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RNS

Audited results for the year to 31 December 2016

Released 07:00 23-Mar-2017

RNS Number : 2613A
The Mission Marketing Group PLC
23 March 2017
 

 

The Mission Marketing Group plc

 

Audited results for the year ended 31 December 2016

 

 

23 March 2017

 

The Mission Marketing Group plc ("TMMG" or "the missiontm"), the marketing communications and advertising group, is pleased to announce its audited results for the year ended 31 December 2016.

 

Financial headlines

 

·      Revenue up 8% to £65.9m (2015: £61.0m)

·      Over 20% of revenue again from Clients of 20+ years standing

·      Headline trading profit (operating profit before central costs) up 9% to £9.3m (2015: £8.5m)

·      Headline operating profit margins improved slightly to 11.5% (2015: 11.4%)

·      Headline profit before tax up 9% to £7.0m (2015: £6.5m)

·      Headline diluted EPS up by 8% to 6.41 pence (2015: 5.91 pence)

·      Full year dividend up by 25% to 1.5p (2015: 1.2p)

·      Free cash flow of £5.3m generated

·      Total debt reduced by over £3m

·      Debt leverage headroom very comfortable

·      £0.8m invested in software development, creating new forms of intellectual property

 

David Morgan, Chairman, commented: "All the stuff going on in the world didn't make for an easy 2016, so I'm delighted to report that we made good progress and delivered another year of continued growth.

 

We expect 2017 to be another year of further revenue and profit growth. We again have a high degree of visibility over forecast revenue and current indications are that we should expect good organic growth during the year ahead. We continue to seek out attractive acquisition opportunities to further enhance both our range of services and our rate of growth. The other area of focus for 2017 will be Fuse, a central sales and marketing hub created to commercialise the opportunities created by our new technology products. All in all it promises to be another busy and exciting year."

 

Enquiries:


The Mission Marketing Group plc

020 7462 1415

David Morgan, Executive Chairman

Peter Fitzwilliam, Finance Director




finnCap Ltd

020 7220 0500

Geoff Nash/James Thompson (Corporate Finance)

Stephen Norcross (Corporate Broking)


 

the missiontm is a network of entrepreneurial marketing communications Agencies employing over 950 people in the UK, Asia and San Francisco. The Group comprises a complementary mix of integrated generalists, specialists in specific marketing/communications activities and specialists in particular market sectors, all providing award-winning solutions to national and international Clients.

 

www.themission.co.uk

 

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

Chairman's Statement

 

All the stuff going on in the world didn't make for an easy 2016, but I'm delighted to report that our Agencies very much rose to the occasion. As a result, we delivered another year of continued growth and are well placed to make 2017 another successful year. 

 

A combination of spirit, passion, planning and focus ensured that we made real progress against our internal performance measures.  Our focus on concinnity, where our moving parts often behave as one, brought increased support and expertise to our Clients and helped each Agency to deliver remarkable successes.

 

More business-related innovation saw further development of our Pathfindr and Ethology technology-driven initiatives, and our Broadcare patient management system has now been widely adopted within the NHS.

 

Awards for creative excellence across many of our Agencies added to the excitement generated across the missiontm, as did further development in Asia, a revitalisation of our Speed and Mongoose brands, and the latter's venture into Sales Promotion.

 

Core Clients continued to underpin our revenues, and strong new business generation was achieved throughout the missiontm - wins from the likes of O2, Thomson Reuters, Sky Bingo, HS2, Abbvie, Bosch, Muller, Porsche China, Dulux and First Direct will help us make further progress in 2017.

 

The acquisition of Chapter in 2015 is proving to be a great success both financially and culturally as they have segued seamlessly into the missiontm. Our start-up investments are beginning to gain traction and we are seeing strong support for our integrated approach where cross-Agency teams are being focused on Clients' requirements. There remain many opportunities to provide existing Clients with additional expertise and services. This integrated approach helps underpin our confidence for the year ahead.

 

In April 2016 Mike Smith joined us from Innocean as CEO of our RLA Agency. Mike brings a wealth of advertising and automotive experience and sees clear opportunities for RLA to build further through the commercialisation of its technology platforms that he considers to be unrivalled in the sector.

 

We will endeavour to capitalise on our syncretistic strategy as we grow, developing and expanding both the reach and the expertise of our business in a way that delivers a truly excellent service to our Clients. Our continued progress across the business endorses our objective of being the UK's most respected Agency group.

