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7
Next Fifteen Communications Group plc
Annual Report 2017
We are a specialist
communications group
driven by technology
Revenue
£171.0m +32%
(2016: £129.8m)
Adjusted diluted
earnings per share
23.4p +38%
(2016: 16.9p)
Dividend per share
5.25p +25%
(2016: 4.2p)
Adjusted profit
before tax
£24.2m +50%
(2016: £16.1m)
Net debt
£11.4m +73%
(2016: £6.6m)
Statutory profit
for the year
£1.7m -62%
(2016: £4.5m)
01
Strategic Report
IFC / Financial highlights
02 / At a glance
04 / Chairman’s statement
06 / Chief Executive Officer’s statement
08 / Financial review
12 / How we manage our risks
13 / Principal risks and uncertainties
Governance
16 / Board of Directors
18 / Corporate governance report
23 / Audit Committee report
25 / Directors’ remuneration report
33 / Report of the Directors
37 / Directors’ responsibilities statement
38 / Independent auditors’ report
Financial Statements
39 / Consolidated income statement
40 / Consolidated statement of comprehensive income
41 / Consolidated balance sheet
42 / Consolidated statement of changes in equity
44 / Consolidated statement of cash flow
46 / Notes to the accounts
80 / Company balance sheet
81 / Company statement of changes in equity
82 / Notes forming part of the Company financial statements
87 / Five-year financial information
Other Information
88 / Shareholder information
Strategic Report 02
At a glance
Our mission is to create a new
type of integrated marketing
group, one rooted
in technology and data
Employees
1,610
Offices
39
Countries
14
Our business
Next 15 is a Group that is centred on the technology of marketing: data, insight, analytics, apps,
content platforms and, of course, content itself. We believe that we are creating a strong
alternative to the major advertising groups whose business models still rely heavily on
traditional advertising revenues.
Our brands
Next 15 owns 17 marketing businesses. The Group comprises agencies spanning digital
content, marketing, PR, consumer, technology, marketing software, market research, public
affairs and policy communications. All brands operate as autonomous businesses, allowing
the Group to service competing clients.
Our sectors
Digital, digital content, policy communications, investor relations, marketing software, market
research, consumer, and technology.
Our clients
Next 15 represents many of the world’s most interesting and important companies. Making
brands famous is in our DNA and is behind our name, the origin of which was explained by
Tim Dyson: “Everyone will be famous for 15 minutes, but we care about what happens next.”
Find out more about our brands at ar17.next15.com
03
Strategic Report 04
Chairman’s statement
Dear Shareholder,
Pundits debate the biggest changes to marketing communications in the internet era. Search,
social media, the smart-phone, data analytics, artificial intelligence. In truth, each of these has
impacted the opportunities for our clients, alongside the network of technological and
cultural change that have come with them. Over this period, Next 15 has made understanding
and adapting to change a central feature of its business approach.
So, despite these unpredictable times, I'm pleased to report a remarkably strong performance
by the Group as a whole. Revenues continued to increase to £171.0m (+32%) while adjusted
profit before tax rose by 50% to £24.2m. Fully diluted adjusted earnings per share rose by 38%
to 23.4p.
These results were driven by three things: strong organic growth, well-executed acquisitions
and the relative strength of the US dollar. Organic growth came from strong performances by
many of the Group's businesses, validating the Group’s focus on content, data and technology.
During the year we added Publitek and Pinnacle, two highly specialist content businesses that
operate in the semi conductor and electronic component markets. Twogether, a B2B content
and software business also joined the Group and has made an impressive contribution. Lastly,
we added to our growing data capability through the acquisition of HPI, a research business
that now sits under Morar.
During the year we saw excellent performances from all the larger businesses: Beyond,
M Booth, Outcast and Text 100. We saw great performances from Bite US and Encore; Publitek
and Pinnacle also made strong contributions. The businesses in Asia and mainland Europe
made very good progress with improved margins and relatively strong organic growth.
While it is pleasing to see such growth, we are entirely conscious that such a performance
does not buy anyone a break from the agility and energy that have afforded it. Given the
changes to the global economy, the Board is keen to see the businesses remain diligent about
their respective business models.
05
Next 15 has made
understanding and adapting to
change a central feature of its
business approach
In particular, we have to ensure that we are attracting and retaining the very best talent. While
strategy matters, it will only succeed if the right people are in the right roles, working for the
right clients. The Group continues to set high standards when it comes to the companies it
represents. Working for the wrong companies may yield short-term gains but in the long run
will erode our ability to grow as good talent leaves and our investment in our products and
services is devalued.
Looking ahead I'm pleased to report that the business is well-placed to deliver further organic
growth and has a strong enough balance sheet to enable to it make further acquisitions. As a Board
we are reluctant to create a highly leveraged business. Therefore if larger acquisition opportunities
present themselves, we would only pursue them with the support of our shareholders.
On behalf of the Board I would like to thank the 1,600 plus people who make up Next 15.
Without their hard work, creativity and agility, the Group wouldn't be what it is today. We look
forward to another exciting year.
Yours,
Richard Eyre CBE
Chairman
3 April 2017
Strategic Report 06
Chief Executive Officer’s statement
Disruption is a word used all too often in the technology industry. Amazon has disrupted retail,
Uber transportation and Facebook, the media. Indeed if, like me, you spend a lot of time
talking to emerging tech companies and venture capitalists, you start to believe that
everything will be disrupted in the next few years. While I suspect driverless cars and smart
homes will become the norm in the next decade, at least in some parts of the world, the
journey for other industries may take a little longer. But all this change is what makes Next 15,
and its portfolio of businesses, such an exciting place right now. We are working with many of
the companies tackling these challenges and we ourselves are looking at how to disrupt the
way we deliver marketing solutions to our customers. It is why we describe the Group as a
technology-driven marketing organisation.
I started this year’s letter in this way because I think it’s important that shareholders understand
that, when you look at Next 15, you should see a company which is embracing the wave of
technology that is disrupting industries and is trying to help both those driving disruption and
those who are facing the risk of being disrupted. For the disruptors, marketing is all about how
quickly they can get to the customer; for those being disrupted, it’s about how they need to
adapt and change as a company to enable them to disrupt their own market. The collection of
businesses that makes up Next 15 are all in the business of ‘speed’ and ‘change’. Our content
businesses are designed to get the right messages out as quickly as possible to the right
people but they may also help companies rethink their narrative and, in so doing, change the
way people think about those brands. Our technology and data businesses play a similar role.
We deliver data-driven insights and build technology-driven solutions so that companies can
see real time who they should be communicating with and have the tools to do so.
In the last year we made a huge amount of progress in our mission to embed technology and
data into everything we do but we still have work to do. I believe these efforts, coupled with
some excellent execution, are behind the growth we are seeing across the business. As
Richard and Peter note in their letters, we grew at a very strong pace last year. That kind of
growth results from a lot of hard work by a lot of people. Running a Group like ours could be
challenging but I’m deeply proud of the team that we have and the culture that exists within
the Group. Next 15 businesses are modern, non-hierarchical, empowered, meritocratic
organisations. This is an important part of our success. Our culture enables us to work with the
high-growth tech companies and creates the challenge that large, established businesses
want as they adapt to the kind of disruption to which I referred earlier.
07
In the last year we made a
huge amount of progress in our
mission to embed technology
and data into everything we do
Looking ahead, I see significant opportunities for the Group. The Group has become an
attractive home for people and businesses that share our vision and values. That applies to the
people who work for us and the people we work for. While the world is possibly harder than
ever to predict politically, the path for technology has never seemed more certain. Artificial
intelligence and/or deep learning is set to reshape the services industry in ways that
mechanisation and robots have changed manufacturing. It is very clear that if we are to remain
competitive in the long term, we need to embrace these technologies rather than fight them.
With this in mind the Group has already started making small investments in technology
companies. The technologies these companies produce are the sorts of things we see our
clients needing. A good example is Phrasee, a technology that uses artificial intelligence to
optimise e-mail headlines to maximise the number of relevant people who will open that
email. The opportunities for the application of technology at every stage of the customer life
cycle are significant. This doesn’t mean that human creativity is dead, far from it. As technology
makes customer interaction more efficient, creativity will become the factor that determines
the effectiveness of a company’s sales and marketing efforts.
If ever there was a moment to use the often quoted expression ‘may you live in interesting
times’ then this is it. Thankfully for Next 15, they are also exciting times.
Tim Dyson
Chief Executive Officer
3 April 2017
Strategic Report 08
Financial review
Another year of significant progress across the Group
We have had a very positive year with strong organic growth aided by a significant contribution
from our recent acquisitions and favourable currency movements.
Adjusted results
Revenue
EBITDA
Operating profit
Operating profit margin
Net finance expense
Share of profits of associate
Profit before income tax
Tax rate on adjusted profit
Diluted earnings per share
Year to
31 January
2017
£m
Year to
31 January
2016
£m
Growth
%
171.0
29.0
25.0
14.6%
(0.5)
(0.3)
24.2
22.0%
23.4p
129.8
19.2
16.5
12.7%
(0.4)
0.0
16.1
22.0%
16.9p
32
51
52
50
38
Overview
In order to better aid shareholders’ understanding of the underlying performance of the
business, I have focused my comments on the adjusted performance of the business for the
12 months to 31 January 2017 compared with the 12 months to 31 January 2016. The
commentary refers to financial measures which have been adjusted to take account of
amortisation, impairments, brand equity incentive schemes, restructuring charges and certain
other non-recurring items.
Statutory revenues for the year were £171.0m (2016: £129.8m) which resulted in an operating
profit of £7.9m, compared with £8.4m in the prior period. Diluted earnings per share were 1.5p,
compared with 5.6p in the previous period.
Statutory results
Revenue
Profit for the year
Diluted earnings per share
Year to
31 January
2017
£m
171.0
1.7
1.5p
Year to
31 January
2016
£m
129.8
4.5
5.6p
09
Adjusted
operating profit
£25.0m +52%
(2016: £16.5m)
(2015: £12.7m)
Adjusted operating
profit margin
14.6%
(2016: 12.7%)
(2015: 11.7%)
Adjusted
EBITDA
£29.0m +51%
(2016: £19.2m)
(2015: £14.6m)
Review of adjusted results to 31 January 2017
Group profit and loss account
The last 12 months have been a period of exceptional progress across the Group. We have
again succeeded in growing the revenues at our US businesses at a double-digit organic rate
whilst achieving an operating profit margin in excess of 20%. M Booth and Beyond US have
had impressive performances whilst OutCast, Connections Media and Bite US have continued
to deliver solid results.
In addition, we have benefited from the series of operational improvements we have
implemented which have resulted in an increase in the operating margins of our non-US
operations. We have improved the efficiency of a number of our UK businesses whilst
acquiring high-growth, high-margin agencies in Publitek, Pinnacle and Twogether. We also
acquired HPI which has been merged with Morar to create MIG Global.
We have also benefited significantly from the merger in 2015 of our agencies in APAC and
EMEA where trading continued to improve as the year progressed in both markets.
In total for the 12 months to January 2017, the Group delivered revenue of £171.0m, adjusted
operating profit of £25.0m, adjusted profit before income tax of £24.2m and adjusted diluted
earnings per share of 23.4p. This compares with revenue of £129.8m, adjusted operating profit
of £16.5m, adjusted profit before income tax of £16.1m and adjusted diluted earnings per share
of 16.9p for the 12 months to 31 January 2016.
The Group adjusted operating margin increased to 14.6% from 12.7% in the prior period.
Revenue bridge (£m)
200
175
150
m
£
125
100
75
50
+12.8
+10%
+13.2
+10%
129.8
+15.2
+12%
171.0
+32%
Year to
31 January 2016
Organic growth
Acquisitions
Foreign exchange
Year to
31 January 2017
Taxation
The tax rate on the Group’s adjusted profit for the year to January 2017 was at a rate of
22%, compared to the statutory rate of 43%. This was in line with the rate achieved in the
previous period as we benefited from a higher proportion of our profit coming from lower tax
regimes such as the UK and the successful resolution of a number of historic tax queries.
Earnings
Diluted adjusted earnings per share have increased by 38% to 23.4p for the year to January
2017 compared with 16.9p achieved in the prior period, as a result of improved profitability.
Adjusted results represent the audited performance, adjusted to exclude amortisation, restructuring charges, brand equity
incentive schemes, movements in acquisition-related consideration and certain other non-recurring items. They are
reconciled to the statutory results in notes 2 and 5 to the financial statements. References to 2015 results are the unaudited
adjusted results for the 12 months to 31 January 2015 (the statutory reporting period represented the 18 months to
31 January 2015). A reconciliation of the adjusted 12 month figures to the statutory 18 month period for 2015 can be found
in the 2016 Annual Report.
Strategic Report
10
Financial review continued
Segmental review
US
Our US businesses have continued to perform strongly led by our Text 100, Beyond, OutCast,
M Booth, Connections Media and Bite agencies. In the year to 31 January 2017 revenues grew
by 28.1% to £107.0m from £83.5m which equated to an organic growth1 rate of 12.6%, taking
account of movements in exchange rates. Margins have remained consistently strong at
above 20% but were impacted by the performance of our recent acquisition Story Worldwide
which continued to disappoint. We incurred £0.6m in exceptional restructuring costs as we
aligned the cost base with the anticipated revenue and the business has got off to an
encouraging start in our new financial year as a result of our actions. The adjusted operating
profit from our US businesses was £22.3m compared with £17.5m in the previous 12 months to
31 January 2016.
UK
The UK businesses have delivered a very encouraging performance over the last 12 months,
with revenue increasing by 52.7% to £42.6m from £27.9m in the prior period. Adjusted
operating profit increased to £8.0m from £3.8m in the prior year with the adjusted operating
margin increasing to 18.9% from 13.6% in the prior period.
The improved performance in the UK has been delivered due to the acquisition of a number
of high-growth, high-margin agencies, alongside a number of self-help measures. In March
2016, we acquired Publitek, a digital content marketing agency focused on the electronic
components sector, and then in September 2016 we acquired Pinnacle, a competitor to
Publitek, and merged them under the Publitek brand name. In March 2016 we acquired
Twogether, a digital agency focused on helping Technology clients with their channel
marketing. Finally, in November 2016, we acquired HPI, a market research agency, and merged
it with Morar.
EMEA
We have delivered an improved trading performance in EMEA as we have continued to focus
our efforts on markets of potential scale. Revenue increased by 11.5% to £7.2m and operating
profit increased to £0.6m at an improved operating margin of 9.0%.
APAC
APAC produced an encouraging performance as we continued to benefit from the operational
restructuring we undertook in 2015. Revenue increased by 18.4% to £14.2m, the operating
margin improved to 15.2% from 11.5% in the prior period and the operating profit increased by
56.7% to £2.2m.
Segmental information
31 January 2017
Revenue
UK
£’000
EMEA
£’000
USA
£’000
APAC
£’000
Head office
£’000
Total
£’000
Organic revenue growth
Adjusted operating profit
3.7%
8,042
42,638
7,166 107,008
14,201
5.7%
12.6%
6.4%
–
–
171,013
9.9%
647
22,347
2,162
(8,228)
24,970
Adjusted operating margin
18.9%
9.0%
20.9%
15.2%
31 January 2016
Revenue
Organic revenue growth
Adjusted operating profit
Adjusted operating margin
27,885
(0.6%)
3,805
13.6%
6,426
(8.1%)
452
7.0%
83,456
11,990
14.1%
17,492
21.0%
(2.4%)
1,380
11.5%
–
–
–
14.6%
129,757
7.8%
(6,610)
16,519
–
12.7%
1
Organic growth is the constant currency growth for the 12 months to 31 January 2017 compared to the 12 months to
31 January 2016, excluding the effect of acquisitions made during those periods.
11
Cash flow
Cash flow KPIs
Net cash inflow from operating activities
Working capital movement
Net cash generated from operations
Income tax paid
Investing activities
Dividend paid to shareholders
Increase in bank borrowings
Year to
31 January
2017
£m
Year to
31 January
2016
£m
26.5
6.3
32.8
(2.0)
(30.6)
(3.3)
11.6
16.1
0.2
16.3
(3.0)
(20.2)
(2.4)
6.7
Adjusted cash flow
The net cash inflow from operating activities for the year to 31 January 2017 increased to
£26.5m from £16.1m in the prior period. Our management of working capital remained strong
and this resulted in our net cash generated from operations before tax being £32.8m. Income
taxes paid decreased to £2.0m from £3.0m in the prior period reflecting resolution of historic
tax issues.
Our strong cash flow and £30m facility have allowed us to increase our investment in
acquisitions and capital expenditure from £20.2m to £30.6m reflecting the acquisitions of
Publitek, Pinnacle, Twogether and HPI and the early buyouts of Morar as well as capital
expenditure on the property moves in London and New York.
Dividends paid to Next 15 shareholders increased to £3.3m from £2.4m in the prior period
reflecting the strong trading and our confidence in the future. Net interest paid to the Group’s
banks was similar to last year at approximately £0.5m.
Balance sheet
The Group’s balance sheet remains in a healthy position with net debt as at 31 January 2017 of
£11.4m reflecting 0.4x adjusted EBITDA.
Treasury and funding
The Group operates a four-year £30m revolving credit facility with HSBC. The facility is primarily
used for acquisitions and is due to be repaid from the trading cash flows of the Group. The
facility is available in a combination of sterling, US dollar and euro at an interest margin
dependent upon the level of gearing in the business. The Group also has a US facility of $6m
which is available for property rental guarantees and US-based working capital needs.
As part of the facility, Next 15 has to comply with a number of covenants, including maintaining
the multiple of net bank debt before earn-out obligations to adjusted EBITDA below 1.75x
and the level of net bank debt including earn-out obligations to adjusted EBITDA below
2.5x. Next 15 has ensured that it has complied with all of its covenant obligations with
significant headroom.
Peter Harris
Chief Financial Officer
3 April 2017
Strategic Report 12
How we manage our risks
Risk management
Next 15 is exposed to a variety of risks that can have financial,
operational and regulatory impacts on our business performance. The
Board recognises that creating shareholder returns is the reward for
taking and accepting risk. The effective management of risk is therefore
critical to supporting the delivery of the Group’s strategic objectives.
Risk management and internal control
The Board has ultimate responsibility for the Group’s system of
internal control and for reviewing its effectiveness at least annually.
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 that material errors and irregularities
are prevented or, failing which, are discovered on a timely basis.
The Board has established a continuous process for identifying,
evaluating and managing the significant risks the Group faces and
for determining the nature and extent of the significant risks it is
willing to take in achieving its strategic objectives. The Board
regularly reviews the process, which has been in place for the period
ended 31 January 2017 and up to the date of signing the annual
report and accounts to safeguard the Group’s assets and enhance
over time the value of shareholders’ investment. The Board also
regularly reviews the effectiveness of the Group’s system of internal
control in accordance with revised guidance on internal control
published by the Financial Reporting Council.
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 performed
by local management and by the Board for the Group-wide risks.
Having identified risks, operating companies regularly monitor,
review and update the risks, assessing the extent and likelihood of
each risk. The principal risks of the Group are subject to review by the
Board, which produces a significant risks review for the Group.
Internal Audit
The Group formed an Internal Audit function in 2012 to provide
assurance over the Group’s control environment with lead internal
auditors in the US and the UK. A risk-based approach is used to
prioritise the focus of Internal Audit. The team maintains a detailed
understanding of the processes and controls in place around the
Group and regularly highlights control recommendations to
management in adherence with a standardised Group controls
matrix. This is supported by a monthly self-certification checklist
submitted by local finance teams to confirm that controls identified
are continuing to operate. The next phase of the controls work,
which commenced in 2015, is to test the operating effectiveness of
the controls identified on a periodic and rotational basis.
The Internal Audit function also has responsibility for reviewing the
operating companies’ balance sheets on a monthly basis to provide
greater comfort to the Group finance team, as well as ad hoc pieces
of work, such as audits of financial results used to determine earn-out
payments and due diligence on acquisitions.
The Board gains assurance over the adequacy of design and operation
of internal controls across the Group through the following process:
• significant findings from Internal Audit engagements 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;
• depending on the risk associated with any weaknesses noted,
recommendations made are followed up and reported back to
the Audit Committee until they are adequately resolved; and
•
Internal Audit
identification
independently reviews the risk
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.
During the course of its review of the risk management and internal
control systems, the Board has not identified nor been advised of
any failings or weaknesses, which it has determined to be significant.
Therefore a confirmation in respect of necessary actions has not
been considered appropriate.
Whistle blowing and UK Bribery Act 2010
Whistle blowing 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
13
The system of risk management used to identify the principal risks
facing the Group is described on page 12. 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 the 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.
Risk description
Operational risk
Mitigating actions
Reliance on key customers
Losing a major client unexpectedly can have a significant
impact on the resourcing, revenue and profit of an individual
brand. The impact of this will depend on the brand.
