Next Fifteen's growing resilience

At the end of March, the group said it was yet to see a material impact on the business overall, aside from the benefit from the strength of the US dollar against sterling. The apparent resilience is in part explained by the large percentage of revenues from business-to-business technology customers, with limited exposure from clients in the hard hit travel and leisure sectors. 

Global tech companies account for around 55 per cent of sales, with a significant skew towards US giants Google, Facebook and Amazon, where digital media budgets remain strong. The group has continued to expand this list of big-name, deep-pocketed clients, with recent new business wins at DuPont, Google Cloud, O2 and TDK. Even among harder-pressed clients Next Fifteen is benefiting from the movement of spending from traditional media to digital. 

The group is increasingly focused on a model based on its data, analytics and technology-led media services. In the first half, its data and technology divisions accounted for approximately 40 per cent of group profit, compared with less than 20 per cent in its financial year in 2017. Broker Berenberg expects these divisions to generate more than 50 per cent of group revenue and profit within the next two years, with organic sales growth of about 20 per cent while generating operating margins of 30 per cent. 

Its first-half brand marketing division’s figures were less impressive, with flat like-for-like sales. This was largely due to the mergers of three internal brands, including Text100 and Bite. Despite the lack of revenue growth, operating profit grew by 5 per cent, as margins benefited from the rationalisation.

Despite the resilience to date, the group is not immune to impacts from coronavirus and has drawn up plans to cut costs in the short term – namely, suspending its dividend and staggering or deferring large payments and non-critical capital spending. Overall, though, it retains a relatively healthy balance sheet – management forecasts that its net debt to adjusted cash profits ratio was 0.2 times on 31 January. Berenberg expects the company to end 2020 with net cash of around £11m. When combined with its £60m revolving credit facility, this could support acquisitions at a time when there may be motivated sellers and limited competition for deals.