INVESTING IN MEDIA COMPANIES

Writtle 2011 Annual Report and Accounts

Writtle recorded another year of substantial growth in 2011, with two significant acquisitions, Arken and Loewy Group, contributing to an excellent overall performance.

Results and dividends

Turnover was £62,892,367 (2010 – £35,607,746) of which £19,210,314 came from acquisitions and profit before tax increased to £2,999,547 (2010 – £1,609,680) with a contribution towards operating profit of £1,143,943 from acquisitions. The profit after tax and minority interests was £1,351,527 (2010 – £579,077).
The directors are recommending a final dividend for 2011 of £221,859 (4.75p per share) to Ordinary Shareholders, making a total of £320,577 for the year (2010 – £228,367). The dividend will be paid on 31 May 2012 to shareholders on the register on 17 February 2012.

Principal activities and review of business

The directors aim to present a fair, balanced and comprehensive review of the development and performance of the business during the year and of its position at the year end. The review is consistent with the size and non-complex nature of the business and is written in the context of the risks and uncertainties we face.
Writtle invests in media and marketing communications businesses. There are two central themes in Writtle’s success to date: equity involvement and decentralised growth. Writtle will typically acquire majority shareholdings alongside management in businesses with potential for expansion and look for growth in these individual businesses rather than try to determine growth from the centre. Additionally, all senior management are offered shares to purchase, or share options in Writtle. This creates a lean HQ structure as well as considerable incentives for management in their individual companies and the group as a whole.
A short review of individual Writtle businesses in 2011 follows this section and further details can be found on their websites. However, two events stood out in 2011: the acquisition of Arken’s business on 28 February 2011 and the acquisition of Loewy Group Ltd on 18 July 2011. Details of the financial performance of these acquisitions can be found in note 25 but both transactions demonstrate the impact Writtle’s model can have on a business or group of businesses.

Prior to acquisition, Arken had been loss-making and neglected within a debt-restricted plc (now in administration) with little opportunity to flourish. However, Arken was well known to Writtle’s directors as a business with potential and we were able to negotiate a purchase price at a discount to net assets. Arken’s management was strengthened and re-incentivised with equity and the results since acquisition have been excellent. A contract with a major UK retailer was won and delivered in a short timescale, resulting in a much larger project for 2012. There is still work to be done on Arken’s core business but the omens are good.
The acquisition of Loewy Group was a much more daunting prospect. In what could be a case study for corporate excess in the media sector, Loewy Group had been rapidly constructed over the last seven years through high-priced acquisitions funded by the Scylla and Charybdis of debt and earn out. Add a substantial central overhead which absorbed all the operating company profits and more, Loewy was clearly a challenge but underneath the centre we had identified some highly impressive operating companies, albeit jaded by the Loewy experience. If ever there was a vindication of the Writtle model, early results from Loewy post acquisition represented it. More than £2m per annum of central Loewy overhead was removed by the year end with no discernible negative effect on trading, the cost of which is fully borne in the 2011 figures, and the operating companies were encouraged to expand and invest. Losses have turned to profits and the former Loewy Group operating companies are now making substantial contributions to the overall group. There are also some outstanding individuals within these businesses and we expect a number of them to make a wider impact on the group’s performance in years to come.

Summary

The two acquisitions were the highlights of the year but elsewhere in Writtle our companies met the challenges of their markets and the wider economy well, as you can read from their reports in the following section.
Writtle has entered 2012 as a much larger entity than a year ago, which presents further opportunities at both group and individual company level. However, we are always mindful of the many challenges faced by businesses in an uncertain world – many outside our control – and we will continue to exercise caution as we plot our course forward.

Robert Essex
Chairman

28 March 2012