Mission Marketing : Final Results

Results for the year ended 31 December 2017

10 April 2018

The Mission Marketing Group plc ('themission' or 'the Company', AIM: TMMG), the technology-embraced marketing communications and advertising group, is pleased to announce its audited results for the year ended 31 December 2017.

Summary

· Revenue up 6% to £70.0m (2016: £65.9m):

o c20% from Clients of 20+ years standing

o c60% from Clients of 5+ years standing

· Headline trading profit (operating profit before central costs) up 8% to £10.0m (2016: £9.3m)

· Headline operating profit up 9% to £8.2m (2016: £7.6m)

· Headline profit before tax up 10% to £7.7m (2016: £7.0m)

· Headline diluted EPS up by 11% to 7.12 pence (2016: 6.41 pence)

· Strong cash management in period:

o Free cash flow up 70% to £9.1m (2016: £5.3m)

o Bank debt reduced by £4.1m; total debt (including contingent acquisition liabilities) reduced by £1.5m

o Bank debt leverage ratio reduced to x0.8 (2016: x1.3)

· Full year dividend up by 13% to 1.7p (2016: 1.5p)

· 2018 started well and is expected to be a year of strong growth

David Morgan, Chairman, commented: '2017 was another year of strong progress, with all financial KPIs again met. In addition, we expanded our capabilities through the acquisition of RJW, launched our fuse technology offering and started the process of centralising a number of back-office functions.

Trading in the first quarter of 2018 was ahead of last year and current indications are that prospects for organic growth are good despite the backdrop of economic uncertainty. Added to that, we will benefit from the contribution of newly-acquired Krow Communications, announced today, and we also expect to see an improvement in margins as our various initiatives kick in. All in all, we expect 2018 to be a year of strong growth.'

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

www.themission.co.uk

Chairman's Statement

Whichever way we look at it 2017 was a very decent year for themission. Most of our Agencies performed exceptionally, we reduced our debt significantly, made a strategic acquisition and maintained our progressive dividend policy all against a market backdrop of uncertainty and challenge.

So well done from me to everyone who makes themission special.

In April we acquired RJW, the Pricing and Market Access consultancy, to bolster our commitment to Healthcare and expand our offering as they partner with our communications Agency, Solaris Health. The four Directors who manage RJW are true experts in their field and very highly regarded by the industry. We are already seeing positive signs that this was a very good decision.

Other than continuing to build our network of Agencies, our focus in 2017 has been to establish our FUSE innovative technology group and to develop two internal initiatives that will drive our future and help us achieve our stated margin objective and efficiencies across the Group.

Our SHARED SERVICES project is about bringing together back office functions and other mutually required services into a more cost-effective, centralised pool from which all of our businesses will benefit. Our CONCINNITY project is a more formal grouping of our three operating areas of Integrated Generalists, Sector Specialists and Activity Specialists into working teams to identify new opportunities and pool resources in a way that adds value to our Clients and ensures our competitivity. This further strengthens our culture of shared purpose, collaboration and Client Service which saw us add over £5m of new revenue in 2017, including a major three year global win for our Events Business from the DIT. Other leading Companies such as Ribena, Lenovo, NEFF, The Royal Mint, TNT and Mars joined our Group last year.

The Marketing World is ever changing and complexity has the potential to confuse and misdirect where the focus needs to be. It is our job not to be gongoozelers and idly stand by but to embrace new technologies, navigate our Clients through the plethora of options out there and help them build clearly-focussed campaigns that build their businesses.

So as we set sail into 2018 there is real optimism within the Group built on the successes of the past.

If I look back on our journey to date since restructure we have almost doubled our revenues and trebled our profits, reduced our bank debt by nearly two thirds, introduced and maintained a progressive dividend policy, increased our global footprint, embraced technology and introduced a host of innovative services. And above all, developed a group of highly talented industry professionals who get things done with a minimum of bafflegab.

All of which I believe has created a platform from which 2018 will be another positive year and our long-term growth will be inevitable.

