Final Results

RNS Number : 8544I

Jaywing PLC

09 July 2013

 



Date:               9 July 2013

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

Embargoed:   0700hrs 9 July 2013

Jaywing plc

Preliminary Results 2013

Jaywing plc (AIM: JWNG), digital marketing specialists, today announced its preliminary results for the year ended 31 March 2013.

Performance highlights

Gross profit £30.08m (2012: £29.75m)

EBITDA* before other income £3.01m (2012: £3.60m)

Profit before tax ("PBT") £1.03m (2012: £1.27m)

Profit after tax £0.63m (2012: £1.12m)

Operating cash flow before changes in working capital £3.38m (2012: £4.16m)

Corporation Tax paid £0.98m (2012: £0.43m)

Net debt £2.32m (2012: £3.17m): undrawn banking facilities of £2.48m

Adjusted** basic earnings per share 2.47p (2012: 3.30p)

Adjusted** diluted earnings per share 2.38p (2012: 3.13p)

* Excludes share based payment charges, impairment, exceptional items and acquisition related costs

**Adjusted means before amortisation, share based charges, impairment and exceptional items

Commenting on the results, Andrew Wilson, Chairman of Jaywing plc, said: 'These are acceptable results. The year was difficult and we spent time and effort restructuring the business sometimes to the detriment of seeking out new clients and opportunities. However, Martin Boddy and Andy Gardner are slowly but surely creating a business of real substance built on solid foundations. Most importantly we are seeing the results of their efforts reflected in the enthusiasm of our people. This in turn is leading to applause and positive commentary from our clients. Change does take time and the shareholders have borne the result of a long period during which demand has been depressed and we were frankly poor in responding to a rapidly changing marketplace. I believe that we now have a business capable of succeeding and I look forward to this being reflected in the share price.''

Enquiries:

Jaywing plc
Michael Sprot (Company Secretary)	Tel: [phone]
Cenkos Securities plc
Ivonne Cantu (Nomad)	Tel: [phone]

Chairman's statement

This is my second Chairman's statement.

For the year ended 31 March 2013, the plc reported an operating profit before interest, tax, depreciation, amortisation, share based payment charges, impairment, exceptional items, acquisition related costs and other income of £3.0 million (2012: £3.6 million). Revenue fell slightly from £37.3 million to £36.3 million but gross profit rose from £29.7 million to £30.1 million.

This is the second consecutive year in which profits have fallen. We do not expect this decline to be repeated in 2013/14.

Last year we announced the consolidation of our external brand strategy under the name 2020. In December 2012, an owner of some relevant 2020 trademarks decided to challenge the rights of others in the market to use the name. Rather than enter into a dispute that would have cost shareholders money, we agreed to stop using that brand.  We are now called Jaywing plc, a name and brand that we own completely, including the relevant trademarks. Technology has been renamed Tryzens and forms part of our Consulting service line.

In 2012 the new management team instituted a number of changes that have begun to bear fruit.

The Jaywing business is working together in a collaborative style, under a single brand name and with a joined up relationship management approach. We help clients create competitive advantage by developing and expressing their customer understanding across multiple channels in a time of increasingly demanding consumers and proliferating channels.

We've organised our range of specialist resources for the best possible leadership and in a manner that allows us to draw from those resources to provide clients with the best possible team. Jaywing is unique in its ability to offer expert resources and/or services in both single discipline specialisms and holistic marketing services that provide the sophisticated technical and analytical mechanics behind the scenes and exceptional creative and communications execution to demonstrate real understanding at an individual level.

In October 2012 we strengthened Agency Services through the purchase of Iris.  We will consider further acquisitions if they will move us forward in an area where we have demand for the service from clients.

Disclosed under other income are distributions received from the administrator of a previous client. These receipts increased slightly to £0.7 million from £0.6 million received in the year to 31 March 2012. It is not anticipated that further dividends will be received of any significance.

