NORTH AMERICA

North America continues to grow as a market for communication services, despite the slowdown in its economy. A renaissance in enterprise technology spending allied to a surge in the growth of so-called Web 2.0 companies has led to increasingly positive market conditions. One negative aspect, however, is the continued trend in more aggressive sourcing by large clients. Our Text 100 business had to adjust in early 2006 to a $5m reduction in the budget of IBM, its largest client. IBM aside, the rest of our client base grew by an average of 11% during the last year, which we believe is above the organic growth rate of the PR sector in North America. This growth was underpinned by some large client appointments during the year, including Cisco and Raytheon for Text 100. However, mid-tier clients continue to drive the region’s strongest growth performance. These clients remain in expansionary mode, seeking more streamlined and integrated global services. Bite made good progress in this area with clients such as PriceGrabber, Symantec, Wired and ZTE.

OutCast celebrated its 10th anniversary this year and goes from strength to strength, with revenue growth of 24%. This growth came from a combination of established clients such as salesforce.com and VMware and also from the successful pursuit of brand name clients which are both leaders in their space and motivational for employees. Such clients include Mozilla, Facebook, Ubisoft and NVIDIA. The pleasing aspect of OutCast’s performance is that the personality, passion and tenacity that attracted Next Fifteen to them in the first place, are still driving the business on more than two years after they came into the Group.

We see clients beginning to integrate product PR and corporate PR budgets. This trend presents a great opportunity to take on increasingly wider roles. Our credibility has risen in tandem with this trend. As technology becomes increasingly pervasive in life and business; our strong technology heritage grants us greater strength in the market. We see more non-technology companies exploring the services of traditional technology PR firms, opening new doors and enhancing our reputation. For example, debates on technology-centric issues like privacy and security make us a natural partner to the financial services industry.

In North America there are a number of opportunities emerging offering strong potential revenue streams. The pace at which the media landscape is changing is proving to be both an opportunity and a threat. Our businesses have a creative and young culture and our client roster includes many companies at the forefront of developing and using social media platforms and digital entertainment. Whilst some of our competitors are bringing in specialist resources to provide new media services we increasingly see the need to migrate them into a client’s core campaign with a corresponding change in the skills of all our staff. We see that we will be using production specialists and editors/news room professionals for clients who are trying to make their press room a direct-to-audience site versus a traditional collateral site. Text 100 has been recognised for its work in these pioneering fields with industry awards such as New Media Agency of the Year and Consumer Electronics Campaign of the Year.

Corporate Social Responsibility is another area of increasing concern for our clients and is an area where we are increasingly being brought into help them; an example of this is OutCast’s work with Xerox.

The San Francisco Bay Area is enjoying an innovation renaissance of sorts with the increased focus on clean technology and renewable energy. A large amount of investment is going into these areas – driven by corporations, new investors and traditional venture capitalists. We see this as a significant opportunity and have invested in specific specialist expertise to cater to this growing market. It provides not only the opportunity to work with new clients from the renewable energy sector but also from the greening of our client base. Examples include Dell’s desire to become a carbon- neutral company, Applied Materials’ move into the market for solar panel technology and OutCast’s work with Yahoo!.

People fuel the success of our businesses and we continue to focus efforts on recruitment and retention programmes to find the right people and keep them motivated and happy. There are pressures on salaries not always offset by rising client fees but with good education and training opportunities and great clients to work with, we aim to continue to achieve higher retention rates than the industry standard. If we can recruit and retain the best people we have enough opportunity in front of us to have another strong year.

UNITED KINGDOM

The shift of marketing budgets towards online work, whilst not quite as rapid as in the US, certainly accelerated in the UK in the last year. We are now seeing companies spending more project money on online activity, as they start to recognise the need to dramatically shift their emphasis to the internet. As in the US, this is leading to a blurring of the lines of what would traditionally have been the bailiwick of either advertising, PR, production or digital agencies; increasingly we are starting to compete against firms from radically different marketing disciplines. Our ability to grab this developing market will be predicated by us demonstrating that we are experts in engaging online audiences in meaningful, compelling conversations on behalf of our clients. This in turn will see us continue to invest in talent from outside the traditional PR world.

