The Marketing Group plc Financial Results for the Year Ended 31st December 2017

"2017 was a turnaround year for the Group and now is time to change gear. Our comprehensive reorganisation of the Group has resulted in tighter strategic fit, better underlying performance, a game-changing new offering and a company set to make big strides in 2018."

Chairman's statement

Dear shareholders,

I would like to start by thanking all of you for your support and encouragement this year, with special thanks going to all our shareholders in Sweden who have been with us from the start of TMG as a listed business.

I joined TMG a year ago, enticed by the opportunity to build something special: a modern marketing and communications company designed for today's needs. A company nimble enough to move with the times and supported by the best technology out there.

We have completed a challenging 2017 and I would like to give credit to Adam Graham, our CEO, who, following the strategic review of the Group, cleared out everything not fit for purpose. This created a foundation for the next stage in the Group's journey to becoming a next generation marketing platform.

New visions required new beginnings and a clear break with the past required a change at the top. Following Adam Graham joining in November 2016 as Group CEO, in early 2017 the previous Board of Directors was replaced by four new directors, including myself as the Chairman, Mike McElhatton, CFO, Glen Fraser, a leading industry expert and Martin Blair, Chair of Audit. The new Board has a wealth of experience in building and running public companies, a deep knowledge of the advertising and marketing space and a lot of expertise in managing fast growth via acquisitions.

As part of the strategic review, we have also changed the structure for acquiring companies. Previous all-share acquisitions have led to inflated valuations. We have moved to part-cash / part-equity acquisition structures with multi-year earn-outs. It was also important for us to create an environment where founders of acquired businesses wouldn't be running out of the door the moment their earn-out ends, but stay and grow with TMG. It is important that they feel it's a partnership, as that is what we want to encourage.

To be able to service our clients globally, we need bigger scale. Thus making acquisitions will remain a key part of our growth strategy. Over the next two to three years we will pursue aggressive growth in North America and Europe whilst continuing to develop our offering in Asia and Australasia.

Our new rigour in finding and assessing the right companies, making the right offer and incentivising fast integration is already bearing fruit. Three businesses were acquired during the year (wildcard Communications in Germany, Reflexion Publique in France and The Content Agency in Australia) have all been successfully integrated and are now working across the TMG client base, having also brought attractive client bases of their own.

Being able to attract and retain talent remains a key challenge in the market. Our advantage is we are different from large groups: we give more responsibility and focus on culture, we are nimble, we are bold and we are entrepreneurial.

We see a lot of clients taking core marketing elements back in-house, as they want to regain control. This presents the opportunity to co-create with clients.

We create our own solutions to the biggest problems affecting clients. TRUTH, for example, is our new fully transparent media offering providing a solution based on blockchain.

This year has seen a strong performance from the Group's agencies in winning business, retaining clients and growing accounts. The turnover in the year ending 31 December 2017 reached €22.86m, while Trading EBITDA was €2.34m.

In 2017 we have made a clean break from the Group composition and financial structures inherited from the previous management. In Q2 we reported a decision and created a provision for the €43.57m write off of goodwill related to continuing and discontinued operations. The write off related to continuing operations was done to make sure that all investments are reflected at the current value rather than at the value of the original deals done as share swaps at higher prices, while the impairment for discontinued operations reflected the divestment of poorly performing companies which were not a good strategic fit. The net result for the year was a loss of €45.67m.

Despite this, we are starting 2018 with a clean financial structure and a sound set of companies which are fully aligned with the strategy and hungry for growth. This is invaluable in our transformation into a next generation company who is adept at providing what is really needed in today's marketing climate.

The key priorities for the Board this year are creating a strong acquisition pipeline and making sure integration proceeds smoothly, getting funding sources in place to ensure optimal capital structure and securing growth capital; and exploring a move to the AIM market of the London Stock Exchange at the appropriate time, which should have a positive impact on the liquidity of our stock.

The Board will not be distributing dividends from FY2017. However, the Board is committed to the return of profits to shareholders either through paying dividends or share buybacks in future years.

TMG is an outward looking, digitally focussed group with an exciting year ahead of us. We have our destination in sight and are on the right path to realise our vision. Once again I'd like to thank you for being a part of this journey and look forward to seeing the Group evolve to reach its full potential.

Don Elgie, Chairman of the Board, The Marketing Group plc

Chief Executive Officer's statement

Shortly after I joined TMG in November 2016, I conducted a fundamental review of the business. It became clear that the existing Group composition was not fit for purpose and there were many issues that needed to be resolved. 2017 has been the year in which we have restructured the Group in line with the new strategy and said goodbye to the past. We were able to do so without any disruption to winning and delivering client business.

Indeed, in 2017 we have added over 30 new clients to our already impressive global roster.

