Trigg Mining Limited
Annual Report 2012

Plain-text annual report

marketing group plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . annual report and accounts for the year ended 31 December 2012 The Mission Marketing Group plc is a UK network of entrepreneurial communications Agencies spanning 17 offices, and uniting 800 people. The Group enables each Agency, its people and its Clients, to access skills, tools and buying power in a collectively advantageous way, while freeing each Agency to express its unique personality. Agencies a real competitive advantage. Being situated largely outside central London gives We benefit from lower establishment costs and attract top-flight people who seek an exciting work environment enhanced by improved quality of life. Our Agencies have proven, long-term ability to help Clients win. They are driven by uncommonly talented people whose creative business thinking and specialist knowledge complement those of their colleagues around the Group. Between them, they have an impressive record of delivering tangible results for Clients. We are proud to work with some of the world’s leading brands and the UK’s biggest names. Our mission is simple: to work together to make our Clients’ brands and businesses more valuable; into the nation’s most respected and influential creative and fuelled by their success, to grow communications group. We intend to increase shareholder value by growing profits and optimising our capital structure. We aim to grow profits by exploiting our competitive advantage to gain market share, and expanding the range and depth of our services via new ventures and selective acquisitions where appropriate. graphic symbolises the shared ambitions, values and goals that unite every The Agency in Group. A modern creative Agency with in-house content and production facilities, Addiction delivers effective and innovative communications for a number of major Clients across the globe. The UK’s leading technology channel marketing Agency working successfully with global brands on an international basis. A multi-channel, full service creative Agency that focuses on brand payback through its unique approach to brand building, CRM techniques and direct marketing. Regarded as one of the UK’s top creative Agencies delivering award-winning advertising, promotions and digital solutions for major brands and Clients. A pioneer of integrated brand-building, a top 20 Agency working with Clients through every channel and across the business spectrum and, in 2012, the No.1 B2B Agency in the UK. A specialist full service communications Agency that also includes unrivalled expertise in international channel marketing programmes across the Automotive, Retail and allied sectors. Regarded as one of the North of England’s major advertising brands with proven skills in integrated communications. An award-winning creative and direct communications Agency working with leading consumer brands and services from its Edinburgh base. The leading property integrated marketing Agency in the UK, working with developers across all aspects of their sales support programmes from advertising to show homes. ThinkMedia is the largest buyer of Estate Agency media in the UK. A highly creative digital marketing and web development Agency, Yucca is an award-winning Agency with unique digital and online capabilities. together, we are The Mission Marketing Group plc Annual Report 2012 3 .................................................................................................................................................The Bigger Picture There’s a host of entrepreneurial, founder led Agencies all around the UK making a name for themselves in the market. We unite the very best of them, bringing strength in numbers. To get the whole story, watch our short film at themission.co.uk 4 The Mission Marketing Group plc Annual Report 2012 .................................................................................................................................................Contents 2012 Overview Chairman’s Statement Financial Review Board of Directors Report of the Directors Corporate Governance Independent Auditor’s Report Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Independent Auditor’s Report: Company Company Balance Sheet Notes to the Company Balance Sheet Notice of Annual General Meeting Advisors 6 7 13 16 18 23 26 27 28 29 29 30 53 54 55 60 62 The Mission Marketing Group plc Annual Report 2012 5 .................................................................................................................................................2012 Overview 2012 was another good year for . Further progress has been made in terms of revenue, profit and debt reduction. The Group has achieved further net gains in revenue from organic activities, and its range of services and capabilities has been expanded through new ventures and acquisitions. Looking ahead, the reduction in debt provides the Board with a new range of options, including the payment of dividends, not available since the refinancing in April 2010. Revenue (£m) 50.0 40.0 30.0 20.0 10.0 0 2010 2011 2012 Pre-tax profit (£m) 6.0 5.0 4.0 3.0 2.0 1.0 0 2010 2011 2012 Key 2012 financials: Net Debt (£m) • Operating income (“revenue”) up 15% to £47.5m (2011: £41.5m) • Headline operating profit up 2% to £6.0m (2011: £5.8m) • Sharp reduction in interest costs to £1.1m (2011: £1.6m) • Headline profit before tax up 15% to £4.9m (2011: £4.2m) • Headline diluted EPS up 8% to 4.5 pence (2011: 4.2 pence) • Net bank debt reduced by £3.0m to £12.3m 0 (5.0) (10.0) (15.0) (20.0) 2010 2011 2012 In addition, we have achieved all of our key performance targets: Key performance measure Target Achievement in 2012 Operating income Grow year-on-year, both via increased business from existing Clients and from new business wins Operating profit margins Achieve levels at least in line with industry averages Growth of 15% achieved despite 2011 benefitting from the Census, our largest ever project. Some great new Clients – e.g. Aviva, M&S Bank and Brittany Ferries – and strong retention and growth from existing Clients – e.g. Axa, BP, Dermal, Legal & General. Headline operating margins reduced to 13% (2011: 14%) due to impact of new ventures and acquisitions, but still above industry average. Ratio of net debt to EBITDA Reduce below x2 by end of 2012 Debt leverage ratio reduced from x2.3 in 2011 to x1.7 in 2012. 6 The Mission Marketing Group plc Annual Report 2012 .................................................................................................................................................Chairman’s Statement Dear shareholder It’s now three years since we restructured of our progress in what has been yet another challenging year for our sector. and I am pleased to report that 2012 saw a continuation Our objective going into 2012 was to maintain our progress whilst strengthening the expertise of our Agencies and the Group. We focused on concinnity and our Agencies have never worked better together, providing a cohesion that we and our Clients have benefited from. Overall the Agencies have performed very well. They have improved their status with their Clients and created great new business wins from the likes of Aviva, Brittany Ferries and M&S Bank. What is even more admirable is that they have retained and built their existing Client bases at a time when competitive activity has never been fiercer. Our progress has come both from our consumer and B2B Agencies as well as our specialist IT, Property and Automotive businesses. They should be justly proud of their achievements in 2012. We have also sought to strengthen our Group by bringing in new expertise that complements the whole. Both newcomers are already providing new and dynamic options to the rest of the Group thereby enhancing our Client offer. The Addiction team joined us in September, principally to spearhead our capabilities in Branded Content and to fulfil our desire to create Mission Studios that will provide our Agencies with pre and post film production services from its West One base. Their work for the likes of B&Q and Remington is highly regarded and opens up new channels of opportunity for us. We acquired balloon dog in Norwich and London in October to strengthen our CRM and data offering and provide us with yet another outstanding and profitable Agency that works with Clients such as Barclays, Pret a Manger and Aviva. The scope to build on the balloon dog business certainly exists within the Group. But best of all, both of these new additions have brought us some great new colleagues, all of whom chose to be with because they believe in what we are doing. So where do we go from here? Our Agencies are in good shape and we expect them to work even closer together going forward. Their Client bases are the envy of the industry and they all have exciting strategies for the future. 2012 was a tough old year but we did what we said we would do. So I guess we did well and it’s fair to say we are seeing some positive signs. Green shoots maybe but who knows what this mad economic world has in store for us? That is why we will continue to build cautiously and maintain a reduced risk position. We remain acquisitive but in a measured manner, call us quakebuttocks if you will, but our focus will remain on debt management, expertise enhancement and concinnity. We remain excited by the potential of our business and look forward to further progress in 2013 and beyond. David Morgan Chairman 25 March 2013 The Mission Marketing Group plc Annual Report 2012 7 .................................................................................................................................................together, we are Ideas and know-how kick start home improvement. All DIY and no inspiration have made B&Q dependent on ageing DIY enthusiasts. Our branded content channel on YouTube creates a place for B&Q to inspire consumers before the retail experience. The latest films feature Kirstie Allsopp sharing ideas for ‘upcycling’ old furniture. The B&Q ‘You Can Do It’ Channel has had around 3 million views in the first year and is the branded channel showcase that Google/YouTube use in their presentations. Delivering VMware a real world advantage. As VMware’s lead Agency in EMEA, our 2012 go-to-market strategy was ‘Real World Advantage’. This campaign focused on changing the lives of IT Managers in small and medium sized businesses through the benefits of virtualization. The challenge: demonstrating creative excellence while delivering powerful and empathetic conversations in 17 languages, targeting a marketing-averse and technical audience. The results: smashing the 1:20 return on investment industry benchmark and over achieving on the targeted multi-million dollar opportunity pipeline. 8 The Mission Marketing Group plc Annual Report 2012 ..................................................................................................................................................................................................................................................................................................Barclaycard small business strategy. Around 95% of Barclaycard small business customers are signed up in a Barclays bank branch. This can lead to low levels of activation and usage. We reviewed the entire sales process; channels, materials and touch-points, allowing us to identify the gaps and opportunities in order to drive spend. Our refined strategy is now used to support all small business briefs with several initiatives created as a direct result - including an interactive in-branch awareness campaign. Back of the net! Football and pizza go together like…well, football and pizza. So when Domino’s needed an app that would allow fans to interact with a summer of soccer, and the chance to win prizes even after the home teams were eliminated, Domigoals was the perfect answer. With thousands of downloads, a raft of new-to-brand cus to m e r s , n ear ly 3 0,0 0 0 o n lin e transactions and awards and nominations galore, including BIMA, GRAMIA and Fresh, Domigoals is a premier league piece of work. The Mission Marketing Group plc Annual Report 2012 9 .................................................................................................................................................................................................................................................................................................. together, we are Curiosity. It can lead a brand anywhere. Brittany Ferries offer a travel experience that provides limitless possibilities. Our stirring campaign, based around the concept of curiosity, took them from a place of rational, product focused comms, to a more emotionally engaging and thought provoking proposition. The project has energised the brand, it’s made new audiences excited about Brittany Ferries and as an Agency, it’s a piece of work we’re immensely proud to stand by. Forget Fernados, take me out in the new Picanto! Kia launched the new Picanto City wanting to introduce it to new sassy and design-conscious customers. Partnering with the highly-rated Saturday night show was a natural fit. We needed to bring the TV action into UK dealerships with POS, ambient and promotions – where you could end up on the Take Me Out Love Island. We reached 60% of the audience with many ‘liking’ it online and 90%+ uptake in dealership. We’re still together. 