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CHALLENGE
SOLUTION
SUCCESS
* ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷
× ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ]
± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md
P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞
× ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md
> Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ±
Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £
≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ *
P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ <
MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠
Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥
μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰
Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3
[ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ
< Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1
[ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x
< ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx /
ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR
/ Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞
P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) *
⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ ×
( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ±
× ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md
P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞
× ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md
> Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ±
Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £
≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ *
P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ <
MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠
Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md % + f ± Mo ∞ × ∑
= f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md >
Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1
f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤
s Q1 × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx
= Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ±
Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx
∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3
≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR
Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2
≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷
x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º
Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md % + f ±
Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / =
Next Fifteen Communications Group plc
Annual Report 2020
03
ˆδ1 = δi|V+δi
(x1,x2...,xN,δi) = max {V+δj
(x1,x2...,xN, δj)}
Next best action
We believe that our challenge is to help our customers become better businesses;
to become the best version of themselves. To do this we deliver a unique brand of
technology-driven marketing, using data to help our clients determine their next best
action for their development.
Strategic report
01 Financial highlights
02 At a glance
03 Our businesses
04 Chairman’s statement
07 Chief Executive’s statement
09 Strategy
11 Financial review
16 How we manage our risks
17 Principal risks and uncertainties
21 Section 172(1) statement
Governance
23
Board of Directors and
Company Secretary
24 Corporate governance report
30 Audit Committee report
32 Directors’ remuneration report
43 Report of the Directors
45 Directors’ responsibilities statement
Financial statements
46
Independent auditors’ report
55 Consolidated income statement
Consolidated statement of
56
comprehensive income
57 Consolidated balance sheet
58
Consolidated statement of changes
in equity
60 Consolidated statement of cash flow
62 Notes to the accounts
103 Company balance sheet
104 Company statement of changes in equity
105 Notes forming part of the Company
financial statements
111 Five-year financial information
Other information
112 Shareholder information
IBC Advisers
About this Report
This year’s annual report contains some extracts
from the mathematical formulae underlying
Planning-inc’s Future Value Model which
takes advantage of customers’ behavioural
data, applying cutting-edge machine learning
techniques to predict their value in the future.
The models allow clients to move from a reactive
segmentation approach to a proactive one,
focusing on what is likely to happen next. The
model establishes each customer’s potential
value, along with the unique set of actions
that need to be completed to achieve this.
Planning-inc call this sequence of marketable
actions the Customer Value Path.
Financial highlights
Net revenue
£248.5m
+11%
.
m
5
8
4
2
£
m
1
.
4
2
2
£
.
m
8
6
9
1
£
8
1
9
1
0
2
p
8
4
3
.
p
1
.
3
3
p
8
7.
2
Adjusted diluted
earnings per share
34.8p
+5%
8
1
9
1
0
2
.
m
5
3
4
£
m
1
.
2
3
£
.
m
6
4
2
£
8
1
9
1
0
2
.
m
2
0
4
£
.
m
0
6
3
£
.
m
3
9
2
£
8
1
9
1
0
2
Net cash from
operating activities
£43.5m
+35%
.
m
7
0
2
£
.
m
4
9
1
£
m
2
7.
1
£
8
1
9
1
0
2
Statutory
operating profit
for the year
£19.4m
-6%
Adjusted profit
before tax
£40.2m
+12%
Adjusted measures are reconciled to the statutory
results in notes 2, 5 and 10 to the financial statements.
S
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01
At a glance
ˆV1 = max {V+δj
δj Δ
(x1,x2...,xN,δj)}
Projected value
After talent, we believe brand and technology are a company’s biggest
and most important assets. Within our family of marketing businesses
we continue to focus on building our data, analytics and technology
capabilities to ensure that we create precisely focused marketing and
communications that generate value for our clients.
Our business
There are many marketing agency groups.
Some showcase flamboyant creativity. Others
give the impression that only number crunching
counts. What makes Next 15 different is the
unique way we blend both approaches
to help our clients be the best version of
themselves they can possibly be. We are
passionate about creating marketing and
communications initiatives that get noticed,
but we know that only by bringing technology,
innovation and data skills to the table too,
can we create true value.
Our brands and sectors
Next 15 aims to become the world’s largest
and most respected data and technology-
led marketing group. To do this, the Group
continues to build a portfolio of businesses
that cater to the different needs of the various
market sectors and geographies in which it
operates. At the same time, the Group seeks to
attract the best talent in the industry by creating
excellent career paths that enable people to
take part in international business and, where
appropriate, help with the formation of new
Group businesses, new service divisions,
or new international locations.
Next 15 remains ambitious and is committed
to expanding the international presence of
its existing brands, with the possibility of
further acquisitions if the strategic fit and
value is compelling.
See page 3 for a list of our brands or find
out more about our brands at www.next15.
com/portfolio.
Our clients
We work with some of the biggest brands in
technology and beyond including Amazon,
Cisco, Facebook, Google, Hasbro, Microsoft,
Sony, Telefónica Digital and YouTube. We
have an extraordinary track record in retaining
business in the long term because we keep
them ahead of whatever’s next in an age
of unprecedented change.
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.”
Employees
2,183
2019: 1,979
2018: 1,782
Offices
49
2019: 50
2018: 56
Countries
15
2019: 14
2018: 14
02
Our businesses
03
Strategic report Chairman's statement
“ May I thank you and the 2,183 people
who work in Next 15 businesses,
for the privilege of chairing Next 15
over this period of such change and
achievement. It’s been an honour and
one of the highlights of my career.”
These new additions will join our roster of platform businesses, which
do not compete with our specialist communications companies
but add complementary skills and important new client contacts.
Looking to the year ahead, your Board remains animated by the
Group’s underlying prospects. Alongside the familiar external
unknowns, political, environmental and regulatory, we face the
extraordinary in COVID-19. This will adversely impact our results
in the current financial year, but we have the quality of people,
the strategy and the financial strength to continue to outperform
our marketplace.
This will be my final AGM letter to shareholders as I will complete
9 years as your Chairman in May 2020. I’m delighted to report that
my successor will be Penny Ladkin-Brand, currently our Chair of
Audit and a member of the Board since 2017. With your blessing,
she will assume the role at the start of our next financial year. I will
remain available to support her and execute a smooth transition.
May I thank you and the 2,183 people who work in Next 15
businesses, for the privilege of chairing Next 15 over this period
of such change and achievement. It’s been an honour and one
of the highlights of my career.
Richard Eyre CBE
Chairman
22 April 2020
Dear Shareholders,
Over this year we have continued to deploy the highly effective
marketing tools afforded by data and technology. This is no hasty
pivot from specialist communications consulting, which was at
the core of our business for our listing in 2005, but a continued
evolution by acquisition and organic change, to ensure that our
offer to customers is as contemporary as it is effective. This strategy
continues to serve us well.
Net revenues in the year to 31 January 2020 were up 11% to
£248.5m and adjusted profit before tax was 12% higher at £40.2m.
Statutory revenue rose by 10% to £300.7m (2019: £272.4m) and
statutory operating profit declined 6% to £19.4m (2019: £20.7m).
Fully diluted adjusted earnings per share showed growth of 5%
to 34.8p. Net debt remained firmly under control at £9.3m. In the
context of the challenges faced by any major player in our sector,
these are good results by any standard.
Data and analytics agencies now represent 18% of the Group’s net
revenues. Organic growth for this part of our business was 19% and
overall growth was 94%. Our Brand Marketing sector grew 1.4%,
amid the planned restructure to create Archetype, a modern, global
communications group. Our third sector, Creative Technology, was
impacted by surmountable but significant challenges at our Beyond
business and saw an organic decline of 2.1%. Such vicissitudes are
the logic for a diversified group. Excluding Archetype and Beyond,
Brand Marketing grew by 2.8% and Creative Tech by 20.3%.
The opportunity in our sector is such that it would be blinkered to
imagine that the group is now set fair. So, we intend to develop a
fourth segment, Innovation and Business Consulting. Last year we
acquired an impressive young business called Palladium which
will become a part of this segment. It helps Private Equity firms
assess and improve the digital capability of potential investments.
Once the COVID-19 clouds clear, we will further develop our group
into Business Consulting through our usual formula of acquisition
and organic development.
04
05
Strategic report 06
Chief Executive’s statement
“ Great people, doing great
work for great clients, always
delivers a good outcome.”
Never being satisfied with the status quo is a tough way to run
a business and is what has driven us to make changes like the
creation of Archetype. Change is sometimes unplanned as we
found at Beyond this last year. However, what doesn’t change
is having the right people in the right roles, and ensuring these
people have the tools they need to succeed. Getting that right is
crucial and is what ultimately drives the growth of our business.
We saw this in outstanding performances from a number of our
businesses this year – such as Agent3, Activate, M Booth, Savanta,
Twogether and ODD. Great people, doing great work for great
clients, always delivers a good outcome.
Thanks to the strength of our portfolio of businesses, we grew
by double digits again this last year. Given the impact COVID-19
is having on the global economy it’s hard to estimate at this time
what impact it will have on our business. As I write this we have
seen limited impact but we do expect that to change in Q2. Nobody
is immune to macroeconomic factors but from experience if we
focus on making our businesses the best version of themselves
they can possibly be, then we will be well positioned to take
advantage of the opportunities that arise as the economy rebounds.
I’m also confident that our focus on data and technology puts us
in a strong position to help our customers as the shift to digital
marketing only accelerates.
Tim Dyson
Chief Executive Officer
22 April 2020
Dear Shareholders,
When you think of Next 15 you likely think of a collection of specialist
businesses that in large part service the technology industry in
some area of marketing. That was the case a few years ago but
we have been slowly but surely investing, organically and by
acquisition, to create platforms that our agencies can plug in to.
We have also expanded our reach some way beyond technology,
although the bulk of our client base remains firmly in the B2B
technology sector. It is worth noting, that as COVID-19 ravages
the world’s population and impacts the global economy, we are
thankful that our business sits where it does, at the intersection
of technology and marketing.
As we build the capabilities of our Group, we still believe that being
the best at what we do matters a great deal. For us this has always
meant having businesses that bring huge expertise, either through
a specific set of products and/or deep business sector knowledge
and insights. However, by adding a set of platform businesses,
we can more effectively achieve our ambition to move beyond
communications design into business design. Platform businesses
are a way for us to address the broad range of challenges and
opportunities our clients are facing and help them solve them in
the right order and in the right way.
If you look at Next 15 today you see several businesses that
either are, or will soon become, platform businesses. These are
Palladium, Planning-inc and Savanta. In Savanta and Planning-inc,
we are creating data platforms which can sit at the heart of all our
clients’ relationships and enable them to see how their activities
are performing, how customers are reacting and how they stack
up against their competition. Meanwhile, Palladium, albeit in a very
different way, is helping customers figure out the very essence
of what they should do, how they should be organised and how
best to go to market. I am excited by this progress but I’m also
aware that these are still very early days and that there is still a lot
of work to do. In the coming year, I expect us to focus even more
attention on the building out of these and other platforms. This
is in part because we believe that the pace of change towards
technology and data driven marketing is only going to accelerate
as we emerge from the COVID-19 pandemic.
07
Strategic report
Δ=( ˆδ1, ˆδ2,..., ˆδN)
Optimal value path
Next 15 believes the future lies in our ability to drive our customers’
business goals. Our heritage is in marketing and communications, but
simply making brands more attractive is no longer enough. To be highly
trusted partners of our clients, we must be capable of understanding and
resolving the friction points in their strategy and operations, capable of
giving their customers the best possible experience of their products
and services. This requires data and technology to evaluate and predict
the best ways to interact with audiences, disruptive innovation to unlock
new ideas, and creativity to demonstrate brand personality, values and
relevance. We aim to leave our clients stronger than we found them.
Technology
Data
Next 15 agencies offer
one, or a combination,
of these business
services to some of the
most innovative and
exciting companies
in the world.
Brand
marketing
Innovation
consulting
08
Strategy
1
To build a portfolio of businesses
that cater to the individual needs and
opportunities of the various market
sectors and geographies in which
Next 15 operates.
2
To attract the best talent in the
industry by creating excellent career
paths, enabling our people to benefit
from the scope of a diverse,
international business.
3
Where appropriate, to help with the
formation of new Group businesses,
new service divisions, new platforms,
or new international locations.
Our objectives
To build and buy technology-
enabled brand marketing, consulting
and data businesses
To leverage the strength of our US
businesses and their relationships
with high growth companies
To drive higher level consulting
around business-critical activities
Principles
Data
Data and analytics are increasingly embedded
across the Group; we believe that over time this
will drive growth in our technology and brand
marketing businesses as clients increasingly
utilise these tools to predict campaign success
and optimum spend levels. Data will also
inform our ability to help clients innovate
and spot new opportunities.
Innovation consulting
Our marketing heritage helps customers
build desire for their products. But the pace
of change is such that it is no longer enough
simply to paint the best face on a brand through
clever marketing. To be effective we have
to be able to help redesign the company
and its products for success in fast changing
markets. Our innovation consulting capability
is now helping our customers transform
their existing businesses, or create entirely
new ones to grasp emerging opportunities.
Brand marketing
The body of content, ideas and expectations
surrounding a product is what constitutes
a brand. Developing digital content that
travels gracefully across technology platform,
application and language is essential to
consistent brand marketing.
Technology
Technology is now the essential partner of
even the biggest creative idea. By utilising the
right platforms and technologies, businesses
can now reinvent themselves, whether by
improving their customer experience, or
completely reimagining their business model.
We are experts in companies’ own use of
technology, and how they use third party
platforms such as Google, Facebook and
Amazon to reach their customers.
Approach to acquisitions:
strength and success
We deliver consistently good results for
investors because we stay true to our
principles. These include building a group
of businesses that organically fit together,
are passionate about what they do, and
have strong leadership teams empowered
to pursue their vision of success.
Invest in the best talent
Our people are at the heart of everything
we do. As a Group we focus on the ‘who’
before the ‘what’. This principle, espoused
by the author Jim Collins, creates a different
way of running a company. It means we
trust entrepreneurial talent to drive their
own businesses and consult with us, but
we do not tell them what to do.
Growth in core markets
Next 15 will continue to develop its existing
brands and make acquisitions where the
strategic fit and value is compelling. In the
last few years the bulk of the Group’s efforts
has been around strengthening our UK and
US businesses as we believe our position
in these markets continues to provide the
greatest opportunity for our long-term success.
Diversity and inclusion
Next 15 believes that a diverse workforce
is not just a social good, but a commercial
advantage. Fair practices in hiring and talent
development, as well as maintaining safe and
supportive company cultures, are key to the
Group’s success and the encouragement
of diverse voices within it.
Environment
We are in a privileged position to influence
our clients and their customers. We intend to
use that position to help champion positive
change on sustainability and our environment.
We will do this in three ways:
• moving towards best practice in running
our own businesses sustainably;
• influencing customers to make sustainable
choices whenever we do work for them; and
• creating new products and services that
help our customers rethink their business
for the challenges and opportunities ahead.
09
Strategic report 10
Financial review
“ Another year of significant
progress and we face these
turbulent times from a position
of financial strength.”
Another year of significant progress across the Group
We have had another year of progress with our key measures
of adjusted EBITDA and adjusted profit before income tax both
increasing by over 10%. We made progress in our data and analytic
capabilities whilst continuing to invest in our portfolio of brand
marketing agencies.
In total for the 12 months to 31 January 2020, the Group delivered
net revenue of £248.5m, adjusted operating profit of £40.9m,
adjusted profit before income tax of £40.2m and adjusted diluted
earnings per share of 34.8p. This compares with net revenue of
£224.1m, adjusted operating profit of £37.0m, adjusted profit before
income tax of £36.0m and adjusted diluted earnings per share of
33.1p for the 12 months to 31 January 2019. Statutory revenue for
the year was £300.7m (2019: £272.4m) which resulted in operating
profit of £19.4m compared with £20.7m in the previous year.
Adjusted results
Net revenue
EBITDA
Operating profit after interest on finance lease liabilities
Operating profit margin
Profit before income tax
Tax rate on adjusted profit
Diluted earnings per share
Statutory results
Revenue
Operating profit
Profit before income tax
Diluted earnings per share
Growth
%
10.9%
36.0%
10.6%
11.8%
5.1%
Year to
31 January
2020
£m
Year to
31 January
2019
£m
248.5
56.8
40.9
16.4%
40.2
20.0%
34.8p
300.7
19.4
5.6
2.5p
224.1
41.7
37.0
16.5%
36.0
20.0%
33.1p
272.4
20.7
18.8
16.3p
Adjusted results represent the statutory performance, adjusted to exclude amortisation, restructuring charges, brand equity incentive schemes, movements in acquisition-related
consideration, employment related acquisition payments and certain other items. They are reconciled to the statutory results in notes 2 and 5 to the financial statements.
In order to assist 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 2020 compared with the 12 months to 31 January 2019.
These measures are considered as useful to shareholders as
they are used by the Group for internal performance analyses and
facilitate comparability with industry peers. In line with peers, the
Group also presents net revenue which is calculated as revenue
less direct costs as shown on the consolidated income statement.
11
Strategic report Financial review continued
.
m
9
0
4
£
m
0
7.
3
£
.
m
0
0
3
£
m
6
.
1
1
£
m
3
9
£
.
m
2
5
£
.
.
m
7
0
2
£
.
m
4
9
1
£
m
2
7.
1
£
Adjusted operating
profit after interest on
finance lease liabilities
Net debt
Statutory
operating profit
8
1
9
1
0
2
£40.9m
8
1
9
1
0
2
£9.3m
8
1
9
1
0
2
£19.4m
Review of adjusted results to 31 January 2020
Group profit and loss account
The last 12 months have been a period of progress and change
across the Group. We have grown our total Group net revenues
by almost 11%, although they declined by 2% on an organic basis
due to challenges at Beyond and Archetype, whilst the operating
profit margin dropped marginally to a still impressive 16.4%. Our
Twogether, ODD, M Booth and Activate agencies have been stand
out performers, whilst we have achieved solid performances
across most of the portfolio.
In addition, there have been a number of operational improvements,
including progress on our merger of our Text and Bite brands to
create Archetype. Also, we consolidated our market research
agencies under the Savanta brand. This has had the benefit of
simplifying the Group’s operating structure as well as increasing
our underlying operating margin.
The Group adjusted operating margin reduced marginally to 16.4%
from 16.5% in the prior year and statutory operating profit was
£19.4m compared with 20.7m in the previous year.
Reconciliation of adjusted operating profit to statutory operating profit
Statutory operating profit
Interest on lease liabilities
Share-based payment charge
Employment-related acquisition payments
Deal costs
Costs associated with restructuring
Charge associated with office moves
Amortisation of acquired intangibles
Year to
31 January
2020
£m
19.4
(1.6)
0.4
5.0
1.0
4.6
—
12.1
Year to
31 January
2019
£m
20.7
—
1.3
0.8
0.6
4.4
0.2
9.0
Adjusted operating profit after interest on finance lease liabilities
40.9
37.0
Adjusted results represent the statutory performance, adjusted to exclude amortisation, restructuring charges, brand equity incentive schemes, movements in acquisition-related
consideration and certain other items. They are reconciled to the statutory results in notes 2 and 5 to the financial statements.
We incurred £4.6m of restructuring costs in relation to the merged
Archetype brand, the consolidation of our market research activities
under the Savanta brand and further restructuring in the UK and
US agencies.
Amortisation of acquired intangibles was £12.1m in the period.
We incurred £0.4m of share-based payment charges on new
growth shares for M Booth and £5.0m in relation to employment-
related acquisition payments.
We incurred £1.0m of deal costs in relation to acquisitions.
12
Net revenue bridge (£m)
+26.2
+11.8%
+4.8
2.1%
248.5
+10.9%
224.1
(2.2)
(1.0%)
(4.4)
(2.0%)
260
250
240
230
220
210
200
190
Year to 31 January 2019
Discontinued
Organic decline
Acquisitions
Foreign exchange
Year to 31 January 2020
Taxation
The adjusted effective tax rate on the Group’s adjusted profit for
the year to 31 January 2020 was at a rate of 20%, compared to
the statutory rate of 49%. The adjusted effective tax rate was the
same as the rate achieved in the previous period as we continued
to benefit from a higher proportion of our profit coming from
lower tax regimes such as the UK and the successful resolution
of a number of historical tax queries. The Group’s cash tax rate
for the period was lower at 15%, principally due to tax relief for
acquired US Goodwill and Intangibles which is not recognised
in the Group’s Income Statement.
The Group does not have any open tax audits, nor does it have
any complex structures in place to manage its taxes which could
give rise to future challenges from tax or competition authorities.
Earnings
Diluted adjusted earnings per share has increased by 5% to 34.8p
for the year to 31 January 2020 compared with 33.1p achieved in
the prior period. Diluted earnings per share were 2.5p, compared
with 16.3p in the previous year.
Segmental review
Year ended 31 January 2020
Net revenue
Organic net revenue growth¹
Adjusted operating profit after interest
on finance lease liabilities
Adjusted operating margin²
Year ended 31 January 2019
Net revenue
Organic net revenue growth¹
Adjusted operating profit
Adjusted operating margin²
Brand
Marketing
£’000
Data and
Analytics
£’000
Creative
Technology
£’000
Head
office
£’000
Total
£’000
135,036
(5.7)%
29,930
22.2%
133,163
0.1%
29,580
22.2%
45,054
19.3%
12,697
28.2%
23,209
30.6%
7,171
30.9%
68,379
(2.1)%
7,774
11.4%
67,721
17.0%
9,489
14.0%
—
—
248,469
(2.0)%
(9,541)
—
—
—
(9,284)
—
40,860
16.4%
224,093
6.4%
36,956
16.5%
1
2
Organic growth is the constant currency growth for the 12 months to 31 January 2020 compared to the 12 months to 31 January 2019, excluding the impact of acquisitions
until they have been in the Group for more than one year.
Adjusted operating profit margin is calculated as the margin on net revenue.
13
Strategic report Financial review continued
Brand Marketing
This segment includes our Archetype, OutCast, Nectar, M Booth,
M Booth Health, Blueshirt and Publitek agencies. During the year
we acquired Health Unlimited based in New York and rebranded
it as M Booth Health. We also acquired Nectar, a San Francisco
based Tech Comms agency. The segment produced a satisfactory
performance, with expected disruption from the launch of Archetype
offset by good trading from M Booth, Blueshirt and Publitek. Total
net revenue increased by 1.4% to £135.0m with an organic decline
of 5.7% but the adjusted operating profit increased by 1.2% to
£29.9m at a held operating margin of 22.2%.
Data and Analytics
This segment includes Savanta, Encore and our recently acquired
Activate and Planning-inc agencies. During the year we merged
Encore with Twogether, our B2B digital marketing agency. The
segment achieved net revenue of £45.1m, with an organic revenue
growth of 19.3% and delivered operating profit of £12.7m at an
operating margin of 28.2%.
Creative Technology
This segment includes our ODD, Elvis, Brandwidth, Beyond, Twogether,
Agent3, Velocity and Palladium agencies. Palladium was acquired
in April 2019. The segment delivered a mixed performance with
Twogether, ODD and Agent3 excelling. Overall, the segment
delivered net revenue growth of 1% to £68.4m with organic net
revenue decline of 2.1%. The adjusted operating profit declined
by 18% to £7.8m at an operating profit margin of 11.4%.
Geographical review
Year ended 31 January 2020
Net revenue
Organic net revenue growth¹
Adjusted operating profit after interest
on finance lease liabilities
Adjusted operating margin²
Year ended 31 January 2019
Net revenue
Organic net revenue growth¹
Adjusted operating profit
Adjusted operating margin²
UK
£’000
EMEA
£’000
USA
£’000
APAC
£’000
Head office
£’000
Total
£’000
97,377
0.3%
20,094
20.6%
83,528
15.5%
20,482
24.5%
8,820
0.4%
1,587
18.0%
8,735
7.3%
1,504
17.2%
127,563
(4.6)%
26,421
20.7%
117,911
2.8%
22,047
18.7%
14,709
4.8%
2,299
15.6%
13,919
(2.1)%
2,207
15.9%
—
—
248,469
(2.0)%
(9,541)
—
—
—
(9,284)
—
40,860
16.4%
224,093
6.4%
36,956
16.5%
1
2
Organic growth is the constant currency growth for the 12 months to 31 January 2020 compared to the 12 months to 31 January 2019, excluding the impact of acquisitions
until they have been in the Group for more than one year.
Adjusted operating profit margin is calculated as the margin on net revenue.
US
Our US businesses performed steadily led by our M Booth and
Activate brands. In the year to 31 January 2020, total US net
revenues grew by 8.2% to £127.6m from £117.9m which equated to an
organic decline of 4.6%, taking account of movements in exchange
rates. Organic growth has been impacted in the short-term difficult
trading at Beyond and the expected disruption from the merger
of Text and Bite to create Archetype.
We acquired M Booth Health and Nectar in the year which have
both made positive contributions. The adjusted operating profit
from our US businesses was £26.4m compared with £22.0m in
the previous 12 months to 31 January 2019.
UK
The UK businesses have delivered a resilient performance over the
last 12 months, with net revenue increasing by 16.6% to £97.4m from
£83.5m in the prior period. This growth was due to exceptionally
strong performances from our Twogether, ODD, Agent3 and Savanta
agencies. The adjusted operating profit was £20.1m from £20.5m
in the prior year due to slow trading from Beyond and Archetype
UK with the adjusted operating margin falling from 24.5% in the
prior period to 20.6%.
EMEA
We have delivered an encouraging performance in EMEA with
good growth from Spain and France. Net revenue increased by
1% to £8.8m (2019: £8.7m) and adjusted operating profit increased
to £1.6m at an improved adjusted operating margin of 18.0%.
APAC
Net revenue increased by 5.7% to £14.7m (2019: £13.9m), however
the operating margin decreased marginally to 15.6% from 15.9%
in the prior period and the operating profit increased to £2.3m
(2019: £2.2m).
14
Year to
31 January
2020
£m
Year to
31 January
2019
£m
47.8
1.7
49.5
(6.0)
(28.3)
(6.8)
13.0
—
37.2
1.2
38.4
(6.2)
(37.2)
(5.2)
(10.9)
19.5
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 $7m
(2019: $7m) which is available for property rental guarantees and
US-based working capital needs.
