Preliminary Results

RNS Number : 6574L

Jaywing PLC

08 July 2014

 



Date:               8 July 2014

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

Embargoed:   0700hrs 8 July 2014

Jaywing plc

Preliminary Results 2014

Jaywing plc (AIM: JWNG), digital marketing specialists, today announced its preliminary results for the year ended 31 March 2014.

Performance highlights

Gross profit £21.62m (2013: £20.64m)

EBITDA* before other income for continuing operations £2.32m(2013: £2.53m)

Net cash flow from operating activities £4.29m (2013: £1.81m)

Corporation Tax paid £0.51m (2013: £0.98m)

Net debt £5.81m (2013: £2.32m): undrawn banking facilities of £3.99m

Adjusted** basic earnings per share 3.23p (2013: 2.96p)

Adjusted** diluted earnings per share 3.15p (2013: 2.85p)

* Excludes share based payment charges, loss before tax on disposal, exceptional items and acquisition related costs

**Adjusted means before amortisation, share based charges, loss before tax on disposal, exceptional items and acquisition related costs

Enquiries:

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

Chairman's statement

I am pleased to report on a year in which Jaywing's financial performance continued to improve and significant strategic progress was achieved. Gross profit for the continuing group increased from £20.6m in 2013 to £21.6m in 2014, and the continuing group EBITDA has increased from £1,089k in the second half of 2013, to £1,094k in the first half of 2014, to £1,226k in the second half of 2014.

In October 2013 we sold Tryzens for total proceeds of £6m. There were few synergies between the work and clients of Tryzens and those of the rest of the continuing business, which limited our ability to cross-sell. The disposal significantly strengthened the balance sheet.

In March 2014 we acquired Epiphany Solutions for an upfront consideration of £12m, with a further earn-out of £6m subject to future performance. Epiphany specialises in search engine marketing and is one of only thirty UK agencies that have achieved Certified Google Analytics partner status. The acquisition of Epiphany strengthened Jaywing's performance in search marketing and provided our unrivalled team of over 50 data scientists with access to the digital data to develop innovative new products and services.

This acquisition has been well received across both Epiphany and Jaywing client bases and externally in the market. The founders of the business have been retained and have taken on broader roles across the Jaywing business.  Going forward, the business will operate in two divisions, Agency Services and Media & Analysis. Media & Analysis is the Consulting business as reported in the prior year accounts less Tryzens and with the addition of Epiphany.

Iris Associates, acquired in October 2012, is now fully integrated with its founders leading our Sheffield operation. This has helped to deliver an increase in gross profit in Agency Services of £1.2m, from £13.2m to £14.4m.

The performance in the second half of the year showed encouraging signs with gross profit increasing to £11.2m (H1: £10.4m) and EBITDA increasing to of £1.2m (H1: £1.1m), with the full benefit of the Epiphany acquisition still to be realised. This performance has been under-pinned by our focus on marrying data science with brand, acquisition and customer marketing.

We have continued to develop relationships with our existing clients and also acquired a number of significant new clients including CollectPlus and Skipton Building Society.

Other income comprises distributions received from the administrator of a previous client. These receipts decreased to £0.3 million from £0.7 million received in the year to 31 March 2013. Further distributions are still expected but these will reduce in value.

During the year we increased our borrowing to £7.8m to acquire Epiphany, but the £3.8m of cash generated from operating activities and the proceeds of the Tryzens sale reduced the amount of additional funding required.

Under strong leadership our colleagues - the 'Jaywingers' - continue to perform to extremely high levels and approach all aspects of their roles with great professionalism and diligence. We thank them once again for their efforts during the year.

Board Changes

We were deeply saddened by Andy Wilson's death in May 2014. His Chairmanship and contribution to Jaywing was valued greatly. He will be hugely missed.

Michael Sprot was appointed to the board as Finance Director in March 2014, and Ian Robinson was re-appointed as a Non-Executive Director in May 2014.

