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Mission Marketing (317)

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Wednesday 25 September, 2019

Mission Marketing

Half-year Report

RNS Number : 5347N
The Mission Marketing Group PLC
25 September 2019
 

The Mission Group plc

Interim results for the six months to 30 June 2019

 

 

The Mission Group plc ("MISSION", "the Group" or "the Company") is pleased to announce its unaudited interim results for the six months ended 30 June 2019 and sets out its new positioning.

 

Interim results

·      Revenue from continuing operations* up 9% to £39.2m (2018: £36.1m)

·      Headline** profit before tax up 10% to £3.4m (2018: £3.1m)

·      Headline** diluted EPS up 9% to 3.12 pence (2018: 2.85 pence)

·      Net bank debt £5.1m (30 June 2018: £7.8m)

·      A strong second-half bias again predicted

·      Pathfindr progressing well

 

Dividend

·      Interim dividend increased by 10% to 0.77p (2018: 0.70p)

·      Payable on 29 November 2019 to shareholders on the register at 1 November 2019

 

Repositioning of MISSION

·      New positioning to reflect Mission's coming of age

·      A real and credible alternative to the established agency networks

·      Focus will be on developing creative partnerships, not just marketing communications

·      Collaboration and co-working moving to a new level

·      Fewer but larger Agencies

 

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

** Headline results are calculated on continuing operations and excluding the profit/loss on investments, acquisition-related items and start-up losses

 

David Morgan, Chairman, commented: "The Group continues to make good progress and I am really pleased with how James Clifton is settling into his role as Chief Executive. Today's evolved positioning as the alternative group for ambitious brands, with a new visual identity, is a bold and confident statement about what Mission is today and where it can be tomorrow"

 

An interview with James Clifton, Chief Executive, can be viewed today at: http://www.themission.co.uk/investors/results-centre

 

Enquiries:                                                                                                

  James Clifton, Chief Executive

  Peter Fitzwilliam, Finance Director

  The Mission Group plc

 

 

020 7462 1415

 

 

  Mark Percy / James Thomas / Sarah Mather   (Corporate Advisory)

 

  Shore Capital (Nomad and Broker)

020 7408 4090

 

MISSION is a collective of creative Agencies led by entrepreneurs who encourage an independent spirit. Employing 1,150 people in the UK, Europe, Asia and US, the Group combines the expertise of Integrated and Specialist Agencies to bring commercially effective solutions to business challenges.

 

www.themission.co.uk

Summary of the period

 

So far 2019 has been a successful and transitional year for MISSION.

 
There is no doubt that within MISSION we have created unique skills and processes which enhance what we do for our Clients within an ever-changing marketplace. This approach has set us apart from our competitors and enhanced the performance of our Agencies and the Group as a whole. So earlier this year we took a long hard look at ourselves and what makes us special and this autumn we are launching a new look MISSION, more of which below.


But it is what's behind the face that matters most.


The first half of 2019 has panned out as we expected in delivering our revenue and profit targets whilst maintaining a strong balance sheet. Our Agencies performed well, with major new contracts being won and existing Client support continuing.


Whilst the day to day issues are of paramount importance, our continued growth forms the platform from which we are embracing a determined positioning, refining our structure and creating greater opportunities for our people. As part of this, the promotion of James Clifton to Group CEO in April is already having a significant impact. James' objective is to build on our multi-Agency approach that ensures our Clients get a best in class team with unparalleled resources working on their business.


Our policy of going where our Clients wish us to be continues. Major global wins this year from Cummins, Docker and Fuji Xerox, supplemented by new Clients in our recently opened Seattle Agency, plus our expanded Asia presence, are helping us strengthen our footprint in those territories. In addition we have recently opened an office in Munich, the Group's first opening in Mainland Europe. We will continue to grow overseas but in a measured and risk-averse manner.


So in a market that continues to be challenging, we are growing our businesses and strengthening our resources in a way that provides us with a level of confidence that will take us into 2020 and beyond.


Our fuse technology division is seeing some exciting new initiatives develop, a couple of which should be ready for launch in 2020, whilst our Pathfindr Asset Management System continues to expand its Client base with some excellent new contracts. It is gratifying to note that wherever Pathfindr is trialed, it quite quickly becomes the system of choice; so much so that we will be accelerating our investment and reaching out into new markets.

 

Trading results

 

Comparisons

 

The Group's BroadCare business was sold in November 2018 and, as a result, the following financial comparisons and commentary are based on like-for-like trading from continuing operations.

 

In addition, the Group has implemented IFRS 16: Leases and 2018 comparatives have been restated accordingly. The impact of IFRS 16 on the Group's net profitability is insignificant but the bringing onto the balance sheet of future lease commitments and the reclassification of operating lease costs into depreciation and interest costs affects EBITDA and leverage ratios. The impact of the application of IFRS 16 is included in Note 2 and, where significant, referred to in the commentary below.

 

Billings and revenue

 

Turnover ("billings") for the six months ended 30 June 2019 increased by 5% to £82.3m (2018: £78.1m), while operating income ("revenue") increased by 9% to £39.2m (2018: £36.1m), continuing our track record of consistent revenue growth over many years and achieving our target growth of at least 5% pa.