Staff retention and recruitment
The Group relies on highly skilled employees, who are vital
to its success in building and maintaining client relationships
and winning new work. The market for these employees
is competitive.
The Group’s strategy is to build a portfolio of brands which is
diversified across different communications markets and
geographic regions. Regular client feedback is sought (for
instance, via client surveys) and appropriate steps are taken to
retain existing clients.
The Board regularly reviews the Group’s reliance on key
customers through top ten client analysis and reviews of
customers with revenues greater than US$1m per annum. The
Group is not deemed to be overly reliant on any one customer.
The Remuneration Committee considers the retention and
incentive mechanisms in place for key personnel at both
brand and Group level, and reviews remuneration trends
across the Group.
The Group’s human resources teams seek to recruit skilled
employees and to offer exciting and challenging career
opportunities with competitive remuneration and benefits.
Policies are regularly reviewed to ensure high levels of staff
motivation and development. Where possible the businesses
ensure that client relationships are maintained as a team rather
than by an individual.
Remuneration and incentive schemes
The Group operates a number of earn-out mechanisms and
incentive schemes in order to attract and retain senior talent
across the Group. This gives rise to a local risk of management
override and financial misreporting.
The Audit Committee reviews accounting for earn outs and
growth shares schemes, including the significant judgements
used. Internal audits are performed on any local accounts
incentive
in the determination of earn-out or
involved
scheme payments.
In addition, the accounting for the obligations at Group
level involves the use of judgements which are deemed to
be significant.
The Remuneration Committee reviews and approves all
incentive schemes across the Group. External advisers are
used where necessary to advise the Board and individuals on
any new schemes.
C Increase B Static D Decrease
Change
C
C
B
Strategic Report 14
Principal risks and uncertainties continued
Risk description
Operational risk continued
Mitigating actions
Cyber security risk
The Group notes the increased risk facing companies from
third-party attempts to exploit weaknesses in cyber security,
which is constantly evolving.
Inadequate security could lead to business disruptions,
damage to reputation and loss of assets.
Technology/IT infrastructure
The risks associated with the IT environment include failure to
deliver projects on time and on budget and
lack of
management information.
The Group has grown, both organically and by acquiring new
businesses, which has resulted in the use within the Group of
a number of legacy accounting and operating systems.
Speed of change in the digital marketing space
As the marketing and communications landscape evolves
through the opportunities provided by digital channels,
there is a risk that some businesses lack the resource to
transition effectively.
Access controls, firewalls and virus checkers are in place and a
review of the current IT infrastructure has been performed
with an external consultant for the US and UK and is underway
in APAC and EMEA. Implementation of upgrade programmes
recommended following the review is in progress across the
Group. IT security training has been carried out with relevant
staff and is performed on a rolling, regular basis.
The Group has expanded its IT security team in order to
continue to monitor and improve the Group’s IT security in
light of the continually evolving threat.
The Group is engaged in the implementation of a common
finance IT platform which is largely completed in the US and
UK and will continue in APAC and EMEA in 2017. The common
finance system gives the Group greater visibility over the
effectiveness and appropriateness of local controls. The
implementation is supported by consultants and, where
possible, by using internal teams to reduce the risk of relying
on third parties.
The Group ensures that there are appropriate business
continuity plans in place and Internal Audit assesses the
appropriateness of these plans. In addition, the Group has
insurance cover in place to mitigate against business disruption.
The Group follows a strategy of focusing acquisitions on
technology-driven marketing agencies and providing an
integrated communications service (content, digital and
traditional PR), underpinned by building appropriate skill sets
within the businesses. The Group’s Board has extensive digital,
technology and commercial experience in the media and
technology sectors.
Misappropriation of assets
Particularly in smaller brands with fewer opportunities to
segregate duties, there is a risk that, without appropriate
oversight and review, there could be fraudulent activity or
misreporting of financial information.
Overseen by the Audit Committee, the Internal Audit function
provides assurance of the Group’s control environment, with
particular focus given to segregation of duties.
The consolidation of the Group’s banking facility under HSBC
gives the Group greater control and visibility over its cash balances.
C Increase B Static D Decrease
Change
C
B
B
B
Risk description
Financial risk
Mitigating actions
Macroeconomic uncertainty
Following recent changes in the political environment, the
Group faces uncertainty in its two largest territories. In
uncertain political and economic times there is an increased
risk that customers cut marketing spend leading to reduced
revenue and profit for the Group.
Liquidity risk
Cash outflows
obligations are unevenly spread throughout the year.
related to significant acquisition-related
There would be a risk to the business if working capital were
not appropriately managed to maximise the growth of
the business.
There is an undiversified risk around going concern if there is a
breach of covenants.
The Group’s strategy of building a portfolio of brands which is
diversified across different communications markets and
geographic regions minimises the risk that the Group is overly
reliant on any one territory, sector or client. Regular client
feedback is sought (for instance, via client surveys) and
appropriate steps are taken to retain existing clients. The Board
continues to monitor the latest macroeconomic developments
to inform the Group-wide strategy.
The Board has always maintained a prudent approach to
taking on debt and the Group manages its risk of a shortage of
funds with a mixture of long and short-term committed
facilities. On 8 March 2016 the Group entered into a new
extended four-year £30m revolving credit facility with HSBC.
All cash in the US is swept each night, and the majority of cash
in the UK is in a central cash pool. This allows the working
capital to be monitored by the Group Treasury function and
the cash used to maximum benefit.
In addition global and local short-term cash flow forecasts are
monitored on a daily basis by the Group Treasury function, and
a four-year long-term cash flow model is monitored quarterly.
Covenants are monitored regularly; they are forecast to have
significant headroom within the foreseeable future.
Currency risk
As a result of global operations the Group’s results can be
affected by movements in foreign exchange rates against
sterling. The Group has transactional currency exposure in the
US, EMEA and APAC, including foreign currency bank accounts.
The Board and the Group Treasury function consider the use of
currency derivatives to protect significant US dollar and euro
currency exposures against changes in exchange rates on a
case-by-case basis. Net investment hedges are used where
appropriate for significant foreign currency investments.
15
Change
C
C
C
The global and local short-term cash flow forecasts are used to
monitor future large foreign currency payments, and natural
currency hedging is used where possible across the Group.
The Group generates 75% of its revenue outside of the UK and
has therefore benefited in the past year from the weakening
of sterling.
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.
B
The Group has an in-house tax function to ensure compliance
with tax legislation globally which consults with external advisers.
Compliance with laws and regulations
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 Strategic Report as set out on pages 2 to 15 was approved by the Board on 3 April 2017 and signed on its behalf by:
Tim Dyson
Chief Executive Officer
Strategic Report 16
Board of Directors
From left to right: Alicja Lesniak / Richard Eyre / Peter Harris / Genevieve Shore / Tim Dyson.
17
Richard Eyre CBE
Chairman (age 62)
Appointment May 2011
N A R
Alicja Lesniak FCA
Senior Independent Non-Executive Director (age 65)
Appointment July 2011
N A R
Richard Eyre was appointed in May 2011 as non-executive Chairman
of the Group, Chairman of the Nomination Committee and member
of the Audit and Remuneration Committees. His appointment was
instrumental in moving Next 15 further into the digital marketing
arena. Richard is Chairman of the UK Internet Advertising Bureau.
Richard has 41 years’ experience across the media and marketing
industries, including time as CEO of ITV Network LTD, Capital
Radio plc and content and strategy director of RTL Group plc.
He has served as chairman of RDF Media plc, GCap plc, mobile
games publisher I Play, mobile tech company Rapid Mobile and
The Eden Project. He was also a board member at the Guardian
Media Group plc, Grant Thornton LLP and Results International LLP.
In 2013, he was awarded the prestigious Mackintosh Medal for
outstanding personal and public service to advertising and in the
2014 New Year Honours list, Richard was awarded a CBE for services
to advertising and the media.
Alicja joined Next 15 in July 2011 as non-executive Director and
Senior Independent Director. She chairs the Audit Committee and is
a member of the Nomination and Remuneration Committees.
Alicja started her career as a Chartered Accountant at Arthur Andersen
but rapidly moved into the financial, commercial and operational
management of professional service businesses. Since 1987 Alicja 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 the British Standards Institution
and chairs its social responsibility committee.
Genevieve Shore
Non-executive Director (age 47)
Appointment February 2015
N A R
Tim Dyson
Chief Executive Officer (age 56)
Appointment December 1991
N
Genevieve Shore joined Next 15 in February 2015 as non-executive
Director. She chairs the Remuneration Committee and is a member
of the Nomination and Audit Committees.
Tim joined the Group in 1984 straight from Loughborough University
and became its global 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 including The OutCast Agency, M Booth and The
Blueshirt Group in the US and Republic Publishing, Continuous
Insight and Morar in the UK. Tim moved from London to set up the
Group’s first US business in 1995 in Seattle and is now based in
Palo Alto.
Outside Next 15, Tim has served on advisory boards of a number of
emerging technology companies. Tim has been named an Emerging
Power Player by PR Week US. In 2013, Tim was recognised on the
Holmes Report’s In2’s Innovator 25, which recognises individuals
who have contributed ideas that set the bar for the industry. He was
also recently named in PR Week’s Power Book.
Peter Harris
Chief Financial Officer (age 55)
Appointment March 2014
Peter Harris joined Next 15 as its Chief Financial Officer in November
2013 and was appointed as executive Director in March 2014. He is
also currently a non-executive director of Communisis plc and
chairman of its audit committee, following appointment in July 2013.
Peter’s financial experience spans 30 years and he has extensive media
experience, having spent the last 20 years in finance roles in the media
sector. He was previously the interim finance director at Centaur
Media plc, interim CFO of Bell Pottinger LLP, CFO of the Engine Group,
and CFO of 19 Entertainment. Prior to that, he was group finance
director of Capital Radio plc. Peter has considerable experience in UK
and US listed companies, with international exposure.
Genevieve brings digital, technology and commercial expertise to
Next 15 from a career in the media, publishing and technology
sectors. Most recently, she was Chief Product and Marketing Officer
of Pearson plc and previously a Director of Digital Strategy and Chief
Information Officer.
Genevieve is also a non-executive director at Santander UK,
Moneysupermarket.com Group PLC and the independently-owned
Arup. She is an advisory board member for Lego Education, invests
in a number of education technology start-ups and works with
female executives as a coach and mentor.
Nick Lee Morrison
General Counsel and Company Secretary
Appointment January 2016
Nick qualified as a solicitor at Ashurst in 2008 where he stayed as an
associate in the corporate department before moving to Clifford
Chance in 2011 to focus on corporate and M&A work for a range of
TMT sector clients.
In 2013 Nick joined the Financial Times Limited as in-house legal
counsel and in 2016 he joined Next 15 as General Counsel and
Company Secretary.
Chair of Committee
A Audit Committee
N Nomination Committee
R
Remuneration Committee
Governance 18
Corporate governance report
Chairman’s introduction
The Board is committed to maintaining appropriate standards of corporate governance to
support Next 15’s strategy, and to managing the Company and its subsidiaries (together ’the
Group’) in a flexible and effective manner for the benefit of its shareholders, while fostering a
corporate culture that encourages growth. The Board monitors the Company’s policies to
ensure that they are appropriate for the nature, size and circumstances of the business.
This Corporate governance report sets out our approach to governance, provides further
information on the operation of the Board and its Committees, and explains how the Group
seeks to comply with the Quoted Companies Alliance Code for Small and Mid-sized Quoted
Companies 2013 (the ‘QCA Code’). As an AIM-listed company, the Company is not required to
comply with the UK Corporate Governance Code (‘UK Code’); however, the Board supports the
UK Code and seeks to apply this when appropriate for the Group’s size and complexity.
We acknowledge that shareholders look to us to promote the long-term success of the
Company and, as Chairman, I recognise that it is my role to provide the leadership to enable it
to do so effectively.
I look forward to meeting you at our Annual General Meeting (‘AGM’) on Wednesday 21 June 2017.
Richard Eyre CBE
Chairman
3 April 2017
The Board of Directors
The Board of Directors is responsible for the strategic direction, investment decisions and
effective control of the Group. As at 3 April 2017 the Board comprised two executive Directors,
a non-executive Chairman and two non-executive Directors. There were no changes to the
composition of the Board during the year to 31 January 2017. Biographies of each of the Board
Directors, including the Committees on which they serve and chair, are shown on page 17.
The Board is satisfied that, between the Directors, it has an effective and appropriate balance
of skills and knowledge, including a range of financial, commercial and entrepreneurial
experience. The Board is also satisfied that it has a suitable balance between independence (of
character and judgement) and knowledge of the Company to enable it to discharge its duties
and responsibilities effectively. No single Director is dominant in the decision-making process.
The Board aims to meet at least once per month, with additional meetings being held as
required. As Tim Dyson is 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. Details of Board and Committee meetings held during the reporting period
and the attendance records of individual Directors can be found on page 22.
19
The Board’s responsibilities and processes
The principal matters considered by the Board during the period included:
• the Group’s strategy, budget and financial resources;
• the Group’s performance and outlook;
• opportunities for the Group to expand by acquisition;
• the Group’s financial results for the interim and year end;
•
review of the Group’s risk management and internal controls;
• major capital projects and material contracts; and
• corporate governance matters.
There is a schedule of matters specifically reserved for decision by the Board which is regularly
reviewed and is displayed on the Group’s website at www.next15.com.
At each Board meeting there is a financial and business review and Board members receive
monthly trading results, together with detailed commentary. Each Board member receives a
Board pack in advance of each meeting which includes a formal agenda together with
supporting papers for items to be discussed at the meeting.
All Directors have access to the advice and services of the General Counsel and Company
Secretary, who is responsible for ensuring that Board procedures are followed and that the
Company complies with all applicable rules, regulations and obligations. Directors may take
independent professional advice at the Company’s expense, as and when necessary to
support the performance of their duties as Directors of the Company. Appropriate induction
and training for new and existing Directors is provided where required.
Appointment, election and re-election of Directors
Appointments to the Board are the responsibility of the Board as a whole, upon the
recommendation of the Nomination Committee.
The Directors’ service agreements, the terms and conditions of appointment of non-executive
Directors and Directors’ deeds of indemnity are available for inspection at the Company’s
registered office during normal business hours.
The Company’s Articles of Association provide that a Director appointed by the Board shall
retire at the AGM following their appointment and that, at each AGM of the Company,
one-third of the Directors must retire by rotation. At the forthcoming AGM, Peter Harris
and Richard Eyre will retire and, being eligible, will offer themselves for re-election by
the shareholders.
With regard to the Directors who are offering themselves for re-election at the next AGM, the
Board is satisfied that those Directors’ contributions continue to be effective and that the
Company and its shareholders should support their re-election.
The roles of the Chairman and Chief Executive
The Chairman of the Board, Richard Eyre, leads the Board in the determination of its strategy
and in achieving its objectives. The Chairman is responsible for organising the business of the
Board, ensuring its effectiveness and setting its agenda, and is also responsible for effective
communication with the Group’s shareholders. At the time of his appointment as Chairman,
Richard Eyre was considered independent in accordance with the provisions of the UK Code.
The Chief Executive Officer, Tim Dyson, oversees the Group on a day-to-day basis and is
accountable to the Board for the financial and operational performance of the Group. The
Chief Executive Officer has responsibility for implementing the agreed strategy and policies of
the Board.
Governance 20
Corporate governance report continued
Senior independent non-executive Director
Alicja Lesniak holds the position of senior independent non-executive Director of the
Company. Any shareholder concerns not resolved through the usual mechanisms for investor
communication can be conveyed to the senior independent non-executive Director.
Alicja Lesniak is considered to be independent as defined by the UK Code.
Board performance evaluation, succession planning and diversity
The performance of the Board is key to the Company’s success. The performance of the Board
and its Committees is evaluated regularly, and the evaluations are conducted with the aim of
improving their effectiveness. The last Board evaluation was facilitated internally during the
year to 31 January 2017 and involved a questionnaire to each Board Director. The review
produced a number of key actions which will be progressed during 2017/18.
The Board has agreed that its succession planning framework should ensure that Board
appointments provide an appropriate mix of skills and experience and a level of independence
which will support the Group’s objectives for business growth and its key strategic goals.
The Board believes in the importance of diverse Board membership. Women currently
comprise 40% of the Next 15 Board, meeting the recommendation set out by Lord Davies on
diversity for a minimum of 33% female representation (applicable to FTSE 350 boards) by 2020.
Directors’ conflicts of interest
Directors have a statutory duty to avoid conflicts of interest with the Company. The Company’s
Articles of Association allow the Directors to authorise conflicts of interest and the Board has
adopted a policy for managing and, where appropriate, approving potential conflicts of
interest. The Board is aware of the other commitments and interests of its Directors, and
changes to these commitments and interests are reported by the Directors. A review of
Directors’ conflicts of interest is conducted annually.
Committees of the Board
The Board is supported by the Audit, Nomination and Remuneration Committees. The reports
of these Committees can be found on pages 22 to 32.
Each Committee has access to such external advice as it may consider appropriate. The
General Counsel and Company Secretary or his nominee acts as secretary to the Committees.
The terms of reference of each Committee are reviewed regularly, updated as necessary to
ensure ongoing compliance with best practice guidelines and referred to the Board for
approval. 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 comprises three
non-executive Directors: Alicja Lesniak (Chair), Richard Eyre and Genevieve Shore. The
Remuneration Committee comprises three non-executive Directors: Genevieve Shore (Chair),
Alicja Lesniak and Richard Eyre. The Nomination Committee comprises Richard Eyre (Chair),
Alicja Lesniak, Genevieve Shore and Tim Dyson. Attendance records of Committee meetings
can be found on page 22.
Relations with shareholders
The Board recognises the importance of effective communication with its shareholders, to
ensure that its strategy and performance are clearly understood. The Company communicates
with shareholders through the Annual Report and Accounts, full-year and half-year results
announcements, trading updates, the AGM and face-to-face meetings. A range of corporate
information (including copies of presentations and announcements) is available on the
Company’s website at www.next15.com.
21
The Chief Executive, the Chief Financial Officer and the Chairmen of the Board and each of its
Committees will be available at the AGM to answer shareholders’ questions. Proxy votes are
disclosed following a show of hands on each shareholder resolution. After the AGM,
shareholders can meet informally with the Directors. Shareholders are encouraged to submit
questions to the Board throughout the year.
The Board is happy to enter into dialogue with institutional shareholders based on a mutual
understanding of objectives, subject to its duties regarding equal treatment of shareholders
and the dissemination of inside information. The Chief Executive Officer and the Chief Financial
Officer meet institutional shareholders on a regular basis.
The Board as a whole is kept informed of the views and concerns of the major shareholders.
When requested to do so, the non-executive Directors will attend meetings with major
shareholders and are prepared to contact individual shareholders should any specific area of
concern or enquiry be raised.
Financial reporting and going concern statement
The Directors have, at the time of approving the financial statements, 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.
The Directors have made this assessment in light of reviewing the Group’s budget and cash
requirements for a period in excess of one year from the date of signing of the annual report
and considered outline plans for the Group thereafter.
The Group’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the Strategic Report on pages 2 to 15. The financial
position of the Group, its cash flows, liquidity position and borrowing facilities are described
in the Financial Review on pages 8 to 11.
In addition, note 19 to the financial statements includes the Group’s objectives, policies and
processes for managing its capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Directors’ Responsibilities Statement in respect of the financial statements is set out on
page 37.
Whistle blowing and Bribery Act 2010
The Company has established arrangements by which individuals may, in confidence, raise
concerns about possible improprieties in matters of financial reporting and other matters. The
Group has 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.
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.
Governance 22
Corporate governance report continued
Nomination Committee
The Nomination Committee (‘Committee’) members are Richard Eyre (who also chairs the
Committee), Alicja Lesniak, Genevieve Shore and Tim Dyson. Other Directors and management
may be invited to attend meetings of the Committee as appropriate.
The Committee’s duties include:
•
reviewing the structure, size and composition (including the skills, knowledge, experience,
independence and diversity) of the Board and making recommendations with regard to
any changes;
• considering succession planning for directors and other senior executives, taking into
account the challenges and opportunities facing the Company, and the skills and expertise
needed on the Board in the future;
•
identifying and nominating candidates to fill Board vacancies as they arise; and
• keeping under review the leadership needs of the organisation, to ensure the Company’s
ability to compete effectively in the marketplace.
The Committee’s full terms of reference are available on the Company’s website at
www.next15.com.
It was not deemed necessary for the Committee to meet during the year to 31 January 2017.
Subsequent to the period end, one meeting has taken place.
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.