10 The Mission Marketing Group plc Annual Report 2012 ..................................................................................................................................................................................................................................................................................................What price are we really paying for cheap alcohol? Our Client Balance aims to inspire change to the way North East residents think about and drink alcohol. Our campaign raised awareness of the issues around young people and alcohol, ultimately encouraging sign up to a minimum unit price consultation. Outdoor, leafleting, on-street engagement and digital all combined to drive traffic to an online film and microsite. To date nearly 15,000 signed postcards have been presented to government. Full of the joys of Highland Spring. Highland Spring’s business objective was to be No.1 in the UK’s highly competitive and increasingly challenging bottled water market. In March 2012, we launched the ‘Full of the Joys of Highland Spring’ positioning. A fully integrated campaign featuring a feel-good, mischievous mole was developed based on the brand truth that drinking Highland Spring leaves you feeling healthy and hydrated. Highland Spring are well on their way to becoming the UK’s No.1 bottled water brand. Joy! The Mission Marketing Group plc Annual Report 2012 11 ..................................................................................................................................................................................................................................................................................................together, we are An Avant-Garde approach to property. Avant-Garde by Telford Homes was the first new residential development in Shoreditch, East London. To inspire the public we created a strong brand with dynamic marketing collateral from the design of the foyer, gymnasium and marketing suite to lifestyle DVDs, brochures and microsites. The impact on the overseas market was immediate, with over 120 units sold off plan. Telford’s sales success continues with four more sites in the heart of London. World-class. Worldwide. To help Clarks reach a global audience of partners and associates, we were briefed to create the most engaging and usable SharePoint intranet ever. Our response was ‘Your Connection’; a highly usable and bespoke tool with over 700 users in 14 countries. Our work won Gold at the Digital Impact Awards 2012. We look forward to planning, designing and building the next phase of enhancements. 12 The Mission Marketing Group plc Annual Report 2012 ..................................................................................................................................................................................................................................................................................................Financial Review Summary A year ago, we said we thought 2012 would see us out-perform our competitors. We believe we have achieved this. Against a continuing difficult backdrop for the sector, we are pleased to report results for the year ended 31 December 2012 which show further progress in terms of revenue, profit and debt reduction. Trading, Statement of Income and Dividend Turnover (“billings”) was 1% higher than the previous year, at £117.0m (2011: £116.0m), and like-for-like turnover, excluding the acquisition of balloon dog with effect from 30 September 2012, was unchanged, reflecting the significant media spend in 2011 relating to the Census (our largest ever project). Operating income (“revenue”) increased 15% to £47.5m (2011: £41.5m), of which the like-for-like increase was 12%, mainly the result of net new business wins, notably VMware, Norwegian Seafood, Axa, Legal & General, Aviva and M&S Bank, together with the first contributions from Yucca, Bray Leino Healthcare and RLA’s expansion in Northern Ireland. As mentioned in the Chairman’s Statement, it was a good year for new business wins and Client retention. Net new business revenue gained in the year totalled £5.6m, up from £4.1m last year. In common with the industry, gross profit margins achieved by our different business activities vary widely, and the overall Group margin can be strongly influenced by the level of media placement activity undertaken by our Clients. The higher overall gross margin in 2012 (41% vs 36% in 2011) reflects the lower proportion of media in the business mix (39% of turnover in 2012 vs 44% in 2011) as explained above and illustrated by the segmental analysis in Note 2. The Directors measure the Group’s performance by reference to headline profits, calculated before the deduction of amortisation of intangibles and professional fees associated with acquisitions and as set out in Note 3. Headline operating profit increased by 2% to £6.0m (2011: £5.8m) including the acquisition of balloon dog, and was unchanged on a like-for-like basis. As expected, the expansion of the Group over the last 18 months, through new ventures, additional talent and in-fill acquisitions, sometimes of financially distressed businesses, has reduced margins (headline operating profit as a percentage of gross profit) in the short term (to 13% from 14% in the prior year) but the Group is stronger as a result of these developments and confident that they will benefit the Group in the years ahead. The most recent addition to the Group – balloon dog – is the first acquisition involving anything other than a modest outlay since the refinancing in April 2010. We are really pleased with the way in which the new Agency has fitted into the culture of the Group and it is performing as anticipated. Further significant progress was made in 2012 to reduce the Group’s interest burden, both through a further reduction in net debt and also the renegotiation of interest rates. As a result, net interest costs reduced by a very pleasing 32% to £1.1m (2011: £1.6m). After financing costs, headline profit before tax increased by 15% to £4.9m (2011: £4.2m). Reported profit before tax increased by 14% (to £4.7m) after the deduction of amortisation charges and professional fees totalling £0.2m relating to acquisitions made in 2012. In 2011, £0.1m of exceptional costs were incurred relating to the completion of restructuring commenced in 2010. The headline diluted EPS increased by 8% to 4.54 pence (2011: 4.20 pence). The Board does not propose the payment of a dividend at this stage. However, as previously mentioned, the strong reduction in our debt leverage since 2010 provides the Board with greater flexibility when considering the most effective use for the cash generated by the business. We continue to work on fully integrating our recent acquisitions which we expect to result in profits being more second half biased than in recent years. We will keep a close eye on trading in the first half and, if we continue to make progress, it remains our intention to declare a dividend at the time of our interim results. The Mission Marketing Group plc Annual Report 2012 13 .................................................................................................................................................Financial Review Balance Sheet and Cash Flow The Group’s balance sheet has been further strengthened during the year by the equity placing of £1.2m used to fund the acquisitions of balloon dog and Addiction. In addition, beneficial changes to our banking arrangements came into effect in June 2012, with an extension of the facilities and the renegotiation of terms. Loan facilities which were due to expire in mid-2013 were extended to the end of 2015, our annual repayment obligation was reduced from £4m to £2.3m, and interest rates charged on the loans were reduced. These changes reflect the Group’s complete rehabilitation in the banking community since the restructuring in April 2010. After two years of reductions in working capital, a decrease in the proportion of Clients making up-front payments contributed to a net increase in working capital during the year. Despite this, net bank debt reduced by a further £3m, to £12.3m (2011: £15.3m). This compares with £13.9m of committed term facilities, together with an overdraft facility of £2.5m, representing a comfortable level of headroom. Our gearing ratio (net debt to equity) reduced from 26% last year to 20% at 31 December 2012 and the Group’s “leverage ratio” (ratio of net bank debt to pre-exceptional EBITDA), which in H1 reduced below x2.0 for the first time since the Company’s IPO in 2006, fell further despite the traditionally weaker H2, to x1.7 at 31 December 2012. During the year, the Group continued to find opportunities to strengthen its services and extend its reach. Including the settlement of various acquired obligations, cash totalling £1.3m was invested in four deals during the year, including Quorum Advertising Limited and Haven Marketing Limited as well as Addiction Worldwide and balloon dog. These deals were funded almost entirely by an equity placing which was over-subscribed and raised £1.1m net of expenses. At 31 December 2012, the Board undertook its annual assessment of the value of goodwill, explained further in Note 12, and concluded that no impairment in the carrying value was required. Capital expenditure, at £1.2m, was slightly lower than 2011 (£1.5m) and similar to depreciation charges (£1.0m). Achieving a leverage ratio of x2.0 has been a key target for the Board since the restructuring in April 2010. Until this was achieved in H1 2012, the Board was focused on paying down debt and concentrating on organic growth, with only small in-fill acquisitions being contemplated. With our leverage ratio now well below x2.0, and expected to fall further over the next six months, the Board’s options have increased. In addition to the possibility of paying dividends later this year, we will continue to review opportunities to make both strategic and opportunistic acquisitions to accelerate growth, but in a careful and selective way. Treasury Policy With the recent and modest exception of a New York presence as a result of the Addiction acquisition, the Group’s operations are all based in the UK and substantially all the Group’s business is conducted in the UK. Of those Clients based outside the UK, the majority are based in the USA and virtually all invoicing is undertaken in sterling. The Group’s policy is not to use any financial instruments for speculating but to use hedging of interest rates and currencies selectively and only where considered cost-effective. Until recently, management had not sought to use interest rate hedges but, following the renegotiation of banking facilities during 2012, has entered into a modest and inexpensive interest rate cap. Where turnover is in foreign currencies, 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 only draws down sufficient of its term loan facilities to cover its forecast funding requirements over the coming three months, leaving the overdraft facility to accommodate intra-month working capital requirements. The Group operates a virtual cash pooling arrangement where the cash balances of all the Group Agencies are pooled to offset any overdrafts. If there are significant net surplus cash balances at any time, they are placed on short term deposit. 14 The Mission Marketing Group plc Annual Report 2012 .................................................................................................................................................Taxation The Group’s effective tax rate was 27.9% (2011: 25.0%). The Group’s effective tax rate is normally above the statutory rate due to non-deductible staff and Client-related expenditure but, in 2011, the Group benefited from the release of over-provisions made in prior years. 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’s current KPIs, which are quantified and commented on above, are: operating income, which the Group aims to increase year-on-year both via increased business from existing Clients and from new business wins; operating profit margins, where the Group aims to achieve levels at least in line with industry averages; and the ratio of net debt to EBITDA, which the Group is aiming to maintain below x2.0. At the individual Agency level, the Group’s KPIs comprise revenue and profitability measures, predominantly the achievement of annual budget. More detailed KPIs are applied within individual Agencies. Peter Fitzwilliam Finance Director 25 March 2013 The Mission Marketing Group plc Annual Report 2012 15 .................................................................................................................................................Board of Directors David Morgan Executive Chairman David founded Bray Leino, the Group’s largest Agency, in 1974 and was its CEO until 2008. He became Non-Executive Chairman of Bray Leino in 2008 and was in April 2010. Before founding Bray Leino he appointed Chairman of worked in a number of London advertising agencies including Dorlands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Christopher Morris Non-Executive Deputy Chairman Chris adds further operational experience to the Board as a founder partner of in 2005 prior to its AIM listing in 2006. Big Communications, bought by Chris has gained 30 years’ industry knowledge having previously been Managing Director of Cogent Elliott, one of the UK’s top three regional advertising agencies. Chris was appointed to the Board in December 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Stephen Boyd Senior Independent Non-Executive Director Stephen is currently Chairman of three AIM-listed companies, Pittards plc, Pure Wafer plc and Swallowfield plc, in addition to owning a number of private companies. Stephen has a broad and extensive base of experience in the UK, Europe, USA and overseas and brings additional depth in corporate finance. Stephen was appointed to the Board in December 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Dylan Bogg Executive Director Dylan is Chief Executive of Big Communications and was one of the founding partners of the Agency. He had built a successful business by the age of 24 and this was used as the bedrock for the launch of Big Communications in 1996. Formerly Executive Creative Director of Big Communications, he still oversees all creative output. Dylan was appointed to the Board in April 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . James Clifton Executive Director Chief Executive of balloon dog, James started out Client side before working for various Agencies within the Global Networks that are Omnicom and WPP. He created balloon dog in 2008 having led an MBO of Fox Murphy. balloon dog, an award-winning, multi-channel Agency, was acquired by and James was appointed to the Board on 11 October 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Robert Day Executive Director Robert is Chief Executive of ThinkBDW, a company he founded as Robert Day Associates in 1987 at the age of 22. Re-branded ThinkBDW in 2004, Robert has led the company to its position as the leading property marketing specialist in the UK. The business was acquired by in March 2007 and Robert joined the Board in April 2010. 