M&C Saatchi bidder Next Fifteen records pre-tax loss in first-half results

Though net revenue increased 63% and operating profits increased by more than double, the cost of integrating recent acquisitions such as Engine, consolidating its British and American real estate portfolio and earn-out payments weighed down on the balance sheet, resulting in a loss before tax of £8.5m ($9.15m). Next Fifteen’s share price on the AIM exchange fell 2% on the news.

Penny Ladkin-Brand, chairman of Next 15, said: “We look with confidence to the rest of the financial year as the increasing mix of digital services continues to provide operating leverage and opportunities to reinvest in talent and product development to continue to drive longer-term growth.”

The results will be pored over carefully by shareholders at M&C Saatchi, Next 15’s long-term takeover target.

What do the results show?

Next Fifteen’s net revenue for the first six months of 2022 was £341.2m ($367.64m), while its operating margin was 22.4%. Organic net revenue growth for the company was 31%, while the company’s net debt was just £3m. Business transformation and customer engagement services were the group’s best-performing areas.

Ladkin-Brand credited the performance to the addition of Engine (now House 337 following its merger with Odd) and a streak of new business wins at consultancy Mach49. Next Fifteen’s chief executive officer Tim Dyson agreed, saying that Engine had been “successfully integrated” into the group.

“All four pillars of our business have shown double-digit organic revenue growth. Our US operations have shown exceptional growth, with the region now representing 53% of our total net revenues. We have also benefited from the positive contribution from recent acquisitions including Engine,” he said.

Despite those figures, the business still made a loss over the six months to July. Earn-out payments to the founders of Mach49; the cost of acquiring, integrating and rebranding Engine into the group; £396,000 put aside for a staff bonus scheme at Elvis; and costs associated with consolidating its offices in London, New York and San Francisco all added up to a loss in its statutory results.

Furthermore, the group said it expects operating margins to shrink in the next six months, due to further investments made in Mach49. Subsidiary Savanta’s acquisition of agency Motif, announced last week, means acquisition costs are unlikely to go away in the near future.

Though the loss is much smaller, the results bear a parallel to those of S4 Capital, released last week. That company’s figures for the same period of time charted a £76m loss induced by costs related to previous acquisitions and offices, even as revenues also increased. Both groups have sought to compete with the established titans of the ad sector.

M&C Saatchi battle

Next Fifteen has been working to acquire Britain’s largest independent agency, M&C Saatchi, since May, in competition with rival bidders AdvancedAdvTV.

The results will likely sway shareholders ahead of a series of votes on either proposal; the deadline for a decision on the latter’s bid is this Friday. M&C’s board previously recommended shareholders back a deal with Next Fifteen based on the similarities between the two businesses – but later pulled their support, following a fall in Next Fifteen’s share price. Including today’s fall, that share price is now 34.4% down on its position in May, when a deal was initially agreed.

Dyson said that the company was still committed to its pursuit. “In May we announced our offer for M&C Saatchi where we saw a very strong rationale for combining two highly complementary businesses and creating significant value for both sets of shareholders,” he said.

“This opportunity is just as compelling today as it was in May, with our positive engagement across the wider M&C Saatchi leadership team only increasing our confidence in the prospects for the combined group.”

A spokesperson for Next Fifteen said that it expected the deal to be resolved before Christmas.