The Mission Group plc ($TMG)

Good afternoon, and welcome to The Mission Group plc Investor Presentation. [Operator Instructions] I'd now like to hand you over to John Carey, CEO. Good afternoon, sir.

Thank you very much, and good afternoon, everybody, and thank you for joining us today. My name is John Carey. I'm the CEO of The Mission Group, and I'm joined today by Giles Lee, who is our CFO, who I'm sure many of you have met many times now. So in terms of today, our agenda is to try and go through the headlines. Giles will take you through the figures, and then I'll come back and talk a little bit about our progress on the actions that we outlined the last time and progress against strategy as well. And hopefully, that will give you a good view and a good overview of where the group is. I think if we look at 2025, 2025 has been a very mixed year in terms of the marketplace. And whilst we are very pleased about our client retention, during 2025, like the rest of the market, we've seen a decline in spend with -- on the marketing side of the business, particularly around quarter 4, where we saw significant delays and pushback of projects because of the environment and the expectations around the environment. And I'm sure Giles will talk a little bit about that as we go through the results. However, as a group, we're pleased, and I'm pleased about the resilience that we've shown as a group, I think also the opportunity that we've taken to rationalize transform and come into 2026 in a much stronger position as a group. And hopefully, as we go through the session today, you will get a flavor and feel for that progress. We've seen a substantial reduction in debt during the year, and our gross cost savings, which we've outlined separately against our plan, have been -- we've overperformed against that. And again, I'll come back and talk to you about that. We also have a new Board in place, and it's a Board that brings a significant set of skill bases from high knowledge on AI to a new Chair of our Audit Committee, to somebody who's also been in our industry a long time as well, who brings a great set of connections, but most importantly, a great set of insights into our market. And already that new Board has started extremely well to gel with the current organization, but also to help the organization as we strategically move into a growth phase for the business. I believe at the end of the year and certainly at the end of Q1, we are well placed to grow with a refresh and strengthen the platform. And I hope as we go through the presentations today, you will see some of the actions that we've put in place to deliver that and some of the actions that we would expect to be talking to you about in the coming months as well. So with that, that's the headlines. Let me hand over to Giles, who will take you through the figures.