Our net debt at the year-end was £2.3 million down from £3.2 million last year. We have again been cash generative from operations through the year and continued to reduce the Group's indebtedness. During the year we increased our borrowing to acquire Iris. Without this, net debt on a pro-forma basis would have stood at c £1.2m at the year end.

Trading in 2012/13 was not as tough as in the two previous years but we are still not doing as well as we want to nor do we yet feel we are performing as well as we can. The appointments of Martin Boddy and Andy Gardner take us firmly in the right direction. They have given Jaywing a clear view of what it offers its customers and the standards that we must consistently achieve to retain those customers. I am confident that their management can lead to improved profits and hence an improvement in our share price.

Nothing comes easy and the turnaround of Jaywing has and will continue to be done slowly and steadily. There is no magic formula other than employing good people and delivering excellent service that leads to repeat business and recommendations. I would like to thank all of our colleagues - or as we call them 'Jaywingers' - for rising to the challenges of a difficult market with humour and professionalism.

Board Changes

Kate McIntyre resigned as Finance Director in March 2013 and was replaced as Company Secretary by Michael Sprot. Kate's financial responsibilities have been assumed by a reorganisation of the Finance Team reporting to Andy Gardner.

Outlook

The start of the year has been in line with budget.

Andrew Wilson

Chairman

 8 July 2013

Business Review

Jaywing plc reported a statutory profit before tax of £1.0 million (2012: £1.3 million). The adjusted operating performance line, before interest, tax, depreciation, amortisation, share based payment charges, impairment, exceptional items and acquisition related costs, shows profits of £3.8 million (2012: £4.2 million).

During the year, the Group benefited from the receipt of £0.7 million (2012: £0.6 million) from the administrator of a client where a contractual obligation existed. Based on communication from the administrator, the Board believes there will be further distributions but the quantum will reduce.

Removing the benefit of these receipts from the above adjusted numbers results in an operating performance for the year of £3.0 million compared with £3.6 million for the year ended 31 March 2012.

The segmental performance of our business in the two practice areas of Agency Services and Consulting is shown in note 1, together with the comparative performance from the previous year.

Gross profits for the year were up marginally to £30.1 million (2012: £29.7 million).  A small reduction in gross profit for Agency Services of £0.6m was compensated for by an increase in Consulting gross profit of £0.8 million.   Operating expenses rose by £1.0 million.  Some restructuring of operations took place during the year and the H2 (Oct-12 to Mar-13) costs run rate is flat, despite acquiring Iris Associates Limited in October 2012. 

Following some delays to and cancellations of client projects, which adversely affected H1 (Apr-12 to Sep-12) performance, the H2 adjusted profit before other income recovered to £1.7 million with non-Iris business showing a similar contribution to H2 2012.

Consulting remained strong despite some carry over from 2012 of problems within the Technology operation which also impacted contribution in H1.  This area of the business has recovered well in H2.

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

		Six months to 30 September 2012	Six months to 31 March 2013	Full year to 31 March 2013
		£'000	£'000	£'000
Reported profit before tax		565	467	1,032
Interest		130	69	199
Amortisation		852	919	1,771
Depreciation		179	214	393
Share based payment charge		146	(154)	(8)
Acquisition related costs		-	367	367
Adjusted operating profit		1,872	1,882	3,754
Other income		(567)	(173)	(740)
Adjusted operating profit before other income		1,305	1,709	3,014

Including other income the Group produced £1.9 million adjusted operating profit after interest in the six months to 31 March 2013 and £1.9 million in the first half.

Liquidity review

The Group's facilities comprise an amortising revolving credit facility for an initial £6.3 million and a bank overdraft of £2.0 million. The revolving credit facility amortises over its duration to £1.4 million in October 2013.

The consolidated cash flow statement shows the Group to have generated cash from operating activities of £3.4 million (2012: £4.2 million) before changes in working capital.

