Last checked at 15 Apr 2010 07:00
The Mission Marketing Group
Preliminary results
For the period ended 31 December 2009
The Mission Marketing Group plc ("TMMG" or "themission®"), the UK marketing communications group, sets out its audited financial statements for the full year ended 31 December 2009.
Trading Highlights:
·; Digital income up 1% and now accounts for 17% of full year operating income (2008: 14%). PR income up 12% and now accounts for 6% of full year operating income (2008: 5%)
·; Strong new business performance: online and offline wins include Redrow, Canon, M&S Money, Skills Development Scotland, Legal & General Investments, Oasis Dental, Virgin Media, Manchester Airports Group, Blockbuster, Holland & Barrett, Sensodyne, The Office for National Statistics 2011 Census, Countrywide Lettings, Blue Coat, Bloor Homes, Landmark Trust, WKD Core, Woburn, Kingston Technologies, Avanade, RNLI and BP Alternative Energy
·; Annualised new business of £7.4m operating income won in the year (2008:£3.9m)
·; £10m integrated TV, outdoor, press and online campaign for 2011 Census, won by Bray Leino
·; Continued focus on cost management delivered £3.4m of headline savings in the year
·; Board structure aligned with operational focus on organic growth
·; In a still-challenging market environment, trading is currently in line with the Board's expectations
Financial Highlights:
·; Outstanding acquisition liabilities down £6.5m to £3.9m
·; Total debt/equity improved by 9% to 49% in the period
·; Post year end agreement to reduce bank and acquisition repayments in 2010 by over £5.0m
·; Further proposal to eliminate acquisition liabilities through an equity placing/conversion
·; Net debt of £20.1m (2008: £17.9m)
·; Turnover down 17% to £86.0m (2008: £104.2m) against a market decline of 15%
·; Operating income (Revenue) down 15% to £36.1m (2008: £42.7m)
·; Headline operating profit down 34% to £6.0m (2008: £9.1m)
·; Headline operating profit margin 17% (2008: 21%), at the upper end of sector norms
·; Exceptional non-cash costs for goodwill impairment of £4.0m and bank refinancing costs of £0.7m (2008: nil)
·; Headline profit before tax £4.2m (2008: profit of £7.4m)
·; Reported loss before tax £0.9m (2008: profit of £7.2m)after £4.0m non-cash impairment charge
·; Equity issue for acquisition liabilities of £1.6m and placing of £1.0m and £1.25m long term incentive plan option issue increased equity base
·; Headline Diluted EPS 7.84 pence (2008: 16.39 pence)
Iain Ferguson, CEO, commented:
"themission® agencies have continually delivered the goods for their clients - even in these toughest of markets that the media sector has experienced over the last year. Despite an overall year-on year reduction in income as experienced throughout the sector, our digital and PR performance and the level of new business wins were most encouraging.
A return to pre-downturn profit levels will, however, take time and our focus is now solely on organic growth and on structuring the Group most effectively to develop existing businesses, minimise overheads and reduce debt. We are therefore taking a number of initiatives, alongside a second stage in re-structuring the Group's balance sheet, to help ensure that themission® is best positioned to benefit, along with all of its stakeholders, from an economic recovery.
In pursuit of that goal, I advised the Board early this year of my intention, at the appropriate time, to step down as CEO to pursue other interests, both here and in the international arena. I believe that themission® agencies around the UK will continue to offer clients excellent, cost effective, award-winning business and marketing campaigns."
| Enquiries:
Stephen Boyd, Director The Mission Marketing Group plc |
020 7758 3525 |
| Peter Fitzwilliam, interim CFO The Mission Marketing Group plc |
020 7758 3525 |
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| Charles Palmer/Nicola Biles Financial Dynamics |
020 7831 3113 |
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| Jeremy Porter |
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| Seymour Pierce Limited | 020 7107 8000 |
www.themission.co.uk
themission® is a national marketing communications and advertising group with 11 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, Bray Leino, Big Communications, Fuse Digital, thinkBDW, Story UK and RLA. themission® employs over 550 staff nationally and is listed on AIM (TMMG).
Chairman's Statement
2009 was an extremely tough year for the media industry and consequently one of challenge and transition for themission® as the Group moved its focus from acquisition to consolidation and took further steps to reschedule its liabilities.
Operating income for the full year declined by 15% against 2008 - in line with the decline reported for the market as a whole. Headline operating overheads were reduced by 10% in the year and this allowed the Group to deliver headline operating margins at the upper end of the sector at 17%. Profitability, while high in sector terms, remains lower than the prior year and, while trading for the current year is in line with expectations, the outlook for 2010 and beyond indicates that a rapid return to historic sector growth levels is unlikely.
With the focus now on organic growth, and having completed the initial buy-and-build phase to list the company on the public market and establish the Group, Iain Ferguson advised the Board early this year of his intention, at the appropriate time, to step down as CEO to pursue other interests, both here and in the international arena. We have agreed that the need for central resources dedicated to further Group acquisitions is now reduced and have therefore made additional changes to the management team and Board reflecting our current focus on existing operations.
David Morgan, founder of Bray Leino our largest agency, is appointed as Executive Chairman, and Dylan Bogg, Robert Day, Bruce Hutton, Sue Mullen and Fiona Shepherd - each the CEO of Group agencies, also join the Board. Additionally on 16 December 2009 we announced the appointment of Stephen Boyd and Chris Morris as Non-Executive Directors adding further financial expertise and industry representation to the Board. Further details of future roles and responsibilities will be announced separately today. Also as part of this re-focus, Tim Alderson has tendered his resignation as CFO and will be replaced on an interim basis by Peter Fitzwilliam, formerly deputy CFO at Photo-Me International Plc, who brings with him specific experience in cash management. Finally, having acted as Chairman during this transitional period, I will return to my previous role of Non-Executive Director.
The Board is confident that these developments will simplify our organisational structure, help improve cash optimisation and as a result accelerate debt reduction.
We would like to thank Iain for his energy and leadership through the admission of the Group to the AIM market and the subsequent development of themission® into a profitable, established business. We are also grateful to Tim for his valuable contribution and guidance over the last four years.
I would also like to take this opportunity to thank, on behalf of all of us at themission®, my predecessor the Rt. Hon. Francis Maude MP who, having joined the Group as Non-Executive Chairman in 2006, departed at the end of December in order to allow full time focus on his political interests.
The Board has taken the prudent decision to conserve cash within the Group in the current climate and as a result will not be recommending a final dividend payment for 2009. The total dividend for the year is therefore nil pence (2008: 0.36 pence). The Board intends to revert to its previous policy when circumstances permit.
Despite the well documented challenges in some sectors, we continue to believe that our agencies are well positioned in their markets - a tribute to the quality of our leadership teams and the people in every one of our operations.
Consistent with this, 2010 has started in line with our expectations with some good wins recorded over the year end offsetting the negative effects of 2009 on some of the Group's activities. Nevertheless, taking into account the effects of the market downturn and the ongoing uncertainty in the broader UK economy, the Board continues to adopt a conservative outlook for the year.
Brian Child
Chairman
Chief Executive's Review
Overview and strategy
themission® has delivered operating income which, whilst down by 15% versus 2008, is in line with indicators for the sector as a whole in the UK.
Group turnover at £86.0m declined by 17%, and headline overheads were managed downwards by £3.4m or 10% compared to 2008. Nevertheless, cost pressure and the need to maintain future incomes through client services and marketing activity meant that headline operating profit at £6.0m declined by 34%.
A series of acquisitions following IPO allowed us rapidly to develop the Group in terms of scale, scope and reach. Today, themission® consists of seven award-winning agencies, across eleven offices, servicing a broad range of national and international blue chip clients in both online and offline media.