Outlook

The start of the year has been in line with the board's expectations.

Stephen Davidson

Acting Chairman

7 July 2014

Strategic Report

Business Review

Jaywing plc reported a statutory loss of (£4.8m) in the year ended 31 March 2014 (2013: £0.6m profit).  The adjusted operating performance line, before interest, tax, depreciation, amortisation, share based payment charges, loss before tax on disposal, exceptional items and acquisition related costs, shows consistent EBITDA of £2.9m (2013: £3.0m). 

During the year the Group continued its restructure with the disposal of its eCommerce integration business Tryzens in October 2013 and the acquisition of Leeds based search specialists Epiphany Solutions in March 2014.  The underlying business excluding these two entities delivered operating profits of £2.3m (2013: £2.5m) which was in line with internal budgets. 

Gross profit was up marginally to £21.1m (2013: £20.6m) for the continuing business excluding Epiphany.

The business will operate in two divisions going forward: Agency Services and Media & Analysis, the latter comprising the ongoing former Consulting division (following the removal of Tryzens) and Epiphany.  The segmental performance of our business in these two practice areas is shown in Note 1, together with the comparative performance from the previous year.

Gross profit of the Agency Services division grew from £13.2m in 2013 to £14.4m in 2014 whilst gross profit in the Media & Analysis division fell marginally to £7.2m (2013: £7.3m) following the completion of a large engagement for a financial services client as reported at the half year.  The performance of the Media & Analysis division improved in H2 with Gross profits rising from £3.1m in H1 to £4.1m in H2. 

During the year, the Group benefited from the receipt of £0.3m (2013: £0.7m) 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.

Acquisition related costs amounted to £1.1m in 2014 (2013: £0.4m) and the disposal of Tryzens resulted in a loss before tax on disposal of £5.4m.  Removal of these costs and the other income discussed above results in profit before tax (after depreciation, amortisation, charges for share based payments and finance charges) of £0.8m in 2014 (2013: £0.7m). 

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

		Six months to 30 September 2013	Six months to 31 March 2014	Full year to 31 March 2014
		£'000	£'000	£'000
Reported profit before tax		16	(396)	(380)
Interest		35	17	52
Amortisation		733	816	1,549
Depreciation		117	162	279
Share based payment charge		-	36	36
Acquisition related costs		207	905	1,112
Exceptional (income) / costs		156	(172)	(16)
Adjusted operating profit		1,264	1,368	2,632
Deduct other income		(170)	(142)	(312)
Adjusted operating profit before other income		1,094	1,226	2,320

Excluding other income the Group produced £1.2m adjusted operating profit after interest in the six months to 31 March 2014 and £1.1m in the first half.  These figures include £0.1m of operating profit from Epiphany in March 2014.

 

Liquidity review

The Group's facilities comprise a term loan for £4.25m, a revolving credit facility for £3.55m and a bank overdraft of £2.0m.

The consolidated cash flow statement shows the Group to have generated cash from operating activities of £2.2m (2013: £3.4m) before changes in working capital.

We paid £0.5m in tax (2013: £1.0m). There were no repayments of the term loan but the revolving credit facility in place at the previous year end was fully repaid on the sale of Tryzens.

As at 31 March 2014, the Group had net debt of £5.8m (2013: £2.3m).

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 9% (2013:11%) 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 (2013: £Nil).

Key performance indicators

Our objectives for the year were to deliver stable financial performance from the core business while achieving a closer fit between the operating units.  We have achieved this through the sanctioning of the management buyout of the technology business Tryzens which had little overlap with our core Marketing Services operation.  Furthermore, the acquisition of Epiphany has significantly strengthened our digital capabilities fitting well with our data and insight led positioning for creative, analytical and technical services.  This acquisition is consistent with our stated strategy at the half year.

The acquisition of Epiphany has also been well received externally and amongst the clients of both Jaywing and Epiphany and has continued to reinforce the Jaywing brand in our core markets, another key objective for the year.

