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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
  +1.00p +1.21% 83.50p 82.00p 85.00p 83.50p 82.50p 82.50p 55,714 12:53:27
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Media 159.9 11.0 10.9 7.7 71.22

The Mission Marketing Group PLC Half-year Report

19/09/2018 7:00am

UK Regulatory (RNS & others)


The Mission Marketing (LSE:TMMG)
Historical Stock Chart

1 Year : From Jun 2018 to Jun 2019

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TIDMTMMG

RNS Number : 1579B

The Mission Marketing Group PLC

19 September 2018

The Mission Marketing Group plc

Interim results for the six months to 30 June 2018

The Mission Marketing Group plc ("TMMG" or "themission"), the technology-embraced marketing communications and advertising group, sets out its unaudited interim results for the six months ended 30 June 2018.

Highlights

   --      Good organic growth from the Group's core business 
   --      Some great new business wins in the period 

-- Recently-acquired krow Communications ("krow") trading well, providing excellent cross-referral opportunities, and nominated for a prestigious IPA Effectiveness Award

   --      Fuse continuing to make good progress, particularly with the Pathfindr opportunity 

Financial

   --      Revenue up 10% to GBP37.0m (2017: GBP33.8m) 
   --      Excluding krow acquisition, revenue up 5% 
   --      Headline operating profit margins increased to 10.1% (2017: 9.1%) 
   --      Headline profit before tax up 23% to GBP3.5m (2017: GBP2.9m) 
   --      Excluding krow, headline PBT up 16% 
   --      Headline diluted EPS up 25% to 3.22 pence (2017: 2.58 pence) 
   --      A strong second-half bias again predicted 

-- Net bank debt leverage remains below x1 even after settling prior and new acquisition obligations

Dividend

   --      Interim dividend increased by 27% to 0.70p (2017: 0.55p) 
   --      Payable on 30 November 2018 to shareholders on the register at 2 November 2018 

David Morgan, Chairman, commented: "2018 has started strongly, with an increase in revenues and profits for the tenth successive period. Recently-acquired krow is trading well. We continue to identify opportunities to make efficiency improvements from our Shared Services initiative and are confident that not only will we deliver against 2018 forecasts but remain frabjously optimistic about our long-term prospects."

An interview with David Morgan, Chairman, can be viewed today at: http://www.themission.co.uk/investors/results-centre

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 
 

themission is a technology-embraced marketing communications and advertising Group employing 1,100 people in the UK, Asia and US. The Group comprises two Business Units: Integrated Agencies and Sector Specialist Agencies, which work together to provide Clients with the expertise and resource to make them more successful in today's challenging environment.

www.themission.co.uk

Chairman's Statement

CREATING THE AGENCIES OF THE FUTURE. TODAY.

There's been a lot of noise in the press this year about how Marketing Services Agencies need to evolve to support the changing market place and all of it confirms that our innovative, collaborative structure and approach is the way forward. The programmes that we put in place some years ago are ensuring our place at the forefront of our industry.

And our results prove it.

Our first half in 2018 has built upon our successful 2017, seeing us increase revenues and profits for the tenth successive period. Our Agencies are either on target or ahead and are demonstrating that themission's multi-dimensional service approach is what Clients want - and is what gets them results. Here are just a few of the highlights this year.

* our acquisition of the London-based, top twenty Agency krow in April has provided us with a platform from which our Integrated Agencies Business Unit will further develop. The work that they do for Clients such as DFS, Ferrero, Fiat, RNLI and others is testament to their undoubted creative skills as, too, is their remarkable Client retention.

* three start-ups that we launched within the last three years have all now moved into profit and our focus on Healthcare since the acquisition of RJW in 2017 is gaining real traction.

* on the back of a successful expansion of our April Six Technology Agency in Singapore two years ago, we opened in Beijing in May, providing themission now with two footholds in China where we are already active in Shanghai.

* splitting our roster of Agencies into two Business Units of SECTOR SPECIALIST AGENCIES and INTEGRATED AGENCIES has created multiple opportunities through cross-referrals and has provided every Agency with the tool box to deliver fully integrated services.

* our FUSE technology development unit continues to grow at a pace where one of its products, PATHFINDR (https://pathfindr.co.uk/), has secured global business with leading industry corporates and Broadcare, our healthcare tracking SaaS product, gathers market interest.

* we continue to focus on reducing debt and maximising margin through centralising back office functions.

* we have renewed our existing banking arrangements through to 2021.

* across the Group we have been winning new business, taking on unique assignments and, best of all, securing our future with long-term agreements with our Clients.

Our upward momentum continues as we consistently deliver straightforward solutions in a complex world with a minimum of flosculation. At the same time our innovation teams and our focus on talent continue to drive a passion to succeed which makes themission very special.