The strategy of bringing together established leading agencies, based in lower-cost locations, with expertise in a wide range of sectors and delivering incremental services to existing and new clients, continued to prove effective. Major wins included Redrow, Canon, Avanade, M&S Money, Skills Development Scotland, Legal & General Investments, Oasis Dental, Virgin Media, Manchester Airports Group, Blockbuster, Holland & Barrett and Sensodyne. Whilst growth was negative and some agencies - especially those engaged in hard-hit industry sectors such as automotive and IT - were particularly affected, the structural cost base and efforts to contain overheads meant that headline operating profit margins held up at 17%.
This is a creditable performance and is at the upper end of industry norms. It is testament to the effort and energy of the management teams and all the people across our various locations and I would like to acknowledge all of their commitment and hard work. As reported last autumn, new incentive programmes are now in place for this financial year and beyond to reward key players for their success in driving the Group forward.
The organic development of business offerings - Broadskill, our skills development offering at Bray Leino, and Spark, our sales activation specialists at Big Communications Group - continued to deliver incremental income and to add breadth to the offer in these locations. This has helped in part to offset client spend reductions in some of the other services provided by these agencies.
Online and digital services across all the agencies have been an area of focus and the increased turnover reflects continued investment by clients through the downturn. But price pressure increased, meaning that while incomes rose marginally, operating profit was down versus last year. The segment again increased its share of total operating income to 17% - continuing our progress towards a 25% target.
Our three sector-specialist agencies have now aligned together under the 'think' banner. thinkApril-Six, thinkBDW and thinkRLA are expert in IT, Property and Automotive respectively and are sharing resources and practices in new business and marketing. They also have a specialist local media planning and buying operation in thinkMedia - the UK's largest buyer of property pages.
Alongside various moves to contain costs, the Group's agencies continued to make strategic hires - attracting top-quality talent through our combination of strong agency brands, our national locations and the collective appeal of themission®. We have also maintained our programme of succession management planning in the agencies to ensure that we have the right strengths in the required depth to drive the future performance of the Group in its various operations.
Our acquisition strategy was replaced during 2009 with one of greater focus on developing our existing businesses and reducing debt. We began a process of rescheduling liabilities in line with the changing market environment and the expected impact on sector and agency growth. Bank and vendor payments were successfully renegotiated in the first quarter, in the middle of the credit crisis, and we are grateful for the support of our vendor and banking partners in making that possible.
The current year is not expected to see a return to rapid expansion of client spends. Our agency forecasts for 2010-2012, as expressed in their new three-year business plans and in line with industry expectations, anticipate materially lower growth rates than theypredictedlast year. Post period therefore we have undertaken a review of the Group's structure and financing arrangements and a further stage of agreements has been reached to restructure both bank and vendor liabilities.
As part of this restructure, and in order to most quickly enable the reduction of debt, we have now put in place a plan to simplify our structure, to add expertise in cash management and to share some key Group responsibilities amongst the agency management teams. Key agency managers will be appointed to the Board and, having also up-weighted the Non- Executive presence on the Board accordingly, this is intended to help ensure that shareholder returns are maximised over the short to medium term.
Operations Board
Operations Board members now join the plc Board, putting operational management more clearly at the heart of the Group and helping drive the direction and strategy of themission®. This enables key managers to define operational priorities and to put in place resources and initiatives involving multiple agencies.
onemission™ is the Group's term for these collaborative and shared efforts and the management team is charged with identifying, supporting and enabling collaborative initiatives to provide new services to our clients. This year has seen continued success for onemission™ teams who have worked together to deliver effectively to clients, including WIRSPA, Samsung and Olives from Spain.
Environmental matters
The business of The Mission Marketing Group is based in the United Kingdom and delivers marketing and advertising related services to clients. The direct and indirect impact of these services on the environment is negligible and considered low risk.
themission® takes seriously the responsibility of creating a more carbon-friendly business and we continue to take action to reduce our environmental impact.
We have embarked upon an ambitious and innovative Carbon Management and Stakeholder Engagement Programme. This will enable the Group to address both its environmental and social impacts and, in turn, embed sustainability into its operations.
The creation and delivery of this integrated programme will be undertaken by C-Change, TMMG's chosen sustainability partner. This move represents a move away from the traditional offsetting approach taken previously. Instead of investing in carbon reduction projects overseas, investment is now being made into reducing emissions in one of the agency's local communities.
Social and community issues
Together the Group raised £19,300 to help support worthy causes including the History of Advertising Trust, the North Devon Hospice, RNLI, NSPCC, BITC and the Stroke Association along withother regional and national charities. Various parts of the Group have also lent their professional marketing expertise to help charities raise their profile.
Trading outlook
The market remains uncertain, with some signs of nascent recovery offset by hesitancy elsewhere and the continuing expectation of job cuts and public sector shrinkage. The picture is further clouded by the upcoming elections.
We are assuming that recovery will be slow and are planning and consolidating our structure and cost base accordingly.
Trading is currently in line with the Board's expectations and new business remains encouraging, with wins in the first quarter including COI, LSL, Tulip and First Utility.
The Board believes that with a strong client base and good new business gains, and following the further steps taken to align the Group's structure and balance sheet, themission® is well positioned to benefit from an economic recovery.
Review of Operations
themission® and its agencies have, in line with the media and marketing sector, faced an extremely tough period - enduring a downturn in activity levels which continued to worsen throughout the year.
The Group's strategy - to focus on a combination of multi-skill, cross-discipline, integrated agencies was tested and, for the most part, performed well. Some segments, as detailed below, delivered strongly; others were faced with customers who were themselves facing their toughest ever trading conditions and saw dramatic budget reductions. At the very least, most clients' spending plans were placed on hold, reviewed and curtailed or in many cases they were simply cancelled.
Some of the major verticals were particularly hard-hit including automotive, IT and property. This impacted on incomes and our margins although, at 17%, these held up well at the upper end of industry norms.
Encouragingly our agencies were able to offset some of the negatives by providing different services, such as online and digital communications; and by building business in more robust media channels such as public relations; and by finding new sources of income, such as property lettings and subsidised developments. Our more recent organic developments- Broadskill, the skills development offering at Bray Leino, and Spark, the sales activation specialists at BigCommunications Group - also provided new income streams to contribute in their first year of operations in the Group.
The net effect saw reduced income flow, an on-going shift in business mix towards online activities, and the continued development of a stable and sustainable platform for the future.
Business segments:
The Group's business mix is built upon, and reported under, five strategic capabilities - Branding and Advertising, Digital and Online, Learning and Events, Media, and Public Relations. These areas operate on a standalone or combined basis according to specific client needs. The continued ability of our teams to identify, evaluate and deploy the various communications and media platforms necessary to deliver maximum value and return on our clients' investment is a key component of our agencies' offering.
Branding and Advertising
Once again branding and advertising proved the Group's largest area of operations. It has borne the brunt of the market decline and given the climate over the past year, this segment showed some resilience, and in 2009 accounted for 57% of Group operating income, and in value decreased by 22% compared to 2008.
This segment also covers a broad range of TMMG client offerings. Television, radio, outdoor, national and regional press are the cornerstones of this segment, but are increasingly balanced by other TMMG agency offerings including consultancy, creative and strategic planning, design and production.
The Group's good market position can be attributed to the continued award-winning work delivered across an extensive and diverse client list. New business wins buoyed the client list further, with a number of new national and international brands now working with TMMG.
The year has seen Redrow, Canon, Avenade, Endsleigh, Legal & General Investments, OMSCO, Thatchers Cider, Oasis Dental, Scottish Government, LG Electronics, Steria, M&S Money, Holland & Barrett, Blockbuster, Scottish Ambulance Service, Schloer Media and Skills Development Scotland all engage with our agencies to maximise their advertising and branding investments.