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

Our H2 performance shows encouraging signs given the expected reductions in Media & Analysis revenues during the first half of the year. This has been through a combination of new client wins across the business.

 

Consolidated statement of comprehensive income

For the year ended 31 March			2014	2013
Continuing operations	Note		£'000	£'000
Revenue	1		26,693	26,877
Direct costs			(5,069)	(6,240)
Gross profit			21,624	20,637
Other operating income	2		312	738
Operating expenses	3		(22,264)	(20,155)
Operating (loss)/profit			(328)	1,220
Finance income			-	1
Finance costs			(52)	(205)
Net financing costs			(52)	(204)
(Loss)/profit before tax			(380)	1,016
Tax credit/(expense)	4		182	(425)
(Loss)/profit for the year from continuing operations			(198)	591
(Loss)/profit for the year from discontinued operations	8		(4,597)	42
(Loss)/profit for the year attributable to equity holders of the parent			(4,795)	633
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss
Cash flow hedging			-	52
Total comprehensive income for the period attributable to equity holders of the parent			(4,795)	685
Earnings per share	5
Basic earnings per share
- (Loss)/earnings from continuing operations			(0.27p)	0.79p
- (Loss)/earnings from discontinued operations			(6.17p)	0.06p
			(6.44p)	0.85p
Diluted earnings per share
- (Loss)/earnings from continuing operations			(0.26p)	0.76p
- (Loss)/earnings from discontinued operations			(6.03p)	0.06p
			(6.29p)	0.82p

Consolidated balance sheet
As at 31 March			2014	2013	2012
	Note		£'000	£'000	£'000
Non-current assets
Property, plant and equipment	6		638	713	1,172
Goodwill	9		30,442	29,753	29,753
Other intangible assets	10		11,539	8,984	9,473
			42,619	39,450	40,398
Current assets
Inventories			-	-	81
Trade and other receivables			8,691	10,851	9,505
Cash and cash equivalents	11		1,994	1	61
			10,685	10,852	9,647
Total assets			53,304	50,302	50,045
Current liabilities
Bank overdraft	11		-	816	233
Other interest-bearing loans and borrowings	11		4,612	1,500	3,000
Financial derivatives			-	-	52
Trade and other payables			8,886	6,731	5,845
Current tax liabilities			492	742	729
Provisions			131	-	116
			14,121	9,789	9,975
Non-current liabilities
Other interest-bearing loans and borrowings			3,188	-	-
Deferred tax liabilities			2,337	2,060	2,326
			5,525	2,060	2,326
Total liabilities			19,646	11,849	12,301
Net assets			33,658	38,453	37,744
Equity attributable to owners of the parent
Share capital	12		34,051	34,051	34,051
Share premium			6,608	6,608	6,608
Hedging reserve			-	-	(52)
Capital redemption reserve			125	125	125
Shares purchased for treasury			(25)	(25)	(25)
Share option reserve			88	137	207
Retained earnings			(7,189)	(2,443)	(3,170)
Total equity			33,658	38,453	37,744

