Final Results

RNS Number : 0835U

Jaywing PLC

10 July 2018

 

Date:                10 July 2018

On behalf of:     Jaywing plc ("the Company")

Embargoed:     0700hrs 10 July 2018

Jaywing plc

Preliminary Results 2018

Jaywing plc (AIM: JWNG), the data driven, insight and creative agency, is pleased to announce its audited preliminary results for the year ended 31 March 2017

Financial highlights from continuing operations

	Year to 31 March 2018 £'000	Year to 31 March 2017 £'000
Revenue	47,541	44,537
Gross profit*	36,715	35,977
Adjusted EBITDA**	3,025	4,860
Adjusted EBITDA margin***	8.2%	13.5%
(Loss) / profit after tax	(1,133)	(2,981)
Basic EPS on adjusted EBITDA#	3.2p	5.6p
Basic EPS	(1.25p)	(3.42p)
Net debt	(5,918)	(3,534)

* Revenue less direct costs of sale

** Before share based charges, exceptional items and acquisition related costs

*** As a percentage of gross profit

# Following issue of shares for Frank Digital acquisition

Highlights

·      Acquired Frank Digital PTY to continue growth and development in Australia

·      Secured new international contracts

·      Launched new AI powered products including Archetype and Decision

·      Revenue increased by 6.7% (6.3% increase on a like for like basis)

·      Gross profit increased by 2.0% (3.1% reduction on a like-for-like basis)

·      Re-aligned cost base in response to challenging market conditions

·      Reduced loss before tax

·      Increased collaboration across Jaywing with 68% of our top 50 clients taking more than one of our service lines

Outlook

We have started the year with good new business wins from larger clients where we clearly demonstrated the value of our integrated 'One Jaywing' approach in a competitive process.

Whilst there is still caution in the UK market we believe we are well positioned to achieve our market expectation, especially with the continued growth in Australia enhanced by our most recent acquisition.

Commenting on the results, Martin Boddy, Chairman of Jaywing, said:

"After four consecutive years of growth fuelled by a strong data science-led proposition, we have endured a period of challenging market conditions in the UK.  We have taken the necessary actions to recover our EBITDA margin going forward whilst ensuring that we still have the necessary resources to grow our client base so we can return our EBITDA to previous levels by the financial year ending March 2020.

Despite these challenges it has been a year of progress in terms of expanding our fast-growing Australian operation through the acquisition of Frank Digital, plus we have launched innovative technology incorporating the use of Artificial Intelligence for clients in the UK and beyond.

Clients are increasingly looking for more data, digital and technology focused agencies and consultancies with collaborative operating models.  This is very much the sweet spot for Jaywing, so we remain excited and optimistic about our future potential.".

Enquiries:

Jaywing plc
Michael Sprot (Finance Director)	Tel: [phone]
Cenkos Securities plc (Nominated adviser)
Nicholas Wells	Tel: [phone]

Chairman's Statement

Whilst the well-publicised adverse market conditions have impacted Jaywing during the financial year, we have nevertheless made good progress in a number of areas.

We launched a suite of Artificial Intelligence (AI) based products and have strengthened our fast growing Australian business with the acquisition of Frank Digital. We also gained a social audiences platform through the acquisition of Head Offfice, which has now been fully integrated. Over and above all of that we have produced some exceptional work which has delivered exceptional results for our clients and has involved many innovative applications of data science.

As I have previously explained, trading conditions in the UK have been challenging on a number of fronts following the election in June 2017.  We saw a 3% reduction in like for like gross profit (GP) during the year.  Consequently, a far greater focus has been placed on cost management, particularly in the second half of the year. On a more positive note, in recent months it has been encouraging to see a marked improvement in our sales pipeline, some excellent new business wins and lower levels of client churn. 

Looking more broadly at our sector, it is hard to remember a period where there has been such turbulence.

Digital media has been in the headlines for all the wrong reasons.  Ads appearing alongside unsavoury YouTube content led to several brands pausing their spend until the problem was fixed. The lack of transparency in programmatic media buying undertaken by the global agency networks came under scrutiny with brands such as P&G taking that function in house. Then there was the Cambridge Analytica episode concerning their use of Facebook data, which coincided with GDPR coming into force.   

The network agency model has come under pressure with WPP in the spotlight.  Too great a focus on traditional advertising, opaque charging practices, lack of client focus and competition from Management Consultancies have led a number of these agency groups launching new strategies.  The common themes here are to adopt a more client centred and collaborative operating model with a single P&L and to place a greater focus on data, digital and technology. 

So, what does this all mean for Jaywing?

We have been operating a "One Jaywing" model for the past 5 years and understand that this is not just about managing a matrix and incentivising through a single profit measure, it's about creating a truly collaborative culture internally and in our relationships with clients. We have a transparent charging model and are focused in data science, digital marketing and technology, the spend for all of which is predicted to grow, albeit perhaps more slowly in the UK in the next year or so.  In general, we don't work for large multi-national clients who have the resources to create in-house teams and we don't find ourselves competing with the management consultancies, indeed we sometimes work alongside them to provide specialist skills. GDPR has been and will continue to be an opportunity for us as clients recognise the importance of working with a partner who understands data and how to create positive engagements with consumers.

So, there is a good opportunity for Jaywing in the medium term but the near term focus is to recover after a difficult period of trading that has created financial constraints for us to manage within and put on hold our plans for further acquisitions and paying a dividend.

Our objective is to exit the current financial year (ending March 2019) at a run rate that puts us back on our original track for the following year. We anticipate that market conditions in the UK may not improve markedly in the short term but feel that with a realigned cost base, differentiated proposition and strong growth in Australia we will achieve our market expectation.