Board and Committee attendance for the year ended 31 January 2017
Richard Eyre
Tim Dyson
Peter Harris
Alicja Lesniak
Genevieve Shore
Board
12 of 12
12 of 12
12 of 12
12 of 12
11 of 12
Audit
Remuneration
Nomination
3 of 3
6 of 6
–
–
3 of 3
3 of 3
–
–
6 of 6
6 of 6
–
–
–
–
–
Audit Committee report
23
I am pleased to present the report of the Audit Committee (‘Committee’) for the year to
31 January 2017. This report details the Committee’s roles, responsibilities and key activities
during the period. The principal aims of the Committee are to review and report to the Board
on the Group’s financial reporting, to ensure the integrity of the financial information provided
to our shareholders, and to support the development and maintenance of the Group’s risk
management and internal control environment.
I look forward to meeting our shareholders at the AGM and will be happy to answer any
questions you may have.
Alicja Lesniak
Audit Committee Chair
3 April 2017
Composition of the Audit Committee
The Committee is composed entirely of non-executive Directors who between them possess
a range of commercial and financial experience as detailed on page 17. The current members
of the Committee are Alicja Lesniak (Chair), Richard Eyre and Genevieve Shore. The Board is
satisfied that the Committee members are sufficiently competent in financial matters and that
the Chair has recent and relevant financial experience.
The Committee meets periodically and at least three times a year, with the external auditor,
other Directors, the Head of Internal Audit and other management attending by invitation.
Attendance records of meetings held during the year can be found on page 22. Subsequent
to the period end, one further meeting has taken place. The Committee Chair is in frequent
contact with the Chief Financial Officer, the Head of Internal Audit and the external auditor
and preparatory meetings are held ahead of each Committee meeting to identify and discuss
key areas for consideration by the Committee.
Governance 24
Audit Committee report continued
Roles, responsibilities and activities during the reporting period
The Committee works to a programme of activities aligned to key events in the financial
reporting cycle, standing items which occur regularly as required by the Committee’s terms of
reference and other agenda items that the Committee identifies.
The main roles and responsibilities of the Committee include:
• monitoring the integrity of the Group’s financial statements and other announcements
relating to its financial performance;
• considering the Group’s accounting policies and practices, application of accounting
standards and significant judgements;
• overseeing the relationship with the Group’s external auditor, including consideration of
the objectivity and effectiveness of the external audit process and making recommendations
to the Board in relation to the external auditor’s appointment and fees;
• keeping under review the effectiveness of the Group’s internal control and risk management
systems; and
• monitoring the remit and effectiveness of the Group’s Internal Audit function.
The Committee’s full terms of reference are available on the Company’s website at
www.next15.com.
During the period the Committee’s activities included:
• considering significant financial reporting issues and judgements around adjusting items,
tax matters, goodwill impairment, earn-out liabilities, and acquisition accounting;
• assisting the Board in its assessment of the Group’s risk environment, internal controls
and risk management processes;
•
•
reviewing reports on the work of the Internal Audit function;
receiving updates on upcoming changes to accounting standards and legal and
regulatory requirements;
• overseeing the relationship with the external auditor, including the assessment of their
independence; and
•
reviewing the Committee’s terms of reference.
Auditor independence, objectivity and fees
The external auditor, Deloitte LLP, was first appointed in 2014, for the financial year ended
31 January 2015. The Board is satisfied that the Company has adequate policies and safeguards
in place to ensure that Deloitte maintain their objectivity and independence. The external
auditor reports annually on its independence from the Company. The Group has a formal
policy on the engagement of the external auditor for non-audit services. The objective of the
policy is to ensure that the provision of non-audit services by the external auditor does not
impair, or is not perceived to impair, the external auditor’s independence or objectivity. The
policy sets out monetary limits and imposes guidance on the areas of work that the external
auditor may be asked to undertake and those assignments where the external auditor should
not be involved. The policy is reviewed regularly and its application is monitored by the
Committee. The fees paid to Deloitte in respect of non-audit services are shown in note 4 to
the financial statements. This work is not considered to affect the independence or objectivity
of the auditor.
Directors’ remuneration report
25
On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the
year ended 31 January 2017. The report sets out the work of the Remuneration Committee (the
‘Committee’) in the previous period and our strategic approach to pay, benefits and incentives.
We also report in detail upon the amounts earned by the Directors during the year.
This year the Committee has continued to focus upon remuneration policy best practice with
a significant amount of time spent reviewing our own policies and structures and working
with both regulatory bodies and advisers. We have also undertaken a consultation with our
largest shareholders and received extremely helpful and in-depth feedback. In addition to this
we conducted an independent sector benchmarking of executive Director remuneration and,
lastly, we undertook a review of the Committee’s effectiveness.
As a result of this work we are making significant changes to our Long-Term Incentive Plan,
details of which can be found in the report on pages 27 to 28. We have also increased, in this
report, the disclosure of our financial and non-financial targets and we reflect more closely
upon not only the achievement of the relevant performance targets but also our longer-term
strategic goals.
As we indicated in last year’s report we continue to develop our equity-based schemes as a
key mechanic to attract and retain our key talent and entrepreneurs. We share more detail of
these schemes on page 29. As we discussed last year, we continue to be mindful of the
headroom granted by our shareholders for all our incentive schemes and we can reassure
shareholders that we have made real progress in the past 12 months to reduce the percentage
dilution from the high to low teens. We continue our programme of work to reduce this
further in 2017/18.
As the Company is AIM listed, the Directors are not required to prepare a remuneration report
for each financial year under section 420(1) of the Companies Act 2006. However, this report
does take into account the QCA Code and will, as in previous years, be subject to an advisory
vote at the AGM. We thank our investors for their continued support, guidance and input and
look forward to our ongoing dialogue.
Genevieve Shore
Remuneration Committee Chair
3 April 2017
Governance 26
Directors’ remuneration report continued
Composition of the Remuneration Committee
The Committee comprises three non-executive Directors: Genevieve Shore (Committee
Chair), Alicja Lesniak and Richard Eyre. The Company’s Chief Executive Officer and Chief
Financial Officer attend the Committee meetings by invitation and assist the Committee in its
deliberations, except when issues relating to their own remuneration are discussed. No
Director is involved in deciding his or her own remuneration. The Company Secretary or his
nominee acts as secretary to the Committee. The Committee is authorised, where it judges it
necessary to discharge its responsibilities, to obtain independent professional advice at the
Company’s expense and we have sought advice from both Deloitte and Pearl Meyer during
the period. Details of the cost can be found on page 32.
Terms of reference and activities in the year
The activities of the Committee are governed by its terms of reference, which were reviewed
during the period and can be found in the Corporate Governance section of the Company’s
website. The Committee met six times during the year and details of attendance can be found
in the Corporate Governance Report on page 22. Subsequent to the year end, one further
meeting has taken place in preparation for the AGM.
The principal matters considered by the Committee during the year included:
•
reviewing the ongoing appropriateness and relevance of the remuneration framework as it
aligns to Group strategy;
• undertaking the annual review of remuneration for all executive Directors including
a market benchmarking exercise of salaries, bonuses, incentive payments and
pension arrangements;
• setting both financial and non-financial targets for the annual bonus plan;
• agreeing the structure of awards under the LTIP, reviewing and setting appropriate
stretching performance targets;
•
•
reviewing the extent to which performance conditions have been met for both annual
and long-term incentive plans, and agreeing the cash and equity payments arising
including the processes and communication to executive Directors and senior executives;
reviewing the design, policies and targets of the Group’s equity incentive plans including
their impact on dilution and headroom;
•
reviewing the remuneration trends for senior executives, across the Group and in the market;
• performing an evaluation of the Committee’s effectiveness;
• closely reviewing changes to laws, regulations and guidelines or recommendations
regarding remuneration, including the UK Government consultation in 2016/17; and
• engaging independent remuneration advisers to review long-term incentive plans, policies,
market changes and sector benchmarking.
27
Remuneration packages for executive Directors
The Company’s approach to executive Directors’ remuneration seeks to ensure that individual
contributions to the Group’s performance are fairly rewarded. This is achieved through a
balance of fixed and variable, short-term and long-term elements consisting of a competitive
basic salary, pension and benefits, an annual performance-related cash bonus and
participation in a long-term equity incentive plan. Details for each Director are set in the table
on page 30.
The Committee assesses executive remuneration packages annually and, when reviewing
salaries, the Committee considers a number of factors, including:
• the experience, responsibility and contribution of the individual; and
•
remuneration trends across the Group and for comparable roles in appropriate
comparator groups.
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
The executive Directors’ remuneration includes an element of annual performance-related
pay so that awards can be aligned to improvements in shareholder value. During the year the
Committee reviewed the executive Directors’ annual bonus framework and agreed stretching
performance targets, with a continued annual maximum opportunity set at 60% of salary.
The targets are closely aligned to the Company’s strategic aims and the interests of
shareholders, being based on the performance of the Group against market expectations, the
delivery of budget targets and the robust management of cash flow and financial KPIs.
In addition to these financial targets, strategic goals were also set, aligned to the development
of the Group’s insight and data capabilities and the brands’ strategy for developing and
retaining talent.
For the year ended 31 January 2017 it has been determined that each executive Director fully
met the financial targets and made significant progress towards the targets set for talent, data
and consumer insight. As such, an award of 48.15% of salary for each executive Director has
been agreed by the Committee. Details of the actual amounts can be found in the table on
page 30.
Long-term incentive plan
Following feedback from several of our shareholders regarding long-term performance
measures and awards, the Committee has undertaken a detailed review of the Company’s
current long-term incentive plan, the Next Fifteen Communications Group plc Long-Term
Incentive Plan 2015 (‘2015 LTIP’). The intention of this review was to alleviate shareholder
concerns but also to retain executive engagement and alignment.
In light of this review, the Committee has determined to make certain amendments a priority.
As such, the FY17 award has been retroactively modified to address shareholder concerns at the
use of the best three out of four years’ performance measures. The award has therefore been
adjusted such that performance will now be measured over three years only, with the complete
elimination of a ‘bye year’. This brings vesting forward by one year but the performance targets
are otherwise unchanged.
Governance 28
Directors’ remuneration report continued
Long-term incentive plan continued
During the period, the Committee recommended LTIP awards to its executive Directors which
were larger than usual (225,000 shares to both Tim Dyson and Peter Harris) in the absence of
awards to those two Directors in the prior year. While the FY17 awards were technically in
excess of the 2015 LTIP’s annual limit of 100% of salary, the Committee regards these awards as
proportionate, appropriate and in the best interests of shareholders. The Committee consulted
with its largest shareholders before making the award, setting out the reasons for its approach:
• No LTIP awards were made to the executive Directors in FY16. This was a consequence of the
change in the financial year end (FY15 was extended by six months to an 18-month period)
and following a review of the LTIP for best practice in several areas. The Committee agreed
that the FY17 awards would to a certain extent make up for the lack of award in FY16.
• Share price increase during FY17. The Company’s share price rose significantly in the lead-up
to the FY17 grants – 40% between April and September 2016. The Committee believed that
scaling back on the delayed FY17 awards would unfairly penalise the Directors for leading
the Company through a period of exceptional performance. This would be neither fair nor
appropriate given their value to the Company.
• The LTIP is a key incentive component for rewarding and retaining executives. The
appreciation in the Company’s share price reflected the exceptional financial, strategic and
operational performance which the executive Directors had delivered over the previous
year. Executive Director pay policy provides for a relatively modest bonus opportunity
(60% at maximum). The FY17 LTIP grant was therefore particularly important in ensuring
incentives are aligned with shareholders’ interests through long-term equity, whilst
continuing to incentivise and retain talent.
The FY17 awards, in excess of the 100%-of-salary limit, were made under separate one-off
share award agreements, the terms of which are in line with the LTIP. In accordance with the
requirements for AIM-listed companies, these agreements were not submitted for formal
shareholder approval but did receive support from the Company’s largest shareholders.
The awards made in FY17 will be subject to the following targets:
• an earnings per share (‘EPS’) target which will determine 70% of the total vesting over three
performance years. EPS growth is calculated from the information published in the Group’s
accounts and is based on the adjusted EPS measure.
• 30% of the award will vest based upon long-term strategic KPIs which were determined by
the Committee at award. Due to the market sensitivity of these targets, they will be detailed
upon vesting in the appropriate directors’ remuneration report of the Company.
Going forward, we remain committed to operating within the LTIP framework in future years, with
award sizes determined on a percentage-of-salary basis, not to exceed 100% of basic salary and to
be granted within 42 days of the full-year results.
The Committee hopes that these decisions demonstrate to shareholders our commitment to
listening and responding to shareholder feedback. In a similar vein, the Committee will be
writing to shareholders to set out how we intend to apply performance conditions and
holding periods to future grants. We look forward to discussing these with you in detail.
29
The executive Directors hold unvested awards under the 2005 Next Fifteen Communications
Group plc Long-Term Incentive Plan (‘2005 LTIP’), under which no new awards have been
made since June 2015. The awards are subject to a four-year performance period, commencing
with the financial year in which the award was granted (following the Company’s change of
year end in 2014, the 2005 LTIP awards vest following the publication of the Company’s interim
results during the financial year of the relevant performance period). During FY17 an award of
performance shares vested for Tim Dyson under the 2005 LTIP, with 100% of the award vesting
as determined by the two performance measures:
(i)
EPS growth of the Group exceeded the Consumer Prices Index (‘CPI’) by an average of 10%
or more per annum over the performance period; and
(ii) Group performance met budgeted profit targets over the performance period.
For further details of the 2015 LTIP, 2005 LTIP and details of total LTIPs which vested during the
period, see notes 21 and 22.
Equity incentive schemes
In order to drive revenue growth and improved margins, the Group has established equity
incentive schemes for the senior management teams at a number of its brands. It is a key
strategy for the Group that providing senior management with a direct stake in their brand
will focus on fostering profitable growth in the business, an entrepreneurial spirit and will also
assist with the long-term retention of key individuals and team members.
Under the schemes, new units are issued to senior management, granting rights to a
percentage of future equity appreciation for the participant’s brand and thereby creating a
partnership between the Group and the individual executives. Additionally, the units in
certain plans hold value based on access to non-cumulative and restricted profit distributions
on the business’s operating earnings. Equity appreciation is measured based on a multiple of
the brand’s operating earnings achieved in subsequent years over base line value determined
at the date of grant.
At the end of the minimum holding period following an award of equity, the holders of the
non-controlling interest have the option to sell a percentage of their units back to Next 15,
while the remaining percentage can be sold in subsequent years or held indefinitely. Value is
realised on any subsequent sale of the units to the Group, restricted by defined terms around
the timing and pricing formula. The purchase of the units will be settled in Next 15 shares, for
which there is no minimum holding period. Under certain plans, if the unit holder leaves the
business before the end of the minimum holding period, the Group retains the right to
repurchase the shares under a consistent pricing formula, or require the participant to wait
until the minimum holding period has elapsed.
Further details of the Group’s equity incentive schemes are shown in note 21 to the
financial statements.
judgements,
issued contains significant
The nature of the equity incentive schemes means that the forecast of the number of shares
to be
including forecasting the underlying
performance of the business, movement in the Group’s share price and foreign currency
fluctuations. In the event that the Company is required to issue shares to participants in excess
of the authority given by shareholders, the Company’s employee trust will purchase shares in
the market. In order to ensure that sufficient shares are available, the Company regularly
reviews its headroom and has agreed to create a buy-back policy whereby the employee trust
will purchase shares as and when required. As at 31 January 2017 no shares had been
purchased to settle future vestings of the equity incentive schemes.
Governance 30
Directors’ remuneration report continued
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. The dates of the executive Directors’
current service contracts and notice periods are set out in the table below.
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 level of 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 set out in the table below.
Date of current letter of contract
Notice period
Executive Directors
Tim Dyson
Peter Harris
Non-executive Directors
Richard Eyre
Alicja Lesniak
Genevieve Shore
1 June 1997
25 March 2014
6 months
6 months
8 May 2014
30 June 2014
23 January 2015
3 months
3 months
3 months
Directors’ remuneration for the 12-month period to 31 January 2017
Salary
and fees
2017
£’000
Performance-
related
bonus
2017
£’000
Pension
contributions
2017
£’000
Other
benefit
2017
£’000
Total
2017
£’000
Total
2016
£’000
Executive Directors
Tim Dyson
Peter Harris
Non-executive Directors
Richard Eyre
Alicja Lesniak
Genevieve Shore
637
300
120
56
45
307
144
–
–
–
72
33
–
–
–
56
3
–
–
–
1,072
480
120
56
45
815
431
120
56
45
Executive Directors
Tim Dyson
Peter Harris
31
Directors’ interests in share plans for the year to 31 January 2017
As at 31 January 2017 the following Directors held performance share awards over Ordinary
Shares of 2.5p each under the 2005 LTIP, 2015 LTIP and 2016 Share Award Agreements, as
detailed below:
Number of
shares at
1 February
2016
(or date of
appointment
if later)
175,000
125,000
150,000
–
150,000
150,000
–
Shares
lapsing
during
the period
Shares
vesting
during
the period
Shares
granted
during
the period
Number of
shares at
31 January
2017
(or date of
resignation
if earlier)
–
–
–
–
–
–
–
175,000
–
–
–
–
–
–
–
–
–
–
125,000
150,000
225,000
225,000
–
–
150,000
150,000
225,000
225,000
Grant date
07.01.2013
21.01.2014
14.11.2014
17.10.2016
16.04.2014
14.11.2014
17.10.2016
End of
performance
period
Total gain
on vesting
£
31.07.2016
600,250
31.07.2017
31.01.2018
31.01.2019
31.07.2017
31.01.2018
31.01.2019
–
–
–
–
–
–
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 February 2016 and
31 January 2017 are as follows:
Ordinary Shares
LTIP performance shares
1 February
2016
(or date of
appointment
if later)
31 January
2017
(or date of
resignation
if earlier)
1 February
2016
(or date of
appointment
if later)
31 January
2017
(or date of
resignation
if earlier)
5,077,997
5,077,997
450,000
500,000
42,372
42,372
300,000
525,000
183,921
197,993
–
–
–
–
–
–
–
–
–
–
Executive Directors
Tim Dyson
Peter Harris
Non-executive Directors
Richard Eyre
Alicja Lesniak
Genevieve Shore
Governance
32
Directors’ remuneration report continued
Total shareholder return
The Company’s total shareholder return performance for the six financial years to 31 January 2017
is shown on the graph below compared with the FTSE Media Index.
350
300
250
200
150
100
50
0
2011
2012
2013
2014
2015
2016
2017
Next15
FTSE Media
This graph shows the value on 31 January 2017 of £100 invested in the Company on 31 January 2011
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.
Payments for loss of office
There were no payments for loss of office during the period.
Payments made to past Directors
As disclosed in the 2013 Remuneration Report, David Dewhurst agreed to step down as a
Director on 29 October 2013. As part of the settlement agreement, it was agreed at the
Company’s discretion that Mr Dewhurst’s LTIP performance shares would not lapse when he
ceased to be an eligible employee on his last day of employment but that, in addition to the
usual performance condition, the vesting of these LTIPs would continue and would be based
on the time elapsing between the grant date and Mr Dewhurst’s termination date. Accordingly,
Mr Dewhurst’s LTIP award vested on 27 September 2016 and the pre-tax value at the vesting
date was £212,965.
Payments made to remuneration advisers
During the period the Committee was assisted in meeting its responsibilities by Deloitte LLP
and Pearl Meyer & Partners UK LLP, who provided advice relating to remuneration, for which
they received fees of £23,250 and £13,325 respectively. The Committee is satisfied that the
advice it receives is objective and independent.
Report of the Directors
33
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 January 2017.
The Group has chosen, in accordance with section 414C(11) of the Companies Act 2006, to
include such matters of strategic importance to the Group in the Strategic Report which
otherwise would be required to be disclosed in the Directors’ Report.
Group results and dividends
The Group’s results for the period are set out in the Consolidated Statement of Comprehensive
Income on page 40. The Directors recommend a final dividend of 3.75p per Ordinary Share
(2016: 3.0p) to be paid on 4 August 2017 for the year ended 31 January 2017 which, when
added to the interim dividend of 1.5p (2016: 1.2p) paid on 25 November 2016, gives a total
dividend for the period of 5.25p per share (2016: 4.2p).
Directors
Details of Directors who served during the year and biographies for Directors currently in
office can be found on page 17.
Details of the Directors’ remuneration, share options, service agreements and interests
in the Company’s shares are provided in the Report of the Remuneration Committee on
pages 25 to 32.
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.
Directors’ indemnity
In accordance with its Articles of Association the Company has entered into contractual
indemnities with each of 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
the Directors’ 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 or under the indemnity.
Acquisitions
The following is a summary of Group acquisitions made in the year to 31 January 2017, more
detailed disclosure of which can be found in note 26 to the financial statements.
