
5,959
Next Fifteen Communications Group plc
Annual Report 2013 47
NOTES TO THE ACCOUNTS CONTINUED
3 Employee information
Staff costs for all employees, including Directors, consist of:
Wages and salaries
Social security costs
Pension costs
Share-based payment charge (note 21)
The average number of employees during the year, by reportable service
segment, was as follows:
Integrated Communications
Specialist Agencies
Head Office
2013
£’000
2012
£’000
60,850
4,995
1,397
1,019
68,261
56,246
4,966
1,243
312
62,767
2013
Number
2012
Number
977
152
17
1,146
924
148
16
1,088
2013
Number
2012
Number
The average number of employees during the year, by geographical location,
was as follows:
UK
Europe and Africa
US
Asia Pacific
Head Office
234
98
422
375
17
1,146
Key management personnel are considered to be the Board of Directors as set out on pages 11 and 12.
Directors’ remuneration consists of:
Short term employee benefits
Pension costs
Share-based payment charge
The highest paid Director received total emoluments of £477,000 (2012: £479,000).
2013
£’000
859
64
145
1,068
233
121
384
334
16
1,088
2012
£’000
862
58
48
968
48
Next Fifteen Communications Group plc
Annual Report 2013
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
Impairment of goodwill
Loss on sale of property, plant and equipment
Movement in fair value of forward foreign exchange contracts
Defined contribution pension cost
Charge for misappropriation of assets1
Reorganisation costs2
Share-based payment charge
Share-based payment charge arising on acquisition of non-controlling interest3
Share-based payment charge for disposal of equity in a subsidiary to employees4
Operating lease income
Operating lease rentals
– property
– plant and machinery
Foreign exchange loss
Fees payable to Group auditors
2013
£’000
1,460
80
1,589
1,950
82
–
1,397
526
779
438
131
450
(225)
4,849
206
478
549
2012
£’000
1,119
209
1,483
–
11
13
1,243
1,778
437
312
–
–
(344)
5,478
168
92
455
1Charges 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. In the current year part of the charge relates to the cost of investigating the fraudulent activity and the impact on restructuring the
senior finance team at Bite. There has also been some recovery of assets purchased with the misappropriated cash. The impact on the Group is
as follows:
Charge for write off of assets
Income from recovery and subsequent re-sale of assets
Charge for recognition of understated liabilities
Cost associated with investigation and response to fraudulent
activity
Pre tax expense
Tax
Post Tax expense (note 10)
Total impact on
Group Income
statement
2013
£’000
Total impact on
Group Income
statement
2012
£’000
265
(318)
–
579
526
(203)
323
1,608
–
170
–
1,778
(553)
1,225
2Restructure costs relate to significant non-recurring spend within Brands wholly required to transition them into Integrated Communications
businesses with more focus on digital services.
3This transaction relates to the acquisition of the 20% minority interest in Bourne whereby performance shares were issued as partial
consideration.
4 This transaction relates to a restricted grant of equity given to employees of the OutCast subsidiary at nil cost which, whilst giving them no
access to the value of net assets at inception, does hold value in the form of access to future profit distributions as well as any future sale value
under the performance-related mechanism set out in the share sale agreement. This value is recognised as a one-off share-based payment
expense of £450,000 in the current year income statement (note 26).
Next Fifteen Communications Group plc
Annual Report 2013 49
NOTES TO THE ACCOUNTS CONTINUED
4 Operating profit (continued)
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
2013
£’000
85
397
24
43
549
2012
£’000
77
291
23
64
455
5 Reconciliation of pro forma financial measures
The following reconciliations of pro forma financial measures have been presented to provide additional
information which will be useful to the users of the financial statements in understanding the underlying
performance of the Group.
The adjusted measures are also used for the performance calculation of the adjusted earnings per share used
for the vesting of employee share options (note 10), banking covenants and cashflow analysis.
Adjusted profit before income tax
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 (note 17)
Unwinding of discount on share purchase obligation (note 17)
Charge for misappropriation of assets (note 4)
Income from recovery and sale of misappropriated assets (note 4)
Cost associated with investigation and response to fraudulent activity (note 4)
Change in estimate of future contingent consideration payable (note 17)
Change in estimate of future share purchase obligation (note 17)
Charges associated with equity transactions accounted for as share-based
payments (note 4)
Restructuring and reorganisation costs associated with digital transitions within
brands (note 4)
Amortisation of acquired intangibles
Impairment of goodwill1
Adjusted profit before income tax
1 The impairment for goodwill relates to Bite Germany (note 11).
2013
£’000
2,085
(114)
–
797
370
265
(318)
579
254
(901)
581
779
1,378
1,950
7,705
2012
£’000
5,959
(84)
13
968
453
1,778
–
–
(532)
(584)
–
437
1,181
–
9,589
50
Next Fifteen Communications Group plc
Annual Report 2013
5 Reconciliation of pro forma financial measures (continued)
Adjusted EBITDA
Operating profit
Depreciation of owned property, plant and equipment
Depreciation of assets held under finance leases
Amortisation of intangible assets
Impairment of goodwill
Charge for misappropriation of assets (note 4)
Income from recovery and sale of misappropriated assets (note 4)
Cost associated with investigation and response to fraudulent activity (note 4)
EBITDA excluding impact of prior years’ fraudulent activity
Charges associated with equity transactions accounted for as share-based
payments (note 4)
Restructuring and reorganisation costs associated with digital transitions within
brands (note 4)
Adjusted EBITDA
Adjusted Staff Costs
Staff costs
Reorganisation costs
Charges associated with equity transactions accounted for as share-based
payments (note 4)
Adjusted Staff Costs
2013
£’000
3,005
1,460
80
1,589
1,950
265
(318)
579
8,610
581
779
2012
£’000
6,638
1,119
209
1,483
–
1,778
–
–
11,227
–
437
9,970
11,664
2013
£’000
68,261
(779)
2012
£’000
62,767
(437)
(581)
–
66,901
62,330
Next Fifteen Communications Group plc
Annual Report 2013 51
NOTES TO THE ACCOUNTS CONTINUED
6 Finance expense
Financial liabilities at amortised cost
Bank interest payable
Unwinding of discount on share purchase obligation (note 17)
Change in estimate of future share purchase obligation (note 17)
Financial liabilities at fair value through profit and loss
Unwinding of discount on contingent consideration (note 17)
Change in estimate of future contingent consideration payable (note 17)
Other
Finance lease interest
Other interest payable
Finance expense
7 Finance income
Financial assets at amortised cost
Bank interest receivable
Change in estimate of future share purchase obligation (note 17)
Financial assets at fair value through profit and loss
Movement in fair value of interest rate cap-and-collar contract
Change in estimate of future contingent consideration (note 17)
Other
Other interest receivable
Finance income
2013
£’000
464
370
145
797
1,536
8
11
3,331
2013
£’000
41
1,046
114
1,282
7
2,490
2012
£’000
513
453
108
968
118
2
8
2,170
2012
£’000
50
692
84
650
1
1,477
52
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Annual Report 2013
8 Taxation
The major components of income tax expense for the year ended 31 July 2013 are:
Consolidated Income Statement
Current income tax
Current income tax expense
Adjustments in respect 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 debit/(credit) relating to share-based remuneration
Income tax expense/(benefit) 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 23.67% (2012: 25.33%). The difference is explained below:
Profit before income tax
Corporation tax expense at 23.67% (2012: 25.33%)
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
2013
£’000
2012
£’000
1,148
(397)
757
(144)
1,364
84
84
2,085
494
724
(77)
740
897
(986)
(428)
1,364
2,709
(62)
(974)
(21)
1,652
(40)
(40)
5,959
1,509
(3)
(7)
116
989
(876)
(76)
1,652
The Group’s effective corporation tax rate for the year ended 31 July 2013 (65%) is higher than the standard UK
rate (23.67%) due to certain important factors having a significant effect on the tax rate: (i) there were losses in
certain territories (notably UK and Germany) where it would not be prudent to recognise deferred tax assets,
(£740k impact on the tax rate); (ii) charges made in the income statement associated with adjustments to
acquisition accounting for subsidiaries that are not taxable (£724k negative rate impact); and (iii) adjustments
to the prior year tax liability following revision of management estimates for future tax exposure.