Our colleagues - the "Jaywingers" are a resilient, talented and optimistic bunch and on behalf of the Board, I would like to thank them all for their continuing support, hard work and enthusiasm.

Martin Boddy

Chairman

 

Chief Executive's Report

Data science has never been more important to our customers and our marketplace.  Jaywing operates in three main ways, as a consultancy, an agency and following the launch of Jaywing Intelligence, a technology business.  Our skill is to combine these three disciplines to create solutions that our competition cannot match and our clients find indispensable.

Our collaborative 'One Jaywing' operating model is the essential foundation on which the broad range of specialist skills across Jaywing can be brought together to build innovative solutions that deliver superior results for our clients. 

As a company that has been championing this operating model for many years now, it has been interesting to see that the large network agencies are beginning to talk about adopting a similar model.  Our experience shows us that this transition isn't easy but we continue to realise its benefits and saw a further 2% increase (from 66% to 68%) in the number of our top 50 clients taking more than one of our service lines.  This broader relationship with clients is also improving client retention as we become more valuable to them across a variety of disciplines. 

I'm pleased to say that our operating model was once again recognised in the Prolific North Awards where Jaywing was awarded the Best Integrated Agency title for the second year in a row.  It was also endorsed by Palo Alto based Sugar CRM, one of the world largest CRM software providers who recently awarded us their global marketing account that will involve work across a number of our divisions. 

A challenging first year

My first year as CEO started with a great deal of optimism throughout the Company on the back of record Q4 trading the previous year.  However, market conditions for UK B2C businesses deteriorated markedly after the election in June 2017 and this impacted on several of our clients.  The knock-on effect was that our own trading suffered. Consequently, instead of focusing on accelerating our growth a great deal of my time has had to be devoted to realigning our cost base.  This is never an easy task in a people business and we have been mindful not to impact our ability to return to and exceed previous levels of growth and profitability by cutting costs too deep.

Whilst like for like gross profit was only down by 3% on the previous year, EBITDA fell to £3,025k resulting in a higher net debt position of £5.9m at the year end.  Our bank has been very supportive throughout the period and has agreed to re-structure our facilities, which will now run until 2021 and will give us the necessary headroom whilst our profitability recovers.

State of play

Agency Segment

Our Agency Segment generated gross profit of £21.4 million and EBITDA of £6.0 million for the financial year ended March 2018, a decrease of 1% and 18% respectively on the previous financial year. Following the delay in spend that we experienced with one of our major FMCG clients, we have reduced our exposure to this sector by re-focussing parts of our Agency segment on more sustainable revenues and creating broader relationships with larger clients.  This is evidenced by new wins including Centerparcs and Berghaus as well as continued engagements with companies including Castrol Oil and First Direct.

Media & Analysis Segment

Our Media and Analysis Segment generated gross profit of £15.3 million (up 6% on previous year) and EBITDA of £2.3 million (down 13% on previous year, primarily due to change in mix of business).  Over recent months our performance marketing division has seen an improvement in its sales performance with a stronger pipeline both in terms of the number and quality of opportunities (the majority of which are for monthly recurring revenues). This follows us being named Search Agency of the Year at the UK Agency Awards in September 2017.  As well as a focus on new business we have worked hard to reduce client churn and this year saw a 55% reduction in lost clients ensuring more repeat revenue streams in the coming years.

Our consulting division, grounded in data science, continues to be at the heart of the work we deliver for clients.  The level of insight given by our consultants ensures that work delivered by other parts of Jaywing is informed and relevant.  Our consultancy team is a key element of our 'One Jaywing' model and new clients adopting more integrated solutions are generating new revenues across both Agency and Media & Analysis segments. 

A large part of the revenues in the consulting division are project based, albeit with long standing clients.  Work on one of our larger financial services projects is being scaled down following the completion of a successful project spanning 17 months and the focus now is on securing new work for that team of people.  This has been supported by the creation of a number of new technology solutions plus new propositions for GDPR and IRB (Internals Rating Base), which are helping grow our sales pipeline. 

Technology

Our technology brand, Jaywing Intelligence, continues to generate high levels of interest with a number of innovative new products launched.  Applications such as Almanac that takes complex sets of customer data to bridge the gap between on-line and offline behaviour has been adopted by brands including Mazda UK and Swinton Insurance to more accurately deliver their marketing spend and to understand how to tailor their activity to meet their customer's needs.  We also launched our AI powered risk modelling solution Archetype (patent pending) this year, which is generating interest in the Credit Risk community.

Our paid search management platform - Decision (also built on AI principles and technology) has begun to secure new clients and is currently being integrated into our existing performance marketing operations which will provide a strong point of differentiation in the market.

Finally, our consulting services in credit risk have been enhanced by technology with the creation of the Echelon application for improving the speed of credit applications and Horizon which allows lenders to quickly model their Expected Credit Loss (ECL) IFRS9 requirements.  Both of these tools which have recently been launched are generating new opportunities in our sales pipeline.

International

Following our acquisition of Digital Massive in Australia in 2016 (now re-branded as Jaywing) our Australian operation has continued to go from strength to strength in a very active market.  Revenues grew by 42% this year and we expect Australia to represent 10% of our overall income in the year ahead.

Even with the geographic and time differences, our Australian business fully integrates with our UK operations and services a variety of shared clients including Anytime Fitness, Wedgewood Worldwide and now Sugar CRM.

