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Share Name Share Symbol Market Type Share ISIN Share Description
The Mission Marketing Group Plc LSE:TMMG London Ordinary Share GB00B11FD453 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 82.50p 81.00p 84.00p 82.50p 82.50p 82.50p 13,111 08:00:00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Media 159.9 11.0 10.9 7.6 70.37

The Mission Marketing Group PLC Final Results & Board Changes

09/04/2019 7:00am

UK Regulatory (RNS & others)


The Mission Marketing (LSE:TMMG)
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3 Months : From Mar 2019 to Jun 2019

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RNS Number : 5021V

The Mission Marketing Group PLC

09 April 2019

Results for the year ended 31 December 2018

and Board changes

9 April 2019

The Mission Marketing Group plc ("themission", "the Company" or "the Group", AIM: TMMG), the technology-embraced marketing communications and advertising group, is pleased to announce its audited results for the year ended 31 December 2018.

Total Group

          --      Revenue up 13% to GBP78.8m (2017: GBP70.0m) 
          --      Headline operating margins improved to 12.6% (2017: 11.7%) 
          --      Headline profit before tax up 22% to GBP9.5m (2017: GBP7.7m) 
          --      Profit on sale of BroadCare of GBP3.0m 
          --      Reported profit before tax GBP11.0m (2017: GBP5.8m) 
          --      Reported diluted EPS 10.63 pence (2017: 5.15 pence) 
          --      Headline diluted EPS up by 22% to 8.68 pence (2017: 7.12 pence) 
          --      Full year dividend up by 24% to 2.1p (2017: 1.7p) 
   --      Bank debt reduced to GBP4.0m (2017: GBP7.2m) 
   --      Bank debt leverage ratio reduced to x0.4 (2017: x0.8) 

Continuing operations**

          --      Revenue up 13% to GBP77.6m (2017: GBP68.6m) 
          --      Headline operating margins improved to 12.2% (2017: 11.2%) 
          --      Headline profit before tax up 25% to GBP9.0m (2017: GBP7.2m) 
          --      Reported profit before tax GBP7.5m (2017: GBP5.3m) 
          --      Headline diluted EPS up 24% to 8.23 pence (2107: 6.64 pence) 
          --      2019 started well 

Headline measures are defined as being before the profit/loss on investments, exceptional items, acquisition-related items and start-up losses.

** Continuing operations exclude the results of BroadCare, sold on 12 November 2018

David Morgan, Chairman, commented: "We have increased our revenues and profit for the eighth year running and seen our bank debt tumble whilst continuing to increase the reward to our shareholders. There's an energy within the Group that gives me the confidence to believe that 2019 will see this momentum continue."

Enquiries:

 
 David Morgan, Executive Chairman 
  Peter Fitzwilliam, Finance Director 
  The Mission Marketing Group plc            020 7462 1415 
 
   Mark Percy / James Thomas (Corporate 
   Advisory) 
 Shore Capital (Nomad and Broker)          020 7408 4090 
 

the mission is a network of entrepreneurial marketing communications Agencies employing over 1,000 people in the UK, Asia and US, working together to provide Clients with the expertise and resource to make them more successful in today's dynamic environment.

www.themission.co.uk

Chairman's Statement

QUAQUAVERSATILITY: it's what it's all about.

Our industry is all about people; understanding what makes them tick, supporting their aspirations and, above all, instilling in them a passion to succeed and a passion to perform for their Clients, their Agency and themission.

I genuinely believe that today we have a group of people at the top of their game, delivering great ideas and practical solutions to complex marketing issues across every discipline. An average day in themission may see a film crew on a remote Scottish island, a build crew delivering a show home and branding for a major property development in London, a complex market assessment for a leading global pharmaceutical company, an exhibition in the far corners of Asia or simply a team managing a sponsorship programme bringing the NFL to London.

In truth, there's no such thing as an average day.

So, it's these people we have to thank for another great year in themission. For the eighth year running we have grown organically, increased our revenues and profit significantly and, as a result, seen our bank debt tumble whilst continuing to increase the reward to our shareholders.

2018 was a strong year and these are just some of the highlights:

-- Winning global pitches with some great companies such as Amazon, HP, Petro-Canada Lubricants, closer to home wins from Lindt and Muller and new assignments from Diomed, Barclays and Aviva. Many through multi-Agency participation.

-- The acquisition of the top twenty London Agency krow who are already becoming pivotal in our strategy to deliver multi-centre teams and support across our network.

   --     Industry awards that included a Gold Effectiveness Award for krow with their Client DFS. 

-- Focus on technology through our fuse initiative which is seeing our Pathfindr asset management system grow dramatically through global contracts with Rolls-Royce, MTU Friedrichshafen GmbH and GKN Aerospace. Pathfindr generated sales of GBP0.5m in 2018 (2017: minimal) and we estimate sales of GBP2m in 2019, underpinned by a strong order book.

   --     Divestment of our NHS Broadcare Software System for GBP4.4m to CHS Health. 

-- Extending our global reach through Client demand by opening in Chicago and Beijing to extend our number of offices to 28, of which 8 are now outside the UK. All sharing the same culture of cooperation, creativity and commitment.

-- Partnerships with innovative organisations including specialists in understanding generational differences and prosopography.

-- Continued focus on our operational costs through our Shared Services initiative which is gaining real traction.

Where I am especially pleased is how, through multi-offices but a shared vision and cooperation, our quaquaversal culture works so well for those Clients that value truly integrated campaigns that break boundaries and make the parts and the sum work equally well.

Looking to the next phase of the Group's development, we need to continue to build on our collaborative approach and develop themission brand as a real alternative to the global groups. To achieve this, our structure needs to adapt without forfeiting our entrepreneurial ethos. Foremost among these changes is the establishment of a full time Group CEO and I am delighted to announce the promotion of bigdog CEO James Clifton into this position with immediate effect.

The Group has come a long way since I took on the role of Executive Chairman nine years ago and there's an energy within the Group that gives me the confidence to believe that 2019 will see this momentum continue. Early as it is, 2019 has already started well and we are confident that we will deliver again against our strategy to be the most regarded UK-centric Agency Group that goes wherever in the world our Clients want us to be without losing that individual Agency entrepreneurship that has made us what we are today.

David Morgan

Chairman

Financial Review

Summary

2018 saw all financial key performance indicators again met: for the total Group, revenue grew by 13%, operating margins improved from 11.7% to 12.6%, headline profit before tax increased by 22% and debt leverage ratios remained comfortably within the Board's limits.

From continuing operations, revenue grew by 13%, operating margins improved from 11.2% to 12.2% and headline profit before tax increased by 25%.

Key Performance Indicators

The Group manages its internal operational performance and capital management by monitoring various key performance indicators ("KPIs"). The KPIs are tailored to the level at which they are used and their purpose. The Board has reviewed and refined its financial KPIs, which are quantified and commented on in the Financial Review of the Year below, as follows:

   --      operating income ("revenue"), which the Group aims to grow by at least 5% per year; 

-- headline operating profit margins, which the Group is targeting to increase from 11.5% in 2016 to 14% by 2021;

   --      headline profit before tax, which the Group aims to increase by 10% year-on-year; and 

-- indebtedness, where the Group has reduced its limit of the ratio of net bank debt to EBITDA* to x1.5 (from x2.0) and the ratio of total debt (including both bank debt and deferred acquisition consideration) to EBITDA to x2.0 (from x2.5).

*EBITDA is headline operating profit before depreciation and amortisation charges.

In addition to financial KPIs, the Board periodically monitors the length of Client relationships, the forward visibility of revenue and the retention of key staff.

Trading Performance

Billings and revenue

Turnover (billings) was 10% higher than the previous year, at GBP161.4m (2017: GBP146.0m), but since billings include pass-through costs (e.g. TV companies' charges for buying air-time), the Board does not consider turnover to be a key performance measure. Instead, the Board views operating income (turnover less third-party costs) as a more meaningful measure of Agency activity levels.

Operating income (referred to as "revenue") increased 13% overall to GBP78.8m (2017: GBP70.0m), continuing our track record of consistent revenue growth.

5% of this growth came from our core business, with a further 8% coming from the acquisition of Krow Communications Limited ("krow") in April. Within our core business, Media revenue reduced as we exited a "white-labelling" media-buying contract, but this was more than offset by growth elsewhere, including from our Exhibitions business, which benefitted from the contract with the Department for International Trade won towards to the end of 2017.

Profit and margins

The Directors measure and report the Group's performance primarily by reference to headline results in order to avoid the distortions created by one-off events and non-cash accounting adjustments relating to acquisitions. Headline results are calculated before the profit/loss on investments, exceptional items, acquisition adjustments and losses from start-up activities (as set out in Note 3).

