Writtle half year trading report and interim dividend announcement

Chairman’s statement

It has been an eventful six months for Writtle and I am pleased to present the trading results for the period to 30 June 2016.

Results and dividends

Turnover from continuing operations was £27.45m (2015: £26.12m) and operating profit from continuing operations was £0.74m (2015: £0.32m). A profit of £5.13m was made on the sale of Creo Retail Marketing Ltd (Creo) on 22 June 2016 which contributed to a profit before tax of £6.22m (2015: £0.78m) for the period.

At 30 June 2016 Writtle was holding net cash balances of £6.53m (2015: debt of £8.56m). A special dividend of 50p per share was paid on 29 July 2016 to shareholders on the register on 22 June 2016 and an interim dividend of 3.75p will be paid on 31 October 2016 to shareholders on the register on 7 September 2016.

Review of trading

The first six months once again demonstrated the resilience of Writtle’s business through having a portfolio of businesses operating in different fields within media and marketing services.

While the Writtle agencies most directly involved in innovation and new product design experienced a sharp slowdown in the second quarter, other businesses specialising in implementation enjoyed impressive growth.

It is too early to say whether the travails of the innovation and product design agencies are temporary or more long lasting, but action was taken to reduce their cost base resulting in restructuring costs of £0.14m being incurred in the period.

Magnet Harlequin and Technik produced strong performances in the period as they increased market share in the competitive retail sector and Arken opened additional premises in Sandy, Bedfordshire to expand capacity as it continued to win work in the health and beauty category of its largest retail client. These businesses continue to be busy as we approach the final quarter.

Other agencies performances were noteworthy for their consistency, with Epoch once again being the stand out performer in this regard.

Corporate activity

The year started with our ultimately unsuccessful bid for Tangent Communications PLC and the £0.12m bid costs have been expensed in these results. The profile gained for Writtle from the bid has been considerable and we continue to review potential acquisitions, favouring larger transactions over small bolt-ons. Our key criterion remains the increase in shareholder value and while scale and synergies can provide this, scale alone is not sufficient.

The sale of Creo on 22 June 2016 marked the conclusion of a nine-year journey from start-up that perfectly demonstrates the Writtle model. In a market it knew well, Writtle provided start-up funds, alongside management, and supported growth through loans and management support. The decision to sell was pragmatic: further growth would have required considerable investment in a continental European presence and a sale was the sensible course of action. The value created for shareholders has been considerable and Writtle’s already strong balance sheet has been further enhanced, providing the potential for further start-ups or acquisitions at the same time as growing dividend returns for shareholders.

We repeated the share trading opportunity for shareholders in May 2016 with £0.6m changing hands in matched bargains for Writtle shares. This share trading once again avoided the significant costs associated with formal markets for those who wish to buy or sell their shares, although we are conscious that this internal market might not deliver the premium valuation of formal markets. Despite a growing interest from brokers in our sustainable business model, which has yielded consistent results and progressive dividends, we consider Writtle does not yet have the scale to benefit from a Stock Exchange flotation.

We will announce with the annual report and accounts whether there will be a further share trading opportunity in May 2017. However, there will be an opportunity to purchase shares in Writtle before the end of the current year as our private equity shareholders, ABRY Partners and Veronis Suhler Stevenson, have notified us that they wish to exercise a put option over 650,916 shares, being a third of their current shareholdings. The put option was agreed at the time of the acquisition of Loewy Group in 2011 and recently updated to allow the sale of a third of the ABRY Partners and Veronis Suhler Stevenson shares in 2016, 2017 and 2018.

These shares will be subject to independent valuation and offered to existing shareholders in the first instance and I will be writing to shareholders soon with details of the price, application process and timings.

Current trading

We are not immune from external factors but our portfolio approach gives Writtle the ability to weather turbulence in individual agencies. Overall, current trading is good and I look forward to another strong second half.

Robert Essex
26 September 2016