REG-Next 15 Group plc Half-year Report
17/09/2024 07:00
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Half-year Report
17 September 2024
Next 15 Group plc
(“Next 15” or the “Group”)
Interim results for the six months ended 31 July 2024
Revenues flat with margins impacted by continued weakness from Tech customers
Next 15 Group plc (AIM:NFG), the tech and data-driven growth consultancy,
today announces its interim results for the six months ended 31 July 2024.
Financial results for the six months to 31 July 2024 (unaudited)
Six months ended Six months ended % change year on year
31 July 2024
31 July 2023
£m £m
Adjusted results(1)
Net revenue 286.8 286.4 0.1%
Adjusted operating profit 48.1 57.0 (15.6)%
Adjusted operating profit margin 16.8% 19.9%
Adjusted profit before tax 45.7 55.6 (17.8)%
Adjusted diluted earnings per share (p) 30.3p 37.9p (20.1)%
Statutory results
Net cash inflow from operating activities 4.6 11.0 (58.2)%
Revenue 364.1 364.9 (0.2)%
Profit before tax 33.4 24.3 37.4%
Diluted earnings per share (p) 21.1p 13.6p 55.1%
(1)Adjusted results have been presented to provide additional information that
may be useful to shareholders to understand the performance of the Group by
facilitating comparability both year on year and with industry peers. Adjusted
results are reconciled to statutory results within the appendix.
Financial and operational highlights
* Group net revenue and statutory revenue flat year on year at £286.8m and
£364.1m respectively
* Adjusted operating profit of £48.1m, down 15.6% year on year, due to
underperformance at some of our higher margin businesses
* Statutory profit before tax up 37.4% to £33.4m
* Adjusted diluted earnings per share of 30.3p and statutory diluted earnings
per share of 21.1p
* Interim dividend held flat year on year at 4.75p per share
* Net cash inflow from operating activities down to £4.6m, with net debt
£74.8m as at 31 July 2024
* Significant new wins and expanded assignments with Ericsson, PEGA, P&G and
Johnson & Johnson, driving a strong performance from several businesses
across the Group, particularly in Engage and Delivery
* Completed bolt-on acquisitions including Studio La Plage and TUVA, with the
acquisition of Cadence Innova post the period end
* Returned a further £5.3m to shareholders in the period via the share buyback
programme
Trading
Next 15 has seen a mixed performance during the period. This is largely driven
by a continued weakness in spend from our technology customers which was down
13% year on year and UK government departments which was down 28% driven in
part from the earlier than expected general election. Our insights business,
Savanta, also suffered from weakness in its marketplace. Beyond these areas,
we have experienced robust performances in other segments, most notably
consumer packaged goods and retail.
While overall revenues in H1 are flat, we have seen strong performances from
many businesses in the consumer and health sectors, most notably SMG, M Booth
and M Booth Health which have all delivered good organic growth and margins.
Brandwidth, MHP and Agent3 have also made important contributions, with Agent3
notably bucking the decline in tech spend. Adjusted operating profit margin
was down to 16.8% due to underperformance of some of our higher margin
businesses. However, a material cost reduction programme commenced in the
first half of the year to improve margins going forward.
The disappointing loss of the large contract in Mach49 announced earlier in
September, which will now end in its current form on 31 December of this year,
will have an impact on this year’s financial performance although it will
have a greater impact for FY26 and FY27, as the contract had been expected to
contribute just over £80m of revenue in FY26 and FY27. Whilst the contract
ending is disappointing, Mach49 continues to be well positioned to capture
opportunities relating to growth and innovation consulting and despite a
slower start to the year, we anticipate a recovery in trading during the
second half of the year from the rest of its customer base.
We acquired Mach49 in September 2020 when it was generating approximately $14m
annualised revenue at a 10% margin. At the time we made an initial acquisition
payment of $4.7m. By the end of this financial year, we anticipate the
business will have generated approximately $124m in after tax profits for the
Group and that we will have paid out $127.4m in total consideration payments.
Going forward we expect Mach49 to deliver at least $30m in annual revenue at a
30% margin and the remaining earnout obligation is approximately $105.4m to be
paid over the next three years, resulting in a total estimated consideration
of $232.8m. Assuming an average annual growth rate of 10% and taking account
of tax credits resulting from the acquisition of Mach49, we expect a payback
within the next 8 years.
Strategy going forward and outlook
Earlier this year the Group embarked on an initiative to explore how we could
better deliver our long-term growth ambitions and achieve enhanced returns for
shareholders. The key findings of the review were a need to make our Group
simpler in structure, whilst maintaining our decentralised heritage so that we
can generate a series of more integrated solutions for customers and a more
efficient operating model. The work to deliver on this will continue through
the coming year, with further cost reduction measures resulting in a material
level of restructuring charges. However, we expect this to deliver long term
margin improvement and increased client revenue opportunities.
Capital allocation remains a key area of focus for the Board but guided by an
overarching principal of maintaining a strong balance sheet.
The primary focus of capital allocation is to continue to prioritise
investment in internal capabilities. This includes Generative AI, which
remains a key investment area for the Group and an area where we have made
significant progress. Our newly formed Next 15 AI Labs unit has already
started to generate new ideas and opened client conversations which in turn
are driving AI led product development within the portfolio companies. We are
now tracking more than 130 separate AI product and innovation projects across
the Group.
We anticipate a continuation of our disciplined approach of selective bolt-on
M&A, with businesses that align with our culture and values. Our M&A
strategy is focused on strengthening our successful core businesses. We
continue to return cash to shareholders through a regular dividend and
anticipate we will return excess cash via share buybacks where this provides
the best financial return to shareholders. The further amount to be spent on
share buybacks will clearly depend on both the share price and alternative use
of funds in line with our capital allocation framework.
With regards to the second half of this year and into FY26, we are not, at
this stage, factoring in a recovery in spending from our technology customers.
However, with the recent change in government alleviating political
uncertainty in the UK, we do anticipate that government spend will recover in
early FY26. Consistent with the Group’s performance in prior years, we
expect revenues to be modestly second-half weighted. However, the businesses
that have seen the toughest trading conditions in the first half of FY25 have
reacted by taking significant action on their cost base which will positively
impact their profitability in the second half of FY25 and beyond. Accordingly,
we expect the Group’s profitability to be more second-half weighted than
normal in FY25.
Looking ahead, we are confident of meeting the recently revised market
expectations which followed the disappointing news about the large contract in
Mach49 ending earlier than anticipated, as announced earlier in September. The
Group remains well positioned to capitalise on the underlying structural
megatrends occurring in its key markets, with the ongoing simplification and
optimisation work best positioning the Group for future growth going forward.