As a result of the reduction in the UK corporation tax rate to 21% that was substantively enacted in July 2013
and effective from 1 April 2014, the UK deferred tax balances have been remeasured. The UK corporation tax
rate is expected to reduce by a further 1% to 20% from 1 April 2015. This change had not been substantively
enacted at the balance sheet date and, therefore, is not recognised in the financial statements.
Next Fifteen Communications Group plc
Annual Report 2013 53
NOTES TO THE ACCOUNTS CONTINUED
9 Dividend
Dividends paid during the year
Final dividend paid for prior year of 1.735p per Ordinary Share (2012: 1.535p)
Interim dividend paid of 0.625p per Ordinary Share (2012: 0.565p)
Non-controlling interest dividend¹
2013
£’000
1,036
373
1,409
503
2012
£’000
881
327
1,208
280
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 £160,000 (2012: £54,000), The Blueshirt Group LLC of £174,000 (2012: £124,000), Outcast of
£31,000 (2012: Nil) and Bourne of £28,000 (2012: Nil). A dividend was paid to the non-controlling interest of Beyond of £110,000 (2012:
£102,000).
The ESOP waived its right to dividends in the financial year ended 31 July 2013 (£215) and the year ended
31 July 2012 (£192).
A final dividend of 1.925p per share (2012: 1.735p) has been proposed. This has not been accrued. The interim
dividend was 0.625p per share (2012: 0.565p), making a total for the year of 2.55p per share (2012: 2.3p).
The final dividend, if approved at the AGM on the 21 January 2014, will be paid on 7 February 2014 to all
shareholders on the Register of Members as at 10 January 2014. The ex-dividend date for the shares is
8 January 2014.
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 and deferred consideration
Unwinding of discount on share purchase obligation
Charge for misappropriation of assets
Income from recovery and sale of misappropriated assets
Cost associated with investigation and response to fraudulent activity
Change in estimate of future contingent consideration payable
Change in estimate of share purchase obligation
Charges associated with equity transactions accounted for as share-based
payments
Restructuring and reorganisation costs associated with digital transitions within
brands
Amortisation of acquired intangibles
Impairment of intangibles
Adjusted earnings attributable to ordinary shareholders
2013
£’000
328
(87)
–
797
370
158
(191)
356
(360)
(953)
550
569
940
1,950
4,427
2012
£’000
3,906
(65)
10
968
453
1,225
–
–
(534)
(589)
–
336
803
–
6,513
54
Next Fifteen Communications Group plc
Annual Report 2013
10 Earnings per share (continued)
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
Number
Number
59,068,925
5,641,070
1,863,899
66,573,894
0.56p
0.49p
7.49p
6.65p
57,036,925
5,008,853
2,645,103
64,690,881
6.85p
6.04p
11.42p
10.07p
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.
11 Intangible assets
Cost
At 1 August 2011
Additions resulting from
internal development
Acquired through business
combinations
Disposals
Exchange differences
At 31 July 2012
Additions resulting from
internal development
Acquired through business
combinations1
Exchange differences
At 31 July 2013
Amortisation and
impairment
At 1 August 2011
Charge for the year
Disposals
Exchange differences
At 31 July 2012
Charge for the year
Impairment2
Exchange differences
At 31 July 2013
Net book value at 31 July
2013
Net book value at 31 July 2012
Software
£’000
Trade name
£’000
Customer
relationships
£’000
Non-compete
£’000
Goodwill
£’000
Total
£’000
3,081
2,131
4,007
97
–
–
31
(3)
112
3,318
205
–
11
3,534
1,893
456
(3)
99
2,445
352
–
57
2,854
–
–
101
2,232
1,138
–
90
5,235
–
–
–
75
2,307
173
111
–
9
293
112
–
13
418
835
242
6,312
1,266
916
–
47
2,229
1,095
–
132
3,456
2,856
3,006
680
873
1,889
1,939
–
–
–
–
–
–
–
79
–
79
–
–
–
–
–
30
–
–
30
49
–
33,617
42,836
–
97
2,638
–
655
36,910
3,807
(3)
958
47,695
–
205
1,772
821
39,503
2,686
1,149
51,735
1,578
–
–
131
1,709
–
1,950
(51)
3,608
4,910
1,483
(3)
286
6,676
1,589
1,950
151
10,366
35,895
35,201
41,369
41,019
1 During the year, the Group acquired Content and Motion and Connections Media (note 26), recognising intangible customer relationships of
£240,000 and £595,000 respectively. In addition, an intangible asset associated with non-compete agreements was recognised in respect of both
companies of £57,000 and £22,000 respectively.
2
The impairment for goodwill relates to Bite Germany. Further details are provided later in this note.
Next Fifteen Communications Group plc
Annual Report 2013 55
NOTES TO THE ACCOUNTS CONTINUED
11 Intangible assets (continued)
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:
2013
£’000
2012
£’000
Bite (UK) 1
Lexis (UK)
OutCast (US)
Bite (US) 1
Beyond (UK) 2
Beyond (US)
M Booth (US)
Bite Upstream (APAC)
Blueshirt
Bourne
Trademark3
Connections Media (note 26)
1,512
9,329
6,683
320
61
75
4,290
1,173
4,376
5,631
1,751
–
35,201
1 During the year, the trade and assets of Bourne were transferred into the Bite UK and Bite US businesses. As such, the goodwill associated with
Bourne in the prior year of £5,631,000, has been allocated to Bite UK (£5,068,000) and Bite US (£563,000).
2 Includes an addition of £258,000 in respect of the acquisition of Content and Motion (note 26).
3 During the year, working capital payments of £110,000 were made to the vendors based on finalisation of the working capital position. This
amount was capitalised within Goodwill since it fell within the measurement period adjustment window. A further uplift of £89,000 was
recognised in respect of retranslation of the foreign currency denominated asset. Subsequently the entire goodwill associated with the
Trademark businesses has been impaired. See below.
6,580
9,349
6,974
990
320
79
4,476
1,212
4,521
–
–
1,394
35,895
Goodwill is allocated on initial recognition to each of the Group’s cash-generating units (“CGU”) 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 Asia 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 2014 budget approved by the Board for each
cash-generating unit.
There are two possible stages to the impairment testing process. Stage two is reached only if impairment is
indicated at stage one.
Stage one: After the initial projection period, no further formal forecasts are required to be submitted to the
Board and a steady long-term growth rate of 2.5% with no improvement in operating margin is 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.
Stage two: If, under stage one assumptions, the present value of future cash flows is less than the associated
carrying value of goodwill, more specific assumptions for growth rates and margins over the projection period
of four years following the 2014 budget are required and submitted to the Board.
In both stages, after the initial five year projection period, 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.
56
Next Fifteen Communications Group plc
Annual Report 2013
11 Intangible assets (continued)
Impairment testing for cash-generating units containing goodwill (continued)
Pre-tax discount rate
A pre-tax discount rate, being the Board’s estimated of the Group’s weighted average cost of capital (‘WACC’),
of 13% (2012: 12%), has been used in discounting all projected cash flows.
The Board recognises that the WACC will be different for different sectors and geographies where subsidiaries
operate. Based on the results of sensitivity analysis and an appreciation of the country and 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
Two CGUs have been identified as showing indications of impairment, those being Bite Germany and Lexis.
With the exception of those two businesses, if expected growth rates reduced to 0%, or if the discount rate
increased to 15%, this would not cause the carrying values of the groups of CGUs to exceed their recoverable
amounts.
