26 September 2023

THE MISSION GROUP plc

("MISSION", "the Group") 

INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2023

Resilient revenue growth despite challenging trading environment

MISSION Group plc (AIM: TMG), creator of Work That Counts^TM, comprising a group of digital marketing and communications Agencies delivering real, sustainable growth for its Clients, is pleased to announce interim results for the six months ended 30 June 2023 ("the period" or "H1").

FINANCIAL HIGHLIGHTS

*Headline results are calculated before start-up costs, acquisition adjustments, goodwill and business impairment and restructuring costs.

BUSINESS HIGHLIGHTS

OUTLOOK

Commenting on the results, Julian Hanson-Smith, Chair of The MISSION Group plc, said:

"MISSION continues to report robust organic revenue growth from existing Clients across all areas, despite the well-documented industry headwinds. The recent announcement of a major new Client win, UK Post Office, reflects the growing success of MISSION's integrated offering, and the benefits of the recent investments we have made to expand our capabilities and services.

We continue to be mindful of wider macro-economic uncertainty impacting Client spend, but still anticipate full year revenue growth across all the Group's primary business sectors. Encouragingly, run rates from the US technology sector are starting to return to 2022 levels. We remain confident that the Group's strategy of deliberate investment in our people and capabilities will underpin a good full year performance. The effects of higher operating and interest costs are likely to have an impact on profit growth for the current year which, as previously reported, we expect to be at the lower end of the Board's original expectations but still ahead of last year's level.

ENQUIRIES:  

NOTES TO EDITORS

MISSION is a collective of Creative and MarTech Agencies led by entrepreneurs who encourage an independent spirit. Employing over 1,000 people across 29 locations and 3 continents, the Group successfully combines its diverse expertise to produce Work That Counts TM for our Clients, whatever their ambitions. Creating real standout, sharing real innovation and delivering real growth for some of the world's biggest brands. www.themission.co.uk

OVERVIEW

The sustained global macroeconomic and geo-political uncertainty coupled with rising inflation and the cost-of-living crisis continued to impact trading conditions across the Group's  industry sectors and beyond. Against this backdrop MISSION is encouraged to report overall revenue growth of 11 percent to £41.8m (2022: £37.5m) for the period.

Headline operating profit of £2.0m (2022: £2.2m), primarily reflected the changes to margin mix relative to H1 2022, largely as a result of lower spend in the US Technology sector in recent months. A reduced headline reported profit before tax of £1.0m compared to 2022 (2022: £1.9m) is the result of the higher interest charges resulting from significantly increased interest rates as well as higher debt when compared to last year.

The strategic changes implemented across the business in recent years have placed us in good stead to manage the current industry headwinds. We have seen good underlying trading from our Agencies, reflecting our increasing exposure to more robust sectors and geographies. This is further underpinned by the benefits of the investments we have made in high-potential areas of our markets to expand our capabilities and services.

Careful control of costs across the business has remained a priority. Talent costs are one of the key variables for the Group and whilst wage inflation has clearly been a challenge for the whole industry, we were quick to recognise the potential impact this would have and have continued to manage this well, investing ahead to improve our people proposition in a competitive market.

Net debt has increased in the last six months, to £14.9m (2022 £7.1m, 31 December 2022: £11.4m). This increase has been driven in particular by increased working capital and specifically changes in Client prepayment behaviour, again closely related to the general tightening within the US Tech sector.

Performance and progress

The Group has reported good, organic growth of 6%, guided by strong performances in our Property, Health & Wellness and Sports & Entertainment segments and, whilst the wider new business landscape remains challenging, opportunities have continued to present themselves. A number of significant Client wins have been secured throughout the period including UK Space Agency, Macmillan Coffee Morning, M1 Telecom, Goldman Sachs, Jägermeister and Worldpay.

Furthermore, in August we were delighted to announce a major MISSION Group win with

UK Post Office who will be working with four of our Agencies as part of a new Group mandate.  This win was following a competitive process and highlights the strength of our integrated offering. 

The Group has not been immune from the previously highlighted challenges in the US technology sector and revenues from our Technology & Mobility segment have reduced by 5% for the first half year on year, with margins also being significantly impacted in the period. Nevertheless, there are encouraging signs that the run-rate in this segment is returning to late-2022 levels, buoyed by new business successes such as Lumens.

In line with its stated strategy for growth, the Group continues to expand its capabilities in new areas of opportunity. In H1, this included the acquisition of Mezzo Labs, a global data science and digital analytics consultancy, and the launch of Turbine, an integrated Growth Media agency specialising in earned, owned and paid media for consumer brands. These, alongside a solid start for our recent Influence Sports & Media and Populate Social acquisitions contribute new revenue streams to the Group. Since the period end we have been pleased to announce the further expansion of Influence Sports, since MISSION acquired the business in December 2022 with the opening of its first office in the US in New York.

FINANCIAL PERFORMANCE

Billings and Revenue

Turnover ("billings") for the six months ended 30 June 2023 increased by 14% to £92.9m (2022: £81.2m) while operating income ("revenue") increased by 11% to £41.8m (2022: £37.5m).