Thank you, John. Good afternoon, everybody. So yes, I'll run through 2025 results. I'll run through a level, and we'll go from there. But first on nonfinancial pieces. Just a refresher, the strong client base that we are very proud to benefit from and some new additions therein. And more importantly, I guess, whether it's market leading or not, I don't know, but we're certainly very proud of it. It's our client retention. And for many years now, our client retention has been extremely good. We have well over half of our total revenue provided by clients. We've had had more than a 5-year relationship. And now 38% of our income coming from clients which had a 10-year relationship and over 1/5 from clients with whom we worked for 20 years. So compared to an industry where average client tenure is 3 to 5 years, that's a significant benefit to the group and obviously gives us reasonable visibility of other income trends and so on through the year of core clients. On the other side of the P&L, staff retention improved through the year. Last year was a year where reasonably high staff turnover, now reduced through 2025. Clearly, some of that will be market related. Some of that will be in reaction, better word, to the restructuring program that was in place. But nonetheless, good to see that settling down. So the 2025 P&L here, just on the continuing operations side of things, which materially is the most important piece. Within this, and we'll look at this in a bit more detail shortly over the next couple of slides. I've highlighted there. First thing in terms of the revenue, which is operating income/gross profit, we choose to call it revenue, that declined by 8% over the year compared to the equivalent of 2024, down to just under GBP 70 million worth of revenue. Materially, that GBP 5.6 million drop, the majority of that came through our consumer advertising segment. And within that, a significant amount of that fell out of through the final quarter. In contrast, I guess, the head operating expenditure, also we were able to reduce that by GBP 3 million through the year. We announced this time last year that we were commencing a restructuring program that brought together, simplified by a lot of the business, and obviously, we continued that this year. But that in itself, released GBP 3 million worth of operating expenditure savings in 2025. That, of course, is spread through the year, whereas the revenue impact is much more geared towards the second half and indeed the final quarter. All things told, though, that all leads to a decrease in headline operating profit from GBP 7.6 million to GBP 5.1 million for the year. I'll come on to some of it below that shortly. Just to reemphasize that point on seasonality. Now, those of you familiar with the business know we do have a significant seasonality towards H2 and particularly quarter 4. And this year, that was kind of highlighted, I suppose. And the purpose of this chart is to show that if you take the operating expenditure, broadly speaking, we've obviously reduced in the second half year-on-year, GBP 33 million to GBP 31.9 million. But as a percentage of the whole, it was roughly half. And that reflects the fact that obviously made changes early and give or take that operating [indiscernible] base is quite fixed. On the other hand, the revenue side of the equation, revenue down significantly in the second half of the year, 10%, most of that again through the consumer advertising section of the business. And whilst that's only from a seasonality point of view, fractionally different, so represented 51% of our total revenue versus 52% of our total revenue, it has a significant swing in operating profit. And that's why you see that significant -- pretty much 50% decline in operating profit in the second half of the year compared to 2024. And that's obviously significant when it is your strongest half. Moving forward, obviously, we have announced we've changed the year-end date to the 30th of September. That will help us manage this going forward, but that is the tail, obviously, for this year. Quite a lot of detail on this chart. This is our segmental analysis, and it takes the various components of the business as we report on them and pulls out the key P&L indicators: revenue, operating expenditure and operating profit. The point really to note here, again, in the Consumer & Lifestyle segment, if you take that column, you take it to the bottom of the page, you can see that quite starkly GBP 5.1 million worth of revenue decline, so from GBP 23 million to GBP 18 million in the year. Now some significant mitigation of that through operating expenditure savings as we sought to simplify that part of the business through the year. But nonetheless, still an operating profit reduction of GBP 1.8 million. Elsewhere, across that final row of the chart, you can see that there were ups and downs, particularly Business & Corporate as well, not immune from the issues in the wider market, to which Consumer & Lifestyle is particularly exposed to. But also the Property business, which again, towards the end of last year, particularly not helped by the timing of the Chancellor's budget, we saw significant drop offs revenue towards the end of the year. If I just back up the page and that reflect on what that means for 2025 and 2026, you can see that between Business & Corporate and Consumer & Lifestyle segments, and these fundamentally are the integrated agency components, obviously a poor year in 2025 compared to 2024. If you then add back though, the cost savings that we've already announced this year, which GBP 4 million of gross savings. We will reinvest some of that in key skills and capabilities, as John will talk about shortly. But even so, you quite quickly can bridge back to 2024 and beyond in terms of performance for that part of the group. Health & Wellness is sort of stable. Property, again, I've explained the dynamic that impacted in 2025. You can take your view as to what that might mean for 2026. But one thing we do know is how important the property market is to the economy and impetus that will be behind that, and we are well positioned to benefit from that as it returns to some version of health. Sports & Entertainment revenue grew in the year. This is clearly a growing segment of our business, in a hot part of the marketplace, in an area which we particularly keen to invest behind. Both Property, Sports & Entertainment, you can see our profitable businesses: GBP 2.5 million profit generated by Property in 