Commenting on the results, Tim Dyson, CEO of Next 15 said:
“These results mask some strong performances by a number of the Group’s
businesses which need to be recognised. Most notably, performances by Agent3,
Brandwidth, M Booth, M Booth Health, MHP and SMG. They also mask strong
progress on embedding AI into our systems and in the development of new
customer-facing AI-based products and services. While trading conditions in
tech continue to create headwinds for many businesses, especially in our
Delivery and Engage segments, conditions in other sectors remain
favourable.”
Webcast for analysts and investors
Next 15 will host an analyst and investor webcast at 9:00am today (UK time),
Tuesday 17 September 2024.
To access the webinar, please contact next15@mhpgroup.com
(mailto:next15@mhpgroup.com)
For further information contact:
Next 15 Group plc
Tim Dyson, Chief Executive Officer
+1 415 350 2801
Peter Harris, Chief Financial Officer
+44 (0) 20 7908 6444
Deutsche Numis (Nomad & Joint Broker)
Mark Lander, Hugo Rubinstein
+44 (0)20 7260 1000
Berenberg (Joint Broker)
Ben Wright, Mark Whitmore
+44 (0)20 3207 7800
MHP (Investor Relations)
Simon Evans, Eleni Menikou, Veronica Farah
Next15@mhpgroup.com (mailto:Next15@mhpgroup.com)
Notes:
Net revenue
Net revenue is calculated as revenue less direct costs as shown on the
Consolidated Income Statement.
Organic net revenue growth
Organic net revenue growth is defined as the net revenue growth at constant
currency excluding the impact of acquisitions and disposals in the last 12
months. For acquisitions made in the prior year, only the corresponding months
of ownership are included in the calculation of growth. Net revenue is
reconciled to statutory revenue within the appendix and a reconciliation of
the movement in the year is included in the net revenue bridge on page 5.
Adjusted operating profit margin
Adjusted operating profit margin is calculated based on the adjusted operating
profit as a percentage of net revenue. Adjusted operating profit is reconciled
to statutory results within the appendix.
This announcement contains inside information as defined in Article 7 of the
Market Abuse Regulation.
About Next 15
Next 15 (AIM:NFG) is an AIM-listed tech and data-driven growth consultancy
with operations in Europe, North America and across Asia Pacific. The Group
has a strong track record of creating and acquiring high-performance
businesses. For acquired businesses it offers an opportunity to take advantage
of the Group’s global operational infrastructure and centralised resources
to accelerate their growth. The Group has long-term customer relationships
with many of the world’s leading companies including Google, Amazon, Boots,
Dow, Microsoft, Dell, American Express and Procter & Gamble.
The business operates across four segments, each of which describes how we
help customers grow in different ways: Customer Insight helps them understand
their opportunities and challenges; Customer Engagement optimises their
reputation and digital assets; Customer Delivery helps them connect with
customers to drive sales; and Business Transformation helps maximise long-term
value through corporate positioning, business design and the development of
new ventures.
At Next 15, success is underpinned by a people-led approach. Our purpose is to
make our customers and our people the best versions of themselves, and our
culture is empowering and respectful.
Chairman and Chief Executive’s Statement
Review of six months ended 31 July 2024
The Group has delivered a resilient performance in challenging circumstances
with our technology client and government revenue continuing to decline whilst
we have had a more encouraging performance from our B2C clients. The Group’s
net revenue was flat at £286.8m whilst adjusted profits were down by 15.6% to
£48.1m due to underperformance of some of our higher margin businesses.
Adjusted diluted earnings per share declined by 20.1% to 30.3p from 37.9p in
the prior year, reflecting the reduction in adjusted profit before tax and
also the higher effective tax rate, due principally to the increase in the UK
corporation tax rate.
The statutory profit before tax was £33.4m (2023: £24.3m) and diluted
earnings per share was 21.1p, compared with diluted earnings per share of
13.6p in the previous year.
Returns to shareholders
The Group maintains a disciplined approach to capital allocation and our
philosophy guides our view of returns to shareholders and allocation of
capital. The first priority remains investment into the business, and we will
continue to invest in a targeted manner to support long-term growth of the
Group. The Board will continue to prioritise organic investment in the
business, alongside selective M&A with a focus on bolt-on acquisitions to
enhance the key business areas. Beyond this, our priority is to return excess
cash to shareholders, through a regular dividend and, when possible, further
returns via other strategic options including a share buyback.
We are pleased to announce that the Directors recommend an interim dividend of
4.75p which will be paid to shareholders on 22 November 2024 who hold shares
on 18 October 2024. This is in line with the interim dividend payment for the
prior period.
In the prior year, the Group announced a share buyback programme to a maximum
of £30m, allowing us to return excess cash to shareholders. At the previous
reporting period on 31 January 2024, we had, to that date, invested £4.5m
buying back shares. We also announced we would acquire up to a further £10m
worth of shares by the end of July 2024, of which we spent £5.3m in the
period.
Review of adjusted results to 31 July 2024
In order to assist shareholders’ understanding of the performance of the
business, the following commentary is focused on the adjusted performance for
the six months to 31 July 2024, compared with the 6 months to 31 July 2023.
The Directors consider these adjusted measures to be highly relevant as they
reflect the trading performance of the business. They also give shareholders
more information to allow for understandable like-for-like year on year
comparisons and more closely correlate with the cash and working capital
position of the Group.
Net revenue bridge
Movement
Net Revenue (£m) (% of prior year net revenue)
6 months to 31 July 2023 286.4
Organic decline (6.3) (2.2)%
Contribution from acquisitions 10.0 3.5%
Impact of FX (3.3) (1.2)%
6 months to 31 July 2024 286.8
The Group has delivered a resilient performance over the last six months
despite macro-economic headwinds. Revenue from our tech clients declined by
13% compared with the first six months of last year and Government revenues
also declined by 28%, due to disruption from the July election and strong
prior year comparators. Our revenues from our B2C clients grew by 16% with
very strong performances from SMG and the M Booth group. We saw good growth
from the delivery segment driven by strong trading from SMG, whilst the other
three segments saw modest organic revenue declines in part due to delays in
some clients spending.
Consistent with performance in prior years, we expect revenues to be modestly
second half weighted. A number of our brands have reacted to the tough trading
conditions by taking significant action on their cost base in the first half
which will positively impact their profitability in the second half.
Accordingly, we expect the Group’s profitability to be more second half
weighted than normal. As recently announced, the contract with Mach49’s
largest customer will now end on 31 December 2024.
Our effective tax rate on adjusted profit marginally increased to 27.2% (31
July 2023: 27.0%) due to the increased proportion of our profits coming from
our higher taxed overseas operations. The increase in profits attributable to
non-controlling interests and the higher bank interest charge contributed to
our adjusted diluted EPS declining by 20.1% to 30.3p (31 July 2023: 37.9p).
