Jaywing plc
Annual Report 2016

Plain-text annual report

Annual Report & Accounts For the year ended 31 March 2016 Jaywing PLC Contents © Jaywing 2016 Financial highlights from continuing operations Chief Executive’s report About us Chairman’s statement Strategic report Board of Directors and Advisers Principal risks and uncertainties Directors’ report Directors’ remuneration report Corporate governance Directors’ responsibilities statement Report of the Independent Auditor to the Members of Jaywing plc Consolidated financial statements Company financial statements Shareholder information 04 05 08 10 11 14 16 18 21 26 29 30 32 61 78 Page 3 Annual Report and Accounts 2016 Page 3 Financial highlights from continuing operations Revenue £36.0m (2015: £33.8m) Gross profit* £31.8m (2015: £30.1m) Adjusted EBITDA** £4.3m (2015: £4.1m) Adjusted EBITDA margin*** 13.6% (2015: 13.5%) Profit after tax £0.7m (2015: -£1.5m) Basic EPS on adjusted EBITDA 5.7p (2015: 5.3p) Basic EPS 0.90p (2015: -1.91p) Net debt £5.3m (2015: £5.2) Highlights: • Gross profit (fee income) up 6% to £31.8 million (2015: £30.1 million) • Adjusted EBITDA up 7% to £4.3 million (2015: £4.1 million) • Adjusted EBITDA margin increased by 0.1% to 13.6% • Launch of Almanac, the Company’s Big Data management Platform • Launch of collaboration with Data Science Institute at Imperial College London Outlook: • Encouraging start to the new financial year as a result of the momentum seen in the final quarter of 2015/16 • The impact of the EU Referendum remains to be seen, but presents both risks and opportunities * Revenue less direct costs of sale ** Before share based charges, exceptional items and acquisition related costs Page 4 *** As a percentage of gross profit Chief Executive’s Report The benefits of one company I’m delighted to report that the last 12 months have seen tremendous progress strategically, operationally and very importantly, financially. Our data science led proposition has appealed to new and existing clients alike. This, along with the hard work and dedication of our people, has resulted in us exceeding our plan for organic growth. We are now starting to see the benefits from the time and energy we have invested over the past four years in establishing our One Company operating model. There is now a tremendous amount of collaboration right across the business. This results in better solutions for our clients, more opportunities to cross-sell and stickier client relationships. Our approach of fully integrating the companies we acquire, whilst difficult to achieve, is proving to be very effective. That’s because becoming an integral part of Jaywing has lots of advantages. There is a broader proposition to offer clients, an existing Jaywing client base into which to sell new services, and opportunities for the people in the acquired businesses to work with and learn from some amazing specialists in associated fields. The result is that the combined business moves forward stronger than before. The changes that we made last year to the Board, in adding additional members to the Executive team, have given us greater bandwidth whilst allowing individuals to have far greater focus. Consequently, a lot more has been achieved, giving us the confidence to push forward with even greater ambition. Organic UK growth ahead of expectation We achieved strong organic growth rates in the UK (GP 6% and EBITDA 7%), especially given we have one of the largest operations in the UK outside of the Global agency groups, and the slowing of growth in the UK economy. The low concentration risk of our client base together with the high percentage of contracted recurring revenues (over 50%) and our focus on data science led digital marketing has enabled us to improve our performance despite the market conditions. Well-tuned growth engine The Media and Analysis segment has continued to be our main growth engine, achieving 13% growth in both gross profit and EBITDA. Search marketing revenues have continued to grow at a similar rate to the previous period but with the proportion of paid search advertising increasing. This, along with growth in programmatic display Page 5 Annual Report and Accounts 2016Around two thirds of our revenue is now visible six months in advance. This visibility drives cash generation, improves cash flow and reduces risk. Martin Boddy, Chief Executive Officer and mobile advertising revenues, is a very positive development. It allows us to exploit our data science capabilities whilst strengthening our relationship with Google, Microsoft and Sky, enabling us to provide more sophisticated and measurable advertising solutions for our clients. Data and analysis revenues continue to be strong with high demand for our services. Regulatory accounting standard changes under IFRS 9 saw an increased requirement for sophisticated data modelling for all lending organisations with most lenders needing to comply fully by January 2018. We are already helping banks and building societies such as Royal Bank of Scotland, Nationwide and The Coventry as well as several challenger banks including Shawbrook Bank and Paragon Bank. However, there are still numerous organisations that are yet to select partners and prepare. We have also seen 2% gross profit growth in our Agency segment, which is a considerable improvement from the previous year when we saw gross profit contract by 6%. Resilient and cash generative We continue work to improve the resilience of our revenue. Around two thirds of our revenue is now visible six months in advance. This visibility drives cash generation, improves cash flow and reduces risk. In addition to this, our client concentration is low, with no individual client accounting for more than 6% of total gross profit. This financial year saw the final earn-out payments for both the Epiphany Solutions Ltd and Iris Associates Ltd acquisitions. Both of these business have performed strongly since joining Jaywing and are now fully integrated. The next 12 months and beyond Market conditions In the aftermath of the EU referendum, there is some uncertainty, which may lead to delays or reductions in the marketing spend of some clients. It is in times such as these that resilience matters and we believe that we are well placed to weather this storm as a large proportion of our income is recurring and we are not exposed to currency risks. Whilst the EU Referendum decision brings with it some risks, it also is likely to provide some opportunities. Our clients are likely to Page 6 need support in preparing for life outside of the European Union whilst marketers in general will be looking to improve the effectiveness of their media spend by increasing the proportion spent on digital channels or improving their use of digital media by taking a more sophisticated data science led approach. The migration of digital media consumption from personal computers to smartphones and tablets looks set to continue. The Internet Advertising Bureau reported an increase in digital adspend of 16.4% in 2015 to over £8.6bn, the highest rate since 2008. It attributed this to the increase in device ownership, with the average household now owning 8.3 internet enabled devices. The most popular internet device is the smartphone and mobile adspend accounted for the significant majority (78%) of the growth. Our own data corroborates this continued growth in mobile device usage as we witnessed mobile search overtake desktop search for the first time. This is an area of strength for us and mobile strategies form a key part of our client development. Video spend, social media and digital display all saw healthy growth too, with programmatic rising from 47% of digital display spend that we managed in 2014 to 60% in 2015. This is a trend that we expect to continue. Promising start to the new financial year We have enjoyed an encouraging start to the new financial year as a result of the momentum seen in the final quarter of 2015/16 and the launch of our collaboration with the Data Science Institute at Imperial College London. Strategic update Sharpening our focus We continue to sharpen our focus and concentrate on activities where we see the biggest opportunity to benefit from the use of data science and that offer attractive margins. We have spent time reviewing the strategic options for our customer experience contact centre in Swindon. Whilst the margins here are lower than those elsewhere in our business, the long- term nature of the contracts is appealing as are the cross-selling opportunities they give rise to. Today’s key battleground for customer experience outsourcing is around the use of data analysis and digital channels to create differentiation and improved margins. Consequently, this is a market where we have considerable competitive advantage. Whilst we do not have the capacity or desire to tender for the larger contracts, we believe the interests of shareholders are best served by retaining and filling our contact centre with high quality medium-sized contracts from clients whose primary focus is on improving their customer experience. Creating a low risk international growth platform The UK remains a highly competitive market place with sophisticated buyers of our services. We have continued to observe higher growth rates in less mature and less competitive markets and have been exploring complementary strategies to accelerate our UK organic growth through the international distribution of our relevant products and services. We are particularly interested in those markets where English is a language used in business as this will allow our existing teams in the UK to communicate effectively. We have spent time considering how best to exploit the search marketing opportunity in Australia, where we already have a small team. The adoption of search marketing is growing rapidly in Australia and whilst we have won a number of clients our efforts have been frustrated by our inability to recruit and retain talent. Therefore, we have been actively engaged in looking for a relatively small but rapidly growing entrepreneurially led agency to acquire. An agency that we can support strategically and operationally from the UK using a deal structure that sees the key people stay with the business beyond any earn-out. Our acquisition of Epiphany in the UK was extremely successful and with our recent acquisition of Massive Group Pty we have effectively sought to “play this hand” again but in a less developed market. In time, it will also provide the opportunity for us to distribute a broader set of our UK products and services. In addition, we continue to explore opportunities to enter into a commercial joint venture or acquire a business with an established international distribution channel and/or a product suite that sits well alongside our own. We have been active in identifying acquisition targets that have a more established and complementary product set. We have explored a wide variety of different businesses and business models and have largely dismissed pure play ad- tech as it is unlikely that such deals could be accretive for shareholders. Instead, we are targeting profitable digital agency businesses that have been successful in developing products. As always, our acquisitions will focus on businesses that are not part of a sales process and will pay particular attention to the fit of the key talent within them. Innovation in data science Jaywing hit the news in 2016 with the launch of our collaboration in the field of cognitive marketing with the Data Science Institute at Imperial College London. Not only was our media coverage unparalleled but so was the level of client engagement with almost one hundred clients attending the launch event. Whilst this is a three and a half year research programme, there are opportunities to deliver some early benefits as the collaboration will involve live client projects. Encouragingly, it has already led to a number of clients asking us to get involved in their strategic innovation projects, especially those clients who have a unique data asset. 2016 also saw the launch of Almanac, our Big Data management platform, following several months of product development and testing. The platform is vital to us as it is the bedrock on which a suite of innovative products are currently being developed. So, in summary, we have made tremendous progress in the last 12 months, have exceeded our financial expectations and have the team in place to move forward with confidence. Our focus on data science and our One Company approach are working well in terms of attracting and retaining clients and talent. We have an exciting strategy to scale the business by adopting a low risk international distribution model and have a strong sense of how best to execute this. It is a pleasure to lead this talented and highly collaborative group of people. Martin Boddy Chief Executive Officer Jaywing plc Page 7 Our acquisition of Epiphany in the UK was extremely successful and with our recent acquisition of Massive Group Pty we have effectively sought to “play this hand” again but in a less developed market. In time, it will also provide the opportunity for us to distribute a broader set of our UK product and services. Martin Boddy, Chief Executive Officer Annual Report and Accounts 2016 About us Bringing data science to digital marketing, customer servicing and credit risk At Jaywing, we help our clients make sense of the complex, ever-changing, technology led and data rich world they find themselves working in today. We do this by operating as ‘one company’, avoiding the traditional group structure so that we think holistically about our clients’ needs. Page 8 Page 8 Page 8 We believe that data science is at the heart of new world business thinking and bring this together with the best thinking in creative, media and technology to deliver the best commercial solutions. Our services Data science • • Digital marketing • Outsourced multi-channel customer servicing • Online media and PR • • Social media Retail banking risk modeling and analytics Our locations Our locations allow us to service clients across the UK, including competing clients from different locations, as well as in Australia’s burgeoning market. Sydney Leeds Sheffield London Swindon Newbury Our clients We work across a diverse range of vertical markets including financial services, FMCG, travel and leisure, retail, entertainment, utilities, telecommunications, education, cultural, legal and automotive, sharing best practice where we find it and creating it where we don’t. We have a strong history of working with and transforming leading brands, with relationships lasting many years. Our people At Jaywing, we employ over 600 people. One in 10 of them is an experienced data scientist, the rest specialists in all of today’s key disciplines. These include marketers, creatives, digital developers, graphic designers, content writers, videographers, media managers, project managers and brand ambassadors. 600+ people 1/10 data scientists Page 9 Annual Report and Accounts 2016Chairman’s Statement Another year of significant progress Performance I am delighted to report on another year of significant progress for Jaywing. In the year ended 31 March 2016 we achieved organic growth in gross profit and EBITDA of 6% and 7% respectively. The Media and Analysis segment achieved even stronger organic growth with gross profit increasing by 13% and EBITDA also increasing by 13%. In line with our strategic objectives we have created a strong growth platform for the business underpinned by a strong focus on data science. Epiphany (search marketing) has now been successfully integrated with Jaywing and all our business areas are now working more closely together to deliver more effective and efficient service offerings to our clients. Our collaboration with the Data Science Institute (DSI) at Imperial College demonstrates our commitment to advancing the boundaries of data science. The research we are conducting with them is at the cutting edge of cognitive technology, and could change the way we approach the creation of creative content and media buying. There has been a steady increase in the number of clients taking up our integrated service offerings, which provides clients with a seamless link between the services we offer. This is supported by collaboration and teamwork across our internal teams, which increases productivity as well as delivering better outcomes for our clients. As part of our longer term objectives we have continued to invest in product development through the bottom line. One of the exciting outcomes of this has been the recent launch of Almanac, our Big Data management platform, which we will be using to deliver a number of smart data driven products. Finally, on behalf of the Board, I would like to thank all of our colleagues – the “Jaywingers” for all their continuing support and hard work in helping us to achieve the significant progress we have made to date and for the progress we continue to make towards our strategic objectives. Ian Robinson Chairman Page 10 There has been a steady increase in the number of clients taking up our integrated service offerings, which provides clients with a seamless link between the services we offer. This is supported by collaboration and teamwork across our internal teams Ian Robinson Chairman Strategic Report Business review Profit after tax has increased significantly to £0.7m in the year ended 31 March 2016. This compares to a loss of £1.5m in the prior year. Gross profit grew organically by 6% to £31.8m, a £1.7m increase (2015: £30.1m). The adjusted operating performance line, before interest, tax, depreciation, amortisation, share based payment charges, loss before tax on disposal, exceptional items and acquisition related Profit / (loss) after tax Adjustments for: Depreciation and amortisation Movement in provision Foreign exchange Financial expenses & income Share-based payment expense Taxation charge costs, shows EBITDA of £4.3m (2015: £4.1m). This is organic growth of 7%, showing an improving EBITDA margin. The consolidated cash flow statement shows Jaywing has generated cash from operating activities of £3.6m (2015: £2.8m) before changes in working capital. This is much higher than the profit after tax of £0.7m and is reconciled in the table below. 