Trading results

Turnover ("billings") for the six months ended 30 June 2018 increased by 11% to GBP79.2m (2017: GBP71.2m), in part boosted by the sizeable contract with the DIT announced late last year. Billings include pass-through costs (e.g. TV companies' charges for buying air-time) and thus 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 ("revenue") increased 10% to GBP37.0m (2017: GBP33.8m), of which newly-acquired krow contributed 4% (GBP1.6m). Headline operating profits increased by 21% to GBP3.7m (2017: GBP3.1m), of which krow contributed 5% (GBP0.2m). The strong growth in underlying profitability reflects our focus on margin improvement, in particular our acquisition strategy of targeting high-margin businesses and the implementation of our Shared Services initiative. These, and the additional contribution from start-up businesses previously loss-making, resulted in an increase in headline operating profit margins to 10.1% (2017: 9.1%).

Adjustments to headline profits in 2018, at GBP0.6m, were lower than the prior year (2017: GBP1.1m) due to that year including exceptional restructuring costs. After these adjustments, reported operating profits were GBP3.2m (2017: GBP2.0m).

After unchanged financing costs of GBP0.2m, headline profit before tax increased by 23% to GBP3.5m (2017: GBP2.9m); reported profit before tax was GBP2.9m (2017: GBP1.8m).

The Group estimates an effective tax rate on headline profits before tax of 20% (2017: 22%), resulting in a 26% increase in headline earnings to GBP2.8m for the six months (2017: GBP2.2m), and reported profit after tax of GBP2.3m (2017: GBP1.3m). Fully diluted headline EPS increased 25% to 3.22 pence (2017: 2.58 pence).

Balance sheet and cash flow

Net cash inflows from operating activities were GBP3.5m in the six months ended June 2018, somewhat less than the prior year (2017: GBP5.8m) due to the partial unwinding of particularly favourable working capital inflows toward the end of 2017. After the GBP1.7m settlement of acquisition obligations from prior years and GBP2.75m initial acquisition consideration payments, net debt was GBP0.5m higher than at 31 December 2017, at GBP7.8m (30 June 2017: GBP9.2m). Even so, our leverage ratio of net bank debt to headline EBITDA at 30 June 2018 fell further, to x0.7, providing increased headroom against the Board's limit of x2.

The Group has no further commitments to settle acquisition liabilities in the remainder of the year but the Group's normal phasing of working capital requirements is expected to result in a modest increase in net debt in the second half.

Following the purchase of krow, the Group's acquisition obligations at 30 June 2018 totalled GBP11.0m (31 December 2017: GBP7.2m). Despite this increase, the Group's total debt leverage ratio, including both bank debt and deferred contingent acquisition consideration (calculated by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitability), remained unchanged at x1.4, comfortably below the Board's limit of x2.5. Virtually all of the Group's acquisition obligations are dependent on post-acquisition earn-out profits. GBP2.5m is expected to fall due for payment in cash within 12 months and a further GBP2.2m in the subsequent 12 months. The Directors believe that the strength of the Group's cash generation can comfortably accommodate these obligations. Furthermore, to achieve maximum earn-outs, the acquired Agencies would need to perform very strongly, which would generate much of the cash required to meet these obligations.

At 30 June 2018, the Group's bank facilities had a maturity date of less than 12 months and as a result the full GBP13.9m of outstanding loans is classified within current liabilities in the Group balance sheet. On 14 September 2018, the Group agreed a new three year revolving credit facility of GBP15m, with an option to increase the facility by an additional GBP5m and an option to extend the term by one year, both subject to bank approval. Additional information is provided in Note 10. This new facility provides the Group with committed but flexible facilities to at least 2021.

The Employee Benefit Trust released shares in order to enable a new institutional investor to join the shareholder register and at 30 June 2018 held 752,367 ordinary shares (31 December 2017: 1,452,367 shares).

Dividend

Reflecting the growth in headline earnings, the Directors have declared an interim dividend of 0.70p, representing a 27% increase over last year, payable on 30 November 2018 to shareholders on the register at 2 November 2018. The ex-dividend date is 1 November 2018.

Current trading and outlook

We expect the pattern of our Clients' spending cycles to result in a similar second-half bias in our financial performance to previous years. We continue to identify opportunities to make efficiency improvements from our Shared Services initiative, we will get a full half's contribution from krow and are confident that not only will we deliver against 2018 forecasts but remain frabjously optimistic about our long-term prospects.

