The Mission Group Regulatory News (TMG)

The Mission Marketing Group plc

Audited results for the year ended 31 December 2013

25 March 2014

The Mission Marketing Group plc ("TMMG" or "the missiontm"), the national marketing communications and advertising group, is pleased to announce its audited results for the year ended 31 December 2013.

Financial headlines

· Operating income ("revenue") up 9% to £51.6m (2012: £47.5m)

· Headline operating profit down 4% to £5.7m (2012: £6.0m)

· Interest costs sharply reduced, to £0.7m (2012: £1.1m)

· Headline profit before tax up 3% to £5.0m (2012: £4.9m)

· Headline diluted EPS: 4.5 pence (2012: 4.5 pence)

· Interim dividend of 0.25p paid (2012: nil) and final dividend of 0.75p proposed (2012: nil)

· Net bank debt reduced by £1.6m to £10.7m

David Morgan, Chairman, commented: "2013 was something of a transitional year for the missiontm. In the first half of the year, we cleared up a number of tricky issues but by the end of the year we were in a far better position to build from. We continued to grow our business, extend our range of services, and improve our balance sheet, whilst at the same time return to dividends after a five year hiatus. Early signs for 2014 are very positive."

the missiontmis a national marketing communications and advertising group with 17 offices across the UK and an office in San Francisco. The Group specialises in providing national and international clients with award winning marketing, advertising and business communications. Group members include Addiction, April-Six, Balloon Dog, Big Communications, Bray Leino, RLA, Robson Brown, Solaris, Story, ThinkBDW and Yucca. the missiontmemploys over 800 staff and is listed on AIM (TMMG).

www.themission.co.uk

Chairman's Statement

Dear shareholder

All's well that ends well.

At the outset of the year I had hoped that 2013 would have been a bumper year for the missiontm. A lollapalooza indeed. What transpired was a year in which we cleared up a number of issues that affected us in the first half. Having done so, I'm delighted to report that not only did we still hit our numbers, we are now in a far better position to build from.

So, in some respects 2013 was a transitional year yet we continued to grow our business, improve our balance sheet and strengthen our resources.

Of our eleven operating units, seven hit or exceeded forecast, two fell slightly short and two reduced profitability largely through no fault of their own. Some great Client gains during the year were only eclipsed by increased assignments from existing Clients and the introduction of new skill sets that have added to our resources thereby further confirming our ability to deliver truly integrated campaigns wherever and for whomever. Whilst our Agencies act like boutiques, they are supported by resources that allow them to compete at any level and as a group they work remarkably well together. Through shared and conterminous ambitions.

During the year we brought further clarity to our portfolio by creating three distinct Agency groupings. On the one side are our Integrated Generalist Agencies, which offer a wide range of communications disciplines, all under one roof, with one strategy, consistently delivered by one team. On the other are our Activity and Sector Specialist Agencies, for those occasions on which Clients want specialists. The great thing about having a Group that comprises both is that everyone can have their cake and eat it.

The Healthcare sector has long since been an area of speciality within some of our Agencies and the acquisition of the specialist Richmond based medical Agency, Solaris towards the back end of the year, will be pivotal to us as we grow our business in this area. Equally, the opening of our April-Six office in San Francisco to support our technology Clients is already paying off, as is our most recent venture, to create a Far East office to support our group and, specifically, Bray Leino Clients from Singapore.

We remain committed to building the missiontm and to continue that journey by supporting our Agencies in a risk-reduced and streamlined way. In 2013 we were able to return to dividends, albeit modest, whilst making further significant strides to pay down our inherited debt. We have also enhanced our reputation and resources and attracted like-minded individuals into the group. All of which bode well for the future.

Early signs for 2014 are, therefore, very positive.

If I were a Client I would use our Agencies simply because they are determined in what they do, refreshingly honest to deal with (no room for lickspittles here) and passionate in their quest to make their Clients famous and successful.

We genuinely do have our 'Own Ideas' on how our Group should operate. We aren't abecedarian in our approach but we do have a shared vision and, whilst we may be quirky, we believe that we are on the right course to make the missiontm a clear marketing services leader in the UK and beyond.

