Jaywing Regulatory News (JWNG)

Date: 7 July 2015

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

Embargoed: 0700hrs 7 July 2015

Jaywing plc

Preliminary Results 2015

Jaywing plc (AIM: JWNG), the data driven, insight and creative agency, is pleased to announce its audited preliminary results for the year ended 31 March 2015.

Financial highlights from continuing operations

* Revenue less direct costs of sale

** Before amortisation, share based charges, exceptional items and acquisition related costs

*** As a percentage of gross profit

Highlights:

· Gross profit (fee income) up 39% to £30.1 million (2014: £21.6 million)

· Adjusted EBITDA up 75% to £4.1 million (2014: £2.3 million)

· Adjusted EBITDA margin increased by 2.8% to 13.5%

· Fourth consecutive period of EBITDA growth (half yearly)

· Epiphany acquisition fully integrated and making strong contribution

· New strategy in place to accelerate growth and tighten operational focus

· Board changes to align with delivery of new strategy

Outlook:

· Trading in Q1 2015 in line with management expectations

Commenting on the results, Ian Robinson, Chairman of Jaywing, said:

"I am pleased to report another strong set of results from Jaywing. Gross profit and EBITDA have continued to grow, with a clear strategy to deliver continued growth and a client offering highly differentiated from our competitors."

Enquiries:

Chief Executive's Report

· Jaywing today

Jaywing is a leading UK based agency employing approximately 600 people across five sites in the UK (Leeds, Sheffield, Newbury, Swindon and London) and with an embryonic operation in Sydney, Australia. It is the largest agency in the North of England and I'm delighted to say was recently voted the best large agency in the Prolific North Awards.

Data now sits at the heart of Jaywing. We believe that the size and calibre of our data science team clearly distinguishes us from the competition. Our data scientists help blue chip clients to make sense of the ever more complex multi-channel, multi-device world in which they operate. Jaywing data scientists, comprising a team of over 50 people, work in collaboration with Jaywing's wider marketing and customer experience specialists. By bringing on and offline data together, they are able to produce unique insights and algorithms to help power and increase the efficiency of clients' marketing and customer experience programmes.

· The last 12 months

Acquisition and integration of Epiphany

The acquisition and successful integration of search marketing specialist Epiphany Solutions Limited ("Epiphany") in March 2014 has proven to be transformational for Jaywing. It has given us a profitable growth platform as well as access to digital data and online media expertise. This has enabled our data scientists to develop innovative new products and services whilst Epiphany itself has benefited from being part of Jaywing in new business terms by sharing its competitive advantage in data science.

Improved resilience

The resilience of the business has significantly improved:

o Following the acquisition of Epiphany and after winning a large customer experience contract for Collect+, approximately 50% of our income is now recurring with contracts lasting between 12 months and 3 years. The remaining income is derived from multi-year framework agreements or project specific contracts. Consequently, visibility of income has improved from a situation where approximately 30% of income was visible beyond six weeks to a place where approximately 60% is now secure.

o Jaywing has diversified its customer base, substantially reducing client concentration risk. Currently, no single client accounts for more than 5% of income and no industry sector accounts for more than 25% of income.

Increased sales

Cross-selling of products and services is now well established and continues to be a key focus. Over a quarter of our top 50 clients are now buying services from at least two different service lines, with some buying from up to four. In addition, our drive to win new business continues and generated an additional £4 million of income from new clients, which was well ahead of the previous year's performance. Notable wins include Irwin Mitchell and Nationwide Building Society.

Innovation

During the period, product and service innovation has been a high priority. We have now created a data architecture that uses digital data capture alongside "Big Data" processing components to create a repository for on and offline data. Powerful algorithms developed using data in this repository can now deliver highly personalised display advertising, websites and email programmes that distinguish between non, new and existing customers.

Strong cash generation

The business remains cash generative. During the period, net debt fell from £5.8 million to £5.2 million after earn-out payments of £1.4 million and corporation tax payments of £0.8 million. Free cash flow generated was £2.0 million. The net debt to EBITDA ratio was 1.3x at the year end, an improvement from the previous period. The balance sheet includes accruals for the final Iris Associates Limited ("Iris") earn-out payment, in addition to the first Epiphany earn-out payment.

· The next 12 months and beyond

Market conditions are likely to remain positive

The latest influential IPA Bellwether Report shows that UK marketing budgets increased for the tenth consecutive quarter, and at an accelerated pace with spend on digital marketing seeing the highest upward revisions. This trend looks set to continue with 28% of brands intending to increase their marketing budgets in 2015/16.

