Digital Evolution
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Next Fifteen Communications Group plc Group Communications Fifteen Next Next Fifteen Communications Group plc Next Fifteen Communications Group plc Annual Report 2012 The Triangle 5–17 Hammersmith Grove London W6 0LG T: +44 (0)20 8846 0770 www.next15.com DIGITAL Ann ual Report 2012 Report ual EVOLUTION Scan this code with one of the many available QR reader apps on your smartphone to access our online Review of 2012 Or visit: http://www.ar12.next15.com 015789_Next15_cover (Working Copy).indd 1 26/11/2012 14:59 INTRODUCTION Using your smartphone, scan this THIS YEAR WE HAVE CREATED AN ONLINE code to access our online Review of 2012. REVIEW OF 2012 TO COMPLEMENT THIS Or visit: http://www.ar12.next15.com ANNUAL REPORT, WHICH CAN BE FOUND ON OUR WEBSITE, WWW.NEXT15.COM. THE SITE FEATURES CLIENT CASE STUDIES, GIVING EXAMPLES OF THE DIFFERENT TYPES OF DIGITAL WORK WE ARE NOW DOING. THE REVIEW OF THE YEAR ALSO EXAMINES OUR PROGRESS ON TRANSITIONING THE BUSINESS IN THE NEW DIGITAL WORLD. CONTENTS OVERVIEW FINANCIAL STATEMENTS Introduction IFC Consolidated income statement 30 Highlights 01 Consolidated statement of 31 Chairman’s statement 02 comprehensive income OPERATING REVIEW Consolidated balance sheet 32 Business Review 04 Consolidated statement of changes 33 in equity Financial Review 06 Consolidated statement of cash flow 35 GOVERNANCE Notes to the accounts 37 Board of Directors 11 Company balance sheet 78 Report of the Directors 13 Reconciliation of movements 79 Remuneration Report 16 in shareholders’ funds Directors’ statement on Corporate 21 Notes forming part of the Company 80 Governance financial statements Statement of Directors’ responsibilities 27 ADDITIONAL INFORMATION Independent auditors’ report 28 Five-year financial information 85 Financial calendar and contacts 87 Next Fifteen Communications Group plc Annual Report 2012 015789_Next15_cover (Working Copy).indd 2 26/11/2012 14:59 HIGHLIGHTS Financial highlights Revenue (£m) Adjusted profit before tax (£m)1 Profit before tax (£m) 91.6 9.60 86.0 8.40 7.53 72.3 65.4 6.61 5.96 5.30 5.25 3.16 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 £91.6m +6% £9.6m +14% £6.0m -21% (2011: £86.0m) (2011: £8.4m) (2011: £7.5m) Adjusted earnings before Diluted adjusted earnings interest, tax,depreciation and per share (pence)2 Dividend per share (pence) amortisation (£m)4 10.07 2.30 11.2 8.74 2.05 10.7 1.85 7.53 1.70 8.4 6.46 5.5 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 10.07p +15% 2.30p +12% 11.2m +5% (2011: 8.74p) (2011: 2.05p) (2011: £10.7m) 1 See note 5 to the financial statements. 2 See note 10 to the financial statements. OPERATIONAL HIGHLIGHTS Adjusted pre-tax profit margin Acquired the remaining 20% of increased to 10.5% from 9.8% CMG Worldwide Limited (trading last year as Bourne) that the Group did not already own Net debt increased by just £1.0m Acquired a 71.8% shareholding in year on year to £2.6m, despite Paratus Communications Limited, spending of £5.7m on acquisition- a small UK-based corporate and related payments3 consumer agency integrated within Lexis Acquired 80% of the issued share Acquisition of Content & Motion in capital of two German-based August 2012, providing Beyond with businesses, Trademark PR and a talented social media team Trademark Consulting, to be creating programmes that drive integrated within the Bite engagement through blogger and Communications group media outreach and clients' owned social media presences 3 Net debt excludes contingent consideration 4 Operating profit before depreciation, and share purchase obligations. See note 19 amortisation and the impact of to the financial statements. fraudulent activity. Next Fifteen Communications Group plc Annual Report 2012 01 CHAIRMAN’S STATEMENT “ NExT 15’S STRATEGy IS ANIMATED by A CORE bELIEF THAT TECHNOLOGy IS DRIvING FuNDAMENTAL CHANGES IN bEST MARkETING pRACTICES.” Next 15, a worldwide digital and also in the Financial Review but THE DIGITAL TRANSITION communications group, is pleased I’m pleased to report that the initial Next 15’s strategy is animated by a to report that it has continued to investigation is now concluded. core belief that technology is driving trade well with strong operational The Group has reported revenue fundamental changes in best performances from almost every up 6% to £91.6m (2011: £86.0m) and marketing practices. This is evidenced part of the Group. This success has adjusted profits1 before tax were by the roles Google, Microsoft, been underpinned by the Group’s up 14% at £9.6m (2011: £8.4m). Twitter and Facebook now play in the early transition from traditional PR Profit before tax was down to £6.0m marketing activities of most major to digital and social marketing (2011: £7.5m), following