A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 6 Y E A R E N D E D 3 1 D E C E M B E R WE BELIEVE IN THE POWER OF CONNECTIONS IT RUNS THROUGH OUR NETWORK OF AGENCIES IT TURNS SPECIALISTS INTO COLLABORATORS IT TRANSFORMS IDEAS INTO ACTION IT BRINGS OUR CLIENTS CLOSER TO THEIR AUDIENCES IT DRIVES THE NEXT GENERATION OF TECHNOLOGY IT INSPIRES OUR ENTREPRENEURS TO REACH NEW GOALS IT SEES ONE INNOVATION LEAD TO ANOTHER 1 IT MAKES CONTENTS 1 INTRODUCTION TO THE GROUP 11 FINANCIAL HIGHLIGHTS 29 BOARD OF DIRECTORS 31 CHAIRMAN’S STATEMENT 33 STR ATEGIC REPORT 37 REPORT OF THE DIRECTORS 41 CORPOR ATE GOVERNANCE 43 INDEPENDENT AUDITOR’S REPORT 44 CONSOLIDATED STATEMENTS OF INCOME 45 CONSOLIDATED BAL ANCE SHEET 46 CONSOLIDATED CASHFLOW STATEMENT 47 CONSOLIDATED STATEMENT OF CHANGES IN EQUIT Y 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 68 INDEPENDENT AUDITOR’S REPORT: COMPANY 69 COMPANY BAL ANCE SHEET 70 COMPANY STATEMENT OF CHANGES IN EQUIT Y 71 NOTES TO THE COMPANY FINANCIAL STATEMENTS 77 NOTICE OF ANNUAL GENER AL MEETING 79 ADVISORS 2 3 W E A R E T H E M I S S I O N WE ARE FAST BECOMING THE UK’S LEADING, MOST RESPECTED AGENCY GROUP. DELIVERING OUTSTANDING RESULTS FOR OUR CLIENTS WHEREVER THEY OPERATE. WE ACHIEVE THIS BY PROVIDING IMPARTIAL ADVICE AND BY CHALLENGING INDUSTRY CONVENTIONS. WE ALSO HARNESS INNOVATIVE TECHNOLOGIES AND INCREDIBLE CREATIVITY. ACROSS 13 AGENCIES WITH 24 OFFICES IN THE UK, ASIA AND THE USA, WE’RE DEDICATED TO HELPING OUR CLIENTS GROW AND SUCCEED.4 T H E H O M E O F T H E E N T R E P R E N E U R MARKETING IS A TALENT BUSINESS. AND WE ATTRACT AND RETAIN THE BEST OUT THERE. WHEN AN AGENCY JOINS US, WE BELIEVE IN ALLOWING THEM TO KEEP DOING JUST WHAT MADE US WANT THEM AS PART OF THE GROUP – STAYING ENTREPRENEURS. THIS APPROACH CREATES AN INSPIRATIONAL ENVIRONMENT RIGHT ACROSS THE BUSINESS. IT ALSO DELIVERS A STRONGER OFFERING FOR OUR CLIENTS AS WE DEVELOP NEW WAYS TO GROW THEIR BUSINESSES. WE BELIEVE OUR ENTREPRENEURIAL ETHOS IS THE REASON WE HAVE A BETTER RECORD OF RETAINING KEY TALENT THAN ANYONE ELSE. IN FACT, NO LESS THAN 95% OF THE LEADERS WHO JOIN US, STAY WITH US. 5 6 I N V E N T O R S A N D I N N O V A T O R S 7TODAY’S ENTREPRENEURS ARE INVENTORS AND INNOVATORS. THERE ARE MORE WAYS FOR BRANDS TO CONNECT AND COMMUNICATE THAN EVER BEFORE. AND FOR THE ENTREPRENEURS WITHIN , NEW TECHNOLOGY MEANS NEW COMMERCIAL OPPORTUNITIES. DEVELOPING FRESH INNOVATIONS, PLATFORMS AND TECH TO DRIVE SUCCESS. 8 9 B R A N D N A V I G A T O R S THE MODERN MARKETING WORLD IS COMPLEX AND EVER-CHANGING. BUT WE’RE WELL EQUIPPED TO GUIDE OUR CLIENTS THROUGH EVERY CHALLENGE AND OPPORTUNITY. WITH A WEALTH OF SPECIALISMS AND SKILLS – AS WELL AS IMPARTIAL ADVICE – WE CAN DELIVER THE RIGHT TALENTS IN THE MOST EFFECTIVE WAYS. WHETHER THAT’S A PRODUCTIVE RELATIONSHIP WITH A SINGLE ONE OF OUR AGENCIES OR EXPERTISE CAREFULLY SELECTED FROM THE SPECIALISMS AVAILABLE ACROSS THE GROUP. WITH SO MANY NEW DIRECTIONS AVAILABLE TO TODAY’S BRANDS, WE CREATE THE PERFECT APPROACH.10 A Y E A R O F R E S U L T S H E A D L I N E P R O F I T B E F O R E T A X F U L L Y E A R D I V I D E N D U P 9 % T O £ 7. 0 m U P B Y 2 5 % T O 1 . 5 P E N C E 2 0 1 5 : £ 6 . 5 m 2 0 1 5 : 1 . 2 P E N C E R E V E N U E ( O P E R AT I N G I N C O M E ) U P 8 % T O £ 6 5 . 9 m H E A D L I N E T R A D I N G P R O F I T ( O P E R AT I N G P R O F I T B E F O R E C E N T R A L C O S T S ) U P 9 % T O £ 9 . 3 m 2 0 1 5 : £ 6 1 . 0 m 2 0 1 5 : £ 8 . 5 m R E C U R R I N G R E V E N U E H E A D L I N E D I L U T E D E P S 5 7 % F R O M C L I E N T S O F 5 Y E A R S O R M O R E U P B Y 8 % T O 6 . 4 1 P E N C E 3 9 % F R O M C L I E N T S O F 1 0 Y E A R S O R M O R E 2 0 1 5 : 5 . 9 1 P E N C E 2 1 % F R O M C L I E N T S O F 2 0 Y E A R S O R M O R E 112016 WAS ANOTHER YEAR OF IMPRESSIVE COMMERCIAL PERFORMANCE ACROSS F R E E C A S H F L O W O F £ 5 . 3 M G E N E R A T E D T O TA L D E B T R E D U C E D B Y O V E R £ 3 m D E B T L E V E R A G E H E A D R O O M V E R Y C O M F O R T A B L E £ 0 . 8 m I N V E S T E D I N S O F T W A R E D E V E L O P M E N T creating new forms of intellectual proper t y 12 W O R K I N G T O G E T H E R F O R S U C C E S S 13AT THE HEART OF OUR BUSINESS ARE THE ENTREPRENEURS WHO LEAD OUR AGENCIES, EACH OF WHOM, LIKE VERY MANY OF OUR STAFF, ARE SHAREHOLDERS IN . GIVING THEM A PERSONAL INVESTMENT IN OUR SHARED SUCCESS; AND MOTIVATING THEM TO KEEP GROWING THEIR AGENCIES AND THE GROUP AS A WHOLE.OUR AGENCY FOUNDERS SIT ON OUR BOARD, ALONG WITH A NON-EXECUTIVE CORE THAT ENSURES COMPLIANCE AND INDEPENDENT SHAREHOLDER REPRESENTATION.THIS GIVES US A DIVERSITY OF IDEAS – BUT ALSO A CONTINUITY OF LEADERSHIP THAT HELPS OUR PEOPLE STAY WITH US FAR LONGER THAN THE INDUSTRY AVERAGE. AND WITH A HUGE RANGE OF TALENT ACROSS THE NETWORK, OUR AGENCIES CAN PARTNER TOGETHER AND CREATE TEAMS THAT OFFER BEST-IN-CLASS SERVICE. 14 R E L A T I O N S H I P S T H A T L A S T IT’S NOT JUST STAFF WHO CHOOSE TO STAY WITH US. OUR STRONG COLLABORATIVE CULTURE HAS HELPED US CREATE LASTING, PROFITABLE RELATIONSHIPS WITH MANY CLIENTS. AS A RESULT, WE HAVE A CLEAR VIEW OF FUTURE REVENUE FROM MANY BRANDS THAT WE’VE WORKED WITH AND GROWN. NEW BUSINESS WILL ALWAYS BE IMPORTANT, BUT WE NEVER UNDERESTIMATE THE VALUE OF A LONG-TERM PARTNERSHIP. 957 CLIENTS ACROSS THE GROUPHIGH DEGREE OF VISIBILITY OF 2017 REVENUE FURTHER GROWTH FROM EXISTING CLIENTS FORMS A KEY PART OF NEW BUSINESS TARGETS57% OF CLIENT REVENUE IS FROM CLIENTS THAT HAVE BEEN WITH US FOR 5 YEARS OR MORE, 39% FROM CLIENTS OF 10 YEARS OR MORE AND 21% FROM CLIENTS OF 20 YEARS OR MORE. OVERALL, WE ESTIMATE THAT OVER 80% OF OUR REVENUES RECUR YEAR-ON-YEAR, AS WE CONTINUE TO OUTPERFORM OUR COMPETITORS AND DELIVER GROWTH. WE ALSO STRIVE TO DEVELOP NEW AND UNIQUE SYSTEMS, ALONG WITH IP-OWNED TECHNOLOGIES – INNOVATIONS THAT ENHANCE WHAT WE DO AND CREATE ASSETS THAT ADD VALUE TO OUR BUSINESS.15 16 I N T E G R A T E D G E N E R A L I S T S O N E M I S S I O N A C T I V I T Y S P E C I A L I S T S S E C T O R S P E C I A L I S T S B R I N G I N G T O G E T H E R T H E R I G H T S K I L L S F O R T H E R I G H T C L I E N T S A T T H E R I G H T T I M E OUR AGENCIES COVER EVERY PART OF THE MARKETING LANDSCAPE, GIVING US THE FREEDOM TO SUPPORT CLIENTS WITH TALENT DRAWN FROM ACROSS THE GROUP. WITH EVERYTHING FROM HEALTHCARE TO CONSUMER SPECIALISTS, AND SEO TO DATA EXPERTS, WE CAN CREATE MULTI-SKILLED TEAMS TAILOR-MADE FOR CLIENTS’ NEEDS.WE CALL THIS APPROACH CONCINNITY. COMBINING OUR TALENTS IN THE MOST EFFECTIVE, CREATIVE WAY POSSIBLE. EMPLOYING THE RIGHT BLEND OF SKILLS, EXPERIENCE AND DISCIPLINES FROM OUR NETWORK TO TRANSFORM A CLIENT’S BUSINESS, OR EVEN THEIR ENTIRE MARKET.IN ADDITION, OUR DIGITAL GLOBAL WORKGROUP PROVIDES TOOLS AND OPPORTUNITIES TO SHARE BEST PRACTICE, INNOVATION AND TECHNOLOGY ACROSS OUR 250+ TALENTED DIGITAL EXPERTS. DELIVERING VALUE THROUGH KNOWLEDGE AND CREATING AN EMPOWERED INTERNATIONAL TEAM FOR CLIENTS AROUND THE WORLD.THERE’S NEVER ANY COMPETITION BETWEEN AGENCIES, JUST A SHARED COMMITMENT TO SUCCESS. WE’RE MORE POWERFUL TOGETHER.17 I N T E G R A T E D G E N E R A L I S T S A C T I V I T Y S P E C I A L I S T S S E C T O R S P E C I A L I S T S B R I N G I N G T O G E T H E R T H E R I G H T S K I L L S F O R T H E R I G H T C L I E N T S A T T H E R I G H T T I M E 18 19 A W O R L D O F T A L E N T T H E S E A R E O U R B R A N D N A V I G A T O R S . G U I D I N G C L I E N T S A C R O S S T H E E V E R - C H A N G I N G M A R K E T I N G L A N D S C A P E W I T H S K I L L A N D I N S I G H T . 20A TECHNOLOGY MARKETING AGENCY DELIVERING STRATEGIC MARKETING SERVICES FOR SOME OF THE WORLD’S MOST RESPECTED TECHNOLOGY BRANDS FROM OFFICES IN THE UK, THE US AND ASIA. A TECHNOLOGY AND SCIENCE PR AGENCY, WHICH DELIVERS POWERFUL INFLUENCER STRATEGIES FOR MAJOR CLIENTS AT THE LEADING EDGE OF INNOVATION. A MULTI-AWARD WINNING CREATIVE AGENCY PRODUCING COMPELLING, MEDIA-NEUTRAL IDEAS THAT YOU CAN’T IGNORE.A PIONEER OF INTEGRATED BRANDBUILDING, THIS TOP-20 AGENCY WORKS WITH CLIENTS THROUGH EVERY CHANNEL ACROSS THE BUSINESS SPECTRUM.DELIVERING THE AWARD-WINNING HIGH STANDARDS AND EXPERTISE OF A LARGE CREATIVE AGENCY, WITH THE COST BASE AND AGILITY OF A SMALL ONE. NOT BIGGER AND BETTER, BUT SHARPER & BETTER.AN INTEGRATED MARKETING AGENCY SPECIALISING IN SPORTS & FITNESS COMMUNICATIONS, SPONSORSHIP AND SALES PROMOTION. UTILISING THE POWER OF COMMERCIAL PARTNERSHIPS AND PROMOTIONAL TECHNIQUES TO CREATE ACTIONABLE INSIGHT AND CHANGES IN BEHAVIOUR.AN AGENCY WITH UNRIVALLED EXPERTISE IN INTERNATIONAL CHANNEL MARKETING PROGRAMMES IN THE AUTOMOTIVE, RETAIL AND ALLIED SECTORS.REGARDED AS ONE OF THE NORTH OF ENGLAND’S MAJOR ADVERTISING BRANDS, WITH PROVEN SKILLS IN INTEGRATED COMMUNICATIONS.A SPECIALIST MEDICAL COMMUNICATIONS AGENCY THAT THRIVES IN AREAS OF UNMET NEED OR WHEN INNOVATIVE TARGETED TECHNOLOGIES CAN MAKE A POSITIVE IMPACT. VIVACITY, A DIVISION OF SOLARIS HEALTH, DELIVERS CREATIVE HEALTH AND WELLNESS BRAND COMMUNICATIONS.AN AMBITIOUS, CREATIVE AND COMMERCIALLY-MINDED PR AGENCY SPECIALISING IN DRIVING BUSINESSES AND BRANDS FORWARD. SPEED’S EXPERTISE COVERS CONSUMER, BUSINESS & CORPORATE AND FOOD & HOSPITALITY.HEADQUARTERED IN SINGAPORE WITH OFFICES IN SHANGHAI, HONG KONG, MALAYSIA AND VIETNAM, A FULL-SERVICE DIGITAL AGENCY HELPING MULTINATIONAL BRANDS BUILD WEBSITES AND MARKET THEIR PRODUCTS ACROSS ALL DIGITAL CHANNELS.BASED IN EDINBURGH, STORY IS AN AWARD-WINNING INTEGRATED AGENCY WORKING WITH LEADING CONSUMER BRANDS AND SERVICES.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 ONE OF THE LARGEST BUYERS OF ESTATE AGENCY MEDIA IN THE UK. G R O W I N G T H E N E T W O R K TRUE ENTREPRENEURS RECOGNISE GOOD OPPORTUNITIES. THAT’S WHY WE ENHANCE OUR OFFER WITH ACQUISITIONS THAT ADD NEW DISCIPLINES OR IMPROVED SERVICES TO OUR AGENCIES. BRINGING STATE-OF-THE-ART EXPERTISE TO OUR CLIENTS AND SUPPORTING THEM WHEREVER THEY NEED US. IN DEPLOYING THE GROUP’S CAPITAL, WE ALWAYS AIM TO SUPPORT EXISTING MANAGEMENT WHO HAVE DEMONSTRATED AN ABILITY TO ACHIEVE HIGH MARGINS. WE ALSO TARGET NEW HIGH-GROWTH MARKET SECTORS – ALONG WITH SERVICE OR TECHNOLOGY OPPORTUNITIES - WHICH MEET STRICT RETURN ON INVESTMENT CRITERIA. PLUS, WE LOOK AT BUSINESSES THAT ARE CORE TO OUR CURRENT ACTIVITIES AND WHOSE GROWTH CAN BE ACCELERATED BY JOINING THE GROUP.21 22 O N E Y E A R , M A N Y H I G H L I G H T S THE GROUP WENT FROM STRENGTH TO STRENGTH IN 2016. WITH IMPRESSIVE CLIENT WINS, THE DEVELOPMENT OF NEW SPECIALIST AGENCY OFFERINGS AND OVER 50 INDUSTRY ACCOLADES, THERE WAS PLENTY OF GOOD NEWS. OUR NETWORK CONTINUED TO GROW AT A HEALTHY RATE. FOR EXAMPLE, CHAPTER’S FIRST FULL YEAR WITH US WAS A RESOUNDING SUCCESS, WITH HUGE CLIENT GAINS SUCH AS TNT AND BENTLEY COLLECTION, PLUS NUMEROUS AWARDS. MEANWHILE, THE SOLARIS HEALTH TEAM FORGED A GLOBAL REACH THROUGH A JOINT VENTURE WITH VIVACTIS HEALTH.IN ADDITION, MONGOOSE’S ACQUISITION OF GENERATE ADDED SPONSORSHIP SALES ACTIVITIES TO THEIR BRAND ACTIVATION APPROACH. THE AGENCY ALSO MERGED WITH THE SPORTS & FITNESS DIVISION OF SPEED TO CREATE A NEW, FULLY-INTEGRATED SPORTS, FITNESS AND ENTERTAINMENT MARKETING AGENCY, AND IN OCTOBER SPECIALIST SALES PROMOTION BUSINESS, MONGOOSE PROMOTIONS WAS LAUNCHED.THE TALENTS OF OUR AGENCIES CONTINUED TO ATTRACT SOME HIGHLY PRESTIGIOUS CLIENTS. FOR INSTANCE, BIGDOG WELCOMED VOCALINK AND SKY BETTING & GAMING; APRIL SIX BEGAN WORKING WITH 02; BRAY LEINO WON HS2; AND SPEED ADDED BOSCH AND MULLER TO THEIR CLIENT LIST. PLUS, SPLASH WON BUSINESS FROM PORSCHE CHINA, DULUX AND DIGI COMMUNICATIONS - THEIR BIGGEST CLIENT TO DATE.2016 ALSO SAW MANY EXCITING TECH ADVANCES. OUR TECHNOLOGY AGENCY APRILSIX ENJOYED IMPRESSIVE PERFORMANCE FROM THEIR NEW SINGAPORE OFFICE. WHAT’S MORE, THINKBDW FOUND GREAT SUCCESS WITH NEW PRODUCTS, PROVIDING OCULUS RIFT, GOOGLE VR AND MATTERSPORT TECHNOLOGY FOR SHANLY HOMES.THESE ARE JUST A HANDFUL OF THE HIGHLIGHTS FROM 2016; BUT EVERY SINGLE AGENCY ACROSS OUR NETWORK DELIVERED IMPRESSIVE RESULTS, NEW CLIENTS AND INNOVATIVE COMMS SOLUTIONS. 23 24 F U S E - O U R T E C H N O L O G Y H U B 25FUSE IS THE LATEST OFFERING FROM . GETTING READY FOR LAUNCH IN H2 2017, IT EMBRACES EMERGING TECHNOLOGIES AND INNOVATION IN HARDWARE AND SOFTWARE. CREATING TRANSFORMATIVE PRODUCTS THAT DELIVER MEASURABLE BENEFITS.THE INVENTIVE SOLUTIONS DELIVERED BY OUR AGENCIES VIA FUSE OFFER PLATFORMS THAT HELP OUR CLIENTS WORK SMARTER, FASTER AND MORE EFFICIENTLY. AND THEY GIVE US A BROADER GROUP OFFERING WITH EVEN MORE COMMERCIAL OPPORTUNITIES. OUR SOLUTIONS CAN COME FROM EITHER ADDRESSING A GAP IN THE MARKET, OR A DIRECT CLIENT BRIEF OR CHALLENGE. 26THE FUSE PORTFOLIO INCLUDES: PATHFINDR – INDOOR NAVIGATION AND ASSET TRACKINGBROADCARE – END TO END HEALTHCARE SOFTWARE PLATFORMEASL – SERVICES INFORMATION SYSTEMCORTEX – REGIONAL MARKETING PLATFORM FUSE WILL ALSO BE AN INNOVATION ENGINE WITHIN THE GROUP AS IT LOOKS TO ESTABLISH AN EMPLOYEE ENGAGEMENT PROGRAMME TO REWARD INNOVATION. KNOWN INTERNALLY AS IGNITION, THIS PROGRAMME WILL SEEK NEXT GENERATION THINKING FROM MORE THAN 950 EMPLOYEES WITHIN THE GROUP, ACROSS THREE CONTINENTS. O U R C L I E N T S 27HERE’S JUST A FEW OF THE 950+ BRANDS THAT GROUP AGENCIES ARE PROUD TO WORK FOR. 28 O U R B O A R D , O U R P E O P L E , O U R C U L T U R E D A V I D M O R G A N E X E C U T I V E C H A I R M A N J U L I A N H A N S O N - S M I T H C H R I S M O R R I S N O N - E X E C U T I V E D I R E C T O R N O N - E X E C U T I V E D E P U T Y C H A I R M A N David founded Bray Leino, the Group’s An entrepreneur and PE investor with Chris adds fur ther operational experience largest Agency, in 1974 and was its CEO significant experience in marketing to the Board as a founder par tner of Big until 2008. He became Non-Executive ser vices. In 1986 Julian co-founded what Communications , bought by Chairman of Bray Leino in 2008 and is now F TI Consulting, one of Europe’s in 2005 prior to its AIM listing in 2006. w a s a p p o inte d Ch a ir m a n of l a rg e s t b usin e s s co m m un i c ati o n s Chris has over 35 years’ industr y in April 2010. Before founding Bray consultancies, and following its sale in knowledge having previously been Leino he worked in a number of London 1999 became COO of Lighthouse Global Managing Director of Cogent Elliott, one adver tising agencies including Dorlands. Net work. In 2001 he joined US-based PE of the UK’s top three regional adver tising firm Lake Capital before co-founding agencies. Chris was appointed to the Iceni Capital in 2007, investing in UK- Board in December 2009. based business ser vices companies. He joined the Board in October 2015. D Y L A N B O G G E X E C U T I V E D I R E C T O R J A M E S C L I F T O N E X E C U T I V E D I R E C T O R R O B E R T D AY E X E C U T I V E D I R E C T O R D ylan is Chief Creative Of ficer of bigdog Chief Executive of bigdog, James star ted Rober t is Chief Executive of ThinkBDW, and was one of the founding par tners out Client-side before working for various a company he founded as Rober t Day of Big Communications . He had built agencies within the global net works A ssociates in 1987 at the age of 22. Re- a successful business by the age of 24 that are Omnicom and WPP. He created branding as ThinkBDW in 2004, Rober t and this was used as the bedrock for the balloon dog in 2008 having led an MBO has led the company to its position as launch of Big Communications in 1996 . of Fox Murphy. balloon dog was acquired the leading proper t y marketing specialist D ylan oversees all creative output for by and James was appointed in the UK . The business was acquired bigdog across four UK locations . D ylan to the Board in October 2012. by in March 2007 and Rober t was appointed to the Board in April 2010. joined the Board in April 2010. 29 P E T E R F I T Z W I L L I A M F I N A N C E D I R E C T O R C H R I S G O O D W I N E X E C U T I V E D I R E C T O R G I L E S L E E E X E C U T I V E D I R E C T O R Peter is a Char tered Accountant with Chris was Chief Executive of RL A Giles joined Bray Leino in 2005 as Group over 25 years’ financial and management until Februar y 2016 when he became Finance Director following his successful advisor y experience in private and quoted Commercial Director of . Chris role in transforming Merr ydown plc from companies across a range of industr y joined the Group with over 25 years’ its fundamental financial restructure sectors . Finance Director of Business experience in the automotive industr y at in 2000 to its acquisition in 2005. Giles Post G roup plc (now UK Mail G roup plc) Firestone and then Federal Mogul, with was appointed CFO/COO of Bray Leino in from 1999-20 06 , he helped take it into varied roles in sales, marketing and general 2011 and Executive Chairman in 201 3 and the FTSE 250. Peter supported management, both at regional and global has overseen four teen acquisitions and a through it s refinancing in April 2010 and levels. He was appointed to the Board in number of strategic investments. He was joined the Board in September 2010. April 2011 and recently announced his appointed to the Board in March 201 3. intention to step down on 31 March 2017. S U E M U L L E N M I K E R O S E E X E C U T I V E D I R E C T O R E X E C U T I V E D I R E C T O R F I O N A S H E P H E R D E X E C U T I V E D I R E C T O R Sue is Chief Executive of Stor y and Af ter working at some of the best regional Fiona is Chief Executive of April Six and star ted her adver tising career at Branns in agencies in the UK , Mike founded AprilSix Proof and has worked in the Cirencester before moving to Edinburgh Chapter, along with his t wo Creative technology industr y for over 20 years, to head up One Agency. She lef t in 2002 Director par tners, in April 2009. The three holding both Client and Agency positions, and, alongside three colleagues, set up of them went on to build Chapter into an with some of the world’s largest Stor y, an award-winning creative and award-winning, internationally respected technology brands. Fiona was a founder direct communications Agency. Stor y c r e a t i v e a g e n c y. a cq u i r e d of April Six and has managed its success was acquired by in 2007 and Chapter in November 2015 and Mike was as a well respected global technology Sue joined the Board in June 2012. appointed to the Board on 1 Januar y 2016. Agency with offices in London, San Francisco and Singapore. Fiona joined the Board in April 2010. 