16 The Mission Marketing Group plc Annual Report 2012 .................................................................................................................................................Peter Fitzwillam Finance Director Peter is a Chartered Accountant and has over 25 years of financial and management advisory experience in both private and quoted companies across a range of industry sectors. He was Finance Director of Business Post Group plc (now UK Mail Group plc) from 1999 to 2006 and helped take it into the FTSE 250. Peter through its refinancing in April 2010 and was appointed to supported the Board in September 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Christopher Goodwin Executive Director Chris is Chief Executive of RLA and has over 25 years in the automotive industry at Firestone and then Federal-Mogul, with varied experience in sales, marketing and general management roles, both at regional and global levels. In 2008 he crossed over from the Client side to focus on strategic business development within Bray Leino. He was appointed to the Board in April 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Giles Lee Executive Director Giles joined Bray Leino in 2005 as Group Finance Director following his successful role in transforming Merrydown plc from its fundamental financial restructure in 2000 up to its acquisition in 2005. Since joining Bray Leino, Giles has overseen eight acquisitions and a number of strategic investments. Giles was appointed CFO/COO of Bray Leino in 2011 and Executive Chairman in 2013, alongside a strong management team. He was appointed to the Board on 5 March 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Sue Mullen Executive Director Sue is Chief Executive of Story and started her advertising career at Branns in Cirencester before moving to Edinburgh to head up One Agency. She eventually left in 2002 and, alongside three colleagues, set up Story, an award-winning creative and direct communications Agency. Story was acquired by in 2007 and Sue was appointed to the Board on 18 June 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . Fiona Shepherd Executive Director Fiona is Chief Executive of April-Six and has worked in the technology industry for over 20 years, holding both Client and Agency positions and working with some of the world’s largest technology brands. Fiona was a founder partner of April-Six in 2000, founded on a passion for technology and a strong belief in customer centricity. Fiona joined the Board in April 2010. The Mission Marketing Group plc Annual Report 2012 17 .................................................................................................................................................Report of the Directors for the year ended 31 December 2012 The Directors have pleasure in presenting their report and the financial statements of The Mission Marketing Group plc (“ ”) for the year ended 31 December 2012. Principal Activities The principal activities of the Group throughout the year continued to be marketing services, providing national and international Clients with award-winning marketing, advertising and business communications. Business Review A review of the business and future developments is provided in the Chairman’s Statement and the Financial Review, which form part of this Report of the Directors. Information concerning Key Performance Indicators is included within the Financial Review, and the Group’s principal risks and uncertainties are discussed under Risk Management below. Dividends The Board does not propose the payment of a dividend at this stage. However, dependent upon the results during the first half of 2013, it is the Board’s intention to declare a dividend at the time of the Group’s interim results. Directors The following Directors held office during the year; Dylan Bogg Stephen Boyd James Clifton Robert Day Peter Fitzwilliam Christopher Goodwin Bruce Hutton David Morgan Christopher Morris Sue Mullen Fiona Shepherd appointed 11 October 2012 appointed 18 June 2012 Bruce Hutton resigned on 28 February 2013 and Giles Lee was appointed on 5 March 2013. Directors’ Interests in Shares and Options The interests of the Directors and their families in the shares of the Company were as follows: Number of ordinary shares of 10p each 31 December 2012 31 December 2011 (or on appointment) Dylan Bogg Stephen Boyd James Clifton Robert Day Peter Fitzwilliam Christopher Goodwin Bruce Hutton David Morgan Christopher Morris Sue Mullen Fiona Shepherd 1,358,323 319,918 90,048 6,008,138 506,481 191,635 1,725,038 5,939,875 951,509 1,065,204 1,235,273 1,167,373 300,768 90,048 5,574,929 432,181 172,485 1,699,713 5,844,150 874,909 1,065,204 1,216,123 18 The Mission Marketing Group plc Annual Report 2012 The following unexercised options over shares were held by Directors: Directors Dylan Bogg Robert Day Peter Fitzwilliam Chris Goodwin Bruce Hutton Chris Morris David Morgan Sue Mullen Fiona Shepherd 1 January 2012 (or on appointment) Granted 31 December 2012 Date from which exercisable Expiry date 90,000* 60,000 – 60,000 157,000 – 50,000 – 20,000 – 170,000* 53,000 200,000 – 55,000* 28,000 – 50,000 – 25,000 10,000 – 21,000 40,000 – – – 70,000 – – 96,667 – 40,000 – 40,000 – – – 200,000 – – 40,000 – 40,000 – – 20,000 – – 40,000 90,000 60,000 70,000 60,000 157,000 96,667 50,000 40,000 20,000 40,000 170,000 53,000 200,000 200,000 55,000 28,000 40,000 50,000 40,000 25,000 10,000 20,000 21,000 40,000 40,000 July 2013 July 2014 July 2015 July 2013 July 2014 July 2015 July 2014 July 2015 July 2014 July 2015 July 2013 July 2013 July 2014 July 2015 July 2013 July 2014 July 2015 July 2014 July 2015 July 2013 July 2014 July 2015 July 2013 July 2014 July 2015 July 2019 July 2021 July 2022 July 2020 July 2021 July 2022 July 2021 July 2022 July 2021 July 2022 July 2019 July 2020 July 2021 July 2022 July 2019 July 2021 July 2022 July 2021 July 2022 July 2020 July 2021 July 2022 July 2020 July 2021 July 2022 All share options in existence at 31 December 2012 are nil-cost options granted under the Company’s Long Term Incentive Plan. *The vesting conditions applying to options granted in 2009 were simplified to make them dependent upon the achievement of profit targets over the three year period ending 31 December 2012, consistent with options granted in 2010. Options granted in 2012 are dependent upon the achievement of profit targets over the three year period ending 31 December 2014. Substantial Shareholdings Other than the Directors’ interests disclosed above, as at 25 March 2013, notification had been received of the following interests in 3% or more of the issued share capital of the Company: Herald Investment Management Ltd Polar Capital Forager Fund Ltd Nicholas Bacon Number of Shares 4,500,000 3,995,000 2,449,648 The Mission Marketing Group plc Annual Report 2012 % 5.84 5.19 3.18 19 Share Capital The issued share capital of the Company at the date of this report is 76,990,940 Ordinary shares. The total number of voting rights in the Company is 76,990,940. During the year, the Company issued a total of 4,530,496 shares. Of these, 4,289,144 were placed with existing and new institutional shareholders to raise £1.2m and 241,352 were issued as part of the initial consideration payable for the acquisition of Friars 573 Ltd. Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union, and the Company financial statements in accordance with applicable law and United Kingdom accounting standards (United Kingdom Generally Accepted Accounting Practice). International Accounting Standard 1 requires that financial statements present fairly for each financial period the Group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the Preparation and Presentation of Financial Statements”. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. A fair presentation also requires the Directors to: • consistently select and apply appropriate accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors must not approve the financial statements unless they are satisfied they give a true and fair view of the state of affairs of the Group and Company and the profit or loss of the Group for that period. In preparing the financial statements of the Company under UK GAAP, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Corporate Governance The Directors provide a separate Corporate Governance Report, which forms part of this Report of the Directors. 20 The Mission Marketing Group plc Annual Report 2012 Risk Management As part of its risk management strategy, the Board has a formal process of delegated authorities throughout the Group and specific risks are reviewed at Board meetings. The Group sets, and keeps under review, key performance indicators to monitor the past and future performance of the Group and each operating unit. The Group’s principal operating risks and uncertainties are associated with the sustainability of its business model, the health of the UK economy and the retention of key customers and staff. We believe that our business model, of being a UK network of entrepreneurial Agencies situated largely outside central London, a real competitive advantage. Clients can both access top-flight people who have made a gives non-London lifestyle choice, and also benefit from our lower establishment costs. Our ability to generate net new business growth year after year suggests that this is a successful business model but we maintain close relationships with our Clients to ensure that we continue to meet their requirements, and keep the structure of the Group under regular review. The fragile condition of the UK economy is well publicised; there is a risk that a further downturn will have an adverse effect on the Group’s performance in the future and delay the Group’s growth ambitions. The Group makes efforts to mitigate any adverse impact through strenuous new business activity and by reducing overheads wherever possible, always recognising that there is a level below which overheads cannot be reduced without customer service being affected. The risk of customer loss is mitigated by the efforts of dedicated Client teams and also the Group’s broad spread of Clients, which limits its exposure to any individual Client. In common with all service businesses, the Group is reliant on the quality of its staff. Strenuous efforts are made to provide a rewarding work environment and remuneration package to retain and motivate key individuals. The system of financial rewards is reviewed regularly by the Board. Details of specific financial risk management objectives and policies of the Group are set out in Notes 1, 15 and 27 to the financial statements. The exposure of the Group to credit risk, liquidity risk, interest rate risk and cash flow risk is also detailed in these Notes, unless insignificant. The Environment The business of the Group is delivering marketing and advertising related services to Clients. The direct and indirect impact of these services on the environment is negligible and considered low risk, however we continue to take action to reduce our environmental impact where viable. Directors’ Indemnity Insurance As permitted by Section 233 of the Companies Act 2006, the Company has purchased insurance cover on behalf of the Directors, indemnifying them against certain liabilities which may be incurred by them in relation to the Company. Post Balance Sheet Events There were no material post balance sheet events. Policy on Payments to Creditors The Group does not have a standard code for dealing specifically with the payment of creditors. The Group negotiates payment terms with its suppliers on an individual basis and settles its accounts in accordance with those terms. Trade creditors at the year end represented 46 days purchases (2011: 37 days). The Mission Marketing Group plc Annual Report 2012 21 Employee Policies It is the Group’s policy not to discriminate between employees or potential employees on any grounds. The Group is committed to full and fair consideration of all applications. Selection of employees for recruitment, training, development and promotion are based on their skills, abilities, and relevant requirements for the job. The Group places considerable value on the involvement of its employees and has continued its previous practice of keeping them informed on matters affecting them as employees and on various factors affecting the performance of the Group. Employees are consulted regularly on a wide range of matters affecting their current and future interests. Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes and abilities of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure their employment with the Group continues and that the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. Political and Charitable Donations During the year the Group made charitable donations of £11,400 (2011: £10,744) to help support local worthy causes, along with other regional and national charities. Various parts of the Group have also lent their professional marketing expertise free of charge during the year to help charities raise their profile. The Group did not make any political donations during the year. Auditors Francis Clark LLP have indicated their willingness to continue in office and, in accordance with the provisions of the Companies Act 2006, it is proposed that they be re-appointed auditors to the Company for the ensuing year. Disclosure of Information to Auditors So far as the Directors are aware, there is no relevant audit information of which the Group’s auditors are unaware. The Directors have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Group’s auditors are aware of that information. Going Concern The Directors are pleased with the progress made since the refinancing and restructuring of the Group in April 2010. Each year has demonstrated a growth in revenue from net new business wins, profits have increased, and the balance sheet has been significantly strengthened by equity placings and a reduction in net debt. Looking to the future, the Directors have confidence that further progress can be made. In addition, they have considered the financial projections for 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 it is appropriate to adopt the financial statements on the basis that the Company and Group have adequate resources for the foreseeable future. Therefore the Company and the Group continue to adopt the going concern basis in preparing the financial statements. Annual General Meeting A notice convening the Annual General Meeting to be held on Monday 17 June 2013 at 12 noon is included within this report. On behalf of the Board Peter Fitzwilliam Finance Director 25 March 2013 22 The Mission Marketing Group plc Annual Report 2012 Corporate Governance The Board of The Mission Marketing Group plc is collectively accountable to the Company’s shareholders is not required to comply with the UK for good corporate governance. As an AIM-listed company, Corporate Governance Code (June 2010) (the “Code”) but complies as far as is practicable and appropriate for a public company of its size and nature. Board of Directors At 31 December 2012, the