As part of the facilities agreement, 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
22 April 2020
Cash flow
Cash flow KPIs
Net cash inflow from operating activities
Changes in working capital
Net cash generated from operations
Income tax paid
Investing activities
Dividend paid to shareholders
Net increase/(decrease) in bank borrowings
Proceeds from share placing
The net cash inflow from operating activities before changes in
working capital for the year to 31 January 2020 increased to £47.8m
from £37.2m in the prior period. Our management of working
capital improved with an inflow from working capital of £1.7m
compared with £1.2m in the prior period. This resulted in our net
cash generated from operations before tax being £49.5m (2019:
£38.4m). Income taxes paid decreased to £6.0m from £6.2m.
Our investment in acquisitions includes the acquisitions of M Booth
Health, Nectar and Palladium and the partial settlement of contingent
consideration to Activate and Twogether. This resulted in a cash
outflow due in investing activities of £28.3m.
Dividends paid to Next 15 shareholders increased to £6.8m from
£5.2m in the prior period reflecting the strong trading in the period.
Net interest paid to the Group’s banks reduced due to lower
borrowings to approximately £1.0m (2019: £1.2m).
Balance sheet
The Group’s balance sheet remains in a healthy position with net
debt as at 31 January 2020 of only £9.3m (2019: £5.2m), representing
only 0.2x adjusted EBITDA.
Treasury and funding
The Group operates a £40m revolving credit facility (‘RCF’) with
HSBC available until July 2022 and has a £20m term loan, with
£10m left to be repaid in equal annual instalments, the last of
which is in December 2021. The £40m 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,
15
Strategic report How we manage our risks
Next 15 is exposed to a variety of risks (both threats and opportunities)
that can have financial, operational and regulatory impacts on
our business performance, reputation and prosperity. 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
The focus of the Risk Management Framework is the annual risk
assessment, which takes place at an operating company level
performed by brand management, and by Next 15 senior leaders
for the Group-wide risks. The outcome of the bottom-up / top-down
assessment is presented to the Board for review and challenge.
The risk management policy, along with the supporting assessment
procedures, was recently updated to better align the risk management
activities with the risk appetite of the Group. This has driven greater
clarity and has defined lines of accountability.
Internal controls
The Board has ultimate responsibility for the Group’s system of
internal control and regularly reviews its effectiveness in accordance
with revised guidance on internal control published by the Financial
Reporting Council. This control system, which centres around a
supporting set of minimum controls, 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.
Internal Audit
The Group Internal Audit function provides assurance over the
Group’s control environment with lead internal auditors in the US
and the UK. The results of internal audit activities are reported to
the Audit Committee at each meeting and the risk-based internal
audit plan is updated as required to respond to the risks faced
by Next 15.
Board oversight
The Board gains assurance over the adequacy of design and
operation of internal controls across the Group through the
following processes:
• 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 any other matters
and is 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 independently reviews the risk identification
procedures and control processes implemented by management
and advises on policy and procedure changes.
During 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 of which it, or its subsidiaries and
associates, operate.
16
Principal risks and uncertainties
The risks outlined below are those that the Board believes are the principal and material risks of the Group. 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
Change
in risk
Coronavirus (COVID-19)
COVID-19 has created an unprecedented global emergency,
the effects of which will have a lasting impact on both
people and economies alike.
The extent of the risk and the degree it might crystallise
remains uncertain for everyone. However, as a technology
centred business, we have been able to respond quickly
to protect our employees, customers and the business.
We have implemented our business continuity plan and have adopted
working practices that, while different, have worked to minimise the
disruption on our business as usual operations.
C
The Group is taking reasonable precautions with monitoring working
capital, cash flow and our sales pipeline. The situation, while disruptive,
will also present opportunities for challenging the way we work.
We will continue to monitor the situation and are ready to take further
action if required.
Macroeconomic uncertainty
The macroeconomic environment continues to be volatile
as a result of key drivers. Examples being uncertainties
caused by Brexit in the UK and the global health concern
related to the COVID-19 coronavirus.
Seen as an easy win compared to other operating costs,
marketing and innovation budgets have historically been
reduced by clients during weakened economic and financial
conditions. The risk of client loss or reduction in marketing
budgets is therefore increased in times of macroeconomic
uncertainty or change.
The impact of this is dependent on sector focus and often brands which
lack diversification are more exposed to macroeconomic risk. 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.
The range of products offered by our brands, including a mix of
technological-based offerings and traditional comms, can help to
balance the performance of the Group should there be a fall in the
demand for particular products and services.
C
There are business continuity plans in place across the group to
ensure that we can continue to deliver world-class service to our
customers, in case of a significant business disruption. These have
proven effective during the COVID-19 crisis.
B
The Group has insurance cover in place to mitigate against business
disruption, however, this does not include cover for any form of
communicable disease. Recent efforts to enhance and test our business
continuity plans meant we were able to easily and effectively transition
to remote working in response to the COVID-19 health crisis. This
action was taken early, mitigating the impact of the virus on both our
people and our operations.
Our response to data protection and privacy is intrinsically linked with
our information security programme, including the maintenance of
group-wide policies. This framework provides a strong platform from
which to preserve the integrity of business information and ensure
compliance with local legal requirements.
C
We will continue to monitor any changes to regulation and assess the
potential impact on the Group.
Business continuity
There is a risk that unforeseen circumstances could arise,
which mean that the business is unable to operate, such
as natural disasters, property damage, systems failure or
absence of significant personnel.
Data protection and privacy
The Group stores, transmits and relies on critical and sensitive
data such as personally identifiable information and the
intellectual property of customers. Security of this type
of data is exposed to escalating external threats that are
increasing in sophistication as well as internal data breaches.
The introduction of the California Consumer Privacy Act
(“CCPA”) further increases the regulatory rigour that the
Group faces.
There is a risk that if the Group has not implemented
suitable procedures and updated relevant business
processes, it may inadvertently breach its regulatory and
contractual obligations leading to fines, client delays and
reputational damage.
17
Strategic report Principal risks and uncertainties continued
Risk description
Mitigating actions
Operational risk continued
System access and security
The Group notes the ongoing threat of third parties attempting
to exploit weaknesses in the technological infrastructure
and SaaS services of different companies.
The ongoing development and maturation of our Information Security
Management System, including the continued investment in endpoint
security and threat intelligence, has greatly increased our ability to
monitor and respond to cyber related threats.
Inadequate security controls to protect our systems against
these threats could lead to business disruption, reputational
damage and loss of assets.
Our people are also required to undertake ongoing training to maintain
their awareness and understanding of information security.
Change
in risk
B
People and talent – retention and recruitment
Our people are our most important asset.
Our approach to recruitment is to hire best-in-class talent and remunerate
them accordingly.
B
The Group relies on highly skilled employees, who are vital
to its success in building and maintaining client relationships
and winning new work. We are also heavily reliant on
the leaders of our businesses and losing one of those
individuals could be particularly detrimental.
Next 15 understands that the expectations on employers and what
employees “want” from a job is changing and a failure to evolve may
result in a loss of key talent or a lack of experienced talent filtering up
the business. We are therefore committed to helping develop our staff
and helping carve out a career within the wider group if so desired.
Without an active succession planning and talent management
strategy, we are vulnerable to business disruption from
the loss of key personnel.
The Group carries out succession planning and provides promotion
opportunities as well as operating both short-term and long-term
incentive plans to motivate and retain key individuals.
An ambitious growth strategy also means the skills and
capabilities of existing team members may not be suitable
as our businesses grow. Challenging the nature and breadth
of roles being undertaken by key people is critical for
ensuring the sustainability of our success.
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.
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
Any failure to respond quickly to legislative requirements
could result in civil or criminal liabilities, leading to fines,
penalties or restrictions being placed upon the Group’s
ability to trade, resulting in reduced sales and profitability
and reputational damage.
The Group has an in-house tax function to ensure compliance with tax
legislation globally, which consults with external advisers.
Furthermore, consideration of regulatory compliance is included in the
assurance programme led by the Internal Audit function.
Strategic risk
Reliance on key clients
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 impacted brand.
The Group’s strategy is to build a portfolio of brands which is diversified
across different communications markets and geographic regions. As
well as growing organically, the Group expands through acquisitions
which typically increases the diversification of the Group.
B
A relatively small number of clients contribute a significant
percentage of our consolidated revenues. Our top ten largest
clients accounted for ~22% of revenues this year. The
loss of a major client would create significant pressure if not
replaced by new accounts or an increase in business from
existing clients.
The Board regularly reviews the Group’s reliance on key customers
through top ten client analysis in the management accounts and
reviews of customers with revenues greater than $1m per annum.
18
Risk description
Mitigating actions
Change
in risk
Strategic risk continued
Failure to evolve service offering
The Group continues to innovate and invest to develop
market-leading offerings to our customers. However, the
speed of change and perceived opportunities in the industry
has meant more companies, including non-traditional
players, are developing their digital marketing capability
and thus shifting the competitive landscape.
There is a risk to our ongoing growth and market position
if we don’t respond to the pace of change and be at
the forefront of technological solutions to stay ahead of
the competition.
Remuneration and incentive schemes
The Group operates numerous earn-out mechanisms
and incentive schemes in order to attract and retain senior
talent across the Group. As we look to be flexible in how
we incentivise our talent these schemes can be complex.
This gives rise to a local risk of management override and
financial misreporting.
In addition, culturally, there is a risk that earn-outs will encourage
a ‘silo culture’ and discourage collaboration between the
brands, or that the incentive mechanisms encourage the wrong
behaviour or do not appropriately incentivise our key staff.
Acquisitions – Choice of acquisition targets and
delivery of expected growth
The Group’s growth strategy has always centred around
investing in talent and the acquisition of businesses which
broaden and enhance existing business operations. One
of the inherent risks of acquisitions is that the Group enters
unfamiliar markets/regions and works with new personnel,
who may not be sufficiently aligned with Group strategy.
The acquisition may therefore not generate the financial
or commercial benefit it was intended to.
Integration of new acquisitions, particularly when they are
being bolted onto an existing business, can be challenging
and time consuming. There is a risk that the integration
distracts the acquiring business, or capacity issues limits
the enhancement of synergies resulting in the growth
identified during due diligence remaining unrealised.
The Group follows a strategy of focusing acquisitions on technology-
driven marketing agencies. It also encourages all the brands to have
data and technology at the centre of their business.
C
The Group continues to diversify its service offering, both organically
and through acquisition, to provide world-class marketing, data and
analytics, creative consulting and innovative consulting services.
The Group has a defined framework from which all new incentive
schemes are developed. The framework creates standardisation and
sets a minimum expectation for all our leaders.
B
The Remuneration Committee reviews, challenges and approves all
incentive schemes across the Group. External advisers are used where
necessary to advise the Board and individuals on any new schemes.
The Board is very careful when selecting potential acquisition partners
and we spend a significant amount of time upfront to make sure the
individuals are a good fit for the Group.
B
Robust due diligence is performed prior to all acquisitions, with
representations, warranties and indemnities being obtained from
vendors where possible. The consideration paid for a business typically
includes a significant element of deferred consideration, contingent
upon future performance. Vendors are also encouraged to retain a
minority equity stake to ensure their retention within the Group.
Internal Audit works with newly acquired businesses to ensure that
they are integrated into the Group’s control environment.
19
Strategic report Principal risks and uncertainties continued
Risk description
Financial risk
Fraud and misreporting
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
and misreporting of financial information.
The risk of misappropriation and fraud is also increased
due to the siloed nature of the Next 15 operating model
and the level of influence founders can have within their
specific company environments.
Mitigating actions
Change
in risk
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.
B
The consolidation of the Group’s banking facility under HSBC gives
the Group greater control and visibility over its cash balances.
Currency risk
As a global business, currency fluctuations continue to
have a potential impact on the Group’s translated results.
The Group is listed in the UK with Sterling as its functional
currency but makes the majority of its profit outside of the UK.
As a result, the Group’s reported profits and asset values
are impacted by any fluctuation of Sterling relative to other
currencies, particularly the US Dollar. The Group may also
suffer restrictions on the ability to repatriate cash, particularly
for our operations in India and China.
Most of the Group’s revenue is matched by costs arising in the same
currency. Foreign exchange exposure is continually monitored, and
net investment hedges are used where appropriate for significant
foreign currency investments.
B
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.
Surplus cash balances are swept to the UK to minimise any exposure
to particular currencies or locations.
Emerging risk
Sustainable practices
It is a moral and commercial necessity that our business
ensures society and the environment is enriched, not
degraded by our operations, even more so in the context
of the current environmental crisis and societal inequality.
Without demonstrable action, there is risk that we will
struggle to retain and recruit talent, as well as retain and
win clients who are committed to sustainable business
practices and innovation.
The marketing sector has an important role to play in engaging and
influencing businesses to innovate and consumers to choose the
sustainable products they create.
C
We are actively developing a sustainability strategy which considers the
holistic impact of our operations. A number of actions are in progress
including (but not limited to): an assessment of our own environmental
footprint with a view to adopting climate metric reporting; a review
of our active client and supplier base; and standardisation of policies
and procedures.
Tim Dyson
Chief Executive Officer
20
Section 172(1) statement
The Directors are fully aware of their duty to promote the success of the Company for the benefit of its members as a whole in
accordance with section 172 of the Companies Act 2006, and in doing so to have regard to the matters set out in section 172(1) (a) – (f).
The Corporate Governance Report on pages 24 to 29 as well as the Chairman’s Corporate Governance Statement available at www.
next15.com set out how the Directors have engaged with the Group’s shareholders, employees and wider workforce, customers,
suppliers and wider communities and the environment. On page 27 we explain how the Board has set the Group’s culture to ensure
that decisions are taken in line with the Group’s values and objectives.
The principal long-term risks to the Group, including strategic risk, are set out on pages 17 to 20, and the mitigating actions explained
on those pages set out how the Directors consider those risks and the resulting actions taken.
The following examples demonstrate how the directors had regard to the respective elements of section 172 in discharging their duties:
The likely
consequences
of any decision
in the long term
The interests of
the Company’s
employees
The Board takes a long-term approach to developing its strategy taking into account for instance the impact of
technology, changes in customer behaviour and client needs. In implementing that strategy, the acquisition of
Palladium Group Limited for instance was a step towards the Board’s strategic objective of developing its innovation
consulting capability; Market Making Limited is a business with data and technology at its heart and the addition
of Nectar Communications LLC bolstered the Group’s Brand Marketing sector. Other relevant decisions during the
year include decisions in respect of the Group’s final and interim dividends, ongoing investment in the Group’s
cyber security infrastructure, the merger of its Text and Bite brands to create Archetype and the consolidation its
market research agencies under the Savanta brand.
Next 15 is all about people. Our success is fundamentally driven by the talent and effort of our workforce. We
recognise that the interaction between the Board and senior management of Next 15 and our brands is crucial to
maintaining the welfare of our people and ultimately our future success. Tim Dyson holds regular meetings with
the brand CEOs and, in turn, each CEO is encouraged to engage fully with their staff. During the year we have
worked on producing an employee handbook which will be launched in FY21 and we are continuing to evaluate
and improve our polices across the Group. The whole Board met with the Group’s senior leadership in October
2019, taking part in two days of workshops where the Board engaged in a dialogue with management around their
and their staff’s feedback. During the year the Board adopted a Diversity & Inclusion statement and a review of
each brand’s D&I policy.
The need to foster
the Company’s
business
relationships with
suppliers, customers
and others
Our business relies on good relationships. We are regularly briefed on key developments across our brands,
including on new and existing client relationships. Client due diligence is a key part of our acquisition process
when considering new acquisitions joining the Group, and results are made available to the Board when potential
acquisitions are considered. By their nature our businesses work in collaboration with their clients: we embed
teams within client organisations, use agile processes, and build businesses to better serve client needs based on
what they tell us. We have a zero-tolerance approach to practices which are at odds with our values and culture,
for example corruption, bribery and modern slavery. We are committed to acting ethically and with integrity in all
business dealings and relationships and to implementing and enforcing effective systems and controls to ensure
such practices are not taking place anywhere in our businesses or supply chain.
The impact of
the Company’s
operations on the
community and the
environment
This past year we have increased the focus on our impact on the environment and society as a whole throughout our
value chain. We are actively developing a sustainability strategy which considers the holistic impact of our operations.
A number of actions are in progress including (but not limited to): an assessment of our own environmental footprint
with a view to adopting climate metric reporting; a review of our active client and supplier base; and standardisation
of policies and procedures.
The desirability
of the Company
maintaining a
reputation for
high standards of
business conduct
The need to act
fairly as between
members of the
Company
We have a strong corporate culture based on entrepreneurial spirit and personal responsibility. Businesses within
the Group are given a high degree of autonomy in line with the Group’s emphasis on personal responsibility, with
the centre acting as enablers and teachers. However, the Board and its Committees set a high standard for ethical
behaviour and ensure the Group complies with applicable laws and regulation. During the year we undertook a
review of the Group’s policies including the Group’s whistleblowing policy which aims to ensure that all employees
can speak up if they have questions or concerns.
The Board recognises the critical importance of open dialogue and fair consideration of the Company’s members.
We communicate with our shareholders through our annual report and accounts, full-year and half-year results
announcements, trading updates, AGMs, face-to-face meetings and investor days. In early 2020 we engaged
directly with our institutional shareholders concerning the changes that we have made to our executive remuneration
structure. More information on our engagement with shareholders is set out on page 28.
21
Strategic report Richard Eyre CBE
Chairman
Tim Dyson
Chief Executive Officer
Peter Harris
Chief Financial Officer
Helen Hunter
Non-Executive Director
Penny Ladkin-Brand
Non-Executive Director
Nick Lee Morrison
General Counsel and
Company Secretary
22
Board of Directors and Company Secretary
Richard Eyre CBE
Chairman
Appointed May 2011
A
R
Tim Dyson
Chief Executive Officer
Appointed August 1988
Richard is Non-Executive Chairman and a member of the Audit
and Remuneration Committees.
Tim joined the Group in 1984 straight from Loughborough University
and became CEO in 1992.
He is also Chairman of the UK Internet Advertising Bureau and the
Media Trust.
Skills and experience
Richard has 44 years’ experience across the media and marketing
industries, including time as CEO of ITV Network LTD, CEO of Capital
Radio plc, and Content and Strategy Director of RTL Group plc. He has
served as Chairman of RDF Media plc, GCap plc, I Play, 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.
Peter Harris
Chief Financial Officer
Appointed March 2014
Peter joined Next 15 as its Chief Financial Officer in November 2013
and was appointed as Executive Director in March 2014.
Skills and experience
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. From July 2013 until December 2018, he was a
Non-Executive Director of Communisis plc and Chairman of its Audit
Committee. 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.
Penny Ladkin-Brand
R
Senior Independent Director
Appointed July 2017
A
Skills and experience
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 moved from London to set up
the Group’s first US business in 1995 in Seattle and is now based in
California. 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, Activate and The
Blueshirt Group in the US as well as Morar, Elvis, Velocity, Planning-inc
and Publitek in the UK.
Outside Next 15, Tim has served on advisory boards of a number of
emerging technology companies. Tim was named an Emerging Power
Player by PR Week US and subsequently in PR Week’s Power Book.
Tim was also recognised on the Holmes Report’s In2’s Innovator 25,
which recognises individuals who have contributed ideas that set the
bar for the industry.
A
Helen Hunter
Non-Executive Director
Appointed June 2019
R
As a Non-Executive Director of Next 15, Helen chairs the Remuneration
Committee and is a member of the Audit Committee.
Skills and experience
Helen is Chief Data and Analytics Officer at J Sainsbury plc where her
remit is to maximise the value of the Group’s data assets: democratising
access and finding creative ways to unlock its insight potential in
support of Sainsbury’s strategy. Over the last nine years at Sainsbury’s
in roles including Director of Innovation, Director of Marketing Strategy
& Innovation, and Director of Customer Data & Relationships, she
has developed products and propositions such as Sainsbury’s Brand
Match and digital Nectar. Helen is also currently a Governor of Lancing
College. Before joining Sainsbury’s, she held roles at emnos, Home
Retail Group, Woolworths Group, and Kingfisher.
Penny joined Next 15 as a Non-Executive Director and in April 2020,
she was also appointed as Senior Independent Director. Penny chairs
the Audit Committee and is a member of the Remuneration Committee.
Nick Lee Morrison
General Counsel and Company Secretary
Appointed January 2016
Skills and experience
Penny is also Chief Financial Officer at Future plc, a global platform
for specialist media. She was previously Commercial Director at
Auto Trader Group plc responsible for digital monetisation. Penny
brings considerable experience of digital disruption and transformation
to the Board. Penny qualified as a Chartered Accountant with PwC
before moving into corporate finance, gaining experience of M&A in
both public and private markets.
Nick spent seven years in private practice at global law firms working
with a wide range of technology, media and communications clients.
In 2013, Nick moved in-house at a global media brand, before joining
Next 15 as General Counsel and Company Secretary in 2016.
Chair of Committee
A Audit Committee
R Remuneration Committee
23
Corporate governance Statement of compliance
Next 15 has adopted the QCA Code and is compliant with all of
its principles. Disclosures required by the QCA Code have been
made both in this annual report and on our website.
The Board of Directors
The Board of Directors is responsible for the strategic direction,
investment decisions and effective control of the Group.
During the year ended 31 January 2020 the Board comprised
two Executive Directors, a Non-Executive Chairman and two
Non-Executive Directors.
Helen Hunter joined the Board on 26 June 2019 and brings
significant expertise as a leader in data management and customer
relationships making her a highly valuable addition to the Board.
Helen chairs the Remuneration Committee and serves on the
Audit Committee of the Board. Helen is Chief Data and Analytics
Officer of J Sainsbury plc.
Genevieve Shore stepped down from the Board in her position
as Senior Independent Director and Chair of the Remuneration
Committee on 26 June 2019, after four years of service. The Board
thanks Genevieve for her tremendous contribution. Next 15 has
benefited greatly from her wealth of experience, knowledge and
challenge and we wish her all the best in the future.
Biographies of each of the Board Directors, including the Committees
on which they serve and chair, are shown on page 23.
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. The Non-Executive Directors are considered to be
independent. No single Director is dominant in the decision-
making process.
The Board aims to convene once a 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 in person whenever possible and aims to do so
at least quarterly. Details of Board and Committee meetings held
during the financial year and the attendance records of individual
Directors can be found on page 27.
Corporate governance report
Chairman’s corporate governance statement
As Chairman I am responsible for leading the Board and for its
governance of the Group, in the determination of its strategy and
in achieving its objectives. I am responsible for organising the
business of the Board, ensuring its effectiveness and setting its
agenda, and for effective communication with our shareholders.
The Board recognises that effective governance and management
of risk are crucial to promoting the long-term success of our business
for the benefit of our shareholders and our other stakeholders. The
Board is responsible for ensuring that all aspects of our business
are conducted transparently, ethically and effectively in a way which
promotes a sustainable and successful future for the Company.
Accordingly, on behalf of the Board, I am pleased to introduce
our report on the arrangements which the Board has established
to ensure that, throughout the Group, the highest standards of
corporate governance are applied and maintained in a way which
is consistent with our values and fosters a corporate culture that
encourages growth.
In August 2018 the Board formally adopted the UK’s Quoted
Companies Alliance Corporate Governance Code (the ‘QCA Code’).
The Board has continued to monitor the application of the QCA
Code and believes that our compliance with the QCA Code enables
us not only to serve the interests of our investors, by maintaining
and enhancing long-term shareholder value, but also those of
our other stakeholders including, in particular, our talented and
dedicated colleagues. As an AIM listed company, the Company
is not required to comply with the UK Corporate Governance
Code 2016 (the ‘UK Code’); however, the Board supports the UK
Code and considers its application when appropriate given the
Group’s size and operations.
The Board seeks to promote the long-term success of the Company
for the benefit of our shareholders and stakeholders. As Chairman,
my role is to provide the leadership to enable the Board to do
so effectively.
I look forward to your support at our AGM.
Richard Eyre CBE
Chairman
22 April 2020
24
In addition the Board meets once a year to discuss the Group’s
strategy. This year, the Board participated in workshops with
representatives from the Group’s businesses focusing on the
future of the Group and how it could serve its stakeholders better.
Prior to their appointment, the Company informed each Director
of the nature of their role, their responsibilities and duties to the
Company, and the time commitment involved. On appointment
each Director confirmed that, taking into account all of their
other commitments, they were able to allocate sufficient time
to the Company to discharge their role effectively. The Board is
satisfied that the Chairman and the Non-Executive Directors each
devotes sufficient time to the Company and that there have been
no significant changes to their other commitments.
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, including that of individual
brands;
• the Group’s financial results for the interim and year end;
• Information Security Management System (‘ISMS’) arrangements
across the Group including cyber security;
• review of the Group’s risk management and internal controls;
• review of opportunities to expand by acquisition;
• post-integration monitoring of acquisitions; and
• corporate governance matters including QCA Code compliance,
GDPR and succession planning.
There is a schedule of matters specifically reserved for decision
by the Board which is regularly reviewed and available from the
Group’s website at www.next15.com.
At each Board meeting, the Chief Executive Officer provides a
business review and the Chief Financial Officer provides a financial
review. Board members receive monthly trading results, together
with detailed commentary. Each Director 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 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.
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 and offer themselves for
re-election at the first AGM following their appointment and that,
at each AGM of the Company one-third of the Directors in addition
to any new appointment must retire by rotation. Helen Hunter,
having been appointed since the last AGM, Richard Eyre and
Tim Dyson will offer themselves for re-election by the shareholders
at the forthcoming AGM.
With regard to the Directors who are offering themselves for re-
election at the next AGM, the Board was delighted to welcome
Helen Hunter to Next 15 during the year who brings with her
extensive data experience which complement the existing skills
and expertise of the Board. The Board is further satisfied that the
contributions of both Richard Eyre and Tim Dyson continue to be
effective and demonstrate sufficient time commitment to their
respective roles. The Board believes that each Director standing for
re-election is independent in character and judgement. The Board
therefore recommends that the Company and its shareholders
support the re-election of each of the Directors listed above. The
Board acknowledges that Richard Eyre will exceed nine years’
tenure on 12 May 2020 and consequently will seek re-election
annually consistent with the QCA Code. After consultation with
key investors, Richard will step down as Chairman of the Board
on 31 January 2021 and Penny Ladkin-Brand will chair the Board
with effect from that date. In the meantime, Penny Ladkin-Brand
has been appointed as Senior Independent Director. The Board
is considering succession arrangements with respect to the Chair
of its Audit Committee and will report on them during the year.