30TALENT DRIVES US FORWARD. ACROSS THE GROUP, WE LOOK TO SURROUND OURSELVES WITH DEDICATED AND ORIGINAL THINKERS AND DOERS. PEOPLE WHO ARE EXCITED ABOUT DISCOVERING AND DEVELOPING NEW WAYS TO GROW AND CONNECT. CREATING A STRONGER OFFERING FOR OUR CLIENTS AND PROVIDING NEW OPPORTUNITIES FOR . THIS APPROACH INSPIRES EVERY LEVEL OF OUR BUSINESS, BUT IT BEGINS WITH THE ENTREPRENEURS AND LEADERS ON OUR BOARD. C H A I R M A N ’ S S T A T E M E N T 31ALL THE STUFF GOING ON IN THE WORLD DIDN'T MAKE FOR AN EASY 2016, BUT I'M DELIGHTED TO REPORT THAT OUR AGENCIES VERY MUCH ROSE TO THE OCCASION. AS A RESULT, WE DELIVERED ANOTHER YEAR OF CONTINUED GROWTH AND ARE WELL PLACED TO MAKE 2017 ANOTHER SUCCESSFUL YEAR. A COMBINATION OF SPIRIT, PASSION, PLANNING AND FOCUS ENSURED THAT WE MADE REAL PROGRESS AGAINST OUR INTERNAL PERFORMANCE MEASURES. OUR FOCUS ON CONCINNITY, WHERE OUR MOVING PARTS OFTEN BEHAVE AS ONE, BROUGHT INCREASED SUPPORT AND EXPERTISE TO OUR CLIENTS AND HELPED EACH AGENCY TO DELIVER REMARKABLE SUCCESSES. MORE BUSINESS-RELATED INNOVATION SAW FURTHER DEVELOPMENT OF OUR PATHFINDR AND ETHOLOGY TECHNOLOGY-DRIVEN INITIATIVES, AND OUR BROADCARE PATIENT MANAGEMENT SYSTEM HAS NOW BEEN WIDELY ADOPTED WITHIN THE NHS. AWARDS FOR CREATIVE EXCELLENCE ACROSS MANY OF OUR AGENCIES ADDED TO THE EXCITEMENT GENERATED ACROSS , AS DID FURTHER DEVELOPMENT IN ASIA, A REVITALISATION OF OUR SPEED AND MONGOOSE BRANDS, AND THE LATTER'S VENTURE INTO SALES PROMOTION. CORE CLIENTS CONTINUED TO UNDERPIN OUR REVENUES, AND STRONG NEW BUSINESS GENERATION WAS ACHIEVED THROUGHOUT - WINS FROM THE LIKES OF O2, THOMSON REUTERS, SKY BINGO, HS2, ABBVIE, BOSCH, MULLER, PORSCHE CHINA, DULUX AND FIRST DIRECT WILL HELP US MAKE FURTHER PROGRESS IN 2017. THE ACQUISITION OF CHAPTER IN 2015 IS PROVING TO BE A GREAT SUCCESS BOTH FINANCIALLY AND CULTURALLY AS THEY HAVE SEGUED SEAMLESSLY INTO . OUR START-UP INVESTMENTS ARE BEGINNING TO GAIN TRACTION AND WE ARE SEEING STRONG SUPPORT FOR OUR INTEGRATED APPROACH WHERE CROSS-AGENCY TEAMS ARE BEING FOCUSSED ON CLIENTS' REQUIREMENTS. THERE REMAIN MANY OPPORTUNITIES TO PROVIDE EXISTING CLIENTS WITH ADDITIONAL EXPERTISE AND SERVICES. THIS INTEGRATED APPROACH HELPS UNDERPIN OUR CONFIDENCE FOR THE YEAR AHEAD.IN APRIL 2016 MIKE SMITH JOINED US FROM INNOCEAN AS CEO OF OUR RLA AGENCY. MIKE BRINGS A WEALTH OF ADVERTISING AND AUTOMOTIVE EXPERIENCE AND SEES CLEAR OPPORTUNITIES FOR RLA TO BUILD FURTHER THROUGH THE COMMERCIALISATION OF ITS TECHNOLOGY PLATFORMS THAT HE CONSIDERS TO BE UNRIVALLED IN THE SECTOR.WE WILL ENDEAVOUR TO CAPITALISE ON OUR SYNCRETISTIC STRATEGY AS WE GROW, DEVELOPING AND EXPANDING BOTH THE REACH AND THE EXPERTISE OF OUR BUSINESS IN A WAY THAT DELIVERS A TRULY EXCELLENT SERVICE TO OUR CLIENTS. OUR CONTINUED PROGRESS ACROSS THE BUSINESS ENDORSES OUR OBJECTIVE OF BEING THE UK'S MOST RESPECTED AGENCY GROUP.DAVID MORGAN, CHAIRMAN MARCH 2017 A CO M B I N AT I O N O F S P I R I T, PA S S I O N , P L A N N I N G A N D F O CU S E N S U R E D T H AT W E M A D E R E A L P R O G R E S S A G A I N S T O U R I N T ER N A L P ER F O R M A N CE M E A S U R E S 32 S T R A T E G I C R E P O R T AIMS AND AMBITIONThe modern marketing world is complex and ever-changing. But we’re well-equipped to guide our Clients through every challenge and opportunity. Our mission is simple: to grow into the UK’s leading, most respected Agency group. Across 13 Agencies with 24 offices in the UK, Asia and the US, we’re dedicated to helping our Clients grow and succeed.We aim to reward shareholders both through capital growth and dividends, and to provide a rewarding, challenging and fun environment for our staff. We will focus first and foremost on organic growth, but we will enhance our offer with acquisitions that add new disciplines or improved services to our Agencies. In deploying the Group’s capital, we always aim to support existing management who have demonstrated an ability to grow their businesses and to achieve consistently high margins. We also target new high-growth market sectors, along with service or technology opportunities, which meet strict return on investment criteria. In addition, we will also look at businesses that are core to our current activities and whose growth can be accelerated by joining the Group.As well as acquisitions, we also consider launching new businesses that may require more time to become established but which will have a smaller investment cost/lower risk profile. Although primarily operating in the UK, we will continue to develop our international footprint in response to Client demand and where we see strong opportunities to leverage our well-established UK strengths elsewhere in the world. We look to maintain a balance of equity and debt financing to give shareholders the advantages of financial leverage but without placing the business at financial risk. RISKS AND UNCERTAINTIESThe Group’s principal operating risks and uncertainties are set out below. The management of risk is the responsibility of the Board, assisted where appropriate by the Remuneration and Audit Committees, as described further in the Corporate Governance Report. The Directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity.Adverse Economic ConditionsSuch conditions could lead to a reduction in Clients’ marketing budgets. As a network of Agencies which are run, in most cases, by the entrepreneurs who originally founded them, we offer strong local and personalised “boutique” Client service backed up by a multi-national infrastructure. We believe that this approach makes us less susceptible to the generic effects of the economy. We also undertake strenuous new business activity and we minimise overheads wherever possible, always recognising that there is a level below which overheads cannot be reduced without Client service being affected. As the Group expands outside the UK, we are also reducing the concentration of economic risk.Loss of Key ClientsThere are many reasons why a Client changes its communications agency, several of which are outside our control. The risk of Client loss as a result of something we can control is mitigated by the efforts of dedicated account teams, who strive to ensure the quality of work we do meets or exceeds our Clients’ expectations at all times and who modify our approach when necessary. The risk of Client loss for reasons beyond our control is mitigated by the Group’s broad spread of Clients, which limits its exposure to any individual loss. No Client represents more than 10% of Group revenue. One measure of our success is that, in 2016, nearly 60% of our revenue was again from Clients that have been with us for 5 years or more and over 20% from Clients of 20 years or more.Loss of Key Staff 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 our leadership teams. One measure of our success is that, in some 95% of cases, the core management of our acquired businesses remains in place today. The system of financial rewards is reviewed regularly by the Board and, since the end of the year, a new Growth Share Scheme has been implemented, designed to provide a powerful retention incentive for key business leaders who it is believed will be crucial to the Group’s long term ambitions. Further information about the scheme is set out in the Corporate Governance Report.Underperformance of Acquired Businesses Potential acquisitions are carefully considered by the Board as part of its recurring business, and legal, commercial and financial due diligence is carried out on all but the smallest acquisitions. The Directors consider that the main risk is overpaying for the level of profits subsequently generated and so, wherever possible, agree payment terms for acquisitions in a way that results in the majority of consideration being conditional on the post-acquisition profitability of the acquired business. In this way, if it underperforms against expectations set at the time of the acquisition, the total amount paid for the acquired business will reduce correspondingly.33 Revenues (£’M) 70 60 50 40 30 20 2012 2013 2014 2015 2016 KEY PERFORMANCE INDICATORSThe Group manages its internal operational performance and capital management by monitoring various key performance indicators (“KPIs’’). The KPIs are tailored to the level at which they are used and their purpose. The Board has reviewed and revised its financial KPIs during the year, introducing specific performance targets. The revised KPIs, which are quantified and commented on in the Financial Review of the Year below, are: • operating income (“revenue”), which the Group aims to grow by at least 5% per year; • headline operating profit margins, which the Group is targeting to increase from 11.5% to 14% over the next three years; • headline profit before tax, which the Group aims to increase by 10% year-on-year; and• indebtedness, where the Group intends to maintain the ratio of net bank debt to EBITDA* below x2.0 and the ratio of total debt (including both bank debt and deferred acquisition consideration) to EBITDA below x2.5.*EBITDA is headline operating profit before depreciation and amortisation charges.At the individual Agency level, the Group’s financial KPIs comprise revenue and profitability measures, predominantly the achievement of annual budget. More detailed KPIs are applied within individual Agencies.In addition to financial KPIs, the Board periodically monitors the length of Client relationships, the forward visibility of revenue and the retention of key staff. This year’s annual report again contains statistics to illustrate the Group’s performance against these measures.BUSINESS AND FINANCIAL REVIEW OF THE YEARA review of the business and future developments is provided below and in the Chairman’s Statement, which forms part of this Strategic Report.2016 was a year of further progress for the Group, achieving all the plans we set out this time last year. Chapter, acquired in 2015, has contributed well to the growth of our business, and the Group has again been strengthened during the year through further investments in core skills and new initiatives. April Six’s expansion into Asia took root during 2016 and is now sustainably profitable. We also launched a new Sales Promotion start-up venture in the second half of the year, established a healthcare joint venture to formalise our relationship with our European partners, and April Six launched its PR offering in the US. Elsewhere, 2016 saw strong developments in the use of technology as a product in its own right. We have long used technology to enable the delivery of communications via multiple channels but recently we have been developing intellectual property that can be sold in new and innovative ways. 2017 will see an increased focus in this area.As with any group, not all our Agencies quite met expectations but our portfolio nature reduces our exposure to any individual Agency and there are many reasons to feel positive about the year ahead.Headline Trading PerformanceThe Directors are primarily interested in monitoring and managing the Group’s core operating activities, without the volatility and distortions created by one-off events and non-cash accounting adjustments relating to acquisitions. Accordingly, the Directors measure and report the Group’s performance by reference to headline results, calculated before exceptional items, acquisition adjustments and losses from start-up activities (as set out in Note 3). Billings and revenueTurnover (billings) was 9% higher than the previous year, at £144.1m (2015: £132.2m) but since billings include pass-through costs (eg. TV companies’ charges for buying air-time), the Board does not consider turnover to be a key performance measure. Instead, the Board views operating income (turnover less third party costs) as a more meaningful measure of Agency activity levels.Operating income (referred to as “revenue”) increased 8% to £65.9m (2015: £61.0m) continuing the consistent revenue growth achieved over the last five years as illustrated in the chart below.34 S T R A T E G I C R E P O R T PBT (£’M) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 2012 2013 2014 2015 2016 Although the acquisition of Chapter in 2015 boosted revenue growth during the year, it was particularly pleasing to see underlying growth in both our core activity of Branding, Advertising and Digital, and also in Events and Learning, which showed the benefit of the restructuring carried out in 2015. The property sector was where we saw the biggest uncertainties resulting from the Brexit vote and, as a consequence, revenue from our Media buying activities reduced slightly, but our other specialist property marketing activities held up well. Given the general delays, cancellations and uncertainties created by the referendum, we are pleased to have achieved overall revenue growth of 8%. Helping us to achieve this growth, our new business performance and Client retention record were again very strong, with net new business wins amounting to over £5m and more than 20% of our revenue again being generated from Clients that have been with us for 20 years or more. The Board believes this Client retention statistic is second to none in the marketing services sector.Profit and marginsTrading profits (i.e. segmental headline operating profit, before central costs, as set out in Note 2) increased by 9%, slightly ahead of revenue growth, to £9.3m (2015: £8.5m) and headline operating profit also increased by 9% to £7.6m (2015: £6.9m).Clients’ spending patterns repeated those of previous years, with the second half of the year particularly busy, resulting in over 60% of our operating profits being generated in this period. Profit margins (headline operating profit as a percentage of revenue) were over 14% in H2 (2015: 14%), increasing our overall margin for the year to 11.5% (2015: 11.4%). With no sign of any easing in the downward pressure on margins, we are again pleased with this small year-on-year improvement.Net interest costs, at £0.5m, were almost unchanged from the previous year, reflecting the cash investment in expansion during the year (see cash flow on page 36) which resulted in a small increase in net bank debt over the course of the year. After financing costs and a small loss from share of joint ventures and associates, headline profit before tax increased by 9% to £7.0m (2015: £6.5m), continuing the growth achieved over the last five years as illustrated in the following chart.Taxation The Group’s effective headline tax rate increased slightly to 21.0% (2015: 20.2%), compared with the statutory rate of 20.0% (2015: 20.25%). The Group’s effective tax rate is normally above the statutory rate as a result of non-deductible entertaining expenditure and the higher rates of taxation in the US. In 2015 the effective tax rate was somewhat reduced as a result of adjustments to prior year estimates. Headline Items and Reported ProfitAdjustments to reported profits in 2016 comprise acquisition-related items of £0.7m (2015: £0.1m) and losses from start-up activities totaling £0.5m (2015: £0.3m). In 2015 profits were also adjusted for restructuring costs totaling £0.9m; there were no such exceptional items incurred during 2016. After these adjustments, reported profit before tax was 14% higher at £5.9m (2015: £5.1m). The Group’s effective reported tax rate in 2016 was 23.3% (2015: 20.2%). The effective tax rate is expected to be consistently higher than the statutory rate since the amortisation of acquisition-related intangibles is not deductible for tax purposes. This effect was offset in 2015 as a result of the more significant movements in the fair value of contingent consideration, which are non-taxable.Earnings Per ShareOn a headline basis, EPS increased by 8% to 6.63 pence (2015: 6.14 pence) and fully diluted EPS increased similarly, to 6.41 pence (2015: 5.91).Reported EPS increased by 10% to 5.36 pence (2015: 4.86 pence) and fully diluted EPS increased by 11% to 5.19 pence (2015: 4.68 pence). 35 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Debt leverage ratios 2010 2011 2012 2013 2014 2015 2016 Board limit - Total Board limit - Bank Total Bank DividendsSince the Group was refinanced in 2010, the Board has taken a cautious approach to dividends but, after a period of sustained and strong cash generation, recommends a final dividend of 1.0 pence per share, bringing the total for the year to 1.5 pence per share, representing an increase of 25% over 2015. The final dividend will be payable on 24 July 2017 to shareholders on the register at 14 July 2017. The corresponding ex-dividend date is 13 July 2017. The Board will continue to keep under regular review the best use of the Group’s cash resources, always balancing the desire to reward shareholders via dividends with the need to fund further growth, but it remains the Board’s intention to follow a progressive policy provided trading conditions allow.Balance Sheet As a people business, the main features of the Group’s balance sheet are the goodwill and other intangible assets resulting from acquisitions made over the years, and the debt taken on in connection with those acquisitions. The level of intangible assets relating to acquisitions decreased slightly over the course of 2016 as the level of annual amortisation exceeded the additional goodwill acquired from the small in-fill acquisitions made during the year. At the same time, the level of total debt (combined bank debt and acquisition obligations) reduced by over £3m.The Board undertakes an annual assessment of the value of all goodwill, explained further in Note 12, and at 31 December 2016 again concluded that no impairment in the carrying value was required.Cash FlowIn 2016, the Group returned to its more normal record of strong cash flow, with headline profit after tax of £5.6m converting into £5.3m of “free cash flow” (defined as net cash inflow from operating activities less tangible capital expenditure). This free cash flow was used to expand the business, develop new initiatives, make acquisitions and pay dividends as follows:• new acquisitions, amounting to £0.4m (2015: £0.7m);• settlement of contingent consideration obligations relating to the strong performance and profits generated by our previous acquisitions, totaling £3.2m (2015: £0.9m);• investment in a number of other areas in support of the Group’s expansion, notably £0.8m (2015: nil) invested in software development; and• dividends of £1.3m (2015: £0.9m)Despite a year in which significant cash investments have been made in the development of the Group, net bank debt increased by only £0.3m to £11.3m (2015: £11.0m). Importantly, the leverage ratio of net bank debt to headline EBITDA remained unchanged at x1.3 at 31 December 2016. The Group’s ratio of total debt, including remaining acquisition obligations, to EBITDA at 