Consolidated cash flow statement

For the year ended 31 March		2014	2013
	Note	£'000	£'000
Cash flow from operating activities
Profit after tax		(4,795)	633
Adjustments for:
Depreciation and amortisation		2,063	2,164
Loss on disposal		5,442	4
Movement in provision		131	(11)
Financial income		-	(6)
Financial expenses		52	205
Share-based payment expense / (credit)		36	(8)
Taxation		(694)	399
Operating cash flow before changes in working capital		2,235	3,380
Increase in trade and other receivables		366	(1,000)
Decrease in inventories		-	81
Increase in trade and other payables		2,237	518
Cash generated from operations		4,838	2,979
Interest received		-	6
Interest paid		(41)	(203)
Tax paid		(509)	(976)
Net cash flow from operating activities		4,288	1,806
Cash flow from investing activities
Proceeds from sale of assets		3,288	677
Acquisition of subsidiary Iris Associates net of cash acquired		-	(1,080)
Acquisition of subsidiary Epiphany Solutions net of cash acquired	7	(10,543)	-
Acquisition of property, plant and equipment	6	(392)	(546)
Net cash outflow from investing activities		(7,647)	(949)
Cash flows from financing activities
Increase in borrowings		7,800	-
Repayment of borrowings		(1,632)	(1,500)
Net cash inflow/(outflow) from financing activities		6,168	(1,500)
Net increase/(decrease) in cash and cash equivalents		2,809	(643)
Cash and cash equivalents at beginning of year		(815)	(172)
Cash and cash equivalents at end of year		1,994	(815)
Cash and cash equivalents comprise:
Cash at bank and in hand		1,994	1
Bank overdrafts	11	-	(816)
Cash and cash equivalents at end of year		1,994	(815)
Included in continuing operations		1,994	(959)
Included in discontinued operations		-	144
		1,994	(815)

The accompanying notes form part of these consolidated financial statements.

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 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
Transfer from share option reserve	-	-	-	-	-	(49)	49	-
Transactions with owners	-	-	-	-	-	(49)	49	-
Loss for the year	-	-	-	-	-	-	(4,795)	(4,795)
Total comprehensive income for the year	-	-	-	-	-	-	(4,795)	(4,795)
At 31 March 2014	34,051	6,608	-	125	(25)	88	(7,189)	33,658

The accompanying notes form part of these consolidated financial statements.

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 2014 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 2014 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 14.

Going concern

The Directors have reviewed the forecasts for 2014/15 and 2015/16 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 Media & Analysis, 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 digital marketing services in the UK to customers all of which are based in the UK. During the year one customer included within the Media & Analysis segment accounted for greater than 10% of the Group's revenue. This customer accounted for £4,524,000 (2013: £6,791,000) of Group revenue.

 

For the year ended 31 March 2014

	Agency Services	Media & Analysis	Unallocated	Continuing Group	Disposal Group	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	17,917	9,875	(1,099)	26,693	7,382	34,075
Direct costs	(3,543)	(2,684)	1,158	(5,069)	(1,439)	(6,508)
Gross profit	14,374	7,191	59	21,624	5,943	27,567
Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	(11,749)	(4,878)	(2,677)	(19,304)	(5,375)	(24,679)
Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	2,625	2,313	(2,618)	2,320	568	2,888
Other operating income	281	31	-	312	-	312
Depreciation	(232)	(41)	(6)	(279)	(48)	(327)
Amortisation	(924)	(625)	-	(1,549)	(187)	(1,736)
Loss before tax on disposal	-	-	-	-	(5,442)	(5,442)
Compensation for loss of office	(66)	-	(116)	(182)	-	(182)
Release of provisions	73	-	125	198	-	198
Acquisition related costs	(270)	(441)	(401)	(1,112)	-	(1,112)
Charges for share based payments	-	-	(36)	(36)	-	(36)
Operating profit / (loss)	1,487	1,237	(3,052)	(328)	(5,109)	(5,437)
Finance income				-	-	-
Finance costs				(52)	-	(52)
Loss before tax				(380)	(5,109)	(5,489)
Tax expense				182	512	694
Loss for the period before loss on measurement to fair value				(198)	(4,597)	(4,795)