The Group reported a statutory profit before tax of £33.4m compared with a
profit before tax of £24.3m in the prior period, while reported diluted
earnings per share was 21.1p compared with diluted earnings per share of 13.6p
in the prior period. The reduction in the Mach49 earnout value estimate
resulted in a significant credit within finance income in the period, which
contributed to the increase in the statutory profit before tax.
The Group’s balance sheet remains healthy, and we expect to be significantly
cash generative in the second half of the year. Our net debt excluding lease
liabilities was £74.8m as at 31 July 2024, which is after the cash payments
of £61.9m for acquisition related liabilities in the first half. This is also
after £4.2m restructuring costs in the period our normal first half working
capital outflow, albeit the decline in tech revenues and growth in B2C
clients, who typically have longer payment terms has adversely impact this
year’s working capital performance.
ADJUSTED RESULTS: KEY PERFORMANCE INDICATORS
Six months ended Six months ended
31 July 2024 31 July 2023
(Unaudited)
(Unaudited)
£’000 £’000
Net revenue 286,783 286,411
Total operating charges (230,777) (221,892)
Depreciation and amortisation (7,439) (6,982)
Operating profit 48,567 57,537
Interest on finance lease liabilities (477) (572)
Operating profit after interest on finance lease liabilities 48,090 56,965
Operating profit margin 16.8% 19.9%
Net finance expense excluding interest on finance lease liabilities (2,346) (1,347)
Profit before income tax 45,744 55,618
Tax (12,430) (15,013)
Profit after tax 33,314 40,605
Non-controlling interests (1,477) (957)
Earnings attributable to ordinary shareholders 31,837 39,648
Weighted average number of ordinary shares 99,847,610 98,849,157
Diluted weighted average number of ordinary shares 105,039,882 104,647,230
Adjusted earnings per share 31.9p 40.1p
Adjusted diluted earnings per share 30.3p 37.9p
Cash inflow from operating activities before working capital changes 49,819 48,386
Cash outflow on acquisition related payments (61,896) (52,618)
Net debt (74,769) (21,642)
Dividend (per share) 4.75p 4.75p
Adjusted results have been presented to provide additional information that
may be useful to shareholders to understand the performance of the business by
facilitating comparability both year on year and with industry peers. Adjusted
results are reconciled to statutory results within the Appendix.
Per the detail in the Appendix (A2), charges for one-off employee incentive
schemes, employment linked acquisition payments, restructuring costs and deal
costs are adjusted for in calculating the adjusted operating charges and
amortisation of acquired intangibles is adjusted for in calculating the
adjusted depreciation and amortisation. Interest on lease liabilities and
unwinding of discount and change in estimate of future contingent
consideration and share purchase obligation payables are adjusted for in
calculating net finance expense. These measures are not considered to be
adjusted performance measures for the Group.
Reconciliation between statutory and adjusted profit
Six months ended Six months ended
31 July 2024 31 July 2023
(Unaudited) (Unaudited)
£’000 £’000
Profit before income tax 33,392 24,262
Unwinding of discount on contingent consideration and share purchase 10,133 13,101
obligation payable (note 6)
Change in estimate of future contingent consideration and share purchase (14,788) (2,411)
obligation payable (note 5)
One-off charge for employee incentive schemes - 5,159
Employment linked acquisition payments 2,399 2,857
Restructuring costs 4,195 1,407
Deal costs 170 216
Amortisation of acquired intangibles 10,243 11,027
Adjusted profit before income tax 45,744 55,618
Adjusted financial measures are presented to provide additional information
that may be useful to shareholders through facilitating comparability with
industry peers and to best represent the underlying performance of the
business. Adjusted results are explained and reconciled to statutory results
within the Appendix.
We had an overall net credit of £4.7m in relation to our estimate of future
contingent consideration. This is due to the reduction of management’s
estimate of future amounts payable of £14.8m, principally in relation to
Mach49, for which total estimated consideration reduced from $250m as at 31
January 2024 to $233m as at 31 July 2024. This was offset by a credit in
relation to the unwinding of the discount on contingent consideration of
£10.1m.
We incurred £4.2m of restructuring costs in the period as we pro-actively
reduced our cost base to take account of the weakness in demand from tech
clients and anticipated efficiencies arising out of the increased adoption of
AI. The restructuring will continue into H2 with full year costs likely to be
in the £8m to £10m range with an expected payback period of less than 6
months.
As a Group, we have moved towards the inclusion of employment conditions for
certain acquisition-related payments. As a result, we are required to build up
a provision relating to these payments over time and therefore this has led to
an accounting charge of £2.4m (2023: £2.9m). In the prior period, we also
incurred a one-off £5.2m charge related to new incentive schemes principally
for the ex-Engine brands which we acquired in March 2022.
We incurred £0.2m of deal costs, and the amortisation of acquired intangibles
was £10.2m in the period compared with £11.0m in the prior period.
Segment adjusted performance
Customer Customer Customer Business Head Total
Engage
Delivery
Insight
Transformation
Office
£’000
£’000
£’000
£’000
£’000
£’000
6 months ended 31 July 2024
Net revenue 134,368 54,966 27,892 69,557 - 286,783
Adjusted operating profit/(loss) 26,636 11,998 3,081 16,507 (10,132) 48,090
Adjusted operating profit margin(1) 19.8% 21.8% 11.0% 23.7% - 16.8%
Organic net revenue (decline)/growth (1.0)% 6.9% (6.8)% (8.9)% - (2.2)%
6 months ended 31 July 2023
Net revenue 131,081 51,805 27,336 76,189 - 286,411
Adjusted operating profit/(loss) 26,481 14,131 4,710 22,627 (10,984) 56,965
Adjusted operating profit margin(1) 20.2% 27.3% 17.2% 29.7% - 19.9%
Organic net revenue (decline)/growth (6.4)% 2.4% 2.4% 5.8% - (1.0)%
(1) Adjusted operating profit margin is calculated based on the adjusted
operating profit as a percentage of net revenue.
The Customer Engage segment includes M Booth, M Booth Health, Outcast,
Archetype, Brandwidth, along with MHP and House 337. M Booth, M Booth Health,
MHP and Brandwidth performed well on the back of growing relationships with a
broad cross-section of clients including P&G, Google, Astra-Zeneca and Dow
Chemicals. House 337 and Beyond were impacted by client losses and delays in
decision making and took action to reduce their headcount and cost base during
the period. The segment produced an encouraging performance overall given the
macro-economic environment with net revenue increasing by 2.5% to £134.4m,
with an organic revenue decline of 1.0%, and delivered an adjusted operating
profit of £26.6m at an adjusted operating profit margin of 19.8%.