31 December 2016 (calculated by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitability) reduced to x1.7 (2015: x2.0), increasing the already comfortable headroom against the Board’s limit of x2.5. The following chart illustrates the initial reduction and subsequent careful management of the Group’s indebtedness during the period the current management has been in place. OutlookWe expect further revenue and profit growth in the coming year. Although there are a number of macro economic uncertainties, we again have a high degree of visibility over forecast revenue and current indications are that we should expect good organic growth during the year ahead. We continue to seek out attractive acquisition opportunities to further enhance both our range of services and our rate of growth. With our newly-set KPIs, we have an increased focus on margins and have streamlined a number of activities in the first quarter of 2017. The restructuring costs associated with this action are estimated at £0.5m. The other area of focus for 2017 will be Fuse, a central sales and marketing hub created to introduce new markets to the opportunities created by our new technology products. All in all it promises to be another busy and exciting year. On behalf of the Board Peter Fitzwilliam Finance Director 23 March 201736 R E P O R T O F T H E D I R E C T O R S D Y L A N B O G G J A M E S C L I F T O N R O B E R T D A Y P E T E R F I T Z W I L L I A M C H R I S T O P H E R G O O D W I N G I L E S L E E D A V I D M O R G A N C H R I S T O P H E R M O R R I S S U E M U L L E N M I K E R O S E F I O N A S H E P H E R D 3 1 D E C E M B E R 2 0 1 6 3 1 D E C E M B E R 2 0 1 5 O R O N A P P O I N T M E N T 1 , 4 8 6 , 8 2 3 1 6 5 , 1 1 3 6 , 1 5 3 , 5 2 4 6 9 3 , 1 2 9 3 8 9 , 0 6 4 7 5 4 , 4 9 9 6 , 1 4 4 , 1 2 7 1 , 0 2 5 , 0 0 9 1 , 0 8 4 , 0 5 4 1 5 3 , 5 7 1 1 , 2 7 0 , 0 7 3 1 , 4 8 6 , 8 2 3 1 6 5 , 1 1 3 6 , 1 4 1 , 9 2 4 6 8 8 , 4 2 0 3 8 9 , 0 1 2 7 4 9 , 7 9 0 6 , 1 4 4 , 0 1 8 1 , 0 2 5 , 0 0 9 1 , 0 8 4 , 0 5 4 - 1 , 2 7 0 , 0 7 3 FOR THE YEAR ENDED 31 DECEMBER 2016Directors The following Directors held office during the year; DYLAN BOGGJAMES CLIFTONROBERT DAYPETER FITZWILLIAMCHRISTOPHER GOODWINJULIAN HANSON-SMITHGILES LEEDAVID MORGANCHRISTOPHER MORRIS SUE MULLENMIKE ROSE – appointed 1 January 2016FIONA SHEPHERDDirectors’ 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 eachThe Directors have pleasure in presenting their report and the financial statements of The Mission Marketing Group plc (“ ”) for the year ended 31 December 2016. The Directors provide a separate Corporate Governance Report, which forms part of this Report of the Directors.37 D I R E C T O R S A T 1 J A N U A R Y 2 0 1 6 ( O R O N A P P O I N T M E N T ) L A P S E D I N E X E R C I S E D G R A N T E D Y E A R I N Y E A R I N Y E A R A T 3 1 D A T E F R O M D E C E M B E R W H I C H 2 0 1 6 E X E R C I S A B L E E X P I R Y D A T E D Y L A N B O G G 3 0 , 0 0 0 ( 3 0 , 0 0 0 ) 1 7, 5 0 0 5 2 , 0 0 0 - - - - J A M E S C L I F T O N 5 6 , 0 0 0 ( 5 6 , 0 0 0 ) 3 1 , 2 1 5 5 2 , 0 0 0 - - - - R O B E R T D A Y 1 1 0 , 0 0 0 ( 1 1 0 , 0 0 0 ) 6 0 , 0 0 0 4 6 , 6 6 7 - - - - P E T E R F I T Z W I L L I A M 5 0 , 0 0 0 ( 5 0 , 0 0 0 ) 2 5 , 0 0 0 2 5 , 0 0 0 - - - - C H R I S G O O D W I N 3 5 , 0 0 0 ( 3 5 , 0 0 0 ) 2 0 , 0 0 0 1 7, 5 0 0 - - - - G I L E S L E E 7 0 , 0 0 0 ( 7 0 , 0 0 0 ) 8 0 , 0 0 0 7 2 , 0 0 0 - - - - D A V I D M O R G A N 5 0 , 0 0 0 ( 5 0 , 0 0 0 ) 2 5 , 0 0 0 2 5 , 0 0 0 - - - - C H R I S M O R R I S 5 0 , 0 0 0 ( 5 0 , 0 0 0 ) 2 5 , 0 0 0 2 5 , 0 0 0 - - - - S U E M U L L E N 2 2 , 5 0 0 ( 2 2 , 5 0 0 ) 1 0 , 0 0 0 1 0 , 0 0 0 - - - - F I O N A S H E P H E R D 5 0 , 0 0 0 ( 5 0 , 0 0 0 ) 2 0 , 0 0 0 4 0 , 0 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 1 7, 5 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 5 2 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 3 5 , 0 0 0 3 5 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 3 1 , 2 1 5 J U L Y 2 0 1 7 J U L Y 2 0 2 4 5 2 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 3 5 , 0 0 0 3 5 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 6 0 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 4 6 , 6 6 7 A P R I L 2 0 1 8 M A R C H 2 0 2 5 5 0 , 0 0 0 5 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 2 5 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 2 5 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 2 5 , 0 0 0 2 5 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 2 0 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 1 7, 5 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 2 5 , 0 0 0 2 5 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 8 0 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 7 2 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 5 0 , 0 0 0 5 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 2 5 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 2 5 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 2 0 , 0 0 0 2 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 2 5 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 2 5 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 2 0 , 0 0 0 2 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 1 0 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 1 0 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 2 0 , 0 0 0 2 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 - - - - J U L Y 2 0 1 6 J U L Y 2 0 2 3 2 0 , 0 0 0 J U L Y 2 0 1 7 J U L Y 2 0 2 4 4 0 , 0 0 0 A P R I L 2 0 1 8 M A R C H 2 0 2 5 5 0 , 0 0 0 5 0 , 0 0 0 M A Y 2 0 1 9 M A Y 2 0 2 6 The following unexercised options over shares were held by Directors:All share options in existence at 31 December 2016 are nil-cost options granted under the Company’s Long Term Incentive Plan.Options granted in 2016 are dependent upon the achievement of profit targets over the period ending 31 December 2018, with a minimum growth requirement of 3% per annum for any options to vest. Maximum vesting is dependent upon growth of 10% per annum.38 R E P O R T O F T H E D I R E C T O R S Substantial ShareholdingsOther than the Directors’ interests disclosed on pages 37-38, as at 23 March 2017, notification had been received of the following interests in 3% or more of the issued share capital of the Company: Number of shares %Herald Investment Management Ltd 4,500,000 5.35 Objectif Investissement Microcaps FCP 4,230,477 5.03 Polar Capital Forager Fund Ltd 3,995,000 4.75Share CapitalThe issued share capital of the Company at the date of this report is 84,120,234 Ordinary shares. The total number of voting rights in the Company is 84,120,234. Directors’ Indemnity InsuranceAs 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.Directors’ ResponsibilitiesThe Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards comprising Financial Reporting Standard FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:• Select suitable accounting policies and then apply them consistently• Make judgements and accounting estimates that are reasonable and prudent• State whether applicable IFRSs as adopted by the EU have been followed by the Group and FRS 102 by the parent company, 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 are sufficient to show and explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group 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.The Directors consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position, performance, business model and strategy.AuditorsPKF Francis Clark 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 AuditorsSo far as the Directors are aware, there is no relevant audit information of which the Group’s auditors are unaware. Each of the Directors has 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.CONTINUED39 Financial Risk Exposure and Management As a communications Agency group, the main financial risks that arise from day-to-day activities are credit and currency risk. The Group’s policy is to eliminate risk where it is cost-effective, including the use of credit insurance and currency hedges, and to mitigate it where not, including close monitoring of credit-worthiness and the use of Client payment plans if possible. The Group’s policy is not to use any financial instruments for speculating.In common with any business, the Group is exposed to cash flow risk if the capital structure is not balanced (relative proportions of debt and equity, and the availability of cash resources). Several years ago, the Group had too much debt and its ability to continue as a going concern was seriously endangered, but has progressively reduced debt, increased equity and secured banking facilities which provide comfortable levels of headroom within the Group’s covenants. The Group’s policy is to maintain a balance of equity and debt financing to give shareholders the advantages of financial leverage but without placing the business at financial risk.Further details on the Group’s capital and financial risk management are set out in Note 27.Post Balance Sheet EventsAfter the end of the financial year, a new company, The Mission Marketing Holdings Ltd (“TMMH”), was incorporated as a wholly owned subsidiary of the Company. On 21 February 2017, all the Company’s shareholdings in subsidiaries were transferred to TMMH in return for the issuance of 20,000,002 Ordinary shares. On the same day, various individuals subscribed for a total of 5,720,171 A Ordinary shares in TMMH as part of the Growth Share Scheme referred to in the Corporate Governance Report.On 16 March 2017 the Directors agreed an increase and an extension to the maturity date for the revolving credit facility. Further details of these facilities are set out in Note 19.Going ConcernThe Directors 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, taking account of reasonably possible changes in trading performance, it is appropriate to adopt the going concern basis in preparing the financial statements.Future DevelopmentsAn indication of likely future developments in the business of the Group is provided in the Chairman’s Statement and Strategic Report.The EnvironmentThe 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.Employee PoliciesIt 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 is 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 that 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.DividendsThe Group paid a dividend of 0.5 pence per share in December 2016 and the Board recommends the payment of a final dividend of 1.0 pence, subject to approval by shareholders at the Annual General Meeting. Annual General MeetingA notice convening the Annual General Meeting to be held on Monday 19 June 2017 at 12 noon is enclosed with this report.On behalf of the Board Peter Fitzwilliam Finance Director 23 March 201740 C O R P O R A T E G O V E R N A N C E The Board of The Mission Marketing Group plc is collectively accountable to the Company’s shareholders for good corporate governance. As an AIM-listed company, is not required to comply with the UK Corporate Governance Code (September 2014) (the “Code”) but has regard to it. Board of DirectorsThroughout the year, the Board consisted of the CEOs of the Group’s eight principal Agencies, most of whom are the original founders of those Agencies, a Finance Director and two Non-Executive Directors, under the Executive Chairmanship of David Morgan, the founder of the Group’s largest Agency. This structure results in an operator-led and entrepreneurial organisation, but with a suitable balance of independent oversight and input. David Morgan is well regarded both within and within the industry and the Board continues to believe that, although combining the roles of Chairman and Chief Executive does not meet “best practice” under the Code, his role as Executive Chairman remains appropriate and that introducing a separate Chief Executive would disturb the balance of the Board.The Non-Executive Directors during the year were Chris Morris and Julian Hanson-Smith. Chris was one of the founders of Big Communications, now part of bigdog, but has not been actively involved in day to day management for many years. Although Chris is a recipient of share options and provides some consulting services to the Group, neither of which is significant in financial value, he is considered to be independent of management by virtue of his attitude. Julian is a private equity investor with significant experience in marketing services, having co-founded Financial Dynamics (now FTI Consulting) in 1986 and co-founded Iceni Capital, specialising in UK-based business services companies, in 2006. Julian is independent by virtue of having no executive responsibilities within the Group. The Directors are collectively responsible for the strategic direction, investment decisions and effective control of the Group. The principal risks and uncertainties facing the Group are set out in more detail in the Strategic Report and the Non-Executive Directors periodically consider whether or not this remains up to date. Of these risks, primary responsibility for maintaining strong Client relationships and retaining key staff lies with the Agency CEOs and this is monitored both via written monthly reports and also Board attendance. Potential acquisitions and changes in incentive and rewards systems, designed to motivate and retain key staff, are considered by the full Board when it meets in person, most months, or via 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 CommitteeThe Audit Committee consists of the two independent Non-Executive Directors, with Julian Hanson-Smith as Chairman during the year. 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, PKF Francis Clark, 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 value of this work was neither significant in relation to the size of the audit fee nor carried out by the audit team and as a consequence the Audit Committee is satisfied that their objectivity and independence was not impaired by such work. Remuneration CommitteeThe 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 Remuneration Committee consists of the two independent Non-Executive Directors, with Chris Morris as Chairman during the year. The Committee determines the remuneration of the Executive Directors and makes recommendations to the Board with regard to remuneration policy and related matters. With regard to Executive Directors’ remuneration, their packages during the year consisted 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• 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.The Remuneration Committee reviews the components of each Executive Director’s remuneration package annually. With regard to remuneration policy, the Remuneration Committee gives specific consideration each year to the nature and quantum of incentive arrangements to ensure they remain relevant and effective for the retention of key staff, including not just Executive Directors but also senior staff within the Group’s Agencies. Inter alia, this includes setting the profit targets which trigger annual performance-related cash bonuses, determining the amount of the Group’s share capital to make available for annual share option awards, and approving the allocation of incentives to individuals.Mindful of the success the group has experienced to date as a result of retaining the founders and CEOs of the Agencies acquired over the years, the Remuneration Committee gave consideration during the year to ways in which this success could best be continued in the years ahead from retention and shareholder value incentives. After considering the existing and alternative long term share-based incentives, the Remuneration Committee concluded that a Growth Share Scheme provided a powerful incentive for key people who it is believed will be crucial to the Company’s long term ambitions to deliver substantial increases in shareholder value.The details of the Growth Share Scheme were finalised after the financial year end and implemented on 21 February 2017. Participants in the scheme were invited to subscribe for Ordinary A shares in The Mission Marketing 41 B O A R D M E E T I N G S R E M U N E R A T I O N C O M M I T T E E A U D I T C O M M I T T E E E N T I T L E D T O A T T E N D A T T E N D E D E N T I T L E D T O A T T E N D A T T E N D E D E N T I T L E D T O A T T E N D A T T E N D E D D Y L A N B O G G J A M E S C L I F T O N R O B E R T D A Y P E T E R F I T Z W I L L I A M C H R I S G O O D W I N J U L I A N H A N S O N - S M I T H G I L E S L E E D A V I D M O R G A N C H R I S M O R R I S S U E M U L L E N M I K E R O S E F I O N A S H E P H E R D 9 9 9 9 9 9 9 9 9 9 9 9 9 9 8 9 9 8 9 9 9 7 9 8 N / A N / A N / A N / A N / A 2 N / A N / A 2 N / A N / A N / A N / A N / A N / A N / A N / A 2 N / A N / A 2 N / A N / A N / A N / A N / A N / A N / A N / A 3 N / A N / A 3 N / A N / A N / A N / A N / A N / A N / A N / A 3 N / A N / A 3 N / A N / A N / A Holdings Limited (the “growth shares”) at a nominal value. These growth shares can be exchanged for an equivalent number of Ordinary Shares in in just over three years time if ’s share price equals or exceeds 75p for at least 15 days during this period; if not, they will have no value. At the time the scheme was introduced, achieving the target share price of 75p would result in dilution to existing shareholders of less than 7% but would also represent an increase in market capitalisation of over 80%. A total of 17 individuals were invited to participate in the scheme, of which 10 were Board members. Anyone participating in the scheme will no longer be eligible to participate in the Company’s LTIP scheme.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 CommitteeThe 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.Shareholder CommunicationsThe 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 (Julian Hanson-Smith), is available to meet shareholders.Internal Financial ControlThe 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 23 March 2017Summary of Directors’ Attendance 42 I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F T H E M I S S I O N M A R K E T I N G G R O U P P L C R E P O R T O N T H E G R O U P F I N A N C I A L S T A T E M E N T S Our opinion What an audit of financial statements involves In our opinion the Group financial statements: An audit involves obtaining evidence about the amounts and disclosures • give a true and fair view of the state of the Group’s affairs as at 31 December 2016 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. 