Lexis
During the prior year and continuing into the current year, Lexis underwent a significant transformation as part
of the Group’s digital transition. Changes in the senior management team, direction of the Company and
integration of the acquired business Paratus, have represented an investment in future growth prospects and
opportunities of the business. The skill sets acquired with Paratus have complimented the Lexis offering and
giving access to more profitable client base in a newer market.
Through this transformation process the business continues to replace high-turnover, low-margin clients with
higher value work. Existing client attrition, notably from three of the businesses larger clients, has reduced
revenues but has been offset with some exciting new wins, particularly in the social media and digital seeding
disciplines, which is where much of the investment and growth in the business is now expected to come from.
Whilst confidence in future growth is high, it is noted that the growth comes from a lower revenue base in a
more uncertain and unpredictable project environment. This creates uncertainty in the five-year forecasts for
Lexis which has been recognised by the Board. Management have control over staff costs but it is assumptions
around new business wins and client attrition where there is most scope for error in estimations.
Expectations of an average 6% growth in revenues for a projection period of five years from 2013 and an
average operating margin of 19%, generates substantial headroom over goodwill of £3,095,000 (33%).
Sensitivity indicates that if the WACC were to increase by 2% to 15%, the value in use of the business falls by
£2,300,000. If gross margins over the five-year projection period fall by 2%, there would be a reduction in
headroom of £913,000.
Further sensitivity analysis on the assumptions shows that if the discount rate is increased in isolation to 15%,
growth in revenues over the five-year projection period would need to be 5.3% with an average operating
margin of 18% for the estimated recoverable amount of Lexis to be equal to its carrying value.
Confidence is high for the future growth of Lexis and expectations around discounted cash flows offer support
for the value of goodwill associated with Lexis. They are very sensitive to changes in assumption or actual
results. Given the uncertain environment and sensitivity to results, management will therefore continue to
monitor the investment in Lexis.
Bite Germany
Bite Germany have seen significant management disruption over the past 12 months which required a total
restructure of the leadership within the business. During the five-year projection period, management are
anticipating the company will enter into a phase of recovery. Uncertainty exists over the ability of the business
to generate significant cash flows over the projection period that would be sufficient to support the £1,950,000
value of goodwill however they are sufficient to cover the value of intangibles and property, plant and
equipment.
The lower expectation of performance also indicate that there is no future liability for contingent consideration
and as such there has been a credit to the income statement of £1,116,000 in respect of that change in
estimate (note 17).
Next Fifteen Communications Group plc
Annual Report 2013 57
NOTES TO THE ACCOUNTS CONTINUED
11 Intangible assets (continued)
Detailed forecasts around what the business is capable of producing indicate an impairment over the
investment. Given the uncertainties around the forecast results of the business and historic results to date, and
the management expectations of future growth, the Board have taken the decision to fully impair the goodwill
at this point.
There is still a strong focus from both Bite management and the Next Fifteen Board to re-invest in this business
and to expand into the German market.
For all other CGUs there was no impairment of goodwill as the estimated recoverable amount comfortably
exceeds the carrying value.
12 Property, plant and equipment
Cost
At 31 July 2011
Exchange differences
Additions
Acquired through business
combinations
Disposals
At 31 July 2012
Exchange differences
Additions
Acquired through business
combinations
Disposals
At 31 July 2013
Accumulated depreciation
At 1 August 2011
Exchange differences
Charge for the year
Disposals
At 31 July 2012
Exchange differences
Charge for the year
Disposals
At 31 July 2013
Net book value
At 31 July 2013
At 31 July 2012
Short leasehold
improvements
£’000
Office
equipment
£’000
Office
furniture
£’000
Motor
vehicles
£’000
3,634
59
71
15
(57)
3,722
69
1,010
–
(223)
4,578
2,251
34
457
(57)
2,685
43
566
(187)
3,107
1,471
1,037
6,068
102
710
103
(166)
6,817
56
558
118
(340)
7,209
4,886
90
700
(158)
5,518
32
799
(356)
5,993
1,216
1,299
1,670
38
54
–
(81)
1,681
39
217
4
(457)
1,484
1,175
31
167
(75)
1,298
26
172
(484)
1,012
472
383
36
(3)
–
–
–
33
(2)
8
–
(25)
14
29
(2)
4
–
31
(1)
3
(25)
8
6
2
Total
£’000
11,408
196
835
118
(304)
12,253
162
1,793
122
(1,045)
13,285
8,341
153
1,328
(290)
9,532
100
1,540
(1,052)
10,120
3,165
2,721
The net book value of property, plant and equipment for the Group includes assets held under finance lease
contracts as follows: £Nil of short leasehold improvements (2012: £7,000) and £318,000 of office equipment
and furniture (2012: £66,000). Depreciation charged in the year in respect of finance leases was £80,000 (2012:
£209,000)
58
Next Fifteen Communications Group plc
Annual Report 2013
13 Trade and other receivables
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Balance owing from associate
Other receivables
Prepayments
Accrued income
Non-current
Rent deposits
2013
£’000
2012
£’000
20,133
(651)
19,482
335
1,154
1,458
4,217
26,646
19,897
(409)
19,488
–
763
1,520
2,890
24,661
1,041
875
As of 31 July 2013, trade receivables of £651,000 (2012: £409,000) were impaired. Movements in the provision
are as follows:
At 1 August
Provision for receivables impairment
Receivables written off during the year as uncollectable
Unused amounts reversed
Foreign exchange movements
At 31 July
2013
£’000
409
456
(164)
(72)
22
651
2012
£’000
350
226
(150)
(23)
6
409
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
2013
£’000
11,948
4,496
1,864
1,174
19,482
2012
£’000
11,105
5,213
1,975
1,195
19,488
Next Fifteen Communications Group plc
Annual Report 2013 59
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
2013
£’000
2012
£’000
4,410
63
1,274
1,840
3,301
7,727
5,603
24,218
3,365
25
1,533
1,814
2,009
6,136
4,723
19,605
88
6
2013
£’000
129
301
(23)
407
62
345
2012
£’000
131
–
(2)
129
–
129
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 2013 £142,000 (2012: £23,000) of the provision covers the cost
of dilapidations on a property which Bite leased following refurbishments during the year. A dilapidations
provision of £106,000 (2012: £106,000) is also been recognised by Lexis in respect of obligations under the
lease on its premises. Agreement and settlement of dilapidations provisions is not expected within the year.
The remaining provision of £159,000 is management’s best estimate of other provisions required.
16 Amounts due under finance leases
Amounts payable:
Within one year
In two to five years
Less: finance charges allocated to future periods
Present value of lease obligations
Minimum lease payments
Present value of
minimum lease payments
2013
£’000
62
115
177
(26)
151
2012
£’000
25
6
31
–
31
2013
£’000
63
88
151
–
151
2012
£’000
25
6
31
–
31
60
Next Fifteen Communications Group plc
Annual Report 2013
17 Other financial liabilities
Deferred
consideration2
£’000
Contingent
consideration1
£’000
Share
purchase
obligation
£’000
Total
£’000
At 31 July 2011
Arising during the year
Changes in assumptions
Exchange differences
Utilised
Unwinding of discount
At 31 July 2012
Reclassification
Arising during the year
Changes in assumptions
Exchange differences
Utilised
Unwinding of discount
At 31 July 2013
Current
Non-current
1 Contingent consideration on acquisitions – during the year, the Group acquired a controlling stake in Connections Media. See note 26 for
additional information on this acquisition.