 

Profit, margins and earnings per share

 

Headline operating profits increased by 5% to £3.6m (2018: £3.4m). Headline operating profit margins were slightly lower in the first six months, at 9.2% (2018: 9.6%), primarily due to changes in phasing of spend by certain large Clients. As in prior years, we expect our trading to have a strong bias towards the second half and, coupled with further efficiency improvements anticipated from our Shared Services initiative, we expect overall margins to increase as a result.

 

Financing costs reduced to £0.3m (2018: £0.4m) reflecting lower net bank debt levels, and headline profit before tax increased by 10% to £3.4m (2018: £3.1m), in line with our target growth of at least 10% pa.

 

Adjustments to headline profits in 2019, at £1.0m, were higher than the prior year (2018: £0.6m) due to an increase in the estimate of future contingent consideration obligations. After these adjustments, reported profit before tax was £2.4m (2018: £2.5m).

 

The Group estimates an effective tax rate on headline profits before tax of 20% (2018: 20%), resulting in a 9% increase in headline earnings to £2.7m for the six months (2018: £2.5m), and reported profit after tax of £1.8m (2018: £2.0m). Fully diluted headline EPS increased 9% to 3.12 pence (2018: 2.85 pence). 

 

Balance sheet and cash flow

 

Two key balance sheet ratios measured and monitored by the Board are the ratios of net debt and total debt, including acquisition liabilities, to headline EBITDA ("leverage ratios"). The adoption of IFRS 16 increases both EBITDA and debt. The increase in EBITDA from the reclassification of operating lease costs into depreciation and interest costs is £2.6m in a full year. The recognition of future lease payments as balance sheet liabilities increases total debt by over £7m. There is no impact from the adoption of IFRS 16 on net cash flow, nor on bank covenant tests, which remain calculated on a pre-IFRS 16 basis, but the standard increases the debt leverage ratios by approximately x0.5.

 

Net bank debt at 30 June 2019 was £5.1m (30 June 2018: £7.8m). Together with lease liabilities, net debt totalled £12.7m (30 June 2018: £17.1m), resulting in a reduced leverage ratio of net debt to headline EBITDA of x0.9 (30 June 2018: x1.3).

 

£3.2m of acquisition obligations from prior years were settled in the first half of the year and after adjustments to estimated future contingent consideration payments, the total estimated acquisition liability at 30 June 2019 totalled £9.1m (30 June 2018: £11.0m). Including estimates of acquisition liabilities (calculated by reference to current levels of profitability), total debt leverage reduced to x1.4 (30 June 2018: x1.9).

 

Virtually all of the Group's acquisition obligations are dependent on post-acquisition earn-out profits. £2.3m is expected to fall due for payment in cash within 12 months and a further £5.9m 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.

 

Dividend

 

Reflecting the growth in headline earnings, the Directors have declared an interim dividend of 0.77p, representing a 10% increase over last year, payable on 29 November 2019 to shareholders on the register at 1 November 2019. The ex-dividend date is 31 October 2019.

 

A new MISSION

 

All agency groups strive for cooperation and collaboration within their organisations. From its inception, MISSION has been different from the rest. Founded as a cooperative of like-minded entrepreneurs, we have flourished best when MISSION has supported rather than directed, harnessing the innate ambition and independent spirit of our Agency CEOs. We have grown revenue and profit each year over the last decade, winning prestigious and progressively bigger business. We have acquired businesses with fantastic reputations that elevate our standing in the sector. At the same time, we have retained virtually all the founders of the businesses we have acquired, providing them with opportunities to develop and grow both their businesses and themselves from an increasingly international platform.

 

Over the years, we have progressively developed methodologies and structures to encourage and support collaboration and multi-agency working. We truly believe we have found an alternative and better way to help our Clients.

 

As a group of collaborative specialists, we are no longer purely a marketing communications group, selling our marketing wares. Instead we are a business partner with a range of creative skills to help solve business challenges. In recognition of this, we have re-named our group The Mission Group PLC ("MISSION") and put MISSION at the forefront of our new business activity as the alternative group for ambitious brands, with a new visual identity. In addition, we have refined our business structure to create a simplified, more effective service offering. Three key structural changes are: the merger of bigdog and krow into a single integrated agency, retaining the name krow; the expansion of Story into Leeds and Newcastle, taking on our Robson Brown agency; and the merger of April Six and RLA into a single agency to leverage both complementary skillsets and the existing April Six international footprint.

 

This new-look MISSION celebrates and drives forward the Group's open, collaborative culture whilst retaining the entrepreneurial spirit on which it has been built.

 

Outlook

 

As in previous years, we expect the majority of our profit to be generated in the second half of the year. Despite the heightened level of Brexit uncertainty, we remain on track to deliver against expectations. We feel confident in ourselves and our ability to establish trusted creative partnerships with Clients that deliver real business growth. We are excited about MISSION's prospects.

