Earnings Release • Jul 8, 2014
Earnings Release
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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: 0114 281 1200 |
| Cenkos Securities plc | |
| Nicholas Wells / Ivonne Cantu (Nomad) | Tel: 020 7397 8980 |
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.
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
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.
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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