Headline operating profit improved by 21% to GBP9.9m (2017: GBP8.2m). This result reflects growth of 10% from our core business and a further 11% from the acquisition of krow. Our profit margin for the year (headline operating profit as a percentage of revenue) showed a marked improvement, to 12.6% (2017: 11.7%). This was the result of several factors, including improved staff cost ratios and the benefits accruing from our Shared Services initiative, commenced in the summer of 2017 but formally implemented from the beginning of 2018. This initiative brings accounting, HR, IT, and facilities management under central control in order both to identify opportunities for efficiency improvements and cost savings and to free up our Agencies to concentrate on revenue generation and resource levels. One notable success during 2018 was the virtually unchanged HR and recruitment costs despite the significant increase in levels of activity.

Looking to the future, we need to be mindful of the impact of the sale of our BroadCare software business, which consistently achieved high profit margins. Excluding BroadCare, our operating profit margin in 2018 was 12.2% (2017: 11.2%). We expect margins to improve further in 2019 but progress will be more modest following the sale of BroadCare and we now expect our profit margin target of 14% to be achieved one year later, in 2021.

The bias of profitability towards the second half of the year as a consequence of Clients' spending patterns moderated slightly in 2018, but 62% (2017: 65%) of our operating profit was again generated in this period and we expect this bias to remain a feature of our results in future years.

After financing costs which were unchanged at GBP0.5m, headline profit before tax increased by 22% to GBP9.5m (2016: GBP7.7m).

The sale of BroadCare resulted in a profit of GBP3.0m, which has been disclosed as a headline adjustment. In addition, we have written down our investment in Watchable, which has struggled to make headway in the London video production market, resulting in an impairment of GBP0.3m. Other adjustments to reported profits, detailed further in Note 3, totalled GBP1.1m (2017: GBP1.9m), comprising acquisition-related items of GBP1.0m (2017: GBP0.8m) and losses from start-up activities totaling GBP0.1m, reduced from GBP0.4m in 2017. In 2017 we also reported restructuring costs categorised as exceptional items totaling GBP0.6m. After these adjustments, reported profit before tax was GBP11.0m (2017: GBP5.8m).

Taxation

The Group's headline tax rate increased slightly, to 20.5% (2017: 20.0%). Consistent with previous years, the rate was above the statutory rate, mainly as a result of non-deductible entertaining expenditure.

On a reported basis, the Group's tax rate was 16.4% (2017: 22.9%). The tax rate is expected to be consistently higher than the statutory rate (of 19.0% in 2018, slightly reduced from 19.25% in 2017) since the amortisation of acquisition-related intangibles is not deductible for tax purposes but, in 2018, the tax rate was significantly reduced by the tax-free profit on the sale of BroadCare. Excluding the BroadCare sale, the reported rate was 22.5%.

Earnings Per Share

Headline EPS increased by 21% to 8.90 pence (2017: 7.34 pence) and, on a diluted basis, increased by 22% to 8.68 pence (2017: 7.12 pence).

After tax, reported profit for the year was GBP9.2m (2017: GBP4.5m) and EPS was 10.89 pence (2017: 5.31 pence). On a diluted basis, EPS was 10.63 pence (2017: 5.15 pence).

Continuing operations

The Consolidated Income Statement separately discloses our trading results from continuing operations and BroadCare, now a discontinued operation. The key components of our continuing operations are: revenue of GBP77.6m, up 13% from 2017; headline operating profit of GBP9.5m, up 23%; and operating profit margins of 12.2%, up from 11.2% in 2017. Headline profit before tax from continuing operations in 2018 was GBP9.0m (2017: GBP7.2m), up 25% from 2017, and diluted EPS was 8.23 pence, up 24%.

Dividends

The Board adopts a progressive dividend policy, aiming to grow dividends each year in line with earnings but always balancing the desire to reward shareholders via dividends with the need to fund the Group's growth ambitions and maintain a strong balance sheet. The Board recommends a final dividend of 1.4 pence per share, bringing the total for the year to 2.1 pence per share, representing an increase of 24% over 2017. The final dividend will be payable on 22 July 2019 to shareholders on the register at 12 July 2019. The corresponding ex-dividend date is 11 July 2019. The Board will continue to keep under regular review the best use of the Group's cash resources, but it remains the Board's intention to follow a progressive policy provided trading conditions allow.

Balance Sheet

In common with other marketing communications groups, the main features of our balance sheet are the goodwill and other intangible assets resulting from acquisitions made over the years, and the debt taken on in connection with those acquisitions.

The level of intangible assets relating to acquisitions increased by GBP8.2m during the year as a result of the acquisition of krow in April. In contrast, the level of total debt (combined bank debt and acquisition obligations) increased by only GBP1.3m.

The Board undertakes an annual assessment of the value of all goodwill, explained further in Note 11, and at 31 December 2018 again concluded that no impairment in the carrying value was required.

The Group's acquisition obligations at the end of 2018 were GBP11.8m (2017: GBP7.2m), to be satisfied by a mix of cash and shares. Virtually all of this is dependent on post-acquisition earn-out profits, the majority to the end of 2020. GBP2.7m is expected to fall due for payment in cash within 12 months and a further GBP2.1m in cash in the subsequent 12 months. The Directors believe that the strength of the Group's cash generation can comfortably accommodate these obligations alongside the Group's commitments to capital expenditure and dividend payments.

Cash Flow

As expected, the Group's cash flow during 2018 was impacted by some unwinding of the exceptional working capital movements at the end of 2017. Headline profit after tax of GBP7.5m (2017: GBP6.2m) converted into GBP5.6m (2017: GBP9.0m) of "free cash flow" (defined as net cash inflow from operating activities less tangible capital expenditure).

This free cash flow funded new acquisitions, amounting to GBP2.4m (2017: GBP1.3m), the settlement of contingent consideration obligations relating to the profits generated by previous acquisitions, totaling GBP1.7m (2017: GBP1.7m), and dividends of GBP1.7m (2017: GBP1.3m). In addition, the sale of BroadCare resulted in a net cash inflow of GBP3.5m.

At the end of the year, the Group's net bank debt stood at GBP4.0m (2017: GBP7.2m). The reduction in debt resulted in the leverage ratio of net bank debt to headline EBITDA reducing to below x0.5 at 31 December 2018 (2017: x0.8), triggering a further reduction in the Group's borrowing costs of 0.25%. The Group's ratio of total debt, including remaining acquisition obligations, to EBITDA at 31 December 2018 (calculated by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitability) fell to x1.1 (2017: x1.4).

In view of the currently heightened levels of both economic and political uncertainty, the Board has decided to reduce each of its debt-related KPI targets by x0.5. The revised limits for net bank debt leverage and total debt leverage are now x1.5 and x2.0 respectively.

Outlook

We expect 2019 to be another year of growth. The year has started well and prospects for organic growth remain good. We also expect to make further margin improvements and to continue the rapid growth of Pathfindr. We look forward to 2019 with confidence.

Peter Fitzwilliam

Finance Director

Consolidated Income Statement

For the year ended 31 December 2018

 
 
                                   Continuing     Discontinued                Continuing     Discontinued 
                                   operations       operations      Total     operations       operations      Total 
                                         2018             2018       2018          2017*             2017      2017* 
                          Note        GBP'000          GBP'000    GBP'000        GBP'000          GBP'000    GBP'000 
 
 TURNOVER                  2          159,916            1,476    161,392        144,243            1,830    146,073 
 Cost of sales                       (82,331)            (221)   (82,552)       (75,652)            (381)   (76,033) 
 OPERATING INCOME          2           77,585            1,255     78,840         68,591            1,449     70,040 
 Headline operating 
  expenses                           (68,121)            (776)   (68,897)       (60,883)            (939)   (61,822) 
 
   HEADLINE OPERATING 
   PROFIT                               9,464              479      9,943          7,708              510      8,218 
 (Loss) / profit on 
  investments              3            (312)            2,981      2,669              -                -          - 
 Exceptional items         3                -                -          -          (642)                -      (642) 
 Acquisition 
  adjustments              3          (1,010)                -    (1,010)          (804)                -      (804) 
 Start-up costs            3            (139)                -      (139)          (443)                -      (443) 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
 OPERATING PROFIT                       8,003            3,460     11,463          5,819              510      6,329 
 Share of results 
  of associates and 
  joint ventures                          (1)                -        (1)           (11)                -       (11) 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
 PROFIT BEFORE INTEREST 
  AND TAXATION                          8,002            3,460     11,462          5,808              510      6,318 
 Net finance costs         6            (469)                -      (469)          (473)                -      (473) 
 PROFIT BEFORE TAXATION    7            7,533            3,460     10,993          5,335              510      5,845 
 Taxation                  8          (1,710)             (96)    (1,806)        (1,238)            (102)    (1,340) 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
 PROFIT FOR THE YEAR                    5,823            3,364      9,187          4,097              408      4,505 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
 