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 This opinion is to be read in the context of what we say in the remainder of the financial statements. of this repor t. What we have audited In addition, we read all the financial and non-financial information in the Annual Repor t to identif y material inconsistencies with the audited financial statements and to identif y any information that is apparently We have audited the financial statements of The Mission Marketing Group materially incorrect based on, or materially inconsistent with, the plc for the year ended 31 December 2016 which comprise the Consolidated knowledge acquired by us in the course of performing the audit. If we Statements of Income, the Consolidated Balance Sheet, the Consolidated become aware of any apparent material misstatements or inconsistencies Cash Flow Statement, the Consolidated Statement of Changes in Equit y we consider the implications for our repor t. and the related notes. The financial repor ting framework that has been applied in their preparation is applicable law and International Financial Opinion on other matters prescribed by the Companies Act 2006 Repor ting Standards (IFRSs) as adopted by the European Union. In our opinion based on the work undertaken in the course of the audit: Our responsibilities and those of the Directors for the financial statements and the audit As explained more fully in the Directors’ Responsibilities Statement set out • the information given in the Strategic Report and the Directors’ Report for the financial year for which the consolidated financial statements are prepared is consistent with the consolidated financial statements; and on page 39, the Directors are responsible for the preparation of the financial • the Strategic Report and Directors’ Report have been prepared in statements and for being satisfied that they give a true and fair view. accordance with applicable legal requirements. Our responsibilit y is to audit and express an opinion on the financial In the light of the knowledge and understanding of the company and its statements in accordance with applicable law and International Standards environment obtained in the course of the audit, we have not identified on Auditing (UK and Ireland). Those standards require us to comply with material misstatements in the Strategic Report or the Directors’ Report. the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. This repor t is made solely to the Company’s shareholders, as a body, in accordance with Chapter 3 of Par t 16 of the Companies Act 2006. Our Matters on which we are required to report by exception Under the Companies Act 2006 we are required to repor t to you if, in our audit work has been under taken so that we might state to the Company’s opinion: shareholders those matters we are required to state to them in an auditor’s • cer tain disclosures of Directors’ remuneration specified by law are not repor t and for no other purpose. To the fullest extent permitted by law, we made; or do not accept or assume responsibilit y to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this repor t, or for the opinions we have formed. • we have not received all the information and explanations we require for our audit. We have no exceptions to repor t in respect of either of these matters. Other matter We have repor ted separately on the parent company financial statements of The Mission Marketing Group plc for the year ended 31 December 2016. Glenn Nicol BSc (Hons) FCA (Senior Statutor y Auditor) For and on behalf of PKF Francis Clark Char tered Accountants and Statutor y Auditors Vantage Point P ynes Hill Exeter EX2 5FD 23 March 2017 43 C O N S O L I D A T E D I N C O M E S T A T E M E N T F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6 T U R N O V E R C O S T O F S A L E S O P E R AT I N G I N C O M E H E A D L I N E O P E R AT I N G E X P E N S E S H E A D L I N E O P E R AT I N G P R O F I T E X C E P T I O N A L I T E M S A C Q U I S I T I O N A D J U S T M E N T S S TA R T-U P C O S T S O P E R AT I N G P R O F I T S H A R E O F R E S U LT S O F A S S O C I AT E S A N D J O I N T V E N T U R E S P R O F I T B E F O R E I N T E R E S T A N D TA X AT I O N N E T F I N A N C E C O S T S P R O F I T B E F O R E TA X AT I O N TA X AT I O N P R O F I T F O R T H E Y E A R AT T R I B U TA B L E T O : EQ U I T Y H O L D E R S O F T H E PA R E N T N O N- C O N T R O L L I N G I N T E R E S T S B A S I C E A R N I N G S P E R S H A R E ( P E N C E ) D I L U T E D E A R N I N G S P E R S H A R E ( P E N C E ) H E A D L I N E B A S I C E A R N I N G S P E R S H A R E ( P E N C E ) H E A D L I N E D I L U T E D E A R N I N G S P E R S H A R E ( P E N C E ) The earnings per share figures derive from continuing and total operations. Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 4 4 , 0 9 6 ( 7 8 , 1 9 8 ) 6 5 , 8 9 8 ( 5 8 , 3 4 1 ) 7, 5 5 7 - (6 6 6 ) (4 9 1 ) 6 , 4 0 0 ( 3 3) 6 , 3 6 7 (4 8 7 ) 5 , 8 8 0 ( 1 , 3 6 9) 4 , 5 1 1 4 , 4 3 4 7 7 4 , 5 1 1 5 . 3 6 5 . 1 9 6 . 6 3 6 . 4 1 2 0 1 5 £’ 0 0 0 1 3 2 , 24 6 ( 7 1 , 2 0 9 ) 6 1 , 0 3 7 ( 5 4 , 1 07 ) 6 , 93 0 ( 8 7 3 ) ( 1 0 8 ) ( 3 4 3 ) 5 , 6 0 6 - 5 , 6 0 6 (4 6 9 ) 5 , 1 3 7 ( 1 , 0 3 5) 4 , 1 0 2 4 , 0 1 1 9 1 4 , 1 0 2 4 . 8 6 4 . 6 8 6 . 14 5 . 9 1 N O T E 2 2 3 3 3 6 7 9 1 1 1 1 1 1 1 1 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6 P R O F I T F O R T H E Y E A R OT H E R C O M P R E H E N S I V E I N C O M E – I T E M S T H AT M AY B E R EC L A S S I F I E D S E PA R AT E LY TO P R O F I T O R LO S S: E X C H A N G E D I F F E R E N C E S O N T R A N S L AT I O N O F F O R E I G N O P E R AT I O N S T O TA L C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R AT T R I B U TA B L E T O : EQ U I T Y H O L D E R S O F T H E PA R E N T N O N- C O N T R O L L I N G I N T E R E S T S Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 4 , 5 1 1 2 1 4 4 , 7 2 5 4 , 5 7 8 1 47 4 , 7 2 5 2 0 1 5 £’ 0 0 0 4 , 1 0 2 2 1 4 , 1 2 3 4 , 0 3 2 9 1 4 , 1 2 3 44 C O N S O L I D A T E D B A L A N C E S H E E T A S A T 3 1 D E C E M B E R 2 0 1 6 A S AT A S AT 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 2 0 1 5 N O T E £ ’ 0 0 0 £’ 0 0 0 F I X E D A S S E T S I N TA N G I B L E A S S E T S P R O P E R T Y, P L A N T A N D EQ U I P M E N T I N T E R E S T S I N J O I N T V E N T U R E S I N V E S T M E N T S I N A S S O C I AT E S D E F E R R E D TA X A S S E T S C U R R E N T A S S E T S S TO C K A N D W O R K I N P R O G R E S S T R A D E A N D OT H E R R EC E I VA B L E S C A S H A N D S H O R T T E R M D E P O S I T S C U R R E N T L I A B I L I T I E S T R A D E A N D OT H E R PAYA B L E S A C C R U A L S C O R P O R AT I O N TA X PAYA B L E B A N K LO A N S A C Q U I S I T I O N O B L I G AT I O N S N E T C U R R E N T A S S E T S T O TA L A S S E T S L E S S C U R R E N T L I A B I L I T I E S N O N C U R R E N T L I A B I L I T I E S B A N K LO A N S OT H E R LO N G T E R M LO A N S O B L I G AT I O N S U N D E R F I N A N C E L E A S E S A C Q U I S I T I O N O B L I G AT I O N S D E F E R R E D TA X L I A B I L I T I E S N E T A S S E T S C A P I TA L A N D R E S E RV E S C A L L E D U P S H A R E C A P I TA L S H A R E P R E M I U M A CC O U N T O W N S H A R E S S H A R E O P T I O N R E S E R V E F O R E I G N C U R R E N C Y T R A N S L AT I O N R E S E R V E R E TA I N E D E A R N I N G S E Q U I T Y AT T R I B U TA B L E T O E Q U I T Y H O L D E R S O F T H E PA R E N T N O N- C O N T R O L L I N G I N T E R E S T S T O TA L E Q U I T Y 1 2 1 4 1 5 1 6 1 7 1 8 1 9 2 1 . 1 1 9 2 0 2 1 . 1 2 3 2 4 2 5 8 3 , 0 7 5 3 , 5 3 1 - 3 2 4 4 5 8 2 , 1 0 2 4 , 5 2 6 7 3 5 0 14 6 8 6 , 9 7 5 8 7, 1 3 1 4 8 5 3 2 , 6 1 1 1 , 0 0 2 3 4 , 0 9 8 ( 1 5 , 1 1 9) ( 1 1 , 0 7 5 ) ( 5 2 7 ) ( 2 , 2 5 0 ) ( 1 , 6 4 5 ) 4 6 1 3 1 , 3 47 1 , 7 8 4 3 3 , 5 9 2 ( 14 , 0 3 2 ) ( 1 0 , 8 3 3 ) ( 1 , 0 6 4 ) ( 1 , 5 0 0 ) ( 3 , 2 0 3 ) ( 3 0 , 6 1 6 ) ( 3 0 , 6 3 2 ) 3 , 4 8 2 9 0 , 4 5 7 2 , 9 6 0 9 0 , 0 9 1 ( 1 0 , 0 2 3) ( 1 1 , 2 1 0 ) ( 76 ) ( 2 1 6 ) ( 3 , 0 1 4) ( 2 0 0 ) ( 1 3 , 5 2 9) 76 , 9 2 8 8 , 4 1 2 4 2 , 4 3 1 ( 5 5 6 ) 2 4 9 1 9 5 2 5 , 74 0 76 , 47 1 4 5 7 76 , 9 2 8 - ( 2 9 8 ) (4 , 9 5 4 ) ( 2 6 4 ) ( 1 6 , 7 2 6 ) 7 3 , 3 6 5 8 , 3 6 1 4 2 , 2 6 8 (4 5 5) 2 9 8 5 1 2 2 , 414 7 2 , 93 7 4 2 8 7 3 , 3 6 5 The financial statements were approved and authorised for issue on 23 March 2017 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam Finance Director Company registration number: 05733632 45 C O N S O L I D A T E D C A S H F L O W S T A T E M E N T F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6 Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R O P E R AT I N G P R O F I T D E P R EC I AT I O N A N D A M O R T I S AT I O N C H A R G E S M O V E M E N T S I N T H E FA I R VA L U E O F C O N T I N G E N T C O N S I D E R AT I O N LO S S O N D I S P O S A L O F P R O P E R T Y, P L A N T A N D EQ U I P M E N T LO S S O N D I S P O S A L O F I N TA N G I B L E A S S E T S N O N C A S H ( C R E D I T ) / C H A R G E F O R S H A R E O P T I O N S A N D S H A R E S AWA R D E D I N C R E A S E I N R EC E I VA B L E S I N C R E A S E I N S TO C K A N D W O R K I N P R O G R E S S I N C R E A S E I N PAYA B L E S O P E R AT I N G C A S H F L O W S N E T F I N A N C E C O S T S TA X PA I D N E T C A S H I N F L O W F R O M O P E R AT I N G A C T I V I T I E S I N V E S T I N G A C T I V I T I E S P R O C E E D S O N D I S P O S A L O F P R O P E R T Y, P L A N T A N D EQ U I P M E N T P U R C H A S E O F P R O P E R T Y, P L A N T A N D EQ U I P M E N T I N V E S T M E N T I N S O F T WA R E D E V E LO P M E N T A C Q U I S I T I O N O F S U B S I D I A R I E S , J O I N T V E N T U R E S A N D A S S O C I AT E S D U R I N G T H E Y E A R PAY M E N T O F O B L I G AT I O N S R E L AT I N G TO A C Q U I S I T I O N S M A D E I N P R I O R Y E A R S C A S H A C Q U I R E D W I T H S U B S I D I A R I E S N E T C A S H O U T F L O W F R O M I N V E S T I N G A C T I V I T I E S F I N A N C I N G A C T I V I T I E S D I V I D E N D S PA I D D I V I D E N D S PA I D TO N O N- CO N T R O L L I N G I N T E R E S T S R E PAY M E N T O F F I N A N C E L E A S E S ( R E PAY M E N T O F ) / I N C R E A S E I N LO N G T E R M B A N K LO A N S P R O C E E D S F R O M OT H E R LO N G T E R M LO A N S P U R C H A S E O F O W N S H A R E S H E L D I N E B T, N E T O F D I S P O S A L S N E T C A S H (O U T F L O W ) / I N F L O W F R O M F I N A N C I N G A C T I V I T I E S ( D E C R E A S E ) / I N C R E A S E I N C A S H A N D C A S H E Q U I VA L E N T S E X C H A N G E D I F F E R E N C E S O N T R A N S L AT I O N O F F O R E I G N S U B S I D I A R I E S C A S H A N D C A S H E Q U I VA L E N T S AT B E G I N N I N G O F Y E A R C A S H A N D C A S H E Q U I VA L E N T S AT E N D O F Y E A R 2 0 1 6 £ ’ 0 0 0 6 , 4 0 0 2 , 1 2 0 (4 8 ) 4 2 (4 5 ) ( 1 , 0 3 7 ) ( 2 4) 1 , 1 2 0 8 , 4 9 2 (4 2 2 ) ( 1 , 8 6 9) 6 , 2 0 1 3 3 ( 9 1 4) ( 7 7 7 ) (4 6 6 ) ( 3 , 1 7 9) 6 5 ( 5 , 2 3 8 ) ( 1 , 1 5 8 ) ( 1 1 8 ) ( 9 0 ) ( 5 0 0 ) 76 ( 1 6 9) ( 1 , 9 5 9) ( 9 9 6 ) 2 1 4 1 , 7 8 4 1 , 0 0 2 2 0 1 5 £’ 0 0 0 5 , 6 0 6 2 , 1 2 2 ( 6 1 8 ) 6 - 3 7 ( 3 , 9 6 3 ) (9 4 ) 1 , 2 5 6 4 , 3 5 2 ( 7 1 1 ) ( 1 , 2 3 3 ) 2 , 4 0 8 74 ( 1 , 2 9 5) - ( 2 , 0 8 6 ) ( 8 7 1 ) 1 , 4 3 1 ( 2 , 747 ) (9 4 8 ) - ( 5 7 ) 1 , 8 7 5 - ( 3 1 7 ) 5 5 3 2 14 2 1 1 , 5 4 9 1 , 7 8 4 46 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6 FOREIGN AT TRIBUTABLE TOTAL SHARE CURRENCY TO EQUIT Y NON- SHARE SHARE OWN OPTION TR ANSL ATION RE TAINED HOLDERS OF CONTROLLING TOTAL CAPITAL PREMIUM SHARES RESERVE RESERVE E ARNINGS £’000 £’000 £’000 £’000 £’000 £’000 PARENT £’000 INTERES T EQUIT Y £’000 £’000 AT 1 JANUARY 2015 8,340 42 ,203 (260) 264 PROFIT FOR THE YE AR EXCHANGE DIFFERENCES ON TR ANSL ATION OF FOREIGN OPER ATIONS TOTAL COMPREHENSIVE INCOME FOR THE YE AR - - - - - - NEW SHARES ISSUED 21 65 SHARE OPTION CHARGE OWN SHARES PURCHASED SHARES AWARDED TO EMPLOYEES FROM OWN SHARES DIVIDEND PAID - - - - - - - - - - - - - (317) 122 - - - - - 34 - - - AT 31 DECEMBER 2015 8,361 42 ,268 (455) 298 PROFIT FOR THE YE AR EXCHANGE DIFFERENCES ON TR ANSL ATION OF FOREIGN OPER ATIONS TOTAL COMPREHENSIVE INCOME FOR THE YE AR - - - - - - NEW SHARES ISSUED 51 163 SHARE OPTION CREDIT OWN SHARES PURCHASED SHARES AWARDED AND SOLD FROM OWN SHARES DIVIDEND PAID - - - - - - - - - - - - - (212) 111 - - - - - (49) - - - 30 - 21 19,470 70,047 337 70,384 4,011 4,011 91 4,102 - 21 - 21 21 4,011 4,032 91 4,123 - - - - - 51 - - - - 86 34 (317) (119) 3 (948) (948) - - - - - 86 34 (317) 3 (948) 22 ,414 72 ,937 428 73,365 4,434 4,434 77 4,511 144 - 144 70 214 144 4,434 4,578 147 4,725 - - - - - - - - 214 (49) (212) 50 161 - - - - 214 (49) (212) 161 (1 ,158) (1 ,158) (118) (1 ,276) AT 31 DECEMBER 2016 8,412 42 ,431 (556) 249 195 25,740 76,471 457 76,928 47 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 1 . P R I N C I P A L A C C O U N T I N G P O L I C I E S Basis of preparation 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. They have been prepared in accordance with International Financial Repor ting Standards (IFRS) adopted by the European Union and on the historical cost basis. Other intangible assets separately identified as par t of an acquisition are amor tised over periods of bet ween 3 and 10 years, except cer tain brand names which are considered to have an indefinite useful life. The value of such brand names is not amor tised, but rather an annual impairment test is applied and any shor tfall in the present value of future cash flows derived from the brand name versus the carr ying value is recognised in profit and loss. Amor tisation and impairment charges are excluded from Basis of consolidation headline profit. The results of subsidiaries acquired or disposed of during the year are Contingent consideration payments included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate. The Directors manage the financial risk associated with making business acquisitions by structuring the terms of the acquisition, wherever possible, to include an element of the total consideration payable for the business Where necessar y, adjustments are made to the financial statements of which is contingent on its future profitabilit y (ie earn-out). Contingent subsidiaries to bring accounting policies used into line with those used consideration is initially recognised at its estimated fair value based on by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Turnover and revenue recognition The Group’s operating subsidiaries carr y out a range of different activities. The following policies apply consistently across subsidiaries and business segments. Turnover represents fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts. Income is recognised on the following basis: • Retainer fees are appor tioned over the time period to which they relate • Project income is recognised by appor tioning the fees billed or billable to the time period for which those fees were earned by relationship to a reasonable estimate of the amounts expected to be paid. Changes in the fair value of the contingent consideration that arise from additional information obtained during the first t welve months from the acquisition date, about facts and circumstances that existed at the acquisition date, are adjusted retrospectively, with corresponding adjustments against goodwill. The fair value of contingent consideration is reviewed annually and subsequent changes in the fair value are recognised in profit or loss, but excluded from headline profits. Accounting estimates and judgements The Group makes estimates and judgements concerning the future and the resulting estimates may, by definition, var y 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, in order of significance: the percentage of completeness of the project to which they relate Potential impairment of goodwill • Media commission is recognised when the adver tising has been The potential impairment of goodwill is based on estimates of future cash satisfactorily aired or placed • Unbilled costs relating to contracts for ser vices are included at flows derived from the financial projections of each cash-generating unit over an initial three year period and assumptions about grow th thereaf ter, rechargeable value in accrued income. discussed in more detail in Note 12. Where recorded turnover exceeds amounts invoiced to Clients, the excess Contingent payments in respect of acquisitions is classified as accrued income (within Trade and other receivables). Where amounts invoiced to Clients exceed recorded turnover, the excess is classified as deferred income (within Accruals). Goodwill and other intangible assets Contingent consideration, by definition, depends on uncer tain future events. At the time of purchasing a business, the Directors use the financial projections obtained during due diligence as the basis for estimating contingent consideration. Subsequent estimates benefit from the greater insight gained in the post-acquisition period and the business’ track record Goodwill of financial performance. Goodwill arising from the purchase of subsidiar y under takings and trade Revenue recognition policies in respect of contracts which straddle the acquisitions represents the excess of the total cost of acquisition over year end the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiar y acquired. The total cost of acquisition represents both the unconditional payments made in cash and shares on acquisition and an estimate of future contingent consideration payments to vendors in respect of earn-outs. Goodwill is not amor tised, but is reviewed annually for impairment. Goodwill impairment is assessed by comparing the carr ying 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 carr ying value of goodwill, an impairment adjustment is recognised in profit or loss and is not subsequently reversed. Other intangible assets Estimates of revenue to be recognised on contracts which straddle the year end are t ypically based on the amount of time so far committed to those contracts by reference to timesheets in relation to the total estimated time to complete them. Valuation of intangible assets on acquisitions Determining the separate components of intangible assets acquired on acquisitions is a matter of judgement exercised by the Directors. Brand names, customer relationships and intellectual proper t y rights are the most frequently identified intangible assets. When considering the valuation of intangible assets on acquisitions, a range of methods are under taken both for identif ying intangibles and placing valuations on them. The valuation of each element is assessed by reference to commonly used techniques, such as “relief from royalt y” and “excess earnings” and to industr y leaders Costs associated with the development of identifiable sof t ware products and competitors. Estimating the length of customer retention is the where it is probable that the economic benefits will exceed the costs of principal uncer taint y and draws on historic experience. development are recognised as intangible assets. These assets are carried at cost less accumulated amor tisation and are amor tised over periods of bet ween 3 and 5 years. Amor tisation of sof t ware development costs is included within operating expenses. 