Jaywing Regulatory News (JWNG)

Date: 12July 2012

On behalf of: Weare 2020 plc ( "the Company" or "the Group")

Weare 2020 plc

Preliminary Results 2012

Weare 2020 plc (AIM: DIGI), digital marketing specialists, today announced its preliminary results for the year ended 31 March 2012.

Performance Highlights

Revenues £37.3m (2011: £44.7m)

Gross profit £29.7m (2011: £36.0m)

Adjusted* EBITD £4.2m (2011: £5.8m)

Adjusted* profit before tax £3.3m (2011: £4.8m)

Adjusted* basic earnings per share 3.30p (2011: 5.52p)

Net cash flow generated from operations before changes in working capital £4.2m (2011: £5.3m)

Net debt £3.2m (2011: £4.2m)

Statutory profit before tax and after amortisation, share based payment charges and exceptional charges £1.3million (2011: loss £13.5m)

*Adjusted means before amortisation, share based charges, impairment and exceptional items including other income.

Commenting on the results, Andrew Wilson, Chairman of Weare 2020 plc, said: ''The start of the year has been in line with management expectations. This remains a difficult economic environment and our focus continues to be the retention and development of our client base and new business opportunities''

Enquiries:

Chairman's statement

As this is my first statement as Chairman, I would like to thank Stephen Davidson for his stewardship as Chairman of the Group since it was formed in 2006. Stephen has made a great contribution to the Group and had to steer it through some very challenging times. Stephen has agreed to remain on the Board of Directors as a Non-Executive Director.

For the year ended 31 March 2012 the Group reported an operating profit before interest, tax, depreciation, amortisation, share based payment charges and exceptional items of £4.2million (2011: £5.8 million). Revenue has fallen from £44.7 million to £37.3million and on the back of this reduction in revenue gross profit has fallen from £36.0 million to £29.7 million. This is as a result of the change in the mix of our revenue. We have had a challenging second six months in our Technology division which had a difficult implementation on behalf of a client. We were required to correct code for which we were not technically responsible and this delayed the implementation, which resulted in our inability to recover the full costs.

We have completed the consolidation of the business into a single brand, 20:20. Based on this consolidation we present our numbers in the three practice areas the businesses are reported internally, namely 20:20 Agency, 20:20 Technology and 20:20 Dialogue. Disclosed under other income are distributions received from the administrator of a previous client. These receipts have reduced to £0.6 million from £1.3 million received in the year to 31 March 2011. It is anticipated that further dividends will be made but the quantum will reduce. In May 2012 we received a further distribution of £0.6 million. 

Our net debt at the year-end was £3.2 million down from £4.2 million last year. We have made the final payments on the deferred consideration for the acquisition of our Technology business, which amounted to £2.4million. We have therefore been cash generative from operations through the year and continue to reduce the Group's indebtedness.

As for the previous year, the year to 31 March 2012 has been tough but our management and employees have worked very hard to deliver these results. I would like to thank all staff and clients for their continuing commitment.

Board Changes

We have made a number of changes to the Board with the appointment of Martin Boddy, as Chief Executive Officer, and Andy Gardner as Chief Operating Officer. Martin and Andy were founders of Jaywing, our analytics business, which we acquired in 2007. Joining on 1 June 2012 was Kate McIntyre who has been appointed as a replacement to Keith Sadler as Group Finance Director.

Charles Buddery, who has been interim Chief Executive Officer, joins the Board as a Non-Executive Director and continues to make a valuable contribution to the on going business.

Barry Jenner, who served on the Board from the beginning of the Group, stepped down from the Board on 31 May 2012. The Board would like to thank Barry for his contribution to the Group. We wish him well for the future.

Ian Robinson and Keith Sadler will step down from the Board on 31 July 2012. I would like to thank them for their contribution to the business since joining the Group.

Outlook

The start of the year has been in line with management expectations. This remains a difficult economic environment and our focus continues to be the retention and development of our client base and new business opportunities.

Andrew Wilson

Chairman

11 July 2012

Business Review

Weare 2020 plc reported a statutory profit before tax of £1.3 million (2011: loss £13.5 million). The adjusted operating performance line, before interest, tax, depreciation, amortisation, share based payment charges and exceptional items, shows profits of £4.2 million (2011: £5.8 million).

During the year the Group benefited from the receipt of £0.6 million (2011: £1.3 million) from the administrator of a client where a contractual obligation existed. Removing the benefit of these receipts from the above adjusted numbers results in an operating performance for the year of £3.6 million compared to £4.5 million for the year ended 31 March 2011. A further distribution has been received by the Group in May 2012 in the sum of £0.6 million. Based on communication from the administrator, the Board believes there will be further distributions but the quantum will reduce.

The decline in revenues was mainly driven by Agency which showed a reduction in revenue of some £5.5 million. The majority of this revenue loss is within our media buying business where the market place is commoditised and pricing has become depressed. Revenue fell from £7.0 million to £1.8 million. This resulted in gross profit falling from £1.6 million to £0.4 million.