Of particular note was Bray Leino's biggest ever win, the 2011 Census, described as 'one of the biggest marketing challenges of this decade'. The agency is creating an integrated TV, outdoor, press and online programme for this £10m campaign. Story also had significant success and was appointed to reposition M&S Money across all marketing materials.
Big Communications created a number of high profile TV spots, including those for Holland & Barrett, and new TV idents for Domino's Pizza sponsorship of Britain's Got Talent, which they will again create for 2010.
thinkApril-Six and thinkBDW signed Canon and Redrow respectively. thinkRLA meanwhile consolidated their win of Manchester Airports Group with the relaunch of Bournemouth International airport.
As the financial confidence of existing clients grows and marketing budgets begin to follow suit, we expect spending to begin to recover, fuelling some growth in this segment. The migration of spend from 'traditional' advertising and branding to digital seen in the past year may be somewhat rebalanced, with the increased levels of digital spend being maintained.
Digital and Online
Digital and online has proven to be one of the more robust areas of the business. As marketing budgets were reduced, existing and potential clients looked to explore new cost-effective media and communication channels. The result of this was an increase in online and digital activities.
Group agencies have a range of specialist capabilities in this area and have again delivered good results given the difficult market conditions Digital and online services now account for 17% of Group operating income, an increase of 1% over 2008.
Notable wins across the digital and online operating areas included LG Electronics, Blue Coat, Campanile, Olives from Spain, Poligrip, Woburn, First Utility, Joules, Sensodyne, Winsor and Newton, Red Bull Formula 1, Vogels, Dentyl, and Wrigleys Airwaves.
Client retention was also a critical focus within the Group, and agencies continued to deliver high quality work for existing clients. Story launched an e-commerce system for Ardbeg whisky, part of the Glenmorangie Group, designed to streamline the payment and shipping of products. Bray Leino reorganised its leadership team over the early part of 2009, putting digital at the heart of its business. thinkRLA continued its award-winning work for Volkswagen Group, including a metrics calculator on Express Vehicle Checks, identifying missed prospective work and driving significant potential revenue.
Media
thinkBDW's dedicated media team again provided the Group with an effective and profitable offering in the national and regional media.
Despite the flat property market, thinkMedia continued to develop and to win new clients such as Bloor Homes, Countrywide Residential Lettings, Arun Estates and LSL. This new revenue stream is an encouraging sign of genuinely new investment coming into the property market.
Media owners as a whole continued to find the property sector a very challenging area, but this opened up new opportunities for estate agency clients; in June thinkBDW successfully brokered the first ever classified cost-per-response print deal with News International in order to allow improved measurement of return on investment across different media platforms.
Elsewhere the media segment performed well and Bray Leino is delivering initiatives for new clients including Shloer, OMSCo and Royal Mint. Bray Leino took advantage of a declining television broadcast market to enable its client's brands to use TV in different ways such as Ibuleve the pain killing gel sponsoring the long running channel 4 programme Countdown which gave the brand a 40 week on screen presence.
These positive new revenue streams in addition to the continued retention of existing clients has seen Media maintain its 8% share of Group operating income.
Learning and Events
This specialist offering provided by Bray Leino endured a difficult 2009 - especially in the fashion and luxury sector which saw initial contraction. Elsewhere in the portfolio however, this was offset by significant growth in the energy and healthcare sectors.
One fashion client that bucked the downward trend was Superdry. Their continued growth contributed over £1m to sales. Maersk Oil was the star of the Energy sector with a £0.5m global programme - exhibiting in almost every continent throughout the year.
The last months of 2009 saw some major wins, notably Halliburton and GSK.
Once again Bray Leino Broadskill, the Group's specialist training division, has delivered impressive growth from programmes in learning and engagement solutions. The business delivered an increase in revenue on the previous year of 7% compared with an industry average for training companies where revenues decreased by 25%.
This progression has been driven by the new management team, appointed at the beginning of 2009 and through significant onemission™ wins of organisations such as BP, Wood Group and Symantec, as well as new contracts from the UK Borders Agency, and the Scottish Parliament.
There has been an increase in experiential training too, with cross-Group activity delivering learning solutions to support organisations that are managing through change and launching new projects and services. Continued growth is expected in BroadCare, our healthcare technology offering, in 2010 based on the importance of tight fiscal control required by PCT's in the expanding area of funded healthcare.
Public Relations
Bray Leino's dedicated PR offering once again performed strongly, growing to 6% of Group operating income in 2009, up in value by 12% from 2008.
Spanning both public and private sectors, in 2009 the Group's PR specialists continued to build on previous solid successes in consumer technology, food and drink, the public sector and business to business.
New wins for the year included Virgin Media, OMSCo, Bassett's Soft & Chewy vitamins, and a onemission™ joint pitch with Big Communications to win Olives from Spain. Public sector growth continued, including wins of the European Regional Development Fund and Joint Information Systems Committee as well as a coveted place on the Lifelong Learning roster.
Major activities included supporting Virgin Media's sponsorship of Brawn GP and the creation of a unique F1 world champion homecoming event for Jenson Button at Bluewater, which delivered some £6m worth of media coverage. These have seen Bray Leino PR regularly hit the industry headlines, moving up the rankings as one of the UK's fastest growing PR consultancies.
Awards and Recognition
Yet again 2009 has been successful in terms of industry recognition. Over the last twelve months themission® agencies have collected over 60 awards across the spectrum of disciplines. They included 25 Golds, Silvers and Bronzes at the Fresh and Cream awards for Big Communications, Bray Leino and thinkRLA and international recognition for Story and its work for The Glenmorangie Group.
Bray Leino picked up no less than seven Fresh Creative Awards, which included two Golds for their work for Sustrans, the UK's leading sustainable transport charity. Amongst the ten other awards that the agency picked up this year were a Campaign Award for the Top Ten Regional Ads and a CIPR Gold for their innovative Ecover/Wateraid campaign.
Big Communications meanwhile followed suit at the Cream and Fresh awards, scooping six Gold, five Silver and four Bronze trophies across both events. These included a coveted Cream Gold with its advert for Domino's Pizza, and Gold at the Fresh awards for WKD.
The impressive results continued in 2009 for thinkRLA with six awards for its work for Volkswagen.
It was Gold again for Story at the DMA awards this year for their its direct Grand Designs work and Silver for Ardbeg in the FMCG category. The agency's digital and direct mail campaigns for Ardbeg also collected nine other awards. Story also picked up Best In-house Website at the Dadi's.
In addition to the impressive haul of awards, over the past year themission® agencies have again proved their influence and respect in the industry with significant placing in national agency league tables. thinkRLA was named a deserved 9th place in the National Recommended Agency Roster with Story and Bray Leino placing in 12th and 15th respectively.
Lastly, and for the second consecutive year, Big Communications was declared Midlands Advertising Agency of The Year in the Drum's New Year Honours.
New Business
The past year has seen a series of important new client wins from a broad range of sectors, through multiple media channels. With many notable wins, including Holland & Barrett, M&S Money, Go Compare and Blockbuster, 2009 was again a successful year for new business across the Group.
Iain Ferguson
Chief Executive Officer
Chief Financial Officer's Review
Summary
We have been through one of the longest and deepest periods of recession in recent memory and both the severity and depth have been difficult to plan for. Most of our agencies have performed very well in the circumstances, but some have been hit particularly hard especially those concentrating on the automotive, the IT and property sectors.
The level of gearing taken on in acquiring our agencies during the buy and build phase, and the "credit crunch" combined with the reduced trading, has required us to take a number of difficult actions. We have reduced overhead costs by some 10%, we have restructured our debt and additional consideration liabilities and have instituted stringent cash management systems.