On 26 February 2016, Next 15 acquired the remaining 25% minority interest in Morar Consulting
Limited, its research and advisory agency, and settled in full the remaining obligation for the
original purchase of 75% of the issued share capital made on 3 December 2014. The aggregate
consideration for the minority interest and remaining obligation was £3.55m, of which £1.5m
was paid in February 2017.
On 10 March 2016, Next 15 purchased the entire share capital of Publitek Limited (‘Publitek’),
a specialist technical content marketing business that services customers in the global
semiconductor and electronic component market, for initial consideration of £6.2m, of which
£5.7m was satisfied in cash with the balance satisfied by the issue of new Ordinary Shares in
Next 15. Further consideration may become payable based on the average profits of Publitek
for the years ending 31 January 2018, 2019, 2020 and 2021 and any deferred consideration that
becomes payable may be satisfied by cash or up to 25% in new Ordinary Shares, at the option
of Next 15.
Governance 34
Report of the Directors continued
Acquisitions continued
On 31 March 2016, Next 15 purchased the entire share capital of Twogether Creative Limited
(‘Twogether’), a B2B creative and digital marketing agency with a focus on technology clients,
for an initial consideration of £6.6m, of which £4.0m was satisfied in cash, with the balance
satisfied by the issue of new Ordinary Shares in Next 15. Further consideration may become
payable based on the average profits of Twogether for the years ending 31 January 2018, 2019,
2020 and 2021 and any deferred consideration that becomes payable may be satisfied by cash
or up to 25 per cent in new Ordinary Shares, at the option of Next 15.
On 26 September 2016, Next 15 purchased the entire share capital of PMC Investments Limited
(‘Pinnacle’), a specialist technical content and digital marketing business with customers in the
electronics, telecoms and engineering sectors, for an initial consideration of £4.4m, of which £4m
was satisfied in cash with the balance satisfied by the issue of new Ordinary Shares in Next 15.
Following the acquisition, Pinnacle has been managed as one business alongside Publitek.
On 9 November 2016, Next 15 acquired an 85% stake in HPI Research Limited (‘HPI’), a market
research agency based in London, through its data and insights subsidiary, Morar Consulting
Limited (‘Morar’). The initial consideration was £1,282,000, satisfied in cash (comprised of
£800,000 for the net assets acquired on completion and £482,000 as an upfront payment for
the business). The remaining 15% stake in HPI will be acquired by Morar in June 2018, with the
consideration based on HPI’s operating profit for the financial year ending 31 January 2018.
Significant post-balance sheet events
There have been no significant post balance sheet events.
Likely future developments in the business of the Company
The Group’s priorities for 2017/18 are disclosed in the Strategic Report on pages 2 to 15.
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 equity incentive schemes, 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.
Any candidate with a disability will not be excluded unless it is clear that the candidate is
unable to perform a duty that is intrinsic to the role, having taken into account reasonable
adjustments. Reasonable adjustments to the recruitment process will be made to ensure that
no applicant is disadvantaged because of his or her disability. The Group’s policies for training,
career development and promotion do not disadvantage people with disabilities.
35
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 Chief Financial Officer
is responsible for the implementation of the Group policy on health and safety.
Political donations
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 (2016: £Nil).
Acquisition of shares
Acquisitions of shares by the Next Fifteen Employee Trust purchased during the period are as
described in note 23 to the financial statements.
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 and in the Strategic Report.
Auditors
The Board appointed Deloitte LLP to act as auditors for the year ended 31 January 2017.
A resolution to reappoint Deloitte LLP as auditors of the Company and to authorise the Board
to fix their remuneration will be proposed at the forthcoming AGM.
Disclosure of information to the auditors
Each of the persons who is a Director at the date of approval of this report confirms that:
1. So far as the Director is aware, there is no relevant audit information of which the Company’s
auditors is unaware.
2. The Director has taken all steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to ensure that the Company’s
auditors is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of
section 418 of the Companies Act 2006.
Annual General Meeting
The notice convening the Company’s 2017 AGM at the Company’s offices at 75 Bermondsey
Street, London SE1 3XF on Wednesday 21 June 2017 at 3.30 p.m. is set out in a separate
document and will be mailed separately to shareholders who requested a paper copy. The
notice of AGM will also be made available on the Company’s website at www.next15.com.
Governance 36
Report of the Directors continued
Substantial shareholdings
As at 31 January 2017 and 31 March 2017 the Company had received the notifications below of
the following substantial holdings in the issued Ordinary Share capital carrying rights to vote
in all circumstances of the Company. The percentage holding is based on the Company’s
issued share capital at the date of the notification.
31 March 2017
31 January 2017
Total
%
Total
Liontrust Investment Partners LLP
10,918,822
14.89
10,918,822
Octopus Investments Nominees Limited
6,658,356
9.08
6,143,005
Herald Investment Management
5,231,796
8.76
5,231,796
Mr Tim Dyson
5,077,997
8.47
5,077,997
Standard Life Investments (Holdings) Ltd
5,068,139
6.92
5,068,139
Hargreave Hale Limited
3,785,000
6.33
3,785,000
FIL Limited
3,098,160
5.18
3,098,160
Aviva plc and subsidiaries
3,573,273
5.07
3,573,273
BlackRock, Inc.
Mr Thomas Lewis
3,610,618
5.00
3,610,618
2,804,000
4.79
2,804,000
River and Mercantile Asset Management LLP
2,820,549
4.72
2,820,549
Investec Asset Management
2,846,045
4.24
2,846,045
Slater Investments Ltd
2,862,700
3.97
2,862,700
J O Hambro Capital Management Group
1,846,000
3.09
1,846,000
Approved by the Board on 3 April 2017 and signed on its behalf by:
%
14.89
8.38
8.76
8.47
6.92
6.33
5.18
5.07
5.00
4.79
4.72
4.24
3.97
3.09
Nick Lee Morrison
General Counsel and Company Secretary
3 April 2017
Directors’ responsibilities statement
37
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 are required to
prepare the Group financial statements
in accordance with
International Financial Reporting Standards (‘IFRSs’) as adopted by
the European Union and Article 4 of the IAS Regulation and have
elected to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law), including FRS 101 ‘Reduced Disclosure Framework’. Under
company law the Directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period.
In preparing the Parent Company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
•
state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing
Accounting Standard 1 requires that Directors:
the Group financial statements,
International
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
in
• provide additional disclosures when compliance with the specific
requirements
insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
IFRSs are
• make an assessment of the Company’s ability to continue as a
going concern.
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 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.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation
in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole;
the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks
and uncertainties that they face; and
the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s performance,
business model and strategy.
This responsibility statement was approved by the Board of Directors
on 3 April 2017 and is signed on its behalf by:
Peter Harris
Chief Financial Officer
Governance 38
Independent auditors’ report
to the members of Next Fifteen Communications Group plc
the Consolidated
Income Statement,
Income,
We have audited the financial statements of Next Fifteen
Communications Group plc for the year ended 31 January 2017
the
which comprise
Consolidated
the
Statement of Comprehensive
Consolidated and Parent Company Balance Sheets, the Consolidated
and Parent Company Statements of Changes
in Equity, the
Consolidated Statement of Cash Flow and the related notes 1 to 29.
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 the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting
Standards
(United Kingdom Generally Accepted Accounting
Practice), including FRS 101 ‘Reduced Disclosure Framework’.
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 auditor’s 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 auditor
As explained more fully in the Directors’ Responsibilities Statement,
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 Auditing Practices Board’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 Financial Reporting Council’s (‘FRC’) website at
https://www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 January 2017
and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the
Directors’ Report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
require for our audit.
James Bates
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London
United Kingdom
3 April 2017
Consolidated income statement
Consolidated income statement
for the year ended 31 January 2017 and the year ended 31 January 2016
for the year ended 31 January 2017 and the year ended 31 January 2016
39
Year ended
31 January
2016
£’000
151,658
129,757
Year ended
31 January
2017
£’000
200,745
171,013
Year ended
31 January
2017
£’000
126,756
3,482
6,017
26,844
Year ended
31 January
2016
£’000
92,721
2,348
3,796
22,463
Billings
Revenue
Staff costs
Depreciation
Amortisation
Other operating charges
Total operating charges
Operating profit
Finance expense
Finance income
Net finance expense
Share of loss from 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
2,5
6
7
5
8
10
10
The accompanying notes are an integral part of this Consolidated Income Statement.
All results relate to continuing operations.
(163,099)
(121,328)
7,914
(5,607)
865
(4,742)
(272)
2,900
(1,232)
1,668
1,138
530
1,668
1.6
1.5
8,429
(4,905)
2,059
(2,846)
(5)
5,578
(1,116)
4,462
3,992
470
4,462
6.0
5.6
39
Financial Statements
40
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the year ended 31 January 2017 and year ended 31 January 2016
for the year ended 31 January 2017 and the year ended 31 January 2016
Profit for the year
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations
Loss on net investment hedges
Amounts reclassified and reported in the income statement:
Profit on net investment hedges
Total other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Parent
Non-controlling interests
Note
19
19
Year ended
31 January
2017
£’000
1,668
Year ended
31 January
2016
£’000
4,462
5,128
(1,378)
3,750
–
–
3,750
5,418
4,888
530
5,418
1,585
(662)
923
4
4
927
5,389
4,919
470
5,389
The accompanying notes are an integral part of this Consolidated Statement of Comprehensive Income.
All results relate to continuing operations.
40
Consolidated balance sheet
Consolidated balance sheet
as at 31 January 2017 and 31 January 2016
As at 31 January 2017 and 31 January 2016
41
31 January
2017
£’000
31 January
2017
£’000
31 January
2016
£’000
31 January
2016
£’000
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
Contingent consideration
Share purchase obligation
Total non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Corporation tax liability
Share purchase obligation
Contingent consideration
Total current liabilities
Total liabilities
Total net assets
Equity
Share capital
Share premium 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
Note
12
11
18
13,19
13,19
19
19
18
14,19
15,19
17,19
17,19
19
14,19
15,19
17,19
17,19
24
15,764
79,979
120
743
9,987
817
42,143
22,072
601
31,869
2,692
5,537
54
10,971
3,033
1,589
39,409
2,647
1,594
400
3,934
1,834
25,681
(2,673)
10,238
529
31,962
107,410
64,816
172,226
(54,156)
(49,573)
(103,729)
68,497
67,571
926
68,497
9,988
53,555
465
235
6,485
702
40,924
14,132
1,097
20,683
–
5,739
450
5,701
2,225
–
34,088
989
765
1,509
2,643
1,763
21,523
(2,673)
5,110
1,907
24,418
The accompanying notes are an integral part of this Consolidated Balance Sheet.
These financial statements were approved and authorised by the Board on 3 April 2017.
Peter Harris
Chief Financial Officer
Company number 01579589
71,430
56,153
127,583
(34,798)
(39,994)
(74,792)
52,791
52,048
743
52,791
41
Financial Statements
42
Consolidated statement of changes in equity
Consolidated statement of changes in equity
for the year ended 31 January 2017 and the year ended 31 January 2016
for the year ended 31 January 2017 and year ended 31 January 2016
Share
premium
reserve
£’000
Share
purchase
reserve
£’000
Foreign
currency
translation
reserve
£’000
Other
reserves1
£’000
21,523
(2,673)
5,110
1,907
Share
capital
£’000
1,763
Note
–
–
Equity
attributable
to owner
of the Parent
£’000
52,048
1,138
Retained
earnings
£’000
24,418
1,138
Non-
controlling
interests
£’000
743
530
Total
equity
£’000
52,791
1,668
At 31 January 2016
Profit for the year
Other
comprehensive
income/(expense)
for the year
Total comprehensive
income/(expense)
for the year
Shares issued on
satisfaction of vested
share options
Shares issued on
acquisitions
Movement in
relation to share-
based payments
Tax on share-based
payments
Dividends to owners
of the Parent
Movement due to
ESOP share
purchases
Movement due to
ESOP share option
exercises
Movement on
reserves for non-
controlling interests
Share options issued
on acquisition of
subsidiary
Non-controlling
interest arising on
acquisition
Non-controlling
dividend
20
20, 26
8
9
–
–
–
27
44
–
–
–
–
–
–
–
–
–
–
–
–
–
4,158
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,128
(1,378)
–
3,750
–
3,750
5,128
(1,378)
1,138
4,888
530
5,418
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(25)
25
–
–
–
–
(265)
(238)
–
4,202
8,974
8,974
1,239
1,239
(3,264)
(3,264)
–
–
(25)
25
–
–
–
–
–
–
–
(292)
(292)
292
14
14
–
(238)
4,202
8,974
1,239
(3,264)
(25)
25
–
14
–
–
–
–
436
436
(1,075)
(1,075)
At 31 January 2017
1,834
25,681
(2,673)
10,238
529
31,962
67,571
926
68,497
1 Other reserves include the ESOP reserve, the treasury reserve, the merger reserve and the hedging reserve; see note 24.
42
Consolidated statement of changes in equity continued
Consolidated statement of changes in equity continued
for the year ended 31 January 2017 and year ended 31 January 2016
for the year ended 31 January 2017 and the year ended 31 January 2016
43
Note
Share
capital
£’000
1,545
Share
premium
reserve
£’000
Share
purchase
reserve
£’000
Foreign
currency
translation
reserve
£’000
Other
reserves1
£’000
Retained
earnings
£’000
Equity
attributable
to owner
of the
Parent
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
8,272
(2,673)
3,525
2,565
24,741
37,975
(773)
37,202
–
–
–
38
19
–
–
–
–
1,331
161
11,920
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,992
3,992
470
4,462
1,585
(658)
–
927
–
927
1,585
(658)
3,992
4,919
470
5,389
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(38)
38
–
–
–
–
–
–
–
1,274
239
38
1,350
12,081
1,274
239
(2,441)
(2,441)
–
–
(38)
38
–
–
–
–
–
–
–
–
(3,494)
(3,494)
3,494
38
1,350
12,081
1,274
239
(2,441)
(38)
38
–
107
107
–
107
–
–
–
–
1,763
21,523
(2,673)
5,110
1,907
24,418
52,048
At 31 January 2015
Profit for the year
Other comprehensive
income/(expense)
for the year
Total comprehensive
income/(expense)
for the year
Shares issued on satisfaction
of vested share options
Shares issued on acquisitions
Shares issued on placing
Movement in relation to
share-based payments
Tax on share-based payments
Dividends to owners
of the Parent
Movement due to ESOP
share purchases
Movement due to ESOP
share option exercises
Movement on reserves for
non-controlling interests
Share options issued on
acquisition of subsidiary
Non-controlling interest
arising on acquisition
Non-controlling dividend
At 31 January 2016
1 Other reserves include the ESOP reserve, the treasury reserve, the merger reserve and the hedging reserve; see note 24.
The accompanying notes are an integral part of this Consolidated Statement of Changes in Equity.
(1,888)
(1,888)
(560)
743
(560)
52,791
43
Financial Statements
44
Consolidated statement of cash flow
Consolidated statement of cash flow
for the year ended 31 January 2017 and year ended 31 January 2016
for the year ended 31 January 2017 and the year ended 31 January 2016
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Amortisation
Finance expense
Finance income
Share of loss from equity-accounted associate
Loss on sale of property, plant and equipment
Income tax expense
Share-based payment charge
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 trade and assets, net of cash acquired
Payment of contingent consideration
Acquisition of investments and associates
Proceeds on disposal of associates
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
6
7
4
8
7
Year ended
31 January
2017
£’000
Year ended
31 January
2017
£’000
Year ended
31 January
2016
£’000
Year ended
31 January
2016
£’000
1,668
3,482
6,017
5,607
(865)
272
110
1,232
8,989
8,430
(2,861)
763
(14,546)
(6,622)
(777)
330
(8,284)
7
(612)
(292)
204
26,512
6,332
32,844
(1,978)
30,866
4,462
2,348
3,796
4,905
(2,059)
5
156
1,116
1,393
(6,740)
6,447
459
(4,190)
(9,160)
–
–
(6,411)
7
(562)
109
49
16,122
166
16,288
(2,954)
13,334
(30,592)
274
(20,158)
(6,824)
44
Consolidated statement of cash-flow
for the year ended 31 January 2017 and the year ended 31 January 2016
Consolidated statement of cash flow continued
for the year ended 31 January 2017 and year ended 31 January 2016
45
Year ended
31 January
2017
£’000
Note
Year ended
31 January
2017
£’000
274
Year ended
31 January
2016
£’000
Year ended
31 January
2016
£’000
(6,824)
–
–
(55)
11,589
–
(695)
(1,075)
(3,264)
6
9
9
12,540
(457)
(23)
6,661
(3,790)
(471)
(560)
(2,441)
Net cash from operating and investing activities
Cash flows from financing activities
Proceeds from sale of own shares
Issue costs on issue of Ordinary Shares
Capital element of finance lease rental repayment
Increase in bank borrowings and overdrafts
Repayment of 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 inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange gains on cash held
Cash and cash equivalents at end of the year
19
The accompanying notes are an integral part of this Consolidated Statement of Cash Flow.
6,500
6,774
14,132
1,166
22,072
11,459
4,635
9,315
182
14,132
45
Financial Statements
46
Notes to the accounts
Notes to the accounts
for the year ended 31 January 2017
for the year ended 31 January 2017
1 Accounting policies
Next Fifteen Communications Group plc (the ‘Company’) is a public limited company incorporated in the United Kingdom (‘UK’) and registered
in England and Wales. The consolidated financial statements include the Company and its subsidiaries (together, the ‘Group’) and its interests
in associates.
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 periods 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. These financial statements are presented in pounds sterling because that is the currency of the
primary economic environment in which the Group operates.
The consolidated financial statements have been prepared on a going concern basis (as set out in the Directors’ Report) and on an historical
cost basis, except for the remeasurement to fair value of certain financial assets and liabilities as described in the accounting policies below.
B. New and amended standards adopted by the Group
The Group has adopted the new accounting pronouncements which became effective this year, none of which had a significant impact on the
Group’s results or financial position.
C. Basis of consolidation
The Group’s financial statements consolidate the results of Next Fifteen Communications Group plc and all of its subsidiary undertakings, and
its interests in associates.
Subsidiaries are all entities over which the Group has control. Control is achieved where the Company has existing rights that give it the ability
to direct the activities that affect the Company’s returns and exposure or rights to variable returns from the entity. 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. The Consolidated Income Statement reflects the share of the results of the operations
of the associate after tax. The £272,000 share of loss from associates in the current year constitutes a £200,000 loss on disposal of associates and
£72,000 share of loss from associates.
When a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to its acquisition
date fair value and the resulting gain or loss, if any, is recognised in the Consolidated Income Statement. Amounts arising from interests in the
acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to the Consolidated
Income Statement, where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group
reports provisional amounts for the items for which the accounting is incomplete.
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 (included in other reserves)
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.
46
47
1 Accounting policies continued
E. Revenue
Billings represent amounts receivable from clients, exclusive of VAT, sales taxes and trade discounts in respect of charges for fees, commission
and rechargeable expenses incurred on behalf of clients.
Revenue is billings less amounts payable on behalf of clients to external suppliers where they are retained to perform part of a specific client
project or service, and represents fees, commissions and mark-ups on rechargeable expenses. Revenue is recognised on the following bases:
· Retainer and other non-retainer fees are recognised as the services are performed, in accordance with the terms of the contractual
arrangement.
· Project fees are recognised on a percentage-of-completion basis as contract activity progresses, if the final outcome can be assessed with
reasonable certainty. The stage of completion is generally measured on the basis of the services performed to date as a percentage of the
total services to be performed, usually with reference to completion of determined milestones and/or time incurred as a percentage of total
time expected to be incurred.
· Expenses are recharged to clients at cost plus an agreed mark-up when the services are performed.
Finance Income
Finance income primarily relates to changes in estimate in the Group’s contingent consideration and share purchase obligation liabilities; refer
to section T.
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 the
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 between two
and seven years. Costs associated with maintaining computer software programs are recognised as an expense as they are incurred. No
amortisation is charged on assets in the course of construction until they are available for operational use in the business.
Software acquired as part of a business combination is recognised at fair value at the acquisition date. Software has a finite useful life and is
amortised using the straight-line method over its estimated useful life of three years.
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 two to twenty years. In the year we have reassessed the useful life of one of the Group’s trade names, reducing
it from ten years to two years. The impact of this change in estimate is an increase in the amortisation of £0.4m.
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 earn-out period. The non-compete arrangements have a finite useful life equivalent to the length of the earn-out period and are
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the length of the arrangement.
47
Financial Statements
48
Notes to the accounts continued
for the year ended 31 January 2017
1 Accounting policies continued
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
– Over the term of the lease
Office equipment
– 20% to 50% per annum straight-line basis
Office furniture
Motor vehicles
– 20% per annum straight-line basis
– 25% per annum straight-line basis
H. Impairment
Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets (excluding deferred tax) are subject
to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Where the carrying value of an asset exceeds its recoverable amount, which is measured as the higher of value in use and fair value less costs to
sell, the asset is impaired accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset’s
cash-generating unit, defined as the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows.
