Next 15 reports flat revenue in tough first half
By Josh White
Date: Tuesday 17 Sep 2024
(Sharecast News) - Next 15 Group, a tech and data-driven growth consultancy, reported flat group net revenue in its first half on Tuesday, at £286.8m, with statutory revenue unchanged at £364.1m.
The AIM-traded firm said adjusted operating profit declined 15.6% to £48.1m, primarily due to underperformance in some of its higher-margin businesses.
Despite stagnant revenues, statutory profit before tax increased 37.4% to £33.4m.
Adjusted diluted earnings per share stood at 30.3 pence, while statutory diluted earnings per share were 21.1p for the six months ended 31 July.
The interim dividend was maintained at 4.75p per share.
Net cash inflow from operating activities decreased to £4.6m, and net debt was £74.8m as of the end of July.
The company said it faced challenges due to continued weakness in spending from technology customers, which declined 13% year-on-year, and reduced spending from UK government departments, down 28%, partly attributed to an earlier-than-expected general election.
Additionally, Next 15's insights business, Savanta, experienced a downturn in its market.
However, several segments showed a robust performance, notably in consumer packaged goods and retail.
Businesses in the consumer and health sectors, such as SMG, M Booth, and M Booth Health, delivered strong organic growth and healthy margins.
Agent3 defied the decline in tech spending, contributing positively to the group's results.
During the period, Next 15 said it secured significant new contracts and expanded assignments with major clients like Ericsson, PEGA, P&G and Johnson & Johnson.
The company also completed bolt-on acquisitions of Studio La Plage and TUVA, with the acquisition of Cadence Innova occurring after the period ended.
Additionally, £5.3m was returned to shareholders through a share buyback programme.
The adjusted operating profit margin decreased to 16.8%, reflecting the underperformance of higher-margin businesses.
In response, Next 15 initiated a substantial cost-reduction programme to improve margins moving forward.
A notable development was the loss of a significant contract with Mach49, announced earlier in September.
The contract was set to end on 31 December, impacting the company's financial performance, particularly in the 2026 and 2027 financial year, as it was expected to contribute over £80m in revenue during those years.
Despite the setback, the board said Mach49 remained well-positioned in the growth and innovation consulting sector, with a recovery in trading anticipated in the second half from its remaining customer base.
Next 15 acquired Mach49 in September 2020 when it was generating around $14m in annual revenue at a 10% margin.
The initial acquisition payment was $4.7m.
By the end of the current financial year, the business was expected to have generated around $124m in after-tax profits for the group, with total consideration payments amounting to $127.4m.
Going forward, Mach49 was projected to deliver at least $30m in annual revenue at a 30% margin.
The remaining earnout obligation was about $105.4m over the next three years, resulting in a total estimated consideration of $232.8m.
Looking ahead, Next 15 said it was focussed on simplifying its structure to deliver integrated solutions for customers and improve operational efficiency.
The company said it was investing in internal capabilities, notably in generative artificial intelligence.
Its newly-formed Next 15 AI Labs unit was overseeing more than 130 AI product and innovation projects across the group.
Capital allocation remained a priority, with the company aiming to maintain a strong balance sheet while investing in growth areas.
Next 15 said it planned to continue a disciplined approach to selective bolt-on acquisitions that align with its culture and values.
The company also intended to return excess cash to shareholders through dividends and share buybacks.
For the second half and into the 2026 financial year, Next 15 said it did not expect a recovery in technology customer spending, but anticipated an uptick in government spending following a recent change in government that had reduced political uncertainty in the UK.
The group said it expected revenue to be modestly second-half weighted, with profitability more heavily weighted towards the second half due to cost-saving measures.
"These results mask some strong performances by a number of the group's businesses which need to be recognised," said chief executive officer Tim Dyson.
"Most notably, performances by Agent3, Brandwidth, M Booth, M Booth Health, MHP and SMG."
Dyson said they also masked strong progress on embedding AI into the company's 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 andeEngage segments, conditions in other sectors remain favourable."
At 1039 BST, shares in Next 15 Group were down 5.56% at 458.98p.
Reporting by Josh White for Sharecast.com.
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