For the year ended 31 March 2013

	Agency Services	Media & Analysis	Unallocated	Continuing Group	Disposal Group	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	17,303	10,301	(727)	26,877	9,441	36,318
Direct costs	(4,128)	(2,968)	856	(6,240)	-	(6,240)
Gross profit	13,175	7,333	129	20,637	9,441	30,078
Operating expenses excluding depreciation, amortisation, acquisition related costs and charges for share based payments	(11,691)	(4,413)	(2,003)	(18,107)	(8,957)	(27,064)
Operating profit before depreciation, amortisation, acquisition related costs and charges for share based payments	1,484	2,920	(1,874)	2,530	484	3,014
Other operating income	665	73	-	738	2	740
Depreciation	(218)	(62)	(7)	(287)	(106)	(393)
Amortisation	(862)	(540)	-	(1,402)	(369)	(1,771)
Acquisition related costs	(367)	-	-	(367)	-	(367)
Charges for share based payments	-	-	8	8	-	8
Operating profit / (loss)	702	2,391	(1,873)	1,220	11	1,231
Finance income				1	5	6
Finance costs				(205)	-	(205)
Profit before tax				1,016	16	1,032
Tax expense				(425)	26	(399)
Profit for the period before loss on measurement to fair value				591	42	633

 

Year ended 31 March 2014
		Agency Services	Media & Analysis	Unallocated	Total
		£'000	£'000	£'000	£'000
Assets		27,078	28,035	(1,809)	53,304
Liabilities		(4,426)	(4,431)	(10,789)	(19,646)
Capital employed		22,652	23,604	(12,598)	33,658

Year ended 31 March 2013
		Agency Services	Media & Analysis	Unallocated	Total
		£'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

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	Unallocated	Discontinued	Total
	Services
	£'000	£'000	£'000	£'000	£'000
Year ended 31 March 2014	360	6	5	21	392
Year ended 31 March 2013	197	22	6	321	546

2.     Other operating income

	2014	2013
	£'000	£'000
Other operating income	312	740

During the years to 31 March 2013 and 31 March 2014 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 £0.3 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

	2014	2013
Continuing operations:	£'000	£'000
Wages and salaries	15,960	15,130
Share based payments	36	(8)
Amortisation	1,549	1,402
Administration	4,735	3,631
	22,280	20,155
Release of provisions	(198)	-
Compensation for loss of office	182	-
	(16)	-
	22,264	20,155

Wages and salaries include £270,000 (2013: £291,000) of post-acquisition employment costs relating to the purchase of Iris Associates Limited, and £441,000 (2013: £Nil) of post-acquisition employment costs relating to the purchase of Epiphany Solutions Limited.

4.     Tax expense

	2014	2013
	£'000	£'000
Recognised in the consolidated statement of comprehensive income:
Current year tax	433	958
Origination and reversal of temporary differences	(1,127)	(559)
Total tax charge	(694)	399
Reconciliation of total tax charge:
(Loss)/profit before tax	(5,489)	1,032
Taxation using the UK Corporation Tax rate of 23% (2013: 24%)	(1,262)	248
Effects of:
Non deductible expenses	883	20
Share based payment charges	-	2
Capital allowances in excess of depreciation	-	(38)
Other	(27)	132
Prior year adjustment	(288)	35
Total tax charge	(694)	399

5.     Earnings per share

	2014	2013
	Pence per Share	Pence per Share
Basic	(6.44p)	0.85p
Diluted	(6.29p)	0.82p

Earnings per share has been calculated by dividing the loss 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:

	2014	2013
	£'000	£'000
(Loss)/profit for the year attributable to shareholders	(4,795)	633

Weighted average number of ordinary shares in issue:

	2014	2013
	Number	Number
Basic	74,505,377	74,505,377
Adjustment for share options	1,754,384	2,736,610
Diluted	76,259,761	77,241,987

 

Adjusted earnings per share

	2014	2013
	Pence per Share	Pence per Share
From continuing and discontinued operations:
Basic adjusted earnings per share	3.23p	2.96p
Diluted adjusted earnings per share	3.15p	2.85p

Adjusted earnings per share have been calculated by dividing the profit attributable to shareholders before amortisation, charges for share options and loss on disposal before tax in relation to the sale of Tryzens 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:

	2014	2013
	£'000	£'000
Profit before tax	(5,489)	1,032
Amortisation	1,736	1,771
Loss before tax on disposal	5,442	-
Acquisition related costs	1,112	367
Charges for share based payments	36	(8)
Adjusted profit attributable to shareholders	2,837	3,162
Current year tax charge	(433)	(958)
	2,404	2,204