David Morgan

Chairman

Financial Review

Summary

Although recent economic news is positive, our experience of 2013 was that our sector remained in challenging times. Marketing budgets remained under tight scrutiny, pitches for new business were frequently long and drawn out and all too often resulted in nothing other than an opportunity for companies to test the market and make the incumbent Agency sharpen its prices yet again.

Against this backdrop, we are pleased to report results for the year ended 31 December 2013 which show us making real progress.

To use a footballing analogy, it was a game of two halves. Our initial expectations were that the balance of profits across the year would be largely similar to previous years, with a modest bias towards the second half. The reality has been quite different. The first half was hit hard by B&Q's decision to move its business away from Addiction, and the dramatic reduction in expected revenues from new Client Aviva. This necessitated a costly restructuring of Bray Leino's London activities. In addition, a number of Client delays and deferrals held back our revenues in this period, the combination of which resulted in a year-on-year decline in profits. The second half of the year, in contrast, saw the benefits of the restructuring, some good underlying growth and the benefit of the unblocking of the H1 delays and deferrals, resulting in a strong H2 year-on-year increase in profit.

All in all, it has been a good achievement to deliver headline profits ahead of 2012 and the prospects for 2014 are that we will show further progress.

Trading, Statement of Income and Dividend

Turnover was 6% higher than the previous year, at £124.1m (2012: £117.0m), primarily reflecting the full year effect of the acquisition of balloon dog in September 2012. Turnover is a measure of how much Clients are billed. 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 ("revenue") increased 9% to £51.6m (2012: £47.5m), achieving the first of our KPIs, driven by the full year contribution from balloon dog and the acquisition of Solaris Healthcare Network Limited ("Solaris") with effect from 30 September 2013. Like-for-like revenue was flat year-on-year, reflecting the net effect of some significant changes in the make up our Client list. Most notably, the loss of B&Q and the dramatic reduction in expected revenues from Aviva in the first half of the year had a significant negative impact on revenues, as did the decision by two of our Top 20 Clients to switch Agency during the year. In contrast, Harley-Davidson became one of our Top 20 Clients and the second half of the year saw good growth from some existing Clients and a number of encouraging new business wins. As we exited 2013, the prospects for further revenue growth in 2014 looked strong.

The Directors measure the Group's profit performance by reference to headline profits, calculated before exceptional costs and the deduction of amortisation of intangibles and professional fees associated with acquisitions (as set out in Note 3). Headline operating profit decreased by 4% to £5.7m for the year as a whole (2012: £6.0m), but this reflects two very different pictures in H1 and H2. Profit margins in the first half (headline operating profit as a percentage of revenue) fell to 8% (first half 2012: 12%) as a result of the challenges explained above, and resulting in us missing our second KPI, but recovered to 14% in the second half (second half 2012: 13%) as revenues increased and overheads were trimmed back. Some of this improvement is due to the phasing of Client revenues across the year and, to this extent, is unlikely to be sustained into 2014. However, the reduction in overhead costs which resulted from the restructuring which took place in H1 will benefit 2014 and we expect a year-on-year improvement in profit margins in the year ahead.

Generally speaking, our Clients' spending cycles tend to result in a second half bias in our financial results. We expect 2014 to be no different.

Further good progress was made in 2013 to reduce the Group's interest burden, both through a further reduction in net debt and also from the reduction in interest margins which has flowed from the reduction in our leverage ratio (see below for definition). As a result, net interest costs reduced by over a third to £0.7m (2012: £1.1m).

After financing costs, headline profit before tax increased by 3% to £5.0m (2012: £4.9m), achieving the third of our KPIs.

Reported profit before tax decreased by 33% to £3.2m (2012: £4.7m) after the deduction of exceptional items of £1.5m and amortisation charges and professional fees totaling £0.4m relating to acquisitions made in 2013 and prior years. In 2012, £0.2m of headline adjustments were made, for amortisation and professional fees.

Exceptional items in 2013 mainly comprised the costs of restructuring Bray Leino's London operations and the non-cash write-off of intangibles arising on the acquisition of Addiction, offset by a reduction in estimated contingent acquisition consideration.