DavidMorgan

Chairman

Financial Review

Summary

2017 was another year of strong progress, with all key performance indicators again met: revenue grew by 6%, headline profit before tax increased by 10%, operating margins improved and debt leverage ratios fell sharply. Of particular note was the Group's strong free cash flow of £9.1m, up from £5.3m last year. In addition, we expanded our capabilities through the acquisition of RJW, launched our fuse technology offering and started the process of centralising a number of back-office functions.

2017 was the seventh consecutive year of revenue and profit growth, a trend we expect to continue in 2018.

Key Performance Indicators

The Group manages its internal operational performance and capital management by monitoring various key performance indicators ('KPIs''). The KPIs are tailored to the level at which they are used and their purpose. The Board has reviewed and reconfirmed its financial KPIs, which are quantified and commented on below, as follows:

· 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 to 14% by 2020;

· headline profit before tax, which the Group aims to increase by 10% year-on-year; and

· indebtedness, where the Group intends to maintain the ratio of net bank debt to EBITDA* below x2.0 and the ratio of total debt (including both bank debt and deferred acquisition consideration) to EBITDA below x2.5.

*EBITDA is headline operating profit before depreciation and amortisation charges.

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.

Headline Trading Performance

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 exceptional items, acquisition adjustments and losses from start-up activities (as set out in Note 3).

Billings and revenue

Turnover (billings) was 2% higher than the previous year, at £146.9m (2016: £144.1m) 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 6% overall to £70.0m (2016: £65.9m), continuing our track record of consistent revenue growth. Our new business performance and Client retention record were again very strong, with annualised net new business wins again amounting to over £5m and almost 20% of our revenue again being generated from Clients that have been with us for 20 years or more. As we have mentioned before, the Board believes this Client retention statistic is second to none in the marketing services sector.

Within our primary activity of Advertising & Digital Marketing, revenue growth was 8%, representing like-for-like growth of 5.4% and a first contribution from RJW. As predicted at the time of our interim results, Exhibitions and Media Buying both experienced a stronger weighting towards the second half of the year due to the phasing of Client campaigns. Media was down year-on-year due to the market trend away from traditional broad-based media expenditure in favour of more targeted activities.

Profit and margins

Trading profits (i.e. segmental headline operating profit before central costs, as set out in Note 2) reached a landmark £10m for the first time, an increase of 8% on last year, and headline operating profit (after central costs) improved by 9% to £8.2m (2016: £7.6m).

Clients' spending patterns were again similar to those of previous years, with the second half of the year particularly busy, resulting in over 60% of our operating profit again being generated in this period. Our profit margin for the year (headline operating profit as a percentage of revenue) increased to 11.7% (2016: 11.5%) continuing the increase seen in recent years.

We expect margins to improve further in 2018 as a number of our margin-improvement initiatives aimed at increasing margins to 14% by 2020 start to take effect.

After unchanged financing costs of £0.5m, headline profit before tax increased by 10% to £7.7m (2016: £7.0m).

Taxation

The Group's effective headline tax rate reduced to 20.0% (2016: 21.0%), reflecting the reduction in the statutory rate to 19.25% (2016: 20.0%). Consistent with previous years, the Group's effective tax rate was above the statutory rate, mainly as a result of non-deductible entertaining expenditure.

Earnings Per Share

On a headline basis, EPS increased by 11% to 7.34 pence (2016: 6.63 pence) and, on a fully diluted basis, to 7.12 pence (2016: 6.41 pence).

Headline Items and Reported Profit

Adjustments to reported profits, detailed further in Note 3, totalled £1.9m (2016: £1.2m), comprising acquisition-related items of £0.8m (2016: £0.7m) and losses from start-up activities totalling £0.4m, reduced from £0.5m in 2016. In addition, restructuring costs totaling £0.6m (2016: nil) were incurred as we streamlined a number of activities. After these adjustments, reported profit before tax was marginally lower at £5.8m (2016: £5.9m).

