Turbulent year for digital sector impacts on trading at listed firm

Sheffield-based digital agency Jaywing has seen its revenues rise but profitability suffer in a turbulent year where it “endured a period of challenging market conditions in the UK” and focused on strengthening its Australian business.

The listed firm this morning posted its annual results to March 31 2018, which showed revenues were £47.5m – up 6% from £44.5% in 2017. Its losses before tax were reduced to £1.1m, down from £2.9m for the year ended March 31 2017.

However, its EBITDA in 2018 reduced to £3m, down from £4.8m in 2017. The firm’s net debt grew to £5.9m in its most recent results, from £3.5m in 2017.

In February, Jaywing announced plans to raise around £1.3m through a share placing to fund the acquisition of Frank Digital, a digital marketing agency based in Sydney. Jaywing says its operations in Sydney have continually expanded since its acquisition of search agency Digital Massive in 2016, which now operates under the Jaywing brand.

This morning, Martin Boddy, chairman of Jaywing, said that trading conditions in the UK had been challenging on a number of fronts following the election in June 2017, resulting in a 3% reduction in like for like gross profit during the year.

He added: “Consequently, a far greater focus has been placed on cost management, particularly in the second half of the year. On a more positive note, in recent months it has been encouraging to see a marked improvement in our sales pipeline, some excellent new business wins and lower levels of client churn.” 

Boddy said that looking more broadly at the digital sector, it was hard to remember a period where there had been such turbulence.

He said: “Digital media has been in the headlines for all the wrong reasons.  Ads appearing alongside unsavoury YouTube content led to several brands pausing their spend until the problem was fixed. The lack of transparency in programmatic media buying undertaken by the global agency networks came under scrutiny with brands such as P&G taking that function in house. Then there was the Cambridge Analytica episode concerning their use of Facebook data, which coincided with GDPR coming into force.   

“The network agency model has come under pressure with WPP in the spotlight.  Too great a focus on traditional advertising, opaque charging practices, lack of client focus and competition from Management Consultancies have led a number of these agency groups launching new strategies.  The common themes here are to adopt a more client centred and collaborative operating model with a single P&L and to place a greater focus on data, digital and technology.”

Boddy said that to combat this, the firm had adopted a “One Jaywing” model and understood that this was not just about managing a matrix and incentivising through a single profit measure.”It’s about creating a truly collaborative culture internally and in our relationships with clients,” he said.

The chairman said that in general, Jaywing didn’t work for large multi-national clients with the resources to create in-house teams and didn’t find itself competing with the management consultancies. 

“So, there is a good opportunity for Jaywing in the medium term but the near term focus is to recover after a difficult period of trading that has created financial constraints for us to manage within and put on hold our plans for further acquisitions and paying a dividend,” he added. 

Boddy said the objective was to exit the current financial year, ending March 2019, at a run rate that puts the firm  “back on our original track” for the following year. “We anticipate that market conditions in the UK may not improve markedly in the short term but feel that with a realigned cost base, differentiated proposition and strong growth in Australia we will achieve our market expectation,” he added. 

Boddy added: “After four consecutive years of growth fuelled by a strong data science-led proposition, we have endured a period of challenging market conditions in the UK.  We have taken the necessary actions to recover our EBITDA margin going forward whilst ensuring that we still have the necessary resources to grow our client base so we can return our EBITDA to previous levels by the financial year ending March 2020.

“Despite these challenges it has been a year of progress in terms of expanding our fast-growing Australian operation through the acquisition of Frank Digital, plus we have launched innovative technology incorporating the use of Artificial Intelligence for clients in the UK and beyond.

“Clients are increasingly looking for more data, digital and technology focused agencies and consultancies with collaborative operating models.  This is very much the sweet spot for Jaywing, so we remain excited and optimistic about our future potential.”

Chief executive Rob Shaw said: “My first year as CEO started with a great deal of optimism throughout the Company on the back of record Q4 trading the previous year.  However, market conditions for UK B2C businesses deteriorated markedly after the election in June 2017 and this impacted on several of our clients.  The knock-on effect was that our own trading suffered. Consequently, instead of focusing on accelerating our growth a great deal of my time has had to be devoted to realigning our cost base.  This is never an easy task in a people business and we have been mindful not to impact our ability to return to and exceed previous levels of growth and profitability by cutting costs too deep.

“Whilst like for like gross profit was only down by 3% on the previous year, EBITDA fell to £3,025k resulting in a higher net debt position of £5.9m at the year end.  Our bank has been very supportive throughout the period and has agreed to re-structure our facilities, which will now run until 2021 and will give us the necessary headroom whilst our profitability recovers.”