Half-year Report

The Mission Marketing Group plc

Interim results for the six months to 30 June 2017

The Mission Marketing Group plc ("TMMG" or "the missiontm"), the marketing communications and advertising group, sets out its unaudited interim results for the six months ended 30 June 2017.

Highlights

· Good organic growth from the Group's core business

· Some great new business wins in the period, including Mars, Neff, Reckitt Benckiser, Revlon, The Royal Mint and Universal Studios

· Recently acquired RJW trading well

· fuse now officially launched

· Mongoose Sports and April Six Asia start-up ventures moved into profitability

Financial

· Revenue up 4% to £33.8m (2016: £32.4m)

· Like-for-like revenue up 6% in Branding, Advertising and Digital

· Headline profit before tax up 11% to £2.9m (2016: £2.6m)

· Headline diluted EPS up 11% to 2.58 pence (2016: 2.33 pence)

· A strong second-half bias again predicted

· Cash inflows from operating activities of £5.8m (2016: £4.8m)

· Net bank debt reduced by £2.1m in the six months after settling prior and new acquisition obligations

Dividend

· Interim dividend increased by 10% to 0.55p (2016: 0.5p)

· Payable on 1 December 2017 to shareholders on the register at 3 November 2017

David Morgan, Chairman, commented: "With our business becoming stronger, including good growth from our core business, we have a great platform from which to grow. We will continue to target further margin improvements, seek new opportunities, drive into new markets and upskill our offering. We again expect a strong second half to the year and are confident that we will deliver another year of growth."

An interview with David Morgan, Chairman, can be viewed from 9.30am today at:

http://www.themission.co.uk/investor-centre/reports

Enquiries:

the missiontm is a network of entrepreneurial marketing communications Agencies employing 1,000 people in the UK, Asia and US. The Group comprises three divisions: Integrated Generalists, Sector Specialists and Activity Specialists, which work together to provide Clients with the expertise and resource to make them more successful in today's dynamic environment.

www.themission.co.uk

Chairman's Statement

FOCUSSED ON THE FUTURE

In our first six months of trading this year we have continued to grow our business and, as well as consolidating our position, we have kept a keen eye on our future as we implement the plans that match our development strategy. Our confidence in our Agencies, the direction we are heading in and our unique, entrepreneurial structure continues to grow momentum and is, we believe, creating a business model that is very much focussed on the future.

Of the many highlights so far this year the most important strategic development was our acquisition of RJW in April. RJW is a highly-regarded consultancy specialising in pricing and market access in the pharmaceutical sector that works closely with some of the world's leading companies from the very early stages of product development. Working alongside our Solaris Healthcare Agency, which operates further downstream, it allows us to deliver end-to-end marketing and research services to healthcare Clients. It is a delight to have the RJW team join the missiontm and be part of our drive towards creating a new and dynamic force in Healthcare marketing.

The first half of the year also saw some of our start-up investments move into profitability, notably Mongoose Sports and April Six Asia. This, together with continued progress from our core Agencies, has helped us to retain a calm and steady approach against a backdrop of UK uncertainty and nervousness.

With upwards of 250 people across our Group being directly involved in technological developments that enhance our Clients' marketing capabilities, we reported at the end of last year that we had identified a number of innovative IP-owned products and systems that we were bringing together under a dedicated team, branded fuse. This initiative embraces the technological creativity already inherent in our Agencies and takes it to a wider audience. We formally launched fuse in July and are excited by its potential.

We have also taken a long look at our overall Group strategy, culminating in a host of new initiatives to bring greater clarity and external understanding of why our business is not only robust but very special. We enjoy greater Client longevity and our people stay with us longer than is normal in our sector, and we have an enviable growth and debt repayment record. All of which have been evident again in the first half and are being explained more fully in our new website and materials.

New business continues to be our 'cream on top' with wins across the Group from such famous names as Mars, Neff, Reckitt Benckiser, Revlon, The Royal Mint and Universal Studios.

Trading results

Turnover ("billings") for the six months ended 30 June 2017 reduced by 4% to £71.2m (2016: £74.2m) in part due to year-on-year changes in the phasing of Client spending and in part due to the market trend away from traditional broad-based media expenditure in favour of more targeted activities. Billings include pass-through costs (e.g. TV companies' charges for buying air-time) and thus the Board does not consider turnover to be a key performance measure. Instead, the Board views operating income (turnover less third party costs) as a more meaningful measure of Agency activity levels.

Operating income ("revenue") increased 4% overall in the six months, to £33.8m (2016: £32.4m). Within our primary activity of Branding, Advertising and Digital, representing 80% of our Group revenue, growth was 8%, of which like-for-like growth was 6% with a further 2% from RJW. Growth in our other activities was more subdued, with both Events and Media likely to have a stronger weighting towards the second half of the year due to the phasing of Client campaigns.