2016 £’000 705 2015 £’000 (1,478) 1,910 3,854 9 (18) 251 412 369 27 21 269 - 119 Operating cash flow before changes in working capital 3,638 2,812 Jaywing continues to be cash generative from operating activities as shown in the table. Net debt has, however, increased slightly from the previous year to £5.3m (2015: £5.2m). This is due to earn-out payments of £1.7m (2015: £1.4m) for the acquisitions of Epiphany Solutions Ltd and Iris Associates Ltd. These are the final payments and there are no further amounts due. Due to a stronger than forecast Q4, the trade debtor balance was higher than anticipated at the year end. This has subsequently converted to cash in the early part of the 2016/17 financial year. Banking facilities comprise a term loan for £2.1m, a revolving credit facility for £3.5m and a bank overdraft of £2.0m. There was headroom of £2.3m at the year end. £1.1m of the term loan has also been repaid during the year. The business operates in two segments: Agency Services and Media & Analysis. The performance of our business in these two segments is shown in note 1 to the Consolidated Financial Statements, together with the comparative performance from the previous year. Page 11 Annual Report and Accounts 2016The Media & Analysis segment, which represents nearly 60% of Jaywing’s total revenue, has performed strongly again with gross profit growing by 13% from £18.7m to £21.2m and EBITDA growing by 13% from £4.6m to £5.2m. The Agency Services segment has also grown, with both gross profit and EBITDA increasing by 2%. During the year, Jaywing benefitted from the receipt of £0.1m (2015: £0.1m) 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 Jaywing analysed between the two half years and adjustments made against the reported numbers: Reported profit before tax Interest Amortisation Depreciation Share based payment charge Acquisition related costs Exceptional costs/(credit) Adjusted operating profit Deduct other income Adjusted operating profit before other income Full year to 31 March 2016 £’000 1,074 Six months to 31 March 2016 £’000 912 Six months to 30 September 2015 £’000 162 251 1,503 407 412 187 570 4,404 (71) 4,333 123 716 214 186 (26) 472 2,597 (71) 2,526 128 787 193 226 213 98 1,807 - 1,807 Excluding other income, Jaywing produced £2.5m adjusted operating profit after interest in the six months to 31 March 2016 and £1.8m in the first half. The table below shows the trend of increasing gross profit and EBITDA over the last five six-monthly periods: Continuing business EBITDA Revenue Direct costs Gross profit Operating expenses excluding depreciation, amortisation, exceptional items, acquisition related costs and (credit)/charges for share based payments Operating profit before depreciation, amortisation, exceptional items, acquisition related costs and (credit)/charges for share based payments Six months to 31 March 2016 Six months to 30 Sept 2015 £’000 Six months to 31 March 2015 £’000 Six months to 30 Sept 2014 £’000 Six months to 31 March 2014 £’000 18,922 (2,577) 16,345 17,051 (1,604) 15,447 16,541 (1,726) 14,815 17,261 (1,990) 15,271 (13,819) (13,640) (12,728) (13,295) 13,489 (2,264) 11,225 (9,999) 2,526 1,807 2,087 1,976 1,226 Page 12 Principal risks and uncertainties The principal risks and uncertainties of the Company are outlined on page 14. Overall it has been a strong year financially for Jaywing, with organic growth in both segments. The business continues to be cash generative, and the resilience of income will enable this to continue going forward. By order of the Board. Michael Sprot Director 11th July 2016 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 13.5% (2015: 10.6%) 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 (5% for HSM). As a result of these calculations the Board has concluded that the carrying values of intangible assets and goodwill on Jaywing’s balance sheet do not need to be impaired and therefore no charge has been made (2015: £Nil). Key performance indicators Over the last 12 months, the key areas of focus have been: - improved resilience - - increased sales / cross sales innovation - strong cash generation Progress against these is described in the Chief Executive’s report on page 5. Page 13 Annual Report and Accounts 2016Board of Directors Ian Robinson (69) Chairman Martin Boddy (51) Chief Executive Officer Ian is a Non-Executive Director of Gusbourne Plc, an AIM listed English sparkling-wine business and a Non- Executive Director of TLA Worldwide Plc, an AIM listed athlete representation and sports marketing business. He is Non-Executive Chairman of LT Pub Management Plc, a privately owned pub and leisure asset management business. He is also a Director of a number of other privately owned businesses. Previously he was chief financial officer of Carlisle Group’s UK staffing and facilities services operations. He has held other senior financial appointments both in the UK and overseas. He is a Fellow of the Institute of Chartered Accountants in England & Wales, having trained with Peat, Marwick, Mitchell & Co (now KPMG) in London. Stephen Davidson (60) Deputy Chairman Stephen is Chairman of Datatec Ltd (JSE and AIM listed). He is also a Non-Executive Director of Inmarsat plc, Restore plc and Actual Experience plc. Stephen held various positions in Investment Banking, finally at WestLB Panmure where he was Global Head of Media and Telecoms and Vice Chairman of Investment Banking. From 1993 to 1998 Stephen was Finance Director, then CEO of Telewest Communications plc. He was Chairman of the Cable Communications Association from 1996 to 1998. Stephen holds a 1st Class Honours degree in Mathematics and Statistics from the University of Aberdeen. Martin was previously Marketing Director of Guardian Royal Exchange Group and a member of the senior marketing team that launched first direct. He went on to spend a number of years consulting on customer marketing in the UK and internationally before founding data analytics consultancy Alphanumeric Limited, now part of Jaywing plc, in 1999. Andy Gardner (53) Chief Strategy Officer Andy began his career in operational research before moving into financial services. Before co-founding Alphanumeric Limited with Martin, he was a member of the first direct senior management team and has also been both Credit Director and Customer Information Director for Egg. Michael Sprot (36) Chief Financial Officer Michael joined the Company in February 2013 as Group Financial Controller and Company Secretary. Prior to joining Jaywing, he was Head of Commercial Finance at Vasanta Group, a multi-channel distributor of business supplies and services. Michael also gained experience of central and local government through his work at learndirect and South Yorkshire PTE after gaining his ACA qualification from PricewaterhouseCoopers (now PwC) in Sheffield. He was appointed CFO in July 2015. Page 14 Advisers Auditor Grant Thornton UK LLP 2 Broadfield Court Sheffield S8 0XF Nominated adviser and broker Cenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS Registrars Capita Registrars 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors Brabners LLP 55 King Street Manchester M2 4LQ Registered office Players House 300 Attercliffe Common Sheffield S9 2AG Registered number: 05935923 Country of incorporation: England Adrian Lingard (44) Chief Operating Officer Adrian joined Jaywing from first direct in 2000 and has broad banking and lending experience, having since worked with most of the UK’s high street banks advising Senior Executives, Boards and Credit Committees on the use of data, insight, models and reporting to meet regulatory requirements and improve business performance. Having headed up Jaywing’s data science business since 2010, he has considerable commercial management and planning experience and handles many of Jaywing’s large-scale contract negotiations. Rob Shaw (45) Chief Executive Officer UK & Australia Rob has over 25 years’ experience in the technology sector, particularly in the fields of digital and search marketing. Initially working in software development, Rob was responsible for the management of some of the UK’s largest application developments during his time as IT Director for Ventura, part of Next PLC. Before becoming Jaywing’s CEO for UK and Australia, Rob was the CEO of Epiphany Solutions Limited. Epiphany was acquired by Jaywing plc in March 2014. Previously he was Managing Director of Latitude White, and Technology Director of the Latitude Group. Rob sits on the Google Agency Advisory Board and is a Non-Executive Director for Run for All, which was established by the late Jane Tomlinson CBE. Annual Report and Accounts 2016 Page 15 Principal Risks and Uncertainties To mitigate this risk, the Company’s management team continues to move toward a cohesive culture, driven by its desire to remain a place where people want to work. In addition, Martin Boddy and Andy Gardner retain a significant percentage of their original consideration in shares in Jaywing plc. Furthermore, the key managers in our business participate in the Performance Share Plan share options programme and the Annual Bonus Programme, both of which reward performance and loyalty to the Company (see Directors’ Remuneration Report). Clients The Company, has three main contractual relationships with its clients. Contracts of between six months and five years (typically 12 – 18 months) with monthly recurring revenues, contracts for specific projects, and framework agreements typically for a three year term but with no commitment from the client to spend. The focus has been to increase the proportion of recurring revenues – this now stands at 60% and the intention is to continue to increase this. To mitigate this risk of clients on framework agreements reducing or suddenly halting their spend, a well structured and experienced account management function is in place which keeps close to the clients. Client concentration risk is low with no individual client accounting for more than 6% of total gross profit. General economic and business conditions The sector in which the Company operates is sensitive both to general economic and business conditions and has been affected, along with others, by the performance of specific sectors such as financial services and retail. The leave vote in the European referendum will create a great deal of uncertainty in the economy until such time as the Brexit negotiations are successfully concluded. This will inevitably lead to delays or reductions in the marketing spend of some clients. At this early stage it is impossible to quantify the risk but the Company has in recent years focused on improving its resilience, which will lessen any impact. People The operations of the Company are dependent upon the continuing employment of a number of senior management personnel. The future of the Company could depend upon the efforts and expertise of such individuals. The loss of the service of any key management personnel could have a material adverse effect on the business of the Company. As the Company operates in a specialised sector, it is dependent on its ability to recruit personnel with adequate experience and technical expertise. However, as the supply of such personnel is limited, the Company encounters significant competition for the recruitment of suitably experienced and skilled personnel. The future results of the Company could depend significantly upon the recruitment of such personnel and a failure to do so could have a material adverse effect on the business of the Company. Page 16 cross-refer business. The new business team has been centralised and the Jaywing business is working together in a collaborative style and with a joined up relationship management approach. Products and services The digital marketing industry is characterised by constant change in terms of technology, online media and data. In this environment it is vital to be at the forefront of this change otherwise it is easy to get left behind and experience falling demand for outdated products and services. The Company’s future success will depend on its ability to adopt new technology, exploit new online media and harness the power of new data sets. The Company is committed to innovating in data science led products and services and is actively dedicating resources to this. We have close relationships with online media owners (Google, Microsoft, Sky, etc.) and we get early sight of their new product developments as a consequence of the significant online media budgets that we manage on behalf of our clients. We have a strong team focused on the use of technology whose brief is to keep themselves abreast of new developments through their own research and through their relationships with technology providers. Competition The Company faces competition from a wide range of entities including specialist digital agencies, operating independently or as part of a global marketing group, data bureaux and outsourcers. Each area of the Company has its own set of competitors against which it regularly pitches. In addition, there is an increasing number of opportunities that require a collective response. Over recent years we have achieved good conversion rates for both types of opportunity. In a highly competitive market such as the UK, it is important to have some competitive advantage and ours comes in the form of data science led services and our collaborative approach. We have been able to leverage this very successfully in the Media & Analysis segment and are working to create more differentiation through the use of data science in our Agency segment where we face the most competition. Suitable acquisitions and access to capital The Company’s plans for continued expansion are primarily based on organic growth. In addition however, the Company has a selective and strategic acquisition policy. The availability of debt or equity finance to fund future acquisitions may be limited or difficult to obtain. Execution The ability of the Company to deliver incremental revenues through co-ordinated new business activity is dependent on the availability of key senior personnel to help convert leads and Page 17 Annual Report and Accounts 2016Directors’ Report The Directors have pleasure in submitting their report and the audited financial statements for the year ended 31 March 2016. Principal activity The principal activity of the Company, and Group, during the year under review is that of digital marketing services. Results and dividend The Group’s profit before tax for the year ended 31 March 2016 was £1.1 million (2015: loss of £1.4 million). The Directors do not propose to pay a dividend. Future developments The future developments of the Group are referred to in the Chief Executive’s Report on page 5 and the Strategic Report on page 9. Going concern The Directors have reviewed the forecast up to September 2017, which has 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. Page 18 Political donations No political donations were made during the year (2015: £Nil). Directors’ interests The present membership of the Board, together with biographies on each, is set out on page 12. All those Directors served throughout the year or from appointment. The Directors’ interests in shares in the Company are set out in the Directors’ remuneration report on page 19. Directors’ third party indemnity provisions The Group maintains appropriate insurance to cover Directors’ and Officers’ liability. The Group provides an indemnity in respect of all the Group’s Directors. Neither the insurance nor the indemnity provides cover where the Director has acted fraudulently or dishonestly. Employees The Group is an Equal Opportunities Employer and no job applicant or employee receives less favourable treatment on the grounds of age, sex, marital status, sexual orientation, race, colour, religion or belief. It is the policy of the Group that individuals with disabilities, whether registered or not, should receive full and fair consideration for all job vacancies for which they are suitable applicants. Employees who become disabled during their working life will be retained in employment wherever possible and will be given help with any necessary rehabilitation and retraining. Employees of the Group and its subsidiaries are regularly consulted by local managers and kept informed of matters affecting them and the overall development of the Group. The Group is committed to maintaining high standards of health and safety for its employees, customers, visitors, contractors and anyone affected by its business activities. Health and safety is on the agenda for all regularly scheduled Board meetings. Financial instruments Details of the financial risk management objectives and policies of the Group, including hedging policies, are given in note 31 to the consolidated financial statements. Share capital Details of the Company’s share capital including rights and obligations attaching to each class of share are set out in note 20 of the consolidated financial statements. There are no restrictions on the transfer of ordinary shares in the capital of the Company other than customary restrictions contained within the Company’s Articles of Association and certain restrictions that may be required from time to time by law, for example, insider trading law. In accordance with the Model Code, which forms part of the Listing Rules of the Financial Conduct Authority, certain Directors and employees are required to seek the prior approval of the Company to deal in its shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights. The Company’s Articles of Association contain limited restrictions on the exercise of voting rights. The Company’s Articles of Association may only be amended by special resolution at a general meeting of shareholders. The Company is not aware of any significant agreements to which it is party that take effect, alter or terminate upon a change of control of the Company following a takeover. Major interests in shares As at 1 July 2016 the Company had been notified, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the following voting rights as shareholder of the Company: Henderson Global Investors Lord Michael Ashcroft J & K Riddell A Gardner M Boddy C Buddery H & J Spinks Number of voting rights 20,125,823 18,871,712 5,372,638 4,987,470 4,916,667 3,906,615 3,508,772 2016 % 26.4 24.7 7.0 6.5 6.4 5.1 4.6 2015 % 25.2 24.7 7.0 6.5 6.4 5.1 4.6 Page 19 Annual Report and Accounts 2016This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. The auditor, Grant Thornton UK LLP, has indicated its willingness to remain in office, and a resolution that it be re- appointed will be proposed at the Annual General Meeting. By Order of the Board Michael Sprot Director 11th July 2016 Corporate social responsibility The Board recognises the growing awareness of social, environmental and ethical matters and it endeavours to take account of the interests of the Group’s stakeholders, including its investors, employees, suppliers and business partners when operating the business. Annual General Meeting Your attention is drawn to the Notice of Meeting enclosed with this Annual Report, which sets out the resolutions to be proposed at the forthcoming Annual General Meeting. Auditor Each of the Directors at the date of approval of this Annual Report confirms that: • so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and • the Director has taken all of the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Page 20 Directors’ Remuneration Report This report is prepared voluntarily by the Board. We do not comply with the UK Corporate Governance Code (“the Code”). However, we have reported on our Corporate Governance arrangements by drawing upon best practice available, including those aspects of the Code we consider to be relevant to the Group and best practice. The Remuneration Committee During the year the Remuneration Committee comprised: Charles Buddery (Chairman – resigned 10 August 2015) Stephen Davidson Ian Robinson (Chairman – appointed 10 August 2015) The Code recommends that a remuneration committee should be composed of entirely independent Non- Executive Directors. Messrs Davidson (ex-Chairman of the Board), Buddery and Robinson (who is affiliated with a major shareholder) are not regarded as independent under the Code. The Board does consider them to act independently with respect to remuneration issues. The Committee met three times during the year. All meetings were attended by all serving members of the Committee. The Committee seeks input from the Company Secretary. The Committee makes reference to external evidence of pay and employment conditions in other companies and is free to seek advice from external advisers. Remuneration policy The Group’s policy on remuneration for the current year and, so far as is practicable, for subsequent years is set out below. However, the Remuneration Committee believes that it should retain the flexibility to adjust the remuneration policy in accordance with the changing needs of the business. Any changes in policy in subsequent years will be detailed in future reports on remuneration. The Group must ensure that its remuneration arrangements attract and retain people of the right calibre in order to ensure corporate success and to enhance shareholder value. Its overall approach is to attract, develop, motivate and retain talented people at all levels, by paying competitive salaries and benefits to all its staff and encouraging its staff to hold shares in the Group. Pay levels are set to take account of contribution and individual performance, wage levels elsewhere in the Group and with reference to relevant market information. The Group seeks to reward its employees fairly and give them the opportunity to increase their earnings by linking pay to achieving business and individual performance targets. The Board believes that share ownership is an effective way of strengthening employees’ involvement in the development of the business and bringing together their interests and those of shareholders. Executive Directors are rewarded on the basis of individual responsibility, competence and contribution. Salary increases also take into account pay awards made elsewhere in the Group, as well as external market benchmarking. Annual Report and Accounts 2016 Page 21 During the year to 31 March 2016 there were five Executive Directors on the Board: Martin Boddy (Chief Executive) Andy Gardner (Chief Strategy Officer) Michael Sprot (Chief Financial Officer) Rob Shaw (Chief Executive UK & Australia) Adrian Lingard (Chief Operating Officer) The Executive Directors participate in a pension scheme but do not participate in any healthcare arrangements. Performance-related elements form a part of the total remuneration packages and are designed to align Directors’ interests with those of shareholders. In line with best practice and to bring Directors’ and shareholders’ interests further into line, Executive Directors and the management team are encouraged to maintain a holding of ordinary shares in the Company. Non-Executive Directors’ fees Fees for Non-Executive Directors are determined by the Board annually, taking advice as appropriate and reflecting the time commitment and responsibilities of the role. The Chairman receives an annual fee of £40,000, and the Deputy Chairman £35,000. Non-Executive Directors’ fees currently comprise a basic fee of £25,000 per annum. Remuneration components – Executive Directors A proportion of each Executive Director’s remuneration is performance related. The main components of the remuneration package for Executive Directors are: i. Basic salary ii. Annual bonus plan iii. Share options Basic salary Basic salary is set by the Remuneration Committee by taking into account the responsibilities, individual performance and experience of the Executive Directors, as well as the market practice for executives in a similar position. Basic salary is reviewed (but not necessarily increased) annually by the Remuneration Committee. Annual bonus plan The Executive Directors are eligible to participate in the annual bonus plan. The range of award is based on annual salary. The performance requirements for the ability to earn a bonus are set by the Committee annually and are quantitative related measures based on stretching profit before tax targets. Non-Executive Directors do not participate in the annual bonus plan, pension scheme or healthcare arrangements. The Company reimburses the reasonable expenses they incur in carrying out their duties as Directors. Share options The Committee believes that the award of share options aligns the interests of participants and shareholders. Awards are made to the Executive Directors with demanding performance criteria. Page 22 Directors’ remuneration The total amounts of the remuneration of the Directors of the Company for the years ended 31 March 2016 and 2015 are shown below: 31 March Aggregate emoluments Sums paid to third parties for Directors’ services The emoluments of the Directors are shown below: 2016 £ 772,344 40,000 812,344 2015 £ 514,521 34,553 549,074 2016 Pension contri- butions 2015 Pension contri- butions 31 March 2016 Fees and salary 2016 Benefits in kind 2016 Bonus 2016 Total 2015 Total 2016 Gain on exercise of share options £ 2015 Gain on exercise of share options £ Martin Boddy Andy Gardner Michael Sprot Rob Shaw§ Adrian Lingard§ Charles Buddery# Stephen Davidson Ian Robinson~ Andrew Wilson~+ Total £ 161,530 161,530 96,192 132,933 132,923 15,160 35,000 40,000 - 775,268 £ - - - - - - - - - - £ £ £ 5,500 167,030 181,530 5,500 167,030 184,312 4,500 100,692 93,333 21,576 154,509 132,923 - - - - - - - 15,160 25,000 35,000 40,000 - 30,346 29,608 4,945 - - - - - - 513,158 - - - - - - - - - - - - £ 39,999 39,999 3,848 - 5,317 - - - - £ 39,999 37,467 3,333 - - - - - 1,667 82,466 37,076 812,344 549,074 513,158 89,163 § appointed 7 July 2015 # resigned 10 August 2015 ~ paid to a third party for the Director’s services + appointment terminated by death 15 May 2014 Directors’ service agreements and letters of appointment Contracts of service are negotiated on an individual basis as part of the overall remuneration package. The contracts of service are not for a fixed period. Details of these service contracts are set out below: Martin Boddy Andy Gardner Michael Sprot Adrian Lingard Rob Shaw Date of contract Notice period Company with whom contracted 1 March 2012 6 April 2012 3 months 3 months Jaywing plc Jaywing plc 20 December 2012 3 months Jaywing plc 1 April 2010 17 March 2014 6 months 6 months Alphanumeric Ltd Epiphany Solutions Ltd In the event of termination of their contracts, each Director is entitled to compensation equal to their basic salary and bonus for their notice period. Non-Executive Directors have letters of appointment, the details of which are as follows: Date of contract Notice period Stephen Davidson 1 March 2012 Anne Street Partners Limited* 2 October 2006 Ian Robinson 21 May 2014 3 months 3 months 3 months Company with whom contracted Jaywing plc Jaywing plc Jaywing plc * For the provision of services supplied by Ian Robinson (resigned 31 July 2012, re-appointed 21 May 2014) and Andrew Wilson (appointment terminated by death 15 May 2014). Page 23 Annual Report and Accounts 2016 Directors’ interests in shares The Directors’ interests in the share capital of the Company are set out below: 31 March Andy Gardner Martin Boddy Charles Buddery (resigned 10 August 2015) Stephen Davidson Ian Robinson (resigned 31 July 2012, re-appointed 21 May 2014) Andrew Wilson (appointment terminated by death 15 May 2014) 2016 Number of shares 2015 Number of shares 4,987,470 4,916,667 406,615 1,650,453 370,267 4,987,470 4,916,667 3,906,615 1,650,453 370,267 146,145 146,145 Michael Sprot 18,519 18,519 The table below sets out options granted under the PSP scheme: At 31 March 2016 At 31 March 2015 Exercise price Martin Boddy Andy Gardner Michael Sprot Adrian Lingard Rob Shaw 526,000 526,000 299,000 409,000 691,000 526,000 526,000 299,000 409,000 691,000 5p 5p 5p 5p 5p Normal date from which exercisable Expiry date 1-Aug-2016 30-Sep-2020 1-Aug-2016 30-Sep-2020 1-Aug-2016 30-Sep-2020 1-Aug-2016 30-Sep-2020 1-Aug-2016 30-Sep-2020 Pensions The Group operates a stakeholder pension scheme. Martin Boddy, Andy Gardner, Michael Sprot and Adrian Lingard each received a contribution to a pension scheme. Non-Executive directorships The Company allows its Executive Directors to take a limited number of outside directorships. Individuals retain the payments received from such services since these appointments are not expected to impinge on their principal employment. Rob Shaw currently has outside directorships. Other related party transactions No Director of the Group, except for Rob Shaw, has, or had, a disclosable interest in any contract of significance subsisting during or at the end of the year. Disclosable transactions by the Company under IAS 24, Related Party Disclosures, are set out in note 29. There have been no other disclosable transactions by the Company and its subsidiaries with Directors of the Company or any of the subsidiary companies and with substantial shareholders since the publication of the last Annual Report. Page 24 Share price performance The share price performance from 26 October 2006, the date of the initial public offering, is shown in the following table: 140 – 120 – 100 – 80 – e c n e P 60 – 40 – 20 – 0 – 6 0 t c O – 7 0 n a J – 7 0 r p A – 7 0 l u J – 7 0 t c O – 8 0 n a J – 8 0 r p A – 8 0 n u J – 8 0 p e S – 8 0 c e D – 9 0 r a M – 9 0 n u J – 9 0 p e S – 9 0 c e D – 0 1 b e F – 0 1 y a M – 0 1 g u A – 0 1 v o N – 1 1 b e F – 1 1 y a M – 1 1 g u A – 1 1 v o N – 2 1 b e F – 2 1 r p A – 2 1 l u J – 2 1 t c O – 3 1 n a J – 3 1 r p A – 3 1 l u J – 3 1 t c O – 3 1 c e D – 4 1 r a M – 4 1 n u J – 4 1 p e S – 4 1 c e D – 5 1 r a M – 5 1 n u J – 5 1 p e S – 5 1 v o N – 6 1 b e F By Order of the Board Ian Robinson Chairman, Remuneration Committee 11th July 2016 Page 25 Annual Report and Accounts 2016 Corporate Governance This report is prepared voluntarily by the Board and describes how the principles of corporate governance are applied. The Board The Board currently comprises the Chairman Ian Robinson, Deputy Chairman Stephen Davidson, Chief Executive Officer Martin Boddy, Chief Strategy Officer Andy Gardner, Chief Financial Officer Michael Sprot, Chief Executive Officer UK & Australia Rob Shaw and Chief Operating Officer Adrian Lingard. Short biographical details of each of the Directors are set out on page 12. The Board is responsible to the shareholders for the proper management of the Group and meets at least five times a year to set the overall direction and strategy of the Group. All strategic operational and investment decisions are subject to Board approval. The roles of Chief Executive Officer and Chairman are separate and there is a clear division of their responsibilities. All Directors are subject to re-election at least every three years. Board committees Remuneration Committee The Remuneration Committee comprises Ian Robinson (Chair) and Stephen Davidson. The Remuneration Committee, on behalf of the Board, meets as and when necessary to review and approve as appropriate the contract terms, remuneration and other benefits of the Executive Directors and senior management and major remuneration plans for the Group as a whole. The Code recommends that a remuneration committee should be composed of entirely independent Non- Executive Directors. Messrs Davidson (ex-Chairman of the Board) and Robinson (who is affiliated with a major shareholder) are not regarded as independent under the Code. The Board does consider them to act independently with respect to remuneration issues. The Remuneration Committee approves the setting of objectives for all of the Executive Directors and authorises their annual bonus payments for achievement of objectives. The Remuneration Committee approves remuneration packages sufficient to attract, retain and motivate Executive Directors required to run the Group successfully, but does not pay more than is necessary for this service. The Remuneration Committee is empowered to recommend the grant of share options under the existing share option plan and to make awards under the long-term incentive plans. The Remuneration Committee considers there to be an appropriate balance between fixed and variable remuneration and between short-term and long-term variable components of remuneration. All of the decisions of the Remuneration Committee on remuneration matters in the year ended 31 March 2016 were reported to and endorsed by the Board. Further details of the Group’s policies on remuneration and service contracts are given in the Directors’ Remuneration report on pages 19 to 23. Page 26 Audit Committee The Audit Committee comprises Stephen Davidson (Chair) and Ian Robinson. By invitation, the meetings of the Audit Committee may be attended by the other Directors and the auditor. The Committee meets not less than twice annually. The Audit Committee oversees the monitoring of the adequacy and effectiveness of the Group’s internal controls, accounting policies and financial reporting and provides a forum for reporting by the Group’s external auditor. Its duties include keeping under review the scope and results of the audit and its cost effectiveness, consideration of management’s response to any major audit recommendations and the independence and objectivity of the auditor. Nomination Committee The Nomination Committee comprises a majority of Non-Executive Directors. It met once during the year. It is responsible for nominating to the Board candidates for appointment as Directors, having regard for the balance and structure of the Board. The terms of reference for all committees are available on the Group’s website, investors.jaywing.com Company Secretary The Company Secretary is responsible for advising the Board through the Chairman on all governance issues. All Directors have access to the advice and services of the Secretary. Attendance at Board and Committee meetings The Directors attended the following Board and Committee meetings during the year ended 31 March 2016. Board Remuneration Audit Nomination Total meetings held Ian Robinson Stephen Davidson Martin Boddy Andy Gardner Michael Sprot Rob Shaw (appointed 7 July 2015) Adrian Lingard (appointed 7 July 2015) Charles Buddery (resigned 10 August 2015) 7 7 7 7 7 7 4 4 3 3 3 3 - - - - - 2 3 3 3 - 1 3 - - 1 1 1 1 - - - - - 1 Page 27 Annual Report and Accounts 2016Monitoring of controls It is intended that the Audit Committee receives regular reports from the auditor and assures itself that the internal control environment of the Group is operating effectively. There are formal policies and procedures in place to ensure the integrity and accuracy of the accounting records and to safeguard the Group’s assets. Significant capital projects and acquisitions and disposals require Board approval. Corporate social responsibility The Board recognises the growing awareness of social, environmental and ethical matters and it endeavours to take into account the interests of the Group’s stakeholders, including its investors, employees, suppliers and business partners when operating the business. Employment At a subsidiary level, each individual company has established policies that address key corporate objectives in the management of employee relations, communication and employee involvement, training and personal development and equal opportunity. The Board recognises its legal responsibility to ensure the wellbeing, safety and welfare of its employees and to maintain a safe and healthy working environment for them and for its visitors. Health and Safety is on the agenda for regularly scheduled plc Board and Management Team meetings. Environment By their nature the Group’s regular operations are judged to have a low environmental impact and are not expected to give rise to any significant inherent environmental risks over the next 12 months. By Order of the Board Michael Sprot 11th July 2016 Board performance and evaluation In addition to the re-election of Directors every three years, the Board has a process for evaluation of its own performance and that of its committees and individual Directors, including the Chairman. Relationships with shareholders The Board recognises the importance of effective communication with the Company’s shareholders to ensure that its strategy and performance is understood and that it remains accountable to shareholders. The Company communicates with investors through Interim Statements, audited Annual Reports, press releases and the Company’s website investors.jaywing.com. Shareholders are welcome at the Company’s AGM (notice of which is provided with this Report) where they will have an opportunity to meet the Board. The Company obtains feedback from its broker on the views of institutional investors on a non-attributed and attributed basis and any concerns of major shareholders would be communicated to the Board. Internal controls The Board acknowledges its responsibility for establishing and maintaining the Group’s system of internal controls and will continue to ensure that management keeps these processes under regular review and improves them where appropriate Management structure There is a clearly defined organisational structure throughout the Group with established lines of reporting and delegation of authority based on job responsibilities and experience. Financial reporting Monthly management accounts provide relevant, reliable, up-to-date financial and non-financial information to management and the Board. Annual plans, forecasts and performance targets allow management to monitor the key business and financial activities and the progress towards achieving the financial objectives. The annual budget is approved by the Board. Page 28 Directors’ Responsibilities Statement The Directors are responsible for preparing the Directors’ Report, the Strategic Report and the financial statements in accordance with applicable law and regulations. • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By Order of the Board Michael Sprot 11th July 2016 Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws, including FRS101 “Reduced Disclosure Framework”). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards/IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and Annual Report and Accounts 2016 Page 29 Report of the Independent Auditor to the Members of Jaywing plc We have audited the financial statements of Jaywing plc for the year ended 31 March 2016 comprising the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity, the principal accounting policies, and the related notes to the financial statements, the company profit and loss account, the company balance sheet, the company statement of changes in equity and the notes to the company financial statements. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice, including FRS101 Reduced Disclosure Framework). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Page 30 Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 27, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2016 and of the Group’s and the Parent Company’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; • the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report and the Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Paul Houghton Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP, Statutory Auditor, Chartered Accountants, Sheffield 11th July 2016 Financial Statements Annual Report and Accounts 2016 Page 31 Consolidated Financial Statements Consolidated statement of comprehensive income For the year ended 31 March Continuing operations Revenue Direct costs Gross profit Other operating income Operating expenses Operating profit / (loss) Finance income Finance costs Net financing costs Profit / (loss) before tax Tax expense Profit / (loss) for the year from continuing operations Other comprehensive income Items that will be reclassified subsequently to profit or loss Exchange differences on retranslation of foreign operations Note 1 2 3 4 5 6 26 2016 £’000 35,973 (4,181) 31,792 71 (30,538) 1,325 - (251) (251) 1,074 (369) 705 2015 £’000 33,789 (3,703) 30,086 57 (31,233) (1,090) 3 (272) (269) (1,359) (119) (1,478) 25 (18) 21 Total comprehensive income for the period attributable to equity holders of the parent 687 (1,457) Profit / (loss) per share Basic profit / (loss) per share Diluted profit / (loss) per share 7 0.90p (1.91p) 0.83p (1.91p) The accompanying notes form part of these consolidated financial statements. Page 32 Consolidated balance sheet As at 31 March Non-current assets Property, plant and equipment Goodwill Other intangible assets Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Other interest-bearing loans and borrowings Trade and other payables Current tax liabilities Provisions Non-current liabilities Other interest-bearing loans and borrowings Deferred tax liabilities Total liabilities Net assets Equity attributable to owners of the parent Share capital Share premium Capital redemption reserve Shares purchased for treasury Share option reserve Foreign currency translation reserve Retained earnings Note 2016 £’000 2015 £’000 2014 £’000 12 13 14 15 16 17 18 16 19 20 21 23 22 24 25 26 744 685 30,446 30,446 6,562 37,752 10,150 347 10,497 8,065 39,196 7,530 1,000 8,530 638 30,442 11,539 42,619 8,691 1,994 10,685 48,249 47,726 53,304 4,612 7,534 452 167 4,062 7,157 355 158 4,612 8,886 492 131 12,765 11,732 14,121 1,063 1,387 2,450 2,126 1,667 3,793 3,188 2,337 5,525 15,215 15,525 19,646 33,034 32,201 33,658 34,139 6,608 34,139 6,608 34,051 6,608 125 (25) 146 3 125 (25) - 21 125 (25) 88 - (7,962) (8,667) (7,189) Total equity 33,034 32,201 33,658 These financial statements were approved by the Board of Directors on 11th July 2016 and were signed on its behalf by: Michael Sprot Director Company number: 05935923 The accompanying notes form part of these consolidated financial statements. Page 33 Annual Report and Accounts 2016 Consolidated cash flow statement For the year ended 31 March Cash flow from operating activities Profit / (loss) after tax Adjustments for: Depreciation and amortisation Movement in provision Foreign exchange arising from translation of foreign subsidiary Financial income Financial expenses Share-based payment expense 11 Taxation charge Operating cash flow before changes in working capital (Increase) / decrease in trade and other receivables Increase / (decrease) in trade and other payables Cash generated from operations Interest received Interest paid Tax paid Net cash flow from operating activities Cash flow from investing activities Payment of deferred consideration Acquisition of subsidiary Epiphany Solutions net of cash acquired Acquisition of property, plant and equipment 12 Net cash outflow from investing activities Cash flows from financing activities Repayment of borrowings Net cash outflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents comprise: Cash at bank and in hand Bank overdrafts Cash and cash equivalents at end of year 16 Note 2016 £’000 2015 £’000 705 (1,478) 1,910 9 (18) - 251 412 369 3,638 (2,667) 1,837 2,808 - (251) (500) 2,057 3,854 27 21 (3) 272 - 119 2,812 1,034 (327) 3,519 3 (267) (801) 2,454 (1,728) (1,405) - (4) (469) (2,197) (427) (1,836) (513) (513) (653) 1,000 347 347 - 347 (1,612) (1,612) (994) 1,994 1,000 1,000 - 1,000 The accompanying notes form part of these consolidated financial statements. Page 34 Consolidated statement of changes in equity Share capital £’000 Share premium £’000 Capital redemption reserve £’000 Treasury shares £’000 Share option reserve £’000 Foreign currency translation reserve £’000 Retained earnings £’000 Total attributed to the owners of the parent £’000 At 1 April 2014 34,051 6,608 125 (25) 88 Transfer from share option reserve Transactions with owners Loss for the year Retranslation of foreign currency Total comprehensive income for the year 88 88 - - - - - - - - - - - - - - - - - - At 31 March 2015 34,139 6,608 125 (25) Share option charge Transactions with owners Profit for the year Retranslation of foreign currency Total comprehensive income for the year - - - - - - - - - - - - - - - - - - - - (88) (88) - - - - 146 146 - - - - - - - 21 21 (7,189) 33,658 - - - - (1,478) (1,478) - 21 (1,478) (1,457) 21 (8,667) 32,201 - - - (18) (18) - - 705 - 705 146 146 705 (18) 687 At 31 March 2016 34,139 6,608 125 (25) 146 3 (7,962) 33,034 The accompanying notes form part of these consolidated financial statements. Page 35 Annual Report and Accounts 2016Principal Accounting Policies Jaywing plc is a Company incorporated in the UK and is AIM listed. The consolidated financial statements consolidate those of Jaywing plc 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. The principal accounting policies of the company are set out below. The policies have remained unchanged from the previous year. Changes in accounting policies New and revised standards that are effective for annual periods beginning on or after 1 January 2015 A number of new and revised standards are effective for annual periods beginning on or after 1 January 2015. Information on these new standards is presented below. There has been no material impact as a result of these changes. IFRIC 21 and IAS 19 IFRIC 21 IFRIC 21 is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. It addresses the accounting for a liability to pay a levy that is within the scope of that Standard, in particular when an entity should recognise a liability to pay a levy. It also addresses the accounting for a liability to pay a levy whose timing and amount is certain. Under IFRIC 21, the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation. For example, if the activity that triggers the payment of the levy is the generation of revenue in the current period and the Page 36 calculation of that levy is based on the revenue that was generated in a previous period, the obligating event for that levy is the generation of revenue in the current period. Where the activity that triggers the payment of the levy occurs over a period of time, the liability to pay a levy is recognised progressively. For example, if the obligating event is the generation of revenue over a period of time, the corresponding liability is recognised as the entity generates that revenue. IFRIC 21 also clarifies that an entity does not have a constructive obligation to pay a levy that will be triggered by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period. IAS 19 IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognise such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. Going concern The Directors have reviewed the forecasts for the years ending 31 March 2017 and 31 March 2018 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 Revenue is recognised in accordance with the stage of completion of contractual obligations to the customer. The stage of completion is ascertained by assessing the fair value of the services provided to the balance sheet date as a proportion of the total fair value of the contract. Losses on contracts are recognised in the period in which the loss first becomes foreseeable. Recognition of revenue as principal or agent The Directors consider that they act as a principal in transactions where the Group assumes the credit risk. Where this is via an agency arrangement and the Group assumes the credit risk for all billings it recognises gross billings as revenue. Foreign currency Transactions in foreign currencies are translated into the entity’s functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Dilapidations provision Provision is made for expected future dilapidations costs to property under operating leases. The estimated costs are capitalised within leasehold improvements and depreciated over the remaining lease term. 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 30 to the consolidated financial statements. operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the rights to variable returns from its involvement with the investee and has the ability to affect these returns through its power over the investee. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Transactions between subsidiary companies are eliminated on consolidation. Revenue Revenue for all business activities other than media planning and buying is recognised when performance criteria have been met in accordance with the terms of the contracts. Revenue is recognised on long-term contracts if their final outcome can be assessed with reasonable certainty, by including in profit or loss revenue and related costs as contract activity progresses. For contracts where the final outcome cannot be assessed with reasonable certainty, revenue is recognised to the extent of expenses recognised that are recoverable. Media planning and buying Revenue comprises gross billings to customers relating to media placements and fees for advertising services. Revenue may consist of various arrangements involving commissions, fees, incentive- based revenue or a combination of the three, as agreed upon with each client. Revenue is recognised when the service is performed, in accordance with the terms of the contractual arrangement. Incentive- based revenue typically comprises both quantitative and qualitative elements; on the element related to quantitative targets, revenue is recognised when the quantitative targets have been achieved; on elements related to qualitative targets, revenue is recognised when the incentive is receivable. Page 37 Annual Report and Accounts 2016 Classification of instruments issued by the Group Instruments issued by the Group are treated as equity (i.e. forming part of shareholders’ funds) only to the extent that they meet the following two conditions: • they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and • where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the items are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial instruments that are classified in equity are dividends and are recorded directly in equity. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: Leasehold improvements - over period of lease Motor vehicles - 4 years Office equipment - 3 - 5 years It has been assumed that all assets will be used until the end of their economic life. Page 38 Intangible assets and goodwill All business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately or which arise from legal or contractual rights regardless of whether those rights are separable, and are initially recognised at fair value. Development costs incurred in the year which meet the criteria of IAS 38 are capitalised and amortised on a straight line basis over their economic life. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Customer relationships - 8 to 12 years Development costs - 3 to 4 years Trademarks Order books - 20 years - 1 year Impairment For goodwill that has an indefinite useful life, the recoverable amount is estimated annually. For other assets, the recoverable amount is only estimated when there is an indication that an impairment may have occurred. The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is determined by assessing net present value of the asset based on future cash flows. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amount of the other assets in the unit on a pro rata basis. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised no longer exists. Inventories Work in progress is valued on the basis of direct costs plus attributable overheads based on normal levels of activity on a first in first out basis. Provision is made for any foreseeable losses where appropriate. No element of profit is included in the valuation of work in progress. Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred. Share-based payment transactions The weighted average fair value for the EBITDA performance options was calculated using the Black-Scholes Merton Option Pricing Model, and the fair value for the share price options was calculated using the Monte Carlo Model. This is charged to profit or loss over the vesting period of the award. The charge to profit or loss takes account of the estimated number of shares that will vest, and is reassessed at each reporting period. All share-based remuneration is equity settled. Provision is made for National Insurance when the Group is committed to settle this liability. The charge to profit or loss takes account of the options expected to vest, is deemed to arise over the vesting period and is discounted. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Expenses Operating lease payments Operating leases are leases in which substantially all the risks and rewards of ownership related to the asset are not transferred to the Group. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense. Net financing costs Net financing costs comprise interest payable and interest receivable on funds invested. Interest income and interest payable are recognised in profit or loss as they accrue using the effective interest method. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised in other comprehensive income or in equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except to the extent that it arises on: • the initial recognition of goodwill; • the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; • differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying Page 39 Annual Report and Accounts 2016Financial liabilities Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. Trade and other payables Trade payables are initially recorded at fair value and thereafter at amortised cost using the effective interest rate method. Segmental reporting The Group reports its business activities in two areas: Agency Services and Media & Analysis, its two primary business activities. The Group derives its revenue from the provision of digital marketing services. amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Financial assets Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank borrowings that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows. Trade and other receivables Trade and other receivables are initially recorded at fair value and thereafter are measured at amortised cost using the effective interest rate. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default on payments) that amounts will not be recovered in accordance with the original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in profit or loss. Page 40 Share capital Share capital represents the nominal value of shares that have been issued. Share premium Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Capital redemption reserve Capital redemption reserve represents the amount by which the nominal value of the shares purchased or redeemed is greater than proceeds of a fresh issue of shares. Shares purchased for treasury Represents the nominal value of the shares purchased by the Company. Share option reserve Represents the fair value charge of share options in issue. Foreign currency translation reserve Represents the exchange differences on retranslation of foreign operations. Retained earnings Retained earnings includes all current and prior period retained profits and share- based employee remuneration. Standards and interpretations in issue at 31 March 2016 but not yet effective The following standards and interpretations of relevance to the Group have been issued but are not yet effective and have not been adopted by the Group: • IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) • IFRS 9 Financial Instruments (effective 1 January 2018) • IFRS 14 Regulatory Deferral Accounts (effective 1 January 2018) • IFRS 16 Leases (effective 1 January 2019) At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group’s financial statements. These standards and interpretations are not expected to have any significant impact on the Group’s financial statements. Other standards and interpretations in issue but not yet effective are not considered to have any relevance to the Group, other than IFRS 16 Leases and IFRS 15. A review of the standards issued but not yet effective will be conducted to determine the impact on the Group. Page 41 Annual Report and Accounts 2016 Notes to the Consolidated Financial Statements 1. Segmental analysis The Group reports its business activities in two segments: 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 £250,000 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 previous 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 2016 Revenue Direct costs Gross profit Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments Other operating income Depreciation Amortisation Exceptional costs Acquisition related costs Charges for share based payments Operating profit / (loss) Finance income Finance costs Profit before tax Tax expense Profit for the period Agency Services £’000 Media & Analysis £’000 15,700 (1,899) 13,801 21,218 (3,227) 17,991 Unallocated Total £’000 (945) 945 - £’000 35,973 (4,181) 31,792 (11,669) (12,804) (2,986) (27,459) 2,132 5,187 (2,986) 4,333 64 (270) (861) (75) (176) - 814 7 (114) (642) (24) (38) - - (23) - (471) 27 (412) 4,376 (3,865) 71 (407) (1,503) (570) (187) (412) 1,325 - (251) 1,074 (369) 705 Page 42 For the year ended 31 March 2015 Revenue Direct costs Gross profit Operating expenses excluding depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments Operating profit before depreciation, amortisation, loss before tax on disposal, exceptional items, acquisition related costs and charges for share based payments Other operating income Depreciation Amortisation Compensation for loss of office Acquisition related costs Charges for share based payments Operating profit / (loss) Finance income Finance costs Loss before tax Tax expense Loss for the period Agency Services £’000 Media & Analysis £’000 15,491 18,708 Unallocated Total £’000 (410) £’000 33,789 (1,932) (2,185) 414 (3,703) 13,559 16,523 4 30,086 (11,465) (11,943) (2,615) (26,023) 2,094 4,580 (2,611) 4,063 - (264) (916) (63) - (108) (2,558) - (211) (1,059) - 640 - 855 57 (8) - (10) 57 (380) (3,474) (73) - (1,270) (13) (13) (2,585) (1,090) 3 (272) (1,359) (119) (1,478) Year ended 31 March 2016 Assets Liabilities Agency Services £’000 Media & Analysis £’000 Unallocated Total £’000 £’000 24,484 29,325 (5,560) 48,249 (3,372) (5,240) (6,603) (15,215) Capital employed 21,112 24,085 (12,163) 33,034 Year ended 31 March 2015 Assets Liabilities Agency Services £’000 Media & Analysis £’000 24,518 (3,361) 26,170 (3,915) Unallocated Total £’000 (2,962) £’000 47,726 (8,249) (15,525) Capital employed 21,157 22,255 (11,211) 32,201 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 Year ended 31 March 2016 Agency Services £’000 Media & Analysis £’000 257 159 Year ended 31 March 2015 269 142 Unallocated Total £’000 £’000 53 16 469 427 Page 43 Annual Report and Accounts 2016 2. Other operating income Other operating income 2016 £’000 71 2015 £’000 57 During the years to 31 March 2015 and 31 March 2016 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 £71,000. 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. Operating expenses Continuing operations: Wages and salaries Share based payments Amortisation Other operating expenses Deferred consideration write-off Compensation for loss of office 2016 £’000 2015 £’000 21,944 22,016 412 1,503 6,210 13 3,474 5,657 30,069 31,160 349 120 469 - 73 73 30,538 31,233 Wages and salaries include £175,000 (2015: £211,000) of post-acquisition employment costs relating to the purchase of Iris Associates Limited, and £38,000 (2015: £1,059,000) of post-acquisition employment costs relating to the purchase of Epiphany Solutions Limited. An amount of £500,000 is held in Escrow in relation to the disposal of Tryzens Limited in September 2013. In March 2015 the Company received notification of a claim from the acquirer for the full value of the monies held in Escrow. Negotiations are at an advanced stage and the expectation of the directors is that the claim will settled for £349,000. This has been provided for in the accounts. 2016 £’000 - 2015 £’000 3 2016 £’000 251 2015 £’000 272 4. Finance income Interest income 5. Finance costs Interest expense Page 44 6. Tax expense Recognised in the consolidated statement of comprehensive income: Current year tax Origination and reversal of temporary differences Total tax charge Reconciliation of total tax charge: Profit / (loss) before tax 2016 £’000 2015 £’000 601 (232) 369 765 (646) 119 1,074 (1,359) Taxation using the UK Corporation Tax rate of 20% (2015: 21%) 215 (285) Effects of: Non deductible expenses Share-based payment charges Capital allowances in excess of depreciation Other Prior year adjustment Total tax charge / (credit) 7. Profit / (loss) per share Basic Diluted 137 403 - - 39 (22) 369 - - (27) 28 119 2016 Pence per Share 2015 Pence per Share 0.90p 0.83p (1.91p) (1.91p) Profit / (loss) per share has been calculated by dividing the profit / (loss) attributable to shareholders by the weighted average number of ordinary shares in issue during the year. The calculations of basic and diluted profit / (loss) per share are: 2016 £’000 2015 £’000 Profit / (loss) for the year attributable to shareholders 687 (1,457) Weighted average number of ordinary shares in issue: Basic Adjustment for share options Diluted Adjusted earnings per share From continuing and discontinued operations: Basic adjusted earnings per share Diluted adjusted earnings per share 2016 Number 2015 Number 76,259,763 6,067,000 82,326,763 76,259,763 6,771,000 83,030,763 2016 Pence per Share 2015 Pence per Share 3.38p 3.13p 3.45p 3.45p Page 45 Annual Report and Accounts 2016 Adjusted earnings per share have been calculated by dividing the profit attributable to shareholders before amortisation, charges for share options and acquisition related costs 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: Profit / (loss) before tax Amortisation Acquisition related costs Charges for share based payments Adjusted profit attributable to shareholders Current year tax charge 8. Expenses and auditor’s remuneration The following are included in profit before tax: Depreciation of property, plant and equipment Amortisation of other intangible assets Compensation for loss of office Employee emoluments Auditor’s remuneration: Audit of company financial statements Other amounts payable to the auditor and its associates in respect of: Audit of subsidiary company financial statements Audit related assurance services Taxation compliance services Taxation advisory services 2016 £’000 1,074 1,503 187 412 3,176 (601) 2,575 2016 £’000 407 1,503 120 22,356 26 68 13 26 4 2015 £’000 (1,359) 3,474 1,270 13 3,398 (765) 2,633 2015 £’000 380 3,474 73 22,029 27 63 13 26 2 Amounts paid to the Group’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed separately as the information is required instead to be disclosed on a consolidated basis. Page 46 9. Key management personnel compensation Key management of the Group is considered to be the Board of Directors and the Management Team. Short term benefits: Salaries including bonuses Social security costs Total short term benefits Share based payment charge Post-employment benefits: Defined contribution pension plan Key management compensation 2016 £’000 1,782 228 2,010 412 115 2,537 2015 £’000 1,485 193 1,678 - 59 1,737 Further information in respect of Directors is given in the Directors’ Remuneration table on page 21. Remuneration in respect of directors was as follows: Emoluments receivable Fees paid to third parties for Directors’ services Gain on exercise of share options Company pension contributions to money purchase pension schemes 2016 £’000 772 40 - 89 901 2015 £’000 515 34 513 82 1,144 During the current period and the prior year there were no benefits accruing to Directors in respect of the defined contribution pension scheme. The highest paid Director received remuneration of £207,000 (2015: £221,000). 10. Staff numbers and costs The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows: Continuing operations: 2016 Number 2015 Number Management and administration Call centre operatives Account management and production Information strategists The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs Share option charges – PSP Options (see note 11) Share option charges – Employers NI (see note 11) 77 229 241 52 599 2016 £’000 19,394 1,966 584 381 31 85 236 214 47 582 2015 £’000 19,624 1,865 527 - 13 22,356 22,029 Page 47 Annual Report and Accounts 201611. Employee benefits The Company grants share options under the Jaywing plc Performance Share Plan, more details of which are given in the Directors’ Remuneration Report. Details of the share options granted during and outstanding at the end of the year are as follows: 2016 Number of share options 2016 Weighted average exercise price 2015 Number of share options 2015 Weighted average exercise price At start of the year 6,771,000 5.0p Issued during the year Exercised during the year Lapsed during the year At end of the year - - (704,000) 6,067,000 Exercisable at end of year Nil - - 5.0p 5.0p - 1,754,386 6,771,000 (1,754,386) - 6,771,000 Nil Nil 5.0p Nil - 5.0p - Share options outstanding at the end of the year have an exercise price of 5 pence. Awards of share options are made on an individual basis with particular performance criteria relevant to the participant. Options are usually granted for a maximum of five years. Share options outstanding at the year-end were as follows: As at 31 March 2016 Number 6,067,000 As at 31 March 2015 Number 6,771,000 Exercise price From To 5.0p 01/08/2016 30/09/2020 Period of exercise Exercise price From To 5.0p 01/08/2016 30/09/2020 Period of exercise On 4 March 2015, share options were granted to employees in order to incentivise performance. These share options will vest based upon conditions which relate to either EBITDA performance in the period commencing 1 April 2015, or the share price at various future dates. Charge to the statement of comprehensive income Under IFRS 2 the Group is required to recognise an expense in the relevant company’s financial statements. The expense is apportioned over the vesting period based upon the number of options that are expected to vest and the fair value of those options at the date of grant. For the awards made the Group commissioned an independent valuation from American Appraisal UK Limited, using a trinomial valuation model, and adopted their findings. The weighted average fair value for the EBITDA performance options was calculated using the Black-Scholes Merton Option Pricing Model, and the fair value for the share price options was calculated using the Monte Carlo Model. The following inputs were used: Share price at date of grant Exercise price Expected volatility Dividend yield Risk free rate Option life Page 48 2016 £’000 28.0p 5.00p 25.0% 0% 0.603% - 1.466% 2 years Expected volatility was determined by calculating the standard deviation of the share price multiplied by the square root of the relevant time period of the option grant to give an indication of the share price volatility. The risk free rate was calculated using the yield on long dated UK Government Treasury Gilts at each date of grant. The fair value of the EBITDA performance options was calculated between 23.04p and 23.12p, depending on the period to which the options relate. The fair value of the share price options was calculated as 6.13p. 12. Property, plant and equipment Leasehold improvements £’000 Motor vehicles £’000 Office equipment £’000 Total £’000 Cost At 1 April 2014 Additions Disposals At 31 March 2015 Additions Disposals At 31 March 2016 Depreciation At 1 April 2014 Depreciation charge for the year Depreciation on disposals At 31 March 2015 Depreciation charge for the year Depreciation on disposals At 31 March 2016 Net book value At 31 March 2016 At 31 March 2015 At 1 April 2014 667 115 - 782 18 - 800 332 184 - 516 106 - 622 178 266 335 12 - - 12 - (12) - 8 1 - 9 - (9) - - 3 4 1,396 312 (331) 1,377 451 (245) 1,583 1,097 195 (331) 961 301 (245) 1,017 566 416 299 2,075 427 (331) 2,171 469 (257) 2,383 1,437 380 (331) 1,486 407 (254) 1,639 744 685 638 The assets are covered by a fixed charge in favour of the Group’s lenders. Page 49 Annual Report and Accounts 2016 13. Goodwill Cost and net book value At 1 April 2015 and 31 March 2016 Goodwill is attributed to the following cash generating units: Goodwill £’000 30,446 Agency Services Digital Media & Analytics Limited Scope Creative Marketing Limited Jaywing Central Limited HSM Limited Gasbox Limited Media & Analysis Epiphany Solutions Limited Alphanumeric Limited 2016 £’000 2015 £’000 2014 £’000 438 5,550 5,817 3,201 273 5,825 9,342 438 5,550 5,817 3,201 273 5,825 9,342 438 5,550 5,817 3,201 273 5,821 9,342 30,446 30,446 30,442 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 (5% for HSM due to the nature of that part of the business). 