The move to an organic growth model has resulted in a corresponding change in Group structure, with a reduced head office and a more operational Board. As part of this I have given notice today and would like to thank all my colleagues, and especially the finance team, for all their hard work and support over the past four years.
Background
At the time of developing the 2009 business plan, at the end of 2008, there was an assumption that the economy had, if not bottomed, come close to an inflection point. The consensus market forecast, which our agencies would aim to outperform, was then a decline of some 3%. This proved to be significantly optimistic as the market analysts downgraded their forecasts again and again, to a decline of five times larger at 15%.
In this climate, the buy and build strategy was suspended and the Group shifted its focus to the further integration of the Group agencies, organic growth, cost efficiencies and the continued development of systems supporting strong financial internal controls and, in particular, cash management.
Financials
Despite the market decline, the Group's turnover in the second half of £43.3m was 1% ahead of the first half. The full year was down 17% at £86.0m (2008: £104.2m) in the very difficult market discussed above. Operating income was slightly better, down 15% at £36.1m (2008: £42.7m)
The cost reduction measures begun in early 2008 continued throughout the year, although in some cases our agencies had reached a minimum staffing level below which the provision of services to our clients would have been compromised. The second half headline operating expenses were down 7% on the first half and the full year was down by £3.4m or 10% at £30.1m (2008: £33.5m).
The headline operating profit in the second half was up 4% at £3.1m against the first half but for the full year was down 34% at £6.0m (2008: £9.1m) as the operating expense reduction did not match the market downturn. Nevertheless, the headline operating profit margin remained at the upper end of industry norms at 17%. Headline diluted EPS was 7.84 pence (2008: 16.39 pence).
As a result of these significantly lower profits and hence cash flow, the payment of our acquisition and bank liability repayments were initially rescheduled in May 2009 to more closely match the then projected cash flow. The cost of this rescheduling and the significant operational restructuring was reflected in the interim accounts as an exceptional or headline cost. A further restructuring of acquisition liabilities and bank debt has been agreed since the end of the financial year (see below), along with a more operational Board structure to address the further reduction in the market since the first half of 2009.
Banking Arrangements, Liquidity and Debt Restructuring
At 31 December 2009 the Group had total debt and overdraft facilities of £23.8m (2008: £24.4m) with its bankers. There is a cross guarantee structure in place with the Group's bankers by means of a fixed and floating charge over all of the assets of the Group companies.
The cash balance as at 31 December 2009 was £0.3m (2008: £2.5m) and the Group had an overdraft facility of £3.5m available to it at 31 December 2009.
In April 2010, the Group agreed revised committed banking facilities with its bankers. These facilities consist of a £17.3m revolving credit facility, expiring in June 2013, and a £3.0m term loan repayable on 31 December 2013. The first scheduled repayment under these facilities falls in June 2011. At the same time, an agreement was reached with holders of acquisition-related loan notes that payment of these notes would be deferred, and a further agreement was reached that certain acquisition consideration liabilities falling due in 2010 would be satisfied by the issuance of shares rather than further loan notes. As a consequence of these combined agreements, the Group's cash obligation in 2010 has been reduced by over £5m. In order to further strengthen the Group's balance sheet and reduce gearing, a share placing is planned which is designed to convert the Group's cash-based acquisition obligations into equity. The placing will be subject to shareholder and any necessary regulatory approval.
These significant restructurings will leave the Group on a sound financial footing and able to concentrate on winning new business, improving operational efficiency and delighting its customers without having the significant distraction of insufficient cash headroom.
Treasury Policy
The Group's policy is not to use any financial instruments for speculating but to use hedging of interest rates and currencies appropriate to the level of debt and trade respectively. Some 81% of the Group's debt is hedged under a cap or cap and collar arrangement which limits the maximum interest rate that can be paid, but also puts a floor on the minimum that is paid.
The Group does not have a material amount of its turnover in foreign currencies and natural hedges are used where possible, matching revenues and costs in the same currency. Where this is not possible, appropriate currency hedging is considered.
The Group operates a virtual cash pooling arrangement where the cash balances of all the Group agencies are pooled to offset any overdrafts and give the maximum net balance to invest. The maximum amount of this net cash balance not needed for operational cash flow is offset against the revolving credit facility on a weekly basis to reduce net interest payable.
Balance Sheet, Net Debt and Gearing
During the year, shares were issued in part satisfaction of additional consideration and £1.0m cash was raised in May 2009 from a placing to investors, increasing the number of shares in issue to 39.6m (2008: 33.1m). Of these, 1.7m are in The Mission Marketing Group Employee Benefit Trust ("TMMG EBT") and are classified as own shares and do not vote or count for the purposes of calculating earnings per share, and the weighted average number of shares in issue was 35.4m (2008: 32.3m). The non-cash impairment to goodwill of £4.0m taken in the year had the effect of reducing retained earnings by that amount. This was due to the substantial reduction in performance in thinkRLA (RLA Group Limited) which was heavily impacted by the downturn in the automotive sector in turn resulting in the reduction of the carrying value of the investment. Increase in shareholders funds was therefore limited, and the balance was £49.4m (2008: £48.5m).
Net Debt, being Bank debt less cash, increased to £20.1m (2008: £17.9m) as a result of lower operating cash inflow and payment of acquisition liabilities.
Our acquisition contracts are performance-based in terms of some initial and additional consideration ("AC") payments. As a consequence of the effect of the economic downturn on the performance in certain agencies, in 2009 AC liabilities were revalued downwards by £2.5m during the year. Payments of agreed liabilities of £4.0m, including £1.6m in equity, were made during the year which, together with the IFRS carrying value adjustment, reduced acquisition liabilities by £6.5m to £3.9m (2008: £10.4m). The total outstanding acquisition liabilities, including some deferred initial payments, and their timing are detailed in note 10.1.
Gearing, being net debt over equity, rose to 41% (2008: 37%) due to the non-cash impairment of goodwill. Excluding this impairment gearing would have been unchanged.
Total debt, being acquisition liabilities plus net debt over equity, has reduced by 9% to 49% (2008: 58%) as a result of the reduced additional consideration liabilities.
Taxation
The effective tax rate, after adding back the notional IFRS interest charges and the goodwill impairment charge, which are not taxable, was 35.7% (2008: 27.9%).
Cash Flows
In the difficult trading climate, the Group's operating profit before non-cash impairment of goodwill held up relatively well at £4.9m (2008: £9.0m), down £5.1m which converted into operating cash flow of £3.3m (2008: £7.8m), down slightly less at £4.5m. The cash conversion was adversely affected by a major international contract which required stringent evidencing of expenditure and which resulted in increased debtors, the bulk of which have been collected post year end.
During the year cash payments relating to prior year acquisitions of £2.3m and repayments to the banks of £0.1m were made. The net cash outflow after these movements together with tax, interest and dividend payments was £2.2m (2008 £7.0m).
Key Performance Indicators
The Group manages its internal operational performance by monitoring various key performance indicators ("KPIs''). The KPIs are tailored to the level at which they are used and their purpose. The Group focus in the current economic circumstances is on operating income generated by client and business development, margins and especially cash. Other KPIs are EPS growth, gearing, liquidity and profit growth relative to the market.
At the individual agency level, the KPIs comprise profitability measures including achievement of annual budget and net/gross margin; productivity measures including gross profit, salary costs and net profit per head; working capital/cash measures including debtor, creditor, WIP and working capital days; meeting target cash balances and cash conversion.
