Writtle half year trading report and dividend announcement
“Trading continues to improve as the year progresses, despite the continuing
uncertainty in the UK’s economic and political landscape.”
The first half of the year saw a slowdown due to client caution in the face of economic and political uncertainty, but performance was satisfactory nonetheless.
The highlights of the period were the acquisition of Showcard Print Limited (Showcard) on 8 April 2019 and the establishment of our US business, Branded Inc, both of which are expected to accelerate the growth of our Implementation business, Branded.
RESULTS AND DIVIDENDS
Turnover was £34.36m (2018: £35.36m) and headline profit before tax was £2.37m (2018: £4.16m). Profit before tax was £1.41m (2018: £3.22m).
Exceptional costs of £0.49m (2018: £0.58m) largely relate to the substantial restructuring and reorganisation of Showcard which had been lossmaking prior to acquisition.
Net cash balances at 30 June 2019 were £4.72m (2018: £9.72m), after payment of £4.38m in special and ordinary dividends to shareholders and costs of completing the acquisition of Showcard in the period.
An interim dividend of 6.25p (2018: 5.5p) will be paid on 31 October 2019 to shareholders on the register on 11 September 2019.
REVIEW OF TRADING
The performance of our three trading groups is shown on page 9 of this report.
Our Innovationbusinesses felt the effects of clients holding back projects most, especially in the first quarter, and profits were reduced accordingly. Countering this overall trend, Epoch and Seymourpowell have again performed well. Elsewhere, we have realigned overhead costs to revenue expectations in agencies where we see a more permanent revenue decline, such as those dependent on high street retailers, and we expect a significant improvement in profitability for the Innovation businesses over the second half.
Turnover in our Implementationbusinesses, trading as Branded, increased by £2.4m having benefitted from twelve weeks of contribution from Showcard and the first revenues from our new US operations. This offset a decline in turnover from our existing businesses, more as a result of lower revenues from two of the larger clients than a general downturn and we are pleased to see revenue from one of these already recovering to prior year levels. Overall, profit declined slightly over prior year as Showcard is not expected to return to consistent profitability until the final quarter of the year when its newly won clients’ work will absorb spare capacity.
Our Instorebusiness, Arken POP International, has performed strongly, although it was not expected to match the exceptional performance of 2018 when it completed a multi-year cosmetics roll-out for a high street retailer. Arken has retained its excellent reputation for creativity and flexibility in the resilient and fast-moving health and beauty market and is the supplier of choice for some of the fastest growing brands in that market.
The acquisition of Showcard was completed on 8 April 2019 and full financial details of the transaction will be disclosed in this year’s annual report. With an annual turnover of £17m in 2018, Showcard was already a significant business pre-acquisition, but our new management team has plans to increase this substantially. The business had been lossmaking prior to acquisition and we have acted quickly to make necessary changes, resulting in the high level of exceptional charges expensed in this period. We are expecting the business to contribute to the group’s profitability from the fourth quarter onwards. Showcard is typical of the size of business we are targeting for acquisition, but as ever, our exacting acquisition criteria must be met.
We launched a further share trading opportunity for shareholders in May 2019 but such was the demand for shares that buyers outweighed sellers by around ten to one. Rather than scale back applications we accommodated those shareholders wishing to sell by purchasing their shares into Writtle’s Employee Share Ownership Trust, to the ultimate benefit of all employees and shareholders. We have explored ways to increase the shares available for buyers, but it is unlikely there will be a further opportunity before the next share trading window in May 2020.
Trading continues to improve as the year progresses, despite the continuing uncertainty in the UK’s economic and political landscape.
The entrepreneurial culture within Writtle, derived not least from agency managements’ shareholdings in their own businesses, means that management teams are quick to react to changing markets and adopt new technologies. This culture, allied to our latest acquisition and growing US presence, underpin our confidence for the rest of this year and the future.
11 September 2019