 Attributable to: 
 Equity holders of 
  the parent                            5,712            3,364      9,076          3,994              408      4,402 
 Non-controlling 
  interests                               111                -        111            103                -        103 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
                                        5,823            3,364      9,187          4,097              408      4,505 
                                -------------  ---------------  ---------  -------------  ---------------  --------- 
 
 
 Basic earnings per 
  share (pence)            10            6.85             4.04      10.89           4.82             0.49       5.31 
 Diluted earnings 
  per share (pence)        10            6.69             3.94      10.63           4.67             0.48       5.15 
 Headline basic 
  earnings 
  per share (pence)        10            8.44             0.46       8.90           6.85             0.49       7.34 
 Headline diluted 
  earnings per share 
  (pence)                  10            8.23             0.45       8.68           6.64             0.48       7.12 
 
 

* Prior year figures have been restated for the impact of the adoption of IFRS 15: Revenue from Contracts with Customers, as described in Note 1.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2018

 
                                                                Total                                          Total 
                           Continuing     Discontinued        Year to     Continuing     Discontinued        Year to 
                           operations        operation    31 December     operations       operations    31 December 
                                 2018             2018           2018           2017             2017           2017 
                              GBP'000          GBP'000        GBP'000        GBP'000          GBP'000        GBP'000 
 
 PROFIT FOR THE YEAR            5,823            3,364          9,187          4,097              408          4,505 
 Other comprehensive 
 income - items that 
 may be reclassified 
 separately to profit 
 or loss: 
 
 Exchange differences 
  on translation of 
  foreign 
  operations                       73                -             73          (112)                -          (112) 
                        -------------  ---------------  -------------  -------------  ---------------  ------------- 
 TOTAL COMPREHENSIVE 
  INCOME FOR THE YEAR           5,896            3,364          9,260          3,985              408          4,393 
 
 Attributable to: 
 Equity holders of 
  the 
  parent                        5,744            3,364          9,108          3,884              408          4,292 
 Non-controlling 
  interests                       152                -            152            101                -            101 
                        -------------  ---------------  -------------  -------------  ---------------  ------------- 
                                5,896            3,364          9,260          3,985              408          4,393 
                        -------------  ---------------  -------------  -------------  ---------------  ------------- 
 
 

Consolidated Balance Sheet

As at 31 December 2018

 
                                                        As at          As at 
                                                  31 December    31 December 
                                                         2018           2017 
 
                                          Note        GBP'000        GBP'000 
 FIXED ASSETS 
 Intangible assets                         11          95,723         87,951 
 Property, plant and equipment                          3,250          3,489 
 Investments in associates                 12               -            313 
 Deferred tax assets                                       23             24 
                                                       98,996         91,777 
                                                -------------  ------------- 
 CURRENT ASSETS 
 Stock                                                    850            668 
 Trade and other receivables               13          39,727         34,829 
 Cash and short term deposits                           5,899          5,860 
                                                -------------  ------------- 
                                                       46,476         41,357 
 CURRENT LIABILITIES 
 Trade and other payables                  14        (34,419)       (31,597) 
 Corporation tax payable                                (668)          (784) 
 Bank loans                                15               -        (2,500) 
 Acquisition obligations                  16.1        (3,258)        (1,810) 
                                                     (38,345)       (36,691) 
                                                -------------  ------------- 
 NET CURRENT ASSETS                                     8,131          4,666 
 
 TOTAL ASSETS LESS CURRENT LIABILITIES                107,127         96,443 
                                                -------------  ------------- 
 NON CURRENT LIABILITIES 
 Bank loans                                15         (9,886)       (10,579) 
 Obligations under finance leases                        (39)          (129) 
 Acquisition obligations                  16.1        (8,537)        (5,433) 
 Deferred tax liabilities                               (451)          (148) 
                                                -------------  ------------- 
                                                     (18,913)       (16,289) 
                                                -------------  ------------- 
 NET ASSETS                                            88,214         80,154 
                                                -------------  ------------- 
 
 CAPITAL AND RESERVES 
 Called up share capital                   17           8,436          8,436 
 Share premium account                                 42,506         42,506 
 Own shares                                18           (299)          (602) 
 Share-based incentive reserve                            498            341 
 Foreign currency translation 
  reserve                                                 117             85 
 Retained earnings                                     36,444         28,879 
                                                -------------  ------------- 
 EQUITY ATTRIBUTABLE TO EQUITY 
  HOLDERS OF THE PARENT                                87,702         79,645 
                                                -------------  ------------- 
 Non-controlling interests                                512            509 
                                                -------------  ------------- 
 TOTAL EQUITY                                          88,214         80,154 
                                                -------------  ------------- 
 

Consolidated Cash Flow Statement

for the year ended 31 December 2018

 
                                                      Year to        Year to 
                                                  31 December    31 December 
                                                         2018           2017 
 
                                                      GBP'000        GBP'000 
 
 Operating profit                                      11,463          6,329 
 Depreciation and amortisation charges                  2,544          2,220 
 Movements in the fair value of contingent 
  consideration                                          (67)             99 
 Profit on disposal of property, plant 
  and equipment                                           (5)           (52) 
 Loss on disposal of intangible assets                      -              1 
 Loss on write down of investment                         312              - 
 Profit on disposal of BroadCare                      (2,981)              - 
 Non cash charge for share options, growth 
  shares and shares awarded                               183             92 
 Increase in receivables                              (2,022)        (1,874) 
 Increase in stock                                      (182)          (183) 
 (Decrease) / increase in payables                      (187)          5,343 
                                                -------------  ------------- 
 OPERATING CASH FLOWS                                   9,058         11,975 
 Net finance costs paid                                 (560)          (425) 
 Tax paid                                             (1,906)        (1,299) 
                                                -------------  ------------- 
 Net cash inflow from operating activities              6,592         10,251 
                                                -------------  ------------- 
 INVESTING ACTIVITIES 
 Proceeds on disposal of property, plant 
  and equipment                                            30             88 
 Purchase of property, plant and equipment            (1,014)        (1,268) 
 Investment in software development                     (377)          (341) 
 Proceeds from disposal of BroadCare                    4,099              - 
 Acquisition of subsidiaries                          (2,990)        (1,879) 
 Payment relating to acquisitions made 
  in prior years                                      (1,748)        (1,652) 
 Cash disposed of and costs of disposal                 (584)              - 
  of BroadCare 
 Cash acquired with subsidiaries                          553            610 
 Net cash outflow from investing activities           (2,031)        (4,442) 
                                                -------------  ------------- 
 FINANCING ACTIVITIES 
 Dividends paid                                       (1,546)        (1,284) 
 Dividends paid to non-controlling interests            (149)           (49) 
 Repayment of finance leases                             (86)           (84) 
 (Repayment of) / increase in long term 
  bank loans                                          (3,125)            750 
 (Repayment of) / proceeds from other 
  long term loans                                           -           (76) 
 Sale / (purchase) of own shares held 
  in EBT                                                  311           (96) 
 Net cash outflow from financing activities           (4,595)          (839) 
                                                -------------  ------------- 
 
   (Decrease) / increase in cash and cash 
   equivalents                                           (34)          4,970 
 Exchange differences on translation 
  of foreign subsidiaries                                  73          (112) 
 Cash and cash equivalents at beginning 
  of year                                               5,860          1,002 
                                                -------------  ------------- 
 Cash and cash equivalents at end of 
  year                                                  5,899          5,860 
                                                -------------  ------------- 
 

Consolidated Statement of Changes in Equity for the year ended 31 December 2018

 
 
                                                                                                   Total 
                                                       Share-        Foreign                attributable 
                                                        based       currency                   to equity    Non-controlling 
                     Share      Share        Own    incentive    translation    Retained         holders           interest      Total 
                   capital    premium     shares      reserve        reserve    earnings       of parent            GBP'000     equity 
                   GBP'000    GBP'000    GBP'000      GBP'000        GBP'000     GBP'000         GBP'000                       GBP'000 
 