the impact companies. Whilst the pace of services. As I reported last year, this of the fraudulent activity notified to adoption of new techniques varies strategy is giving the Group access shareholders on 31 October 2012 from company to company, the to new revenue streams and helping (see below). Diluted adjusted Group is now equipped to advise to drive growth in many global earnings per share2 increased 15% all clients on how to make best use markets. The transition is being to 10.07p (2011: 8.74p) and the Group of digital and social opportunities driven both through organic ended the year with a modest net as they continue to emerge. expansion and targeted acquisitions. debt (excluding contingent While the global economy continues Next 15 has strong domain expertise consideration liabilities and share to struggle, Next 15 continues to in the technology market and advises purchase obligations) of £2.6m. deliver revenue and earnings growth many of the leading online marketing This level of debt represents less than with a strong balance sheet. On a businesses on the development of 25% of adjusted EBITDA3, being separate note, the recent discovery their own online influence models. £11.2m (2011: £10.7m). On the back of of a fraud in one of our operations The insights thus developed create these results the Board is is covered in some detail later a core of expertise applicable to recommending a final dividend of in this statement traditional technology vendors as well 1.735p per share, which increases the as broader consumer and business dividend for the year by 12% to 2.3p to business brands. 1 See note 5 to the financial statements. (2011: 2.05p). 2 See note 10 to the financial statements. The transition from traditional PR 3 Operating profit before depreciation, services to more social and digital amortisation and the impact of fraudulent activity. activities will generate mixed levels Next Fifteen Communications Group plc 02 Annual Report 2012 of growth across the business as by a full-year contribution from new service lines replace the old. Bourne, with organic growth of Diluted adjusted earnings The digital investments made in the an impressive 34%. per share (pence) Group continue to pay off, with 10.07 FA R uduLENT ACTiviTy 8.74 organic growth substantially greater 7.53 in those agencies that are further On 31 October 2012 we informed 6.46 along the digital marketing path. shareholders that, in the latter stages This underpins the Board’s view that of finalising the audit, a fraud was continued investment – organic and discovered in the San Francisco office 2009 2010 2011 2012 by acquisition – is merited in areas of Bite Communications. This has that can accelerate the Group now been thoroughly investigated 10.07p +15% through this extraordinary market with the conclusion that this was an (2011: 8.74p) transition. For example the Group act of personal embezzlement by a generated only 3% of its revenues long-standing member of the finance Dividend per share (pence) from research and analytics in team in a trusted position. The 2.30 the last year. This is an important 2.05 required accounting adjustment has 1.85 area of potential growth through been to write off as an exceptional 1.70 the sale of products and services item $2.8m (£1.8m) (see note 4) complementary to the core relating to unrecoverable assets and service lines. unrecorded liabilities, reflecting cash 2009 2010 2011 2012 stolen from the business. The fraud SEGMENTAL continued into the early part of the 2.30p +12% current financial year, which will (2011: 2.05p) PERFORMANCE require a further write-off of $0.2m Technology PR, which remains at the (£0.1m). This crime is now being heart of the Group, representing 66% investigated by the FBI and the SFPD. Group’s services. As highlighted of revenues, grew by just over 2%, All steps will be taken to recoup lost above, the Group is also well-placed despite the loss of HP in our Bite assets but it is too soon to estimate to benefit from the continued Communications business. the likely scale of any recovery. shift of audiences and marketing expenditures to digital and social The Consumer PR division, The Board is undertaking a marketing platforms. representing 16.5% of total revenue, comprehensive review of the internal declined by just over 6% following a financial controls environment, the We continue to explore ways to tough year for Lexis, which has been details of which you can find in the expand digital capabilities through re-staffed and retooled considerably Financial Review. Meanwhile, as a mix of organic investment and during the year. This agency indicated in the statement of targeted acquisitions using our strong completed the acquisition of Paratus 31 October, this regrettable event balance sheet position.