The Technology part of the business had a small reduction in gross profit from £10.4 million to £9.8 million. However, the performance in the second half of the year suffered from a problem in implementing an ecommerce platform on behalf of a client, the resolution of which required a number of consultant hours being non-chargeable to the client. As this was a time critical issue it meant resource was not allocated to chargeable clients through the final quarter of the financial year. As we move into the new financial year these issues should be resolved and the business will get back to its normal charging cycle.

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

Including other income the Group produced £1.4 million adjusted operating profit after interest in the six months to 31 March 2012 against £2.3 million in the first half.

The segmental performance of our business in the three practice areas of Agency, Technology and Dialogue, is shown below together with the comparative performance from the previous year.

Segmental performance

For the year ended 31 March 2012

Liquidity review

The Group's facilities comprise an amortising revolving credit facility for an initial £6.3 million and a bank overdraft of £1.0 million. The revolving credit facility amortises over its duration to £2.45 million in October 2013.

The consolidated cash flow statement shows the Group to have generated cash from operating activities of £4.2 million (2011: £5.3 million) before changes in working capital.

We paid £0.4 million in tax (2011: £0.6 million). In addition, we repaid £1.1million of term loans (2011: £1.8 million) and reduced the revolving credit facility by £1.2 million (2011: increased £1.2 million).

As at 31 March 2012 the Group had net debt of £3.2 million (2011: £4.2 million).

Impairment

As required by IAS 38 we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculate our weighted average cost of capital with reference to long term market costs of debt and equity and the Company's own cost of debt and equity, adjusted for the size of the business and risk premiums. Based on this calculation a rate of 11% (2011:12.7%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2018/19. As a result of these calculations the Board have concluded that the carrying value of intangible assets and goodwill on the Group's balance sheet do not need to be impaired and therefore no charge has been made (2011: £15.3 million).

Contingent payments

The estimate of payments to be made for past acquisitions is £0.1 million (2011: £2.6 million). £125,000 is due for the purchase of 20:20 London and is subject to performance criteria being met. This amount is provided in deferred consideration.

Consolidated statement of comprehensive income

Consolidated cash flow statement

Consolidated statement of changes in equity

Notes to the Preliminary announcement of results

Principal accounting policies

Weare 2020 plc is a Company incorporated in the UK and is AIM listed.

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

The consolidated balance sheet at 31 March 2012 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 2012 statutory financial statements upon which the auditor's opinion is unmodified and does not include any statement under section 498 (2) or (3) of the Companies Act 2006.

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

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

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

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

Judgements made by the Directors in the application of these accounting policies that have a significant effect on the consolidated financial statements together with estimates with a significant risk of material adjustment in the next year are discussed in note 12.

Going concern

The Directors have reviewed the forecasts for 2012/13 and 2013/14 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 three areas: Agency, Dialogue and Technology, its three primary business activities. Unallocated represents the Group's head office function, along with intragroup transactions.

The Group 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 Dialogue segment accounted for greater than 10% of the Group's revenue. This customer accounted for 11.3% (2011: 4.7%) of Group revenue.

For the year ended 31 March 2012

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

2. Other operating income

During the years to 31 March 2011 and 2012 the Group received part settlement from the administrator of a client for a contractual obligation to perform services on their behalf. In May 2012 we received a further distribution of £0.6 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

Exceptional costs of £41,000 represent the costs of closure of an operating site (2011: £464,000 represents compensation for loss of office in respect of a director and the costs of closure of an operating site).

4. Tax expense

5. Earnings/(loss) per share

Earnings/(loss) per share has been calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. In the prior year the basic earnings per share is a loss so a dilution does not take place.

The calculations of basic and diluted earnings per share are:

Weighted average number of ordinary shares in issue:

Adjusted earnings per share

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

6. Property, plant and equipment

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

The freehold building has been sold post year end and has therefore been written down to its fair value less cost to sell, this has resulted in a write down of £332,000. This asset was used in the Agency segment.

7. Goodwill

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 2012/13 were used. Subsequent years were based on reducing rates of growth declining to a 2% growth rate by 2018/19.

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:

The growth rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated profits of the Group in the future.

The discount rate used to test the cash generating units was the Group's pre-tax Weighted Average Cost of Capital ("WACC") of 11% (2011:12.7%). 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 WACC was used for all the cash generating units.

As a result of these tests no impairment was considered necessary (2011: £15.3 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 13% and above. At a discount rate of 13% a charge of £321,000 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.

8. Other intangible assets

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

Goodwill and other intangible assets have been tested for impairment. The method, key assumptions and results of the impairment review are detailed in note 7. On the basis of this review it has been concluded that there is no need to impair the carrying value of these intangible assets (2011: £1.2m).

9. Bank and overdraft, loans and borrowings