Different Different is good. Contents: 2 Being Different | 12 Chairman’s Statement | 14 Financial Highlights | 16 Company Highlights | 28 The Board | 30 Strategic Report 35 Report of the Directors | 40 Corporate Governance | 44 Independent Auditor’s Report | 48 Consolidated Financial Statements & Notes 84 Independent Auditor’s Report: Company | 86 Company Financial Statements & Notes | 96 Notice of Annual General Meeting | 102 Advisors Yes, it takes bravery and a sense of adventure to be different. But when you combine stout hearts and curious minds, amazing things happen – for our Clients, our team and our shareholders. That’s why we’re an Agency network that encourages our Agencies to be different. Diverse talent working together with the same entrepreneurial spirit. It makes everything we do different, including this annual report. Over the next few pages, you’ll see some of our Agencies’ favourite quotes and thoughts. But don’t worry, you’ll also still find the facts and figures behind another year of great performance. Not so different after all. Campaigns that don’t stand out, fall down. So let the bland lead the bland, because campaigns that wear bold trousers are far more likely to help brands make a leap. Pleasing everyone is impossible. Go your own way, give it a twist, have an opinion. Some will love it, others won’t. But everyone will notice. We’re never satisfied. That’s why we’re always on the lookout for fresh inspiration. Amazing ideas come from anywhere and everywhere. Be ready. Does being different deliver results? Find out with a review of our Group’s performance in 2018. Over the last year, we’ve welcomed some exciting new talent, made a smart sale and created some very happy Clients – and we have some impressive results to show for it. See how we’ve grown. 12 - Chairman’s Statement Quaquaversatility* it’s what it’s all about. *Quaquaversatility - noun: The ability to cascade from the centre in every direction. Like the way we reach out to talent and ideas from all around the marketing world. Our Chairman’s statement on a year of progress. from Diomed, Barclays and Aviva. that value truly integrated campaigns that Many through multi-Agency participation. break boundaries and make the parts and Our industry is all about people; understanding what makes them tick, supporting their aspirations and, above all, instilling in them • The acquisition of the top twenty London Agency krow who are already becoming a passion to succeed and a passion pivotal in our strategy to deliver multi-centre to perform for their Clients, their Agency and themission. I genuinely believe that today we have a group of people at the top of their game, teams and support across our network. • Industry awards that included a Gold IPA Effectiveness Award for krow with their Client DFS. the sum work equally well. Looking to the next phase of the Group’s development, we need to continue to build on our collaborative approach and develop themission brand as a real alternative to the global delivering great ideas and practical solutions • Focus on technology through our fuse groups. To achieve this, our initiative which is seeing our Pathfindr structure needs to adapt without to complex marketing issues across every discipline. An average day in themission may see a film crew on a remote Scottish island, a build crew delivering a show home asset management system grow dramatically through global contracts with Rolls-Royce, MTU Friedrichshafen and branding for a major property development GmbH and GKN Aerospace. Pathfindr in London, a complex market assessment generated sales of £0.5m in 2018 (2017: for a leading global pharmaceutical company, minimal) and we estimate sales of £2m in an exhibition in the far corners of Asia or 2019, underpinned by a strong order book. simply a team managing a sponsorship • Divestment of our NHS BroadCare programme bringing the NFL to London. Software System for £4.4m to CHS Health. In truth, there’s no such thing as an average day. • Extending our global reach through Client demand by opening in Chicago and Beijing to extend our number of forfeiting our entrepreneurial ethos. Foremost among these changes is the establishment of a full time Group CEO and I am delighted to announce the promotion of bigdog CEO James Clifton into this position with immediate effect. The Group has come a long way since I took So, it’s these people we have to thank for another great year in themission. For the eighth year running we have grown organically, increased our offices to 28, of which 8 are now outside on the role of Executive Chairman nine years the UK. All sharing the same culture of ago and there’s an energy within the Group cooperation, creativity and commitment. that gives me the confidence to believe revenues and profit significantly and, as a result, • Partnerships with innovative organisations, seen our bank debt tumble whilst continuing to increase the reward to our shareholders. including specialists in understanding generational differences and prosopography. 2018 was a strong year and these are just some of the highlights: • Winning global pitches with some great companies such as Amazon, HP and Petro- Canada Lubricants, closer to home wins from Lindt and Müller and new assignments • Continued focus on our operational costs through our Shared Services initiative which is gaining real traction. Where I am especially pleased is how, that has made us what we are today. through multi-offices but a shared vision and cooperation, our quaquaversal culture works so well for those Clients David Morgan, Chairman April 2019 that 2019 will see this momentum continue. Early as it is, 2019 has already started well and we are confident that we will deliver again against our strategy to be the most regarded UK-centric Agency Group that goes wherever in the world our Clients want us to be without losing that individual Agency entrepreneurship 14 - Financial Highlights Revenue (Operating Income) Up 13TO £78.8 MILLION (2017: £70.0m) Headline Diluted EPS Up to 8.68 pence (2017: 7.12 pence) 22% Full Year Dividend Up 24 to 2.1 pence (2017: 1.7 pence) Headline Operating Margins Increased to 12.6% (2017: 11.7%) Headline Profit (Before Tax) Up 22TO £9.5 MILLION (2017: £7.7m) Headline Operating Profit Up Bank Debt Bank Debt Leverage Ratio 21 REDUCED TO £4.0 million REDUCED TO x 0.4 to £9.9m (2017: £8.2m) (2017: £7.2m) (2017: x0.8) Goodbye 17 - Company Highlights Entrepreneurs recognise good opportunities. And when we sold one of our key technology products in 2018, it opened the door to new investment. Developed as part of the fuse portfolio, The sale generated £4.4m BroadCare is a tracking and reporting system created to manage every aspect of NHS-funded continuing healthcare. In a sector where the smart use of resources is more important than ever, the technology became widely adopted. But with an audience limited to the healthcare market, themission thought BroadCare would be better suited to a specialist organisation. So in November 2018, it was sold to Carehome Selection Limited, a long-established NHS supplier. in gross sales proceeds, with a proportion used to reduce the Group’s net debt, and the rest allowing us to reinvest in the next generation of innovations. Hello 19 - Company Highlights - continued themission thrives on new talent, energy and opportunities. And in April 2018, we welcomed another group of successful entrepreneurs to the fold. Welcome aboard krow Communications. Founded in 2005 and listed by Campaign as the UK’s 17th largest Agency, the Clerkenwell-based Agency services a Client list that includes Fiat, DFS, Sky Vegas, Wilko, RNLI and Team GB. With a team of 60 people, krow has produced some of the most effective creative campaigns of recent years. According to Campaign’s 2018 Adwatch of the year, krow’s Aardman animated campaign for DFS was the top overall performer for the third year in a row. The acquisition of this award-winning Agency provides the Group with another high-profile presence in London, along with major cross-selling opportunities. At the same time, krow’s offering has been enhanced through access to the additional resources, knowledge and services that come from our supporting network. 20 - Company Highlights - continued Helping Clients succeed What does our entrepreneurial spirit mean for our Agencies’ Clients? How does it translate into impressive business performance? Here’s how krow transformed as a market-leading British brand. More recent advertising campaigns featuring distinctive Aardman fabric animated characters have celebrated the production and quality of their sofas, while also continuing to make the brand more loved. As testament to this work, krow won a prestigious Gold at the IPA Effectiveness Awards 2018 and delivered an impressive 64% increase in profit ROI for the Client. a value brand to a brand that people really value. DFS are the UK’s biggest living room furniture retailer and over the last seven years krow has been working with them to make them stand for more than discounts and savings. All while maximising the effectiveness and profitability of advertising spend. Working with DFS, krow changed perceptions by developing a multi-year strategy which positioned DFS as a more realistic, popular and likeable brand, without downplaying the price offers it was famous for. By creating a surprising partnership with Team GB leading up to the 2016 Olympics, krow helped to heighten DFS’s reputation Same...but different Integrated Agencies Shared Services fuse Sector Specialist Agencies themission is home to two very different Agency groups – but they both share the same entrepreneurial spirit. On the one side, our Integrated Agencies are a rich and varied mix of talented thinkers and doers, all highly skilled at delivering hugely successful campaigns across every platform. On the other side, our Sector Specialist We also share new technology across Agencies have the in-depth knowledge the Group through fuse, our innovation to develop powerful marketing ideas incubator. Embracing new technology aimed at highly specialist audiences. or supporting existing products, This way, our Agencies are given the space and freedom to do what they do best. That’s also why our Shared Services fuse collaborates with our Agencies to develop brilliant ideas and create powerful solutions for our Clients. division takes care of payroll, HR, IT and Born out of fuse, Pathfindr is a technology other administrative duties right across the business that delivers intelligent asset Group. It creates major cost-savings and and parts tracking. Pathfindr systems are efficiencies – and it allows our marketing used by Clients such as Rolls-Royce, MTU entrepreneurs to concentrate on marketing. Friedrichshafen GmbH and GKN Aerospace. 24 - Company Highlights - continued Integrated Agencies Sector Specialist Agencies A multi-award winning creative An ambitious, creative and A technology marketing A specialist medical Agency producing compelling, commercially-minded PR Agency delivering strategic communications Agency that media-neutral ideas that you Agency combining business marketing services for some thrives in areas of unmet need can’t ignore. brains with creative muscle of the world’s most respected or when innovative targeted to deliver inspirational and technology brands, with technologies can make a positive motivational multi-channel offices in London, San Francisco, impact. Vivacity, a division of campaigns that cut through Singapore and Beijing. Solaris Health, delivers creative A pioneer of integrated brand- the noise. Speed’s expertise building, this top twenty covers consumer & lifestyle, Agency works with a wide business & corporate, food variety of Clients through every & hospitality and health & channel across the marketing wellbeing. communications 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. A full service creative communications Agency, with one objective in mind, to help Clients make leaps to provide real momentum for business success. Mongoose is a leading integrated sports, fitness and entertainment marketing Agency delivering expertise for brands, rights holders, charities and governing bodies. Splash Interactive is a Creative and Technology Agency that helps businesses flourish in a digitally-led world by focussing on user needs to craft great customer experiences that build enduring relationships. Headquartered in Singapore it operates across Asia from offices in Shanghai, Hong Kong, Malaysia and Vietnam. Based in Edinburgh, Story is an award-winning integrated Agency working with leading consumer brands and services, including M&S Bank, VELUX and the Scottish Government. AprilSix Proof The specialist PR division of April Six delivers powerful influencer strategies for Clients at the leading edge of innovation. An industry-leading provider of pricing and market access support to pharmaceutical and medical device companies. Operating from a European base but working across all major markets, many emerging markets and in all therapy areas. An Agency with unrivalled expertise in automotive communications, delivering proven sales, loyalty and engagement growth. health and wellness brand communications. The UK’s leading integrated property marketing Agency, working with developers and Housing Associations across all aspects of their sales support programmes, from advertising, digital, touch screen, CGI, PR, VR, signage and show homes to the construction of major multi-height marketing suites. Employing a team of over 200 staff in multiple sites across the UK. Robson Brown Part of ThinkBDW, Newcastle-based Robson Brown is regarded as one of the North of England’s major advertising agencies, with a host of brands in varied sectors. 26 - Company Highlights - continued We’re proud to work with some amazing international brands. There are global names, up-and-comers and Some have been with us longer than others that are loved by those in the know. others. But they all know the business advantages that can be gained with an agile, entrepreneurial approach. Client retention Proportion of revenue earned from long-standing Clients: 55% 5 years or more 36% 10 years or more 17% 20 years or more* * Not all our Agencies are 20 years old. For those that are, this statistic is an astonishing 33%. Recent additions A selection of existing partnerships DYLAN BOGG EXECUTIVE DIRECTOR Dylan is Chief Creative Officer of bigdog and oversees all creative output for the Agency across four UK locations. He had built a successful business by the age of 24 and this was used as the bedrock for the launch of Big Communications in 1996 which was acquired by themission in 2006. Dylan was appointed to the Board in April 2010 and also chairs themission Creative Directors Forum. JAMES CLIFTON GROUP CHIEF EXECUTIVE Previously CEO of bigdog, James started out Client-side before working for various agencies, both UK and internationally, within Omnicom and WPP. He created balloon dog in 2008 having led an MBO of Fox Murphy. balloon dog was acquired by themission and James was appointed to the Board in October 2012. Recently James has chaired themission’s Integrated Agencies Business Unit and is CEO of the Group’s IIoT Asset Tracking business, Pathfindr. James was promoted to Group Chief Executive in April 2019. DAVID MORGAN CHAIRMAN David founded Bray Leino, one of the UK’s first truly integrated Agencies, in 1974 and was its CEO until 2008. He became Non- Executive Chairman of Bray Leino in 2008 and was appointed Chairman of themission in April 2010. Before founding Bray Leino he worked in a number of London advertising agencies including Dorlands. The board behind the spirit ROBERT DAY DEPUT Y CHAIRMAN Robert is Executive Chairman of ThinkBDW, a company he founded as Robert Day Associates in 1987 at the age of 22. Re-branding as ThinkBDW in 2004, Robert has led the company to its position as the leading property marketing specialist in the UK. The business was acquired by themission in March 2007 and Robert joined the Board in April 2010. He was appointed Deputy Chairman of themission in 2018. PETER FITZWILLIAM FINANCE DIRECTOR Peter is a Chartered Accountant with over 25 years’ financial and management advisory experience in private and quoted companies across a range of industry sectors. Finance Director of Business Post Group plc (now UK Mail Group plc) from 1999-2006, he helped take it into the FTSE 250. Peter supported themission through its refinancing in April 2010 and joined the Board in September 2010. GILES LEE COMMERCIAL DIRECTOR Giles joined Bray Leino in 2005 as Group Finance Director following his successful role in transforming Merrydown plc from its fundamental financial restructure in 2000 to its acquisition in 2005. Giles was appointed CFO/COO of Bray Leino in 2011 and Executive Chairman in 2013 and has overseen many acquisitions and MIKE ROSE EXECUTIVE DIRECTOR a number of strategic investments. He was appointed to the Board in March 2013 After working at some of the best regional agencies in the UK, Mike founded and became Commercial Director for themission in July 2018. Chapter, along with his two Creative Director partners, in April 2009. The three of them went on to build Chapter into an award-winning, internationally respected creative agency. themission acquired Chapter in November 2015 and Mike was appointed to the Board in January 2016. JULIAN HANSON-SMITH NON-EXECUTIVE DIRECTOR An entrepreneur and PE investor with significant experience in marketing and consulting services. In 1986 Julian co-founded FTI Consulting, one of Europe’s largest business communications consultancies and following its sale in 1999, became COO of Lighthouse Global Network. In 2001 he joined US-based PE firm Lake Capital before co-founding Iceni Capital in 2007, investing in UK-based business services companies. He joined the Board in October 2015. ANDY NASH NON-EXECUTIVE DIRECTOR Andy’s career began with Cadbury Schweppes plc in marketing, ultimately managing the Typhoo brands. He has extensive board experience of FTSE companies Taunton Cider, Matthew Clark, Merrydown and Photo-Scan. He has UK and international experience with K&L Gates LLP, the global law firm and with PE backed Brand Addition, Tristar Worldwide, History Press and Pureprint Group. He also chairs Vaultex UK Ltd, the UK’s leading manager of cash, owned by HSBC and Barclays. He chaired Somerset CCC and has served as a director of the English & Wales Cricket Board. Andy was appointed to the Board on 1 August 2018. SUE MULLEN EXECUTIVE DIRECTOR Sue is Chief Executive of Story and started her advertising career in London before moving to Branns in Cirencester. In 1990 she moved to Edinburgh to head up One Agency. She left in 2002 and, alongside three colleagues, set up Story, an award-winning communications agency. Story was acquired by themission in 2007 and Sue joined the Board in June 2012. Meet the passionate people who head-up our network. Leading and motivating all our Agencies to reach new heights. FIONA SHEPHERD EXECUTIVE DIRECTOR Fiona is Chief Executive of April Six and AprilSix Proof and has worked in the technology industry for over 20 years, holding both client and agency positions, with some of the world’s largest technology brands. Fiona was a founder of April Six and has managed its success as a well-respected global technology Agency with offices in London, San Francisco, Singapore and Beijing. Fiona joined the Board in April 2010 and now chairs the Sector Specialist Agencies Business Unit. 30 - Strategic Report 2018 Strategic Report When you have a network of strong individuals, it takes careful planning to help them work in the best way possible – for themselves, themission and our Agency Clients. AIMS AND AMBITION capital we always aim to support existing RISKS AND UNCERTAINTIES Whether you simply want people to know what you do, or you want to communicate the ways in which your product or service can provide a personal or business benefit, we