Biographical details of each Director standing for re-election can
be found on page 23 of this report.
The roles of the Chairman and Chief Executive
The Chairman of the Board, Richard Eyre CBE, 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 CBE was considered independent as defined by the UK
Code and in accordance with the principles of the QCA Code.
25
Corporate governance Corporate governance report continued
The roles of the Chairman and Chief Executive continued
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.
Senior Independent Director
Genevieve Shore held the position of Senior Independent Director
of the Company until she stepped down from the Board in June
2019. Genevieve was considered to be independent as defined
by the UK Code and in accordance with the principles of the QCA
Code. Penny Ladkin-Brand was appointed Senior Independent
Director of the Company on 2 April 2020 and is considered to be
independent as defined by the UK Code and in accordance with
the principles of the QCA Code. Any shareholder concerns not
resolved through the usual mechanisms for investor communication,
can be conveyed to the Senior Independent Director.
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. In order to allow Helen Hunter to settle into
her new role, the Board agreed that the next evaluation would
take place in the summer of 2020. It will also include a review of
the matters reserved for the Board and of the terms of reference
of its Committees. It is envisaged that, as the business continues
to develop, the Board’s governance practices will continue to
evolve. In this regard, the Board is open minded to change and
welcomes insight that may come from a number of different sources
including industry bodies, institutional investors, advisers and
emerging practice.
The Board agrees 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 outcomes from the Board’s evaluation processes help
inform these assessments and, in particular, can highlight where
gaps in Board skills or experience might exist or arise, either as
the business evolves and new skills are needed or as a result
of future vacancies.
The Board believes in the importance of diverse Board membership.
Our Board has 40% female representation which meets the
recommendation set out by Lord Davies, supported by the Hampton-
Alexander Review, for a minimum of 33% female representation
(applicable to FTSE 350 boards) by 2020. The Board considers
that gender is not the only diversity factor and is mindful of a
range of other factors when assessing the balance of the Board.
We set out our Group-wide approach to diversity and inclusion
in our Report of the Directors on page 43 and our Diversity and
Inclusion Policy is available on our website at www.next15.com.
In place of having a separate Nomination Committee, the Board as
a whole leads the Board recruitment and appointment processes.
It also has responsibility for reviewing the balance of the Board
to ensure that, collectively, the Board: has a good range of skills,
knowledge and experience; comprises diverse individuals who
can bring different perspectives to the Board’s discussions; has
oversight of senior management and Board succession plans;
and makes recommendations on matters such as Directors’
independence and commitment.
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 and Remuneration Committees.
The Board appoints the Committee members. The reports of
these Committees can be found on pages 30 and 32 respectively.
Each Committee has access to such external advice as it may
consider appropriate. The 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.
26
The Audit Committee comprises three Non-Executive Directors: Penny Ladkin-Brand (Chair), Richard Eyre and Helen Hunter. Peter Harris
also attends most meetings at the invitation of the Chair of the Audit Committee. Broadly, the Audit Committee is responsible for
reviewing financial reporting, the relationship with the External Auditor, internal controls, and oversight of the effectiveness of risk
and risk management systems.
The Remuneration Committee comprises three Non-Executive Directors: Helen Hunter (Chair), Penny Ladkin-Brand and Richard Eyre.
The Executive Directors also attend these Committee meetings at the invitation of the Chair of the Remuneration Committee, except
when discussing matters of their own remuneration. The Remuneration Committee is responsible for reviewing and approving executive
remuneration policies and practices, taking account of pay practices and policies across the Group’s workforce.
The Board dissolved the Nomination Committee in September 2018. As a result, nomination matters, such as Board recruitment and
the appointment process as described on page 26, have been dealt with by the Board as a whole.
Our corporate culture
We have a strong corporate culture based on entrepreneurial spirit, taking personal responsibility and treating all stakeholders fairly
and equitably. Businesses within the Group are given a high degree of autonomy in line with the Group’s emphasis on personal
responsibility, with the centre acting as enablers and teachers. However, the Board and its Committees set a high standard for ethical
behaviour and ensure the Group complies with applicable laws and regulation.
The Group determines that ethical values and behaviours are recognised and respected through:
• the emphasis on the ‘who’ before the ‘what’ during due diligence when the Group acquires new businesses;
• presentations by each business to the Board throughout the year focusing on all areas of their responsibility including people,
clients and sustainable growth;
• quarterly Executive Committee meetings with the CEO and senior management; and
• HR policies and practices, reviews and objective setting, and training within each business in the areas they require the most development.
Board and Committee attendance for the year ended 31 January 2020
Attendance records for the scheduled Board and Committee meetings held during the year are shown below. Further unscheduled
Board, Audit Committee and Remuneration Committee meetings were convened as required throughout the year. Additional
committees of the Board were also constituted to review and approve certain acquisitions, and regulatory news announcements.
Other members of the senior management and brand management teams, as well as advisers, attended Board and Committee
meetings by invitation as appropriate throughout the year.
Richard Eyre
Tim Dyson
Peter Harris
Penny Ladkin-Brand
Genevieve Shore1
Helen Hunter2
1 Genevieve Shore stepped down from the Board on 26 June 2019.
2 Helen Hunter joined the Board on 26 June 2019.
Board
Audit
Remuneration
10 of 10
10 of 10
10 of 10
10 of 10
5 of 10
5 of 10
3 of 3
9 of 9
—
—
3 of 3
1 of 3
2 of 3
—
—
9 of 9
6 of 9
3 of 9
27
Corporate governance Corporate governance report continued
Environmental and social impact
We believe business should be the engine of sustainable growth,
positively impacting people’s lives, as well as delivering economic
growth. As a marketing and communications business, we know
we have an important role to play in not only engaging businesses
and consumers to operate sustainably, we also seek to bring
about change in the behaviours of our employees, suppliers,
and communities.
Specific activities undertaken by our businesses include the following:
• fair and equitable employment practices including programmes
that encourage diversity;
• implementing and monitoring health and safety practices,
including employee mental health awareness initiatives and
wellbeing programmes;
• corporate matching of charity donations and fundraising activities;
• involvement in community activities and encouraging our
employees to give back through volunteering programmes;
• reducing wastage through reuse, recycling, and by using electronic
communications; and
• reducing business travel by replacing face-to-face meetings with
conference calls where practicable and offsetting flight emissions.
A number of additional actions are in progress including (but
not limited to):
• assessing our direct carbon footprint with a view to adopting
climate metric reporting;
• reviewing our active client and supplier base; and
• standardisation of policies and procedures.
Our shareholders
The Board recognises the importance of maintaining an effective
dialogue with its shareholders, to ensure that its strategy and
performance are clearly understood. We communicate with our
shareholders through our annual report and accounts, full-year
and half-year results announcements, trading updates, AGMs
and face-to-face meetings. A range of corporate information is
available from the Group’s website at www.next15.com (including
copies of presentations, announcements, historical annual reports,
historical notices of general meetings, AGM voting records, and
other governance-related materials for the last five years).
In early 2020, we engaged directly with our institutional shareholders
concerning the changes that we have made to our executive
remuneration structure. Further details of these changes are set
out in the Remuneration Report from page 32.
Ordinarily the Board would be available to take questions from
shareholders at the AGM. In accordance with current UK Government
measures, shareholders may not be able to attend the AGM
person. If the restrictions on public gatherings remain in place
and shareholders are unable to attend the AGM, in order to ensure
that shareholders have adequate access to the Board, we are
looking into other ways of ensuring that the Board is able to meet
shareholders and respond to their questions, including by way of
an interactive webcast. Details of this and any other changes to
the AGM arrangements will be published on the Group’s website.
We strongly encourage all shareholders to vote on all resolutions
by completing an online proxy appointment form in advance of
the meeting, appointing the chair of the meeting as your proxy.
Proxy votes will be counted at the meeting for each shareholder
resolution and are subsequently published on the Group’s website
at www.next15.com. In the event of a significant proportion of
votes ever being received against a particular resolution, the
Board would take steps to understand shareholder concerns
and consider what action they might want to take in response.
Shareholders are also encouraged to submit questions to the
Board throughout the year via the Company Secretary to cosec@
next15.com. More information concerning the arrangements for
the AGM can be found on page 44.
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. The Senior Independent
Director is also available in any circumstances where the usual
channels of investor communication have not resolved concerns.
Our employees and workers
We invest in people and Next 15’s people are at the heart of
everything we do. As a Group we focus on the ‘who’ before the
‘what’. We trust key talent to drive their businesses in the direction
they believe is best, provide them with the tools to make decisions
and share best practice, instead of the Group telling leaders what
is best. We encourage the businesses in the Group to collaborate
and build from good to great within their own businesses.
28
Risk
Our approach to risk management is set out on page 16, and the
principal risks to our business, and the actions we have taken to
mitigate them, are set out on pages 17 to 20.
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.
In light of the global health crisis around the outbreak of COVID-19,
the future performance of the Group is anticipated to be affected, but
it remains too early to assess the impact the unfolding situation will
have on trading for the year ahead. The Group has therefore carried
out additional specific sensitivity analysis on the assumptions used
in the cashflow forecast. The Board is satisfied, having considered
the sensitivity analysis, that the Group will continue to generate
sufficient cash to continue in operational existence and comply
with its covenant obligations for the foreseeable future.
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 1 to 21. The financial position of
the Group, its cash flows, liquidity position and borrowing facilities
are described in the Financial Review on pages 11 to 15.
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 45.
Our employees are key to the Group’s success and we rely on a
committed workforce to help us achieve our short-term and long-
term objectives. It is right that our employees share in the success
of Next 15. Accordingly, a number of incentive arrangements
operate across the Group to reward colleagues for the contribution
they are making, as a result of their efforts to grow the business,
towards generating the rewards which our investors enjoy. We are
always reviewing our incentives to ensure that they drive the right
behaviours within our businesses. In addition, the Group regularly
keeps employees apprised of the Group’s financial performance,
through a combination of meetings and collaborative communication.
Knowing what our people think and feel is key to our growth as a
Group. Our businesses monitor engagement and act on feedback
in a variety of different ways, including yearly engagement surveys,
pulse surveys, 360-degree appraisals and central reporting of HR
issues. We have worked to centralise data and reporting so we
can correlate people trends with other business metrics. These
trends and issues are reported to our Chief Executive Officer at
quarterly Executive Committee meetings of senior management.
We leverage the feedback to help develop a people strategy for
each business that creates a work environment, benefits package,
and policies that add to business culture and maintain compliance.
The Group 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.
Our customers
Client focus is critical to the success of each of our businesses.
By their nature our businesses work in collaboration with their
clients: we embed teams within client organisations, use agile
processes, and build businesses to better serve client needs
based on what they tell us.
Our suppliers
Because of the nature of our business, our long-term success as
a Group is not dependent on any one supplier; nevertheless, we
believe in treating our suppliers fairly, for example by ensuring that
we pay our suppliers promptly in accordance with the prevailing
terms of business.
The Group has a zero-tolerance approach to practices which
are at odds with our values and culture, for example corruption,
bribery and modern slavery. We are committed to acting ethically
and with integrity in all business dealings and relationships and
to implementing and enforcing effective systems and controls
to ensure such practices are not taking place anywhere in our
businesses or supply chain.
29
Corporate governance Audit Committee report
I am pleased to present the report of the Audit Committee (the
‘Committee’) for the year to 31 January 2020. The Audit Committee
plays a crucial role in helping the Board to fulfil its oversight obligation
by monitoring and reviewing the financial reporting process,
ensuring the integrity of the financial information provided to our
shareholders, overseeing the development and maintenance of
the Group’s risk management and internal control environment.
It is vital that we as a Committee assess how the internal control
environment and relevant processes and systems ensure that the
Next 15 Group is effective, robust and sustainable for the long
term whilst also maintaining the agility and entrepreneurial spirit
of the Group companies. This has been a key focus for the year
with a number of changes made in the internal audit function to
support this core objective.
Penny Ladkin-Brand
Audit Committee Chair
22 April 2020
30
Composition of the Audit Committee
The Committee is composed entirely of Non-Executive Directors
who between them possess a range of appropriate commercial
and financial experience. The current members of the Committee
are Penny Ladkin-Brand (Chair), Richard Eyre and Helen Hunter.
Detailed information on the experience, skills and qualifications of
all Committee members can be found on page 23. Although not
members of the Audit Committee Next 15’s CEO, CFO, General
Counsel & Company Secretary, Head of Internal Audit and other
senior members of the finance team are also invited to attend
meetings, unless they have a conflict of interest.
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, at least three times a year, and
the External Auditor, other Directors, the Head of Internal Audit
and other members of the management team attend by invitation.
Attendance records of meetings held during the year can be
found on page 27. 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 some Committee meetings to identify and discuss key areas
for consideration by the Committee. The Committee ensures that
regular meetings are scheduled to allow for the External Auditor
and Head of Internal Audit to discuss any concerns they may have
with the Committee in the absence of management.
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 re-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.
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 and in FY21 a new partner will look after the Next 15
audit following Deloitte’s partner rotation rules.
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 External Auditor.
The Group will be captured by the FRC Revised Ethical Standards
for periods commencing on or after 15 March 2020 and the Audit
Committee has confirmed no services were provided in this regard.
The Committee’s terms of reference will be subject to review in
2020. The current version is available from the Group’s website
at www.next15.com.
During the period a key focus of the Committee has been to
support the ongoing improvements to the Internal Audit function
led by the Head of Internal Audit in order to ensure robust controls
are maintained as the group gains additional scale. The Head of
Internal Audit has worked with the finance team to establish a
control framework expected of each Group company and bring
a systematic and disciplined approach to evaluate and improve
the effectiveness of the organisation’s risk management, control
and governance processes. The Committee received regular
reports and periodic presentations to keep them informed of
the developments and progress in elevating the seniority of the
function and increasing its independence.
Other 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;
• discussing the impact of upcoming changes to accounting
standards and legal, tax and regulatory requirements; and
• overseeing the relationship with the External Auditor, including
agreeing the external audit plan, reviewing the non-audit fees
policy and assessing their independence.
Following the year end, the Audit Committee has reviewed sensitivity
analysis of the potential impact of COVID-19 on the Group’s cash
flows and worked with management to understand the mitigating
actions which can be put in place.
31
Corporate governance Directors’ remuneration report
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 January 2020, my first
as Chair of the Remuneration Committee following my appointment
on 26 June 2019. The report explains the work of the Remuneration
Committee (the ‘Committee’) during the year, the basis for the
remuneration paid to Directors for FY20, the new remuneration
framework, and how we intend to implement the framework for FY21.
I am presenting this report to you during a time of unprecedented
market uncertainty and volatility, driven by COVID-19. Next 15
recognises the need to exercise restraint; and make sure executive
pay remains aligned with the experiences of its employees and
shareholders. As a result, both the Executive and Non-Executive
Directors have taken a pre-emptive 20% pay cut, effective 1 April
2020, to be reviewed in June 2020. The Committee has also
approved the delay to the grant and setting of performance targets
for FY21 long-term incentive awards until the impact of COVID-19
has become clearer, given any such targets set now, are likely
to be inappropriate.
The Committee is committed to making sure our remuneration
framework reflects best practice and to improving the transparency
of our disclosures. We have introduced an ‘At a glance’ section
which provides a snapshot of remuneration for the year and how
we intend to implement the framework for the year ahead.
32
Performance and pay for FY20
It has been another year of good progress for the Group with
adjusted EBITDA and adjusted profit before income tax both
increasing by over 10%.
The annual bonus was based on the achievement of operating
profit, cash conversion, organic revenue and operating profit
margin performance conditions. The formulaic outcome under
the bonus would have resulted in a bonus pay-out of 25% of
maximum. However, the Executive Directors felt that, despite the
good progress Next 15 has made during the year in terms of the
wider sector, taking into account the performance of the business
as a whole for FY20 and looking at the Company’s KPIs in the
round, it would be appropriate to waive their FY20 bonuses. The
Committee accepted the offer of the Executive Directors.
Based on performance over FY20, tranche three of the FY18 LTIP
award, tranche two of the FY19 LTIP award and tranche one of
the FY20 LTIP award are eligible to vest in FY21. The awards are
based 70% on an adjusted EPS performance metric and 30% on
strategic KPIs. Following an assessment of performance over the
year, 20.4% of each tranche will vest in FY21. Further details on
the performance against targets for both the bonus and LTIP can
be found later in this report.
Remuneration framework review
In light of the evolving corporate governance environment, and in
order to ensure the framework continues to support the business
strategy and appropriately incentivise our senior management team,
the Committee reviewed the remuneration framework during the
year. The conclusion of this review was that pay levels remained
appropriate and that no change to quantum was necessary, but
that a significant change to the structure of our Long-Term Incentive
Plan (‘LTIP’) was required.
The previous LTIP has split each award into a series of sequential
one-year performance periods, with holding periods of varying
lengths applied to each vested tranche. This approach had been
considered appropriate for our early stage of growth, although in
practice several awards with overlapping annual performance periods
has become complex. The new LTIP structure is a more market
standard LTIP which consists of a longer, three-year, performance
period for each award. Subject to the achievement of stretching
performance conditions, the award will vest and be released on
the third anniversary of grant. Our CEO and CFO are significant
shareholders and are well aligned to the long-term interests of
shareholders, so while executives will be encouraged to continue
to build and hold shares through the proceeds of the LTIP whilst
they are Directors, there will be no formal requirement to retain
LTIP awards after vesting or to retain shares after they have left
the business. The Committee believes the new LTIP will provide
a longer-term performance perspective, which better supports
the delivery of Next 15’s multi-year strategy.
Aside from the significant change to the LTIP, the Committee
considered recent investor and corporate governance best practice
and, as such, is taking the opportunity to enhance the clawback
and malus requirements and, of heightened importance at this time,
add a specific discretion for the Committee to override a formula
driven incentive outturn, to reflect broader performance factors.
Application of new remuneration framework for FY21
In addition to the 20% pay cut already taken by our CEO and
CFO, effective 1 April 2020 until June 2020, the Committee has
also delayed the annual pay review for our CEO and CFO until the
COVID-19 situation becomes clearer. Pension contributions will be
in line with policy at 10% of salary. Our US-based CEO additionally
receives a small US 401k pension plan.
The annual bonus will be unchanged from FY20. The maximum
opportunity for the Executive Directors is 60% of salary, payable in
cash. Performance will be measured equally against the following
performance metrics: adjusted operating profit, cash conversion
ratio, organic revenue growth and adjusted operating profit margin
but, again, the Committee has delayed the setting of such targets
until the COVID-19 situation becomes clearer.
Executive Directors will be entitled to grants equivalent to up to 100%
of salary under the new LTIP, with performance measured over a
three-year performance period from FY21 to FY23. The award will
be based 100% on stretching adjusted EPS performance targets.
I hope this report is clear and demonstrates the robust application of
our remuneration framework to ensure pay for performance at Next
15. Although we are an AIM listed company with no requirement for a
shareholder vote on Directors’ pay, in the spirit of full accountability,
this Remuneration Report will be subject to an advisory shareholder
vote at the 2020 AGM.
We look forward to continued dialogue with you, and your support
at the forthcoming AGM.
Helen Hunter
Remuneration Committee Chair
22 April 2020
33
Corporate governance Directors’ remuneration report continued
At a glance
How we performed in FY20
FY20 performance-related bonus
Adjusted
performance measure
Target range Performance Weighting Outcome
Operating profit
£42.5m–£46m
£40.9m
25%
0%
Organic
revenue growth
3–6%
Cash conversion ratio
90–100%
(2)%
102%
25%
25%
0%
25%
Operating profit
margin
Total
16.5–18.9%
16.4%
25%
0%
100%
25%
Maximum vs actual pay for FY20
£2,000k
£1,800k
£1,600k
£1,400k
£1.200k
£1,000k
£800k
£600k
£400k
£200k
£0
£1,799k
30%
24%
£959k
13%
46%
87%
Fixed pay
Performance-related bonus
LTIP
£802k
31%
24%
45%
£412k
14%
86%
Maximum
Actual FY20
Maximum
Actual FY20
Chief Executive Officer
Chief Financial Officer
LTIP tranches vesting in relation to FY20 performance
Tranche two of the FY18 and FY19 LTIP awards and tranche one of the FY20 LTIP award are eligible to vest in FY21, based on
performance over FY20.
The awards are based 70% on an adjusted EPS performance metric and 30% on strategic KPIs. Performance against targets and the
vesting outcomes are shown below:
Adjusted performance measure
Weighting
Target range
Performance
FY18
tranche 3
vesting
FY19
tranche 2
vesting
5% – 15%
5.1%
18.2%
18.2%
3% – 6%
16% – 19%
(2.0)%
16.4%
0%
2.2%
0%
2.2%
20.4%
20.4%
20.4%
FY20
tranche 1
vesting
18.2%
0%
2.2%
Earnings per share
KPIs
Organic revenue growth
Operating profit margin
Total
70%
30%
100%
How we will implement our remuneration framework for FY21
Time horizon
FY21
FY22
FY23
Implementation of remuneration framework for FY21
Voluntary three-month 20% salary reduction for Executive Directors commencing April 2020 in
recognition of the impact COVID-19 may have on salaries across the Group. FY21 salaries remain
under review and will be confirmed when the impact of COVID-19 has become clearer.
Tim Dyson, Chief Executive: $906,206
Peter Harris, Chief Financial Officer: £323,068
(Figures reflect FY20 salary. Directors have taken a temporary 20% reduction to this rate).
Directors are entitled to receive employer contributions of up to 10% of base salary to a Group
pension plan.
Maximum opportunity is 60% of salary, payable in cash.
Performance metrics as for FY20 with target levels under review to be confirmed when the impact
of COVID-19 has become clearer.
Long-term incentive grant of 100% of salary.
Performance will be measured over a single three-year period and targets remain under review and
will be confirmed when the impact of COVID-19 has become clearer.
Executive Directors must build and maintain a holding of shares in the Company of 200% of salary.
50% of the net of tax number shares vesting under the incentive arrangements must be retained
until guideline is met.
Element
Salary
Pension and
benefits
Annual bonus
Long-term
incentives
Shareholding
requirement
34
Remuneration framework
To ensure that the Group continues to grow, organically and inorganically, we must have the right remuneration framework in place.
In setting our remuneration framework the Committee considers:
• ensuring that there is a strong long-term alignment of interest between Executive Directors and our shareholders;
• the need to align the overall reward arrangements with the Group’s strategy, both in the short and long term;
• the need to attract, retain and motivate Executive Directors and senior management of the right calibre, ensuring an appropriate
mix between fixed and variable pay; and
• ensuring that there are coherent cascade pay and benefits arrangements elsewhere in the Group to support internal alignment
of interest and succession.
Executive Director remuneration framework
Element of
remuneration
Base salary
Key features
Purpose and link
to strategy
Maximum opportunity
Performance measures
Malus and clawback
Reflects external market
and geography and an
individual’s performance
and contribution.
Reviewed annually
normally in February.
Attracts and retains
the best talent with the
necessary expertise
to deliver the Group’s
strategy and to create
shareholder value.
No prescribed maximum.
Account will be taken
of increases applied to
employees as a whole
when determining
salary increases.
N/A
The Committee
considers the individual’s
performance and
contribution in the period
since the last review.
Committee discretion
to award increases when
it considers it appropriate,
including where base
salary at outset may have
been set at a relatively
low level, or where there
has been a substantial
change in responsibilities
of the role.
The value of benefits
is not capped as it is
determined by the cost
to the Company, which
may vary.
Provides market
competitive and
cost-effective benefits.
Provides reassurance
and risk mitigation, and
supports personal
health and wellbeing.
N/A
N/A
Provides market
equivalent retirement
benefits.
Maximum contribution,
currently 10% of base
salary.
N/A
N/A
In addition, Tim Dyson
is entitled to receive a
pension benefit under
a US 401k plan.
Allowances
and benefits
Pension
The Chief Executive
Officer is entitled to
a contribution to a
deferred benefit plan;
private health, dental
and vision insurance; life
assurance; professional
adviser fees paid on
his behalf; and car
allowance (lease and
associated fees) or
cash in lieu thereof.
The Chief Financial
Officer is entitled
to private medical
insurance.
The Committee may
determine that other
benefits may be added
where appropriate.
Directors are entitled
to receive employer
contributions to a Group
pension plan.
35
Corporate governance Directors’ remuneration report continued
Executive Director remuneration framework continued
Element of
remuneration
Shareholding
guidelines
Key features
Executive Directors are
expected to build and
maintain a holding of
shares in the Company
of 200% of base salary.
Purpose and link
to strategy
Increases alignment
between Executive
Directors and
shareholders and
shows a clear
commitment by all
Executive Directors
to creating value for
shareholders in the
longer term.
Maximum opportunity
Performance measures
Malus and clawback
N/A
Minimum shareholding
guidelines to be satisfied
within five years of
appointment of 200%
of salary for all Executive
Directors.
If any Executive Director
does not meet the
guideline they will be
expected to retain up
to 50% of the net of tax
number of shares vesting
under any of the Company’s
discretionary share
incentive arrangements
until the guideline is met.
Executive Directors shall
not dispose of shares
needed to meet their
minimum shareholding
requirement except as
approved by the
Committee.
The Committee may give
such approval in limited
circumstances such as
to comply with legal
obligations or to avoid
financial distress.
Non-Executive Director remuneration framework
Element of
remuneration
Fees
Key features
Purpose and link to strategy
Maximum opportunity
Performance measures
Cash fees, determined
by the Executive Directors,
reflecting the time
commitment required, the
responsibility of each role,
and the level of fees in
comparable companies.
Supports recruitment and retention
of Non-Executive Directors with
the necessary breadth of skills
and experience to advise and assist
with establishing and monitoring
the Group’s strategic objectives.
The aggregate Directors’
service fees (excluding salary
or other remuneration) is
limited to £300,000 under
the Company’s Articles.
No entitlement to compensation
for early termination.
Internal evaluation of the
Board’s and its Committees’
effectiveness takes place
periodically.
Policy on recruitment
In the case of hiring or appointing a new Executive Director, the Committee may make use of any or all of the existing components
of remuneration, as described above. The Committee will take into consideration all relevant factors (including quantum, nature of
remuneration and the jurisdiction from which the candidate operates) to ensure that the pay arrangements are in the best interests
of the Company and its shareholders. Awards forfeited from the previous employer may be bought out like-for-like with equivalent
bonus or LTIP awards over Next 15 shares.