Econsultancy's quarterly Digital Intelligence Briefing published in January found that 78% of companies aim to differentiate themselves by improving their customer experience in the year ahead with almost 60% of respondents saying that cross-channel marketing would be a key focus for them in 2015. Consequently, targeting and personalisation (30%), content optimisation (29%) and social media engagement (27%) are the most likely to be prioritised during 2015.

Not surprisingly, marketers are concerned about the growing complexity arising from the proliferation of channels and devices, the explosion of data and the expectation of a seamless multi-channel customer experience. According to a recent IBM survey of Chief Marketing Officers, 80% felt that they would need to deal with high levels of complexity in the next few years and fewer than 50% felt they and their organisations were prepared to cope with it.

These market trends are all positive for Jaywing. We have real depth in today's key specialisms and the ability to join them up through our collaborative operating model and culture. More than that, we have an outstanding team of data scientists who can harness the power of the data that is so vital to personalising and prioritising communications.

Encouraging start to the new financial year

The year started with the launch of our new proposition "making sense of NOW". This directly addresses the challenges marketers face in managing the complexity of ever more sophisticated marketing activities in the rapidly changing, technology-led consumer world in which they operate.

Our websites, along with all of our other marketing collateral, have been re-developed for the Jaywing and Epiphany brands. The reaction from both our clients and our people has been very positive and we now believe we have the platform to build far greater brand awareness and to generate far more inbound sales opportunities.

Financially, we've also made a good start to the year with some significant client wins, strong spend from existing clients and encouraging levels of cross-selling activity.

· Strategic update

Sharpening our focus

Following the successful launch of our new proposition, we will continue to sharpen our focus and concentrate on activities where we see the biggest opportunity to benefit from the use of data science and which offer attractive margins.

Creating a low risk international growth platform

The UK is a highly competitive market place with sophisticated buyers of our services. Whilst the market outlook remains very positive in our sector, achieving double digit growth rates domestically for a business of our scale is challenging. Consequently, we have been exploring complementary strategies to accelerate our organic growth, and in particular, we are exploring options to generate international sales.

Industry trends indicate that higher growth is achieved internationally in less mature and competitive markets. We are currently seeking access to an international distribution channel through which we can sell our newly developed products and a number of our services (to be delivered primarily from our UK base). We consider this to be a low risk and proven model in the industry.

Our intention is to explore possibilities either to enter into a commercial joint venture or acquire a business with an established international distribution channel and a product suite that sits well alongside our own. In addition, we will seek to develop an improved sales channel in Australia by growing our small operation in Sydney, which currently only sells search marketing services.

Closer to home, we remain interested in opportunities to repeat the success of our acquisition of Iris, the Sheffield based creative agency. Here, we acquired a relatively small business with great people that was located in close proximity to one of our existing operations. By integrating it immediately we were able to deliver significant synergies whilst scaling the overall operation.

Innovation in data science

We believe that, over the next few years, innovation in data science has the potential to disrupt the marketing industry, changing the way marketing is done and the role played by marketing agencies. We intend to be at the forefront of developments in this space and are seeking to build links with academia as well continuing to build our impressive data science team.

Following successful testing last year and some live client projects this year, our short-term focus is to hone our new product set and generate sales. We will also seek to re-launch our Digital Collections product which allows organisations such as retailers and local government to automate debt collection through highly personalised communication and enhanced online payment functionality.

Re-aligning the Board

As announced today, given the ambitious plan we have set for ourselves, we have decided to strengthen and realign the Executive team of the Board in service of our new strategic direction:

· Andy Gardner (currently COO) will lead our strategic initiatives (M & A, product and distribution) and take on the title of Chief Strategy Officer.

· Mike Sprot (currently Finance Director) will be promoted to the role of Chief Financial Officer (CFO).

· Rob Shaw (CEO Epiphany) will join the Board as CEO UK & Australia. He will be joined by Adrian Lingard (MD Consulting) who will take on the role of COO. Rob and Adrian both have tremendous track records and will be responsible for the performance of our core Jaywing business. Their current roles will be filled from within their own teams providing welcome progression for some very talented individuals.

· I will remain CEO of Jaywing plc with the individuals above reporting to me.

So, in summary, on the back of a successful year, the business is now in a position to push forward with greater ambition.

We have an exciting strategy that will see Jaywing move ever further away from being "another" marketing agency group to being a marketing agency specialising in data science and working in areas of growing marketing spend. A business that has both a high level of resilience and a strong platform for domestic and international growth. And, of course, a business with some exceptional people working in a highly collaborative environment for blue chip clients.

Martin Boddy

Chief Executive Officer

Jaywing plc

Chairman's Statement

Performance

I am pleased to report that 2014/15 has been a transformational year for Jaywing. The successful acquisition and integration of Epiphany along with a new strategic direction and the realignment of an expanded executive team has given us a strong growth platform going forward.