Headline operating profits increased by 9% to £3.1m (2016: £2.8m), showing a modest but pleasing year-on-year improvement in margins. Our business is traditionally busier and more profitable in the second half and, with a number of initiatives aimed at improving profit margins, we anticipate maintaining this progress.

Adjustments to headline profits in 2017 totalled £1.1m (2016: £0.6m), explained further in Note 3. Among these adjustments are restructuring costs, flagged at the time of our 2016 results, totaling £0.6m (2016: £nil). After these adjustments, reported operating profits were £2.0m (2016: £2.2m).

After unchanged financing costs of £0.2m, headline profit before tax increased by 11% to £2.9m (2016: £2.6m); reported profit before tax was £1.8m (2016: £2.0m).

The Group estimates an effective tax rate on headline profits before tax of 22% (2016: 22%), resulting in an 11% increase in headline earnings to £2.2m for the six months (2016: £2.0m), and reported profit after tax of £1.3m (2016: £1.5m). Fully diluted headline EPS increased 11% to 2.58 pence (2016: 2.33 pence).

Balance sheet, cash flow and dividend

Net cash inflows from operating activities were £5.8m in the six months ended June 2017 (2016: £4.8m). These strong operating cash flows funded the settlement of acquisition obligations from prior years totalling £1.7m, initial acquisition consideration payments totaling £1.9m and also a £2.1m reduction in net debt to £9.2m. The Group has no further commitments to settle prior acquisition liabilities in the remainder of the year but the Group's normal phasing of working capital requirements is expected to result in a modest increase in net debt in the second half.

Following the purchase of RJW, the Group's acquisition obligations total £6.4m. All of this is dependent on post-acquisition earn-out profits, some to the end of 2020. £1.7m is expected to fall due within 12 months and a further £1.9m in the subsequent 12 months. The Directors believe that the strength of the Group's cash generation can comfortably accommodate these obligations. Furthermore, to achieve maximum earn-outs, the acquired Agencies would need to perform very strongly, which would generate much of the cash required to meet these obligations.

The Employee Benefit Trust continued to make periodic share purchases when appropriate and at 30 June 2017 held 1,422,265 ordinary shares.

Reflecting the growth in headline profits, the Directors have declared an interim dividend of 0.55p, representing a 10% increase over last year, payable on 1 December 2017 to shareholders on the register at 3 November 2017. The ex-dividend date is 2 November 2017.

Current trading and outlook

With our business becoming stronger, including good growth from our core business, we have a great platform from which to grow. We will continue to target further margin improvements, seek new opportunities, drive into new markets and upskill our offering. Underpinned by our strong cash generation, we will continue to explore accretive acquisition opportunities, or establish start-ups, that enhance our overall offering that supports our Clients wherever and however they need us to without being myrmidons. We again expect a strong second half to the year and are confident that we will deliver another year of growth.

David Morgan

Chairman

Condensed Consolidated Income Statement for the 6 months ended 30 June 2017

Condensed Consolidated Statement of Comprehensive Income for the 6 months ended 30 June 2017

Condensed Consolidated Balance Sheet as at 30 June 2017

Condensed Consolidated Cash Flow Statement for the 6 months ended 30 June 2017

Condensed Consolidated Statement of Changes in Equity for the 6 months ended 30 June 2017

Notes to the unaudited Interim Report for the six months ended 30 June 2017

1. Accounting Policies

Basis of preparation

The condensed consolidated interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the IAS 34 "Interim Financial Reporting" and the Group's accounting policies.

The Group's accounting policies are in accordance with International Financial Reporting Standards as adopted by the European Union and are set out in the Group's Annual Report and Accounts 2016 on pages 48-49. These are consistent with the accounting policies which the Group expects to adopt in its 2017 Annual Report. The Group has not early-adopted any Standard, Interpretation or Amendment that has been issued but is not yet effective.

The information relating to the six months ended 30 June 2017 and 30 June 2016 is unaudited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The comparative figures for the year ended 31 December 2016 have been extracted from the Group's Annual Report and Accounts 2016, on which the auditors gave an unqualified opinion and did not include a statement under section 498 (2) or (3) of the Companies Act 2006. The Group Annual Report and Accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies.

Going concern

The Directors have considered the financial projections of the Group, including cash flow forecasts, the availability of committed bank facilities and the headroom against covenant tests for the coming 12 months. They are satisfied that the Group has adequate resources for the foreseeable future and that it is appropriate to continue to adopt the going concern basis in preparing these interim financial statements.