believe that marketing communications can deliver transformational results. Our goal remains simple: to grow themission into the UK’s leading, most respected Agency group. In a complex and ever-changing marketing environment, we are constantly evolving management teams who have demonstrated an ability to grow their businesses and to achieve consistently high margins. We constantly strive to enhance our offer with acquisitions that add new disciplines or improved services to our Agencies, and we also target new high-growth market sectors, along with service or technology opportunities, which meet strict return on investment criteria. to help our Clients navigate through every As well as acquisitions, we also consider challenge and opportunity. With a wealth launching new businesses that may The 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 Audit and Remuneration Committees, as described further in the Corporate Governance Report. The Directors have carried out an assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. of specialisms and skills, as well as impartial require more time to become established Adverse Economic Conditions advice, we invest and adapt to deliver the but which will have a smaller investment The risk with the greatest potential impact on right talents in the most effective ways. cost/lower risk profile. the Group’s financial position is a widespread Across 16 Agencies with 28 offices in the UK, Asia and the US, we’re committed to helping our Clients grow and succeed. Fundamental to our continued success is our ability to provide a rewarding, challenging and fun environment for our staff. We aim to reward themission’s shareholders both through capital growth and dividends. Our focus is first and foremost on organic growth, and in deploying the Group’s Although primarily operating in the UK, we 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 Group at financial risk. and dramatic economic downturn, such as a repeat of the 2008 global financial crisis. In such conditions there is a strong likelihood that marketing expenditure would be cut, reducing volumes as well as profitability across our industry sector, and reducing cash flows available to meet acquisition payment and debt repayment obligations. Whilst not being immune to the effects of global trends, we believe that we are less susceptible to the generic effects of the economy due to with no individual Client representing more of this approach to risk management can our structure. Our Agencies, run in most than 10% of Group revenue. The spread and be found in the Group’s two most recent cases by the entrepreneurs who originally relative scale of the Group’s Clients is largely acquisitions, RJW & Partners in 2017 and founded them, offer strong local and unchanged from last year. krow Communications in 2018, where the personalised “boutique” Client service backed up by a multi-national infrastructure. By being nimble, we can adapt more quickly to circumstances and exploit the opportunities that inevitably emerge in times of economic challenge. We are also careful not to impact our balance sheet by carrying high levels of debt. The uncertainty caused by the UK’s decision in 2016 to leave the EU has not helped business confidence, but we have continued to grow revenues and profits throughout this period. Although predictions of the impact of a no-deal Brexit are strongly negative, the Board does not currently consider this to represent a substantial risk to the Group’s financial position. Loss of Key Clients Loss of Key Staff In common with all service businesses, the Group is reliant on the quality of its initial outlay in each case was less than one third of the estimated total consideration. KEY PERFORMANCE INDICATORS staff. Strenuous efforts are made to provide The Group manages its internal operational a rewarding work environment and performance and capital management remuneration packages to retain and by monitoring various key performance motivate our leadership teams. The system indicators (“KPIs’’). The KPIs are tailored of financial rewards is reviewed regularly to the level at which they are used and by the Remuneration Committee and revised their purpose. The Board has reviewed where appropriate. An example of this was and refined its financial KPIs, which are the introduction in 2017 of a new Growth quantified and commented on in the Financial Share Scheme, designed to provide a powerful Review of the Year below, as follows: retention incentive for key business leaders who will be crucial to the Group’s long term ambitions. One measure of our success is that, in some 95% of cases, the core management of our acquired businesses remains in place • 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% in 2016 to 14% by 2021; • headline profit before tax, which the Group aims to increase by 10% year-on-year; and • indebtedness, where the Group has reduced its limit of the ratio of net bank debt to The consequence of Client losses is the today. Another is that all of the 17 original same as for a general economic downturn, participants in the Growth Share Scheme i.e. potential reduction in revenue and profit, are still with us, over two years after its launch. but to a lesser degree. The risk of Client loss is mitigated both by our relentless new business Underperformance of Acquired Businesses activity and also 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. One measure of our success is that, in 2018, over 50% of our revenue was again from Clients that have been with us for 5 years or more and over 35% from Clients of 10 years or more. Indeed, for those of our Agencies that have been in existence for 20 years or more, the proportion of revenue from Clients that have been with us for 20 years or more is a remarkable 33%, in one case nearly 50%. The risk of Client loss is also mitigated by the Group’s broad spread of Clients, Potential acquisitions are carefully considered EBITDA* to x1.5 (from x2.0) and the ratio by the Board as part of its recurring business, of total debt (including both bank debt and appropriate legal, commercial and and deferred acquisition consideration) financial due diligence is carried out on to EBITDA to x2.0 (from x2.5). all 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. Illustrations *EBITDA is headline operating profit before depreciation and amortisation charges. At the individual Agency level, the Group’s financial KPIs comprise revenue and controllable profitability measures, predominantly based on the achievement of the 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. 32 - Strategic Report - continued BUSINESS AND FINANCIAL REVIEW OF THE YEAR A review of the business and future developments is provided below and in the Chairman’s Statement, which forms part of this Strategic Report. 2018 saw all financial key performance indicators again met: for the total Group, revenue grew by 13%, operating margins improved from 11.7% to 12.6%, headline profit before tax increased by 22% and debt leverage ratios remained comfortably within the Board’s limits. From continuing operations, revenue grew by 13%, operating margins improved from 11.2% to 12.2% and headline profit before tax increased by 25%. Trading Performance Billings and revenue 90 80 70 60 50 40 30 20 10 0 REVENUES (£’m) 2014 2015 2016 2017 2018 growth of 10% from our core business and a further 11% from the acquisition of krow. Our profit margin for the year (headline operating profit as a percentage of revenue) showed a marked improvement, to 12.6% (2017: 11.7%). This was the result of several factors, including improved staff cost ratios and the benefits accruing from our Shared Services initiative, commenced in the summer of 2017 but formally implemented from the beginning of 2018. This initiative brings accounting, HR, IT, and facilities 5% of this growth came from our core management under central control in order business, with a further 8% coming from both to identify opportunities for efficiency the acquisition of Krow Communications improvements and cost savings and to free Limited (“krow”) in April. Within our core up our Agencies to concentrate on revenue business, Media revenue reduced as we generation and resource levels. One notable exited a “white-labelling” media-buying success during 2018 was the virtually unchanged contract, but this was more than offset HR and recruitment costs despite the significant by growth elsewhere, including from increase in levels of activity. The chart below our Exhibitions business, which benefitted illustrates our margin progress in recent years. from the contract with the Department Turnover (billings) was 10% higher for International Trade won towards to than the previous year, at £161.4m the end of 2017. (2017: £146.0m), but since billings include pass-through costs (e.g. 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 13% overall to £78.8m (2017: £70.0m), continuing our track record of consistent revenue growth as illustrated in the chart below. Profit and margins The Directors measure and report the Group’s performance primarily by reference to headline results in order to avoid the distortions created by one-off events and non-cash accounting adjustments relating to acquisitions. Headline results are calculated before the profit/loss on investments, exceptional items, acquisition adjustments and losses from start-up activities (as set out in Note 3). Headline operating profit improved by 21% to £9.9m (2017: £8.2m). This result reflects 12.8% 12.6% 12.4% 12.2% 12.0% 11.8% 11.6% 11.4% 11.2% 11.0% 10.8% OPERATING PROFIT MARGINS 2014 2015 2016 2017 2018 Looking to the future, we need to be mindful of the impact of the sale of our BroadCare software business, which consistently achieved high profit margins. Excluding BroadCare, our operating profit margin in 2018 was 12.2% (2017: 11.2%). £0.3m. Other adjustments to reported We expect margins to improve further in 2019 profits, detailed further in Note 3, but progress will be more modest following totalled £1.1m (2017: £1.9m), comprising the sale of BroadCare and we now expect acquisition-related items of £1.0m (2017: our profit margin target of 14% to be achieved £0.8m) and losses from start-up activities one year later, in 2021. totalling £0.1m, reduced from £0.4m in 2017. The bias of profitability towards the second half of the year as a consequence of Clients’ spending patterns moderated slightly in 2018, but 62% (2017: 65%) of our operating profit was again generated in this period and we expect this bias to remain a feature of our results in future years. After financing costs which were unchanged at £0.5m, headline profit before tax increased by 22% to £9.5m (2016: £7.7m) as illustrated in the chart below. 10.0 PBT (£’m) 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 In 2017, we also reported restructuring costs categorised as exceptional items totalling £0.6m. After these adjustments, reported profit before tax was £11.0m (2017: £5.8m). Taxation The Group’s headline tax rate increased slightly, to 20.5% (2017: 20.0%). Consistent with previous years, the rate was above the statutory rate, mainly as a result of non-deductible entertaining expenditure. On a reported basis, the Group’s tax rate was 16.4% (2017: 22.9%). The tax rate is expected to be consistently higher than the statutory rate (of 19.0% in 2018, slightly reduced from 19.25% in 2017) since the amortisation of acquisition-related intangibles is not deductible for tax purposes but, in 2018, the tax rate was significantly reduced by the tax-free profit on the sale of BroadCare. Excluding the BroadCare sale, the reported rate was 22.5%. 10 9 8 7 6 5 4 3 2 1 0 EPS (pence) 2014 2015 2016 2017 2018 After tax, reported profit for the year was £9.2m (2017: £4.5m) and EPS was 10.89 pence (2017: 5.31 pence). On a diluted basis, EPS was 10.63 pence (2017: 5.15 pence). Continuing operations The Consolidated Income Statement separately discloses our trading results from continuing operations and BroadCare, now a discontinued operation. The key components of our continuing operations are: revenue of £77.6m, up 13% from 2017; headline operating profit of £9.5m, up 23%; and operating profit margins of 12.2%, up from 11.2% in 2017. Headline profit before tax from continuing operations in 2018 was £9.0m (2017: £7.2m), up 25% from 2017, and diluted EPS was 8.23 pence, up 24%. Dividends The Board adopts a progressive dividend policy, aiming to grow dividends each year in line with earnings but always balancing 2014 2015 2016 2017 2018 Earnings Per Share The sale of BroadCare resulted in a profit of £3.0m, which has been disclosed as a headline adjustment. In addition, we have written down our investment in Watchable, which has Headline EPS increased by 21% to 8.90 pence (2017: 7.34 pence) and, on a diluted basis, increased by 22% to 8.68 pence (2017: 7.12 pence). The following chart struggled to make headway in the London video illustrates the growth in diluted earnings production market, resulting in an impairment of per share in recent years. the desire to reward shareholders via dividends 34 - Strategic Report - continued with the need to fund the Group’s growth 2018 again concluded that no impairment obligations, to EBITDA at 31 December 2018 ambitions and maintain a strong balance sheet. in the carrying value was required. (calculated by reference to the amount of The Board recommends a final dividend of 1.4 pence per share, bringing the total for the year to 2.1 pence per share, representing an increase of 24% over 2017. The final dividend will be payable on 22 July 2019 to shareholders on the register at 12 July 2019. The corresponding ex-dividend date is 11 July 2019. The Board will continue to keep under regular review the best use of the Group’s cash resources, but it remains the Board’s intention to follow a progressive policy provided trading conditions allow. The Group’s acquisition obligations at the end of 2018 were £11.8m (2017: £7.2m), to be satisfied by a mix of cash and shares. Virtually all of this is dependent on post- acquisition earn-out profits, the majority to the end of 2020. £2.7m is expected to fall due for payment in cash within 12 months and a further £2.1m in cash in the subsequent 12 months. The Directors believe that the consideration which would be payable if the acquired business were to maintain its current level of profitability) fell to x1.1 (2017: x1.4).In view of the currently heightened levels of both economic and political uncertainty, the Board has decided to reduce each of its debt-related KPI targets by x0.5. The revised limits for net bank debt leverage and total debt leverage are now x1.5 and x2.0 respectively. strength of the Group’s cash generation can The following chart illustrates the trends in comfortably accommodate these obligations the Group’s indebtedness during the period alongside the Group’s commitments to the current management has been in place. 2.5 2.0 1.5 1.0 0.5 0.0 DIVIDEND (pence) Cash Flow capital expenditure and dividend payments. As expected, the Group’s cash flow during 2018 was impacted by some unwinding of the exceptional working capital movements at the end of 2017. Headline profit after tax of £7.5m (2017: £6.2m) converted into £5.6m (2017: £9.0m) of “free cash flow” (defined as 2013 2014 2015 2016 2017 2018 net cash inflow from operating activities less Balance Sheet In common with other marketing tangible capital expenditure). This free cash flow funded new acquisitions, amounting to £2.4m (2017: £1.3m), 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 LEVERAGE Bank Total 2010 2011 2012 2013 2014 2015 2016 2017 2018 communications groups, the main features the settlement of contingent consideration of our balance sheet are the goodwill and other obligations relating to the profits generated Outlook intangible assets resulting from acquisitions made over the years, and the debt taken on in connection with those acquisitions. by previous acquisitions, totaling £1.7m We expect 2019 to be another year of growth. (2017: £1.7m), and dividends of £1.7m (2017: The year has started well and prospects for £1.3m). In addition, the sale of BroadCare organic growth remain good. We also expect The level of intangible assets relating to resulted in a net cash inflow of £3.5m. to make further margin improvements and acquisitions increased by £8.2m during the year as a result of the acquisition of krow in April. In contrast, the level of total debt (combined bank debt and acquisition obligations) increased by only £1.3m. At the end of the year, the Group’s net bank debt stood at £4.0m (2017: £7.2m). The reduction in debt resulted in the leverage ratio of net bank debt to headline EBITDA reducing to below x0.5 at 31 December 2018 (2017: x0.8), The Board undertakes an annual assessment triggering a further reduction in the Group’s of the value of all goodwill, explained borrowing costs of 0.25%. The Group’s ratio further in Note 12, and at 31 December of total debt, including remaining acquisition to continue the rapid growth of Pathfindr. We look forward to 2019 with confidence. On behalf of the Board Peter Fitzwilliam, Finance Director 9 April 2019 35 - Report of the Directors Report of the Directors for the year ended 31 December 2018 The Directors have pleasure in presenting their report and the financial statements of The Mission Marketing Group plc (“themission”) for the year ended 31 December 2018. The Directors provide a separate Corporate Governance Report, which forms part of this Report of the Directors. Results and dividends Risks and uncertainties Going concern The Consolidated Income Statement shows The Strategic Report sets out the Group’s The Directors have considered the financial the results for the year. The Directors approved principal operating risks and uncertainties. projections for the Group, including cash flow a dividend of 0.7 pence per share, paid in As a communications Agency group, the forecasts, the availability of committed bank December 2018, and recommend a final main financial risks that arise from day-to-day facilities and the headroom against covenant dividend of 1.4 pence, payable on 22nd July activities are credit and currency risk. Further tests for the coming 12 months. They are 2019, subject to approval by shareholders at details on the Group’s capital and financial satisfied that, taking account of reasonably the Annual General Meeting on 17th June 2019. risk management are set out in Note 27. possible changes in trading performance, it is appropriate to adopt the going concern basis in preparing the financial statements. Directors The following Directors held office during the year: Dylan Bogg James Clifton Robert Day Peter Fitzwilliam Julian Hanson-Smith Giles Lee David Morgan Christopher Morris – resigned 1 August 2018 Andy Nash – appointed 1 August 2018 Sue Mullen Mike Rose Fiona Shepherd 36 - Report of the Directors - continued Directors’ Interests in Shares and Options The interests of the Directors and their families in the shares of the Company were as follows: Number of ordinary shares of 10p each 31 December 2018 31 December 2017 or on appointment Dylan Bogg James Clifton Robert Day Peter Fitzwilliam Giles Lee David Morgan Sue Mullen Andy Nash Mike Rose Fiona Shepherd 1,486,823 165,113 5,153,524 693,885 755,251 6,144,724 1,084,054 50,000 153,571 1,270,073 1,486,823 165,113 6,153,524 693,129 754,499 6,144,127 1,084,054 - 153,571 1,270,073 The following unexercised options over shares were held by Directors: Directors Dylan Bogg James Clifton Robert Day Peter Fitzwilliam Giles Lee David Morgan Sue Mullen Fiona Shepherd At 1 January 2018 (or on appointment) Lapsed in year Exercised in year Granted in year At 31 December 2018 Date from which exercisable Expiry date 52,000 35,000 52,000 35,000 46,667 50,000 25,000 25,000 72,000 50,000 25,000 20,000 10,000 20,000 40,000 50,000 (26,000) (17,500) (26,000) (17,500) (23,333) (25,000) (12,500) (12,500) (36,000) (25,000) (12,500) (10,000) (5,000) (10,000) (20,000) (25,000) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 26,000 17,500 26,000 17,500 23,334 25,000 12,500 12,500 36,000 25,000 12,500 10,000 5,000 10,000 20,000 25,000 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 April 2019 March 2025 May 2019 May 2026 Following the introduction of the Growth Share Scheme in February 2017, details of which are set out below, no nil-cost options have been awarded to Directors. All share options in existence at 31 December 2018 are nil-cost options granted under the Company’s Long Term Incentive Plan. Following a review of the effectiveness of the Group’s long term incentive arrangements, detailed further in the Corporate Governance report, the Remuneration Committee determined that LTIPs granted in both 2015 and 2016 would vest at 50% of their original levels, subject to individuals remaining in employment. Whilst LTIPs granted in 2016 will vest in line with their original timetable, LTIPs granted in 2015 will vest in three equal annual instalments in April 2019, 2020 and 2021. Growth Share Scheme A Growth Share Scheme was implemented on 21 February 2017 and details of the scheme were included in the 2016 annual report. Participants in the scheme were invited to subscribe for Ordinary A shares in The Mission Marketing Holdings Limited (the “growth shares”) at a nominal value. These growth shares can be exchanged for an equivalent number of Ordinary Shares in themission if themission’s share price equals or exceeds 75p for at least 15 days during the period from subscription up to 60 days from the announcement of the Group’s financial results for the year ending 31 December 2019; if not, they will have no value. At the time the scheme was introduced, achieving the target share price of 75p would have resulted in dilution to existing shareholders of less than 7% but would also have represented 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. Details of growth shares held by the Directors are as follows: Number of Ordinary A shares in The Mission Marketing Holdings Limited of 0.01p each 31 December 2018 and 31 December 2017 Dylan Bogg James Clifton Robert Day Peter Fitzwilliam Julian Hanson-Smith Giles Lee David Morgan Sue Mullen Mike Rose Fiona Shepherd Substantial Shareholdings 286,009 572,017 572,017 572,017 171,605 572,017 572,017 286,009 286,009 572,017 Other than the Directors’ interests disclosed above, as at 9 April 2019, notification had been received of the following interests in 3% or more of in the issued share capital of the Company: Herald Investment Management Ltd BGF Investment Management Limited Polar Capital Forager Fund Ltd Objectif Investissement Microcaps FCP Number of shares 5,778,239 4,713,501 4,495,000 4,230,477 % 6.9 5.6 5.3 5.0 38 - Report of the Directors - continued Share Capital • Select suitable accounting policies and assess the Group and Company’s position, The issued share capital of the Company then apply them consistently performance, business model and strategy. at the date of this report is 84,357,351 • Make judgements and accounting estimates Ordinary shares. The total number of that are reasonable and prudent voting rights in the Company is 84,357,351. • 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 Auditors PKF 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. • Prepare the financial statements on Disclosure of Information to Auditors the going concern basis unless it is So far as the Directors are aware, there is inappropriate to presume that the no relevant audit information of which the Company will continue in business. Group’s auditors are unaware. Each of the Directors’ Indemnity Insurance The Company purchases insurance to cover its Directors and Officers against costs they may incur in defending themselves in legal proceedings instigated against them as a direct result of duties carried out on behalf of the Company. Directors’ Responsibilities The Directors are responsible for keeping The Directors are responsible for preparing the adequate accounting records that are Annual Report and the financial statements in sufficient to show and explain the Company’s accordance with applicable law and regulations. and the Group’s transactions and disclose Company law requires the Directors to prepare with reasonable accuracy at any time the financial statements for each financial year. financial position of the Company and the Under that law the Directors have prepared Group and to enable them to ensure that the Group financial statements in accordance the financial statements comply with the with International Financial Reporting Standards Companies Act 2006. They are also responsible (IFRSs) as adopted by the EU and the parent for safeguarding the assets of the Company company financial statements in accordance and the Group and hence for taking reasonable 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. Events Since the End of the Financial Year The Directors are not aware of any events since the end of the financial year that have had, or may have, a material impact on the Group’s operations or financial position. with United Kingdom Generally Accepted steps for the prevention and detection of The Environment Accounting Practice (United Kingdom fraud and other irregularities. 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: 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 The business of the Group is delivering marketing and advertising related services to Clients. The direct and indirect impact of these services on the environment is negligible and considered low risk, however we continue to take action to reduce our environmental impact where viable. Employee Policies It is the Group’s policy not to discriminate between employees or potential employees on any grounds. The Group is committed to full and fair consideration of all applications. Annual General Meeting A notice convening the Annual General Meeting to be held on Monday 17 June 2019 at 12 noon is enclosed with this report. On behalf of the Board Peter Fitzwilliam, Finance Director 9 April 2019 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 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. Slavery and Human Trafficking Statement The Group support the aims of The Modern Slavery Act 2015 (“the Act”) and will never knowingly deal with any organisation which is connected to slavery or human trafficking. Given the nature of the services we provide and our high standard of employment practices, we consider that we are at low risk of exposure to slavery and human trafficking. We are not aware of any areas of our operations and supply chain likely to lead to a breach of the Act. 40 - Corporate Governance Corporate Governance The Board of The Mission Marketing Group plc (“themission”) is collectively accountable to the Company’s shareholders for good corporate governance, under the Chairmanship of David Morgan. As an AIM-listed company, themission has chosen to apply the Quoted Companies Alliance (“QCA”) Corporate Governance Code for Small and Mid-Size Quoted Companies (“the QCA Code”). themission is a cohesive network of Board of Directors As well as fulfilling the role of Finance Director, entrepreneurial marketing communications Agencies. Our aims and ambitions are set out in the Strategic Report. Unlike many other marketing services groups, our Agencies, which have mainly come into the Group via acquisition, retain their original personnel, cultures and business practices. themission provides them with the support infrastructure and economies of scale of a multi-national group. We strongly believe that this results in a highly personalised and Client-centric culture which in turn leads to an expanding and loyal Client base. My role as Chair in establishing good corporate governance in the context of this strategy requires making sure not only that individual Agencies are targeted, monitored and supported but, equally importantly, that Agencies cooperate and collaborate with each other to ensure we are providing the best possible range of services to help our Clients succeed. Indeed it is this sense of cooperation and collaboration which defines the culture of themission and much of our time as a Board of Directors, together with time spent in Business Unit meetings, is devoted to exploring how this collaboration is optimised. We believe that the Board has a good balance of sector, financial and public markets skills and experience. Brief profiles of each member of the Board are set out on page 28. The CEOs of the Group’s Agencies, most of whom are the original founders of those Agencies and who collectively represent a significant equity shareholding, are our primary interface with our Clients and consequently are strongly represented at Board level. Each of our Executive Directors has had a long career in marketing communications, and brings strong and up to date sector experience, with Dylan Bogg adding complementary Creative insight. Giles Lee, who Peter Fitzwilliam is also the Company Secretary. Whilst the QCA Code recommends that the company secretary in not also an Executive Director, Peter has a strong background in governance and demonstrates an independence of character and judgement; accordingly we see no immediate need to separate the roles. Peter trained in one of the major accounting firms, ran an internal audit team in a FTSE 100 group and acted as Company Secretary to a FTSE 250 business required to comply with the main Code. Peter keeps up to date with developments as a member of the QCA Corporate Governance Expert Group and maintains a close relationship has both an operational and financial background, with the Non-Executive Directors. adds further skills in the role of Commercial Our Non-Executive Directors are Julian Hanson- Director, with responsibility for Shared Services. Smith and Andy Nash, both independent by Our Finance Director and two independent Non- Executive Directors provide financial and public market skills and experience and, together with myself, represent the committee responsible for corporate governance compliance. We have separated the roles of Chair and Group Chief Executive, with James Clifton taking on the responsibility for implementing the Group’s strategy, driving growth, building our brand and delivering sustainable shareholder value. I will increasingly move into a non-executive role. virtue of having no executive responsibilities within the Group. Both Julian and Andy bring a strong independent voice to Board discussions but also with an insight into our sector, having worked in it previously. Julian, who is also the Senior Independent Non-Executive Director, has significant business experience, both in marketing services, having co-founded Financial Dynamics (now FTI Consulting) in 1986, and also as a private equity investor, having co-founded Iceni Capital, specialising in UK-based business services companies. Andy started his professional career information of a quality and to a timetable statements but would reduce the cost burden with Cadbury Schweppes in their marketing that permits it to discharge its duties. of each individual subsidiary being audited to team, ultimately managing the Typhoo tea brand business. He has extensive experience across both public and private companies and currently chairs Vaultex UK, the country’s leading manager of cash on behalf of the Bank of England, owned jointly by HSBC and Barclays. All Directors are subject to election by its own level of materiality. Shareholders at the first opportunity after their The main meeting of the Committee each year appointment. They are required to retire every reviews the financial results and disclosures in the three years and may seek re-appointment. annual report. This meeting is held shortly before Early in 2018, Chris Morris advised the Company the annual results are published and considers of his intention to retire during the year but in detail with the Group’s auditors the principal During the year, I undertook our first formal kindly agreed to stay on, including fulfilling areas of subjective judgement and any other evaluation of the effectiveness of the Board by his duties as Chairman of the Remuneration matters brought to the Committee’s attention undertaking one-on-one interviews with each Committee and member of the Audit Committee, by the Group’s auditors. The main matters member of the Board. The criteria used in this until a successor was appointed. Following considered each year are any indications of evaluation included both self-evaluation and the appointment of Andy Nash, Chris retired possible goodwill and/or investment impairment, objective feedback on the effectiveness of the from the Board on 1 August 2018. and the application of the Group’s revenue Board as a whole, the Chair and other Board members. The findings from this review were The Board has established three formal committees to deal with specific aspects collated on an anonymous basis and discussed of the Group’s affairs. by the Board as a whole. Minor modifications have been implemented as a result of this review Audit Committee recognition policies. In addition, specific matters considered in relation to the 2018 annual report were the impact of IFRS 9: Financial Instruments and of IFRS 15: Revenue from Contracts with Customers, both of which applied for the first but overall the members of the Board considered The Audit Committee consists of the two time to the Group’s 2018 financial statements. the Board to operate effectively without the need independent Non-Executive Directors, with Julian for radical change. It is my intention to repeat the Hanson-Smith as Chairman. The Committee evaluation process on a biennial basis. The Board considers matters relating to the reporting of does not have any formal succession planning results, financial controls, and the cost and process in place but the feedback from the effectiveness of the audit process. The terms effectiveness evaluation was an important element of reference of the Committee can be found in of the Nomination Committee’s appraisal of James the Governance section of our website. It aims Clifton’s suitability for the role of Group CEO. to meet at least twice a year with the Group’s The 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 Committee is satisfied that their objectivity and independence was not impaired by such work. The Directors are collectively responsible for the strategic direction, investment decisions and effective control of the Group. As part of its recurring business, the Board receives a financial summary of the Group’s performance early in the month, comparing revenue and profit for each Agency with the prior year and budgets set at the beginning of the year and any subsequent external auditors in attendance. Other Directors attend as required. The Committee receives from the Group’s auditors and considers two detailed reports: the Audit Planning Report sets out the Remuneration Committee auditors’ proposed audit approach, and the Audit As outlined in the Strategic Report, strong Client Completion Report, towards the conclusion of relationships and quality of staff are key factors the audit fieldwork, highlights the main matters in the success of themission, and strenuous considered and arising from the audit work. efforts are made to retain and motivate our re-forecasts. This summary is supplemented by During the year, the Committee considered written monthly reports from each CEO and a the cost-effectiveness of the audit and elected subsequent report from the Finance Director to exempt certain subsidiaries from the summarising the Group’s balance sheet and requirements of the Companies Act 2006 relating working capital performance. Separate reports to the audit of their individual accounts, by virtue are received in connection with non-recurring of themission guaranteeing those subsidiaries matters, including written strategic and financial under Section 479C of the Act. The Committee appraisals of potential acquisition opportunities. concluded that this action would not reduce the The Board is satisfied that it receives effectiveness of the audit of the Group’s financial leadership teams. The Board maintains a policy of providing executive remuneration packages that will attract, motivate and retain Directors and senior executives 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 being succeeded as Chairman by 42 - Corporate Governance - continued Andy Nash on his appointment. The Committee connection with the performance of individual that the primary remit of the role was to build determines the remuneration of the Executive Agencies, where staff’s primary loyalties lie. As a on our collaborative approach and develop Directors and makes recommendations to the result, bonuses earned by Agencies meeting and themission brand as a real alternative to the global Board with regard to remuneration policy and exceeding their annual budgets will, from 2019, groups. To achieve this without unsettling our related matters. The Committee meets as and be paid in an equal mix of cash and equity. The entrepreneurial ethos, the Committee decided when required and its terms of reference can be equity component will comprise LTIPs capable that the promotion of an internal candidate would found in the Governance section of our website. of being exercised in equal instalments over three be preferable and determined that James Clifton The remuneration and terms and conditions of years, with the only condition being continued demonstrated the required skills and experience. appointment of the Non-Executive Directors are employment. In recognition of the sense of determined by the Board. No Director is involved disconnect between Agencies and overall Group Shareholder Communications in setting his or her own remuneration. performance, the Committee also took the We engage in a dialogue with our shareholders The Committee reviews the components of each Executive Director’s remuneration decision to remove uncertainty over outstanding and prospective shareholders via formal LTIPs and set the vesting levels for these at 50%. meetings and informal telephone and email package annually. During the year, these The Committee reviews annually whether or packages consisted of three elements: not profit targets have been met to trigger • basic salary and benefits, • performance related bonus linked to the delivery of profit targets, and • share-based incentives. With regard to remuneration policy, the 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. performance-related bonuses to Directors and the senior management in individual Agencies. This evaluation considers firstly whether the Group’s financial performance has met or exceeded City expectations and, secondly, individual Agency performance. In addition, the Committee retains discretion to make modest performance-related payments to Directors and other senior executives where the strict terms of the bonus scheme have not been met but where performance merits reward. This assessment takes place alongside the finalisation contact. In addition, we provide comprehensive information to investors on our website, including answers to frequently asked questions and contact information. Formal meetings with institutional fund managers and wealth managers take place following our interim and full year results announcements and we receive collated feedback from these meetings via our NOMAD, Shore Capital. In addition, I speak to representatives of our larger institutional investors between these formal set pieces to make sure the dialogue continues and that we understand their expectations. Private Inter alia, this includes setting the profit targets of the annual results and the Committee investors don’t have the benefit of regular formal which trigger annual performance-related cash bonuses, determining the amount of the Group’s share capital to make available recently approved a number of