We paid £1.0 million in tax (2012: £0.4 million). There were no repayments of term loans (2012: £1.1 million) but the revolving credit facility was reduced by £1.5 million (2012: £1.2 million) while the overdraft was increased by £1.0 million (2012: £nil).

As at 31 March 2013, the Group had net debt of £2.3 million (2012: £3.2 million).

Impairment

As required by IAS 36, we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculate 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% (2012:11%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2017/18. As a result of these calculations the Board has concluded that the carrying value of intangible assets and goodwill on the Group's balance sheet does not need to be impaired and therefore no charge has been made (2012: £nil).

Contingent payments

The estimate of payments to be made for past acquisitions is £0.1 million (2012: £0.1 million).  £125,000 is due for the purchase of DMG London and is subject to performance criteria being met. This amount is provided in deferred consideration.

Key performance indicators

Our stated aims for the year were to get the different parts of the business back onto a firm footing, restating our propositions and improving operating margins.

We have rebranded the company during the past year following a challenge to the use of our old name.  This change has been positively received by our clients and our people and has helped reinforce our objective to consolidate the business into a single company with a unified culture and set of values, best placed to provide services for any client requirements. 

In addition, our H2 performance shows evidence that the underlying business has started to recover well from some of the problems experienced towards the later stages of the last financial year and into H1 of 2012-13. 

We have developed and retained existing client relationships as well as adding a range of new clients to our mix. 

Our focus will be to continue to reinforce our new identity both internally and externally while promoting the full range of services we offer under the Jaywing name.  We will concentrate on improving our contribution margins within our propositions while delivering more efficient and effective support from centralised operations.

Consolidated statement of comprehensive income

For the year ended 31 March		2013	2012	2012	2012
Continuing operations	Note	£'000	£'000	£'000	£'000
			Before impairment of non-current assets and exceptional costs	Impairment of non-current assets and exceptional costs	Total
Revenue		36,318	37,265	-	37,265
Direct costs		(6,240)	(7,520)	-	(7,520)
Gross profit		30,078	29,745	-	29,745
Other operating income	2	740	567	-	567
Amortisation		(1,771)	(1,801)	-	(1,801)
Operating expenses	3	(27,816)	(26,520)	(248)	(26,768)
Operating profit/(loss)		1,231	1,991	(248)	1,743
Finance income		6	2	-	2
Finance costs		(205)	(479)	-	(479)
Net financing costs		(199)	(477)	-	(477)
Profit/(loss) before tax		1,032	1,514	(248)	1,266
Tax (expense)/credit	4	(399)	(208)	64	(144)
Profit/(loss) for the year attributable to equity holders of the parent		633	1,306	(184)	1,122
Other comprehensive income:
Cash flow hedging		52	197	-	197
Total comprehensive income for the period attributable to equity holders of the parent		685	1,503	(184)	1,319
Earnings per share	5
From continuing operations
- basic		0.85p			1.50p
- diluted		0.82p			1.43p

Consolidated balance sheet
As at 31 March			2013	2012	2011
	Note		£'000	£'000	£'000
Non-current assets
Property, plant and equipment	6		713	1,172	1,586
Goodwill	8		29,753	29,753	29,777
Other intangible assets	9		8,984	9,473	11,273
			39,450	40,398	42,636
Current assets
Inventories			-	81	143
Trade and other receivables			10,851	9,505	10,425
Cash at bank and in hand	10		1	61	9,307
			10,852	9,647	19,875
Total assets			50,302	50,045	62,511
Current liabilities
Bank overdraft	10		816	233	8,159
Other interest-bearing loans and borrowings	10		1,500	3,000	5,311
Financial derivatives			-	52	244
Trade and other payables			6,731	5,845	9,148
Current tax liabilities			742	729	286
Provisions			-	116	123
			9,789	9,975	23,271
Non-current liabilities
Deferred tax liabilities			2,060	2,326	3,119
			2,060	2,326	3,119
Total liabilities			11,849	12,301	26,390
Net assets			38,453	37,744	36,121
Equity attributable to owners of the parent
Share capital	11		34,051	34,051	34,051
Share premium			6,608	6,608	6,608
Hedging reserve			-	(52)	(244)
Capital redemption reserve			125	125	125
Shares purchased for treasury			(25)	(25)	(42)
Share option reserve			137	207	329
Retained earnings			(2,443)	(3,170)	(4,706)
Total equity			38,453	37,744	36,121