 

David Morgan

Chairman

 



 

Financial Review

 

Summary

 

2016 was a year of further progress for the Group, achieving all the plans we set out this time last year. Chapter, acquired in 2015, has contributed well to the growth of our business, and the Group has again been strengthened during the year through further investments in core skills and new initiatives. April Six's expansion into Asia took root during 2016 and is now sustainably profitable. We also launched a new Sales Promotion start-up venture in the second half of the year, established a healthcare joint venture to formalise our relationship with our European partners, and April Six launched its PR offering in the US.

 

Elsewhere, 2016 saw strong developments in the use of technology as a product in its own right. We have long used technology to enable the delivery of communications via multiple channels but recently we have been developing intellectual property that can be sold in new and innovative ways. 2017 will see an increased focus in this area.

 

As with any group, not all our Agencies quite met expectations but our portfolio nature reduces our exposure to any individual Agency and there are many reasons to feel positive about the year ahead.

 

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 revised its financial KPIs during the year, introducing specific performance targets. The revised KPIs, which are quantified and commented on in the Financial Review of the Year below, are:

 

·      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% to 14% over the next three years;

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

·      indebtedness, where the Group intends to maintain the ratio of net bank debt to EBITDA* below x2.0 and the ratio of total debt (including both bank debt and deferred acquisition consideration) to EBITDA below 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.

 

Headline Trading Performance

 

The Directors are primarily interested in monitoring and managing the Group's core operating activities, without the volatility and distortions created by one-off events and non-cash accounting adjustments relating to acquisitions. Accordingly, the Directors measure and report the Group's performance by reference to headline results, calculated before exceptional items, acquisition adjustments and losses from start-up activities (as set out in Note 3).

 

Billings and revenue

 

Turnover (billings) was 9% higher than the previous year, at £144.1m (2015: £132.2m) but since billings include pass-through costs (eg. 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 8% to £65.9m (2015: £61.0m) continuing the consistent revenue growth achieved over the last five years.

 

Although the acquisition of Chapter in 2015 boosted revenue growth during the year, it was particularly pleasing to see underlying growth in both our core activity of Branding, Advertising and Digital, and also in Events and Learning, which showed the benefit of the restructuring carried out in 2015.

 

The property sector was where we saw the biggest uncertainties resulting from the Brexit vote and, as a consequence, revenue from our Media buying activities reduced slightly, but our other specialist property marketing activities held up well.

 

Given the general delays, cancellations and uncertainties created by the referendum, we are pleased to have achieved overall revenue growth of 8%. Helping us to achieve this growth, our new business performance and Client retention record were again very strong, with net new business wins amounting to over £5m and more than 20% of our revenue again being generated from Clients that have been with us for 20 years or more. The Board believes this Client retention statistic is second to none in the marketing services sector.

 

Profit and margins

 

Trading profits (i.e. segmental headline operating profit, before central costs, as set out in Note 2) increased by 9%, slightly ahead of revenue growth, to £9.3m (2015: £8.5m) and headline operating profit also increased by 9% to £7.6m (2015: £6.9m).

 

Clients' spending patterns repeated those of previous years, with the second half of the year particularly busy, resulting in over 60% of our operating profits being generated in this period. Profit margins (headline operating profit as a percentage of revenue) were over 14% in H2 (2015: 14%), increasing our overall margin for the year to 11.5% (2015: 11.4%). With no sign of any easing in the downward pressure on margins, we are again pleased with this small year-on-year improvement.

 

Net interest costs, at £0.5m, were almost unchanged from the previous year, reflecting the cash investment in expansion during the year (see cash flow below) which resulted in a small increase in net bank debt over the course of the year.

 

After financing costs and a small loss from share of joint ventures and associates, headline profit before tax increased by 9% to £7.0m (2015: £6.5m), continuing the growth achieved over the last five years.

 

Taxation

 

The Group's effective headline tax rate increased slightly to 21.0% (2015: 20.2%), compared with the statutory rate of 20.0% (2015: 20.25%). The Group's effective tax rate is normally above the statutory rate as a result of non-deductible entertaining expenditure and the higher rates of taxation in the US. In 2015 the effective tax rate was somewhat reduced as a result of adjustments to prior year estimates.