2 Deferred consideration relates to Bourne where the quantity of the final payment has been agreed.
10,917
1,430
(532)
295
(5,146)
968
7,932
(1,537)
888
254
172
(2,192)
635
6,152
3,207
2,945
4,348
516
(584)
134
(878)
453
3,989
–
–
(901)
88
–
370
3,546
295
3,251
–
–
–
–
–
–
–
1,537
–
–
–
(380)
162
1,319
–
1,319
15,265
1,946
(1,116)
429
6,024
1,421
11,921
–
888
(647)
260
(2,572)
1,167
11,017
3,502
7,515
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 estimate the fair value of these liabilities taking into account
expectations of future payments. The expectation of future payments is based on an analysis of the approved
FY14 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.
Total
liability as
at 31 July
2012
£’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
2013
£’000
Blueshirt
Upstream
Beyond
M Booth
463
Bourne
Other
Trademark
Paratus
Connections
Media
3,512
1,169
802
2,504
492
1,537
138
1,056
711
–
–
–
–
–
–
–
–
–
558
89
67
179
57
162
–
–
20
145
(426)
(240)
–
(15)
–
–
–
(365)
984
–
–
552
–
–
–
(1,116)
(166)
170
29
–
(22)
18
–
–
60
–
–
–
–
(2,057)
–
(380)
(135)
–
–
5,369
861
629
1,156
552
1,319
3
–
200
–
11,921
888
888
35
1,167
–
(901)
–
254
5
260
–
928
(2,572) 11,017
(438)
(102)
(63)
–
(55)
–
–
(12)
(50)
(93)
(813)
47
–
188
–
(59)
–
–
–
–
–
176
Next Fifteen Communications Group plc
Annual Report 2013 61
NOTES TO THE ACCOUNTS CONTINUED
17 Other financial liabilities (continued)
Sensitivity analysis
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.
Blueshirt
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 FY13 liability reflects an
expectation of achieving the FY14 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 FY14 approved budget.
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 £438,000 (8%). For timing sensitivity over the share purchase obligation (£1,319,000), the accounting
treatment assumes settlement will take place at the latest opportunity. If settled at the earliest opportunity, the
liability would decrease by £47,000 (4%) representing an income to the Group.
Trademark
During the year, Trademark has had significant movements in the liability due to changes in estimate of future
contingent consideration. This follows a re-estimation of future performance based on lower than expected
current year results, approved FY14 budgets which see a fall in revenue and profit due to poor market
conditions, and revised expectations for future market conditions over the course of the earnout.
Bourne
Following completion of the performance period, the final contingent consideration for the acquisition of CMG
Worldwide Limited (trading as ‘Bourne’) was fixed at a set amount (£1,900,000), discounted back to its present
value (£1,537,000) and reclassified to deferred consideration. On 16 January 2013, the Group paid the first
instalment of £380,000 with the remaining £1,520,000 not becoming due until after 31 July 2014.
M Booth
The final M Booth contingent consideration is based on results to 31 July 2013. Since the balance sheet date,
these numbers have been finalised and audited as such post the balance sheet date the amount has been
reclassified as deferred consideration to reflect the fact that there is no sensitivity over the payment. There was
an increase in the change in estimate in the year due to stronger than expected performance allowing M Booth
to reach a kicker payment within their earnout agreement.
62
Next Fifteen Communications Group plc
Annual Report 2013
17 Other financial liabilities (continued)
Paratus
During the year, Paratus has had significant movements in the liability due to changes in estimate of future
share purchase obligations. This is based on lower than expected current year results due to the loss of one of
their largest clients and subsequently a re-estimation of future performance based approved FY14 budgets,
and revised expectations for future market conditions over the course of the earnout.
Beyond
The actual results for Beyond in FY13 were below budget, resulting in a reduction in the estimate of future
consideration. Beyond is considered the most sensitive earnout to potential changes in timing of settlement for
the obligation. The earliest date settlement could take place is FY14 whereas the accounting assumes
settlement will take place at the latest possible date, FY15. If settlement of the liability happened in FY14, this
would decrease the liability by £188,000 (30%), 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
The Upstream share purchase obligation is based on FY13 actual results which are known and the expected
FY14 results. The reduction of the liability in the year was a result of the FY13 budget not being met and a
downward revision of the FY14 budget.
The sensitivity of this liability has decreased as there is only 1 year left for which there are now approved
budgets in place.
Next Fifteen Communications Group plc
Annual Report 2013 63
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 mis-
appropria-
tion of
assets
£’000
Total
£’000
296
547
1,037
85
(919)
101
1,234
–
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
(114)
28
163
40
(360)
(31)
199
(538)
(613)
–
–
–
(16)
–
–
–
–
(84)
–
–
–
–
(66)
–
–
–
–
(22)
–
–
247
527
1,135
121
(1,442)
43
1,643
–
–
–
–
(38)
(66)
(84)
2,274
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
Credit/
(charge)
to income
Exchange
differences
Re class from
current tax
Share option
schemes
At 31 July
2013
After netting off balances, the following are the deferred tax assets and liabilities recognised in the
Consolidated Balance Sheet:
2013
£’000
2012
£’000
3,662
(1,388)
2,274
3,320
(245)
3,075
Net deferred tax balance
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
64
Next Fifteen Communications Group plc
Annual Report 2013
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 £740,255. The deferred tax asset not recognised in respect of tax losses available to carry forward includes
an amount relating to the UK £306,080, which has no time limit for utilisation, Germany £323,128, which also
has no time limit for utilisation, Hong Kong £50,270 no time limit on utilisation and other territories £60,777
that have time limits for utilisation of between five years and an indefinite life.
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 2013 borrowings of US$12m are covered by an interest rate swap arrangement
with rates fixed at 2.09% less 3 month US Libor, above borrowing costs, 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 2013, based on year end balances and rates.
United Kingdom
US
Movement in
basis points
+200
+200
2013
£’000
(181)
191
2012
£’000
(211)
335
A rise in US interest rates of 2% would give a positive movement of £200,000 (2012: £345,000) 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
instrument in the fair value hierarchy.
Next Fifteen Communications Group plc
Annual Report 2013 65
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 2013 the Group had a £16,000,000 revolving loan credit facility from Barclays Bank, available in
sterling, US dollar and euro, with the undrawn amount of £7,254,000 (2012: £5,557,000). The interest rate is
2.25% above LIBOR and the facility is available to 31 December 2014. In addition, the Group has an overdraft
facility with Barclays Bank, of £1,500,000 (2012: £1,500,000) at a rate of 1.5% (2012: 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 (£1,804,000) (2012: US$2,735,000 (£1,746,000)) at the prime rate (currently 3.25%) 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 2014. At the balance sheet
date, the Group had utilised £449,000 of the Barclays Bank facility and $950,000 of the Wells Fargo facility was
in use for letters of credit.
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 2013 and 2012, based on
contractual undiscounted payments:
As at 31 July 2013
Financial liabilities
Derivative financial instruments – cash inflows
Derivative financial instruments – cash outflows
As at 31 July 2012
Financial liabilities
Derivative financial instruments – cash inflows
Derivative financial instruments – cash outflows
Within
one year
£’000
Between two
and five years
£’000
28,663
–
144
28,807
22,370
–
126
22,496
16,672
–
54
16,726
19,695
–
174
19,869
Total
£’000
45,335
–
198
45,533
42,065
–
300
42,365
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 considers the use of 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 2013 based on year end balances
and rates.
US dollar
Euro
Australian dollar
Chinese renminbi
Hong Kong dollar
Indian rupee
Singapore dollar
66
Next Fifteen Communications Group plc
Annual Report 2013
Weakening
against sterling
20%
20%
20%
20%
20%
20%
20%
2013
£’000
(200)
(371)
(44)
298
(209)
20
219
2012
£’000
(492)
(346)
(317)
29
51
(79)
166
19 Financial instruments (continued)
Currency risk
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 2013 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%
2013
£’000
17
84
(28)
(28)
62
(17)
29
2012
£’000
(4)
(37)
(35)
26
17
(63)
(35)
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
2013
£’000
26,646
8,064
2012
£’000
24,661
8,436
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 2013 to 2018.