Board consisted of an Executive Chairman, eight Executive Directors and two Non-Executive Directors. Following the refinancing completed in April 2010 and the resultant transition to an operator-led focus, with the emphasis on organic growth and cost reductions, the Board considered it appropriate to appoint the CEOs of each of the Group’s principal Agencies, most of whom are the original founders of those Agencies, to the Board and to elect David Morgan, the founder of the Group’s largest Agency, as Executive Chairman. The Directors periodically re-consider the structure of the Board in the light of acquisitions and expansion and believe the structure established in 2010 remains appropriate. David Morgan is and within the industry and the Board continues to believe that, although well regarded both within combining the roles of Chairman and Chief Executive does not meet “best practice” under the Code, his role as Executive Chairman remains appropriate for the circumstances and that introducing a separate Chief Executive would disturb the balance of an entrepreneurial Board, still largely comprising original Vendors. Stephen Boyd and Chris Morris are Non-Executive Directors and, although Chris provides some consulting services to the Group, which are not significant in financial value, both are considered to be independent of management by virtue of their attitude. The Directors are collectively responsible for the strategic direction, investment decisions and effective control of the Group. There is a schedule of matters reserved for Board approval which includes, amongst other things, approval of the Group’s annual budget, acquisition of new subsidiaries, property leases, significant acquisitions or disposals of fixed assets, and material Client contracts. The Board meets in person at least eleven times each year and has regular telephonic and electronic contact in-between meetings. The Board is satisfied that it receives information of a quality and to a timetable that permits it to discharge its duties. All Directors are subject to election by shareholders at the first opportunity after their appointment. They are required to retire every three years and may seek re-appointment. The Board has established three committees to deal with specific aspects of the Group’s affairs. Audit Committee The Audit Committee consists of the two independent Non-Executive Directors, with Stephen Boyd as Chairman. The Committee considers matters relating to the reporting of results, financial controls, and the cost and effectiveness of the audit process. It aims to meet at least twice a year with the Group’s external auditors in attendance. Other Directors attend as required. The terms of reference of the Committee are available on request. The Audit Committee is satisfied that the Group’s auditors, Francis Clark LLP, have been objective and independent of the Group. The Group’s auditors performed non-audit services for the Group as outlined in Note 7 but the Audit Committee is satisfied that their objectivity and independence was not impaired by such work. The Mission Marketing Group plc Annual Report 2012 23 Remuneration Committee The Remuneration Committee consists of the two independent Non-Executive Directors, with Stephen Boyd as Chairman. The Committee determines the remuneration of the Executive Directors and makes recommendations to the Board with regard to remuneration policy and related matters. The Board maintains a policy of providing executive remuneration packages that will attract, motivate and retain Directors of the calibre necessary to deliver the Group’s growth strategy and to reward them for enhancing shareholder value. The Executive Directors’ remuneration packages consist of three elements: • basic salary and benefit package; • performance related bonus – the Group operates a performance-related bonus scheme, related to the delivery of profit targets; and • share option incentives – details of share options granted to the Executive Directors at the discretion of the Remuneration Committee are shown in the Directors’ report. Since Peter Fitzwilliam’s services as Chief Financial Officer are provided via VPF London Ltd, he is not eligible for benefits, however as a Director he is eligible for share option incentives and VPF London may receive performance-related bonuses. The Remuneration Committee reviews the components of each Executive Director’s remuneration package annually. The remuneration and terms and conditions of appointment of the Non-Executive Directors are determined by the Board. No Director is involved in setting his or her own remuneration. The Remuneration Committee meets as and when required. The terms of reference of the Committee are available on request. Nomination Committee The Nomination Committee consists of the Group’s Executive Chairman, David Morgan, as the Committee Chairman, and the two Non-Executive Directors. The Committee is responsible for reviewing and making proposals to the Board on the appointment of Directors and meets as necessary. The terms of reference of the Committee are available on request. Summary of Directors’ Attendance Board Meetings Remuneration Committee Audit Committee Nomination Committee Entitled to attend Attended Entitled to attend Attended Entitled to attend Attended Entitled to attend Attended Dylan Bogg Stephen Boyd James Clifton Robert Day Peter Fitzwilliam Chris Goodwin Bruce Hutton David Morgan Chris Morris Sue Mullen Fiona Shepherd 13 13 3 13 13 13 13 13 13 9 13 12 13 3 12 13 12 7 12 12 4 12 n/a 3 n/a n/a n/a n/a n/a n/a 3 n/a n/a n/a 3 n/a n/a n/a n/a n/a n/a 3 n/a n/a n/a 3 n/a n/a n/a n/a n/a n/a 3 n/a n/a n/a 3 n/a n/a n/a n/a n/a n/a 3 n/a n/a n/a – n/a n/a n/a n/a n/a – – n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 24 The Mission Marketing Group plc Annual Report 2012 Shareholder Communications The Company believes in good communication with shareholders. The Board encourages shareholders to attend its Annual General Meeting. The Chairman and the Finance Director meet analysts and institutional shareholders periodically in order to ensure that the strategy and performance of the Group are clearly understood, and they provide the first point of contact for any queries raised by shareholders. In the event that these Directors fail to resolve any queries, or where a Non-Executive Director is more appropriate, the Senior Independent Director, Stephen Boyd, is available to meet shareholders. Internal Financial Control The Board is responsible for ensuring that the Group maintains a system of internal financial controls. The objective of the system is to safeguard Group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is timely and reliable. Any such system can only provide reasonable, but not absolute, assurance against material loss or misstatement. The Board does not consider it would be appropriate to have its own internal audit function at the present time, given the Group’s size and the nature of its business. At present the internal audit of internal financial controls forms part of the responsibilities of the Group’s finance function. All the day to day operational decisions are taken initially by the Executive Directors, in accordance with the Group’s strategy. The Executive Directors are also responsible for initiating commercial transactions and approving payments, save for those relating to their own employment. The key internal controls include the specific levels of delegated authority and the segregation of duties; the prior approval of all acquisitions; the review of pertinent commercial, financial and other information by the Board on a regular basis; the prior approval of all significant strategic decisions; and maintaining a formal strategy for business activities. On behalf of the Board Peter Fitzwilliam Finance Director 25 March 2013 The Mission Marketing Group plc Annual Report 2012 25 Independent Auditor’s Report to the Members of The Mission Marketing Group plc We have audited the financial statements of The Mission Marketing Group plc for the year ended 31 December 2012 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 20 the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Group financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its profit for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the consolidated financial statements are prepared is consistent with the consolidated financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the parent company financial statements of The Mission Marketing Group plc for the year ended 31 December 2012. Christopher Hicks BA FCA (Senior Statutory Auditor) For and on behalf of Francis Clark LLP, Chartered Accountants and Statutory Auditors Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF 25 March 2013 26 The Mission Marketing Group plc Annual Report 2012 Consolidated Statement of Comprehensive Income For the year ended 31 December 2012 TURNOVER Cost of sales OPERATING INCOME Operating expenses before exceptional items OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS Exceptional items OPERATING PROFIT Investment income Finance costs PROFIT BEFORE TAXATION Taxation PROFIT FOR THE YEAR Other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE YEAR Basic earnings per share (pence) Diluted earnings per share (pence) Headline basic earnings per share (pence) Headline diluted earnings per share (pence) Year to 31 December 2012 Year to 31 December 2011 £’000 116,970 (69,446) 47,524 (41,736) 5,788 – 5,788 9 (1,113) 4,684 (1,306) 3,378 – 3,378 4.68 4.33 4.91 4.54 £’000 116,044 (74,577) 41,467 (35,619) 5,848 (100) 5,748 5 (1,641) 4,112 (1,026) 3,086 – 3,086 4.35 4.10 4.45 4.20 Note 2 2 4 5 6 7 9 11 11 11 11 The earnings per share figures derive from continuing and total operations. The Mission Marketing Group plc Annual Report 2012 27 Consolidated Balance Sheet As at 31 December 2012 FIXED ASSETS Intangible assets Property, plant and equipment CURRENT ASSETS Stock and work in progress Trade and other receivables Cash and short term deposits CURRENT LIABILITIES Trade and other payables Accruals Corporation tax payable Bank loans Acquisition obligations NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Bank loans Obligations under finance leases Acquisition obligations Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Own shares Share option reserve Retained earnings TOTAL EQUITY As at 31 December 2012 As at 31 December 2011 Note £’000 £’000 12 14 15 16 17 18 20 18 19 20 21 2 23 24 25 71,433 3,230 74,663 921 24,364 546 25,831 (13,625) (7,541) (1,359) (2,286) (1,124) (25,935) (104) 68,443 2,685 71,128 626 20,844 315 21,785 (10,378) (8,117) (820) (4,000) – (23,315) (1,530) 74,559 69,598 (10,596) (69) (1,210) – (11,875) 62,684 7,699 40,288 (1,201) 441 15,457 62,684 (11,641) (40) – (1) (11,682) 57,916 7,246 39,542 (1,234) 263 12,099 57,916 The financial statements were approved and authorised for issue on 25 March 2013 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam Finance Director Company registration number: 05733632 28 The Mission Marketing Group plc Annual Report 2012 Consolidated Cash Flow Statement For the year ended 31 December 2012 Operating profit Depreciation and amortisation charges Loss on disposal of property, plant and equipment Non cash charge for share options and shares awarded (Increase)/decrease in receivables Decrease/(increase) in stock and work in progress Increase/(decrease) in payables OPERATING CASH FLOWS Net finance costs Tax paid Net cash inflow from operating activities INVESTING ACTIVITIES Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Acquisition of subsidiaries Cash acquired with subsidiaries Acquisition of intangibles Net cash outflow from investing activities FINANCING ACTIVITIES Movement in finance leases Repayment of long term bank loans Proceeds on issue of ordinary share capital Net cash outflow from financing activities Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Year to 31 December 2012 Year to 31 December 2011 £’000 5,788 1,081 1 178 (2,313) 103 403 5,241 (884) (1,156) 3,201 2 (1,234) (728) 741 (5) (1,224) 109 (2,979) 1,124 (1,746) 231 315 546 £’000 5,748 762 16 129 1,401 (137) (726) 7,193 (1,566) (496) 5,131 69 (1,552) – – (190) (1,673) (68) (4,513) – (4,581) (1,123) 1,438 315 Consolidated Statement of Changes in Equity For the year ended 31 December 2012 Share Capital Share Premium Own Shares Share Option Reserve £’000 £’000 £’000 At 1 January 2011 Credit for share option scheme Shares awarded to employees from own shares Total Comprehensive Income for the year £’000 7,246 – – – 39,542 – (1,259) – – – 25 – At 31 December 2011 7,246 39,542 (1,234) New shares issued Credit for share option scheme Shares awarded to employees from own shares Total Comprehensive Income for the year 453 – – – 746 – – – – – 33 – Retained Earnings £’000 9,038 – Total £’000 54,701 129 (25) – 3,086 3,086 12,099 57,916 – – 1,199 178 (20) 13 3,378 3,378 134 129 – – 263 – 178 – – At 31 December 2012 7,699 40,288 (1,201) 441 15,457 62,684 The Mission Marketing Group plc Annual Report 2012 29 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) adopted by the European Union. The financial statements have been prepared on the historical cost basis. Going concern The Group’s available banking facilities provide comfortable levels of headroom against the Group’s projected cash flows and the Directors accordingly consider that it is appropriate to continue to adopt the going concern basis in preparing these financial statements. 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. Where the fair value of the identifiable net assets acquired exceeds the cost of acquisition, any discount on acquisition is credited to profit or loss in the period of acquisition. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income 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 The Group’s operating subsidiaries carry out a range of different activities. The following policies apply consistently across subsidiaries and business segments. 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 straddle the accounting year end, income is recognised to reflect the partial performance of the contractual obligations in accordance with IAS 18 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. 30 The Mission Marketing Group plc Annual Report 2012 Share-based payment transactions 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. Pension costs Retirement benefits to employees are provided by defined contribution schemes that are funded by the Group and employees. Payments are made to pension trusts that are financially separate from the Group. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are reflected in the profit or loss accordingly. Goodwill and other intangible assets Goodwill arising from the purchase of subsidiary undertakings and trade acquisitions represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary acquired, and is capitalised in accordance with the requirements of IFRS 3. 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. Goodwill is not amortised, but is reviewed annually for impairment. Goodwill impairment is assessed by comparing the carrying value of goodwill for each cash-generating unit to the future cash flows, discounted to their net present value using an appropriate discount rate, derived from the relevant underlying assets. Where the net present value of future cash flows is below the carrying value of goodwill, an impairment adjustment is recognised in profit or loss and is not subsequently reversed. Other intangible assets purchased separately, or separately identified as part of an acquisition, are amortised over periods of between 4 and 20 years, except certain brand names which are considered to have an indefinite useful life. The value of such brand names is not amortised, but rather an annual impairment test is applied and any shortfall in the present value of future cash flows derived from the brand name versus the carrying value is recognised in profit and loss. Property, plant and equipment Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful economic life, as follows: Short leasehold property Motor vehicles Fixtures, fittings and office equipment Computer equipment Period of the lease 25% per annum 10-33% per annum 25-33% per annum Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. The Mission Marketing Group plc Annual Report 2012 31 Stock and work in progress Stock and 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 taxation Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 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 present value. The differences between the present value of the liabilities and the actual amounts payable, where material, are charged to the profit or loss as notional finance costs 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. 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 recognised. 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. Financial liabilities are released to income when the liability is extinguished. 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. 32 The Mission Marketing Group plc Annual Report 2012 Finance costs Finance costs, which include interest, bank charges and the unwinding of the discount on deferred consideration, are recognised in profit or loss in the year in which they are incurred. Bank debt renegotiation fees, where they can be amortised over the life of the loan facility, are included in finance costs. 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; • revenue recognition policies in respect of contracts which straddle the year end; and • valuation of intangible assets on acquisitions. The potential impairment of goodwill is based on estimates of future cash flows derived from the financial projections of each cash-generating unit over an initial three year period and assumptions about growth thereafter, discussed in more detail in Note 12. Estimating these future cash flows is the Group’s key source of estimation uncertainty. Revenue is recognised based on an estimate of the stage of completion of contracts which straddle the year end, typically derived from the amount of time so far committed to those contracts in relation to the total estimated time to complete them. When considering the valuation of intangible assets on acquisitions, a range of methods is undertaken both for identifying intangibles and placing valuations on them. Brand names, customer relationships, intellectual property rights and goodwill are the most frequently identified intangible assets. The valuation of each element is assessed by reference to commonly used techniques, such as “relief from royalty” and “excess earnings” and to industry leaders and competitors. New standards, interpretations and amendments to existing standards There are no material impacts arising from standards and interpretations applicable for the first time to these financial statements, as detailed in the prior year financial statements. The following IFRS 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. None of these Standards and Interpretations is anticipated to have a significant impact on the Group. • IFRS 9, ‘Financial instruments’, effective 1 January 2015 • IFRS 10, ‘Consolidated financial statements’ effective 1 January 2013 • IFRS 11, ‘Joint arrangements’ effective 1 January 2013 • IFRS 12, ‘Disclosure of interests in other entities’ effective 1 January 2013 • IFRS 13, ‘Fair value measurement’ effective 1 January 2013 The above standards have not yet been adopted by the European Union and therefore do not form part of IFRS as adopted by the European Union. A number of revised IFRSs and amendments to IFRSs are also currently in issue which are not relevant for the Group’s activities and which have not therefore been adopted in preparing these financial statements. The Mission Marketing Group plc Annual Report 2012 33 2. Segmental Information Business segmentation For management purposes the Group had seven operating subsidiaries during the period: April-Six Ltd, Big Communications Ltd, Bray Leino Ltd (incorporating Addiction and Yucca), Fox Murphy Ltd (trading as balloon dog), RLA Group Ltd, Story UK Ltd and ThinkBDW Ltd (incorporating Robson Brown), each of which carries out a range of activities. These activities have been divided into four business and operating segments as defined by IFRS 8 which form the basis of the Group’s primary reporting segments, namely: Branding, Advertising and Digital; Media; Events and Learning; and Public Relations. Year to 31 December 2012 Turnover Operating income Segmental operating profit Unallocated corporate expenses Headline operating profit Investment income Finance costs Headline profit before tax Profit adjustments (Note 3) Reported profit before taxation Taxation Profit for period Other Information Capital expenditure Unallocated capital expenditure Total capital expenditure Depreciation and amortisation Unallocated depreciation and amortisation Total depreciation and amortisation Balance Sheet Assets Segment assets Unallocated corporate assets Consolidated total assets Liabilities Segment Liabilities Unallocated corporate liabilities Consolidated total liabilities Branding, Advertising & Digital £’000 58,291 36,905 5,771 Media £’000 46,144 4,597 1,109 Events & Learning Public Relations £’000 9,652 3,565 139 £’000 2,883 2,457 26 825 173 164 835 57 105 72 49 26,822 4,484 520 323 14,406 4,582 212 122 Group £’000 116,970 47,524 7,045 (1,085) 5,960 9 (1,113) 4,856 (172) 4,684 (1,306) 3,378 1,234 – 1,234 1,046 35 1,081 32,149 68,345 100,494 19,322 18,488 37,810 Consolidated net assets / (liabilities) 12,416 (98) 308 201 62,684 Unallocated corporate expenses include corporate administration expenses necessary for a quoted company. It is considered impractical to split the debt interest into segments. 34 The Mission Marketing Group plc Annual Report 2012 The split of assets and liabilities has been estimated, as the businesses are integrated. Unallocated corporate assets and liabilities include unallocated IFRS assets and liabilities, corporate assets and liabilities, Group cash reserves and drawn debt liabilities. Year to 31 December 2011 Turnover Operating income Segmental operating profit Unallocated corporate expenses Headline operating profit Investment income Finance costs Headline profit before tax Profit adjustments (Note 3) Profit before taxation Taxation Profit for period Other Information Capital expenditure Unallocated capital expenditure Total capital expenditure Depreciation and amortisation Unallocated depreciation and amortisation Total depreciation and amortisation Balance Sheet Assets Segment assets Unallocated corporate assets Consolidated total assets Liabilities Segment Liabilities Unallocated corporate liabilities Consolidated total liabilities Branding, Advertising & Digital £’000 50,150 30,767 5,027 Events & Learning Public Relations Media £’000 £’000 51,335 11,890 4,559 1,593 4,045 302 £’000 2,669 2,096 12 1,267 61 103 121 570 48 84 46 21,223 5,700 866 401 10,201 5,484 334 145 Group £’000 116,044 41,467 6,934 (1,086) 5,848 5 (1,641) 4,212 (100) 4,112 (1,026) 3,086 1,552 – 1,552 748 14 762 28,190 64,723 92,913 16,164 18,833 34,997 Consolidated net assets 11,022 216 532 256 57,916 Geographical segmentation Virtually all of the Group’s operations are based in the UK and substantially all the Group’s business is executed in the UK. The Mission Marketing Group plc Annual Report 2012 35 3. Reconciliation of Headline Profit to Reported Profit Year to 31 December 2012 Year to 31 December 2011 Headline profit before finance costs, income from investments and taxation Net finance costs Headline profit before taxation Adjustments Exceptional items IFRS amortisation of other intangibles recognised on acquisitions Acquisition transaction costs expensed under IFRS Reported profit before taxation Headline profit before taxation Headline taxation Headline profit after taxation Adjustments Other exceptional costs IFRS amortisation of other intangibles recognised on acquisitions Acquisition transaction costs expensed under IFRS Taxation impact Reported profit after taxation 4. Exceptional Items Restructuring costs £’000 5,960 (1,104) 4,856 – (76) (96) 4,684 4,856 (1,313) 3,543 – (76) (96) 7 3,378 £’000 5,848 (1,636) 4,212 (100) – – 4,112 4,212 (1,053) 3,159 (100) – – 27 3,086 Year to 31 December 2012 Year to 31 December 2011 £’000 – £’000 100 Exceptional items represent revenue or costs that, either by their size or nature, require separate disclosure in order to give a fuller understanding of the Group’s financial performance. 5. Investment Income Interest on bank deposits 6. Finance Costs and IFRS Interest Charges Finance costs Interest on bank loans and overdrafts Amortisation of bank debt renegotiation fees Year to 31 December 2012 Year to 31 December 2011 £’000 9 £’000 5 Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 (808) (305) (1,113) (1,182) (459) (1,641) 36 The Mission Marketing Group plc Annual Report 2012 7. Profit on Ordinary Activities before Tax Profit on ordinary activities before taxation is stated after charging/(crediting): Depreciation of owned tangible fixed assets Depreciation of tangible fixed assets held under finance leases Amortisation of intangible assets Loss/(profit) on disposal of property, plant and equipment Operating lease rentals – Land and buildings Operating lease rentals – Plant and equipment Operating lease rentals – Other assets Staff costs (see Note 8) Auditors’ remuneration Loss / (profit) on foreign exchange Auditors’ remuneration may be analysed by: Audit Taxation Corporate finance Other services Year to 31 December 2012 Year to 31 December 2011 £’000 915 90 76 1 1,066 377 175 31,256 201 29 £’000 693 61 8 16 1,125 299 166 26,278 164 (7) Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 110 20 58 13 201 99 19 38 8 164 The increase in audit costs reflects the expansion of the Group through acquisition during the year. Other services include review of the Group’s Interim Report, accounting advice on various International Financial Reporting Standards and advice in relation to business issues. 8. Employee Information The average number of Directors and staff employed by the Group during the year analysed by segment, was as follows: Branding, Advertising & Digital Media Events & Learning Public Relations Central The Mission Marketing Group plc Annual Report 2012 Year to 31 December 2012 Year to 31 December 2011 Number Number 578 41 105 38 3 765 469 39 111 37 3 659 37 The aggregate employee costs of these persons were as follows: Wages and salaries Social security costs Pension costs Share based payment expense Directors’ remuneration Year to 31 December 2012 Year to 31 December 2011 £’000 27,232 2,989 920 143 31,284 £’000 22,896 2,500 753 129 26,278 Included in the above are the following amounts (in £) paid to Directors for the periods in each year they were TMMG plc Directors. Performance- related Payments Salary / Fees Benefits Pension Total 31 December 2012 Total 31 December 2011 Current Directors Dylan Bogg Stephen Boyd (Note 3) James Clifton (Note 2) (from 11 October 2012) Robert Day (Note 4) Peter Fitzwilliam (Note 5) Chris Goodwin (from 27 April 2011) Bruce Hutton David Morgan Chris Morris (Note 6) Sue Mullen (Note 2) (from 18 June 2012) Fiona Shepherd Former Director Brian Child (Note 7) (to 30 September 2011) Notes: 150,362 30,000 36,125 113,154 162,520 102,500 157,500 125,383 89,050 59,063 143,983 – – – 63,000 15,000 16,000 – 20,000 – 10,000 15,000 2,501 – 195 8,983 - 13,504 21,386 22,282 1,814 88 1,509 7,313 – 4,813 43,450 – 9,326 10,440 6,000 – 5,906 – 160,176 30,000 41,133 228,587 177,520 141,330 189,326 173,665 90,864 75,057 160,492 151,949 29,166 – 173,046 165,000 76,085 221,275 155,473 85,979 – 125,367 - - - - - 21,667 1,169,640 139,000 72,262 87,248 1,468,150 1,205,007 1. Dylan Bogg, Robert Day, Chris Goodwin, Bruce Hutton, and Fiona Shepherd, were paid £12,500 as TMMG plc Directors, with the balance of their remuneration paid as Directors and employees of subsidiary companies for services rendered there. 2. James Clifton and Sue Mullen were paid £nil as TMMG plc Directors, but were paid as Directors and employees of subsidiary companies for services rendered there. 3. The services of Stephen Boyd as a TMMG plc Director were provided through Stephen Boyd Ltd, a company controlled by him. 4. Robert Day operated a salary sacrifice during the year, whereby an amount of £43,450, including Employer’s National Insurance Contributions, was paid into his pension. 5. Peter Fitzwilliam was paid £20,500 as a TMMG plc Director (2011: £4,000 from 1 July 2011). In addition, his services as CFO were provided by VPF London Ltd, a company controlled by him. 6. Chris Morris was paid £42,500 as a TMMG plc Director during the year (2011: £39,667). In addition, he was paid for his consulting services through a consultancy practice owned by him, Morris Marketing Consultancy. 