Goodwill is allocated on initial recognition to each of the Group’s cash-generating units that are expected to benefit from the synergies of the
combination giving rise to the goodwill. The cash-generating units represent the lowest level within the entity at which the goodwill is
monitored for internal management purposes.
Impairment charges are included within the amortisation and impairment line of the Consolidated 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 Consolidated 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 Consolidated 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.
48
Notes to the accounts continuedfor the year ended 31 January 2017
49
1 Accounting policies continued
K. Financial instruments
Financial assets and liabilities are recognised on the Group’s Consolidated Balance Sheet when the Group becomes party to the contractual
provisions of the asset or liability. The Group’s accounting policies for different types of financial asset and liability are described below.
Trade receivables
Trade receivables are initially recognised at fair value and will subsequently be measured at amortised cost less allowances for impairment. An
allowance for impairment of trade receivables is established when there is objective evidence (such as significant financial difficulties on the
part of the counterparty, or default or significant delay in payment) that the Group will not be able to collect all amounts due according to the
original terms of the receivables. The amount of the allowance is the difference between the asset’s carrying amount and the present value of
estimated future cash flows associated with the impaired receivable.
Such provisions are recorded in a separate allowance account, with the loss being recognised as an expense in the other operating charges line
in the Consolidated Income Statement. On confirmation that the trade receivable will not be collectable, the gross carrying value is written off
against the associated allowance.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and short-term call deposits held with banks. Bank overdrafts are shown within loans and
borrowings in current liabilities on the Consolidated Balance Sheet, except where there is a pooling arrangement with a bank that allows them
to be offset against cash balances. In such cases the net cash balance will be shown within cash and cash equivalents in the Consolidated
Balance Sheet.
Derivative financial instruments
Derivative financial instruments 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 instruments 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 are recognised in the separate foreign currency translation reserve. The gain or loss
relating to the ineffective portion is recognised immediately in the Consolidated Income Statement within finance income/expense.
Gains and losses accumulated in equity on retranslation of the foreign currency loans are recycled through the Consolidated 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 Consolidated 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 Consolidated Income Statement.
Where there is a change in the ownership interest without effecting control, the exchange differences are adjusted within reserves.
Bank borrowing
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 that are initially recognised as a reduction in the proceeds of the associated capital instrument.
Deal costs
Costs associated with business combinations are recognised in the Consolidated Income Statement within the ‘other operating charges’ line in
the year in which they are incurred. Those costs which are directly attributable to the business combination are considered exceptional to the
extent they would not have been incurred had the business combination not occurred.
49
Financial Statements
50
Notes to the accounts continued
for the year ended 31 January 2017
1 Accounting policies continued
K. Financial instruments continued
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.
The Group has a portion of contingent consideration which is payable subject to continuing employment of the previous owner within the
Group. The expected liability is recognised within operating costs evenly over the required employment term of the seller.
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 Consolidated 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.
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 via the Group’s Long-Term Incentive Plan. 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.
The Group grants brand equity appreciation rights to key individuals in the form of LLC units or restricted ordinary shares in the relevant
subsidiary. The LLC units or restricted ordinary shares give the individuals a right to a percentage of the future appreciation in their particular
brand’s equity. Appreciation is measured based on a multiple of the brand’s operating earnings in subsequent year(s), over the base line value
determined at the date of grant. Since any brand appreciation payments are to be settled in Group equity, they are accounted for as
equity-settled share-based payments. The Group fair values the LLC units or restricted ordinary shares at the date of grant and expenses them
fully at that point. The Group determines that these brand appreciation rights (or growth shares) are exceptional in nature as they are the
continuation of acquisition-related payments used to incentivise key management to grow their business and are one-off in nature as expensed
to the Income Statement in full in the year of grant.
O. Leased assets
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 Consolidated Balance
Sheet and lease income is recognised over the term of the lease on a straight-line basis.
P. Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Income
Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
50
Notes to the accounts continuedfor the year ended 31 January 2017 51
1 Accounting policies continued
Q. Deferred tax
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the Consolidated Balance Sheet differs from
its tax base, except for differences arising on:
· the initial recognition of goodwill;
· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects
neither accounting nor taxable profit; and
·
investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and
it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the asset
can be utilised.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date
and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
· the same taxable Group company; or
· different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled
or recovered.
Where a temporary difference arises between the tax base of employee share options and their carrying value, a deferred tax asset should arise.
To the extent that 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 that the future tax deduction matches the cumulative IFRS 2
expense, the associated deferred tax balance is recognised in the Consolidated Income Statement.
R. 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.
S. 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.
T. Significant judgements and key areas of estimation uncertainty
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 around revenue and cost growth rates from the Board-approved budget and
discount rates applied. 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
Consolidated 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. These require judgements around future
revenue growth, profit margins and discount rates, which if inappropriate, would result in a material adjustment to the value of these liabilities
within the next financial year. Further details are contained in note 17.
III. Share-based payments
The Group grants brand equity appreciation rights which are fully settled in Company shares and are accounted as equity-settled share-based
payments. These are valued using a model to determine a probability weighted average forecast value of the brand appreciation rights on
settlement with Company shares. This involves estimating future revenue growth and profit margins of the brands over a number of years, as
well as making assumptions on timing of the exercise of the put option by employees.
51
Financial Statements
52
Notes to the accounts continued
for the year ended 31 January 2017
1 Accounting policies continued
U. New standards and amendments not applied
The Group has not yet adopted certain new standards, amendments and interpretations to existing standards which have been published
but are only effective for our accounting periods beginning on or after 1 February 2017 or later periods. These new pronouncements are
listed below:
· Annual Improvements 2012–2014 cycle (effective for periods beginning on or after 1 July 2016)
·
·
·
IFRS 15 ‘Revenue from Contracts with Customers’ (effective periods beginning on or after 1 January 2018)
IFRS 9 ‘Financial Instruments’ (effective periods beginning on or after 1 January 2018)
IFRS 16 ‘Leases’ (effective periods beginning on or after 1 January 2019)1
1 Not yet endorsed for use in the EU.
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group
in future periods except as follows:
·
·
IFRS 15 may impact the timing of revenue recognition for the Group, particularly for revenue earnt through project work, and is effective for
the Group’s year ending 31 January 2019. The Group is currently evaluating the impact of the adoption of this standard in future periods.
IFRS 16 requires the recognition of all lease assets and liabilities by lessees on the balance sheet and is effective for the Group’s year ending
31 January 2020. The Group is currently evaluating the impact of the adoption of this standard on its financial position and operating results.
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. These are deemed to be regional segments.
The Group’s business is separated into a number of brands which are considered to be the underlying CGUs. These brands are organised into
regional segments based on their geographical location; within these reportable segments the Group operates a number of separate competing
businesses in order to offer services to clients in a confidential manner where otherwise there may be issues of conflict.
Measurement of operating segment profit
The Board of Directors assesses the performance of the operating segments based on a measure of adjusted operating profit before
intercompany recharges, which reflects the internal reporting measure used by the Board of Directors. This measurement basis excludes
the effects of certain fair value accounting charges, amortisation of acquired intangibles, goodwill impairment charges and other exceptional
one-off costs. 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 January 2017
Revenue
42,638
7,166
107,008
14,201
–
171,013
UK
£’000
EMEA
£’000
US
£’000
Asia Pacific
£’000
Head Office
£’000
Total
£’000
Segment adjusted operating
profit/(loss)
Operating profit margin
Organic revenue growth
Year ended 31 January 2016
Revenue
Segment adjusted operating
profit/(loss)
Operating profit margin
Organic revenue growth
8,042
18.9%
3.7%
647
9.0%
5.7%
22,347
20.9%
12.6%
2,162
15.2%
6.4%
27,885
6,426
83,456
11,990
3,805
13.6%
(0.6%)
452
7.0%
(8.1%)
17,492
21.0%
14.1%
1,380
11.5%
(2.4%)
(8,228)
–
–
–
(6,610)
–
–
24,970
14.6%
9.9%
129,757
16,519
12.7%
7.8%
52
Notes to the accounts continuedfor the year ended 31 January 2017 2 Segment information
Measurement of operating segment profit continued
A reconciliation of segment adjusted operating profit to statutory operating profit is provided as follows:
Segment adjusted operating profit
Share-based payment charge and charges associated with equity transactions accounted
for as share-based payments1
Deal costs
Costs associated with restructuring2
Charge associated with office moves
Total exceptional costs in operating profit excluding amortisation
Amortisation of acquired intangibles
Total exceptional costs in operating profit
Total operating profit
53
Year
ended
31 January
2016
£’000
16,519
(1,549)
(208)
(1,492)
(1,354)
(4,603)
(3,487)
(8,090)
8,429
Year
ended
31 January
2017
£’000
24,970
(10,507)
(368)
(676)
–
(11,551)
(5,505)
(17,056)
7,914
1 This charge relates to the acquisition of the 20% minority interest in Bourne whereby performance shares were issued as partial consideration, and transactions whereby a restricted grant
of brand equity was given to key management in Agent3 Limited, BYND Limited, MIG Global Limited, The Lexis Agency Limited, Twogether Creative Limited, BYND LLC, Vrge Strategies LLC
and M Booth LLC (2016: Bite Communications Limited, Bite Communications LLC and The OutCast Agency LLC) at nil cost which holds value in the form of access to future profit distributions
as well as any future sale value under the performance-related mechanism set out in the share sale agreement. This value is recognised as a one-off share-based payment in the income
statement. It also includes charges associated with equity transactions accounted for as share-based payments.
2
In the current period the Group has incurred exceptional costs in relation to Story Worldwide LLC and finalisation of the restructure of the EMEA region. In the prior period the costs were in
relation to the decision to exit both South Africa and Denmark, the restructuring of the Story Worldwide LLC business and finally the merging of the research agencies under the
Morar brand.
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 monthly number of employees during the period, by geographical location, was as follows:
UK
Europe and Africa
US
Asia Pacific
Head Office
Key management personnel are considered to be the Board of Directors as set out on pages 16 and 17.
Year
ended
31 January
2017
£’000
105,622
7,629
2,159
11,346
126,756
Year
ended
31 January
2017
424
81
716
314
45
Year
ended
31 January
2016
£’000
83,200
5,836
1,613
2,072
92,721
Year
ended
31 January
2016
304
85
611
314
36
1,580
1,350
53
Financial Statements
54
Notes to the accounts continued
for the year ended 31 January 2017
3 Employee information continued
Directors’ remuneration consists of:
Short-term employee benefits
Pension costs
Share-based payment charge
The highest paid Director received total emoluments of £1,072,000 (2016: £815,000).
4 Operating profit
This is arrived at after charging/(crediting):
Depreciation of owned property, plant and equipment
Depreciation of assets held under finance leases
Amortisation of intangible assets
Loss on sale of property, plant and equipment
Share-based payment charge
Share-based payment charge – exceptional
Operating lease income
Operating lease rentals – property
– plant and machinery
Foreign exchange gain
Year
ended
31 January
2017
£’000
1,388
105
325
1,818
Year
ended
31 January
2016
£’000
1,186
60
165
1,411
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
3,354
128
6,017
110
839
10,507
(223)
7,603
61
(824)
2,246
102
3,796
156
523
1,549
(543)
4,413
45
(105)
Auditors’ remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditor and their associates:
Fees payable to the Company’s auditor for the statutory audit of the Company accounts and consolidated
annual statements
The auditing of financial statements of the subsidiaries pursuant to legislation
Non-audit services:
Tax advisory services
Other assurance services
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
195
148
71
30
444
183
127
42
5
357
54
Notes to the accounts continuedfor the year ended 31 January 2017 55
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 cash flow analysis.
Adjusted profit before income tax and earnings to ordinary shareholders
Profit before income tax
Unwinding of discount on contingent and deferred consideration (note 17)
Unwinding of discount on share purchase obligation (note 17)
Total exceptional costs in operating profit (note 2)
Change in estimate of future contingent consideration payable (note 17)
Change in estimate of future share purchase obligation (note 17)
Adjusted profit before income tax
Adjusted EBITDA
Operating profit
Depreciation of owned property, plant and equipment (note 12)
Depreciation of assets held under finance leases (note 12)
Amortisation of intangible assets (note 11)
Total exceptional costs in operating profit excluding amortisation (note 2)
Adjusted EBITDA
Adjusted staff costs
Staff costs
Reorganisation costs
Charges associated with equity transactions accounted for as share-based payments (note 2)
Adjusted staff costs
Year
ended
31 January
2017
£’000
2,900
1,787
395
17,056
1,606
456
24,200
Year
ended
31 January
2017
£’000
7,914
3,354
128
6,017
11,551
28,964
Year
ended
31 January
2017
£’000
126,756
(593)
(10,507)
115,656
Year
ended
31 January
2016
£’000
5,578
936
576
8,090
439
473
16,092
Year
ended
31 January
2016
£’000
8,429
2,246
102
3,796
4,603
19,176
Year
ended
31 January
2016
£’000
92,721
(1,219)
(1,549)
89,953
55
Financial Statements
56
Notes to the accounts continued
for the year ended 31 January 2017
6 Finance expense
Financial liabilities at amortised cost
Bank interest payable
Financial liabilities at fair value through profit and loss
Unwinding of discount on share purchase obligation (note 17)
Change in estimate of future share purchase obligation (note 17)
Unwinding of discount on contingent and deferred 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
Financial liabilities at fair value through profit and loss
Change in estimate of future share purchase obligation (note 17)
Change in estimate of future contingent consideration (note 17)
Other
Other interest receivable
Finance income
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
685
395
858
1,787
1,865
7
10
5,607
445
576
759
936
2,163
8
18
4,905
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
40
402
259
164
865
42
286
1,724
7
2,059
56
Notes to the accounts continuedfor the year ended 31 January 2017 8 Taxation
The major components of income tax expense/(credit) for the year ended 31 January 2017 and year ended 31 January 2016 are:
57
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 credit relating to share-based remuneration
Income tax benefit reported in equity
Factors affecting the tax charge for the year
The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 20% (2016: 20.17%).
The difference is explained below:
Profit before income tax
Corporation tax expense at 20% (2016: 20.17%)
Effects of:
Disallowed expenses
Recognition of previously unrecognised tax losses
Non-utilisation of tax losses
Higher rates of tax on overseas earnings
Deduction for overseas taxes
Adjustments in respect of prior years
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
4,232
(106)
(3,025)
131
1,232
(1,239)
(1,239)
2,900
580
1,338
(19)
18
836
(1,546)
25
1,232
2,019
30
(957)
24
1,116
(239)
(239)
5,578
1,125
765
(354)
26
734
(1,234)
54
1,116
Reconciliation of tax expense in the Consolidated Income Statement to adjusted tax expense:
Income tax expense reported in the Consolidated Income Statement
1,232
1,116
Add back:
Tax on adjusting items
Costs associated with the current period restructure (note 2)
Unwinding of discount on and change in estimates of contingent and deferred consideration (note 17)
Share-based payment charge (note 2)
Charge associated with office moves (note 2)
Amortisation of acquired intangibles
Adjusted tax expense
Adjusted profit before income tax (note 5)
Adjusted effective tax rate
197
146
2,431
–
1,318
5,324
24,200
22%
497
200
312
491
924
3,540
16,092
22%
The Group presents the adjusted effective tax rate to help users of this report better understand its tax charge. In arriving at this rate, the Group
removes the tax effect of items which are adjusted for in arriving at the adjusted profit before income tax disclosed in note 5. The Group considers
that the resulting adjusted effective tax rate is more representative of its tax payable position.
The UK income tax expense is based on the UK statutory rate of corporation tax during the year to 31 January 2017 of 20% (2016: 20.17%).
As a result of the reduction in the UK corporation tax rate to 19% from 1 April 2017 and 17% from 1 April 2020 that was substantively enacted
on 6 September 2016, the UK deferred tax balances have been remeasured.
57
Financial Statements
58
9 Dividend
Notes to the accounts continued
for the year ended 31 January 2017
Dividends paid during the period
Final dividend paid for prior year of 3.00p per Ordinary Share (2016: 2.50p)
Interim dividend paid of 1.50p per Ordinary Share (2016: 1.20p)
Non-controlling interest dividend1
Year
ended
31 January
2017
£’000
Year
ended
31 January
2016
£’000
2,164
1,100
3,264
1,075
1,635
806
2,441
560
1 During the year, a profit share was paid to the holders of the non-controlling interest of Vrge Strategies LLC of £13,440 (2016: £29,000), The Blueshirt Group LLC of £187,895 (2016: £120,000),
Outcast of £396,248 (2016: £278,000), M Booth of £123,300 (2016: £64,000), Beyond of £170,879 (2016: £Nil), Bite US of £9,046 (2016: £1,000) and Connections Media of £173,756
(2016: £68,000).
The ESOP waived its right to dividends in the financial years ended 31 January 2017 and 2016.
A final dividend of 3.75p per share (2016: 3.00p) has been proposed, which is a total amount of £2,750,708 (2016: £2,164,000). This has not
been accrued. This makes the total dividend for the year 5.25p per share (2016: 4.2p). The final dividend, if approved at the AGM on
21 June 2017, will be paid on 4 August 2017 to all shareholders on the Register of Members as at 30 June 2017. The ex-dividend date for the
shares is 29 June 2017.
10 Earnings per share
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.
Earnings attributable to ordinary shareholders
Unwinding of discount on contingent and deferred consideration
Unwinding of discount on share purchase obligation
Change in estimate of future contingent consideration payable
Change in estimate of share purchase obligation
Costs associated with the current period restructure (note 2)
Share-based payment charge (note 2)
Charge associated with office moves (note 2)
Deal costs (note 2)
Amortisation of acquired intangibles
Adjusted earnings attributable to ordinary shareholders
Weighted average number of Ordinary Shares
Dilutive LTIP shares
Dilutive growth deal shares1
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
1 This relates to the brand equity appreciation rights as discussed in note 1.
58
Year
ended
31 January
2017
£’000
1,138
1,683
345
1,500
570
511
8,075
–
337
4,187
18,346
Year
ended
31 January
2016
£’000
3,992
793
519
439
473
995
1,237
863
208
2,563
12,082
Number
Number
72,306,063
66,298,503
2,103,789
2,905,385
973,882
2,904,335
1,689,729
745,340
78,289,119
71,637,907
1.6p
1.5p
25.4p
23.4p
6.0p
5.6p
18.2p
16.9p
Notes to the accounts continuedfor the year ended 31 January 2017 11 Intangible assets
Cost
At 31 January 2015
Additions
Capitalised internal development
Acquired through business
combinations1
Disposals
Exchange differences
At 31 January 2016
Additions
Capitalised internal development
Acquired through business
combinations1
Disposals
Exchange differences
At 31 January 2017
Amortisation and impairment
At 31 January 2015
Charge for the year2
Disposals
Exchange differences
At 31 January 2016
Charge for the year2
Disposals
Exchange differences
At 31 January 2017
Net book value at 31 January
2017
Net book value at 31 January 2016
Software
£’000
Trade name
£’000
Customer
relationships
£’000
Non-compete
£’000
Goodwill
£’000
3,260
10,063
5,192
562
197
801
(242)
23
6,533
259
353
495
(282)
104
7,462
3,263
933
(185)
23
4,034
1,308
(284)
99
5,157
2,305
2,499
–
–
635
–
200
4,095
–
–
2,010
–
439
6,544
607
395
–
64
1,066
932
–
172
2,170
4,374
3,029
–
–
3,083
–
318
13,464
–
–
466
–
–
313
–
2
781
–
–
11,952
1,513
–
764
–
2
26,180
2,296
5,243
2,085
–
264
7,592
3,336
–
667
11,595
14,585
5,872
125
383
–
–
508
441
–
3
952
1,344
273
45,509
–
–
5,586
–
1,218
52,313
–
–
12,900
–
2,946
68,159
10,337
–
–
94
10,431
–
–
357
10,788
57,371
41,882
59
Total
£’000
64,490
562
197
10,418
(242)
1,761
77,186
259
353
28,870
(282)
4,255
110,641
19,575
3,796
(185)
445
23,631
6,017
(284)
1,298
30,662
79,979
53,555
1 During the year, the Group acquired HPI, Publitek, Pinnacle and Twogether (note 26). The Group recognised customer relationships of £623,000, £5,247,000, £3,134,000 and £2,948,000 in
HPI, Publitek, Pinnacle and Twogether respectively. £771,000, £71,000 and £1,168,000 of trade names were recognised in Publitek, Pinnacle and Twogether respectively. £102,000, £482,000,
£457,000 and £472,000 of intangibles relating to non-compete clauses were recognised in HPI, Publitek, Pinnacle and Twogether respectively. £495,000 of software intangibles were
recognised in Twogether.