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 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
Additions	-	249	-	143	392
Acquisition of subsidiaries	-	249	-	141	390
Disposals	-	(277)	-	(1,648)	(1,925)
At 31 March 2014	-	667	12	1,396	2,075
Depreciation
At 1 April 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
Depreciation charge for the year	-	104	1	222	327
Acquisition of subsidiaries	-	133	-	93	226
Depreciation on disposals	-	(123)	-	(1,498)	(1,621)
At 31 March 2014	-	332	8	1,097	1,437
Net book value
At 31 March 2014	-	335	4	299	638
At 31 March 2013	-	228	5	480	713
At 1 April 2012	681	42	7	442	1,172

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

7.     Acquisition of subsidiary

During the year the Group made one acquisition. On 17 March 2014 Jaywing plc acquired all the ordinary shares in Epiphany Solutions Limited ("Epiphany") for cash consideration of £12,000,000 (excluding legal and professional fees of £401,000 which have been expensed through the profit and loss account in administration expenses in the year). £11,000,000 of this was paid on completion, with a further £1,000,000 payable in September 2014. Additional consideration is payable, separate to the acquisition costs, for the continuing employment and future services provided by the former owners of Epiphany. The amount recognised in the profit and loss account as an expense during the year is £441,000, which represents the total amount earned as at 31 March 2014. 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 £6,000,000, including the £441,000 recognised during the year, up until July 2016.

The primary reason for the acquisition was to strengthen the Group's performance in search marketing and increase its use of "Big Data" science in powering highly creative multi-channel marketing activities. In combination with its existing businesses, it will materially enhance its already significant north of England operations and provide a London base. In the period since acquisition the subsidiary contributed £477,000 to Group revenues and £103,000 to the consolidated profit attributable to shareholders for the year ended 31 March 2014. The assets and liabilities acquired were as follows:

	Book value	Fair value adjustments	Fair value
	£'000	£'000	£'000
Intangible assets	-	6,869	6,869
Property, plant & equipment	164	-	164
Trade and other receivables	1,920	-	1,920
Loans	(132)	-	(132)
Cash and cash equivalents	457	-	457
Trade and other payables	(1,774)	-	(1,774)
Corporation tax repayable	69	-	69
Deferred tax	(20)	(1,374)	(1,394)
Net identifiable assets and liabilities			6,179
Goodwill on acquisition			5,821
			12,000

Summary of net cash outflow from acquisitions:

Cash paid			11,000
Cash acquired			(457)
Net cash outflow			10,543
Fair value of consideration transferred
Amount settled in cash			11,000
Fair value of deferred consideration			1,000
Total			12,000

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	Unallocated	Continuing Group	Disposal Group	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	17,917	17,938	(1,099)	34,756	7,382	42,138
Direct costs	(3,543)	(3,200)	1,158	(5,585)	(1,439)	(7,024)
Gross profit	14,374	14,738	59	29,171	5,943	35,114
Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	(11,749)	(10,650)	(2,677)	(25,076)	(5,375)	(30,451)
Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments	2,625	4,088	(2,618)	4,095	568	4,663
Other operating income	281	31	-	312	-	312
Depreciation	(232)	(108)	(6)	(346)	(48)	(394)
Amortisation	(924)	(625)	-	(1,549)	(187)	(1,736)
Loss before tax on disposal	-	-	-	-	(5,442)	(5,442)
Exceptional costs	(66)	-	(116)	(182)	-	(182)
Exceptional income	73	-	125	198	-	198
Acquisition related costs	(270)	(441)	(401)	(1,112)	-	(1,112)
Charge for share based payments	-	-	(36)	(36)	-	(36)
Operating profit / (loss)	1,487	2,945	(3,052)	1,380	(5,109)	(3,729)
Finance income				-	-	-
Finance costs				(54)	-	(54)
Profit/(loss) before tax				1,326	(5,109)	(3,783)
Tax expense				21	512	533
Profit/(loss) for the period before loss on measurement to fair value				1,347	(4,597)	(3,250)

Notes:

This information is based on the management accounts for Epiphany Solutions Limited.