 

Headline Items and Reported Profit

 

Adjustments to reported profits in 2016 comprise acquisition-related items of £0.7m (2015: £0.1m) and losses from start-up activities totaling £0.5m (2015: £0.3m). In 2015 profits were also adjusted for restructuring costs totaling £0.9m; there were no such exceptional items incurred during 2016. After these adjustments, reported profit before tax was 14% higher at £5.9m (2015: £5.1m).

 

The Group's effective reported tax rate in 2016 was 23.3% (2015: 20.2%). The effective tax rate is expected to be consistently higher than the statutory rate since the amortisation of acquisition-related intangibles is not deductible for tax purposes. This effect was offset in 2015 as a result of the more significant movements in the fair value of contingent consideration, which are non-taxable.

 

Earnings Per Share

 

On a headline basis, EPS increased by 8% to 6.63 pence (2015: 6.14 pence) and fully diluted EPS increased similarly, to 6.41 pence (2015: 5.91).        

 

Reported EPS increased by 10% to 5.36 pence (2015: 4.86 pence) and fully diluted EPS increased by 11% to 5.19 pence (2015: 4.68 pence).

 

Dividends

 

Since the Group was refinanced in 2010, the Board has taken a cautious approach to dividends but, after a period of sustained and strong cash generation, recommends a final dividend of 1.0 pence per share, bringing the total for the year to 1.5 pence per share, representing an increase of 25% over 2015. The final dividend will be payable on 24 July 2017 to shareholders on the register at 14 July 2017. The corresponding ex-dividend date is 13 July 2017. The Board will continue to keep under regular review the best use of the Group's cash resources, always balancing the desire to reward shareholders via dividends with the need to fund further growth, but it remains the Board's intention to follow a progressive policy provided trading conditions allow.

 

Balance Sheet

 

As a people business, the main features of the Group's 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 decreased slightly over the course of 2016 as the level of annual amortisation exceeded the additional goodwill acquired from the small in-fill acquisitions made during the year. At the same time, the level of total debt (combined bank debt and acquisition obligations) reduced by over £3m.

 

Cash Flow

 

In 2016, the Group returned to its more normal record of strong cash flow, with headline profit after tax of £5.6m converting into £5.3m of "free cash flow" (defined as net cash inflow from operating activities less tangible capital expenditure).

 

This free cash flow was used to expand the business, develop new initiatives, make acquisitions and pay dividends as follows:

 

·      new acquisitions, amounting to £0.4m (2015: £0.7m);

 

·      settlement of contingent consideration obligations relating to the strong performance and profits generated by our previous acquisitions, totaling £3.2m (2015: £0.9m);

 

·      investment in a number of other areas in support of the Group's expansion, notably £0.8m (2015: nil) invested in software development; and

 

·      dividends of £1.3m (2015: £0.9m)

 

Despite a year in which significant cash investments have been made in the development of the Group, net bank debt increased by only £0.3m to £11.3m (2015: £11.0m). Importantly, the leverage ratio of net bank debt to headline EBITDA remained unchanged at x1.3 at 31 December 2016. The Group's ratio of total debt, including remaining acquisition obligations, to EBITDA at 31 December 2016 (calculated by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitability) reduced to x1.7 (2015: x2.0), increasing the already comfortable headroom against the Board's limit of x2.5.

 

Outlook

 

We expect further revenue and profit growth in the coming year. Although there are a number of macro economic uncertainties, we again have a high degree of visibility over forecast revenue and current indications are that we should expect good organic growth during the year ahead. We continue to seek out attractive acquisition opportunities to further enhance both our range of services and our rate of growth. With our newly-set KPIs, we have an increased focus on margins and have streamlined a number of activities in the first quarter of 2017. The restructuring costs associated with this action are estimated at £0.5m. The other area of focus for 2017 will be Fuse, a central sales and marketing hub created to introduce new markets to the opportunities created by our new technology products. All in all it promises to be another busy and exciting year.