2025, GBP 3.5 million in 2024; Sports & Entertainment, GBP 1.7 million in 2025 and that [indiscernible] has improved or we hope will improve as we go through 2026 and beyond. Just important things to note, that's something I'll talk about shortly. But that kind of gives you a tail of the mix and hopefully gives you a sense of how the actions are already taken, how we believe profit will add back relatively quickly to something that we think much more respectable going forward. Just on that, there's obviously some large adjustments to profit in 2025, and those led to a considerable real or reported loss for the year. To give us a quick narrative against those specific items, I've highlighted the 2 key ones here. The restructuring costs, as you would expect, result directly from the restructuring that took place broadly this time last year as we simplified the business. We have taken a business that was 16, 17, 18 agencies, to the point of this restructure, to 10 or so. And in the restructuring that we've just completed this year, we've taken that down to about 5. So a considerable amount of work done to simplify the business, to remove costs from the center and so on and so forth. And the payback of those restructuring costs is rapid. The piece at the top though, the revaluation of the older assets, which is clearly what causes the big swing from a headline profit of GBP 5.1 million to a reported loss. Here, this is one of the main reasons how we have to account and you may well be aware of this, but with our intangible assets, everything that we buy gets recorded on the balance sheet at the price at which we paid for it. We then have to take a view every year as to whether we can recover that. Now as you move from historic assets, and some of these assets that we're talking about here have been with the business since pretty much. It was founded in 2005, 2006. They have -- I would describe them as reasonably sort of historic parts of the business, Story, in Krow in particular, to a lesser extent, our RJW Healthcare business. We take a view of those, and we have to write down value accordingly. What we cannot do is take a view of the future value drivers of the business and the value that sits in there. So if you take, for example, Sports & Entertainment business, that sits on our balance sheet at GBP 4 million. And this is a business of only GBP 2 million last year. Property, a GBP 3 million profit-generating business, is in our balance sheet at GBP 6 million. If you could take a view of those, I suspect we will more than mitigate that reduction. But we are where we are. These are the accounting rules we have to deal with. I just wanted to explain this is an historic adjustment, not a reflection of future too much, and it's more clearly a noncash impact. Our total debt position in this. And here, I mean, the net bank debt plus any outstanding earn-outs or acquisition obligations we have reduced significantly year-on-year, from 2024, just over GBP 14 million, to 2025 at GBP 10.4 million. That's a historic low for the group and a significant place to be. And by 2026, we will have completed all our earn-out payments. So our net debt for all intents and purposes will equal our total debt, an important point. Also worth noting that this time last year, we're anticipating to receive some sort of residual payment from the disposal of April 6 at the end of 2024. The turmoil in the U.S. tech sector at the start of this year paid to that. But nonetheless, we've still been able to reduce total debt significantly even without that. In terms of cash flow management and statement, key things here to draw your attention to, I would say, this business is cash generative, and I always talk about that. When it is running effectively, it's a business that does not require considerable amounts of capital management. It throws off cash. You can see key things like interest, in particular, interest payments obviously reducing year-on-year as the debt level has come down. Working capital, we had quite significant inflow this year [indiscernible] in working capital. Some of that is about maintaining a pretty sharp debtor book. Some of that was timing of accruals and so on that at the end of the year as a result of some of the large events and exhibitions that are in play. So therefore, that will unwind a little bit as we go into 2026. That's not upside to the cash payment. Further down the page, the acquisition payments of GBP 3.2 million. That, we've seen 2026. They will still be there, but much lower, about GBP 1.4 million. We will continue to invest behind systems development. That's really important. We're going to talk about our investments in systems, AI and so on and so forth. And this is where we will do that. Restructuring costs obviously paying through as well. The point of that is that when you look at the kind of the cash generation waterfall for this year, the green there, the operating cash flow, which obviously is after restructuring costs and so on as well, is massive. And so what we have an eye on here is how we reduce the red bits, going the other way now. Prior acquisitions, the third one of all. That will reduce. Obviously, next year as well. Obviously, this year, is set to now to GBP 1.4 million and will GBP 0 next year. CapEx, that's probably going to maintain that level while we invest behind the business. And then lease payments is usually fixed. But you can see, we're going to start to generate more and more headroom for a return to other capital allocation processes such as dividends. My final slide, not too much to say here really, but just to present the balance sheet to you. There's no news really in the numbers from what I've just talked about. But clearly, the focus for us in terms of the next phase is let's get the operating margin back to a very healthy level, that will drive free cash generation, sensible net working capital management build too. Thereafter, in terms of immediate focus is, one, let's get the debt down to a sustainable level. I mean, we'd like to get it right down and then bring it back up in a measured way, this right sorts of things. Absolutely, we're going to need to maintain some sort of capital expenditure investment behind AI and systems development. And whilst the dividend for 2025, I don't think we want people to think that was it, [ it's gone ]. We are determined to maintain and get back to a progressive dividend strategy as soon as we feel comfortable doing that. That was my piece. John, I hand back over to you.