The Customer Delivery segment includes SMG, Activate, Agent3 and Twogether.
SMG had a very positive first half following the ASDA win announced at the end
of last year. The US remains the biggest opportunity for SMG and it has
recently won a couple of signature clients in that market, positioning them up
for an even stronger second half. Activate had a mixed performance, winning a
significant number of smaller customers which didn’t compensate for a couple
of its larger clients cutting spend materially in the first half. Indications
are that they will increase spend to former levels in the second half. Agent3
had an encouraging first half whilst Twogether suffered from client
cancellations and delays. Overall, the segment delivered net revenue growth of
6.1% to £55.0m with organic revenue growth of 6.9%. The adjusted operating
profit declined to £12.0m at an adjusted operating profit margin of 21.8%.
The Customer Insights segment includes Savanta and Plinc. Savanta had a
disappointing six months as a number of its clients reduced spend and some
Government work was delayed into the second half due to the election campaign.
Plinc had an encouraging first half and continued to build its retail client
base and invested in a suite of products which should accelerate its growth
over the next couple of years. Total net revenue increased by 2.0% to £27.9m
with an organic decline of 6.8%, whilst the adjusted operating profit declined
to £3.1m at an adjusted operating profit margin of 11.0%.
The Business Transformation segment includes Mach49, Blueshirt, Palladium, and
Transform. Mach49 saw expected revenue growth from its biggest client, whilst
the rest of their business suffered from client delays and cancellations in
the first half. However an improved performance in the second half is
expected, partly due to action taken on their cost base. Transform had a
quieter first half as some Government work was delayed due to the election
compared an exceptional first half last year on the back of its relationship
with the Department of Education. Blueshirt continued to suffer from the lack
of Tech IPOs. Overall, the segment delivered a net revenue decline of 8.7% to
£69.6m with an organic revenue decline of 8.9%. The adjusted operating profit
declined to £16.5m at an adjusted operating profit margin of 23.7%.
Balance Sheet
The Group’s balance sheet remains strong with net assets of £169.9m
(£117.1m at 31 July 2023 and £156.2m at 31 January 2024). Since the previous
year end, non-current assets have reduced primarily due to the amortisation of
acquired intangible assets during the period. Net debt increased to £74.8m as
at 31 July 2024 compared with £1.4m at the previous year end, primarily due
to £61.9m cash settlement of acquisition related liabilities as well as staff
bonuses paid during the period.
The Group has a £150m revolving credit facility (“RCF”) with a consortium
of HSBC, Bank of Ireland, NatWest Bank, Citibank and CIC. The facility is
available until December 2027 with an option to extend for a further year. As
part of the arrangement, the Group has a £50m accordion option to facilitate
future acquisitions.
Contingent consideration outstanding as at 31 July also saw a significant
decrease because of the settlement of acquisition related liabilities which
was offset by the unwinding of discount. The estimates around the contingent
consideration are considered by management to be an area of significant
judgement, which could result in a material adjustment to the value of these
liabilities in the future years (refer to note 9).
Cashflow
Cash inflows from operating activities before working capital changes
increased to £49.8m for the 6 months to 31 July 2024 when compared to £48.4m
for the 6 months to 31 July 2023. Despite a flat revenue performance in the
period and customers continuing to pay within credit terms, our overall
working capital position has been negatively impacted in the period by a
combination of growth in B2C clients, who typically demand longer payment
terms, together with the payment of annual staff bonuses in the first half.
Outlook
With regards to the second half of this year and into FY26, we are not, at
this stage, factoring in a recovery in spending from our technology customers.
However, with the recent change in government alleviating political
uncertainty in the UK, we do anticipate that government spend will recover in
early FY26. Consistent with the Group’s performance in prior years, we
expect revenues to be modestly second-half weighted. However, the businesses
that have seen the toughest trading conditions in the first half of FY25 have
reacted by taking significant action on their cost base which will positively
impact their profitability in the second half of FY25 and beyond. Accordingly,
we expect the Group’s profitability to be more second-half weighted than
normal in FY25.
Looking ahead, we are confident of meeting the recently revised market
expectations which followed the disappointing news about the large contract in
Mach49 ending earlier than anticipated, as announced earlier in September. The
Group remains well positioned to capitalise on the underlying structural
megatrends occurring in its key markets, with the ongoing simplification and
optimisation work best positioning the Group for future growth going forward.
NEXT 15 GROUP PLC
CONSOLIDATED INCOME STATEMENT
FOR THE SIX-MONTH PERIOD ENDED 31 July 2024
Six months Six months 12 months
ended
ended
ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
Note £’000 £’000 £’000
Revenue 364,080 364,917 734,673
Direct costs (77,297) (78,506) (156,834)
Net revenue 2 286,783 286,411 577,839
Staff costs (206,886) (204,250) (407,445)
Depreciation (6,191) (5,923) (12,263)
Amortisation (11,491) (12,086) (24,360)
Other operating charges (30,655) (27,281) (56,652)
Total operating charges (255,223) (249,540) (500,720)
Operating profit 31,560 36,871 77,119
Finance expense 5 (13,593) (16,281) (31,393)
Finance income 6 15,425 3,672 34,622
Profit before income tax 33,392 24,262 80,348
Income tax expense 3 (9,779) (9,042) (26,403)
