Jaywing Regulatory News (JWNG)

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Jaywing plc (AIM: JWNG) reacts to latest IPA Bellwether report

The Q3 2017 IPA Bellwether report was released earlier in October. The quarterly report's authors survey a panel of around 300 marketing professionals to provide key indicators of the health of the economy and marketing industry, analysing marketing spend and commenting on key economic indicators.

In summary while marketing budgets have risen again in Q3 of 2017 to provide a five-year period of budget growth, they have not risen as strongly as they have previously since the financial crisis. The net balance of UK companies revising marketing budgets up is at +9.9% but we are seeing stagnation in a number of companies (70% at the same level as three months ago) and channels (main media advertising, sales promotion, direct marketing) and decreases in optimism about the industry and only a small increase in optimism about their own company's financial prospects up a little following Q2's at an 18-quarter low.

Uncertainty around the impact of Brexit was the key driver, along with reports of reduced sales and investment and a desire to keep costs lean.

Since the publication of the report, the UK economy figures have shown some slight growth for the quarter (+0.4%), with industries such as computer programming, retail and service sectors showing the strongest growth. This is ahead of the expectations of many economists, including the report's authors, which had set it at 0.3%. Ad spend was expected to see growth of 0.6% in 2017 and no growth in 2018 before recovering in 2019 and 2020 at 1.8% and 2.3% respectively.

In Q3, budgets were reported as follows:

· marketing budgets overall +9.9% (Q2 +13.1%)

· internet +17.0% (Q2 +22.7%)

o search/SEO +16.3% (Q2 +15.6%)

o mobile advertising +5.8%,(Q2 +3.0%)

· events +9.4% (Q2 +2.1%)

· PR +7.2% (Q2 +2.1%)

· 'other' +2.3% (Q2 -2.6%)

· main media advertising 0.0% (Q2 +9.8%)

· sales promotion 0.0% (Q2 -10.7%)

· direct marketing 0.0% (Q2 -4.7%)

· market research -2.4% (Q2: -6.2%)

Further, a recent parliamentary review cited "Voice" and voice activated systems as a key platform growth area, with the rise of products such as Amazon Alexa achieving commercial success. In the same report, AI and Autonomy were also cited as having a big impact in 2017, although this mainly focused on concerns around physical safety and insurance in a world of driverless cars.

In Econsultancy's recent Top 100 Digital Agencies Report, where Jaywing ranked 21st in the UK and as the second largest agency outside of London, similar themes were coming through. In addition, the report identified key trends in: agency consolidation to fewer, bigger agency relationships across more services; digital transformation to enhance customer experience; Brexit, the US election, the economy and GDPR as key challenges; and AI and data science as key to finding time for creativity.

Commenting on the reports, Martin Boddy, Chairman, Jaywing plc, said, "The ongoing Brexit negotiations are not yet bringing any clarity to the uncertainty so it's difficult to see an immediate upturn from the current stagnation of budgets on the horizon, however, there remains a degree of cautious optimism. For example, while economic growth for the last quarter was still small, it may give rise to a revision of ad spend forecast in the next report as this is slightly against the authors' expectations.

"The good news is that spend on the 'internet' category rose well, if not as strongly as previously. Within that category, 'search' saw a revision to a seven-year-high with mobile and PR also doing better than the previous quarter.

"The rise of 'voice', as noted in the Parliamentary Review, will be a critical change in how marketers do marketing. The role of brand is likely to be elevated beyond where it has been felt necessary so far in the digital age in order to compete amongst a much smaller set of search results. That, along with artificial intelligence, is set to change the nature of marketing considerably and marketers will need to be able to bring brand and performance together. All of which is very much in-line with our propositional and operational strategic direction.

"The perceived advantages of cost and return of digital marketing were noted as key in driving budget growth in this area, although we would also not be surprised if things like digital transformation projects and GDPR were occupying some of those budgets. Against a backdrop of technological complexity, it is essential for brands to use GDPR as an opportunity to reset their customer relationships, using data and machines to enhance and enrich their experiences, creating a fair exchange and avoiding the 'pile it high, sell it cheap' approach to digital marketing that has been seen in some places over the last decade. Again, this very much requires a coming together of key technical and communications skills and ones we possess within Jaywing.

"Finally, digital transformation is attracting the big consultancies into businesses although they often don't have the breadth of creative and practical marketing skills to bring to the table and agencies tend to lack the credibility to handle large-scale business and technical transformation programmes. For organisations able and wishing to be more nimble, Jaywing is well placed to assist such transformations."

ENDS

Enquiries:

Jaywing plc (www.jaywingplc.com)Michael Sprot (Company Secretary)

Tel: 0114 281 1200

Cenkos Securities plc

Nicholas Wells/Callum Davidson (Nomad)

Tel: 0207 397 8920

About Jaywing

Jaywing is a major data science-led UK agency that is listed on the London Stock Exchange. The company employs over 650 specialists in the fields of marketing, customer management and credit and fraud risk regulation and management. 1 in 10 is a heavyweight data scientist. Jaywing is dedicated to its collaborative approach that brings hand-picked teams of specialists to each client challenge across a host of sectors to connect powerful ideas, rich data and new technologies.

Financially, Jaywing reported revenue of GBP44.5m, Gross Profit of GBP36.0m (up 13% on 2016) and growth of 12% in EBITDA for 2016/17. Net debt reduced by £1.79m to represent 0.7x EBITDA (1.2x in 2016) and 1 in 3 of its top 50 clients buy more than one service line (1 in 4 in 2016).

In May 2017, Jaywing announced the launch of Jaywing Intelligence, a marketing product suite that uses sophisticated mathematics, artificial intelligence and virtual reality to improve clients' marketing and free their time to think more strategically.

In September 2017, Jaywing won a Cannes Corporate award for its work with Castrol and Epiphany was named Search Agency of the Year at the UK Agency Awards.

Jaywing continues its major collaboration with world-class university Imperial College London, working with the College's Data Science Institute (DSI) on a three-year research programme designed to measure, understand and predict people's emotional response to marketing stimuli, an approach that has been adopted into its creative methodology. The research involves the use of advanced technology, including the DSI's impressive Data Observatory facility and advanced neuroimaging kit.

Jaywing works with a number of blue chip clients, including Sky, Pepsico, HSBC, Grattans Holdings, Castrol, Ebuyer and Pandora.