8.     Disposal of subsidiary

On 7 October 2013 Jaywing plc announced that it had completed the sale of its e-commerce arm, Tryzens Limited, for a total transaction value of £6,000,000 in cash. The funds were provided by Scottish Equity Partners to allow for the acquisition of the total share capital of Tryzens through a management buyout.

The consideration was received in 2013, apart from £500,000 which is deferred to be received in the year 2014/15. At the date of disposal, the carrying amounts of the disposal group's net assets were as follows:

		£'000
Assets
Non-current assets
Property, plant and equipment		305
Goodwill		5,132
Other intangible assets		2,578
		8,015
Current assets
Trade and other receivables		4,808
Cash and cash equivalents		48
		4,856
Total assets		12,871
Liabilities
Current liabilities
Bank overdraft		-
Trade and other payables		(3,447)
Tax payable		(210)
		(3,657)
Non-current liabilities
Deferred tax liabilities		(571)
		(571)
Total liabilities		(4,228)
Net assets of disposal group		8,643
Disposal proceeds (net of professional fees and settlement of intergroup loans)		(3,790)
Loss on disposal		4,853

The loss on disposal is included in the loss for the year from discontinued operations in the consolidated statement of comprehensive income.

Operating profit of the disposal group until the date of disposal is summarised as follows:

		Period ended 7 Oct 2013	Year ended 31 March 2013
		£'000	£'000
Revenue		7,382	9,441
Direct costs		(1,439)	-
Gross profit		5,943	9,441
Other operating income		-	2
Amortisation		(187)	(369)
Operating expenses		(5,423)	(9,063)
Operating profit		333	11
Finance income		-	5
Net financing costs		-	5
Profit before tax		333	16
Tax expense		(77)	26
Profit / (loss) for the period from discontinued operations		256	42
Loss before tax on disposal		(5,442)
Tax expense		589
Loss on disposal		(4,853)
Total loss from discontinued operations		(4,597)

Cashflows generated by the disposal group for the reporting periods under review until its disposal are as follows:

		Year ended 2013	Year ended 31 March 2013
		£'000	£'000
Net cash (outflow)/inflow from operating activities		(73)	52
Net cash inflow/(outflow) from investing activities		3,767	(285)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts from discontinued operations		3,694	(233)

Of the cashflows from investing activities, £3,790,000 relates to the proceeds from the sale of the disposal group.

9.     Goodwill

			Goodwill
			£'000
Cost and net book value
At 1 April 2013			29,753
Disposal of Tryzens			(5,132)
Acquisition of Epiphany Solutions			5,821
At 31 March 2014			30,442

Goodwill is attributed to the following cash generating units:
	2014	2013	2012
	£'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	3,201	3,201	3,201
Gasbox Limited	273	273	273
Media & Analysis
Tryzens Limited	-	5,132	5,132
Epiphany Solutions Limited	5,821	-	-
Alphanumeric Limited	9,342	9,342	9,342
	30,442	29,753	29,753

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 2014/15 to 2017/18 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
2015/16	5.0% - 10%
2016/17	5.0% - 10%
2017/18	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 9% (2013:11%). 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 (2013: £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 14% and above. At a discount rate of 14% a charge of £128,000 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.