We further expanded our overseas operations with the acquisition of Frank Digital in Sydney which is a great complement to our existing operations and brings with it strong digital development skills, a quality management team and relationships with large clients that we are presenting our 'One Jaywing' solution to. Frank Digital now operates from our offices in North Sydney.

Outlook

We believe that our integrated operating model and challenger brand approach position us well in the medium term as we target our return to previous levels of performance and this has been endorsed by the quality of recent client wins since the start of the new financial year.  Our focus is on delivering for our clients, retaining and growing our client base, managing our overheads carefully to underpin our recovery and playing to our strengths with data science at the core of all we do.

With so much disruption in the large agency networks and traditional service models being challenged I believe we are ideally placed to capitalise on our integrated approach. Whilst UK market conditions may remain unhelpful in the short term we are well positioned to achieve our market expectation, which will give us the exit rate to get back to previous levels of profitability the following year.

Rob Shaw

Chief Executive Officer

Jaywing plc
 

Strategic Report

Business review

Gross profit grew by 2% to £36.7m, an increase of £0.7m from the prior year (2017: £36.0m). If the impact of acquisitions is excluded, there was a reduction of 3%, from £33.5m to £32.4m. The adjusted operating performance line, before interest, tax, depreciation, amortisation, impairment, share based payment charges, loss before tax on disposal, exceptional items and acquisition related costs, shows EBITDA of £3.0m (2017: £4.9m).

The consolidated cash flow statement shows Jaywing to have generated cash from operating activities of £1.4m (2017: £3.9m) after changes in working capital. This is shown in the table below.

		2018	2017
		£'000	£'000
(Loss) / profit after tax		(1,133)	(2,981)
Adjustments for:
Depreciation, amortisation and impairment		2,588	5,140
Movement in provision		(22)	6
Foreign exchange		(39)	16
Financial expenses & income		203	32
Share-based payment expense		238	1,141
Taxation charge		(83)	43
Changes in working capital		(208)	482
Operating cash flow after changes in working capital		1,544	3,879

A loss after tax of £0.6m has been generated (2017: £3.0m). The prior financial year was impacted by the impairment in the carrying value of goodwill in our Contact Centre.

We incurred £0.3m of one-off costs from the acquisition of Frank Digital, which is included within the loss after tax.  

Jaywing continues to be cash generative from operating activities as shown in the table. Net debt has increased from the prior year by £2.4m and is now £5.9m (2017: £3.5m). This follows deferred consideration payments of £2.4m during the year.

Banking facilities comprise a term loan for £3.0m, a revolving credit facility for £3.5m and a bank overdraft of £2.0m. There was headroom of £2.6m at the year end. As noted in the Chief Executive's statement, the facility has been re-structured after the year end.

The business operates in three segments: Agency Services, Media & Analysis and Central Costs. The segmental performance of our business in these practice areas is shown in Note 1 to the Consolidated Financial Statements, together with the comparative performance from the previous year.

The Media and Analysis segment which represents just under 60% of total Gross Profit saw a 1% reduction from £21.6m to £21.4m. EBITDA fell by 18% from £7.3m to £6.0m. The Agency Services segment has grown gross profit which has increased by 6%. However EBITDA has reduced by 13%, impacted by the mix of work.

The table below shows the adjusted operating profit of Jaywing analysed between the two half years and adjustments made against the reported numbers:

		Full year to 31 March 2018	Six months to 31 March 2018	Six months to 30 September 2017
		£'000	£'000	£'000
Reported loss before tax		(1,216)	(633)	(583)
Interest		203	124	79
Amortisation		2,033	1,023	1,010
Depreciation		555	301	254
Share based payment charge		193	(85)	278
Acquisition related costs		827	511	316
Exceptional costs		494	348	146
Adjusted operating profit		3,089	1,589	1,500
Deduct other income		(64)	(18)	(46)
Adjusted operating profit before other income		3,025	1,571	1,454

Excluding other income, Jaywing produced £1.6m adjusted operating profit after interest in the six months to 31 March 2018 and £1.4m in the first half.

 

The table below shows the trend of gross profit and EBITDA over the last four six-monthly periods:

Continuing business EBITDA

	Six months to 31 March 2018	Six months to 30 Sept 2017	Six months to 31 March 2017	Six months to 30 Sept 2016
	£'000	£'000	£'000	£'000
Revenue	24,075	23,466	23,642	20,895
Direct costs	(5,195)	(5,631)	(4,779)	(3,781)
Gross profit	18,880	17,835	18,863	17,114
Operating expenses excluding depreciation, amortisation, exceptional items, acquisition related costs and (credit)/charges for share based payments	(17,309)	(16,381)	(16,135)	(14,982)
Operating profit before depreciation, amortisation, exceptional items, acquisition related costs and (credit)/charges for share based payments	1,571	1,454	2,728	2,132

Impairment

As required by IAS 36, we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculated our weighted average cost of capital with reference to long-term market costs of debt and equity and the Company's own cost of debt and equity, adjusted for the size of the business and risk premiums. Based on this calculation, a rate of 11.5% (2017: 10.6%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2020/21. As a result of these calculations the Board has concluded that no impairment is required (2017: £2.9m).

Dividend Policy

As noted in the Chairman's Statement, we have delayed implementing a dividend policy.

Key performance indicators

Over the last 12 months, the key areas of focus have been:

-       Increased collaboration

-       Cost reduction

-       International expansion

-       Technology development

Progress against these is described in the Chief Executive's report.

By order of the Board.