Condensed Consolidated Income Statement for the six months ended 30 June 2019

 

 

 

 

 

Six months to

 

Continuing operations

Six months to

 

Discontinued operations

Six months to

 

 

Total

Six months to

 

Continuing operations Year ended

 

Discontinued operations

Year ended

 

 

Total

Year ended

 

 

30 June

2019

30 June

2018

30 June

2018

30 June 2018

31 December 2018

31 December 2018

31 December 2018

 

 

Unaudited

Unaudited

Unaudited

Unaudited

Audited

Audited

Audited

 

 

 

(Restated)

 

(Restated)

(Restated)

 

(Restated)

 

Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

TURNOVER

3

82,300

78,112

1,116

79,228

159,916

1,476

161,392

 

 

 

 

 

 

 

 

 

Cost of sales

 

(43,140)

(42,056)

(127)

(42,183)

(82,331)

(221)

(82,552)

 

OPERATING INCOME

3

 

39,160

 

36,056

 

989

 

37,045

 

77,585

 

1,255

 

78,840

 

 

 

 

 

 

 

 

 

Headline operating expenses

 

(35,545)

(32,608)

(451)

(33,059)

(67,666)

(776)

(68,442)

HEADLINE OPERATING PROFIT

 

 

3,615

 

3,448

 

538

 

3,986

 

9,919

 

479

 

10,398

 

 

 

 

 

 

 

 

 

(Loss) / profit on investments

 

-

-

-

-

(312)

2,981

2,669

Acquisition adjustments

5

(925)

(508)

-

(508)

(1,010)

-

(1,010)

Start-up costs

 

(74)

(74)

-

(74)

(139)

-

(139)

 

OPERATING PROFIT

 

 

2,616

 

2,866

 

538

 

3,404

8,458

3,460

11,918

 

 

 

 

 

 

 

 

 

Share of results of associates and joint ventures

 

 

69

 

(9)

 

-

 

(9)

(1)

-

(1)

 

PROFIT BEFORE INTEREST AND TAXATION

 

 

 

2,685

 

 

2,857

 

 

538

 

 

3,395

8,457

3,460

11,917

 

 

 

 

 

 

 

 

 

Net finance costs

6

(289)

(361)

-

(361)

(735)

-

(735)

 

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

 

 

 

2,396

 

 

2,496

 

 

538

 

 

3,034

 

 

7,722

 

 

3,460

 

 

11,182

 

 

 

 

 

 

 

 

 

Taxation

7

(608)

(527)

(108)

(635)

(1,710)

(96)

(1,806)

 

PROFIT FOR THE PERIOD

 

 

1,788

 

1,969

 

430

 

2,399

 

6,012

 

3,364

 

9,376

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

Equity holders of the parent

 

1,757

1,910

430

2,340

5,901

3,364

9,265

Non-controlling interests

 

31

59

-

59

111

-

111

 

 

1,788

1,969

430

2,399

6,012

3,364

9,376

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

8

2.10

2.30

0.52

2.82

7.08

4.04

11.12

Diluted earnings per share (pence)

8

2.04

2.24

0.50

2.75

6.91

3.94

10.85

Headline basic earnings per share (pence)

8

 

3.20

 

2.92

 

0.52

 

3.44

 

8.67

 

0.46

 

9.13

Headline diluted earnings per share (pence)

 

8

 

3.12

 

2.85

 

0.50

 

3.35

 

8.46

 

0.45

 

8.90

                       

 

 

Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 June 2019

 

 

 

 

Six months to

 

Continuing operations

Six months to

 

Discontinued operations

Six months to

 

 

Total

Six months to

 

Continuing operations Year ended

 

Discontinued operations

Year ended

 

 

Total

Year ended

 

30 June

2019

30 June

2018

30 June

2018

30 June 2018

31 December 2018

31 December 2018

31 December 2018

 

Unaudited

Unaudited

Unaudited

Unaudited

Audited

Audited

Audited

 

 

(Restated)

 

(Restated)

(Restated)

 

(Restated)

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

PROFIT FOR THE PERIOD

1,788

1,969

430

2,399

6,012

3,364

9,376

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Exchange differences on translation of foreign operations

226

7

-

7

73

-

73

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

 

2,014

 

1,976

 

430

 

2,406

 

6,085

 

3,364

 

9,449

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

Equity holders of the parent

1,926

1,907

430

2,337

5,933

3,364

9,297

Non-controlling interests

88

69

-

69

152

-

152

 

2,014

1,976

430

2,406

6,085

3,364

9,449

Condensed Consolidated Balance Sheet as at 30 June 2019

 

 

 

As at  

As at  

As at

 

 

30 June 2019

30 June 2018

31 December 2018

 

 

Unaudited

Unaudited

Audited

 

 

 

(Restated)

(Restated)

 

Note

£'000

£'000

£'000

FIXED ASSETS

 

 

 

 

Intangible assets

9

95,629

96,079

96,121

Property, plant and equipment

 

3,100

3,003

3,125

Right of use assets

 

6,875

8,415

7,733

Investments in associates and joint ventures

 

 

69

 

306

 

-

Investments

 

100

-

-

Deferred tax assets

 

20

44

23

 

 

105,793

107,847

107,002

CURRENT ASSETS

 

 

 

 

Stock

 

1,062

684

850

Trade and other receivables

 

44,985

38,444

39,727

Cash and short term deposits

 

2,811

6,102

5,899

 

 

48,858

45,230

46,476

CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

(41,057)

(37,875)

(37,060)

Corporation tax payable

 

(1,110)

(877)

(668)

Bank loans

10

-

(13,852)

-

Acquisition obligations

11

(2,398)

(3,084)

(3,258)

 

 

(44,565)

(55,688)

(40,986)

NET CURRENT ASSETS / (LIABILITIES)