Directors’ service contracts, policy on outside appointments and payments for loss of office
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.
Executive Directors
Tim Dyson
Peter Harris
Date of current service contract
Notice period
1 June 1997
6 months
25 March 2014
6 months
The Executive Directors are allowed to accept appointments and retain payments from sources outside the Group, provided such
appointments are approved by the Board.
Bonus and LTIP awards normally lapse if the Executive resigns. However, for a ‘good leaver’, part-year bonus may be payable, pro
rata, and the Executive’s unvested awards may also vest subject to the achievement of the performance conditions, usually pro rata,
for the proportion of the LTIP holding period employed.
36
Non-Executive Directors’ letters of appointment
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.
Date of current letter of appointment
Notice period
Non-Executive Directors
Richard Eyre
Penny Ladkin-Brand
Genevieve Shore
Helen Hunter
12 May 2017
21 July 2017
3 July 2017
26 June 2019
3 months
3 months
3 months
3 months
Composition of the Committee and advice received
The Committee comprises three Non-Executive Directors: Helen Hunter (Committee Chair from 26 June 2019), Richard Eyre and
Penny Ladkin-Brand. Genevieve Shore was Chair of the Committee until 26 June 2019 when she stepped down from the Board and
Helen Hunter was appointed. 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.
Following a tender process during the year, Korn Ferry was appointed as adviser to the Committee. Korn Ferry is a signatory to the
Remuneration Consultants’ Code of Conduct and has confirmed to the Committee that it adheres in all respects to the terms of the
Code. Fees paid to Korn Ferry during the period and to Pearl Meyer & Partners UK LLP, the Committee’s previous advisers, were £Nil
and £56,508 respectively. The Committee is satisfied that the advice it received from both advisers is objective and independent.
Consideration of shareholder and broader stakeholder views
Next 15 values the views of its investors and, as part of the remuneration framework review, undertook a shareholder consultation
with the Company’s major shareholders and the main shareholder advisory bodies in order to gather feedback.
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 are available
from the Group’s website at www.next15.com. The Committee had 9 scheduled meetings during the year and details of attendance
can be found in the Corporate Governance Report on page 27.
The principal matters considered by the Committee during the year included:
• reviewing the remuneration framework against the Group strategy and best practice corporate governance requirements;
• undertaking the annual review of remuneration for both Executive Directors;
• setting both financial and non-financial targets for the annual bonus plan FY20;
• reviewing and setting appropriate stretching performance targets for the FY20 LTIP awards;
• considering the remuneration arrangements of brand senior management;
• reviewing the extent to which performance conditions have been met for both the 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;
• considering the head office resource available to administer the Group’s equity incentive plans;
• closely reviewing changes to laws, regulations and guidelines or recommendations regarding remuneration, including in relation
to tax; and
• continuing to review the Group’s approach to gender pay, diversity and inclusion policies.
37
Corporate governance Directors’ remuneration report continued
Key activities of the Committee for the year ahead
The principal matters for consideration by the Committee for the year ahead will include:
• keeping the remuneration framework under review as the COVID-19 situation continues to unfold;
• setting appropriate performance targets, including a review of whether targets framed around adjusted EPS or TSR are more
appropriate for Next 15;
• consideration to the principles governing the Group’s brand equity schemes and any adjustments required;
• continuing to review the Group’s approach to gender pay, diversity and inclusion policies;
• monitoring and reviewing best practice corporate governance requirements, changes to laws, regulations and tax; and
• reviewing remuneration structures for staff below Executive Director level.
Directors’ remuneration for the 12-month period to 31 January 2020
Executive Directors
Tim Dyson
Peter Harris
Non-Executive Directors
Richard Eyre
Penny Ladkin-Brand
Genevieve Shore1
Helen Hunter2
Salary
and fees
2020
£’000
Performance-
related
bonus
2020
£’000
LTIP awards
£’000 3
Pension
contributions
2020
£’000
Other
benefits
2020
£’000
713
323
150
46
26
31
nil
nil
—
—
—
—
120
56
—
—
—
—
80
32
—
—
—
—
46
1
—
—
—
—
Total
2020
£’000
959
412
150
46
26
31
Total
2019
£’000 4
1,891
986
150
46
63
—
1 Genevieve Shore stepped down from the Board on 26 June 2019.
2 Helen Hunter joined the Board on 26 June 2019.
3
These figures comprise tranches of three LTIP awards which vest in relation to performance periods ending FY20, being those LTIP awards granted in May 2017, April 2018
and April 2019, valued using a share price of 503p, being the the average share price over the last quarter of the period.
Total remuneration for 2019 has been restated from the figures reported last year which did not reflect those tranches of LTIP awards vesting in relation to performance
periods ending FY19.
4
Performance-related bonus
The annual bonus opportunity for FY20 was 60% of salary for both Executive Directors. Performance was based on four, equally
weighted performance metrics. The formulaic outcome based on performance against targets would have resulted in a bonus pay-
out of 1.4% of maximum as set out in the table below. As set out in the Chair’s letter, the Executive Directors waived their bonuses
for FY20 taking into account the performance of the business as a whole for FY20 and the overall experience of shareholders.
Performance metric
Adjusted operating profit
Cash conversion ratio
Organic revenue growth
Operating profit margin
Total bonus (% of max)
Weighting
(% of max)
Target
range
Actual
performance
Pay-out
for element
(% of element)
25% £42.5m–£46m
£40.9m
25%
25%
25%
90–100%
3–6%
16.5–18.9%
102%
(2%)
16.4%
0%
25%
0%
0%
25%
The bonuses for year ended 31 January 2020 were £nil ($nil) for Tim Dyson and £nil for Peter Harris.
38
Long-Term Incentive Plan
Awards vesting by reference to performance periods ending 31 January 2020
The historic awards granted to the Executive Directors which vested by reference to performance periods ending on 31 January 2020
are summarised below:
FY18 LTIP grant (granted 2 May 2017)
Executive Director
Tim Dyson
Peter Harris
FY19 LTIP grant (granted 10 April 2018)
Executive Director
Tim Dyson
Peter Harris
FY20 LTIP grant (granted 28 April 2019)
Executive Director
Tim Dyson
Peter Harris
Number of
performance
shares in
tranche 3
65,039
30,147
Number of
performance
shares in
tranche 2
26,821
13,578
Number of
performance
shares in
tranche 1
25,664
11,769
Percentage
of award
vesting
Number of
shares vesting
from tranche 3
Gain on vesting
£’000
20.4%
20.4%
13,267
6,149
67
31
Percentage
of award
vesting
Number of
shares vesting
from tranche 2
Gain on vesting
£’000
20.4%
20.4%
5,471
2,770
27
14
Percentage of
award vesting
Number of
shares vesting
from tranche 1
Gain on vesting
£’000
20.4%
20.4%
5,231
2,401
26
12
Valued using a share price of 503p, being the average share price over the last quarter of the period.
The tranches are based 70% on adjusted EPS performance and 30% on KPIs. Performance against targets, and the vesting outcome,
are set out below:
Performance metric
Earnings per share growth
KPIs
Organic revenue growth
Operating profit margin
Vesting (% of max)
Weighting Threshold target Maximum target
70%
30%
5%
3%
16%
15%
6%
19%
Actual
performance
Vesting
(% of max)
5.1%
18.2%
(2.0)%
16.4%
0%
2.2%
20.4%
39
Corporate governance Directors’ remuneration report continued
Awards granted during FY20
The FY20 awards were granted to Executive Directors on 26 April 2019. The award covers a five-year period and is split into five equal
tranches, with each tranche measuring annual performance over the period. Each tranche of the award is based 70% on adjusted
EPS performance and 30% on a range of financial KPIs. Subject to performance against these conditions, 60% of the award will be
released following the end of FY22 and the remaining 40% following the end of FY24.
Executive Director
Tim Dyson
Number of performance shares
128,220
Peter Harris
58,847
Vesting criteria (for both Executive Directors)
Up to 70% of maximum award
Annual rate of increase in
earnings per share over relevant
financial year
Target
Less than 5%
5%
Between 5% and 15%
15% or more
Proportion of tranche vesting for that year
0%
17.5%
17.5%–70% (straight-line basis)
70% total award
Up to 30% of maximum award
KPIs
Organic net revenue growth 3% to 6%
Operating profit margin 16% to 19%
Vesting tranches (for both Executive Directors)
Financial year following which tranche vests
0%–15%
0%–15%
Maximum proportion of award available for
vesting (subject to performance)
FY20
FY21
FY22
FY23
FY24
20%
20%
20%
20%
20%
Holding periods (for both Executive Directors)
Financial year following which tranche vests
Released following
FY20, FY21 and FY22
FY23 and FY24
FY22
FY24
40
Directors’ interests in share plans for the year to 31 January 2020
As at 31 January 2020 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:
Executive Director
Tim Dyson
Peter Harris
Number of
performance
shares at
1 February 2019
Shares
lapsing during
the period
Shares
vesting during
the period
Shares
granted
during
the period
Number of
performance
shares at
31 January 2020
Grant date
End of
performance
period
Total gain
on vesting
£’000
225,000
13,050
211,950
162,597
134,105
—
225,000
75,367
67,889
—
3,903
1,609
—
13,050
1,809
814
—
61,136
25,212
—
—
—
—
17.10.2016
31.01.2019
97,558
02.05.2017
31.01.2022 1
107,284
10.04.2018
31.01.2023 2
—
128,220
128,220
26.04.2019
31.01.2024 3
211,950
28,338
12,763
—
—
—
—
17.10.2016
31.01.2019
45,220
02.05.2017
31.01.2022 1
54,311
10.04.2018
31.01.2023 2
—
58,847
58,847
26.04.2019
31.01.2024 3
1,102
318
131
—
1,102
147
66
—
1
2
3
As reported previously, the LTIP awards under the 2015 LTIP (granted from 2017) vest on a tranched basis over a total five-year period. Tranches representing a maximum of
40% of each total award will vest by reference to performance periods ending 31 January 2020.
Executive Directors will become unconditionally legally and beneficially entitled to up to 60% of the total awarded performance shares on the date on which vesting is
determined in relation to the performance period ending 31 January 2021 (expected April 2021), and up to the remaining 40% on the date on which vesting is determined in
relation to the performance period ending 31 January 2023 (expected April 2023).
Executive Directors will become unconditionally legally and beneficially entitled to up to 60% of the total awarded performance shares on the date on which vesting is
determined in relation to the performance period ending 31 January 2022 (expected April 2022). The Executive Directors will become unconditionally legal and beneficially
entitled to the remaining 40% of the award on the date on which vesting is determined in relation to the performance period ending 31 January 2024 (expected April 2024).
Directors’ interests in the shares of Next Fifteen Communications Group plc
The interests of the Directors in the share capital of the Company at 31 January 2019 and 31 January 2020 are as follows:
Executive Directors
Tim Dyson
Peter Harris
Non-Executive Directors
Richard Eyre
Penny Ladkin-Brand
Genevieve Shore
Helen Hunter
Ordinary Shares
LTIP performance shares
31 January
2019
(or date of
appointment
if later)
31 January
2020
(or date of
resignation
if earlier)
1 February
2019
(or date of
appointment
if later)
31 January
2020
(or date of
resignation
if earlier)
5,077,997
5,164,345 *
242,372
395,423 *
521,702
368,256
333,062
158,378
100,000
—
—
—
115,000
20,118
—
—
—
—
—
—
—
—
—
—
* Includes ordinary shares legally and beneficially owned and performance shares which have vested in relation to prior periods but not yet been released.
41
Corporate governance Directors’ remuneration report continued
Total shareholder return
The Company’s total shareholder return performance for the eight financial years to 31 January 2020 is shown on the graph below
compared with 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.
This graph shows the value on 31 January 2020 of £100 invested in the Company on 31 January 2012 compared with £100 invested
in the FTSE Media Index.
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
Next 15
FTSE Media
How the remuneration framework will be implemented for FY21
Salary
Executive Directors’ salaries will be reviewed once the impact of COVID-19 has become clearer, with any changes in line with
the average workforce increase for FY21. The Executive Directors’ salaries have been voluntarily reduced by 20% from 1 April 2020
to 30 June 2020 in light of the potential impact of COVID-19 on the Group’s wider workforce.
Executive Director
Tim Dyson
Peter Harris
Salary with
effect from
1 February 2019
Salary with
effect from
1 February 2020
$906,206
£323,068
$TBC *
£TBC *
Increase
TBC%
TBC%
* Figures reflect FY20 salary. Directors have taken a temporary 20% reduction to this rate.
Pension and benefits
Pension will remain capped at 10% of base salary for both Executive Directors. Tim Dyson is also entitled to a pension under a
US 401k pension plan.
Benefits will operate in line with FY20.
Annual bonus
The annual bonus opportunity will remain at 60% of salary for FY21, payable in cash. Performance will be measured against adjusted
operating profit, cash conversion ratio, organic revenue growth and adjusted operating profit margin with targets levels to be set
once the impact of COVID-19 has become clearer. The Committee considers the bonus targets to be commercially sensitive but
commits to full retrospective disclosure in next year’s Remuneration Report.
Long-term incentive
The Executive Directors will be granted LTIP awards of 100% of salary. Performance will be measured over a single three-year
performance period to 31 January 2023. The awards will vest based on the achievement of stretching performance targets which
will be set once the impact of COVID-19 has become clearer and disclosed when the awards are announced.
The Committee will have discretion to override the formulaic outcome of the incentives in certain circumstances. Clawback and
malus provisions will apply.
42
Report of the Directors
The Directors present their Annual Report together with the audited
financial statements of Next Fifteen Communications Group plc
(the ‘Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 January 2020.
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 this 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 56. As announced on
30 March 2020, the Directors have suspended the final dividend in
response to the COVID-19 crisis. This means that the total dividend
for the year ended 31 January 2020 was 2.5p (2019: 7.56p).
Directors
Details of Directors who served during the year and biographies
for Directors currently in office can be found on page 23.
Details of the Directors’ remuneration, share options, service
agreements and interests in the Company’s shares are provided
in the Directors’ Remuneration Report on pages 32 to 42.
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 under the indemnity or against the policy.
Acquisitions
The following is a summary of Group acquisitions made in the
year to 31 January 2020, more detailed disclosure of which can
be found in note 26 to the financial statements.
On 1 October 2019, Next 15 acquired Creston Plc US Holdings
Inc. and its subsidiary, Health Unlimited LLC (‘M Booth Health’), a
global health consultancy and communications agency. The initial
consideration for the acquisition was approximately $27.7m, which
was settled with $21.0m of cash and the issue of 979,970 new
ordinary shares in Next 15. The first deferred consideration that
becomes payable may be satisfied by cash or up to 25% in new
ordinary shares, at the option of Next 15. The second deferred
consideration that becomes payable will be payable in cash. The
total consideration level is subject to a cap of $45.0m.
On 26 November 2019, Next 15 purchased the entire share capital
of Nectar Communications LLC (‘Nectar’). The initial consideration
for the acquisition was approximately $2.8m settled in full in cash.
Further contingent consideration may be payable around April
2022 and April 2025 based on the EBITDA performance of Nectar
over the next five years.
Significant post-balance sheet events
In light of the outbreak of COVID-19, the Group considered whether
any adjustments are required to the reported results in the financial
statements. As at the balance sheet date of 31 January 2020,
there had been no global pandemic declared, and the outbreak
of COVID-19 was limited to China, where the Group has limited
operations. The subsequent macroeconomic downturn and extent
of global interventions were not apparent.
Subsequent to the balance sheet date, the World Health Organisation
declared a pandemic on 11 March and we have seen a significant
downturn in the global economic outlook. As a result, the Group
has concluded that the necessity for large scale interventions
and other information received was not indicative of conditions
that existed at the balance sheet date and therefore that the
consequences of such interventions represent non-adjusting post
balance sheet events. More information can be found at note 30
to the financial statements.
Likely future developments in the business of the Company
The Group’s priorities for 2021/22 are disclosed in the Strategic
Report on pages 1 to 21.
Research & Development
During the year many of our brands undertook R&D activities
as part of their work developing leading technological solutions
for their clients. Several of our market research agencies have
innovated to automate manually intensive research processes
by developing bespoke software designed to manage the huge
amount of data gathered daily by their clients.
Employees and workers
Our employees and workers are considered one of the Company’s
principal stakeholders as described in the Corporate Governance
Report on pages 24 to 29.
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.
Diversity and inclusion
The Group’s approach to diversity and inclusion is set out on our
website at www.next15.com. Our approach to Board diversity is
set out on page 26 of the Corporate Governance Report.
43
Corporate governance Report of the Directors continued
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.
Cyber security
In response to the growing global threat of third-party attempts
to exploit weaknesses across our IT Systems, the issue of Cyber
Security is now a standing item on the Board’s agenda. During the
year the IT and Cyber Security Team has continued to strengthen
the security maturity across the Group. In addition to implementing
standardised policies, processes and procedures, technical controls
and education tools have been added to reduce the risk to the
Groups businesses. These controls will continue to evolve as we
build further consistency around the tooling and processes across
the Group that support our security program.
Disclosure of information to the External Auditor
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 External Auditor is unaware; and
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 External
Auditor 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
It is our current intention to hold the Annual General Meeting (the
‘AGM’) of Next Fifteen Communications Group plc (the ‘Company’) at
our offices located at 75 Bermondsey Street, London SE1 3XF on 25
June 2020 at 1.00 p.m. Because of the evolving COVID-19 situation,
arrangements for the AGM may be subject to change, possibly at
short notice. Currently the measures that the UK Government has
put in place as a result of the COVID-19 pandemic, in particular
those restricting public gatherings of more than two people
and all but essential travel, mean that attendance at the AGM in
person will not be possible and shareholders or their appointed
proxies (other than the chair of the Annual General Meeting) will
not be permitted entry to the AGM. If these measures remain in
place, the Company will put in place arrangements such that the
legal requirements to hold the meeting can be satisfied and the
meeting will proceed with only such attendees, employees and
AGM support staff as are strictly required and will include only the
formal business set out in the Notice of Meeting. The Company is
exploring ways to engage shareholders if they are unable to attend
in person, including through an online interactive webcast. Details
of this and any changes to the AGM will be made available via
our website. We strongly encourage you to vote on all resolutions
by completing an online proxy appointment form in advance of
the meeting, appointing the chair of the meeting as your proxy.
The Notice of AGM and explanatory notes regarding the ordinary
and special business to be put to the meeting will be set out in a
separate circular to shareholders, which will be made available
on the Group’s website at www.next15.com and will be mailed to
shareholders who have requested a paper copy.
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 (2019: £Nil).
Charitable donations
During the year ended 31 January 2020, the Group donated
£56,857 to various charities (2019: £41,440).
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 on page 29.
External Auditor
The Board appointed Deloitte LLP to act as External Auditor for the
year ended 31 January 2020. A resolution to reappoint Deloitte LLP
as External Auditor of the Company and to authorise the Board to
fix their remuneration will be proposed at the forthcoming AGM.
Significant shareholdings
As at 31 March 2020 the Company had received the notifications
below of the following significant beneficial 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.
Octopus Investments
Liontrust Asset Management
Aviva Investors
Aberdeen Standard Investments
Tim Dyson
BlackRock
2020
Total
12,014,846
11,472,962
8,327,130
6,849,633
5,077,997
5,054,873
Canaccord Genuity Wealth Management
4,244,777
Herald Investment Management
Slater Investments
Bestinver Asset Management
3,841,419
3,289,152
3,222,169
%
13.88
13.24
9.61
7.91
5.86
5.84
4.98
4.44
3.80
3.72
Approved by the Board on 22 April 2020 and signed on its behalf by:
Nick Lee Morrison
General Counsel and Company Secretary
22 April 2020.
44
Directors’ responsibilities statement
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 FRS 101 ‘Reduced Disclosure Framework’ has
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 the Group financial statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are 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
• 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 position
and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 22 April 2020 and is signed on its behalf by:
Peter Harris
Chief Financial Officer
45
Corporate governance Independent auditors’ report
to the members of Next Fifteen Communications Group plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of Next Fifteen Communications Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) give
a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 January 2020 and of the group’s profit
for the year then ended;
• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (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 including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company balance sheets;
• the consolidated and parent company statements of changes in equity;
• the consolidated cash flow statement; and
• the related notes 1 to 30 and the parent company related notes 1 to 13.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
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, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• going concern;
• valuation of acquisition-related liabilities; and
• impairment of acquired goodwill;
• classification and presentation of adjusting items.
• valuation of acquired intangibles;
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements was £1.75m which was determined on the basis
of considering a number of different measures including adjusted profit before tax and revenue
46
3. Summary of our audit approach continued
Scoping
73.2% of Group revenue was subject to full audit scope and a further 10% was subject to specified audit
procedures performed by the Group auditor. 77.8% of Adjusted Profit before Tax is subject to full audit scope
and a further 5.2% was subject to specified audit procedures performed by the Group auditor.
Significant changes
in our approach
We identified a new key audit matter in the current year in respect of going concern, due to the outbreak of
COVID-19 subsequent to the balance sheet date. There are no other significant changes in our approach apart
from the change in key audit matter.
4. Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
• the directors’ use of the going concern basis of accounting in preparation of the financial
statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties
that may cast significant doubt about the group’s or the parent company’s ability to continue
to adopt the going concern basis of accounting for a period of at least twelve months from
the date when the financial statements are authorised for issue.
We have nothing to report in
respect of these matters but refer
you to the key audit matter below.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in
the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
5.1. Going concern
Key audit matter
description
The impact of the COVID-19 pandemic has led to significant uncertainty both in terms of the severity and
the duration of the macroeconomic impact. Economic uncertainty could adversely impact the ability of
the Group to continue trading.
The Directors are required to make a specific assessment of the entity’s ability to continue as a going
concern, which should include a comprehensive assessment of the impact of COVID-19 on the Group.
The Group has carried out additional specific sensitivity analysis on the revenue and cost assumptions
used in the cash flow forecast.
Under ISA 570, we have a responsibility to robustly assess the going concern risks relating to the COVID-19
threat, including evaluating whether there is adequate support for the assumptions underlying the Directors’
assessment and the consistency of these assumptions across the Group’s business activities.
For further details, see the financial reporting and going concern statement as set out in the Corporate
Governance report, as well as notes 1 and 30 to the financial statements.
47
Financial statements
Independent auditors’ report continued
to the members of Next Fifteen Communications Group plc
5. Key audit matters continued
5.1. Going concern
continued
How the scope of our
audit responded to
the key audit matter
In order to address this key audit matter, our audit work included:
• assessing the Group’s processes to review going concern in light of the impact of COVID-19, including
obtaining an understanding of the relevant controls;
• challenging the assumptions utilised in the cash flow forecasts with reference to historical trading
performance and benchmarking Management’s assumptions around COVID-19 to the latest available
external macroeconomic and industry data;
• reviewing and challenging the adequacy of Management’s sensitivity analysis in relation to key assumptions;
• applying further sensitivities to Management’s forecasts and considering the extent of change in the
underlying assumptions that either individually or collectively would be required for the Group to no
longer have the resources to continue as a going concern;
• assessing Management’s ability to execute mitigating actions, as required;
• recalculated the Group’s forecast covenant compliance calculations throughout the going concern
period, based on Management’s revised forecasts and sensitivities; and
• reviewing the disclosures around going concern and the impact of COVID-19 in the financial statements
to assess whether these are compliant with IAS 1.
Key observations
Based on the evidence received, we concluded that there is adequate support for the assumptions
underlying the Directors’ assessment of going concern and we consider Management’s assessment to
be robust and reflective of the latest available information at the date of this assessment.
We are satisfied that the adoption of the going concern basis of accounting is appropriate.
5.2. Impairment of acquired goodwill
Key audit matter
description
As at 31 January 2020 the Group had recognised goodwill of £101.8m (2019: £79.5m), with the significant
increase relating to acquisitions in the year.
Determining whether the carrying value of acquired goodwill is recoverable is a significant judgement
given the acquisitive business model of the Group, the number of cash generating units (‘CGUs’) within
the Group with material goodwill balances and the significant assumptions underpinning the Directors’
impairment assessment of brand CGUs.
In determining forecast growth and profitability assumptions within their impairment models, the Directors
considered the possible impact of Brexit on Brand performance across the Group, particularly for UK centric
Brands. Although there is not a clear consensus across commentators that Brexit will lead to an economic
decline, the Directors are continuing to use short and medium-term growth rates for UK Brands of 0.5%,
to model a prudent scenario of the impact of Brexit. This scenario would not result in an impairment and
the Directors have not recognised an impairment in the current year.
For further details, see notes 1, 2, 11 and 30 to the financial statements.
48
5. Key audit matters continued
5.2. Impairment of acquired goodwill
continued
How the scope of our
audit responded to
the key audit matter
In order to address this key audit matter, our audit work included:
• obtaining an understanding of the relevant controls around the impairment review process and the
budgeting process;
• performing a retrospective review of historical forecasting accuracy to obtain an understanding of likely
reliability of forecasts;
• assessing the relevance of growth rate and profitability assumptions based on our knowledge of individual
brands, in the context of Brexit;
• benchmarking the forecast growth and retention rates against other Group companies and available
industry data;
• involving valuation specialists to benchmark the discount rate as well as the key inputs used in the calculation;
• considering the appropriateness of CGUs and the changes in CGUs in the year;
• reviewing the disclosure in the financial statements to assess whether it is compliant with IAS 36 Impairment
of Assets; and
• performing sensitivity analyses of the significant assumptions to assess whether a reasonable change
would trigger an impairment which would require additional disclosure.
Key observations
Based on the evidence received, we concluded that the valuation of goodwill for the businesses above
and the disclosures under IAS 36 in the Group financial statements are appropriate.
The discount rate applied is within our acceptable range.
We are satisfied that the growth rates applied in the impairment model are appropriate in the context of
the wider uncertainty related to the UK economy and Brexit.
We are satisfied that the mechanics of the Group’s estimate and the application of the assumptions
comply with IAS 36.
5.3. Valuation of acquired intangibles
Key audit matter
description
The Group’s acquisitions in the year resulted in the recognition of £18.9m (2019: £24.0m) of intangibles
and £22.3m of goodwill. Acquired intangibles typically include brand names, customer lists, non-compete
agreements and intellectual property.