Michael Sprot

Chief Financial Officer

Date:                       
 

Consolidated statement of comprehensive income

For the year ended 31 March			2018	2017
Continuing operations	Note		£'000	£'000
Revenue	1		47,541	44,537
Direct costs			(10,826)	(8,560)
Gross profit			36,715	35,977
Other operating income	2		64	26
Operating expenses	3		(37,792)	(38,909)
Operating (loss) / profit			(1,013)	(2,906)
Finance income			-	165
Finance costs			(203)	(197)
Net financing costs			(203)	(32)
(Loss) / profit before tax			(1,216)	(2,938)
Tax expense	4		83	(43)
(Loss) / profit for the year from continuing operations			(1,133)	(2,981)
Other comprehensive income
Items that will be reclassified subsequently to profit or loss Exchange differences on retranslation of foreign operations			(39)	16
Total comprehensive income for the period attributable to equity holders of the parent			(1,172)	(2,965)
(Loss) / profit per share	5
Basic (loss) / profit per share			(1.25p)	(3.42p)
Diluted (loss) / profit per share			(1.25p)	(3.42p)

Consolidated balance sheet
As at 31 March			2018	2017	2016
	Note		£'000	£'000	£'000
Non-current assets				Restated	Restated
Property, plant and equipment			1,443	1,095	744
Goodwill	7		34,496	33,722	30,446
Other intangible assets	8		5,962	7,230	6,562
			41,901	42,047	37,752
Current assets
Trade and other receivables			11,754	11,311	10,150
Cash and cash equivalents	9		632	2,216	347
			12,386	13,527	10,497
Total assets			54,287	55,574	48,249
Current liabilities
Other interest-bearing loans and borrowings	9		4,750	4,750	4,612
Trade and other payables			12,545	12,296	8,072
Current tax liabilities			249	557	452
Provisions			151	173	167
			17,695	17,776	13,303
Non-current liabilities
Other interest-bearing loans and borrowings	9		1,800	1,000	1,063
Deferred consideration			-	2,314	-
Deferred tax liabilities			951	1,229	1,387
			2,751	4,543	2,450
Total liabilities			20,446	22,319	15,753
Net assets			33,841	33,255	32,496
Equity attributable to owners of the parent
Share capital	10		34,992	34,657	34,139
Share premium			10,088	9,108	6,608
Capital redemption reserve			125	125	125
Shares purchased for treasury			(25)	(25)	(25)
Share option reserve			736	504	146
Minority interest			1,718	1,513	-
Foreign currency translation reserve			(20)	19	3
Retained earnings			(13,773)	(12,646)	(8,500)
Total equity			33,841	33,255	32,496

 

Consolidated cash flow statement

For the year ended 31 March		2018	2017
	Note	£'000	£'000
Cash flow from operating activities
Loss after tax		(1,133)	(2,981)
Adjustments for:
Depreciation, amortisation and impairment		2,588	5,140
Movement in provision		(22)	6
Foreign exchange arising from translation of foreign subsidiary		(39)	16
Financial income		-	(165)
Financial expenses		203	197
Share-based payment expense		238	1,141
Taxation charge		(83)	43
Operating cash flow before changes in working capital		1,752	3,397
Increase in trade and other receivables		(360)	(281)
(Decrease) / increase in trade and other payables		152	763
Cash generated from operations		1,544	3,879
Interest received		-	1
Interest paid		(203)	(197)
Tax paid		(553)	(549)
Net cash flow from operating activities		681	3,134
Cash flow from investing activities
(Payment) / receipt of deferred consideration		(2,528)	151
Acquisition of subsidiaries net of cash acquired	6	(647)	(3,694)
Acquisition of intangible assets		(448)	-
Acquisition of property, plant and equipment		(865)	(815)
Net cash outflow from investing activities		(4,488)	(4,358)
Cash flow from financing activities
Increase in borrowings		800	75
Proceeds from issue of share capital		1,316	3,018
Net cash inflow from financing activities		2,116	3,093
Net (decrease) / increase in cash and cash equivalents		(1,584)	1,869
Cash and cash equivalents at beginning of year		2,216	347
Cash and cash equivalents at end of year		632	2,216
Cash and cash equivalents comprise:
Cash at bank and in hand		632	2,216
Bank overdrafts	9	-	-
Cash and cash equivalents at end of year		632	2,216

 

Consolidated statement of changes in equity

	Share capital	Share premium account	Capital redemption reserve	Treasury Shares	Minority interest	Share option reserve	Foreign currency translation reserve	Retained earnings	Total  equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2016 (restated)	34,139	6,608	125	(25)	-	146	3	(8,500)	32,496
Issue of share capital	518	2,500	-	-	-	-	-	-	3,018
Acquisition of subsidiaries	-	-	-	-	1,513	-	-	(1,165)	348
Charge in respect of share based payments	-	-	-	-	-	358	-	-	358
Transactions with owners	518	2,500	-	-	1,513	358	-	(1,165)	3,724
Loss for the period	-	-	-	-	-	-	-	(2,981)	(2,981)
Retranslation of foreign currency	-	-	-	-	-	-	16	-	16
Total comprehensive income for the period	-	-	-	-	-	-	16	(2,981)	(2,965)
Balance at 31 March 2017	34,657	9,108	125	(25)	1,513	504	19	(12,646)	33,255
Issue of share capital	335	980	-	-	-	-	-	-	1,315
Acquisition of subsidiaries	-	-	-	-	211	-	-	-	211
Charge in respect of share based payments	-	-	-	-	-	232	-	-	232
Transactions with owners	335	980	-	-	211	232	-	-	1,758
Loss for the period	-	-	-	-	(6)	-	-	(1,127)	(1,133)
Retranslation of foreign currency	-	-	-	-	-	-	(39)	-	(39)
Total comprehensive income for the period	-	-	-	-	-	-	(39)	(1,127)	(1,172)
Balance at 31 March 2018	34,992	10,088	125	(25)	1,718	736	(20)	(13,773)	33,841

 

Principal accounting policies

Jaywing plc is a Company incorporated in the UK and is AIM listed.