 

Peter Fitzwilliam

Finance Director



Consolidated Income Statement

For the year ended 31 December 2016

                        



Year to

31 December

2016

Year to

31 December

2015


Note

£'000

£'000

 

 




TURNOVER

2

144,096

132,246

Cost of sales


(78,198)

(71,209)

OPERATING INCOME

2

65,898

61,037

Headline operating expenses


(58,341)

(54,107)

 

HEADLINE OPERATING PROFIT


 

7,557

 

6,930

Exceptional items

Acquisition adjustments

3

3

-

            (666)

(873)

            (108)

Start-up costs

3

(491)

(343)

OPERATING PROFIT


6,400

5,606

Share of results of associates and joint ventures


 

(33)

 

-

PROFIT BEFORE INTEREST AND TAXATION


6,367


Net finance costs

6

(487)

(469)

PROFIT BEFORE TAXATION

7

5,880

5,137

Taxation

8

(1,369)

(1,035)

PROFIT FOR THE YEAR


4,511

4,102





Attributable to:




Equity holders of the parent


4,434

4,011

Non-controlling interests


77

91



4,511

4,102





Basic earnings per share (pence)

10

5.36

4.86

Diluted earnings per share (pence)

10

5.19

4.68

Headline basic earnings per share (pence)

10

6.63

6.14

Headline diluted earnings per share (pence)

10

6.41

5.91

 

The earnings per share figures derive from continuing and total operations.

 



Consolidated Statement of Comprehensive Income

For the year ended 31 December 2016

                        



Year to

31 December

2016

Year to

31 December

2015



£'000

£'000

 

 




PROFIT FOR THE YEAR


4,511

4,102

 

Other comprehensive income - items that may be reclassified separately to profit or loss:

 


 

 

 

 

Exchange differences on translation of foreign operations

 

214

21

TOTAL COMPREHENSIVE INCOME FOR THE YEAR


 

4,725

 

4,123

 

Attributable to:




Equity holders of the parent


4,578

4,032

Non-controlling interests


147

91



4,725

4,123



 

Consolidated Balance Sheet

As at 31 December 2016



As at

31 December

2016  

As at

31 December

2015  






Note

£'000

£'000

FIXED ASSETS




Intangible assets

11

83,075

82,102

Property, plant and equipment


3,531

4,526

Interests in joint ventures


-

7

Investments in associates


324

350

Deferred tax assets


45

146



86,975

87,131

CURRENT ASSETS




Stock and work in progress


485

461

Trade and other receivables

12

32,611

31,347

Cash and short term deposits


1,002

1,784



34,098

33,592

CURRENT LIABILITIES




Trade and other payables

13

(15,119)

(14,032)

Accruals


(11,075)

(10,833)

Corporation tax payable


(527)

(1,064)

Bank loans

14

(2,250)

(1,500)

Acquisition obligations

15.1

(1,645)

(3,203)



(30,616)

(30,632)

NET CURRENT ASSETS 


3,482

2,960





TOTAL ASSETS LESS CURRENT LIABILITIES


90,457

90,091

NON CURRENT LIABILITIES




Bank loans

14

(10,023)

(11,210)

Other long term loans


(76)

-

Obligations under finance leases


(216)

(298)

Acquisition obligations

15.1

(3,014)

(4,954)

Deferred tax liabilities


(200)

(264)



(13,529)

(16,726)

NET ASSETS


76,928

73,365





CAPITAL AND RESERVES




Called up share capital

16

8,412

8,361

Share premium account


42,431

42,268

Own shares

17

(556)

(455)

Share option reserve


249

298

Foreign currency translation reserve


195

51

Retained earnings


25,740

22,414

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT


 

76,471

 

72,937

Non-controlling interests


457

428

TOTAL EQUITY


76,928

73,365

 



Consolidated Cash Flow Statement

for the year ended 31 December 2016

 



Year to

31 December 2016

Year to

31 December 2015







£'000

£'000





Operating profit


6,400

5,606

Depreciation and amortisation charges


2,120

2,122

Movements in the fair value of contingent consideration


(48)

(618)

Loss on disposal of property, plant and equipment


4

6

Loss on disposal of intangible assets


2

-

Non cash (credit) / charge for share options and shares awarded


(45)

37

Increase in receivables


(1,037)

(3,963)

Increase in stock and work in progress


(24)

(94)

Increase in payables


1,120

1,256

OPERATING CASH FLOWS


8,492

4,352

Net finance costs


(422)

(711)

Tax paid


(1,869)

(1,233)

Net cash inflow from operating activities


6,201

2,408

INVESTING ACTIVITIES




Proceeds on disposal of property, plant and equipment


33

74

Purchase of property, plant and equipment


(914)

(1,295)

Investment in software development


(777)

-

Acquisition of subsidiaries, joint ventures and associates during the year


 

(466)

 

(2,086)

Payment of obligations relating to acquisitions made in prior years


 

(3,179)

 

(871)

Cash acquired with subsidiaries


65

1,431

Net cash outflow from investing activities


(5,238)