2 Amortisation charge for the period includes acquired intangibles of £441,000 for non-compete agreements, £3,336,000 for customer relationships, £932,000 for trade names and £796,000
relating to software.
59
Financial Statements
60
Notes to the accounts continued
for the year ended 31 January 2017
11 Intangible assets continued
Impairment testing for cash-generating units containing goodwill
Goodwill acquired through business combinations is allocated to cash-generating units (‘CGUs’) for impairment testing as follows:
Text 100 Group
OutCast (US)
M Booth (US)
Blueshirt (US)
Bourne
Story Worldwide (US)
Morar (note 26)
ODD
Publitek (includes Pinnacle) (note 26)
Twogether (note 26)
Other1
2017
£’000
5,189
8,399
5,390
5,445
5,631
2,074
2,623
2,458
8,884
3,594
7,684
57,371
2016
£’000
5,189
7,453
4,783
4,832
5,631
1,840
1,913
2,458
–
–
7,783
41,882
1 Other goodwill represents goodwill on a number of CGUs, none of which is individually significant in comparison to the total carrying value of goodwill.
Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from the synergies of the combination
giving rise to the goodwill. The CGUs represent the lowest level within the entity at which the goodwill is monitored for internal management
purposes. This is a lower level than the operating segments disclosed in note 2; the CGUs are allocated to operating segments based on their
geographical location.
The Group performs a three-stage impairment testing process by considering:
Stage 1)
the performance of the brands during the previous financial year.
Stage 2)
the value in use of the brands, calculated by taking the present value of expected future cash flows based on a 2.5% long-term
growth rate applied to the Board-approved FY18 budget.
Stage 3)
the value in use of the brands, calculated by taking the present value of expected future cash flows based on management’s best
estimate of brand-specific growth rates for the following four years applied to the Board-approved FY18 budget.
Note that the long-term perpetuity growth rate in stages 2 and 3 is 2.5%. Stage 3 is only performed if impairment is indicated at stages 1 and 2.
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 taken from the most recent financial budgets approved by management for the
next financial year. The Board-approved budgets are based on assumptions of client wins and losses, rate card changes and cost inflation as well
as any other one-off items expected in the year for that particular CGU. The cash-flow forecasts extrapolate cash flows for the following five years
based on estimated growth rates of 2.5% (2016: 2.5%) applied to revenue and costs. This rate does not exceed the average long-term growth
rate for the relevant markets. The value in use is compared with the combined total of goodwill, intangible assets and tangible fixed assets.
Pre-tax discount rate
A pre-tax rate, being the Board’s estimate of the discount rate of 12.7% (2016: 14.4%), has been used in discounting all projected cash flows. The
Board considers a pre-tax discount rate of 12.7% to be appropriate as this is already in the higher end of the spectrum amongst its peers, and
views the rate as accurately reflecting the return expected by a market participant. The Board has considered whether to risk affect the discount
rate used for the different brands. Given the nature of each business, that they operate in well-developed territories and are largely similar PR
businesses dependent on the mature economies in which they operate, the Board has considered no risk adjustment to the individual discount
rates is required. The CGU forecast cash flows have been risk adjusted to reflect the economies in which they operate.
Change to CGUs
In the current year, as part of a strategic decision, the Lexis CGU has been transferred into the existing Text 100 CGU. This is due to Text 100
being the lowest level at which goodwill is monitored for internal management purposes. The previous Lexis and Text 100 businesses now
operate as one and are managed as such. It is believed that the two agencies have both revenue and cost synergies to be realised immediately
now that both agencies are managed together.
60
Notes to the accounts continuedfor the year ended 31 January 2017 61
11 Intangible assets continued
Sensitivity to changes in assumptions
Two CGUs have been identified at stage 3, which show indicators of impairment, those being Bourne and Story. If expected growth rates reduced
by 1% and the discount rates increased by 1%, this would not cause the carrying values of the individual CGUs to exceed their recoverable
amounts, with the exception of Bourne.
Financial year
Brand
Key assumptions
Reasonably possible change
Bourne
Year to
January
2017
Story
Year to
January
2017
In stage two analysis, the carrying value of Bourne goodwill exceeds
its recoverable amount. Bourne has been consistently profitable
over the last few years with the operating profit margin improving
from 6.4% in FY16 to 13.4% in FY17.
Next year, the business has budgeted to continue making solid
operating profit, with 10% for the budgeted full-year margin.
Furthermore, the agency expects to grow in terms of revenue next
year with significant opportunities, both organically and through
new business. Greater collaboration between Bourne and other UK
MarTech agencies is also expected to bring significant revenue
opportunities and cost synergies.
When a revenue growth rate of 6% is used for the three years
following the FY18 budget, and 5% in subsequent years, the
recoverable amount exceeds the carrying amount by £0.4m (7%).
It is deemed that these models are appropriate given the current
growth rates in the Company and it is expected that they will be
met. As such, no impairment has been proposed, although
management will continue to monitor the position closely.
In the stage two analysis performed at the current year end, the
carrying value of goodwill exceeds its recoverable amount. In the
stage two analysis performed at the current year end, the carrying
value of goodwill exceeds its recoverable amount.
However, when critically assessing and adjusting the budgeted
costs to reflect the staff needed to deliver the forecasted revenue,
the recoverable amount exceeds the carrying amount by £3.0m.
Management has deemed the cost adjustment appropriate to
reflect the staff needed to deliver the revenue forecasted.
Management continues to monitor Story closely with growth
strategies in place to help the business grow.
In order for the carrying amount to exceed the
recoverable amount, revenue growth would
have to decrease to 5.4% in all years with no
proportionate increase in costs, or revenue
growth would remain the same, with an increase
in underlying costs of 0.5% in all years.
Alternatively, in order for the carrying amount to
exceed the recoverable amount with no change
in revenue or cost growth rates, the discount rate
would need to increase by 0.8%.
These changes are not deemed reasonably
possible by management.
In order for the carrying amount to exceed the
recoverable amount, revenue growth would
have to decrease to 0% in all years with no
proportionate increase in costs, or revenue
growth would have to remain the same, with
an increase in underlying staff and overhead
costs to 5.2% in all years.
Alternatively, in order for the carrying amount to
exceed the recoverable amount with no change
in revenue or cost growth rates, the discount rate
would need to increase by 15.6%.
These changes are not deemed reasonably
possible by management.
61
Financial Statements
62
Notes to the accounts continued
for the year ended 31 January 2017
12 Property, plant and equipment
Cost
At 31 January 2015
Exchange differences
Additions
Acquired through business combinations
Disposals
At 31 January 2016
Exchange differences
Additions
Acquired through business combinations
Disposals
At 31 January 2017
Accumulated depreciation
At 31 January 2015
Exchange differences
Charge for the year
Disposals
At 31 January 2016
Exchange differences
Charge for the year
Acquired through business combinations
Disposals
At 31 January 2017
Net book value at 31 January 2017
Net book value at 31 January 2016
Office equipment
£’000
Office furniture
£’000
Motor vehicles
£’000
Total
£’000
Short leasehold
Improvements
£’000
6,415
469
3,921
98
6,169
209
1,099
279
(1,081)
(1,766)
9,822
1,280
5,754
52
(1,496)
15,412
3,217
159
990
(1,046)
3,320
374
1,544
29
(1,507)
3,760
11,652
6,502
5,990
303
1,425
349
(1,011)
7,056
4,505
140
972
(1,736)
3,881
474
1,372
239
(1,034)
4,932
2,124
2,109
1,261
140
754
383
(631)
1,907
358
1,098
63
(877)
2,549
735
75
376
(607)
579
173
554
36
(779)
563
1,986
1,328
94
4
–
–
(22)
76
6
7
–
(87)
2
31
2
10
(16)
27
2
12
–
(41)
–
2
49
13,939
822
5,774
760
(3,500)
17,795
1,947
8,284
464
(3,471)
25,019
8,488
376
2,348
(3,405)
7,807
1,023
3,482
304
(3,361)
9,255
15,764
9,988
The net book value of property, plant and equipment for the Group includes assets held under finance lease contracts as follows: £Nil of
leasehold improvements (2016: £30,000) and £32,000 of office equipment and furniture (2016: £36,000). Depreciation charged in the year in
respect of finance leases was £128,000 (2016: £102,000). The Group has contractual commitments for short leasehold improvements of £Nil
(2016: £Nil).
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
2017
£’000
31,919
(1,067)
30,852
130
1,958
2,948
6,255
42,143
2016
£’000
31,029
(697)
30,332
–
3,648
2,297
4,647
40,924
817
702
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
62
Notes to the accounts continuedfor the year ended 31 January 2017 13 Trade and other receivables continued
As of 31 January 2017, trade receivables of £1,067,000 (2016: £697,000) were impaired. Movements in the provision were as follows:
At start of period
Provision for receivables impairment
Receivables written off during the year as uncollectable
Unused amounts reversed
Foreign exchange movements
At period end
2017
£’000
697
432
(120)
(24)
82
1,067
63
2016
£’000
662
174
(49)
(101)
11
697
The provision for receivables impairment has been determined by considering specific doubtful balances and by reference to historical 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 January, 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 period end
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
Rental lease liabilities
2017
£’000
19,813
6,223
2,495
2,321
30,852
2017
£’000
5,195
14
2,608
2,192
2,415
15,187
11,798
39,409
10
5,527
5,537
2016
£’000
17,784
6,611
3,312
2,625
30,332
2016
£’000
4,677
56
2,338
1,563
1,655
13,712
10,087
34,088
11
5,728
5,739
The Group considers that the carrying amount of trade and other payables approximates their fair value with the exception of obligations under
finance leases refer to note 19.
63
Financial Statements
64
15 Provisions
At 31 January 2015
Additions
Used during the year
At 31 January 2016
Additions
On acquisition of subsidiary
Used during the year
Exchange differences
At 31 January 2017
Current
Non-current
Notes to the accounts continued
for the year ended 31 January 2017
Onerous lease
£’000
Property
£’000
751
–
(699)
52
–
192
(55)
3
192
192
–
723
200
(588)
335
92
101
(79)
15
464
410
54
Other1
£’000
94
1,033
(75)
1,052
1,467
57
(579)
48
2,045
2,045
–
Total
£’000
1,568
1,233
(1,362)
1,439
1,559
350
(713)
66
2,701
2,647
54
1 Other includes employment dependent acquisition payments of £1,961,000 and other immaterial provisions.
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
17 Other financial liabilities
At 31 January 2015
Arising during the period
Changes in assumptions2
Exchange differences
Utilised
Unwinding of discount
At 31 January 2016
Arising during the year
Changes in assumptions2
Exchange differences
Utilised3
Written off as sold
Unwinding of discount
At 31 January 2017
Current
Non-current
Minimum lease payments
Present value of minimum lease payments
2017
£’000
2016
£’000
2017
£’000
2016
£’000
16
10
26
(2)
24
52
20
72
(5)
67
14
10
24
–
24
Deferred
consideration
£’000
Contingent
Consideration1
£’000
Share purchase
obligation
£’000
94
–
–
–
(95)
1
–
–
–
–
–
–
–
–
–
–
7,174
4,092
439
223
(4,519)
935
8,344
7,936
1,606
312
(5,080)
–
1,787
14,905
3,934
10,971
5,842
916
473
93
(4,166)
576
3,734
400
456
144
(1,509)
(187)
395
3,433
400
3,033
56
11
67
–
67
Total
£’000
13,110
5,008
912
316
(8,780)
1,512
12,078
8,336
2,062
456
(6,589)
(187)
2,182
18,338
4,334
14,004
1 Contingent consideration on acquisitions – during the year, the Group acquired a controlling stake in HPI, Pinnacle, Pulblitek and Twogether (2016: IncrediBull, Encore and ODD).
See note 26 for additional information on these acquisitions.
2 Gross movements in changes in assumptions are disclosed in notes 6 and 7.
3 The amounts utilised were settled £6.1m in cash and £0.5m in shares. The difference to the cash-flow statement is due to employment dependent acquisition payments made in cash of
£0.5m which were recognised as provisions over the required employment term.
64
Notes to the accounts continuedfor the year ended 31 January 2017 65
17 Other financial liabilities continued
The estimates around contingent consideration and share purchase obligations are considered by management to be an area of significant
judgement, with any changes in assumptions and forecasts creating volatility in the income statement. Management estimates the fair value of
these liabilities taking into account expectations of future payments. The expectation of future payments is based on an analysis of the approved
FY18 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 earn-out period and discounted back to present
value using a pre-tax discount rate.
Sensitivity analysis
A 1 percentage point increase or decrease in the growth rate in estimated future financial performance would increase or decrease the
combined liabilities due to earn-out agreements by approximately £204,000 (2016: £34,000). There is also sensitivity around the timing of certain
earn-out payments; the effect of deferred timing on the earn-out agreements would have approximately a £73,000 (2016: £13,000) impact on
the liabilities. An increase in the liability would result in a reduction in the revaluation of financial instruments, while a decrease would result in
a further gain.
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
compensated
absences
£’000
At 31 January 2015
(Charge)/credit to
income
Exchange
differences
Acquisition of
subsidiaries
Taken to equity
At 31 January 2016
(Charge)/credit to
income
Exchange
differences
Acquisition of
subsidiaries
Taken to equity
493
(685)
(33)
(8)
–
(233)
(253)
(68)
(16)
–
At 31 January 2017
(570)
630
(90)
24
–
–
564
(59)
64
–
–
569
Share-based
remuneration
£’000
1,947
(96)
–
–
239
2,090
2,463
–
–
197
4,750
Provision for
impairment
of trade
receivables
£’000
Excess book
basis over tax
basis of
intangible
assets
£’000
67
17
5
–
–
89
3
11
–
–
106
998
210
(922)
–
392
990
291
(2,999)
–
402
(67)
–
39
62
–
491
103
(1,326)
3,278
Other
temporary
differences
£’000
Tax losses
£’000
2,079
513
824
186
6
–
3,095
(35)
10
–
–
488
Total
£’000
5,835
933
402
(924)
239
6,485
(152)
(98)
2,894
After netting off balances, the following are the deferred tax assets and liabilities recognised in the Consolidated Balance Sheet:
Net deferred tax balance
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
2017
£’000
9,987
(2,692)
7,295
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 is £1,882,886 (2016: £359,857).
At the balance sheet date, the aggregate amount of the temporary differences in relation to the investment in subsidiaries for which deferred
tax liabilities have not been recognised was £6m (2016: £4m). No liability has been recognised in respect of these differences as the Group is in
a position to control the timing of the reversal of the temporary differences and the Group considers that it is probable that such differences
will not reverse in the foreseeable future.
65
739
(3,020)
197
7,295
2016
£’000
6,485
–
6,485
Financial Statements
66
Notes to the accounts continued
for the year ended 31 January 2017
19 Financial instruments
Financial risk management, policies and strategies
The Group’s principal financial instruments comprise bank loans, finance leases, cash and short-term deposits. 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 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 following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the
Group’s profit before tax at 31 January 2017, based on period-end balances and rates.
The sensitivity analyses provided are hypothetical only and should be used with caution as the impacts provided are not necessarily indicative
of the actual impacts that would be experienced because the Group’s actual exposure to market rates changes as the Group’s portfolio of debt
and cash changes. In addition, the effect of a change in a particular market variable on fair values or cash flows is calculated without considering
interrelationships between the various market rates or mitigating actions that would be taken by the Group. The changes in valuations are
estimates of the impact of changes in market variables and are not a prediction of future events or anticipated gains or losses.
Group
Movement
in basis points
+200
2017
£’000
(669)
2016
£’000
(410)
Liquidity risk
The Group manages its risk to a shortage of funds with a mixture of long and short-term committed facilities. On 8 March 2016 the Group
extended its four-year revolving loan credit facility agreement with HSBC Bank available in multiple currencies to £30m (previously £20m).
At 31 January 2017 the Group had an undrawn amount of £443,099 (2016: £96,441). The interest rate is variable dependent on the net
debt:EBITDA ratio and the facility is available until 8 March 2020.
In addition, on 18 December 2014, the Group entered into an overdraft facility with HSBC Bank of £2m available at a rate of 2.25% above
HSBC Bank’s base rate in multiple currencies. The overdraft facility is reviewed at the bank’s discretion with no expiry date. At the balance sheet
date, the Group had utilised £Nil of the HSBC overdraft bank facility (2016: £Nil).
The following table summarises the maturity profile based on the remaining period between the balance sheet date and the contractual
maturity date of the Group’s financial liabilities at 31 January 2017 and 31 January 2016, based on contractual undiscounted payments:
As at 31 January 2017
Financial liabilities
As at 31 January 2016
Financial liabilities
Within
one year
£’000
49,657
40,338
Between two
and five years
£’000
59,899
37,259
More than
five years
£’000
–
1,061
Total
£’000
109,556
78,658
66
Notes to the accounts continuedfor the year ended 31 January 2017 67
19 Financial instruments continued
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 and the 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; however, the Group has not held derivative financial instruments at the end of either period.
The following table demonstrates the sensitivity to reasonably possible changes in exchange rates, with all other variables held constant, of the
Group’s profit before tax based on period-end balances and rates.
US dollar
Euro
Australian dollar
Chinese renminbi
Weakening
against sterling
20%
20%
20%
20%
2017
£’000
(2,001)
(147)
–
(55)
2016
£’000
(336)
28
7
(14)
The following table demonstrates the sensitivity to reasonable possible changes in exchange rates, with all other variables held constant, of the
Group’s equity based on period-end balances and rates.
US dollar
Euro
Australian dollar
Chinese renminbi
Weakening
against sterling
20%
20%
20%
20%
2017
£’000
(79)
(350)
(441)
442
2016
£’000
1,234
39
(176)
(6)
Credit risk
The Group’s principal financial assets are bank balances, cash and 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
2017
£’000
42,143
22,072
2016
£’000
40,924
14,132
67
Financial Statements
68
Notes to the accounts continued
for the year ended 31 January 2017
19 Financial instruments continued
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 2017 to 2022.
Total loans and borrowings1
Obligations under finance leases
Less: cash and cash equivalents
Net debt
Total equity
Total capital
1 Total loans and borrowings is made up of current obligations (£31,869,000) and non-current obligations (£1,589,000).
Net debt
Share purchase obligation
Contingent consideration
2017
£’000
33,458
26
(22,072)
11,412
68,497
79,909
2017
£’000
11,412
3,433
14,905
29,750
2016
£’000
20,683
72
(14,132)
6,623
52,791
59,414
2016
£’000
6,623
3,734
8,344
18,701
Externally imposed capital requirement
Under the terms of the Group’s banking covenants the Group must meet certain criteria based on the ratio of net debt to adjusted EBITDA; net
debt plus earn-out liabilities (note 17) to adjusted EBITDA; and adjusted net finance charges to adjusted EBITDA. The Group maintains long-term
cash forecasts which incorporate forecast covenant positions as part of the Group’s capital and cash management. There have been no breaches
of the banking covenants in the current or prior period.
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 January 2017, with the exception
of obligations under finance leases. The book value of obligations under finance leases is £24,000 (2016: £72,000) and the fair value is £26,000
(2016: £67,000). The fair value of obligations under finance lease is estimated by discounting future cash flows to net present value and is
Level 3 within the fair value hierarchy.
68
Notes to the accounts continuedfor the year ended 31 January 2017 19 Financial instruments continued
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 line in which they are included are as follows:
69
As at 31 January 2017
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
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
–
–
–
–
–
–
–
–
400
3,934
4,334
–
–
–
–
–
1,589
25,003
2,647
–
–
29,239
–
–
–
31,869
54
5,537
10,971
3,033
–
–
14,004
37,460
817
817
22,072
39,195
61,267
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
817
817
22,072
39,195
61,267
1,589
25,003
2,647
400
3,934
33,573
31,869
54
5,537
10,971
3,033
51,464
The Group has no fair value Level 1 or 2 instruments (2016: none). All instruments at fair value through profit of loss were Level 3 instruments as
per the table above in the current year and were as per the table overleaf in the prior year.
Level 3 financial instruments are valued using the discounted cash flow method to capture the present value of the expected future economic
benefits that will flow out of the Group arising from the contingent consideration or share purchase obligation. Unrealised gains or losses are
recognised within finance income/expense; see notes 6 and 7. They are not based on observable market data.