David Morgan

Chairman

Condensed Consolidated Income Statement for the 6 months ended 30 June 2018

 
 
                                               6 months     6 months     Year ended 
                                                     to           to 
                                                30 June      30 June    31 December 
                                                   2018         2017           2017 
                                              Unaudited    Unaudited        Audited 
                                     Note       GBP'000      GBP'000        GBP'000 
 
 TURNOVER                             2          79,228       71,237        146,912 
 
 Cost of sales                                 (42,183)     (37,440)       (76,872) 
 
   OPERATING INCOME                   2          37,045       33,797         70,040 
 
 Headline operating expenses                   (33,307)     (30,710)       (61,822) 
                                            -----------  -----------  ------------- 
 
 HEADLINE OPERATING PROFIT            2           3,738        3,087          8,218 
 
 Exceptional items                    4               -        (550)          (642) 
 Acquisition adjustments              5           (508)        (367)          (804) 
 Start-up costs                                    (74)        (158)          (443) 
 
   OPERATING PROFIT                               3,156        2,012          6,329 
 
 Share of results of associates 
  and joint ventures                                (9)         (10)           (11) 
 
   PROFIT BEFORE INTEREST AND 
   TAXATION                                       3,147        2,002          6,318 
 
 Net finance costs                    6           (231)        (227)          (473) 
 
   PROFIT ON ORDINARY ACTIVITIES 
   BEFORE TAXATION                                2,916        1,775          5,845 
 
 Taxation                             7           (635)        (470)        (1,340) 
 
   PROFIT FOR THE PERIOD                          2,281        1,305          4,505 
                                            -----------  -----------  ------------- 
 
 Attributable to: 
 Equity holders of the parent                     2,222        1,286          4,402 
 Non-controlling interests                           59           19            103 
                                            -----------  -----------  ------------- 
                                                  2,281        1,305          4,505 
                                            -----------  -----------  ------------- 
 
 Basic earnings per share 
  (pence)                             8            2.68         1.55           5.31 
 Diluted earnings per share 
  (pence)                             8            2.61         1.50           5.15 
 Headline basic earnings per 
  share (pence)                       8            3.30         2.66           7.34 
 Headline diluted earnings 
  per share (pence)                    8           3.22         2.58           7.12 
 
 

Condensed Consolidated Statement of Comprehensive Income for the 6 months ended 30 June 2018

 
 
                                           6 months     6 months     Year ended 
                                                 to           to 
                                            30 June      30 June    31 December 
                                               2018         2017           2017 
                                          Unaudited    Unaudited        Audited 
                                            GBP'000      GBP'000        GBP'000 
 
 PROFIT FOR THE PERIOD                        2,281        1,305          4,505 
 
 Other comprehensive income 
  - items that may be reclassified 
  separately to profit or loss: 
 Exchange differences on translation 
  of foreign operations                           7         (49)          (112) 
                                        -----------  -----------  ------------- 
 TOTAL COMPREHENSIVE INCOME 
  FOR THE PERIOD                              2,288        1,256          4,393 
 
 Attributable to: 
 Equity holders of the parent                 2,219        1,242          4,292 
 Non-controlling interests                       69           14            101 
                                        -----------  -----------  ------------- 
                                              2,288        1,256          4,393 
                                        -----------  -----------  ------------- 
 

Condensed Consolidated Balance Sheet as at 30 June 2018

 
                                                As at       As at         As at 
                                              30 June     30 June   31 December 
                                                 2018        2017          2017 
                                            Unaudited   Unaudited       Audited 
                                     Note     GBP'000     GBP'000       GBP'000 
 FIXED ASSETS 
 Intangible assets                    9        95,681      87,549        87,951 
 Property, plant and equipment                  3,175       3,391         3,489 
 Investments in associates                        306         314           313 
 Deferred tax assets                               44          28            24 
                                           ----------  ----------  ------------ 
                                               99,206      91,282        91,777 
                                           ----------  ----------  ------------ 
 CURRENT ASSETS 
 Stock                                            684         665           668 
 Trade and other receivables                   38,436      36,741        34,829 
 Cash and short term deposits                   6,102       5,092         5,860 
                                           ----------  ----------  ------------ 
                                               45,222      42,498        41,357 
                                           ----------  ----------  ------------ 
 CURRENT LIABILITIES 
 Trade and other payables                    (17,624)    (16,185)      (17,963) 
 Accruals                                    (17,582)    (17,471)      (13,634) 
 Corporation tax payable                        (877)       (648)         (784) 
 Bank loans                           10     (13,852)     (2,500)       (2,500) 
 Acquisition obligations              11      (3,084)     (1,735)       (1,810) 
                                           ----------  ----------  ------------ 
                                             (53,019)    (38,539)      (36,691) 
                                           ----------  ----------  ------------ 
 NET CURRENT (LIABILITIES)/ASSETS             (7,797)       3,959         4,666 
                                           ----------  ----------  ------------ 
 TOTAL ASSETS LESS CURRENT 
  LIABILITIES                                  91,409      95,241        96,443 
 
   NON CURRENT LIABILITIES 
 Bank loans                           10            -    (11,803)      (10,579) 
 Obligations under finance 
  leases                                         (85)       (173)         (129) 
 Acquisition obligations              11      (7,889)     (4,690)       (5,433) 
 Deferred tax liabilities                       (538)       (219)         (148) 
                                           ----------  ----------  ------------ 
                                              (8,512)    (16,885)      (16,289) 
                                           ----------  ----------  ------------ 
 NET ASSETS                                    82,897      78,356        80,154 
                                           ----------  ----------  ------------ 
 