 At 1 January 
  2017               8,412     42,431      (556)          249            195      25,740          76,471                457     76,928 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 Profit 
  for the 
  year                   -          -          -            -              -       4,402           4,402                103      4,505 
 Exchange 
  differences 
  on 
  translation 
  of foreign 
  operations             -          -          -            -          (110)           -           (110)                (2)      (112) 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 Total 
  comprehensive 
  income 
  for the 
  year                   -          -          -            -          (110)       4,402           4,292                101      4,393 
 New shares 
  issued                24         75          -            -              -           -              99                  -         99 
 Share option 
  charge                 -          -          -           19              -           -              19                  -         19 
 Growth 
  share charge           -          -          -           73              -           -              73                  -         73 
 Own shares 
  purchased              -          -       (96)            -              -           -            (96)                  -       (96) 
 Shares 
  awarded 
  and sold 
  from own 
  shares                 -          -         50            -              -          21              71                  -         71 
 Dividend 
  paid                   -          -          -            -                    (1,284)         (1,284)               (49)    (1,333) 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 At 31 December 
  2017               8,436     42,506      (602)          341             85      28,879          79,645                509     80,154 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 Profit 
  for the 
  year                   -          -          -            -              -       9,076           9,076                111      9,187 
 Exchange 
  differences 
  on 
  translation 
  of foreign 
  operations             -          -          -            -             32           -              32                 41         73 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 Total 
  comprehensive 
  income 
  for the 
  year                   -          -          -            -             32       9,076           9,108                152      9,260 
 Share option 
  charge                 -          -          -           69              -           -              69                  -         69 
 Growth 
  share charge           -          -          -           88              -           -              88                  -         88 
 Shares 
  awarded 
  and sold 
  from own 
  shares                 -          -        303            -              -          35             338                  -        338 
 Dividend 
  paid                   -          -          -            -                    (1,546)         (1,546)              (149)    (1,695) 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 At 31 December 
  2018               8,436     42,506      (299)          498            117      36,444          87,702                512     88,214 
---------------  ---------  ---------  ---------  -----------  -------------  ----------  --------------  -----------------  --------- 
 

Notes to the Consolidated Financial Statements

1. Principal Accounting Policies

Basis of preparation

The results for the year to 31 December 2018 have been extracted from the audited consolidated financial statements, which are expected to be published by 23 April 2019.

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for the year ended 31 December 2017 were delivered to the Registrar of Companies following the Annual General Meeting on 18 June 2018 and the statutory accounts for 2018 are expected to be published on the Group's website (www.themission.co.uk) shortly, posted to shareholders at least 21 days ahead of the Annual General Meeting ("AGM") on 17 June 2019 and, after approval at the AGM, delivered to the Registrar of Companies.

The auditors, PKF Francis Clark, have reported on the accounts for the years ended 31 December 2018 and 31 December 2017; their reports in both years were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 in respect of those accounts.

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and the Companies Act 2006.

Basis of consolidation

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Turnover and revenue recognition policy

The Group's operating subsidiaries carry out a range of different activities. The following policies apply consistently across subsidiaries.

Revenue is recognised when a performance obligation is satisfied, in accordance with the terms of the contractual arrangement. Where there are contracts with a variety of performance obligations that are distinct, an element of the transaction price is allocated to each performance obligation and recognised as revenue as and when that performance obligation is satisfied. Revenue is allocated to each of the performance obligations based on relative standalone selling prices. Typically, performance obligations are satisfied over time as services are rendered. The nature of the work is almost always such that it relates to facts and circumstances that are specific to the Client, with the result that the work performed does not create an asset with alternative use to the Group. Therefore, in accordance with IFRS 15, even if the Client will receive the benefits of the Group's performance only when the Client receives the piece of work, the performance obligation is regarded as being satisfied over time. The Group is generally entitled to payment for work performed to date.

Contracts are typically short-term in nature and do not include any significant financing components. The Group is generally paid in arrears for its services and invoices are typically payable within 30 to 60 days.

Where performance obligations have been satisfied and the recorded turnover exceeds amounts invoiced to Clients, the excess is classified as accrued income (within Trade and other receivables). Accrued income is a contract asset and is transferred to trade receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement. Where amounts invoiced to Clients exceed recorded turnover, because performance obligations have not yet been satisfied, the excess is classified as deferred income (within Trade and other payables). These balances are considered contract liabilities.

The Group has applied the practical expedient permitted by IFRS 15 to not disclose the transaction price allocated to performance obligations unsatisfied or partially unsatisfied as of the end of the reporting period as contracts typically have an original expected duration of a year or less.

The amount of revenue recognised depends on whether the Group acts as principal or agent. Third party costs are included in revenue when the Group acts as principal with respect to the goods or services provided to the Client and are excluded when the Group acts as agent, by reference to whether or not the Group controls the relevant good or service before it is transferred to the Client.

The Group has not recognised any significant costs incurred to obtain or fulfil a Client contract as assets on the balance sheet. Costs to obtain a contract are typically expensed as incurred as the contracts are generally short term in nature.

Turnover represents fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts.

Further details on revenue recognition are detailed by activity below:

   (i)         Advertising and ad hoc marketing campaigns 

This typically involves fees for strategic planning and creative concepts through to execution and delivery of final campaigns. Revenue may consist of various arrangements, but typically comprises retainer fees or fixed price contracts, both of which are recognised over time. Retainer fees are recognised on a straight-line basis over the term of the contract. For fixed price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. This is typically determined based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours.

   (ii)         Website, portal or application design and build (Digital) 

The Group derives revenue from designing and building websites, portals and applications under fixed price contracts. Revenue is typically recognised over time, determined by applying the hours devoted to date as a percentage of total hours expected.

   (iii)        Software development (Digital) 

This revenue stream involves the supply of software licences and aftersales support. If billed as a single fixed price fee, each of these services is accounted for as a separate performance obligation, the transaction price allocated to each being determined by the labour hours and cost required to supply each service. Revenue attributable to the provision of the software is recognised at a point in time when the software licence is made available for use by the Client. Revenue attributable to the aftersales support is recognised monthly on a straight-line basis over the period support is to be provided. In some cases, the contract might also cover the provision of data migration and training services, but each of these is separately billed, the revenue being recognised over time, determined by applying the hours devoted to date as a percentage of total hours expected.

   (iv)        Media buying 

Revenue is derived from identifying the Client's media requirements and managing and placing orders for the appropriate media. Revenue is typically recognised at the point in time the media is aired or on the date of publication.

   (v)         Exhibitions, events and conferences 

Revenue is derived from the design, planning and supply of exhibition stands, events and conferences. Revenue is typically recognised over time based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours.

   (vi)        Learning and training 

Revenue is in the form of fixed price fees from planning and designing training courses and from performing training courses. Specific training is recognised at a point in time on the date the training takes place. If the service provided includes planning and designing the training course and material, then revenue would be attributed to this performance obligation and recognised over time based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours.

   (vii)       Public Relations 

PR revenue is typically derived from retainer fees and fixed price fees for services to be performed subject to specific agreement. Revenue under these arrangements is earned over time, in accordance with the terms of the contractual arrangement. Retainer fee revenue is recognised on a straight-line basis over the period covered by the fee. For ad hoc fixed price projects the Group generally applies the hours devoted to date as a percentage of total hours as the basis for recognising revenue.

Goodwill and other intangible assets

Goodwill

Goodwill arising from the purchase of subsidiary undertakings and trade acquisitions represents the excess of the total cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary acquired. The total cost of acquisition represents both the unconditional payments made in cash and shares on acquisition and an estimate of future contingent consideration payments to vendors in respect of earn-outs.

Goodwill is not amortised, but is reviewed annually for impairment. Goodwill impairment is assessed by comparing the carrying value of goodwill for each cash-generating unit to the future cash flows, discounted to their net present value using an appropriate discount rate, derived from the relevant underlying assets. Where the net present value of future cash flows is below the carrying value of goodwill, an impairment adjustment is recognised in profit or loss and is not subsequently reversed.

Other intangible assets

Costs associated with the development of identifiable software products where it is probable that the economic benefits will exceed the costs of development are recognised as intangible assets. These assets are carried at cost less accumulated amortisation and are amortised over periods of between 3 and 5 years. Amortisation of software development costs is included within operating expenses.

Other intangible assets separately identified as part of an acquisition are amortised over periods of between 3 and 10 years, except certain brand names which are considered to have an indefinite useful life. The value of such brand names is not amortised, but rather an annual impairment test is applied and any shortfall in the present value of future cash flows derived from the brand name versus the carrying value is recognised in profit and loss. Amortisation and impairment charges are excluded from headline profit.