The headline diluted EPS was 4.45 pence (2012: 4.54 pence).

Having recommenced the payment of dividends in a modest way at the interim stage in 2013, the Board recommends a final dividend of 0.75 pence per share, bringing the total for the year to 1.00 pence per share. The final dividend will be payable on 21 July 2014 to shareholders on the register at 11 July 2014. The Board will continue to keep under regular review the best use of the Group's cash resources but it is the Board's intention to increase both interim and final dividends in future years.

Balance Sheet and Cash Flow

The Group's balance sheet has been further strengthened during the year by a reduction in net debt and a reduction in gearing ratios. Working capital reduced for the third time in the last four years, contributing to a reduction in net bank debt of a further £1.6m, to £10.7m (2012: £12.3m). This compares with £13.9m of committed term facilities, together with an overdraft facility of £3.0m, representing a comfortable level of headroom. Our gearing ratio (net debt to equity) reduced from 20% last year to 17% at 31 December 2013 and the Group's "leverage ratio" (ratio of net bank debt to headline EBITDA) fell further, to x1.5 at 31 December 2013, achieving our fourth KPI.

At 31 December 2013, the Board undertook its annual assessment of the value of goodwill, explained further in Note 10, and concluded that no further impairment in the carrying value was required. Capital expenditure, at £1.2m, was unchanged from 2012 and in line with depreciation.

During the year, the Group explored a number of opportunities to strengthen its services and extend its reach but in the end completed only one deal, the acquisition of Solaris Healthcare Network Ltd, towards the end of the year. Although modest in initial financial outlay, we are hopeful that the combination of Solaris with our existing healthcare activities will be a 2 plus 2 equals 5 deal.

Peter Fitzwilliam

Finance Director

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

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

Consolidated Balance Sheet

As at 31 December 2013

Consolidated Cash Flow Statement

for the year ended 31 December 2013

Consolidated Statement of Changes in Equity

Year ended 31 December 2013

Notes to the Consolidated Financial Statements

1. Basis of preparation and significant accounting policies

The results for the year to 31 December 2013 have been extracted from the audited consolidated financial statements, which are expected to be published by 28 March 2014.

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2013 or 2012 but is derived from those accounts. Statutory accounts for the year ended 31 December 2012 were delivered to the Registrar of Companies following the Annual General Meeting on 17 June 2013 and the statutory accounts for 2013 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 16 June 2013 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 2013 and 31 December 2012; 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 on the historical cost basis.

Going concern

The Group's available banking facilities provide comfortable levels of headroom against the Group's projected cash flows and the Directors accordingly consider that it is appropriate to continue to adopt the going concern basis in preparing these 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 year end; and

· valuation of intangible assets on acquisitions.

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. Estimating these future cash flows is the Group's key source of estimation uncertainty.

The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash, shares or other security at a future date, depends on uncertain future events, such as the future performance of the acquired company. Where it is not possible to estimate the amounts payable with any degree of certainty, the amounts recognised in the financial statements represent a reasonable estimate at the balance sheet date of the amounts expected to be paid.

Revenue is recognised based on an estimate of the stage of completion of contracts which straddle the year end, typically derived from the amount of time so far committed to those contracts in relation to the total estimated time to complete them.

When considering the valuation of intangible assets on acquisitions, a range of methods is undertaken both for identifying intangibles and placing valuations on them. Brand names, customer relationships, intellectual property rights and goodwill are the most frequently identified intangible assets. 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.

2. Segmental Information

Business segmentation

For management purposes the Group had eleven operating units trading through eight subsidiaries during the period: April-Six Ltd, Big Communications Ltd, Bray Leino Ltd (incorporating Addiction and Yucca), Fox Murphy Ltd (trading as balloon dog), RLA Group Ltd, Solaris Healthcare Network Ltd, Story UK Ltd and ThinkBDW Ltd (incorporating Robson Brown), each of which carries out a range of activities. These activities have been divided into four business and operating segments as defined by IFRS 8 which form the basis of the Group's primary reporting segments, namely: Branding, Advertising and Digital; Media; Events and Learning; and Public Relations.

3. Reconciliation of Headline Profit to Reported Profit

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.