69
Financial Statements
70
Notes to the accounts continued
for the year ended 31 January 2017
19 Financial instruments continued
Financial instruments – detailed disclosures continued
Financial instruments recognised in the balance sheet continued
At fair
value through
profit or loss
£’000
Financial
liabilities at
amortised cost
£’000
Loans and
receivables
£’000
As at 31 January 2016
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
Deferred consideration1
Non-current financial liabilities
Loans and borrowings
Provisions
Other payables
Contingent consideration1
Share purchase obligation1
1 See note 17.
–
–
–
–
–
–
–
–
1,509
2,643
–
4,152
–
–
–
5,701
2,225
7,926
–
–
–
–
–
–
21,663
989
–
–
–
22,652
20,683
450
5,739
–
–
26,872
Total
£’000
702
702
14,132
38,628
52,760
–
21,663
989
1,509
2,643
–
26,804
20,683
450
5,739
5,701
2,225
34,798
2016
£’000
–
52
20,683
20
702
702
14,132
38,628
52,760
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
£’000
1,589
14
31,869
10
Interest-bearing loans and borrowings
The table below provides a summary of the Group’s loans and borrowing as at 31 January 2017:
Current
Variable rate bank loan
Obligations under finance leases
Non-current
Variable rate bank loan
Obligations under finance leases
Effective interest rate
3.01%
8.00%
HSBC Bank base rate + 1.60%
8.00%
Hedge of net investment in foreign entity
A proportion of the Group’s US dollar-denominated borrowings amounting to US$6,100,000 is designated as a hedge of the net investment in
the Group’s US subsidiary M Booth LLC. US$1,700,000 has been designated as a hedge of the net investment in the Group’s US subsidiary
Blueshirt Group LLC. A further US$1,000,000 has been designated as a hedge of the net investment in the Group’s US subsidiary Connections
Media LLC. An additional US$6,600,000 has been designated as a hedge of the net investment in the Group’s US subsidiary Text 100 Corporation.
The fair value of the borrowings at 31 January 2017 is $15,400,000 (£12,233,000) (FY16: US$15,400,000 (£10,855,000)). The foreign exchange
loss of £1,378,000 (FY16: £662,000) on translation of the borrowing to functional currency at the end of the reporting period is recognised
in a hedging reserve in shareholders’ equity. As a result of ineffectiveness, £Nil was transferred during the period from the hedging reserve
(FY16: credit of £4,000) to the income statement.
70
Notes to the accounts continuedfor the year ended 31 January 2017 20 Share capital
Called up share capital
Ordinary Shares of 2.5p each:
Authorised, allotted, called up and fully paid
At start of period
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)
Issued in the year in respect of growth share sales
Issued in the year in respect of placing
At end of period
Fully paid Ordinary Shares carry one vote per share and the right to dividends.
71
2017
Number
2016
Number
70,525,701
61,797,256
1,765,751
1,027,932
32,830
740,663
1,539,554
–
–
6,448,228
73,352,214
70,525,701
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 for LTIPs. At each
period end the cumulative expense is adjusted to take into account any changes in the 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 Group uses a weighted
average probability model to value the brand appreciation rights as permitted under IFRS 2.
In the period ended 31 January 2017 the Group recognised a charge of £11,346,000 (2016: £2,072,000) made up of £839,000 (2016: £523,000) in
respect of employment-related LTIP shares; £10,507,000 (2016: £1,549,000) given in performance shares offered in consideration for the
remaining non-controlling interest acquired in Bourne in 2012 and in respect of the disposal of growth participating interests of 2% in M Booth,
30% in Vrge, 2% in Agent3, 35% in Beyond Group, 49% in Morar, 13.5% in Lexis and 10% in Twogether (2016: 10% in OutCast, 5% in Bite UK and
5% in Bite US).
Movement on options and performance shares granted (represented in Ordinary Shares):
Long-Term Incentive Plan –
performance shares
Bourne Acquisition Grant
Outstanding
31 January
2016
Number
(‘000)
2,917
526
3,443
Granted
Number
(‘000)
630
–
630
Lapsed
Number
(‘000)
(352)
–
(352)
Exercised
Number
(‘000)
(1,028)
–
(1,028)
Outstanding
31 January
2017
Number
(‘000)
Exercisable
31 January
2017
Number
(‘000)
2,167
526
2,693
–
–
–
The fair value of options granted in the period calculated using the Black-Scholes model was as follows:
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 (%)
October 2016
311
357
2.00
4
31
1.26
Expected volatility was determined by calculating the historical volatility of the Company’s share price, over a period equal to the expected life
of the options.
Performance shares issued by the Company under the Next Fifteen Communications Group plc Long-Term Incentive Plan are granted at a nil
exercise price. The weighted average share price at the date of exercise for share options exercised in the year was 345p (2016: 202p). For share
options outstanding at the end of the year the weighted average remaining contractual life is two years (2016: one year).
71
Financial Statements
72
Notes to the accounts continued
for the year ended 31 January 2017
22 Share options
The Company has issued options over its shares to employees that remain outstanding as follows:
Performance shares
Next Fifteen Communications Group plc
Long-Term Incentive Plan
Bourne Acquisition Grant
Number of shares
Performance
period start date
Performance
period end date
Performance
share grant date
855,000
200,000
460,000
21,500
630,000
2,166,500
525,773
2,692,273
1 August 2013
1 August 2013
31 July 2017
21 January 2014
31 July 2017
16 April 2014
1 February 2014
31 January 2018
14 November 2014
1 February 2015
31 January 2019
6 May 2015
1 February 2016
31 January 2019
17 October 2016
1 August 2012
31 July 2017
5 April 2012
During the period the Company issued 985,402 shares to satisfy the vesting under the Next 15 LTIPs which were initially subscribed for by the
ESOP. No shares are now held in treasury (see note 23).
For all awards granted under the 2005 LTIP (note that no awards have been granted under the 2005 LTIP since 30 June 2015), performance will
be measured over a period of four consecutive financial years of the Group, commencing with the financial year in which the award was granted.
The conditions are based upon two measures – an adjusted earnings per share (‘EPS’) measure and a budgeted profit measure. The level of
vesting will be determined using the best three of the four years’ performance for each performance measure. The growth of adjusted EPS of
the Group must exceed the UK Consumer Price Index (‘CPI’) by an average of 10% or more per annum over the performance period for 50% of
the award to vest. If the growth of adjusted EPS over CPI is between an average of 3% and 10% per annum over the performance period,
between 10% and 50% of the award will vest on a straight-line basis. The remaining 50% of an award may vest if the profit of the particular
business in which a participant is employed meets its budgeted profit targets over the performance period. To the extent that the budgeted
profit targets are not met, for every 1% below budget, 5% of the award will lapse on a straight-line basis. Employees who work in Group roles
will be measured by reference to whole Group performance, rather than any particular business unit.
The Company’s current long-term incentive plan is the 2015 LTIP, which was approved by shareholders at the Company’s 2015 AGM. Under the
2015 LTIP performance shares or share options may be awarded. The performance is measured over a period of three consecutive financial years
of the Group, commencing with the financial year in which the award was granted. The Committee has decided that, initially, there will be two
performance conditions:
(a) an earnings per share (‘EPS’) target, which will determine 70% of the total vesting. EPS growth is calculated from the information published
in the Group’s accounts and is based on the adjusted EPS measure. If the annual growth in the Company’s earnings per share in the
performance period exceeds the growth in the CPI by at least 15% per annum, 100% of 70% of the total award will vest. If the compound
growth in EPS in the three years of the performance period exceeds the growth in CPI between 5% and 15% then between 25% and 100%
of 70% of the total award will vest on a straight-line basis. If EPS does not grow at an average of 5% or more over the growth in the CPI per
annum over the performance period, the full award will lapse; and
(b) a key performance indicator (‘KPI’) target, which will determine 30% of the total vesting. Each participant will have a number of KPIs relating
to his or her role. The Remuneration Committee will determine the extent to which the KPIs have been met over the three-year performance
period. 100% of 30% of the total award will vest if the KPIs have been met in full. A smaller percentage of 30% of the total award will vest if
the Committee determines that the KPIs have been substantially met.
On 5 April 2012 the Group acquired the remaining 20% of the non-controlling interest in CMG Worldwide Limited (‘Bourne’). As part of the
settlement, three grants of performance shares were awarded. Two of these grants were closed out during the year; the remaining grant of
525,773 performance shares contains a different performance condition based on a pure profit target to be achieved which is based on the
average of the results for the 12 months to 31 July 2016 and 2017.
72
Notes to the accounts continuedfor the year ended 31 January 2017 73
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 January 2017 the ESOP held Nil (2016: Nil) Ordinary Shares in the Company.
The ESOP subscribed for 985,402 newly issued shares which were allotted and immediately disposed of in order to satisfy LTIP vesting for £Nil
consideration (2016: 1,539,554 shares for £Nil consideration). Nil shares were subscribed for, allotted and immediately disposed of in respect of
satisfaction of a restricted stock arrangement for £Nil proceeds (2016: Nil shares for £Nil proceeds).
Treasury shares
At 31 January 2017, the Group held nil treasury shares (2016: Nil) at a cost of £Nil (2016: £Nil).
24 Other reserves
At 31 January 2015
Total comprehensive income for the year
Purchase and take on of shares
Movement due to ESOP share option and LTIP exercises
At 31 January 2016
Total comprehensive income for the year
Purchase and take on of shares
Movement due to ESOP share option and LTIP exercises
At 31 January 2017
Merger
reserve
£’000
3,075
–
–
–
3,075
–
–
–
3,075
ESOP
reserve 1
£’000
–
–
(38)
38
–
–
(25)
25
–
Hedging
reserve
£’000
(510)
(658)
–
–
(1,168)
(1,378)
–
–
(2,546)
Total
other reserves
£’000
2,565
(658)
(38)
38
1,907
(1,378)
(25)
25
529
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.
25 Commitments and contingent liabilities
Operating leases – Group as lessee
As at 31 January 2017, the Group’s total future minimum lease rentals are as follows:
In respect of operating leases which will be paid in
the following periods:
Within one year
In two to five years
After five years
2017
Land and
buildings
£’000
8,680
29,135
17,401
55,216
Other
£’000
81
43
–
124
2016
Land and
buildings
£’000
4,663
22,089
20,066
46,818
Other
£’000
41
44
–
85
73
Financial Statements
74
Notes to the accounts continued
for the year ended 31 January 2017
26 Acquisitions and equity transactions
During the year the following material transactions took place:
1. the acquisition of UK-based Publitek Limited;
2. the acquisition of UK-based Twogether Creative Limited;
3. the acquisition of UK-based Pinnacle Marketing Communications Limited; and
4.
the purchase of the remaining non-controlling interest in MIG Global Limited (formerly Morar Consulting Limited).
More details on each transaction are provided below.
1. Publitek
On 10 March 2016, Next 15 purchased the entire share capital of Publitek Limited ('Publitek‘), a specialist technical content marketing business
that services customers in the global semiconductor and electronic component markets.
Goodwill of £5,684,000 arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period Publitek has contributed £3,518,000 to revenue and £2,468,000 to profit before tax. If acquired on 1 February 2016
Publitek would have contributed revenue of £3,804,000 and profit before tax of £2,662,000 to the Group results. 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
adjustments
£’000
Fair value
to the Group
£’000
Non-current assets
Acquired intangible assets
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets1
Current liabilities
Deferred tax liability
Net assets acquired
Goodwill
Consideration
Initial consideration settled in cash2
Initial consideration settled in Ordinary Shares of the Parent
Total discounted contingent consideration
1 The fair value of receivables acquired is £1,320,000.
2 This includes initial consideration paid for the business and cash paid for working capital.
–
13
3,104
1,528
(1,227)
–
3,418
6,500
–
–
–
–
(1,224)
5,276
6,500
13
3,104
1,528
(1,227)
(1,224)
8,694
5,684
14,378
9,075
513
4,790
14,378
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in other operating costs) amount to £85,000. Contingent
consideration is payable based on a share of the average profit of the combined business (including Pinnacle) in FY18 and FY19, and then FY20
and FY21, and a contractual multiple.
74
Notes to the accounts continuedfor the year ended 31 January 2017 75
26 Acquisitions and equity transactions continued
2. Twogether Creative Limited
On 31 March 2016, Next 15 purchased the entire share capital of Twogether Creative Limited (‘Twogether‘), a B2B creative and digital marketing
agency with a focus on technology clients.
Goodwill of £3,594,000 arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period Twogether has contributed £5,251,000 to revenue and £753,000 to profit before tax. If acquired on 1 February
2016 Twogether would have contributed revenue of £6,273,000 and profit before tax of £970,000 to the Group results. 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
adjustments
£’000
Fair value
to the Group
£’000
Non-current assets
Acquired intangible assets
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets1
Current liabilities
Deferred tax liability
Net assets acquired
Goodwill
Consideration
Initial consideration settled in cash
Initial consideration settled in Ordinary Shares of the Parent
Total discounted contingent consideration
1 The fair value of receivables acquired is £1,297,000.
–
90
163
1,669
(1,947)
–
(25)
5,083
–
–
–
–
(956)
4,127
5,083
90
163
1,669
(1,947)
(956)
4,102
3,594
7,696
3,910
2,624
1,162
7,696
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in operating costs) amount to £99,000. Contingent
consideration is payable based on the average profit of the business in FY18 and FY19, and then FY20 and FY21, and a contractual multiple
determined by average profit margin and revenue growth in the same financial years.
75
Financial Statements
76
Notes to the accounts continued
for the year ended 31 January 2017
26 Acquisitions and equity transactions continued
3. Pinnacle Marketing Communications Limited
On 26 September 2016 Next 15 purchased the entire share capital of Pinnacle Marketing Communications Limited (‘Pinnacle’), a technical
content and digital marketing agency. Goodwill of £3,200,000 arises from anticipated profitability and future operating synergies from
the acquisition.
In the post-acquisition period Pinnacle has contributed £737,000 to revenue and £362,000 to profit before tax. If acquired on 1 February 2016
Pinnacle would have contributed revenue of £2,278,000 and profit before tax of £1,126,000 to the Group results. 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
adjustments
£’000
Fair value
to the Group
£’000
Non-current assets
Acquired intangible assets
Property, plant and equipment
Current assets
Cash and cash equivalents
Other current assets1
Current liabilities
Deferred tax liability
Net assets acquired
Goodwill
Consideration
Initial consideration settled in cash2
Initial consideration settled in Ordinary Shares of the Parent
Total contingent consideration
1 The fair value of receivables acquired is £381,000.
2 This includes initial consideration paid for the business and cash paid for working capital.
–
61
1,082
403
(594)
–
952
3,662
–
–
–
–
(682)
2,980
3,662
61
1,082
403
(594)
(682)
3,932
3,200
7,132
4,743
402
1,987
7,132
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in operating costs) amount to £41,000.
Contingent consideration is payable based on a share of the average profit of the combined business (including Pinnacle) in FY18 and FY19,
and then FY20 and FY21, and a contractual multiple.
4. Morar
On 26 February 2016, Next 15 acquired the remaining 25% minority interest in Morar Consulting Limited (now MIG Global Limited or ‘Morar’), its
research and advisory agency and settled in full the remaining obligation for the original purchase of 75% of the issued share capital made on
3 December 2014. The aggregate consideration for the minority interest and remaining obligation was £3.55m of which £1.5m is payable in
February 2017 subject to the remaining employment of the sellers.
On 9 November 2016, Morar purchased an 85% interest in HPI Research Limited, a market research business, for £1.3m with an obligation to
purchase the remaining 15%. The net assets acquired are £0.9m, including cash of £0.1m. Goodwill of £0.4m arises from anticipated profitability
and future operating synergies.
76
Notes to the accounts continuedfor the year ended 31 January 2017 27 Subsidiaries
The Group’s subsidiaries at 31 January 2017 are listed below.
Name
Agent3 Limited
Agent3 LLC
August One Communications International
Limited
Country of
incorporation
England
USA
England
Beijing Text 100 Consulting Services Limited
China
BYND Limited
BYND LLC
England
USA
Bite Communications Corporation
USA
Bite Communications Group Limited
Bite Communications Limited
England
England
Bite Communications Hong Kong Limited
Hong Kong
Bite Consulting GmbH
BITEDA Limited
biteDA Inc
The Blueshirt Group LLC
Connections Media LLC
Encore Digital Media Limited
HPI Research Limited
Hypertext Communications Private Ltd
IncrediBull America Inc
IncrediBull World Limited
Joe Public Relations Corp
Joe Public Relations Limited
The Lexis Agency Limited
M Booth & Associates, Inc.
MIG Global Limited
(formerly Morar Consulting Limited)
Morar Consulting LLC
Next Fifteen Communications Corporation
Germany
England
USA
USA
USA
England
England
India
USA
England
USA
England
England
USA
England
USA
USA
Directly
owned by
the
Company
Percentage
voting
rights held
by Group
54
54
100
100
95
100
100
100
100
100
100
100
100
89.3
80
75
85.4
100
100
100
100
100
100
100
76.2
100
100
77
Address
75 Bermondsey Street, London SE1 3XF
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
75 Bermondsey Street, London SE1 3XF
7F, Room 819, Tower 2, No. 22 Guanghua Road, Chaoyang
District, Beijing, 100020 China
75 Bermondsey Street, London SE1 3XF
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
26 F & 25F, 46 Lyndhurst Terrace, Central, Hong Kong
Nymphenburger Straße 168, 80634 München
111 Bell Street, Glasgow G4 0TQ
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
CT Corporation System, 1015 15th Street, NW, Suite 1000,
Washington, DC 20005
1 Spiersbridge Way, Spiersbridge Business Park, Thornliebank,
Glasgow G46 8NG
75 Bermondsey Street, London SE1 3XF
Unit 506, 5th Floor, Tower B, Millennium Plaza, Sector 27,
Gurgaon – 122002, Haryana
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
6th floor, 110 High Holborn, London WC1V 6JS
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
c/o BiteDA Ltd, 111 Bell Street, Glasgow G4 0TQ
CT Corp System, 818 West Seventh Street, Suite 930, Los
Angeles, CA 90017
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
77
Financial Statements
78
Notes to the accounts continued
for the year ended 31 January 2017
Directly
owned by
the
Company
Percentage
voting
rights held
by Group
Country of
incorporation
USA
27 Subsidiaries continued
Name
Next Fifteen Communications
(US Holdings) LLC
Next Fifteen Communications
Hong Kong Limited
Next Fifteen Communications Limited
Next Fifteen LLC
Next Fifteen UK Limited
ODD Communications Limited
ODD London Limited
The OutCast Agency LLC
Partnermarketing.com Limited
PMC Investments Limited
Publitek Limited
Pinnacle Marketing Communications Limited
Republic Publishing Corporation
Hong Kong
England
USA
England
England
England
USA
England
England
England
England
USA
Story Worldwide LLC
USA
Text 100 AB
Text 100 BV
Text 100 Communications Pty Ltd
Text 100 Corporation
Sweden
Netherlands
Australia
USA
Text 100 GmbH
Text 100 Holding GmbH
Text 100 International Limited
Text 100 Italy Srl
Text 100 Limited
Text 100 Malaysia Sdn Bhd
Text 100 Pte Limited
Text 100 Pty Limited
Text 100 SARL
Text 100 SL
Text Hundred India Private Limited
Twogether Creative Limited
Twogether Creative LLC
Vox Public Relations India Private Limited
Vrge Strategies LLC
Germany
Germany
England
Italy
England
Malaysia
Singapore
Australia
France
Spain
India
England
USA
India
USA
78
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Address
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
26 F & 25F, 46 Lyndhurst Terrace, Central, Hong Kong
75 Bermondsey Street, London SE1 3XF
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
Västmannagatan 4, 111 24 Stockholm
Herengracht 478, 1017 CB Amsterdam
Level 6, 77 Berry Street, North Sydney NSW 2060
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
Nymphenburger Straße 168, 80634 München
Nymphenburger Straße 168, 80634 München
75 Bermondsey Street, London SE1 3XF
Piazzale Principessa Clotilde, 8 20121 Milano
6th floor, 110 High Holborn, London WC1V 6JS
Suite 21.01, The Gardens South Tower, Mid Valley City,
Lingkaran Syed Putra, 59200 KL, Malaysia
36 Prinsep Street #05-01/02, Singapore 188 648
Level 17,383 Kent Street, Sydney NSW 2000
17 rue de la Banque, 75002 Paris
c/ Prim, 19 5ª Planta, Madrid 28004
2nd Floor, TDI Centre, Plot No.7, Jasola, New Delhi – 110025
75 Bermondsey Street, London SE1 3XF
CT Corp System, 818 West Seventh Street, Suite 930, Los
Angeles, CA 90017
2nd Floor, TDI Centre, Plot No.7, Jasola, New Delhi – 110025
The Corporation Trust Company, 1209 Orange Street -
Corporation Trust Center, New Castle County,
Wilmington, DE 19801
Notes to the accounts continuedfor the year ended 31 January 2017 79
27 Subsidiaries continued
All shares held are a class of Ordinary Shares with the exception of the US LLCs where LLC units are held.