Employee Incentives
During the year all the Group Executive and Non-Executive directors waived their rights to all options issued before 31 December 2008. New Long Term Incentive Plan ("LTIP") options totalling 1.25m were issued on 23 July 2009 to senior management of the Group including Group executives and senior management of Bray Leino, Big and Fuse who had completed their earn-out periods. These are all subject to performance criteria.
The employee Share Save Scheme ("SAYE") would result in the issue of up to 407,959 shares in the second half of 2011(2008: 582,695) if fully exercised.
The total maximum number of shares under option as at 31 December 2009 was 1.83m which represented 4.6% of the issued share capital of the Group at that date.
Compliance
This review and the operating review have been prepared in accordance with the Accounting Standards Board's 2006 Reporting Statement.
Tim Alderson
Chief Financial Officer
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2009
|
|
| Year ended 31 December 2009 | Year ended 31 December 2008 |
|
| Note | £'000 | £'000 |
|
|
|
|
|
| TURNOVER | 2 | 85,976 | 104,157 |
| Cost of sales |
| (49,837) | (61,475) |
| OPERATING INCOME |
| 36,139 | 42,682 |
| Operating expenses before exceptional items |
| (30,573) | (33,646) |
| OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS |
| 5,566 | 9,036 |
| Goodwill impairment | 8 | (3,995) | - |
| Other exceptional costs |
| (705) | - |
| OPERATING PROFIT |
| 866 | 9,036 |
| Share of results of equity accounted associate |
| - | (10) |
| Profit on sale of equity accounted associate |
| - | 12 |
| Investment income |
| 11 | 119 |
| Finance costs | 4 | (1,799) | (1,900) |
| IFRS interest charges | 4 | 57 | (12) |
| (LOSS) / PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION | 2,5 | (865) | 7,245 |
| Taxation |
| (1,097) | (2,027) |
| (LOSS) / PROFIT FOR THE YEAR |
| (1,962) | 5,218 |
|
|
|
|
|
| Other comprehensive income |
| - | - |
| TOTAL COMPREHENSIVE (LOSS) / INCOME FOR THE YEAR |
| (1,962) | 5,218 |
|
|
|
|
|
| Basic earnings per share (pence) | 7 | (5.54) | 16.14 |
| Diluted earnings per share (pence) | 7 | (5.54) | 16.14 |
| Headline basic earnings per share (pence) | 7 | 7.96 | 16.39 |
| Headline diluted earnings per share (pence) | 7 | 7.84 | 16.39 |
The earnings per share figures derive from continuing and total operations.
Consolidated Balance Sheet
As at 31 December 2009
|
|
| As at 31 December 2009 | As at 31 December 2008 |
|
|
|
|
|
|
| Note | £'000 | £'000 |
| FIXED ASSETS |
|
|
|
| Intangible assets | 8 | 68,214 | 74,553 |
| Investments in associates |
| - | - |
| Property, plant and equipment |
| 2,031 | 2,075 |
|
|
| 70,245 | 76,628 |
| CURRENT ASSETS |
|
|
|
| Work in progress |
| 525 | 585 |
| Trade and other receivables |
| 16,958 | 17,823 |
| Cash and short term deposits |
| 281 | 2,526 |
|
|
| 17,764 | 20,934 |
| CURRENT LIABILITIES |
|
|
|
| Trade and other payables |
| (10,585) | (13,610) |
| Accruals |
| (2,729) | (3,172) |
| Corporation tax payable |
| (810) | (1,442) |
| Bank loans | 9 | (2,443) | (2,683) |
| Acquisition loan notes and shares | 10.1 | (314) | (958) |
| Acquisition contingent payments | 10.1 | (2,621) | (6,368) |
|
|
| (19,502) | (28,233) |
| NET CURRENT LIABILITIES |
| (1,738) | (7,299) |
|
|
|
|
|
| TOTAL ASSETS LESS CURRENT LIABILITIES |
| 68,507 | 69,329 |
| NON CURRENT LIABILITIES |
|
|
|
| Bank loans | 9 | (17,914) | (17,696) |
| Obligations under finance leases |
| (153) | - |
| Acquisition loan notes and shares | 10.1 | - | (194) |
| Acquisition contingent payments | 10.1 | (1,000) | (2,887) |
| Deferred tax liabilities |
| (21) | (70) |
| NET ASSETS |
| 49,419 | 48,482 |
|
|
|
|
|
| CAPITAL AND RESERVES |
|
|
|
| Called up share capital | 11 | 3,959 | 3,308 |
| Share premium account |
| 38,578 | 36,643 |
| Own shares | 12 | (1,398) | (1,398) |
| Staff remuneration reserve |
| 60 | 800 |
| Retained earnings |
| 8,220 | 9,129 |
| TOTAL EQUITY |
| 49,419 | 48,482 |
Company registration number: 05733632
Consolidated Cash Flow Statement
for the year ended 31 December 2009
|
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
|
|
|
|
|
| Note | £'000 | £'000 |
| OPERATING CASH FLOW | 13 | 3,315 | 7,785 |
| Net finance costs |
| (1,757) | (1,781) |
| Tax paid |
| (1,778) | (2,236) |
| Net cash (outflow) / inflow from operating activities |
| (220) | 3,768 |
| INVESTING ACTIVITIES |
|
|
|
| Proceeds on disposal of property, plant and equipment |
| 48 | 152 |
| Purchase of property, plant and equipment |
| (720) | (462) |
| Acquisition of subsidiaries |
| (118) | (1,165) |
| Acquisition of intangibles |
| (20) | (61) |
| Net Cash acquired with subsidiaries |
| - | 341 |
| Net cash outflow from investing activities |
| (810) | (1,195) |
| FINANCING ACTIVITIES |
|
|
|
| Dividends paid |
| - | (358) |
| Repayments of amounts borrowed |
| (2,347) | (2,754) |
| Movement in HP creditor and finance leases |
| 215 | (32) |
| Repayment of long term loans |
| (53) | (5,066) |
| Proceeds on issue of ordinary share capital |
| 1,000 | - |
| Purchase of own shares held in EBT |
| - | (1,398) |
| Financing and share issue costs |
| (30) | - |
| Net cash outflow from financing activities |
| (1,215) | (9,608) |
| Decrease in cash and cash equivalents |
| (2,245) | (7,035) |
| Cash and cash equivalents at beginning of year |
| 2,526 | 9,561 |
| Cash and cash equivalents at end of year |
| 281 | 2,526 |
Consolidated Statement of Changes in Equity
Year ended 31 December 2009
|
|
Share capital £'000 |
Share premium £'000 |
Own shares £'000 |
Retained earnings £'000 | Staff remuneration reserve £'000 |
Total £'000 |
|
Changes in equity |
|
|
|
|
|
|
|
At 1 January 2008 |
3,308 |
36,643 |
- |
4,269 |
445 |
44,665 |
| Own shares purchased by EBT | - | - | (1,398) | - | - | (1,398) |
| Credit for share option scheme | - | - | - | - | 355 | 355 |
| Profit for the period | - | - | - | 5,218 | - | 5,218 |
| Dividends | - | - | - | (358) | - | (358) |
| At 31 December 2008 | 3,308 | 36,643 | (1,398) | 9,129 | 800 | 48,482 |
| New shares issued | 651 | 1,935 | - | - | - | 2,586 |
| Credit for share option scheme | - | - | - | - | 313 | 313 |
| Waiver of share options | - | - | - | 1,053 | (1,053) | - |
| Loss for the period | - | - | - | (1,962) | - | (1,962) |
| At 31 December 2009 | 3,959 | 38,578 | (1,398) | 8,220 | 60 | 49,419 |
Notes to the Consolidated Financial Statements
1. Accounting Policies
Basis of preparation
The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Financial statements have also been prepared in accordance with IFRS adopted by the European Union.
The financial statements have been prepared on the historical cost basis.