The financial information set out in this preliminary announcement does not constitute statutory information as defined in section 434 of the Companies Act 2006.

The consolidated balance sheet at 31 March 2018 and the consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and associated notes for the year then ended have been extracted from the Group's 2018 statutory financial statements upon which the auditor's opinion is unmodified and does not include any statement under section 498 (2) or (3) of the Companies Act 2006.

Those financial statements have not yet been delivered to the registrar of companies.

The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').

The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRSs). The consolidated financial statements have been prepared under the historical cost convention, except for certain financial instruments that are held at fair value.

The accounting policies set out in the most recently published statutory financial statements have been followed. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements.

Judgements made by the Directors in the application of these accounting policies that have a significant effect on the consolidated financial statements together with estimates with a significant risk of material adjustment in the next year are discussed in note 11.

Going concern

The Directors have reviewed the forecasts for the period up to 30 September 2019 which have been adjusted to take account of the current trading environment.  The Directors consider the forecasts to be prudent and have assessed the impact of them on the Group's cash flow, facilities and headroom within its banking covenants.  Furthermore, the Directors have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities. Based on this work, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing the financial statements.

1.     Segmental analysis

The Group reports its business activities in two areas: Agency Services and Media & Analysis, its two primary business activities. Central Costs represents the Group's head office function, along with intragroup transactions.

The Group primarily derives its revenue from the provision of digital marketing services in the UK. Approximately £1,843,000 of sales were made to clients in Australia. During the year one customer included within the Media & Analysis sector accounted for greater than 10% of the Group's revenue (2017: No customers).

For the year ended 31 March 2018

	Agency Services	Media & Analysis	Central Costs	Total
	£'000	£'000	£'000	£'000
Revenue	18,025	31,565	(2,049)	47,541
Direct costs	(2,718)	(10,157)	2,049	(10,826)
Gross profit	15,307	21,408	-	36,715
Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	(12,979)	(15,449)	(5,262)	(33,690)
Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	2,328	5,959	(5,262)	3,025
Other operating income	64	-	-	64
Depreciation	(222)	(231)	(102)	(555)
Amortisation	(1,293)	(740)	-	(2,033)
Exceptional costs	(12)	(282)	(200)	(494)
Acquisition related costs	-	-	(827)	(827)
Charges for share based payments	(51)	(4)	(138)	(193)
Operating (loss) / profit	814	4,702	(6,325)	(1,013)
Finance income				-
Finance costs				(203)
Loss before tax				(1,216)
Tax expense				83
Loss for the period				(1,133)

 

For the year ended 31 March 2017

	Agency Services	Media & Analysis	Central Costs	Total
	£'000	£'000	£'000	£'000
Revenue	17,297	27,877	(637)	44,537
Direct costs	(2,901)	(6,296)	637	(8,560)
Gross profit	14,396	21,581	-	35,977
Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	(11,732)	(14,333)	(5,052)	(31,117)
Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	2,664	7,248	(5,052)	4,860
Other operating income	26	-	-	26
Depreciation	(280)	(147)	(46)	(473)
Amortisation	(1,046)	(715)	-	(1,761)
Impairment to the carrying value of goodwill	(2,906)	-	-	(2,906)
Exceptional costs	(187)	(30)	(179)	(396)
Acquisition related costs	-	-	(1,115)	(1,115)
Charges for share based payments	(107)	(135)	(899)	(1,141)
Operating (loss) / profit	(1,836)	6,221	(7,262)	(2,906)
Finance income				165
Finance costs				(197)
Loss before tax				(2,938)
Tax expense				(43)
Loss for the period				(2,981)

Year ended 31 March 2018
		Agency Services	Media & Analysis	Central Costs	Total
		£'000	£'000	£'000	£'000
Assets		28,408	32,278	(6,399)	54,287
Liabilities		(3,536)	(7,069)	(9,841)	(20,446)
Capital employed		24,872	25,209	(16,240)	33,841

Year ended 31 March 2017
		Agency Services	Media & Analysis	Central Costs	Total
		£'000	£'000	£'000	£'000
Assets		29,404	31,722	(5,542)	55,584
Liabilities		(3,536)	(7,494)	(11,299)	(22,329)
Capital employed		25,868	24,228	(16,841)	33,255

Unallocated assets and liabilities consist predominantly of cash, external borrowings and deferred tax liabilities on intangible assets which have not been allocated to the business segments. All of the Group's assets are based in the UK.

Capital additions; Property, plant and equipment

	Agency	Media & Analysis	Central Costs	Total
	Services
	£'000	£'000	£'000	£'000
Year ended 31 March 2018	298	354	213	865
Year ended 31 March 2017	145	367	303	815

 

2.     Other operating income

	2018	2017
	£'000	£'000
Other operating income	64	26

During the years to 31 March 2017 and 31 March 2018 the Group received money from the administrator of a client for a contractual obligation to perform services on their behalf. During the year the Group received a further distribution of £64,000. It is anticipated there may be further distributions in the future but the Board is unaware of the quantum or timing of these potential receipts.