contractual and discretionary performance-related payments. Details of Directors’ remuneration are included for annual share option awards, and approving the allocation of incentives to individuals. in Note 8. meetings but we make sure we are available to meet shareholders at our Annual General Meeting and we often continue a dialogue with them via email. The results of proxy votes cast at Annual General Meetings can be found During the year, the Committee undertook Nomination Committee in the Investors section of our website. a review of the Group’s incentives, both short The Nomination Committee consists of me, I and Peter Fitzwilliam are the first point of term (annual bonus) and long term (nil cost as the Committee Chairman, and the two contact for any queries raised by shareholders share options under the Group’s Long Term Non-Executive Directors. The Committee is but should we fail to resolve any queries, Incentive Plan (“LTIPs”)), to establish whether responsible for reviewing and making proposals or where a Non-Executive Director is more they remained appropriate and effective. to the Board on the appointment of Directors appropriate, the Senior Independent Director, In conducting this review, they drew on external and meets as necessary. The terms of reference Julian Hanson-Smith, is available to meet professional advice to assess the relative merits of the Committee are available on request. The shareholders. I am encouraged to note that, of existing and alternative arrangements. Committee met several times during 2018 and to date, no such request has been received. The Committee concluded that the annual bonus early 2019 to consider the creation of a new role, arrangement remained appropriate, with some Group CEO, and suitable candidates, both refinements, but that the LTIP needed a stronger internal and external. The Committee decided Summary of Directors’ Attendance Executive Directors are expected to make a full time commitment to the Group, whilst Non- Executive Directors are generally expected to be available to participate in person at Board meetings and meetings of the Remuneration, Audit and Nomination Committees. In addition, Dylan Bogg James Clifton Robert Day they are expected to be available to discuss Peter Fitzwilliam matters between these formal meetings. Where Julian Hanson-Smith diary clashes or Client commitments conflict Giles Lee with formal meeting dates, the matters to be David Morgan addressed during meetings are discussed with the relevant Director both before and after the relevant meeting. We estimate that the time commitment required from our Non-Executive Directors is roughly 3 days per month. Chris Morris Sue Mullen Andy Nash Mike Rose Fiona Shepherd Board Meetings Remuneration Committee Audit Committee Entitled to attend Attended Entitled to attend Attended Entitled to attend Attended 9 9 9 9 9 9 9 5 9 4 9 9 7 9 8 9 6 9 9 0 8 4 5 9 n/a n/a n/a n/a 4 n/a n/a 2 n/a 2 n/a n/a n/a n/a n/a n/a 4 n/a n/a 2 n/a 2 n/a n/a n/a n/a n/a n/a 3 n/a n/a 2 n/a 1 n/a n/a n/a n/a n/a n/a 3 n/a n/a 2 n/a 1 n/a n/a Risk Management when it meets in person, or via regular telephonic are also responsible for initiating commercial Whilst the Directors are collectively responsible for the effective control of the Group, the Audit Committee has primary responsibility for the oversight of risk. 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. Clients and staff represent the key resources and relationships on which our business relies. 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. Their day to day involvement with Clients provides the Board with strong and up to date feedback from this vital stakeholder group, including lessons to be learnt from unsuccessful new business pitches. Periodically, a new service is developed as a result of this feedback loop. It has also been from Client feedback that we have embarked on our international expansion – going where our Clients want us to be. Potential acquisitions and changes in incentive and rewards systems, designed to motivate and retain key staff, are considered by the full Board and electronic contact in between meetings. transactions and approving payments, save for During 2018, an employee engagement survey those relating to their own employment. was undertaken, under the leadership of Board The formal matters reserved for the Board member Sue Mullen, and improvements in internal communication are being introduced to increase awareness of business, social and community activities taking place across our different Agencies and locations and to enhance the sense of belonging to a wider family than any include certain key internal controls: 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 individual Agency. This survey also included topics decisions; and maintaining a formal strategy for relating to ethical values and behaviours and business activities. provided the Board with an important mechanism to evaluate the health of our corporate culture across our geographically spread Agencies. The Board is responsible for ensuring that the Group maintains a system of internal financial controls. The objective of the system is to safeguard Group assets, ensure proper accounting records are maintained and that the financial information used within the business and for publication is timely and reliable. Any such system can only provide reasonable, but not absolute, assurance against material loss or misstatement. All day to day operational decisions are taken initially by the Executive Directors, in accordance with the Group’s strategy. The Executive Directors Assurance over risk management is obtained from the establishment of management policies and controls, regular review of individual Agency financial performance, and the external audit process. The Board does not consider it necessary to have a separate internal audit function at the present time; the internal audit of internal financial controls forms part of the responsibilities of the Group’s finance function. On behalf of the Board David Morgan, Chairman 9 April 2019 44 - Independent Auditor’s Report Report on the Group financial statements Independent Auditor’s Report to the Members of The Mission Marketing Group plc Opinion We have audited the financial statements of The Mission Marketing Group plc (the “Group”) for the year ended 31 December 2018, which comprise the Consolidated Statements of Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. In our opinion, the financial statements: • give a true and fair view of the state of the Group’s affairs as at 31 December 2018 and of the Group’s 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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with those requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s ability to continue to adopt the going concern basis of accounting for at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition The Group’s primary income streams are outlined in the accounting policies section. We identified that the revenue recognition risk relates particularly to the correct treatment of project fees, where the service spans the year end. Assessing the timing of recognition and valuation of such work involves estimates and can be complex. Report on the Group financial statements Continued... Work done Our audit work included: • Assessing and challenging the revenue recognition policies adopted by the Group to confirm they are appropriate in the context of the business and in accordance with IFRS. • Reviewing a sample of open jobs at the year end across the Group and checking accuracy, completeness and cut off. • Reconciling open job reports at the year end to revenue and profit recognised. • Assessing and challenging on a sample basis whether revenue and profit recognised on open jobs is complete and appropriately valued. • Evaluating the accuracy of accrued income in the previous year against actual outcomes to determine whether management’s estimations have been reliable. • Assessing the disclosures made and adjustments required in respect of adopting IFRS 15. As a result of the procedures performed, we are satisfied that revenue has been correctly recorded. Goodwill impairment The impairment review of the Group’s carrying value of Goodwill arising on consolidation is one of the main areas of estimation. At 31 December 2018, the carrying value of goodwill in the Group balance sheet was £91m (2017: £85m). We identified that the audit risk relates to ensuring that management’s impairment review is robust and reliable in identifying potential impairment, and that the assumptions made are reasonable. The key assumptions used by management in preparing such calculations are: • Budgets and forecasts for the next 3 years. • The discount rate applied (the Group’s weighted average cost of capital - WACC). • Revised long term growth rate. Work done Our audit work included: • Assessing and challenging the key assumptions and calculations applied by management in their impairment reviews. • Benchmarking the revised long term growth rate to independent market data to confirm it is appropriate. • Reviewing the detailed components of the WACC calculation. • Assessing and challenging management’s sensitivity analysis on key assumptions and calculations. • Performing our own sensitivity analysis on short term growth forecasts and challenging where this results in no or limited headroom on value in use against carrying value. • Where there is limited headroom, comparing actual results against past forecasts used in impairment reviews to assess the reliability of the forecasts. As a result of the procedures performed, we are satisfied that the key assumptions used in the impairment model and the resulting conclusions drawn by management are appropriate and that no impairment is required. Our application of materiality Misstatements, including omissions, are considered to be material if individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We use quantitative thresholds of materiality, together with qualitative assessments in planning the scope of our audit, determining the nature, timing and extent of our audit procedures and in evaluating the results of our work. 46 - Independent Auditor’s Report - continued Report on the Group financial statements Continued... Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality: Basis for determination: £470,000 5% of profit before tax, adjusting for headline items. Range of materiality at 14 components subject to full scope audits: £80,000 - £335,000 Misstatements reported to the audit committee: £14,000 Rationale for the benchmark applied: We consider headline profit before tax to be the most appropriate measure for materiality as it best reflects the Group’s underlying trading profitability and is a key metric used by both management and other stakeholders in assessing the Group’s performance. An overview of the scope of our audit We planned and performed our audit by obtaining an understanding of the Group and its environment, including the accounting processes and controls, and the industry in which it operates. The Group comprises the following trading companies: • 15 UK subsidiary companies (14 wholly owned, 1 with a 75% holding); • 1 wholly owned US based subsidiary; • 2 wholly owned Asian subsidiaries; • A 70% owned Asian sub group comprising 6 locally incorporated companies; and • 2 UK holding companies. Of the Group’s 26 reporting components, we subjected 14 to full scope audits, of which 6 were performed by component auditors, and 2 to specific audit procedures as part of auditing their UK parent company. The remaining components were subject to analytical review procedures, carried out by the Group audit team. Those components subject to audit and specific audit procedures cover 78% of the Group’s consolidated operating income and 87% of the Group’s consolidated operating profit. Our audit work at the component level is executed at levels of materiality appropriate for such components, which in all instances are capped at 75% of Group materiality. Subsidiaries where component auditors were used provided 4% and 3% of the Group’s consolidated operating income and operating profit respectively. The Group team issued specific instructions to component auditors covering the significant risks identified at Group level, as detailed above, and approved materialities. The Group audit team communicated with the component auditors throughout the audit process and reviewed documentation produced. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Report on the Group financial statements Continued... Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 38, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an audit report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body for our audit work, for this report, or for the opinions we have formed. Glenn Nicol (Senior Statutory Auditor) PKF Francis Clark, Statutory Auditor, Centenary House, Peninsula Park, Rydon Lane, Exeter EX2 7XE 9 April 2019 48 - Consolidated Financial Statements & Notes Consolidated Income Statement for the year ended 31 December 2018 Continuing operations 2018 Discontinued operations 2018 Total 2018 Continuing operations 2017* Discontinued operations 2017 Total 2017* Note £’000 £’000 £’000 £’000 £’000 £’000 TURNOVER Cost of sales OPERATING INCOME Headline operating expenses HEADLINE OPERATING PROFIT (Loss) / profit on investments Exceptional items Acquisition adjustments Start-up costs OPERATING PROFIT Share of results of associates and joint ventures PROFIT BEFORE INTEREST AND TAXATION Net finance costs PROFIT BEFORE TAXATION Taxation PROFIT FOR THE YEAR Attributable to: Equity holders of the parent Non-controlling interests Basic earnings per share (pence) Diluted earnings per share (pence) Headline basic earnings per share (pence) Headline diluted earnings per share (pence) 2 2 3 3 3 3 6 7 9 11 11 11 11 159,916 (82,331) 77,585 (68,121) 1,476 161,392 144,243 1,830 146,073 (221) (82,552) (75,652) (381) (76,033) 1,255 78,840 68,591 1,449 70,040 (776) (68,897) (60,883) (939) (61,822) 9,464 (312) - (1,010) (139) 8,003 (1) 8,002 (469) 7,533 (1,710) 5,823 5,712 111 5,823 6.85 6.69 8.44 8.23 479 2,981 - - - 9,943 2,669 - (1,010) (139) 3,460 11,463 - (1) 3,460 11,462 - (469) 3,460 10,993 7,708 - (642) (804) (443) 5,819 (11) 5,808 (473) 5,335 (96) (1,806) (1,238) 3,364 9,187 4,097 3,364 - 3,364 4.04 3.94 0.46 0.45 9,076 111 9,187 10.89 10.63 8.90 8.68 3,994 103 4,097 4.82 4.67 6.85 6.64 510 8,218 - - - - 510 - 510 - 510 (102) 408 408 - 408 0.49 0.48 0.49 0.48 - (642) (804) (443) 6,329 (11) 6,318 (473) 5,845 (1,340) 4,505 4,402 103 4,505 5.31 5.15 7.34 7.12 *Prior year figures have been restated for the impact of the adoption of IFRS 15: Revenue from Contracts with Customers, as described in Note 1. Consolidated Statement of Comprehensive Income for the year ended 31 December 2018 Continuing operations 2018 Discontinued operations 2018 Total Year to 31 December 2018 Continuing operations 2017 Discontinued operations 2017 Total Year to 31 December 2017 £’000 5,823 £’000 £’000 £’000 £’000 £’000 3,364 9,187 4,097 408 4,505 73 - 73 (112) - (112) PROFIT FOR THE YEAR Other comprehensive income – items that may be reclassified separately to profit or loss: Exchange differences on translation of foreign operations TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,896 3,364 9,260 3,985 408 4,393 Attributable to: Equity holders of the parent Non-controlling interests 5,744 152 5,896 3,364 - 3,364 9,108 152 9,260 3,884 101 3,985 408 - 408 4,292 101 4,393 50 - Consolidated Financial Statements & Notes - continued Consolidated Balance Sheet as at 31 December 2018 As at 31 December 2018 As at 31 December 2017 FIXED ASSETS Intangible assets Property, plant and equipment Investments in associates Deferred tax assets CURRENT ASSETS Stock Trade and other receivables Cash and short term deposits CURRENT LIABILITIES Trade and other payables Corporation tax payable Bank loans Acquisition obligations NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON CURRENT LIABILITIES Bank loans Obligations under finance leases Acquisition obligations Deferred tax liabilities NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Own shares The financial statements were approved and authorised for issue on 9 April 2019 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam, Finance Director Company registration number: 05733632 Share-based incentive reserve Foreign currency translation reserve Retained earnings EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Non-controlling interests TOTAL EQUITY Note 12 14 15 16 17 18 19 21.1 19 20 21.1 23 24 25 £’000 95,723 3,250 - 23 98,996 850 39,727 5,899 46,476 (34,419) (668) - (3,258) (38,345) 8,131 107,127 (9,886) (39) (8,537) (451) (18,913) 88,214 8,436 42,506 (299) 498 117 36,444 87,702 512 88,214 £’000 87,951 3,489 313 24 91,777 668 34,829 5,860 41,357 (31,597) (784) (2,500) (1,810) (36,691) 4,666 96,443 (10,579) (129) (5,433) (148) (16,289) 80,154 8,436 42,506 (602) 341 85 28,879 79,645 509 80,154 Consolidated Cash Flow Statement for the year ended 31 December 2018 Year to 31 December 2018 Year to 31 December 2017 Operating profit Depreciation and amortisation charges Movements in the fair value of contingent consideration Profit on disposal of property, plant and equipment Loss on disposal of intangible assets Loss on write down of investment Profit on disposal of BroadCare Non cash charge for share options, growth shares and shares awarded Increase in receivables Increase in stock (Decrease) / increase in payables OPERATING CASH FLOWS Net finance costs paid Tax paid Net cash inflow from operating activities INVESTING ACTIVITIES Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Investment in software development Proceeds from disposal of BroadCare Acquisition of subsidiaries Payment relating to acquisitions made in prior years Cash disposed of and costs of disposal of BroadCare Cash acquired with subsidiaries Net cash outflow from investing activities FINANCING ACTIVITIES Dividends paid Dividends paid to non-controlling interests Repayment of finance leases (Repayment of) / increase in long term bank loans (Repayment of) / proceeds from other long term loans Sale / (purchase) of own shares held in EBT Net cash outflow from financing activities (Decrease) / increase in cash and cash equivalents Exchange differences on translation of foreign subsidiaries Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year £'000 11,463 2,544 (67) (5) - 312 (2,981) 183 (2,022) (182) (187) 9,058 (560) (1,906) 6,592 30 (1,014) (377) 4,099 (2,990) (1,748) (584) 553 (2,031) (1,546) (149) (86) (3,125) - 311 (4,595) (34) 73 5,860 5,899 £'000 6,329 2,220 99 (52) 1 - - 92 (1,874) (183) 5,343 11,975 (425) (1,299) 10,251 88 (1,268) (341) - (1,879) (1,652) - 610 (4,442) (1,284) (49) (84) 750 (76) (96) (839) 4,970 (112) 1,002 5,860 52 - Consolidated Financial Statements & Notes - continued Consolidated Statement of Changes in Equity for the year ended 31 December 2018 Share capital Share premium Own shares Share- based incentive reserve Foreign currency translation reserve Retained earnings Total attributable to equity holders of parent Non- controlling interest Total equity £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 8,412 42,431 (556) 249 195 25,740 76,471 457 76,928 At 1 January 2017 Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year New shares issued Share option charge Growth share charge Own shares purchased Shares awarded and sold from own shares Dividend paid - - - - - - 24 75 - - - - - - - - - - - - - - - - (96) 50 - - - - - 19 73 - - - At 31 December 2017 8,436 42,506 (602) 341 Profit for the year Exchange differences on translation of foreign operations Total comprehensive income for the year Share option charge Growth share charge Shares awarded and sold from own shares Dividend paid - - - - - - - - - - - - - - - - - - - 303 - - - - 69 88 - - - 4,402 4,402 103 4,505 (110) - (110) (2) (112) (110) 