Total loans and borrowings
Obligations under finance leases
Less: cash and cash equivalents
Net debt
Total equity
Total capital
2013
£’000
9,722
151
(8,064)
1,809
38,193
40,002
2012
£’000
11,009
31
(8,436)
2,604
37,228
39,832
Next Fifteen Communications Group plc
Annual Report 2013 67
NOTES TO THE ACCOUNTS CONTINUED
19 Financial instruments (continued)
Capital risk management (continued)
Net debt
Share purchase obligation
Deferred consideration
Contingent consideration
2013
£’000
1,809
3,546
1,319
6,152
12,826
2012
£’000
2,604
3,989
–
7,932
14,525
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; 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
2013, with the exception of obligations under finance leases. The book value of obligations under finance
leases is £177,000 (2012: £31,000) and the fair value is £151,000 (2012: £31,000).
68
Next Fifteen Communications Group plc
Annual Report 2013
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 2013
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
Provisions
Share purchase obligation1
Contingent consideration1
Derivative financial liabilities
Non-current financial liabilities
Loans and borrowings
Provisions
Other payables
Deferred consideration1
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
–
–
–
–
–
–
–
–
–
3,207
206
3,413
–
–
–
1,319
2,945
–
4,264
–
–
–
–
–
1,041
1,041
8,064
26,646
34,710
591
24,218
62
295
–
–
25,166
9,131
345
88
–
–
3,251
12,815
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
1,041
1,041
8,064
26,646
34,710
591
24,218
62
295
3,207
206
28,579
9,131
345
88
1,319
2,945
3,251
17,079
Next Fifteen Communications Group plc
Annual Report 2013 69
NOTES TO THE ACCOUNTS CONTINUED
19 Financial instruments (continued)
Financial instruments recognised in the balance sheet (continued)
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
Other payables
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
–
4,987
–
–
–
–
–
875
875
8,436
24,661
33,097
259
19,605
–
–
19,864
10,750
129
6
–
3,989
14,874
–
–
–
–
–
–
–
–
–
–
–
Interest-bearing loans and borrowings
The table below provides a summary of the Group’s loans and borrowing as at 31 July 2013:
Current
Variable rate bank loan
Variable rate bank loan
Variable rate bank loan
Fixed rate bank loan
Obligations under finance leases
Non-current
Variable rate bank loan
Variable rate bank loan
Variable rate bank loan
Variable rate bank loan
Fixed rate bank loan
Effective interest rate
Barclays Bank base rate + 1.5%
Wells Fargo Bank call-loan rate + 2.88%
Wells Fargo Bank call-loan rate + 2.75%
7.17%
3.42%
Barclays Bank LIBOR + 2.25%
Wells Fargo Bank call-loan rate + 2.88%
Wells Fargo Bank call-loan rate + 2.75%
Wells Fargo Bank call-loan rate + 0.01%
3.21%
Obligations under finance leases
3.42%
2013
£’000
449
–
142
–
591
63
8,746
–
85
–
300
9, 131
88
70
Next Fifteen Communications Group plc
Annual Report 2013
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
2012
£’000
–
130
–
115
245
25
10,443
219
–
88
–
10,750
6
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$3,200,000
has been designated as a hedge of the net investment in the Group’s US subsidiary Blueshirt.
An additional $1,800,000 has been designated as a hedge of the net investment in the Group’s US
subsidiary Connections Media. The fair value of the borrowings at 31 July 2013 is US$12,000,000 (£7,915,000)
(FY12: US$10,250,000 (£6,348,000). The foreign exchange loss of £229,000 (FY12: loss of £235,000) 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 2012
Issued in the year in respect of contingent consideration and share purchase
obligations
Issued in the year in satisfaction of exercised share options (note 21)
At 31 July 2013
Number
£’000
58,148,961
1,454
531,343
1,076,723
59,757,027
13
27
1,494
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.
2013
2012
Risk-free rate
Dividend yield
Volatility1
1 Volatility is based on the Group’s share price movement between January 2003 and July 2013 . In the opinion of the Directors this period is
appropriate, given the Group’s history of growth and acquisitions and external industry factors.
4.00%
2.81%
33%
4.00%
2.22%
34%
In the year ended 31 July 2013 the Group recognised a charge of £1,019,000 made up of; £438,000 (2012:
£312,000) in respect of employment-related LTIP shares; £131,000 (2012: £Nil) in respect performance shares
offered in respect of consideration for the remaining non-controlling interest acquired in Bourne in 2012; and
£450,000 (2012: £Nil) in respect of the disposal of a 15% interest in Outcast (note 26).
Next Fifteen Communications Group plc
Annual Report 2013 71
NOTES TO THE ACCOUNTS CONTINUED
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
Restricted Stock Grant Agreement
Weighted-average exercise price (p)
Outstanding at
1 August
2012
Number
(‘000)
219
48
5,155
1,340
87
6,849
2.35
Granted
number
(‘000)
Lapsed
number
(‘000)
Exercised
number
(‘000)
–
–
1,703
–
–
1,703
–
–
–
(126)
–
(1,065)
–
–
(1,065)
–
(864)
–
(87)
(1,077)
7.01
Outstanding
31 July
2013
Number
(‘000)
Exercisable
31 July
2013
Number
(‘000)
93
48
4,929
1,340
–
6,410
1.33
93
48
–
–
–
141
60.41
A total of 1,077,000 share options were exercised during the year ended 31 July 2013 at a weighted average
market share price of 101p (2012: 1,941,000 at 86p).
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 (%)
0 – 66
1.33
19
May
2013
69
77
4.00
4
25%
2.81
Jan
2013
84
92
4.00
4
21%
2.29
Performance shares issued by the Company under the Next Fifteen Communications Group plc Long-Term
Incentive Plan are granted at a nil exercise price.
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
72
Next Fifteen Communications Group plc
Annual Report 2013
Number
of shares
Option price
per share
Option grant date
13,334
13,334
80,000
80,000
18,271
29,545
47,816
59.5p
22 October 2003
59.5p
22 October 2003
56p
66p
11 November 2005
10 April 2006
22 Share options (continued)
Performance shares
Next Fifteen Communications
Long-Term Incentive Plan
Bourne Acquisition Grant
Number
of shares
Performance
period start date
Performance
period end date
Performance
share grant date
1 August 2009
1 August 2009
1 August 2010
1 August 2011
1 August 2011
1 August 2012
1 August 2012
1 August 2012
1 August 2012
1 August 2012
9 February 2010
31 July 2013
4 June 2010
31 July 2013
31 July 2014 16 November 2010
31 July 2015 22 December 2011
10 May 2012
31 July 2015
7 January 2013
31 July 2016
1 May 2013
31 July 2016
31 July 2016
31 July 2016
31 July 2017
5 April 2012
5 April 2012
5 April 2012
1,045,000
35,000
1,056,000
900,000
390,000
1,483,092
20,000
4,929,092
613,402
108,247
618,557
1,340,206
6,269,298
Under the Next Fifteen Communications Group plc Executive Share Option Schemes (‘ESOPs’) except 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%.
During the year the Company issued 864,128 shares to satisfy the part of the share option exercises/LTIP
vesting which were initially subscribed for by the ESOP. A restricted stock grant of 87,595 was also satisfied via
the same process. 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 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 the growth of
adjusted EPS over RPI 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, the final 87,595 restricted shares vested during FY13 there are no outstanding
shares at 31 July 2013.
Next Fifteen Communications Group plc
Annual Report 2013 73
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 four-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 also contains a continuous
employment requirement over the four-year vesting period commencing on 1 August 2012. The employment
condition means that under IFRS 2, 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.
