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RNS

Half-year Report

Released 07:00 19-Sep-2018

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 £37.0m (2017: £33.8m)

·      Excluding krow acquisition, revenue up 5%

·      Headline operating profit margins increased to 10.1% (2017: 9.1%)

·      Headline profit before tax up 23% to £3.5m (2017: £2.9m)

·      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 £79.2m (2017: £71.2m), 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 £37.0m (2017: £33.8m), of which newly-acquired krow contributed 4% (£1.6m). Headline operating profits increased by 21% to £3.7m (2017: £3.1m), of which krow contributed 5% (£0.2m). 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 £0.6m, were lower than the prior year (2017: £1.1m) due to that year including exceptional restructuring costs. After these adjustments, reported operating profits were £3.2m (2017: £2.0m).

 

After unchanged financing costs of £0.2m, headline profit before tax increased by 23% to £3.5m (2017: £2.9m); reported profit before tax was £2.9m (2017: £1.8m).

 

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 £2.8m for the six months (2017: £2.2m), and reported profit after tax of £2.3m (2017: £1.3m). 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 £3.5m in the six months ended June 2018, somewhat less than the prior year (2017: £5.8m) due to the partial unwinding of particularly favourable working capital inflows toward the end of 2017. After the £1.7m settlement of acquisition obligations from prior years and £2.75m initial acquisition consideration payments, net debt was £0.5m higher than at 31 December 2017, at £7.8m (30 June 2017: £9.2m). 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 £11.0m (31 December 2017: £7.2m). 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. £2.5m is expected to fall due for payment in cash within 12 months and a further £2.2m 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 £13.9m 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 £15m, with an option to increase the facility by an additional £5m 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 to

 

6 months to

 

Year ended



30 June 2018

30 June 2017

31 December 2017



Unaudited

Unaudited

Audited


Note

£'000

£'000

£'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 to

 

6 months to

 

Year ended



30 June 2018

30 June 2017

31 December 2017



Unaudited

Unaudited

Audited



£'000

£'000

£'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 2018

30 June 2017

31 December 2017



Unaudited

Unaudited

Audited


Note

£'000

£'000

£'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 to

 

6 months to

 

Year ended

30 June 2018

30 June 2017

31 December 2017

Unaudited

Unaudited

Audited

£'000

£'000

£'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

capital

£'000

 

 

 

 

Share premium

£'000

 

 

 

 

Own shares

£'000

Share option and growth share 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 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 £256,000 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

2018

30 June

2017

31 December

 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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

2018

30 June

2017

31 December

 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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

30 June

 2018

Unaudited

£'000

6 months to

30 June

 2017

Unaudited

£'000

Year ended

31 December

 2017

Audited

£'000



PBT

PAT

PBT

PAT

PBT

PAT

 


£'000

£'000

£'000

£'000

£'000

£'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 to

30 June

 2018

6 months to

30 June

 2017

Year ended

31 December

 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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 to

30 June

2018

Unaudited

6 months to

30 June

2017

Unaudited

Year ended

31 December 2017

Audited

 


£'000

£'000

£'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 to

6 months to

Year ended    


30 June

2018

30 June

2017

31 December 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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 to

6 months to

Year ended 


30 June

2018

30 June

2017

31 December 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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 22nd 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

2018

 30 June

2017

31 December 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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 to 30 June

2018

6 months to 30 June

2017

Year ended 31 December 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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

2018

30 June

2017

31 December 2017

 


Unaudited

Unaudited

Audited

 


£'000

£'000

£'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

2018

30 June

2017

31 December 2017


Unaudited

Unaudited

Audited


£'000

£'000

£'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 £1.9m due for repayment by February 2019 on a quarterly basis, and a revolving credit facility of up to £12.0m (fully drawn), expiring on 30 April 2019. As a result, the full £13.9m 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 £15.0m, with an option to extend the facility by a further £5.0m and an option to extend by 1 year. Had these new facilities been in place at 30 June 2018, the full £13.9m 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

£'000

Shares

£'000

Total

£'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

£'000

Shares

£'000

Total

£'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 £8,259,000, comprising initial cash consideration and deferred contingent cash and share consideration. Costs relating to the acquisition amounted to £141,000 and were expensed.

 

Maximum contingent consideration of £11,750,000 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 £5,509,000 to date.

 

The fair value of the net identifiable assets acquired was £414,000 resulting in goodwill and other intangible assets of £8,293,000 and a deferred tax liability on the other intangible assets of £448,000. 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

value

Fair value adjustments

Fair

value


£'000

£'000

£'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 £2,314,000, operating income of £1,609,000 and headline operating profit of £190,000 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.

 

 


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