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Jaywing Plc

Jaywing plc “A year of progress”

Jaywing plc (LON:JWNG), the data driven, insight and creative agency, has today announced its audited preliminary results for the year ended 31 March 2017.

Financial highlights from continuing operations

 

Year to 31 March 2018

£’000

Year to 31 March 2017

£’000

Revenue

47,541

44,537

Gross profit*

36,715

35,977

Adjusted EBITDA**

3,025

4,860

Adjusted EBITDA margin***

8.2%

13.5%

(Loss) / profit after tax

(1,133)

(2,981)

Basic EPS on adjusted EBITDA#

3.2p

5.6p

Basic EPS

(1.25p)

(3.42p)

Net debt

(5,918)

(3,534)

 

* Revenue less direct costs of sale

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

*** As a percentage of gross profit

# Following issue of shares for Frank Digital acquisition

Highlights

· Acquired Frank Digital PTY to continue growth and development in Australia

· Secured new international contracts

· Launched new AI powered products including Archetype and Decision

· Revenue increased by 6.7% (6.3% increase on a like for like basis)

· Gross profit increased by 2.0% (3.1% reduction on a like-for-like basis)

· Re-aligned cost base in response to challenging market conditions

· Reduced loss before tax

· Increased collaboration across Jaywing with 68% of our top 50 clients taking more than one of our service lines

Outlook

We have started the year with good new business wins from larger clients where we clearly demonstrated the value of our integrated ‘One Jaywing’ approach in a competitive process.

Whilst there is still caution in the UK market we believe we are well positioned to achieve our market expectation, especially with the continued growth in Australia enhanced by our most recent acquisition.

Commenting on the results, Martin Boddy, Chairman of Jaywing plc, said: “After four consecutive years of growth fuelled by a strong data science-led proposition, we have endured a period of challenging market conditions in the UK. We have taken the necessary actions to recover our EBITDA margin going forward whilst ensuring that we still have the necessary resources to grow our client base so we can return our EBITDA to previous levels by the financial year ending March 2020.

Despite these challenges it has been a year of progress in terms of expanding our fast-growing Australian operation through the acquisition of Frank Digital, plus we have launched innovative technology incorporating the use of Artificial Intelligence for clients in the UK and beyond.

Clients are increasingly looking for more data, digital and technology focused agencies and consultancies with collaborative operating models. This is very much the sweet spot for Jaywing, so we remain excited and optimistic about our future potential.”

Chairman’s Statement

Whilst the well-publicised adverse market conditions have impacted Jaywing during the financial year, we have nevertheless made good progress in a number of areas.

We launched a suite of Artificial Intelligence (AI) based products and have strengthened our fast growing Australian business with the acquisition of Frank Digital. We also gained a social audiences platform through the acquisition of Head Offfice, which has now been fully integrated. Over and above all of that we have produced some exceptional work which has delivered exceptional results for our clients and has involved many innovative applications of data science.

As I have previously explained, trading conditions in the UK have been challenging on a number of fronts following the election in June 2017. We saw a 3% reduction in like for like gross profit (GP) during the year. Consequently, a far greater focus has been placed on cost management, particularly in the second half of the year. On a more positive note, in recent months it has been encouraging to see a marked improvement in our sales pipeline, some excellent new business wins and lower levels of client churn.

Looking more broadly at our sector, it is hard to remember a period where there has been such turbulence.

Digital media has been in the headlines for all the wrong reasons. Ads appearing alongside unsavoury YouTube content led to several brands pausing their spend until the problem was fixed. The lack of transparency in programmatic media buying undertaken by the global agency networks came under scrutiny with brands such as P&G taking that function in house. Then there was the Cambridge Analytica episode concerning their use of Facebook data, which coincided with GDPR coming into force.

The network agency model has come under pressure with WPP in the spotlight. Too great a focus on traditional advertising, opaque charging practices, lack of client focus and competition from Management Consultancies have led a number of these agency groups launching new strategies. The common themes here are to adopt a more client centred and collaborative operating model with a single P&L and to place a greater focus on data, digital and technology.

So, what does this all mean for Jaywing?

We have been operating a “One Jaywing” model for the past 5 years and understand that this is not just about managing a matrix and incentivising through a single profit measure, it’s about creating a truly collaborative culture internally and in our relationships with clients. We have a transparent charging model and are focused in data science, digital marketing and technology, the spend for all of which is predicted to grow, albeit perhaps more slowly in the UK in the next year or so. In general, we don’t work for large multi-national clients who have the resources to create in-house teams and we don’t find ourselves competing with the management consultancies, indeed we sometimes work alongside them to provide specialist skills. GDPR has been and will continue to be an opportunity for us as clients recognise the importance of working with a partner who understands data and how to create positive engagements with consumers.

So, there is a good opportunity for Jaywing in the medium term but the near term focus is to recover after a difficult period of trading that has created financial constraints for us to manage within and put on hold our plans for further acquisitions and paying a dividend.

Our objective is to exit the current financial year (ending March 2019) at a run rate that puts us back on our original track for the following year. We anticipate that market conditions in the UK may not improve markedly in the short term but feel that with a realigned cost base, differentiated proposition and strong growth in Australia we will achieve our market expectation.

Our colleagues – the “Jaywingers” are a resilient, talented and optimistic bunch and on behalf of the Board, I would like to thank them all for their continuing support, hard work and enthusiasm.

Martin Boddy

Chairman

Chief Executive’s Report

Data science has never been more important to our customers and our marketplace. Jaywing operates in three main ways, as a consultancy, an agency and following the launch of Jaywing Intelligence, a technology business. Our skill is to combine these three disciplines to create solutions that our competition cannot match and our clients find indispensable.