(2,747)

FINANCING ACTIVITIES




Dividends paid


(1,158)

(948)

Dividends paid to non-controlling interests


(118)

-

Repayment of finance leases


(90)

(57)

(Repayment of) / increase in long term bank loans


(500)

1,875

Proceeds from other long term loans


76

-

Purchase of own shares held in EBT, net of disposals


(169)

(317)

Net cash (outflow) / inflow from financing activities


(1,959)

553

 

(Decrease) / increase  in cash and cash equivalents


 

(996)

 

214

Exchange differences on translation of foreign subsidiaries


 

214

 

21

Cash and cash equivalents at beginning of year


1,784

1,549

Cash and cash equivalents at end of year


1,002

1,784

 

 

 



Consolidated Statement of Changes in Equity for the year ended 31 December 2016

 

 


 

 

 

 

Share

capital

£'000

 

 

 

 

Share premium

£'000

 

 

 

 

Own shares

£'000

 

 

 

Share option

reserve

£'000

 

 

Foreign currency translation reserve

£'000

 

 

 

 

Retained earnings

£'000

 

Total attributable to equity holders of parent

£'000

 

 

 

Non-controlling interest

£'000

 

 

 

 

Total equity

£'000











At 1 January 2015

 

8,340

 

42,203

 

(260)

 

264

 

30

 

19,470

 

70,047

 

337

 

70,384

Profit for the year

-

-

-

-

4,011

4,011

91

4,102

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

-

 

21

 

-

 

21

 

-

 

21

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

4,011

 

4,032

 

91

 

4,123

New shares issued

21

65

-

-

-

-

86

-

86

Share option charge

-

-

-

34

-

-

34

-

34

Own shares purchased

-

-

(317)

-

-

-

(317)

-

(317)

Shares awarded to employees from own shares

 

-

 

-

 

122

 

-

 

-

 

(119)

 

3

 

-

 

3

Dividend paid

-

-

-

-


(948)

(948)

-

(948)

At 31 December 2015

 

8,361

 

42,268

 

(455)

 

298

 

51

 

22,414

 

72,937

 

428

 

73,365

Profit for the year

-

-

-

-

4,434

4,434

77

4,511

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

-

 

144

 

-

 

144

 

70

 

214

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

4,434

 

4,578

 

147

 

4,725

New shares issued

51

163

-

-

-

-

214

-

214

Share option credit

-

-

-

(49)

-

-

(49)

-

(49)

Own shares purchased

-

-

(212)

-

-

-

(212)

-

(212)

Shares awarded and sold from own shares

 

-

 

-

 

111

 

-

 

-

 

50

 

161

 

-

 

161

Dividend paid

-

-

-

-


(1,158)

(1,158)

(118)

(1,276)

At 31 December 2016

 

8,412

 

42,431

 

(556)

 

249

 

195

 

25,740

 

76,471

 

457

 

76,928



Notes to the Consolidated Financial Statements

 

1. Principal Accounting Policies

 

Basis of preparation

 

The results for the year to 31 December 2016 have been extracted from the audited consolidated financial statements, which are expected to be published by 24 March 2017.

 

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2016 or 2015 but is derived from those accounts.  Statutory accounts for the year ended 31 December 2015 were delivered to the Registrar of Companies following the Annual General Meeting on 13 June 2016 and the statutory accounts for 2016 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 19 June 2017 and, after approval at the AGM, delivered to the Registrar of Companies. 

 

The auditors, Francis Clark LLP, have reported on the accounts for the years ended 31 December 2016 and 31 December 2015; 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

 

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

 

Turnover represents fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts. Income is recognised on the following basis:

 

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

·      Project income is recognised by apportioning the fees billed or billable to the time period for which those fees were earned by relationship to the percentage of completeness of the project to which they relate

·      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 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, the excess is classified as deferred income (within Accruals).

 

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 by reference to timesheets in relation 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 customer retention is the principal uncertainty and draws on historic experience.

 

2. Segmental Information

 

Business segmentation

 

For management purposes the Group had thirteen operating units during the year, each of which carries out a range of activities. These activities have been divided into four business and operating segments as set out below.

