The Mission Group Regulatory News (TMG)

The Mission Marketing Group plc

Final results for the year ended 31 December 2011

27 March 2012

The Mission Marketing Group plc ("TMMG" or "the missiontm"), the national marketing communications and advertising group, is pleased to announce its final results for the year ended 31 December 2011.

Trading

·; Great new business wins, including, Pitney Bowes, Cisco, Norwegian Seafood, Highland Spring, Ferodo and Peugeot Trade

·; Strong Client retention and growth from incumbent Clients, including BP, Bellway, Fairview, Domino's Pizza, M&S Money and Superdry

·; Net annualised new business of £4.1m operating income achieved in year

Income statement

·; Operating income ("revenue") up 15% to £41.5m (2010: £36.1m)

·; Operating margins improved to 14.1% (2010: 13.6%)

·; Headline operating profit up 19% to £5.8m (2010: £4.9m)

·; Net finance costs reduced by 24% to £1.6m (2010: £2.1m)

·; Pre-exceptional profit before tax up 50% to £4.2m (2010: £2.8m)

·; Reported profit before tax: £4.1m (2010: £1.6m)

·; Headline Diluted EPS: 4.2 pence (2010: 3.0 pence)

·; Cash inflow from operating activities of £5.1m (2010: £1.6m), following a further £0.5m reduction in working capital

·; Bank debt repayments of £4.5m, including £1.5m of voluntary prepayment

·; Investment of £1.7m in capex and new business ventures

·; Net bank debt reduced by £3.1m to £15.3m

·; Gearing reduced from 34% in 2010 to 26%

·; Debt leverage ratio reduced from x3.3 in 2010 to x2.3 in 2011 and expected to fall below x2 in first half of 2012

David Morgan, Chairman, commented:

"I think our teams should be warmly congratulated for delivering a stellar performance in 2011 against a very uncertain Market and financial back drop. Significant Client wins throughout the year have bolstered overall performance but greatest credit must go against their record of Client retention which, in a world of increased competition, shrinking margins and uncertain budgeting, is no mean feat.

We have had a sound start to the year and I feel confident that through controlled growth we will have a decent year ahead of us and will go into 2013 in even better shape as a business. It's safe to say, therefore, that we are predicting an exciting year for the missiontm, if not quite a lollapalooza"

the missiontmis a national marketing communications and advertising group with 14 offices across the UK. The Group specialises in providing national and international clients with award winning marketing, advertising and business communications. Group members include April-Six, Big Communications, Bray Leino, RLA, Robson Brown, Story and ThinkBDW. the missiontmemploys almost 700 staff nationally and is listed on AIM (TMMG).

www.themission.co.uk

Chairman's Statement

Dear reader

I think our teams should be warmly congratulated for delivering a stellar performance in 2011 against a very uncertain Market and financial back drop. By hitting their financial targets they have ensured that we continue to stabilise the business by reducing our inherited debt and providing a platform from which future growth can be encouraged.

Our three lead Agencies built on the gains they had made in 2010 whilst our smaller, yet perfectly formed, Agencies either maintained or grew from albeit a smaller base. For example, critical wins at RLA have established them as the leading player in the UK aftermarket automotive sector. Our focus on specialisation has been even more highlighted by ThinkBDW, who are now the UK's clear leader in the property marketing sector and April-Six, who are fast becoming recognised as the B2B technology Agency of choice.

Significant Client wins throughout the year have bolstered overall performance but greatest credit to the teams must go against their record of Client retention which, in a world of increased competition, shrinking margins and uncertain budgeting, is no mean feat.

2011 also saw us increase our portfolio through strategic and service complementing in-fill acquisitions. Either geographically, through Robson Brown in Newcastle, or by offering, through the social media experts Yucca or our new colleagues from Fire IMS who have joined our flourishing Belfast Agency, RLA. In November 2011 we established Bray Leino Vivactis, a business focussed on the serious end of the Healthcare sector. This new team was created via a firm co-operation with the mainland European Healthcare Group, Vivactis and by the hiring of top notch talent from leading Healthcare Agencies. We are very excited by this venture and we have every confidence that it will create a new and refreshing option within this sector. Early successes indicate that we will achieve our goal.