Contingent consideration payments

The Directors manage the financial risk associated with making business acquisitions by structuring the terms of the acquisition, wherever possible, to include an element of the total consideration payable for the business which is contingent on its future profitability (ie earn-out). Contingent consideration is initially recognised at its estimated fair value based on a reasonable estimate of the amounts expected to be paid. Changes in the fair value of the contingent consideration that arise from additional information obtained during the first twelve months from the acquisition date, about facts and circumstances that existed at the acquisition date, are adjusted retrospectively, with corresponding adjustments against goodwill. The fair value of contingent consideration is reviewed annually and subsequent changes in the fair value are recognised in profit or loss, but excluded from headline profits.

Accounting estimates and judgements

The Group makes estimates and judgements concerning the future and the resulting estimates may, by definition, vary from the actual results. The Directors considered the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgement are, in order of significance:

Potential impairment of goodwill

The potential impairment of goodwill is based on estimates of future cash flows derived from the financial projections of each cash-generating unit over an initial three year period and assumptions about growth thereafter, discussed in more detail in Note 11.

Contingent payments in respect of acquisitions

Contingent consideration, by definition, depends on uncertain future events. At the time of purchasing a business, the Directors use the financial projections obtained during due diligence as the basis for estimating contingent consideration. Subsequent estimates benefit from the greater insight gained in the post-acquisition period and the business' track record of financial performance.

Revenue recognition policies in respect of contracts which straddle the year end

Estimates of revenue to be recognised on contracts which straddle the year end are typically based on the amount of time so far committed to those contracts compared to the total estimated time to complete them.

Valuation of intangible assets on acquisitions

Determining the separate components of intangible assets acquired on acquisitions is a matter of judgement exercised by the Directors. Brand names, customer relationships and intellectual property rights are the most frequently identified intangible assets. When considering the valuation of intangible assets on acquisitions, a range of methods is undertaken both for identifying intangibles and placing valuations on them. The valuation of each element is assessed by reference to commonly used techniques, such as "relief from royalty" and "excess earnings" and to industry leaders and competitors. Estimating the length of Client retention is the principal uncertainty and draws on historic experience.

Share-based payment transactions

Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest.

The fair value of nil-cost share options is measured by use of a Black Scholes model on the grounds that there are no market-related vesting conditions. The fair value of Growth Shares is measured by use of a Monte Carlo simulation model on the grounds that they are subject to market-based conditions (the future share price of the Company).

Foreign currencies

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies arising from normal trading activities are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are reflected in the profit or loss accordingly.

The income statements of overseas subsidiary undertakings are translated at average exchange rates and the year-end net assets of these companies are translated at year-end exchange rates. Exchange differences arising from retranslation of the opening net assets are reported in the Consolidated Statement of Comprehensive Income.

New standards, interpretations and amendments to existing standards

Impact of the adoption of IFRS 9: Financial Instruments

The Group adopted IFRS 9 with effect from 1 January 2018. Due to the short term nature of the Group's trade receivables, the credit ratings of the Group's Clients, and credit insurance on certain trade receivables, the requirement under IFRS 9 to use an expected loss method of impairment of financial assets has not had a material effect on the Group's financial statements.

Impact of the adoption of IFRS 15: Revenue from Contracts with Customers

The Group adopted IFRS 15 with effect from 1 January 2018. The new standard establishes a five step model where consideration received or expected to be received is recognised as revenue when contractual performance obligations are satisfied. Adopting IFRS 15 has not had a material impact on the amounts or timing of the Group's revenue recognition. However, for a small proportion of media buying activity, the Group is viewed as an agent because the Group does not have control of the relevant services before they are transferred to the Client. Third party costs are deducted from turnover when the Group acts as agent. As a result, turnover decreases by the amount of these third party costs and there is a corresponding decrease in costs. The operating profit remains unchanged.

In accordance with the transition provisions in IFRS 15, the Group has adopted the new standard retrospectively and has restated comparatives. The following table summarises the impact of adopting IFRS 15 on the Group's consolidated income statement for the year ended 31 December 2017.

 
                                2017 
                       as previously     IFRS 15 adjustments            2017 
                            reported                             as restated 
                             GBP'000                 GBP'000         GBP'000 
 
 Turnover                    146,912                   (839)         146,073 
 Cost of sales              (76,872)                     839        (76,033) 
                     ---------------  ----------------------  -------------- 
 Operating income             70,040                       -          70,040 
                     ---------------  ----------------------  -------------- 
 
 
 

Impact of the adoption of IFRS 16: Leases

IFRS 16: Leases will apply to the Group's 2019 financial statements. IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting and are replaced by a model where a right-of-use asset and corresponding liability have to be recognised for all leases (i.e. all on balance sheet) except for short term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently at cost less accumulated depreciation, adjusted for any re-measurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications.

As at 31 December 2018, the Group had non-cancellable operating lease commitments of GBP7.1m. A preliminary assessment of IFRS 16 indicates that the Group will recognise a right-of-use asset and corresponding liability in respect of a large majority of these leases and that fixed assets and liabilities will accordingly increase by this order of magnitude as a consequence of the adoption of IFRS 16. The impact on the consolidated income statement is not expected to be material as the required adjustment will predominantly involve a reclassification between operating lease expense and depreciation, both of which are included in operating costs. There is expected to be a small increase in operating profit as an element of the lease-related expense is reclassified from operating expenses to interest costs. Interest costs are expected to increase by a similar amount, resulting in a largely unchanged profit before tax.

The classification of cash flows will be affected by the adoption of IFRS 16 because operating lease payments under IAS 17 are presented as operating cash flows, whereas in future lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.

The Directors will complete a detailed assessment of the impact of adopting IFRS 16. No decision has been made about whether to use any of the transitional provisions.

2. Segmental Information

IFRS 15: Revenue from Contracts with Customers requires the disaggregation of revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Board has considered how the Group's revenue might be disaggregated in order to meet the requirements of IFRS 15 and has concluded that the activity and geographical segmentation disclosures set out below represent the most appropriate categories of disaggregation. The Board considers that neither differences between types of Clients, sales channels and markets nor differences between contract duration and the timing of transfer of goods or services are sufficiently significant to require further disaggregation.

For management purposes the Group monitored the performance of fifteen operating units during the year, each of which carries out a range of activities. The performance of these businesses is managed and monitored as a whole by the Board as a single business segment - marketing communications. However, since different activities have different revenue characteristics, the Group's turnover and operating income has been disaggregated below to provide additional benefit to readers of these financial statements.

In previous years, the profitability by activity has been disclosed. However, following the implementation of a Shared Services function from the start of 2018 and the resulting transfer of certain Agency-specific contracts onto centrally-managed arrangements, a significant portion of the total operating costs are now centrally managed and segment information is therefore now only presented down to the operating income level.

 
                             Advertising     Media   Exhibitions       Public     Total 
                               & Digital    Buying    & Learning    Relations 
 Year to 31 December 2018        GBP'000   GBP'000       GBP'000      GBP'000   GBP'000 
                            ------------  --------  ------------  -----------  -------- 
 
   Turnover 
 Continuing operations            96,615    36,473        17,488        9,340   159,916 
 Discontinued operations           1,476         -             -            -     1,476 
                            ------------  --------  ------------  -----------  -------- 
 Total Group                      98,091    36,473        17,488        9,340   161,392 
                            ------------  --------  ------------  -----------  -------- 
 
 Operating income 
 Continuing                       61,805     3,469         5,202        7,109    77,585 
 Discontinued                      1,255         -             -            -     1,255 
                            ------------  --------  ------------  -----------  -------- 
 Total Group                      63,060     3,469         5,202        7,109    78,840 
                            ------------  --------  ------------  -----------  -------- 
 
 
                             Advertising     Media   Exhibitions       Public     Group 
                               & Digital    Buying    & Learning    Relations 
 Year to 31 December 2017        GBP'000   GBP'000       GBP'000      GBP'000   GBP'000 
                            ------------  --------  ------------  -----------  -------- 
 
   Turnover 
 Continuing operations            79,769    44,421        12,054        7,999   144,243 
 Discontinued operations           1,830         -             -            -     1,830 
                            ------------  --------  ------------  -----------  -------- 
 Total Group (restated)           81,599    44,421        12,054        7,999   146,073 
                            ------------  --------  ------------  -----------  -------- 
 
 Operating income 
 Continuing                       54,610     3,720         3,600        6,661    68,591 
 Discontinued                      1,449         -             -            -     1,449 
                            ------------  --------  ------------  -----------  -------- 
 Total Group                      56,059     3,720         3,600        6,661    70,040 
                            ------------  --------  ------------  -----------  -------- 
 

As contracts typically have an original expected duration of less than one year, the full amount of the deferred income balance at the beginning of the year is released to revenue during the year. All Media buying turnover is recognised at a point in time. Virtually all other turnover from continuing operations is recognised over time.