 

4,293

(10,458)

5,490

TOTAL ASSETS LESS CURRENT LIABILITIES

 

110,086

97,389

112,492

 

NON CURRENT LIABILITIES

 

 

 

 

 

 

Bank loans

10

(7,906)

-

(9,886)

Lease liabilities

 

(5,163)

(6,754)

(6,022)

Acquisition obligations

11

(6,707)

(7,889)

(8,537)

Deferred tax liabilities

 

(393)

(538)

(451)

 

 

(20,169)

(15,181)

(24,896)

NET ASSETS

 

89,917

82,208

87,596

 

 

 

 

 

CAPITAL AND RESERVES

 

 

 

 

Called up share capital

 

8,530

8,436

8,436

Share premium account

 

43,015

42,506

42,506

Own shares

 

(419)

(304)

(299)

Share-based incentive reserve

 

607

465

498

Foreign currency translation reserve

 

286

82

117

Retained earnings

 

37,295

30,445

35,826

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

 

 

89,314

 

81,630

 

87,084

Non controlling interests

 

603

578

512

TOTAL EQUITY

 

89,917

82,208

87,596

 

 

Condensed Consolidated Cash Flow Statement for the six months ended 30 June 2019

 

 

Six months to

 

Six months to

 

Year ended

 

30 June 2019

30 June 2018

31 December 2018

 

Unaudited

Unaudited

Audited

 

 

(Restated)

(Restated)

 

£'000

£'000

£'000

 

 

 

 

 

Operating profit

2,616

3,404

11,918

 

Depreciation and amortisation charges

2,329

2,309

4,738

 

Movements in the fair value of contingent consideration

 

479

 

(30)

 

(67)

 

Profit on disposal of fixed assets

(73)

(4)

(5)

 

Loss on write down of investment

-

-

312

 

Profit on disposal of BroadCare

-

-

(2,981)

 

Non cash charge for share options, growth shares and shares awarded

 

122

 

144

 

183

 

Increase in receivables

(5,258)

(735)

(2,022)

 

Increase in stock

(212)

(16)

(182)

 

Increase / (decrease) in payables

4,075

558

(210)

 

OPERATING CASH FLOW

4,078

5,630

11,684

 

Net finance costs

(266)

(319)

(826)

 

Tax paid

(221)

(722)

(1,906)

 

Net cash inflow from operating activities

3,591

4,589

8,952

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

Proceeds on disposal of fixed assets

150

23

30

 

Purchase of property, plant and equipment

(640)

(286)

(1,014)

 

Investment in software development

(85)

(45)

(377)

 

Proceeds from disposal of BroadCare

-

-

4,099

 

Acquisition of subsidiaries

-

(2,750)

(2,990)

 

Acquisition of investments

(100)

-

-

 

Payment of obligations relating to acquisitions made in prior periods

 

(2,555)

 

(1,749)

(1,748)

 

Cash disposed of and costs of disposal of BroadCare

 

-

 

-

(584)

 

Cash acquired with subsidiaries

-

553

553

 

Net cash outflow from investing activities

(3,230)

(4,254)

(2,031)

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

Dividends paid

-

-

(1,546)

 

Dividends paid to non-controlling interests

-

-

(149)

 

Repayment of lease liabilities

(1,244)

(1,161)

(2,446)

 

(Repayment of) / increase in bank loans

(2,000)

750

(3,125)

 

Issue of shares to minority interests

3

-

-

 

(Purchase) / disposal of own shares held in EBT

(434)

311

311

 

Net cash outflow from financing activities

 

(3,675)

 

(100)

 

(6,955)

 

 

 

 

 

 

(Decrease) / increase in cash/equivalents

(3,314)

235

(34)

 

Exchange differences on translation of foreign subsidiaries

 

226

 

7

 

73

 

Cash/cash equivalents at beginning of period

5,899

5,860

5,860

 

Cash and cash equivalents at end of period

2,811

6,102

5,899

 

               
 

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2019

 

 

 

 

 

Share

capital

 

£'000

 

 

 

 

Share premium

 

£'000

 

 

 

 

Own shares

 

£'000

Share-based incentive reserve

 

£'000

 

 

Foreign currency translation reserve

 

£'000

 

 

 

 

Retained earnings

(Restated)

£'000

 

Total attributable to equity holders of parent

(Restated)

£'000

 

 

 

Non-controlling interest

 

£'000

 

 

 

 

Total equity

(Restated)

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

8,436

42,506

(602)

341

85

28,072

78,838

509

79,347

 

 

 

 

 

 

 

 

 

 

Profit for period

-

-

-

-

-

2,340

2,340

59

2,399

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

-

 

(3)

 

-

 

(3)

 

10

 

7

Total comprehensive income for period

 

-

 

-

 

-

 

-

 

(3)

 

2,340

 

2,337

 

69

 

2,406

Share option charge

-

-

-

80

-

-

80

-

80

Growth share charge

-

-

-

44

-

-

44

-

44

Shares awarded and sold from own shares

-

-

298

-

-

33

331

-

331

At 30 June 2018

8,436

42,506

(304)

465

82

30,445

81,630

578

82,208

Profit for period

-

-

-

-

-

6,925

6,925

52

6,977

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

-

 

35

 

-

 

35

 

31

 