Consolidated cash flow statement

For the year ended 31 March		2013	2012
	Note	£'000	£'000
Cash flow from operating activities
Profit after tax		633	1,122
Adjustments for:
Depreciation, amortisation and impairment		2,164	2,368
Loss on disposal of property, plant and equipment		4	-
Movement in provision		(11)	41
Financial income		(6)	(2)
Financial expenses		205	479
Share-based payment (credit) / expense		(8)	11
Taxation		399	144
Operating cash flow before changes in working capital		3,380	4,163
(Increase) / decrease in trade and other receivables		(1,000)	860
Decrease in inventories		81	62
Increase / (decrease) in trade and other payables		518	(482)
Cash generated from operations		2,979	4,603
Interest received		6	2
Interest paid		(203)	(469)
Tax paid		(976)	(425)
Net cash flow from operating activities		1,806	3,711
Cash flow from investing activities
Payment of contingent consideration for prior year acquisitions		-	(2,375)
Proceeds from sale of assets		677	-
Acquisition of subsidiary Iris Associates net of cash acquired	7	(1,080)	(1)
Acquisition of property, plant and equipment	6	(546)	(278)
Net cash outflow from investing activities		(949)	(2,654)
Cash flows from financing activities
Repayment of borrowings		(1,500)	(2,311)
Cash settlement of equity share options		-	(66)
Net cash outflow from financing activities		(1,500)	(2,377)
Net decrease in cash and cash equivalents		(643)	(1,320)
Cash and cash equivalents at beginning of year		(172)	1,148
Cash and cash equivalents at end of year		(815)	(172)
Cash and cash equivalents comprise:
Cash at bank and in hand	10	1	61
Bank overdrafts	10	(816)	(233)
Cash and cash equivalents at end of year		(815)	(172)

Consolidated statement of changes in equity

	Share capital	Share premium	Hedging reserve	Capital redemption reserve	Treasury shares	Share option reserve	Retained earnings	Total attributed to the owners of the parent
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2011	34,051	6,608	(244)	125	(42)	329	(4,706)	36,121
Allotment of shares from Treasury on the exercise of options	-	-	-	-	17	-	(17)	-
Credit in respect of share-based payments	-	-	-	-	-	-	370	370
Transfer from share option reserve	-	-	-	-	-	(122)	122	-
Cash settled share options	-	-	-	-	-	-	(66)	(66)
Transactions with owners	-	-	-	-	17	(122)	409	304
Profit for the year	-	-	-	-	-	-	1,122	1,122
Other comprehensive income:
Cash flow hedges	-	-	197	-	-	-	-	197
Transfer from Hedging reserve	-	-	(5)	-	-	-	5	-
Total comprehensive income for the year	-	-	192	-	-	-	1,127	1,319
At 31 March 2012	34,051	6,608	(52)	125	(25)	207	(3,170)	37,744
Credit in respect of share-based payments	-	-	-	-	-	-	24	24
Transfer from share option reserve	-	-	-	-	-	(70)	70	-
Transactions with owners	-	-	-	-	-	(70)	94	24
Profit for the year	-	-	-	-	-	-	633	633
Other comprehensive income:
Cash flow hedges	-	-	52	-	-	-	-	52
Total comprehensive income for the year	-	-	52	-	-	-	633	685
At 31 March 2013	34,051	6,608	-	125	(25)	137	(2,443)	38,453

Principal accounting policies

Jaywing plc (formerly WEARE 2020 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 2013 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 2013 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 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 13.