3.     Operating expenses

	2018	2017
Continuing operations:	£'000	£'000
Wages and salaries	25,656	24,809
Share based payments	193	1,141
Depreciation	555	473
Exceptional items	275	310
Amortisation	2,033	1,761
Impairment to the carrying value of goodwill	-	2,906
Other operating expenses	8,861	7,423
	37,573	38,823
Compensation for loss of office	219	86
	219	86
	37,792	38,909

Wages and salaries include £547,000 (2017: £305,000) of post-acquisition employment costs relating to the purchase of Massive Group PTY.

4.     Tax expense

	2018	2017
	£'000	£'000
Recognised in the consolidated statement of comprehensive income:
Current year tax	262	533
Origination and reversal of temporary differences	(345)	(490)
Total tax charge	(83)	43
Reconciliation of total tax charge:
Loss before tax	(1,216)	(2,938)
Taxation using the UK Corporation Tax rate of 19% (2017: 20%)	(231)	(588)
Effects of:
Non deductible expenses	112	402
Share based payment charges	36	229
Total tax charge	(83)	43

 

5.     (Loss) / profit per share

	2018	2017
	Pence per Share	Pence per Share
Basic	(1.25p)	(3.42p)
Diluted	(1.25p)	(3.42p)

(Loss) / profit per share has been calculated by dividing the (loss) / profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

The calculations of basic and diluted (loss) / profit per share are:

	2018	2017
	£'000	£'000
(Loss) / profit for the year attributable to shareholders	(1,172)	(2,965)

Weighted average number of ordinary shares in issue:

	2018	2017
	Number	Number
Basic	93,432,217	86,709,898
Adjustment for share options	6,126,322	7,959,291
Diluted	99,558,539	94,669,189

The basic and diluted earnings per share are the same due to the Group being loss making.

Adjusted earnings per share

	2018	2017
	Pence per Share	Pence per Share
From continuing and discontinued operations:
Basic adjusted earnings per share	1.73p	3.95p
Diluted adjusted earnings per share	1.62p	3.62p

Adjusted earnings per share have been calculated by dividing the profit attributable to shareholders before amortisation, charges for share options and acquisition related costs during the year by the weighted average number of ordinary shares in issue during the year. The numbers used in calculating the basic and diluted adjusted earnings per share are reconciled below:

	2018	2017
	£'000	£'000
(Loss) / profit before tax	(1,172)	(2,965)
Amortisation	2,033	1,761
Impairment to the carrying value of goodwill	-	2,906
Acquisition related costs	827	1,115
Charges for share based payments	193	1,141
Adjusted profit attributable to shareholders	1,881	3,958
Current year tax charge	(262)	(533)
	1,619	3,425

 

6.     Acquisition of subsidiaries

During the year the Group made two acquisitions. On 30 August 2017 Jaywing plc acquired 100% of the ordinary shares in Head Offfice Limited ("Head Offfice") for cash consideration of £109,000 (excluding legal and professional fees of £11,000 which have been expensed through the statement of comprehensive income in administration expenses in the year). Up to a further £400,000 is payable for performance in the two years ending 30 August 2019.

HeadOfffice builds social communities through the creation of its own titles, reaching and engaging people on their terms and creating environments where brands can interact with ready-made, active and engaged communities. HeadOfffice also provides creative services and produces branded content in support of its publishing, working in partnership with brands, publishers and audiences. Founder, Gaz Battersby, comes with 15 years of experience and was a member of Epiphany's senior management team during the 2014 Jaywing acquisition, before setting up the independent digital consultancy.

Head Offfice was fully integrated into Epiphany on the date of acquisition and as a result the performance is not separately identifiable. The assets and liabilities acquired were as follows:

	Book value	Fair value adjustments	Fair value
	£'000	£'000	£'000
Property, plant & equipment	7	-	7
Trade and other receivables	22	-	22
Cash and cash equivalents	(3)	-	(3)
Trade and other payables	(26)	-	(26)
Corporation tax repayable	-	-	-
Deferred tax	-	-	-
Net identifiable assets and liabilities			-
Goodwill on acquisition			112
			112

Summary of net cash outflow from acquisitions:

Cash paid			109
Cash acquired			3
Net cash outflow			112
Fair value of consideration transferred
Amount settled in cash			112

The fair value of trade and other receivables are equal to the gross contractual amounts receivable and at the acquisition date all amounts were expected to be collected.

The goodwill amount represents intangible assets that do not qualify for recognition through the separability criterion or the contractual-legal criterion. This consists of cross-selling opportunities and expected synergies. 

On 14 March 2018 Jaywing plc acquired 75% of the ordinary shares in Frank Digital PTY Limited ("Frank") for cash consideration of AUS$978,000 (£551,000) (excluding legal and professional fees of £185,000 which have been expensed through the statement of comprehensive income in administration expenses in the year). This was all paid on completion. Additional consideration is payable, separate to the acquisition costs, for the continuing employment and future services provided by the former owner of Frank. Further amounts are payable as they are earned up to a maximum amount of AUS$1,200,000, up until September 2020.

The 25% of the share capital owned by management is subject to a put / call option from September 2020. This will be valued at a multiple of the average audited EBITDA for the previous two financial years ending 30 June, subject to a maximum total consideration payable of $AUS4,750,000 for the entire acquisition.

Since the acquisition of Digital Massive in July 2016, Jaywing has experienced strong growth in Australia, alongside increasing demand from customers for a wider range of products and services. This strategic acquisition of Frank Digital serves to meet this customer demand and will further consolidate Jaywing's position in the growing Australian market, delivering additional scale and augmenting its existing services with website and digital campaign expertise.

