Chairman’s statement

I am pleased to present the Writtle accounts for 2014. Following a strong second half, Writtle produced another good trading year and made further profit on sale of investments.

Results and dividends

Turnover was £83.12m (2013: £88.56m) and profit before tax was £4.61m (2013: £5.93m). The reduction in turnover against prior year reflects the reduced number of operating companies following non-core disposals. The lower profit against prior year is accounted for by higher amortisation and share-based payment charges, the absence of one-off operating income gains and lower profit on sale of investments. Excluding these specific items, trading from continuing operations improved, with continuing profit before tax on this basis of £4.49m (2013: £4.43m) achieved from continuing turnover of £79.03m (2013: £73.60m).

Writtle’s year-end net debt was further reduced by £1.51m to £6.07m (2013: £7.58m).

The directors are recommending a final dividend for 2014 of 7.00p per share (2013: 6.00p per share), making a total of 10.00p per share for the year (2013: 8.75p per share). Subject to shareholders’ approval, the dividend will be paid on 29 May 2015 to shareholders on the register on 26 March 2015.

Principal activities

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. 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

The trading results for 2014 would at first sight indicate a solid but unspectacular year, but that would not do justice to the considerable progress made in the organic expansion of many of our operations. In April, Arken completed a substantial extension of premises into which additional production equipment was installed later in the year, giving the business additional capacity for growth. In August, Seymour Powell moved its operations with more than 100 employees who had worked from different sites, to larger London premises in Southfields, having completed an impressive refurbishment. In October, Williams Murray Hamm opened an office in Chicago to service better its US client base and has now recruited locally to replace its pioneers who opened the doors. Also in October, Creo began a substantial building project to double the footprint of its current premises in Aylesford, Kent, and work should be completed in August 2015. The disruption caused by these expansion plans cannot be underestimated but to their credit all the companies involved achieved their financial goals for 2014. The most noteworthy trading performance was achieved by Creo, which maintained its position as Writtle’s biggest company by turnover and profit – all the more impressive considering Creo began life as a Writtle start-up a little over seven years ago. Magnet Harlequin Group also achieved profit in excess of £1m and secured a large contract with a major supermarket through its Technik subsidiary. Arken, Beyond Communications, Epoch Design, Seymour Powell and The Team exceeded their budgets and all operating companies in the group were profitable.

Corporate activity

Writtle reviewed a number of potential acquisitions in 2014 but none came to fruition. In the majority of cases vendors had unrealistic price expectations, but in other cases, especially larger centrally managed groups, the lean Writtle model did not appeal to the targets’ head office staff, whatever the rationale for increasing combined shareholder value. It is understandably difficult to get past these barriers but I am often reminded that the majority of acquisitions destroy shareholder value. We will continue to be prudent in our acquisition strategy rather than jeopardise what the group has achieved to date; over the last five years Writtle has more than doubled turnover, near tripled profit before tax and increased the dividend per share by 60 per cent. Further opportunities are definitely out there and we have some interesting conversations underway, but we intend to maintain our rigour in avoiding excessive debt or earn-outs for acquisitions.

We sold two businesses in the second half of the year. Our public relations business, Speed Communications, was subscale in its sector so needed to bulk up. We received an interesting approach from another marketing services group to combine its PR business with Speed. We decided the combination was the best outcome for Speed and Writtle so we took as consideration some shares in the acquiring group to give Writtle a potential future upside, as well as cash consideration. The Less Packaging Company was also sold as we received an attractive offer from a large corrugated packaging group with an international reach, which could accelerate growth of Less Packaging in a sector where Writtle no longer had a presence. Less Packaging had been one of the stars of Writtle’s early days, a start-up consultancy formed out of our former corrugated packaging business, and once again demonstrates the value that can be created by start-ups weaned in a supportive environment like Writtle. Financial details of both these disposals can be found in the notes to these accounts and we wish our former colleagues well.

In my Interim Report issued in September 2014, I indicated that Writtle was exploring the possibility of giving shareholders a market for Writtle shares, either to buy or to sell, as we have decided against a flotation on AIM or similar at present. We believe that Writtle is still too small to justify the significant costs of a listing and we intend to review this when we have achieved sufficient scale. A flotation remains an ambition for Writtle but if any shareholders would like to trade their shares now there is a letter accompanying this report which explains the procedure to buy or to sell Writtle shares.

We are also taking the opportunity to launch an Employee Share Ownership Trust (ESOT) which is able to buy Writtle shares offered for sale in this process. Equity involvement has been important in attracting and motivating the excellent senior management across Writtle’s operating companies, and the ESOT will allow us to award new share options to be satisfied by Writtle shares held in the ESOT, so without the diluting effect of issuing new shares.

Summary

2014 was another good year for Writtle: major expansion projects were undertaken by four group companies, our balance sheet grew stronger through the further reduction in debt and all our operating companies were profitable. Despite the absence of acquisitions in the last year, our ambition to grow remains strong and we look forward to reporting further progress in 2015.

Robert Essex
Chairman
8 April 2015