Going concern

The Directors have reviewed the forecasts for 2013/14 and 2014/15 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. Further, 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 12 months from the date of these accounts. 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 Consulting, its two primary business activities. Unallocated represents the Group's head office function, along with intragroup transactions.

The Group primarily derives its revenue from the provision of marketing services in the UK to customers all of which are based in the UK. During the year one customer included within the Consulting segment accounted for greater than 10% of the Group's revenue. This customer accounted for £6,791,000 (2012: £4,211,000) of Group revenue.

For the year ended 31 March 2013

		Agency	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Revenue		17,303	19,742	(727)	36,318
Direct costs		(4,128)	(2,968)	856	(6,240)
Gross profit		13,175	16,774	129	30,078
Other operating income		665	75	-	740
Operating expenses excluding depreciation, amortisation and charges for share based payments		(11,691)	(13,370)	(2,003)	(27,064)
Operating profit before depreciation, amortisation and charges for share based payments		2,149	3,479	(1,874)	3,754
Depreciation		(218)	(168)	(7)	(393)
Amortisation		(862)	(909)	-	(1,771)
Acquisition related costs		(367)	-	-	(367)
Credit for share based payments		-	-	8	8
Operating profit/(loss)		702	2,402	(1,873)	1,231
Finance income					6
Finance costs					(205)
Profit before tax					1,032
Taxation					(399)
Profit for the period from continuing operations					633

For the year ended 31 March 2012

		Agency	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Revenue		19,764	18,203	(702)	37,265
Direct costs		(5,979)	(2,243)	702	(7,520)
Gross profit		13,785	15,960	-	29,745
Other operating income		512	55	-	567
Operating expenses excluding depreciation, amortisation and charges for share based payments		(12,172)	(13,179)	(798)	(26,149)
Operating profit before depreciation, amortisation and charges for share based payments		2,125	2,836	(798)	4,163
Depreciation		(231)	(128)	(1)	(360)
Amortisation		(799)	(1,002)	-	(1,801)
Impairment and exceptional charges		(248)	-	-	(248)
(Charge)/credit for share based payments		(6)	(10)	5	(11)
Operating profit/(loss)		841	1,696	(794)	1,743
Finance income					2
Finance costs					(479)
Profit before tax					1,266
Taxation					(144)
Profit for the period from continuing operations					1,122

Year ended 31 March 2013
		Agency	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Assets		25,965	24,307	30	50,302
Liabilities		(3,345)	(1,940)	(6,564)	(11,849)
Capital employed		22,620	22,367	(6,534)	38,453

Year ended 31 March 2012
		Agency	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Assets		23,223	24,748	2,074	50,045
Liabilities		(2,828)	(2,803)	(6,670)	(12,301)
Capital employed		20,395	21,945	(4,596)	37,744

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	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Year ended 31 March 2013		197	343	6	546
Year ended 31 March 2012		158	107	13	278

2.     Other operating income

	2013	2012
	£'000	£'000
Other operating income	740	567

During the years to 31 March 2012 and 31 March 2013 the Group received part settlement from the administrator of a client for a contractual obligation to perform services on their behalf. During the year we received a further distribution of £0.7 million. 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.     Other operating expenses

	2013	2012
	£'000	£'000
Wages and salaries	20,018	17,721
Share based payments	(8)	11
Administration	7,806	8,788
	27,816	26,520
Impairment of the carrying value of property, plant and equipment	-	332
Adjustment to deferred consideration	-	(125)
Exceptional costs	-	41
	-	248
	27,816	26,768

There were no exceptional costs in the year (2012: £41,000 represents compensation for loss of office in respect of a director and the costs of closure of an operating site).

Wages and salaries include £291,000 (2012: £Nil) of post acquisition employment costs relating to the purchase of Iris Associates Limited.