Assets and liabilities are not split between activities.

Geographical segmentation

The following table provides an analysis of the Group's revenue by region of activity:

 
                Year to        Year to 
            31 December    31 December 
                   2018           2017 
                GBP'000        GBP'000 
 
 UK              69,774         62,198 
 Asia             5,061          4,481 
 USA              4,005          3,361 
          -------------  ------------- 
                 78,840         70,040 
          -------------  ------------- 
 
 

3. Reconciliation of Headline Profit to Reported Profit

The Board believes that headline profits, which eliminate certain amounts from the reported figures, provide a better understanding of the underlying trading of the Group. The adjustments to reported profits generally fall into three categories: exceptional items, acquisition-related items and start-up costs. In 2018, the profit/loss on investments (respectively, from the sale of BroadCare and the impairment of Watchable) has also been excluded.

 
                                                    Year to               Year to 
                                           31 December 2018      31 December 2017 
                                              PBT       PAT        PBT        PAT 
                                          GBP'000   GBP'000    GBP'000    GBP'000 
 
 From continuing and discontinued 
  operations 
 
 Headline profit                            9,473     7,528      7,734      6,185 
 Profit on sale of BroadCare 
  (Note 16.3)                               2,981     2,981          -          - 
 Acquisition adjustments 
  (Note 5)                                (1,010)     (895)      (804)      (802) 
 Impairment of Watchable 
  (Note 12)                                 (312)     (312)          -          - 
 Exceptional items (Note 
  4)                                            -         -      (642)      (523) 
 Start-up costs                             (139)     (115)      (443)      (355) 
                               ------------------  --------  ---------  --------- 
 Reported profit                           10,993     9,187      5,845      4,505 
                               ------------------  --------  ---------  --------- 
 
 
 
 From continuing operations 
 
 Headline profit              8,994   7,145   7,224   5,777 
 Acquisition adjustments 
  (Note 5)                  (1,010)   (895)   (804)   (802) 
 Impairment of Watchable 
  (Note 12)                   (312)   (312)       -       - 
 Exceptional items (Note 
  4)                              -       -   (642)   (523) 
 Start-up costs               (139)   (115)   (443)   (355) 
                           --------  ------  ------  ------ 
 Reported profit              7,533   5,823   5,335   4,097 
                           --------  ------  ------  ------ 
 
 
 
 From discontinued operations 
 
 Headline profit                    479       383   510   408 
 Profit on sale of BroadCare 
  (Note 16.3)                     2,981     2,981     -     - 
 Reported profit                  3,460     3,364   510   408 
                               --------  --------  ----  ---- 
 
 

Start-up costs derive from organically started businesses and comprise the trading losses of such entities until the earlier of two years from commencement or when they show evidence of becoming sustainably profitable. Start-up costs in 2018 relate to the launch of April Six's new venture in China, and trading losses at Mongoose Promotions. Start-up costs in 2017 related to the launches of fuse and Mongoose Promotions.

4. Exceptional Items

Exceptional items represent revenue or costs that, either by their size or nature, require separate disclosure in order to give a fuller understanding of the Group's financial performance.

Exceptional costs in 2017 comprised settlement costs to a former Director and also amounts payable for loss of office and other costs incurred relating to the restructuring of certain operations in order to streamline activities and underpin the Board's growth expectations.

5. Acquisition Adjustments

 
                                                             Year to        Year to 
                                                         31 December    31 December 
                                                                2018           2017 
                                                             GBP'000        GBP'000 
 
 Movement in fair value of contingent consideration               67           (99) 
 Amortisation of other intangibles recognised 
  on acquisitions                                              (915)          (580) 
 Acquisition transaction costs expensed                        (162)          (125) 
                                                       -------------  ------------- 
                                                             (1,010)          (804) 
                                                       -------------  ------------- 
 
 

The movement in fair value of contingent consideration relates to a net downward (2017: upward) revision in the estimate payable to vendors of businesses acquired in prior years. Acquisition transaction costs relate to professional fees in connection with acquisitions made or contemplated.

6. Net Finance Costs

 
                                                  Year to        Year to 
                                              31 December    31 December 
                                                     2018           2017 
                                                  GBP'000        GBP'000 
 
   Interest on bank loans and overdrafts, 
   net of interest on bank deposits                 (394)          (402) 
 Amortisation of bank debt arrangement 
  fees                                               (66)           (59) 
 Interest on finance leases                           (9)           (12) 
 Net finance costs                                  (469)          (473) 
                                            -------------  ------------- 
 
 

7. Profit before Taxation

Profit on ordinary activities before taxation is stated after charging / (crediting):

 
                                                       Year to        Year to 
                                                   31 December    31 December 
                                                          2018           2017 
                                                       GBP'000        GBP'000 
 
 Depreciation of owned tangible fixed assets             1,164          1,182 
 Depreciation of tangible fixed assets held 
  under finance leases                                      94             94 
 Amortisation of intangible assets recognised 
  on acquisitions                                          915            580 
 Amortisation of other intangible assets                   371            364 
 Operating lease rentals - Land and buildings            2,469          2,577 
 Operating lease rentals - Plant and equipment             143             70 
 Operating lease rentals - Other assets                    242            310 
 Staff costs                                            51,363         46,976 
 Bad debts and net movement in provision for 
  bad debts                                                 27             84 
 Auditors' remuneration                                    271            264 
 Gain on foreign exchange                                (114)           (43) 
 

8. Taxation

 
                                                        Year to        Year to 
                                                    31 December    31 December 
                                                           2018           2017 
                                                        GBP'000        GBP'000 
 Current tax:- 
 UK corporation tax at 19.00% (2017: 19.25%)              1,752          1,153 
 Adjustment for prior periods                              (58)             11 
 Foreign tax on profits of the period                       214            202 
                                                  -------------  ------------- 
                                                          1,908          1,366 
 Deferred tax:- 
 Current year originating temporary differences           (102)           (20) 
 Foreign deferred tax on overseas subsidiaries                -            (6) 
                                                  -------------  ------------- 
 Tax charge for the year                                  1,806          1,340 
                                                  -------------  ------------- 
 

Factors Affecting the Tax Charge for the Current Year:

The tax assessed for the year is lower (2017: higher) than the standard rate of corporation tax in the UK. The differences are:

 
                                                    Year to        Year to 
                                                31 December    31 December 
                                                       2018           2017 
                                                    GBP'000        GBP'000 
 Profit before taxation                              10,993          5,845 
                                              -------------  ------------- 
 
 Profit on ordinary activities before tax 
  at the standard rate of corporation tax 
  of 19.00% (2017: 19.25%)                            2,089          1,125 
 
 Effect of: 
 Non-deductible expenses/income not taxable             237            175 
 Non-taxable profit on sale of Broadcare              (581)              - 
 Non-deductible impairment of Watchable                  59              - 
 Adjustments in respect of prior periods               (58)             11 
 Other differences                                       60             29 
                                              -------------  ------------- 
 Actual tax charge for the year                       1,806          1,340 
                                              -------------  ------------- 
 

9. Dividends

 
                                                       Year to        Year to 
                                                   31 December    31 December 
                                                          2018           2017 
                                                       GBP'000        GBP'000 
 Amounts recognised as distributions to equity 
  holders in the year: 
 Interim dividend of 0.7 pence (2017: 0.55 
  pence) per share                                         585            456 
 Prior year final dividend of 1.15 pence 
  (2017: 1.00 pence) per share                             961            828 
                                                 -------------  ------------- 
                                                         1,546          1,284 
                                                 -------------  ------------- 
 

A final dividend of 1.4 pence per share is to be paid in July 2019 should it be approved by shareholders at the AGM. In accordance with IFRS this final dividend will be recognised in the 2019 accounts.

10. Earnings Per Share

The calculation of the basic and diluted earnings per share is based on the following data, determined in accordance with the provisions of IAS 33: Earnings per Share.