 


Branding, Advertising & Digital

Media

Events & Learning

Public Relations

Group

 

Year to 31 December 2016

£'000

£'000

£'000

£'000

£'000

Turnover

79,657

45,741

9,922

8,776

144,096

Operating income

51,740

4,061

3,320

6,777

65,898

Segmental operating profit ("trading profit")

7,323

1,135

325

487

9,270

Unallocated  central costs





(1,713)

Headline operating profit





7,557

Share of results of associates and joint ventures





(33)

Net finance costs





(487)

Headline profit before tax





7,037

 

 


Branding, Advertising & Digital

Media

Events & Learning

Public Relations

Group

 

Year to 31 December 2015

£'000

£'000

£'000

£'000

£'000

Turnover

71,728

45,732

7,146

7,640

132,246

Operating income

47,715

4,210

2,765

6,347

61,037

Segmental operating profit ("trading profit")

6,228

1,245

265

768

8,506

Unallocated  central costs





(1,576)

Headline operating profit





6,930

Net finance costs





(469)

Headline profit before tax





6,461

 

Geographical segmentation

 

The Group's continues to expand its activities outside the UK, but substantially all the Group's business remains based and executed in the UK, with less than 10% of operating income attributed to territories outside of the UK.

 

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 fall into three categories: exceptional items, acquisition-related items and start-up costs.


Year to

31 December 2016

Year to

31 December 2015


PBT

PAT

PBT

PAT


£'000

£'000

£'000

£'000






Headline profit

7,037

5,559

6,461

5,157

Exceptional items (Note 4)

-

-

(873)

(694)

Acquisition adjustments (Note 5)

(666)

(655)

(108)

(89)

Start-up costs

(491)

(393)

(343)

(272)

Reported profit

5,880

4,511

5,137

4,102

 

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 2016 relate to the launch of new ventures Mongoose Sports & Entertainment and Mongoose Promotions and April Six's new operations in Singapore and the US. Start-up costs in 2015 related to the launch of Mongoose Sports & Entertainment and April Six's new operations in Singapore. 

 

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 2015 comprised 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

31 December 2016

Year to

31 December 2015

 


£'000

£'000

 




Movement in fair value of contingent consideration

48

618

Amortisation of other intangibles recognised on acquisitions

(645)

(574)

Acquisition transaction costs expensed

(69)

(152)

 


(666)

(108)

 

The movement in fair value of contingent consideration relates to a net downward revision in the estimate payable to vendors of businesses acquired in prior years..

 

6. Net Finance Costs


Year to

31 December 2016

Year to

31 December 2015


£'000

£'000

 

Interest on bank loans and overdrafts, net of interest on bank deposits

 

(407)

 

(390)

Amortisation of bank debt arrangement fees

(64)

(65)

Interest on finance leases

(16)

(14)

Net finance costs

(487)

(469)




 

 

7. Profit Before Taxation

 

Profit on ordinary activities before taxation is stated after charging:-

           


Year to

31 December 2016

Year to

31 December 2015


£'000

£'000




Depreciation of owned tangible fixed assets

1,164

1,476

Depreciation of tangible fixed assets held under finance leases

94

72

Amortisation of intangible assets recognised on acquisitions

645

574

Amortisation of other intangible assets

217

-

Operating lease rentals - Land and buildings

2,384

2,090

Operating lease rentals - Plant and equipment

287

292

Operating lease rentals - Other assets

139

129

Staff costs

44,352

41,004

Auditors' remuneration

221

224

(Gain) / loss on foreign exchange

(14)

43

 

 

8. Taxation


Year to

31 December 2016

Year to

31 December 2015


£'000

£'000

Current tax:-



UK corporation tax at 20.00% (2015: 20.25%)

972

907

Adjustment for prior periods

51

(49)

Foreign tax on profits of the period

233

289


1,256

1,147

Deferred tax:-



Current year reversing/(originating) temporary differences

107

(64)

Adjustment for prior periods

15

(52)

Foreign deferred tax on overseas subsidiaries

(9)

4

Tax charge for the year

1,369

1,035

 

Factors Affecting the Tax Charge for the Current Year:

The tax assessed for the year is higher (2015: lower) than the standard rate of corporation tax in the UK.  The differences are:

 


Year to

31 December 2016

Year to

31 December 2015


£'000

£'000

Profit before taxation

5,880

5,137




Profit on ordinary activities before tax at the standard rate of corporation tax of 20.00% (2015: 20.25%)

1,176

1,040




Effect of:



Non-deductible expenses/income not taxable

102

121

Timing differences relating to deductibility of share options

(11)

(23)