66

Total comprehensive income for period

 

-

 

-

 

-

 

-

 

35

 

6,925

 

6,960

 

83

 

7,043

Share option credit

-

-

-

(11)

-

-

(11)

-

(11)

Growth share charge

-

-

-

44

-

-

44

-

44

Shares awarded and sold from own shares

-

-

5

-

-

2

7

-

7

Dividend paid

-

-

-

-

-

(1,546)

(1,546)

(149)

(1,695)

At 31 December 2018

8,436

42,506

498

117

35,826

87,084

512

87,596

Profit for period

-

-

-

-

-

1,757

1,757

31

1,788

Exchange differences on translation of foreign operations

 

-

 

-

 

-

 

-

 

169

 

-

 

169

 

57

 

226

Total comprehensive income for period

 

-

 

-

 

-

 

-

 

169

 

1,757

 

1,926

 

88

 

2,014

New shares issued

94

509

-

-

-

-

603

3

606

Share option charge

-

-

-

65

-

-

65

-

65

Growth share charge

-

-

-

44

-

-

44

-

44

Own shares purchased by EBT

-

-

(434)

-

-

-

(434)

-

(434)

Shares awarded and sold from own shares

-

-

314

-

-

(288)

26

-

26

At 30 June 2019

8,530

43,015

(419)

607

286

37,295

89,314

603

89,917

                         

 

 

Notes to the unaudited Interim Report for the six months ended 30 June 2019

 

1.   Accounting Policies

 

Basis of preparation

 

The condensed consolidated interim financial statements for the six months ended 30 June 2019 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 2018 on pages 53-58. The comparative figures extracted have been adjusted as described in Note 2, following the first time adoption of IFRS 16. These are consistent with the accounting policies which the Group expects to adopt in its 2019 Annual Report. 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 2019 and 30 June 2018 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 2018 have been extracted from the Group's Annual Report and Accounts 2018, 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 2018 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.

 

New standards, interpretations and amendments to existing standards

 

The Group has adopted IFRS 16 Leases for the first time. The impact on the financial statements of this new standard is detailed in Note 2.

 

2.   Adoption of IFRS 16 Leases

 

The Group has applied IFRS 16 Leases for the first time, using the full retrospective approach, with restatement of comparative information. IFRS 16 changes how the Group accounts for leases previously classified off balance sheet as operating leases under IAS 17, by removing the distinction between operating and finance leases and requiring the recognition of a right of use asset and a lease liability at the commencement of all leases except for short term leases and leases of low value assets.

 

Applying IFRS 16 for all leases (except as noted below), the Group:

 

·      Recognises right of use assets and lease liabilities in the consolidated balance sheet, initially measured at present value of future lease payments;

·      Recognises depreciation on right of use assets and interest on lease liabilities in the consolidated income statement; and

·      Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement.

 

For short term leases (lease term of 12 months or less) and leases of low value assets (such as computer equipment), the Group has opted to recognise a lease expense on a straight line basis as permitted by IFRS 16. This expense is presented within operating expenses in the consolidated income statement.

 

Financial impact of initial application of IFRS 16

 

The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current and prior periods.

 

The impact of IFRS 16 on the Group's profitability is insignificant, with the primary impact being one of reclassification: from operating lease expenses to depreciation and interest costs. The impact on the balance sheet is to recognise the Group's operating lease commitments, most of which relate to Agencies' premises rentals and which were previously reported in the Notes to the financial statements, as assets and liabilities on the face of the balance sheet. The value of these right of use assets and corresponding liabilities will fluctuate over time as lease terms expire and new leases are entered into.

 

Impact on profit or loss

 

 

 

Six months to

Six months to

Year ended

 

 

30 June

2019

30 June

2018

31 December

 2018

 

 

Unaudited

Unaudited

Audited

 

Note

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

 

Decrease in operating lease expenses

i

1,333

1,319

2,649

Increase in depreciation expense

i

(1,117)

(1,071)

(2,194)

Increase in headline operating profit

 

 

216

 

248

 

455

Increase in finance costs

i

(126)

(130)

(266)

Increase in headline PBT, headline PAT and profit for the period

 

 

90

 

118

 

189

 

Impact on earnings per share

 

 

Six months to

Six months to

Year ended

 

30 June

2019

30 June

2018

31 December

2018

 

Increase in reported and headline

earnings per share:

 

 

 

 

 

 

 

Basic earnings per share (pence)

0.11

0.14

0.23

Diluted earnings per share (pence)

0.10

0.14

0.22

 

The above increases apply to both earnings per share from total operations and earnings per share for continuing operations. There is no change in earnings per share from discontinued operations.