 CAPITAL AND RESERVES 
 Called up share capital                        8,436       8,436         8,436 
 Share premium account                         42,506      42,506        42,506 
 Own shares                                     (304)       (590)         (602) 
 Share option and growth share 
  reserve                                         465         334           341 
 Foreign currency translation 
  reserve                                          82         151            85 
 Retained earnings                             31,134      27,048        28,879 
                                           ----------  ----------  ------------ 
 EQUITY ATTRIBUTABLE TO EQUITY 
  HOLDERS OF THE PARENT                        82,319      77,885        79,645 
 Non controlling interests                        578         471           509 
                                           ----------  ----------  ------------ 
 TOTAL EQUITY                                  82,897      78,356        80,154 
                                           ----------  ----------  ------------ 
 

Condensed Consolidated Cash Flow Statement for the 6 months ended 30 June 2018

 
 
                                               6 months     6 months       Year ended 
                                                     to           to 
                                                30 June      30 June      31 December 
                                                   2018         2017             2017 
                                              Unaudited    Unaudited          Audited 
                                                GBP'000      GBP'000          GBP'000 
 
 Operating profit                                 3,156        2,012          6,329 
 Depreciation and amortisation 
  charges                                         1,238        1,019          2,220 
 Movements in the fair value of 
  contingent consideration                         (30)           40             99 
 (Profit) / loss on disposal of 
  fixed assets                                      (4)         (34)           (52) 
 Loss on disposal of intangible 
  assets                                              -            -              1 
 Non cash charge for share options, 
  growth shares and shares awarded                  144           85             92 
 Increase in receivables                          (727)      (3,786)        (1,874) 
 Increase in stock                                 (16)        (180)          (183) 
 Increase in payables                               620        7,415          5,343 
                                           ------------  -----------  ------------- 
 OPERATING CASH FLOW                              4,381        6,571         11,975 
 Net finance costs                                (189)        (201)          (425) 
 Tax paid                                         (722)        (523)        (1,299) 
                                           ------------  -----------  ------------- 
 Net cash inflow from operating 
  activities                                      3,470        5,847         10,251 
                                           ------------  -----------  ------------- 
 
 INVESTING ACTIVITIES 
 Proceeds on disposal of fixed 
  assets                                             23           38             88 
 Purchase of property, plant and 
  equipment                                       (286)        (461)        (1,268) 
 Investment in software development                (45)        (131)          (341) 
 Acquisition of subsidiaries and 
  joint ventures                                (2,750)      (1,910)        (1,879) 
 Payment of obligations relating 
  to acquisitions made in prior 
  periods                                       (1,749)      (1,653)        (1,652) 
 Cash acquired with subsidiaries                    553          610            610 
                                           ------------  -----------  ------------- 
 Net cash outflow from investing 
  activities                                    (4,254)      (3,507)        (4,442) 
                                           ------------  -----------  ------------- 
 
 FINANCING ACTIVITIES 
 Dividends paid                                       -            -        (1,284) 
 Dividends paid to non-controlling 
  interests                                           -            -           (49) 
 Repayment of finance leases                       (42)         (41)           (84) 
 Increase in bank loans                             750        2,000            750 
 Repayment of other loans                             -         (76)           (76) 
 Disposal / (purchase) of own 
  shares held in EBT                                311         (84)           (96) 
                                           ------------  -----------  ------------- 
 Net cash inflow / (outflow) from 
  financing activities                            1,019        1,799          (839) 
                                           ------------  -----------  ------------- 
 
 Increase in cash/equivalents                       235        4,139          4,970 
 Exchange differences on translation 
  of foreign subsidiaries                             7         (49)          (112) 
 Cash/cash equivalents at beginning 
  of period                                       5,860        1,002          1,002 
                                           ------------  -----------  ------------- 
 Cash and cash equivalents at 
  end of period                                   6,102        5,092          5,860 
                                           ------------  -----------  ------------- 
 
 

Condensed Consolidated Statement of Changes in Equity for the 6 months ended 30 June 2018