However, this turnaround has required a huge amount of attention and has prevented us from pushing forwards with other key initiatives at the pace I would normally expect. We have divested six companies and wound down three entities, which were either non-core or underperforming. We have also created the backbone of central operations that are essential for stability and growth.

We put a lot of emphasis on promoting collaboration in winning and delivering through joined-up Group teams. As TMG's management is comprised of founders/CEOs from Group companies, and each member is a shareholder in TMG, their interests are fully aligned with the Group. Everyone shares the common vision of collaboration and this, in turn, means that we find solutions and knock down barriers - enabling high quality and fast delivery of client work.

As entrepreneurs, we are fully aligned with clients' business goals and care less about industry awards. We believe that time and materials charging models are no longer the best approach. Value should be attributed to the output, and outcome, rather than the input.

In August 2017 we launched Temba, a collaboration platform that brings us closer together and streamlines operations. Temba allows teams around the world to identify skills, experience and resource availability. The cross-agency co-creation and global load balancing that this facilitates is central to our strategy of providing a lean and effective platform solution for global clients.

Our strong client base means we have a deep understanding of the problems that really matter. This allows us to incubate tech solutions. This year we launched TRUTH, the first media agency built on blockchain.

TRUTH solves a massive problem in media buying, where clients have been overcharged by multiple layers of intermediaries, while having little visibility into how their money is spent and what has been delivered. We are rolling out the TRUTH proposition across the Group and have experienced an unprecedented level of interest from clients looking for an alternative to the status quo.

We are also continuing to acquire complementary businesses. In 2017 we acquired three, all of them already working well with the rest of the Group. They demonstrate the continuation of the Group's strategy of adding complementary, well-managed businesses that strengthen the Group's position in strategic markets and diversify its service offering and client base.

The fast pace of technological change, and our strategy of building a lean, global network has provided us with an opportunity to fill the gap that has emerged due to the inability of large advertising holding companies to adapt to the new environment. It will take them several years to reorganise themselves around this challenge. This represents a window of opportunity for us to gain a significant increase in market share.

We are in a strong position as we can leverage the solutions we create across our client base. We are structured in a very flat and decentralised way which means we communicate and react in real time. This is essential for marketing in the modern era and it means that more of our clients' budget goes where it should – on the work.

The current financial year will be focussed on growth: complementary acquisitions, winning new clients and growing existing accounts through collaboration. We will also re-brand the Company to reflect its new positioning and unify the group offering. We have a variety of funding choices available to us now, from multiple sources. We will ensure that any funding is structured and deployed in such as way as to drive growth and increase shareholder value.

Our ambition is to always provide clients with a viable alternative to the big guys. We have already proven we can do that by winning competitive business and retaining and growing relationships with Tier 1 brands.

Now that the clean-up is complete, TMG will change gears and accelerate rapidly through an ambitious program of growth and evolution into a next generation marketing platform.

We now have confidence and the ability to lead the market where it matters most. We intend to make some big moves in 2018.

Thank you for all your support.

Adam Graham, Chief Executive Officer

Chief Financial Officer's Report

2017 has been a year of restructuring and putting in place a strategy to bind the group together for growth

Contributions to business during the year ended 31 December 2017 ("FY2017")

During 2017, three new agencies were added to the Group level, while six entities have been divested and three entities wound down.

For comparison, we have restated FY2016 figures to include continuing operations only.

Turnover and Net Revenue

The Group's Turnover for FY2017 totalled €22.86m (FY2016: €8.59m). TMG's Net Revenue reached €14.79m (FY2016: €5.74m).

Subsidiary agencies in Australia and New Zealand contributed 52.5% to the Group's FY2017 Turnover (FY2016: 55.2%), while North America, UK and Europe and Singapore accounted for 20.2%, 16.0% and 11.3% respectively (FY2016: 10.4%, 11.1% and 23.2%).

Brand and Communications contributed 41.3% in the FY2017 Turnover split by segment (FY2016: 66.8%,) while Science and Performance and Influence and Amplification contributed 41.0% and 17.7% of the total, respectively (FY2016: 19.4% and 13.8%, respectively).

Trading EBITDA and Operating EBITDA

Trading EBITDA is calculated before the charge of central group costs to the Operating EBITDA. In FY2017 Trading EBITDA reached €2.34m (FY2016: €1.73m). This translated into the Trading EBITDA margin of 16% (FY2016: 30%).

Central costs in FY2017 totalled €0.87m. An increase from €0.16m in FY2016 was due to the fact that in 2016 those were largely subsidised by a previous private equity backer of the company.

Operating EBITDA before acquisitions and non-cash items for FY2017 was €1.47m (FY2016: €1.57m). Operating EBITDA margin for FY2017 was 10% (FY2016: 27%).

