Writtle 2019 results and the business threat from Covid-19
Writtle 2019 results and the business threat from Covid-19
I am pleased to present Writtle’s unaudited 2019 results in summary format.
It is a shorter report than usual because we are focussing on our response to the business threat posed by the Covid-19 pandemic which I also report on in this statement.
Full audited results will be sent to shareholders later in the year.
Writtle had a very strong second half of the year which gave us a full year turnover of £78.41m (2018: £70.92m) and profit before tax of £5.39m (2018: £6.73m)
Our Innovation businesses had an excellent year, increasing both turnover and profits, led again by Epoch and Seymourpowell.
Our Implementation businesses increased turnover as a result of the acquisition of Showcard in April, although exceptional costs of restructuring led to a decrease in profits.
Our Instore business, Arken was again the group’s most profitable business despite a decline in turnover and profit as a major retail client did not undertake a large cosmetics roll-out in the year.
Further analysis of our business groups is in the notes which follow.
CASH AND DIVIDENDS
Writtle finished the year with net cash of £8.28m (2018: £12.24m), a most satisfactory position considering the payment of ordinary and special dividends in the year of £4.83m and the cost of acquiring and restructuring Showcard.
With this level of cash, we would normally consider a further special dividend, but retention of cash in light of the Covid-19 threat is now a priority so we will not be paying one this year.
For the same reason the directors are currently suspending payment of a final dividend but will reconsider this later in the year. I know our dividend stream is very important to our shareholders and this decision has not been taken lightly. I can assure you that we will resume dividend payments as soon as we feel it prudent to do so.
We had two substantial transactions under consideration in the first quarter of 2020, one of which was midway through a due diligence process, but both transactions have been suspended because of the Covid-19 crisis.
The annual Writtle share trading opportunity will not be offered this year because we consider it would be inappropriate during the current economic uncertainty.
We had made a strong start to 2020 and were ahead of budget with good profits for January and February. March has seen the first impact of Covid-19 but has been profitable nonetheless. The economic environment for the rest of the year is unclear at this stage.
THE BUSINESS THREAT FROM COVID-19
Our immediate priority is the health and wellbeing of all our employees.
We are observing government guidelines rigorously and most of our employees are already working from home. Where working from home is not possible, social distancing rules are in place and the strictest hygiene procedures are being followed. If there is any doubt as to whether an employee might be showing symptoms of the virus, employees are self-isolating at home.
The economic impact of Covid-19 across the world’s business community has been well documented and Writtle is not alone in seeing a drop off in demand for our businesses’ goods and services. The rate of decline in demand varies across our businesses but we have taken immediate action to address the potential effects of further deterioration. We are fortunate to have good cash reserves, and these must be preserved to fund those of our businesses that may need financial support if the crisis lasts for some time. The overriding aim of all Writtle’s businesses is to support our client base for the duration of this crisis and be in the best possible condition to meet the return of demand and business as usual.
The specific policies our businesses are adopting are very much tailored to their individual circumstances, although voluntary pay cuts, shorter working weeks and accessing Government support where appropriate are commonplace amongst our businesses. With the diverse nature of Writtle’s portfolio, one policy is not appropriate for all. For example, some of our Innovation agencies have seen little drop off in demand and indeed some are helping their clients design policies or products fit to meet the new world order that is likely to emerge when the crisis is over. Our Implementation businesses have their largest clients in food retail where demand is still strong. At the other end of the spectrum we have two manufacturing businesses, Arken and Showcard, where future demand is more uncertain. With a high fixed overhead in site costs and large workforces these businesses are potentially the most affected and the Government’s Coronavirus Job Retention Scheme has been extremely helpful in allowing us to furlough employees who might otherwise have been laid off. We are determined to keep these companies open for business and support our clients throughout the current crisis and retain all employees for the future.
Although the situation is evolving daily and our actions are under constant review, I have been struck by two things which have stood us in good stead:
Firstly, Writtle’s conservative business model over the years has given us a strong asset backed balance sheet with substantial net cash balances and no earn-out obligations. This has put us in a robust position to face the challenges ahead and be prepared for the upturn when it comes.
Secondly, Writtle’s model is based on equity involvement. This means that management typically own shares in the business in which they work and Writtle. This gives our management an owner’s perspective on the actions required to steer each business through the Covid-19 crisis and I have been very impressed by the way our management teams have gone about this task.
Lastly, I would like to thank all Writtle’s employees, many of whom are enduring personal financial hardship through furlough or reductions in pay, for the understanding, effort and resilience they are showing. It is an extraordinary time in all our lives, and I hope the urgent corrective actions we are taking now ensure the earliest possible return to full capacity and staffing.
We are taking the business threat posed by Covid-19 very seriously. Our businesses have reacted quickly and decisively to the threat and Writtle is therefore in the strongest possible position to weather the storm. There will be further challenges this year but, thanks to the calibre of our people and our underlying financial strength, I am confident that Writtle will go into 2021 renewed, restored and ready to face what is likely to be a very different economic landscape.
3 April 2020