Interim results for the six months to 30 June 2013

The Mission Marketing Group plc

Interim results for the six months to 30 June 2013

The Mission Marketing Group plc ("TMMG" or "the missiontm"), the UK marketing communications group, sets out its unaudited interim results for the six months ended 30 June 2013.

Trading

· Underlying trading on track

· balloon dog acquisition trading in line with expectations

· £2.2m net underlying annualised operating income from new business (2012: £4.7m)

· Full year expected to have a strong second-half bias

Income Statement

· Operating income (Revenue) up 13% to £25.4m (2012: £22.5m)

· Headline operating profit of £2.0m (2012: £2.8m)

· Net finance costs reduced by over 40% to £0.4m (2012: £0.6m)

· Headline profit before tax of £1.7m (2012: £2.1m) before the impact of Addiction acquisition and Aviva cost reductions, leading to a reported profit before tax of £0.1m (2012: £2.1m)

· Exceptional costs of £1.5m relating to restructuring and write off of Addiction's intangibles

· Headline Diluted EPS: 1.51 pence (2012: 2.03 pence)

Balance sheet and cash flow

· Cash inflow from operating activities of £5.0m (2012: £4.0m)

· Net bank debt reduced by £3.5m in the six months to £8.8m

· Gearing reduced from 20% at 31 December 2012 to 14%

· Debt leverage ratio reduced to below x1.5

Dividend

· Interim dividend declared of 0.25p with intention to maintain a progressive twice-yearly dividend policy

· Payable on 6 December to shareholders on the register at 8 November

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

www.themission.co.uk

Chairman's Statement

We've got a really nice business here.

Our 'house of brands' strategy seems to be paying off with our individual Agencies all developing well, they have seen great new Client wins, exciting new assignments from existing Clients and new expertise introduced.

The first half profit is more or less where we expected it to be but wasn't helped by losses incurred following the significant scaling back of activity on the Aviva account and the poor performance within the Addiction Agency. Whilst now back on track following significant yet necessary management changes, it has affected our overall performance this year.

Nevertheless, our core businesses and our acquisition of balloon dog are performing within expectation and working closely together to bring added expertise to the whole and making our Group offering outstanding. When I look across our Client base I see a whole host of multi national companies and brands across a broad range of sectors as our Agencies take leading roles in their marketing and creative development. It really is astonishing to see who we work with and what we do with them.

We will continue to pursue our growth strategy and are also looking to invest this Autumn in San Francisco and Singapore, both of which are being driven by Client requests illustrating, yet again, how our Agencies form true partnerships with the businesses we do business with.

Our strategy is not driven by brobdingnagian principles; it is quite simply to excel in whatever we do and my personal optimism for the future stems from the knowledge that our entrepreneurial Agencies are driven to achieve. Perhaps this is due to peniaphobia but more likely it stems from a passion to establish the missiontm as the most respected and regarded Agency group in the UK.

I am delighted that we feel able to return to making dividend payments to our shareholders without whose support we would not have achieved our goals since we restructured the business in 2010.

Trading results

Turnover ("billings") for the six months ended 30 June 2013 increased by 13% to £67.6m (2012: £59.9m), of which approximately 6% results from the Group's acquisitions of balloon dog and Addiction in Q3 last year. Operating income ("revenue") increased by 13% to £25.4m (2012: £22.5m), reflecting the contribution from the two acquisitions in the period. Underlying growth in the Group's Branding, Advertising and Digital activities was offset by reductions in Events and Learning and PR activities. Revenue from the Group's Media activities increased by 8%.

Profitability in the first half of the year was significantly affected by two events - the loss of Addiction's largest Client, and the impact of a major cost-saving programme by Aviva. These two events left Bray Leino's London operations significantly overstaffed and loss-making, requiring a fundamental restructure with the loss of 60 staff.

As a consequence, headline operating profits (before exceptional items and the amortisation of previously acquired intangible assets), declined 26% to £2.0m (2012: £2.8m).

In addition, the Group has incurred £1.0m of redundancy and other costs relating to the restructuring which have been reported as exceptional items. Furthermore, we have taken the decision to write off the unamortised balance of Addiction intangible assets. After these exceptional charges totalling £1.5m, reported operating profits were £0.4m (2012: £2.8m).

The continued reduction in net debt, coupled with lower interest rates as the Group's risk profile reduces, have again reduced finance costs, by 41% to £0.4m (2012: £0.6m). After deduction of interest costs, headline profit before tax was £1.7m (2012: £2.1m) and reported profit before tax was £0.1m (2012: £2.1m).

The Group estimates an effective tax rate of 26% (2012: 27%), resulting in profits after tax of £0.1m for the six months (2012: £1.5m), and fully diluted headline EPS of 1.51 pence (2012: 2.03 pence).