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 2013 the ESOP held 259,129 (2012: 9,129) Ordinary Shares in the Company, which represents 0.4%
(2012: 0.0%) of the Ordinary Share capital. The ESOP reserve of £221,401 (2012: £233) represents the cost
of these shares held by the ESOP in the Company at 31 July 2013. The nominal value of shares held was £6,478
(2012: £228), and the market value at 31 July 2013 was £235,807 (2012: £8,489). The right to receive dividends
on all shares has been waived.
During the year to 31 July 2013, a number of employees exercised their options. No shares were issued by the
ESOP in satisfaction of share option exercises (2012: 2,000 were issued for proceeds of £470). The ESOP
subscribed for 864,128 newly issued shares which were allotted and immediately disposed of in order to satisfy
LTIP vesting for £Nil consideration (2012: 240,780 disposed of). A total of 87,595 shares were subscribed for,
allotted and immediately disposed of in respect of satisfaction of a restricted stock arrangement for £Nil
proceeds (2012: 87,600).
Treasury shares
At 31 July 2013, the Group held no treasury shares (2012: Nil) at a cost of £Nil (2012: £Nil).
74
Next Fifteen Communications Group plc
Annual Report 2013
24 Other reserves
At 1 August 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
Total comprehensive income for the year
Purchase and take on of shares
Movement due to restricted stock issue as part of
acquisition arrangements
Movement due to ESOP share option and LTIP
exercises
At 31 July 2013
ESOP
reserve1
£’000
Treasury
shares2
£’000
Hedging
reserve
£’000
Total other
reserves
£’000
(32)
–
–
32
–
–
(245)
2
22
(221)
(595)
–
595
–
–
–
–
–
–
–
102
(235)
–
–
(133)
(229)
–
–
–
(362)
(525)
(235)
595
32
(133)
(229)
(245)
2
22
(583)
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. In the prior 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 2013, 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
2013
Land and
buildings
£’000
4,945
7,234
–
12,179
2013
Other
£’000
129
350
–
479
2012
Land and
buildings
£’000
4,842
11,129
381
16,352
2012
Other
£’000
170
219
–
389
26 Acquisitions and equity transactions
During the year the following transactions took place:
1. Set up an equity incentive scheme for Outcast;
2. The acquisition of US-based business Connections Media;
3. The acquisition of UK-based business Content and Motion;
More details on each transaction are provided below.
1. 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.
As at 31 July 2012, Next 15 owned 100% of the equity in OutCast LLC. On 1 August 2012, 15% of that equity was
reclassified as a new restricted class of shares and allotted to certain members of the Outcast senior
management team for £Nil consideration. The 15% interest holds value based on access to non-cumulative and
restricted profit distributions as well as the opportunity to gain value from future incremental growth in
profitability above the level of profit seen in the year to 31 July 2011. Any value is realised on any subsequent
sale of shares which is restricted by defined terms around the timing and pricing formula.
Next Fifteen Communications Group plc
Annual Report 2013 75
NOTES TO THE ACCOUNTS CONTINUED
26 Acquisitions and equity transactions (continued)
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 and the remaining 50% interest can be sold by the participant at the
end of fiscal year 2016 or any subsequent fiscal year or held indefinitely. In the event an employee shareholder
leaves the business, Next 15 have the option to re-purchase the shares under a consistent pricing formula.
The allotment of shares is accounted for as an equity settled share-based payment with no performance period
resulting in a one-off charge (£450,000) to the income statement at inception.
2. Connections Media
On 1 April 2013, Next Fifteen Communications (US Holdings) LLC (‘Next Fifteen USH’) acquired 80% of the
issued share capital of US-based Connections Media LLC (‘Connections Media’). The acquisition was made with
a view to enhancing the digital service offering of the Group.
The initial consideration paid in cash on completion was £1,202,000 ($1,846,000).
Contingent consideration will be payable subject to the achievement of certain profit and margin targets. The
first payment is based on the average profits achieved by the entity for the financial years ended 31 July 2014
and 31 July 2015. The second and final payment is based on the average profits achieved by the entity of the
financial years ended 31 July 2016 and 31 July 2017.
At the option of the Next Fifteen US Holding and Next 15, in their sole and absolute discretion, a maximum of
25% of the contingent consideration can be satisfied by Next 15 shares. The remaining 20% stake will be
acquired at a mutually agreeable time. Management’s best estimate of consideration payable to settle this
share purchase obligation at the date of acquisition was £1,365,000 undiscounted and £888,000 discounted. At
the balance sheet date, the present value of the obligation was £928,000.
Acquisition costs of £33,000 were paid in relation to the purchase of Connections Media, and recognised within
the Consolidated Income Statement in the period to 31 July 2013.
Goodwill of £1,387,000 arises from anticipated profitability and future operating synergies from the
combination.
Intangible assets of £594,000 have been recognised in respect of customer relationships and £22,000 for Non-
compete agreements, both of which will be amortised over six years.
In the post-acquisition period, the Connections Media business contributed £508,000 to revenue and £134,000
to profit before tax.
76
Next Fifteen Communications Group plc
Annual Report 2013
26 Acquisitions and equity transactions (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
Net assets acquired
Goodwill
Consideration
Cash consideration
Total contingent cash consideration
Fair value of non-controlling interest
–
115
644
147
(643)
263
616
–
–
–
–
616
616
115
644
147
(643)
879
1,387
2,266
1,202
888
2,090
176
2,266
1 The fair value adjustment relating to intangible assets is due to the recognition of £616,000 in respect of customer relationships and brand
name which have been independently valued and will be amortised over six years.
3. Content and Motion
On 1 August 2012, Beyond Corporation Limited (previously Project Metal Limited) acquired the entire issued
share capital of UK-based Content and Motion Limited. On 1 September 2012 the trade and assets of Content
and Motion Limited were transferred into the acquiring company. The acquisition will round out Beyond
Corporation Limited’s services capability as a new style of socially-driven creative digital agency.
The initial consideration paid in cash on completion was £425,000.
Acquisition costs of £38,000 were paid in relation to the purchase of Content and Motion, and recognised
within the consolidated income statement in the period to 31 July 2013.
Goodwill of £258,000 arises from anticipated profitability and future operating synergies from the combination.
Intangible assets of £240,000 have been recognised in respect of customer relationships, which will be
amortised over four years and £57,000 for a non-compete agreement, which will be amortised over two years.
Deferred tax liabilities of £66,000 arise on recognition of the intangible fixed assets which will be released over
the same amortisation period of those assets.
Next Fifteen Communications Group plc
Annual Report 2013 77
NOTES TO THE ACCOUNTS CONTINUED
26 Acquisitions and equity transactions (continued)
The following table sets out the estimated book values of the identifiable assets acquired and their fair value
to the Group.
Non-current assets
Acquired intangible assets1
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets
Current liabilities
Deferred tax liabilities
Net assets acquired
Goodwill
Consideration
Cash consideration
Book value
at acquisition
£’000
Fair value
adjustments1
£’000
Fair value
to the Group
£’000
–
11
22
147
(244)
–
(64)
297
–
–
–
–
(66)
231
297
11
22
147
(244)
(66)
167
258
425
425
425
1 The fair value adjustment relating to intangible assets is due to the recognition of £297,000 in respect of customer relationships, a non-
compete agreement and associated deferred tax liabilities which have been independently valued and will be amortised over four and two years
respectively.
78
Next Fifteen Communications Group plc
Annual Report 2013
NOTES TO THE ACCOUNTS CONTINUED
27 Subsidiaries
The Group’s principal subsidiaries at 31 July 2013 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
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
USA
USA
England
Singapore
Hong Kong
Australia
China
England
USA
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
(cid:51)
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
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 2013 79
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, Connections Media
and Beyond Corporation Limited and Beyond International Corporation 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 2013 there were the following related-party transactions:
463 provided consultancy services to Digital Citizens Advisory Alliance (‘DCAA’). A Director of 463 has an interest
in this company. Income of £252,412 was recognised during the year and £95,445 is outstanding at the year
end.
