Writtle 2015 Annual Report and Accounts
I am pleased to present the Writtle accounts for 2015. A strong second half helped deliver another good year for Writtle.
Results and dividends
Turnover and profit before tax from continuing operations were £83.12m (2014: £79.03m) and £3.61m (2014: £3.31m) respectively. With no acquisitions or disposals, there were no profits on sale of investments as there have been in the last two years.
Writtle’s year-end net debt was further reduced by £1.79m to £4.28m (2014: £6.07m).
The directors are recommending a final dividend for 2015 of 8.2p per share (2014: 7.0p per share), making a total of 11.5p per share for the year (2014: 10.0p per share). Subject to shareholders’ approval, the dividend will be paid on 31 May 2016 to shareholders on the register on 23 March 2016.
Writtle invests in media and marketing communications businesses with the aim of creating a substantial international marketing group.
The Writtle model continues to be based on equity involvement and decentralised growth. Whether a group company was a start-up or acquired, Writtle will typically hold a majority shareholding alongside management, which creates a motivational structure. Writtle looks for businesses in the media and marketing communications sector which can demonstrate potential for further growth, either organically or by acquisition, and where Writtle can add value through its experience or by funding further expansion. Growth opportunities are typically identified by operating company management rather than dictated by the centre. However, when larger opportunities have been identified, as with the acquisition of Loewy Group, we have integrated the individual companies into Writtle by reducing the central head office and marketing function, and instead promoted the individual company brands. Alongside this decentralised approach comes a re-incentivisation package for operational management through the opportunity to purchase equity on favourable terms in their companies, and participation in share option schemes in Writtle. This creates a lean head office structure, as well as considerable incentives for management in their individual companies and the group as a whole.
Writtle has noted the recent trend amongst other marketing services groups to adopt a similar part-ownership equity structure in their operating companies. Writtle has operated in this way for many years, understanding that people businesses benefit most from part-ownership, rather than value-destroying earn-outs. This form of equity involvement has proved to be the best way to motivate management and truly align their goals and aspirations with those of Writtle shareholders.
A short review by operating company follows this section, each written by its directors. Each operating company has its own unique style and apart from overlaying similar financial controls, Writtle encourages individual company autonomy and identity.
Review of business
As is customary, the second half of the year was stronger than the first.
What was less usual was the fact that the first half laggards in performance were the second half leaders and, to a lesser extent, vice versa. Arken, Magnet Harlequin and Technik, which were exposed to the fragile UK retail market in the first half, recovered strongly in the second half. The performance of Arken was the most notable as the delayed roll-out for its largest retail client was brilliantly executed, and indeed continues into 2016. On the flip side, progress of Creo was hampered in the last quarter by unwelcome completion issues with its factory extension, which meant missing its demanding budget for the first time. These frustrations are now behind us and the extended premises provide an excellent platform for future growth of Creo.
Other stars of the first half Seymourpowell and 20.20 saw business slow in the final quarter of the year. In the case of Seymourpowell, a major client dramatically reduced its spending plans as it became the target of a high-profile acquisition. It provides a stark reminder that however brilliant the company reputation and output, events outside our control can quickly derail momentum and require adjustment of overheads. Faced with a rapidly changing world and the need for flexibility and a low fixed cost base, a number of our companies undertook overhead reduction exercises in 2015 and we have recorded £559k of restructuring costs in these accounts.
As shareholders will be aware, after the year-end Writtle made an offer for the AIM-quoted business Tangent Communications PLC after it announced an intention to come off the AIM market at what we considered to be too low a price. Although Writtle was ultimately unsuccessful in the face of a higher counter offer that was beyond our valuation, our offer demonstrated our ability to secure funding quickly and I hope gives shareholders a reminder of the ambition of Writtle. We did look at other opportunities in 2015 but the really good deals do not appear very often and while we receive prospectuses from many small owner-driven agencies for sale we prefer to continue seeking an opportunity of scale. The profile gained from the Tangent bid has presented some interesting opportunities and we have reasonable expectations that 2016 will be marked by a significant corporate event.
Having alerted shareholders to the possibility of a value-enhancing event later in the year, we will again be offering a matched bargain share trading facility in May and shareholders wishing to participate now, either buying or selling, should follow the guidelines set out in the letter accompanying this report.
2015 was another good year for Writtle. We continued to invest in our group companies to facilitate further organic growth and our profit growth and cash generation has enabled us to reduce debt and increase our dividends. We are still looking for the significant deal to accelerate our scale and value and we hope the event is not too far away.
11 April 2016