The Group's effective reported tax rate in 2017 was 22.9% (2016: 23.3%). The effective tax rate is expected to be consistently higher than the statutory rate since the amortisation of acquisition-related intangibles is not deductible for tax purposes. After tax, reported profit for the year was unchanged at £4.5m and EPS was 1% lower at 5.31 pence (2016: 5.36 pence). On a fully diluted basis, EPS was also 1% lower at 5.15 pence (2016: 5.19 pence).

Dividends

The Board adopts a progressive dividend policy, aiming to grow dividends each year at least in line with earnings but always balancing the desire to reward shareholders via dividends with the need to fund the Group's growth ambitions and maintain a strong balance sheet. The Board recommends a final dividend of 1.15 pence per share, bringing the total for the year to 1.7 pence per share, representing an increase of 13% over 2016. The final dividend will be payable on 23 July 2018 to shareholders on the register at 13 July 2018. The corresponding ex-dividend date is 12 July 2018. 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.

Balance Sheet

In common with other marketing communications groups, the main features of our balance sheet are the goodwill and other intangible assets resulting from acquisitions made over the years, and the debt taken on in connection with those acquisitions.

The level of intangible assets relating to acquisitions increased by £4.9m during the year as a result of the acquisition of RJW & Partners in April. In contrast, the level of total debt (combined bank debt and acquisition obligations) reduced by £1.5m over the course of 2017.

The Board undertakes an annual assessment of the value of all goodwill and at 31 December 2017 again concluded that no impairment in the carrying value was required.

The Group's acquisition obligations at the end of 2017 were £7.2m (2016: £4.7m). Virtually all of this is dependent on post-acquisition earn-out profits, some to the end of 2020. £1.8m is expected to fall due for payment in cash within 12 months and a further £2.6m in cash in the subsequent 12 months. The Directors believe that the strength of the Group's cash generation can comfortably accommodate these obligations alongside the Group's commitments to capital expenditure and dividend payments.

Cash Flow

The Group's cash flow was exceptionally strong in 2017, with headline profit after tax of £6.2m (2016: £5.6m) converting into £9.1m (2016: £5.3m) of 'free cash flow' (defined as net cash inflow from operating activities less tangible capital expenditure) as a result of very favourable working capital movements at the end of the year.

This free cash flow was used to expand the business, develop new initiatives, make acquisitions, pay dividends and reduce bank debt as follows:

· new acquisitions, amounting to £1.3m (2016: £0.4m);

· settlement of contingent consideration obligations relating to the profits generated by previous acquisitions, totaling £1.7m (2016: £3.2m);

· investment in a number of other areas in support of the Group's expansion, notably £0.8m (2016: £1.2m) invested in start-ups and software development;

· dividends of £1.3m (2016: £1.3m); and

· bank debt reduction of £4.1m (2016: increase of £0.3m)

At the end of the year, the Group's net bank debt stood at £7.2m (2016: £11.3m). The strong reduction in debt resulted in the leverage ratio of net bank debt to headline EBITDA reducing sharply, to x0.8 at 31 December 2017 (2016: x1.3), triggering a reduction in the Group's borrowing costs of 0.5%. The Group's ratio of total debt, including remaining acquisition obligations, to EBITDA at 31 December 2017 (calculated by reference to the amount of consideration which would be payable if the acquired business were to maintain its current level of profitability) reduced to x1.4 (2016: x1.7), further increasing the headroom available against the Board's limit of x2.5.

Outlook

Trading in the first quarter of 2018 was ahead of last year and current indications are that prospects for organic growth are good despite the backdrop of economic uncertainty. Added to that, we will benefit from the contribution of newly-acquired Krow Communications, announced today, and we also expect to see an improvement in margins as our various initiatives kick in. All in all, we expect 2018 to be a year of strong growth.

Peter Fitzwilliam

Finance Director

Consolidated Income Statement

For the year ended 31 December 2017

The earnings per share figures derive from continuing and total operations.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

Consolidated Balance Sheet

As at 31 December 2017

Consolidated Cash Flow Statement

for the year ended 31 December 2017

Consolidated Statement of Changes in Equity for the year ended 31 December 2017

Notes to the Consolidated Financial Statements

1. Principal Accounting Policies

Basis of preparation

The results for the year to 31 December 2017 have been extracted from the audited consolidated financial statements, which are expected to be published by 24 April 2018.

