'Surplus to requirements' - Next 15 puts 100,000 sq ft of office space on the market

Next 15 is 'actively marketing' about one-third of its real estate in London, New York and San Francisco after deeming it 'surplus to requirements' amid the shift to more home working.

Next 15 chairman Richard Eyre: 'robust actions' taken to 'secure current performance and build for the long term'
Next 15 chairman Richard Eyre: 'robust actions' taken to 'secure current performance and build for the long term'

That adds up to approximately 100,000ft2 of property, according to the listed owner of PR agencies Archetype, The Outcast Agency, The Brandwidth Group, M Booth and Publitek. The business is taking an impairment charge of £10.9m (US$14m) on the decision, which it expects to boost profits by about £2.8m ($3.6m) a year.

At Next 15's H1 results announcement this morning, it said: "During the pandemic, the group has reviewed its property portfolio in the wake of the significant movement to a more flexible working environment.

"We have determined that approximately a third of our real estate in London, New York and San Francisco, approximately 100,000ft2, is now surplus to requirements and we are actively marketing the space.

"Accordingly, we have taken an impairment of £10.9m as at 31 July 2020 against the carrying value of our right-of-use property assets."

Next 15 said the move will, "in time, yield significant ongoing improvements to profitability", estimated to be £2.8m ($3.6m) annually and £1.5m ($1.9m) for its 2021 full year.

The decision has left Next 15 with an operating loss of £400,000 ($500,000) in the first half of 2020, against profit of £7.6m ($9.8m) in the prior period.


However, Next 15 reported a "resilient performance" in the first half of 2020 in Brand Marketing, the division that includes its PR agencies. Adjusted for the impairment charge, operating profit rose 21.3 per cent to £15.9m ($20.4m) as operating margin grew from 20.5 per cent to 22.9 per cent.

That's despite a 7.9 per cent drop in organic revenue in Brand Marketing, which includes Archetype, The Outcast Agency, The Brandwidth Group, M Booth and Publitek.

Overall net revenue in Brand Marketing rose 8.5 per cent to £69.3m ($89m) in H1, following its acquisition of M Booth Health and Nectar Communications in the previous period.

Next 15 said: "Our Brand Marketing segment produced a resilient performance with a strong increase in absolute profitability and adjusted operating profit margin, as we reacted quickly to the onset of the pandemic by aligning our cost base to our reduced organic revenue expectations.

"Our M Booth and M Booth Health agencies saw an initial impact to their revenues, but trading has recovered over the last couple of months as consumer confidence has returned. Outcast, Archetype and Publitek’s revenues proved to be more resilient and their swift action on costs resulted in a strong profit and margin performance."

Across the business, Next 15 said it expects to "modestly exceed" market expectations for 2020 after exceeding its own estimate for pre-tax profit in the first half of the year. It expects to resume dividend payments in 2021.

Adjusted pre-tax profit at the group rose 20 per cent to £20.7m ($26.6m) in H1. Next 15 had earlier predicted growth of 16 per cent in the period.

As predicted, operating margin was above 16 per cent, at 16.8 per cent.

Net revenue across the group rose six per cent to £126.2m ($162m), against a predicted rise of 6.5 per cent. Significant client wins in the period including Mont Blanc, EY Global Consulting and Block One.

Next 15 chairman Richard Eyre said: "Robust actions have been taken to secure current performance as well as build for the long term. Safeguarding our people and maintaining our service quality have been the board’s priority, but we also tasked ourselves to emerge from the crisis better than we entered it. This has resulted in new software products for our customers, increased usage of data-driven products and a reduction of the group’s property portfolio as the group shifts to a new working model."

In July, the group acquired web optimisation agency CRE, and the following month snapped up Mach49, a Silicon Valley-based growth incubator for global businesses.

That was part of Next 15’s plan to create a $100m revenue innovation business to work alongside its data, technology and brand marketing companies to help clients create disruptive growth strategies, the network said.

Eyre added: "The group’s strategic direction toward marketing technology is seeing success and our newest target, to build a substantial innovation-consulting division, has been kick-started by the acquisition of Mach49. Taking all of the above into account, we are confident of modestly exceeding market expectations for the year."

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