 
                                                       Share 
                                                      option                                        Total 
                                                         and        Foreign                  attributable 
                                                      growth       currency                     to equity    Non-controlling 
                       Share      Share        Own     share    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 
  period                   -          -          -         -              -       1,286             1,286                 19      1,305 
 Exchange 
  on translation 
  of foreign 
  operations               -          -          -         -           (44)           -              (44)                (5)       (49) 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 Total 
  comprehensive 
  income for 
  period                   -          -          -         -           (44)       1,286             1,242                 14      1,256 
 New shares 
  issued                  24         75          -         -              -           -                99                  -         99 
 Share option 
  charge                   -          -          -        63              -           -                63                  -         63 
 Growth share 
  charge                   -          -          -        22              -           -                22                  -         22 
 Own shares 
  purchased 
  by EBT                   -          -       (84)         -              -           -              (84)                  -       (84) 
 Shares awarded 
  from own 
  shares                   -          -         50         -              -          22                72                  -         72 
 At 30 June 
  2017                 8,436     42,506      (590)       334            151      27,048            77,885                471     78,356 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 Profit for 
  period                   -          -          -         -              -       3,116             3,116                 84      3,200 
 Exchange 
  on translation 
  of foreign 
  operations               -          -          -         -           (66)           -              (66)                  3       (63) 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 Total 
  comprehensive 
  income for 
  period                   -          -          -         -           (66)       3,116             3,050                 87      3,137 
 Share option 
  credit                   -          -          -      (44)              -           -              (44)                  -       (44) 
 Growth share 
  charge                   -          -          -        51              -           -                51                  -         51 
 Own shares 
  purchased 
  by EBT                   -          -       (12)         -              -           -              (12)                  -       (12) 
 Shares awarded 
  from own 
  shares                   -          -          -         -              -         (1)               (1)                  -        (1) 
 Dividend 
  paid                     -          -          -         -              -     (1,284)           (1,284)               (49)    (1,333) 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 At 31 Dec 
  2017                 8,436     42,506      (602)       341             85      28,879            79,645                509     80,154 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 Profit for 
  period                   -          -          -         -              -       2,222             2,222                 59      2,281 
 Exchange 
  on translation 
  of foreign 
  operations               -          -          -         -            (3)           -               (3)                 10          7 
-----------------  ---------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 Total 
  comprehensive 
  income for 
  period                   -          -          -         -            (3)       2,222             2,219                 69      2,288 
 Share option 
  charge                   -          -          -        80              -           -                80                  -         80 
 Growth share 
  charge                   -          -          -        44              -           -                44                  -         44 
 Shares awarded 
  / sold from 
  own shares               -          -        298         -              -          33               331                  -        331 
 At 30 Jun 
  2018                 8,436     42,506      (304)       465             82      31,134            82,319                578     82,897 
------------  --------------  ---------  ---------  --------  -------------  ----------  ----------------  -----------------  --------- 
 
 

Notes to the unaudited Interim Report for the six months ended 30 June 2018

   1.   Accounting Policies 

Basis of preparation

The condensed consolidated interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with the IAS 34 "Interim Financial Reporting" and the Group's accounting policies.

The Group's accounting policies are in accordance with International Financial Reporting Standards as adopted by the European Union and are set out in the Group's Annual Report and Accounts 2017 on pages 52-54. With the exception of the implementation of IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers, discussed further below, no changes have been made to the Group's accounting policies in the six months ended 30 June 2018. The Group has not early-adopted any Standard, Interpretation or Amendment that has been issued but is not yet effective.

The information relating to the six months ended 30 June 2018 and 30 June 2017 is unaudited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The comparative figures for the year ended 31 December 2017 have been extracted from the Group's Annual Report and Accounts 2017, on which the auditors gave an unqualified opinion and did not include a statement under section 498 (2) or (3) of the Companies Act 2006. The Group Annual Report and Accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies.

Going concern

The Directors have considered the financial projections of the Group, including cash flow forecasts, the availability of committed bank facilities and the headroom against covenant tests for the coming 12 months. They are satisfied that the Group has adequate resources for the foreseeable future and that it is appropriate to continue to adopt the going concern basis in preparing these interim financial statements.

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:

   --      Potential impairment of goodwill; 
   --      Contingent deferred payments in respect of acquisitions; 
   --      Revenue recognition policies in respect of contracts which straddle the period end; and 
   --      Valuation of intangible assets on acquisitions. 

These estimates are based on historical experience and various other assumptions that management and the Board of Directors believe are reasonable under the circumstances.

Impact of the adoption of IFRS 9: Financial Instruments

The Group's adoption of IFRS 9 with effect from 1 January 2018 has not had a material impact on the financial statements of the Group. The short term nature of the Group's trade receivables and the credit ratings of the Group's customers are such that no material change to the bad debt provision has been required.

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 by transferring control of the relevant goods or services to the customer. 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-related income, 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 2017 these third party costs amounted to GBP256,000 and a similar level is expected in 2018.

IFRS 15 Turnover and revenue recognition policy

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

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 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.

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

   --      Retainer fees are apportioned over the time period to which they relate 

-- Project income is recognised as performance obligations are satisfied over time by apportioning the fees billed or billable to the time period for which those fees were earned in relation to the percentage of completeness of the project to which they relate, normally by reference to timesheets

   --      Media commission is recognised when the advertising has been satisfactorily aired or placed 

-- Unbilled costs relating to contracts for services are included at rechargeable value in accrued income

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). Where amounts invoiced to Clients exceed recorded turnover, because performance obligations have not yet been satisfied, the excess is classified as deferred income (within Accruals).