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
had a controlling interest. During the year £75,101 (2012: expense of £53,000) was recognised as an expense in
respect of marketing and consulting services provided to Series C and £9,202 (2012: £21,000) as income in
respect of rental and service charge. At the year end, Bite US recognised a receivable of £62,762 (2012: £21,000)
and payable of £Nil (2012: £15,000).
Text 100 France provided services to Sofitel during the year for blogger outreach and community management.
The sister-in-law of a Director at Text 100 has an interest in this company. Income of £15,660 was recognised in
the year and £Nil is outstanding at the year end.
Text 100 Denmark provided media relations services to Barsmark. A senior executive at Text 100 has an
interest in this company. Income of £6,685 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 parent. The cost of services provided was £383 (2012: £5,000) and £Nil is
outstanding at the year end (2012: £5,000).
Bite Hong Kong acted as an agent for Asset Pioneer, an entity in which one of the Bite Directors has an interest
through their spouse. No income was recognised in the year, given that the agent principle has been applied.
£4,567 (2012: £2,482) remained outstanding from the company at the year end.
Bite Hong Kong received video editing and shooting services from Merz Productions Ltd in which one of the
Bite Directors has an interest through their spouse. During the year £3,034 was recognised as an expense and
£Nil is outstanding at the year end.
Bite Singapore provided public relations consultancy services to 3radical Pte Ltd. One Director has an interest
in this company through their parent. Income of £26,249 was recognised during the year and £9,116 is
outstanding at the year end.
Bite Australia leased a motor vehicle from the spouse of a Director. An expense of £8,225 was recognised
during the year and £Nil is outstanding 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 £118,000, £552
and £696 respectively. Key management personnel compensation is disclosed in note 3.
80
Next Fifteen Communications Group plc
Annual Report 2013
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
2013
£’000
124
24
148
2012
£’000
100
108
208
30 Events after the balance sheet date
Blueshirt
On 29 October 2013, Next Fifteen (US Holdings Corporation) Limited settled part of its contingent consideration
liability to Blueshirt. $3,126,000 (£1,942,000) was paid to the Vendors in cash.
M Booth
On 30 October 2013, part of the final contingent consideration earnout liability was settled. Next Fifteen
Communications Limited paid $852,000 (£530,000) cash in part settlement of the liability. Upon completion of
the close period, a further $451,000 (£280,000) will be issued in the share capital of Next 15. The final portion
of the contingent consideration earnout liability will be paid out within the next 12 months. The remaining
balance of $500,000 can be issued in the share capital of Next 15 or in cash at the discretion of the Group.
Due to the immaterial nature of additional transactions entered into after the year end, full post balance sheet
event disclosure is not required, however an outline of these events is provided below.
Beyond
On 9 August 2013, David Hargreaves tendered his resignation as a Director of Beyond Corporation Limited and
Beyond International Corp (‘Beyond’). At that date, Next 15 and David Hargreaves entered into a deed of
covenant to acquire the entire share capital of Beyond held by David Hargreaves which consisted of 10.4% in
Beyond. On 23 August 2013, 240 shares of common stock of Beyond International Corporation were
transferred to Text 100 LLC in exchange for £80,000 in cash consideration. At the same date, 240 shares of
capital stock in Beyond Corporation Limited were transferred to Next Fifteen Communications Group plc in
exchange for cash consideration of £321,000. This acquisition of shares takes Next 15’s direct and indirect
ownership of both businesses to 61.4%.
BiteDA
On 28 August 2013, a previously dormant entity within the Bite Group changed its name to BiteDA Limited.
On 1 October 2013, certain trade and assets within Bite Communications Limited were transferred to BiteDA
Limited with consideration set equal to net book value. The business will continue going forwards as a creative
digital marketing agency engaged to design and build email content and websites.
Group Finance Director
On 29 October 2013, the Group Finance Director, David Dewhurst agreed to step down from his position. The
Board has embarked on a search for a replacement Finance Director and Alicja Lesniak is leading this process.
In the meantime Peter Harris, who has extensive media industry experience, has been appointed as Interim
Chief Financial Officer.
Next Fifteen Communications Group plc
Annual Report 2013 81
COMPANY BALANCE SHEET
as at 31 July 2013
Note
2013
£’000
2013
£’000
2012
£’000
2012
£’000
Fixed assets
Tangible assets
Investments
Current assets
Debtors: amounts falling due within one year
Current liabilities
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after
more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Share-based payment reserve
ESOP reserve
Other reserve
Profit and loss account
Equity shareholders’ funds
3
4
5
6
7
9
9
9
9
9
9
9
9
4,508
4,508
(8,426)
1,494
7,557
3,075
3,183
(221)
28,566
13,295
157
70,776
70,933
(3,918)
67,015
(10,066)
56,949
287
66,990
67,277
(1,108)
66,169
(11,979)
54,190
5,633
5,633
(6,741)
1,454
6,935
3,075
2,615
–
28,566
11,545
56,949
54,190
These financial statements were approved and authorised for issue by the Board on 6 December 2013.
T Dyson
Chief executive officer
Company number 01579589
82
Next Fifteen Communications Group plc
Annual Report 2013
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
for the year ended 31 July 2013
Profit attributable to shareholders
Dividends
Issue of shares
Issue of performance shares on acquisition
Movement on share-based payment reserve
Movement of own equity shares held in ESOP
Net addition to shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
Company
2013
£’000
3,159
(1,409)
1,750
662
–
568
(221)
2,759
54,190
56,949
Company
2012
£’000
685
(1,208)
(523)
977
577
312
2
1,345
52,845
54,190
Next Fifteen Communications Group plc
Annual Report 2013 83
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 July 2013
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% to 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
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.
84
Next Fifteen Communications Group plc
Annual Report 2013
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
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.
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 £3,159,000 (2012: £685,000).
Next Fifteen Communications Group plc
Annual Report 2013 85
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
CONTINUED
3 Tangible assets
Cost
At 1 August 2012
Additions
At 31 July 2013
Accumulated depreciation
At 1 August 2012
Charge for the year
At 31 July 2013
Net book value
At 31 July 2013
At 31 July 2012
4 Investments
Cost
At 1 August 2012
Capital contribution in subsidiary undertaking1
Additional investment in 100% owned subsidiary2
At 31 July 2013
Office
equipment
£’000
Computer
software
£’000
636
15
651
579
30
609
42
57
1,507
–
1,507
1,277
115
1,392
115
230
Total
£’000
2,143
15
2,158
1,856
145
2,001
157
287
Company
equity interest
in subsidiaries
£’000
66,990
520
3,266
70,776
1 On 1 August 2012, the Company made a capital contribution to Beyond Corporation Limited, a 51% owned subsidiary. The contribution was
made in order for Beyond Corporation Limited to acquire 100% of the Ordinary Share Capital of Content and Motion Limited, a company
registered and incorporated in England and Wales, which is engaged in the provision of social communications services.
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 £2,057,000
to M Booth & Associates, Inc. and an acquisition payment of £1,209,000 for Connections Media 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.
86
Next Fifteen Communications Group plc
Annual Report 2013
5 Debtors
Amounts falling due within one year:
Amounts due from subsidiary undertakings
Amounts due from associate
Other debtors
Prepayments and accrued income
Deferred tax asset
Corporation tax
Other taxation
Total debtors
6 Creditors: amounts falling due within one year
Overdraft 1
Trade creditors
Amounts owed to subsidiary undertakings
Corporation tax
Other taxation and social security
Other creditors
Accruals and deferred income
Total
7 Creditors: amounts falling due after more than one year
Bank loan1,2
Contingent consideration
Amounts owed to subsidiary undertakings
Total
Company
2013
£’000
Company
2012
£’000
3,115
328
160
799
83
–
23
4,508
4,237
–
79
1,105
111
53
48
5,633
Company
2013
£’000
Company
2012
£’000
1,647
202
6,077
4
43
2
451
8,426
Company
2013
£’000
8,747
1,319
–
10,066
1,536
188
4,450
–
38
7
522
6,741
Company
2012
£’000
10,442
1,537
–
11,979
1 The entire bank facility is secured on guarantees from the guarantor pool.
2 The 2013 Company figure of £8,747,000 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 prevailing at the time they
are drawn. The foreign currency element of the loans is revalued at the prevailing rate at 31 July 2013.