 
                                                     Year to        Year to 
                                                 31 December    31 December 
                                                        2018           2017 
                                                     GBP'000        GBP'000 
 
 Earnings 
 
 Reported profit for the year 
 
 From continuing and discontinued operations           9,187          4,505 
 Attributable to: 
 Equity holders of the parent                          9,076          4,402 
 Non-controlling interests                               111            103 
                                               -------------  ------------- 
                                                       9,187          4,505 
                                               -------------  ------------- 
 
 From continuing operations                            5,823          4,097 
 Attributable to: 
 Equity holders of the parent                          5,712          3,994 
 Non-controlling interests                               111            103 
                                               -------------  ------------- 
                                                       5,823          4,097 
                                               -------------  ------------- 
 
 From discontinued operations                          3,364            408 
 Attributable to: 
 Equity holders of the parent                          3,364            408 
 Non-controlling interests                                 -              - 
                                               -------------  ------------- 
                                                       3,364            408 
                                               -------------  ------------- 
 
 Headline earnings (Note 3) 
 
 From continuing and discontinued operations           7,528          6,185 
 Attributable to: 
 Equity holders of the parent                          7,417          6,082 
 Non-controlling interests                               111            103 
                                               -------------  ------------- 
                                                       7,528          6,185 
                                               -------------  ------------- 
 
 From continuing operations                            7,145          5,777 
 Attributable to: 
 Equity holders of the parent                          7,034          5,674 
 Non-controlling interests                               111            103 
                                               -------------  ------------- 
                                                       7,145          5,777 
                                               -------------  ------------- 
 
 From discontinued operations                            383            408 
 Attributable to: 
 Equity holders of the parent                            383            408 
 Non-controlling interests                                 -              - 
                                               -------------  ------------- 
                                                         383            408 
                                               -------------  ------------- 
 
 Number of shares 
 Weighted average number of Ordinary 
  shares for the purpose of basic earnings 
  per share                                       83,338,888     82,874,398 
 Dilutive effect of securities: 
 Employee share options                            2,081,410      2,565,943 
 Weighted average number of Ordinary 
  shares for the purpose of diluted 
  earnings per share                              85,420,298     85,440,341 
 
   Reported basis: 
 From continuing and discontinued operations 
 Basic earnings per share (pence)                      10.89           5.31 
 Diluted earnings per share (pence)                    10.63           5.15 
 From continuing operations 
 Basic earnings per share (pence)                       6.85           4.82 
 Diluted earnings per share (pence)                     6.69           4.67 
 From discontinued operations 
 Basic earnings per share (pence)                       4.04           0.49 
 Diluted earnings per share (pence)                     3.94           0.48 
 
   Headline basis: 
 From continuing and discontinued operations 
 Basic earnings per share (pence)                       8.90           7.34 
 Diluted earnings per share (pence)                     8.68           7.12 
 From continuing operations 
 Basic earnings per share (pence)                       8.44           6.85 
 Diluted earnings per share (pence)                     8.23           6.64 
 From discontinued operations 
 Basic earnings per share (pence)                       0.46           0.49 
 Diluted earnings per share (pence)                     0.45           0.48 
 

Basic earnings per share includes shares to be issued subject only to time as if they had been issued at the beginning of the period.

A reconciliation of the profit after tax on a reported basis and the headline basis is given in Note 3.

11. Intangible Assets

 
 Goodwill                                         Year to       Year to 
                                              31 December   31 December 
                                                     2018          2017 
                                                  GBP'000       GBP'000 
 Cost 
 At 1 January                                      89,064        84,052 
 Recognised on acquisition of subsidiaries          6,563         5,012 
 Adjustment to consideration / net                      -             - 
  assets acquired 
                                             ------------  ------------ 
 At 31 December                                    95,627        89,064 
                                             ------------  ------------ 
 
 Impairment adjustment 
 At 1 January                                       4,273         4,273 
 Impairment during the year                             -             - 
 At 31 December                                     4,273         4,273 
                                             ------------  ------------ 
 Net book value at 31 December                     91,354        84,791 
                                             ------------  ------------ 
 

In accordance with the Group's accounting policies, an annual impairment test is applied to the carrying value of goodwill. The review performed assesses whether the carrying value of goodwill is supported by the net present value of projected cash flows derived from the underlying assets for each cash-generating unit ("CGU"). For all CGUs, the Directors assessed the sensitivity of the impairment test results to changes in key assumptions (in particular expectations of future growth) and concluded that a reasonably possible change to the key assumptions would not cause the carrying value of goodwill to exceed the net present value of its projected cash flows.

Other intangible assets

 
                                     Software   Trade names         Customer     Total 
                                  development                  relationships 
                                 and licences 
                                      GBP'000       GBP'000          GBP'000   GBP'000 
 Cost 
 At 1 January 2017                      2,061           899            3,651     6,611 
                               --------------  ------------  ---------------  -------- 
 
 Additions                                341           134              334       809 
 Disposals                              (210)             -                -     (210) 
 At 31 December 2017                    2,192         1,033            3,985     7,210 
                               --------------  ------------  ---------------  -------- 
 
 Additions                                377           748            1,886     3,011 
 Disposals                              (832)             -                -     (832) 
 At 31 December 2018                    1,737         1,781            5,871     9,389 
                               --------------  ------------  ---------------  -------- 
 
 Amortisation and impairment 
 At 1 January 2017                        855            97            2,363     3,315 
                               --------------  ------------  ---------------  -------- 
 
 Charge for the year                      364            77              503       944 
 Disposals                              (209)             -                -     (209) 
                               --------------  ------------  ---------------  -------- 
 At 31 December 2017                    1,010           174            2,866     4,050 
                               --------------  ------------  ---------------  -------- 
 
 Charge for the year                      371           132              783     1,286 
 Disposals                              (316)             -                -     (316) 
                               --------------  ------------  ---------------  -------- 
 At 31 December 2018                    1,065           306            3,649     5,020 
                               --------------  ------------  ---------------  -------- 
 
 
 Net book value at 31 
  December 2018            672     1,475     2,222     4,369 
                        ------  --------  --------  -------- 
 
 
 Net book value at 31 
  December 2017            1,182     859     1,119     3,160 
                        --------  ------  --------  -------- 
 

Additions of GBP377,000 (2017: GBP341,000) in the year include costs associated with the development of identifiable software products that are expected to generate economic benefits in excess of the costs of development.

Intangible assets include an amount of GBP692,000 relating to the krow trade name, which has attained recognition in the marketplace and plays a role in attracting and retaining clients. This value will be amortised over the next 9 years. Also included is an amount of GBP1,650,000 relating to krow customer relationships. krow has developed a base of customers to whom the Group would expect to continue selling in the future. The remaining useful life of these customer relationships is deemed to by 5 years and the value will be amortised over this period.

12. Investments in Associates

 
                                 Year to       Year to 
                             31 December   31 December 
                                    2018          2017 
                                 GBP'000       GBP'000 
 
 At 1 January                        313           324 
 Loss during the year                (1)          (11) 
 Write down of investment          (312)             - 
                            ------------  ------------ 
 At 31 December                        -           313 
                            ------------  ------------ 
 
 

The investment in associates represents a 25% shareholding in Watchable Limited, a film and video content company, based in London. The activities of Watchable have substantially ceased and as a consequence the value of the Group's interest has been written down to zero as at 31 December.

13. Trade and Other Receivables

 
                      31 December   31 December 
                             2018          2017 
                          GBP'000       GBP'000 
 
 Trade receivables         27,156        24,424 
 Accrued income             9,788         7,554 
 Prepayments                2,050         2,080 
 Other receivables            733           771 
                           39,727        34,829 
                     ------------  ------------ 
 

An allowance has been made for estimated irrecoverable amounts from the provision of services of GBP62,000 (2017: GBP193,000). The estimated irrecoverable amount is arrived at by considering the historic loss rate and adjusting for current expectations, Client base and economic conditions. Both historic losses and expected future losses being very low, the Directors consider it appropriate to apply a single average rate for expected credit losses to the overall population of trade receivables and accrued income. Accrued income relates to unbilled work in progress and has substantially the same risk characteristics as the trade receivables for the same types of contracts. The difference between the incurred loss method applied in the 2017 annual report and the new lifetime expected loss rate method under IFRS 9 is considered immaterial and comparatives have not been restated. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

 
                                                31 December   31 December 
                                                       2018          2017 
                                                    GBP'000       GBP'000 
 
 Gross trade receivables                             27,218        24,617 
 Gross accrued income                                 9,788         7,554 
                                               ------------  ------------ 
 Total trade receivables and accrued income          37,006        32,171 
 
 Expected loss rate                                    0.2%          0.6% 
 Provision for doubtful debts                            62           193 
 
 
 

Accrued income has increased by GBP2,234,000 partly as a result on the acquisition of krow (see note 16.2) and partly because of an increase in overall contract activity.

14. Trade and Other Payables

 
                                          31 December   31 December 
                                                 2018          2017 
                                              GBP'000       GBP'000 
 
 Trade creditors                               13,645        12,379 
 Other creditors and accruals                   9,623         9,845 
 Deferred income                                6,755         4,865 
 Other tax and social security payable          4,306         4,422 
 Finance leases                                    90            86 
                                               34,419        31,597 
                                         ------------  ------------ 
 

Deferred income has increased by GBP1,890,000 as a result of the acquisition of krow (see note 16.2).