7. The services of Brian Child as a TMMG plc Director were provided through Brain Child Marketing Ltd, a company controlled by him. 38 The Mission Marketing Group plc Annual Report 2012 9. Taxation Current tax: UK corporation tax at 24.5% (2011: 26.5%) Adjustment for prior periods Deferred tax: Current year reversing/(originating) temporary differences Adjustment for prior periods Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 1,390 (93) 1,297 9 – 1,265 (288) 977 (2) 51 Tax charge for the year 1,306 1,026 Factors affecting the tax charge for the current year: The tax assessed for the year is higher (2011: lower) than the standard rate of corporation tax in the UK. The differences are: Profit before taxation Year to 31 December 2012 Year to 31 December 2011 £’000 4,684 £’000 4,112 Profit on ordinary activities before tax at the standard rate of corporation tax of 24.5% (2011: 26.5%) 1,148 1,090 Effect of: Non-deductible expenses Adjustments to prior periods Movement on provisions IFRS charges Other differences Actual tax charge for the year 156 (93) 42 – 53 188 (237) (6) (4) (5) 1,306 1,026 The Mission Marketing Group plc Annual Report 2012 39 10. Dividends The Board does not propose payment of a dividend at this stage (2011: nil) although it has declared its intention to declare a dividend during 2013 subject to trading in the first half of the year. 11. 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. Earnings Earnings for the purpose of reported earnings per share being net profit attributable to equity holders of the parent Earnings for the purpose of headline earnings per share (see Note 3) Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Dilutive effect of securities: Employee share options Bank warrants Weighted average number of ordinary shares for the purpose of diluted earnings per share Reported basis Basic earnings per share (pence) Diluted earnings per share (pence) Headline basis Basic earnings per share (pence) Diluted earnings per share (pence) Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 3,378 3,543 3,086 3,159 72,169,181 70,944,643 3,461,578 2,386,907 2,007,832 2,333,434 78,017,666 75,285,909 4.68 4.33 4.91 4.54 4.35 4.10 4.45 4.20 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. 40 The Mission Marketing Group plc Annual Report 2012 12. Intangible Assets – Goodwill Cost At 1 January Recognised on acquisition of subsidiaries Adjustment to consideration At 31 December Impairment adjustment At 1 January and 31 December Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 72,186 2,113 15 74,314 72,186 – – 72,186 3,995 3,995 Net book value at 31 December 70,319 68,191 In accordance with the Group’s accounting policies, an annual impairment test is applied to the carrying value of goodwill. The review performed assesses whether the carrying value of goodwill is supported by the net present value of projected cash flows derived from the underlying assets for each cash-generating unit (“CGU”). The initial projection period of three years includes the annual budget for each CGU, based on insight into Clients’ planned marketing expenditure and targets for net new business growth derived from historical experience, and extrapolations of the budget in subsequent years based on known factors and estimated trends. The key assumptions used by each CGU concern revenue growth and staffing levels, and different assumptions are made by different CGUs based on their individual circumstances. After the initial projection period, an annual growth rate of 2.5% was assumed for all units and the resulting pre-tax cash flow forecasts were discounted using the Group’s estimated pre-tax weighted average cost of capital, which is 7.5%. The Directors assessed the sensitivity of the impairment test results to changes in key assumptions and concluded that a reasonably possible change to the key assumptions would not cause the carrying value of goodwill for any CGU to exceed the net present value of its projected cash flows. Goodwill arose from the acquisition of the following subsidiary companies and trade assets and is comprised of the following substantial components: Addiction Worldwide April-Six Ltd Big Communications Ltd/Fuse Digital Ltd Bray Leino Ltd Friars 573 Ltd/Fox Murphy Ltd (trading as balloon dog) Haven Marketing Ltd RLA Group Ltd Story UK Ltd ThinkBDW Ltd Quorum Advertising Ltd 31 December 2012 31 December 2011 £’000 372 9,411 8,125 30,846 1,514 127 6,572 6,969 6,283 100 70,319 £’000 – 9,411 8,125 30,831 – – 6,572 6,969 6,283 – 68,191 The Mission Marketing Group plc Annual Report 2012 41 Other intangible assets Cost At 1 January Additions At 31 December Amortisation At 1 January Charge for the year At 31 December Net book value Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 271 938 1,209 19 76 95 1,114 81 190 271 11 8 19 252 Additions of £938,000 in the year include Client relationships and trade names acquired relating to balloon dog and Addiction Worldwide of which £163,000 relates to trade names deemed to have an indefinite useful life (2011: £190,000 consists of Client lists and other information acquired relating to FireIMC and Yucca). 13. Subsidiaries The Group’s principal trading subsidiaries are listed below. All subsidiaries are 100% owned and all are incorporated in the United Kingdom. Subsidiary undertaking Nature of business April-Six Ltd Integrated communications, specialising in the technology sector Big Communications Ltd Brand planning and strategic development; new media marketing, including website design and advertising, SMS messaging, digital video and database management Bray Leino Ltd Advertising, events and PR Fox Murphy Ltd (trading as balloon dog) Marketing communications agency RLA Group Ltd Story UK Ltd ThinkBDW Ltd Marketing and communications Brand development and creative direct communication Property marketing, providing advertising, media, brochures, signage, exhibitions, CGI, animation, intranet and photography 42 The Mission Marketing Group plc Annual Report 2012 14. Property, Plant and Equipment Short Leasehold Property Fixtures & Fittings and Office Equipment Computer Equipment Motor Vehicles £’000 £’000 £’000 £’000 Cost or valuation At 1 January 2011 Additions Disposals At 31 December 2011 Acquisition of subsidiaries Additions Disposals 1,389 204 (3) 1,590 24 73 (6) 2,169 388 (368) 2,189 53 478 (34) 2,421 945 (374) 2,992 779 631 (74) At 31 December 2012 1,681 2,686 4,328 Depreciation At 1 January 2011 Charge for the year Disposals At 31 December 2011 Acquisition of subsidiaries Charge for the year Disposals 928 100 (3) 1,025 7 109 (6) 1,477 200 (316) 1,361 15 268 (34) 1,686 409 (342) 1,753 531 589 (72) At 31 December 2012 1,135 1,610 2,801 Net book value at 31 December 2012 Net book value at 31 December 2011 546 1,076 1,527 565 828 1,239 263 15 (39) 239 27 52 (69) 249 179 45 (38) 186 12 39 (69) 168 81 53 Total £’000 6,242 1,552 (784) 7,010 883 1,234 (183) 8,944 4,270 754 (699) 4,325 565 1,005 (181) 5,714 3,230 2,685 The net book amount includes £267,000 (2011: £203,000) in respect of assets held under finance lease agreements. The depreciation charged to the financial statements in the year in respect of such assets amounted to £90,000 (2011: £61,000). 15. Trade and Other Receivables Gross trade receivables Less: Provision for doubtful debts Other receivables Prepayments Accrued income Deferred tax asset 31 December 2012 31 December 2011 £’000 19,119 (104) 19,015 552 1,023 3,774 – 24,364 £’000 17,098 (93) 17,005 437 739 2,653 10 20,844 An allowance has been made for estimated irrecoverable amounts from the provision of services of £104,000 (2011: £93,000). The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The Mission Marketing Group plc Annual Report 2012 43 Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables and investments, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables. In order to mitigate this risk, the Group has arranged credit insurance on certain of its trade receivables as deemed appropriate. Where credit insurance is not considered cost effective, the Group monitors credit-worthiness closely and mitigates risk, where appropriate, through payment plans. The credit risk on cash balances is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. 16. Cash and Short Term Deposits Cash and short term deposits comprise cash held by the Group and short term bank deposits. 17. Trade and Other Payables Trade creditors Finance leases Other creditors Other tax and social security payable 31 December 2012 31 December 2011 £’000 9,271 136 454 3,764 £’000 7,609 56 272 2,441 13,625 10,378 Trade and other creditors principally comprise amounts outstanding for trade purchases and on-going costs. The Directors consider that the carrying amount of trade payables approximates their fair value. 18. Bank Overdrafts, Loans and Net Debt 31 December 2012 31 December 2011 Bank loan outstanding Adjustment to amortised cost Carrying value of loan outstanding Less: Cash and short term deposits Net bank debt The borrowings are repayable as follows: Less than one year In one to two years In more than two years but less than three years Adjustment to amortised cost Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months £’000 13,357 (475) 12,882 (546) 12,336 2,286 2,286 8,785 13,357 (475) 12,882 (2,286) 10,596 £’000 16,207 (566) 15,641 (315) 15,326 4,000 12,207 – 16,207 (566) 15,641 (4,000) 11,641 44 The Mission Marketing Group plc Annual Report 2012 The adjustment to amortised cost relates to the amortisation of bank debt renegotiation fees over the life of the loan facility. At 31 December 2012, the Group had a term loan facility of £6.9m due for repayment by December 2015 on a quarterly basis, and a revolving credit facility of up to £7.0m, expiring on 27 December 2015. Interest on both the term loan facility and the revolving credit facility is based on 3 month LIBOR plus 3.5%, payable in cash on loan rollover dates. The gross amount of the revolving credit facility drawn at 31 December 2012 was £6.5m. In addition to its committed facilities, the Group had available an overdraft facility of up to £2.5m with interest payable by reference to National Westminster Bank plc Base Rate plus 3.5%. At 31 December 2012, there was 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 in favour of Royal Bank of Scotland plc. All borrowings are in sterling. 19. Obligations under Finance Leases Obligations under finance leases are as follows: In one year or less Between two and five years 31 December 2012 31 December 2011 £’000 136 69 205 £’000 56 40 96 Assets held under finance leases consist of office equipment. The fair values of the Group’s lease obligations approximate their carrying amount. The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. 20. Acquisitions 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: Less than one year Between one and two years In more than two years but less than three years In more than three years but less than four years Initial Consideration £’000 49 – – – 49 Contingent Consideration Cash Contingent Consideration Shares £’000 1,000 339 339 389 2,067 £’000 75 48 48 47 218 Total £’000 1,124 387 387 436 2,334 The Mission Marketing Group plc Annual Report 2012 45 Acquisition of Friars 573 Ltd (“balloon dog”) On 11 October 2012, the Group acquired the whole issued share capital of Friars 573 Ltd, the holding company of Fox Murphy Ltd, a company trading as balloon dog (“balloon dog”). The fair value of the consideration given for the acquisition was £2,823,000. Initial consideration was satisfied by a cash payment of £451,000 and the issue of £87,000 of shares. Costs relating to the acquisition amounted to £51,000 and were expensed. Maximum contingent consideration of £2,496,000 is dependent on balloon dog achieving various profit targets over the period December 2012 to December 2015. The Group has provided for contingent consideration of £2,285,000 to date. This contingent consideration is to be settled by a combination of cash and shares. The fair value of the net identifiable assets acquired was £578,000 resulting in goodwill and other intangible assets of £2,245,000. Management carried out a review to assess whether any other intangible assets were acquired as part of the transaction. Management concluded that both a brand name and customer relationships were acquired and attributed a value to each of these by applying commonly accepted valuation methodologies. The goodwill arising on the acquisition is attributable to the anticipated profitability of the Company. Book Value Fair Value Adjustments £’000 £’000 Fair Value £’000 Net assets acquired Investments and goodwill Fixed assets Stock and work in progress Trade and other receivables Cash and cash equivalents Trade and other payables Deferred taxation Preference shares Other intangibles recognised at acquisition Goodwill Total consideration Satisfied by: Cash Shares Deferred contingent consideration 242 238 398 1,034 676 (1,551) (5) (212) – (242) – – – – – – – 731 – 238 398 1,034 676 (1,551) (5) (212) 578 731 1,309 1,514 2,823 451 87 2,285 2,823 The majority of the cash and cash equivalents acquired were utilised following acquisition to settle preference shares, corporation tax and other obligations. balloon dog contributed turnover of £1,394,000, operating income of £1,216,000 and headline operating profit of £137,000 to the results of the Group since acquisition. 46 The Mission Marketing Group plc Annual Report 2012 Acquisition of Addiction Worldwide (“Addiction”) On 21 September 2012, the Group acquired the trade and assets of Addiction Worldwide from Francis Clark LLP, Administrators. The fair value of the consideration given for the acquisition was £85,000, all settled in cash on completion. There is no deferred or contingent consideration payable. Costs relating to the acquisition amounted to £23,420 and were expensed. The fair value of the net identifiable liabilities acquired was £489,000 resulting in goodwill and other intangible assets of £574,000. Management carried out a review to assess whether any other intangible assets were acquired as part of the transaction. Management concluded that both a brand name and customer relationships were acquired and attributed a value to each of these by applying commonly accepted valuation methodologies. The goodwill arising on the acquisition is attributable to the anticipated profitability of the acquired trade and assets and the anticipated future operating synergies from the combination. Book Value Fair Value Adjustments £’000 £’000 Fair Value £’000 Net assets acquired Fixed assets Trade and other receivables Cash and cash equivalents Trade and other payables Other intangibles recognised at acquisition Goodwill Total consideration Satisfied by: Cash 81 183 65 (337) – – – – (481) 202 81 183 65 (818) (489) 202 (287) 372 85 85 85 The majority of the net liabilities acquired were settled following acquisition by drawing on the Group’s cash resources. 