The improved offering, with a broader set of products and services, is supported by current client opportunities and allows Jaywing greater opportunity for cross-sales. In the UK, Jaywing has seen success in cross-selling its products and services. In July 2017, Jaywing announced that it had increased the proportion of clients taking more than one service line from 1 in 4 in the previous year, to 1 in 3 of its top 50 clients.

The Directors believe that by being part of Jaywing, Frank Digital can accelerate its growth by leveraging strategic and operational support from the UK.

In the period since acquisition the subsidiary contributed £61,000 to Group revenues, £6,000 to EBITDA and £6,000 to the consolidated profit attributable to shareholders for the year ended 31 March 2017. The assets and liabilities acquired were as follows:

	Book value	Fair value adjustments	Fair value
	£'000	£'000	£'000
Intangible assets	-	317	317
Property, plant & equipment	32	-	32
Trade and other receivables	82	-	82
Cash and cash equivalents	16	-	16
Trade and other payables	(293)	-	(293)
Corporation tax asset	-	-	-
Deferred tax	-	(54)	(54)
Net identifiable assets and liabilities			100
Goodwill on acquisition			451
			551

Summary of net cash outflow from acquisitions:

Cash paid			551
Cash acquired			(16)
Net cash outflow			535
Fair value of consideration transferred
Amount settled in cash			551
Minority interest			211
			762

The above figures are provisional. The fair value of trade and other receivables are equal to the gross contractual amounts receivable and at the acquisition date all amounts were expected to be collected.

The goodwill amount represents intangible assets that do not qualify for recognition through the separability criterion or the contractual-legal criterion. This consists of cross-selling opportunities and expected synergies.           

The results for the Group had the acquisition during the year been at the beginning of the year can be analysed as follows:

	Agency Services	Media & Analysis	Central Costs	Total
	£'000	£'000	£'000	£'000
Revenue	18,025	32,762	(2,049)	48,738
Direct costs	(2,718)	(10,214)	2,049	(10,883)
Gross profit	15,307	22,548	-	37,855
Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	(12,979)	(16,412)	(5,262)	(34,653)
Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	2,328	6,136	(5,262)	3,202
Other operating income	64	45	-	109
Depreciation	(222)	(273)	(102)	(597)
Amortisation	(1,293)	(742)	-	(2,035)
Exceptional costs	(12)	(282)	(200)	(494)
Acquisition related costs	-	-	(280)	(280)
Charges for share based payments	(51)	(4)	(138)	(193)
Operating (loss) / profit	814	4,880	(5,982)	(288)
Finance income				8
Finance costs				(280)
Loss before tax				(556)
Tax expense				81
Loss for the period				(475)

Note:

This information is based on the management accounts for Frank Digital. 
  

7.     Goodwill

			Goodwill
			£'000
Cost and net book value
At 1 April 2017			33,722
Additions			774
Impairment			-
At 31 March 2018			34,496

Goodwill is attributed to the following cash generating units:
	2018	2017	2016
	£'000	£'000	£'000
Agency Services
Digital Media & Analytics Limited	438	438	438
Scope Creative Marketing Limited	5,550	5,550	5,550
Jaywing Central Limited	5,817	5,817	5,817
HSM Limited	295	295	3,201
Gasbox Limited	273	273	273
Bloom Media (UK) Limited	4,287	4,287	-
Media & Analysis
Epiphany Solutions Limited	5,937	5,825	5,825
Alphanumeric Limited	9,342	9,342	9,342
Massive Group PTY	1,895	1,895	-
Frank Digital PTY	662	-	-
	34,496	33,722	30,446

Goodwill and other intangible assets have been tested for impairment by assessing the value in use of the relevant cash generating units.  The value in use calculations were based on projected cash flows in perpetuity.  Budgeted cash flows for 2016/17 to 2019/20 were used. These were based on a one year budget with growth rates of 5% to 10% applied for the following three years.  Subsequent years were based on a reduced rate of growth of 2% into perpetuity.

The average year on year growth in earnings before interest, tax, depreciation and amortisation (EBITDA) which has been used as the basis for forecasting cash flows for each of the cash generating units when testing for impairment were:

	Year on year growth
2016/17	5.0% - 10%
2017/18	5.0% - 10%
2018/19	2.5% - 10%
Perpetuity	2.0%

These growth rates are based on past experience and market conditions and discount rates are consistent with external information. The growth rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated profits of the Group in the future.

The discount rate used to test the cash generating units was the Group's pre-tax Weighted Average Cost of Capital ("WACC") of 11.5% (2017:10.6%). The individual cash generating units were assessed for risk variances from the WACC, but in the absence of geographical risk, currency risk and any significant price risk variations, the same WACC was used for all the cash generating units.

As a result of these tests an impairment of £Nil was considered necessary (2017: £2,906,000).

The Directors have performed a sensitivity analysis in relation to the WACC used, which showed that no impairment would be required for WACCs of up to 16% in other CGU's.

The Directors have also performed a sensitivity analysis in relation to the year on year growth in EBITDA. If the growth rates were to be reduced by 1% in each CGU no impairment charge would be required.