Going concern
As described in the Chief Financial Officer's Report and notes 9 and 10, the Group has agreed new banking facilities, extending to 2013, and deferrals of acquisition consideration commitments. These agreements provide the Group with comfortable levels of headroom against its projected cash flows and, accordingly, the financial statements have been prepared on a going concern basis.
Basis of consolidation
The Group's financial statements consolidate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating polices of an investee entity so as to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Goodwill represents the excess of acquisition cost over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Any deficiency of the cost of acquisition below the fair value of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Revenue and revenue recognition
Turnover is in respect of the provision of services including fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts. Where recorded turnover exceeds amounts invoiced to clients, the excess is classified as accrued income.
Income is taken on fee income in the period to which it relates. Project income is recognised in the period in which the project is worked on. For projects, which fall over the accounting year end, income is recognised to reflect the partial performance of the contractual obligations in accordance with IAS18 Revenue.
Income is recognised on the following basis:
·; Retainer fees are apportioned over the time period to which they relate.
·; Project income is recognised by apportioning the fees billed or billable to the time period for which those fees were earned by relationship to the percentage of completeness of the project to which they relate.
·; Media commission is recognised, when the advertising has been satisfactorily aired or placed.
·; Unbilled costs relating to contracts for services are included at rechargeable value in accrued income.
·; Unbilled costs relating to contracts for products are carried forward at the lower of cost and net realisable value with no profit recognition.
·; Financial liabilities are released to income when the liability is extinguished.
Share-based payment transactions
In accordance with IFRS 3 certain payments made to employees in respect of earn-out arrangements are required to be treated as remuneration within the income statement. These amounts are required to be charged to the income statement.
The Group has applied the requirements of IFRS 2 Share-based Payments. IFRS 2 has been applied to all grants of equity instruments.
Equity-settled share-based payments, such as share options, are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest.
Fair value is measured by use of a Black Scholes model on the grounds that there are no market related vesting conditions. The expected life used in the model has been adjusted, based on the management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Market price on any given day is obtained from external publicly available sources.
Goodwill
Goodwill arising from the purchase of subsidiary undertakings, represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable asset, liabilities and contingent liabilities of the subsidiary acquired, and is capitalised in accordance with the requirements of IFRS 3. The Directors consider that it is not possible to reliably separate and value intangible assets relating to brands names, customer relationships and contractual relationships. Future anticipated payments to vendors in respect of earn-outs are based on the Directors' best estimates of these obligations. Earn-outs are dependent on the future performance of the relevant business and are reviewed annually. The deferred consideration is discounted to its fair value in accordance with IFRS 3 and IAS 39. The difference between the fair value of these liabilities and the actual amounts payable are charged to the income statement as notional finance costs over the life of the associated liability.
Goodwill is not amortised, but is reviewed annually for impairment. Goodwill impairment is assessed by comparing the carrying value of goodwill to the net present value of future cash flows derived from the underlying assets considering forecast cash flows over an initial projection period of up to three years for each cash-generating unit. After this period, growth rates equivalent to nominal GDP are generally assumed. In accordance with IFRS 3 the carrying value of goodwill will continue to be reviewed for impairment on the basis stipulated and adjusted should this be required. Impairment is recognised in the income statement and is not subsequently reversed. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill.
Work in progress
Work in progress is stated at the lower of cost and net realisable value and includes the costs of direct materials and purchases, and the costs of direct labour. Net realisable value is based on estimated invoice value less further costs expected to be incurred to completion.
Deferred consideration
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. The deferred consideration is discounted to a fair value. The difference between the fair value of the liabilities and the actual amounts payable are charged to the income statement as notional finance costs (calculated at annual rates of between 4.5% and 5.5% over the life of the associated liability. The rate used is the risk free rate applicable at the time of acquisition of the relevant entity. The Directors consider these rates to be reasonable in light of similar rates available on debt instruments.
Where it becomes appropriate to increase or decrease a previous estimate of deferred consideration, an adjustment is made to the current year IFRS interest charge, such that the cumulative interest charged to the date of change reflects the amount of interest charge that would have been expensed had the revised estimate of the deferred consideration been made at the date that the liability was first recognized. By so doing, the total interest expensed over the life of the liability is calculated as a function of the latest expectation and is not influenced by any previous estimates whether higher or lower, and fully reflects the intention of IFRS 3.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Issue costs are offset against the proceeds of such instruments.
Liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group has only one class of share in existence.
Finance costs
Finance costs, which include interest, bank charges and the unwinding of the discount on deferred consideration, are recognised in the income statement in the year in which they are incurred.
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:
·; Revenue recognition policies in respect of contracts which straddle the year end;
·; Contingent deferred payments in respect of acquisitions;
·; Recognition and quantification of share based payments; and
·; Valuation of intangible assets.
These estimates are based on historical experience and various other assumptions that management and the Board of Directors believe are reasonable under the circumstances and are discussed, to the extent necessary, in more detail in their respective notes.
IFRS in issue but not applied in the current financial statements
The following IFRSs and IFRIC Interpretations have been issued but have not been applied by the Group in preparing these financial statements as they are not as yet effective. The Group intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early.
·; IFRS 3 Business Combinations (Revised) - effective for acquisitions taking place in accounting periods beginning on or after 1 July 2009;
·; IAS 27 Consolidated and Separate Financial Statements (Revised) - effective for accounting periods beginning on or after 1 July 2009;
·; IFRS 9 Financial Instruments - effective for accounting periods beginning on or after 1 January 2013;
·; IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - amendments effective for accounting periods beginning on or after 1 July 2009;
·; IFRS 2 Share-Based Payment - amendments effective for accounting periods beginning on or after 1 July 2009;
·; IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments - effective for accounting periods beginning on or after 1 July 2010.
With the exception of the revised version of IFRS 3, which when adopted will require significant changes in accounting for future business combinations made by the Group, the potential impact on the Group of the application of the above Standards is not anticipated to be significant.
In addition, 'Improvements to IFRSs' introduced minor amendments to various accounting standards which will be effective for accounting periods beginning on or after 1 July 2009 or subsequently, and which have not been early adopted. The effect of these amendments on the Group is expected to be minor.
A number of IFRS and IFRIC interpretations are also currently in issue which are not relevant to the Group's activities and which have not therefore been adopted in preparing these financial statements.
2. Segmental Information
Business Segmentation
For management purposes the Group had seven operating subsidiaries during the period, Bray Leino Limited, Big Communications Limited, Fuse Digital Limited, thinkBDW Limited, April-Six Limited, Story UK Limited and RLA Group Limited. These have been divided into five business and operating segments as defined by IFRS 8 which form the basis of the Group's primary reporting segments namely; Branding and Advertising, Media, Digital, Events and Learning, and Public Relations.