Movement in fair value of contingent consideration, not taxable

11

(125)

Impact of R&D claims

(158)

-

Adjustments to prior periods

67

(101)

Higher tax rates on overseas earnings

80

81

Depreciation in excess of capital allowances

110

32

Other differences

(8)

10

Actual tax charge for the year

1,369

1,035

 

9. Dividends


Year to

31 December 2016

Year to

31 December 2015


£'000

£'000

Amounts recognised as distributions to equity holders in the year:



Interim dividend of 0.50 pence (2015: 0.30 pence) per share

414

247

Prior year final dividend of 0.90 pence (2015: 0.85 pence) per share

744

701


1,158

948

 

A final dividend of 1.0 pence per share is to be paid in July 2017 should it be approved by shareholders at the AGM. In accordance with IFRS this final dividend will be recognised in the 2017 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

2016

31 December

2015


£'000

£'000




Earnings



Reported profit for the year

4,511

4,102




Attributable to:



Equity holders of the parent

4,434

4,011

Non-controlling interests

77

91


4,511

4,102




Headline earnings (Note 3)

5,559

5,157




Attributable to:



Equity holders of the parent

5,482

5,066

Non-controlling interests

77

91


5,559

5,157




Number of shares



Weighted average number of Ordinary shares for the purpose of basic earnings per share

 

82,651,400

 

82,479,427

Dilutive effect of securities:



Employee share options

2,862,471

3,269,681

Weighted average number of Ordinary shares for the purpose of diluted earnings per share

 

85,513,871

 

85,749,108

Reported basis:



Basic earnings per share (pence)

5.36

4.86

Diluted earnings per share (pence)

5.19

4.68

Headline basis:



Basic earnings per share (pence)

6.63

6.14

Diluted earnings per share (pence)

6.41

5.91

 

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

2016

31 December

2015


£'000

£'000

Cost



At 1 January

83,606

79,326

Recognised on acquisition of subsidiaries

457

4,315

Adjustment to consideration / net assets acquired

(11)

(35)

At 31 December

84,052

83,606




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

79,779

79,333

 

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 development and licences

Trade names

Customer relationships

Total


£'000

£'000

£'000

£'000

Cost





At 1 January 2015

51

669

2,661

3,381






Additions

-

230

990

1,220

At 31 December 2015

51

899

3,651

4,601






Transfer from property, plant and equipment*

1,467

-

-

1,467

Additions

777

-

-

777

Disposals

(234)

-

-

(234)

At 31 December 2016

2,061

899

3,651

6,611






Amortisation and impairment





At 1 January 2015

9

20

1,229

1,258






Charge for the year

8

-

566

574

At 31 December 2015

17

20

1,795

1,832






Transfer from property, plant and equipment*

853

-

-

853

Charge for the year

217

77

568

862

Disposals

(232)

-

-

(232)

At 31 December 2016

855

97

2,363

3,315

 

Net book value at 31

December 2016

 

1,206

 

802

 

1,288

 

3,296

 

Net book value at 31

December 2015

 

34

 

879

 

1,856

 

2,769

 

*As software development costs have become increasingly significant, they have been transferred from computer equipment and reported separately within intangible assets.

 

Additions of £777,000 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. In 2015 the additions of £1,220,000 included Client relationships and trade names acquired relating to the Chapter acquisition, all of which are being amortised over finite useful lives.

 

12. Trade and Other Receivables

 


31 December 2016

31 December 2015


£'000

£'000




Gross trade receivables

23,843

23,661

Less: Provision for doubtful debts

(234)

(201)


23,609

23,460

Other receivables

670

718

Prepayments

2,524

1,257

Accrued income

5,808

5,912


32,611

31,347

 

An allowance has been made for estimated irrecoverable amounts from the provision of services of £234,000 (2015: £201,000). The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

 

13. Trade and Other Payables

                                         


31 December 2016

31 December 2015


£'000

£'000




Trade creditors

10,924

9,999

Finance leases

83

91

Other creditors

378

244

Other tax and social security payable

3,734

3,698


15,119

14,032

 

Trade and other creditors principally comprise amounts outstanding for trade purchases and on-going costs. The Directors consider that the carrying amount of trade payables approximates their fair value.