There is a risk that the identification and valuation of separately identifiable intangible assets are not in
accordance with IFRS 3 Business Combinations, or that the Directors use inappropriate assumptions
such as the discount rates and future cash flows of the acquired businesses in their valuation models,
leading to material errors in the valuation of goodwill and intangible assets. In the current year, the value
of customer lists and brand names recognised were material, in particular at M Booth Health.
For further details, see the Report of the Directors, the Financial Review and notes 1, 2, 11 and 26 to the
financial statements.
49
Financial statements
Independent auditors’ report continued
to the members of Next Fifteen Communications Group plc
5. Key audit matters continued
5.3. Valuation of acquired intangibles
continued
How the scope of our
audit responded to
the key audit matter
In order to address the key audit matter relating to the valuation of acquired intangibles our audit work included:
• obtaining an understanding of the relevant controls around identification and valuation of acquired intangibles;
• consideration of the appropriateness of management’s process for identifying and valuing acquired
intangibles;
• benchmarking the royalty rate for M Booth Health and Nectar, against independent, comparable
royalty rates;
• benchmarking the Useful Economic Life (“UEL”) of acquired intangibles against industry peers;
• involving our valuation specialists to benchmark the WACC and consider the appropriateness of
adjustments made in determination of the discount rate;
• challenging management on the key judgements applied in their valuation models;
• reviewing consistency in judgements used in respect of acquisition accounting with those taken
elsewhere (e g forecasts); and
• reviewing the estimated contingent consideration arising on acquisition.
Key observations
Based on the evidence received, we concluded that the Group’s valuation models applied to identify
and value the separately identifiable intangible assets are appropriate and consistent with prior periods.
The discount rate applied is within our acceptable range.
5.4. Valuation of acquisition-related liabilities
Key audit matter
description
As at 31 January 2020, the Group had £48.3m of acquisition-related liabilities (2019: £31.1m) which consist
mainly of contingent consideration payable based on a share of the average profit of the businesses acquired.
The value of these liabilities can be highly judgemental as they are based on forecast future performance of
specific brands, whilst they are also sensitive to changes in exchange rates and the discount rate applied.
A change in estimate of a brand can result in a material charge to the income statement, which goes
through either finance expense or finance income. There is a risk that these liabilities are inappropriately
valued if they are based on inappropriate forecast and discount rate assumptions.
For further details, see and notes 1, 2 and 17 to the financial statements.
How the scope of our
audit responded to
the key audit matter
In order to address the key audit matter relating to the valuation of acquisition-related liabilities included:
• obtaining an understanding of the relevant controls over the valuation of acquisition-related liabilities process;
• performing sensitivity analysis on the forecast assumptions;
• challenging revenue growth and profit margin assumptions by considering historical accuracy of
budgeting and benchmark data;
• challenging of forecasting estimates to determine whether changes in estimate are based on information
obtained post acquisition;
• involving our valuation specialists to benchmark the discount rate applied of 11.2% and verifying the
mechanical accuracy of the calculations; and
• agreeing settlements in the year and post year end to the bank statements or other documentation.
50
5. Key audit matters continued
5.4. Valuation of acquisition-related liabilities
continued
Key observations
Based on the evidence received, we concluded that the Directors’ judgements regarding future performance
of the brands with acquisition-related liabilities to be appropriate.
The discount rate applied is within our acceptable range.
5.5. Classification and presentation of Adjusting items
Key audit matter
description
The Group present a number of Adjusted Performance Measures including Adjusted Operating Profit,
Adjusted EBITDA, Adjusted Profit Before Tax and Adjusted Earnings per Share. Profit Before Tax for the
year was £5.6m (2019: £18.8m) compared to Adjusted Profit Before Tax of £40.2m (2019: £36.0m).
The Group receive certain income and incur certain costs that Management believe should be presented
separately in order to aid the users understanding of financial performance.
Judgement is required when determining the accounting policy for Adjusting items and subsequently
when determining the classification of Adjusting items in accordance with that policy. While there is no
definition of Adjusting items within IFRS, this is an area of focus for regulators and there is a risk that
items may be classified as Adjusting items which are underlying or recurring items and may distort the
reported Adjusted profit.
The key audit matter is focused on whether the following Adjusting items in particular are appropriate
and whether they are adequately disclosed by the Group in the financial statements:
Amortisation of acquired intangibles (debit of £12.1m (2019: £9.0m)): In line with its peer group, the Group
classifies amortisation on acquired intangibles as an adjusting item. Judgement is applied in the allocation
of the purchase price between intangibles and goodwill, and in determining the useful economic lives
of the acquired intangibles. The judgements made by the Group are inevitably different to those made
by their peers and as such amortisation of acquired intangibles been added back to aid comparability.
Restructuring costs (debit of £4.6m (2019: £4.4m)): For these to be classified as Adjusting items, they
should relate to clearly identifiable initiatives and should not recur year on year or for an undefined period.
Growth share schemes (debit of £0.4m (2019: £1.3m)): Share-based payments are a cost of acquiring a
business and relieve companies of an alternative cash expense. The Directors have however excluded
growth share scheme charges from Adjusted metrics as the legal form of the Group’s scheme means
that while the mechanism is aimed at incentivising management performance over a period of time, the
full charge is booked at the grant date as there is no vesting period.
Employment-linked consideration on acquisitions (debit of £5.0m (2019: £0.8m)): Employment-linked
earnout payments are built up through the income statement over the employment term. Management
have excluded the associated charge from Adjusted metrics on the basis that the expense relates to the
cost of acquiring those businesses, rather than reflecting the underlying business performance.
For further details, see the Financial Review and notes 1, 2 and 5 to the financial statements.
51
Financial statements
Independent auditors’ report continued
to the members of Next Fifteen Communications Group plc
5. Key audit matters continued
5.5. Classification and presentation of Adjusting items
continued
How the scope of our
audit responded to
the key audit matter
In order to address the key audit matter relating to the classification and presentation of Adjusting items,
our audit work included:
• obtaining an understanding of the relevant controls over the financial reporting process;
• understanding the rationale for classifying balances as Adjusting items, considering whether this is
reasonable, in line with the Group’s accounting policy and whether there is a consistent treatment of
items that increase and decrease the Adjusted profit measure;
• challenging whether any other items of income or expense ought to be included in or excluded from
Adjusting items by considering the nature of the item against the standard;
• considering whether the classification of Adjusting items is consistent with industry peers;
• evaluating whether the Group’s policy to exclude each cost from Adjusted is appropriate in light of IFRS
requirements, ESMA (European Securities and Markets Authority) and FRC guidance; and
• assessing whether the disclosures within the financial statements adequately explain the nature of
these items and how adjusted results are reconciled to statutory results.
Key observations
Based on the evidence received, we concur with the Directors’ assertion that the Adjusting items are
in line with the Group’s accounting policies as disclosed in notes 1, 2 and 5 to the financial statements
and that the classification of items of expense and income as Adjusting items is consistent between the
periods presented.
We note that some of the Adjusting items excluded by the Group are recurring items but are satisfied that
these items are sufficiently explained and reconciled in the financial statements.
6. Our application of materiality
6. 1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit
work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£1.75m (2019: £1.73m)
£1.58m (2019: £1.55m)
Basis for determining
materiality
Materiality has been determined on the basis of considering a
number of different measures including adjusted profit before
tax and revenue.
Parent company materiality represents 1.1%
(2019: 1.4%) of net assets of £145.6m (2019:
£127.6m).
Rationale for the
benchmark applied
This is consistent with the prior year.
We considered a number of relevant benchmarks in our
determination of materiality. Adjusted profit before income
tax is a significant metric used in reporting the results for Next
Fifteen Communications plc as this is the key performance
indicator for the users of the financial statements of the Group.
In addition, we incorporated revenue and net revenue as
additional benchmark as it reflects the growth of the Group.
Therefore materiality represents approximately 4.4% (2019:
4.8%) of adjusted profit before income tax and 0.6% (2019:
0.6%) of revenue.
52
The Parent company is a holding company,
and net assets is indicative of the company’s
ability to support its subsidiaries.
6. Our application of materiality continued
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at
65% of group materiality for the 2020 audit (2019: 65%). In determining performance materiality, we considered the quality of the
control environment and that it was not appropriate to rely on controls over a number of business processes, as well as the relatively
low number of misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.09m (2019: £0.08m),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
In selecting the components that are in scope each year, we obtained an understanding of the Group and its environment, including
an understanding of the Group’s system of internal controls, and assessing the risks of material misstatement at the Group level. The
components were also selected to provide an appropriate basis on which to undertake audit work to address the identified risks of material
misstatement. Audit work to respond to the risks of material misstatement was performed directly by the group audit engagement team.
Such audit work represents a combination of procedures, all of which are designed to target the Group’s identified risks of material
misstatement in the most effective manner possible. Based on our assessment, we focused our audit work on 25 components,
18 of which were subject to full audit scope and 7 were subject to specified audit procedures. Our procedures on full audit scope
components provided coverage of 73.2% of the Group’s consolidated revenue and 77.8% of the Group’s Adjusted Profit Before Tax.
Our procedures on specified audit procedures components provided coverage of a further 10.0% of Revenue and 5.2% of Adjusted
Profit Before Tax.
Our audit work at the components, excluding the parent company, is executed at levels of materiality appropriate for such components,
which in all instances are capped at 50% of Group materiality.
For all remaining components, we have performed centralised analytical procedures at component materiality.
The range of component materialities we have used are from £136,000 to £621,000 (2019: (£105,000 to £765,000).
8. Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
We have nothing to report
in respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
9. Responsibilities of directors
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, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
53
Financial statements Independent auditors’ report continued
to the members of Next Fifteen Communications Group plc
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
11. Opinions on other matters prescribed by the Companies Act 2006Auditor’s responsibilities for the audit of the
financial statements
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 group and the parent company and their environment obtained in the course
of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
12. Matters on which we are required to report by exception
12.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
We have nothing to report
in respect of these matters.
• 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.
12.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made.
We have nothing to report
in respect of this matter.
13. Use of our report
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.
Andrew Evans (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
United Kingdom
22 April 2020
54
Consolidated income statement
for the year ended 31 January 2020 and the year ended 31 January 2019
Billings
Revenue
Direct costs
Net revenue
Staff costs
Depreciation
Amortisation
Other operating charges
Total operating charges
Operating profit
Finance expense
Finance income
Net finance expense
Share of profit 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)
Year ended
31 January
2019
£’000
291,037
272,413
(48,320)
224,093
Year ended
31 January
2020
£’000
325,353
300,711
(52,242)
248,469
Year ended
31 January
2020
£’000
171,180
13,196
13,211
31,469
Year ended
31 January
2019
£’000
153,247
4,199
9,624
36,346
(229,056)
(203,416)
19,413
(16,672)
2,611
(14,061)
204
5,556
(2,717)
2,839
2,262
577
2,839
2.7
2.5
20,677
(6,584)
4,667
(1,917)
65
18,825
(4,299)
14,526
13,887
639
14,526
17.5
16.3
Note
2
3
4,12,16
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.
55
Financial statements Consolidated statement of comprehensive income
for the year ended 31 January 2020 and the year ended 31 January 2019
Profit for the year
Other comprehensive (expense)/income:
Items that will not be reclassified subsequently to profit or loss:
Note
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
2,839
14,526
Fair value loss on investments in equity instruments designated as FVTOCI
(562)
(682)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations
Loss arising on hedging instruments designated in hedges of the net assets in foreign operation
19
Total other comprehensive (expense)/income for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Parent
Non-controlling interests
(136)
(411)
(1,109)
1,730
1,153
577
1,730
2,886
(700)
1,504
16,030
15,391
639
16,030
The accompanying notes are an integral part of this Consolidated Statement of Comprehensive Income.
All results relate to continuing operations.
56
Consolidated balance sheet
as at 31 January 2020 and 31 January 2019
Assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in equity-accounted associate
Investments in financial assets
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
Lease liabilities
Other payables
Provisions
Deferred consideration
Contingent consideration
Share purchase obligation
Total non-current liabilities
Loans and borrowings
Trade and other payables
Lease liabilities
Provisions
Corporation tax liability
Deferred consideration
Contingent consideration
Share purchase obligation
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
16
11
18
13,19
13,19
19
19
18
16
14,19
15,19
17,19
17,19
17,19
19
14,19
16
15,19
17,19
17,19
17,19
20
24
The accompanying notes are an integral part of this Consolidated Balance Sheet.
These financial statements were approved and authorised by the Board on 22 April 2020.
Peter Harris
Chief Financial Officer
Company number 01579589
31 January
2020
£’000
31 January
2020
£’000
31 January
2019
£’000
31 January
2019
£’000
14,224
41,655
155,408
232
1,075
10,967
809
70,260
28,661
734
33,007
3,538
43,023
16
4,942
—
26,815
2,098
5,000
59,620
11,210
1,522
1,173
2,715
15,366
1,269
2,163
76,019
(2,673)
7,561
608
29,618
224,370
99,655
324,025
155,028
87,423
242,451
15,870
—
126,149
98
1,587
10,521
803
66,123
20,501
799
20,678
4,503
—
4,622
1,825
2,464
20,147
128
(113,439)
(54,367)
5,000
60,173
—
1,118
1,985
2,182
4,565
1,608
2,089
62,993
(2,673)
7,697
1,019
41,404
(97,875)
(211,314)
112,711
113,296
(585)
112,711
(76,631)
(130,998)
111,453
112,529
(1,076)
111,453
57
Financial statements Consolidated statement of changes in equity
for the year ended 31 January 2020 and the year ended 31 January 2019
Share
capital
£’000
Share
premium
reserve
£’000
Share
purchase
reserve
£’000
Note
Foreign
currency
translation
reserve
£’000
Other
reserves ¹
£’000
Retained
earnings
£’000
Equity
attributable
to owners of
the Parent
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
At 31 January 2019
as previously stated
Change in accounting policy
(IFRS 16)²
Deferred tax on accounting
policy change (IFRS 16)²
At 1 February 2019
Profit for the year
Other comprehensive
expense for the year
Total comprehensive
(expense)/income for the year
Shares issued on
satisfaction of vested
performance shares
20
Shares issued on acquisitions
20,26
8
9
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
Non-controlling dividend
2,089
62,993
(2,673)
7,697
1,019
41,404
112,529
(1,076)
111,453
—
—
—
—
—
—
—
—
—
—
(1,794)
(1,794)
400
400
—
—
(1,794)
400
2,089
62,993
(2,673)
7,697
1,019
40,010
111,135
(1,076)
110,059
—
—
—
—
—
—
38
36
5,388
7,638
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,262
2,262
577
2,839
(136)
(411)
(562)
(1,109)
—
(1,109)
(136)
(411)
1,700
1,513
577
1,730
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15)
15
—
—
(5,426)
—
—
7,674
600
600
167
167
(6,759)
(6,759)
—
—
(674)
—
(15)
15
(674)
—
—
—
—
—
—
—
—
674
(760)
—
7,674
600
167
(6,759)
(15)
15
—
(760)
At 31 January 2020
2,163
76,019
(2,673)
7,561
608
29,618
113,296
(585)
112,711
1 Other reserves include the ESOP reserve, the treasury reserve, the merger reserve and the hedging reserve; see note 24.
2 Refer to note 1 for the restatement required following adoption of IFRS 16.
58
Share
capital
£’000
Share
premium
reserve
£’000
Share
purchase
reserve
£’000
Note
Foreign
currency
translation
reserve
£’000
Other
reserves ¹
£’000
Retained
earnings
£’000
Equity
attributable
to owners of
the Parent
£’000
Non-
controlling
interests
£’000
Total
equity
£’000
1,892
28,611
(2,673)
4,811
1,719
42,604
76,964
(643)
76,321
—
—
—
—
—
48
48
—
48
1,892
28,611
(2,673)
4,811
1,719
42,652
77,012
(643)
76,369
—
—
—
—
—
—
20
68
10,593
20,26
20
24
105
4,433
19,356
8
9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,887
13,887
639
14,526
—
2,886
(700)
(682)
1,504
—
1,504
—
2,886
(700)
13,205
15,391
639
16,030
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12)
12
—
—
—
(10,697)
(36)
4,457
19,461
—
—
—
—
—
—
(36)
4,457
19,461
—
(515)
(515)
2,510
2,510
203
203
(5,243)
(5,243)
—
—
(12)
12
—
—
—
—
—
(1,226)
(1,226)
1,226
2,510
203
(5,243)
(12)
12
—
—
—
—
—
(383)
(383)
(1,400)
(1,400)
At 31 January 2018
as previously stated
Change in accounting
policy (IFRS 9)
At 1 February 2018
as restated
Profit for the year
Other comprehensive
income/(expense) for
the year
Total comprehensive
income/(expense) for
the year
Shares issued on
satisfaction of vested
performance shares
Shares issued on
acquisitions
Shares issued on placing
Obligation to purchase
non-controlling interest
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
Non-controlling interest
purchased in the period
Non-controlling dividend
At 31 January 2019
2,089
62,993
(2,673)
7,697
1,019
41,404
112,529
(1,076)
111,453
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.
59
Financial statements Consolidated statement of cash flow
for the year ended 31 January 2020 and the year ended 31 January 2019
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation
Right-of-use depreciation
Amortisation
Finance expense
Finance income
Share of profit from equity-accounted associate
Loss on sale of property, plant and equipment
Loss on exit of finance lease
Income tax expense
Share-based payment charge
Note
4,12
16
4,11
6
7
4
4
8
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 inflow from operating activities
Cash flows from investing activities
Acquisition of subsidiaries trade and assets, net of cash acquired
26
Payment of contingent consideration
Purchases of equity instruments designated at FVTOCI
Acquisition of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of subsidiary
Acquisition of intangible assets
Net movement in long-term cash deposits
Income from finance lease receivables
Interest received
Net cash outflow from investing activities
Net cash inflow/(outflow) from operating and investing activities
7
Year ended
31 January
2020
£’000
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
Year ended
31 January
2019
£’000
2,839
4,505
8,691
13,211
16,672
(2,611)
(204)
1,360
14
2,717
600
1,971
(1,950)
1,686
(18,501)
(5,622)
(50)
(3,460)
23
466
(1,831)
(24)
547
112
14,526
4,199
—
9,624
6,584
(4,667)
(65)
202
—
4,299
2,510
47,794
37,212
1,707
49,501
(5,993)
43,508
1,170
38,382
(6,237)
32,145
(8,013)
7,629
1,554
(19,281)
(9,265)
(1,008)
(5,648)
71
—
(2,384)
132
—
229
(28,340)
15,168
(37,154)
(5,009)
60
Net cash inflow/(outflow) from operating and investing activities
Cash flows from financing activities
Proceeds on issue of share capital
Issue costs on issue of Ordinary Shares
Repayment of lease liabilities
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 (outflow)/inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Exchange (loss)/gain on cash held
Cash and cash equivalents at end of the year
Year ended
31 January
2020
£’000
Note
Year ended
31 January
2020
£’000
15,168
Year ended
31 January
2019
£’000
Year ended
31 January
2019
£’000
(5,009)
—
—
(11,367)
27,045
(14,006)
(979)
(760)
(6,759)
6
9
9
19
20,000
(539)
(5)
39,096
(50,018)
(1,246)
(1,400)
(5,243)
(6,826)
8,342
20,501
(182)
28,661
645
(4,364)
24,283
582
20,501
The accompanying notes are an integral part of this Consolidated Statement of Cash Flow.
61
Financial statements Notes to the accounts
for the year ended 31 January 2020
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 corporate governance report)
and on a 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
Impact of initial application of IFRS 16 ‘Leases’
In the current year, the Group has applied IFRS 16 ‘Leases’ which is effective for annual periods beginning on or after 1 January
2019. IFRS 16 requires lessees to account for all leases on balance sheet, recognising a right-of-use asset and a lease liability at
the lease commencement date, except for short-term leases and leases of low-value assets. The Group has adopted IFRS 16 using
the modified retrospective approach therefore comparative information has not been restated and the Group has recognised the
cumulative effect of adopting IFRS 16 as an adjustment to equity at the start of the current period. The comparative information
continues to be reported under IAS 17.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are
leases. It applied IFRS 16 only to transactions that were previously identified as leases. Therefore, the definition of a lease under IFRS
16 was only applied to contracts entered into or changed from 1 February 2019.
As a lessee the Group previously classified leases as operating or finance leases based on its assessment of whether the lease
transferred substantially all the risks and rewards of the ownership of the asset to the Group. Under IFRS 16 the Group recognised
a right-of-use asset and lease liability i.e. all leases are recognised on balance sheet, except for short-term leases and leases of
low-value assets.
At transition, the lease liabilities were measured at the present value of the remaining lease payments using the the lessee's
incremental borrowing rate as at 1 February 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 February 2019 was 3%. The right-of-use assets are measured at their carrying amount as if IFRS 16 had been applied
since the commencement date, discounted using the lessee’s borrowing rate at the 1 February 2019. The Group used the following
practical expedients when applying IFRS 16:
• adjusted the right-of-use assets for any onerous lease provisions immediately before the date of initial application rather than
perform an impairment review;
• applied the exemption not to recognise a right-of-use asset or lease liability for leases of low value or with lease terms with less
than 12 months remaining at 1 February 2019; and
• excluded initial direct costs from measuring the right-of-use asset at the date of initial application.
On transition to IFRS 16 the Group recognised an additional £44.4m of right-of-use assets and £55.2m of lease liabilities, with a reduction
in other creditors and provisions with regard to amounts relating to property leases, which are now recognised in the right-of-use
asset. These movements resulted in a decrease to retained earnings of £1.8m and the recognition of a deferred tax asset of £0.4m.
62
1 Accounting policies continued
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 has 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.
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.
E. Revenue and other income
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 comprises commission and fees earned and is recognised when a performance obligation is satisfied, in accordance with the
terms of the contractual agreement. Typically, performance obligations are satisfied over time as services are rendered. Payment terms
across the Group vary, but the Group is generally paid in arrears for its services and payment is typically due between 60 and 90 days.
Revenue recognised over time is based on the proportion of the level of service performed. Either an input method or an output
method, depending on the particular arrangement, is used to measure progress for each performance obligation. In the majority of
cases, relevant output measures such as the completion of project milestones set out in the contract are used to assess proportional
performance. Where this is not the case then an input method based on costs incurred to date is used to measure performance. The
primary input of substantially all work performed is represented by labour. As a result of the relationship between labour and cost
there is normally a direct correlation between costs incurred and the proportion of the contract performed to date.
63
Financial statements Notes to the accounts continued
for the year ended 31 January 2020
1 Accounting policies continued
E. Revenue and other income continued
The amount of revenue recognised depends on whether we act as an agent or as a principal. The Group acts as principal when we
control the specified good or service prior to transfer. When the Group acts as a principal the revenue recorded is the gross amount
billed. Out-of-pocket costs such as travel are also recognised at the gross amount billed with a corresponding amount recorded as
a direct cost. Certain other arrangements with our clients are such that our responsibility is to arrange for a third party to provide a
specified good or service to the client. In these cases, we are acting as an agent and we do not control the relevant good or service
before it is transferred to the client. When the Group is acting as an agent, the revenue is recorded at the net amount retained. There
is deemed to be no significant judgements in applying IFRS 15 and in evaluating when customers obtain control of the promised
goods or services.
Direct costs comprise fees paid to external suppliers when they are engaged to perform part or all of a specific project and are
charged directly to clients but where the Group retains quality control oversight, such as production or research costs.
Further details on revenue recognition in terms of the nature of contractual agreements are as follows:
• retainer fees relate to arrangements whereby we have an obligation to perform services to the customer on an ongoing basis
over the life of the contract. In these instances, revenue is recognised using a time-based method resulting in straight-line
revenue recognition;
• where project fees relate to assignments carried out under contractual terms which entitle the Group to payment for its performance
to date in the event of contract termination, then fees are recognised over the period of the relevant assignments. Revenue is
typically recognised in line with the value delivered to the customer which is the amount assigned to the project milestones
completed set out in the contract. Where this is not the case then an input method based on costs incurred is used; and
• revenue can be derived from media placements, for which the revenue for commissions on purchased media is typically recognised
at the point in time the media is run.
Accrued and deferred income
Accrued income is a contract asset and is recognised when a performance obligation has been satisfied but has not yet been
billed. Contract assets are transferred to receivables when the right to consideration is unconditional and billed per the terms of the
contractual agreement.
In certain cases, payments are received from customers prior to satisfaction of performance obligations and recognised as deferred
income on the Group’s balance sheet. These balances are considered contract liabilities and are typically related to prepayments
for third-party expenses that are incurred shortly after billing.
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.
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
excluded from underlying performance as they would not have been incurred had the business combination not occurred and a
higher or lower spend has no relation on the underlying organic business. They do not relate to the underlying trading of the Group
and are added back in the adjusted performance measures to aid comparability of the Group’s profitability year on year.
64
1 Accounting policies continued
F. Intangible assets continued
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 two to four 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 up to 20 years.
Customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The
contractual customer relationships have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is
calculated using the straight-line method over the expected life of the customer relationship of five 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.
The amortisation of acquired intangibles recognised as a result of IFRS 3 is added back in for the Group’s adjusted performance
measures to aid comparability with its peer Group and to enhance comparability of the Group’s profitability year on year.
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.
65
Financial statements 1 Accounting policies continued
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 (‘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.
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.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or
loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
Trade receivables
All trade receivables held by the Group are financial assets held within a business model whose objective is to hold financial assets in
order to collect the contractual cash flows. Trade receivables are initially recognised at fair value and will subsequently be measured
at amortised cost less allowances for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and short-term call deposits held with banks, with whom we determine there is
a low credit risk. 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.
66
Notes to the accounts continuedfor the year ended 31 January 2020 1 Accounting policies continued
K. Financial instruments continued
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on trade receivables and contract assets. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial
instrument. The Group always recognises lifetime ECL for trade receivables and contract assets. The expected credit losses on these
financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors
that are specific to the debtors.
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.
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 within
finance income/expense.
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 within finance income/expense.
The Group adjusts for the remeasurement of the acquisition-related liabilities within the adjusted performance measures in order
to aid comparability of the Group’s results year on year as the charge/credit can vary significantly depending on the underlying
brand’s performance.
Trade payables
Trade payables are initially recognised at fair value and thereafter at amortised cost.
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.
Hedging activities
The Group designates certain derivatives as hedging instruments in respect of hedges of net investments in foreign operations.
