Chairman’s statement

Investment in a challenging environment

Next Fifteen Communications Group plc (‘Next Fifteen’ or ‘the Group’), the global public relations consultancy group, is pleased to report its results for the year to 31 July 2009. The Group, like many businesses has been impacted by the global economic downturn. Despite this the Group has reported revenues up 3.6% to £65.4m (2008: £63.1m). Profitability was more sensitive to the economic slowdown with profit before tax down to £3.2m (2008: £5.5m), but the adjusted profit was £5.2m (2008: £6.6m) (see note 5). Earnings per share was similarly impacted at 3.67p (2008: 7.08p), with the adjusted basic earnings per share being 6.48p (2008: 8.62p) (see note 10). The Group continues to have a strong balance sheet, ending the year with net funds of £1.8m (2008: £3.4m) (see note 20), achieved after making £4.5m of acquisition-related payments. In view of this and the improving outlook overall, the Board has proposed a final dividend of 1.25p per share, which maintains the total dividend for the year at 1.7p.

The Group’s results were significantly impacted by the currency contracts placed before the start of the year, which matured during the year. These protection contracts effectively locked the Group into what became unfavourable rates after sterling fell sharply against both the US dollar and euro. These maturing contracts created an additional loss of £1.7m above their fair value at the beginning of the year, which is included in other operating charges within head office costs but not shown as an adjustment to profit (note 5).

Corporate activity

Just after the year end the Group announced the acquisition of New York-based consumer agency M Booth and in recent weeks it has also announced the acquisition of the Asian PR assets of AIM-listed Upstream Marketing and Communications Inc., which will give the Group’s Bite business a strong Asia Pacific operation, to complement its existing US and European operations. The Group also announced its purchase of a further 30% stake in 463 Communications LLC, a US-based policy communication consultancy, in which it already has a 40% interest. Lastly the Group also announces that it intends to open a digital communications agency in the next three months. Two executives from Bite are moving over to lead this venture.

Cost control

During the year the Group made some significant headcount reductions following the slowdown in most of its markets. Following a strategic review, decisions were also taken to merge London-based Inferno into Bite and to close the Text 100 offices in Seattle and Dublin. These actions resulted in one-time charges of £1.95m, of which £0.4m related to the cost of surplus office space. Setting these aside, the Group continued to keep staff costs as a percentage of revenue at 67%. The close management of staff costs should help the business to restore its profit margins in the coming year as revenue growth begins to recover.

Strengthened client base

The Group already has an enviable client base that includes IBM, Microsoft, Cisco, Facebook, AMD, Unilever and Coca-Cola. Just after the year end, the Group added HP as a significant client in the US which helped make up for the loss of Sun Microsystems, following the announcement that it was being acquired by Oracle. The Group also added Autodesk and
VMware as clients during this period.

Growth strategy

The Group has continued to explore organic growth opportunities supported by selective acquisitions of specialist agencies in growth sectors. This is demonstrated by the acquisition of M Booth who are working with the existing UK business of Lexis, to create a global consumer agency for the Group. The acquisition of Upstream’s PR agencies in China, Singapore and Australia will enable Bite to offer its existing and new clients a single-agency solution in Europe, North America and Asia Pacific. Lastly, the creation of a digital agency to leverage the Group’s existing capabilities in social media and related digital services is further evidence that the Group continues to focus on long-term growth. With strong cash-generation from operations and existing acquisition facilities, the Group remains well placed to make additional targeted acquisitions of a size that would not lead to a significantly geared balance sheet, an approach that the Board continues to feel is prudent given the current economic climate.

Prospects

The Group has managed its cost base and balance sheet well during this difficult economic cycle. Unlike some others in the marketing services sector it remains conservative about cash, having ended the year with net funds of £1.8m on its balance sheet. Despite the slow but gradual improvement in the economic climate, the Group will continue to be careful in its approach to running the business and as reported last year, focus heavily on the three Cs of customers, cost base and cash. The Group has seen an improvement in trading conditions after a tough first quarter of the 2009 calendar year but it will continue to manage the business in a way that reflects the general uncertainty that surrounds the sustainability of economic recovery. In the first two months of the current financial year, the Group has seen good momentum and the Board remains optimistic about the prospects for the year.