Our collaborative ‘One Jaywing’ operating model is the essential foundation on which the broad range of specialist skills across Jaywing can be brought together to build innovative solutions that deliver superior results for our clients.

As a company that has been championing this operating model for many years now, it has been interesting to see that the large network agencies are beginning to talk about adopting a similar model. Our experience shows us that this transition isn’t easy but we continue to realise its benefits and saw a further 2% increase (from 66% to 68%) in the number of our top 50 clients taking more than one of our service lines. This broader relationship with clients is also improving client retention as we become more valuable to them across a variety of disciplines.

I’m pleased to say that our operating model was once again recognised in the Prolific North Awards where Jaywing was awarded the Best Integrated Agency title for the second year in a row. It was also endorsed by Palo Alto based Sugar CRM, one of the world largest CRM software providers who recently awarded us their global marketing account that will involve work across a number of our divisions.

A challenging first year

My first year as CEO started with a great deal of optimism throughout the Company on the back of record Q4 trading the previous year. However, market conditions for UK B2C businesses deteriorated markedly after the election in June 2017 and this impacted on several of our clients. The knock-on effect was that our own trading suffered. Consequently, instead of focusing on accelerating our growth a great deal of my time has had to be devoted to realigning our cost base. This is never an easy task in a people business and we have been mindful not to impact our ability to return to and exceed previous levels of growth and profitability by cutting costs too deep.

Whilst like for like gross profit was only down by 3% on the previous year, EBITDA fell to £3,025k resulting in a higher net debt position of £5.9m at the year end. Our bank has been very supportive throughout the period and has agreed to re-structure our facilities, which will now run until 2021 and will give us the necessary headroom whilst our profitability recovers.

State of play

Agency Segment

Our Agency Segment generated gross profit of £21.4 million and EBITDA of £6.0 million for the financial year ended March 2018, a decrease of 1% and 18% respectively on the previous financial year. Following the delay in spend that we experienced with one of our major FMCG clients, we have reduced our exposure to this sector by re-focussing parts of our Agency segment on more sustainable revenues and creating broader relationships with larger clients. This is evidenced by new wins including Centerparcs and Berghaus as well as continued engagements with companies including Castrol Oil and First Direct.

Media & Analysis Segment

Our Media and Analysis Segment generated gross profit of £15.3 million (up 6% on previous year) and EBITDA of £2.3 million (down 13% on previous year, primarily due to change in mix of business). Over recent months our performance marketing division has seen an improvement in its sales performance with a stronger pipeline both in terms of the number and quality of opportunities (the majority of which are for monthly recurring revenues). This follows us being named Search Agency of the Year at the UK Agency Awards in September 2017. As well as a focus on new business we have worked hard to reduce client churn and this year saw a 55% reduction in lost clients ensuring more repeat revenue streams in the coming years.

Our consulting division, grounded in data science, continues to be at the heart of the work we deliver for clients. The level of insight given by our consultants ensures that work delivered by other parts of Jaywing is informed and relevant. Our consultancy team is a key element of our ‘One Jaywing’ model and new clients adopting more integrated solutions are generating new revenues across both Agency and Media & Analysis segments.

A large part of the revenues in the consulting division are project based, albeit with long standing clients. Work on one of our larger financial services projects is being scaled down following the completion of a successful project spanning 17 months and the focus now is on securing new work for that team of people. This has been supported by the creation of a number of new technology solutions plus new propositions for GDPR and IRB (Internals Rating Base), which are helping grow our sales pipeline.

Technology

Our technology brand, Jaywing Intelligence, continues to generate high levels of interest with a number of innovative new products launched. Applications such as Almanac that takes complex sets of customer data to bridge the gap between on-line and offline behaviour has been adopted by brands including Mazda UK and Swinton Insurance to more accurately deliver their marketing spend and to understand how to tailor their activity to meet their customer’s needs. We also launched our AI powered risk modelling solution Archetype (patent pending) this year, which is generating interest in the Credit Risk community.

Our paid search management platform – Decision (also built on AI principles and technology) has begun to secure new clients and is currently being integrated into our existing performance marketing operations which will provide a strong point of differentiation in the market.

Finally, our consulting services in credit risk have been enhanced by technology with the creation of the Echelon application for improving the speed of credit applications and Horizon which allows lenders to quickly model their Expected Credit Loss (ECL) IFRS9 requirements. Both of these tools which have recently been launched are generating new opportunities in our sales pipeline.

International

Following our acquisition of Digital Massive in Australia in 2016 (now re-branded as Jaywing) our Australian operation has continued to go from strength to strength in a very active market. Revenues grew by 42% this year and we expect Australia to represent 10% of our overall income in the year ahead.

Even with the geographic and time differences, our Australian business fully integrates with our UK operations and services a variety of shared clients including Anytime Fitness, Wedgewood Worldwide and now Sugar CRM.

We further expanded our overseas operations with the acquisition of Frank Digital in Sydney which is a great complement to our existing operations and brings with it strong digital development skills, a quality management team and relationships with large clients that we are presenting our ‘One Jaywing’ solution to. Frank Digital now operates from our offices in North Sydney.

Outlook

We believe that our integrated operating model and challenger brand approach position us well in the medium term as we target our return to previous levels of performance and this has been endorsed by the quality of recent client wins since the start of the new financial year. Our focus is on delivering for our clients, retaining and growing our client base, managing our overheads carefully to underpin our recovery and playing to our strengths with data science at the core of all we do.

With so much disruption in the large agency networks and traditional service models being challenged I believe we are ideally placed to capitalise on our integrated approach. Whilst UK market conditions may remain unhelpful in the short term we are well positioned to achieve our market expectation, which will give us the exit rate to get back to previous levels of profitability the following year.

Rob Shaw

Chief Executive Officer

Jaywing plc