The Group has chosen to continue to account for these under IAS 39 as allowed by the transition provisions for IFRS 9.
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.
67
Financial statements 1 Accounting policies continued
K. Financial instruments continued
Hedging activities continued
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.
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 acquisition-related payments linked to the continuing employment of the sellers and is recognised over the required period of
employment. Provisions comprise liabilities where there is uncertainty about the timing of the settlement and are 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 a Black-Scholes model on the grounds that there are no market-related vesting conditions. The
expected life used in the model has been adjusted, based on the Board’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The value is recognised as a one-off share-based payment in the income statement in the year of grant as the agreements do not
include service requirements, thus the cost accounting is not aligned with the timing of the anticipated benefit of the incentive, namely
the growth of the relevant brands. Therefore, adjusting for these within the Group’s adjusted performance measures gives a better
reflection of the Group’s profitability and enhances comparability year on year.
O. Leased assets
The Group leases various assets, comprising mostly of properties and office equipment. The Group assesses whether a contract
is or contains a lease, at inception of a contract, based on whether the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a corresponding lease liability at the commencement date with respect to all lease
agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases
of low-value assets, where the Group has elected to use the exemption. The total rentals payable under these leases are charged
to the Consolidated Income Statement on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of the lease payments not paid at the commencement date, discounted
using the interest rate implicit in the lease. When this rate cannot be determined, the Group uses the incremental borrowing rate for
the same term as the underlying lease. Lease payments comprise fixed payments less any lease incentives receivable and variable
lease payments as at the commencement date. The lease liability is subsequently remeasured when there is a change in future
lease payments due to a renegotiation or market rent review, or a reassessment of the lease term. Lease modifications result in
remeasurement of the lease liability with a corresponding adjustment to the related right-of-use asset. Interest expense is included
within finance expense in the Consolidated Income Statement.
68
Notes to the accounts continuedfor the year ended 31 January 2020 1 Accounting policies continued
O. Leased assets continued
The right-of-use asset is initially measured based on the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred, less any lease incentives received, plus the estimated cost for any restoration
costs the Group is obligated to at lease inception. Right-of-use assets are subsequently measured at cost less accumulated depreciation
and impairment losses. They are depreciated on a straight-line basis over the shorter of the lease term or the useful life of the asset.
At times, entities of the Group will sublet certain of their properties when underlying business requirements change. The Group
assesses the classification of these subleases with reference to the right-of-use asset, not the underlying asset. As a result, certain
subleases are classified as finance leases and a sublease receivable is recognised and recorded as a financial asset within trade
and other receivables on the Consolidated Balance Sheet and any relating right-of-use asset is derecognised.
When the Group acts as an intermediate lessor it accounts for the head lease and the sublease separately. Whenever the terms of
the lease transfer substantially all the risks and rewards of ownership in relation to the underlying asset to the lessee, the contract
is classified as a finance lease. All other leases are classified as operating leases. Amounts due from lessees under finance leases
are recognised as finance lease receivables at the amount of the Group’s net investment in the leases using the effective interest
rate method. The Group recognises lessor payments under operating leases as income on a straight-line basis over the lease term.
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.
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 Payment’ (‘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.
69
Financial statements 1 Accounting policies continued
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. Critical accounting judgements and key sources of estimation uncertainty
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the
Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the
amounts recognised in financial statements.
I. Identification of acquired intangible assets
As part of the acquisition accounting under IFRS 3, the Group must identify and value the intangibles it has acquired. The identification
of the intangibles acquired, such as customer relationships, intellectual property, non-compete agreements and brand names, requires
judgement following an assessment of the acquired business. This involves reviewing the past performance of the acquiree and
future forecasts to ascertain the intangible assets which the purchase price should be allocated to.
II. Identification of adjusting items
The identification of adjusting items is a judgement in terms of which costs or credits are not associated with the underlying trading
of the business or otherwise impact the comparability of the Group’s results year on year. Adjusting items for the Group include
amortisation of acquired intangibles, the change in estimate and unwinding of discount on acquisition-related liabilities, deal costs,
growth share charges, employment-related acquisition costs and restructuring costs.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
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.
The Group has performed sensitivity analysis on the assumptions used in the value-in-use calculations for the purposes of the
goodwill impairment review. The Group performed two scenarios. Firstly, with all other variables unchanged, if revenue and costs
do not grow past the FY21 budget, and there is no growth in perpetuity, no impairment would be required. Secondly, with all other
variables unchanged, if the discount rate increased by 4% to 15.2% then this would indicate an impairment of £0.6m.
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 incorrect, could result in a material adjustment
to the value of these liabilities within the next financial year. Further details, including sensitivity analysis, are contained in note 17.
70
Notes to the accounts continuedfor the year ended 31 January 2020 1 Accounting policies continued
T. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
III. Impact of coronavirus (COVID-19)
In light of the global health crisis around the outbreak of COVID-19, the Group considered whether any adjustments are required
to the reported results in the financial statements. As at the balance sheet date of 31 January 2020, there had been no global
pandemic declared, and the outbreak of COVID-19 was limited to China, where the Group has limited operations. The subsequent
macroeconomic downturn and extent of global interventions were not apparent.
Subsequent to the balance sheet date, the World Health Organisation declared a pandemic on 11 March and we have seen a significant
downturn in the global economic outlook. As a result, the Group has concluded that the necessity for large scale interventions and
other information received was not indicative of conditions that existed at the balance sheet date and therefore that the consequences
of such interventions represent non-adjusting post balance sheet events. However, given the significant events since the balance
sheet date, further disclosures are given in note 30.
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 2020 or later periods. These new
pronouncements are listed below:
• IFRS 17 ‘Insurance Contracts’ (effective periods beginning on or after 1 January 2021); and
• IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 (amendments), Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture.
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.
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
(‘CODM’) to make strategic decisions, assess performance and allocate resources. These are deemed to be both regional and
service segments.
The Group’s business is separated into a number of brands which are considered to be the underlying cash-generating units (‘CGUs’).
These brands are organised into service segments based on the work they do for their customers and into geographical segments
based on where the brand is located; within these reportable segments the Group operates a number of separate businesses which
generally offer complementary products and services to their customers.
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 and other costs not associated
with the underlying business, details of which are included in this note. 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.
71
Financial statements 2 Segment information continued
Measurement of operating segment profit continued
Year ended 31 January 2020
Revenue
Net revenue
Segment adjusted operating profit/(loss)
Segment adjusted operating profit/(loss) after interest on finance
lease liabilities¹
Adjusted operating profit margin²
Organic net revenue (decline)/growth
Year ended 31 January 2019
Revenue
Net revenue
Segment adjusted operating profit/(loss)
Adjusted operating profit margin²
Organic net revenue growth
Brand
Marketing
£’000
Data and
Analytics
£’000
Creative
Technology
£’000
Head office
£’000
Total
£’000
160,242
135,036
30,750
29,930
22.2%
(5.7)%
158,316
133,163
29,580
22.2%
0.1%
59,446
45,054
12,722
12,697
28.2%
19.3%
33,757
23,209
7,171
30.9%
30.6%
81,023
68,379
8,035
7,774
11.4%
(2.1)%
80,340
67,721
9,489
14.0%
17.0%
—
—
(9,051)
300,711
248,469
42,456
(9,541)
40,860
—
—
—
—
(9,284)
—
—
16.4%
(2.0)%
272,413
224,093
36,956
16.5%
6.4%
1
2
Operating profit after interest on finance lease liabilities is presented as a comparable measure to the prior year operating profit following the adoption of IFRS 16 from
1 February 2019.
Adjusted operating profit margin is calculated as a percentage of net revenue. In FY20, the margin is calculated as adjusted operating profit after interest on finance lease
liabilities, as a percentage of net revenue.
UK
£’000
EMEA
£’000
US
£’000
Asia Pacific
£’000
Head office
£’000
Total
£’000
Year ended 31 January 2020
Revenue
Net revenue
Segment adjusted operating profit/(loss)
Segment adjusted operating profit/(loss) after
interest on finance lease liabilities¹
Adjusted operating profit margin²
Organic net revenue growth/(decline)
Year ended 31 January 2019
Revenue
Net revenue
Segment adjusted operating profit/(loss)
Adjusted operating profit margin²
Organic net revenue growth
119,551
97,377
20,366
20,094
20.6%
0.3%
109,161
83,528
20,482
24.5%
15.5%
10,631
8,820
1,619
1,587
18.0%
0.4%
153,481
127,563
27,155
26,421
20.7%
(4.6)%
10,267
136,290
8,735
1,504
17.2%
7.3%
117,911
22,047
18.7%
2.8%
17,048
14,709
2,367
2,299
15.6%
4.8%
16,695
13,919
2,207
15.9%
(2.1)%
—
—
(9,051)
300,711
248,469
42,456
(9,541)
40,860
—
—
—
—
(9,284)
—
—
16.4%
(2.0)%
272,413
224,093
36,956
16.5%
6.4%
1
2
Operating profit after interest on finance lease liabilities is presented as a comparable measure to the prior year operating profit following the adoption of IFRS 16 from
1 February 2019.
Adjusted operating profit margin is calculated as a percentage of net revenue. In FY20, the margin is calculated as adjusted operating profit after interest on finance lease
liabilities, as a percentage of net revenue.
72
Notes to the accounts continuedfor the year ended 31 January 2020 2 Segment information continued
Measurement of operating segment profit continued
A reconciliation of segment adjusted operating profit to statutory operating profit is provided as follows:
Operating profit
Interest on finance lease liabilities
Operating profit after interest on finance lease liabilities
Share-based payment charge¹
Employment-related acquisition payments²
Deal costs³
Costs associated with restructuring⁴
Charge associated with office moves5
Total adjusted costs in operating profit excluding amortisation
Amortisation of acquired intangibles6
Total adjusted costs in operating profit
Segment adjusted operating profit after interest on finance lease liabilities
Year ended
31 January
2020
£’000
19,413
(1,596)
17,817
374
5,029
945
4,596
—
10,944
12,099
23,043
40,860
Year ended
31 January
2019
£’000
20,677
—
20,677
1,311
821
575
4,353
173
7,233
9,046
16,279
36,956
1
This charge relates to transactions whereby a restricted grant of brand equity was given to key management in M Booth & Associates LLC (2019: M Booth & Associates LLC,
Encore Digital Media Limited, Twogether Creative Limited, Savanta Group Limited and ODD London Limited) 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 in the year of grant as the agreements do not include service requirements, thus the cost accounting is not aligned with the timing of the
anticipated benefit of the incentive, namely the growth of the relevant brands. It also includes charges associated with equity transactions accounted for as share-based
payments. The Group determines that these brand appreciation rights (or growth shares) should be excluded from underlying performance as the cost accounting is not
aligned to the timing of the anticipated benefit of the incentive, namely growth of the relevant brands.
2 This charge relates to payments linked to the continuing employment of the sellers which is being recognised over the required period of employment. Although these costs
are not exceptional or non-recurring, the Group determines they should be excluded from the underlying performance, as the costs solely relate to acquiring the business.
The sellers of the business are typically paid market rate salaries and bonuses in addition to these acquisition-related payments and therefore the Group determines these
costs solely relate to acquiring the business. Adjusting for these within the Group’s adjusted performance measures gives a better reflection of the Group’s profitability and
enhances comparability year on year.
3 These costs are directly attributable to business combinations and are excluded from underlying performance as they would not have been incurred had the business
combination not occurred. They do not relate to the underlying trading of the Group and are added back to aid comparability of the Group’s profitability year on year.
4 In the current period the Group has incurred restructuring costs in relation to the ongoing relaunch of the new Archetype brand in the UK and US along with the rebranding
of the Savanta brands, in addition to writing off intangibles and other staff-related redundancy costs. These costs relate to these specific transformational events; they do
not relate to underlying trading of the relevant brand and therefore have been added back to aid comparability of performance year on year. These costs are made up of
£2.9m staff-related costs and £1.7m of other costs relating to the rebranding of the businesses.
5 In the prior year the Group has recognised an onerous lease provision for excess property space within the portfolio following the merger of Bite and Text 100. The Group
has adjusted for the cost of the onerous property leases as the additional rent cost does not relate to the underlying trading of the business.
6 In line with its peer group, the Group adds back amortisation of acquired intangibles. Judgement is applied in the allocation of the purchase price between intangibles and
goodwill, and in determining the useful economic lives of the acquired intangibles. The judgements made by the Group are inevitably different to those made by our peers
and as such amortisation of acquired intangibles has been added back to aid comparability.
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)
Year ended
31 January
2020
£’000
150,203
11,676
3,672
5,629
Year ended
31 January
2019
£’000
136,421
10,292
3,202
3,332
171,180
153,247
73
Financial statements Year ended
31 January
2020
Year ended
31 January
2019
916
100
754
293
55
800
94
739
324
47
2,118
2,004
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
1,036
112
137
1,285
1,226
105
1,094
2,425
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
4,505
8,691
13,211
1,360
226
5,403
(487)
986
194
250
4,199
—
9,624
202
1,533
2,132
(611)
9,409
131
(660)
3 Employee information continued
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 page 23.
Directors’ remuneration consists of:
Short-term employee benefits
Pension costs
Share-based payment charge
The highest paid Director received total emoluments of £839,000 (2019: £1,076,000).
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 – adjusted (note 2)
Short-term sublease income
Short-term lease expense
Low-value lease expense
Foreign exchange loss/(gain)
74
Notes to the accounts continuedfor the year ended 31 January 2020 4 Operating profit continued
Auditor’s 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
2020
£’000
Year ended
31 January
2019
£’000
300
111
21
5
437
237
230
11
5
483
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 Group includes non-GAAP measures as they consider these measures to be both useful and necessary. They are used by the
Group for internal performance analyses; the presentation of these measures facilitates comparability with other industry peers,
although the Group’s measures may not be calculated in the same way as similarly titled measures reported by other companies.
The adjusting items have been explained in note 2.
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)²
Unwinding of discount on share purchase obligation (note 17)²
Total adjusting items in operating profit (note 2)
Change in estimate of future contingent consideration payable (note 17)¹
Change in estimate of future share purchase obligation (note 17)¹
Adjusted profit before income tax
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
5,556
3,394
158
23,043
6,167
1,919
18,825
2,679
127
16,279
(1,966)
60
40,237
36,004
1
The Group adjusts for the remeasurement of the acquisition-related liabilities within the adjusted performance measures in order to aid comparability of the Group’s results
year on year as the charge/credit from remeasurement can vary significantly depending on the underlying brand’s performance. It is non-cash and its directional impact to
the income statement is opposite to the brand’s performance driving the valuations.
2
The unwinding of discount on these liabilities is also excluded from underlying performance on the basis that it is non-cash and the balance is driven by the Group’s assessment
of the time value of money and this exclusion ensures comparability.
Adjusted EBITDA
Operating profit
Depreciation of owned property, plant and equipment (note 12)
Depreciation of right-of-use assets (note 16)
Amortisation of intangible assets (note 11)
EBITDA
Total adjusting items in operating profit excluding amortisation (note 2)
Adjusted EBITDA
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
19,413
4,505
8,691
13,211
45,820
10,944
56,764
20,677
4,199
—
9,624
34,500
7,233
41,733
75
Financial statements 5 Reconciliation of pro forma financial measures continued
Adjusted staff costs
Staff costs
Reorganisation costs
Charges associated with equity transactions accounted for as share-based payments (note 2)
Employment-related acquisition payments (note 2)
Adjusted staff costs
6 Finance expense
Financial liabilities at amortised cost
Bank interest payable
Interest on lease liabilities
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
Other interest payable
Finance expense
7 Finance income
Financial assets at amortised cost
Bank interest receivable
Finance lease 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
2020
£’000
171,180
(2,880)
(374)
(5,029)
Year ended
31 January
2019
£’000
153,247
(3,383)
(1,311)
(821)
162,897
147,732
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
977
1,596
158
1,997
3,394
8,548
1,235
—
127
126
2,679
2,406
2
11
16,672
6,584
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
99
40
78
2,381
13
2,611
82
—
66
4,372
147
4,667
76
Notes to the accounts continuedfor the year ended 31 January 2020 8 Taxation
The major components of income tax expense for the year ended 31 January 2020 and year ended 31 January 2019 are:
Consolidated Income Statement
Current income tax
Current income tax expense
Adjustments in respect of current income tax in prior years
Deferred income tax
Relating to the origination and reversal of temporary differences
Adjustments in respect of deferred tax for prior years
Income tax expense reported in the Consolidated Income Statement
Consolidated Statement of Changes in Equity
Tax 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 higher than the standard rate of corporation tax in the UK of 19% (2019: 19%).
The difference is explained below:
Profit before income tax
Corporation tax expense at 19% (2019: 19%)
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
2020
£’000
Year ended
31 January
2019
£’000
6,244
(692)
(3,223)
388
2,717
(167)
(167)
5,556
1,056
1,775
(2)
3
189
—
(304)
2,717
6,750
(293)
(2,205)
47
4,299
(203)
(203)
18,825
3,577
517
(58)
3
506
—
(246)
4,299
Reconciliation of tax expense in the Consolidated Income Statement to adjusted tax expense:
Income tax expense reported in the Consolidated Income Statement
2,717
4,299
Add back:
Tax on adjusting items
Costs associated with the current period restructure and office moves (note 2)
Unwinding of discount on and change in estimates of contingent and deferred consideration (note 17)
Share-based payment charge (note 2)
Amortisation of acquired intangibles
Employment-related acquisition liabilities
Adjusted tax expense
Adjusted profit before income tax (note 5)
Adjusted effective tax rate
912
2,104
(198)
2,492
19
8,046
40,237
20%
903
162
90
1,746
—
7,200
36,004
20%
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 income tax expense for the year is based on the UK effective statutory rate of corporation tax of 19% (2019: 19%). Overseas tax
is calculated at the rates prevailing in the respective jurisdictions.
Net corporation tax paid during the year totalled £6m (2019: £6.2m).
77
Financial statements 9 Dividend
Dividends paid during the year
Final dividend paid for prior year of 5.4p per Ordinary Share (2019: 4.5p)
Interim dividend paid of 2.5p per Ordinary Share (2019: 2.16p)
Non-controlling interest dividend¹
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
4,595
2,164
6,759
760
3,535
1,708
5,243
1,400
1
During the year, a profit share was paid to the holders of the non-controlling interest of Vrge of £Nil (2019: £27,760), Blueshirt of £153,706 (2019: £136,460), OutCast of £225,840
(2019: £335,814), M Booth of £291,887 (2019: £206,776), Beyond of £81,556 (2019: £495,171), Bite US of £Nil (2019: £36,139), Connections Media of £7,181 (2019: £41,488), and
Text 100 of £Nil (2019: £120,503).
The ESOP waived its right to dividends in the financial years ended 31 January 2020 and 2019.
Given the macroeconomic backdrop due to COVID-19, the Group has decided to suspend the final dividend, although it intends to
resume dividend payments once the macro environment improves. In the prior year a final dividend of 5.4p per share was proposed,
amounting to £4,512,455. This makes the total dividend for the year 2.5p per share (2019: 7.56p).
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 notes 2 and 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)
Employment-related acquisition payments (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.
78
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
2,262
3,012
126
4,471
1,924
3,746
572
—
882
5,010
9,607
31,612
13,887
2,602
96
(2,036)
77
3,501
2,042
136
560
—
7,300
28,165
Number
Number
85,284,663
79,225,075
755,018
2,983,371
1,913,430
1,193,361
3,733,183
864,585
90,936,482
85,016,204
2.7p
2.5p
37.1p
34.8p
17.5p
16.3p
35.6p
33.1p
Notes to the accounts continuedfor the year ended 31 January 2020 11 Intangible assets
Cost
At 31 January 2018
Additions
Capitalised internal development
Acquired through business combinations
Disposals
Exchange differences
At 31 January 2019
Additions
Capitalised internal development
Acquired through business combinations¹
Disposals
Exchange differences
At 31 January 2020
Amortisation and impairment
At 31 January 2018
Charge for the year
Disposals
Exchange differences
At 31 January 2019
Charge for the year²
Disposals
Exchange differences
At 31 January 2020
Net book value at 31 January 2020
Net book value at 31 January 2019
Software
£’000
Trade name
£’000
Customer
relationships
£’000
Non-compete
£’000
Goodwill
£’000
Total
£’000
9,117
—
—
4,743
—
281
14,141
—
—
8,478
402
1,982
877
(43)
60
11,756
148
1,677
6
(741)
(10)
34,155
3,308
76,574
131,632
—
—
—
—
16,801
2,406
—
411
—
1
—
—
11,959
—
1,737
402
1,982
36,786
(43)
2,490
51,367
5,715
90,270
173,249
—
—
—
—
—
—
2,436
15,308
1,159
22,336
—
(12)
—
(65)
—
(3)
—
(130)
148
1,677
41,245
(741)
(220)
12,836
16,565
66,610
6,871
112,476
215,358
6,010
834
(27)
47
6,864
1,432
(125)
(12)
8,159
4,677
4,892
2,940
1,759
—
176
4,875
1,185
—
(18)
15,597
6,242
—
405
22,244
9,560
—
(123)
6,042
31,681
10,523
34,929
9,266
29,123
1,561
789
—
2
2,352
1,034
—
(10)
3,376
3,495
3,363
10,681
—
—
84
36,789
9,624
(27)
714
10,765
47,100
—
—
(73)
13,211
(125)
(236)
10,692
59,950
101,784
155,408
79,505
126,149
1
2
During the year, the Group acquired Palldium, Market Making, M Booth Health and Nectar as well as other acquisitions and a number of trade and asset purchases, none of
which are individually significant to the Group (note 26).
Amortisation charge for the period includes acquired intangibles of £1,034,000 for non-compete agreements, £9,560,000 for customer relationships, £1,185,000 for trade
names and £320,000 relating to software.
79
Financial statements 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:
Archetype¹
OutCast (US)²
M Booth (US)³
Blueshirt (US)
Savanta⁴
ODD5
Publitek
Twogether6
Velocity
Elvis
Activate
Brandwidth
Planning-inc
Other7
2020
£’000
7,104
12,580
22,025
5,201
8,881
4,950
9,879
10,620
5,653
2,179
5,610
2,212
2,157
2,733
2019
£’000
6,701
9,646
7,144
5,212
7,175
2,458
9,879
9,226
5,653
2,179
5,622
2,212
1,906
4,492
101,784
79,505
1
The goodwill in Archetype (formerly known as Text 100) has increased due to the combination of the UK and US CGU when considering for impairment.
2
The goodwill in OutCast (US) has increased due to the acquisition of Nectar (£2,953,000).
3
4
5
6
7
The goodwill in M Booth (US) has increased due to the acquisition of M Booth Health (£14,895,000).
The goodwill in Savanta (formerly known as MIG) has increased in the year due acquisition of ComRes (£1,617,000) and the trade and asset purchases of HSR (£89,000).
The goodwill in ODD has increased in the year due to the acquisition of Market Making (£2,492,000).
The goodwill in Twogether has increased due to the transfer of the Encore CGU into the existing Twogether CGU.
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 or the product or service they provide.
The Group performs an impairment testing process by considering:
Stage 1)
The performance of the brands during the previous financial year and the value in use of the brands at 31 January 2020.
The value in use is calculated by taking the present value of expected future cash flows based on minimum expected
standard growth rates applied to the Board-approved FY21 budget.
Stage 2)
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 FY21 budget.
Note that the growth rates in stages 1 and 2 applied for year five are dependent on the geographical region of the respective brand.
The long-term perpetuity growth rates applied for year five onwards for the US, UK and APAC regions are 2% (2019: 1.5%), 0.5%
(2019: 1%) and 1% (2019: 1%) respectively. The growth rates applied for years two to five for the US, UK and APAC regions are 1.5%
(2019: 2%), 0.5% (2019: 0.5%) and 1% (2019: 1%) respectively. The UK growth rate for years two to five has been risk affected for Brexit.
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 the FY21 budgeted cash flows for the following four years based on the estimated regional growth rates, which is
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. The growth rate in relation to the
geographical region of the brand is then applied into perpetuity after five years.
80
Notes to the accounts continuedfor the year ended 31 January 2020 11 Intangible assets continued
Pre-tax discount rate
A pre-tax rate, being the Board’s estimate of the discount rate of 11.2% (2019: 12.4%), has been used in discounting all projected cash
flows. The Board considers a pre-tax discount rate of 11.2% to be calculated using appropriate methodology. This rate is already in
the higher end of the spectrum amongst its peers, and the Board 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 digital media communication businesses
dependent on the mature economies in which they operate, the Board has considered no risk adjustment to the individual discount
rates is required. Further, a scenario run using a higher discount rate reflective of US expected market returns indicated no goodwill
impairment. Instead, 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 Encore and Twogether CGUs have been combined following the merging of
these two businesses under one leadership team in addition to the combining of the Archetype UK and US CGUs when considering
impairment. This is due to Twogether and Archetype being the lowest level at which goodwill is monitored for internal management
purposes for those respective businesses. The previous businesses now operate as one and are managed as such.
12 Property, plant and equipment
Cost
At 31 January 2018
Exchange differences
Additions
Acquired through business combinations
Disposals
At 31 January 2019
Exchange differences
Additions
Acquired through business combinations
Disposals
At 31 January 2020
Accumulated depreciation
At 31 January 2018
Exchange differences
Charge for the year
Disposals
At 31 January 2019
Exchange differences
Charge for the year
Disposals
At 31 January 2020
Net book value at 31 January 2020
Net book value at 31 January 2019
Short leasehold
improvements
£’000
Office
equipment
£’000
Office
furniture
£’000
Motor
vehicles
£’000
14,676
969
2,796
—
(628)
17,813
(85)
1,126
243
(598)
7,530
351
1,785
307
(1,238)
8,735
(67)
1,564
104
(1,039)
2,405
203
1,067
—
(399)
3,276
(23)
770
14
(223)
18,499
9,297
3,814
4,509
333
1,899
(545)
6,196
(87)
2,119
(171)
8,057
10,442
11,617
5,587
270
1,515
(1,156)
6,216
(58)
1,578
(590)
7,146
2,151
2,519
948
118
785
(309)
1,542
(26)
808
(141)
2,183
1,631
1,734
2
—
—
—
—
2
—
—
—
—
2
2
—
—
—
2
—
—
—
2
—
—
Total
£’000
24,613
1,523
5,648
307
(2,265)
29,826
(175)
3,460
361
(1,860)
31,612
11,046
721
4,199
(2,010)
13,956
(171)
4,505
(902)
17,388
14,224
15,870
81
Financial statements 13 Trade and other receivables
Current
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
Accrued income
Finance lease receivables
Non-current
Rent deposits
2020
£’000
2019
£’000
52,915
(310)
52,605
2,875
4,004
10,293
483
70,260
48,795
(378)
48,417
1,479
4,023
12,204
—
66,123
809
803
Trade receivables disclosed above are measured at amortised cost. There were no significant changes in the accrued income
balances during the reporting period.