4,402 4,292 101 4,393 - - - - - - 85 - 32 32 - - - - - - - - 21 99 19 73 (96) 71 - - - - - 99 19 73 (96) 71 (1,284) (1,284) (49) (1,333) 28,879 79,645 509 80,154 9,076 9,076 111 9,187 - 32 41 73 9,076 9,108 152 9,260 - - 35 69 88 338 - - - 69 88 338 (1,546) (1,546) (149) (1,695) At 31 December 2018 8,436 42,506 (299) 498 117 36,444 87,702 512 88,214 1. Principal Notes to the Consolidated Financial Statements Accounting Policies 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 Reporting Standards (IFRS) adopted by the European Union and on the historical cost basis. Basis of consolidation The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Turnover and revenue recognition policy The Group’s operating subsidiaries carry out a range of different activities. The following policies apply consistently across subsidiaries. Revenue is recognised when a performance obligation is satisfied, in accordance with the terms of the contractual arrangement. Where there are contracts with a variety of performance obligations that are distinct, an element of the transaction price is allocated to each performance obligation and recognised as revenue as and when that performance obligation is satisfied. Revenue is allocated to each of the performance obligations based on relative standalone selling prices. Typically, performance obligations are satisfied over time as services are rendered. The nature of the work is almost always such that it relates to facts and circumstances that are specific to the Client, with the result that the work performed does not create an asset with alternative use to the Group. Therefore, in accordance with IFRS 15, even if the Client will receive the benefits of the Group’s performance only when the Client receives the piece of work, the performance obligation is regarded as being satisfied over time. The Group is generally entitled to payment for work performed to date. Contracts are typically short-term in nature and do not include any significant financing components. The Group is generally paid in arrears for its services and invoices are typically payable within 30 to 60 days. Where performance obligations have been satisfied and the recorded turnover exceeds amounts invoiced to Clients, the excess is classified as accrued income (within Trade and other receivables). Accrued income is a contract asset and is transferred to trade receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement. Where amounts invoiced to Clients exceed recorded turnover, because performance obligations have not yet been satisfied, the excess is classified as deferred income (within Trade and other payables). These balances are considered contract liabilities. The Group has applied the practical expedient permitted by IFRS 15 to not disclose the transaction price allocated to performance obligations unsatisfied or partially unsatisfied as of the end of the reporting period as contracts typically have an original expected duration of a year or less. The amount of revenue recognised depends on whether the Group acts as principal or agent. Third party costs are included in revenue when the Group acts as principal with respect to the goods or services provided to the Client and are excluded when the Group acts as agent, by reference to whether or not the Group controls the relevant good or service before it is transferred to the Client. The Group has not recognised any significant costs incurred to obtain or fulfil a Client contract as assets on the balance sheet. Costs to obtain a contract are typically expensed as incurred as the contracts are generally short term in nature. Turnover represents fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts. 54 - Consolidated Financial Statements & Notes - continued 1. Principal Accounting Policies Continued... Further details on revenue recognition are detailed by activity below: (i) Advertising and ad hoc marketing campaigns This typically involves fees for strategic planning and creative concepts through to execution and delivery of final campaigns. Revenue may consist of various arrangements, but typically comprises retainer fees or fixed price contracts, both of which are recognised over time. Retainer fees are recognised on a straight-line basis over the term of the contract. For fixed price contracts, revenue is recognised based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided. This is typically determined based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours. (ii) Website, portal or application design and build (Digital) The Group derives revenue from designing and building websites, portals and applications under fixed price contracts. Revenue is typically recognised over time, determined by applying the hours devoted to date as a percentage of total hours expected. (iii) Software development (Digital) This revenue stream involves the supply of software licences and aftersales support. If billed as a single fixed price fee, each of these services is accounted for as a separate performance obligation, the transaction price allocated to each being determined by the labour hours and cost required to supply each service. Revenue attributable to the provision of the software is recognised at a point in time when the software licence is made available for use by the Client. Revenue attributable to the aftersales support is recognised monthly on a straight-line basis over the period that support is to be provided. In some cases, the contract might also cover the provision of data migration and training services, but each of these is separately billed, the revenue being recognised over time, determined by applying the hours devoted to date as a percentage of total hours expected. (iv) Media buying Revenue is derived from identifying the Client’s media requirements and managing and placing orders for the appropriate media. Revenue is typically recognised at the point in time that the media is aired or on the date of publication. (v) Exhibitions, events and conferences Revenue is derived from the design, planning and supply of exhibition stands, events and conferences. Revenue is typically recognised over time based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours. (vi) Learning and training Revenue is in the form of fixed price fees from planning and designing training courses and from performing training courses. Specific training is recognised at a point in time on the date that the training takes place. If the service provided includes planning and designing the training course and material, then revenue would be attributed to this performance obligation and recognised over time based on third party costs incurred to date and actual labour hours devoted to date relative to the total expected costs and labour hours. (vii) Public Relations PR revenue is typically derived from retainer fees and fixed price fees for services to be performed subject to specific agreement. Revenue under these arrangements is earned over time, in accordance with the terms of the contractual arrangement. Retainer fee revenue is recognised on a straight-line basis over the period covered by the fee. For ad hoc fixed price projects the Group generally applies the hours devoted to date as a percentage of total hours as the basis for recognising revenue. 1. Principal Accounting Policies Continued... Goodwill and other intangible assets Goodwill Goodwill arising from the purchase of subsidiary undertakings and trade acquisitions represents the excess of the total cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary 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 amortised, but is reviewed annually for impairment. Goodwill impairment is assessed by comparing the carrying value of goodwill for each cash-generating unit to the future cash flows, discounted to their net present value using an appropriate discount rate, derived from the relevant underlying assets. Where the net present value of future cash flows is below the carrying value of goodwill, an impairment adjustment is recognised in profit or loss and is not subsequently reversed. Other intangible assets Costs associated with the development of identifiable software products where it is probable that the economic benefits will exceed the costs of development are recognised as intangible assets. These assets are carried at cost less accumulated amortisation and are amortised over periods of between 3 and 5 years. Amortisation of software development costs is included within operating expenses. Other intangible assets separately identified as part of an acquisition are amortised over periods of between 3 and 10 years, except certain brand names which are considered to have an indefinite useful life. The value of such brand names is not amortised, but rather an annual impairment test is applied and any shortfall in the present value of future cash flows derived from the brand name versus the carrying value is recognised in profit and loss. Amortisation and impairment charges are excluded from headline profit. Contingent consideration payments 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 which is contingent on its future profitability (i.e. earn-out). Contingent consideration is initially recognised at its estimated fair value based on 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 twelve 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, vary from the actual results. The Directors considered the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgement are, in order of significance: Potential impairment of goodwill The potential impairment of goodwill is based on estimates of future cash flows derived from the financial projections of each cash-generating unit over an initial three year period and assumptions about growth thereafter, discussed in more detail in Note 12. Contingent payments in respect of acquisitions Contingent consideration, by definition, depends on uncertain 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 of financial performance. 56 - Consolidated Financial Statements & Notes - continued 1. Principal Accounting Policies Continued... Revenue recognition policies in respect of contracts which straddle the year end Estimates of revenue to be recognised on contracts which straddle the year end are typically based on the amount of time so far committed to those contracts compared 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 property rights are the most frequently identified intangible assets. When considering the valuation of intangible assets on acquisitions, a range of methods is undertaken both for identifying intangibles and placing valuations on them. The valuation of each element is assessed by reference to commonly used techniques, such as “relief from royalty” and “excess earnings” and to industry leaders and competitors. Estimating the length of Client retention is the principal uncertainty and draws on historic experience. Share-based payment transactions Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. The fair value of nil-cost share options is measured by use of a Black Scholes model on the grounds that there are no market- related vesting conditions. The fair value of Growth Shares is measured by use of a Monte Carlo simulation model on the grounds that they are subject to market-based conditions (the future share price of the Company). Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies arising from normal trading activities are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are reflected in the profit or loss accordingly. The income statements of overseas subsidiary undertakings are translated at average exchange rates and the year-end net assets of these companies are translated at year-end exchange rates. Exchange differences arising from retranslation of the opening net assets are reported in the Consolidated Statement of Comprehensive Income. Property, plant and equipment Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful economic life, as follows: Short leasehold property Period of the lease Motor vehicles 25% per annum Fixtures, fittings and office equipment 10-33% per annum Computer equipment 25-33% per annum Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Issue costs are offset against the proceeds of such instruments. Financial liabilities are released to income when the liability is extinguished. 1. Principal Accounting Policies Continued... Lease commitments Where the Group bears substantially all the risks and rewards related to the ownership of a leased asset, the related asset is recognised at the time of inception of the lease at its fair value or, if lower, the present value of the minimum lease payments plus incidental payments, if any. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the Consolidated Income Statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the Consolidated Income Statement on a straight-line basis over the lease term. Lease incentives are spread over the term of the lease. Deferred taxation Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Where material intangible assets are recognised on acquisition which will be amortised over their useful lives, a deferred tax liability is also recognised and released against income over the corresponding period. New standards, interpretations and amendments to existing standards Impact of the adoption of IFRS 9: Financial Instruments The Group adopted IFRS 9 with effect from 1 January 2018. Due to the short term nature of the Group’s trade receivables, the credit ratings of the Group’s Clients, and credit insurance on certain trade receivables, the requirement under IFRS 9 to use an expected loss method of impairment of financial assets has not had a material effect on the Group’s financial statements. Impact of the adoption of IFRS 15: Revenue from Contracts with Customers The Group adopted IFRS 15 with effect from 1 January 2018. The new standard establishes a five step model where consideration received or expected to be received is recognised as revenue when contractual performance obligations are satisfied. Adopting IFRS 15 has not had a material impact on the amounts or timing of the Group’s revenue recognition. However, for a small proportion of media buying activity, the Group is viewed as an agent because the Group does not have control of the relevant services before they are transferred to the Client. Third party costs are deducted from turnover when the Group acts as agent. As a result, turnover decreases by the amount of these third party costs and there is a corresponding decrease in costs. The operating profit remains unchanged. In accordance with the transition provisions in IFRS 15, the Group has adopted the new standard retrospectively and has restated comparatives. The following table summarises the impact of adopting IFRS 15 on the Group’s Consolidated Income Statement for the year ended 31 December 2017. Turnover Cost of sales Operating income 2017 as previously reported £’000 146,912 (76,872) 70,040 IFRS 15 adjustments £’000 (839) 839 - 2017 as restated £’000 146,073 (76,033) 70,040 58 - Consolidated Financial Statements & Notes - continued 1. Principal Accounting Policies Continued... Impact of the adoption of IFRS 16: Leases IFRS 16: Leases will apply to the Group’s 2019 financial statements. IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting and are replaced by a model where a right-of-use asset and corresponding liability have to be recognised for all leases (i.e. all on balance sheet) except for short term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently at cost less accumulated depreciation, adjusted for any re-measurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications. As at 31 December 2018, the Group had non-cancellable operating lease commitments of £7.1m (see note 22). A preliminary assessment of IFRS 16 indicates that the Group will recognise a right-of-use asset and corresponding liability in respect of a large majority of these leases and that fixed assets and liabilities will accordingly increase by this order of magnitude as a consequence of the adoption of IFRS 16. The impact on the Consolidated Income Statement is not expected to be material as the required adjustment will predominantly involve a reclassification between operating lease expense and depreciation, both of which are included in operating costs. There is expected to be a small increase in operating profit as an element of the lease-related expense is reclassified from operating expenses to interest costs. Interest costs are expected to increase by a similar amount, resulting in a largely unchanged profit before tax. The classification of cash flows will be affected by the adoption of IFRS 16 because operating lease payments under IAS 17 are presented as operating cash flows whereas, in future, lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively. The Directors will complete a detailed assessment of the impact of adopting IFRS 16. No decision has been made about whether to use any of the transitional provisions. 2. Segmental Information IFRS 15: Revenue from Contracts with Customers requires the disaggregation of revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Board has considered how the Group’s revenue might be disaggregated in order to meet the requirements of IFRS 15 and has concluded that the activity and geographical segmentation disclosures set out below represent the most appropriate categories of disaggregation. The Board considers that neither differences between types of Clients, sales channels and markets nor differences between contract duration and the timing of transfer of goods or services are sufficiently significant to require further disaggregation. For management purposes the Group monitored the performance of fifteen operating units during the year, each of which carries out a range of activities. The performance of these businesses is managed and monitored as a whole by the Board as a single business segment – marketing communications. However, since different activities have different revenue characteristics, the Group’s turnover and operating income has been disaggregated below to provide additional benefit to readers of these financial statements. In previous years, the profitability by activity has been disclosed. However, following the implementation of a Shared Services function from the start of 2018 and the resulting transfer of certain Agency-specific contracts onto centrally-managed arrangements, a significant portion of the total operating costs are now centrally managed and segment information is therefore now only presented down to the operating income level. Year to 31 December 2018 Advertising & Digital £’000 Media Buying £’000 Exhibitions & Learning £’000 Public Relations £’000 Total £’000 Turnover Continuing operations Discontinued operations Total Group Operating Income Continuing Discontinued Total Group 96,615 1,476 98,091 61,805 1,255 63,060 36,473 17,488 9,340 159,916 - - - 1,476 36,473 17,488 9,340 161,392 3,469 - 3,469 5,202 - 5,202 7,109 - 7,109 77,585 1,255 78,840 Year to 31 December 2017 Advertising & Digital £’000 Media Buying £’000 Exhibitions & Learning £’000 Public Relations £’000 Total £’000 Turnover Continuing operations Discontinued operations Total Group (restated) Operating Income Continuing Discontinued Total Group 79,769 1,830 81,599 54,610 1,449 56,059 44,421 12,054 7,999 144,243 - - - 1,830 44,421 12,054 7,999 146,073 3,720 - 3,720 3,600 - 3,600 6,661 - 6,661 68,591 1,449 70,040 As contracts typically have an original expected duration of less than one year, the full amount of the deferred income balance at the beginning of the year is released to revenue during the year. All media buying turnover is recognised at a point in time. Virtually all other turnover from continuing operations is recognised over time. Assets and liabilities are not split between activities. 