Thank you, Giles. And so what I want to do is just, therefore, give you an update on the activities behind all those figures and particularly the activities around the figures to come in 2026. We outlined last year the approach we were taking to the business in terms of simplifying that business, prioritizing specific areas and really driving a focus in our business and clarity and also to create a growth agenda. And so what I'd like to do is talk to you about the progress we've made against each one of those, combined with what is yet to be done. And so if we take the simplify and reset as the next slide, I think Giles has already articulated well our cost reduction progress. We talked at the half year results around identifying a GBP 2 million cost saving in our base. We have increased that target and delivered against that increased target to north of GBP 4 million on an annualized basis. That was done through the simplification process rather than through any accrued mechanisms around cost. We have thankfully, I would suggest, not skipped a beat in terms of our customer interaction, whilst at the same time, identifying we [ have ] lost a number of great colleagues along the way. But we do enter the new year, particularly in the second quarter, with a leaner but a much more simplified and clearer structure, a more consistent structure as well. So in terms of the cost reset, that has been completed against that GBP 4 million target. Obviously, we continue to look for efficiencies. But most importantly, what is well, is it's given us is a leaner operating model around 5 pillars of our business. And to that, it gives us not just a rationalized footprint, but it gives us a focused agency portfolio as well and in terms of giving us a much more disciplined approach around margin and that target to get to a strong double-digit margin percentage position. If I look at that in terms of the shape, it will just see the group. And going forward, this will be how we will talk about the group in terms of our 5 distinct areas. Obviously, we have some overlap in terms of synergies across the areas, but we talk about the integrated agencies, which we call Krow, Bray Leino, sets of agencies. And I think that gives us a much more rationalized approach, and I'll talk to that in the next slide. We have a Sports & Events business. By putting the events with Sports, we believe that gives us a very significant upside to leverage the strong relationships we've already developed in Sports and gives us an ability to strongly grow on a geographic basis as well. Our Property business has been probably the one that has been least touched by the shape of the group. It is a very strong, resilient business. In what has been not the easiest of markets, it has done exceptionally well and gives us, again, I believe, a real foundation going forward as that market clearly starts to pick up, and we've already seen some of the green shoots of that within our Property business. In the PR business, we have a good, strong core business based out of Bristol, led by Kelly. We believe, again, that is an opportunity for growth for us, particularly across the U.K. and clients -- new clients, and we've seen probably of all the businesses we've seen the most new clients coming through our PR business in Q1. And our Healthcare business, again, is a small but good consolidated business, and we've done significant consolidation within our Healthcare business in quarter 1, not just taking out cost but also consolidating leadership and consolidating systems and back office there as well. So that's what the simplification has given us. These tend to be overlapping, but the simplification of the cost reduction has also given us a new focus. It's allowed us to share best practice across the groups. It's allowed us to take down the walls between the agencies and act as one company. And already, as we bring those teams together and have both those teams together, not only are we seeing the sharing best practice, but we're also seeing a renewed ability for us to go after bigger, larger clients and an efficiency to go after the smaller clients. So in terms of a middle ground position for this business, we are able to expand in both directions. AI has facilitated some of that as well, but I think the simplification and consistency across the agencies have done that. It also gives us clear growth choices. This is a business that certainly when I came in 6 months ago, has not had any concern around growth options. Our inability to grow has been hampered much more by our legacy of sporadic and [ scattered ] approach and that of focus and lack of clarity on the verticals rather than opportunities. We now have the ability not just to take those opportunities, but very importantly, to have transparency around the performance management of those opportunities as well. So not only are we trying to rationalize some parts of our business, we're also looking very much to take that and grow into the bigger accounts. We will continue to have a disciplined approach to our cost. Cost is something that's on our mind day in, day out. It's on our clients' minds very clearly. We cannot afford to have any efficiencies passed on to our clients. And as we go through the first quarter and have taken that simplification message across the business, we continue to look for a much more disciplined approach to cost and added value to our business. And in terms of our business, not just with performance transparency, but we also want to ensure all the colleagues in the business gain and are part of the story and a part of the new culture of the business. And within that, we have a very clear direct shareholder alignment between the incentives of our top leadership and the desires of our shareholders as well. And so we have realigned that very much and launched that in Q1. Final area, which, is always the toughest area, I think, for any business, which is the growth area. We have seen some real positive shoots in Q1 across the business. As we have the sustained and strong and resilient performance in our Property business, we also have seen some growth in those areas as well. But we're seeing significant growth as well, particularly in our Sports & Events business as we expand that, not just within the U.K. but actually globally as well. And because we already have significant international clients, having that position, particularly in the U.S. gives us and has uncovered for us real, real value and real opportunity short, medium and long term. And we will continue to invest in that area. We will continue to look to grow. We have already significantly invested even in the first quarter in people and manpower and systems across that business. AI is a conversation, I guess, that comes up everywhere. We have got a position in AI. We are utilizing AI. I would never sit here and say we're at the forefront of that, but we actually have got a good position and bringing Emily into our Board has certainly helped us understand and clarify an AI strategy for the organization. It is enabling us today across all of our businesses to certainly become more efficient and more efficient. But in a couple of our businesses, particularly in our Property business and particularly in our PR business, it is also giving us a competitive advantage with our clients in the marketplace as well. We are not just taking cost out of the business. As Giles said, we are also investing at the same time. We're bringing new roles in. We brought in a new Chief Creative Officer to our business, somebody who's been around in the industry a long time, and he brings with him significant connectivity, but most importantly, he brings a fantastic creative skill set into our organization. We will continue against all of these 3 areas. I think it's really important for us to say that the job is not done in any of these areas. We will continue to simplify our business. We will continue to focus and prioritize, and we will also continue our growth in it. And as you can see there, from growth, not just geographic growth, not just product growth, not just client growth, but all of those together, will give us real opportunities. And by doing it through the 5 different platforms of the business, the 5 different pillars of the business, we also have the ability to call ourselves on what's going well and what's going badly. I think one of our objectives as a Board is to be clear on what we're trying to achieve and then to give a healthy scorecard on what's gone well and what do we have to improve. Everything we say is not going to just automatically work well for us. We will have that honest conversation where we will continue to talk about these trends. We'll continue to talk about the actions that we have to put in place. It is our priorities in 2026, to grow our business, particularly around U.S. expansion. We want to complete the agency integration to a level where that agency gives us double-digit growth going forward. We have got new product offerings in the place: consultancy, AI, other product offerings. So it's not just about clients, but it's actually about bringing new things to the marketplace as well. And we will talk much more about that in the coming months. It's our intention to have a Capital Markets Day over the next 6 months where you can hear from each area of the business, those 5 different pillars, of what are their plans against each of these areas. We have a growth engine. We have a new role in our company, that's been there for 3 months, of Chief Growth Officer for the company, whose job is, and who's already started and delivered, working on the new revenue streams of the business. It's our viewpoint that at least 25% to 50% of our revenue in 3 years' time needs to be coming from new products and new areas that we don't work with today, and we have already started to work and identify those areas. The capital allocation discipline is linked to dividends. It's linked to cash. It's linked to all our business. It's ensuring that we don't invest small amount across each area, but we place our bets in the area we believe can deliver the best, best returns for our shareholders. And within that, it allows us to redefine the mission proposition, which is a group that gives us differential growth. It gives us a stronger position by working and being valued together. It is clear today, if you look at our business, that the individual parts of our business are significantly higher value than the whole. What we are doing through this process and through the culture change we have in the business, is trying to ensure that everybody understands what value the mission brings, was minimizing the cost allocation across the mission and allowing the different platforms to deliver strongly against their objectives and to ensure that people -- investors and potential investors understand what the individual parts of our business is worth, which clearly is very significantly more than the whole part that we have today. And we recognize that's a perception. It's a reality today that we're addressing. And hopefully, through our actions, but most importantly, through our deliveries and our delivery against the promises that we're making, we will see that happen more over the next few months. That, I think, is what we wanted to get across. I think in essence, what we'd like to get across to you is that we have had a resilient business up to now. We've taken the -- or started to take the necessary actions to transform this group into an agile group of high-value businesses, with growth potential in each area and a Board with a very clear view of delivering strong shareholder returns and a much stronger balance sheet in the coming months. So with that, thank you very much. I appreciate your time, and I'm very happy for us to open up to questions, if we want to take them, Giles.