   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 business and geographical segmentation disclosures set out below represent the most appropriate categories of disaggregation. The Board considers that neither differences between types of customers, 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.

Business segmentation

The Group increased to fifteen operating units during the period, each of which carries out a range of activities. The performance of these businesses is managed as a whole by the Board but, since different activities have different profit margin characteristics, the Group's trading has been reported below under four business and operating segments to provide additional benefit to readers of this report.

 
                           6 months to   6 months to    Year ended 
                               30 June       30 June   31 December 
                                  2018          2017          2017 
                             Unaudited     Unaudited       Audited 
                               GBP'000       GBP'000       GBP'000 
 
                                          Turnover 
 Business segment 
 Advertising & Digital          44,332        39,972        81,599 
 Media Buying                   20,953        22,375        45,260 
 Public Relations                4,694         4,190         7,999 
 Exhibitions & Learning          9,249         4,700        12,054 
                                79,228        71,237       146,912 
                          ------------  ------------  ------------ 
 
 
                                    Operating 
                                      income 
 Business segment 
 Advertising & Digital     29,159      27,339   56,059 
 Media Buying               1,932       1,964    3,720 
 Public Relations           2,528       3,452    6,661 
 Exhibitions & Learning     3,426       1,042    3,600 
                           37,045      33,797   70,040 
                          -------  ----------  ------- 
 
 
                                     Headline Operating 
                                           Profit 
 Business segment 
 Advertising & Digital       3,644                3,069      7,846 
 Media Buying                  380                  446        888 
 Public Relations              479                  544        949 
 Exhibitions & Learning        275                   26        284 
                             4,778                4,085      9,967 
 Central costs             (1,040)                (998)    (1,749) 
                             3,738                3,087      8,218 
                          --------  -------------------  --------- 
 

Geographical segmentation

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

 
         6 months to   6 months to    Year ended 
             30 June       30 June   31 December 
                2018          2017          2017 
           Unaudited     Unaudited       Audited 
             GBP'000       GBP'000       GBP'000 
 
 
 UK           33,123        30,243        62,198 
 Asia          1,948         1,983         4,481 
 USA           1,974         1,571         3,361 
        ------------  ------------  ------------ 
              37,045        33,797        70,040 
        ------------  ------------  ------------ 
 
   3.   Reconciliation of Reported Profit to Headline Profit 
 
                                 6 months to         6 months to         Year ended 
                                   30 June             30 June           31 December 
                                     2018                2017                2017 
                                  Unaudited           Unaudited            Audited 
                                   GBP'000             GBP'000             GBP'000 
                                  PBT       PAT       PBT       PAT       PBT       PAT 
                              GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 
 Headline profit                3,498     2,798     2,850     2,224     7,734     6,185 
 Exceptional items (Note 
  4)                                -         -     (550)     (429)     (642)     (523) 
 Acquisition-related items 
  (Note 5)                      (508)     (457)     (367)     (366)     (804)     (802) 
 Start-up costs                  (74)      (60)     (158)     (124)     (443)     (355) 
                             --------  --------  --------  --------  --------  -------- 
 Reported profit                2,916     2,281     1,775     1,305     5,845     4,505 
                             --------  --------  --------  --------  --------  -------- 
 

In order to provide a clearer understanding of underlying profitability, headline profits exclude exceptional items, acquisition-related costs and adjustments, and start-up costs. 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 Mongoose Promotions and April Six's new business in China. Start-up costs in 2017 related to Mongoose Sports & Entertainment, Mongoose Promotions and April Six's new PR business in the USA.

   4.   Exceptional Items 
 
                            6 months    6 months     Year ended 
                                  to          to    31 December 
                             30 June     30 June           2017 
                                2018        2017 
                           Unaudited   Unaudited        Audited 
                             GBP'000     GBP'000        GBP'000 
 
   Restructuring costs             -       (550)          (642) 
                         -----------  ----------  ------------- 
 

Exceptional items consist of 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 
 
                                            6 months     6 months     Year ended 
                                                  to           to    31 December 
                                             30 June      30 June           2017 
                                                2018         2017        Audited 
                                           Unaudited    Unaudited 
                                             GBP'000      GBP'000        GBP'000 
 
 Movement in fair value of contingent 
  consideration                                   30         (40)           (99) 
 Amortisation of other intangible 
  assets 
  recognised on acquisitions                   (401)        (259)          (580) 
 Acquisition transaction costs 
  expensed                                     (137)         (68)          (125) 
                                         -----------  -----------  ------------- 
                                               (508)        (367)          (804) 
                                         -----------  -----------  ------------- 
 
 

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

   6.   Net Finance Costs 
 
                                           6 months    6 months 
                                                 to          to    Year ended 
                                            30 June     30 June   31 December 
                                               2018        2017          2017 
                                          Unaudited   Unaudited       Audited 
                                            GBP'000     GBP'000       GBP'000 
 
 Net interest on bank loans, 
  overdrafts and deposits                     (198)       (192)         (402) 
 Amortisation of bank debt arrangement 
  fees                                         (29)        (29)          (59) 
 Interest on finance leases                     (4)         (6)          (12) 
                                         ----------  ----------  ------------ 
 Net finance costs                            (231)       (227)         (473) 
                                         ----------  ----------  ------------ 
 
   7.   Taxation 

The taxation charge for the period ended 30 June 2018 has been based on an estimated effective tax rate on headline profit on ordinary activities of 20% (30 June 2017: 22%).