4.     Tax expense

	2013	2012
	£'000	£'000
Recognised in the consolidated statement of comprehensive income:
Current year tax	958	868
Origination and reversal of temporary differences	(559)	(724)
Total tax charge	399	144
Reconciliation of total tax  charge:
Profit before tax	1,032	1,266
Taxation using the UK Corporation Tax rate of 24% (2012: 26%)	248	329
Effects of:
Non deductible expenses	20	10
Share based payment charges	2	96
Depreciation in excess of capital allowances	(38)	-
Capital allowances in excess of depreciation	-	33
Schedule 23 deductions	-	(3)
Other	132	(16)
Prior year adjustment	35	(305)
Total tax charge	399	144

5.     Earnings per share

	2013	2012
	Pence per Share	Pence per Share
Basic	0.85p	1.50p
Diluted	0.82p	1.43p

Earnings per share has been calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

The calculations of basic and diluted earnings per share are:

	2013	2012
	£'000	£'000
Profit for the year attributable to shareholders	633	1,122

Weighted average number of ordinary shares in issue:

	2013	2012
	Number	Number
Basic	74,505,377	74,505,377
Adjustment for share options	2,736,610	4,136,609
Diluted	77,241,987	78,641,986

 

Adjusted earnings per share

	2013	2012
	Pence per Share	Pence per Share
From continuing and discontinued operations:
Basic adjusted earnings per share	2.47p	3.30p
Diluted adjusted earnings per share	2.38p	3.12p

Adjusted earnings per share have been calculated by dividing the profit attributable to shareholders before amortisation and charges for share options 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:

	2013	2012
	£'000	£'000
Profit before tax	1,032	1,266
Amortisation	1,771	1,801
Impairment of carrying value of goodwill, other intangible assets, tangible assets and exceptional charges	-	248
Charges for share options	(8)	11
Adjusted profit attributable to shareholders	2,795	3,326
Current year tax charge	(958)	(868)
	1,837	2,458

6.     Property, plant and equipment

	Freehold land and buildings	Leasehold improvements	Motor vehicles	Office equipment	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2011	1,150	216	12	2,246	3,624
Additions	-	6	-	272	278
Disposals	-	(32)	-	(270)	(302)
At 31 March 2012	1,150	190	12	2,248	3,600
Additions	-	256	-	290	546
Acquisition of subsidiaries	-	-	-	275	275
Disposals	(1,150)	-	-	(53)	(1,203)
At 31 March 2013	-	446	12	2,760	3,218
Depreciation
At 1 April 2011	108	151	3	1,776	2,038
Depreciation charge for the year	29	29	2	300	360
Impairment charge	332	-	-	-	332
Depreciation on disposals	-	(32)	-	(270)	(302)
At 31 March 2012	469	148	5	1,806	2,428
Depreciation charge for the year	-	70	2	321	393
Acquisition of subsidiaries	-	-	-	206	206
Depreciation on disposals	(469)	-	-	(53)	(522)
At 31 March 2013	-	218	7	2,280	2,505
Net book value
At 31 March 2013	-	228	5	480	713
At 31 March 2012	681	42	7	442	1,172
At 1 April 2011	1,042	65	9	470	1,586

The assets are covered by a fixed charge in favour of the Group's lenders.

7.     Acquisition of subsidiaries

During the year the Group made one acquisition. On 4 October 2012 Scope Creative Marketing Limited acquired all the ordinary shares in Iris Associates Limited for cash consideration of £1,127,000 (excluding legal and professional fees of £76,000 which have been expensed through the profit and loss account in administration expenses in the year). Additional consideration is payable, separate to the acquisition costs, for the continuing employment and future services provided by the former owners of Iris. The amount recognised in the profit and loss account as an expense during the year is £291,000, which represents the total amount earned as at 31 March 2013. This amount has been provided for within accruals and deferred income. Further amounts are payable as they are earned up to a maximum amount of £1,273,000, including the £291,000 recognised during the year, up until October 2015.

