Jaywing Regulatory News (JWNG)

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:

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:

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

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 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.

Going concern

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

For the year ended 31 March 2013

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 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

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

5. Earnings per share

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:

Weighted average number of ordinary shares in issue:

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. 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:

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 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:

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:

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:

Cashflows generated by the disposal group for the reporting periods under review until its disposal are as follows:

Of the cashflows from investing activities, £3,790,000 relates to the proceeds from the sale of the disposal group.

9. Goodwill