Profit, Margins and Earnings Per Share

The increased revenues demonstrate good progress, particularly in light of the previously noted reductions in US technology income. Firm, but future-focussed cost control alongside a continued commitment to sharing infrastructure through the MISSION Made and Shared Services initiatives, has enabled the Group to deliver an operating profit that is modestly behind the prior year comparison.

Headline operating profits decreased by 11% to £2.0m (H1 2022: £2.2m). Headline operating margins decreased to 4.7% (H1 2022: 5.9%).

Financing costs increased to £1.0m (H1 2022: £0.4m), reflecting both a higher average level of debt in the period and a significant increase in interest rates payable on the debt. Headline profit before tax decreased as a result of this to £1.0m (H1 2022: £1.9m).

Adjustments to headline profits in the first half of 2023, at £0.9m, were higher than the prior year comparable period (H1 2022: £0.3m). After these adjustments, reported profit before tax was £0.1m (H1 2022: £1.5m).

The Group estimates an effective tax rate on headline profits before tax of 24% (H1 2022: 22%), resulting in a decrease in headline earnings to £0.8m for the six months (H1 2022: £1.5m) and reported profit after tax of £0.0m (H1 2022: £1.2m). Fully diluted EPS decreased to 0.00 pence (H1 2022: 1.37 pence), while headline diluted EPS decreased to 0.81 pence (H1 2022: 1.70 pence).

Balance Sheet and Cash Flow

The key balance sheet ratio measured and monitored by the Board is the ratio of debt to headline EBITDA ("leverage ratio"). The Group started the year in a strong financial position with a net bank debt leverage ratio of x1.2 and closed the half year at x1.7 (30 June 2022: x0.8). The Board also monitors the ratio of total debt, including remaining acquisition obligations, to EBITDA and this ratio has increased to x2.2 (30 June 2022: x1.0, 31 December 2022: x1.6) following the acquisitions made in the last 12 months.

The Group spent £0.3m on acquisitions during the period (2022 £nil) and a total of £0.4m of acquisition obligations from prior years were settled in the first half of the year, all of which were in cash (30 June 2022: £0.8m all of which were cash). After adjustments to estimated future contingent consideration payments the total estimated acquisition liability at 30 June 2023 totalled £5.1m (30 June 2022: £2.5m). Of this £1.0m is due for payment in the second half of 2023.

Trade and other receivables increased against last year to £53.7m (30 June 2022: £51.6m). Trade and other payables remained stable at £52.2m (30 June 2022: £52.0m). The net change to working capital is primarily driven by a significant reduction in Client prepayments resulting in a reduction in deferred income of £6.2m relative to 30 June 2022. This change in behaviour is once again linked to caution in the US Tech sector.

Consequently, the Group's net bank debt on 30 June 2023 of £14.9m has increased against the positions on both 30 June 2022 (£7.1m) and 31 December 2022 (£11.4m). As a result, total debt (being net bank debt plus acquisition obligations) closed at £20.0m (30 June 2022: £9.6m) as the Group completes the investment in strategic areas of focus.

Dividend

As a reflection of this robust performance in the first half of the year, the Directors have declared an interim dividend of 0.87 pence per ordinary share (H1 2022: 0.83 pence), representing a 5% increase on the prior year. This will be payable on 1 December 2023 to all shareholders on the register on 3 November 2023. The ex-dividend date is 2 November 2023.

MAKING POSITIVE CHANGE

Over the course of the period, we are pleased to have made further progress against our Environmental, Social and Governance (ESG) commitments, outlined in our manifesto 'Making Positive Change'. Traction against our social goals, focused on building diverse and healthy teams and supporting the communities we work within, has also been a key priority. This has seen positive movement against our representation goals and impactful community support through pro bono work, donations and volunteering. 

Another important priority has been the clarification of our Environmental journey, which has seen us benchmark and set our emissions reduction targets in line with the Paris Climate Agreement and validate these targets via the Science-Based Targets initiative (SBTi) Net-Zero Standard. We have targeted a 21% reduction in our Emissions by 2024 with a 42% reduction by 2029. We are pleased to report that we are on track to meet these targets as a result of our actions taken to date, with total emissions reduced by 40% since we began reporting in 2019. We are also aiming to achieve ISO 14001 status for the majority of our Agencies by end of 2023. We will be working with several identified partners to ensure a faster transition in line with these goals as part of our transition to net zero and to improve our measurement and reporting.

OUTLOOK

MISSION has a significant second-half weighting with respect to profitability. Revenue growth is anticipated across all the Group's sectors with run rates from the US technology sector starting to return to 2022 levels. Whilst the Group remains on track to meet full-year guidance, as highlighted in our trading update on 27 July 2023, profitability is likely to be at the lower end of the Board's expectations albeit with profit before tax still expected to exceed that of 2022 (£7.8m).

Condensed Consolidated Income Statement for the six months ended 30 June 2023

Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 June 2023