Profit for the period 23,613 15,220 53,945
Attributable to:
Owners of the parent 22,136 14,263 52,907
Non-controlling interests 1,477 957 1,038
23,613 15,220 53,945
Earnings per share
Basic (pence) 7 22.2 14.4 53.3
Diluted (pence) 7 21.1 13.6 50.3
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 31 July 2024
Six months Six months 12 months
ended
ended
ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
£’000 £’000 £’000
Profit for the period 23,613 15,220 53,945
Other comprehensive (expense)/income:
Items that may be reclassified into profit or loss
Exchange differences on translating foreign operations (720) (176) (576)
(720) (176) (576)
Items that will not be reclassified subsequently to profit or loss
Revaluation of investments 125 (27) (6)
Total other comprehensive expense for the period (595) (203) (582)
Total comprehensive income for the period 23,018 15,017 53,363
Attributable to:
Owners of the parent 21,541 14,060 52,325
Non-controlling interests 1,477 957 1,038
23,018 15,017 53,363
NEXT 15 GROUP PLC
CONSOLIDATED BALANCE SHEET AS AT 31 July 2024
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
Note £’000 £’000 £’000
Assets
Property, plant and equipment 9,108 9,947 10,099
Right-of-use assets 21,030 25,740 24,686
Intangible assets 275,880 260,963 279,342
Investments in financial assets 706 560 581
Deferred tax asset 57,628 65,917 62,087
Other receivables 1,012 779 1,040
Total non-current assets 365,364 363,906 377,835
Trade and other receivables 193,001 173,016 170,003
Cash and cash equivalents 8 30,020 18,983 42,871
Corporation tax asset 1,176 1,225 911
Total current assets 224,197 193,224 213,785
Total assets 589,561 557,130 591,620
Liabilities
Loans and borrowings 8 104,789 40,625 44,227
Deferred tax liabilities 13,145 14,952 15,939
Lease liabilities 18,516 25,875 23,313
Other payables 208 232 110
Provisions 15,896 12,360 19,591
Contingent consideration 9 38,641 86,863 84,693
Additional contingent incentive 9 127 1,453 1,847
Share purchase obligation 9 8,138 6,995 7,277
Total non-current liabilities 199,460 189,355 196,997
Trade and other payables 155,549 154,790 151,510
Lease liabilities 9,953 10,910 10,115
Provisions 6,254 4,508 3,066
Corporation tax liability 4,096 8,032 6,843
Additional contingent incentive 9 1,983 2,543 2,483
Contingent consideration 9 40,496 67,626 62,059
Share purchase obligation 9 1,856 2,301 2,326
Total current liabilities 220,187 250,710 238,402
Total liabilities 419,647 440,065 435,399
TOTAL NET ASSETS 169,914 117,065 156,221
Equity
Share capital 2,520 2,484 2,486
Share premium reserve 191,867 170,924 175,144
Foreign currency translation reserve 2,584 3,704 3,304
Other reserves (2,035) (2,065) (2,050)
Retained earnings (26,275) (58,485) (22,904)
Total equity attributable to owners of the parent 168,661 116,562 155,980
Non-controlling interests 1,253 503 241
TOTAL EQUITY 169,914 117,065 156,221
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIOD ENDED 31 July 2024
Share Foreign Other Retained Equity Non-controlling Total equity
premium
currency
reserves(1)
earnings
attributable to
interests
Share
reserve
translation
owners of the
capital
reserve
Company
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 2023 (audited) 2,462 166,174 3,880 (2,065) (56,503) 113,948 452 114,400
Profit for the period - - - - 14,263 14,263 957 15,220
Other comprehensive expense for the period - - (176) - (27) (203) - (203)
Total comprehensive (expense) / income for the period - - (176) - 14,236 14,060 957 15,017
Shares issued on satisfaction of vested performance shares 14 2,248 - - (4,859) (2,597) - (2,597)
Shares issued on acquisitions 8 2,502 - - - 2,510 - 2,510
Movement in relation to share-based payments net of tax - - - - 3,824 3,824 - 3,824
Dividends to owners of the parent - - - - (10,028) (10,028) - (10,028)
Movement on reserves for non-controlling interests - - - - (348) (348) 348 -
Non-controlling interest purchased in the period - - - - (4,807) (4,807) (201) (5,008)
Non-controlling interest reversed in the period - - - - - - 29 29
Non-controlling interest dividend - - - - - - (1,082) (1,082)
At 31 July 2023 (unaudited) 2,484 170,924 3,704 (2,065) (58,485) 116,562 503 117,065
Profit for the period - - - - 38,644 38,644 81 38,725
Other comprehensive (expense) / income for the period - - (400) - 21 (379) - (379)
Total comprehensive (expense) / income for the period - - (400) - 38,665 38,265 81 38,346
Shares issued on satisfaction of vested performance shares 8 1,776 - - (1,784) - - -
Shares issued on acquisitions 9 2,444 - - - 2,453 - 2,453
Acquisition of own shares (15) - - 15 (4,475) (4,475) - (4,475)
Movement in relation to share-based payments net of tax - - - - 6,668 6,668 - 6,668
Dividends to owners of the parent - - - - (4,734) (4,734) - (4,734)
Movement due to ESOP share purchases - - - (7) - (7) - (7)
Movement due to ESOP share option exercises - - - 7 - 7 - 7
Movement on reserves for non-controlling interests - - - - 132 132 (132) -
Non-controlling interest purchased in the period - - - - 1,109 1,109 (3) 1,106
Non-controlling interest dividend - - - - - - (208) (208)
At 31 January 2024 (audited) 2,486 175,144 3,304 (2,050) (22,904) 155,980 241 156,221
Profit for the period - - - - 22,136 22,136 1,477 23,613
Other comprehensive (expense) / income for the period - - (720) - 125 (595) - (595)
Total comprehensive (expense) / income for the period - - (720) - 22,261 21,541 1,477 23,018
Shares issued on satisfaction of vested performance shares 25 7,215 - - (9,818) (2,578) - (2,578)
Shares issued on acquisitions 24 9,508 - - - 9,532 - 9,532
Acquisition of own shares (15) - - 15 (5,344) (5,344) (5,344)
Movement in relation to share-based payments net of tax - - - - 425 425 - 425
Dividends to owners of the parent - - - - (10,664) (10,664) - (10,664)
Movement on reserves for non-controlling interests - - - - (231) (231) 231 -
Non-controlling interest dividend - - - - - - (696) (696)
At 31 July 2024 (unaudited) 2,520 191,867 2,584 (2,035) (26,275) 168,661 1,253 169,914
(1 )Other reserves include ESOP reserve, hedging reserve, share purchase
reserve and merger reserve.