As of 31 January 2020, trade receivables of £310,000 (2019: £378,000) 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 end of period
2020
£’000
378
254
(284)
(31)
(7)
310
2019
£’000
492
141
(81)
(200)
26
378
The provision for receivables impairment has been determined using an expected credit loss model 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:
2020
£’000
2019
£’000
35,289
33,360
11,123
3,353
2,840
52,605
9,973
2,706
2,378
48,417
Not past due
Up to 30 days
31 to 60 days
Greater than 61 days
At end of period
82
Notes to the accounts continuedfor the year ended 31 January 2020 14 Trade and other payables
Current
Trade creditors
Other taxation and social security
Short-term compensated absences
Other creditors
Accruals
Deferred income
Non-current
Rental lease liabilities
2020
£’000
2019
£’000
13,940
5,378
1,582
2,832
13,362
22,526
59,620
16
16
13,498
4,179
1,815
2,317
18,568
19,796
60,173
4,622
4,622
The Group considers that the carrying amount of trade and other payables approximates to their fair value with the exception of
obligations under finance leases; refer to note 19.
There were no significant changes in the deferred income balances during the reporting period. All the brought forward deferred
income balance was recognised as revenue in the current reporting period. There was no revenue recognised in the current reporting
period that related to performance obligations that were satisfied in a prior year.
15 Provisions
At 31 January 2018
Additions
On acquisition of subsidiary
Used during the year
Exchange differences
At 31 January 2019
Additions
On acquisition of subsidiary
Used during the year
Exchange differences
At 31 January 2020
Current
Non-current
Onerous
lease ¹
£’000
Property ²
£’000
Acquisition
payments ³
£’000
256
536
—
(271)
20
541
—
—
(557)
16
—
—
—
513
190
60
(305)
4
462
612
55
—
(7)
1,122
145
977
—
784
—
—
—
784
4,563
—
(522)
(4)
4,821
1,221
3,600
Other 4
£’000
777
646
—
(263)
(4)
1,156
—
36
(671)
—
521
156
365
Total
£’000
1,546
2,156
60
(839)
20
2,943
5,175
91
(1,750)
5
6,464
1,522
4,942
1
2
Onerous lease provisions are calculated based on the remaining term of the lease and associated cost where the Group expects the cost to outweigh the benefit. Onerous
leases were debited on transition to IFRS 16.
Property provisions are primarily for dilapidations and include assumptions of a cost per square foot required to make good the property at the end of the lease. As a result
of IFRS 16, an additional £612,000 has been recognised during the year.
3 Acquisition payments are provisions for employment-related acquisition payments linked to the continuing employment of the sellers.
4 Other includes provisions for potential tax liabilities and redundancy provisions.
83
Financial statements 16 Leases
The movements in the year ended 31 January 2020 were as follows:
Right-of-use assets:
At 1 February 2019
Exchange differences
Additions
Disposals
Depreciation of right-of-use assets
At 31 January 2020
Land and
buildings
£’000
44,371
(849)
7,955
(1,131)
(8,691)
41,655
Due to the transition to IFRS 16, the right-of-use asset cost and accumulated depreciation at 31 January 2019 was nil. The closing
cost was £48,471,000 and the closing accumulated depreciation was £8,691,000.
Lease liabilities:
At 1 February 2019
Exchange differences
Additions
Interest expense related to lease liabilities
Disposals
Repayment of lease liabilities
At 31 January 2020
Land and
buildings
£’000
55,159
(117)
9,368
1,596
(406)
(11,367)
54,233
The following table shows the breakdown of the lease expense between amounts charged to operating profit and amounts recognised
as finance income and finance costs:
Depreciation of right-of-use assets
Short-term lease expense
Low-value lease expense
Short-term sublease income
Charge to operating profit
Sublease finance income
Lease liability interest expense
Lease charge to profit before income tax
The maturity of the lease liabilities is as follows:
Amounts payable:
Within one year
In two to five years
After five years
Total gross future liability
Effect of discounting
Lease liability at 31 January
2020
£’000
8,691
986
194
(487)
9,384
(40)
1,596
10,940
2020
£’000
12,648
38,116
8,335
59,099
(4,866)
54,233
The Group does not face a significant liquidity risk with regard to its lease liabilities. Refer to note 19 for management of liquidity risk.
84
Notes to the accounts continuedfor the year ended 31 January 2020 17 Other financial liabilities
At 31 January 2018
Arising during the year¹
Changes in estimates²
Exchange differences
Utilised³
Reclassification
Unwinding of discount
At 31 January 2019
Arising during the year¹
Changes in estimates²
Exchange differences
Utilised³
Unwinding of discount
At 31 January 2020
Current
Non-current
Deferred
consideration
£’000
Contingent
consideration ¹
£’000
Share purchase
obligation
£’000
6,039
—
—
—
(5,066)
3,072
601
4,646
350
—
—
(2,667)
386
2,715
2,715
—
18,639
15,516
(1,966)
(312)
(6,171)
(3,072)
2,078
24,712
14,445
6,167
(726)
(5,425)
3,008
42,181
15,366
26,815
955
765
60
78
(249)
—
127
1,736
—
1,919
7
(453)
158
3,367
1,269
2,098
Total
£’000
25,633
16,281
(1,906)
(234)
(11,486)
—
2,806
31,094
14,795
8,086
(719)
(8,545)
3,552
48,263
19,350
28,913
1
Contingent consideration on acquisitions – during the year, the Group acquired a controlling stake in M Booth Health, Nectar and Market Making as well as a number of other
acquisitions, none of which are material to the Group. (2019: Brandwidth, Technical, Activate and Planning-inc). 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 £6.5m in cash and £2.0m in shares.
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 FY21 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 five percentage point increase or decrease in the estimated future revenue growth rate, estimated future profit margin, and the
discount rate used would increase or decrease the combined liabilities due to earn-out agreements by approximately £2,752,000,
£5,170,000, and £3,399,000, respectively. The most sensitive earn-out individually would increase or decrease by £1,136,000, £2,754,000
and £1,813,000 due to a five percentage point increase or decrease in revenue growth, profit margin and discount rate. 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 £174,000 impact on the liabilities. An increase in the liability would result in an increase in interest expense, while a
decrease would result in a further gain.
85
Financial statements 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
Share-based
remuneration
£’000
Provision for
impairment
of trade
receivables
£’000
Excess book
basis over
tax basis of
intangible
assets
£’000
Other
temporary
differences
£’000
At 31 January 2018
(Charge)/credit to income
Exchange differences
Acquisition of subsidiaries
Taken to equity
At 31 January 2019
(Charge)/credit to income
Exchange differences
Acquisition of subsidiaries
Taken to equity
(246)
(143)
(43)
(34)
—
(466)
(772)
24
44
—
289
9
20
—
—
318
(63)
(3)
—
—
5,342
(2,277)
—
—
(189)
2,876
(1,275)
—
—
(55)
At 31 January 2020
(1,170)
252
1,546
92
(46)
7
—
—
53
33
(1)
—
—
85
(2,943)
2,385
3,571
117
(2,294)
—
1,123
268
65
—
(1,549)
3,841
4,117
(99)
(2,225)
—
1,125
26
472
400
Tax losses
£’000
1,006
(79)
18
—
—
945
(330)
(7)
—
—
Total
£’000
5,925
2,158
387
(2,263)
(189)
6,018
2,835
(60)
(1,709)
345
244
5,864
608
7,429
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
2020
£’000
2019
£’000
10,967
(3,538)
7,429
10,521
(4,503)
6,018
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 £0.2m (2019: £0.6m).
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 £7.4m (2019: £6m). 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.
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 2020, based on period-end balances and rates.
86
Notes to the accounts continuedfor the year ended 31 January 2020 19 Financial instruments continued
Interest rate risk continued
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
2020
£’000
(769)
2019
£’000
(524)
Liquidity risk
The Group manages its risk to a shortage of funds with a mixture of long and short-term committed facilities.
On 5 February 2018 the Group extended its facilities agreement with HSBC to include a loan of £20m in addition to the revolving
loan credit facility (‘RCF’) of £40m (available in multiple currencies) which is available until 5 July 2022. The £20m loan was drawn
down on 9 February 2018 and has £10m left to be repaid in equal instalments. The last repayment is due in December 2021 and the
loan bears interest at the same margin plus LIBOR as the RCF. The interest rate is variable dependent on the net debt: EBITDA ratio.
The Group also has a $7m facility available in the US.
At 31 January 2020 the Group had an undrawn amount of £11,277,521 (2019: £28,753,013) on the RCF in the UK and $4,012,637 (2019:
$4,412,637) available on the $7m US facility (this allows for the letters of credit in place).
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 2020 and 31 January 2019, based on contractual undiscounted payments:
At 31 January 2020
Financial liabilities
At 31 January 2019
Financial liabilities
Within
one year
£’000
Between two
and five years
£’000
More than
five years
£’000
Total
£’000
70,248
123,839
10,977
205,064
50,802
52,926
5,596
109,324
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, year average and period-end rates:
US dollar
Euro
Australian dollar
Indian rupee
Weakening
against sterling
20%
20%
20%
20%
2020
£’000
(5,060)
(358)
(262)
115
2019
£’000
(3,118)
(477)
(263)
71
87
Financial statements 19 Financial instruments continued
Currency risk continued
The following table demonstrates the sensitivity to reasonable possible changes in exchange rates, with all other variables held
constant, of the Group’s net assets on period-end balances and rates:
US dollar
Euro
Australian dollar
Indian rupee
Weakening
against sterling
2020
£’000
2019
£’000
20%
20%
20%
20%
(5,197)
(4,076)
(561)
(412)
(63)
(904)
(423)
(110)
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 an expected credit loss model driven by historical experience and factors specific to certain debtors.
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
2020
£’000
70,260
28,661
2019
£’000
66,123
20,501
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 2020 to 2025.
Total loans and borrowings¹
Less: cash and cash equivalents
Net debt
Total equity
Total capital
1 Total loans and borrowings is made up of current obligations (£5,000,000) and non-current obligations (£33,007,000).
2020
£’000
38,007
(28,661)
9,346
112,711
2019
£’000
25,678
(20,501)
5,177
111,453
122,057
116,630
88
Notes to the accounts continuedfor the year ended 31 January 2020 19 Financial instruments continued
Capital risk management continued
Net debt
Share purchase obligation
Contingent consideration
Deferred consideration
Net debt plus earn-out liabilities
The movement in net debt is as follows:
2020
£’000
9,346
3,367
42,181
2,715
57,609
2019
£’000
5,177
1,736
24,712
4,646
36,271
Cash
(inflows)/
outflows
from
operations
£’000
At
1 February
2018
£’000
Cash flow
from
share
placing
£’000
Acquisitions
and
contingent
consideration
£’000
Foreign
exchange,
fair value
and
non-cash
movements
£’000
Cash
(inflows)/
outflows
from
operations
£’000
Acquisitions
and
contingent
consideration
£’000
At
1 February
2019
£’000
Foreign
exchange,
fair value
and
non-cash
movements
£’000
At
1 February
2020
£’000
Total loans and
borrowings
Obligations under
finance leases
Less: cash and cash
equivalents
35,871
(10,922)
5
(5)
—
—
—
—
729
25,678
(4,006)
17,045
(710)
38,007
—
—
—
—
—
—
(24,283)
(5,729)
(19,461)
29,554
(582)
(20,501)
(15,470)
7,128
182
(28,661)
Net debt
11,593
(16,656)
(19,461)
29,554
147
5,177
(19,476)
24,173
(528)
9,346
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 2020, with the
exception of obligations under finance leases. The book value of obligations under finance leases is £54,233,000 (2019: £Nil) and
the fair value is £59,099,000 (2019: £Nil). The fair value of obligations under finance leases is estimated by discounting future cash
flows to net present value and is Level 3 within the fair value hierarchy.
89
Financial statements 19 Financial instruments continued
Financial instruments – detailed disclosures
Financial instruments recognised in the balance sheet
The IFRS 9 categories of financial assets and liabilities included in the balance sheet and the line in which they are included are
as follows:
At 31 January 2020
Non-current financial assets
Investment in equity instruments
Other receivables
Current financial assets
Cash and cash equivalents
Trade and other receivables
Current financial liabilities
Loans and borrowings
Trade and other payables
Lease liabilities
Provisions
Contingent consideration¹
Share purchase obligation¹
Deferred consideration¹
Non-current financial liabilities
Loans and borrowings
Lease liabilities
Provisions
Other payables
Contingent consideration¹
Share purchase obligation¹
Deferred consideration¹
1 See note 17.
At fair value
through profit
or loss –
mandatorily
measured
£’000
—
—
—
—
—
—
—
—
—
—
1,269
15,366
—
16,635
—
—
—
—
26,815
2,098
—
28,913
FVTOCI
£’000
1,075
—
1,075
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Financial
liabilities at
amortised
cost
£’000
Financial
assets at
amortised
cost
£’000
Total
£’000
1,075
809
1,884
—
809
809
28,661
66,256
28,661
66,256
94,917
94,917
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,000
31,716
11,210
1,522
1,269
15,366
2,715
68,798
33,007
43,023
4,942
16
26,815
2,098
—
109,901
—
—
—
—
—
—
5,000
31,716
11,210
1,522
—
—
2,715
52,163
33,007
43,023
4,942
16
—
—
—
80,988
The Group has no fair value Level 1 instruments (2019: none). The investments in equity instruments are Level 2 instruments. Level 2
fair value measurements are those derived from inputs other than quoted prices, such as historical quoted prices.
All other instruments at fair value through profit or 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.
90
Notes to the accounts continuedfor the year ended 31 January 2020 19 Financial instruments continued
Financial instruments – detailed disclosures continued
Financial instruments recognised in the balance sheet continued
At 31 January 2019
Non-current financial assets
Investment in equity instruments
Other receivables
Current financial assets
Cash and cash equivalents
Trade and other receivables
Current financial liabilities
Loans and borrowings
Trade and other payables
Provisions
Contingent consideration¹
Share purchase obligation¹
Deferred consideration¹
Non-current financial liabilities
Loans and borrowings
Provisions
Other payables
Contingent consideration¹
Share purchase obligation¹
Deferred consideration¹
1 See note 17.
At fair value
through profit
or loss –
mandatorily
measured
£’000
—
—
—
—
—
—
—
—
—
4,565
1,608
—
6,173
—
—
—
20,147
128
—
20,275
Financial
liabilities at
amortised
cost
£’000
Financial
assets at
amortised
cost
£’000
—
—
—
—
—
—
5,000
36,198
1,118
—
—
2,182
44,498
20,678
1,825
4,622
—
—
2,464
29,859
—
803
803
20,501
62,100
82,601
—
—
—
—
—
—
—
—
—
—
—
—
—
—
FVTOCI
£’000
1,587
—
1,587
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
£’000
1,587
803
2,390
20,501
62,100
82,601
5,000
36,198
1,118
4,565
1,608
2,182
50,671
20,678
1,825
4,622
20,147
128
2,464
49,864
Interest-bearing loans and borrowings
The table below provides a summary of the Group’s loans and borrowing as at 31 January 2020:
Current
Variable rate bank loan
Non-current
Variable rate bank loan
Effective interest rate
2020
£’000
2019
£’000
HSBC Bank base rate + 1.50%
5,000
5,000
HSBC Bank base rate + 1.50%
33,007
20,678
The fair value of the borrowings at 31 January 2020 is US$21,000,000 (£15,934,000) (2019: US$6,400,000 (£4,866,000)). The foreign
exchange loss of £411,000 (2019: loss of £700,000) 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 to the income statement (2019: £Nil).
91
Financial statements 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 and deferred consideration and share purchase obligations
Issued in the year in satisfaction of vested LTIPs (note 21)
Issued in the year in respect of growth share sales
Issued in the year in respect of share placing
At end of period
2020
Number
2019
Number
83,563,988
75,685,350
1,456,041
583,176
971,716
489,491
949,443
2,206,905
—
4,210,526
86,552,648
83,563,988
Fully paid Ordinary Shares carry one vote per share and the right to dividends.
21 Share-based payments
The Group uses a 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 LTIP schemes are given in the following note. 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 2020 the Group recognised a charge of £5,629,000 (2019: £3,332,000) made up of £226,000
(2019: £1,533,000) in respect of employment-related LTIP shares; £374,000 (2019: £978,000) given in respect of the grant of growth
participating interests of 4.5% in M Booth & Associates LLC (2019: 3.5% in M Booth & Associates LLC, 40% in ODD London Limited,
2.5% in Savanta Group Limited, 5% in Twogether Creative Limited and 3% in Encore Digital Media Limited), as well as £5,029,000
(2019: £821,000) for employment-linked acquisition-related payments.
Movement on options and performance shares granted (represented in Ordinary Shares):
Long-Term Incentive Plan — performance shares
1,285
Outstanding
31 January
2019
Number
(’000)
Granted
Number
(’000)
316
Lapsed
Number
(’000)
Exercised
Number
(’000)
Outstanding
31 January
2020
Number
(’000)
Exercisable
31 January
2020
Number
(’000)
(93)
(583)
925
270
The fair value of performance shares granted in the period calculated using a 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 (%)
April 2019
April 2019
498
518
1.94
3
26.5
1.34
484
518
1.94
5
26.5
1.34
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 520p (2019: 450p). For share options outstanding at the end of the year the weighted average remaining contractual life is one
year (2019: one year).
92
Notes to the accounts continuedfor the year ended 31 January 2020 22 Performance shares
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
Number
of shares
270,371
47,593
210,586
80,798
241,210
74,564
925,122
Performance
period start date
Performance
period end date
Performance
share grant date
1 February 2017
1 February 2017
1 February 2018
1 February 2018
1 February 2019
1 February 2019
31 January 2020
31 January 2022
31 January 2021
31 January 2023
31 January 2022
31 January 2024
2 May 2017
2 May 2017
10 April 2018
10 April 2018
25 April 2019
25 April 2019
During the period the Company issued 583,176 shares to satisfy the vesting under the Next 15 LTIPs. These were initially subscribed
for by the ESOP. No shares are now held in treasury (see note 23).
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
either three or five 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. Diluted adjusted EPS growth is calculated from
the information published in the Group’s accounts and is based on the adjusted EPS measure. If the growth in the Company’s
earnings per share in the relevant year is at least 15%, 100% of 70% of the total award will vest. If the compound growth in EPS in
the relevant year is 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, 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 in each
relevant year. 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.
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 2020 the ESOP held Nil (2019: Nil) Ordinary Shares in the Company.
The ESOP subscribed for 583,176 newly issued shares which were allotted and immediately disposed of in order to satisfy LTIP vesting
of 583,176 shares for £Nil consideration (2019: 489,491 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 (2019: Nil shares for £Nil proceeds).
Treasury shares
At 31 January 2020, the Group held Nil treasury shares (2019: Nil) at a cost of £Nil (2019: £Nil).
93
Financial statements 24 Other reserves
At 31 January 2018
Total comprehensive income for the year
Purchase and take on of shares
Movement due to ESOP LTIP and growth shares exercises
At 31 January 2019
Total comprehensive expense for the year
Purchase and take on of shares
Movement due to ESOP LTIP and growth shares exercises
At 31 January 2020
Merger
reserve
£’000
3,075
—
—
—
3,075
—
—
—
3,075
ESOP
reserve ¹
£’000
Hedging
reserve
£’000
Total
other reserves
£’000
—
—
(12)
12
—
—
(15)
15
—
(1,356)
(700)
—
—
(2,056)
(411)
—
—
(2,467)
1,719
(700)
(12)
12
1,019
(411)
(15)
15
608
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 a result of the transition to IFRS 16, leases previously classified as operating leases have now been recognised on balance sheet,
except for the short-term leases and leases of low-value assets which are included below.
As at 31 January 2020, 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
2020
Land and
buildings
£’000
793
—
—
793
Other
£’000
148
121
—
269
2019
Land and
buildings
£’000
10,869
39,371
12,664
62,904
Other
£’000
70
136
—
206
94
Notes to the accounts continuedfor the year ended 31 January 2020 26 Acquisitions and equity transactions
During the year the following material transactions took place:
1.
the acquisition of UK-based Palladium Group Limited;
2. the acquisition of UK-based Market Making Limited;
3. the acquisition of US-based Creston Plc US Holdings Inc; and
4. the acquisition of US-based Nectar Communications LLC.
More details on each transaction are provided below.
1. Palladium Group Limited
On 2 April 2019, Next 15 purchased the entire share capital of Palladium Group Limited ("Palladium"), a UK-based consultancy for the
private equity market.
Goodwill of £2,000 arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period Palladium has contributed £2,622,000 to net revenue and £455,000 to profit before tax. If acquired
on 1 February 2019 Palladium would have contributed net revenue of £3,147,000 and profit before tax of £546,000 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
—
13
216
167
(155)
—
241
204
—
—
—
—
(36)
168
204
13
216
167
(155)
(36)
409
2
411
387
—
24
411
1 The fair value of receivables acquired is £163,000.
2 This includes initial consideration paid for the business and cash paid for working capital.
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in other operating costs) amount to £56,000.
Further consideration is payable based on the profit before interest and tax of Palladium over the next four years.
95
Financial statements 26 Acquisitions and equity transactions continued
2. Market Making Limited
On 7 June 2019, Next 15 purchased Market Making Limited ("MML").
Goodwill of £2,492,000 arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period MML has contributed £1,397,000 to net revenue and £519,000 to profit before tax. If acquired on 1 February
2019 MML would have contributed net revenue of £2,096,000 and profit before tax of £779,000 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
—
14
2,079
295
(868)
(3)
1,517
2,502
—
—
—
—
(438)
2,064
2,502
14
2,079
295
(868)
(441)
3,581
2,492
6,073
2,791
456
2,826
6,073
1 The fair value of receivables acquired is £201,000.
2 This includes initial consideration paid for the business and cash paid for working capital.
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in operating costs) amount to £163,000.
3. Creston Plc US Holdings Inc
On 1 October 2019, Next 15 purchased the entire share capital of Creston Plc US Holdings Inc ("Creston") and its subsidiary, Health
Unlimited LLC ("Health") from Creston Overseas Holdings Limited. Health is a global health consultancy and communications agency.
Goodwill of £5,786,000 ($7,394,000) arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period Health has contributed £3,837,000 to net revenue and £777,000 to profit before tax. If acquired
on 1 February 2019 Health would have contributed net revenue of £11,510,000 and profit before tax of £2,331,000 to the Group
results. The due diligence over the identifiable assets acquired is still in progress; therefore, the fair value of the assets used below
are provisional.
96
Notes to the accounts continuedfor the year ended 31 January 2020 26 Acquisitions and equity transactions continued
3. Creston Plc US Holdings Inc continued
The following table sets out the estimated book values of the identifiable assets acquired and their fair value to the Group.
Book value
at acquisition
£’000
Fair value
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
Goodwill³
Consideration
Initial consideration settled in cash²
Initial consideration settled in Ordinary Shares of the Parent
Total discounted contingent consideration
—
2,991
863
4,366
(4,947)
11,361
—
—
—
—
—
(2,840)
3,273
8,521
11,361
2,991
863
4,366
(4,947)
(2,840)
11,794
15,934
27,728
17,104
5,443
5,181
27,728
1 The fair value of receivables acquired is £1,089,000.
2 This includes initial consideration paid for the business and cash paid for working capital.
3 Goodwill is denominated in USD and therefore the exchange rate at the point of acquisition has been used.
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in operating costs) amount to £272,000.
Further contingent consideration is payable in 2020 and 2021 dependent on the EBITDA performance of Health for the years ending
31 March 2020 and 31 March 2021 respectively.
97
Financial statements 26 Acquisitions and equity transactions continued
4. Nectar Communications LLC
On 26 November 2019, Next 15 purchased the entire share capital of Nectar Communications LLC ("Nectar"). Goodwill of £3,008,000
($3,892,000) arises from anticipated profitability and future operating synergies from the acquisition.
In the post-acquisition period Nectar has contributed £1,755,000 to net revenue and £477,000 to profit before tax. If acquired on
1 February 2019 Nectar would have contributed net revenue of £7,020,000 and profit before tax of £1,909,000 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. The due
diligence over the identifiable assets acquired is still in progress; therefore, the fair value of the assets used below are provisional.
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
Net assets acquired
Goodwill
Consideration
Initial consideration settled in cash
Total discounted contingent consideration²
1 The fair value of receivables acquired is £688,000.
2 This includes cash payable for working capital.
—
1,277
1,433
912
(2,116)
1,506
3,285
—
—
—
—
3,285
3,285
1,277
1,433
912
(2,116)
4,791
3,008
7,799
2,156
5,643
7,799
None of the goodwill is expected to be deductible for tax purposes. Deal costs (included in operating costs) amount to £51,000.
Further contingent consideration may be payable around April 2022 and April 2025 based on the EBITDA performance of Health
over the next five years.
The following table summarises the net cash outflow and value of shares issued on acquisition of subsidiaries during the year ending
31 January 2020:
Palladium
Market Making
Health
Nectar
Other¹
Consideration
settled in cash
£’000
Cash and cash
equivalent
balances
acquired
£’000
387
2,791
17,104
2,156
1,190
(216)
(2,079)
(863)
(1,433)
(536)
Total
net cash
outflow
£’000
171
712
16,241
723
654
Value of
shares issued
£’000
—
456
5,443
—
—
23,628
(5,127)
18,501
5,899
1 Other represents amounts in relation to a number of acquisitions, none of which is individually significant to the Group.
98
Notes to the accounts continuedfor the year ended 31 January 2020 27 Subsidiaries
The Group’s subsidiaries at 31 January 2020 are listed below.