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’s contribution to profit was breakeven. Pro-forma results including acquisitions The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £128.0m, £54.9m and £6.3m had the Group consolidated the results of balloon dog and Addiction from the beginning of the year. The Mission Marketing Group plc Annual Report 2012 47 21. Deferred Taxation The deferred taxation liability of nil (2011: £1,000) recognised in the financial statements is set out below: Accelerated capital allowances Other timing differences The movement in the year is analysed as follows: As at 1 January Credit to profit or loss As at 31 December 31 December 2012 31 December 2011 £’000 £’000 – – – – 1 1 Year to 31 December 2012 Year to 31 December 2011 £’000 £’000 1 (1) – 2 (1) 1 As shown in Note 15, there is a deferred tax asset of nil (2011: £10,000) relating to accounting adjustments for IFRS. 22. Financial Commitments Operating lease commitments As at 31 December the Group had annual commitments under non-cancellable operating leases as follows: 31 December 2012 31 December 2011 Land and Buildings £’000 147 678 376 1,201 Other £’000 74 467 – 541 Land and Buildings £’000 178 326 444 948 Other £’000 13 468 – 481 Operating leases which expire: Within one year Between two and five years After more than 5 years 23. Share Capital Authorised 85,000,000 ordinary shares of 10p each (2011: 85,000,000 ordinary shares of 10p each) Allotted and called up 76,990,940 ordinary shares of 10p each (2011: 72,460,444 ordinary shares of 10p each) 31 December 2012 31 December 2011 £’000 £’000 8,500 8,500 7,699 7,246 48 The Mission Marketing Group plc Annual Report 2012 On 11 October 2012 241,352 shares with a total nominal value of £24,135 were issued to the vendors of Friars 573 Ltd as part of the consideration for the acquisition at a value of 31.075p each, for a total consideration of £75,000. In addition, 4,289,144 shares with a total nominal value of £428,914 were issued through a private placing on 11 October 2012, these shares being issued at a value of 28.0p each, for a total consideration of £1,200,960. £77,048 of share issue costs were incurred in connection with this private placing and were written off to share premium. Options The Group has the following options in issue: At start of year Granted Waived/lapsed Exercised At end of year TMMG Long Term Incentive Plan Bank warrants 2,751,000 2,333,434 1,450,000 177,019 (178,000) – – – 4,023,000 2,510,453 TMMG Long Term Incentive Plan (“LTIP”) was created to incentivise certain key employees. The vesting criterion applicable to the LTIPs in issue at the start of the year, all with a nil exercise price, is that they are dependent upon the achievement of profit targets over the three year periods ending 31 December 2012 and 31 December 2013. LTIPs issued during the year, also with a nil exercise price, may vest dependent upon the achievement of profit targets over the three year period ending 31 December 2014. Shares held in an Employee Benefit Trust (see Note 24) will be used to satisfy share options exercised under The Mission Marketing Group Long Term Incentive Plan. Warrants over 3% of the Group’s fully diluted share capital were issued to the Group’s loan providers following the refinancing completed in 2010 and are exercisable at any time until 15 April 2017. These outstanding warrants have a 10.0p exercise price. 24. Own Shares At 1 January 2011 Awarded to employees during the year At 31 December 2011 Awarded to employees during the year At 31 December 2012 No. of Shares 1,531,041 (31,250) 1,499,791 (39,284) 1,460,507 £’000 1,259 (25) 1,234 (33) 1,201 Shares are held in an Employee Benefit Trust to meet certain requirements of The Mission Marketing Group Long Term Incentive Plan. 25. Share Option Reserve The share option reserve (formerly called the staff remuneration reserve) represents charges to the profit or loss required by IFRS 2 to reflect the cost of the options issued to the Directors and employees and the warrants issued to the loan providers. The Mission Marketing Group plc Annual Report 2012 49 26. Share-based Payments Options Fair value on grant date is measured by use of a Black Scholes model. The valuation methodology is applied at each year end and the valuation revised to take account of any changes in estimate of the likely number of shares expected to vest. Details of the relevant option schemes are given in Note 23. The key inputs are: Share price Risk free rate Dividend yield 2012 29p 0.3% 1.0% 2011 18p 0.6% 0.0% Volatility is based on the historical volatility of the share price over a 3 year trading period although, for nil-cost options issued under the Group’s Long Term Incentive Scheme, volatility does not impact the calculation of fair value. The weighted average share price over the three years ending 31 December 2012 was 18.2p. The Group recognised an expense of £178,000 in 2012 (2011: £129,000). 27. Financial Assets and Liabilities Capital management The Group defines “capital” as being net debt plus equity. Net debt comprises short and long term borrowings net of cash, cash equivalents and the unamortised balance of bank renegotiation fees as analysed in Note 18. Equity comprises issued share capital, reserves and retained earnings as disclosed in the balance sheet and in the consolidated statement of changes in equity. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and maintain an appropriate capital structure to balance the needs of the Group to grow, whilst operating with sufficient headroom within its bank covenants. The principal measure by which the Directors monitor capital risk is the ratio of net debt to EBITDA and, at the time of the restructuring in April 2010, set a target to reduce this ratio to below x2 by the end of 2012. Below this level, the Group has a number of options available to optimise the debt/equity balance including, inter alia, dividend payments, returning capital to shareholders or issuing new shares. Financial risk management The Group’s financial instruments comprise cash and various forms of borrowings. As permitted by IAS 39, short-term debtors and creditors have been excluded. Substantially all the Group’s activities take place in the United Kingdom and no material transactions take place with overseas customers or suppliers in local currency. There was no material foreign currency exposure at the year end. The main purpose of the Group’s use of financial instruments is for day-to-day working capital and as part of the funding for past acquisitions. The Group’s financial policy and risk management objective is to achieve the best interest rates available whilst maintaining flexibility and minimising risk. The main risks arising from the Group’s use of financial instruments are interest rate risk and liquidity risk. Interest rate risk The operations of the Group generate cash and it funds acquisitions through a combination of retained profits, equity issues and borrowings. The Group’s financial liabilities comprise floating rate instruments. The bank loan’s interest rate is reset from time to time and accordingly is not deemed a fixed rate financial liability. Interest on both the Group’s revolving credit facility and its term loan is payable by reference to 3 month LIBOR plus 3.5%, subject to a downward ratchet on achievement of certain ratios of debt to EBITDA on a quarterly basis. In 2012 the Group resumed its policy of using hedging instruments to limit the exposure to interest rate risk. This policy had been temporarily suspended when various cap and collar instruments matured during 2011, on the basis that they were not considered cost effective in the low interest environment that existed at the time. The interest rate cap taken out in December 2012 limits the Group’s exposure to 3 month LIBOR on £8.2m of notional principal to 1.0%. This interest rate cap amortises in three monthly instalments and matures on 30 June 2015. The cap arrangement is considered to be closely related to the host debt contract. 50 The Mission Marketing Group plc Annual Report 2012 Liquidity risk The Group’s financial instruments include a mixture of short and long-term borrowings. The Group seeks to ensure sufficient liquidity is available to meet working capital needs and the repayment terms of the Group’s financial instruments as they mature. Financial assets Cash at bank maturing in less than one year or on demand Financial liabilities Interest analysis Subject to floating rates Subject to fixed rates Maturity analysis One year or less, or on demand In one to two years In more than two years Bank Loan and Overdraft £’000 13,357 – 13,357 2,286 2,286 8,785 13,357 Finance Leases £’000 – 205 205 136 69 – 205 Acquisition Obligations £’000 – 2,334 2,334 1,124 387 823 2,334 31 December 2012 £’000 546 31 December 2012 Total £’000 13,357 2,539 15,896 3,546 2,742 9,608 15,896 The Group’s bank loans and overdraft facility are floating rate borrowings and all facilities are secured by a fixed and floating charge over the assets of all Group companies. The fair value of the Group’s financial assets and liabilities is not considered to be materially different from their book values. 28. Pensions The Group operates fifteen defined contributions pension schemes. The pension cost charge for the year represents contributions payable by the Group to the schemes and amounted to £920,000 (2011: £753,000). At the end of the financial year outstanding contributions amounted to £71,000 (2011: £56,000). 29. Leave Pay Accrual No liability or expense has been recognised relating to untaken leave for any of the periods presented. The Group has a policy of not allowing days to be carried forward from one year to the next, unless in exceptional circumstances. In addition, no payment is made in lieu of untaken leave which is not carried forward. As a result, there is no material liability relating to untaken leave at year end. 30. Post Balance Sheet Events There are no material post balance sheet events. The Mission Marketing Group plc Annual Report 2012 51 31. Related Party Transactions The Directors consider that the Directors of the Company represent the Group’s key management personnel for the purposes of disclosing related party transactions. Directors’ remuneration is disclosed in Note 8. The total compensation payable to key management personnel is detailed below. Short-term employee benefits Post-employment benefits Share based payments Parent company Year to 31 December 2012 Year to 31 December 2011 £’000 1,381 87 59 1,527 £’000 1,159 46 32 1,237 Stephen Boyd receives his Non-Executive Director’s remuneration through Stephen Boyd Ltd, an entity of which he is an interested party. In addition, VPF London Ltd, an entity in which Peter Fitzwilliam is an interested party, received £157,020 for the provision of CFO services, and Morris Marketing Consultancy, an entity in which Chris Morris is an interested party, received £42,000 for the provision of consultancy services. Subsidiary undertakings During the year, Bray Leino Ltd purchased printing services to the value of £324,562 (2011: £381,199) from Blue Sky Design & Print Ltd, a company in which Bray Leino Ltd had a 50% equity interest. Bray Leino Ltd sold its 50% interest in Blue Sky Design & Print Ltd on 31 December 2012. Blue Sky Design & Print Ltd was treated as an associate in the financial statements of The Mission Marketing Group plc, and the results are not material to the consolidated financial statements of The Mission Marketing Group plc. Bray Leino Ltd is contracted to pay annual rent of £60,000 (2011: £60,000) to Mrs P H Morgan, the wife of Mr D W Morgan, Chairman of The Mission Marketing Group plc. As at the year end there were no amounts due from or owed to Mrs P H Morgan. Bray Leino Ltd is also contracted to rent premises from Hannele Ltd, in which Mr D W Morgan has a 100% beneficial interest. During the year annual rent of £74,000 (2011: £74,000) and property management fees of £18,000 (2011: nil) were paid to Hannele Ltd. Bray Leino Ltd also rents premises from a partnership, in which Hannele Ltd has a 50% interest, for an annual rent of £60,000 (2011: £60,000). As at the year end there were no amounts due from or owed to Hannele Ltd. ThinkBDW Ltd is contracted to pay annual rent to Mrs K Day and Mr A Day (wife and brother respectively of Robert Day, Executive Director). The £35,000 annual rental payable (2011: £35,000) was set at market value and at the end of the year £17,500 (2011: nil) was due. ThinkBDW Ltd also purchased used cars during the year with an aggregate value of £24,500 at market value from Mr A Day for use in the business. Robert Day advanced a short term loan of £200,000 to ThinkBDW Ltd during the year. The advance was interest free and was repaid before the year end. Big Communications Ltd paid rent during the year of £71,000 (2011: £71,000) to four individuals, including Dylan Bogg (Executive Director) and Chris Morris (Non-Executive Director). In addition, Morris Marketing Consultancy, a consultancy practice owned by Chris Morris, invoiced Big Communications Ltd and was paid £5,054 (2011: £44,183) during the year for services rendered. Mr Morris also received a benefit of £1,814 from the company. 