The UK market has remained strong over the last year and it remains the second largest market for Next Fifteen, which also reflects its relative global importance. The UK PR market is mature with our businesses growing in a range of 9-11%, which we believe is at or above the market level. There is an overall trend towards consolidation in the IT sector and this influenced our own actions over the last year. With the larger PR agencies being asked to provide a wider range of skills and services, we took the decision to merge August One’s consumer and corporate business with Text 100’s B2B client base. The resulting integration in April broadened the offering of both parties, particularly creating greater credibility in the burgeoning Digital Lifestyle sector. Early account wins here include Zylom and Metacafe. The integration has also offered significant staff-retention benefits for both companies in an increasingly competitive employment market. Employees now have an opportunity to grow their career, working on a broader range of clients and campaigns. Equally, morale has been boosted by demand for social networking and Web 2.0 support. These opportunities create a growing volume of project-based activity, reducing traditional seasonal revenue fluctuations.

Text 100 further secured its position in electronics, securing new relationships with Cadence and MathWorks, complementing a roster that already includes ARM and NXP Semiconductors. In IT services, Text 100 extended its global relationship with Gartner to include the UK. Text 100 used its proximity to the hub of many international companies to drive revenue across the rest of the network – notably securing Autonomy across EMEA, as well as expanding its relationship with Novell into four other key markets in Europe.

This consolidation trend that would benefit larger agencies like Text 100 and Bite creates an interesting dynamic and challenge for medium-sized organisations such as Inferno, as it seeks to ensure that it is involved in higher growth areas and to look for new and innovative avenues of revenue generation with new and existing clients. Technology and B2B PR remain strong areas for Inferno, and with clients such as Microsoft, Palm and Computer Associates, Inferno continue to demonstrate their ability to deliver complex technology and B2B messages simply to all target audiences. 2007 has also seen Inferno develop much stronger corporate communications skills, as the Capgemini account expanded and Inferno launched ‘Carbon’, a new division aimed at extending its portfolio of strategic, audience-focused, and corporate services to new and existing clients. This division has already carried out marcomms consultancy work for Microsoft and the ICAEW and is proving to be an astute move as the communications landscape continues to shift around the expectations of what a PR agency can and should be delivering.

At Bite, demand for PR services in the UK remained robust during the last twelve months. But again, mirroring the US, competition for staff is having an upward pressure on salaries and benefits which in turn is making margin pressures ever greater. During the last year, Bite UK added a number of clients to its roster, including AOL Wireless, Polycom, Cisco and Blinx.

Outside our technology-focused businesses, Lexis completed a very successful year, adding clients such as Boots, Nokia and MySpace. Staff numbers rose to 100 and retention rates sat at an impressive 95%. Its new youth division, Six, more than doubled its initial targets and Lexis continued its run of award wins since inception by picking up six industry titles for its work on Dove, Sheila’s Wheels and the Barclays Premier League. Lexis also sees that the rapid growth of digital technology holds great potential and so has hired further staff to work in the team. Other opportunities include more transatlantic work from clients such as Coca-Cola (for which it won global-templating work earlier in the year) and also growth in the healthcare arena.

Looking ahead, Lexis is well placed particularly through its sports division to start gearing up to 2012 Olympics - indeed it already handled one of the first tier-one sponsorship announcements for its client, EDF. As with the technology agencies, recruitment and retention remain some of the biggest challenges in the consumer PR field. Lexis seeks to differentiate itself and strives to offer an attractive and stimulating place to work. Indeed it has appeared for the past three years in the Sunday Times list of Best Small Companies to Work For.

In the final quarter of the financial year, Next Fifteen launched a UK-based research business called Redshift Research, which will be available to help the PR businesses get the most effective results for the marketing spend of their clients.

In summary, the UK businesses of Next Fifteen are performing well in a market that is still offering good growth prospects for the coming year.

Up to

EUROPE AND AFRICA

Europe is an established region for Text 100 and last year it placed considerable emphasis on the expansion of existing client relationships into additional European markets. This initiative saw early success with more than 15 clients each commissioning work from an average of two additional EMEA offices. This initiative boosted annual growth by more than 2%. Each office in EMEA now has more clients in common with the others, than at any other time in the region’s history.

In total, a further 51 new clients were added to Text 100’s portfolio during the year. Paris alone secured six new clients in four months, representing 22% annualised growth. Text 100 Stockholm followed this trend with five client wins during the final two months of the year. During the year many clients spoke of their desire for Text 100 to offer deeper consultancy beyond just media relations and product PR. We responded to this need with the creation of the Senior Consulting Group (SCG). This group secured £250,000 of strategic consulting revenue in its first full-year of operation.