60 - Consolidated Financial Statements & Notes - continued 2. Segmental Geographical segmentation Information Continued... The following table provides an analysis of the Group’s operating income by region of activity: UK Asia USA Year to 31 December 2018 £’000 69,774 5,061 4,005 78,840 Year to 31 December 2017 £’000 62,198 4,481 3,361 70,040 3. Reconciliation The Board believes that headline profits, which eliminate certain amounts from the reported figures, provide a better understanding of Headline Profit to Reported Profit of the underlying trading of the Group. The adjustments to reported profits generally fall into three categories: exceptional items, acquisition-related items and start-up costs. In 2018, the profit / loss on investments (respectively, from the sale of BroadCare and the impairment of Watchable) has also been excluded. From continuing and discontinued operations Headline profit Profit on sale of BroadCare (Note 21.3) Acquisition adjustments (Note 5) Impairment of Watchable (Note 15) Exceptional items (Note 4) Start-up costs Reported profit From continuing operations Headline profit Acquisition adjustments (Note 5) Impairment of Watchable (Note 15) Exceptional items (Note 4) Start-up costs Reported profit From discontinued operations Headline profit Profit on sale of BroadCare (Note 21.3) Reported profit Year to 31 December 2018 Year to 31 December 2017 PBT £’000 PAT £’000 PBT £’000 PAT £’000 9,473 2,981 (1,010) (312) - (139) 10,993 8,994 (1,010) (312) - (139) 7,533 479 2,981 3,460 7,528 2,981 (895) (312) - (115) 9,187 7,145 (895) (312) - (115) 5,823 383 2,981 3,364 7,734 - (804) - (642) (443) 5,845 7,224 (804) - (642) (443) 5,335 510 - 510 6,185 - (802) - (523) (355) 4,505 5,777 (802) - (523) (355) 4,097 408 - 408 Start-up costs derive from organically started businesses and comprise the trading losses of such entities until the earlier of two years from commencement or when they show evidence of becoming sustainably profitable. Start-up costs in 2018 relate to the launch of April Six’s new venture in China, and trading losses at Mongoose Promotions. Start-up costs in 2017 related to the launches of fuse and Mongoose Promotions. 4. Exceptional Items 5. Acquisition Adjustments 6. Net Finance Costs Payments for loss of office and other restructuring costs Year to 31 December 2018 £’000 - - Year to 31 December 2017 £’000 (642) (642) 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 2017 comprised settlement costs to a former Director and also amounts payable for loss of office and other costs incurred relating to the restructuring of certain operations in order to streamline activities and underpin the Board’s growth expectations. Movement in fair value of contingent consideration Amortisation of other intangibles recognised on acquisitions Acquisition transaction costs expensed Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 67 (915) (162) (1,010) (99) (580) (125) (804) The movement in fair value of contingent consideration relates to a net downward (2017: upward) revision in the estimate payable to vendors of businesses acquired in prior years. Acquisition transaction costs relate to professional fees in connection with acquisitions made or contemplated. Interest on bank loans and overdrafts, net of interest on bank deposits Amortisation of bank debt arrangement fees Interest on finance leases Net finance costs Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 (394) (66) (9) (469) (402) (59) (12) (473) 62 - Consolidated Financial Statements & Notes - continued 7. Profit before Profit on ordinary activities before taxation is stated after charging / (crediting): Taxation Depreciation of owned tangible fixed assets Depreciation of tangible fixed assets held under finance leases Amortisation of intangible assets recognised on acquisitions Amortisation of other intangible assets Operating lease rentals – Land and buildings Operating lease rentals – Plant and equipment Operating lease rentals – Other assets Staff costs (see Note 8) Bad debts and net movement in provision for bad debts Auditors’ remuneration Gain on foreign exchange Auditors’ remuneration may be analysed by: Audit of Group’s annual report and financial statements Audit of subsidiaries Audit related assurance services Tax advisory services Corporate finance Other services Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 1,164 94 915 371 2,469 143 242 51,363 27 271 (114) 1,182 94 580 364 2,577 70 310 46,976 84 264 (43) Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 41 133 5 26 61 5 271 41 151 5 25 42 - 264 8. Employee Information The average number of Directors and staff employed by the Group during the year analysed by segment, was as follows: Advertising & Digital Media Buying Exhibitions & Learning Public Relations Central The aggregate employee costs of these persons were as follows: Wages and salaries Social security costs Pension costs Share based payment expense Year to 31 December 2018 Number Year to 31 December 2017 Number 881 36 75 96 4 1,092 823 30 68 90 4 1,015 Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 44,574 4,742 1,890 157 51,363 40,810 4,294 1,780 92 46,976 The Group operates seventeen (2017: sixteen) 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 £142,000 (2017: £108,000). 64 -Consolidated Financial Statements & Notes - continued 8. Employee Directors’ Remuneration Information Continued... Directors’ remuneration is derived from their role as either a Board member of themission or as an Executive Director of one of the Group’s Agencies. Remuneration for the year was as follows (all amounts in £’000): As Board Directors David Morgan (Chairman) Peter Fitzwilliam (Finance Director) Giles Lee (Commercial Director) Julian Hanson-Smith (Non-Executive) Chris Morris (Non-Executive to 31 July 2018) Andy Nash (Non-Executive from 1 August 2018) Total As Agency Directors Dylan Bogg James Clifton Robert Day Sue Mullen Mike Rose Fiona Shepherd Former Directors Chris Goodwin (to 31 March 2017) Notes: Salary / Fees Performance -related payments Benefits Pension Total 2018 Total 2017 138 170 169 45 23 15 560 134 160 180 141 70 190 - 1,435 20 15 40 - - - 75 - 15 110 10 - - - 210 29 4 5 - 4 - 42 9 3 10 3 5 4 - 76 - - 15 - - - 15 10 28 - 14 - 7 - 74 187 189 229 45 27 15 194 214 244 45 95 - 692 792 153 206 300 168 75 201 166 207 264 161 92 290 - 1,795 169 2,141 1. Julian Hanson-Smith was paid £25,000 (2017: £8,750) as a TMMG plc Director during the year. In addition he was paid for his consulting services through a consultancy practice owned by him, HS Consultancy Services. 2. Chris Morris was paid £5,833 (2017: £36,892) as a TMMG plc Director during the year. In addition, he was paid for his consulting services through a consultancy practice owned by him, Morris Marketing Consultancy. 9. Taxation Current tax:- UK corporation tax at 19.00% (2017: 19.25%) Adjustment for prior periods Foreign tax on profits of the period Deferred tax:- Current year originating temporary differences Foreign deferred tax on overseas subsidiaries Tax charge for the year Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 1,752 (58) 214 1,908 (102) - 1,806 1,153 11 202 1,366 (20) (6) 1,340 Factors Affecting the Tax Charge for the Current Year: The tax assessed for the year is lower (2017: higher) than the standard rate of corporation tax in the UK. The differences are: Profit before taxation Profit on ordinary activities before tax at the standard rate of corporation tax of 19.00% (2017: 19.25%) Effect of: Non-deductible expenses/income not taxable Non-taxable profit on sale of BroadCare Non-deductible impairment of Watchable Adjustments in respect of prior periods Other differences Actual tax charge for the year Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 10,993 2,089 237 (581) 59 (58) 60 1,806 5,845 1,125 175 - - 11 29 1,340 66 - Consolidated Financial Statements & Notes - continued 10. Dividends Amounts recognised as distributions to equity holders in the year: Interim dividend of 0.7 pence (2017: 0.55 pence) per share Prior year final dividend of 1.15 pence (2017: 1.00 pence) per share Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 585 961 1,546 456 828 1,284 A final dividend of 1.4 pence per share is to be paid in July 2019 should it be approved by shareholders at the AGM. In accordance with IFRS this final dividend will be recognised in the 2019 accounts. 11. Earnings Per Share The calculation of the basic and diluted earnings per share is based on the following data, determined in accordance with the provisions of IAS 33: Earnings per Share. Earnings Reported profit for the year From continuing and discontinued operations Attributable to: Equity holders of the parent Non-controlling interests From continuing operations Attributable to: Equity holders of the parent Non-controlling interests From discontinued operations Attributable to: Equity holders of the parent Non-controlling interests Headline earnings (Note 3) From continuing and discontinued operations Attributable to: Equity holders of the parent Non-controlling interests Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 9,187 9,076 111 9,187 5,823 5,712 111 5,823 3,364 3,364 - 3,364 7,528 7,417 111 7,528 4,505 4,402 103 4,505 4,097 3,994 103 4,097 408 408 - 408 6,185 6,082 103 6,185 11. Earnings Per Share Continued... From continuing operations Attributable to: Equity holders of the parent Non-controlling interests From discontinued operations Attributable to: Equity holders of the parent Non-controlling interests Number of shares Weighted average number of Ordinary shares for the purpose of basic earnings per share Dilutive effect of securities: Employee share options Weighted average number of Ordinary shares for the purpose of diluted earnings per share Reported basis: From continuing and discontinued operations Basic earnings per share (pence) Diluted earnings per share (pence) From continuing operations Basic earnings per share (pence) Diluted earnings per share (pence) From discontinued operations Basic earnings per share (pence) Diluted earnings per share (pence) Headline basis: From continuing and discontinued operations Basic earnings per share (pence) Diluted earnings per share (pence) From continuing operations Basic earnings per share (pence) Diluted earnings per share (pence) From discontinued operations Basic earnings per share (pence) Diluted earnings per share (pence) Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 7,145 7,034 111 7,145 383 383 - 383 5,777 5,674 103 5,777 408 408 - 408 83,338,888 82,874,398 2,081,410 2,565,943 85,420,298 85,440,341 10.89 10.63 6.85 6.69 4.04 3.94 8.90 8.68 8.44 8.23 0.46 0.45 5.31 5.15 4.82 4.67 0.49 0.48 7.34 7.12 6.85 6.64 0.49 0.48 Basic earnings per share includes shares to be issued subject only to time as if they had been issued at the beginning of the period. A reconciliation of the profit after tax on a reported basis and the headline basis is given in Note 3. 68 - Consolidated Financial Statements & Notes - continued 12. Intangible Assets Goodwill Cost At 1 January Recognised on acquisition of subsidiaries At 31 December Impairment adjustment At 1 January Impairment during the year At 31 December Net book value at 31 December Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 89,064 6,563 95,627 4,273 - 4,273 91,354 84,052 5,012 89,064 4,273 - 4,273 84,791 In accordance with the Group’s accounting policies, an annual impairment test is applied to the carrying value of goodwill. The review performed assesses whether the carrying value of goodwill is supported by the net present value of projected cash flows derived from the underlying assets for each cash-generating unit (“CGU”). 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 growth derived from historical experience, and extrapolations of the budget in subsequent years based on known factors and estimated trends. The key assumptions used by each CGU concern revenue growth and staffing levels and different assumptions are made by different CGUs based on their individual circumstances. After the initial projection period, an annual growth rate of 2.0% was assumed for all units (reduced from 2.5% in 2017 due to lower published long term growth forecasts) and the resulting pre-tax cash flow forecasts were discounted using the Group’s estimated pre-tax weighted average cost of capital, which is 8.54% (2017: 7.43%). For all CGUs, the Directors assessed the sensitivity of the impairment test results to changes in key assumptions (including a further 0.5% reduction in longer term growth rates) and concluded that a reasonably possible change to the key assumptions would not cause the carrying value of goodwill to exceed the net present value of its projected cash flows. Goodwill arose from the acquisition of the following subsidiary companies and trade assets and is comprised of the following substantial components: 12. Intangible Assets Continued... 31 December 2018 £’000 31 December 2017 £’000 April Six Ltd April Six Proof Ltd Big Dog Agency Ltd* Bray Leino Ltd Chapter Agency Ltd Krow Communications Ltd Mongoose Sports & Entertainment Ltd RLA Group Ltd* RJW & Partners Ltd Solaris Healthcare Network Ltd Speed Communications Agency Ltd Splash Interactive Pte. Ltd Story UK Ltd ThinkBDW Ltd Other smaller acquisitions 9,411 576 11,366 27,761 3,440 6,563 931 4,845 4,962 1,058 3,085 2,356 7,516 6,283 1,201 9,411 576 9,639 27,761 3,440 - 931 6,572 4,962 1,058 3,085 2,356 7,516 6,283 1,201 *In 2018, the Belfast based operations of RLA Group Ltd were transferred into Big Dog Agency Ltd. The relevant portion of goodwill of RLA Group Ltd has therefore been transferred into Big Dog Agency Ltd. 91,354 84,791 70 - Consolidated Financial Statements & Notes - continued 12. Intangible Assets Continued... Other intangible assets Cost At 1 January 2017 Additions Disposals At 31 December 2017 Additions Disposals At 31 December 2018 Amortisation and impairment At 1 January 2017 Charge for the year Disposals At 31 December 2017 Charge for the year Disposals At 31 December 2018 Net book value at 31 December 2018 Net book value at 31 December 2017 Software development and licences £’000 Trade names £’000 Customer relationships £’000 2,061 341 (210) 2,192 377 (832) 1,737 855 364 (209) 1,010 371 (316) 1,065 672 1,182 899 134 - 1,033 748 - 1,781 97 77 - 174 132 - 306 1,475 859 3,651 334 - 3,985 1,886 - 5,871 2,363 503 - 2,866 783 - 3,649 2,222 1,119 Total £’000 6,611 809 (210) 7,210 3,011 (832) 9,389 3,315 944 (209) 4,050 1,286 (316) 5,020 4,369 3,160 Additions of £377,000 (2017: £341,000) in the year include costs associated with the development of identifiable software products that are expected to generate economic benefits in excess of the costs of development. Included within the value of intangible assets is an amount of £783,000 (2017: £783,000) 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. As such, it is the Directors’ judgement that the useful life of these trade names is considered to be indefinite. Intangible assets include an amount of £692,000 relating to the krow trade name, which has attained recognition in the marketplace and plays a role in attracting and retaining Clients. This value will be amortised over the next 9 years. Also included is an amount of £1,650,000 relating to krow customer relationships. krow has developed a base of customers to whom the Group would expect to continue selling in the future. The remaining useful life of these customer relationships is deemed to be 5 years and the value will be amortised over this period. 13. Subsidiaries The Group’s principal trading subsidiaries are listed below. All subsidiaries are 100% owned and all are incorporated in the United Kingdom, except for Mongoose Promotions Ltd, which is 75% owned, and Splash Interactive Pte. Ltd, which is 70% owned and incorporated in Singapore. A full list of all Group companies at 31 December 2018 can be found in Note 43 to the Company Financial Statements. Subsidiary undertaking Nature of business April Six Ltd Marketing communications, specialising in the technology sector April Six Proof Ltd Public relations, specialising in science, engineering and technology Big Dog Agency Ltd Marketing communications Bray Leino Ltd Advertising, media buying, digital marketing, events and training Chapter Agency Ltd Marketing communications Krow Communications Ltd Marketing communications Mongoose Promotions Ltd Sales promotion Mongoose Sports & Entertainment Ltd Sports, fitness and entertainment marketing RJW & Partners Ltd Pricing and market access in the healthcare sector RLA Group Ltd Marketing communications, specialising in the automotive sector Solaris Healthcare Network Ltd Marketing communications, specialising in the medical sector Speed Communications Agency Ltd Public relations Splash Interactive Pte. Ltd Digital marketing Story UK Ltd ThinkBDW Ltd Brand development and creative direct communication Property marketing, providing advertising, media, brochures, signage, exhibitions, CGI, animation, intranet, photography 72 - Consolidated Financial Statements & Notes - continued 14. Property, Plant and Equipment Cost or valuation At 1 January 2017 Acquisition of subsidiaries Additions Disposals At 31 December 2017 Acquisition of subsidiaries Additions Disposals At 31 December 2018 Depreciation At 1 January 2017 Charge for the year Disposals At 31 December 2017 Charge for the year Disposals At 31 December 2018 Net book value at 31 December 2018 Net book value at 31 December 2017 Short leasehold property £’000 Fixtures & fittings and office equipment £’000 Computer equipment £’000 Motor vehicles £’000 Total £’000 2,293 - 43 (127) 2,209 11 96 (92) 2,224 1,578 152 (119) 1,611 153 (85) 1,679 545 598 4,267 - 636 (604) 4,299 5 405 (358) 4,351 2,584 540 (604) 2,520 559 (332) 2,747 1,604 1,779 3,167 2 573 (452) 3,290 32 513 (667) 3,168 2,052 574 (429) 2,197 538 (659) 2,076 1,092 1,093 149 - 16 (10) 155 - - (32) 123 131 10 (5) 136 8 (30) 114 9 19 9,876 2 1,268 (1,193) 9,953 48 1,014 (1,149) 9,866 6,345 1,276 (1,157) 6,464 1,258 (1,106) 6,616 3,250 3,489 The net book amount includes £124,000 (2017: £219,000) 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 (2017: £94,000). 15. Investments in Associates At 1 January Loss during the year Write down of investment At 31 December Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 313 (1) (312) - 324 (11) - 313 The investment in associates represents a 25% shareholding in Watchable Limited, a film and video content company, based in London. The activities of Watchable have substantially ceased and as a consequence the value of the Group’s interest has been written down to zero as at 31 December 2018. 16. Trade and Other Receivables Trade receivables Accrued income Prepayments Other receivables 31 December 2018 £’000 31 December 2017 £’000 27,156 9,788 2,050 733 39,727 24,424 7,554 2,080 771 34,829 An allowance has been made for estimated irrecoverable amounts from the provision of services of £62,000 (2017: £193,000). The estimated irrecoverable amount is arrived at by considering the historic loss rate and adjusting for current expectations, Client base and economic conditions. Both historic losses and expected future losses being very low, the Directors consider it appropriate to apply a single average rate for expected credit losses to the overall population of trade receivables and accrued income. Accrued income relates to unbilled work in progress and has substantially the same risk characteristics as the trade receivables for the same types of contracts. The difference between the incurred loss method applied in the 2017 annual report and the new lifetime expected loss rate method under IFRS 9 is considered immaterial and comparatives have not been restated. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 74 - Consolidated Financial Statements & Notes - continued 16. Trade and Other Receivables Continued... Gross trade receivables Gross accrued income Total trade receivables and accrued income Expected loss rate Provision for doubtful debts 31 December 2018 £’000 31 December 2017 £’000 27,218 9,788 37,006 0.2% 62 24,617 7,554 32,171 0.6% 193 Accrued income has increased by £2,234,000 partly as a result of the acquisition of krow (see note 21.2) and partly because of an increase in overall contract activity. Credit risk The Group’s principal financial assets are trade receivables, accrued income and bank balances, 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 and accrued income. The credit risk on cash balances is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The majority of the Group’s trade receivables and accrued income is due from large national or multinational companies where the risk of default is considered low. In order to mitigate this risk further, the Group has arranged credit insurance on certain of its trade receivables as deemed appropriate. Where credit insurance is not considered cost effective, the Group monitors credit- worthiness closely and mitigates risk, where appropriate, through payment plans. There can be no assurance that any of the Group’s Clients will continue to utilise the Group’s services to the same extent, or at all, in the future. The loss of, or a significant reduction in advertising and marketing spending by, the Group’s largest Clients, if not replaced by new Client accounts or an increase in business from existing Clients, would adversely affect the Group’s prospects, business, financial condition and results of operations. The impact would however be limited as only one Client represented more than 3% of total operating income in both 2017 and 2018. Cash and short term deposits comprise cash held by the Group and short term bank deposits. 17. Cash and Short Term Deposits 18. Trade and Other Payables 19. Bank Overdrafts, Loans and Net Debt Trade creditors Other creditors and accruals Deferred income Other tax and social security payable Finance leases 31 December 2018 £’000 31 December 2017 £’000 13,645 9,623 6,755 4,306 90 34,419 12,379 9,845 4,865 4,422 86 31,597 Deferred income has increased by £1,890,000 as a result of the acquisition of krow (see note 21.2). The Directors consider that the carrying amount of trade and other payables approximates their fair value. Bank loan outstanding Unamortised bank debt arrangement fees Carrying value of loan outstanding Less: Cash and short term deposits Net bank debt The borrowings are repayable as follows: Less than one year In one to two years In more than two years but less than three years Unamortised bank debt arrangement fees Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months 31 December 2018 £’000 31 December 2017 £’000 10,000 (114) 9,886 (5,899) 3,987 - - 10,000 10,000 (114) 9,866 - 9,886 13,125 (46) 13,079 (5,860) 7,219 2,500 10,625 - 13,125 (46) 13,079 (2,500) 10,579 Bank debt arrangement fees, where they can be amortised over the life of the loan facility, are included in finance costs. The unamortised portion is reported as a reduction in bank loans outstanding. On 14 September 2018, the Group signed a new 3 year revolving credit facility of £15.0m, expiring on 28 September 2021, with an option to extend the facility by a further £5.0m and an option to extend by 1 year. Interest on the previous facilities was based on LIBOR plus a margin of between 1.75% and 2.75% depending on the Group’s debt leverage ratio, payable in cash on loan rollover dates. Interest rate margins on the new facilities are again based on the Group’s debt leverage ratio and range from 1.25% to 2.00%. In addition to its committed facilities, the Group has available an overdraft facility of up to £3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.25%. At 31 December 2018, there was a cross guarantee structure in place with the Group’s bankers and a fixed and floating charge over all of the assets of the Group companies in favour of National Westminster Bank plc. All borrowings are in sterling. 76 - Consolidated Financial Statements & Notes - continued 20. Obligations Obligations under finance leases are as follows: under Finance Leases In one year or less Between two and five years 31 December 2018 £’000 31 December 2017 £’000 90 39 129 86 129 215 Assets held under finance leases consist of office equipment. The fair values of the Group’s lease obligations approximate their carrying amount. The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets. 21. Acquisitions 21.1 Acquisition Obligations and Disposals The terms of an acquisition provide that the value of the purchase consideration, which may be payable in cash or shares at a future date, depends on uncertain future events such as the future performance of the acquired company. The Directors estimate that the liability for contingent consideration payments is as follows: 31 December 2018 31 December 2017 Cash £’000 Shares £’000 Total £’000 Cash £’000 Shares £’000 Total £’000 Less than one year Between one and two years In more than two years but less than three years In more than three years but less than four years 2,653 2,116 5,568 483 605 75 295 - 3,258 2,191 5,863 483 10,820 975 11,795 1,810 2,597 503 2,104 7,014 - 105 - 124 229 1,810 2,702 503 2,228 7,243 21.2 Acquisition of Krow Communications Ltd On 10 April 2018, the Group acquired the entire issued share capital of Krow Communications Ltd (“krow”), an award-winning creative agency based in London. The fair value of the consideration given for the acquisition was £9,357,000, comprising initial cash consideration and deferred contingent cash and share consideration. Costs relating to the acquisition amounted to £141,000 and were expensed. Maximum contingent consideration of £11,750,000 is dependent on krow achieving a profit target over the period 1 January 2018 to 31 December 2020. The Group has provided for contingent consideration of £6,367,000 to date. The fair value of the net identifiable assets acquired was £608,000 resulting in goodwill and other intangible assets of £9,197,000 and a deferred tax liability on the other intangible assets of £448,000. Goodwill arises on consolidation and is not tax-deductible. Management carried out a review to assess whether any other intangible assets were acquired as part of the transaction. Management concluded that both a brand name and customer relationships were acquired and attributed a value to each of these by applying commonly accepted valuation methodologies. The goodwill arising on the acquisition is attributable to the anticipated profitability of krow. 21. Acquisitions and Disposals Continued... Book value £’000 Fair value adjustments £’000 Fair value £’000 Net assets acquired: Fixed assets Trade and other receivables Cash and cash equivalents Trade and other payables Other intangibles recognised at acquisition Deferred tax liability adjustment Goodwill Total consideration Satisfied by: Cash Deferred contingent consideration 48 3,036 553 (3,029) 608 - - 608 - - - - - 2,634 (448) 2,186 48 3,036 553 (3,029) 608 2,634 (448) 2,794 6,563 9,357 2,990 6,367 9,357 krow contributed turnover of £9,639,000, operating income of £5,356,000 and headline operating profit of £945,000 to the results of the Group in 2018. 21.3 Sale of BroadCare On 12 November 2018, the Group disposed of the BroadCare business. The consideration, assets disposed of and costs of disposal were as follows: Total consideration Less working capital retained Net consideration Net assets disposed of: Software development and licences Fixed assets Cash Disposal costs Total cost of disposal Profit on sale of BroadCare The net inflow of cash in respect of the sale of BroadCare is as follows: Cash consideration received Cash transferred on disposal Net inflow of cash £'000 4,400 (301) 4,099 516 18 400 934 184 1,118 2,981 £'000 4,099 (400) 3,699 78 - Consolidated Financial Statements & Notes - continued 21. Acquisitions 21.4 Pro-forma results including acquisitions and Disposals Continued... The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £164.8m, £80.4m and £10.2m had the Group consolidated the results of the acquisitions made during the year, from the beginning of the year. 22. Financial Operating lease commitments Commitments The total minimum lease payments under non-cancellable operating leases are as follows: 31 December 2018 31 December 2017 Land and buildings £’000 2,041 4,507 - 6,548 Other £’000 298 269 - 567 Land and buildings £’000 1,836 3,669 602 6,107 Other £’000 294 242 - 536 31 December 2018 £’000 31 December 2017 £’000 8,436 8,436 Within one year Between two and five years After more than 5 years 23. Share Capital Allotted and called up: 84,357,351 Ordinary shares of 10p each (2017: 84,357,351 Ordinary shares of 10p each) Share-based incentives The Group has the following share-based incentives in issue: TMMG Long Term Incentive Plan 2,535,000 332,500 (1,362,250) Growth Share Scheme 5,720,171 - - - - 1,505,250 5,720,171 At start of year Granted/ acquired Waived/ lapsed Exercised At end of year 23. Share Capital Continued... 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, and vest based on criteria established by, the Remuneration Committee. During the year, no options were exercised and at the end of the year none of the outstanding options are exercisable. Further commentary on the performance conditions can be found in the Corporate Governance Statement. Shares held in an Employee Benefit Trust (see Note 24) will be used to satisfy share options exercised under the Long Term Incentive Plan. A Growth Share Scheme was implemented on 21 February 2017. Participants in the scheme subscribed for Ordinary A shares in The Mission Marketing Holdings Limited (the “growth shares”) at a nominal value. These growth shares can be exchanged for an equivalent number of Ordinary Shares in themission if the themission’s share price equals or exceeds 75p for at least 15 days during the period up to 60 days from the announcement of the Group’s financial results for the year ending 31 December 2019; if not, they will have no value. 24. Own Shares At 31 December 2016 Own shares purchased during the year Awarded to employees during the year At 31 December 2017 Awarded or sold during the year At 31 December 2018 No. of shares 1,395,930 233,739 (177,302) 1,452,367 (711,000) 741,367 £'000 556 96 (50) 602 (303) 299 Shares are held in an Employee Benefit Trust to meet certain requirements of the Long Term Incentive Plan. 25. Share-Based The share-based incentive reserve represents charges to the profit or loss required by IFRS 2 to reflect the cost of the nil-cost Incentive Reserve share options and growth shares issued to the Directors and employees. 26. Share-Based Nil-cost share options Payments Details of the relevant option schemes are given in Note 23. 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. The fair value of options issued during the year was 49.4p per option at measurement date. The key inputs are: Share price Risk free rate Dividend yield 2018 54.5p 0.7% 3.7% 2017 42.0p 0.1% 3.7% 80 - Consolidated Financial Statements & Notes - continued 26. Share-Based The weighted average share price over the three years ending 31 December 2018 was 44.9p and the weighted average remaining Payments Continued... contractual life of the share options outstanding at 31 December 2018 was 8.7 years. The Group recognised an expense of £69,000 in 2018 (2017: £19,000). Growth Shares Details of the Growth Share scheme are given in Note 23. The fair value of growth shares was measured by use of a Monte Carlo simulation model, which uses probability analysis to calculate the value of options. The fair value of the growth shares issued in 2017 was 5.0p per share at measurement date. No growth shares were issued in 2018. The key inputs are: Share price at grant Risk free rate Dividend yield Expected volatility 2018 n/a n/a n/a n/a 2017 41.0p 0.1% 3.7% 30.0% Volatility is based on the historical volatility of the share price over a 3 year trading period. The weighted average share price from inception of the scheme until 31 December 2018 was 46.9p and the weighted average remaining contractual life of the growth shares outstanding at 31 December 2018 was 1.4 years. The Group recognised an expense of £88,000 in 2018 (2017: £73,000). 27. Financial Capital management Assets and Liabilities The Group defines “capital” as being debt plus equity. Net bank debt comprises short and long term borrowings net of cash, cash equivalents and the unamortised 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. Equity comprises issued share capital, reserves and retained earnings as disclosed in the balance sheet and in the Consolidated Statement of Changes in Equity. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and maintain an appropriate capital structure to balance the needs of the Group to grow, whilst operating with sufficient headroom within its bank covenants. The principal 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 profitability in the acquired business, which are inevitably uncertain, 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 profitability.) The Directors have set targets, which have recently been reduced, of remaining below x1.5 and x2.0 for these ratios respectively. 27. Financial Financial risk management Assets and Liabilities Continued... The Group’s policy is to eliminate financial 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. 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 forward 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 part of the funding for past acquisitions. The Group’s financial policy and risk management objective is to achieve the best interest rates available whilst maintaining flexibility and minimising risk. The main risks arising from the Group’s use of financial instruments are interest rate risk and liquidity risk. Interest rate risk The operations of the Group generate cash and it funds acquisitions through a combination of retained profits, equity issues and borrowings. The Group’s financial liabilities comprise floating rate instruments. The bank loan’s interest rate is reset from time to time and accordingly is not deemed a fixed rate financial liability. Interest on the Group’s revolving credit facility is payable by reference to LIBOR, subject to downward or upward ratchets depending on certain ratios of debt to EBITDA on a quarterly 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 sensitivity of profits to a 1% change in interest rates is less than £0.1m, they have decided not to enter into any hedging arrangements. Liquidity risk The Group’s financial instruments include a mixture of short and long-term borrowings. The Group seeks to ensure sufficient liquidity is available to meet working capital needs and the repayment terms of the Group’s financial instruments as they mature. Financial assets 31 December 2018 £’000 31 December 2017 £’000 Cash at bank maturing in less than one year or on demand 5,899 5,860 82 - Consolidated Financial Statements & Notes - continued 27. Financial Assets and Liabilities Continued... Financial liabilities At 31 December 2018 Interest analysis: Subject to floating rates Subject to fixed rates Maturity analysis: One year or less, or on demand In one to two years In two to three years In three to four years At 31 December 2017 Interest analysis: Subject to floating rates Subject to fixed rates Maturity analysis: One year or less, or on demand In one to two years In two to three years In three to four years Bank loan and overdraft £’000 Finance leases £’000 Acquisition obligations £’000 Total £’000 10,000 - 10,000 - - 10,000 - 10,000 13,125 - 13,125 2,500 10,625 - - 13,125 - 129 129 90 39 - - 129 - 215 215 86 90 39 - 215 - 11,795 11,795 3,258 2,191 5,863 483 11,795 - 7,243 7,243 1,810 2,702 503 2,228 7,243 10,000 11,924 21,924 3,348 2,230 15,863 483 21,924 13,125 7,458 20,583 4,396 13,417 542 2,228 20,583 The Group’s bank loans and overdraft facility are floating rate borrowings and all facilities are secured by a fixed and floating charge over the assets of all Group companies. The fair value of the Group’s financial assets and liabilities is not considered to be materially different from their book values. 28. Leave Pay Accrual No liability or expense has been recognised relating to untaken leave for any of the periods presented. The Group has a policy of not allowing days to be carried forward from one year to the next, unless in exceptional circumstances. In addition, no payment is made in lieu of untaken leave which is not carried forward. As a result, there is no material liability relating to untaken leave at year end. 29. Post Balance There have been no material post balance sheet events. Sheet Events 30. Related Party Transactions The Directors consider that the Directors of the Company represent the Group’s key management personnel for the purposes of disclosing related party transactions. Directors’ remuneration is disclosed in detail in Note 8. The total compensation payable to key management personnel is detailed below. Short-term employee benefits Post-employment benefits Share-based payments Compensation for loss of office Year to 31 December 2018 £’000 Year to 31 December 2017 £’000 1,721 74 - - 1,795 1,684 100 223 134 2,141 Bray Leino Ltd rents property from entities under the control of David Morgan, Chairman of The Mission Marketing Group plc, and members of his close family. During the year the Company paid annual rental and property fees totalling £158,000 (2017: £158,000). There were no amounts owed at the balance sheet date to these entities. ThinkBDW Ltd is contracted to pay annual rent to Robert Day Associates Ltd, a company controlled by Mrs K Day (wife of Robert Day, Executive Director). The lease commenced on 2 May 2014. Aggregate rent payable in the year was £235,000 (2017: £221,075) and was set at market value. In addition, ThinkBDW Ltd purchases energy generated by a photovoltaic array owned by Robert Day Associates Ltd at a discounted commercial rate. The cost to ThinkBDW Ltd of this purchase in 2018 was £15,525 (2017: £18,435). Big Dog Agency Ltd is contracted to pay annual rent to four individuals, including Dylan Bogg (Executive Director) and Chris Morris (Non-Executive Director until his retirement on 1 August 2018). During the year, total rental of £74,000 (2017: £74,000) was paid and no amount was outstanding at the balance sheet date. During the year Solaris Healthcare Network Ltd made sales of £13,752 to Viramal Limited, a company in which Peter Fitzwilliam (Executive Director) is a director and shareholder. There were no amounts due as at the beginning or end of the financial year. During 2017 ten Directors received loans totalling £81,925 in respect of the personal tax payable on a growth share award, as follows: Dylan Bogg £6,667; James Clifton £10,000; Robert Day £10,000; Julian Hanson-Smith £2,174; Peter Fitzwilliam £10,000; Giles Lee £10,000; David Morgan £10,000; Sue Mullen £6,708; Mike Rose £6,376; Fiona Shepherd £10,000. All loans are repayable from the proceeds of the growth share scheme or on termination of employment. No interest is being charged and all loans remain outstanding at the year end. 31. Availability of Annual Report Copies of the Annual Report for the year ended 31 December 2018 will be circulated to shareholders at least 21 days ahead of the Annual General Meeting (“AGM”) on 17 June 2019 and, after approval at the AGM, will be delivered to the Registrar of Companies. Further copies will be available from the Company’s registered office and on the Group’s website, www.themission.co.uk. 84 - Independent Auditor’s Report: Company Report on Independent Auditor’s Report to the Members of The Mission Marketing Group plc the parent company financial statements Opinion We have audited the financial statements of The Mission Marketing Group plc (the ‘Company’) for the year ended 31 December 2018, which comprise the Company Balance Sheet, Statement of Changes in Equity and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice). In our opinion the financial statements: • give a true and fair view of the state of the Company’s affairs as at 