8.     Other intangible assets

	Customer relationships	Order books	Trademarks	Development costs	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2016	21,348	1,457	1,025	235	24,065
Additions during the year from acquisitions	1,821	-	55	493	2,369
Additions during the year	-	-	-	60	60
Disposal	-	-	-	-	-
At 31 March 2017	23,169	1,457	1,080	788	26,494
Additions during the year from acquisitions	317	-	-	-	317
Additions during the year	-	-	-	448	448
Disposal	-	-	-	-	-
At 31 March 2018	23,486	1,457	1,080	1,236	27,259
Amortisation
At 1 April 2016	15,743	1,457	104	199	17,503
Amortisation charge for the year	1,584	-	67	110	1,761
Disposals	-	-	-	-	-
At 31 March 2017	17,327	1,457	171	309	19,264
Amortisation charge for the year	1,852	-	79	102	2,033
Disposals	-	-	-	-	-
At 31 March 2018	19,179	1,457	250	411	21,297
Net book amount
At 31 March 2018	4,307	-	830	825	5,962
At 1 April 2017	5,842	-	909	479	7,230
At 1 April 2016	5,605	-	921	36	6,562

The cost of brought forward customer relationships was determined as at the date of acquisition of the subsidiaries by professional valuers. The valuations used the discounted cash flow method, assuming rates of customer attrition at 10% and sales growth at 2% each year. The discount rate applied at that time to the future cash flows were specific to each subsidiary and were all in the range 14.6% to 15.5%.

Trademarks represent the trading names used by the company. These are estimated to have an economic life of 20 years. The valuation used the discounted cash flow method, assuming an estimated royalty rate of 2% and sales growth of 2% each year. The valuation assumes that each year 80% to 90% of revenues are generated using the Trademark and applied a discount rate of 19%.

The order book represents contracted revenues over the next 12 months. The valuation used the discounted cash flow method, assuming a net operating profit margin of 30.5%. The discount rate applied was 15.8%.

Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are detailed in note 14. On the basis of this review, it has been concluded that there is no need to impair the carrying value of these intangible assets (2017: £Nil).

 

9.     Bank and overdraft, loans and borrowings

		2018	2017		2016
		£'000	£'000		£'000
Summary
Borrowings		6,550	5,750		5,675
		6,550	5,750		5,675
Borrowings are repayable as follows:
Within one year
Borrowings		4,750	4,750		4,612
Total due within one year		4,750	4,750		4,612
In more than one year but less than two years		1,800	1,000		1,063
In more than two years but less than three years		-	-		-
In more than three years but less than four years		-	-		-
Total amount due		6,550	5,750		5,675
Average interest rates at the balance sheet date were:		%	%	%
Term loan		2.25	2.61	3.56
Revolver loan		2.25	2.51	3.51

As the loans are at variable market rates their carrying amount is equivalent to their fair value.

The additional borrowing facilities available to the Group at 31 March 2018 was £2.0 million (2017: £2.0 million) and, taking into account cash balances within the Group companies, there was £2.6 million (2017: £4.2 million) of additional available borrowing facilities.

A Composite Accounting System is set up with the Group's bankers, which allows debit balances on overdraft to be offset across the Group with credit balances.

Reconciliation of net debt

	1 April 2017	Cash flow	Non-cash items	31 March 2018
	£'000	£'000	£'000	£'000
Cash and cash equivalents	2,216	(1,584)	-	632
	2,216	(1,584)	-	632
Borrowings	(5,750)	(800)	-	(6,550)
Net debt	(3,534)	(2,384)	-	(5,918)

 

10.   Share capital

Authorised:

	45p deferred shares	5p ordinary shares
	£'000	£'000
Authorised share capital at 31 March 2017 and at 31 March 2018	45,000	10,000

Allotted, issued and fully paid:

	45p deferred shares	5p ordinary shares
	Number	Number	£'000
At 31 March 2017	67,378,520	86,709,898	34,657
Issue of share capital	-	6,536,450	326
Issue of share options	-	185,869	9
At 31 March 2018	67,378,520	93,432,217	34,992

The 5 pence ordinary shares have the same rights (including voting and dividend rights and rights on a return of capital) as the previous 50 pence ordinary shares. Holders of the 45 pence deferred shares do not have any right to receive notice of any general meeting of the Company or any right to attend, speak or vote at any such meeting. The deferred shareholders are not entitled to receive any dividend or other distribution and shall, on a return of assets in a winding up of the Company, entitle the holders only to the repayment of the amounts paid up on the shares, after the amount paid to the holders of the new ordinary shares exceeds £1,000,000 per new ordinary share. The deferred shares will also be incapable of transfer and no share certificates will be issued in respect of them.

11.   Accounting estimates and judgements

Accounting estimates

Impairment of goodwill and other intangible assets

The carrying amount of goodwill is £34,496,000 (2017: £33,722,000) and the carrying amount of other intangible assets is £5,962,000 (2017: £7,230,000). The Directors are confident that the carrying amount of goodwill and other intangible assets is fairly stated, and have carried out an impairment review.  The forecast cash generation for each CGU and the WACC represent significant assumptions and should the assumptions prove to be incorrect there would be a significant risk of a material adjustment within the next financial year. The sensitivity to the key assumptions is shown in note 14.

Share based payment

On 4 May 2016 and 30 September 2016, share options were granted to employees in order to incentivise performance. These share options will vest based upon conditions which relate to either EBITDA performance in the period commencing 1 April 2016, or the share price at various future dates.

The share based payment charge consists of two elements, the charge for the fair value at the date of grant and a charge for the employer's NI. The fair value charge has been assessed using an external valuation company, and judgement has been made on the number of shares expected to vest based on the achievement of EBITDA and share price targets.

Accounting judgements

Recognition of revenue as principal or agent

The Directors consider that they act as a principal in transactions where the Group assumes the credit risk. Where this is via an agency arrangement and the Group assumes the credit risk for all billings it therefore recognises gross billings as revenue.

12.   Annual reports and accounts

Copies of the annual report and accounts for the year ended 31 March 2018 together with the notice of the Annual General Meeting will be issued to shareholders shortly and will be available to view and download from the Company's website: jaywingplc.com.

 

END

 

 

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