Two very different profit lines

Next 15 Group (LSE:NFG) published interim figures on 8 October 2026 that contained an apparent contradiction. They contained an apparent contradiction. On a statutory basis the group swung to a loss before tax of £1.5m for the six months to 31 July, against a profit of £15.8m a year earlier. Yet adjusted pre-tax profit, which strips out items management treats as non-recurring, slipped only 2.3% to £30.2m from £30.9m.

The gap is explained mainly by litigation costs, according to the company's half-year statement.

About the group

Next 15 owns a portfolio of agencies serving technology and consumer brands, including insight, communications, Marketing technology and Business transformation consultancy. Its work is largely project-based, so clients' marketing budgets influence its Revenue directly. Technology clients cut budgets for several years, which is why management highlights the recent run of growth.

What the underlying business did

LSE:NFG owns a portfolio of agencies working for technology and consumer brands, covering insight, communications, marketing technology and consulting on new business ventures. Much of that work is project-based, which makes revenue sensitive to how freely clients are spending. That sensitivity has weighed on the group for several years as technology clients cut marketing budgets.

Reported revenue fell 5.3% to £299.4m from £316.1m. Net revenue, which excludes pass-through costs, was £214.9m, down 1.3% on a like-for-like, constant-currency basis. Adjusted operating profit eased 1.8% to £32.1m, but the adjusted Operating Margin improved to 14.9% from 14.2%, helped by tight cost control and a headcount reduction of about 5% overall.

The board held the Interim Dividend at 4.75p per ordinary share. Net Debt stood at £57.3m, equivalent to 0.7 times adjusted EBITDA. That is a modest level of borrowing for a group of this size, although a comparison with the prior-year figure was not available.

Signs of a turn

Management pointed to three consecutive months of like-for-like revenue growth from June to August 2026, which it described as the first sustained run of growth in three years. It called trading in the second half so far encouraging and said it expected like-for-like revenue growth for the full year, with revenue and adjusted operating profit in line with market expectations. The board said its Digital Transformation segment was growing faster than forecast, offsetting disposals and a slower recovery elsewhere in the portfolio.

Why the distinction matters

For shareholders, the difference between statutory and adjusted profit is central to how the half should be judged. Adjusted figures suggest a business that is stabilising and protecting its margin despite softer revenue. Statutory figures show that legal and other excluded costs can wipe out profit in a given period. Investors weighing the dividend and the Balance Sheet will need to consider both, especially as excluded costs still consume cash. The adjusted measures are the company's own definitions, and different investors may draw the line between recurring and one-off costs in different places.

The picture has since been reshaped by portfolio activity. On 5 November the group announced the sale of its Marker business, a transaction covered separately, which will alter the revenue base and segment mix against which future periods are measured and judged.

Reconciling statutory and adjusted profit

The statutory loss before tax of £1.5m compares with adjusted pre-tax profit of £30.2m, a gap of £31.7m. The company explains that litigation costs are the main reason for the gap. Adjusted profit removes items that management regards as non-recurring, but investors often examine whether such items recur. A year earlier, the statutory profit of £15.8m compared with adjusted profit of £30.9m, a gap of £15.1m, so the difference more than doubled.

Revenue and margin

Reported revenue fell 5.3% to £299.4m, while net revenue of £214.9m fell 1.3% on a like-for-like, constant-currency basis, so currency and disposals accounted for much of the reported decline. Adjusted operating profit of £32.1m on net revenue of £214.9m gives the 14.9% margin, which is an improvement of 0.7 percentage points from 14.2%. Cost control and the roughly 5% headcount reduction supported the margin.

Debt and dividend

Net debt of £57.3m at 0.7 times adjusted EBITDA implies adjusted EBITDA of about £82m on a trailing basis. The interim dividend of 4.75p was held flat, which sustains payments during a period of lower statutory profit. The cost of the dividend depends on the share count, which the article does not disclose.

The recovery signals

Three consecutive months of like-for-like revenue growth from June to August is the first such run in three years, according to management. The Digital Transformation segment growing faster than forecast offsets disposals and a slower recovery elsewhere. The board expects like-for-like revenue growth for the full year, with revenue and adjusted operating profit in line with market expectations, which depends on the second half continuing the trend.

Why litigation costs matter

Litigation costs are treated as non-recurring by management, but investors often ask whether they will continue. The size of the gap between statutory and adjusted profit shows that these items were large in the half, and the full-year results will show whether they continued in the second half. The company has not given an amount for the litigation in the information above, so the extent of the cost is not known.

A group of agencies also depends on its staff, so the reduction of headcount by about 5% means a smaller cost base but also fewer people to deliver work. If revenue growth continues, the group may need to rebuild capacity, and the effect on margin would depend on how quickly it does so.

The disposals mentioned by management also affect comparisons, because revenue from businesses that have been sold is removed from reported figures. The like-for-like measure of net revenue is therefore the better indicator of trading, and the reported decline of 5.3% overstates the underlying change of 1.3%.

Risks and the timetable

LSE:NFG said client spending on discretionary and technology projects remained constrained, so the recent growth run, covering only three months, could prove fragile if budgets tighten again. Litigation outcomes are uncertain and could produce further charges. The group also flagged that conflict in the Middle East had not, so far, had a material adverse effect, implicitly acknowledging some exposure. The financial year ends on 31 January 2027. No date for a year-end trading update has yet been published, so the next confirmed disclosure is not yet known.