Balance sheet, cash flow and dividend

Operating cash flows are traditionally stronger in the first half of the year than the second, but cash management was particularly strong during the period, resulting in cash flows from operating activities of £5.0m (2012: £4.0m) and a reduction in net debt to £8.8m at 30 June (2012: £12.3m). As a result, our gearing ratio (net debt to equity) reduced from 20% at 31 December 2012 to 14% at the end of the period and our leverage ratio (ratio of net bank debt to pre-exceptional EBITDA) reduced below x1.5, triggering lower interest rate margins which will benefit the second half of the year.

At 30 June 2013, the Group had £12.7m of committed facilities, of which £3m was undrawn, and an additional overdraft facility of £2m. As in prior years, due to the phasing of working capital requirements, an increase in net debt is predicted in the second half of the year. However, we anticipate our year-end leverage ratio to be similar to the position at 30 June.

Although first half profits and cash have been adversely impacted by the exceptional events surrounding Addiction and Aviva, the Board remains positive about the future prospects for the Group. In recognition of this, an interim dividend of 0.25p has been declared, payable on 6 December 2013 to shareholders on the register at 8 November 2013. We are very pleased to have returned to the dividend list with a progressive dividend policy, with payments expected to be made on a twice-yearly basis.

Current trading and outlook

With the difficulties of Addiction and Aviva now behind us, profitability is much improved and tracking in line with last year, no mean feat given the volatility in the market. We anticipate a strong second half and expect a similar result to that achieved last year.

David Morgan

Chairman

Condensed Consolidated Statement of Comprehensive Income

for the 6 months ended 30 June 2013

Condensed Consolidated Balance Sheet

as at 30 June 2013

Condensed Consolidated Cash Flow Statement

for the 6 months ended 30 June 2013

Condensed Consolidated Statement of Changes in Equity

for the 6 months ended 30 June 2013

Notes to the unaudited Interim Report

for the 6 months ended 30 June 2013

1. Accounting Policies

Basis of preparation

The condensed consolidated interim financial statements for the six months ended 30 June 2013 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 2012 on pages 30-33. These are consistent with the accounting policies which the Group expects to adopt in its 2013 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 2013 and 30 June 2012 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 2012 have been extracted from the Group's Annual Report and Accounts 2012, 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 2012 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 and other intangible assets; and

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

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

For management purposes the Group had seven (2012: six) operating subsidiaries during the period: April-Six Ltd, Big Communications Ltd, Bray Leino Ltd (incorporating Addiction and Yucca), Fox Murphy Ltd (acquired in October 2012 and trading as balloon dog), RLA Group Ltd, Story UK Ltd and ThinkBDW Ltd (incorporating Robson Brown). These have been divided into four segments which form the basis of the Group's primary segmentation, namely: Branding, Advertising and Digital; Events and Learning; Media; and Public Relations.

Geographical segmentation

Virtually all the Group's operations are based in the UK and substantially all the Group's business is executed in the UK.

3. Reconciliation of Headline Profit to Reported Profit

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

4. Contribution of newly acquired entities to the results of the Group

Friars 573 Limited ("balloon dog") was acquired on 11 October 2012 and contributed turnover of £3.0m, operating income of £2.5m and headline operating profit of £0.3m to the results of the Group in the six month period ended 30 June 2013.

The trade and assets of Addiction Worldwide ("Addiction") were acquired on 21 September 2012 from the Administrators. Addiction has been integrated into the Group's activities and consequently it is not possible to determine accurately its contribution to revenue and profit since acquisition. However, the Directors estimate that Addiction contributed turnover of approximately £0.7m, operating income of £0.3m and a loss of £0.4m to the results of the Group in the six months.

5. 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.

The restructuring of Bray Leino's activities during the six months ended 30 June 2013, including the departure of the Agency's CEO, resulted in redundancy and other costs totalling £1.0m which have been treated as exceptional items in the period. The associated impairment of goodwill and other intangibles relating to the Addiction acquisition, totalling £0.5m, has also been treated as an exceptional item.

There were no exceptional items reported in 2012.

6. Investment income and Finance costs

Debt arrangement fees arising on the renegotiation, in 2010, and modification, in 2012, of credit facilities are being amortised over the life of the credit agreement.

7. Taxation

The taxation charge for the period ended 30 June 2013 has been based on an estimated effective tax rate on profit on ordinary activities prior to IFRS interest charges of 26% (30 June 2012: 27%).

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 IAS33: "Earnings per Share".

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

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

9. Intangible assets

Goodwill

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

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. During the period, the carrying value of Addiction Worldwide was impaired by £0.3m. The next impairment test will be undertaken at 31 December 2013.

Other Intangible Assets

Other intangible assets consist of intellectual property rights, client relationships and trade names. During the period, the carrying value of client relationships and trade names relating to Addiction Worldwide was impaired by £0.2m.

10. Bank Loans and Net Debt

11. Acquisition obligations

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

At 30 June 2012 there were no acquisition obligations outstanding.

12. Post balance sheet events

There were no material post balance sheet events.