Text 100’s profile as an innovative agency rose throughout the year. It received invitations to speak at a record number of events, eight in the final five months alone, while a record number of business publications reported on its efforts in almost every EMEA market. Its growing profile in the peer media arena drove many of these opportunities. This profile was subsequently reflected in our greatest ever number of industry awards (five at last count, with a further three campaigns recognised as finalists).

Text 100’s business in South Africa has found it difficult to adapt to the requirements of the Black Economic Empowerment legislation and we continue our search for a suitable partner for our business there, which will then allow it to recover and achieve its potential.

Bite’s only office in Europe is in Sweden. The Swedish economy grow robustly in the last year, but along with the strong economic growth has come an expansion of the total number of Swedish PR agencies; today the industry has 70 agencies with more than 5 employees. Therefore, competition for employees and clients has become intense.

Social Media has exploded in the Nordic market during the year. In the beginning of 2007 the discussion was concentrated around sites such as Second Life but during August, Facebook became a massive hit in Sweden and now there is a great focus on Social Media and social communities and how to use them to reach audiences. More specifically for our business, the technology industry is also enjoying a renaissance in Sweden with investment companies are once again focusing on the IT/Telco market. As a result we are seeing a great deal of start-up activity in Sweden. Given the positive market conditions, 2007 has been another excellent year for Bite in Sweden and it added a number of new clients including Amadeus, GN Jabra, Polycom, RedBull and UltimateBet.

The overall outlook for Next Fifteen in Europe is one of steady improvement in a mature market. Margins are lower than in the more favourable labour markets of North America and the United Kingdom but margins are improving and further progress is anticipated in the current year.

ASIA PACIFIC

Asia Pacific continues to offer strong growth potential. During the last year overall revenues increased by 14%. Our consultant headcount grew 25%, resulting in total staff of over 220 people by year-end.

The strength of this market allowed Text 100 to open four new offices, one in Malaysia, and three in India that trade as Vox Public Relations, a separate brand on the sub-continent. Text 100’s Kuala Lumpur office reported revenue growth significantly higher than planned and finished its first year with seven staff. India’s new Vox brand established an early foothold winning clients including American Express, IBM and BMW.

Elsewhere in the Asia Pacific region, Text 100 added clients including Applied Materials, Barclays Asia Trophy, SafeNet, SanDisk and VMware. Several existing clients significantly expanded their relationships across multiple countries these include: Autodesk, Cisco Systems, Lenovo, Nokia, NXP Semiconductors, Philips Electronics and Symantec. Client retention also rose to 92%. Our regional proposition was bolstered by a broader offering encompassing multi-country campaigns, corporate communications and peer-media communications.

Late in the year we introduced a new Global Resourcing Optimisation (GRO) service that offers clients a cost-effective service delivery model. This innovative model puts us ahead of key competitors at a time when the industry faces growing commoditisation and globalisation of business services. GRO challenges traditional notions about what a PR budget can buy, and who will deliver these services.

In the last quarter of the financial year, Bite entered Asia Pacific for the first time through new offices in Beijing and Hong Kong. Whilst these businesses are still in start-up mode, with only five staff on board, we are satisfied with our progress to date, having won business from clients that include Autonomy, Informatica and VMware. In the limited time Bite has been operating in China and Hong Kong, it has been confirmed to them that there is a significant market opportunity for PR agencies. Having established Bite in China, we will now be actively promoting our presence there to our wider client base over the coming months. We see a significant opportunity for Bite’s clients in EMEA and the US to regard it as a natural partner in China. However, to be taken seriously across the wider APAC region Bite will need to demonstrate an ability to execute campaigns across multiple countries. To do this, Bite will be creating a bespoke network of agency partners, using Next Fifteen sister agency Text 100 wherever possible, as well as identifying other major territories (such as India) where Bite need a standalone presence.

Gaining market share in China will require exceptionally hard work and a fervent focus on staff; while in our more developed offices trained PR staff are at least available, in China, because of the relative immaturity of PR as a discipline, rapid growth has outpaced the pool of prospective candidates. We are therefore focusing on hiring young talent and coaching them into their roles whilst also competing with other agencies for the sparse number of experienced professionals who are already in the market.

At a global level we, like many other businesses, remain concerned about the possibility of the Chinese market overheating, while escalating costs challenge historical profit performance in markets such as India. We have been operating in the region for more than ten years now and what we are seeing is that although the growth potential is huge, infrastructure costs are rising to such an extent that developing markets are increasingly becoming no less expensive to operate in than their first world counterparts.

Nonetheless, we are excited about the potential for growth from our network of offices in Asia Pacific and look forward to another year of significant progress.