Looking into 2012 we are aiming for more of the same. Our focus will continue to be to pay down debt, consolidate our Agencies, act more as one business where it is appropriate for our Clients who require that depth of support and create new offerings wherever we see a strategic need or a business-enhancing opportunity.

I believe that we have the people, the structure and the passion in place to take further our commitment to being the most respected and regarded Agency group in the UK and that our forward momentum will continue through 2012. 

We have had a sound start to the year and I feel confident that through controlled growth we will have a decent year ahead of us and will go into 2013 in even better shape as a business. It's safe to say, therefore, that we are predicting an exciting year for the missiontm, if not quite a lollapalooza.

David Morgan

Chairman

Financial Review

Summary

The Group's financial objectives articulated at the time of the refinancing in April 2010 were to focus on our core business, to improve profitability through growth and cost reductions, and to pay down debt.

The results for 2011 again demonstrate our continued progress:

·; Increased revenue, from winning new Clients, developing existing Clients, and expanding via new ventures, additional talent and strategic in-fill acquisitions;

·; Increased operating profits, from revenue growth and a reduction in central costs;

·; Reduced net debt, gearing ratio and debt leverage, from a focus on cash management.

Trading, Statement of Income and Dividend

Turnover (Billings) was significantly higher than the previous year, at £116.0m (2010: £90.4m), reflecting both the media launch of the 2011 Census (our largest ever project) and strong growth in media placement activity handled by ThinkBDW, our property-specialist Agency.

Operating income ("revenue") increased 15% to £41.5m (2010: £36.1m), mainly the result of strong growth in ThinkBDW and RLA (our automotive-specialist Agency), and also the first contribution from Robson Brown. As mentioned in the Chairman's Statement, it was a good year for new business wins and Client retention. Net new business revenue gained in the year totalled £4.1m, up from £2.8m last year. The lower gross margin achieved in 2011 (36% vs 40% in 2010) reflects the higher proportion of media in the business mix (44% of turnover vs 37% in 2010) as illustrated by the segmental analysis in Note 2.

Pre-exceptional operating profit increased by almost 20% to £5.8m (2010: £4.9m). Margins (operating profit as a percentage of gross profit) in each part of the business held up remarkably well considering the continuing downward pressure experienced by the industry as a whole and, after a further 12% year-on-year reduction in central costs, the Group's operating margin increased by 0.5% to 14.1%, ahead of the industry average.

The conversion of outstanding vendor debt to equity in June 2010 resulted in a reduction in both the level of debt on which interest was being paid and also the average interest rate. Strong cash management during the year further reduced levels of net debt, resulting in an overall 24% reduction in net interest payable to £1.6m (2010: £2.1m).

After financing costs, pre-exceptional profit before tax increased by 50% to £4.2m (2010: £2.8m).

After exceptional costs of £0.1m, representing the completion of restructuring commenced last year (2010: £1.2m relating to the bank refinancing, and redundancy and restructuring costs), profit before taxation was £4.1m (2010: £1.6m) and the profit after tax was £3.1m (2010: £0.9m).

The Group's effective tax rate was 25.0% (2010: 42.1%). The Group's effective tax rate is normally above the statutory rate due to non-deductible staff and client-related expenditure but, in 2011, the Group benefited from the release of over-provisions made in prior years.

The headline diluted EPS was 4.2 pence (2010: 3.0 pence).

In line with our continuing focus on debt reduction, the Board does not propose the payment of a dividend.

Balance Sheet and Cash Flow

The major restructuring of the balance sheet was completed last year and, accordingly, changes to our balance sheet have been less significant in 2011. However, predictions made in last year's Financial Review about improvements in operating cash flows and reductions in gearing, working capital and leverage ratios have all been realised, resulting in a further strengthening of the balance sheet.

Particularly pleasing was the strong cash management during the year, which resulted in a further £0.5m reduction in working capital despite the £26m increase in turnover. Cash flow from operating activities was £5.1m (2010; £1.6m), enabling the repayment of bank loans totalling £4.5m, including a voluntary prepayment of £1.5m to reduce interest costs, and a reduction in net debt to £15.3m (2010: £18.5m). As a result, our gearing ratio (net debt to equity) reduced from 34% to 26%. As predicted, our "leverage ratio" (ratio of net debt to pre-exceptional EBITDA) also reduced, from x3.3 at 31 December 2010 to x2.3 at 31 December 2011, and is expected to fall below x2 in the first half of 2012.