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTH PERIOD ENDED 31 July 2024
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
£’000 £’000 £’000
Cash flows from operating activities
Profit for the period 23,613 15,220 53,945
Adjustments for:
Depreciation 6,191 5,923 12,263
Amortisation 11,491 12,086 24,360
Finance expense 13,593 16,281 31,393
Finance income (15,425) (3,672) (34,622)
Loss on sale of property, plant and equipment 45 12 125
Gain on exit of finance lease - (1,385) (1,313)
Income tax expense 9,779 9,042 26,403
Employment linked acquisition provision charge 2,399 2,857 10,006
Settlement of employment linked acquisition payments (1,475) (13,216) (15,713)
Share-based payment charges 1,291 7,835 11,476
Settlement of share-based payment in cash (1,683) (2,597) (2,597)
Net cash inflow from operating activities before changes in working capital 49,819 48,386 115,726
Change in trade and other receivables (22,493) (10,540) 837
Change in trade and other payables (9,273) (13,002) (12,343)
Change in other liabilities (161) (75) 821
(31,927) (23,617) (10,685)
Net cash generated from operations before tax and interest outflows 17,892 24,769 105,041
Income taxes paid (13,336) (13,784) (25,408)
Net cash inflow from operating activities 4,556 10,985 79,633
Cash flows from investing activities
Acquisition of subsidiaries and trade and assets, net of cash acquired (5,031) (605) (13,006)
Acquisition of property, plant and equipment (1,350) (1,402) (3,711)
Proceeds on disposal of property, plant and equipment 5 3 8
Acquisition of intangible assets (2,078) (1,572) (3,436)
Net movement in long-term cash deposits 114 (96) (179)
Income from finance lease receivables 519 958 1,388
Interest received 208 459 1,051
Net cash outflow from investing activities (7,613) (2,255) (17,885)
NEXT 15 GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOW (Continued)
FOR THE SIX MONTH PERIOD ENDED 31 July 2024
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
£’000 £’000 £’000
Cash flows from financing activities
Payment of contingent consideration (55,390) (38,797) (42,146)
Purchase of non-controlling interest in subsidiary - (5,008) (5,059)
Proceeds on sale of non-controlling interest in subsidiary - 29 29
Acquisition of own shares (5,344) - (4,475)
Capital element of finance lease rental payment (5,622) (7,306) (14,175)
Increase in bank borrowings and overdrafts 116,293 68,545 195,564
Repayment of bank borrowings and overdrafts (55,793) (49,612) (171,891)
Banking arrangement fees - - (1,905)
Interest paid (2,599) (1,836) (4,268)
Dividend and profit share paid to non-controlling interest partners (696) (1,082) (1,290)
Dividends paid to shareholders of the parent - - (14,762)
Net cash outflow from financing activities (9,151) (35,067) (64,378)
Net decrease in cash and cash equivalents (12,208) (26,337) (2,630)
Cash and cash equivalents at beginning of the period 42,871 47,320 47,320
Exchange loss on cash held (643) (2,000) (1,819)
Cash and cash equivalents at end of the period 30,020 18,983 42,871
NOTES TO THE INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 July 2024
1) BASIS OF PREPARATION
The unaudited consolidated interim financial statements represent a condensed
set of financial information and have been prepared using the recognition and
measurement principles of International Accounting Standards, and in
accordance with IAS 34, Interim Financial Reporting. The principal accounting
policies used in preparing the results are those the Group has applied in its
financial statements for the year ended 31 January 2024.
The comparative financial information for the year ended 31 January 2024 has
been derived from the audited statutory financial statements for that period.
A copy of those statutory financial statements has been delivered to the
Registrar of Companies. The auditor’s report on those accounts was
unqualified, did not include references to any matters to which the auditors
drew attention by way of emphasis without qualifying their report and did not
contain a statement under section 498(2)-(3) of the Companies Act 2006.
2) SEGMENT INFORMATION
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 acquisition-related
costs and goodwill impairment charges. Other information provided to them is
measured in a manner consistent with that in the financial statements. Head
office costs relate to Group costs before allocation of intercompany charges
to the operating segments. Intersegment 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.
Customer Customer Customer Business Head Total
Engage
Delivery
Insight
Transformation
Office
£’000
£’000
£’000
£’000
£’000
£’000
6 months ended 31 July 2024 (Unaudited)
Net revenue 134,368 54,966 27,892 69,557 - 286,783
Adjusted operating profit/(loss) 26,636 11,998 3,081 16,507 (10,132) 48,090
Adjusted operating profit margin(1) 19.8% 21.8% 11.0% 23.7% - 16.8%
Organic net revenue (decline)/growth (1.0)% 6.9% (6.8)% (8.9)% - (2.2)%
6 months ended 31 July 2023 (Unaudited)
Net revenue 131,081 51,805 27,336 76,189 - 286,411
Adjusted operating profit/(loss) 26,481 14,131 4,710 22,627 (10,984) 56,965
Adjusted operating profit margin(1) 20.2% 27.3% 17.2% 29.7% - 19.9%
Organic net revenue (decline)/growth (6.4)% 2.4% 2.4% 5.8% - (1.0)%
Year ended 31 January 2024 (Audited)
Net revenue 263,120 107,653 57,476 149,590 - 577,839
Adjusted operating profit/(loss) 53,178 29,117 10,358 48,253 (19,825) 121,081
Adjusted operating profit margin(1) 20.2% 27.0% 18.0% 32.3% - 21.0%
Organic net revenue (decline)/growth (6.3%) 5.1% 4.3% 8.7% - 0.3%
(1) Adjusted operating profit margin is calculated based on the operating
profit as a percentage of net revenue.
NOTES TO THE INTERIM RESULTS (Continued)
FOR THE SIX MONTHS ENDED 31 July 2024
2) SEGMENT INFORMATION (continued)
UK EMEA US Asia Head Total
Pacific
Office
£’000 £’000 £’000 £’000 £’000 £’000
Six months ended 31 July 2024 (Unaudited)
Net revenue 125,898 5,835 146,884 8,166 - 286,783
Adjusted operating profit/(loss) 20,617 1,231 35,418 956 (10,132) 48,090
Adjusted operating profit margin(1) 16.4% 21.1% 24.1% 11.7% - 16.8%
Organic revenue (decline)/growth (5.3)% (3.4)% 0.4% (0.1)% - (2.2)%
Six months ended 31 July 2023 (Unaudited)
Net revenue 127,685 6,190 144,540 7,996 - 286,411
Adjusted operating profit/(loss) 22,373 1,427 43,461 688 (10,984) 56,965
Adjusted operating profit margin(1) 17.5% 23.1% 30.1% 8.6% - 19.9%
Organic revenue growth/(decline) 1.1% 7.9% (2.8)% (6.1)% - (1.0)%
Twelve months ended 31 January 2024 (Audited)
Net revenue 254,281 12,399 294,054 17,105 - 577,839
Adjusted operating profit/(loss) 45,731 2,345 91,139 1,691 (19,825) 121,081
Adjusted operating profit margin¹ 18.0% 18.9% 31.0% 9.9% - 21.0%
Organic net revenue (decline)/growth (0.4%) 6.1% 0.9% (3.6%) - 0.3%
(1) Adjusted operating profit margin is calculated based on the operating
profit as a percentage of net revenue.
3) TAXATION
The tax charge on adjusted profit for the six months ended 31 July 2024 is
£12,430,000 (six months ended 31 July 2023 of £15,013,000), equating to an
adjusted effective tax rate of 27.2%, compared to 27.0% in the prior period.
The statutory tax charge for the six months ended 31 July 2024 is £9,779,000
(six months ended 31 July 2023 of £9,042,000), equating to an effective tax
rate of 29.3%, compared to 37.3% in the prior period.
The Group’s adjusted corporation tax rate is expected to remain higher than
the standard UK rate (25% effective 1 April 2023) due to differing rates of
tax suffered on overseas profits. The Group does not currently anticipate any
material changes to its adjusted effective tax rate for the year ending 31
January 2025. The Group’s future adjusted tax rate is inherently subject to
a degree of uncertainty. This is due to the Groups geographical split of
profit across the globe paired with ever changing international tax policy.