The primary reason for the acquisition was to strengthen the Group's Creative and Business Development capability through the integration with its existing Sheffield operations. In the period since acquisition the subsidiary contributed £1,257,000 to Group revenues and £251,000 to the consolidated profit attributable to shareholders for the year ended 31 March 2013. The assets and liabilities acquired were as follows:

	Book value	Fair value adjustments	Fair value
	£'000	£'000	£'000
Intangible assets	-	1,282	1,282
Property, plant & equipment	69	-	69
Trade and other receivables	396	-	396
Cash and cash equivalents	(47)	-	(47)
Trade and other payables	(325)	-	(325)
Deferred tax	-	(295)	(295)
Net identifiable assets and liabilities	93	967	1,080
Goodwill on acquisition			-
			1,080

Summary of net cash outflow from acquisitions:

Cash paid			1,127
Cash acquired			(47)
Net cash outflow			1,080

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

		Agency	Consulting	Unallocated	Total
		Services
		£'000	£'000	£'000	£'000
Revenue		18,282	19,742	(727)	37,297
Direct costs		(4,453)	(2,968)	856	(6,565)
Gross profit		13,829	16,774	129	30,732
Other operating income		665	75	-	740
Operating expenses excluding depreciation, amortisation and charges for share based payments		(12,151)	(13,370)	(2,003)	(27,524)
Operating profit before depreciation, amortisation and charges for share based payments		2,343	3,479	(1,874)	3,948
Depreciation		(262)	(168)	(7)	(437)
Amortisation		(862)	(909)	-	(1,771)
Acquisition related costs		(367)	-	-	(367)
Credit for share based payments		-	-	8	8
Operating profit/(loss)		852	2,402	(1,873)	1,381
Finance income					6
Finance costs					(205)
Profit before tax					1,182
Taxation					(399)
Profit for the period from continuing operations					783

Notes:

This information is based on the management accounts for Iris Associates Limited.

8.     Goodwill

			Goodwill
			£'000
Cost and net book value
At 1 April 2011			29,777
Reduction in goodwill in Tryzens (previously 20:20 Technology)			(24)
At 31 March 2012 and at 31 March 2013			29,753

Goodwill is attributed to the following cash generating units:
	2013	2012	2011
	£'000	£'000	£'000
Agency Services
Digital Media & Analytics	438	438	438
Scope (Including Iris)	5,550	5,550	5,550
Jaywing Central	5,817	5,817	5,817
HSM	3,201	3,201	3,201
Gasbox	273	273	273
Consulting
Tryzens	5,132	5,132	5,156
Alphanumeric	9,342	9,342	9,342
	29,753	29,753	29,777

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 2013/14 were used.  Subsequent years were based on reducing rates of growth declining to a 2% growth rate by 2017/18.

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
2014/15	5.0% - 10%
2015/16	5.0% - 10%
2016/17	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% (2012:11%). 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 no impairment was considered necessary (2012: £nil million).

The Directors have performed a sensitivity analysis in relation to the WACC used, which showed that an impairment would be required for WACCs of 16% and above. At a discount rate of 16% a charge of £1,053,000 would be required.

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.

9.     Other intangible assets

	Customer relationships	Development costs	Total
	£'000	£'000	£'000
Cost
At 1 April 2011	20,339	151	20,490
Additions during the year	-	1	1
At 31 March 2012	20,339	152	20,491
Additions during the year	1,282	-	1,282
At 31 March 2013	21,621	152	21,773
Amortisation
At 1 April 2011	9,217	-	9,217
Amortisation charge for the year	1,694	107	1,801
At 31 March 2012	10,911	107	11,018
Amortisation charge for the year	1,756	15	1,771
At 31 March 2013	12,667	122	12,789
Net book amount
At 31 March 2013	8,954	30	8,984
At 1 April 2012	9,428	45	9,473
At 1 April 2011	11,122	151	11,273

The cost of 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%.

Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are detailed in note 8. On the basis of this review, it has been concluded that there is no need to impair the carrying value of these intangible assets (2012: £nil).

Iris was acquired during the year and therefore the goodwill and other intangible assets are required to be tested for impairment during the year. Following the acquisition, Iris' trade and assets were sold to Scope and the business has been integrated into one CGU. The Scope CGU is the smallest CGU that can be identified. This has been tested for impairment as detailed in note 8.

10.   Bank and overdraft, loans and borrowings

		2013		2012		2011
		£'000		£'000		£'000
Summary
Bank overdraft		816		233		8,159
Borrowings		1,500		3,000		5,311
		2,316		3,233		13,470
Borrowings are repayable as follows:
Within one year
Bank overdraft		816		233		8,159
Borrowings		1,500		3,000		5,374
Total payments due within one year		2,316		3,233		13,533
Less future interest		-		-		(63)
Total due within one year		2,316		3,233		13,470
No amounts are due in more than one year. Average interest rates at the balance sheet date were:	£'000	%	%		%
Overdraft	816	3.35	2.75		2.75
Term loan	-	-	2.13		1.96
Term loan	-	-	2.63		2.46
Revolver loan	1,500	3.35	2.39		2.33

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

In 2007 the Group purchased an interest rate swap of 6.19% for the period June 2007 to June 2012 for £4,000,000 of its borrowings.

The borrowing facilities available to the Group at 31 March 2013 was £4.8 million (2012: £7.1 million) and, taking into account cash balances within the Group companies, there was £2.5 million (2012: £3.8 million) of 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 2012	Cash flow	Non-cash items	31 March 2013
	£'000	£'000	£'000	£'000
Cash and cash equivalents	61	(60)	-	1
Overdraft	(233)	(583)	-	(816)
	(172)	(643)	-	(815)
Borrowings	(3,000)	1,500	-	(1,500)
Net debt	(3,172)	857	-	(2,315)

11.   Share capital

Authorised:

	45p deferred shares	5p ordinary shares
	£'000	£'000
Authorised share capital at 31 March 2012 and at 31 March 2013	45,000	10,000

Allotted, issued and fully paid:

	45p deferred shares	5p ordinary shares
	Number	Number	£'000
At 31 March 2013 and 2012	67,378,520	74,604,999	34,051

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 share holders 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.

12.   Contingent liabilities

Some acquisitions by the Group involve an earn-out agreement whereby the consideration payable includes a deferred element of cash or shares or both which is contingent on the future financial performance of the acquired entity. As such there is uncertainty about the amount (but not timing) of these future potential outflows.

The maximum liability is £125,000 (2012: £125,000).

The amounts provided for are payable as follows:

	2013	2012
	£'000	£'000
In one year or less	125	125
	125	125

The amounts provided have not been discounted.

13.   Accounting estimates and judgements

Accounting estimates

Impairment of goodwill and other intangible assets

The carrying amount of goodwill is £29,753,000 (2012: £29,753,000) and the carrying amount of other intangible assets is £8,984,000 (2012: £9,473,000). 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 8.

Share-based payment

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 employers NI.

The charge for the fair value at the date of grant of the share based remuneration calculated using the Black-Scholes method, in previous years a trinomial pricing model was adopted. In considering an appropriate charge the Directors have used an internally generated calculation to derive an appropriate charge. Based on these calculations a charge of £24,000 (2012: £370,000) has been made. In the year to 31 March 2009, the Directors commissioned an independent valuation from American Appraisal UK Limited and adopted their findings.

Fair values on acquisition

The Directors have assessed the fair value of assets and liabilities on the acquisition of the subsidiary companies.

Deferred consideration

The Directors have provided an estimate of the amount payable in respect of deferred contingent consideration. See note 12.

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.

14.   Annual reports and accounts

Copies of the annual report and accounts for the year ended 31 March 2013 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: www.jaywingplc.com.

 

END

 

 

FR LLFSRDSITIIV