Jaywing Regulatory News (JWNG)

Date: 9 July 2013

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

Embargoed: 0700hrs 9 July 2013

Jaywing plc

Preliminary Results 2013

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

Performance highlights

Gross profit £30.08m (2012: £29.75m)

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

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

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

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

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

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

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

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

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

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

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

Enquiries:

Chairman's statement

This is my second Chairman's statement.

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

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

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

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

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

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

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

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

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

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

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

Board Changes

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

Outlook

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

Andrew Wilson

Chairman

 8 July 2013

Business Review

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

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

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

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

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

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

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

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

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

Liquidity review

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

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

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

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

Impairment

As required by IAS 36, we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculate our weighted average cost of capital with reference to long term market costs of debt and equity and the Company's own cost of debt and equity, adjusted for the size of the business and risk premiums. Based on this calculation, a rate of 11% (2012:11%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2017/18. As a result of these calculations the Board has concluded that the carrying value of intangible assets and goodwill on the Group's balance sheet does not need to be impaired and therefore no charge has been made (2012: £nil).

Contingent payments

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

Key performance indicators

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

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

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

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

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

Consolidated statement of comprehensive income

Consolidated cash flow statement

Consolidated statement of changes in equity

Principal accounting policies

Jaywing plc (formerly WEARE 2020 plc) is a Company incorporated in the UK and is AIM listed.

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

The consolidated balance sheet at 31 March 2013 and the consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in equity and associated notes for the year then ended have been extracted from the Group's 2013 statutory financial statements upon which the auditor's opinion is unmodified and does not include any statement under section 498 (2) or (3) of the Companies Act 2006.

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

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

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

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

Judgements made by the Directors in the application of these accounting policies that have a significant effect on the consolidated financial statements together with estimates with a significant risk of material adjustment in the next year are discussed in note 13.

Going concern

The Directors have reviewed the forecasts for 2013/14 and 2014/15 which have been adjusted to take account of the current trading environment. The Directors consider the forecasts to be prudent and have assessed the impact of them on the Group's cash flow, facilities and headroom within its banking covenants. Further, the Directors have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities. Based on this work, the Directors are satisfied that the Group has adequate resources to continue in operational existence for 12 months from the date of these accounts. For this reason they continue to adopt the going concern basis in preparing the financial statements.

1. Segmental analysis

The Group reports its business activities in two areas: Agency Services and Consulting, its two primary business activities. Unallocated represents the Group's head office function, along with intragroup transactions.

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

For the year ended 31 March 2013

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 2012 and 31 March 2013 the Group received part settlement from the administrator of a client for a contractual obligation to perform services on their behalf. During the year we received a further distribution of £0.7 million. It is anticipated there may be further distributions in the future but the Board is unaware of the quantum or timing of these potential receipts.

3. Other operating expenses

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

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

4. Tax expense

5. Earnings per share

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

The calculations of basic and diluted earnings per share are:

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.

7. Acquisition of subsidiaries

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

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

Summary of net cash outflow from acquisitions:

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

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

Notes:

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

8. 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 2013/14 were used. Subsequent years were based on reducing rates of growth declining to a 2% growth rate by 2017/18.

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

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

The discount rate used to test the cash generating units was the Group's pre-tax Weighted Average Cost of Capital ("WACC") of 11% (2012:11%). The individual cash generating units were assessed for risk variances from the WACC, but in the absence of geographical risk, currency risk and any significant price risk variations, the same WACC was used for all the cash generating units.

As a result of these tests no impairment was considered necessary (2012: £nil million).

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

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

9. Other intangible assets

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

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

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

10. Bank and overdraft, loans and borrowings

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

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

The borrowing facilities available to the Group at 31 March 2013 was £4.8 million (2012: £7.1 million) and, taking into account cash balances within the Group companies, there was £2.5 million (2012: £3.8 million) of available borrowing facilities.

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

Reconciliation of net debt