Next Fifteen Communications Group plc
Annual Report 2013 87
NOTES FORMING PART OF THE COMPANY FINANCIAL STATEMENTS
CONTINUED
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) undertakings which were not wholly owned at the balance sheet date:
Agent3 Limited
CMG Worldwide Limited (’Bourne’)
Beyond Corporation Limited
Beyond International Corporation
Recharges
2013
£’000
33
–
28
12
Intercompany
Interest
2013
£’000
2
–
(1)
–
2012
£’000
–
30
24
25
At the 31 July the Company had the following intercompany amounts receivable from/(payable to) the
subsidiaries above:
Agent3 Limited
CMG Worldwide Limited (’Bourne’)
Beyond Corporation Limited
Beyond International Corporation
2013
£’000
328
–
(252)
1
2012
£’000
–
2
(1)
–
2012
£’000
–
27
(66)
15
88
Next Fifteen Communications Group plc
Annual Report 2013
9 Reserves
At 1 August 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
Profit attributable
to shareholders
Dividends
Shares issued in
satisfaction of vested
share options and
performance shares
Shares issued to existing
subsidiaries
Movement in relation to
share-based payments
Movement due to ESOP
share purchases
Movement due to ESOP
share option exercises
At 31 July 2013
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
1,416
5,996
3,075
1,726
(32)
(595) 28,566 12,693 52,845
–
–
–
–
11
82
27
857
–
–
–
–
–
–
–
–
–
–
577
312
–
–
–
–
–
–
1,454
–
6,935
–
3,075
–
2,615
32
–
–
–
–
–
685
(1,208)
685
(1,208)
595
–
–
–
–
–
(595)
93
–
–
1,461
312
2
–
– 28,566 11,545 54,190
(30)
–
–
–
27
13
–
–
–
–
72
550
–
–
–
–
–
–
–
–
–
–
–
–
568
–
–
–
–
–
–
(245)
–
–
–
–
–
–
–
–
3,159
(1,409)
3,159
(1,409)
–
–
–
–
–
–
–
–
99
563
568
(245)
–
1,494
–
7,557
–
3,075
–
3,183
24
(221)
–
24
– 28,566 13,295 56,949
–
–
Next Fifteen Communications Group plc
Annual Report 2013 89
FIVE-YEAR FINANCIAL INFORMATION
for the year ended 31 July 2013 (unaudited)
2013
IFRS
£’000
2012
IFRS
£’000
2011
IFRS
£’000
113,360
96,069
68,261
3,005
(841)
2,085
(1,364)
721
(393)
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)
328
3,906
4,997
3,675
1,932
49,457
7,203
(18,467)
36,008
2,185
38,193
721
10,465
11,186
(2,686)
8,500
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
(3,019)
(5,664)
(6,304)
(2,875)
(4,448)
(1,786)
(835)
(1,920)
(1,178)
(415)
(5,084)
(6,570)
(8,074)
(4,918)
(4,709)
(1,286)
983
1,993
2,559
(1,462)
(1,409)
(1,208)
(1,045)
(932)
(900)
(3,871)
(1,010)
410
(65)
(3,330)
(455)
2.55
0.56
0.49
(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
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)
90
Next Fifteen Communications Group plc
Annual Report 2013
2013
£’000
2012
£’000
2011
£’000
2010
£’000
2009
£’000
69.4
68.8
68.1
69.6
8,610
7,705
11,227
Key performance indicator and
other non-statutory measures
Adjusted staff costs as a % of revenue1
Adjusted EBITDA2
Adjusted profit before income tax3
Adjusted earnings per share (p)4
Diluted adjusted earnings
per share (p)4
Net (debt)/cash5
1,785
1 Staff costs excluding restructuring costs and charges associated with equity transactions accounted for as share based payments. See note 5 of
the financial statements.
2 Operating profit before depreciation, amortisation and the impact of fraudulent activity.
3 See note 5 of the financial statements.
4 See note 10 of the financial statements.
5 Net debt excludes contingent consideration and share purchase obligations. See note 19 of the financial statements.
(1,809)
(1,571)
(2,604)
10,712
10.17
11.42
10.07
6,612
9,589
8,397
5,249
8,446
5,531
(871)
7.49
6.65
67.0
8.45
6.48
7.53
8.74
6.46
Next Fifteen Communications Group plc
Annual Report 2013 91
FINANCIAL CALENDAR AND CONTACTS
Final dividend
Ex-dividend date
Record date
Annual General Meeting
Payment of 2013 final dividend
Interim dividend
8 January 2014 Interim results announcement
10 January 2014 Ex-dividend date
21 January 2014 Record date
7 February 2014 Payment of 2014 interim dividend
8 April 2014
16 April 2014
22 April 2014
16 May 2014
Preliminary results
Full-year results announcement
November 2014
These dates are provisional and may be subject to change.
Advisers
Nominated Adviser
and Brokers
Canaccord Genuity Ltd
88 Wood Street
London
EC2V 7QR
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registrars
Capita Asset Services
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
Investor relations contact
Tim Dyson
CEO
T: +44 (0)20 8846 0770
tim.dyson@next15.com
Company Number
01579589
Solicitors
Dentons
UKMEA LLP
One Fleet Place
London
EC4M 7WS
Bankers
Barclays Bank plc
Floor 28
1 Churchill Place
London
E14 5HP
Registrar
Shareholders who change address, lose their share certificates, want to have dividends paid directly into
their bank account or otherwise have a query or require information relating to their shareholding should
contact the Company’s Registrar using the contact information above. Shareholders can also check their
details and transaction histories via the Registrars’ website at www.capitaregistrars.com.
Dividend Reinvestment Plan
The Company’s Dividend Reinvestment Plan (DRIP) enables shareholders to use their dividends to buy further
Next 15 shares. Full details of the DRIP can be obtained from the Registrars. If shareholders would like their
final 2013 and future dividends to qualify for the DRIP, completed application forms must be returned to the
Registrar by 13 January 2014.
Unauthorised brokers (boiler room scams)
Shareholders are advised to be wary of scams, where investors are called out of the blue and offered shares
that often turn out to be worthless or non-existent, or an inflated price for shares they own. These calls come
from fraudsters operating in ‘boiler rooms’ that are mostly based abroad. While high profits are promised,
those who buy or sell shares in this way usually lose their money. If you are offered unsolicited investment
advice, discounted shares, a premium price for shares you own, or free company or research reports, you
should note the name of the person and organisation contacting you and check that they are properly
authorised by the FCA (www.fca.org.uk/register/) before handing over any money. If you deal with an
unauthorised firm, you will not have access to the Financial Ombudsmen or the Services Compensation
Scheme if things go wrong. If you think you have been approached by an unauthorised firm you should
contact the FCA consumer helpline on 0800 111 6768. More detailed information can be found on the FCA
website at www.fca.org.uk/consumers/protect-yourself/unauthorised-firms.
92
Next Fifteen Communications Group plc
Annual Report 2013
Next Fifteen Communications Group plc
Annual Report 2013
Scan this code with one of the many
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Next Fifteen Communications Group plc
The Triangle
5–17 Hammersmith Grove
London
W6 0LG
T: +44 (0)20 8846 0770
www.next15.com