48 1 . P R I N C I P A L A C C O U N T I N G P O L I C I E S ( C O N T . ) Share-based payment transactions Lease commitments Equit y-settled share-based payments, such as share options, are measured Where the Group bears substantially all the risks and rewards related to the at fair value at the date of grant. The fair value determined at the grant date ownership of a leased asset, the related asset is recognised at the time of of the equit y-settled share payments is expensed on a straight-line basis inception of the lease at its fair value or, if lower, the present value of the over the vesting period, based on the Group’s estimate of the number of minimum lease payments plus incidental payments, if any. A corresponding shares that will eventually vest. amount is recognised as a finance leasing liabilit y. The interest element of 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, leasing payments represents a constant propor tion of the capital balance outstanding and is charged to the Consolidated Income Statement over the period of the lease. for the effects of non-transferabilit y, exercise restrictions and behavioural All other leases are regarded as operating leases and the payments made considerations. Market price on any given day is obtained from external under them are charged to the Consolidated Income Statement on a publicly available sources. straight-line basis over the lease term. Lease incentives are spread over Foreign currencies A ssets and liabilities in foreign currencies are translated into sterling at the the term of the lease. Deferred taxation rates of exchange ruling at the balance sheet date. Transactions in foreign Deferred tax is the tax expected to be payable or recoverable on differences currencies arising from normal trading activities are translated into sterling bet ween the carr ying amounts of assets and liabilities in the financial at the rate of exchange ruling at the date of the transaction. Exchange statements and the corresponding tax bases used in the computation differences are reflected in the profit or loss accordingly. of taxable profit, and is accounted for using the balance sheet liabilit y The income statements of overseas subsidiar y under takings are translated method. at average exchange rates and the year-end net assets of these companies Deferred tax liabilities are generally recognised for all taxable temporar y are translated at year-end exchange rates. Exchange differences differences and deferred tax assets are recognised to the extent it is arising from retranslation of the opening net assets are repor ted in the probable that taxable profits will be available against which deductible Consolidated Statement of Comprehensive Income. temporar y differences can be utilised. Property, plant and equipment Where material intangible assets are recognised on acquisition which will be amor tised over their useful lives, a deferred tax liabilit y is also Tangible fixed assets are stated at cost less accumulated depreciation. recognised and released against income over the corresponding period. Depreciation is provided on all proper t y, 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 New standards, interpretations and amendments to existing standards expected useful economic life, as follows: There are no material impacts arising from standards and interpretations Shor t leasehold proper t y Period of the lease applicable for the first time to these financial statements, as detailed in the Motor vehicles 25% per annum prior year financial statements. Fixtures, fittings and office equipment 10-33% per annum Computer equipment 25-33% per annum The Directors have considered all IFRS and IFRIC Interpretations issued but not yet in force. IFRS 15, Revenue from Contracts with Customers, will apply to the Group’s 2018 financial statements. A detailed review of the A ssets held under finance leases are depreciated over their expected impact of IFRS 15 will be under taken in 2017. In addition, IFRS 16, Leases, useful lives on the same basis as owned assets or, where shor ter, the term will apply to the Group’s 2019 financial statements. A review of the impact of the relevant lease. Financial instruments of IFRS 16 will also be under taken in due course. It is not practicable to provide a reasonable estimate of the effect of either IFRS 15 or IFRS 16 until such reviews have been completed. Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a par t y 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 liabilit y is extinguished. 49 2 . S E G M E N T A L I N F O R M A T I O N Business segmentation For management purposes the Group had thir teen operating units during the year, 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 primar y repor ting segments, namely: Branding, Adver tising and Digital; Media; Events and Learning; and Public Relations. Y E A R T O 31 D E C E M B E R 2 0 1 6 B R A N D I N G , M E D I A E V E N T S & P U B L I C G R O U P A D V E R T I S I N G & D I G I TA L L E A R N I N G R E L AT I O N S £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 T U R N O V E R O P E R AT I N G I N C O M E S E G M E N TA L O P E R AT I N G P R O F I T ( “ T R A D I N G P R O F I T ” ) U N A L LO C AT E D C E N T R A L C O S T S H E A D L I N E O P E R AT I N G P R O F I T S H A R E O F R E S U LT S O F A S S O C I AT E S A N D J O I N T V E N T U R E S N E T F I N A N C E C O S T S H E A D L I N E P R O F I T B E F O R E TA X 7 9, 6 5 7 5 1 , 74 0 7, 3 2 3 4 5 , 741 4 , 0 6 1 1 , 1 3 5 9, 9 2 2 3 , 3 2 0 3 2 5 8 , 7 76 6 , 7 7 7 4 8 7 14 4 , 0 9 6 6 5 , 8 9 8 9, 2 7 0 ( 1 , 7 1 3 ) 7, 5 5 7 ( 3 3 ) (4 8 7 ) 7, 0 3 7 Y E A R T O 31 D E C E M B E R 2 0 1 5 B R A N D I N G , M E D I A E V E N T S & P U B L I C G R O U P A D V E R T I S I N G & D I G I TA L L E A R N I N G R E L AT I O N S £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 T U R N O V E R O P E R AT I N G I N C O M E S E G M E N TA L O P E R AT I N G P R O F I T ( “ T R A D I N G P R O F I T ” ) 7 1 , 7 2 8 47, 7 1 5 6 , 2 2 8 4 5 , 7 3 2 4 , 2 1 0 1 , 24 5 7, 14 6 2 , 76 5 2 6 5 7, 6 4 0 6 , 3 47 76 8 U N A L LO C AT E D C E N T R A L C O S T S H E A D L I N E O P E R AT I N G P R O F I T N E T F I N A N C E C O S T S H E A D L I N E P R O F I T B E F O R E TA X Geographical segmentation 1 3 2 , 24 6 6 1 , 0 3 7 8 , 5 0 6 ( 1 , 5 76 ) 6 , 93 0 (4 6 9 ) 6 , 4 6 1 The Group continues to expand its activities outside the UK , but substantially all the Group’s business remains based and executed in the UK , with less than 10% of operating income attributed to territories outside of the UK . 50 3 . R E C O N C I L I A T I O N O F H E A D L I N E P R O F I T T O R E P O R T E D P R O F I T The Board believes that headline profits, which eliminate cer tain amounts from the repor ted figures, provide a better understanding of the underlying trading of the Group. The adjustments to repor ted profits fall into three categories: exceptional items, acquisition-related items and star t-up costs. H E A D L I N E P R O F I T E X C E P T I O N A L I T E M S ( N OT E 4 ) A C Q U I S I T I O N A D J U S T M E N T S ( N OT E 5) S TA R T-U P C O S T S R E P O R T E D P R O F I T Y E A R T O 3 1 D E C E M B E R 2 0 1 6 Y E A R TO 3 1 D EC E M B E R 2 0 1 5 P B T £ ’ 0 0 0 7, 0 3 7 - (6 6 6 ) (4 9 1 ) 5 , 8 8 0 PAT £ ’ 0 0 0 5 , 5 5 9 - (6 5 5 ) ( 3 9 3) 4 , 5 1 1 P B T £’ 0 0 0 6 , 4 6 1 ( 8 7 3 ) ( 1 0 8 ) ( 3 4 3 ) 5 , 1 3 7 PAT £’ 0 0 0 5 , 1 5 7 ( 6 9 4 ) ( 8 9 ) ( 2 7 2 ) 4 , 1 0 2 Star t-up costs derive from organically star ted businesses and comprise the trading losses of such entities until the earlier of t wo years from commencement or when they show evidence of becoming sustainably profitable. Star t-up costs in 2016 relate to the launch of new ventures Mongoose Spor ts & Enter tainment and Mongoose Promotions and April Six’s new operations in Singapore and the US. Star t-up costs in 2015 related to the launch of Mongoose Spor ts & Enter tainment and April Six’s new operations in Singapore. 4 . E X C E P T I O N A L I T E M S Exceptional items represent revenue or costs that, either by their size or nature, require separate disclosure in order to give a fuller understanding of the Group’s financial performance. Exceptional costs in 2015 comprised amounts payable for loss of office and other costs incurred relating to the restructuring of cer tain operations in order to streamline activities and underpin the Board’s grow th expectations. 5 . A C Q U I S I T I O N A D J U S T M E N T S M O V E M E N T I N FA I R VA LU E O F C O N T I N G E N T C O N S I D E R AT I O N A M O R T I S AT I O N O F OT H E R I N TA N G I B L E S R EC O G N I S E D O N A C Q U I S I T I O N S A C Q U I S I T I O N T R A N S A C T I O N C O S T S E X P E N S E D Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 4 8 ( 6 4 5 ) ( 6 9 ) ( 6 6 6 ) 2 0 1 5 £’ 0 0 0 6 1 8 ( 5 74 ) ( 1 5 2 ) ( 1 0 8 ) The movement in fair value of contingent consideration relates to a net downward revision in the estimate payable to vendors of businesses acquired in prior years. Acquisition transaction costs relate to the acquisitions made during the year as detailed in Note 21 . 51 6 . N E T F I N A N C E C O S T S I N T E R E S T O N B A N K LO A N S A N D O V E R D R A F T S , N E T O F I N T E R E S T O N B A N K D E P O S I T S A M O R T I S AT I O N O F B A N K D E B T A R R A N G E M E N T F E E S I N T E R E S T O N F I N A N C E L E A S E S N E T F I N A N C E C O S T S 7. P R O F I T B E F O R E T A X A T I O N Profit on ordinar y activities before taxation is stated af ter charging:- Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 (4 0 7 ) (6 4) ( 1 6 ) (4 8 7 ) 2 0 1 5 £’ 0 0 0 ( 3 9 0 ) ( 6 5) ( 14 ) (4 6 9 ) Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 D E P R EC I AT I O N O F O W N E D TA N G I B L E F I X E D A S S E T S 1 , 1 6 4 1 , 476 D E P R EC I AT I O N O F TA N G I B L E F I X E D A S S E T S H E L D U N D E R F I N A N C E L E A S E S A M O R T I S AT I O N O F I N TA N G I B L E A S S E T S R EC O G N I S E D O N A C Q U I S I T I O N S A M O R T I S AT I O N O F OT H E R I N TA N G I B L E A S S E T S O P E R AT I N G L E A S E R E N TA L S – L A N D A N D B U I L D I N G S O P E R AT I N G L E A S E R E N TA L S – P L A N T A N D EQ U I P M E N T O P E R AT I N G L E A S E R E N TA L S – OT H E R A S S E T S S TA F F CO S T S ( S E E N OT E 8 ) A U D I TO R S ’ R E M U N E R AT I O N ( G A I N ) / LO S S O N F O R E I G N E X C H A N G E Auditors’ remuneration may be analysed by: A U D I T O F G R O U P ’ S A N N U A L R E P O R T A N D F I N A N C I A L S TAT E M E N T S A U D I T O F S U B S I D I A R I E S A U D I T R E L AT E D A S S U R A N C E S E R V I C E S TA X C O M P L I A N C E S E R V I C E S TA X A D V I S O R Y S E R V I C E S C O R P O R AT E F I N A N C E 9 4 6 4 5 2 1 7 2 , 3 8 4 2 8 7 1 3 9 7 2 5 74 - 2 , 0 9 0 2 9 2 1 2 9 4 4 , 3 5 2 41 , 0 0 4 2 2 1 ( 1 4) 2 24 4 3 Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 3 5 1 4 0 4 2 5 - 1 7 2 2 1 3 6 1 2 6 4 2 1 2 3 5 2 24 52 8 . E M P L O Y E E I N F O R M A T I O N The average number of Directors and staff employed by the Group during the year analysed by segment, was as follows: B R A N D I N G , A D V E R T I S I N G & D I G I TA L M E D I A E V E N T S A N D L E A R N I N G P U B L I C R E L AT I O N S C E N T R A L The aggregate employee costs of these persons were as follows: WA G E S A N D S A L A R I E S S O C I A L S EC U R I T Y CO S T S P E N S I O N C O S T S S H A R E B A S E D PAY M E N T ( C R E D I T )/ E X P E N S E Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 2 0 1 5 7 8 7 3 5 6 2 9 8 4 9 8 6 76 0 4 3 6 4 9 8 4 9 6 9 Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 3 8 , 6 8 5 4 , 1 7 0 1 , 5 4 6 (4 9 ) 4 4 , 3 5 2 2 0 1 5 £’ 0 0 0 3 5 , 6 97 3 , 6 4 5 1 , 6 2 8 3 4 41 , 0 0 4 The Group operates seventeen defined contributions pension schemes. The pension cost charge for the year represents contributions payable by the Group to the schemes. At the end of the financial year outstanding contributions amounted to £116,000 (2015: £95,000). 53 8 . E M P L O Y E E I N F O R M A T I O N ( C O N T . ) Directors’ remuneration Directors’ remuneration and other benefits for the year were as follows (all amounts in £’s): P E R F O R M A N C E S A L A R Y / - R E L AT E D G A I N O N E X E R C I S E TOTA L TOTA L 3 1 3 1 O F S H A R E D EC E M B E R D EC E M B E R F E E S PAY M E N T S B E N E F I T S P E N S I O N O P T I O N S 2 0 1 6 2 0 1 5 C U R R E N T D I R E C T O R S DY L A N B O G G J A M E S C L I F TO N R O B E R T D AY P E T E R F I T Z W I L L I A M C H R I S G O O D W I N J U L I A N H A N S O N-S M I T H (note 2) (from 1 October 2015) G I L E S L E E D AV I D M O R G A N C H R I S M O R R I S (note 3) S U E M U L L E N M I K E R O S E (from 1 Januar y 2016) F I O N A S H E P H E R D F O R M E R D I R E C T O R S S T E P H E N B OY D (to 31 December 2015) Notes: 1 5 8 , 1 3 5 1 76 , 41 0 1 5 6 , 6 6 7 1 6 0 , 6 2 5 1 2 0 , 9 0 0 3 5 , 0 0 4 14 8 , 8 5 5 1 3 4 , 0 2 0 5 2 , 2 2 5 14 8 , 2 93 7 0 , 0 0 0 1 74 , 5 0 0 - 1 , 5 3 5 , 6 3 4 - - - - - - - - - - - - - - 1 , 9 1 6 1 , 5 6 0 6 , 9 8 8 9, 7 5 0 2 2 , 6 5 7 - - 1 1 , 8 7 5 1 5 , 8 0 0 1 0 , 8 4 0 - - 2 0 , 7 8 0 4 4 , 1 0 0 1 2 , 74 2 - 4 , 1 1 2 3 3 , 9 4 2 3 1 5 1 3 , 1 2 5 1 2 , 0 0 0 - 3 , 7 1 6 8 , 5 6 0 - - 1 1 1 , 2 8 7 1 2 3 , 4 9 1 - - - - - - - - - - - - - - 1 6 9, 8 0 1 1 5 9, 0 1 3 2 0 0 , 6 2 7 1 6 9, 1 0 9 1 6 3 , 6 5 5 1 9 6 , 2 7 9 1 7 2 , 5 0 0 1 9 5 , 9 5 3 147, 5 4 0 147, 7 2 7 3 5 , 0 0 4 8 , 7 5 1 1 8 2 , 3 7 7 24 0 , 8 7 9 1 7 8 , 1 2 0 1 9 5 , 97 0 9 0 , 2 7 9 1 14 , 0 97 1 6 1 , 7 3 3 1 6 3 , 3 0 3 8 2 , 0 0 0 - 1 8 6 , 7 76 2 2 3 , 7 2 0 - 3 7, 5 0 0 1 , 7 7 0 , 4 1 2 1 , 8 5 2 , 3 0 1 1 . Dylan Bogg, James Clif ton, Rober t Day, Giles Lee, Sue Mullen and Fiona Shepherd were paid £12,500 as TMMG plc Directors, with the balance of their remuneration paid as Directors and employees of subsidiar y companies for ser vices rendered there. 2. Julian Hanson-Smith was paid £7,500 (2015: £1,875) as a TMMG plc Director during the year. In addition he was paid £27,504 (2015: £6,876) for his ser vices through a consultancy practice owned by him, HS Consultancy Ser vices. 3. Chris Morris was paid £53, 334 (2015: £65,542) as a TMMG plc Director during the year. In addition, he was paid for his consulting ser vices through a consultancy practice owned by him, Morris Marketing Consultancy. 54 9 . T A X A T I O N C U R R E N T TA X : - U K CO R P O R AT I O N TA X AT 2 0 . 0 0 % ( 2 0 1 5: 2 0 . 2 5 % ) A D J U S T M E N T F O R P R I O R P E R I O D S F O R E I G N TA X O N P R O F I T S O F T H E P E R I O D D E F E R R E D TA X : - C U R R E N T Y E A R R E V E R S I N G /( O R I G I N AT I N G ) T E M P O R A R Y D I F F E R E N C E S A D J U S T M E N T F O R P R I O R P E R I O D S F O R E I G N D E F E R R E D TA X O N O V E R S E A S S U B S I D I A R I E S TA X C H A R G E F O R T H E Y E A R Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 9 7 2 5 1 2 3 3 1 , 2 5 6 1 0 7 1 5 ( 9) 1 , 3 6 9 2 0 1 5 £’ 0 0 0 9 07 (4 9 ) 2 8 9 1 , 147 ( 6 4 ) ( 5 2 ) 4 1 , 0 3 5 Factors affecting the tax charge for the current year: The tax assessed for the year is higher (2015: lower) than the standard rate of corporation tax in the UK . The differences are: Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 P R O F I T B E F O R E TA X AT I O N 5 , 8 8 0 5 , 1 3 7 P R O F I T O N O R D I N A R Y A C T I V I T I E S B E F O R E TA X AT T H E S TA N D A R D 1 , 1 76 1 , 0 4 0 R AT E O F CO R P O R AT I O N TA X O F 2 0 . 0 0 % ( 2 0 1 5: 2 0 . 2 5 % ) E F F EC T O F: N O N-D E D U C T I B L E E X P E N S E S / I N C O M E N OT TA X A B L E T I M I N G D I F F E R E N C E S R E L AT I N G TO D E D U C T I B I L I T Y O F S H A R E O P T I O N S M O V E M E N T I N FA I R VA LU E O F C O N T I N G E N T C O N S I D E R AT I O N , N OT TA X A B L E I M PA C T O F R & D C L A I M S A D J U S T M E N T S TO P R I O R P E R I O D S H I G H E R TA X R AT E S O N O V E R S E A S E A R N I N G S D E P R EC I AT I O N I N E X C E S S O F C A P I TA L A L LO WA N C E S OT H E R D I F F E R E N C E S A C T U A L TA X C H A R G E F O R T H E Y E A R 1 0 2 ( 1 1 ) 1 1 ( 1 5 8 ) 6 7 8 0 1 1 0 ( 8 ) 1 2 1 ( 2 3 ) ( 1 2 5) - ( 1 0 1 ) 8 1 3 2 1 0 1 , 3 6 9 1 , 0 3 5 55 1 0 . D I V I D E N D S A M O U N T S R ECO G N I S E D A S D I S T R I B U T I O N S TO EQ U I T Y H O L D E R S I N T H E Y E A R : I N T E R I M D I V I D E N D O F 0 . 5 0 P E N C E ( 2 0 1 5: 0 . 3 0 P E N C E ) P E R S H A R E P R I O R Y E A R F I N A L D I V I D E N D O F 0 . 9 0 P E N C E ( 2 0 1 5: 0 . 8 5 P E N C E ) P E R S H A R E Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 4 1 4 74 4 1 , 1 5 8 2 0 1 5 £’ 0 0 0 247 7 0 1 9 4 8 A final dividend of 1 .0 pence per share is to be paid in July 2017 should it be approved by shareholders at the AGM. In accordance with IFRS this final dividend will be recognised in the 2017 accounts. 1 1 . E A R N I N G S P E R S H A R E 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. E A R N I N G S R E P O R T E D P R O F I T F O R T H E Y E A R AT T R I B U TA B L E TO : EQ U I T Y H O L D E R S O F T H E PA R E N T N O N- C O N T R O L L I N G I N T E R E S T S H E A D L I N E E A R N I N G S ( N O T E 3) AT T R I B U TA B L E TO : EQ U I T Y H O L D E R S O F T H E PA R E N T N O N- C O N T R O L L I N G I N T E R E S T S N U M B E R O F S H A R E S W E I G H T E D AV E R A G E N U M B E R O F O R D I N A R Y S H A R E S F O R T H E P U R P O S E O F B A S I C E A R N I N G S P E R S H A R E D I LU T I V E E F F EC T O F S EC U R I T I E S: E M P LOY E E S H A R E O P T I O N S W E I G H T E D AV E R A G E N U M B E R O F O R D I N A R Y S H A R E S F O R T H E P U R P O S E O F D I LU T E D E A R N I N G S P E R S H A R E R E P O R T E D B A S I S : B A S I C E A R N I N G S P E R S H A R E ( P E N C E ) D I LU T E D E A R N I N G S P E R S H A R E ( P E N C E ) H E A D L I N E B A S I S : B A S I C E A R N I N G S P E R S H A R E ( P E N C E ) D I LU T E D E A R N I N G S P E R S H A R E ( P E N C E ) Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 4 , 5 1 1 4 , 1 0 2 4 , 4 3 4 7 7 4 , 5 1 1 5 , 5 5 9 5 , 4 8 2 7 7 5 , 5 5 9 4 , 0 1 1 9 1 4 , 1 0 2 5 , 1 5 7 5 , 0 6 6 9 1 5 , 1 5 7 8 2 , 6 5 1 , 4 0 0 8 2 , 47 9 , 4 2 7 2 , 8 6 2 , 47 1 3 , 2 6 9, 6 8 1 8 5 , 5 1 3 , 8 7 1 8 5 , 74 9 , 1 0 8 5 . 