4) DIVIDENDS
An interim dividend of 4.75p (six months ended 31 July 2023: 4.75p) per
ordinary share will be paid on 22 November 2024 to shareholders listed on the
register of members on 18 October 2024. Shares will go ex-dividend on 17
October 2024. The last date for DRIP elections to be returned to the registrar
is 1 November 2024.
NOTES TO THE INTERIM RESULTS (Continued)
FOR THE SIX MONTHS ENDED 31 July 2024
5) FINANCE EXPENSE
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Financial liabilities at amortised cost
Bank interest payable 2,336 1,828 4,242
Interest on lease liabilities(1) 477 572 1,104
Financial liabilities at fair value through profit and loss
Unwinding of discount on future contingent consideration and share purchase 10,133 13,101 24,871
obligation payable(1)
Change in estimate of future contingent consideration and share purchase 1,150
obligation payable(1)
384 772
Other
Other interest payable 263 8 26
Finance expense 13,593 16,281 31,393
(1)These items are adjusted for in calculating the adjusted net finance
expense.
6) FINANCE INCOME
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Financial assets at amortised cost
Bank interest receivable 199 450 1,039
Finance lease interest receivable 45 30 81
Financial assets at fair value through profit and loss
Change in estimate of future contingent consideration and share purchase 15,172 3,183 33,490
obligation payable(1)
Other interest receivable 9 9 12
Finance income 15,425 3,672 34,622
(1)These items are adjusted for in calculating the adjusted net finance
expense. £15.2m less £0.4m is shown as a net £14.8m on the reconciliation
set out on page 9.
NOTES TO THE INTERIM RESULTS (Continued)
FOR THE SIX MONTHS ENDED 31 July 2024
7) EARNINGS PER SHARE
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
£’000 £’000 £’000
Profit attributable to ordinary shareholders 22,136 14,263 52,907
Number Number Number
Weighted average number of ordinary shares 99,847,610 98,849,157 99,247,832
Dilutive LTIP & Options shares 1,728,473 1,148,021 1,848,787
Dilutive Growth Deal shares 2,404,317 3,937,041 3,345,900
Other potentially issuable shares 1,059,482 713,011 775,582
Diluted weighted average number of ordinary shares 105,039,882 104,647,230 105,218,101
Basic earnings per share 22.2p 14.4p 53.3p
Diluted earnings per share 21.1p 13.6p 50.3p
8) NET DEBT
The Group has a £150m revolving credit facility (“RCF”) with a consortium
of HSBC, Bank of Ireland, NatWest Bank, Citibank and CIC. The facility is
available until December 2027 with an option to extend for a further year. As
part of the arrangement, the Group has a £50m accordion option to facilitate
future acquisitions.
The RCF facility is available for permitted acquisitions and working capital
requirements. It is due to be repaid from the trading cash flows of the Group.
The facility is available in a combination of sterling, US dollar and Euro.
The margin payable on each facility is dependent upon the level of gearing in
the business. The Group also has a US facility of $7m (2023: $7m) which is
available for property rental guarantees and US-based working capital needs.
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited) (Audited)
£’000 £’000 £’000
Total loans and borrowings 104,789 40,625 44,227
Less: cash and cash equivalents (30,020) (18,983) (42,871)
Net debt excluding lease liabilities 74,769 21,642 1,356
Share purchase obligation 9,994 9,296 9,603
Contingent consideration 79,137 154,489 146,752
Additional contingent incentive 2,110 3,996 4,330
Net debt and acquisition related liabilities 166,010 189,423 162,041
NOTES TO THE INTERIM RESULTS (Continued)
FOR THE SIX MONTHS ENDED 31 July 2024
9) OTHER FINANCIAL LIABILITIES
Contingent Additional contingent Share purchase Total
consideration
incentive
obligation
£’000 £’000 £’000 £’000
At 31 January 2023 (Audited) 189,406 6,309 8,984 204,699
Arising during the period 44 - - 44
Change in estimate (2,890) 688 (209) (2,411)
Exchange differences (8,446) (307) (102) (8,855)
Utilised (35,757) (3,040) - (38,797)
Unwinding of discount 12,132 346 623 13,101
At 31 July 2023 (Unaudited) 154,489 3,996 9,296 167,781
Arising during the period 12,033 - - 12,033
Change in estimate (29,655) 70 (344) (29,929)
Exchange difference 2,286 69 24 2,379
Utilised (3,318) (31) - (3,349)
Unwinding of discount 10,917 226 627 11,770
At 31 January 2024 (Audited) 146,752 4,330 9,603 160,685
Change in estimate (14,524) (24) (240) (14,788)
Exchange differences (1,307) (41) (14) (1,362)
Utilised (61,053) (2,374) - (63,427)
Unwinding of discount 9,269 219 645 10,133
At 31 July 2024 (Unaudited) 79,137 2,110 9,994 91,241
Current 40,496 1,983 1,856 44,335
Non-current 38,641 127 8,138 46,906
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. During the first half of the
year, earn-out liabilities decreased by a net £69.4m, primarily driven by the
amounts settled within the period, the change in estimate and exchange
differences offset against the unwinding of the discount rate used.
Changes in the estimates of contingent consideration payable and the share
purchase obligation are recognised in finance income/expense. If the
judgements around future revenue growth, profit margins and discount rates
change, this could result in a material adjustment to the value of these
liabilities within the next financial year. An increase in the liability would
result in an increase in finance expense, while a decrease would result in a
further gain.
For the most significant individual earn-out sensitive to change in the
assumed inputs, a 15% reduction in the assumed future net revenue growth rate
would lead to a decrease of £3.1m in the value of the associated liability.
Whereas a 10% reduction in the assumed future profit margin for the most
significant individual earn-out would lead to a decrease of £6.5m in the
value of the liability.
NOTES TO THE INTERIM RESULTS (Continued)
FOR THE SIX MONTHS ENDED 31 July 2024
9) OTHER FINANCIAL LIABILITIES (Continued)
Litigation
In 2022, a former minority shareholder and employee of the Group’s largest
US business filed a legal claim against the founding shareholders of the
subsidiary and the Group amongst others, relating to their historic
entitlement to a share in the business. On 9 September 2024, all parties filed
with the court a “Notice of Settlement of Entire Case,” which indicates
that the parties expect all remaining claims to be dismissed in their
entirety.
The Group does not expect any outflow from any company in the Group in
relation to the claim. The Group has incurred legal fees in relation to this
claim and has recognised a corresponding asset representing the amount
recoverable under the indemnity given at the time of the acquisition.