 

 

Impact on assets, liabilities and equity

as at 1 January 2018

 

 

As previously reported

IFRS 16 adjustments

As restated

 

Note

£'000

£'000

£'000

 

 

 

 

 

Property, plant and equipment

ii

3,489

(219)

3,270

Right of use assets

i, ii

-

8,016

8,016

Impact on total assets

 

 

7,797

 

 

 

 

 

 

Other creditors and accruals

iii

(9,845)

(246)

(10,091)

Short term lease liabilities

i

(86)

(2,227)

(2,313)

Long term lease liabilities

i

(129)

(6,131)

(6,260)

Impact on total liabilities

 

(8,604)

 

 

 

 

 

 

Retained earnings

 

28,879

(807)

28,072

 

Impact on assets, liabilities and equity

as at 30 June 2018

 

 

As previously reported

IFRS 16 adjustments

As restated

 

Note

£'000

£'000

£'000

 

 

 

 

 

Goodwill

iv

90,450

398

90,848

Property, plant and equipment

ii

3,175

(172)

3,003

Right of use assets

i, ii

-

8,415

8,415

Trade and other receivables

iii

38,436

8

38,444

Impact on total assets

 

 

8,649

 

 

 

 

 

 

Other creditors and accruals and deferred income

iii

(21,658)

(185)

(21,843)

Short term lease liabilities

i

(88)

(2,484)

(2,572)

Long term lease liabilities

i

(85)

(6,669)

(6,754)

Impact on total liabilities

 

 

(9,338)

 

 

 

 

 

 

Retained earnings

 

31,134

(689)

30,445

 

Impact on assets, liabilities and equity

as at 31 December 2018

 

 

As previously reported

IFRS 16 adjustments

As restated

 

Note

£'000

£'000

£'000

 

 

 

 

 

Goodwill

iv

91,354

398

91,752

Property, plant and equipment

ii

3,250

(125)

3,125

Right of use assets

i, ii

-

7,733

7,733

Impact on total assets

 

 

8,006

 

 

 

 

 

 

Other creditors and accruals

iii

(9,623)

(224)

(9,847)

Short term lease liabilities

i

(90)

(2,417)

(2,507)

Long term lease liabilities

i

(39)

(5,983)

(6,022)

Impact on total liabilities

 

 

(8,624)

 

 

 

 

 

 

Retained earnings

 

36,444

(618)

35,826

 

Impact on assets, liabilities and equity

as at 30 June 2019

 

 

As if IAS 17 still applied

IFRS 16 adjustments

As restated

 

Note

£'000

£'000

£'000

 

 

 

 

 

Goodwill

iv

91,354

398

91,752

Property, plant and equipment

ii

3,178

(78)

3,100

Right of use assets

i, ii

-

6,875

6,875

Impact on total assets

 

 

7,195

 

 

 

 

 

 

Other creditors, accruals

iii

(15,312)

(220)

(15,532)

Short term lease liabilities

i

(88)

(2,340)

(2,428)

Long term lease liabilities

i

-

(5,163)

(5,163)

Impact on total liabilities

 

 

(7,723)

 

 

 

 

 

 

Retained earnings

 

37,823

(528)

37,295

 

Notes:

 

i     The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right of use assets and lease liabilities. It also resulted in a decrease in operating leases expenses and an increase in depreciation and interest expenses. 

 

ii    Equipment under finance lease arrangements previously presented within property, plant and equipment is now presented within the line item right of use assets. There has been no change in the amount recognised.

 

iii   Amounts previously recorded in prepayments or accruals under IAS 17 as a result of differences between operating lease expenses recognised and amounts paid have been derecognised and the amount factored into the measurement of the lease liability. The recognition of accruals for dilapidation costs has also been adjusted and the amount factored into the measurement of the right of use assets.

 

iv   Goodwill of companies acquired after 1 January 2018 has been impacted as a result of the change in net assets as at acquisition date arising from the application of IFRS 16.

 

 

3.   Segmental Information

 

Business segmentation

 

For management purposes the Board monitors the performance of its separate operating units, each of which carries out a range of activities, as a single business segment. However, since different activities have different revenue characteristics, the Group's turnover and operating income has been disaggregated below to provide additional benefit to readers of these financial statements.

 

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

 

 

 

Advertising

 & Digital

Media Buying

Exhibitions & Learning

Public Relations

Group

 

Six months to 30 June 2019

£'000

£'000

£'000

£'000

£'000

Turnover

49,746

18,195

9,860

4,499

82,300

 

 

 

 

 

 

Operating income

31,560

1,880

2,361

3,359

39,160

 

 

 

Advertising

 & Digital

Media Buying

Exhibitions & Learning

Public Relations

Group

 

Six months to 30 June 2018

£'000

£'000

£'000

£'000

£'000

Turnover - continuing operations

43,216

20,953

9,249

4,694

78,112

- discontinued operations

1,116

-

-

-

1,116

- total Group

44,332

20,953

9,249

4,694

79,228

 

 

 

 

 

 

Operating income - continuing

28,170

1,932

2,528

3,426

36,056

- discontinued

989

-

-

-

989

- total Group

29,159

1,932

2,528

3,426

37,045

 

 

 

 

Advertising

 & Digital

Media Buying

Exhibitions & Learning

Public Relations

Total

 

Year to 31 December 2018

£'000

£'000

£'000

£'000

£'000

Turnover - continuing operations

96,615

36,473

17,488

9,340

159,916

- discontinued operations

1,476

-

-

-

1,476

- total Group

98,091

36,473

17,488

9,340

161,392

 

 

 

 

 

 

Operating income - continuing

61,805

3,469

5,202

7,109

77,585

- discontinued

1,255

-

-

-

1,255

- total Group

63,060

3,469

5,202

7,109

78,840

 

Geographical segmentation

 

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

 

 

Six months to

Six months to

Year ended

 

30 June

2019

30 June

2018

31 December

 2018

 

Unaudited

Unaudited

Audited

 

£'000

£'000

£'000

 

 

 

 

From continuing operations

 

 

 

UK

34,544

32,134

68,519

Asia

2,125

1,948

5,061

USA

2,491

1,974

4,005

 

39,160

36,056

77,585

 

From discontinued operations

 

 

 

UK

-

989

1,255

 

From continuing and discontinued operations

 

 

 

UK

34,544

33,123

69,774

Asia

2,125

1,948

5,061

USA

2,491

1,974

4,005

 

39,160

37,045

78,840

 

 

4.   Reconciliation of Reported Profit to Headline Profit

 

In order to provide a clearer understanding of underlying profitability, headline profits exclude exceptional items, acquisition-related items, 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.