   8.   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".

 
                                            6 months       6 months 
                                                  to             to     Year ended 
                                             30 June        30 June    31 December 
                                                2018           2017           2017 
                                           Unaudited      Unaudited        Audited 
                                             GBP'000        GBP'000        GBP'000 
 Earnings 
 Reported profit for the period                2,281          1,305          4,505 
 Attributable to: 
 Equity holders of the parent                  2,222          1,286          4,402 
 Non-controlling interests                        59             19            103 
                                               2,281          1,305          4,505 
                                       -------------  -------------  ------------- 
 
 Headline earnings (Note 3)                    2,798          2,224          6,185 
 Attributable to: 
 Equity holders of the parent                  2,739          2,205          6,082 
 Non-controlling interests                        59             19            103 
                                       -------------  -------------  ------------- 
                                               2,798          2,224          6,185 
                                       -------------  -------------  ------------- 
 
 Number of shares 
 Weighted average number of ordinary 
  shares for the purpose of basic 
  earnings per share                      83,057,746     82,843,306     82,874,398 
 Dilutive effect of securities(**) 
  : 
 Employee share options                    2,135,028      2,622,493      2,565,943 
                                       -------------  -------------  ------------- 
 Weighted average number of ordinary 
  shares for the purpose of diluted 
  earnings per share                      85,192,774     85,465,799     85,440,341 
                                       -------------  -------------  ------------- 
 Reported basis: 
 Basic earnings per share (pence)               2.68           1.55           5.31 
 Diluted earnings per share (pence)             2.61           1.50           5.15 
 Headline basis: 
 Basic earnings per share (pence)               3.30           2.66           7.34 
 Diluted earnings per share (pence)             3.22           2.58           7.12 
                                       -------------  -------------  ------------- 
 

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.

** On 22(nd) February 2017, the Company announced details of a new Growth Share Scheme. If all the shares in the Scheme vest they will be exchanged into 5.7m Ordinary Shares, which will result in dilution. However, since the performance criterion is that the Company's share price must equal or exceed 75p for at least 15 days and this condition had not been satisfied at 30 June 2018, the Growth Shares are not included in the calculation of diluted earnings per share.

   9.   Intangible Assets 
 
                              30 June     30 June   31 December 
                                 2018        2017          2017 
                            Unaudited   Unaudited       Audited 
                              GBP'000     GBP'000       GBP'000 
 
 Goodwill                      90,450      84,074        84,791 
 Other intangible assets        5,231       3,475         3,160 
                               95,681      87,549        87,951 
                           ----------  ----------  ------------ 
 

Goodwill

 
                                    6 months      6 months     Year ended 
                                  to 30 June    to 30 June    31 December 
                                        2018          2017           2017 
                                   Unaudited     Unaudited        Audited 
                                     GBP'000       GBP'000        GBP'000 
 
 Cost 
 At 1 January                         89,064        84,052         84,052 
 Recognised on acquisition of 
  subsidiaries                         5,659         4,295          5,012 
 At 30 June / 31 December             94,723        88,347         89,064 
                                ------------  ------------  ------------- 
 
 
 Impairment adjustment 
 At beginning and end of period     4,273    4,273    4,273 
 
 Net book value                    90,450   84,074   84,791 
                                  -------  -------  ------- 
 

In accordance with the Group's accounting policies, an annual impairment test is applied to the carrying value of goodwill, unless there is an indication that one of the cash generating units has become impaired during the year, in which case an impairment test is applied to the relevant asset. The next impairment test will be undertaken at 31 December 2018.

Other Intangible Assets

 
                                           6 months to      6 months 
                                                                   to      Year ended 
                                                30 June       30 June     31 December 
                                                   2018          2017            2017 
                                              Unaudited     Unaudited         Audited 
                                                GBP'000       GBP'000         GBP'000 
 
    Cost 
    At 1 January                                  7,210         6,611           6,611 
    Additions                                     2,689           599             809 
    Disposals                                         -             -           (210) 
    At 30 June / 31 December                      9,899         7,210           7,210 
                                             ----------  ------------  -------------- 
 
    Amortisation and impairment 
    At 1 January                                  4,050         3,315           3,315 
    Amortisation charge for 
     the period                                     618           420             944 
    Disposals                                         -             -           (209) 
    At 30 June / 31 December                      4,668         3,735           4,050 
                                             ----------  ------------  -------------- 
 
    Net book value                                5,231         3,475           3,160 
                                             ----------  ------------  -------------- 
 

Other intangible assets consist of intellectual property rights, Client relationships and trade names.