It has also been a year of innovation with the development of our secure Big Data environment where we combine on and offline data to improve our client's marketing and customer experience programmes. We have also invested in product development that uses this data environment and in strengthening our content marketing team.

These are exciting times for Jaywing and we find ourselves ideally placed to take advantage of the changes in the industry and the increasing focus on Big Data science.

The Board and Governance

The Board has been active during the year, supporting the Executive as they have developed the strategic direction of the business. Going forward, we will continue to work closely with them to assist in the implementation of these plans.

I would like to welcome Rob and Adrian to the Board, and I look forward to working with them as we continue to move Jaywing forward. These additions, coupled with the change in role for Andy and the promotion for Mike, have strengthened the senior management of the business.

Our people

On behalf of the Board, I would like to thank all of our colleagues - the 'Jaywingers' - for their continued hard work and contribution to the business. Their skill, enthusiasm and dedication are a credit to the organisation.

Ian Robinson

Chairman

Strategic Report

Business Review

Gross profit was up significantly to £30.1m (2014: £21.6m). The underlying business delivered increased operating profits of £4.1m (2014: £2.3m) which was in line with expectations.

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 EBITDA of £4.1m (2014: £2.9m continuing and discontinued).

Jaywing plc reported a statutory loss of £1.5m in the year ended 31 March 2015 (2014: £4.8m loss).

The business operates in two divisions: Agency Services and Media & Analysis, the latter comprising the ongoing former Consulting division 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.

At a divisional level, the Media and Analysis segment which represents 55% of the group total revenue has performed well with EBITDA growing 200% from £2.3m to £4.6m. The Agency Services segment has fallen slightly as a consequence of the unexpected loss of an outsourced customer management contract being managed in-house and our investment in content marketing in the form of two key senior hires.

During the year, the Group benefited from the receipt of £0.1m (2014: £0.3m) 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.

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

Excluding other income the Group produced £2.1m adjusted operating profit after interest in the six months to 31 March 2015 and £2.0m in the first half.

The table below shows the consistent growth in GP and EBITDA over the last five six-monthly periods:

Continuing business EBITDA

Liquidity review

The Group's facilities comprise a term loan for £3.2m, a revolving credit facility for £3.5m and a bank overdraft of £2.0m.

The consolidated cash flow statement shows the Group to have generated cash from operating activities of £2.8m (2014: £2.2m) before changes in working capital.

We paid £0.8m in tax (2014: £0.5m). There were repayments of £1.1m of the term loan.

As at 31 March 2015, the Group had net debt of £5.2m (2014: £5.8m).

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 10.6% (2014:9.0%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2019/20. As a result of these calculations the Board has concluded that the carrying values of intangible assets and goodwill on the Group's balance sheet do not need to be impaired and therefore no charge has been made (2014: £Nil).

Key performance indicators

Over the last twelve months, the key areas of focus have been:

- The integration of Epiphany

- Improved resilience

- Increased sales

- Innovation

- Strong cash generation

Progress against these is described in the Chief Executive's Report on page 2.

Consolidated statement of comprehensive income

Consolidated cash flow statement

The accompanying notes form part of these consolidated financial statements.

Consolidated statement of changes in equity

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 2015 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 2015 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 11.

Going concern

The Directors have reviewed the forecasts for the years ending 31 March 2016 and 31 March 2017 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. Furthermore, 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 the foreseeable future. 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. Approximately £250k of sales were made to clients in Australia. During the year no customer included within either sector accounted for greater than 10% of the Group's revenue. During the prior 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 of Group revenue.

For the year ended 31 March 2015

For the year ended 31 March 2014

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 2014 and 31 March 2015 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 £57,000. 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

Wages and salaries include £211,000 (2014: £270,000) of post-acquisition employment costs relating to the purchase of Iris Associates Limited, and £1,059,000 (2014: £441,000) of post-acquisition employment costs relating to the purchase of Epiphany Solutions Limited.

4. Tax expense

5. Loss per share

Loss 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 loss 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, 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:

6. Property, plant and equipment

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

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 2015/16 to 2018/19 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:

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 10.6% (2014:9.0%). 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 (2014: £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 £52,000 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 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 prior year were determined as at the date of acquisition by professional valuers. For customer relationships the valuations used the discounted cash flow method, assuming a customer attrition rate of 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 an 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%.

The order book represents contracted revenues over the next 12 months. The valuation used the discounted cash flow method, assuming a net operating profit margin of 30.5%. The discount rate applied was 15.8%.

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 (2014: £Nil).

9. Bank and overdraft, loans and borrowings

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 2015 was £2.0 million (2014: £2.0 million) and, taking into account cash balances within the Group companies, there was £3.6 million (2014: £4.0 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

10. Share capital

Authorised:

Allotted, issued and fully paid: