Jaywing plc
Annual Report 2017

Plain-text annual report

Jaywing plc Annual Report & Accounts For the year ended 31 March 2017 Contents © Jaywing 2017 About Jaywing Financial highlights from continuing operations Chief Executive’s report 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 06 07 12 13 16 18 20 23 28 31 32 34 66 82 About Jaywing Jaywing is a data science- led agency and consulting business with a marketing technology division and the beginnings of an international footprint. Our agency has two core propositions: performance marketing and brand-led marketing. Our data science consultancy helps clients do smart things with their data for marketing or risk. Our marketing tech is branded Jaywing Intelligence. Page 5 This page does not form part of the audited financial statements Our business model Highly collaborative culture 650+ people 1 in 10 is an experienced data scientist Focus on cross sales: 1 in 3 of top 50 clients buys more than one of our services Focus on recurring revenues: 2/3 visible 6 months in advance, 1/2 visible 12 months in advance Low concentration risk in clients and sectors Strong cash generation Net debt down 1/3 Low gearing Our strategy Innovate: By developing new applications of data science and new marketing technology Scale: Through international expansion, be that distributing our marketing technology via third parties or through the acquisition of complementary businesses Grow: By actively managing our client relationships and continuing to increase the level of cross sales Jaywing uses advanced data science innovatively and deep specialist knowledge collaboratively to deliver more powerful outcomes for its clients. Our innovations Two Artificial Intelligence (AI) products launched in 2016. We continue to innovate in this field, using cutting edge technology and advanced mathematics to gather data, analyse it and make millions of individual decisions in real time. Future innovations will tackle regulatory issues, such as GDPR as well as adding to our technology stacks. Our services Marketing Agency: performance, brand-led Data science consultancy: marketing, risk, data management, business intelligence Technology: martech, regtech, risktech, datatech 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. Leeds Marshall’s Mill Leeds Small Mill Sydney Sheffield HQ 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. This page does not form part of the audited financial statements Financial highlights from continuing operations Revenue £44.54m (2016: £35.97m) Gross profit* £35.98m (2016: £31.79m) Adjusted EBITDA** £4.86m (2016: £4.33m) (Loss) / profit after tax (£2.98m) (2016: £0.7m) Basic EPS on adjusted EBITDA# 5.6p (2016: 5.7p) Basic EPS (3.42p) (2016: 0.90p) Adjusted EBITDA margin*** 13.5% (2016: 13.6%) Net debt (£3.53m) (2016: (£5.33m)) Highlights: Outlook: • Two strategically important acquisitions, the formation of a Marketing Technology division and an international footprint • Strong cash generation, with net debt reduced by £1.79m, which now represents 0.7x EBITDA** (2016: 1.2x) • Gross profit (fee income) up 13% to £35.98 million We have had a good start to the year in new business, particularly in Epiphany, and cross selling more widely, and the Australian business is growing ahead of the UK. We are however seeing some delay and caution in spend for a small number of clients, but overall we feel optimistic for the year ahead. (2016: £31.79 million) • Adjusted EBITDA up 12% to £4.86m (2016: £4.33m) • Two thirds of gross profit visible six months in advance, half visible 12 months in advance • Reported loss after tax £2.98m (2016: £0.70m profit) incurred after £2.90m of goodwill impairment charges and £1.11m of costs relating to acquisitions • One in three of our top 50 clients buying more than one service line • Small reduction in margin as a result of investment in Marketing Tech products * Revenue less direct costs of sale ** Before share based charges, exceptional items and acquisition related costs *** As a percentage of gross profit # Following issue of 10 million shares for Bloom acquisition Page 7 Commenting on the results, Ian Robinson, Chairman of Jaywing, said: “It has been another year of significant progress for Jaywing. In the year ended 31 March 2017 we achieved growth in gross profit and EBITDA of 13% and 12% respectively, whilst net debt reduced by £1.8m on the back of strong cash generation and free cash flow of £2.9m. Our two acquisitions have provided the business with a dedicated Marketing Technology division and the first step in our international expansion. We are also pleased to announce that we intend to implement a progressive dividend policy starting from the financial year ending 31st March 2018.” Chief Executive’s Report I’m pleased to report that in the last 12 months we have taken some important steps in creating the future shape of the business whilst delivering some impressive financials, in what has been one of the most tumultuous periods any of us can remember! are able to differentiate ourselves by integrating our marketing technology into our digital agency service offerings. Our efforts have not gone unnoticed in the industry. It was great to see Jaywing named as ‘Integrated Agency of the Year’ at the annual Prolific North awards again in May of this year. Jaywing today is a data science- led agency and consultancy with a marketing tech division and the beginnings of an international footprint. Together these provide scalability, access to faster growth and help in differentiating our digital agency services. Jaywing’s technical innovation is underpinned by profitable, resilient and growing digital services and strong client relationships. This reduces the financial risk of investing in product development and ensures that products are developed in response to genuine client need. Continued growth through collaboration We achieved growth of 13% in gross profit and 12% in EBITDA. Taking out the impact of our acquisitions and our investment in the development of our marketing technology through the bottom line, we were able to maintain our organic EBITDA growth of 7%. Our collaborative operating model has been key to this. One in three of our top 50 clients is now buying more than one proposition, which is up from one in four last year. We are also seeing a significant increase in the number of cross-propositional new business wins. In particular, we are finding that we Once again the media and analysis segment saw the strongest growth with gross profit increasing by 20% including acquisitions and by 12% without. Epiphany, our search and online media division, performed well, particularly in programmatic display advertising. Our data science consultancy enjoyed strong demand from lenders for its IFRS9 compliance proposition. This was helped by the introduction of our Horizon modelling technology in October. Growing the media and analysis segment has been our focus for some years and now accounts for 60% of our gross profit, up from 33% three years ago. Resilience and cash generation still strong An attractive feature of the business is our high level of contracted recurring gross profit, two thirds of which is now visible six months in advance, with half visible 12 months in advance. Both of our acquisitions are performing well in this respect, which is perhaps no surprise as it was one of our key targeting criteria! Client concentration risk remains low, with no one client accounting for more than 6% of our gross profit. We also take comfort from our sector concentration risk, which is also low. Page 8 Client concentration risk remains low, with no one client accounting for more than 6% of our gross profit. Martin Boddy, Chief Executive Officer Annual Report and Accounts 2017It was great to see Jaywing named as ‘Integrated Agency of the Year’ Martin Boddy, Chief Executive Officer As a consequence of this, we continue to see strong cash generation. Net debt at the year end was £3.5m, a reduction of £1.8m from the previous year. Free cash flow was £3.0m. Jaywing Intelligence Following the acquisition of Bloom in September 2016, we have separated out its marketing technology from the digital agency and created a marketing tech division, which was rebranded as Jaywing Intelligence in May 2017. We now have a dedicated team working on the development of new marketing technology that incorporates the use of Artificial Intelligence and Virtual Reality. Jaywing Intelligence enables marketers to make much faster, fully informed commercial decisions. It uses advanced mathematical algorithms and machine- learning to make automated real-time marketing decisions. In addition, 3D data visualisation through Virtual Reality helps bring complex analysis to life for our clients. It is already being used by more than 15 clients, including Sky, ITV, Anytime Fitness Australia and KPMG, across a variety of sectors. Due to development requirements, we have chosen not to invest in CAPEX in the way we had originally intended and this has delayed anticipated revenues from new sales. The £700k we had earmarked for this will now largely be expensed through the profit and loss account this year and next. Jaywing Intelligence sits neatly alongside our collaboration with the Data Science Institute at Imperial College London. Our three and a half year cognitive marketing research programme has continued during the year but has now been expanded to explore Artificial Intelligence. We have also used our Imperial College collaboration to generate paid work helping clients on their own innovation programmes. our search marketing and online media division, in the UK. Consequently, the team has been able to sell more services into existing clients and win larger contracts through their business development activities. This has resulted in growth rates that have exceeded both our expectations and the growth rates we are experiencing in the UK. The next 12 months and beyond Market conditions Predictions of UK Digital Media Spend show continuing growth (7% CAGR to 2020) with Search and Display both predicted to grow well overall (7% and 12% respectively). Mobile platforms are the focus for this growth. Programmatic spend is projected to grow more quickly at 14% CAGR to 2020. Growth rates in Digital ad spend are similar in Australia at 7% CAGR over the same period with the wider South- east Asia region projected to grow more rapidly at 13%. In addition, adoption rates for AI based technology in Marketing are significantly higher in the Asian region. Clients’ interest in digital investment fits well with the specialisms offered by Jaywing through our interdisciplinary teams, including an increased focus on measurement and attribution and continuing investment in predictive analytics. Recent research also suggests that the creative and data-led sides of marketing are coming closer together as Chief Marketing Officers recognise the importance of both disciplines. Some caution has recently crept into the market, however, with at least two commentators reducing their outlook for ad spend growth in the UK, citing political uncertainty as having a suppressing effect on clients’ plans. (Source eMarketer 2017). Jaywing in Australia In July 2016, we acquired a majority stake in Digital Massive, a search agency based in Sydney. It was rebranded Jaywing in March and its services have expanded following collaboration with our team of experts at Epiphany, General Data Protection Regulation (GDPR) GDPR comes into force on 25 May 2018 putting increased responsibility and constraints on a brand’s use of personal data, including a need for clear and conscious opt in. Page 9 Many organisations are relating to GDPR simply in terms of risk management as the regulation gives rise to the possibility of incurring large fines for non-compliance. However, GDPR is likely to have a significant impact on the volume of individuals that a brand can directly communicate with and therefore potentially threaten the commercial model of business to consumer brands. Companies need to sort out their data processes, understand their customers through the use of data science and deliver exceptional brand led communications to gain customer opt in. Consequently, we believe that GDPR presents Jaywing with a considerable opportunity given the specialist skillsets that exist within the business spanning data science, digital marketing, brand communications, social media and paid digital media. Outlook In terms of new business, this financial year has started well, particularly in our search and online media division Epiphany, as has cross-selling. However, outside of our contracted revenues, a late Easter and snap election has delayed spend on a few client projects. In addition, we’ve seen a small number of our clients in the retail sector take a more cautious approach to their marketing spend. Internationally, our Australian operation continues to enjoy growth ahead of what we are seeing in the UK. Overall, on balance we are cautiously optimistic that we will be able to continue to deliver growth this financial year. Beyond that, we remain very confident in Jaywing’s future growth prospects. Strategic update Our strategy is to innovate, scale and grow Innovate Having created Jaywing Intelligence our immediate priority is to accelerate licence sales and the development work associated with doing that. Initially our sales effort will focus on existing Jaywing clients in the UK and Australia. However, to sell to other organisations, we will also adopt the sales and marketing approach used so effectively by Epiphany. Outside of Jaywing Intelligence we will continue to put our energies into our unique collaboration with the Data Science Institute at Imperial College London. Scale Our strategy here is to scale the business internationally through the distribution of our marketing technology products and the acquisition of complementary businesses. This is critical in order to increase our market capitalisation, improve the liquidity of our stock and achieve a rating commensurate with a business of our quality. It is also important to provide us with access to higher growth opportunities outside the UK given that a number of commentators are now predicting that growth in digital media may slow in the UK over time. We have had a number of encouraging conversations about product distribution with international agency groups, management consultancies and marketing automation providers. Whilst there was genuine interest in our tech it became evident that more development was required and more user cases were needed to enable third parties to use the products remotely and re-sell licences to their clients. This development work is now well progressed and we will pick up these conversations again once we have more user cases from our sales direct to clients. Given the success we have seen with our acquisition in Australia, we are actively exploring the opportunity to invest in acquiring businesses in other overseas territories, or businesses that already have an established international footprint. The key is to have a smart expansion strategy to acquiring complementary businesses. We will seek businesses with a good cultural fit that are led by motivated people who want to stay involved, which have good quality income streams and the opportunity for our marketing technology to add value and create consistency across territories in how our services are differentiated and delivered. Page 10 We now have a dedicated team working on the development of new marketing technology that incorporates the use of Artificial Intelligence and Virtual Reality. Martin Boddy, Chief Executive Officer Annual Report and Accounts 2017Jaywing is a high quality and innovative data science led business with a high calibre management team and some amazing talent working collaboratively across it. Having built this platform, we have an ambitious strategy to scale the business and in so doing improve the rating and liquidity of our stock. Finally, I’d like to thank all of our people for their ideas, enthusiasm and hard work as well as our investors and advisors for their continued support. Martin Boddy Chief Executive Officer Jaywing plc It has been another strong year financially and one in which we’ve made some excellent progress towards achieving our strategic goals. Martin Boddy, Chief Executive Officer Grow Taking encouragement from the exceptional levels of collaboration we are seeing across Jaywing, our aim is to create even greater client focus in order to increase our already impressive cross-sales ratio still further. This will involve taking new approaches to client relationship management, workflow, financial reporting and incentivisation. Board refresh Jaywing has a strong and tight Executive team. The Board was enlarged to five members when Rob Shaw (CEO UK and Australia) and Adrian Lingard (COO) joined the Board in 2015 to give us the bandwidth to execute our strategy and achieve our ambition. Having led the business as Chief Executive for the past five years I am moving into the role of Executive Chairman with immediate effect to allow the opportunity for Rob Shaw to progress to the role of Chief Executive Officer. Ian Robinson will stay on the Board as Deputy Chairman and Chair of Audit Committee. So, going forward the Board will comprise: Martin Boddy Executive Chairman Rob Shaw Chief Executive Officer Michael Sprot Chief Financial Officer Adrian Lingard Chief Operating Officer Andy Gardner Chief Strategy Officer (with a particular focus on international expansion) Ian Robinson Deputy Chairman and Chair of Audit Committee Philip Hanson Independent Non-Exec Director and Chair of Remuneration Committee In summary, it has been another strong year financially and one in which we’ve made some excellent progress towards achieving our strategic goals. Today, Page 11 Page 12 Annual Report and Accounts 2017Chairman’s Statement We have seen the benefit of our data science-led positioning and collaborative operating model in providing clients with innovative and seamlessly integrated solutions. Ian Robinson, Chairman Progress all round I am delighted to report a year of significant progress for Jaywing in terms of both its business and financial strategies. We have seen the benefit of our data science-led positioning and collaborative operating model in providing clients with innovative and seamlessly integrated solutions. This has resulted in one in three of our top 50 clients now buying more than one proposition. We have enjoyed organic EBITDA growth of 3%, although this includes an investment through the bottom line in the development of our Marketing Technology division. Excluding this expense, the organic EBITDA growth would have been 7%. We have made two strategically important acquisitions. With Bloom we have acquired a number of innovative products and created a dedicated marketing technology division. Digital Massive, in Australia, now re-branded Jaywing, represents the beginning of our planned international expansion and is providing us with access to faster growth. Financially, we achieved 13% growth in gross profit and a 12% growth in EBITDA overall. Cash generation was strong and Page 13 resulted in a reduction of £1.8m in Net Debt, which ended the year at £3.5m. The Board considers this to be the appropriate time to announce a dividend policy, and is please to share its intention is to implement a progressive dividend policy starting from the financial year ending 31 March 2018. Over the past five years the business has changed shape considerably and this has been reflected in improvements to the quality of our income and in our growth rates. The Board recognises the need for increasing scale to maximise its operational efficiency as well as improving value for shareholders. We have a bold strategy to “innovate, scale and grow” and will be working hard to execute it successfully in the next period. Finally, on behalf of the Board, I would like to thank all of our colleagues - the “Jaywingers” - for 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 Strategic Report Business review Gross profit grew by 13% to £36.0m, an increase of £4.2m from the prior year (2016: £31.8m). If the impact of acquisitions is excluded, there was organic growth of 5%, from £31.8m to £33.5m. The adjusted operating performance line, before interest, tax, depreciation, amortisation, impairment, share based payment charges, loss before tax on disposal, exceptional items and acquisition related costs, shows EBITDA of £4.9m (2016: £4.3m). This is growth of 12%. The EBITDA margin has reduced slightly by 0.1%, and this is due to the ongoing investment in Jaywing Intelligence being through the P&L, rather than CAPEX as originally intended. The consolidated cash flow statement shows Jaywing to have generated cash from operating activities of £3.9m (2016: £2.8m) after changes in working capital. This is shown in the table below. (Loss) / profit after tax Adjustments for: 2017 £’000 (2,981) 2016 £’000 705 Depreciation, amortisation and impairment 5,140 1,910 Movement in provision Foreign exchange Financial expenses & income Share-based payment expense Taxation charge Changes in working capital Operating cash flow after changes in working capital 6 16 32 1,141 43 482 3,879 9 (18) 251 412 369 (830) 2,808 A loss after tax of £3.0m has been generated (2016: profit of £0.7m), which is principally explained by the impairment in the carrying value of goodwill in our Contact Centre. We have taken this decision following the loss of a major client in the year and a challenging outlook due to cost increases from a rent review, the national living wage and the apprenticeship levy. Over the period we have owned this business we have generated profits in excess of the amount paid. We incurred £1.1m of one-off costs from the acquisitions of Digital Massive and Bloom, which are included within the loss after tax. Jaywing continues to be cash generative from operating activities as shown in the table. Net debt has decreased from the prior year by £1.8m and is now £3.5m (2016: £5.3m). This is 0.7x adjusted EBITDA (2016: 1.2x). Banking facilities comprise a term loan for £2.2m, a revolving credit facility for £3.5m and a bank overdraft of £2.0m. There was headroom of £4.2m at the year end. The business operates in three segments: Agency Services, Media & Analysis and Central Costs. The segmental performance of our business in these practice areas is Page 14 Annual Report and Accounts 2017shown in Note 1 to the Consolidated Financial Statements, together with the comparative performance from the previous year. increasing by 4% and EBITDA increasing by 17%, due to the mix of revenues and a change in the management structure for the Content Marketing area. The Media and Analysis segment, which represents 60% of Jaywing’s total gross profit, has performed strongly again with gross profit growing by 20% from £18.0m to £21.6m and EBITDA growing by 11% from £5.4m to £6.0m. The Agency Services segment has also grown, with gross profit The table below shows the adjusted operating profit of Jaywing analysed between the two half years and adjustments made against the reported numbers: Reported loss before tax Interest Amortisation Depreciation Impairment Share based payment charge Acquisition related costs Exceptional costs Adjusted operating profit Deduct other income Adjusted operating profit before other income Full year to 31 March 2017 £’000 (2,938) Six months to 31 March 2017 £’000 (2,734) Six months to 30 September 2016 £’000 (204) 32 1,761 473 2,906 1,141 1,115 396 4,886 (26) 4,860 (78) 999 238 2,906 768 263 392 2,754 (26) 2,728 110 762 235 - 373 852 4 2,132 - 2,132 Excluding other income, Jaywing produced £2.8m adjusted operating profit after interest in the six months to 31 March 2017 and £2.1m in the first half. The table below shows the trend of gross profit and EBITDA over the last four 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 2017 £’000 Six months to 30 Sept 2016 £’000 Six months to 31 March 2016 £’000 Six months to 30 Sept 2015 £’000 23,642 (4,779) 18,863 (16,135) 20,895 (3,781) 17,114 (14,982) 18,922 (2,577) 16,345 (13,819) 17,051 (1,604) 15,447 (13,640) 2,728 2,132 2,526 1,807 Page 15 Principal risks and uncertainties The principal risks and uncertainties of the Company are outlined on page 18. Overall it has been another strong year financially for Jaywing, with growth in both operating segments. The business continues to be cash generative, allowing net debt to be reduced. The share price has performed well, with the issue of equity for the acquisition of Bloom bringing in new institutional investors. We have also been more active with retail investors and as a result have seen an increase in the volume of trades. By order of the Board. Michael Sprot Chief Financial Officer 4th July 2017 Impairment As required by IAS 36, we have carried out an impairment review of the carrying value of our intangible assets and goodwill. We calculated our weighted average cost of capital with reference to long-term market costs of debt and equity and the Company’s own cost of debt and equity, adjusted for the size of the business and risk premiums. Based on this calculation, a rate of 10.6% (2016: 13.5%) has been derived. This is applied to cash flows for each of the business units using growth rates in perpetuity of 2% from 2020/21. As a result of these calculations the Board has concluded that the carrying values of the HSM Limited goodwill on Jaywing’s balance sheet needs to be impaired and therefore a charge of £2.9m has been made (2016: £nil). Dividend policy We intend to implement a progressive dividend policy. The first dividend is to be declared based on the results to 31 March 2018. Full details will be provided with the interim results in November 2017. Key performance indicators Over the last 12 months, the key areas of focus have been: - improved resilience - increased sales/cross sales - strong cash generation - international expansion - technology development Progress against these is described in the Chief Executive’s report on page 7. Page 16 Annual Report and Accounts 2017Board of Directors Following publication of interim results Ian Robinson (70) Deputy Chairman Martin Boddy (52) Executive Chairman 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. Philip Hanson (60) Non-Executive Director Philip has extensive experience in marketing and e-commerce both in the UK and internationally, having held a number of senior roles in the FMCG and retail financial services sectors – latterly as Global Marketing & e-commerce Director for Travelex. Philip is also Non-Executive Director of the Bettys & Taylors Group. He is a Director of the French and Australian entities of the Goelet family wine business (SCEA Domaine de Nizas and Red Earth Nominees Pty Ltd respectively). He was a Director of Travelex Card Services Ltd until December 2015. Philip joined the board on 27 April 2017. 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. Most recently he was CEO of Jaywing plc for five years. Andy Gardner (54) 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 (37) 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 17 Adrian Lingard (45) Chief Operating Officer Adrian joined Jaywing from first direct in 2000 and has spent his career understanding how to use data and decision science across a wide range of business problems and opportunities and in a wide range of market sectors. Having headed up Jaywing’s Consulting business since 2010, he has considerable commercial management and planning experience and handles many of Jaywing’s large-scale contract negotiations. Adrian started out at Yorkshire Bank 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. His experience further extends across Jaywing’s key sectors. Rob Shaw (46) Chief Executive Officer 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, including the O2 mobile billing platform and the Student Loans system during his time as IT Director for Ventura, part of NEXT plc. Before becoming Jaywing’s CEO for UK and Australia in July 2015, Rob was the CEO of Epiphany Solutions Limited, which was recognised as one of the fastest growing digital marketing agencies in the UK, with headcount rising from 26 to over 160 during his time as CEO. 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. 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 Albert Works 71 Sidney Street Sheffield S1 4RG Registered number: 05935923 Country of incorporation: England Page 18 Annual Report and Accounts 2017Principal Risks and Uncertainties General economic and business conditions The sector in which the Group 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 Group has in recent years focused on improving its resilience, which will lessen any impact. People The operations of the Group are dependent upon the continuing employment of a number of senior management personnel. The future of the Group 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 Group. As the Group 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 Group encounters significant competition for the recruitment of suitably experienced and skilled personnel. The future results of the Group could depend significantly Page 19 upon the recruitment of such personnel and a failure to do so could have a material adverse effect on the business of the Group. To mitigate this risk, the Group’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 Group (see Directors’ Remuneration Report). Clients The Group, 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 the risk of clients on framework agreements reducing or suddenly halting their spend, a well structured and experienced account management function is in place. Client concentration risk is low with no individual client accounting for more than 6% of total gross profit. Competition The Group 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 Group 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’ve 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 fierce competition. Suitable acquisitions and access to capital The Group’s plans for continued expansion are based on organic growth and 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 Group to deliver incremental revenues through co-ordinated new business activity is dependent on the availability of key senior personnel to help convert leads and cross-refer business. The new business team has been centralised and the Jaywing business is working together in a collaborative style 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 Group’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 Group 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. Page 20 Annual Report and Accounts 2017Directors’ Report The Directors have pleasure in submitting their report and the audited financial statements for the year ended 31 March 2017. Principal activity The principal activity of the Company, and Group, during the year under review is that of digital marketing services. 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. Results and dividend The Group’s loss before taxation for the year ended 31 March 2017 was £2.9 million (2016: profit of £1.1 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 7 and the Strategic Report on page 13. Going concern The Directors have reviewed the forecast up to September 2018 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 Political donations No political donations were made during the year (2016: £Nil). Directors’ interests The present membership of the Board, together with biographies on each, is set out on page 9. 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 23. 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. Page 21 Employees The Group is an Equal Opportunities Employer and no job applicant or employee receives less favourable treatment on the grounds of age, gender, 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 33 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 21 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 which 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 Services 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 Page 22 Annual Report and Accounts 2017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 2017 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: Lombard Odier Investment Managers Group Lord Michael Ashcroft J & K Riddell A Gardner M Boddy Hargreave Hale Limited H & J Spinks Number of voting rights 22,879,157 21,419,737 5,372,638 4,987,470 4,916,667 4,513,000 3,508,772 2017 % 26.3 24.7 6.2 5.7 5.7 5.2 4.0 2016 % 26.4 24.7 7.0 6.5 6.4 5.1 4.6 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. • the Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. 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 Auditor Each of the Directors at the date of approval of this Annual Report confirms that: Michael Sprot Director 4th July 2017 • so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and Page 23 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: Ian Robinson (Chairman to 27 April 2017, continuing to serve on the committee) Stephen Davidson (resigned 27 April 2017) Philip Hanson (Chairman – appointed 27 April 2017) The Code recommends that a remuneration committee should be composed of entirely independent Non-Executive directors. Ian Robinson (who is affiliated with a major shareholder) is not regarded as independent under the Code. The Board does consider him to act independently with respect to remuneration issues. The Committee met four 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 and salary increases Annual Report and Accounts 2017 Page 24 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. 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. also take into account pay awards made elsewhere in the Group as well as external market benchmarking. During the year to 31 March 2017 there were five Executive Directors on the Board in the roles below. Following the publication of the preliminary results, Martin Boddy became Executive Chairman and Rob Shaw became CEO. Martin Boddy (Chief Executive) Andy Gardner (Chief Strategy Officer) Michael Sprot (Chief Financial Officer) Rob Shaw (Chief Executive Officer 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 £30,000 per annum. 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. Page 25 Directors’ remuneration The total amounts of the remuneration of the Directors of the Company for the years ended 31 March 2017 and 2016 are shown below: 31 March Aggregate emoluments Sums paid to third parties for Directors’ services 2017 £ 944,256 40,000 984,256 2016 £ 772,344 40,000 812,344 The emoluments of the Directors are shown below: 31 March 2017 Fees and salary 2017 Benefits in kind 2017 Bonus 2017 Total 2016 Total Martin Boddy Andy Gardner Michael Sprot Rob Shaw^ Adrian Lingard^ Charles Buddery# Stephen Davidson* Ian Robinson~ Philip Hanson+ Total £ 179,104 163,902 101,250 210,000 155,000 - 35,000 40,000 - 884,256 £ - - - - - - - - - - £ £ £ 21,000 200,104 167,030 21,000 184,902 167,030 16,000 117,250 100,692 21,000 231,000 154,509 21,000 176,000 132,923 - - - - - 15,160 35,000 35,000 40,000 40,000 - - 100,000 984,256 812,344 2017 Gain on exercise of share options £ 2016 Gain on exercise of share options £ - - - - - - - - - - - - - - - - - - - - 2017 Pension contri- butions £ 20,000 37,299 21,723 - 70,990 - - - - 2016 Pension contri- butions £ 39,999 39,999 3,848 - 5,317 - - - - 150,012 89,163 + appointed 27 April 2017 * resigned 27 April 2017 ^ appointed 7 July 2015 # resigned 10 August 2015 ~ paid to a third party for the Director’s services 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: Stephen Davidson (resigned 27 April 2017) Ian Robinson Philip Hanson Date of contract Notice period Company with whom contracted 1 March 2012 3 months Jaywing plc 21 May 2014 27 April 2017 3 months 3 months Jaywing plc Jaywing plc Page 26 Annual Report and Accounts 2017 Directors’ interests in shares The Directors’ interests in the share capital of the Company are set out below: 31 March Andy Gardner Martin Boddy Stephen Davidson Ian Robinson Michael Sprot 2017 Number of shares 2016 Number of shares 4,987,470 4,916,667 1,650,453 370,267 18,519 4,987,470 4,916,667 1,650,453 370,267 18,519 The table below sets out options granted under the PSP scheme: At 31 March 2017 At 31 March 2016 Exercise price Martin Boddy Andy Gardner Michael Sprot Adrian Lingard Rob Shaw 496,000 496,000 710,000 1,156,303 1,591,054 526,000 526,000 299,000 409,000 691,000 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 for staff. Martin Boddy, Andy Gardner, Michael Sprot and Adrian Lingard each received a contribution to a pension scheme. 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. 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. Disclosable transactions by the Company under IAS 24, Related Party Disclosures, are set out in note 31. 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 27 Share price performance The share price performance from 1 April 2012 is shown in the following graph: e c n e P 50.00 – 45.00 – 40.00 – 35.00 – 30.00 – 25.00 – 20.00 – 15.00 – 10.00 – 5.00 – 0 – 2 1 r p A – 2 1 n u J – 2 1 g u A – 2 1 t c O – 2 1 c e D – 3 1 b e F – 3 1 r p A – 3 1 n u J – 3 1 g u A – 3 1 t c O – 3 1 c e D – 4 1 b e F – 4 1 r p A – 4 1 n u J – 4 1 g u A – 4 1 t c O – 4 1 c e D – 5 1 b e F – 5 1 r p A – 5 1 n u J – 5 1 g u A – 5 1 t c O – 5 1 c e D – 6 1 b e F – 6 1 r p A – 6 1 n u J – 6 1 g u A – 6 1 t c O – 6 1 c e D – 7 1 b e F By Order of the Board Ian Robinson 4th July 2017 Page 28 Annual Report and Accounts 2017 Corporate Governance This report is prepared voluntarily by the Board and describes how the principles of corporate governance are applied. The Board For the year ended 31 March 2017, the Board currently comprises the Chairman Ian Robinson, Non-Executive Director Philip Hanson, 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 16. 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. Some of these roles changed following the publication of the interim results, see the CEO statement on page 12 for full details. 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 Philip Hanson (Chair) and Ian Robinson. 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. Ian Robinson (who is affiliated with a major shareholder) is not regarded as independent under the Code. The Board does consider him 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 the decisions of the Remuneration Committee on remuneration matters in the year ended 31 March 2017 were reported to and endorsed by the Board. Page 29 Further details of the Group’s policies on remuneration and service contracts are given in the Directors’ Remuneration report on pages 23 to 27. audit recommendations and the independence and objectivity of the auditor. Audit Committee The Audit Committee comprises Ian Robinson (Chair) and Philip Hanson. 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 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. 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 2017. Board Remuneration Audit Nomination Total meetings held Ian Robinson Stephen Davidson (resigned 27 April 2017) Martin Boddy Andy Gardner* Michael Sprot Rob Shaw Adrian Lingard 6 6 6 6 4 6 6 6 4 4 4 - - - - - 3 3 3 - - 3 - - - - - - - - - - *Andy Gardner was working in Australia when two of the board meetings were held and was unable to attend Page 30 Annual Report and Accounts 2017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 Operations Board 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 4th 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 31 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. 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 • 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 disclosure 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 4th July 2017 Page 32 Annual Report and Accounts 2017 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 2017, which comprise the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement of changes in equity, the Company profit and loss account, the Company balance sheet, the Company statement of changes in equity and the related notes. 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 33 Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement, 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 2017 and of the Group’s loss and the parent Company’s profit for the year then ended; • the financial statements have been properly prepared in accordance with IFRSs 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 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 4th July 2017 • 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, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. • the Strategic Report and Directors’ Report has been prepared in accordance with applicable legal requirements. Matters on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the Group and parent Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or Directors’ Report. 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 Page 34 Annual Report and Accounts 2017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 (Loss) / profit before tax Tax expense (Loss) / profit 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 28 2017 £’000 44,537 (8,560) 35,977 2016 £’000 35,973 (4,181) 31,792 26 71 (38,909) (30,538) (2,906) 165 (197) (32) (2,938) (43) (2,981) 1,325 - (251) (251) 1,074 (369) 705 27 16 (18) Total comprehensive income for the period attributable to equity holders of the parent (2,965) 687 (Loss) / profit per share Basic (loss) / profit per share 7 (3.42p) 0.90p Diluted (loss) / profit per share (3.42p) 0.83p The accompanying notes form part of these consolidated financial statements. Page 35 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 consideration 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 Minority interest Foreign currency translation reserve Retained earnings Note 2017 £’000 2016 £’000 2015 £’000 13 14 15 16 17 18 19 17 20 21 22 24 23 25 26 27 28 1,095 33,732 7,230 42,057 11,311 2,216 13,527 744 685 30,446 30,446 6,562 37,752 10,150 347 10,497 8,065 39,196 7,530 1,000 8,530 55,584 48,249 47,726 4,750 11,768 557 173 4,612 7,534 452 167 4,062 7,157 355 158 17,248 12,765 11,732 1,000 2,314 1,229 4,543 1,063 - 1,387 2,450 2,126 - 1,667 3,793 21,791 15,215 15,525 33,793 33,034 32,201 34,657 9,108 125 (25) 504 1,513 19 34,139 6,608 34,139 6,608 125 (25) 146 - 3 125 (25) - - 21 (12,108) (7,962) (8,667) Total equity 33,793 33,034 32,201 These financial statements were approved by the Board of Directors on 4 July 2017 and were signed on its behalf by: Michael Sprot Director Company number: 05935923 The accompanying notes form part of these consolidated financial statements. Page 36 Annual Report and Accounts 2017 Consolidated cash flow statement For the year ended 31 March Cash flow from operating activities (Loss) / profit after tax Adjustments for: Note 2017 £’000 2016 £’000 (2,981) 705 Depreciation, amortisation and impairment 5,140 1,910 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 in trade and other receivables Increase 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 Receipt / (payment) of deferred consideration Acquisition of subsidiaries Digital Massive and Bloom net of cash acquired Acquisition of property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Repayment of borrowings Increase in borrowings Proceeds from issue of share capital Net cash inflow / (outflow) from financing activities Net increase / (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 12 13 16 6 16 (165) 197 1,141 43 3,397 (281) 763 3,879 1 (197) (549) 3,134 9 (18) - 251 412 369 3,638 (2,667) 1,837 2,808 - (251) (500) 2,057 151 (1,728) (3,694) - (815) (4,358) (469) (2,197) - 75 3,018 3,093 1,869 347 2,216 2,216 - 2,216 (513) - - (513) (653) 1,000 347 347 - 347 The accompanying notes form part of these consolidated financial statements. Page 37 Consolidated statement of changes in equity Share capital £’000 Share premium account £’000 Capital redemption reserve £’000 Treasury shares £’000 Minority interest £’000 Share option reserve £’000 Foreign currency translation reserve £’000 Retained earnings £’000 Total equity £’000 Balance at 31 March 2015 Loss for the period Retranslation of foreign currency Charge in respect of share based payments Total comprehensive income for the period Balance at 30 September 2015 (unaudited) Charge in respect of share based payments Transactions with owners Profit for the period Retranslation of foreign currency Total comprehensive income for the period Balance at 31 March 2016 34,139 6,608 125 (25) - - - - - - - - - - - - - - - - 34,139 6,608 125 (25) - - - - - - - - - - - - - - - - - - - - 34,139 6,608 125 (25) Issue of share capital 518 2,500 - - - - - - - - - - - - - 1,513 - - - - 518 2,500 - - - - - - - - - - - - - - - - - - - - - 358 1,513 358 - - - - - - Acquisition of subsidiaries Charge in respect of share based payments Transactions with owners Loss for the period Retranslation of foreign currency Total comprehensive income for the period Balance at 31 March 2017 - - - 80 80 21 (8,667) 32,201 - 32 - 32 (11) - - (11) 32 80 (11) 101 80 53 (8,678) 32,302 66 66 - - - 146 - - - - - (50) (50) 3 - - - - - 16 16 - - 716 - 716 66 66 716 (50) 666 (7,962) 33,034 - (1,165) 3,018 348 - 358 (1,165) 3,724 (2,981) (2,981) - 16 (2,981) (2,965) 34,657 9,108 125 (25) 1,513 504 19 (12,108) 33,793 The accompanying notes form part of these consolidated financial statements. Page 38 Annual Report and Accounts 2017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 Group 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 2016 The Group has not adopted any new standards or amendments that have a significant impact on the Group’s results or financial position. Going concern The Directors have reviewed the forecasts for the period up to 30 September 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 operational existence for the foreseeable future. Page 39 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 certainly, 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. 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 therefore 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 32 to the consolidated financial statements. 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 Page 40 Annual Report and Accounts 2017Office equipment - 3 to 5 years It has been assumed that all assets will be used until the end of their economic life. its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. 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 that 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 - 4 to 12 years Development costs - 3 to 6 years Trademarks - 2 to 20 years Order books - 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 Page 41 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 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 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. 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. Page 42 Annual Report and Accounts 2017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. 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. 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. Standards and interpretations in issue at 31 March 2017 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. Management have yet to finalise their assessment of the impact of these standards. Page 43 Notes to the Consolidated Financial Statements 1. Segmental analysis The Group reports its business activities in two areas: Agency Services and Media & Analysis, its two primary business activities. Central Costs 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 £1,250,000 of sales were made to clients in Australia. During the year and prior year, no customer included within either sector accounted for greater than 10% of the Group’s revenue. For the year ended 31 March 2017 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 Impairment to the carrying value of goodwill Exceptional costs Acquisition related costs Charges for share-based payments Operating (loss) / profit Finance income Finance costs Loss before tax Tax expense Loss for the period Agency Services £’000 Media & Analysis £’000 17,297 (2,901) 14,396 27,877 (6,296) 21,581 Central Costs £’000 (637) 637 - Total £’000 44,537 (8,560) 35,977 (11,812) (15,617) (3,688) (31,117) 2,584 5,964 (3,688) 4,860 26 (280) (1,046) (2,906) (187) - (107) (1,916) - (147) (715) - (30) - (135) 4,937 - (46) - - (179) (1,115) (899) (5,927) 26 (473) (1,761) (2,906) (396) (1,115) (1,141) (2,906) 165 (197) (2,938) (43) (2,981) Page 44 Annual Report and Accounts 2017 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 Year ended 31 March 2017 Assets Liabilities Agency Services £’000 Media & Analysis £’000 15,700 21,218 Central Costs £’000 (945) Total £’000 35,973 (1,899) (3,227) 945 (4,181) 13,801 17,991 - 31,792 (11,589) (12,637) (3,233) (27,459) 2,212 5,354 (3,233) 4,333 64 (270) (861) (75) (176) - 894 7 (114) (642) (24) (38) - 4,543 (4,112) - (23) 71 (407) - (1,503) (471) 27 (412) (570) (187) (412) 1,325 - (251) 1,074 (369) 705 Agency Services £’000 Media & Analysis £’000 Central Costs £’000 Total £’000 29,404 31,722 (5,542) 55,584 (3,536) (6,956) (11,299) (21,791) Capital employed 25,868 24,766 (16,841) 33,793 Year ended 31 March 2016 Assets Liabilities Agency Services £’000 Media & Analysis £’000 Central Costs £’000 Total £’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 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 groups assets are based in the UK. Capital additions; Property, plant and equipment Year ended 31 March 2017 Agency Services £’000 Media & Analysis £’000 145 367 Central Costs £’000 303 Total £’000 815 Year ended 31 March 2016 257 159 53 469 Page 45 2. Other operating income Other operating income 2017 £’000 26 2016 £’000 71 During the years to 31 March 2016 and 31 March 2017 the Group received money from the administrator of a client for a contractual obligation to perform services on their behalf. During the year the Group received a further distribution of £26,000. 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 Depreciation Exceptional items Amortisation Impairment to the carrying value of goodwill Other operating expenses Deferred consideration write-off Compensation for loss of office 2017 £’000 2016 £’000 24,809 21,944 1,141 473 310 1,761 2,906 7,423 412 407 450 1,503 - 5,353 38,823 30,069 - 86 86 349 120 469 38,909 30,538 Wages and salaries include £305,000 (2016: £Nil) of post-acquisition employment costs relating to the purchase of Massive Group Pty Ltd, £Nil (2016: £175,000) of post-acquisition employment costs relating to the purchase of Iris Associates Limited, and £Nil (2016: £38,000) of post-acquisition employment costs relating to the purchase of Epiphany Solutions Limited. 4. Finance income Interest income Finance charge on acquisition Total 5. Finance costs Interest expense Finance charge on acquisition Total 2017 £’000 2016 £’000 1 164 165 - - - 2017 £’000 2016 £’000 191 6 197 251 - 251 Page 46 Annual Report and Accounts 2017 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: (Loss) / profit before tax 2017 £’000 2016 £’000 533 (490) 43 601 (232) 369 (2,938) 1,074 Taxation using the UK Corporation Tax rate of 20% (2016: 20%) (588) 215 Effects of: Non deductible expenses Share based payment charges Other Prior year adjustment Total tax charge 7. (Loss) / profit per share Basic Diluted 402 229 - - 43 137 - 39 (22) 369 2017 Pence per Share 2016 Pence per Share (3.42p) (3.42p) 0.90p 0.83p (Loss) / profit per share has been calculated by dividing the (loss) / profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. The calculations of basic and diluted (loss) / profit per share are: 2017 £’000 2016 £’000 (Loss) / profit for the year attributable to shareholders (2,965) 687 Weighted average number of ordinary shares in issue: Basic Adjustment for share options Diluted 2017 Number 2016 Number 86,709,898 7,959,291 94,669,189 76,259,763 6,067,000 82,326,763 The basic and diluted earnings per share are the same due to the Group being loss making. Adjusted earnings per share From continuing and discontinued operations: Basic adjusted earnings per share Diluted adjusted earnings per share 2017 Pence per Share 2016 Pence per Share 3.95p 3.62p 3.38p 3.13p Page 47 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: (Loss) / profit before tax Amortisation Impairment to the carrying value of goodwill Acquisition related costs Charges for share-based payments Adjusted profit attributable to shareholders Current year tax charge Total 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 Due diligence services 2017 £’000 (2,965) 1,761 2,906 1,115 1,141 3,958 (533) 3,425 2017 £’000 473 1,761 86 25,950 28 102 13 31 23 52 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. 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 - Page 48 Annual Report and Accounts 20179. Key management personnel compensation Key management of the Group is considered to be the Board of Directors and the Operations Board. 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 2017 £’000 2,173 285 2,458 1,085 209 3,752 2016 £’000 1,782 228 2,010 412 115 2,537 Further information in respect of Directors is given in the Directors’ Remuneration Report on page 23. Remuneration in respect of Directors was as follows: Emoluments receivable Fees paid to third parties for Directors’ services Company pension contributions to money purchase pension schemes 2017 £’000 944 40 150 1,134 2016 £’000 772 40 89 901 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 £247,000 (2016: £207,000). 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: 2017 Number 2016 Number Management and administration Call centre operatives Account management and production Information strategists 92 195 298 57 642 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) 2017 £’000 21,752 2,292 765 1,054 87 25,950 77 229 241 52 599 2016 £’000 19,394 1,966 584 381 31 22,356 Page 49 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: 2017 Number of share options 2017 Weighted average exercise price 2016 Number of share options 2016 Weighted average exercise price At start of the year Issued during the year Exercised during the year Lapsed during the year At end of the year 6,067,000 7,459,357 (350,513) (5,216,553) 7,959,291 Exercisable at end of year 185,869 5.0p 5.0p 5.0p 5.0p 5.0p 5.0p 6,771,000 - - (704,000) 6,067,000 Nil 5.0p - - 5.0p 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 2017 Period of exercise Number 7,959,291 Exercise price From To 5.0p 01/04/2017 30/09/2020 As at 31 March 2016 Number 6,067,000 Exercise price From To 5.0p 01/08/2016 30/09/2020 Period of exercise On 4 May 2016 and 30 September 2016, 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 2016, 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 which 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. Page 50 Annual Report and Accounts 2017The weighted average fair value for the EBITDA performance options was calculated using the Black-Scholes Merton Option Pricing Model 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 2017 £’000 32.5p / 30.0p 5.0p 30% 0% 0.102% to 0.459% 2 years / 3 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. Acquisition of subsidiaries During the year the Group made two acquisitions. On 8 July 2016 Jaywing plc acquired 75% of the ordinary shares in Massive Group Pty Ltd (“Digital Massive”) for cash consideration of AUS$2,667,000 (£1,558,000) (excluding legal and professional fees of £412,000 which have been expensed through the statement of comprehensive income in administration expenses in the year). AUS$2,000,000 (£1,144,000) of this was paid on completion, with a further AUS$667,000 (£414,000) paid in October 2016. Additional consideration is payable, separate to the acquisition costs, for the continuing employment and future services provided by the former owners of Digital Massive. The amount recognised in the statement of comprehensive income as an expense during the year is £305,000, which represents the total amount earned as at 31 March 2017. This amount has been provided for within accruals and deferred income. Further amounts are payable as they are earned up to a maximum amount of AUS$1,500,000, including the AUS$500,000 (£305,000) recognised during the year, up until July 2018. The final 25% of the share capital is subject to a put / call option from July 2020. This will be valued at a multiple of the average audited EBITDA for the previous two financial years, subject to a maximum total consideration payable of AUS$12 million for the entire business. Jaywing had a small search marketing team in Sydney and knows the market well. The acquisition of Digital Massive allows Jaywing to consolidate its existing client relationships and take full advantage of the rapidly growing market in Australia. In time, it will also provide the opportunity for the Group to distribute a broader set of its UK products and services. Page 51 In the period since acquisition, the subsidiary contributed £1,064,000 to Group revenues, £310,000 of EBITDA and £310,000 to the consolidated profit attributable to shareholders for the year ended 31 March 2017. The assets and liabilities acquired were as follows: Intangible assets Property, plant & equipment Trade and other receivables Cash and cash equivalents Trade and other payables Corporation tax repayable Deferred tax Net identifiable assets and liabilities Goodwill on acquisition Summary of net cash outflow from acquisitions: Cash paid Cash acquired Net cash outflow Fair value of consideration transferred Amount settled in cash Fair value of deferred consideration Minority interest Total Book value £’000 - 1 132 146 (110) - - Fair value adjustments £’000 496 - - - - - - Fair value £’000 496 1 132 146 (110) - - 665 1,895 2,560 1,558 (146) 1,412 1,558 271 731 2,560 The fair value of trade and other receivables are equal to the gross contractual amounts receivable and at the acquisition date all amounts were expected to be collected. The goodwill amount represents intangible assets that do not qualify for recognition through the separability criterion or the contractual-legal criterion. This consists of cross-selling opportunities and expected synergies. On 31 August 2016 Jaywing plc acquired 100% of the ordinary shares in Bloom Media (UK) Limited (“Bloom”) for cash consideration of £2,407,000 (excluding legal and professional fees of £224,000, which have been expensed through the statement of comprehensive income in administration expenses in the year). This was all paid on completion. Additional consideration is payable, separate to the acquisition costs, for the continuing employment and future services provided by the former owners of Bloom. Further amounts are payable as they are earned up to a maximum amount of £5,750,000, up until July 2018. A new company, Jaywing Innovations Ltd (“JI”) was incorporated to run the Company’s MarTech strategy. This is owned 75% by Jaywing, and 25% by management. On 31 August 2016, the products owned by Bloom and the Almanac product owned by Jaywing were hived across into the company. Page 52 Annual Report and Accounts 2017The 25% of the share capital owned by management is subject to a put / call option from July 2020. This will be valued at a multiple of the average audited EBITDA for the previous two financial years, subject to a maximum total consideration payable of £4 million for the 25% stake. The acquisition of Bloom is expected to accelerate the Group’s strategy and will provide Jaywing with a suite of innovative digital products, including a social media and behavioural analytics tool. The acquisition also brings significant expertise to the Group. Alex Craven, founder of Bloom, will remain employed in the business and will be responsible for leading the development of the Group’s enlarged product set. The acquisition will also increase Jaywing’s scale in digital marketing in the UK and is expected to provide opportunities to cross-sell existing products and services into the Bloom client base. In the period since acquisition the subsidiary contributed £1,817,000 to Group revenues, £271,000 to EBITDA and £134,000 to the consolidated profit attributable to shareholders for the year ended 31 March 2017. The assets and liabilities acquired were as follows: Book value £’000 Fair value adjustments £’000 Fair value £’000 Intangible assets Property, plant & equipment Trade and other receivables Cash and cash equivalents Trade and other payables Corporation tax asset Deferred tax Net identifiable assets and liabilities Goodwill on acquisition Summary of net cash outflow from acquisitions: Cash paid Cash acquired Net cash outflow Fair value of consideration transferred Amount settled in cash Fair value of deferred consideration Minority interest Total 47 8 841 125 (393) (36) - 1,826 1,873 - - - - - (310) 8 841 125 (393) (36) (310) 2,108 4,287 6,395 2,407 (125) 2,282 2,407 3,205 783 6,395 The fair value of trade and other receivables are equal to the gross contractual amounts receivable and at the acquisition date all amounts were expected to be collected. The goodwill amount represents intangible assets that do not qualify for recognition through the separability criterion or the contractual-legal criterion. This consists of cross-selling opportunities and expected synergies. Page 53 The results for the Group had the acquisitions during the year been at the beginning of the year can be analysed as follows: 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 Impairment to the carrying value of goodwill Exceptional costs Acquisition related costs Agency Services £’000 Media & Analysis £’000 Unallocated Total £’000 £’000 18,789 28,157 (637) 46,309 (3,225) (6,339) 637 (8,927) 15,564 21,818 - 37,382 (12,688) (15,751) (3,688) (32,127) 2,876 6,067 (3,688) 5,255 26 (283) (1,057) (2,906) (187) - - (147) (715) - (30) - - (46) - - 26 (476) (1,772) (2,906) (179) (396) (1,115) (1,115) Charges for share-based payments (107) (135) (843) (1,085) Operating profit / (loss) (1,638) 5,040 (5,871) (2,469) Finance income Finance costs Loss before tax Tax expense Loss for the period 1 (191) (2,659) (43) (2,702) Note: This information is based on the management accounts for Digital Massive and Bloom. Page 54 Annual Report and Accounts 2017 13. Property, plant and equipment Leasehold improvements £’000 Motor vehicles £’000 Office equipment £’000 Total £’000 Cost At 1 April 2016 Additions Disposals At 31 March 2016 Additions Acquisition of subsidiaries Disposals At 31 March 2017 Depreciation At 1 April 2015 Depreciation charge for the year Depreciation on disposals At 31 March 2016 Depreciation charge for the year Acquisition of subsidiaries Depreciation on disposals At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 1 April 2015 782 18 - 800 416 - (2) 1,214 516 106 - 622 125 - (2) 745 469 178 266 12 - (12) - - - - - 9 - (9) - - - - - - - 3 1,377 451 (245) 1,583 399 204 (160) 2,026 961 301 (245) 1,017 348 195 (160) 1,400 626 566 416 The assets are covered by a fixed charge in favour of the Group’s lenders. 14. Goodwill Cost and net book value At 1 April 2016 Additions Impairment At 31 March 2017 Goodwill is attributed to the following cash generating units: 2,171 469 (257) 2,383 815 204 (162) 3,240 1,486 407 (254) 1,639 473 195 (162) 2,145 1,095 744 685 Goodwill £’000 30,446 6,192 (2,906) 33,732 Agency Services Digital Media & Analytics Limited Scope Creative Marketing Limited Jaywing Central Limited HSM Limited Gasbox Limited Bloom Media (UK) Limited Media & Analysis Epiphany Solutions Limited Alphanumeric Limited Massive Group PTY Page 55 2017 £’000 2016 £’000 2015 £’000 438 5,550 5,817 295 273 4,297 5,825 9,342 1,895 438 5,550 5,817 3,201 273 - 5,825 9,342 - 438 5,550 5,817 3,201 273 - 5,825 9,342 - 33,732 30,446 30,446 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 2016/17 to 2019/20 were used. These were based on a one year budget with growth rates of 5% to 10% applied for the following three years. Subsequent years were based on a reduced rate of growth of 2% into perpetuity. The average year on year growth in earnings before interest, tax, depreciation and amortisation (EBITDA) that has been used as the basis for forecasting cash flows for each of the cash-generating units when testing for impairment were: 2016/17 2017/18 2018/19 Perpetuity Year on year growth 5.0% - 10% 5.0% - 10% 2.5% - 10% 2.0% These growth rates are based on past experience and market conditions and discount rates are consistent with external information. The growth rates shown are the average applied to the cash flows of the individual cash-generating units and do not form a basis for estimating the consolidated profits of the Group in the future. The discount rate used to test the cash-generating units was the Group’s pre-tax Weighted Average Cost of Capital (“WACC”) of 10.6% (2016:13.5%). 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 an impairment of £2,906,000 was considered necessary on HSM Limited (2016: £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 in other cash-generating units. At a discount rate of 15% a charge of £213,000 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 cash-generating unit no impairment charge would be required. Page 56 Annual Report and Accounts 2017 15. Other intangible assets Cost At 1 April 2015 Additions during the year Disposal At 31 March 2016 Additions during the year from acquisitions Additions during the year Disposal Customer relationships £’000 Order books £’000 Trademarks £’000 Development costs £’000 Total £’000 21,348 1,457 1,025 235 24,065 - - 21,348 1,821 - - - - 1,457 - - - - - 1,025 55 - - - - 235 493 60 - - - 24,065 2,369 60 - At 31 March 2017 23,169 1,457 1,080 788 26,494 Amortisation At 1 April 2015 Disposals Amortisation charge for the year At 31 March 2016 Amortisation charge for the year Disposals 14,327 1,457 - 1,416 15,743 1,584 - - - 1,457 - - At 31 March 2017 17,327 1,457 Net book amount At 31 March 2017 At 1 April 2016 At 1 April 2015 5,842 5,605 7,021 - - - 53 - 51 104 67 - 171 909 921 972 163 16,000 - 36 199 110 - - 1,503 17,503 1,761 - 309 19,264 479 36 72 7,230 6,562 8,065 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 14. On the basis of this review, it has been concluded that there is no need to impair the carrying value of these intangible assets (2016: £Nil). Page 57 16. Trade and other receivables Trade receivables Prepayments and accrued income Deferred tax Other receivables 2017 £’000 8,856 2,309 107 39 2016 £’000 8,328 1,580 85 157 2015 £’000 6,016 872 133 509 11,311 10,150 7,530 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 £96,000 (2016: £92,000; 2015: £191,000) has been recorded accordingly. Trade and other receivables which 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 2017 £’000 92 (104) (8) 116 96 2016 £’000 191 (83) (49) 33 92 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 2017 £’000 1,820 94 68 - 2016 £’000 549 16 - - 2015 £’000 2,238 165 24 4 1,982 565 2,431 Page 58 Annual Report and Accounts 20174,062 4,062 1,063 1,063 - 17. Bank and overdraft, loans and borrowings Summary Borrowings Borrowings are repayable as follows: Within one year Borrowings Total due within one year 2017 £’000 2016 £’000 2015 £’000 5,750 5,750 5,675 5,675 6,188 6,188 4,750 4,750 4,612 4,612 In more than one year but less than two years 1,000 1,063 In more than two years but less than three years In more than three years but less than four years - - - - Total amount due 5,750 5,675 6,188 Average interest rates at the balance sheet date were: Term loan Revolver loan % 2.61 2.51 % 3.56 3.51 % 3.56 3.51 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 2017 was £2.0 million (2016: £2.0 million) and, taking into account cash balances within the Group companies, there was £4.2 million (2016: £2.3 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 1 April 2016 Cash flow £’000 £’000 Non-cash items £’000 31 March 2017 £’000 Cash and cash equivalents Borrowings Net debt 347 347 (5,675) (5,328) 1,869 1,869 (75) 1,794 - - - - 2,216 2,216 (5,750) (3,534) 18. Trade and other payables Trade payables Tax and social security Other payables, accruals and deferred income 2017 £’000 2016 £’000 2015 £’000 3,665 1,673 1,952 1,522 6,430 4,060 11,768 7,534 1,337 1,483 4,337 7,157 The carrying amount of trade and other payables approximates to their fair values. All amounts are short term. Page 59 19. Provisions At start of the year Additional provisions At end of the year Total provisions are analysed as follows: Current 2017 £’000 2016 £’000 2015 £’000 167 6 173 173 173 158 9 167 167 167 131 27 158 158 158 At 31 March 2017 a provision of £173,000 (2016: £167,000) 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. 20. Deferred tax assets and liabilities Recognised deferred tax assets and liabilities: Accelerated capital allowances on property, plant and equipment: At start of year Prior year adjustment Origination and reversal of temporary differences At end of year Other temporary differences: At start of year Prior year adjustment Origination on acquisition Origination and reversal of temporary differences At end of year Total deferred tax: At start of year Prior year adjustment Origination on acquisition Origination and reversal of temporary differences (note 6) At end of year Origination on acquisition Deferred tax is included within: Deferred tax liability Deferred tax asset 2017 £’000 2016 £’000 2015 £’000 63 - (18) 45 1,239 - 310 (472) 1,077 (44) 88 19 63 1,578 (59) - (280) 1,239 (64) 27 (7) (44) 2,244 - - (666) 1,578 1,302 1,534 2,180 - 310 (490) 1,122 29 - (261) 1,302 27 - (673) 1,534 1,229 (107) 1,122 1,387 (85) 1,302 1,667 (133) 1,534 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 60 Annual Report and Accounts 201721. Share capital Authorised Authorised share capital at 31 March 2016 and at 31 March 2017 45p deferred shares £’000 5p ordinary shares £’000 45,000 10,000 Allotted, issued and fully paid: At 31 March 2016 Issue of share capital Issue of share options At 31 March 2017 45p deferred shares Number 5p ordinary shares Number £’000 67,378,520 76,359,385 34,139 - - 10,000,000 350,513 500 18 67,378,520 86,709,898 34,657 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. 22. Share premium At start of year Issue of share capital At end of year 23. Treasury shares At start and end of year (99,622 shares) 24. Capital redemption reserve At start and end of year 25. Share option reserve At start of year Share option charge At end of year 2017 £’000 6,608 2,500 9,108 2016 £’000 6,608 - 6,608 2017 £’000 (25) 2016 £’000 (25) 2017 £’000 125 2016 £’000 125 2017 £’000 2016 £’000 146 358 504 - 146 146 The Board of Directors approved the original transfer of reserves from retained earnings to a designated share option reserve. Page 61 26. Minority interest At start of year Acquisition of subsidiaries At end of year 27. Foreign currency translation reserve At start of year Exchange differences on translation of foreign operations At end of year 28. Retained earnings At start of year Jaywing Innovation put / call option charge Retained (loss) / profit for the year At end of year 2017 £’000 - 1,513 1,513 2016 £’000 - - - 2017 £’000 2016 £’000 3 16 19 21 (18) 3 2017 £’000 2016 £’000 (7,962) (8,667) (1,165) (2,981) - 705 (12,108) (7,962) 29. Operating leases The Group’s future minimum operating lease payments are as follows: 31 March 2017 31 March 2016 31 March 2015 Within 1 year £’000 1 to 5 years £’000 After 5 years £’000 449 392 545 2,565 1,437 723 798 274 - Total £’000 3,812 2,103 1,268 The Company leases a number of office premises under operating leases. During the year £525,000 (2016: £428,000) was recognised as an expense in the Statement of comprehensive income in respect of operating leases. 30. Capital commitments The Group had commitments of £150,000 to purchase property, plant and equipment at 31 March 2017 (2016: £Nil). 31. 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). At the year end £12,000 (2016: £12,000) was outstanding to Anne Street Partners Limited. Charles Buddery (resigned 10 August 2015) is a partner in Players House LLP which previously owned the building occupied by Scope Creative Marketing Limited. During the year Scope Creative Marketing Limited paid rent of £94,000 (2016: £90,000), owing £Nil (2015: £Nil) at the year end. During the period, the company made sales of £15,246 (2016: £6,138) to Run For All Limited, a company in which Rob Shaw is a Non-Executive Director. At 31 March 2017 the balance receivable from Run For All Limited was £13,728 (2016: £132). Page 62 Annual Report and Accounts 2017 32. Accounting estimates and judgements Accounting estimates Impairment of goodwill and other intangible assets The carrying amount of goodwill is £33,732,000 (2016: £30,446,000) and the carrying amount of other intangible assets is £7,230,000 (2016: £6,562,000). 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 14. Share-based payment On 4 May 2016 and 30 September 2016, 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 2016, 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. 33. 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. Page 63 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 17 to the consolidated financial statements. 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 regularly review 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 2017 £’000 2016 £’000 2015 £’000 2,216 347 1,000 8,856 11,072 8,328 8,675 6,016 7,016 - - - 5,750 5,675 6,188 3,665 9,415 2017 £’000 1,243 1,012 - 1,952 7,627 1,337 7,525 2016 £’000 1,121 1,085 - 2015 £’000 1,158 1,122 1,085 3,365 Total amount due 2,255 2,206 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 £43,252 lower, and if the interest rate on these liabilities had been 1% lower, profit before tax would have improved by £43,252. Page 64 Annual Report and Accounts 2017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 2017 and a provision for £96,000 (2016: £92,000) has been provided accordingly. See note 16 for further information on financial assets that are past due. 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 2017 £’000 2016 £’000 2015 £’000 8,895 2,216 11,111 8,485 347 8,832 6,525 1,000 7,525 (5,750) (5,675) (6,188) (11,768) (7,534) (7,157) (173) (167) (158) (17,691) (13,376) (13,503) Net financial assets and liabilities (6,580) (4,544) (5,978) 1,095 744 685 33,732 30,446 30,446 7,230 2,309 107 (2,314) 6,562 1,580 85 - 8,065 872 133 - (557) (452) (355) (1,229) (1,387) (1,667) (40,373) 37,578 38,179 33,793 33,034 32,201 Plant, property and equipment Goodwill Other intangible assets Prepayments Deferred tax Deferred consideration Taxation payable Provisions for deferred tax Total equity Page 65 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: 2017 £’000 2016 £’000 2015 £’000 Total equity 33,793 33,034 32,201 Page 66 Annual Report and Accounts 2017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 (Loss) / profit on ordinary activities before taxation Taxation on ordinary activities (Loss) / profit and total comprehensive income on ordinary activities after taxation Note 2017 £’000 2016 £’000 1 2 3 4 5 6 - - (9,238) (3,691) (9,238) (3,691) 6,250 7,455 1 - (197) (251) (3,184) 3,513 240 72 (2,944) 3,585 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 67 Company balance sheet Fixed assets Tangible assets Investments Current assets Debtors due < 1 year Current liabilities Note 2017 £’000 2016 £’000 10 11 12 307 50 57,807 53,254 58,114 53,304 2,030 2,030 2,060 2,060 Creditors: amounts falling due within one year 13 (14,523) (11,425) Total assets less current liabilities Non current liabilities 45,621 43,939 Creditors: amounts falling due after more than one year 14 (2,313) (1,063) Net assets 43,308 42,876 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 34,657 34,139 9,108 6,608 (25) 504 125 (25) 146 125 (1,061) 1,883 43,308 42,876 The financial statements were approved by the Board of Directors and authorised for issue on 4 July 2017. 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 68 Annual Report and Accounts 2017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 2015 34,139 6,608 (25) Share-based payment charge Transactions with owners Profit for the year and total other comprehensive income Total comprehensive income - - - - - - - - - - - - - 146 146 - - 125 (1,702) 39,145 - - - - - - 3,585 146 146 3,585 3,585 3,585 At 31 March 2016 34,139 6,608 (25) 146 125 1,883 42,876 At 1 April 2016 Share-based payment charge Issue of share capital Transactions with owners Profit for the year and total other comprehensive income Total comprehensive income - 518 518 - - 2,500 2,500 - 518 2,500 - - - - - 358 - 358 - - - - - - - - - - 358 3,018 3,376 (2,944) (2,944) (2,944) 74 At 31 March 2017 34,657 9,108 (25) 504 125 (1,061) 43,308 Page 69 Notes to the parent company financial statements 1. Accounting policies Jaywing plc is incorporated in England. 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. 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. The financial statements have been prepared on a historical cost basis. 7. The effect of future accounting standards not adopted. The financial statements are presented in Sterling (£) and have been presented in round thousands (£’000). 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 future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. 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. 8. Certain share based payment disclosures. 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). 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. Page 70 Annual Report and Accounts 2017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, Page 71 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. Financial instruments – classification and subsequent measurement of financial liabilities 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 which 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 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 which 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 Page 72 Annual Report and Accounts 2017that issue. Dividends on the Company’s ordinary shares are recognised directly in equity. Revenue recognition The turnover shown in the profit and loss account represents amounts invoiced in relation to work undertaken during the year. 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 Page 73 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. 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. remaining vesting period. Recharges from the parent company for the use of options over the parent company shares are deducted from equity. 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 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. 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. Page 74 Annual Report and Accounts 2017Valuation of investments Management reviews the carrying value of investments at each reporting date, based on the future cashflows of those investments. 2. Other operating charges Share-based payment charge Related National Insurance charge Impairment of carrying value of investment Administrative expenses Total administrative expenses 100% of turnover arose in the United Kingdom (2016: 100%). 3. Operating loss Operating loss is stated after charging: Deferred consideration write-off Depreciation of owned fixed assets 4. Other interest receivable and similar income Interest receivable and similar income 5. Other interest payable and similar charges Bank interest payable Finance charge on acquisition Total 2017 £’000 2016 £’000 829 70 4,247 4,092 9,238 89 9 - 3,593 3,691 2017 £’000 2016 £’000 - 46 349 23 2017 £’000 2016 £’000 1 - 2017 £’000 2016 £’000 191 6 197 251 - 251 Page 75 6. Tax on ordinary activities The tax charge is based on the profit for the year and represents: UK corporation tax at 20% (2016: 20%) 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: (Loss) / profit before tax 2017 £’000 2016 £’000 982 (740) 242 (2) - 240 739 (658) 81 (2) (7) 72 2017 £’000 2016 £’000 (3,184) 3,513 Tax using the UK corporation tax rate of 20% (2016: 20%) (637) 703 Effect of: Expenses not deductible for tax Non-taxable income Other Prior year adjustment Current year credit 137 - 260 (240) (1,491) 4 712 (72) 7. Auditor’s remuneration Details of remuneration paid to the auditor by the Company are shown in note 8 to the consolidated financial statements. 8. Directors and employees 2017 £’000 2016 £’000 Average number of staff employed by the Company 32 27 Aggregate emoluments (including those of Directors): Wages and salaries Social security costs Pension contribution Share-based payment charge Redundancy payments Total emoluments 2,322 1,845 247 130 899 - 177 126 98 10 3,598 2,256 Further information in respect of Directors is given in the Directors’ Remuneration table on page 23. Remuneration in respect of Directors was as follows: Emoluments receivable Fees paid to third parties for Directors’ services Company pension contributions to money purchase pension schemes 2017 £’000 2016 £’000 944 40 150 1,134 772 40 89 901 Page 76 Annual Report and Accounts 2017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 £247,000 (2016: £207,000). 9. Dividends The Directors do not recommend the payment of a dividend for the current year (2016: £Nil). 10. Tangible fixed assets Cost at 1 April 2016 Additions Cost at 31 March 2017 Depreciation at 1 April 2016 Charge for the year Depreciation at 31 March 2017 Net book value at 31 March 2017 Net book value at 31 March 2016 11. Investments Cost at 1 April 2016 Acquisitions Impairment Capital contribution for share option scheme Recharge of capital contribution from group companies Cost as at 31 March 2017 Leasehold Improvements £’000 Fixtures & fittings £’000 Total £’000 - 189 189 - - - 189 - 107 114 221 57 46 103 118 50 107 303 410 57 46 103 307 50 Subsidiaries £’000 53,254 8,800 (4,247) 94 (94) 57,807 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 14 in the Group’s financial statements. This review has concluded that the carrying value of the Company’s investments is impaired by £4,247,000 (2016: £Nil). Page 77 At 31 March 2017 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 Bloom Media (UK) Limited Ordinary 100% 100% Agency services 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 Ordinary 100% 100% Dormant Jaywing Innovation Limited Ordinary 75% 75% Product development Jaywing North Limited Ordinary 100% 100% Dormant Junction Brand Communication Limited Ordinary - 100% Dormant Massive Group PTY Limited Ordinary 75% 75% Search Engine Optimisation Prodant Limited Ordinary - 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 Massive Group PTY Limited Country of Incorporation Australia Australia Page 78 Annual Report and Accounts 2017 12. Debtors due < 1 year Amounts due from Group undertakings Prepayments and accrued income Other taxation and social security Corporation 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 2017 £’000 2016 £’000 391 163 494 982 - 479 176 515 739 151 2,030 2,060 2017 £’000 2016 £’000 10,124 10,549 131 765 75 10 1,187 6 2,225 100 202 51 1 518 4 - 14,523 11,425 14. Creditors: amounts falling due in more than one year Bank loan Deferred consideration payable on acquisition of subsidiary undertakings 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: Page 79 2017 £’000 2016 £’000 1,000 1,063 1,313 2,313 - 1,063 2017 £’000 2016 £’000 5,374 5,750 5,937 5,675 11,124 11,612 2017 £’000 2016 £’000 5,374 4,750 5,937 4,612 10,124 10,549 1,000 1,063 - - 1,000 1,063 16. Share capital Authorised: Authorised share capital at 31 March 2016 and at 31 March 2017 Allotted, issued and fully paid: At 31 March 2016 Issue of share capital Issue of share options At 31 March 2017 45p deferred shares £’000 5p ordinary shares £’000 45,000 10,000 45p deferred shares Number 5p ordinary shares Number 67,378,520 76,359,385 - - 10,000,000 350,513 £’000 34,139 500 18 67,378,520 86,709,898 34,657 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. 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 2017 and 31 March 2016 2017 £’000 2016 £’000 25 25 Page 80 Annual Report and Accounts 2017 19. Share-based payments Share-based payment charge is as follows: Share- based payment Related National Insurance costs 2017 £’000 2016 £’000 829 70 899 89 9 98 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 2016 Amounts of deferred tax recognised in profit or loss At 31 March 2017 Deferred tax (note 6) £’000 4 2 6 21. Commitments under operating leases At 31 March 2017 the company had aggregate annual commitments under non-cancellable operating leases as set out below: Land and buildings Operating leases which expire: Within one year Within two to five years After five years 2017 £’000 168 673 798 1,639 2016 £’000 - - - - 22. 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 2017 the amount thus guaranteed by the Company was £Nil (2016: £Nil). 23. 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 30 to the consolidated financial statements. 24. Financial risk management objectives and policies Details of Group policies are set out in note 32 to the consolidated financial statements. Page 81 25. 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 £130,000 (2016: £126,000). 26. Share-based payments Employees of the Company are entitled to participate 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 5,168,226 (2016: 1,965,000). No share options were exercised during the year. The exercise prices for share options outstanding was 5p (2016: 5p). The remaining contractual life of the share options was two years (2016: one year). Page 82 Annual Report and Accounts 2017Shareholder information Annual General Meeting The 2017 Annual General Meeting will be held on Tuesday 12 September 2017 at Cenkos Securities. 6.7.8. Tokenhouse Yard, London EC2R 7AS at 11am. Results Announcement of half year results to 30 September 2017 – November 2017. Preliminary announcement of the annual results for the year ending 31 March 2018 – early July 2018. 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 83 • Copies of the Executive Directors’ service agreements and the Non-Executive Directors’ letters of appointment; 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 Registrar also offer a range of shareholder information online at www.capitaregistrars.com. Website Information on the Group is available at: investors.jaywing.com. • 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 2017. Issued Share Capital As at 4 July 2017 (being the last practicable date before the publication of this document) the Company’s issued share capital comprised 86,895,767 ordinary shares of 5p each, of which 99,622 are held in Treasury. Therefore, as at 4 July 2017 the total voting rights in the Company were 86,895,767. 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 0333 370 6500 hello@jaywing.com jaywing.com SHEFFIELD LONDON NEWBURY SWINDON LEEDS SYDNEY Albert Works 71 Sidney Street Sheffield S1 4RG 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 301 2 Elizabeth Plaza North Sydney NSW 2060 Australia JAYWING PLC is registered in England and Wales. Albert Works, 71 Sidney Street, Sheffield S1 4RG. Company number 05935923. 

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