10. Bank Loans and Net Debt

 
                                                 30 June     30 June   31 December 
                                                    2018        2017          2017 
                                               Unaudited   Unaudited       Audited 
                                                 GBP'000     GBP'000       GBP'000 
 
 Bank loan outstanding                            13,875      14,375        13,125 
 Adjustment to amortised cost                       (23)        (72)          (46) 
                                             -----------  ----------  ------------ 
 Carrying value of loan outstanding               13,852      14,303        13,079 
 Less: Cash and short term deposits              (6,102)     (5,092)       (5,860) 
                                             -----------  ----------  ------------ 
 Net bank debt                                     7,750       9,211         7,219 
                                             -----------  ----------  ------------ 
 
 The borrowings are repayable 
  as follows: 
 Less than one year                               13,875       2,500         2,500 
 In one to two years                                   -      11,875        10,625 
                                                  13,875      14,375        13,125 
 Adjustment to amortised cost                       (23)        (72)          (46) 
                                             -----------  ----------  ------------ 
                                                  13,852      14,303        13,079 
 Less: Amount due for settlement 
  within 12 
  months (shown under current liabilities)      (13,852)     (2,500)       (2,500) 
                                             -----------  ----------  ------------ 
 Amount due for settlement after 
  12 months                                            -      11,803        10,579 
                                             -----------  ----------  ------------ 
 

At 30 June 2018, the Group had a term loan facility of GBP1.9m due for repayment by February 2019 on a quarterly basis, and a revolving credit facility of up to GBP12.0m (fully drawn), expiring on 30 April 2019. As a result, the full GBP13.9m of outstanding loans at 30 June 2018 is classified within current liabilities in the Group balance sheet. On 14 September 2018, the Group signed new bank facilities replacing those in place at 30 June 2018. The new facilities are a 3 year revolving credit facility of GBP15.0m, with an option to extend the facility by a further GBP5.0m and an option to extend by 1 year. Had these new facilities been in place at 30 June 2018, the full GBP13.9m outstanding loans would have been classified within non current liabilities.

Interest on the old term loan and revolving credit facilities was based on 3 month 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 2.25%.

11. Acquisitions

11.1 Acquisition Obligations

The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash or shares or other securities 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 payments that may be due is as follows:

 
       Cash     Shares      Total 
    GBP'000    GBP'000    GBP'000 
 
 
 30 June 2018 
  Less than one year               2,479   605    3,084 
 Between one and two years         2,168    75    2,243 
 In more than two but less than 
  three years                      5,351   295    5,646 
                                   9,998   975   10,973 
                                  ------  ----  ------- 
 

A reconciliation of acquisition obligations during the period is as follows:

 
                                      Cash     Shares      Total 
                                   GBP'000    GBP'000    GBP'000 
 
 At 31 December 2017                 7,014        229      7,243 
 New obligations created in 
  the period                         4,763        746      5,509 
 Obligations settled in the 
  period                           (1,749)          -    (1,749) 
 Adjustments to estimates of 
  obligations                         (30)          -       (30) 
 At 30 June 2018                     9,998        975     10,973 
                                  --------  ---------  --------- 
 
 

11.2 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 GBP8,259,000, 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 GBP5,509,000 to date.

The fair value of the net identifiable assets acquired was GBP414,000 resulting in goodwill and other intangible assets of GBP8,293,000 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 the Company.

 
                                         Book     Fair value       Fair 
                                        value    adjustments      value 
-----------------------------------  --------  -------------  --------- 
                                      GBP'000        GBP'000    GBP'000 
-----------------------------------  --------  -------------  --------- 
 Net assets acquired: 
 Fixed assets                              49              -         49 
 Trade and other receivables            2,880              -      2,880 
 Cash and cash equivalents                553              -        553 
 Trade and other payables             (3,068)              -    (3,068) 
                                          414              -        414 
 Other intangibles recognised 
  at acquisition                            -          2,634      2,634 
 Deferred tax liability adjustment          -          (448)      (448) 
                                          414          2,186      2,600 
 Goodwill                                                         5,659 
-----------------------------------  --------  -------------  --------- 
 Total consideration                                              8,259 
 Satisfied by: 
 Cash                                                             2,750 
 Deferred contingent consideration                                5,509 
-----------------------------------  --------  -------------  --------- 
                                                                  8,259 
-----------------------------------  --------  -------------  --------- 
 
 

Krow Communications Ltd contributed turnover of GBP2,314,000, operating income of GBP1,609,000 and headline operating profit of GBP190,000 to the results of the Group for the six month period ended 30 June 2018.

12. Post balance sheet events

On 14 September 2018, the Directors agreed new bank facilities. Further details of these facilities are set out in the Chairman's Statement and Note 10.

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

IR SFAFDAFASELU

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