|
| Branding & Advertising | Media | Digital | Events & Learning | Public Relations | Group
|
| Year to 31December 2009 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Turnover | 32,925 | 29,407 | 9,758 | 10,747 | 3,139 | 85,976 |
| Operating income | 20,740 | 2,994 | 6,241 | 3,995 | 2,169 | 36,139 |
| Segmental operating profit | 3,639 | 1,286 | 1,383 | 262 | 284 | 6,854 |
| Unallocated corporate expenses |
|
|
|
|
| (1,288) |
| Operating profit before exceptional items |
|
|
|
|
| 5,566 |
| Goodwill impairment |
|
|
|
|
| (3,995) |
| Other exceptional costs |
|
|
|
|
| (705) |
| Operating profit |
|
|
|
|
| 866 |
| Share of results of equity accounted associate |
|
|
|
|
| - |
| Profit on sale of equity accounted associate |
|
|
|
|
| - |
| Investment income |
|
|
|
|
| 11 |
| Finance costs |
|
|
|
|
| (1,799) |
| IFRS interest charges |
|
|
|
|
| 57 |
| Loss on ordinary activities before taxation |
|
|
|
|
| (865) |
| Taxation |
|
|
|
|
| (1,097) |
| Loss for period |
|
|
|
|
| (1,962) |
|
|
|
|
|
|
|
|
| Other Information |
|
|
|
|
|
|
| Capital expenditure | 481 | 18 | 62 | 111 | 43 | 715 |
| Unallocated capital expenditure |
|
|
|
|
| 5 |
| Total capital expenditure |
|
|
|
|
| 720 |
|
|
|
|
|
|
|
|
| Depreciation and amortisation | 456 | 31 | 65 | 103 | 40 | 695 |
| Unallocated depreciation and amortisation |
|
|
|
|
| 35 |
| Total depreciation and amortisation |
|
|
|
|
| 730 |
|
|
|
|
|
|
|
|
| Balance Sheet |
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
| Segment assets | 8,914 | 4,898 | 4,510 | 936 | 1,153 | 20,411 |
| Unallocated corporate assets |
|
|
|
|
| 67,598 |
| Consolidated total assets |
|
|
|
|
| 88,009 |
| Liabilities |
|
|
|
|
|
|
| Segment Liabilities | 5,517 | 2,261 | 2,412 | 395 | 492 | 11,077 |
| Unallocated corporate liabilities |
|
|
|
|
| 27,513 |
| Consolidated total liabilities |
|
|
|
|
| 38,590 |
|
|
|
|
|
|
|
|
| Consolidated net assets | 3,397 | 2,637 | 2,098 | 541 | 661 | 49,419 |
Unallocated corporate expenses include corporate administration expenses necessary for a quoted company. It is considered impractical to split the debt interest and notional IFRS charges into segments.
The split of assets and liabilities has been estimated, but is not considered accurate as the businesses are integrated. Unallocated corporate assets and liabilities include unallocated IFRS assets and liabilities, corporate assets and liabilities, Group cash reserves, drawn debt liabilities and payments due to vendors.
3. Reconciliation of Headline profit to Reported Profit
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £'000 | £'000 |
| Headline profit before finance costs, income from investments and taxation |
6,030 |
9,133 |
| Net finance costs | (1,788) | (1,781) |
| Headline profit before taxation | 4,242 | 7,352 |
|
|
|
|
| Adjustments |
|
|
| Redundancy and restructuring costs | (464) | (95) |
| Goodwill impairment | (3,995) | - |
| Other exceptional costs | (705) | - |
| IFRS interest charges | 57 | (12) |
| Reported (loss) / profit before taxation | (865) | 7,245 |
|
|
|
|
| Headline profit before tax | 4,242 | 7,352 |
| Headline taxation | (1,424) | (2,056) |
| Headline profit after taxation | 2,818 | 5,296 |
|
|
|
|
| Adjustments |
|
|
| Redundancy and restructuring costs | (464) | (95) |
| Goodwill impairment | (3,995) | - |
| Other exceptional costs | (705) | - |
| IFRS interest charges | 57 | (12) |
| Taxation impact | 327 | 29 |
| Reported (loss) / profit after taxation | (1,962) | 5,218 |
|
|
|
|
The IFRS interest charges relate to both the deferred consideration and the bank arrangement fees. Both of these charges will cease once the relevant earn-outs have been settled.
4. Finance Costs and IFRS Interest Charges
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £'000 | £'000 |
| Finance costs: |
|
|
| Interest on bank loans and overdrafts | (1,589) | (1,900) |
| Interest on loan notes | (210) | - |
|
| (1,799) | (1,900) |
| IFRS interest charges: |
|
|
| Finance cost of deferred consideration | 57 | (12) |
|
| 57 | (12) |
5. Profit on Ordinary Activities Before Tax
Profit on ordinary activities before taxation is stated after charging:-
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £'000 | £'000 |
| Depreciation of owned tangible fixed assets | 717 | 760 |
| Depreciation of tangible fixed assets held under finance leases | 9 | 13 |
| Amortisation of intangible assets | 4 | 3 |
| (Profit) / Loss on disposal of property, plant and equipment | (10) | (4) |
| Operating lease rentals - Land and buildings | 987 | 1,041 |
| Operating lease rentals - Plant and equipment | 5 | 284 |
| Operating lease rentals - Other assets | 353 | 73 |
| Staff costs | 22,618 | 24,748 |
| Auditors' remuneration | 190 | 238 |
| (Profit) / Loss on foreign exchange | (79) | (15) |
Auditors' remuneration may be analysed by:
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £'000 | £'000 |
| Audit fees | 143 | 160 |
| Taxation | 25 | 23 |
| Non-audit fees | 22 | 55 |
|
| 190 | 238 |
|
|
|
|
Non-audit fees include advice on various International Financial Reporting Standards and advice in relation to business issues such as future deal structures and employee incentive schemes. During the year nil (2008: £15,349) was paid to the auditors for corporate finance work, the amount being capitalised as cost of acquisition.
6. Dividends
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
|
|
|
|
| £'000 | £'000 |
| Amounts recognised as distributions to equity holders in the year |
|
|
| Interim dividend of 0.00 pence per share (2008: 0.36 pence ) | - | 119 |
| Final dividend of 0.00 pence per share for the year ended 31 December 2008 (2007: 0.74 pence ) |
- |
245 |
| Total dividend paid to EBT scheme | - | (6) |
|
| - | 358 |
The Board have decided to suspend the payment of dividends in order to conserve cash.
7. 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 IAS33: "Earnings per Share".
|
| Year to | Year to |
|
| 31 December 2009 | 31 December 2008 |
|
| £'000 | £'000 |
| Earnings |
|
|
| Earnings for the purpose of reported earnings per share being net profit attributable to equity holders of the parent |
(1,962) |
5,218 |
| Earnings for the purpose of headline earnings per share (see note 3) | 2,818 | 5,296 |
| Number of shares |
|
|
| Weighted average number of ordinary shares for the purpose of basic earnings per share and reported diluted earnings per share |
35,409,542 |
32,319,841 |
| Dilutive effect of securities: |
|
|
| Share options | 547,946 | - |
| Weighted average number of ordinary shares for the purpose of headline diluted earnings per share |
35, 957,488 |
32,319,841 |
| Reported basis: |
|
|
| Basic earnings per share (pence) | (5.54) | 16.14 |
| Diluted earnings per share (pence) | (5.54) | 16.14 |
| Headline basis: |
|
|
| Basic earnings per share (pence) | 7.96 | 16.39 |
| Diluted earnings per share (pence) | 7.84 | 16.39 |
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.
The additional consideration shares included in non current liabilities have not been included in the diluted earnings per share because the conditions for their issue had not been met in the period. Options issued are included in diluted earnings per share to the extent that the market price is above the exercise price in accordance with IAS33.
The dilutive options are not incorporated into the reported diluted earnings per share calculation as the effect would be to lower the loss per share.
A reconciliation of the profit after tax on a reported basis and the headline basis is given in note 3.
8. Intangible Assets - Goodwill
|
| £'000 |
| At 1 January 2008 | 87,182 |
| Recognised on acquisition of subsidiaries | 2,123 |
| Adjustment to consideration and net assets | (14,810) |
| At 31 December 2008 | 74,495 |
| Adjustment to consideration | (2,360) |
| Goodwill impairment | (3,995) |
| At 31 December 2009 | 68,140 |
As explained in the Accounting Policies note and in line with IFRS, goodwill has not been amortised.
The adjustments to consideration relate to changes in the estimated deferred consideration in the earn-out period under the terms of the relevant sale and purchase agreement.