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2017 or 2016 but is derived from those accounts. Statutory accounts for the year ended 31 December 2016 were delivered to the Registrar of Companies following the Annual General Meeting on 19 June 2017 and the statutory accounts for 2017 are expected to be published on the Group's website (www.themission.co.uk) shortly, posted to shareholders at least 21 days ahead of the Annual General Meeting ('AGM') on 18 June 2018 and, after approval at the AGM, delivered to the Registrar of Companies.

The auditors, PKF Francis Clark, have reported on the accounts for the years ended 31 December 2017 and 31 December 2016; their reports in both years were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 in respect of those accounts.

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union and the Companies Act 2006.

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

The Group's operating subsidiaries carry out a range of different activities. The following policies apply consistently across subsidiaries and business segments.

Turnover represents fees, commissions, rechargeable expenses and sales of materials performed subject to specific contracts. Income is recognised on the following basis:

· Retainer fees are apportioned over the time period to which they relate

· Project income is recognised by apportioning the fees billed or billable to the time period for which those fees were earned in relation to the percentage of completeness of the project to which they relate, normally by reference to timesheets

· Media commission is recognised when the advertising has been satisfactorily aired or placed

· Unbilled costs relating to contracts for services are included at rechargeable value in accrued income.

Where recorded turnover exceeds amounts invoiced to Clients, the excess is classified as accrued income (within Trade and other receivables). Where amounts invoiced to Clients exceed recorded turnover, the excess is classified as deferred income (within Accruals).

Goodwill and other intangible assets

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 (ie 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 11.

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.

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 by reference to timesheets in relation to the total estimated time to complete them.

Valuation of intangible assets on acquisitions

Determining the separate components of intangible assets acquired on acquisitions is a matter of judgement exercised by the Directors. Brand names, customer relationships and intellectual 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 customer 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.

2. Segmental Information

Business segmentation

For management purposes the Group had fourteen 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 but, since different activities have different profit margin characteristics, the Group's trading has been reported below under four business and operating segments to provide additional benefit to readers of these financial statements.

Assets and liabilities are not split between segments.

Geographical segmentation

With the expansion of the Group's activities, in particular recently launched operations by April Six in Singapore and the US, the proportion of operating income (revenue) attributed to territories outside the UK has for the first time exceeded 10% of total Group revenue. The following table provides an analysis of the Group's revenue by region of activity:

3. Reconciliation of Headline Profit to Reported Profit

The Board believes that headline profits, which eliminate certain amounts from the reported figures, provide a better understanding of the underlying trading of the Group. The adjustments to reported profits fall into three categories: exceptional items, acquisition-related items and start-up costs.

Start-up costs derive from organically started businesses and comprise the trading losses of such entities until the earlier of two years from commencement or when they show evidence of becoming sustainably profitable. Start-up costs in 2017 primarily relate to the launch of fuse during the year, and recent venture Mongoose Promotions. Start-up costs in 2016 related to the launch of new ventures Mongoose Sports & Entertainment and Mongoose Promotions and April Six's new operations in Singapore and the US.

4. Exceptional Items

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 former Director Chris Goodwin 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.

5. Acquisition Adjustments

The movement in fair value of contingent consideration relates to a net 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.

6. Net Finance Costs

7. Profit before Taxation

Profit on ordinary activities before taxationis stated after charging / (crediting):

8. Taxation

Factors Affecting the Tax Charge for the Current Year:

The tax assessed for the year is higher (2016: higher) than the standard rate of corporation tax in the UK. The differences are:

9. Dividends

A final dividend of 1.15 pence per share is to be paid in July 2018 should it be approved by shareholders at the AGM. In accordance with IFRS this final dividend will be recognised in the 2018 accounts.

10. Earnings Per Share

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

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

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

11. Intangible Assets

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'). For all CGUs, the Directors assessed the sensitivity of the impairment test results to changes in key assumptions (in particular expectations of future growth) 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.

Other intangible assets

**As software development costs became increasingly significant, they were transferred from computer equipment in 2016 and are now reported separately within intangible assets.