32. Availability of Annual Report Copies of the Annual Report for the year ended 31 December 2012 will be circulated to shareholders at least 21 days ahead of the Annual General Meeting (“AGM”) on 17 June 2013 and, after approval at the AGM, will be delivered to the Registrar of Companies. Further copies will be available from the Company’s registered office and on the Group’s website, www.themission.co.uk 52 The Mission Marketing Group plc Annual Report 2012 Independent Auditor’s Report to the Members of The Mission Marketing Group plc We have audited the parent company financial statements of The Mission Marketing Group plc for the year ended 31 December 2012 which comprise the Parent Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 20 the Directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2012; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the consolidated financial statements of The Mission Marketing Group plc for the year ended 31 December 2012. Christopher Hicks BA FCA (Senior Statutory Auditor) For and on behalf of Francis Clark LLP, Chartered Accountants and Statutory Auditors Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF 25 March 2013 The Mission Marketing Group plc Annual Report 2012 53 Company Balance Sheet As at 31 December 2012 NON-CURRENT ASSETS Intangible assets Tangible assets Investments CURRENT ASSETS Debtors Cash at bank CREDITORS: Amounts falling due within one year NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: Amounts falling due after more than one year NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Share option reserve Profit and loss account SHAREHOLDERS’ FUNDS As at 31 December 2012 As at 31 December 2011 Note £’000 £’000 34 35 36 37 38 39 42 42 43 43 43 2 94,708 94,753 3,152 2 3,154 (9,769) (6,615) 88,138 (11,806) 76,332 7,699 40,288 441 27,904 76,332 49 4 91,845 91,898 2,863 1 2,864 (11,623) (8,759) 83,139 (11,641) 71,498 7,246 39,542 263 24,447 71,498 The financial statements were approved and authorised for issue on 25 March 2013 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam Finance Director Company registration number: 05733632 54 The Mission Marketing Group plc Annual Report 2012 Notes to the Company Balance Sheet 33. Principal Accounting Polices The financial statements are prepared in accordance with applicable United Kingdom law and accounting standards (United Kingdom Generally Accepted Accounting Practice). The principal accounting policies of the Company are set out below. The policies have remained unchanged from the previous year. Accounting convention The financial statements have been prepared under the historical cost convention. Going concern The Company’s available banking facilities provide comfortable levels of headroom against the Company’s projected cash flows and the Directors accordingly consider that it is appropriate to continue to adopt the going concern basis in preparing these financial statements. Deferred taxation Deferred taxation is recognised on all timing differences where the transactions or event that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recoverable. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by balance sheet date. Property, plant and equipment Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful economic life, as follows: Short leasehold property Motor vehicles Fixtures, fittings and office equipment Computer equipment Period of the lease 25% per annum 10-33% per annum 25-33% per annum Deferred consideration The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash or shares at a future date, depends on uncertain future events such as the future performance of the acquired company. The amounts recognised in the financial statements represent a reasonable estimate at the balance sheet date of the amounts expected to be paid and has been classified in the balance sheet in accordance with the substance of the transaction. Where the agreement gives rise to an obligation that may be settled by the delivery of a variable number of shares to meet a defined monetary liability, these amounts are disclosed as debt. The Mission Marketing Group plc Annual Report 2012 55 Investments In the Company’s financial statements, investments in subsidiary undertakings are stated at cost less provision for any impairment in value. Lease commitments Rental costs under operating leases are charged against profits as incurred. Profit of Parent Company As permitted under Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these accounts. 34. Intangible Assets Cost Accumulated amortisation Net book value 31 December 2012 31 December 2011 £’000 £’000 61 (18) 43 61 (12) 49 Intangible assets consist of intellectual property rights which are amortised over 10 years. The amortisation charge for the year was £6,000 (2011: £3,000). 35. Tangible Fixed Assets Cost At 1 January 2012 Additions Disposals At 31 December 2012 Depreciation At 1 January 2012 Charge for the year Disposals At 31 December 2012 Net book value at 31 December 2012 Net book value at 31 December 2011 Fixtures & Fittings Office Equipment £’000 £’000 Total £’000 58 – – 58 57 1 – 58 – 1 33 – – 33 30 1 – 31 2 2 91 – – 91 87 2 – 89 2 4 56 The Mission Marketing Group plc Annual Report 2012 36. Investments Cost At 1 January 2011 Adjustments to consideration At 31 December 2011 Additions At 31 December 2012 Impairment At 1 January 2011 Impairment At 31 December 2011 Impairment At 31 December 2012 Net book amount at 31 December 2012 Net book amount at 31 December 2011 Shares in Subsidiary Undertakings £’000 96,242 46 96,288 2,863 99,151 – (4,443) (4,443) – (4,443) 94,708 91,845 The adjustments to consideration relate to changes in the deferred consideration of completed acquisitions. The principal Group companies at 31 December 2012 are set out below. All subsidiaries are 100% owned and all are incorporated in the United Kingdom. Subsidiary undertaking Nature of business April-Six Ltd Integrated communications, specialising in the technology sector Big Communications Ltd Brand planning and strategic development; new media marketing, including website design and advertising, SMS messaging, digital video and database management Bray Leino Ltd Advertising, events and PR Fox Murphy Ltd (trading as balloon dog) Marketing communications agency RLA Group Ltd Story UK Ltd ThinkBDW Ltd Marketing and communications Brand development and creative direct communication Property marketing, providing advertising, media, brochures, signage, exhibitions, CGI, animation, intranet and photography The above list excludes details of non-trading dormant subsidiaries. 37. Debtors Amounts due from subsidiary undertakings Corporation tax Prepayments Other debtors The Mission Marketing Group plc Annual Report 2012 31 December 2012 31 December 2011 £’000 2,624 487 40 1 3,152 £’000 2,840 – 20 3 2,863 57 38. Creditors: Amounts Falling Due Within One Year Bank overdraft Amounts due to subsidiary undertakings Social security and other taxes Accruals Acquisition obligations (see Note 41) Bank loan (see Note 40) Other creditors 39. Creditors: Amounts Falling Due After More Than One Year Acquisition obligations (see Note 41) Bank loan (see Note 40) 40. Borrowings Bank loan outstanding Adjustment to amortised cost Carrying value of loan outstanding The borrowings are repayable as follows: Less than one year In one to two years In more than two years but less than three years Adjustment to amortised cost Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months 31 December 2012 31 December 2011 £’000 1,372 4,878 – 68 1,099 2,286 66 9,769 £’000 3,248 4,161 5 171 – 4,000 38 11,623 31 December 2012 31 December 2011 £’000 1,210 10,596 11,806 £’000 – 11,641 11,641 31 December 2012 31 December 2011 £’000 13,357 (475) 12,882 2,286 2,286 8,785 13,357 (475) 12,882 (2,286) 10,596 £’000 16,207 (566) 15,641 4,000 12,207 – 16,207 (566) 15,641 (4,000) 11,641 Details of the Company’s borrowing facilities and interest rates are set out in Note 18 and not therefore repeated here. All borrowings are in sterling. As at 31 December 2012, Net Assets of the Group were £62,684,000 (2011: £57,916,000), and net borrowings under this Group arrangement amounted to £12,336,000 (2011: £15,326,000). 58 The Mission Marketing Group plc Annual Report 2012 41. 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 are as follows: Less than one year Between one and two years In more than two years but less than three years In more than three years but less than four years Initial Consideration £’000 24 – – – 24 Contingent Consideration Cash Contingent Consideration Shares £’000 1,000 339 339 389 2,067 £’000 75 48 48 47 Total £’000 1,099 387 387 436 218 2,309 42. Share Capital and Share Premium The movements on these items are disclosed within the consolidated statement of changes in equity within the consolidated financial statements. 43. Statement of Movements on Reserves At 1 January 2011 Credit for share option scheme Loss for the period At 31 December 2011 Credit for share option scheme Profit for the period At 31 December 2012 44. Operating Lease Commitments Share Option Reserve Profit and Loss Account £’000 134 129 – 263 178 – 441 £’000 26,574 – (2,127) 24,447 – 3,457 27,904 As at 31 December 2012 the Company had no commitments under operating leases (2011: nil). 45. Related Party Transactions Details of related party transactions are disclosed in Note 31 of the consolidated financial statements. The Mission Marketing Group plc Annual Report 2012 59 Notice of Annual General Meeting NOTICE is hereby given that the Annual General Meeting of The Mission Marketing Group plc (the “Company”) will be held at 12 noon on Monday 17 June 2013 at the offices of finnCap Ltd, 60 New Broad Street, London, EC2M 1JJ to transact the following business: Ordinary Resolutions 1. To receive the financial statements and the report of the Directors and the auditors for the year ended 31 December 2012. 2. To elect Sue Mullen as a Director. 3. To elect James Clifton as a Director. 4. To elect Giles Lee as a Director. 5. To re-elect Dylan Bogg as a Director. 6. To re-elect Stephen Boyd as a Director. 7. To re-elect Robert Day as a Director. 8. To re-elect David Morgan as a Director. 9. To re-elect Chris Morris as a Director. 10. To re-elect Fiona Shepherd as a Director. 11. To re-appoint Francis Clark LLP as auditors of the Company. 12. To authorise the Directors to fix the remuneration of Francis Clark LLP. Special Business To consider and, if thought fit, to pass the following resolutions, as to which resolution 13 shall be proposed as an ordinary resolution and resolutions 14 and 15 shall be proposed as special resolutions: 13. THAT the Directors be and are hereby generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 as amended (the “Act”) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company up to an aggregate nominal value of £2,540,701 being 33% of the issued share capital of the Company, provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, save that the Company shall be entitled to make an offer or agreement before the expiry of such authority which would or might require shares to be allotted or any such rights to be granted, after such expiry and the Directors shall be entitled to allot shares or grant any such rights pursuant to any such offer or agreement as if this authority had not expired and all unexercised authorities previously granted to the Directors to allot shares or grant any such rights be and are hereby revoked provided that the resolution shall not affect the right of the Directors to allot shares or grant any such rights in pursuance of any offer or agreement entered into prior to the date of this resolution. 60 The Mission Marketing Group plc Annual Report 2012 Special Resolutions 14. THAT (subject to the passing of the resolution numbered 13 above) the Directors be and are hereby empowered pursuant to Section 570, Section 571 and Section 573 of the Act to allot equity securities (as defined in Section 560 of the Act) for cash pursuant to the authority conferred by resolution 13 above as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited to: i. the allotment of equity securities in connection with a rights issue, open offer or other offer of securities in favour of the holders of ordinary shares on the register of members at such record date(s) as the Directors may determine where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them on any such record date(s), subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal or practical problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatever; and ii. the allotment (other than pursuant to sub-paragraph (i) above) to any person or persons of equity securities up to an aggregate nominal value of £769,909.40 being 10% of the issued share capital of the Company. This power shall expire upon the expiry of the general authority conferred by resolution 4 above, save that the Company shall be entitled to make an offer or agreement before the expiry of such power which would or might require equity securities to be allotted after such expiry and the Directors shall be entitled to allot equity securities pursuant to any such offer or agreement as if the power conferred hereby had not expired and all unexercised authorities previously granted to the Directors to allot equity securities be and are hereby revoked provided that the resolution shall not affect the right of the Directors to allot equity securities in pursuance of any offer or agreement entered into prior to the date of this resolution. 15. THAT pursuant to Section 701 of the Act and subject to, and in accordance with the Company’s Articles of Association, the Company be generally and unconditionally authorised to make market purchases (within the meaning of Section 693(4) of the Act) of ordinary shares of the Company provided that: i. the maximum number of ordinary shares hereby authorised to be acquired is 11,548,641 being 15% of the issued share capital; and ii. the minimum price which may be paid for an ordinary share is the nominal value of such share; and iii. the maximum price which may be paid for an ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share in the Company as derived from The London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which such ordinary share is contracted to be purchased; and iv. the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company held in 2014 or 18 months from the date of this resolution (whichever is earlier); and v. the Company may make any purchase of its ordinary shares pursuant to a contract concluded before the authority hereby conferred expires and which will or may be executed wholly or partly after the expiry of such authority; and vi. all ordinary shares purchased pursuant to the authority conferred by this resolution 15 shall be cancelled immediately on completion of the purchase or held in treasury (provided that the aggregate nominal value of shares held as treasury shares shall not at any time exceed 10% of the issued share capital of the Company at any time). By Order of the Board Peter Fitzwilliam 25 March 2013 The Mission Marketing Group plc Annual Report 2012 61 Advisors Company Registration Number: 05733632 Registered Office: Nominated Advisor and Broker: Auditors: Solicitors: Registrars: Company Secretary: Bankers: 36 Percy Street London W1T 2DH finnCap Ltd 60 New Broad Street London EC2M 1JJ Francis Clark LLP Sigma House Oak View Close Edginswell Park Torquay TQ2 7FF Lewis Silkin LLP 5 Chancery Lane Clifford’s Inn London EC4A 1BL Neville Registrars Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA Peter Fitzwilliam The Mission Marketing Group plc 36 Percy Street London W1T 2DH Royal Bank of Scotland plc Corporate Banking 9th Floor 280 Bishopsgate London EC2M 4RB 62 The Mission Marketing Group plc Annual Report 2012 marketing group plc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Percy Street, London W1T 2DH T: +44 (0)203 463 2099 www.themission.co.uk 

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