Next 15 drops, restructuring charges to affect second half

Next 15 Communications (NFC), the AIM-listed agency which is currently undergoing a transformation from traditional PR firm to digital communications group, saw shares drop sharply on Tuesday after warning that its full-year results will be affected by higher-than-expected restructuring charges.

Nevertheless, results from the first half ended January 31st showed an improvement from last year ahead of analysts' forecasts, with revenues up 3.0% to £46.6m and adjusted profit before tax up 6.0% at £4.5m.

NFC also hiked its interim dividend by 11% to 0.625p per share, from 0.565p per share previously.

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As part of the company's restructuring plans, its reporting segments of Technology PR and Consumer PR are now being labelled as 'Integrated Communications', while the remaining businesses which offer more specialised services will be called 'Specialist Agencies'.

In the first half, Integrated Communications revenues declined by 2.0% in the first half and accounted for 85% of group revenues, while Specialist Agencies contributed the rest, growing 20%.

The company, which employs around 1,100 people, invested in a new insight and data business during the half that will launch in the coming months. This, along with £2.5m of acquisition-related payments, pushed net debt up to £5.2m by the end of January, from £4.4m the year before.

Furthermore, NFC said that it expects to be hit by higher-than-expected incremental costs of around £2.0m over the next two years, part of which will be realised in the current financial year, which include staff restructuring charges and investment in the start-up losses of new digital brands and product development.

"The transition from traditional PR to digital communications continues at Next 15. This has been achieved without affecting performance for the half-year, which is in line with management expectations," said Chairman Richard Ryre.

"Overall the group is seeing good progress from its portfolio of agencies; however, whilst revenues remain strong, the costs of restructuring and some isolated trading challenges are likely to impact the reported profits for the second half."

Nevertheless, NFC said that revenues for the full year are currently tracking close to management expectations with the recovery in the US continuing to outpace weaker markets in Europe.

Westhouse Securities placed its 'buy' rating for the stock under review on Tuesday despite the first-half results coming in ahead of expectations.

Analyst Roddy Davidson said: "We are pleased that NFC are stepping up to capture the substantial opportunity available in digital media, but suspect that the impact of this decision on profitability over the next couple of years may disappoint some investors."

The stock was down 14.85% at 96.656p by 14:16 on Tuesday afternoon.