At 31 December 2011, the Board undertook its annual assessment of the value of goodwill and concluded that no impairment in the carrying value was required. Capital expenditure, at £1.5m, was roughly double 2010 levels as a result of the relocation of our Bristol and London offices and the refurbishment of our Leicester office.

In addition to the Group's principal focus on organic growth, £0.2m was invested in three small but significant deals during the year, which bring strengths and opportunities to complement and enhance our existing Agencies and the services we provide to our Clients:

·; Creation of a new and very talented Healthcare Agency, Bray Leino Vivactis;

·; Purchase of a thriving social media unit, Yucca; and

·; Regional expansion by our specialist Automotive Agency, RLA.

Each of these deals demonstrates that we are executing on our strategy, of seeking new ventures, additional talent and strategic acquisitions to accelerate growth, in a careful and selective way.

Peter Fitzwilliam

Finance Director

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011

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

Consolidated Balance Sheet

As at 31 December 2011

Consolidated Cash Flow Statement

for the year ended 31 December 2011

Consolidated Statement of Changes in Equity

Year ended 31 December 2011

Notes to the Final results

1. Basis of preparation and significant accounting policies

The results for the year to 31 December 2011 have been extracted from the audited consolidated financial statements.

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2011 or 2010 but is derived from those accounts. Statutory accounts for the year ended 31 December 2010 were delivered to the Registrar of Companies following the Annual General Meeting on 13 June 2011 and the statutory accounts for 2011 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 18 June 2012 and, after approval at the AGM, delivered to the Registrar of Companies.

The auditors, Francis Clark LLP, have reported on the accounts for the year ended 31 December 2011 and Kingston Smith LLP have reported on the accounts for the year ended 31 December 2010; 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:

·; Valuation of goodwill; and

·; Revenue recognition policies in respect of contracts which straddle the year end.

The valuation 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.

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.

 2. Segmental Information

For management purposes the Group had seven operating subsidiaries during the period: April-Six Limited, Big Communications Limited, Bray Leino Limited, Fuse Digital Limited, RLA Group Limited, Story UK Limited and ThinkBDW Limited, 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

The IFRS interest charges relate to both the deferred consideration and the bank arrangement fees. In previous years, headline profit was after adjusting for non-exceptional redundancy costs. In 2011, profits have only been adjusted for exceptional items and the prior year has been adjusted accordingly.

4. Exceptional items

Exceptional items represent revenue or costs that, either by their size or nature, require separate disclosure in order to give a fuller understanding of the Group's financial performance.

Exceptional items in 2011 consist of restructuring costs. Exceptional items in 2010 comprise professional fees relating to the re-structuring and re-scheduling of bank facilities and outstanding acquisition obligations, including the equity conversion and placing of new shares, and amounts payable as a result of the restructuring of the Board and the exit of vendor management following refinancing.

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 lower (2010: higher) than the standard rate of corporation tax in the UK. The differences are:

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.

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.

9. Intangible Assets

Goodwill

Goodwill arose from the acquisition of the following subsidiary companies and is comprised of the following substantial components:

Other Intangible Assets

Other intangible assets consist of intellectual property rights. Additions of £190,000 in the year relate to client lists and other information acquired relating to FireIMC and Yucca.

10. 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 2011, the Company had a three year revolving credit facility of up to £12.8m, due for repayment by June 2013 on a quarterly basis, and a term loan facility of £3.0m with a bullet repayment on 31 December 2013. Interest on the revolving credit facility is based on 3 month LIBOR plus 4.125%, payable in cash on loan rollover dates. The interest margin of 7.5% on the term loan facility is added to the loan balance on a quarterly basis and payable in full with the bullet repayment on 31 December 2013. The gross amount of the term loan at 31 December 2011 was £3.4m. In addition to its committed facilities, the Group had available an overdraft facility of up to £2.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 3.5%.

11. Reconciliation of Operating Profit to Operating Cash Flow