APPENDIX – ALTERNATIVE PERFORMANCE MEASURES
FOR THE SIX MONTHS ENDED 31 JULY 2024
Introduction
In the reporting of financial information, the Directors have adopted various
alternative performance measures (‘APMs’). The Group includes these
non-GAAP measures as they consider these measures to be both useful and
necessary to the readers of the financial statements to help understand the
performance of the Group. The Group’s measures may not be calculated in the
same way as similarly titled measures reported by other companies and
therefore should be considered in addition to IFRS measures.
Purpose
The Director’s believe that these APMs are highly relevant as they reflect
how the Board measures the performance of the business and align with how
shareholders value the business. They also allow understandable like-for-like,
year on year comparisons and more closely correlate with the cash inflows from
operations and working capital position of the Group.
They are used by the Group for internal performance analyses and the
presentation of these measures facilitates better comparability with other
industry peers as they adjust for non-recurring or uncontrollable factors
which materially affect IFRS measures.
A1: RECONCILIATION OF STATUTORY OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
A reconciliation of statutory operating profit to adjusted operating profit is
provided as follows:
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Statutory operating profit 31,560 36,871 77,119
Interest on finance lease liabilities (477) (572) (1,104)
Statutory operating profit after interest on finance lease liabilities 31,083 36,299 76,015
Charge for one-off employee incentive schemes (A2) - 5,159 6,605
Employment linked acquisition payments (A2) 2,399 2,857 10,006
Costs associated with restructuring (A2) 4,195 1,407 5,152
Deal costs (A2) 170 216 671
RCF fees write off - - 601
Amortisation of acquired intangibles (A2) 10,243 11,027 22,031
Adjusted operating profit 48,090 56,965 121,081
APPENDIX – ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE SIX MONTHS ENDED 31 JULY 2024
A2: RECONCILIATION OF STATUTORY PROFIT BEFORE TAX TO ADJUSTED PROFIT BEFORE
TAX
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited) (Unaudited) (Audited)
£’000 £’000 £’000
Statutory profit before income tax 33,392 24,262 80,348
Unwinding of discount on contingent consideration and share purchase 10,133 13,101 24,871
obligation payable(1)
Change in estimate of future contingent consideration and share purchase (14,788) (2,411) (32,340)
obligation payable(1)
Charge for one-off employee incentive scheme( 2) - 5,159 6,605
Employment linked acquisition payments( 3) 2,399 2,857 10,006
Restructuring costs(4) 4,195 1,407 5,152
Deal costs(5) 170 216 671
RCF fees write off(6) - - 601
Amortisation of acquired intangibles(7) 10,243 11,027 22,031
Adjusted profit before income tax 45,744 55,618 117,945
(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. 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.
(2 )The charge in the prior year relates to transactions whereby a restricted
grant of brand equity was given to key management in MHP Group Limited, House
337 Limited and Transform UK Consulting 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 charge 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.
(3 )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
determined 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 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.
(4 )In the current year the Group has incurred restructuring costs all
relating to staff redundancies as we are pro-actively reducing our cost base
to take account of the weakness in demand from tech clients and anticipated
efficiencies. Only costs that relate to roles permanently being eliminated
from the business with no intention to replace are adjusted for. The costs do
not relate to underlying trading of the relevant brands and have been added
back to aid comparability of performance year on year.
(5 )These costs are directly attributable to business combinations and
acquisitions made during the period.
APPENDIX – ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE SIX MONTHS ENDED 31 JULY 2024
A2: RECONCILIATION OF ADJUSTED RESULTS (Continued)
(6 )In the prior year the Group refinanced its banking facilities and agreed
to a new £150m revolving credit facility (“RCF”) with a consortium of
five banks. The refinance occurred before the old facility agreement ended and
therefore there was £0.6m of capitalised fees remaining on the balance sheet
in relation to the previous facility agreement that had yet to be amortised.
As a result of the new agreement, the old RCF fees were written off as a
one-off charge to the income statement. The Group adjusted for this
significant cost as the charge is non-recurring and therefore added back to
aid comparability of the Group’s profitability year on year.
(7 )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 been added back to aid comparability.
Adjusted profit before income tax has been presented to provide additional
information which may be useful to the reader. Adjusted earnings to ordinary
shareholders is a measure of performance used in the calculation of the
adjusted earnings per share. This measure is considered an important indicator
of the performance of the business and so it is used for the vesting of
employee performance shares.
A3: RECONCILIATION OF ADJUSTED TAX EXPENSE
Six months ended Six months ended
31 July 2024 31 July 2023
(Unaudited) (Unaudited)
£’000 £’000
Income tax expense reported in the Consolidated Income Statement 9,779 9,042
Add back tax on adjusting items:
Costs associated with the current period restructure 1,045 333
Unwinding of discount and change in estimates of contingent consideration (966) 2,706
Amortisation of acquired intangibles 2,572 2,932
Adjusted tax expense 12,430 15,013
Adjusted profit before income tax 45,744 55,618
Adjusted effective tax rate 27.2% 27.0%
APPENDIX – ALTERNATIVE PERFORMANCE MEASURES (Continued)
FOR THE SIX MONTHS ENDED 31 JULY 2024
A4: RECONCILIATION OF ADJUSTED EARNINGS PER SHARE
Six months ended Six months ended Twelve months ended
31 July 2024 31 July 2023 31 January 2024
(Unaudited)
(Unaudited)
(Audited)
£’000 £’000 £’000
Profit attributable to ordinary shareholders 22,136 14,263 52,907
Unwinding of discount on future contingent consideration and share purchase 10,133 13,101 24,871
obligation payable
Change in estimate of future contingent consideration and share purchase (14,788) (2,411) (32,340)
obligation payable
Charge for one-off employee incentive scheme - 5,159 6,605
Restructuring costs 4,195 1,407 5,152
RCF fees write off - - 601
Amortisation of acquired intangibles 10,243 11,027 22,031
Employment linked acquisition payments 2,399 2,857 10,006
Deal costs 170 216 671
Tax effect of adjusting items above (2,651) (5,971) (4,670)
Adjusted earnings attributable to ordinary shareholders 31,837 39,648 85,834
Number Number Number
Weighted average number of ordinary shares 99,847,610 98,849,157 99,247,832
Dilutive LTIP & Options shares 1,728,473 1,148,021 1,848,787
Dilutive Growth Deal shares 2,404,317 3,937,041 3,345,900
Other potentially issuable shares 1,059,482 713,011 775,582
Diluted weighted average number of ordinary shares 105,039,882 104,647,230 105,218,101
Adjusted earnings per share 31.9p 40.1p 86.5p
Diluted adjusted earnings per share 30.3p 37.9p 81.6p
Adjusted and diluted adjusted earnings per share have been presented to
provide additional information which may be useful to shareholders to
understand the performance of the business by facilitating comparability both
year on year and with industry peers. The adjusted earnings per share is the
performance measure used for the vesting of employee performance shares.
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