The principal activity of the subsidiary undertakings is communications consultancy specialising predominantly in the technology sector, except
for The Lexis Agency Limited, ODD and M Booth LLC. (which work for clients predominantly in consumer sectors), MIG Global Limited and HPI
Research Limited (which are market research companies), The Blueshirt Group LLC (which is an investor and media relations agency) and
Connections Media LLC, BYND Limited and BYND LLC (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. None of the Group’s subsidiaries have a non-controlling interest that is individually material to the Group. As a result the
disclosure requirements for subsidiaries with a material non-controlling interest under IFRS 12 are not considered necessary.
28 Related-party transactions
The ultimate controlling party of the Group is Next Fifteen Communications Group plc (incorporated in the United Kingdom and registered 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 period to 31 January
2017 there were the following related-party transactions:
Brand
Vrge
Services
Related party
Consultancy Digital Citizens Advisory Alliance –
A director of Vrge has an interest in
this company
Blueshirt
Consultancy
Text Hong Kong
Received video
editing and
shooting
services
Blueshirt Capital Advisors is an
Associate of Next 15
Merz Productions Ltd – one
Director has an interest through
their spouse
Agent3
Received
research and
analysis services
TATA Communications Ltd –
wife of a Director has an interest in
this company
Story Worldwide
Tax
Story paid for a Director’s tax and
other personal charges
Bite DA
Consultancy
Animl was an associate of Next 15
for part of the year
Income/(expense)
impact
2017
£’000
Asset/(liability)
at year end
2017
£’000
Income/(expense)
impact
2016
£’000
Asset/(liability)
at year end
2016
£’000
–
–
(614)
(216)
(35)
121
–
–
–
4
–
–
–
–
(1)
(7)
(1)
(6)
–
(1)
(1)
–
(1)
–
Dividends were paid to Directors of the Company during the year in proportion to their shareholdings in the Company. Tim Dyson, Peter Harris
and Richard Eyre received dividends of £228,510, £1,906 and £8,910 respectively. Key management personnel compensation is disclosed in
note 3.
During the year, Beyond performed consumer experience work for Moneysupermarket.com, for which Genevieve Shore has a non-executive
directorship. The total value of the transaction during FY17 was £1,095,000 (2016: £79,000) and the amount outstanding at the year end is
£236,000 (2016: £79,000).
29 Operating lease rental receivables
As at 31 January, the Group’s total future minimum lease payments receivable under non-cancellable leases are as follows:
In respect of operating leases which will be receivable in the period
Within one year
In two to five years
In greater than five years
2017
£’000
27
–
–
27
2016
£’000
86
21
–
107
79
Financial Statements
80
Company balance sheet
Company balance sheet
as at 31 January 2017 and 31 January 2016
as at 31 January 2017 and 31 January 2016
Non-current assets
Intangible assets
Tangible assets
Investments in subsidiaries
Investments in associates
Trade investments
Deferred tax assets
Current assets
Trade and other receivables
Current tax asset
Current liabilities
Trade and other payables
Provisions
Contingent consideration
Current tax liability
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Share-based payment reserve
ESOP reserve
Other reserve
Retained earnings
2016
£’000
93,984
15,097
(19,090)
(3,993)
89,991
(28,899)
61,092
Note
2017
£’000
2017
£’000
2
3
4
9
5
6
8
7
7
10
905
1,327
114,117
–
665
17
15,554
96
16,860
1,812
3,047
–
31,869
10,994
1,834
25,681
3,075
5,174
–
26,381
5,954
117,031
15,650
(21,719)
(6,069)
110,962
(42,863)
68,099
2016
£’000
837
1,177
91,430
462
–
78
15,097
–
19,055
–
–
35
20,633
8,266
1,763
21,523
3,075
4,571
–
27,759
2,401
Equity attributable to owners of the Company
68,099
61,092
The following notes are an integral part of this Company Balance Sheet.
The Company reported a profit for the financial year ended 31 January 2017 of £6,817,000 (2016: £7,158,000).
These financial statements were approved and authorised for issue by the Board on 3 April 2017.
Peter Harris
Chief Financial Officer
Company number 01579589
80
Company statement of changes in equity
Company statement of changes in equity
for the year ended 31 January 2017 and 31 January 2016
for the year ended 31 January 2017 and 31 January 2016
81
At 31 January 2015
Profit for the period
Dividends
Shares issued in satisfaction of vested
share options and performance shares
Shares issued on acquisition
Shares issued on placing
Movement in hedging reserve
Movement in relation to
share-based payments
Movement due to ESOP
share purchases
Movement due to ESOP share
option exercises
At 31 January 2016
Profit for the period
Dividends
Shares issued in satisfaction of vested
share options and performance shares
Shares issued on acquisition
Movement in hedging reserve
Movement in relation to
share-based payments
Movement due to ESOP
share purchases
Movement due to ESOP share
option exercises
At 31 January 2017
Note
10
10
Share
capital
£’000
1,545
–
–
38
19
Share
premium
account
£’000
8,272
–
–
–
1,331
161
11,920
–
–
–
–
–
–
–
–
Share-
based
payment
reserve
£’000
3,941
Merger
reserve
£’000
3,075
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
630
–
–
1,763
21,523
3,075
4,571
–
–
27
44
–
–
–
–
–
–
–
4,158
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(248)
–
–
851
–
–
1,834
25,681
3,075
5,174
ESOP
reserve
£’000
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
–
–
–
–
–
–
–
–
38
(38)
–
–
–
–
–
–
–
(25)
25
–
28,417
(2,316)
42,934
–
–
–
–
–
(658)
–
–
–
27,759
–
–
–
–
(1,378)
–
–
–
7,158
7,158
(2,441)
(2,441)
–
–
–
–
–
–
–
2,401
6,817
38
1,350
12,081
(658)
630
38
(38)
61,092
6,817
(3,264)
(3,264)
–
–
–
–
–
–
(221)
4,202
(1,378)
851
(25)
25
26,381
5,954
68,099
The following notes are an integral part of this Statement of changes in equity.
81
Financial Statements
82
Notes forming part of the Company financial statements
Notes forming part of the Company financial statements
for the year ended 31 January 2017
for the year ended 31 January 2017
1 Accounting policies
A. Basis of preparation
Next Fifteen Communications Group plc is a company incorporated in the United Kingdom under the Companies Act. The address of the
registered office is given on page 89. The nature of the Company’s operations and its principal activities are set out in the Strategic Report on
pages 4 to 15. The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial
Reporting Council. In the prior year the Company adopted FRS 101 as issued by the Financial Reporting Council. These financial statements were
prepared in accordance with FRS 101 (Financial Reporting Standard 101) ‘Reduced Disclosure Framework’ as issued by the Financial Reporting
Council incorporating the amendments to FRS 101 issued by the FRC in July 2015 and July 2016. This transition is not considered to have had a
material effect on the financial statements.
The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments measured at
fair value at the end of each reporting period, and are in accordance with applicable accounting standards in the United Kingdom. The principal
accounting policies adopted are the same as those set out in note 1 to the consolidated financial statements except as noted below.
As permitted by s408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account or statement of
comprehensive income for the year. The profit attributable to the Company is disclosed in the footnote to the Company’s balance sheet.
The auditor’s remuneration for audit and other services is disclosed in note 4 to the consolidated financial statements.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to business
combinations, share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related-party transactions. Where required,
equivalent disclosures are given in the Group accounts of Next Fifteen Communications Group plc. The Group accounts of Next Fifteen
Communications Group plc are available to the public and are at the beginning of this section.
B. Investments in subsidiaries
An investment in a subsidiary is recognised at cost less any provision for impairment.
C. Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the
Strategic Report section of the annual report, which also describes the financial position of the Company; its cash flows, liquidity position and
borrowing facilities; the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details
of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable
future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
D. Critical accounting judgements and key sources of estimation uncertainty
I. Impairment of investments in subsidiaries
Determining whether the Company’s investments in subsidiaries have been impaired requires estimations of the investments’ values in use. The
value-in-use calculations require the entity to estimate the future cash flows expected to arise from the investments and suitable discount rates
in order to calculate present values. The carrying amount of investments in subsidiaries at the balance sheet date was £114m.
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 Consolidated 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. These require judgements
around future revenue growth, profit margins and discount rates, which, if inappropriate, would result in a material adjustment to the value of
these liabilities within the next financial year. Further details are contained in note 17 in the Group financial statements and note 7 in the
Company financial statements.
82
2 Intangible assets
Cost
At 1 February 2016
Additions
Disposals
At 31 January 2017
Accumulated depreciation
At 1 February 2016
Charge for the year
Disposals
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
3 Tangible assets
Cost
At 1 February 2016
Additions
Transfers
At 31 January 2017
Accumulated depreciation
At 1 February 2016
Charge for the year
Transfers
At 31 January 2017
Net book value
At 31 January 2017
At 31 January 2016
4 Investments
Cost
At 1 January 2016
Acquisitions1
Additional investment in subsidiary2
At 31 January 2017
83
Computer
software
£’000
2,789
249
–
3,038
1,952
181
–
2,133
905
837
Total
£’000
1,494
388
–
1,882
317
238
–
555
1,327
1,177
Total
£’000
91,430
22,082
605
114,117
Short leasehold
improvements
£’000
Office
equipment
£’000
773
296
326
1,395
145
138
6
289
1,106
628
721
92
(326)
487
172
100
(6)
266
221
549
1 On 25 February 2016 the Company purchase the non-controlling interest of 25% of MIG Global Limited (formerly Morar Consulting Limited). On 10 March 2016 the Company purchased
100% of the issued share capital of Publitek Limited. On 31 March 2016, the Company purchased 100% of the issued share capital of Twogether Creative Limited. Refer to note 26 in the
Group financial statements for further details of the acquisitions made in the year.
2 The additional investment in a subsidiary follows the issue of additional shares by two of the Company’s 100% subsidiaries, Bite Consulting GmbH and Text 100 Malaysia Sdn Bhd . The
additional shares were acquired in Bite Consulting GmbH in order to settle amounts owed to Group undertakings whilst the additional shares were acquired in Text 100 Malaysia Sdn Bhd
in order to meet the minimum share capital requirement for trading under foreign ownership.
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 Company’s subsidiaries are those as listed in note 27 of the consolidated financial statements.
83
Financial Statements 84
Notes forming part of the Company financial statements continued
Notes forming part of the Company financial statements continued
for the year ended 31 January 2017
for the year ended 31 January 2017
5 Trade and other receivables
Amounts falling due within one year
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Other taxation
Total trade and other receivables
6 Trade and other payables
Overdraft
Trade creditors
Amounts owed to subsidiary undertakings
Other taxation and social security
Other creditors
Accruals and deferred income
Total
7 Non-current liabilities
Bank loan1
Between one and two years
Between two and five years
After five years
Contingent consideration
Between one and two years
Between two and five years
After five years
Share purchase obligation
Between one and two years
Between two and five years
After five years
Total
Company
2017
£’000
13,617
1,610
317
10
Company
2016
£’000
14,305
446
343
3
15,554
15,097
Company
2017
£’000
3,351
139
11,630
78
11
1,651
16,860
Company
2017
£’000
31,869
–
31,869
–
9,160
3,668
5,492
–
1,834
–
1,834
–
42,863
Company
2016
£’000
2,236
–
15,438
61
637
683
19,055
Company
2016
£’000
20,633
–
20,633
–
5,788
780
4,478
530
2,478
1,509
969
–
28,899
1 The entire bank facility is secured on guarantees from the guarantor pool.
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 January 2017.
The Company has no fair value Level 1 or 2 instruments (2016: none). All instruments at fair value through profit or loss are Level 3 instruments
being the contingent consideration and share purchase obligation liabilities.
Level 3 financial instruments are valued using the discounted cash flow method to capture the present value of the expected future economic
benefits that will flow out of the Group arising from the contingent consideration or share purchase obligation. They are not based on observable
market data.
84
8 Provisions
At 31 January 2016
Additions
Used during the year
At 31 January 2017
Current
Non-current
9 Deferred tax
Deferred tax is provided as follows:
At 31 January 2015
Charge to income
At 31 January 2016
(Charge)/credit to income
At 31 January 2017
10 Share capital and reserves
Allocated, called up and fully paid
73,352,214 Ordinary Shares of 2.5p each
Employment dependent
acquisition payments
£’000
–
2,089
(277)
1,812
1,812
–
Accelerated capital
allowances
£’000
Tax losses
£’000
Other
£’000
77
(107)
(30)
(22)
(52)
319
(211)
108
(41)
67
4
(4)
–
2
2
2017
£’000
85
Total
£’000
–
2,089
(277)
1,812
1,812
–
Total
£’000
400
(322)
78
(61)
17
2016
£’000
1,834
1,763
For details on changes to issued share capital in the year, please refer to note 20 in the Group financial statements. For details of the dividends
declared and paid in the year, please refer to note 9 in the Group financial statements.
11 Operating leases
As at 31 January 2017, the Company’s total future minimum lease rentals are as follows:
In respect of operating leases which will be paid
in the following periods:
Within one year
In two to five years
After five years
2017
Land and
buildings
£’000
757
3,737
1,877
6,371
Other
£’000
–
–
–
–
2016
Land and
buildings
£’000
169
846
338
1,353
Other
£’000
–
–
–
–
85
Financial Statements
86
Notes forming part of the Company financial statements continued
Notes forming part of the Company financial statements continued
for the year ended 31 January 2017
for the year ended 31 January 2017
12 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:
Intercompany interest
Recharges
Year ended
31 January
2017
£’000
Year ended
31 January
2016
£’000
Year ended
31 January
2017
£’000
Year ended
31 January
2016
£’000
119
171
64
35
–
116
736
Year ended
31 January
2016
£’000
1,182
48
21
30
–
186
146
Agent3 Limited
Blueshirt Group LLC
Connections Media LLC
Encore Digital Media Limited
HPI Research Limited
MIG Global Limited
BYND Limited
–
–
–
–
–
–
–
4
–
–
–
–
–
–
642
218
104
478
–
1,154
886
At 31 January the Company had the following intercompany amounts receivable from/(payable to) the subsidiaries below:
Year ended
31 January
2017
£’000
1,688
(71)
(34)
82
–
1,273
81
Agent3 Limited
Blueshirt Group LLC
Connections Media LLC
Encore Digital Media Limited
HPI Research Limited
MIG Global Limited
BYND Limited
86
Five-year financial information
Five-year financial information
for the 12-month period ended 31 January (unaudited)
for the 12-month period ended 31 January (unaudited)
87
Year ended
2017
IFRS
£’000
Year ended
2016
IFRS
£’000
Year ended
2015
IFRS
£’000
Year ended
2014
IFRS
£’000
Year ended
2013
IFRS
£’000
118,278
109,427
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)
Key performance indicator and other non-statutory measures
Headline staff costs as a % of revenue1
Headline EBITDA2
Headline profit before income tax3
Diluted headline earnings per share (p)4
Net debt5
200,745
171,013
126,756
7,914
(4,742)
2,900
(1,232)
1,668
530
1,138
107,410
15,243
(54,156)
67,571
926
68,497
1,668
31,176
32,844
(1,978)
30,866
(14,546)
(8,284)
(30,592)
11,589
(3,264)
6,500
6,774
5.25
1.6
1.5
67.6
28,964
24,200
23.4
(11,412)
151,658
129,757
92,721
8,429
(2,846)
5,578
(1,116)
4,462
470
3,992
71,430
16,159
(34,798)
52,048
743
52,791
4,462
11,826
16,288
(2,954)
13,334
(4,190)
(6,411)
(20,158)
2,871
(2,441)
11,459
4,635
4.2
6.0
5.6
69.3
19,176
16,092
16.9
(6,618)
126,159
109,194
77,108
(555)
(2,577)
(2,864)
1,486
(1,378)
589
(1,967)
57,458
8,893
(29,149)
37,974
(773)
37,202
(1,378)
5,600
17,960
(2,316)
15,644
(5,544)
(3,225)
(14,842)
6,300
(3,006)
2,042
2,844
3.50
(3.23)
(2.91)
68.9
14,609
12,535
13.2
(8,567)
98,749
68,988
4,705
(1,382)
3,313
(1,802)
1,511
475
1,036
49,868
(1,920)
(8,048)
37,060
2,840
39,900
1,511
(1,493)
8,976
(1,461)
7,515
(616)
(1,052)
(4,522)
(586)
(1,409)
(3,156)
(163)
2.63
1.73
1.55
69.7
10,556
8,271
7.4
(5,367)
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, acquisition related consideration movements, the impact of fraudulent activity and other non-recurring items.
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.
92,890
64,705
5,381
(60)
5,332
(1,384)
3,948
485
3,463
48,124
9,903
(18,714)
37,070
2,243
39,313
3,948
(600)
8,639
(2,968)
5,671
(705)
(1,736)
(4,473)
(763)
(1,208)
(2,609)
(1,411)
2.36
5.99
11.09
69.1
11,806
5,066
9.8
(5,200)
87
Financial Statements
88
Shareholder information
Final dividend
Ex-dividend date
Record date
Annual General Meeting
Payment of 2017 final dividend
Interim dividend
Interim results announcement
Ex-dividend date
Record date
Payment of 2018 interim dividend
Preliminary results
2018 full-year results announcement
These dates are provisional and may be subject to change.
Annual General Meeting
The venue and timing of the Company’s AGM is detailed in the
notice convening the AGM, which will be available from the
Company’s website at www.next15.com.
Managing your shares and shareholder communications
The Company’s shareholder register is maintained by its registrar,
Capita Asset Services. Information on how to manage your share-
holdings can be found at www.capitashareportal.com. Shareholders
can contact Capita Asset Services in relation to all administrative
enquiries relating to their shares, such as a change of personal details,
the loss of a share certificate, out-of-date dividend cheques, change
of dividend payment methods and to apply for the Dividend
Reinvestment Plan. Shareholders who have not yet elected to receive
shareholder documentation in electronic form can sign up by
registering at www.capitashareportal.com. Should shareholders
who have elected for electronic communications require a paper
copy of any of the Company’s shareholder documentation, or wish to
change their instructions, they should contact Capita Asset Services.
Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Telephone from the UK: 0871 664 0300
Calls cost 12p per minute plus your phone company’s access charge.
Lines are open Monday to Friday (9.00 a.m.–5.30 p.m.)
Telephone from overseas: +44 371 664 0300
E-mail: shareholderenquiries@capita.co.uk
Dividends
Dividends can be paid directly into your bank account. This is the
easiest way for shareholders to receive dividend payments and
29 June 2017
30 June 2017
21 June 2017
4 August 2017
September 2017
October 2017
October 2017
November 2017
April 2018
avoids the risk of lost or out-of-date cheques. A dividend mandate
form is available from Capita Asset Services or at
www.capitashareportal.com.
If you are a UK taxpayer, please note that the government has
announced that from 6 April 2016 the Dividend Tax Credit has been
replaced by a tax-free Dividend Allowance of £5,000. Any dividends
received above this amount will be subject to taxation. Dividends
paid on shares held within pensions and Individual Savings Accounts
(‘ISAs’) will continue to be tax free. Further information can be found
at www.gov.uk/tax-on-dividends. From 6 April, the ‘Dividend Tax
Voucher’ has been replaced by a ‘Dividend Confirmation’.
Capita Asset Services is also able to pay dividends to shareholder
bank accounts
in many currencies worldwide through the
International Payment Service. An administrative fee will be
deducted from each dividend payment.
Further details can be obtained from Capita Asset Services or at
www.international.capitaregistrars.com.
Dividend Reinvestment Plan
The Company operates a Dividend Reinvestment Plan (‘DRIP’) which
enables shareholders to buy the Company’s shares on the London
Stock Exchange with their cash dividend. Further information about
the DRIP is available from Capita Asset Services. If shareholders
would like their final 2017 and future dividends to qualify for the
DRIP, completed application forms must be returned to the registrar
by Monday 10 July 2017.
Shareholder fraud
Fraud is on the increase and many shareholders are targeted every
year. If you have any reason to believe that you may have been the
target of fraud, or attempted fraud, in relation to your shareholding,
please contact Capita Asset Services immediately.
More detailed information can be found on the FCA website at:
w w w.fsa.gov.uk /consumerinformation/scamsandswindles/
investment_scams/boiler_room.
89
Advisers
Nominated adviser and brokers
Investec Bank
2 Gresham Street
London EC2V 2QP
Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Registered office
Next Fifteen Communications Group plc
75 Bermondsey Street
London SE1 3XF
T: +44 (0)20 7908 6444
Company number
01579589
Investor relations contact
Peter Harris
Chief Financial Officer
T: +44 (0)20 7908 6444
Bankers
HSBC Bank plc
8 Canada Square
London E14 5HQ
Other Information N
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Next Fifteen Communications Group plc
75 Bermondsey Street
London SE1 3XF
T: +44 (0)20 7908 6444
www.next15.com