10.   Other intangible assets

	Customer relationships	Orderbooks	Trademarks	Development costs	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 April 2012	20,339	-	-	152	20,491
Additions during the year	1,282	-	-	-	1,282
At 31 March 2013	21,621	-	-	152	21,773
Additions during the year	4,277	1,457	1,025	110	6,869
Disposal	(4,550)	-	-	(27)	(4,577)
At 31 March 2014	21,348	1,457	1,025	235	24,065
Amortisation
At 1 April 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
Amortisation charge for the year	1,659	61	2	14	1,736
Disposals	(1,990)	-	-	(9)	(1,999)
At 31 March 2014	12,336	61	2	127	12,526
Net book amount
At 31 March 2014	9,012	1,396	1,023	108	11,539
At 1 April 2013	8,954	-	-	30	8,984
At 1 April 2012	9,428	-	-	45	9,473

All additions have arisen as a result of business combinations in the year.

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%.

The cost of customer relationships, trademarks and orderbooks acquired in the year were determined as at the date of acquisition by professional valuers. For customer relationships the valuations used the discounted cash flow method, assuming rates of customer attrition at 20% and sales growth at 2% each year. The discount rate applied at that time to the future cash flows was 19%.

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 a net operating profit margin of 30.5%. The discount rate applied was 15.8%.

The orderbook represents contracted revenues over the next 12 months. The valuation used the discounted cash flow method, assuming 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%.

Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are detailed in note 15. On the basis of this review, it has been concluded that there is no need to impair the carrying value of these intangible assets (2013: £Nil).

Epiphany was acquired during the year and therefore the goodwill and other intangible assets are required to be tested for impairment during the year. The Epiphany CGU is the smallest CGU that can be identified. This has been tested for impairment as detailed in note 9.

11.   Bank and overdraft, loans and borrowings

		2014		2013		2012
		£'000		£'000		£'000
Summary
Bank overdraft		-		816		233
Borrowings		7,800		1,500		3,000
		7,800		2,316		3,233
Borrowings are repayable as follows:
Within one year
Bank overdraft		-		816		233
Borrowings		4,612		1,500		3,000
Total due within one year		4,612		2,316		3,233
In more than one year but less than two years		1,062		-		-
In more than two years but less than three years		1,063		-		-
In more than three years but less than four years		1,063		-		-
Total amount due		7,800		2,316		3,233
Average interest rates at the balance sheet date were:	£'000	%	%		%
Overdraft	-	2.75	3.35		2.75
Term loan	4,250	3.25	-		2.13
Term loan	-	-	-		2.63
Revolver loan	3,550	3.25	3.35		2.39

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

The borrowing facilities available to the Group at 31 March 2014 was £2.0 million (2013: £4.8 million) and, taking into account cash balances within the Group companies, there was £4.0 million (2013: £2.5 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 2013	Cash flow	Non-cash items	31 March 2014
	£'000	£'000	£'000	£'000
Cash and cash equivalents	1	1,993	-	1,994
Overdraft	(816)	816	-	-
	(815)	2,809	-	1,994
Borrowings	(1,500)	(6,300)	-	(7,800)
Net debt	(2,315)	(3,491)	-	(5,806)

12.   Share capital

Authorised:

	45p deferred shares	5p ordinary shares
	£'000	£'000
Authorised share capital at 31 March 2013 and at 31 March 2014	45,000	10,000

Allotted, issued and fully paid:

	45p deferred shares	5p ordinary shares
	Number	Number	£'000
At 31 March 2014 and 2013	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.

13.   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 £Nil (2013: £125,000).

The amounts provided for are payable as follows:

	2014	2013
	£'000	£'000
In one year or less	-	125

The amounts provided have not been discounted.

14.   Accounting estimates and judgements

Accounting estimates

Impairment of goodwill and other intangible assets

The carrying amount of goodwill is £30,442,000 (2013: £29,753,000) and the carrying amount of other intangible assets is £11,539,000 (2013: £8,984,000). 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 9.

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 employer's 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. The Directors have used an internally generated calculation to derive an appropriate charge. Based on these calculations a charge of £Nil (2013: £24,000) 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. See note 7.

Contingent consideration

The Directors have provided an estimate of the amount payable in respect of contingent consideration. See note 13.

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.

15.   Annual reports and accounts

Copies of the annual report and accounts for the year ended 31 March 2014 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

 

 

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