3 6 5 . 1 9 6 . 6 3 6 . 4 1 4 . 8 6 4 . 6 8 6 . 14 5 . 9 1 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 af ter tax on a repor ted basis and the headline basis is given in Note 3. 56 1 2 . I N T A N G I B L E A S S E T S G O O DW I L L C O S T AT 1 J A N U A RY R ECO G N I S E D O N A C Q U I S I T I O N O F S U B S I D I A R I E S A D J U S T M E N T TO C O N S I D E R AT I O N / N E T A S S E T S A C Q U I R E D AT 3 1 D E C E M B E R I M PA I R M E N T A D J U S T M E N T AT 1 J A N U A RY I M PA I R M E N T D U R I N G T H E Y E A R AT 3 1 D E C E M B E R N E T B O O K VA L U E AT 3 1 D E C E M B E R Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 8 3 , 6 0 6 4 5 7 ( 1 1 ) 8 4 , 0 5 2 4 , 2 7 3 - 4 , 2 7 3 7 9, 7 7 9 7 9, 3 2 6 4 , 3 1 5 ( 3 5) 8 3 , 6 0 6 4 , 2 7 3 - 4 , 2 7 3 7 9 , 3 3 3 In accordance with the Group’s accounting policies, an annual impairment test is applied to the carr ying value of goodwill. The review performed assesses whether the carr ying value of goodwill is suppor ted by the net present value of projected cash flows derived from the underlying assets for each cash- generating unit (“CGU ”). It is the Directors’ judgement that each distinct Agency represents a 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 grow th 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 grow th and staffing levels and different assumptions are made by different CGUs based on their individual circumstances. Af ter the initial projection period, an annual grow th 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 7.42% . For all CGUs, the Directors assessed the sensitivit y of the impairment test results to changes in key assumptions (in par ticular expectations of future grow th) and concluded that a reasonably possible change to the key assumptions would not cause the carr ying value of goodwill to exceed the net present value of its projected cash flows. Goodwill arose from the acquisition of the following subsidiar y companies and trade assets and is comprised of the following substantial components: A P R I L S I X LT D B I G D O G A G E N C Y LT D B R AY L E I N O LT D C H A P T E R A G E N C Y LT D A P R I L S I X P R O O F LT D ( F O R M E R LY P R O O F C O M M U N I C AT I O N LT D ) S P E E D C O M M U N I C AT I O N S A G E N C Y LT D R L A G R O U P LT D S O L A R I S H E A LT H C A R E N E T W O R K LT D S P L A S H I N T E R A C T I V E P T E . LT D S TO R Y U K LT D * T H E W E AT H E R D I G I TA L A N D P R I N T C O M M U N I C AT I O N S LT D * T H I N K B D W LT D OT H E R S M A L L E R A CQ U I S I T I O N S 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 9, 4 1 1 9, 6 3 9 2 7, 76 1 3 , 4 4 0 5 76 3 , 6 8 6 6 , 5 7 2 1 , 0 5 8 2 , 3 5 6 7, 5 1 6 - 6 , 2 8 3 1 , 4 8 1 7 9, 7 7 9 2 0 1 5 £’ 0 0 0 9 , 41 1 9, 6 3 9 2 7, 76 1 3 , 4 4 0 5 76 3 , 6 8 6 6 , 5 7 2 1 , 0 5 8 2 , 3 5 6 6 , 9 6 9 5 47 6 , 2 8 3 1 , 0 3 5 7 9 , 3 3 3 *In 2016, the business of The Weather Digital and Print Communications Ltd was transferred into Stor y UK Ltd. The goodwill of The Weather Digital and Print Communications Ltd has therefore been transferred into Stor y UK Ltd. 57 1 2 . I N T A N G I B L E A S S E T S ( C O N T . ) O T H E R I N TA N G I B L E A S S E T S S O F T WA R E T R A D E C U S TO M E R TOTA L D E V E LO P M E N T A N D L I C E N C E S N A M E S R E L AT I O N S H I P S £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 C O S T AT 1 J A N U A RY 2 0 1 5 A D D I T I O N S AT 3 1 D E C E M B E R 2 0 1 5 T R A N S F E R F R O M P R O P E R T Y, P L A N T A N D EQ U I P M E N T * * A D D I T I O N S D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 6 A M O R T I S AT I O N A N D I M PA I R M E N T AT 1 J A N U A RY 2 0 1 5 C H A R G E F O R T H E Y E A R AT 3 1 D E C E M B E R 2 0 1 5 T R A N S F E R F R O M P R O P E R T Y, P L A N T A N D EQ U I P M E N T * * C H A R G E F O R T H E Y E A R D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K VA L U E AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K VA L U E AT 3 1 D E C E M B E R 2 0 1 5 5 1 - 5 1 1 , 4 6 7 7 7 7 ( 2 3 4 ) 2 , 0 6 1 9 8 1 7 8 5 3 2 1 7 ( 2 3 2 ) 8 5 5 1 , 2 0 6 3 4 6 6 9 2 3 0 8 9 9 - - - 2 , 6 6 1 3 , 3 8 1 9 9 0 3 , 6 5 1 - - - 1 , 2 2 0 4 , 6 0 1 1 , 4 6 7 7 7 7 ( 2 3 4 ) 6 , 6 1 1 8 9 9 3 , 6 5 1 2 0 - 2 0 - 7 7 - 9 7 8 0 2 8 7 9 1 , 2 2 9 1 , 2 5 8 5 6 6 1 , 7 9 5 - 5 6 8 - 2 , 3 6 3 1 , 2 8 8 1 , 8 5 6 5 74 1 , 8 3 2 8 5 3 8 6 2 ( 2 3 2 ) 3 , 3 1 5 3 , 2 9 6 2 , 76 9 **A s sof t ware development costs have become increasingly significant, they have been transferred from computer equipment (see note 14) and repor ted separately within intangible assets. Additions of £7 7 7,000 in the year include costs associated with the development of identifiable sof t ware products that are expected to generate economic benefits in excess of the costs of development. In 2015 the additions of £1, 220,000 included Client relationships and trade names acquired relating to the Chapter acquisition, all of which are being amor tised over finite useful lives. Included within the value of intangible assets is an amount of £649,000 (2015: £649,000) relating to trade names of businesses acquired, which are deemed to have indefinite useful lives. These trade names have attained recognition in the market place and the companies acquired will continue to operate under the relevant trade names, which will play a role in developing and sustaining customer relationships for the foreseeable future. A s such, it is the Directors’ judgement that the useful life of these trade names is considered to be indefinite. 58 1 3 . S U B S I D I A R I E S The Group’s principal trading subsidiaries are listed below. All subsidiaries are 100% owned and all are incorporated in the United Kingdom, except for Splash Interactive Pte. Ltd, which is 70% owned and incorporated in Singapore. A full list of all Group companies at 31 December 2016 can be found in Note 4 4 to the Company Financial Statements. S U B S I D I A R Y U N D E R T A K I N G N A T U R E O F B U S I N E S S A P R I L S I X LT D M A R K E T I N G C O M M U N I C AT I O N S , S P E C I A L I S I N G I N T H E T E C H N O L O G Y S E C T O R B I G D O G A G E N C Y LT D M A R K E T I N G C O M M U N I C AT I O N S B R A Y L E I N O LT D A D V E R T I S I N G , M E D I A B U Y I N G , D I G I TA L M A R K E T I N G , E V E N T S A N D T R A I N I N G C H A P T E R A G E N C Y LT D M A R K E T I N G C O M M U N I C AT I O N S A P R I L S I X P R O O F LT D (formerly Proof Communication Ltd) * P U B L I C R E L AT I O N S , S P E C I A L I S I N G I N S C I E N C E , E N G I N E E R I N G A N D T E C H N O L O G Y S P E E D C O M M U N I C AT I O N S A G E N C Y LT D P U B L I C R E L AT I O N S R L A G R O U P LT D M A R K E T I N G C O M M U N I C AT I O N S S O L A R I S H E A LT H C A R E N E T W O R K LT D M A R K E T I N G C O M M U N I C AT I O N S , S P E C I A L I S I N G I N T H E M E D I C A L S E C T O R S P L A S H I N T E R A C T I V E P T E . LT D * D I G I TA L M A R K E T I N G S T O R Y U K LT D T H I N K B D W LT D B R A N D D E V E L O P M E N T A N D C R E AT I V E D I R E C T C O M M U N I C AT I O N P R O P E R T Y M A R K E T I N G , P R O V I D I N G A D V E R T I S I N G , M E D I A , B R O C H U R E S , S I G N A G E , E X H I B I T I O N S , C G I , A N I M AT I O N , I N T R A N E T, P H O T O G R A P H Y * All subsidiaries are held directly by The Mission Marketing Group plc except where indicated by an asterisk. 59 1 4 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T S H O R T F I X T U R E S & C O M P U T E R M OTO R TOTA L L E A S E H O L D F I T T I N G S A N D EQ U I P M E N T V E H I C L E S P R O P E R T Y O F F I C E EQ U I P M E N T £ ' 0 0 0 £ ' 0 0 0 £ ' 0 0 0 £ ' 0 0 0 £ ' 0 0 0 CO S T O R VA L UAT I O N AT 1 J A N U A RY 2 0 1 5 1 , 9 8 7 4 , 2 9 6 4 , 3 8 8 2 0 9 1 0 , 8 8 0 R EC L A S S I F I C AT I O N A C Q U I S I T I O N O F S U B S I D I A R I E S A D D I T I O N S D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 5 T R A N S F E R TO OT H E R I N TA N G I B L E S * A C Q U I S I T I O N O F S U B S I D I A R I E S A D D I T I O N S D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 6 D E P R E C I AT I O N AT 1 J A N U A RY 2 0 1 5 R EC L A S S I F I C AT I O N A C Q U I S I T I O N O F S U B S I D I A R I E S C H A R G E F O R T H E Y E A R D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 5 T R A N S F E R TO OT H E R I N TA N G I B L E S * C H A R G E F O R T H E Y E A R D I S P O S A L S AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K VA L U E AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K VA L U E AT 3 1 D E C E M B E R 2 0 1 5 2 2 0 14 5 8 - 2 , 2 7 9 - - 4 9 ( 3 5) 2 , 2 9 3 ( 2 2 0 ) 5 4 8 24 ( 3 4 4 ) 4 , 6 1 0 - - 2 2 1 ( 5 6 4 ) 4 , 2 6 7 - 6 4 8 2 6 ( 2 7 5) 5 , 0 0 3 ( 1 , 4 6 7 ) 1 6 4 4 ( 1 , 0 14 ) 3 , 1 6 7 - 1 0 1 0 ( 3 3 ) 1 9 6 - - - (47 ) 1 4 9 - 14 2 1 , 7 1 8 ( 6 5 2 ) 1 2 , 0 8 8 ( 1 , 4 6 7 ) 1 9 14 ( 1 , 6 6 0 ) 9, 8 76 1 , 2 6 1 2 , 2 9 2 2 , 8 0 5 1 5 6 6 , 5 1 4 1 7 4 1 5 9 - 1 , 4 4 1 - 1 6 0 ( 2 3 ) 1 , 5 7 8 7 1 5 8 3 8 ( 1 7 ) 4 0 5 4 4 ( 2 7 0 ) 2 , 5 8 9 - 5 3 9 ( 5 4 4 ) 2 , 5 8 4 1 , 6 8 3 2 , 0 2 1 - 2 2 8 2 0 ( 2 7 2 ) 3 , 3 7 5 ( 8 5 3 ) 5 4 3 ( 1 , 0 1 3 ) 2 , 0 5 2 1 , 1 1 5 1 , 6 2 8 - 6 2 5 ( 3 0 ) 1 5 7 - 1 6 (4 2 ) 1 3 1 1 8 3 9 - 7 2 1 , 5 4 8 ( 5 7 2 ) 7, 5 6 2 ( 8 5 3 ) 1 , 2 5 8 ( 1 , 6 2 2 ) 6 , 3 4 5 3 , 5 3 1 4 , 5 2 6 The net book amount includes £31 3,000 (2015: £416,000) 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 £94,000 (2015: £72,000). *A s sof t ware development costs have become increasingly significant, they are repor ted separately within intangible assets (see Note 12). 60 1 5 . I N V E S T M E N T S I N A S S O C I A T E S C O S T AT 1 J A N U A RY A D D I T I O N S LO S S D U R I N G T H E Y E A R AT 3 1 D E C E M B E R Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 3 5 0 - ( 2 6 ) 3 2 4 - 3 5 0 - 3 5 0 The investment in associates represents a 25% shareholding in Watchable Limited, a film and video content company, based in London. Watchable has a 31 December financial year end. 1 6 . T R A D E A N D O T H E R R E C E I V A B L E S G R O S S T R A D E R EC E I VA B L E S L E S S: P R O V I S I O N F O R D O U B T F U L D E B T S OT H E R R EC E I VA B L E S P R E PAY M E N T S A C C R U E D I N CO M E 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 3 , 8 4 3 ( 2 3 4) 2 3 , 6 0 9 6 7 0 2 , 5 2 4 5 , 8 0 8 3 2 , 6 1 1 2 0 1 5 £’ 0 0 0 2 3 , 6 6 1 ( 2 0 1 ) 2 3 , 4 6 0 7 1 8 1 , 2 5 7 5 , 9 1 2 3 1 , 3 47 An allowance has been made for estimated irrecoverable amounts from the provision of ser vices of £234,000 (2015: £201,000). The Directors consider that the carr ying amount of trade and other receivables approximates their fair value. 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 cer tain of its trade receivables as deemed appropriate. Where credit insurance is not considered cost effective, the Group monitors credit-wor thiness closely and mitigates risk, where appropriate, through payment plans. The credit risk on cash balances is limited because the counterpar ties are banks with high credit-ratings assigned by international credit-rating agencies. 1 7. C A S H A N D S H O R T T E R M D E P O S I T S Cash and shor t term deposits comprise cash held by the Group and shor t term bank deposits. 61 1 8 . T R A D E A N D O T H E R P A Y A B L E S T R A D E C R E D I TO R S F I N A N C E L E A S E S OT H E R C R E D I TO R S OT H E R TA X A N D S O C I A L S EC U R I T Y PAYA B L E 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 0 , 9 2 4 8 3 3 7 8 3 , 7 3 4 1 5 , 1 1 9 2 0 1 5 £’ 0 0 0 9 , 9 9 9 9 1 24 4 3 , 6 9 8 14 , 0 3 2 Trade and other creditors principally comprise amounts outstanding for trade purchases and on-going costs. The Directors consider that the carr ying amount of trade payables approximates their fair value. 1 9 . B A N K O V E R D R A F T S , L O A N S A N D N E T D E B T B A N K LO A N O U T S TA N D I N G U N A M O R T I S E D B A N K D E B T A R R A N G E M E N T F E E S C A R R Y I N G VA L U E O F LO A N O U T S TA N D I N G L E S S: C A S H A N D S H O R T T E R M D E P O S I T S N E T B A N K D E B T T H E B O R R O W I N G S A R E R E PAYA B L E A S F O L LO W S: L E S S T H A N O N E Y E A R I N O N E TO T W O Y E A R S I N M O R E T H A N T W O Y E A R S B U T L E S S T H A N T H R E E Y E A R S I N M O R E T H A N T H R E E B U T L E S S T H A N F O U R Y E A R S U N A M O R T I S E D B A N K D E B T A R R A N G E M E N T F E E S L E S S: A M O U N T D U E F O R S E T T L E M E N T W I T H I N 1 2 M O N T H S ( S H O W N U N D E R C U R R E N T L I A B I L I T I E S ) A M O U N T D U E F O R S E T T L E M E N T A F T E R 1 2 M O N T H S 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 2 , 3 7 5 ( 1 0 2 ) 1 2 , 2 7 3 ( 1 , 0 0 2 ) 1 1 , 2 7 1 2 , 2 5 0 2 , 5 0 0 7, 6 2 5 - 1 2 , 3 7 5 ( 1 0 2 ) 1 2 , 2 7 3 ( 2 , 2 5 0 ) 1 0 , 0 2 3 2 0 1 5 £’ 0 0 0 1 2 , 8 7 5 ( 1 6 5) 1 2 , 7 1 0 ( 1 , 7 8 4 ) 1 0 , 9 2 6 1 , 5 0 0 2 , 2 5 0 2 , 5 0 0 6 , 6 2 5 1 2 , 8 7 5 ( 1 6 5) 1 2 , 7 1 0 ( 1 , 5 0 0 ) 1 1 , 2 1 0 Bank debt arrangement fees, where they can be amor tised over the life of the loan facilit y, are included in finance costs. The unamor tised por tion is repor ted as a reduction in bank loans outstanding. At 31 December 2016, the Group had a term loan facilit y of £5.4m due for repayment by Februar y 2019 on a quar terly basis, and a revolving credit facilit y of up to £7.0m, expiring on 3 Februar y 2019. Interest on both the term loan and revolving credit facilities is based on 3 month LIBOR plus 2. 25% , payable in cash on loan rollover dates. In addition to its committed facilities, the Group had available an overdraf t facilit y of up to £3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.5% . At 31 December 2016, 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. On 16 March 2017 the Group agreed an increase of £5.0m in the revolving credit facilit y and an extension to the maturit y date for the revolving credit facilit y to 30 April 2019. All other terms of the existing credit facilities remain unchanged. 62 2 0 . O B L I G A T I O N S U N D E R F I N A N C E L E A S E S Obligations under finance leases are as follows: I N O N E Y E A R O R L E S S B E T W E E N T W O A N D F I V E Y E A R S 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 8 3 2 1 6 2 9 9 2 0 1 5 £’ 0 0 0 9 1 2 9 8 3 8 9 A ssets held under finance leases consist of office equipment. The fair values of the Group’s lease obligations approximate their carr ying amount. The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. 2 1 . A C Q U I S I T I O N S 21 .1 Acquisition obligations The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash or shares or other securities at a future date, depends on uncer tain future events such as the future performance of the acquired company. The Directors estimate that the liabilit y for contingent consideration payments that may be due is as follows: 3 1 D E C E M B E R 2 0 1 6 3 1 D EC E M B E R 2 0 1 5 C A S H £ ’ 0 0 0 S H A R E S £ ’ 0 0 0 T O TA L £ ’ 0 0 0 C A S H £’ 0 0 0 S H A R E S £’ 0 0 0 TOTA L £’ 0 0 0 L E S S T H A N O N E Y E A R B E T W E E N O N E A N D T W O Y E A R S I N M O R E T H A N T W O Y E A R S B U T L E S S T H A N T H R E E Y E A R S I N M O R E T H A N T H R E E Y E A R S B U T L E S S T H A N F O U R Y E A R S I N M O R E T H A N F O U R Y E A R S B U T L E S S T H A N F I V E Y E A R S 1 , 6 4 5 1 , 7 0 3 7 5 0 5 6 1 - 4 , 6 5 9 - - - - - - 1 , 6 4 5 1 , 7 0 3 7 5 0 5 6 1 - 2 , 9 0 2 2 , 0 0 9 1 , 7 1 5 7 1 0 5 2 0 3 0 1 - - - - 3 , 2 0 3 2 , 0 0 9 1 , 7 1 5 7 1 0 5 2 0 4 , 6 5 9 7, 8 5 6 3 0 1 8 , 1 5 7 21 . 2 Acquisitions during the year A total of £502,000 was invested in other acquisitions during the year, comprising initial cash consideration of £466,000 and deferred contingent consideration of £36,000. 21 .3 Pro-forma results including acquisitions The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £14 4.9m, £66.4m and £7.4m had the Group consolidated the results of the acquisitions made during the year, from the beginning of the year. 63 2 2 . F I N A N C I A L C O M M I T M E N T S Operating lease commitments A s at 31 December the Group had commitments under non-cancellable operating leases as follows: 3 1 D E C E M B E R 2 0 1 6 3 1 D EC E M B E R 2 0 1 5 L A N D A N D B U I L D I N G S O T H E R L A N D A N D OT H E R B U I L D I N G S £ ’ 0 0 0 £ ’ 0 0 0 £’ 0 0 0 £’ 0 0 0 1 , 9 0 6 4 , 3 8 2 2 3 3 6 , 5 2 1 3 9 1 3 6 3 - 7 5 4 1 , 9 9 6 5 , 2 97 5 6 1 7, 8 5 4 4 6 5 4 3 4 1 9 0 0 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 8 , 4 1 2 8 , 3 6 1 O P E R AT I N G L E A S E S W H I C H E X P I R E : W I T H I N O N E Y E A R B E T W E E N T W O A N D F I V E Y E A R S A F T E R M O R E T H A N 5 Y E A R S 2 3 . S H A R E C A P I T A L A L LOT T E D A N D C A L L E D U P : 8 4 , 1 2 0 , 2 3 4 O R D I N A R Y S H A R E S O F 1 0 P E A C H ( 2 0 1 5: 8 3 , 6 0 8 , 3 3 1 O R D I N A R Y S H A R E S O F 1 0 P E A C H ) Options The Group has the following options in issue: AT S TA R T O F Y E A R G R A N T E D WA I V E D/ L A P S E D E X E R C I S E D AT E N D O F Y E A R T M M G LO N G T E R M I N C E N T I V E P L A N 2 , 9 8 3 , 5 0 0 1 , 07 0 , 0 0 0 ( 1 , 41 6 , 93 0 ) - 2 , 6 3 6 , 5 7 0 The TMMG Long Term Incentive Plan (“LTIP ”) was created to incentivise senior employees across the Group. Nil cost options are awarded at the discretion of the Remuneration Committee of the Board and vest three years later only if the profit performance of the Group in the inter vening period is sufficient to meet predetermined criteria (always subject to Remuneration Committee discretion). During the year, no options were exercised and at the end of the year none of the outstanding options are exercisable. Shares held in an Employee Benefit Trust (see Note 24) will be used to satisf y share options exercised under The Mission Marketing Group Long Term Incentive Plan. 64 2 4 . O W N S H A R E S AT 3 1 D E C E M B E R 2 0 1 4 O W N S H A R E S P U R C H A S E D D U R I N G T H E Y E A R AWA R D E D TO E M P LOY E E S D U R I N G T H E Y E A R AT 3 1 D E C E M B E R 2 0 1 5 O W N S H A R E S P U R C H A S E D D U R I N G T H E Y E A R AWA R D E D O R S O L D D U R I N G T H E Y E A R AT 3 1 D E C E M B E R 2 0 1 6 N O . O F S H A R E S £ ' 0 0 0 9 1 0 , 9 8 4 5 5 1 , 3 7 3 ( 1 8 3 , 4 3 3) 1 , 2 7 8 , 9 2 4 5 2 7, 2 3 4 (4 1 0 , 2 2 8 ) 1 , 3 9 5 , 9 3 0 2 6 0 3 1 7 ( 1 2 2 ) 4 5 5 2 1 2 ( 1 1 1 ) 5 5 6 Shares are held in an Employee Benefit Trust to meet cer tain requirements of The Mission Marketing Group Long Term Incentive Plan. 2 5 . S H A R E O P T I O N R E S E R V E The share option reser ve represents charges to the profit or loss required by IFRS 2 to reflect the cost of the options issued to the Directors and employees. 