In accordance with the Group's accounting policies, an annual impairment test is applied to the carrying value of goodwill and other intangible assets. The review performed assesses whether the carrying value of goodwill is supported by the net present value of future cash flows derived from the underlying assets considering forecast cash flows over an initial projection period of three years for each cash-generating unit. After this period, for this year a nil growth rate was assumed for all units. The discount rate used is the Group's estimated pre-tax weighted average cost of capital, which is 6.0%. Similarly the cash flow projections used in the calculations are pre-tax.
The potential additional consideration payable to Story and Broadskill was revalued downwards during the year by £2.5m and the carrying value of RLA Group Limited was impaired by £4.0m.
9. Bank Overdrafts and Loans
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £'000 | £'000 |
|
|
|
|
| Bank loan outstanding | 20,326 | 20,379 |
| Adjustment to amortised cost | 31 | - |
| Carrying value of loan outstanding | 20,357 | 20,379 |
| The borrowings are repayable as follows: |
|
|
| Less than one year | 2,443 | 2,683 |
| In one to two years | 3,000 | 5,348 |
| In more than two years but less than three years | 14,883 | 6,381 |
| In more than three years but less than four years | - | 5,967 |
|
| 20,326 | 20,379 |
| Adjustment to amortised cost | 31 | - |
|
| 20,357 | 20,379 |
| Less: Amount due for settlement within 12 months (shown under current liabilities) | (2,443) | (2,683) |
| Amount due for settlement after 12 months | 17,914 | 17,696 |
At 31 December 2009, the company had a 3 year revolving credit facility of up to £20.3m(2008: £22.4m) of which £20.3m (2008: £20.4m) had been drawn down £17.9m (2008: £17.7m) is included in non-current liabilities at 31 December 2009, the remaining £2.4m (2008: £2.7m) is included in current liabilities.
The revolving credit facility was subject to repayment on a quarterly basis with maturity shown above and with interest payable by reference to 1 month LIBOR plus 3.50 per cent, subject to a downward ratchet on achievement of certain ratios of debt to EBITDA on an annual basis.
As at 31 December 2009, Net Assets of the Group were £49,419,000 (2008: £48,482,000), and net borrowings under this Group arrangement amounted to £20,325,884 (2008: £20,379,275).
After the year end, an agreement was reached with the Group's bankers to restructure its committed facilities into a revolving credit facility of £17.3m, due for repayment by June 2013, and a term loan facility of £3.0m with a bullet repayment on 31 December 2013. The schedule of repayments under these revised facilities has been agreed with the consequence that the Group's cash obligation in 2010 has been reduced from £2.4m to Nil.
As a result, bank loan repayment commitments are now expected to be as follows:
|
| £'000 |
| Less than one year | - |
| In one to two years | 1,500 |
| In more than two years but less than three years | 2,000 |
| In more than three years but less than four years | 16,826 |
| Total | 20,326 |
Interest on the new revolving credit facility is payable by reference to 3 month LIBOR plus 4.125%, subject to a downward ratchet on achievement of certain ratios of debt to EBITDA on an annual basis. Interest on the new term loan is calculated by reference to 3 month LIBOR plus 7.5% and is payable with the bullet repayment on 31 December 2013.
In addition to its committed facilities, the Group has available an overdraft facility of up to £3m with interest payable by reference to National Westminster Bank Plc Base Rate plus 3.5% (on balances up to £2m) or 5.5% (on balances over £2m).
There is a cross guarantee structure in place with the Group's bankers by means of a fixed and floating charge over all of the assets of the Group.
All borrowings are in sterling.
10. Acquisitions
10.1 Acquisition Loan Notes and Acquisition Contingent Payments
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 estimated that the liability for payments that may be due at 31 December 2009 as follows:
|
| Initial Consideration Loan Notes | Additional Consideration Loan Notes | Additional Consideration Shares to be issued |
Total |
|
| £'000 | £'000 | £'000 | £'000 |
| Less than one year | 314 | 2,465 |
156 |
2,935 |
| Between one and two years | - |
1,000 |
- |
1,000 |
|
| 314 | 3,465 | 156 | 3,935 |
After the year end, an agreement was reached with holders of initial consideration and additional consideration loan notes that payment of these notes would be deferred, and a further agreement was reached that certain consideration falling due in 2010 would be satisfied by the issuance of shares rather than further loan notes. As a consequence, the cash obligation in 2010 was reduced from £2.8m to £0.1m.
As a result, acquisition commitments are now expected to be as follows:
|
| Payable in cash | Payable in shares | Total |
|
| £'000 | £'000 | £'000 |
| Less than one year | 139 | 308 | 447 |
| More than one year | 3,488 | - | 3,488 |
|
| 3,627 | 308 | 3,935 |
As described further in the Chief Financial Officer's review, subject to shareholder and any necessary regulatory approval, it is intended that the Group's consideration loan note liabilities will be extinguished by conversion into equity and/or a placing in 2010.
11. Share Capital
|
| Year to 31 December 2009 | Year to 31 December 2008 |
|
| £ | £ |
| Authorised: |
|
|
| 85,000,000 ordinary shares of 10 p each (2008: 85,000,000 ordinary shares of 10p each) | 8,500,000 | 8,500,000 |
|
|
|
|
| Allotted and called up: |
|
|
| 39,590,954 ordinary shares of 10 p each (2008: 33,076,828 ordinary shares of 10 p each) | 3,959,095 | 3,307,683 |
The increase in shares during the year was due to the issue of 2.5m 10 pence ordinary shares as a placing to raise £1.0m on 15 May 2009 and the balance of 4.0m shares were issued to Bray Leino and PCM as part payment for acquisition liabilities on 22 May 2009.
Options
The Group has the following options in issue:
|
| At start of year | Granted | Exercised | Waived | Lapsed | At end of year |
|
SAYE Scheme |
582,695 |
- |
- |
- |
- |
582,695 |
|
TMMG Share Option Scheme |
2,858,996 |
- |
- |
(2,858,996) |
- |
- |
|
TMMG Long Term Incentive Plan |
- |
1,250,000 |
- |
- |
- |
1,250,000 |
The SAYE Scheme is available to all employees. The exercise price of share options outstanding under this scheme is 81.0p, being 90 percent of the market price of the underlying shares at the time of issue.
TMMG Share Option Scheme was created to incentivise certain key employees, however all options issued under this scheme were waived during the year.
TMMG Long Term Incentive Plan ("LTIP") was a development from the Option Scheme and the 1.25m options issued under the LTIP had an exercise price of 32.5p, being the market price of the underlying shares at the time of issue.
12. Own Shares
|
| No. of shares | £'000 |
| At 1 January 2009 | 1,698,094 | 1,398 |
| Acquired in the year | - | - |
| At 31 December 2009 | 1,698,094 | 1,398 |
Shares are held in an EBT to meet certain requirements of The Mission Marketing Group Long Term Incentive Plan.
13. Reconciliation of Operating Profit to Operating Cash Flow
|
| Year ended | Year ended |
|
| 31 December 2009 | 31 December 2008 |
|
| £'000 | £'000 |
| Operating profit | 866 | 9,036 |
| Depreciation and amortisation charges | 730 | 776 |
| Gain on disposal of property, plant and equipment | (10) | (4) |
| Non cash charge for share options | 313 | 355 |
| Non cash goodwill impairment | 3,995 | - |
| Decrease / (Increase) in receivables | 891 | (398) |
| Decrease in work in progress | 60 | 109 |
| Decrease in payables | (3,530) | (2,089) |
| Operating cash flow | 3,315 | 7,785 |
14. Preliminary announcement information
The financial information set out in this preliminary announcement does not constitute the Group's statutory accounts for 2008 or 2009.