Accounting estimates and judgements

The Group makes estimates and judgements concerning the future and the resulting estimates may, by definition, vary from the actual results. The Directors considered the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgement are:

· Potential impairment of goodwill;

· Contingent deferred payments in respect of acquisitions;

· Revenue recognition policies in respect of contracts which straddle the period end; and

· Valuation of intangible assets on acquisitions.

These estimates are based on historical experience and various other assumptions that management and the Board of Directors believe are reasonable under the circumstances.

2. Segmental Information

Business segmentation

The Group increased to fourteen operating units during the period, 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; Public Relations; and Events and Learning.

Geographical segmentation

Whilst the Group continues to expand geographically, operating income from business based and executed outside the UK remains less than 10% of the total.

3. Reconciliation of Reported Profit to Headline Profit

In order to provide a clearer understanding of underlying profitability, headline profits exclude exceptional items, acquisition-related costs and adjustments, and start-up costs. Start-up costs derive from organically started businesses and comprise the trading losses of such entities until the earlier of two years from commencement or when they show evidence of becoming sustainably profitable.

Start-up costs in 2017 relate to Mongoose Sports & Entertainment, Mongoose Promotions and April Six's new PR business in the USA. Start-up costs in 2016 related to the launch of Mongoose Sports & Entertainment and April Six's new ventures in Singapore and the USA.

4. Exceptional Items

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

Exceptional costs in 2017 comprise amounts payable for loss of office and other costs incurred relating to the restructuring of certain operations in order to streamline activities and underpin the Board's growth expectations for the second half of the year and beyond.

5. Acquisition Adjustments

The movement in fair value of contingent consideration relates to a net (upward) / downward revision in the estimate payable to vendors of businesses acquired in prior years. Acquisition transaction costs relate to professional fees associated with the acquisitions.

6. Net Finance Costs

7. Taxation

The taxation charge for the period ended 30 June 2017 has been based on an estimated effective tax rate on headline profit on ordinary activities of 22% (30 June 2016: 22%).

8. Earnings Per Share

The calculation of the basic and diluted earnings per share is based on the following data, determined in accordance with the provisions of IAS 33: "Earnings per Share".

Basic earnings per share includes shares to be issued subject only to time as if they had been issued at the beginning of the period.

A reconciliation of the profit after tax on a reported basis and the headline basis is given in Note 3.

** On 22nd February 2017, the Company announced details of a new Growth Share Scheme. If all the shares in the Scheme vest they will be exchanged into 5.7m Ordinary Shares, which will result in dilution. However, since the performance criterion is that the Company's share price must equal or exceed 75p for at least 15 days and this condition had not been satisfied at 30 June 2017, the Growth Shares are not included in the calculation of diluted earnings per share.

9. Intangible Assets

Goodwill

In accordance with the Group's accounting policies, an annual impairment test is applied to the carrying value of goodwill, unless there is an indication that one of the cash generating units has become impaired during the year, in which case an impairment test is applied to the relevant asset. The next impairment test will be undertaken at 31 December 2017.

Other Intangible Assets

Other intangible assets consist of intellectual property rights, Client relationships and trade names.

10. Bank Loans and Net Debt

11. Acquisitions

11.1 Acquisition Obligations

The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash or shares or other securities at a future date, depends on uncertain future events such as the future performance of the acquired company. The Directors estimate that the liability for payments that may be due is as follows:

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

11.2 Acquisition of RJW & Partners Ltd

On 26 April 2017, the Group acquired the entire issued share capital of RJW & Partners Ltd ("RJW"), a pricing and market access consultancy operating in the healthcare sector. The fair value of the consideration given for the acquisition was £5,409,000, comprising initial cash and share consideration and deferred contingent cash and share consideration. Costs relating to the acquisition amounted to £68,000 and were expensed.

Maximum contingent consideration of £4,250,000 is dependent on RJW achieving a profit target over the period 1 January 2017 to 31 December 2020. The Group has provided for contingent consideration of £3,380,000 to date.

The fair value of the net identifiable assets acquired was £696,000 resulting in goodwill and other intangible assets of £4,713,000. Goodwill arises on consolidation and is not tax-deductible. Management carried out a review to assess whether any other intangible assets were acquired as part of the transaction. Management concluded that both a brand name and customer relationships were acquired and attributed a value to each of these by applying commonly accepted valuation methodologies. The goodwill arising on the acquisition is attributable to the anticipated profitability of the Company.

RJW & Partners Ltd contributed turnover of £508,000, operating income of £483,000 and headline operating profit of £176,000 to the results of the Group for the six month period ended 30 June 2017.

12. Post Balance Sheet Events

There were no material post balance sheet events.