Additions of £341,000 (2016: £777,000) 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.

12. Trade and Other Receivables

An allowance has been made for estimated irrecoverable amounts from the provision of services of £193,000 (2016: £234,000). The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

The ageing analysis of trade receivables is as follows:

13. Trade and Other Payables

Trade and other creditors principally comprise amounts outstanding for trade purchases and on-going costs. The Directors consider that the carrying amount of trade payables approximates their fair value.

14.Bank Overdrafts, Loans and Net Debt

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.

At 31 December 2017, the Group had a term loan facility of £3.1m due for repayment by February 2019 on a quarterly basis, and a revolving credit facility of up to £12.0m, expiring on 30 April 2019. Interest on both the term loan and revolving credit facilities is based on 3 month 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.

In addition to its committed facilities, the Group had available an overdraft facility of up to £3.0m with interest payable by reference to National Westminster Bank plc Base Rate plus 2.5%.

At 31 December 2017, there was a cross guarantee structure in place with the Group's bankers by means of a fixed and floating charge over all of the assets of the Group companies in favour of Royal Bank of Scotland plc.

All borrowings are in sterling.

15. Acquisitions

15.1 Acquisition Obligations

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

15.2 Acquisition of RJW & Partners Ltd

On 26 April 2017, the Group acquired the entire issued share capital of RJW & Partners Ltd ('RJW'), a pricing and market access consultancy operating in the healthcare sector. The fair value of the consideration given for the acquisition was £6,136,000, comprising initial cash and share consideration and deferred contingent cash and share consideration. Costs relating to the acquisition amounted to £100,000 and were expensed.

Maximum contingent consideration of £4,273,000 is dependent on RJW achieving a profit target over the period 1 January 2017 to 31 December 2020. The Group has provided for contingent consideration of £4,138,000 to date.

The fair value of the net identifiable assets acquired was £706,000 resulting in goodwill and other intangible assets of £5,430,000. 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 RJW.

RJW & Partners Ltd contributed turnover of £1,598,000, operating income of £1,544,000 and headline operating profit of £441,000 to the results of the Group in 2017.

15.3 Other acquisitions

A total of £50,000 was invested in other acquisitions during the year.

15.4 Pro-forma results including acquisitions

The Directors estimate that the turnover, operating income and headline operating profit of the Group would have been approximately £147.7m, £70.8m and £8.6m had the Group consolidated the results of the acquisitions made during the year, from the beginning of the year.

16. Share Capital

Share-based incentives

The Group has the following share-based incentives in issue:

The TMMG Long Term Incentive Plan was created to incentivise senior employees across the Group. Nil-cost options are awarded at the discretion of the Remuneration Committee of the Board and vest three years later only if the profit performance of the Group in the intervening period is sufficient to meet predetermined criteria (always subject to Remuneration Committee discretion). During the year, no options were exercised and at the end of the year none of the outstanding options are exercisable.

Shares held in an Employee Benefit Trust 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 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.

17. Own Shares

Shares are held in an Employee Benefit Trust to meet certain requirements of the Long Term Incentive Plan.

18. Post Balance Sheet Events

On 10 April 2018 the Group acquired the whole issued share capital of London-based Krow Communications Ltd ('Krow'), an award-winning creative Agency. The acquisition of Krow provides the Group with an important and high-profile presence in London. Consideration payable is up to £14.5m of which £2.75m is payable upfront in cash. The Initial Consideration will be adjusted based on Krow's 2018 financial performance, with a further payment to be made in 2019, of which up to £0.5m will be payable in new ordinary shares. Combined, the Initial Consideration payments will represent a 3x multiple of Krow's 2018 adjusted EBIT. Contingent consideration is dependent on Krow achieving profit targets over the three year period ending 31 December 2020. The net assets acquired are estimated to be approximately £0.3m and the main intangible assets acquired are customer relationships, trade names and goodwill. Given the proximity of the acquisition date to the approval date of the financial statements, a detailed analysis of the fair value of the major classes of assets and liabilities acquired is not yet available.