 

 

 

Six months to

30 June

 2019

Unaudited

 

 

Six months to

30 June

 2018

Unaudited

(Restated)

 

Year ended

31 December

 2018

Audited

(Restated)

 

 

 

PBT

PAT

PBT

PAT

PBT

PAT

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

From continuing operations

 

 

 

 

Headline profit

3,395

2,716

3,078

2,486

9,183

7,334

Acquisition-related items (Note 5)

(925)

(867)

(508)

(457)

(1,010)

(895)

Impairment of Watchable

-

-

-

-

(312)

(312)

Start-up costs

(74)

(61)

(74)

(60)

(139)

(115)

Reported profit

2,396

1,788

2,496

1,969

7,722

6,012

                   

 

From discontinued operations

 

 

 

 

Headline profit

-

-

538

430

479

383

Profit on sale of BroadCare

-

-

-

-

2,981

2,981

Reported profit

-

-

538

430

3,460

3,364

 

 

 

 

 

 

 

From continuing and discontinued operations

 

 

 

 

 

 

Headline profit

3,395

2,716

3,616

2,916

9,662

7,717

Profit on sale of BroadCare

-

-

-

-

2,981

2,981

Acquisition-related items (Note 5)

(925)

(867)

(508)

(457)

(1,010)

(895)

Impairment of Watchable

-

-

-

-

(312)

(312)

Start-up costs

(74)

(61)

(74)

(60)

(139)

(115)

Reported profit

2,396

1,788

3,034

2,399

11,182

9,376

                   

 

 

Start-up costs in 2019 relate to the launches of April Six's new ventures in China and Germany. Start-up costs in 2018 related to April Six's new venture in China, and trading losses at Mongoose Promotions (now profitable).

 

 

5.   Acquisition Adjustments

 

 

Six months to

30 June

2019

Unaudited

Six months to

30 June

2018

Unaudited

Year ended

31 December 2018

Audited

 

 

£'000

£'000

£'000

 

 

 

 

 

(Increase) / decrease in fair value of contingent consideration

(479)

30

67

Amortisation of intangible assets

recognised on acquisitions

(446)

(401)

(915)

Acquisition transaction costs expensed

-

(137)

(162)

 

 

(925)

(508)

(1,010)

         

 

The movement in fair value of contingent consideration relates to a 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

 

 

Six months to

Six months to

Year ended    

 

30 June

2019

30 June

2018

31 December 2018

 

Unaudited

Unaudited

Audited

 

 

(Restated)

(Restated)

 

£'000

£'000

£'000

 

 

 

 

Net interest on bank loans, overdrafts and deposits

(140)

(198)

(394)

Amortisation of bank debt arrangement fees

 

(23)

 

(29)

 

(66)

Interest expense on leases liabilities

(126)

(134)

(275)

Net finance costs

(289)

(361)

(735)

 

 

7.   Taxation

 

The taxation charge for the period ended 30 June 2019 has been based on an estimated effective tax rate on headline profit on ordinary activities of 20% (30 June 2018: 20%).

 

 

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".

 

 

Six months to

Six months to

Year to

 

30 June

2019

30 June

2018

31 December

2018

 

Unaudited

Unaudited

Audited

 

 

(Restated)

(Restated)

 

£'000

£'000

£'000

 

 

 

 

Earnings

 

 

 

 

 

 

 

Reported profit for the year

 

 

 

 

 

 

 

From continuing operations

1,788

1,969

6,012

Attributable to:

 

 

 

Equity holders of the parent

1,757

1,910

5,901

Non-controlling interests

31

59

111

 

1,788

1,969

6,012

 

 

 

 

From discontinued operations

-

430

3,364

Attributable to:

 

 

 

Equity holders of the parent

-

430

3,364

Non-controlling interests

-

-

-

 

-

430

3,364

 

 

 

 

From continuing and discontinued operations

1,788

2,399

9,376

Attributable to:

 

 

 

Equity holders of the parent

1,757

2,340

9,265

Non-controlling interests

31

59

111

 

1,788

2,399

9,376

 

Headline earnings (Note 4)

 

 

 

 

 

 

 

From continuing operations

2,716

2,486

7,334

Attributable to:

 

 

 

Equity holders of the parent

2,685

2,427

7,223

Non-controlling interests

31

59

111

 

2,716

2,486

7,334

 

 

 

 

From discontinued operations

-

430

383

Attributable to:

 

 

 

Equity holders of the parent

-

430

383

Non-controlling interests

-

-

-

 

-

430

383

 

 

 

 

From continuing and discontinued operations

2,716

2,916

7,717

Attributable to:

 

 

 

Equity holders of the parent

2,685

2,857

7,606

Non-controlling interests

31

59

111

 

2,716

2,916

7,717

 

 

 

 

From continuing operations

 

 

 

Basic earnings per share (pence)

2.10

2.30

7.08

Diluted earnings per share (pence)

2.04

2.24

6.91

From discontinued operations

 

 

 

Basic earnings per share (pence)

-

0.52

4.04

Diluted earnings per share (pence)

-

0.50

3.94

From continuing and discontinued operations

 

 

 

Basic earnings per share (pence)

2.10

2.82

11.12

Diluted earnings per share (pence)

2.04

2.75

10.85

 

Headline basis:

 

 

 

From continuing operations

 

 

 

Basic earnings per share (pence)

3.20

2.92

8.67

Diluted earnings per share (pence)

3.12

2.85

8.46

From discontinued operations

 

 

 

Basic earnings per share (pence)

-

0.52

0.46

Diluted earnings per share (pence)

-

0.50

0.45

From continuing and discontinued operations

 

 

 

Basic earnings per share (pence)

3.20

3.44

9.13

Diluted earnings per share (pence)

3.12

3.35

8.90

 

 

A reconciliation of the profit after tax on a reported basis and the headline basis is given in Note 4.

 

 

9.   Intangible Assets

 

 30 June

2019

 30 June

2018

31 December 2018

 

Unaudited

Unaudited

Audited

 

 

(Restated)

(Restated)

 

£'000

£'000

£'000

 

 

 

 

Goodwill

91,752

90,848

91,752

Other intangible assets

3,877

5,231

4,369

 

95,629

96,079

96,121

 

 

Goodwill

 

Six months to 30 June

2019

Six months to 30 June

2018

Year ended 31 December 2018

 

Unaudited

Unaudited

Audited

 

 

(Restated)

(Restated)

 

£'000

£'000

£'000

 

 

 

 

Cost

 

 

 

At 1 January

96,025

89,064

89,064

Recognised on acquisition of subsidiaries

-

6,057

6,961

At 30 June / 31 December

96,025

95,121

96,025

 

Impairment adjustment

 

 

 

At beginning and end of period

4,273

4,273

4,273

 

 

 

 

Net book value

91,752

90,848

91,752

 

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 2019.

 

 

Other Intangible Assets

 

 

Six months to

Six months to

Year ended 

 

 

30 June

2019

30 June

2018

31 December 2018

 

 

Unaudited

Unaudited

Audited

 

 

£'000

£'000

£'000

 

 

 

 

 

 

Cost

 

 

 

At 1 January

9,389

7,210

7,210

 

Additions

85

2,689

3,011

 

Disposals

-

-

(832)

 

At 30 June / 31 December

9,474

9,899

9,389

 

 

 

 

 

 

 

 

Amortisation and impairment

 

 

 

 

At 1 January

5,020

4,050

4,050

 

Amortisation charge for the period

577

618

1,286

 

Disposals

-

-

(316)

 

At 30 June / 31 December

5,597

4,668

5,020

 

 

 

 

 

 

Net book value

3,877

5,231

4,369

 

                     

 

 

Other intangible assets consist of Client relationships, trade names and software development and licences.

 

 

10. Bank Loans and Net Bank Debt

 

30 June

2019

30 June

2018

31 December 2018

 

Unaudited

Unaudited

Audited

 

£'000

£'000

£'000

 

 

 

 

Bank loan outstanding

8,000

13,875

10,000

Adjustment to amortised cost

(94)

(23)

(114)

Carrying value of loan outstanding

7,906

13,852

9,886

Less: Cash and short term deposits

(2,811)

(6,102)

(5,899)

Net bank debt

5,095

7,750

3,987

 

 

 

 

The borrowings are repayable as follows:

 

 

 

Less than one year

-

13,875

-

In one to two years

-

-

-

In more than two years but less than three

years

 

8,000

 

-

 

10,000

 

8,000

13,875

10,000

Adjustment to amortised cost

(94)

(23)

(114)

 

7,906

13,852

9,886

Less: Amount due for settlement within 12 

months (shown under current liabilities)

 

-

 

(13,852)

 

-

Amount due for settlement after 12 months

7,906

-

9,886

 

On 14 September 2018, the Group signed a new three year revolving credit facility of £15.0m, expiring on 28 September 2021, with an option to extend the facility by a further £5.0m and an option to extend by one year. Interest on the facility is based on LIBOR plus a margin of between 1.25% and 2.00% depending on the Group's debt leverage ratio, payable in cash on loan rollover dates.

 

In addition to its committed facilities, the Group has available an overdraft facility of up to £3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.25%.

 

11. 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 2019

Less than one year

2,308

90

2,398

Between one and two years

5,930

294

6,224

In more than two but less than three years

-

-

-

In more than three but less than four years

483

-

483

 

8,721

384

9,105

 

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

 

 

Cash

£'000

Shares

£'000

Total

£'000

 

 

 

 

At 31 December 2018

10,820

975

11,795

Obligations settled in the period

(2,555)

(614)

(3,169)

Adjustments to estimates of obligations

456

23

479

At 30 June 2019

8,721

384

9,105

         

 

 

 

12. Post balance sheet events

 

There have been no material post balance sheet events.

 

 


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