At the half year the Directors decided that it would be prudent to write down the Goodwill on some of the companies as they were acquired through a share swap when the Group carried an extremely high share price. The carrying value of these companies was therefore adjusted to a more appropriate level.

Exceptional items of €11.92m (FY2016: €3.80m) comprised:

• Goodwill impairment €9.08m (FY2016: nil)
• Performance shares and initial purchase obligations €2.31m (FY2016: nil)
• Cost of abortive acquisitions €0.52m (FY2016: prior year adjustment €3.80m)

Depreciation and amortisation, finance costs and tax

Depreciation and amortisation in FY2017 totalled €0.14m (FY2016: €0.06m).

Finance costs in FY2017 were €0.10m (FY2016: €0.04m).

Corporation tax for the year equalled €0.14m (FY2016: €0.09m).

Total comprehensive income

Adjusted EBITDA after exceptional items was a loss of €10.45m (FY2016: a loss of €2.23m) and the loss for the year from continuing operations was a loss of €10.84m (FY2016: a loss of €2.42m).

During the year the Group decided to divest a number of poorly performing companies which were not a good strategic fit. The cost of writing off the Goodwill is reflected in the €34.66m loss from discontinued operations and again this was the result of share exchanges at high values for TMG stock. No cash was received for these divestments but some shares have been returned and these will be cancelled. Due to the IFRS method of accounting the share returns will reduce the number of shares but will not reduce the write down of Goodwill.

Total comprehensive loss attributable to equity holders for FY2017 was €45.67m (FY2016: €2.12m).

Earnings per share

Loss per share from continuing and discontinued operations for FY2017 was €1.437 per share (FY2016: €0.137 per share restated from continuing operations).

Dividend

The Board of Directors is not proposing to pay a dividend for FY 2017 (FY2016: nil). The Board has taken the view that the flexibility and opportunities offered by a larger capital base can compound the creation of
shareholder value in future years and has decided not to propose a distribution of dividends from the Group's operations at this stage.

Cash flow

Net cash flow from operating activities in FY2017 was €0.76m (FY2016: €0.27m). Net cash outflow from investing activities in FY2017 was €0.82m (FY2016: inflow of €2.27m). Net cash outflow from financing activities in FY2017 stood at €0.11m (FY2016: outflow of €0.41m).

Liquidity and financial position

As at 31 December 2017, the Group's cash at bank and in hand stood at €2.15m (31 December 2016: €2.42m). The Group companies' overdrafts have been drawn at €0.19m as at 31 December 2017 (31 December 2016: €0.29m).

As at 31 December 2017, total assets amounted to €41.09m (31 December 2016: €83.21m) and total net assets amounted to €32.57m (31 December 2016: €71.21m).

Shares in issue

As at 31 December 2017 there were 34,290,077 ordinary shares in issue, including 627,417 held in treasury (at 31 December 2016 there were 35,093,728 ordinary shares in issue including 7,297,476 held in treasury). The average number of ordinary shares in issue adjusted for dilution during the year was 31,667,566.

Financial Key Performance Indicators (KPIs)

The Directors use the following KPIs to assess financial performance of the group and future acquisitions:

• Revenue contribution from New Media / Digital segments
• Revenue contribution from higher growth economies
• Compounded Annual Growth Rate (CAGR) in EBITDA
• Growth in shared clients as a measure of collaboration within the network

Acquisitions

On 1 March 2017, Reflexion Publique was acquired for a full consideration of €0.06m.

On 15 February 2017, The Content Agency Pty Ltd was acquired for a full consideration of €0.11m.

On 1 November 2017, wildcard communications GmbH was acquired for the nil consideration upfront and a potential earnout of €2.10m.

On 28 November 2017, TMG increased to 14% its stake in One9Social Pty ltd which owns the Narratrs.com (Singapore) platform for a consideration of €0.49m.

Mike McElhatton, CFO

The Group's results for the 6 months ended 30 June 2018 will be announced on 15 August 2018 and the results for the 12 months ended 31 December 2018 will be announced on 27 March 2019.

The Group's annual report will be published on 14 May and will be available on the Company's website - www.tmg-plc.com.

The Group's Annual General Meeting will be held at midday 8 June 2018.

Notes to the results

1)      ACCOUNTING POLICIES

Going concern

The Directors have carefully considered the funding requirements of the company for the foreseeable future. In the opinion of the Directors, The Marketing Group Plc will have adequate resources to continue in operational existence for the foreseeable future and accordingly the accounts have been prepared on a going concern basis.

Basis of preparation

The basis of preparation and accounting policies set out in this Report and Accounts have been prepared in accordance with the recognition and measurement criteria of IFRS, which also include International Accounting Standards (IAS's), as issued by the IASB and with those of the Standing Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

The financial statements have been prepared on the historical cost basis and on the going concern basis. The Company's financial statements are presented in Euros.

Reporting by segments

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