The Directors consider that the carrying amount of trade and other payables approximates their fair value.

15. Bank Overdrafts, Loans and Net Debt

 
                                                 31 December   31 December 
                                                        2018          2017 
                                                     GBP'000       GBP'000 
 
 Bank loan outstanding                                10,000        13,125 
 Unamortised bank debt arrangement fees                (114)          (46) 
 Carrying value of loan outstanding                    9,886        13,079 
 Less: Cash and short term deposits                  (5,899)       (5,860) 
                                                ------------  ------------ 
 Net bank debt                                         3,987         7,219 
                                                ------------  ------------ 
 
 The borrowings are repayable as follows: 
 Less than one year                                        -         2,500 
 In one to two years                                       -        10,625 
 In more than two years but less than                 10,000             - 
  three years 
                                                      10,000        13,125 
 
 Unamortised bank debt arrangement fees                (114)          (46) 
                                                       9,866        13,079 
 Less: Amount due for settlement within 
  12 months (shown under current liabilities)              -       (2,500) 
                                                ------------  ------------ 
 Amount due for settlement after 12 months             9,886        10,579 
                                                ------------  ------------ 
 

Bank debt arrangement fees, where they can be amortised over the life of the loan facility, are included in finance costs. The unamortised portion is reported as a reduction in bank loans outstanding.

On 14 September 2018, the Group signed a new 3 year revolving credit facility of GBP15.0m, expiring on 28 September 2021, with an option to extend the facility by a further GBP5.0m and an option to extend by 1 year. Interest on the previous facilities was based on LIBOR plus a margin of between 1.75% and 2.75% depending on the Group's debt leverage ratio, payable in cash on loan rollover dates. Interest rate margins on the new facilities are again based on the Group's debt leverage ratio and range from 1.25% to 2.00%.

In addition to its committed facilities, the Group has available an overdraft facility of up to GBP3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.25%.

At 31 December 2018, there was a cross guarantee structure in place with the Group's bankers by means of a fixed and floating charge over all of the assets of the Group companies in favour of Royal Bank of Scotland plc.

All borrowings are in sterling.

16. Acquisitions and Disposals

16.1 Acquisition Obligations

The terms of an acquisition provide that the value of the purchase consideration, which may be payable in cash or shares at a future date, depends on uncertain future events such as the future performance of the acquired company. The Directors estimate that the liability for contingent consideration payments is as follows:

 
                                          31 December 2018                  31 December 2017 
                               Cash      Shares      Total       Cash      Shares      Total 
                            GBP'000     GBP'000    GBP'000    GBP'000     GBP'000    GBP'000 
 
   Less than one year         2,653         605      3,258      1,810           -      1,810 
 Between one and two 
  years                       2,116          75      2,191      2,597         105      2,702 
 In more than two years 
  but less than three 
  years                       5,568         295      5,863        503           -        503 
 In more than three 
  years but less than 
  four years                    483           -        483      2,104         124      2,228 
                             10,820         975     11,795      7,014         229      7,243 
                          ---------  ----------  ---------  ---------  ----------  --------- 
 

16.2 Acquisition of Krow Communications Ltd

On 10 April 2018, the Group acquired the entire issued share capital of Krow Communications Ltd ("krow"), an award-winning creative agency based in London. The fair value of the consideration given for the acquisition was GBP9,357,000, comprising initial cash consideration and deferred contingent cash and share consideration. Costs relating to the acquisition amounted to GBP141,000 and were expensed.

Maximum contingent consideration of GBP11,750,000 is dependent on krow achieving a profit target over the period 1 January 2018 to 31 December 2020. The Group has provided for contingent consideration of GBP6,367,000 to date.

The fair value of the net identifiable assets acquired was GBP608,000 resulting in goodwill and other intangible assets of GBP9,197,000 and a deferred tax liability on the other intangible assets of GBP448,000. Goodwill arises on consolidation and is not tax-deductible. Management carried out a review to assess whether any other intangible assets were acquired as part of the transaction. Management concluded that both a brand name and customer relationships were acquired and attributed a value to each of these by applying commonly accepted valuation methodologies. The goodwill arising on the acquisition is attributable to the anticipated profitability of krow.

 
                                         Book     Fair value      Fair 
                                        value    adjustments     value 
-----------------------------------  --------  -------------  -------- 
                                      GBP'000        GBP'000   GBP'000 
-----------------------------------  --------  -------------  -------- 
 Net assets acquired: 
 Fixed assets                              48              -        48 
 Trade and other receivables            3,036              -     3,036 
 Cash and cash equivalents                553              -       553 
 Trade and other payables             (3,029)              -   (3,029) 
                                          608              -       608 
 Other intangibles recognised 
  at acquisition                            -          2,634     2,634 
 Deferred tax liability adjustment          -          (448)     (448) 
                                          608          2,186     2,794 
 Goodwill                                                        6,563 
-----------------------------------  --------  -------------  -------- 
 Total consideration                                             9,357 
 Satisfied by: 
 Cash                                                            2,990 
 Deferred contingent consideration                               6,367 
-----------------------------------  --------  -------------  -------- 
                                                                 9,357 
-----------------------------------  --------  -------------  -------- 
 
 

krow contributed turnover of GBP9,639,000, operating income of GBP5,356,000 and headline operating profit of GBP945,000 to the results of the Group in 2018.

16.3 Sale of BroadCare

On 12 November 2018, the Group disposed of the BroadCare business. The consideration, assets disposed of and costs of disposal were as follows:

 
                                        GBP'000 
 
 Total consideration                      4,400 
 Less working capital retained            (301) 
-------------------------------------  -------- 
 Net consideration                        4,099 
 
 Net assets disposed of: 
 Software development and licences          516 
 Fixed assets                                18 
 Cash                                       400 
                                            934 
 Disposal costs                             184 
 Total cost of disposal                   1,118 
 
 Profit on sale of BroadCare              2,981 
-------------------------------------  -------- 
 

The net inflow of cash in respect of the sale of BroadCare is as follows:

 
                                   GBP'000 
 
 Cash consideration received         4,099 
 Cash transferred on disposal        (400) 
--------------------------------  -------- 
 Net inflow of cash                  3,699 
--------------------------------  -------- 
 

16.4 Pro-forma results including acquisitions

The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately GBP164.8m, GBP80.4m and GBP10.2m had the Group consolidated the results of the acquisitions made during the year, from the beginning of the year.

17. Share Capital

 
                                             31 December   31 December 
                                                    2018          2017 
                                                 GBP'000       GBP'000 
 Allotted and called up: 
 84,357,351 Ordinary shares of 10p each 
  (2017: 84,357,351 Ordinary shares of 10 
  p each)                                          8,436         8,436 
 

Share-based incentives

The Group has the following share-based incentives in issue:

 
                                At start     Granted/       Waived/      Exercised     At end 
                                 of year      acquired       lapsed                    of year 
 
   TMMG Long Term Incentive 
   Plan                          2,535,000     332,500     (1,362,250)           -       1,505,250 
 Growth Share Scheme             5,720,171           -               -           -       5,720,171 
 
 

The TMMG Long Term Incentive Plan ("LTIP") was created to incentivise senior employees across the Group. Nil-cost options are awarded at the discretion of, and vest based on criteria established by, the Remuneration Committee. During the year, no options were exercised and at the end of the year none of the outstanding options are exercisable.

Shares held in an Employee Benefit Trust will be used to satisfy share options exercised under the Long Term Incentive Plan.

A Growth Share Scheme was implemented on 21 February 2017. Participants in the scheme subscribed for Ordinary A shares in The Mission Marketing Holdings Limited (the "growth shares") at a nominal value. These growth shares can be exchanged for an equivalent number of Ordinary Shares in themission if the themission's share price equals or exceeds 75p for at least 15 days during the period up to 60 days from the announcement of the Group's financial results for the year ending 31 December 2019; if not, they will have no value.

18. Own Shares

 
                                         No. of shares   GBP'000 
 At 31 December 2016                         1,395,930       556 
 Own shares purchased during the year          233,739        96 
 Awarded to employees during the year        (177,302)      (50) 
 At 31 December 2017                         1,452,367       602 
 Awarded or sold during the year             (711,000)     (303) 
 At 31 December 2018                           741,367       299 
                                        --------------  -------- 
 

Shares are held in an Employee Benefit Trust to meet certain requirements of the Long Term Incentive Plan.

19. Post Balance Sheet Events

There have been no material post balance sheet events.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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