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: 2015/16 2016/17 2017/18 Perpetuity Year on year growth 5.0% - 10% 5.0% - 10% 2.5% - 10% 2.0% (HSM 5%) 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 13.5% (2015:10.6%). 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 (2015: £Nil). 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 £431,000 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. Page 50 14. Other intangible assets Customer relationships £’000 Order books £’000 Trademarks £’000 Development costs £’000 Total £’000 Cost At 1 April 2014 21,348 1,457 1,025 235 24,065 Additions during the year Disposal - - - - - - - - - - At 31 March 2015 21,348 1,457 1,025 235 24,065 Additions during the year Disposal - - - - - - - - - - At 31 March 2016 21,348 1,457 1,025 235 24,065 Amortisation At 1 April 2014 Disposals Amortisation charge for the year At 31 March 2015 Amortisation charge for the year Disposals 12,336 - 61 - 1,991 1,396 14,327 1,416 - 1,457 - - At 31 March 2016 15,743 1,457 Net book amount At 31 March 2016 At 1 April 2015 At 1 April 2014 5,605 7,021 9,012 - - 1,396 2 - 51 53 51 - 104 921 972 1,023 127 - 36 163 36 - 12,526 - 3,474 16,000 1,503 - 199 17,503 36 72 6,562 8,065 108 11,539 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%. 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 13. On the basis of this review, it has been concluded that there is no need to impair the carrying value of these intangible assets (2015: £Nil). Page 51 Annual Report and Accounts 2016 15. Trade and other receivables Trade receivables Prepayments and accrued income Deferred tax Other receivables 2016 £’000 8,328 1,580 85 157 2015 £’000 6,016 872 133 509 2014 £’000 6,606 1,320 157 608 10,150 7,530 8,691 The carrying amount of trade and other receivables approximates to their fair value. Trade and other receivables comprising financial assets are classified as loans and receivables. All trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired so a provision of £92,000 (2015: £191,000; 2014: £171,000) has been recorded accordingly. Trade and other receivables that are not impaired or past due are considered by the Group to be of good credit quality. The movement in the allowance for estimated irrecoverable amounts can be reconciled as follows: Balance at start of the year Amounts written off (uncollectible) Impairment loss reversed Impairment loss Balance at end of the year 2016 £’000 2015 £’000 191 (83) (49) 33 92 171 (25) (14) 59 191 In addition some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows: Not more than three months More than three months but not more than six months More than six months but not more than one year More than one year 2016 £’000 549 16 - - 2015 £’000 2,238 165 24 4 2014 £’000 1,003 98 (16) 4 565 2,431 1,089 Page 52 16. Bank and overdraft, loans and borrowings Summary Borrowings Borrowings are repayable as follows: Within one year Borrowings Total due within one year In more than one year but less than two years In more than two years but less than three years In more than three years but less than four years Total amount due Average interest rates at the balance sheet date were: Term loan Revolver loan 2016 £’000 2015 £’000 2014 £’000 5,675 5,675 6,188 6,188 7,800 7,800 4,612 4,612 1,063 - - 4,062 4,062 1,063 1,063 - 5,675 6,188 % 3.56 3.51 % 3.56 3.51 4,612 4,612 1,062 1,063 1,063 7,800 % 3.25 3.25 As the loans are at variable market rates their carrying amount is equivalent to their fair value. The additional borrowing facilities available to the Group at 31 March 2016 was £2.0 million (2015: £2.0 million) and, taking into account cash balances within the Group companies, there was £2.3 million (2015: £3.6 million) of additional 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 Cash and cash equivalents Borrowings Net debt 17. Trade and other payables Trade payables Tax and social security Other payables, accruals and deferred income 1 April 2015 £’000 1,000 1,000 (6,188) (5,188) Cash flow £’000 (653) (653) 513 (140) 31 March 2016 £’000 347 347 (5,675) (5,328) 2016 £’000 2015 £’000 2014 £’000 1,952 1,522 4,060 7,534 1,337 1,483 4,337 7,157 1,196 2,129 5,561 8,886 The carrying amount of trade and other payables approximates to their fair values. All amounts are short term. Page 53 Annual Report and Accounts 2016 18. Provisions At start of the year Additional provisions Utilised during the year Unused amounts reversed during the year At end of the year Total provisions are analysed as follows: Current 2016 £’000 2015 £’000 2014 £’000 158 9 - - 131 27 - - - 131 - - 167 158 131 167 167 158 158 131 131 At 31 March 2016 a provision of £167,000 (2015: £158,000) was recognised for dilapidations costs expected to be incurred on exit of properties. The provision has been estimated based on the costs already incurred to bring the property to its current condition. The estimated costs have not been discounted as the impact is not considered to be significant. There are no significant uncertainties about the amount or timing. 19. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities: Accelerated capital allowances on property, plant and equipment: At start of year Adjustment in relation to prior year classification Prior year adjustment Origination and reversal of temporary differences At end of year Other temporary differences: At start of year Adjustment in relation to prior year classification Prior year adjustment Origination and reversal of temporary differences At end of year Total deferred tax: At start of year Adjustment in relation to prior year classification Prior year adjustment Origination and reversal of temporary differences (note 6) At end of year Deferred tax is included within: Deferred tax liability Deferred tax asset 2016 £’000 2015 £’000 2014 £’000 (44) (64) (149) - 88 19 63 - 27 (7) (44) - 6 79 (64) 1,578 2,244 2,038 - (59) (280) 1,239 - - (666) 1,578 (31) (184) 421 2,244 1,534 2,180 1,889 - 29 (261) 1,302 1,387 (85) 1,302 - 27 (673) 1,534 1,667 (133) 1,534 (31) (178) 500 2,180 2,337 (157) 2,180 The majority of the other temporary differences relates to the liability arising on the valuation of intangible assets on acquisition. There are no deductible differences or losses carried forward for which no deferred tax asset is recognised. There are no temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognised. Page 54 20. Share capital Authorised Authorised share capital at 31 March 2015 and at 31 March 2016 45p deferred shares £’000 5p ordinary shares £’000 45,000 10,000 Allotted, issued and fully paid: 45p deferred shares Number 5p ordinary shares Number £’000 At 31 March 2015 and 31 March 2016 67,378,520 76,359,385 34,139 The 5 pence ordinary shares have the same rights (including voting and dividend rights and rights on a return of capital) as the previous 50 pence ordinary shares. Holders of the 45 pence deferred shares do not have any right to receive notice of any General Meeting of the Company or any right to attend, speak or vote at any such meeting. The deferred shareholders are not entitled to receive any dividend or other distribution and shall, on a return of assets in a winding up of the Company, entitle the holders only to the repayment of the amounts paid up on the shares, after the amount paid to the holders of the new ordinary shares exceeds £1,000,000 per new ordinary share. The deferred shares will also be incapable of transfer and no share certificates will be issued in respect of them. 21. Share premium At start and end of year 22. Treasury shares At the start and end of the year (99,622 shares) 23. Capital redemption reserve At start and end of year 24. Share option reserve At start of year Transfer to share capital on allotment of share options Share option charge At end of year 2016 £’000 6,608 2015 £’000 6,608 2016 £’000 (25) 2015 £’000 (25) 2016 £’000 125 2015 £’000 125 2016 £’000 2015 £’000 - - 146 146 88 (88) - - The Board of Directors approved the original transfer of reserves from retained earnings to a designated share option reserve. Page 55 Annual Report and Accounts 2016 25. Foreign currency translation reserve At start of year Exchange differences on translation of foreign operations At end of year 2016 £’000 2015 £’000 21 (18) 3 - 21 21 The Board of Directors approved the original transfer of reserves from retained earnings to a designated share option reserve. 26. Retained earnings At start of year Retained profit / (loss) for the year At end of year 2016 £’000 (8,667) 705 2015 £’000 (7,189) (1,478) (7,962) (8,667) 27. Operating leases The Group’s future minimum operating lease payments are as follows: 31 March 2016 31 March 2015 31 March 2014 Within 1 year £’000 1 to 5 years £’000 After 5 years £’000 392 545 538 1,437 723 1,302 274 - - Total £’000 2,103 1,268 1,840 The Company leases a number of office premises under operating leases. During the year £428,000 (2015: £532,000) was recognised as an expense in the Statement of comprehensive income in respect of operating leases. 28. Capital commitments The Group had no commitments to purchase property, plant and equipment at 31 March 2016 (2015: £Nil). 29. Related parties Ian Robinson, Chairman, is also a director of Anne Street Partners Limited. The services of Ian Robinson as Chairman of the Company were purchased from Anne Street Partners Limited for a fee of £40,000 (2015: £30,000). The services of Andrew Wilson as Chairman of the Company (appointment terminated by death 15 May 2014) were also purchased from Anne Street Partners Limited for a fee of £Nil (2015: £5,000). At the year end £12,000 (2015: £12,000) was outstanding to Anne Street Partners Limited. Charles Buddery (resigned 10 August 2015) is a partner in Players House LLP, which owns the building occupied by Scope Creative Marketing Limited. During the year Scope Creative Marketing Limited paid rent of £90,000 (2015: £90,000), owing £Nil (2015: £Nil) at the year end. During the period, the company made sales of £6,138 (2015: £2,063) to Run For All Limited, a company in which Mr R Shaw is a Non-Executive Director. At 31 March 2016 the balance receivable from Run For All Limited was £132 (2015: £53). Page 56 30. Accounting estimates and judgements Accounting estimates Impairment of goodwill and other intangible assets The carrying amount of goodwill is £30,446,000 (2015: £30,446,000) and the carrying amount of other intangible assets is £6,562,000 (2015: £8,065,000). The Directors are confident that the carrying amount of goodwill and other intangible assets is fairly stated, and have carried out an impairment review. The forecast cash generation for each CGU and the WACC represent significant assumptions and should the assumptions prove to be incorrect there would be a significant risk of a material adjustment within the next financial year. The sensitivity to the key assumptions is shown in note 13. Share-based payment On 4 March 2015, share options were granted to employees in order to incentivise performance. These share options will vest based upon conditions which relate to either EBITDA performance in the period commencing 1 April 2015, or the share price at various future dates. The share-based payment charge consists of two elements, the charge for the fair value at the date of grant and a charge for the employer’s NI. The fair value charge has been assessed using an external valuation company, and judgement has been made on the number of shares expected to vest based on the achievement of EBITDA and share price targets. Accounting judgements Recognition of revenue as principal or agent The Directors consider that they act as a principal in transactions where the Group assumes the credit risk. Where this is via an agency arrangement and the Group assumes the credit risk for all billings it therefore recognises gross billings as revenue. Page 57 Annual Report and Accounts 201631. Financial risk management The Group uses various financial instruments. These include loans, cash, issued equity investments and various items, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Company’s operations. The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. The main risks arising from the Group’s financial instruments are market risk, cash flow interest rate risk, credit risk and liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarised below. Market risk Market risk encompasses three types of risk, being currency risk, fair value interest rate risk and price risk. In this instance price risk has been ignored as it is not considered a material risk to the business. The Group’s policies for managing fair value interest rate risk are considered along with those for managing cash flow interest rate risk and are set out in the subsection entitled “interest rate risk” below. Currency risk The Group is only minimally exposed to translation and transaction foreign exchange risk. Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by closely managing the cash balance and by investing cash assets safely and profitably. The Group policy throughout the period has been to ensure continuity of funding. Short- term flexibility is achieved by overdraft facilities. The maturity of borrowings is set out in note 16 to the consolidated financial statements. Page 58 Interest rate risk The Group finances its operations through a mixture of retained profits and bank borrowings. The Directors’ policy to manage interest rate fluctuations is to review regularly the costs of capital and the risks associated with each class of capital, and to maintain an appropriate mix between fixed and floating rate borrowings. The interest rate exposure of the financial assets and liabilities of the Group is shown in the table below. The table includes trade receivables and payables as these do not attract interest and are therefore subject to fair value interest rate risk. Financial assets: Floating interest rate: Cash Zero interest rate: Trade receivables Financial liabilities: Floating interest rate: Overdrafts Bank loans / revolving facility Zero interest rate: Trade payables The bank loans contractual maturity is summarised below: Total due within one year In more than one year but less than two years In more than two years but less than three years In more than three years but less than four years 2016 £’000 2015 £’000 2014 £’000 347 1,000 1,994 8,328 8,675 6,016 7,016 6,606 8,600 - - - 5,675 6,188 7,800 1,952 7,627 2016 £’000 1,122 1,085 - - 1,337 7,525 1,196 8,996 2015 £’000 1,158 1,122 1,085 - 2014 £’000 1,195 1,158 1,122 1,085 4,560 Total amount due 2,207 3,365 The above contractual maturities reflect the estimated gross cash flows, which differ from the carrying value at the balance sheet date. Sensitivity to interest rate fluctuations If the average interest rate payable on the net financial asset/net financial liabilities subject to a floating interest rate during the year had been 1% higher than reported on the average borrowings during the year, then profit before tax would have been £61,831 lower, and if the interest rate on these liabilities had been 1% lower, profit before tax would have improved by £61,831. Credit risk The Group’s principal financial assets are cash and trade receivables. The credit risk associated with cash is limited, as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from the Group’s trade receivables. In order to manage credit risk the Directors set limits for customers based on a combination of payment history and third party credit references. Credit limits are reviewed on a regular basis in conjunction with debt ageing and collection history. The Company’s customers are predominantly blue chip companies with high credit ratings. The Company’s credit control team has credit policies covering both trading transactions and balances with financial institutions. The Directors consider that the Group’s trade receivables were impaired for the year ended 31 March 2016 and a provision for £92,000 (2015: £191,000) has been provided accordingly. See note 15 for further information on financial assets that are past due. Page 59 Annual Report and Accounts 2016Summary of financial assets and liabilities by category The carrying amount of financial assets and liabilities recognised at the balance sheet date of the reporting periods under review may also be categorised as follows: Financial assets Loans and receivables Trade and other receivables Cash and cash equivalents Financial liabilities: Current: Financial liabilities measured at amortised cost Borrowings Trade and other payables Provisions for liabilities 2016 £’000 2015 £’000 2014 £’000 8,485 347 8,832 6,525 1,000 7,525 7,214 1,994 9,208 (5,675) (6,188) (7,800) (7,534) (7,157) (8,886) (167) (158) (131) (13,376) (13,503) (16,817) Net financial assets and liabilities (4,544) (5,978) (7,609) Property, plant and equipment Goodwill Other intangible assets Prepayments Deferred tax Taxation payable Provisions for deferred tax Total equity 744 685 638 30,446 30,446 30,442 6,562 1,580 85 8,065 11,539 872 133 1,320 157 (492) (452) (355) (1,387) (1,667) (2,337) 37,578 38,179 41,267 33,034 32,201 33,658 Capital management policies and procedures The Group’s capital management objectives are: • to ensure the Group’s ability to continue as a going concern; and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. This is achieved through close management of working capital and regular reviews of pricing. Decisions on whether to raise funding using debt or equity are made by the Board based on the requirements of the business. Capital for the reporting period under review is summarised as follows: 2016 £’000 2015 £’000 2014 £’000 Total equity 33,034 32,201 33,658 32. Events after the end of the reporting period On 8th July 2016, Jaywing plc announced that it had acquired 75 percent of the issued share capital of Digital Massive, a company registered in Australia, for an initial cash payment of AUS$2 million, plus an earn out consideration of up to AUS$2 million. From July 2020, the Company will, via a put and call option, be in a position to acquire the remaining 25 percent of Digital Massive’s issued share capital, at a multiple of its average audited EBITDA for the previous two financial years, subject to a maximum total consideration payable of AUS$12 million for the entire business. The acquisition is being funded through the Company’s existing cash resources. The acquisition is expected to be earnings enhancing from completion. Page 60 Company Financial Statements Company profit and loss account Turnover Administrative expenses Operating loss Income from fixed asset investment Interest receivable and similar income Interest payable and similar charges Profit on ordinary activities before taxation Taxation on ordinary activities Profit and total comprehensive income on ordinary activities after taxation Note 2016 £’000 2015 £’000 1 2 3 4 5 6 - 4 (3,691) (2,653) (3,691) (2,649) 7,455 4,840 - 3 (251) (272) 3,513 1,922 72 52 3,585 1,974 All of the activities of the parent Company are classed as continuing. The accompanying notes to the parent Company financial statements form an integral part of these financial statements. Page 61 Annual Report and Accounts 2016Company balance sheet Fixed assets Tangible assets Investments Current assets Debtors due < 1 year Current liabilities Note 2016 £’000 2015 £’000 10 11 12 50 53,254 53,304 20 57,731 57,751 2,060 2,060 3,282 3,282 Creditors: amounts falling due within one year 13 (11,425) (15,262) Total assets less current liabilities Non current liabilities 43,939 45,771 Creditors: amounts falling due after more than one year 14 (1,063) (6,626) Net assets 42,876 39,145 Capital and reserves Called up share capital Share premium account Treasury shares Share option reserve Capital redemption reserve Profit and loss account Equity shareholders’ funds 16 18 20 34,139 34,139 6,608 6,608 (25) 146 125 (25) - 125 1,883 (1,702) 42,876 39,145 The financial statements were approved by the Board of Directors and authorised for issue on 11 July 2016. Signed on behalf of the Board of Directors: Michael Sprot Director The accompanying notes to the parent Company financial statements form an integral part of these financial statements. Page 62 Company statement of changes in equity Called-up share capital £’000 Share premium account £’000 Treasury shares £’000 Share option reserve £’000 Capital redemption reserve £’000 Profit and loss account £’000 Total £’000 At 1 April 2014 34,051 6,608 (25) Share based payment Transactions with owners Profit for the year and total other comprehensive income Total comprehensive income 88 88 - - - - - - At 31 March 2015 34,139 6,608 At 1 April 2015 34,139 6,608 Share based payment charge Transactions with owners Profit for the year and total other comprehensive income Total comprehensive income - - - - - - - - - - - - (25) (25) - - - - 88 (88) (88) - - - - 146 146 - - 125 (3,676) 37,171 - - - - - - - - 1,974 1,974 1,974 1,974 125 (1,702) 39,145 125 (1,702) - - - - - - 3,585 39,145 146 146 3,585 3,585 3,585 At 31 March 2016 34,139 6,608 (25) 146 125 1,883 42,876 Page 63 Annual Report and Accounts 2016Notes to the parent company financial statements 1. Accounting policies Jaywing plc is incorporated in England. future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. Statement of compliance These financial statements have been prepared in accordance with applicable accounting standards and in accordance with Financial Reporting Standard 101 – ‘The Reduced Disclosure Framework’ (FRS 101). The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have all been applied consistently throughout the year unless otherwise stated. The financial statements have been prepared on a historical cost basis. The financial statements are presented in Sterling (£) and have been presented in round thousands (£’000). Changes in accounting policies This is the first year in which the financial statements have been prepared in accordance with FRS 101. The date of transition to FRS 101 is 1 April 2014. An explanation of the transition is included in note 26 to the financial statements. In applying FRS 101 for the first time the Company has applied early the amendment to FRS 101 which permits a first time adopter not to present an opening statement of financial position at the beginning of the earliest comparative period presented. Disclosure exemptions adopted In preparing these financial statements the Company has taken advantage of all disclosure exemptions conferred by FRS 101. Therefore these financial statements do not include: 1. A statement of cash flows and related notes. 2. The requirement to produce a balance sheet at the beginning of the earliest comparative period . 3. The requirements of IAS 24 related party disclosures to disclose related party transactions entered in to between two or more members of the Group as they are wholly owned within the Group . 4. Presentation of comparative reconciliations for property, plant and equipment, intangible assets. 5. Capital management disclosures. 6. Presentation of comparative reconciliation of the number of shares outstanding at the beginning and at the end of the period. 7. The effect of future accounting standards not adopted. 8. Certain share-based payment disclosures. Going concern After reviewing the Company’s forecasts and projections, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable 9. Disclosures in relation to impairment of assets. 10. Disclosures in respect of financial instruments (other than disclosures required as a result of recording financial instruments at fair value). Page 64 Investments in subsidiaries, associates and joint ventures Investments in subsidiary undertakings, associates and joint ventures are stated at cost less any applicable provision for impairment. Tangible assets Property, plant and equipment (PPE) is initially recognised at acquisition cost or manufacturing cost, including any costs directly attributable to bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by the Company’s management. Other PPE PPE is subsequently measured at cost less accumulated depreciation and impairment losses. Depreciation is recognised on a straight- line basis (unless otherwise stated) to write down the cost less estimated residual value of PPE. The following useful lives are applied: • Fixtures, fittings and equipment: 2-5 years Material residual value estimates and estimates of useful life are updated as required, but at least annually. Gains or losses arising on the disposal of property, plant and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised in profit or loss within other income or other expenses. Financial instruments - recognition, initial measurement and derecognition Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities is described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial instruments - classification and subsequent measurement of financial assets For the purpose of subsequent measurement financial assets, other than those designated and effective as hedging instruments, are classified into the following categories upon initial recognition: • loans and receivables There are no financial assets that have been designated as held to maturity, available for sale or fair value through profit or loss. All financial assets except for those at FVTPL are reviewed for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses. Financial instruments – loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade debtors and other debtors fall into this category of financial instrument. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of the counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group. Page 65 Annual Report and Accounts 2016outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring exists and management has either communicated the plan’s main features to those affected or started implementation. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Where the time value of money is material, provisions are discounted to their present values, using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks specific to the liability. Any reimbursement that is virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote. Holiday pay A provision for annual leave accrued by employees as a result of services rendered, and that employees are entitled to carry forward and use within the next 12 months, is recognised in the current period. The provision is measured at the salary cost payable for the period of absence. Equity, reserves and dividend payments Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s ordinary shares are classified as equity. Transaction costs on the issue of shares are deducted from the share premium account arising on that issue. Dividends on the Company’s ordinary shares are recognised directly in equity. Financial instruments – classification and subsequent measurement of financial liabilities The Company’s financial liabilities include borrowings, trade creditors and other creditors. Financial liabilities are measured subsequently at amortised cost using the effective interest method. Cash and cash equivalents Cash comprises cash on hand and demand deposits which is presented as cash at bank and in hand in the Balance Sheet. Cash equivalents comprise short-term, highly liquid investments with maturities of three months or less from inception, that are readily convertible into known amounts of cash, and that are subject to an insignificant risk of changes in value. Cash equivalents are presented as part of current asset investments in the Balance Sheet. Operating leases Where the Company is a lessee, payments made under an operating lease agreement are recognised as an expense on a straight-line basis over the lease term. Incentives received to enter into an operating lease are credited to the profit and loss account, to reduce the lease expense, on a straight-line basis over the period of the lease. Associated costs, such as maintenance and insurance, are expensed as incurred. Financial guarantees Financial guarantees in respect of the borrowings of fellow group companies are not regarded as insurance contracts. They are recognised at fair value and are subsequently measured at the higher of: • the amount that would be required to be provided under IAS 37 (see policy on provisions below); and • the amount of any proceeds received net of amortisation recognised as income. Provisions, contingent assets and contingent liabilities Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required and amounts can be estimated reliably. The timing or amount of the Page 66 Revenue recognition The turnover shown in the profit and loss account represents amounts invoiced in relation to work undertaken during the year. Income taxes Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity. Calculation of current tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income taxes are calculated using the liability method. Calculation of deferred tax is based on tax rates and laws that have been enacted or substantively enacted by the end of the reporting period that are expected to apply when the asset is realised or the liability is settled. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects to recover the related asset or settle the related obligation. Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. Deferred tax assets are not discounted. Deferred tax liabilities are generally recognised in full with the exception of the following: • on the initial recognition of goodwill on investments in subsidiaries where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future on the initial recognition of a transaction that is not a business combination and at the time of the transaction affects neither accounting or taxable profit. Deferred tax liabilities are not discounted. Turnover is the revenue arising from the sale of services. It is stated at the fair value of the consideration receivable, net of value added tax, rebates and discounts. Revenue is recognised in accordance with the stage of completion of contractual obligations to the customer. The stage of completion is ascertained by assessing the fair value of the services provided to the balance sheet date as a proportion of the total fair value of the contract. Losses on contracts are recognised in the period in which the loss first becomes foreseeable. Revenue – other revenue streams Interest receivable Interest receivable is reported on an accrual basis using the effective interest method. Dividends receivable Dividends are recognised at the time the right to receive payment is established. Operating expenses Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred. Foreign currency translation Foreign currency transactions are translated into the Company’s functional currency using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the re-measurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. Non-monetary items are not retranslated at year end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined. Where a gain or loss on a non-monetary item is recognised in other comprehensive income the foreign exchange component of that gain or loss is also recognised in other comprehensive income. Page 67 Annual Report and Accounts 2016Exceptional items Exceptional items are transactions that fall within the ordinary activities of the Company but are presented separately due to their size or incidence. Significant judgement in applying accounting policies and key estimation uncertainty When preparing the financial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. Significant management judgement The following are significant management judgements in applying the accounting policies of the Company that have the most significant effect on the financial statements. • Capitalisation of internally developed software Distinguishing the research and development phases of a new customised software project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. • Useful lives of depreciable assets Management reviews its estimate of the useful lives of depreciable assets at each reporting date, based on the expected utility of the assets. Uncertainties in these estimates relate to technological obsolescence that may change the utility of certain software and IT equipment. • Valuation of investments Management reviews the carrying value of investments at each reporting date, based on the future cashflows of those investments. Post-employment benefits and short- term employee benefits Short-term employee benefits Short term employee benefits, including holiday entitlement, are current liabilities included in pension and other employee obligations, measured at undiscounted amount that the Company expects to pay as a result of unused entitlement. Post-employment benefit plans Contributions to defined contribution pension schemes are charged to profit or loss in the year to which they relate. Prepaid contributions are recognised as an asset. Unpaid contributions are reflected as a liability. Share-based payments Where equity settled share options are awarded by the parent company to employees of this Company, the fair value of the options at the date of grant is charged to profit or loss over the vesting period with a corresponding entry in retained earnings. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the statement of comprehensive income over the remaining vesting period. Recharges from the parent company for the use of options over the parent company shares are deducted from equity. Profit from operations Profit from operations comprises the results of the Company before interest receivable and similar income, interest payable and similar charges, corporation tax and deferred tax. Page 68 2. Other operating charges Share-based payment charge Related National Insurance charge / (credit) Administrative expenses Total administrative expenses 100% of turnover arose in the United Kingdom (2015: 100%). 3. Operating loss Operating loss is stated after charging: Deferred consideration write-off Depreciation of owned fixed assets 2016 £’000 2015 £’000 89 9 3,593 3,691 17 (4) 2,640 2,653 2016 £’000 2015 £’000 349 23 - 8 An amount of £500,000 is held in Escrow in relation to the disposal of Tryzens Limited in September 2013. In March 2015 the Company received notification of a claim from the acquirer for the full value of the monies held in Escrow. Negotiations are at an advanced stage and the expectation of the directors is that the claim will settled for £349,000. This has been provided for in the accounts. 4. Other interest receivable and similar income Interest receivable and similar income 5. Other interest payable and similar charges Bank interest payable 2016 £’000 2015 £’000 - 3 2016 £’000 2015 £’000 251 272 Page 69 Annual Report and Accounts 20166. Tax on ordinary activities The tax charge is based on the profit for the year and represents: UK corporation tax at 20% (2015: 21%) Adjustment in respect of prior period Total current tax Deferred tax: Origination and reversal of timing differences Prior year adjustment The tax credit can be explained as follows: Profit before tax 2016 £’000 2015 £’000 739 (658) 81 (2) (7) 72 637 (559) 78 (26) - 52 2016 £’000 3,513 2015 £’000 1,922 Tax using the UK corporation tax rate of 20% (2015: 21%) 703 404 Effect of: Expenses not deductible for tax Non-taxable income Capital allowances for the period in excess of depreciation Other Prior year adjustment Current year credit - - (1,491) (1,015) - 4 712 (72) - (26) 559 (78) 7. Auditor’s remuneration Details of remuneration paid to the auditor by the Company are shown in note 8 to the consolidated financial statements. Page 70 8. Directors and employees 2016 £’000 2015 £’000 Average number of staff employed by the Company 27 30 Aggregate emoluments (including those of Directors): Wages and salaries Social security costs Pension contribution Share-based payment charge Redundancy payments Total emoluments 1,845 1,503 177 126 98 10 167 116 - 10 2,256 1,796 Further information in respect of Directors is given in the Directors’ Remuneration table on page 13. Remuneration in respect of directors was as follows: Emoluments receivable Fees paid to third parties for Directors’ services Gain on exercise of share options Company pension contributions to money purchase pension schemes 2016 £’000 2015 £’000 772 40 - 89 901 515 34 513 82 1,144 During the current period and the prior year there were no benefits accruing to Directors in respect of the defined contribution pension scheme. The highest paid Director received remuneration of £207,000 (2015: £221,000). 9. Dividends The Directors do not recommend the payment of a dividend for the current year (2015: £Nil). 10. Tangible fixed assets Cost at 1 April 2015 Additions Cost at 31 March 2016 Depreciation at 1 April 2015 Charge for the year Depreciation at 31 March 2016 Net book value at 31 March 2016 Net book value at 31 March 2015 Fixtures & fittings £’000 54 53 107 34 23 57 50 20 Page 71 Annual Report and Accounts 2016 11. Investments Cost at 1 April 2015 Reduction in cost of investment Capital contribution for share option scheme Recharge of capital contribution from group companies Cost as at 31 March 2016 Subsidiaries £’000 57,731 (4,477) 131 (131) 53,254 The Company has carried out an impairment review of the carrying amount of the investments in subsidiaries. The impairment review of investments was performed using the same cash flows and assumptions as were used in the Group’s financial statements for the impairment review of goodwill, details of which can be found in note 13 in the Group’s financial statements. This review has concluded that the carrying value of the Company’s investments is impaired by £Nil (2015: £Nil). Page 72 At 31 March 2016 the Company held either directly or indirectly, 20% or more of the allotted share capital of the following companies: Proportion held By parent Company By the Group Nature of Business Class of share capital held Alphanumeric Group Holdings Limited Ordinary 100% 100% Dormant Alphanumeric Holdings Limited Ordinary - 100% Dormant Alphanumeric Limited Ordinary 100% 100% Data services & consultancy Dig for Fire Limited Digital Marketing Group Limited Digital Marketing Group Services Limited Digital Marketing Network Limited Digital Media and Analytics Limited DMG Central Limited DMG London Limited Epiphany Solutions Limited Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary - 100% Dormant 100% 100% 100% 100% 100% Dormant 100% Dormant 100% Dormant 100% Dormant - 100% Dormant 100% 100% 100% Dormant 100% Search Engine Optimisation Epiphany Solutions PTY Limited Ordinary - 100% Search Engine Optimisation Gasbox Limited Graphico New Media Limited HSM Limited Ordinary Ordinary Ordinary 100% 100% 100% 100% Direct marketing 100% Dormant 100% Online marketing & media, direct marketing Hyperlaunch New Media Limited Ordinary 100% 100% Dormant Inbox Media Limited Iris Associates Limited ISIS Direct Limited Ordinary Ordinary Ordinary - - - 100% Dormant 100% Dormant 100% Dormant Jaywing Central Limited Ordinary 100% 100% Online marketing & media Jaywing Information Limited Jaywing North Limited Junction Brand Communication Limited Prodant Limited Ordinary Ordinary Ordinary Ordinary 100% 100% - - 100% Dormant 100% Dormant 100% Dormant 100% Dormant Scope Creative Marketing Limited Ordinary 100% 100% Direct marketing Shackleton PR Limited Woken Limited Ordinary Ordinary - - 100% Online PR 100% Dormant All the companies listed above have been consolidated. All the companies listed above are incorporated in England and Wales with the following exceptions: Company Epiphany Solutions PTY Limited Country of Incorporation Australia Page 73 Annual Report and Accounts 2016 12. Debtors due < 1 year Amounts due from Group undertakings Prepayments and accrued income Other taxation and social security Corporation tax Deferred tax Other receivables 13. Creditors: amounts falling due within one year Bank loans and overdrafts (note 15) Trade creditors Amounts owed to Group undertakings Other taxation and social security Other creditors Accruals and deferred income Deferred tax Deferred consideration payable on acquisition of subsidiary undertakings 14. Creditors: amounts falling due in more than one year Bank loan Deferred consideration payable on acquisition of subsidiary undertakings 2016 £’000 2015 £’000 479 176 515 739 - 151 2,060 1,643 113 330 691 5 500 3,282 2016 £’000 2015 £’000 10,549 100 202 51 1 518 4 - 11,425 7,663 179 5,611 53 1 255 - 1,500 15,262 2016 £’000 2015 £’000 1,063 - 1,063 2,126 4,500 6,626 Page 74 2016 £’000 2015 £’000 5,937 5,675 11,612 3,601 6,188 9,789 2016 £’000 2015 £’000 5,937 4,612 10,549 1,063 - 1,063 3,601 4,062 7,663 1,063 1,063 2,126 15. Borrowings Summary: Bank overdraft Bank loans Borrowings are repayable as follows: Within one year: Bank overdraft Bank loans Total due within one year Bank loans: In more than one year but less than two years: In more than two years: Total due in more than one year: 16. Share capital Authorised: Authorised share capital at 31 March 2015 and at 31 March 2016 45p deferred shares £’000 5p ordinary shares £’000 45,000 10,000 45p deferred shares Number 5p ordinary shares Number £’000 34,139 At 31 March 2015 and 31 March 2016 67,387,520 76,359,385 The 5 pence ordinary shares have the same rights (including voting and dividend rights and rights on a return of capital) as the previous 50 pence ordinary shares. Holders of the 45 pence deferred shares do not have any right to receive notice of any general meeting of the Company or any right to attend, speak or vote at any such meeting. The deferred share holders are not entitled to receive any dividend or other distribution and shall on a return of assets in a winding up of the Company entitle the holders only to the repayment of the amounts paid up on the shares after the amount paid to the holders of the new ordinary shares exceeds £1,000,000 per new ordinary share. The deferred shares will also be incapable of transfer and no share certificates will be issued in respect of them. Page 75 Annual Report and Accounts 2016 17. Reserves Called-up share capital – represents the nominal value of shares that have been issued. Share premium account – includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium. Profit and loss account – includes all current and prior period retained profits and losses. Share option reserve – fair value charge for share options in issue. Treasury shares – shares in the company that have been acquired by the company. Capital redemption reserve – represents amounts transferred from share capital on redemption of issued shares. 18. Treasury shares At 31 March 2016 and 31 March 2015 19. Share-based payments Share-based payment charge is as follows: Share-based payment Related National Insurance costs 2016 £’000 2015 £’000 25 25 2016 £’000 2015 £’000 89 9 98 17 (4) 13 Details of the share options issued and the basis of calculation of the share-based payments, which all relate to share options granted, are given in note 11 to the consolidated financial statements. 20. Provision for liabilities At 1 April 2015 Amounts of deferred tax recognised in profit or loss At 31 March 2016 Deferred tax (note 6) £’000 5 (9) (4) 21. Contingent liabilities There is a cross guarantee between members of the Jaywing plc group of companies on all bank overdrafts and bank borrowings with Barclays Bank plc. At 31 March 2016 the amount thus guaranteed by the Company was £Nil (2015: £Nil). 22. Related parties The Company is exempt from the requirements to FRS 101 to disclose transactions with other 100% members of the Jaywing plc group of companies. Transactions with other related parties are disclosed in note 29 to the consolidated financial statements. Page 76 23. Financial risk management objectives and policies Details of Group policies are set out in note 31 to the consolidated financial statements. 24. Retirement benefits Defined Contribution Schemes The Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to £126,000 (2015: £116,000). 25. Share-based payments Employees of the Company are entitled to participate in an equity and cash-settled share option scheme operated by the Company’s ultimate parent company Jaywing plc. The options are granted with a fixed exercise price and have a vesting period of up to two years. The vesting conditions relate to the performance of Epiphany Solutions Ltd and the overall Jaywing plc group during the vesting period. There are no other market conditions attached to the share options. The number of options outstanding at the end of the year in respect of Company employees were 1,965,000 (2015: 2,669,000). No share options were exercised during the year. The exercise prices for share options outstanding was 5p (2015: 5p). The remaining contractual life of the share options was one year (2015: two years). 26. Transition to FRS 101 The Company has adopted FRS 101 for the first time having previously applied UK GAAP. The date of transition to FRS 101 was 1 April 2014. There were no transitional adjustments identified. 27. Events after the end of the reporting period On 8th July 2016, Jaywing plc announced that it had acquired 75 percent of the issued share capital of Digital Massive, a company registered in Australia, for an initial cash payment of AUS$2 million, plus an earn out consideration of up to AUS$2 million. From July 2020, the Company will, via a put and call option, be in a position to acquire the remaining 25 percent of Digital Massive’s issued share capital, at a multiple of its average audited EBITDA for the previous two financial years, subject to a maximum total consideration payable of AUS$12 million for the entire business. The acquisition is being funded through the Company’s existing cash resources. The acquisition is expected to be earnings enhancing from completion. Page 77 Annual Report and Accounts 2016Shareholder information Annual General Meeting The 2016 Annual General Meeting will be held on Thursday 25 August 2016 at Cenkos Securities. 6.7.8. Tokenhouse Yard, London EC2R 7AS at 11am. Results Announcement of half year results to 30 September 2016 – November 2016. Preliminary announcement of the annual results for the year ending 31 March 2017 – early July 2017. Dividend There is no dividend payable. Multiple accounts on the shareholder register If you have received two or more copies of this document, this means that there is more than one account in your name on the shareholders’ register. This may be caused by either your name or address appearing on each account in a slightly different way. For security reasons, the Registrars will not amalgamate the account without your written consent, so if you would like any multiple accounts combined into one account, please write to Capita Registrars at the address given below. Documents The following documents, which are available for inspection during normal business hours at the registered office of the Company on any weekday (Saturdays, Sundays and public holidays excluded), will also be available for inspection at the place of the AGM from at least 15 minutes prior to the meeting until its conclusion. Page 78 • Copies of the Executive Directors’ service agreements and the Non-Executive Directors’ letters of appointment; • The memorandum and articles of association of the Company; and • Register of Directors’ interests in the share capital of the Company maintained under Section 809 of the Companies Act 2006. Particulars of the Directors’ interest in shares are given in the Remuneration Report which is contained in the Report and accounts for the year ended 31 March 2016. Issued Share Capital As at 11 July 2016 (being the last practicable date before the publication of this document) the Company’s issued share capital comprised 76,359,383 ordinary shares of 5p each, of which 99,622 are held in Treasury. Therefore, as at 11 July 2016 the total voting rights in the Company were 76,259,761. On a vote by show of hands every member who is present in person or by proxy has one vote. On a poll every member who is present in person or by proxy has one vote for every ordinary share of which he or she is a holder. Share dealing services To purchase or sell shares in Jaywing plc log on to www.capitadeal.com or call 0871 664 0364 (Mon-Fri 8am-4.30pm). Capita Share Dealing Services is a trading name of Capita IRG Trustees Limited, which is authorised and regulated by the Financial Services Authority. If you are selling shares you must have the relevant certificate(s) in your possession. This is not a recommendation to buy or sell shares and this service may not be suitable for all shareholders. Shareholder enquiries Capita Registrars maintains the register of members of the Company. If you have any queries concerning your shareholding, or if any of your details change, please contact the Registrars: Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA Shareholder Helpline: 0871 664 0300 (calls cost 10p per minute plus network extras) Fax: 01484 606484. Textphone for shareholders with hearing difficulties: 0871 664 0532 (calls cost 10p per minute plus network extras) Capita Registrars also offers a range of shareholder information online at www.capitaregistrars.com. Website Information on the Group is available at www.investors.jaywing.com. 0333 370 6500 hello@jaywing.com investors.jaywing.com SHEFFIELD LONDON NEWBURY SWINDON LEEDS SYDNEY Players House 300 Attercliffe Common Sheffield S9 2AG 31–35 Kirby Street London EC1N 8TE Albion House 27 Oxford Street Newbury RG14 1JG Arclite House Century Road Peatmoor Swindon SN5 5YN The Small Mill Chadwick Street Leeds LS10 1LJ Suite 201 65 Walker Street North Sydney NSW 2060 Australia JAYWING PLC is registered in England and Wales. 300 Attercliffe Common, Sheffield S9 2AG. Company number 05935923. 

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