 

14. Bank Overdrafts, Loans and Net Debt

 


31 December 2016

31 December 2015


£'000

£'000




Bank loan outstanding

12,375

12,875

Unamortised bank debt arrangement fees

(102)

(165)

Carrying value of loan outstanding

12,273

12,710

Less: Cash and short term deposits

(1,002)

(1,784)

Net bank debt

11,271

10,926




The borrowings are repayable as follows:



Less than one year

2,250

1,500

In one to two years

2,500

2,250

In more than two years but less than three years

7,625

2,500

In more than three but less than four years

-

6,625


12,375

12,875




Unamortised bank debt arrangement fees

(102)

(165)


12,273

12,710

Less: Amount due for settlement within 12 months (shown under current liabilities)

 

(2,250)

 

(1,500)

Amount due for settlement after 12 months

10,023

11,210

 

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.

 

At 31 December 2016, the Group had a term loan facility of £5.4m due for repayment by February 2019 on a quarterly basis, and a revolving credit facility of up to £7.0m, expiring on 3 February 2019. Interest on both the term loan and revolving credit facilities is based on 3 month LIBOR plus 2.25%, payable in cash on loan rollover dates.

 

In addition to its committed facilities, the Group had available an overdraft facility of up to £3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.5%.

 

At 31 December 2016, 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.

 

On 16 March 2017 the Group agreed an increase of £5.0m in the revolving credit facility and an extension to the maturity date for the revolving credit facility to 30 April 2019. All other terms of the existing credit facilities remain unchanged.

 

15. Acquisitions

 

15.1 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 contingent consideration payments that may be due is as follows:

 


31 December 2016

31 December 2015


Cash

£'000

 Shares

£'000

Total

£'000

Cash

£'000

 Shares

£'000

Total

£'000

 

Less than one year

1,645

-

1,645

2,902

301

 

3,203

Between one and two years

1,703

-

1,703

2,009

-

2,009

In more than two years but less than three years

 

750

 

-

 

750

 

1,715

 

-

 

1,715

In more than three years but less than four years

 

561

 

-

 

561

 

710

 

-

 

710

In more than four years but less than five years

 

-

 

-

 

-

 

520

 

-

 

520


4,659

-

4,659

7,856

301

8,157

 

 

15.2 Acquisitions during the year

 

A total of £502,000 was invested in other acquisitions during the year, comprising initial cash consideration of £466,000 and deferred contingent consideration of £36,000.

 

15.3 Pro-forma results including acquisitions

 

The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £144.9m, £66.4m and £7.4m had the Group consolidated the results of the acquisitions made during the year, from the beginning of the year.

 

16. Share Capital


31 December 2016

31 December 2015


£'000

£'000

Allotted and called up:



84,120,234 Ordinary shares of 10p each (2015: 83,608,331 Ordinary shares of 10 p each)

8,412

8,361

 

 

Options

 

The Group has the following options in issue:  

                                     


At start of year

Granted

Waived/

lapsed

Exercised

At end of year

 

 

TMMG Long Term Incentive Plan

 

2,983,500

 

1,070,000

 

(1,416,930)

 

-

 

2,636,570

 

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 the Remuneration Committee of the Board and vest three years later only if the profit performance of the Group in the intervening period is sufficient to meet predetermined criteria (always subject to Remuneration Committee discretion). 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 Mission Marketing Group Long Term Incentive Plan.

 

17. Own Shares

 


No. of shares

£'000

At 31 December 2014

910,984

260

Own shares purchased during the year

551,373

317

Awarded to employees during the year

(183,433)

(122)

At 31 December 2015

1,278,924

455

Own shares purchased during the year

527,234

212

Awarded or sold during the year

(410,228)

(111)

At 31 December 2016

1,395,930

556

 

 

Shares are held in an Employee Benefit Trust to meet certain requirements of The Mission Marketing Group Long Term Incentive Plan.

 

18. Post Balance Sheet Events

 

After the end of the financial year, a new company, The Mission Marketing Holdings Ltd ("TMMH"), was incorporated as a wholly owned subsidiary of the Company. On 21 February 2017, all the Company's shareholdings in subsidiaries were transferred to TMMH in return for the issuance of 20,000,002 Ordinary shares. On the same day, various individuals subscribed for a total of 5,720,171 A Ordinary shares in TMMH as part of the Growth Share Scheme referred to in the Corporate Governance Report.

 

On 16 March 2017 the Directors agreed an increase and an extension to the maturity date for the revolving credit facility. Further details of these facilities are set out in Note 14.

 

 


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Audited results for the year to 31 December 2016 - RNS