2 6 . S H A R E - B A S E D P A Y M E N T S 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: S H A R E P R I C E R I S K F R E E R AT E D I V I D E N D Y I E L D 2 0 1 6 2 0 1 5 4 0 . 0 P 0 . 3 % 3 . 0 % 4 4 . 0 P 0 . 7 % 2 . 4 % Volatilit y is based on the historical volatilit y of the share price over a 3 year trading period although, for nil-cost options issued under the Group’s Long Term Incentive Scheme, volatilit y does not impact the calculation of fair value. The weighted average share price over the three years ending 31 December 2016 was 42. 2p and the weighted average remaining contractual life of the share options outstanding at 31 December 2016 is 8.5 years. The Group recognised a credit of £49,000 in 2016 (2015: expense of £34,000). 2 7. F I N A N C I A L A S S E T S A N D L I A B I L I T I E S Capital management The Group defines “capital ” as being debt plus equit y. Net bank debt comprises shor t and long term borrowings net of cash, cash equivalents and the unamor tised balance of bank renegotiation fees as analysed in Note 19. In addition, the Group treats its commitment to future consideration payments under acquisition agreements as another component of debt. Equit y comprises issued share capital, reser ves and retained earnings as disclosed in the Balance Sheet and in the Consolidated Statement of Changes in Equit y. The Group’s objectives when managing capital are to safeguard the Group’s abilit y 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 measures by which the Directors monitor capital risk are the ratios of net bank debt to EBITDA and total debt (including both net bank debt and estimated acquisition consideration payable) to EBITDA . (Note that, since acquisition consideration is dependent on future levels of profitabilit y in the acquired business, which are inevitably uncer tain, the Directors calculate this ratio by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitabilit y.) The Directors have set targets of remaining below x2 and x2.5 for these ratios respectively. 65 2 7. F I N A N C I A L A S S E T S A N D L I A B I L I T I E S ( C O N T . ) Financial risk management The Group's principal financial instruments comprise cash and various forms of borrowings. Substantially all the Group's activities continue to take place in the United Kingdom. Where revenue is generated in one currency and costs are incurred in another, the Group aims to agree pricing at the outset of a piece of work and then hedge its foreign currency exposure, if considered significant, through the use of for ward exchange contracts. 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 par t 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 flexibilit y and minimising risk. The main risks arising from the Group's use of financial instruments are interest rate risk and liquidit y risk. Interest rate risk The operations of the Group generate cash and it funds acquisitions through a combination of retained profits, equit y 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 liabilit y. Interest on both the Group’s revolving credit facilit y and its term loan is payable by reference to 3 month LIBOR , subject to downward or upward ratchets depending on cer tain ratios of debt to EBITDA on a quar terly basis. The Directors have considered again the relative merits of the use of hedging instruments to limit the exposure to interest rate risk. Since the sensitivit y of profits to a 1% change in interest rates is limited to £0.1m, they have decided not to enter into any hedging arrangements. Liquidity risk The Group's financial instruments include a mixture of shor t and long-term borrowings. The Group seeks to ensure sufficient liquidit y is available to meet working capital needs and the repayment terms of the Group's financial instruments as they mature. F I N A N C I A L A S S E T S C A S H AT B A N K M AT U R I N G I N L E S S T H A N O N E Y E A R O R O N D E M A N D 3 1 D E C E M B E R 2 0 1 6 £ ’ 0 0 0 1 , 0 0 2 3 1 D E C E M B E R 2 0 1 6 £ ’ 0 0 0 F I N A N C I A L L I A B I L I T I E S I N T E R E S T A N A LY S I S : S U B J EC T TO F LO AT I N G R AT E S S U B J EC T TO F I X E D R AT E S M AT U R I T Y A N A LY S I S : O N E Y E A R O R L E S S , O R O N D E M A N D I N O N E TO T W O Y E A R S I N T W O TO T H R E E Y E A R S I N T H R E E TO F O U R Y E A R S B A N K LO A N F I N A N C E A C Q U I S I T I O N TOTA L A N D O V E R D R A F T £ ' 0 0 0 L E A S E S £ ' 0 0 0 O B L I G AT I O N S £ ' 0 0 0 £ ' 0 0 0 1 2 , 3 7 5 - 1 2 , 3 7 5 2 , 2 5 0 2 , 5 0 0 7, 6 2 5 - 1 2 , 3 7 5 - 2 9 9 2 9 9 8 3 8 7 9 0 3 9 2 9 9 - 4 , 6 5 9 4 , 6 5 9 1 , 6 4 5 1 , 7 0 3 7 5 0 5 6 1 4 , 6 5 9 1 2 , 3 7 5 4 , 9 5 8 1 7, 3 3 3 3 , 97 8 4 , 2 9 0 8 , 4 6 5 6 0 0 1 7, 3 3 3 The Group's bank loans and overdraf t facilit y 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. 66 2 8 . L E A V E P A Y A C C R U A L No liabilit y 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 for ward 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 for ward. A s a result, there is no material liabilit y relating to untaken leave at year end. 2 9 . P O S T B A L A N C E S H E E T E V E N T S Af ter the end of the financial year, a new company, The Mission Marketing Holdings Ltd (“ TMMH”), was incorporated as a wholly owned subsidiar y of the Company. On 21 Februar y 2017, all the Company’s shareholdings in subsidiaries were transferred to TMMH in return for the issuance of 20,000,002 Ordinar y shares. On the same day, various individuals subscribed for a total of 5,720,171 A Ordinar y shares in TMMH as par t of the Grow th Share Scheme referred to in the Corporate Governance Repor t. On 16 March 2017 the Directors agreed an increase and an extension to the maturit y date for the revolving credit facilit y. Fur ther details of these facilities are set out in Note 19. 3 0 . R E L A T E D P A R T Y T R A N S A C T I O N S The Directors consider that the Directors of the Company represent the Group’s key management personnel for the purposes of disclosing related par t y transactions. Directors’ remuneration is disclosed in detail in Note 8. The total compensation payable to key management personnel is detailed below. S H O R T-T E R M E M P LOY E E B E N E F I T S P O S T-E M P LOY M E N T B E N E F I T S S H A R E B A S E D PAY M E N T S Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 , 6 47 1 2 3 - 1 , 7 7 0 2 0 1 5 £’ 0 0 0 1 , 6 5 0 1 5 2 5 0 1 , 8 5 2 Bray Leino Ltd rents proper t y from entities under the control of Mr D W Morgan, Chairman of The Mission Marketing Group plc, and members of his close family. During the year the Company paid annual rental and proper t y fees totalling £158,000 (2015: £158,000). There were no amounts owed at the balance sheet date to these entities. ThinkBDW Ltd is contracted to pay annual rent to Rober t Day A ssociates Ltd, a company controlled by Mrs K Day (wife of Rober t Day, Executive Director) and Mrs A Day (wife of Mr Alan Day, brother of Rober t Day, Executive Director). The lease commenced on 2 May 2014 with an amendment in Januar y 2015. Rent payable in the year was £175,000 (2015: £175,000) and was set at market value. Additional land is rented from Rober t Day A ssociates Ltd on an ad hoc basis at a cost of £20,000 for storage and a Client demonstration area (2015: £20,000). Ser vice charges of £25,000 for the management of the site were also levied (2015: £25,000). In addition, ThinkBDW Ltd purchases energy generated by a photovoltaic array owned by Rober t Day A ssociates Ltd at a discounted commercial rate. The cost to ThinkBDW Ltd of this purchase in 2016 was £1 3,589 (2015: £10,741). At the balance sheet date £30,000 was outstanding to Rober t Day A ssociates Ltd. Big Dog Agency Ltd is contracted to pay annual rent to four individuals, including Dylan Bogg (Executive Director) and Chris Morris (Non-Executive Director). During the year, total rental of £74,000 (2015: £74,000) was paid and no amount was outstanding at the balance sheet date 3 1 . A V A I L A B I L I T Y O F A N N U A L R E P O R T Copies of the Annual Repor t for the year ended 31 December 2016 will be circulated to shareholders at least 21 days ahead of the Annual General Meeting (“AGM”) on 19 June 2017 and, af ter approval at the AGM, will be delivered to the Registrar of Companies. Fur ther copies will be available from the Company’s registered office and on the Group’s website, w w w.themission.co.uk. 67 I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F T H E M I S S I O N M A R K E T I N G G R O U P P L C R E P O R T O N T H E P A R E N T C O M P A N Y F I N A N C I A L S T A T E M E N T S Our opinion In our opinion the parent company financial statements: In addition, we read all the financial and non-financial information in the annual repor t to identif y material inconsistencies with the audited financial statements and to identif y any information that is apparently materially • give a true and fair view of the state of the Company’s affairs as at 31 incorrect based on, or materially inconsistent with, the knowledge December 2016; • have been properly prepared in accordance with United Kingdom acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the Generally Accepted Accounting Practice; and implications for our repor t. • have been prepared in accordance with the requirements of the Opinion on other matters prescribed by the Companies Act 2006 Companies Act 2006. What we have audited In our opinion based on the work under taken in the course of the audit: • the information given in the Strategic Repor t and the Directors’ Repor t We have audited the parent company financial statements of The Mission for the financial year for which the financial statements are prepared is Marketing Group plc for the year ended 31 December 2016 which comprise consistent with the parent company financial statements; and the Parent Company Balance Sheet, Statement of Changes in Equit y and the related notes. The financial repor ting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102, the Financial Repor ting Standard applicable in the UK and the Republic of Ireland. • the Strategic Repor t and Directors’ Repor t have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Repor t or the Directors’ Repor t. Our responsibilities and those of the Directors for the financial statements and the audit Matters on which we are required to report by exception Under the Companies Act 2006 we are required to repor t to you if, in our A s explained more fully in the Directors’ Responsibilities Statement set out opinion: on page 39 the Directors are responsible for the preparation of the parent • adequate accounting records have not been kept by the parent company, company financial statements and for being satisfied that they give a true or returns adequate for our audit have not been received from branches and fair view. Our responsibilit y is to audit and express an opinion on the not visited by us; or 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. This repor t is made solely to the Company's shareholders, as a body, in accordance with Chapter 3 of Par t 16 of the Companies Act 2006. Our audit work has been under taken so that we might state to the Company's • the parent company financial statements are not in agreement with the accounting records and returns; or • cer tain 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. shareholders those matters we are required to state to them in an auditor's We have no exceptions to repor t in respect of any of these matters. repor t and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibilit y to anyone other than the Company and the Company's shareholders as a body, for our audit work, for this repor t, or for the opinions we have formed. What an audit of financial statements involves 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. Other matter We have repor ted separately on the consolidated financial statements of The Mission Marketing Group plc for the year ended 31 December 2016. Glenn Nicol BSc (Hons) FCA (Senior Statutor y Auditor) For and on behalf of PKF Francis Clark Char tered Accountants and Statutor y Auditors Vantage Point P ynes Hill Exeter EX2 5FD 23 March 2017 68 C O M P A N Y B A L A N C E S H E E T A S A T 3 1 D E C E M B E R 2 0 1 6 N O N - C U R R E N T A S S E T S I N TA N G I B L E A S S E T S I N V E S T M E N T S C U R R E N T A S S E T S D E B TO R S C A S H AT B A N K C R E D I T O R S : A M O U N T S FA L L I N G D U E W I T H I N O N E Y E A R N E T C U R R E N T L I A B I L I T I E S T O TA L A S S E T S L E S S C U R R E N T L I A B I L I T I E S C R E D I T O R S : A M O U N T S FA L L I N G D U E A F T E R M O R E T H A N O N E Y E A R N E T A S S E T S C A P I TA L A N D R E S E RV E S C A L L E D U P S H A R E C A P I TA L S H A R E P R E M I U M A CC O U N T O W N S H A R E S S H A R E O P T I O N R E S E R V E P R O F I T A N D LO S S A CCO U N T S H A R E H O L D E R ’ S F U N D S N O T E 3 3 3 4 3 5 3 6 3 7 4 0 4 0 4 0 A S AT A S AT 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 9 9 6 , 9 9 4 9 7, 0 1 3 3 , 6 0 3 - 3 , 6 0 3 ( 8 , 4 5 4) (4 , 8 5 1 ) 2 0 1 5 £’ 0 0 0 2 5 9 6 , 9 2 5 9 6 , 9 5 0 2 , 6 1 9 5 5 8 3 , 1 7 7 ( 7, 6 6 0 ) (4 , 4 8 3 ) 9 2 , 1 6 2 9 2 , 4 6 7 ( 1 1 , 5 4 3) 8 0 , 6 1 9 ( 14 , 07 0 ) 7 8 , 3 97 8 , 4 1 2 4 2 , 4 3 1 ( 5 5 6 ) 2 4 9 3 0 , 0 8 3 8 0 , 6 1 9 8 , 3 6 1 4 2 , 2 6 8 (4 5 5) 2 9 8 2 7, 9 2 5 7 8 , 3 97 The financial statements were approved and authorised for issue on 23 March 2017 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam Finance Director Company registration number: 05733632 69 C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6 S H A R E S H A R E O W N S H A R E R E TA I N E D TOTA L C A P I TA L P R E M I U M S H A R E S O P T I O N E A R N I N G S EQ U I T Y £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 £’ 0 0 0 R E S E R V E AT 1 J A N U A RY 2 0 1 5 P R O F I T F O R T H E Y E A R N E W S H A R E S I S S U E D C R E D I T F O R S H A R E O P T I O N S C H E M E O W N S H A R E S P U R C H A S E D S H A R E S AWA R D E D TO E M P LOY E E S F R O M O W N S H A R E S D I V I D E N D PA I D AT 3 1 D E C E M B E R 2 0 1 5 P R O F I T F O R T H E Y E A R N E W S H A R E S I S S U E D C R E D I T F O R S H A R E O P T I O N S C H E M E O W N S H A R E S P U R C H A S E D S H A R E S AWA R D E D A N D S O L D F R O M O W N S H A R E S D I V I D E N D PA I D AT 3 1 D E C E M B E R 2 0 1 6 8 , 3 4 0 4 2 , 2 0 3 ( 2 6 0 ) 2 6 4 2 5 , 8 8 2 76 , 4 2 9 - 2 1 - - - - - 6 5 - - - - - - - ( 3 1 7 ) 1 2 2 - - - 3 4 - - - 3 , 1 1 1 3 , 1 1 1 - - - ( 1 2 0 ) (9 4 8 ) 8 6 3 4 ( 3 1 7 ) 2 (9 4 8 ) 8 , 3 6 1 4 2 , 2 6 8 (4 5 5 ) 2 9 8 2 7, 9 2 5 7 8 , 3 9 7 - 5 1 - - - - - 1 6 3 - - - - - - - ( 2 1 2 ) 1 1 1 - - - (4 9) - - - 3 , 2 6 9 3 , 2 6 9 - - - 47 2 1 4 (4 9) ( 2 1 2 ) 1 5 8 ( 1 , 1 5 8 ) ( 1 , 1 5 8 ) 8 , 4 1 2 4 2 , 4 3 1 ( 5 5 6 ) 2 4 9 3 0 , 0 8 3 8 0 , 6 1 9 70 N O T E S T O T H E C O M P A N Y F I N A N C I A L S T A T E M E N T S 3 2 . P R I N C I P A L A C C O U N T I N G P O L I C I E S The principal accounting policies are summarised below. They have all Debt instruments which meet the conditions to be classified as basic been applied consistently throughout the year and to the preceding year. instruments are subsequently measured at amor tised cost using the General information and basis of accounting effective interest method. Basic debt instruments that are classified as payable or receivable within The Mission Marketing Group plc is a company incorporated in the United one year are measured at the undiscounted amount of the cash or other Kingdom under the Companies Act. The address of the registered office is consideration expected to be paid or received, net of impairment. given on page 79. The nature of the Group’s operations and its principal activities are set out in the Strategic Repor t on pages 33-36. The financial statements have been prepared under the historical Financial liabilities are released to the profit and loss account when the liabilit y is extinguished. cost convention, modified to include cer tain items at fair value, and in Contingent consideration payments accordance with Financial Repor ting Standard 102 (FRS 102) issued by the Financial Repor ting Council. Reduced disclosure exemptions 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 uncer tain future events such as the future performance of the acquired company. The amounts recognised in the financial statements The Mission Group plc meets the definition of a qualif ying entit y under represent a reasonable estimate at the balance sheet date of the amounts FRS 102 and has therefore taken advantage of the disclosure exemptions expected to be paid and has been classified in the Balance Sheet in available to it in respect of its financial statements. Exemptions have been accordance with the substance of the transaction. Where the agreement taken in relation to the presentation of a cash flow statement, financial gives rise to an obligation that may be settled by the deliver y of a variable instruments, share-based payment, share capital and remuneration of key number of shares to meet a defined monetar y liabilit y, these amounts are management personnel. Going concern disclosed as debt. Investments The Company’s available banking facilities provide comfor table levels of In the Company’s financial statements, investments in subsidiar y and headroom against the Company’s projected cash flows and the Directors associate under takings are stated at cost less provision for any impairment accordingly consider that it is appropriate to continue to adopt the going in value. concern basis in preparing these financial statements. Deferred taxation Accounting estimates and judgements The Company makes estimates and judgements concerning the future and Deferred taxation is recognised on all timing differences where the the resulting estimates may, by definition, var y from the actual results. The transactions or event that give the Company an obligation to pay more Directors considered the critical accounting estimates and judgements tax in the future, or a right to pay less tax in the future, have occurred by used in the financial statements and concluded that the main areas of the balance sheet date. Deferred tax assets are recognised when it is more judgement are, in order of significance: likely than not that they will be recoverable. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance Potential impairment of investments sheet date. Financial instruments The potential impairment of investments 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 grow th Financial assets and financial liabilities are recognised when the Company thereaf ter. becomes par t y to the contractual provisions of the instrument. Contingent payments in respect of acquisitions Financial liabilities and equit y instruments are classified according to Contingent consideration, by definition, depends on uncer tain future the substance of the contractual arrangements entered into. An equit y events. At the time of purchasing a business, the Directors use the financial instrument is any contract that evidences a residual interest in the assets projections obtained during due diligence as the basis for estimating of the company af ter deducting all of its liabilities. Financial assets and liabilities contingent consideration. Subsequent estimates benefit from the greater insight gained in the post-acquisition period and the business’ track record of financial performance. All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as Lease commitments fair value through profit and loss, which are initially measured at fair value. Rental costs under operating leases are charged against profits as incurred. Financial assets and liabilities are only offset in the statement of financial position when, and only when, there exists a legally enforceable right to Profit of parent company set off the recognised amounts and the Company intends either to settle A s permitted under Section 408 of the Companies Act 2006, the profit and on a net basis, or to realise the asset and settle the liabilit y simultaneously. loss account of the Company is not presented as par t of these accounts. 71 3 3 . I N T A N G I B L E A S S E T S C O S T A C C U M U L AT E D A M O R T I S AT I O N N E T B O O K VA LU E Y E A R T O Y E A R TO 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 6 1 (4 2 ) 1 9 2 0 1 5 £’ 0 0 0 6 1 ( 3 6 ) 2 5 Intangible assets consist of intellectual proper t y rights which are amor tised over 10 years. The amor tisation charge for the year was £6,000 (2015: £6,000). 3 4 . I N V E S T M E N T S C O S T AT 1 J A N U A RY 2 0 1 5 A D D I T I O N S A D J U S T M E N T TO P U R C H A S E C O N S I D E R AT I O N AT 3 1 D E C E M B E R 2 0 1 5 A D D I T I O N S A D J U S T M E N T TO P U R C H A S E C O N S I D E R AT I O N AT 3 1 D E C E M B E R 2 0 1 6 I M PA I R M E N T AT 1 J A N U A RY 2 0 1 5 I M PA I R M E N T AT 3 1 D E C E M B E R 2 0 1 5 I M PA I R M E N T AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K A M O U N T AT 3 1 D E C E M B E R 2 0 1 6 N E T B O O K A M O U N T AT 3 1 D E C E M B E R 2 0 1 5 S H A R E S I N S U B S I D I A R Y U N D E R TA K I N G S £’ 0 0 0 1 0 0 , 1 8 4 5 , 76 8 ( 5 8 4 ) 1 0 5 , 3 6 8 5 6 4 1 0 5 , 4 3 7 ( 8 , 4 4 3) - ( 8 , 4 4 3) - ( 8 , 4 4 3) 9 6 , 9 9 4 9 6 , 9 2 5 A list of the principal trading companies in the Group at 31 December 2016 can be found in Note 13 to the Consolidated Financial Statements and a complete list can be found in Note 44. 72 3 5 . D E B T O R S A M O U N T S D U E F R O M S U B S I D I A R Y U N D E R TA K I N G S 2 , 9 7 0 2 , 0 9 9 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 2 0 1 5 £’ 0 0 0 C O R P O R AT I O N TA X P R E PAY M E N T S OT H E R D E B TO R S 3 6 . C R E D I T O R S : A M O U N T S F A L L I N G D U E W I T H I N O N E Y E A R B A N K O V E R D R A F T A M O U N T S D U E TO S U B S I D I A R Y U N D E R TA K I N G S A C C R U A L S A C Q U I S I T I O N O B L I G AT I O N S ( S E E N OT E 3 9 ) B A N K LO A N ( S E E N OT E 3 8 ) OT H E R C R E D I TO R S 3 7. C R E D I T O R S : A M O U N T S F A L L I N G D U E A F T E R M O R E T H A N O N E Y E A R B A N K LO A N ( S E E N OT E 3 8 ) A C Q U I S I T I O N O B L I G AT I O N S ( S E E N OT E 3 9 ) 4 5 4 1 1 9 6 0 41 5 5 8 47 3 , 6 0 3 2 , 6 1 9 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 8 6 2 3 , 8 7 2 9 1 1 , 3 2 5 2 , 2 5 0 5 4 8 , 4 5 4 2 0 1 5 £’ 0 0 0 - 4 , 4 8 9 1 93 1 , 3 9 9 1 , 5 0 0 7 9 7, 6 6 0 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 0 , 0 2 3 1 , 5 2 0 1 1 , 5 4 3 2 0 1 5 £’ 0 0 0 1 1 , 2 1 0 2 , 8 6 0 14 , 07 0 73 3 8 . B O R R O W I N G S B A N K LO A N O U T S TA N D I N G A D J U S T M E N T TO A M O R T I S E D C O S T C A R R Y I N G VA L U E O F LO A N O U T S TA N D I N G T H E B O R R O W I N G S A R E R E PAYA B L E A S F O L LO W S: L E S S T H A N O N E Y E A R I N O N E TO T W O Y E A R S I N M O R E T H A N T W O Y E A R S B U T L E S S T H A N T H R E E Y E A R S I N M O R E T H A N T H R E E Y E A R S B U T L E S S T H A N F O U R Y E A R S A D J U S T M E N T TO A M O R T I S E D C O S T L E S S: A M O U N T D U E F O R S E T T L E M E N T W I T H I N 1 2 M O N T H S ( S H O W N U N D E R C U R R E N T L I A B I L I T I E S ) A M O U N T D U E F O R S E T T L E M E N T A F T E R 1 2 M O N T H S 3 1 D E C E M B E R 3 1 D EC E M B E R 2 0 1 6 £ ’ 0 0 0 1 2 , 3 7 5 ( 1 0 2 ) 1 2 , 2 7 3 2 , 2 5 0 2 , 5 0 0 7, 6 2 5 - 1 2 , 3 7 5 ( 1 0 2 ) 1 2 , 2 7 3 ( 2 , 2 5 0 ) 1 0 , 0 2 3 2 0 1 5 £’ 0 0 0 1 2 , 8 7 5 ( 1 6 5) 1 2 , 7 1 0 1 , 5 0 0 2 , 2 5 0 2 , 5 0 0 6 , 6 2 5 1 2 , 8 7 5 ( 1 6 5) 1 2 , 7 1 0 ( 1 , 5 0 0 ) 1 1 , 2 1 0 Details of the Company’s borrowing facilities and interest rates are set out in Note 19 and not therefore repeated here. All borrowings are in sterling. A s at 31 December 2016, net assets of the Group were £76,928,000 (2015: £73, 365,000) and net borrowings under this Group arrangement amounted to £11, 271,000 (2015: £10,926,000). 3 9 . A C Q U I S I T I O N O B L I G A T I O N S 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 uncer tain future events such as the future performance of the acquired company. The Directors estimate that the liabilit y for payments that may be due are as follows: L E S S T H A N O N E Y E A R B E T W E E N O N E A N D T W O Y E A R S I N M O R E T H A N T W O Y E A R S B U T L E S S T H A N T H R E E Y E A R S 4 0 . S H A R E C A P I T A L A N D O W N S H A R E S C A S H £’ 0 0 0 1 , 3 2 5 1 , 3 3 1 1 8 9 2 , 8 4 5 S H A R E S £’ 0 0 0 - - - - TOTA L £’ 0 0 0 1 , 3 2 5 1 , 3 3 1 1 8 9 2 , 8 4 5 The movements on these items are disclosed within the consolidated financial statements. A description of Own Shares is disclosed in Note 24. During the year, the Company issued 511,903 Ordinar y shares of 10p each and at 31 December 2016, the number of shares in issue was 84,120, 234 (2015: 83,608, 331). 74 4 1 . U N R E A L I S E D R E S E R V E S Included in reser ves at 31 December is unrealised profit, which is non-distributable, of £3,165,000 (2015: £3,165,000). 4 2 . O P E R A T I N G L E A S E C O M M I T M E N T S A s at 31 December the Company had commitments under non-cancellable operating leases as follows: O P E R AT I N G L E A S E S W H I C H E X P I R E : W I T H I N O N E Y E A R B E T W E E N T W O A N D F I V E Y E A R S A F T E R M O R E T H A N 5 Y E A R S 4 3 . R E L A T E D P A R T Y T R A N S A C T I O N S 3 1 D E C E M B E R 2 0 1 6 3 1 D EC E M B E R 2 0 1 5 L A N D A N D B U I L D I N G S L A N D A N D B U I L D I N G S £ ’ 0 0 0 £’ 0 0 0 2 1 0 5 9 5 - 8 0 5 2 1 0 8 0 5 - 1 , 0 1 5 Details of related par t y transactions are disclosed in Note 30 of the consolidated financial statements. 4 4 . G R O U P C O M P A N I E S Below is a list of all companies in the Group. All subsidiaries are 100% owned and all are incorporated in the United Kingdom, unless other wise indicated. In addition, the Company holds a 25% investment in Watchable Ltd, treated as an associated company, a 60% interest in European Exhibit Ser vices SRO, incorporated in the Czech Republic, treated as a joint venture and also holds indirectly a 50% interest in Vivactis Global Health Ltd, treated as a joint venture. S U B S I D I A RY U N D E R TA K I N G C O U N T RY O F I N C O R P O R AT I O N R E G I S T E R E D O F F I C E A P R I L S I X I N C .* U S A 8 47 S A N S O M E S T R E E T, S U I T E 1 0 0 , S A N F R A N C I S CO, A P R I L S I X LT D A P R I L S I X P R O O F LT D (formerly Proof Communication Ltd)* C A 9 41 1 1 , U N I T E D S TAT E S O F A M E R I C A C H A P L I N H O U S E , 2 N D F LO O R , W I D E WAT E R P L A C E , M O O R H A L L R O A D , H A R E F I E L D , M I D D L E S E X , U B 9 6 N S C H A P L I N H O U S E , 2 N D F LO O R , W I D E WAT E R P L A C E , M O O R H A L L R O A D , H A R E F I E L D , M I D D L E S E X , U B 9 6 N S A P R I L S I X P T E . LT D * S I N G A P O R E #7 3 U B I R O A D 1 , # 07-4 9/ 5 0 O X L E Y B I Z H U B , S I N G A P O R E 4 0 8 7 3 3 B A L LO O N D O G LT D * F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, B I G C O M M U N I C AT I O N S LT D B I G D O G A G E N C Y LT D N O R W I C H , N R 1 3 PA 2 2 3 LO N D O N R O A D , L E I C E S T E R , L E 2 1 Z E F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, N O R W I C H , N R 1 3 PA B R A N D O N H I L L C O M M U N I C AT I O N S LT D * T H E O L D R EC TO R Y, F I L L E I G H , D E V O N , E X 3 2 0 R X B R AY L E I N O LT D T H E O L D R EC TO R Y, F I L L E I G H , D E V O N , E X 3 2 0 R X B R AY L E I N O P R O D U C T I O N S LT D * T H E O L D R EC TO R Y, F I L L E I G H , D E V O N , E X 3 2 0 R X B R AY L E I N O S D N . B H D .* * M A L AY S I A 1 0 0 . 6 . 0 47, 1 2 9 O F F I C E S , B LO C K J , J AYA O N E . N O . 7 2 A , J A L A N U N I V E R S I T I 4 6 2 0 0 P E TA L I N G J AYA , S E L A N G O R D A R U L E H S A N , M A L AY S I A 75 4 4 . G R O U P C O M P A N I E S ( C O N T . ) S U B S I D I A RY U N D E R TA K I N G C O U N T RY O F I N C O R P O R AT I O N R E G I S T E R E D O F F I C E B R AY L E I N O S I N G A P O R E P T E . LT D * S I N G A P O R E #7 3 U B I R O A D 1 , # 07-4 9/ 5 0 O X L E Y B I Z H U B , C H A P T E R A G E N C Y LT D D E S T I N AT I O N C M S LT D * (50% owned) F O X M U R P H Y LT D * F R I A R S 5 7 3 LT D F U S E D I G I TA L LT D S I N G A P O R E 4 0 8 7 3 3 3 6 P E R C Y S T R E E T, LO N D O N , W 1T 2 D H 4 5 Q U E E N S T R E E T E X E T E R D E V O N E X4 3 S R F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, N O R W I C H , N R 1 3 PA F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, N O R W I C H , N R 1 3 PA 2 2 3 LO N D O N R O A D , L E I C E S T E R , L E 2 1 Z E G E N E R AT E S P O N S O R S H I P LT D * * * 3 0 PA R K S T R E E T, LO N D O N , S E 1 9 EQ G I N G E R N U T C R E AT I V E LT D * F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, J E L LY F I S H LT D * M O N G O O S E P R O M OT I O N S LT D (75% owned) N O R W I C H , N R 1 3 PA F LO O R 3 , N O R F O L K TO W E R , 4 8 / 5 2 S U R R E Y S T R E E T, N O R W I C H , N R 1 3 PA 3 6 P E R C Y S T R E E T, LO N D O N , W 1T 2 D H M O N G O O S E S P O R T S & E N T E R TA I N M E N T LT D 3 0 PA R K S T R E E T, LO N D O N , S E 1 9 EQ (75% owned) Q U O R U M A D V E R T I S I N G LT D * 2 2 3 LO N D O N R O A D , L E I C E S T E R , L E 2 1 Z E R L A G R O U P LT D R O B S O N B R O W N LT D S O L A R I S H E A LT H C A R E N E T W O R K LT D PA R L E Y G R E E N L A N E , H U R N , D O R S E T, B H 2 3 6 B B PA R L E Y G R E E N L A N E , H U R N , D O R S E T, B H 2 3 6 B B 3 R D F LO O R , A S H L E Y H O U S E , 1 8-2 0 G EO R G E S T R E E T, R I C H M O N D U P O N T H A M E S , S U R R E Y, T W 9 1 H Y S P E E D C O M M U N I C AT I O N S A G E N C Y LT D 1- 6 , B R I G H TO N M E W S , B R I S TO L , E N G L A N D , B S 8 2 N W S P L A S H I N T E R A C T I V E CO M PA N Y LT D * * V I E T N A M 2 0 5 - 1 2 M A C D I N H C H I S T R E E T ( C I T Y V I E W TO W E R ), D I S T R I C T 1 H O C H I M I N H C I T Y, V I E T N A M S P L A S H I N T E R A C T I V E LT D * * C H I N A R O O M 1 8 0 1 , H O N G K O N G M E T R O P O L I S B U I L D I N G , N O . 4 8 9 , H E N A N R O A D S O U T H , H U A N G P U D I S T R I C T, S H A N G H A I , C H I N A S P L A S H I N T E R A C T I V E LT D * * H O N G K O N G U N I T 1 1 0 1 , 1 1 / F, TO W E R 1 , C H E U N G S H A WA N P L A Z A , 8 3 3 C H E U N G , S H A WA N R O A D , L A I C H I K O K , K O W LO O N , H O N G K O N G S P L A S H I N T E R A C T I V E P T E . LT D * S I N G A P O R E #7 3 U B I R O A D 1 , # 07-4 9/ 5 0 O X L E Y B I Z H U B , S I N G A P O R E 4 0 8 7 3 3 S P L A S H I N T E R A C T I V E S D N . B H D .* * M A L AY S I A 1 0 0 . 6 . 0 47, 1 2 9 O F F I C E S , B LO C K J , J AYA O N E . S TO R Y U K LT D N O . 7 2 A , J A L A N U N I V E R S I T I 4 6 2 0 0 P E TA L I N G J AYA , S E L A N G O R D A R U L E H S A N , M A L AY S I A 1-4 , AT H O L L C R E S C E N T, E D I N B U R G H , S COT L A N D , E H 3 8 H A T H E S P L A S H PA R T N E R S H I P LT D * 3 0 PA R K S T R E E T, LO N D O N , S E 1 9 EQ T H E W E AT H E R D I G I TA L A N D P R I N T C O M M U N I C AT I O N S LT D * T H I N K B D W LT D 1-4 , AT H O L L C R E S C E N T, E D I N B U R G H , S COT L A N D , E H 3 8 H A 4 , W Y N CO L L S R O A D , S E V E R A L L S I N D U S T R I A L PA R K , CO LC H E S T E R , CO 4 9 H U * All subsidiaries are held directly by The Mission Marketing Group plc except where indicated by an asterisk. ** These subsidiaries are 100% owned by Splash Interactive Pte. Ltd, which is 70% owned by The Mission Marketing Group plc. *** Generate Sponsorship Ltd is 100% owned by Mongoose Spor ts & Enter tainment Ltd, which is 75% owned by The Mission Marketing Group plc. 76 N O T I C E O F A N N U A L G E N E R A L M E E T I N G 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 19 June 2017 at the offices of finnCap Limited, 60 New Broad Street, London, EC2M 1JJ to transact the following business:The following resolutions will be proposed as ordinary resolutions:Report and Accounts1. To receive the financial statements and the reports of the Directors and the auditors for the year ended 31 December 2016.Dividend2. To approve a final dividend of 1.0 pence per share for the year ended 31 December 2016 to shareholders on the register at the close of business on 14 July 2017.Directors3. To re-elect Peter Fitzwilliam as a Director.Auditors4. To re-appoint PKF Francis Clark as auditors of the Company. 5. To authorise the Directors to fix the remuneration of PKF Francis Clark.Authority to allot shares6. THAT the Directors be and are hereby generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 (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 £2,804,007 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.The following resolutions will be proposed as special resolutions:Authority to dis-apply pre-emption rights7. THAT (subject to the passing of the resolution numbered 6 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 6 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 £841,202.34 being 10% of the issued share capital of the Company. This power shall expire upon the expiry of the general authority conferred by resolution 6 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.77 78Authority to purchase own shares8. 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 12,618,035 being 15% of the issued share capital; andii. the minimum price which may be paid for an ordinary share is the nominal value of such share; andiii. 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; andiv. the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company held in 2018 or 18 months from the date of this resolution (whichever is earlier); andv. 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; andvi. all ordinary shares purchased pursuant to the authority conferred by this resolution 8 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 per cent of the issued share capital of the Company at any time).By Order of the Board Peter Fitzwilliam 23 March 2017Note to the Notice of Annual General MeetingA member entitled to attend and vote at the Annual General Meeting may appoint one or more proxies (who need not be a member of the Company) to attend, speak and vote on his or her behalf. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to different shares. To appoint as your proxy a person other than the chairman of the meeting, insert their full name in the box on the Form of Proxy accompanying the annual report. If you sign and return the proxy form with no name inserted in the box, the chairman of the meeting will be deemed to be your proxy. Where you appoint as your proxy someone other than the chairman, you are responsible for ensuring that they attend the meeting and are aware of your voting intentions. If you wish your proxy to make any commitments on your behalf, you will need to appoint someone other the chairman, and give them relevant instructions directly. In order to be valid an appointment of proxy must be completed, signed and returned in hard copy form by post, by courier or by hand to Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA. The closing time for lodging proxies is 12 noon on Thursday 15 June 2017. For the purposes of determining which persons are entitled to attend or vote at the meeting, members entered on the Company’s register of members at 6p.m. on Friday 16 June have the right to attend and vote at the meeting. A D V I S O R S marketing group plc 36 PERCY STREET, LONDON, W1T 2DH T:+44 (0)207 462 1415. WWW.THEMISSION.CO.UKCompany Registration Number: 05733632Registered Office: 36 Percy Street London W1T 2DHNominated Advisor and Broker: finnCap Limited 60 New Broad Street London EC2M 1JJAuditors: PKF Francis Clark Vantage Point Pynes Hill Exeter EX2 5FDRegistrars: Neville Registrars Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA Company Secretary: Peter Fitzwilliam The Mission Marketing Group plc 36 Percy Street London W1T 2DHBankers: Royal Bank of Scotland plc Corporate Banking 9th Floor 280 Bishopsgate London EC2M 4RB