Directly
owned
by the
Company
Percentage
voting rights
held by
Group
Address
United Kingdom
Legal Entity
Activate Marketing Services LLC
Country of
Incorporation
USA
Agent3 Limited
Agent3 LLC
Archetype Agency AB
Archetype Agency Beijing Limited
Archetype Agency BV
Archetype Agency GmbH
Archetype Agency Limited
USA
Sweden
China
Netherlands
Germany
Hong Kong
Archetype Agency SRL
Italy
Archetype Agency Limited
United Kingdom
Archetype Agency LLC
USA
Archetype Agency Sdn. Bhd.
Malaysia
Archetype Agency Private Limited
India
Archetype Agency Pte Limited
Archetype Agency Pty Limited
Archetype Agency SARL
Archetype Agency SL
August.One Communications
International Limited
Singapore
Australia
France
Spain
United Kingdom
Bite Communications Group Limited
United Kingdom
Bite Communications Limited
Brandwidth Group Limited
Brandwidth LLC
Brandwidth Marketing Limited
Bullet Marketing Limited
BYND Limited
BYND LLC
Charterhouse Research Limited
Circle Research Limited
CommunicateResearch Limited
Creston Plc US Holdings Inc
United Kingdom
United Kingdom
USA
United Kingdom
United Kingdom
United Kingdom
USA
United Kingdom
United Kingdom
United Kingdom
USA
100
56.9
56.9
100
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
75 Bermondsey Street, London SE1 3XF
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
Västmannagatan 4, 111 24 Stockholm
100 14F, Room 1703,1705, Tower 2, No. 22 Guanghua Road,
Chaoyang District, Beijing, 100020 China
100
100
100
100
100
100
Silodam 1D, 1013 AL Amsterdam, Netherlands
Nymphenburger Straße 168, 80634 München
Unit 1102-04, 11/F, 299QRC, 297-299 Queen’s Road
Central, Sheung Wan, Hong Kong
Piazzale Principessa Clotilde, 8 20121 Milano
6th Floor, 110 High Holborn, London WC1V 6JS
The Corporation Trust Company, 1209 Orange Street
– Corporation Trust Center, New Castle County,
Wilmington, DE 19801
100 Suite 21.01, The Gardens South Tower, Mid Valley City,
Lingkaran Syed Putra, 59200 KL, Malaysia
100
100
100
100
100
100
100
100
100
100
100
100
94.9
100
100
100
100
100
2nd Floor, TDI Centre, Plot No.7, Jasola,
New Delhi – 110025
36 Prinsep Street #05-01/02, Singapore 188 648
10-14 Waterloo Street, Surry Hills, NSW 2010
17 rue de la Banque, 75002 Paris
c/ Prim, 19 5ª Planta, Madrid 28004
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
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
The Corporation Trust Company, 1209 Orange Street
– Corporation Trust Center, New Castle County,
Wilmington, DE 19801
99
Financial statements 27 Subsidiaries continued
Legal Entity
Elvis Communications Limited
Encore Digital Media Limited
HPI Research Limited
Country of
Incorporation
United Kingdom
United Kingdom
United Kingdom
Hypertext Communications Private Limited
India
Hypertext Pte Limited
Singapore
Directly
owned
by the
Company
Percentage
voting rights
held by
Group
IF.Agency, LLC
M Booth & Associates LLC
M Booth Health LLC
Market Making Limited
Narration LLC
Nectar Communications LLC
Next Fifteen Communications Corporation
Next Fifteen Holdco1 Limited
ODD Communications Limited
ODD London Limited
Outcast London Limited
Palladium Group Limited
Partnermarketing.com Limited
Planning-inc Limited
Publitek GmbH
Publitek Limited
Publitek LLC
Savanta Analytics Limited
USA
USA
USA
United Kingdom
USA
USA
USA
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
USA
Canada
Savanta Group Limited
Savanta Group LLC
United Kingdom
USA
TechAD Limited
Technical Publicity Limited
Text 100 Pty Limited
United Kingdom
United Kingdom
Australia
Text 100 International Limited
United Kingdom
100
100
79.9
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Address
75 Bermondsey Street, London SE1 3XF
3 Melville Street, Edinburgh, Scotland EH3 7PE
75 Bermondsey Street, London SE1 3XF
Unit 503, Fifth Floor, Millennium Plaza, M.G. Road,
Gurgaon, Haryana, 122002, India
600 North Bridge Road, #23-01, Parkview Square,
Singapore 188 778
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
The Corporation Trust Company, 1209 Orange Street
– Corporation Trust Center, New Castle County,
Wilmington, DE 19801
75 Bermondsey Street, London SE1 3XF
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
The Corporation Trust Company, 1209 Orange Street
– Corporation Trust Center, New Castle County,
Wilmington, DE 19801
3 Melville Street, Edinburgh, Scotland EH3 7PE
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
75 Bermondsey Street, London SE1 3XF
Nymphenburger Straße 168, 80634 München
75 Bermondsey Street, London SE1 3XF
CT Corporation System, 780 Commercial Street SE,
Suite 100, Salem OR 97301
100 700 West Georgia Street, Vancouver, British Columbia,
Canada, V7Y 1B8
97.9
100
100
100
100
100
3 Melville Street, Edinburgh, Scotland EH3 7PE
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
10-14 Waterloo Street, Surry Hills, NSW 2010
75 Bermondsey Street, London SE1 3XF
Notes to the accounts continuedfor the year ended 31 January 2020 27 Subsidiaries continued
Legal Entity
Text 100 Proprietary Limited
Country of
Incorporation
South Africa
The Blueshirt Group LLC
USA
The Lexis Agency Limited
The OutCast Agency LLC
United Kingdom
USA
Twogether Creative Limited
United Kingdom
Twogether Creative LLC
USA
Velocity Partners Limited
Velocity Partners US Inc.
Vox Public Relations India Private Limited
United Kingdom
USA
India
Directly
owned
by the
Company
Percentage
voting rights
held by
Group
100
89.3
100
100
95.0
100
100
100
100
Address
Sandton Close, 2nd Floor Block A, Cnr 5th Street &
Norwich Close, Sandton, Johannesburg
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
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
CT Corp System, 818 West Seventh Street, Suite 930,
Los Angeles, CA 90017
75 Bermondsey Street, London SE1 3XF
CT Corporation System, 28 Liberty Street,
New York, NY 10005
2nd Floor, TDI Centre, Plot No.7, Jasola,
New Delhi – 110025
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 digital communications consultancy specialising predominantly in the technology
and consumer sectors.
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.
The following companies are exempt from the requirements relating to the audit of individual accounts for the year/period ended
31 January 2020 by virtue of section 479A of the Companies Act 2006: Archetype Agency Limited (03329933), August. One
Communications International Limited (03224261), Bite Communications Group Limited (04131879), Bite Communications Limited
(03023521), Brandwidth Group Limited (09599858), Bullet Marketing Limited (04842820), BYND Limited (07123452), Charterhouse
Research Limited (05079748), Circle Research Limited (05669149), Communicate Research Limited (04810991), Elvis Communications
Limited (04768344), Encore Digital Media Limited (SC449653), HPI Research Limited (05816194), Market Making Limited (07913465),
Next Fifteen Holdco1 Limited (SC364548), The Lexis Agency Limited (04404752), ODD Communications Limited (07861569), ODD
London Limited (05107477), Outcast London Limited (07831770), Palladium Group Limited (09460746), Partnermarketing.com Limited
(07545480), Planning-inc Limited (04118854), TechAd Limited (01872833), Technical Publicity Limited (02384040), Text 100 International
Limited (02433862), The Lexis Agency Limited (04404752) and Velocity Partners Limited (04128107).
101
Financial statements 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 2020 there were the following related-party transactions:
Brand
Services
Related party
Income
impact
2020
£’000
Asset
at year end
2020
£’000
Income
impact
2019
£’000
Asset
at year end
2019
£’000
Blueshirt
Consultancy
Blueshirt Capital Advisors
is an associate of Next 15
35
34
22
22
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 £383,897, £26,787 and £7,884 respectively (2019: £338,195, £16,142 and £6,660).
Key management personnel compensation is disclosed in note 3.
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
2020
£’000
231
—
231
2019
£’000
428
1,198
1,626
30 Events after the balance sheet date
Impact of Coronavirus
Refer to note 1 for details of the Group’s judgement that the impact of COVID-19 represents a non-adjusting post balance sheet event.
Given the global scale of the situation, further explanation of the impact of changing the estimates and assumptions presented in
the financial statements are given below.
Refer to notes 1 and 11 for details of the Group’s impairment methodology and key assumptions and sensitivity analysis.
In terms of current trading, we have yet to see any material impact on the business overall and we have seen some benefit from
the strength of the US dollar versus sterling and some clients switching spend away from live events into digital marketing and lead
generation. Note 19 shows the sensitivity of our business to movements in our key exchange rates, notably US dollar to sterling.
We have also yet to see any material impact on our recoverability of trade debtors. However, we do anticipate our business will be
impacted from May as the wider economic impact of COVID-19 increases. It remains too early to assess the impact that this unfolding
situation will have on trading for the year ahead.
The Group has therefore carried out further sensitivity analysis on the assumptions used in the value-in-use calculations for the
purposes of the goodwill impairment review. Using a revised brand-specific FY21 budget to calculate the value in use for each cash-
generating unit would indicate an impairment in the range of £0–£1.5m for the Group.
The Group also uses key assumptions when determining the value of contingent consideration and share purchase obligations
related to acquisitions, including judgements around future revenue growth and profit margins. Therefore, as a result of the impact
of COVID-19, these assumptions are likely to change, as such this will result in a material adjustment to the value of these liabilities
within the next financial year. Further details, including sensitivity analysis, are contained in note 17.
Deferred tax assets are only recognised to the extent it is probable there will be future taxable profits. Subsequent to the balance
sheet date, the Group has reviewed the current impact of COVID-19 on those future taxable profits and concluded that deferred tax
assets can continue to be recognised in full.
102
Notes to the accounts continuedfor the year ended 31 January 2020 Company balance sheet
as at 31 January 2020 and 31 January 2019
Non-current assets
Intangible assets
Tangible assets
Right-of-use assets
Investments in subsidiaries
Investment in financial assets
Deferred tax assets
Current assets
Trade and other receivables
Current tax asset
Current liabilities
Borrowings
Trade and other payables
Lease liabilities
Provisions
Contingent consideration
Deferred consideration
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings
Other financial liabilities
Lease liabilities
Provisions
Net assets
Equity
Share capital
Share premium account
Merger reserve
Share-based payment reserve
Other reserve
Retained earnings
Note
2020
£’000
2020
£’000
2019
£’000
2019
£’000
2
3
4
5
10
6
7
4
9
8
8
4
11
646
1,050
6,115
170,916
838
755
49,412
2,259
5,000
19,667
1,213
1,129
7,402
2,715
33,007
7,080
5,576
3,578
2,163
76,019
3,075
8,136
26,460
29,771
910
1,253
—
163,496
1,335
47
180,320
167,041
23,068
1,991
51,671
25,059
(37,126)
14,545
194,865
(49,241)
145,624
5,000
22,706
—
491
1,871
2,182
20,678
10,819
—
784
2,089
62,993
3,075
7,925
26,871
24,616
(32,250)
(7,191)
159,850
(32,281)
127,569
Equity attributable to owners of the Company
145,624
127,569
The following notes are an integral part of this Company Balance Sheet.
The Company reported a profit for the financial year ended 31 January 2020 of £12,937,000 (2019: £16,910,000).
These financial statements were approved and authorised for issue by the Board on 22 April 2020.
Peter Harris
Chief Financial Officer
Company number 01579589
103
Financial statements Company statement of changes in equity
for the year ended 31 January 2020 and 31 January 2019
Share
capital
£’000
Share
premium
account
£’000
Merger
reserve
£’000
Note
Share-
based
payment
reserve
£’000
1,892
28,611
3,075
6,404
At 31 January 2018
Profit for the period
Fair value loss on investments
in equity instruments designated
as FVTOCI
Dividends
10
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
—
—
—
68
24
105
—
—
—
—
—
—
—
10,593
4,433
19,356
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12)
—
—
—
1,533
—
—
At 31 January 2019
2,089
62,993
3,075
7,925
Change in accounting policy
(IFRS 16)¹
Deferred tax on accounting policy
change (IFRS 16)¹
—
—
—
—
—
—
—
—
At 1 February 2019 (as restated)
2,089
62,993
3,075
7,925
Profit for the period
Fair value loss on investments
in equity instruments designated
as FVTOCI
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
—
—
—
38
36
—
—
—
—
—
—
—
5,388
7,638
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15)
—
—
226
—
—
At 31 January 2020
2,163
76,019
3,075
8,136
1 Refer to note 1 for the restatement required following adoption of IFRS 16.
The following notes are an integral part of this Company Statement of Changes in Equity.
104
ESOP
reserve
£’000
Other
reserve
£’000
Retained
earnings
£’000
Total
£’000
—
—
—
—
—
—
—
—
—
(12)
12
—
—
—
—
—
—
—
—
—
—
—
(15)
15
—
27,571
13,642
81,195
—
16,910
16,910
—
—
—
—
—
(700)
—
—
—
(693)
(693)
(5,243)
(5,243)
—
—
—
—
—
—
—
10,649
4,457
19,461
(700)
1,533
(12)
12
26,871
24,616
127,569
—
—
(573)
(573)
97
97
26,871
24,140
127,093
—
12,937
12,937
—
—
—
—
(411)
—
—
—
(547)
(547)
(6,759)
(6,759)
—
—
—
—
—
—
5,411
7,674
(411)
226
(15)
15
26,460
29,771
145,624
Notes forming part of the Company financial statements
for the year ended 31 January 2020
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 the inside back cover. The nature of the Company’s operations and its principal activities are set out
in the Strategic Report on pages 1 to 21. The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting
Standard 100) 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.
The separate 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 section 408 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.
The Company has adopted IFRS 16 in the period, further details of which are disclosed in note 1 to the consolidated financial
statements. The impact of adoption of IFRS 16 for the Company in the period is a £476,000 reduction in retained earnings relating
to the recognition of right-of-use assets and lease liabilities.
The new standards and amendments which have not yet been adopted are disclosed in note 1, section U, 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.
The monthly average number of employees during the year was 43 and employee costs for the year totalled £3,292,000 (2019:
£3,797,000) . This was made up of £2,474,000 in respect of wages and salaries (2019: £2,643,000); £604,000 in respect of social
security (2019: £318,000); £107,000 in respect of pension costs (2019: £67,000) as well as £107,000 in relation to share-based payment
charges (2019: £769,000). Disclosures relating to the remuneration of the Parent company’s directors are included in the directors’
remuneration report on pages 32 to 42.
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
Critical judgements in applying the Group’s accounting policies
There are no critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors
have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts
recognised in financial statements.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have
a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
105
Financial statements Notes forming part of the Company financial statements continued
for the year ended 31 January 2020
1 Accounting policies continued
D. Critical accounting judgements and key sources of estimation uncertainty continued
Key sources of estimation uncertainty continued
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 £171m.
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.
2 Intangible assets
Cost
At 1 February 2019
Additions
At 31 January 2020
Accumulated depreciation
At 1 February 2019
Charge for the year
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
3 Tangible assets
Cost
At 1 February 2019
Additions
At 31 January 2020
Accumulated depreciation
At 1 February 2019
Charge for the year
At 31 January 2020
Net book value
At 31 January 2020
At 31 January 2019
106
Computer
software
£’000
3,561
93
3,654
2,651
357
3,008
646
910
Total
£’000
2,489
105
2,594
1,236
308
1,544
1,050
1,253
Short leasehold
improvements
£’000
Office
equipment
£’000
1,795
16
1,811
718
219
937
874
1,077
694
89
783
518
89
607
176
176
4 Leases
The movements in the year ended 31 January 2020 were as follows:
Right-of-use assets:
At 31 January 2019
Additions
Depreciation of right-of-use assets
At 31 January 2020
Lease liabilities:
At 31 January 2019
Additions
Interest expense related to lease liabilities
Repayment of lease liabilities
At 31 January 2020
The maturity of the lease liabilities is as follows:
Amounts payable:
Within one year
In two to five years
After five years
Total gross future liability
Effect of discounting
Lease liability at 31 January
5 Investments
Cost
At 1 February 2019
Acquisitions¹
Disposals
At 31 January 2020
Land and
buildings
£’000
5,678
1,417
(980)
6,115
Land and
buildings
£’000
6,417
1,395
178
(1,201)
6,789
2020
£’000
1,394
4,632
1,358
7,384
(595)
6,789
Total
£’000
163,496
7,420
—
170,916
1
On 2 April 2019, the Company purchased 100% of the issued share capital of Palladium Group Limited. On 7 June 2019, the Company purchased 100% of the share capital
of Market Making Limited. Refer to note 26 in the Group financial statements for further details of the acquisitions made in the year.
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.
107
Financial statements Notes forming part of the Company financial statements continued
for the year ended 31 January 2020
6 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
7 Trade and other payables
Overdraft
Trade creditors
Amounts owed to subsidiary undertakings
Other taxation and social security
Other creditors
Accruals and deferred income
Total trade and other payables
8 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
Deferred 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
1 The entire bank facility is secured on guarantees from the guarantor pool.
108
Company
2020
£’000
Company
2019
£’000
48,015
20,883
922
320
155
1,642
532
11
49,412
23,068
Company
2020
£’000
4,333
327
13,750
117
7
1,133
Company
2019
£’000
8,961
513
11,126
92
22
1,992
19,667
22,706
Company
2020
£’000
33,007
5,000
28,007
—
4,982
1,350
3,632
—
—
—
—
—
2,098
—
2,098
—
Company
2019
£’000
20,678
5,000
15,678
—
8,227
4,247
3,980
—
2,464
2,464
—
—
128
—
128
—
40,087
31,497
8 Non-current liabilities continued
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 2020.
The Company has no fair value Level 1 instruments (2019: none). The Company’s investments in financial assets are Level 2 instruments
and are measured at historic quoted prices. All other 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.
9 Provisions
At 31 January 2019
Additions
Utilised in period
At 31 January 2020
10 Deferred tax
Deferred tax is provided as follows:
At 31 January 2018
Credit to income
At 31 January 2019
Accounting policy change (IFRS 16)
Credit to income
At 31 January 2020
11 Share capital and reserves
Authorised, allotted, called up and fully paid
86,552,648 Ordinary Shares of 2.5p each
Employment-
related
acquisition
liabilities
£’000
1,275
4,446
(1,014)
4,707
Accelerated
capital
allowances
£’000
Tax losses
£’000
(6)
11
5
—
30
35
—
17
17
—
(17)
—
Other
£’000
3
22
25
97
598
720
Total
£’000
1,275
4,446
(1,014)
4,707
Total
£’000
(3)
50
47
97
611
755
2020
£’000
2019
£’000
2,163
2,089
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.
109
Financial statements Notes forming part of the Company financial statements continued
for the year ended 31 January 2020
12 Operating leases
As a result of the transition to IFRS 16, leases previously classified as operating leases have now been recognised on balance sheet,
except for the short-term leases and leases of low value assets which are included below.
As at 31 January 2020, 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
2020
Land and
buildings
£’000
91
—
—
91
Other
£’000
27
—
—
27
2019
Land and
buildings
£’000
1,204
5,053
1,001
7,258
Other
£’000
—
—
—
—
Operating leases relate to the rental of office space for the Group in the UK.
13 Related-party transactions
During the period the Company received the following amounts in respect of head office costs and intercompany interest from
undertakings which were not wholly owned at the balance sheet date:
Agent3 Limited
Blueshirt Group LLC
Intercompany interest
Recharges
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
Year ended
31 January
2020
£’000
Year ended
31 January
2019
£’000
—
—
—
—
906
243
806
196
At 31 January the Company had the following intercompany amounts receivable from/(payable to) the subsidiaries below:
Agent3 Limited
Blueshirt Group LLC
Year ended
31 January
2020
£’000
2,986
4
Year ended
31 January
2019
£’000
2,246
9
110
Five-year financial information
for the 12-month period ended 31 January (unaudited)
Year ended
2020
IFRS
£’000
Year ended
2019
IFRS
£’000
Year ended
2018
IFRS
£’000
Year ended
2017
IFRS
£’000
Year ended
2016
IFRS
£’000
Profit and loss
Billings
Net 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 (outflow)/inflow 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 indicators and other non-statutory measures
Headline staff costs as a % of net revenue¹
Headline EBITDA²
Headline profit before income tax³
Diluted headline earnings per share (p)⁴
Net debt⁵
325,353
248,469
171,180
19,413
(14,061)
5,556
(2,717)
2,839
577
2,262
224,370
1,780
(113,439)
113,296
(585)
112,711
2,839
46,662
49,501
(5,993)
43,508
(18,501)
(3,460)
(28,340)
13,039
(6,759)
(6,826)
8,342
2.5
2.7
2.5
65.6
56,764
40,237
34.8
(9,346)
291,037
224,093
153,247
20,677
(1,917)
18,825
(4,299)
14,526
639
13,887
243,485
196,811
136,346
17,225
(3,955)
13,296
(4,000)
9,296
664
8,632
155,028
120,082
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)
15,014
(58,775)
76,964
(643)
76,321
9,296
19,569
28,865
(4,284)
24,581
(9,824)
(2,974)
(19,399)
(30,592)
4,484
(4,121)
(2,034)
3,148
6.30
11.6
10.5
67.0
34,388
29,338
27.8
(11,593)
11,589
(3,264)
6,500
6,774
5.25
1.6
1.5
67.6
28,964
24,200
23.4
(11,412)
10,792
(54,367)
112,529
(1,076)
111,453
14,526
23,856
38,382
(6,237)
32,145
(19,281)
(5,648)
(37,154)
(10,922)
(5,243)
645
(4,364)
7.56
17.5
16.3
65.9
41,733
36,004
33.1
(5,177)
1 Staff costs excluding restructuring costs. See note 5 of the financial statements.
2 Operating profit before depreciation, amortisation, acquisition-related consideration movements and other adjusting 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.
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)
111
Financial statements Shareholder information
Financial calendar
Preliminary results
2020 full-year results announcement
23 April 2020
Annual General Meeting
25 June 2020
2021 half-year results announcement
October 2020
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Year end
31 January 2021
Telephone from the UK: 0371 664 0300
2021 full-year results announcement
April 2021
Calls are charged at the standard geographic rate and will vary by
provider. Lines are open Monday to Friday (9.00 a.m.–5.30 p.m.).
Final dividend
Telephone from overseas: +44 (0)371 664 0300
As detailed on page 43, the 2020 final dividend has
been suspended.
Calls outside the UK will be charged at the applicable
international rate.
Interim dividend
Ex-dividend date
Record date
Last date for DRIP election
Payment of 2021 interim dividend
October 2020
October 2020
November 2020
November 2020
These dates are provisional and may be subject to change.
Annual General Meeting
Please see page 44 for further details.
Managing your shares and shareholder communications
The Company’s shareholder register is maintained by its registrar, Link
Asset Services. Information on how to manage your shareholdings
can be found at www.signalshares.com. Shareholders can contact
Link 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.signalshares.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 Link Asset Services.
E-mail: enquiries@linkgroup.co.uk
Dividends
Dividends can be paid directly into your bank account. This is
the easiest way for shareholders to receive dividend payments
and avoids the risk of lost or out-of-date cheques. A dividend
mandate form is available from Link Asset Services or at
www.signalshares.com.
For dividends payable on or after 6 April 2018 the dividend nil rate
will only apply to the first £2,000 of a person’s dividend income.
Please refer to HMRC’s website www.gov.uk/tax-on-dividends or
seek advice from a professional tax adviser if you have any doubt
about how this impacts your tax position.
Link 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 Link
Asset Services or at http://ips.linkassetservices.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 Link Asset Services.
If shareholders would like their future dividends to qualify for the
DRIP, completed application forms must be returned to the registrar.
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 Link Asset Services immediately.
More detailed information can be found on the FCA website
at: www.fsa.gov.uk/consumerinformation/scamsandswindles/
investment_scams/boiler_room.
112
Advisers
Nominated adviser and brokers
Numis Securities
10 Paternoster Square
London EC4M 7LT
External Auditor
Deloitte LLP
Hill House
1 Little New Street
London EC4A 3TR
Bankers
HSBC Bank plc
8 Canada Square
London E14 5HQ
Investor relations
Investor-relations@next15.com
Registered office
Next Fifteen Communications Group plc
75 Bermondsey Street
London SE1 3XF
T: +44 (0)20 7908 6444
Company number
01579589
Website
www.next15.com
CBP002734
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≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ±
√ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ %
[ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ +
ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ %
Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏
− = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞
zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × +
x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s
< X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷
≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷
≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ±
— ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ±
− º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( )
Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ
‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × )
≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P /
Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ ×
∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md
> Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ±
Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X
£ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫
* P Md % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± ×
) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P
/ Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞
× ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑
] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫
σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ
£ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ±
Next Fifteen Communications Group plc
zx = Md P / Q2 X + ≤ × Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % +
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f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰
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⋅ zx ∑ Md > Q3 [ s μ √ Q2 ≈ — ∫ * P Md º ≤ MR > ± √ s f ≥ μ ± ‰ X £ % Q2 ∫ * — σ < Q3 − × + x ⋅ [ ) Q1 zx / ρ ≠ ∞ ÷ ≈ Mo ∑ ] = ∏ ( ) * ⋅ ( ) Mo ≠ − ± zx = Md P / Q2 X + ≤ ×
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Q3 ≥ ∫ ± Q1 f s > ∑ μ ρ ÷ x — σ < MR ≈ ∞ ∏ √ % [ ] £ º ‰ Md μ zx º ∏ − = Q2 > Q1 [ ) ] ≤ £ s < X ⋅ * ≠ x MR / Q3 ± — ≈ ∑ ∫ σ ≥ √ ÷ × ( ρ ‰ P % + f ± Mo ∞ × ∑ = f ) ( ∫ x
MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / = σ £ f ρ ] ± × ) ≥ + Q1 ‰ ⋅ zx ∑ Md > Q3 [ s μ
√ Q2 ≈ — ∫ * P Md % + f ± Mo ∞ × ∑ = f ) ( ∫ x MR Q2 X £ ≤ s Q1 * < σ º Md ≥ μ ≠ Mo > ‰ ⋅ ÷ + ρ % ≈ Q3 [ − / P ] ± ∞ zx — ± ∏ √ x < ≠ % ÷ ≤ ( ∏ MR Mo ∞ P ± − º X / =
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