Restructuring costs comprise amounts payable for loss of office and other costs incurred relating to the restructuring of the operations in Bray Leino's London operations and Addiction Worldwide. This restructuring also resulted in the impairment of Addiction goodwill and other intangibles acquired.

The gain on remeasurement of contingent consideration relates to a net downward revision in the estimate payable to vendors of businesses acquired in prior years.

The loss on legal dispute with supplier relates to prizes on a promotion which were deemed by the courts to be fraudulently won by the customers. This resulted in the costs of these prizes and legal costs being passed from the insurance company engaged to redeem the prizes to the Group.

5. Finance Costs and IFRS Interest Charges

6. Profit on Ordinary Activities before Tax

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

7. Taxation

Factors Affecting the Tax Charge for the Current Year:

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

8. Dividends

During the year the Board decided to resume the payment of dividends, previously suspended in order to conserve cash. A final dividend of 0.75 pence is to be paid on 21 July 2014 to those shareholders on the register at 11 July 2014. In accordance with IFRS the final dividend of 0.75p will be recognised in the 2014 accounts, should it be approved by shareholders at the AGM.

9. 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.

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.

10. Intangible Assets

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"). The initial projection period of three years includes the annual budget for each CGU, based on insight into Clients' planned marketing expenditure and targets for net new business growth derived from historical experience, and extrapolations of the budget in subsequent years based on known factors and estimated trends. The key assumptions used by each CGU concern revenue growth and staffing levels, and different assumptions are made by different CGUs based on their individual circumstances. After the initial projection period, an annual growth rate of 2.5% was assumed for all units and the resulting pre-tax cash flow forecasts were discounted using the Group's estimated pre-tax weighted average cost of capital, which is 7.4%. As a result of the restructuring of the operations of Addiction Worldwide, the Directors considered it necessary to impair the full value of goodwill relating to this CGU. For all other CGUs, the Directors assessed the sensitivity of the impairment test results to changes in key assumptions 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

Additions of £870,000 in the year include intellectual property rights acquired, product development costs capitalised, and client relationships and trade names acquired relating to Solaris Healthcare, of which £140,000 relates to trade names deemed to have an indefinite useful life (2012: £938,000 includes client relationships and trade names acquired relating to balloon dog and Addiction Worldwide of which £163,000 relates to trade names deemed to have an indefinite useful life).

The impairment during the year relates to intangible assets acquired in the purchase of Addiction Worldwide. As a result of the restructuring of the operations of Addiction Worldwide, the Directors considered it necessary to impair the full value of intangible assets relating to this cash-generating unit.

11. Bank Overdrafts, Loans and Net Debt

The adjustment to amortised cost relates to the amortisation of bank debt renegotiation fees over the life of the loan facility.

At 31 December 2013, the Group had a term loan facility of £4.6m due for repayment by December 2015 on a quarterly basis, and a revolving credit facility of up to £7.0m, expiring on 27 December 2015. Interest on both the term loan facility and the revolving credit facility is based on 3 month LIBOR plus 2.75%, payable in cash on loan rollover dates. The gross amount of the revolving credit facility drawn at 31 December 2013 was £7.0m. 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 3.5%.

12. Acquisitions

12.1 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:

12.2 Acquisition of Solaris Healthcare Network Ltd

On 30 September 2013, the Group acquired the whole issued share capital of Solaris Healthcare Network Ltd. The fair value of the consideration given for the acquisition was £1,900,000, comprising initial cash consideration and deferred contingent cash consideration. Costs relating to the acquisition amounted to £30,000 and were expensed.

Maximum contingent consideration of £1,905,000 is dependent on Solaris achieving various profit targets over the period October 2013 to December 2016. The Group has provided for contingent consideration of £1,803,000 to date.

The fair value of the net identifiable assets acquired was £108,000 resulting in goodwill and other intangible assets of £1,792,000. 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.

Solaris contributed turnover of £292,000, operating income of £257,000 and headline operating profit of £97,000 to the results of the Group since acquisition.

12.3 Pro-forma results including acquisitions

The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £124.7m, £52.1m and £5.7m had the Group consolidated the results of Solaris from the beginning of the year.