31 December 2018 and of its profit for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Report on the parent company financial statements Continued... Opinion on other matter prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company’s financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of our 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 Report and the Directors’ Report . We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 38, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Glenn Nicol (Senior Statutory Auditor) PKF Francis Clark, Statutory Auditor, Centenary House, Peninsula Park, Rydon Lane, Exeter, EX2 7XE 9 April 2019 86 - Company Financial Statements & Notes Company Balance Sheet as at 31 December 2018 As at 31 December 2018 As at 31 December 2017 NON-CURRENT ASSETS Intangible assets Investments Property, plant and equipment CURRENT ASSETS Debtors CREDITORS: Amounts falling due within one year NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES Note 33 34 35 36 CREDITORS: Amounts falling due after more than one year 37 NET ASSETS CAPITAL AND RESERVES Called up share capital Share premium account Own shares Share-based incentive reserve Profit and loss account SHAREHOLDER’S FUNDS 39 39 39 £’000 49 106,584 65 106,698 5,738 5,738 (5,887) (149) 106,549 (15,229) 91,320 8,436 42,506 (299) 373 40,304 91,320 £’000 13 97,110 - 97,123 4,509 4,509 (8,449) (3,940) 93,183 (10,579) 82,604 8,436 42,506 (602) 284 31,980 82,604 The financial statements were approved and authorised for issue on 9 April 2019 by the Board of Directors. They were signed on its behalf by: Peter Fitzwilliam, Finance Director Company registration number: 05733632 Company Statement of Changes in Equity for the Share capital £’000 Share premium £’000 Own shares £’000 Share- based incentive reserve £’000 Retained earnings £’000 Total equity £’000 At 1 January 2017 8,412 42,431 (556) 249 30,083 80,619 year ended Profit for the year 31 December New shares issued 2018 Share option charge Growth share charge Own shares purchased Shares awarded and sold from own shares Dividend paid At 31 December 2017 Profit for the year Share option charge Growth share charge Shares awarded and sold from own shares Dividend paid - 24 - - - - - - 75 - - - - - - - - - (96) 50 - - - 19 16 - - - 3,160 3,160 - - - - 21 99 19 16 (96) 71 (1,284) (1,284) 8,436 42,506 (602) 284 31,980 82,604 - - - - - - - - - - - - - 303 - - 69 20 - - 9,835 9,835 - - 35 69 20 338 (1,546) (1,546) At 31 December 2018 8,436 42,506 (299) 373 40,304 91,320 88 - Company Financial Statements & Notes - continued 32. Principal Notes to the Company Financial Statements Accounting Policies The principal accounting policies are summarised below. They have all been applied consistently throughout the year and to the preceding year. General information and basis of accounting The Mission Marketing Group plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is given on page 102. The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 30 to 34. The financial statements have been prepared under the historical cost convention, modified to include certain items at fair value, and in accordance with Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council. Reduced disclosure exemptions The Mission Marketing Group plc meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions available to it in respect of its financial statements. Exemptions have been taken in relation to the presentation of a cash flow statement, financial instruments, share-based payment, share capital and remuneration of key management personnel. Going concern The Company’s available banking facilities provide comfortable levels of headroom against the Company’s projected cash flows and the Directors accordingly consider that it is appropriate to continue to adopt the going concern basis in preparing these financial statements. Deferred taxation Deferred taxation is recognised on all timing differences where the transactions or event that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recoverable. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date. Financial instruments Financial assets and financial liabilities are recognised when the Company becomes party to the contractual provisions of the instrument. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Financial assets and liabilities All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as fair value through profit and loss, which are initially measured at fair value. Financial assets and liabilities are only offset in the statement of financial position when, and only when, there exists a legally enforceable right to set off the recognised amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Debt instruments which meet the conditions to be classified as basic instruments are subsequently measured at amortised cost using the effective interest method. Basic debt instruments that are classified as payable or receivable within one year are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment. Financial liabilities are released to the profit and loss account when the liability is extinguished. 32. Principal Accounting Policies Continued... Contingent consideration payments The terms of an acquisition may provide that the value of the purchase consideration, which may be payable in cash or shares at a future date, depends on uncertain future events such as the future performance of the acquired company. The amounts recognised in the financial statements represent a reasonable estimate at the balance sheet date of the amounts expected to be paid and has been classified in the balance sheet in accordance with the substance of the transaction. Where the agreement gives rise to an obligation that may be settled by the delivery of a variable number of shares to meet a defined monetary liability, these amounts are disclosed as debt. Investments In the Company’s financial statements, investments in subsidiary and associate undertakings are stated at cost less provision for any impairment in value. Accounting estimates and judgements The Company makes estimates and judgements concerning the future and the resulting estimates may, by definition, vary from the actual results. The Directors considered the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgement are, in order of significance: Potential impairment of investments 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 growth thereafter. Contingent payments in respect of acquisitions Contingent consideration, by definition, depends on uncertain 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 of financial performance. Lease commitments Rental costs under operating leases are charged against profits as incurred. Profit of parent company As permitted under Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these accounts. 90 - Company Financial Statements & Notes - continued 33. Intangible Assets Other intangible assets Cost At 1 January 2017 At 31 December 2017 Additions At 31 December 2018 Amortisation and impairment At 1 January 2017 Charge for the year At 31 December 2017 Charge for the year At 31 December 2018 Net book value at 31 December 2018 Net book value at 31 December 2017 Software development and licences £’000 Customer relationships £’000 Total £’000 - - 43 43 - - - 1 1 42 - 61 61 - 61 42 6 48 6 54 7 13 61 61 43 104 42 6 48 7 55 49 13 Additions of £43,000 (2017: nil) in the year include costs associated with the development of identifiable software products that are expected to generate economic benefits in excess of the costs of development. 34. Investments Shares in subsidiary undertakings £’000 Cost At 1 January 2017 Additions Adjustment to purchase consideration At 31 December 2017 Additions At 31 December 2018 Impairment At 1 January 2017 Impairment At 31 December 2017 Impairment At 31 December 2018 Net book amount at 31 December 2018 Net book amount at 31 December 2017 105,437 24 92 105,553 9,474 115,027 (8,443) - (8,443) - (8,443) 106,584 97,110 In 2018, Krow Communications Ltd was acquired. See note 21.2 for more detail. A list of the principal trading companies in the Group at 31 December 2018 can be found in Note 13 to the Consolidated Financial Statements and a complete list can be found in Note 43. 35. Debtors Amounts due from subsidiary undertakings Corporation tax Prepayments Other debtors 31 December 2018 £’000 31 December 2017 £’000 4,305 360 928 145 5,738 3,695 495 304 15 4,509 92 - Company Financial Statements & Notes - continued 36. Creditors: Amounts Falling Due Within One Year 37. Creditors: Amounts Falling Due After More Than One Year 38. Borrowings Trade creditors Bank overdraft Amounts due to subsidiary undertakings Accruals Acquisition obligations Bank loan (see Note 38) Other creditors Bank loan (see Note 38) Acquisition obligations Bank loan outstanding Adjustment to amortised cost Carrying value of loan outstanding The borrowings are repayable as follows: Less than one year In one to two years In more than two years but less than three years Adjustment to amortised cost Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months 31 December 2018 £’000 31 December 2017 £’000 290 2,192 1,606 546 1,024 - 229 5,887 - 329 5,358 192 - 2,500 70 8,449 31 December 2018 £’000 31 December 2017 £’000 9,886 5,343 15,229 10,579 - 10,579 31 December 2018 £’000 31 December 2017 £’000 10,000 (114) 9,886 - - 10,000 10,000 (114) 9,886 - 9,886 13,125 (46) 13,079 2,500 10,625 - 13,125 (46) 13,079 (2,500) 10,579 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. As at 31 December 2018, net assets of the Group were £88,214,000 (2017: £80,154,000) and net borrowings under this Group arrangement amounted to £3,987,000 (2017: £7,219,000). 39. Share Capital and Own Shares 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 no Ordinary shares of 10p each (2017: 237,117) and at 31 December 2018, the number of shares in issue was 84,357,351 (2017: 84,357,351). 40. Unrealised Reserves 41. Operating Lease Commitments Included in reserves at 31 December is unrealised profit, which is non-distributable, of £3,165,000 (2017: £3,165,000). The total minimum lease payments under non-cancellable operating leases are as follows: Within one year Between two and five years 31 December 2018 31 December 2017 Land and buildings £’000 210 175 385 Other £’000 24 24 48 Land and buildings £’000 210 385 595 Other £’000 - - - 42. Related Party Details of related party transactions are disclosed in Note 30 of the Consolidated Financial Statements. Transactions 94 - Company Financial Statements & Notes - continued 43. Group Companies Below is a list of all companies in the Group. All subsidiaries are 100% owned and all are incorporated in the United Kingdom, unless otherwise indicated. In addition, the Company holds a 25% investment in Watchable Ltd, treated as an associated company, a 60% interest in European Exhibit Services 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. Unless otherwise stated, the registered office of all companies is 36 Percy Street, London, W1T 2DH. Subsidiary undertaking Country of Incorporation Registered office Held directly: The Mission Marketing Holdings Ltd Held indirectly: April Six Inc. April Six Ltd April Six Proof Ltd ** April Six Pte. Ltd Balloon Dog Ltd Big Communications Ltd Big Dog Agency Ltd Bray Leino Ltd USA 847 Sansome Street, Suite 100, San Francisco, CA 94111, United States of America Singapore 40A Tras Street, Singapore 078979 Bray Leino Productions Ltd ** Bray Leino Sdn. Bhd. * Malaysia Bray Leino Singapore Pte. Ltd Singapore Chapter Agency Ltd 100.6.047, 129 Offices, Block J, Jaya One. No. 72A, Jalan Universiti 46200 Petaling Jaya, Selangor Darul Ehsan, Malaysia #73 Ubi Road 1, #07-49/50 Oxley Bizhub, Singapore 408733 Destination CMS Ltd (50% owned) 45 Queen Street, Exeter, Devon EX4 3SR Fox Murphy Ltd Fuse Digital Ltd Gingernut Creative Ltd Jellyfish Ltd Krow Communications Ltd Mongoose Promotions Ltd (75% owned) ** Mongoose Sports & Entertainment Ltd ** Quorum Advertising Ltd RJW & Partners Ltd ** 43. Group companies Continued... Subsidiary undertaking Country of Incorporation Registered office RLA Group Ltd ** Robson Brown Ltd Solaris Healthcare Network Ltd ** Speed Communications Agency Ltd ** Splash Interactive Company Ltd * Vietnam Splash Interactive Ltd * China Splash Interactive Ltd * Hong Kong Splash Interactive Pte. Ltd Singapore Splash Interactive Sdn. Bhd. * Malaysia Story UK Ltd ** The Mission Ltd (formerly Friars 573 Ltd) The Splash Partnership Ltd The Weather Digital and Print Communications Ltd ThinkBDW Ltd 205 - 12 Mac Dinh Chi Street (Cityview Tower), District 1 Ho Chi Minh City, Vietnam Room 1801, Hong Kong Metropolis Building, No.489, Henan Road South, Huangpu District, Shanghai, China Unit 1101, 11/F, Tower 1, Cheung Sha Wan Plaza, 833 Cheung Sha Wan Road, Lai Chi Kok, Kowloon, Hong Kong #73 Ubi Road 1, #07-49/50 Oxley Bizhub, Singapore 408733 100.6.047, 129 Offices, Block J, Jaya One. No. 72A, Jalan Universiti 46200 Petaling Jaya, Selangor Darul Ehsan, Malaysia 1-4 Atholl Crescent, Edinburgh, Scotland EH3 8HA 1-4 Atholl Crescent, Edinburgh, Scotland EH3 8HA * These subsidiaries are 100% owned by Splash Interactive Pte. Ltd, which is 70% owned by The Mission Marketing Group plc. ** These subsidiaries are exempt from the Companies Act 2006 requirements relating to the audit of their individual accounts by virtue of Section 479A of the Act as The Mission Marketing Group plc has guaranteed the subsidiary company under Section 479C of the Act. 96 - Notice of Annual General Meeting Notice of Annual General Meeting NOTICE is hereby given that the Annual General Meeting of The Mission Marketing Group plc (the “Company”) will be held at 12 noon on Monday 17 June 2019 at the offices of its award-winning creative Agency, krow Communications, 80 Goswell Road, London, EC1V 7DB to transact the following business: The following resolutions will be proposed Auditors as ordinary resolutions: Report and Accounts 1. To receive the financial statements and the reports of the Directors and the auditors for the year ended 11. To re-appoint PKF Francis Clark as auditors of the Company. 12. To authorise the Directors to fix the remuneration of PKF Francis Clark. Authority to allot shares 31 December 2018. 13. THAT the Directors be and are hereby Dividend 2. To approve a final dividend of 1.4 pence per share for the year ended 31 December 2018 to shareholders on the register at the close of business on 12 July 2019, payable on 22 July 2019. Directors 3. To elect Andy Nash as a Director. 4. To re-elect Dylan Bogg as a Director. 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 into, shares in the Company up to an aggregate nominal value of £2,811,911 being one third of the issued share capital of the Company, provided that this authority shall expire at the conclusion of the next 5. To re-elect James Clifton as a Director. Annual General Meeting of the Company 6. To re-elect Robert Day as a Director. 7. To re-elect Giles Lee as a Director. 8. To re-elect David Morgan as a Director. 9. To re-elect Sue Mullen as a Director. 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 10. To re-elect Fiona Shepherd as a Director. 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 Authority to dis-apply pre-emption rights 14. THAT (subject to the passing of the resolution numbered 13 above) the Directors be and are hereby empowered pursuant to Section 570, Section 571 and Section 573 of the Act to allot equity securities (as defined in Section 560 of the Act) for cash pursuant to the authority conferred by resolution 13 above as if Section 561 of the Act did not apply to any such allotment, provided that this power shall be limited to: subscribe for, or to convert any security as special resolutions: i. the allotment of equity securities Authority to purchase own shares By Order of the Board, 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 £843,573.51 being 10% of the issued share capital of the Company. This power shall expire upon the expiry of the general authority conferred by resolution 13 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 15. THAT pursuant to section 701 of the Act and subject to, and in accordance with the Company’s Articles of Association, the Company be generally and unconditionally authorised to make market purchases (within the meaning of Section 693(4) of the Act) of ordinary shares of the Company provided that: i. the maximum number of ordinary shares hereby authorised to be acquired is 12,653,602 being 15% of the issued share capital; and ii. the minimum price which may be paid for an ordinary share is the nominal value of such share; and Peter Fitzwilliam, 9 April 2019 Note to the Notice of Annual General Meeting A 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. iii. the maximum price which may be paid If you sign and return the proxy form with for an ordinary share is an amount equal no name inserted in the box, the chairman to 105% of the average of the middle of the meeting will be deemed to be your proxy. market quotations for an ordinary share Where you appoint as your proxy someone in the Company as derived from The other than the chairman, you are responsible London Stock Exchange Daily Official for ensuring that they attend the meeting List for the 5 business days immediately and are aware of your voting intentions. If you preceding the day on which such ordinary wish your proxy to make any commitments share is contracted to be purchased; and on your behalf, you will need to appoint iv. the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company held in 2020 or 18 months from the date of this resolution (whichever is earlier); and v. the Company may make any purchase of its ordinary shares pursuant to a contract concluded before the authority hereby conferred expires and which will or may be executed wholly or partly after the expiry of such authority; and someone other than 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, Steelpark Road, Halesowen, West Midlands B62 8HD. The closing time for lodging proxies is 12 noon on Thursday 13 June 2019. 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 Thursday 13 June have the right to attend and vote at the meeting. to any such offer or agreement as if the vi. all ordinary shares purchased pursuant to power conferred hereby had not expired and the authority conferred by this resolution all unexercised authorities previously granted 15 shall be cancelled immediately on to the Directors to allot equity securities be completion of the purchase or held in and are hereby revoked provided that treasury (provided that the aggregate the resolution shall not affect the right of nominal value of shares held as treasury the Directors to allot equity securities in shares shall not at any time exceed 10 pursuance of any offer or agreement entered per cent of the issued share capital of the into prior to the date of this resolution. Company at any time). Being different works. In fact, it’s given us eight straight years of growth. So we intend to keep building our business by changing things up, looking for new ideas and doing what nobody’s done before. More inspiration, more innovation, more collaboration… …but never, ever more of the same. We’re always looking for the extraordinary. Fresh ideas that deliver fantastic results. 102 - Advisors Advisors Company Registration Nominated Advisor and Broker: Company Secretary: Number: 05733632 Registered Office: 36 Percy Street London W1T 2DH Shore Capital Stockbrokers Limited Peter Fitzwilliam 14 Clifford Street The Mission Marketing Group plc 36 Percy Street London W1T 2DH Bankers: NatWest Bank 250 Bishopsgate London EC2M 4AA London W15 4JU Auditors: PKF Francis Clark Statutory Auditor Centenary House Peninsula Park Rydon Lane Exeter EX2 7XE Registrars: Neville Registrars Neville House Steelpark Road Halesowen B62 8HD themission marketing group plc 36 Percy Street, London W1T 2DH +44 (0)207 462 1415 www.themission.co.uk