[Operator Instructions] Just while the company takes a few moments to review those question submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Can I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end.

Okay. Thank you. So just looking at the first question we've got here. Question from James [indiscernible]. With debt at historic lows and strong cash conversion, how are you prioritizing capital allocation? I think just to recap, we -- in the first instance, it's about sort of just driving that debt write-down. In the second instance, it's about sort of organic investment in key core capabilities, particularly around systems and AI and so on. And then it's about, to John's point, I believe, looking at where we will get the greatest return, which parts of our business do we feel for every pound or sterling we're going to get, get the greatest return. Now clearly, our warmest markets, around Sports & Events and the like [indiscernible]. Of course, dividends is I know on our minds as well. And the Board, as I say, just to reiterate, are committed to returning to a progressive dividend strategy as soon as we feel. That, we're continuing to do that. I think we want to get the debt down a bit more, we will be comfortable with our trading position, but I'd like to think that's not too far away.

No, I would like us to be at the full year, I believe we will be in a stronger position to answer that question. I [ noticed one there ] about somebody reaching out to me. Apologies. I've never got that note. Please, if you could reach out again, I'd be very grateful, and I will certainly pick up. I'm very happy, and this is an invite from Giles and I to any investor or a prospective investor, we would be very happy to meet with you in London, but either personally or Zoom at any stage. So please, if you don't get a response, please come back to me. It's not because we're ignoring it. I promise you it's because something has gone wrong with my e-mail, I promise. But we are very keen to actually engage with you as our investors or prospective investors.

And one final one here at the moment, which is, in the some of the presentation here, as we talked about how reported quarter sales cycle extended, there, we saw budget caution from the clients, around making decisions and so on. Have you seen any improvement?

We have seen some improvement. Q1 is a quiet month, a quiet quarter for this industry in general. And so therefore, I don't want to declare victory on the back of a good Q1, but not a high target, to be fair, for any of us. I think we have time. We will wait and see and continue to do that. But I think we also need to recognize that in the last 6 months, not only have we or many of our peers in the industry gone through significant restructure, most of our clients have as well. And so as they start to come back, and we've seen them start to come back with the new leadership teams, et cetera, I think that's a real good opportunity for the momentum to pick up. I do think it's been about resilience up to now. I think we are certainly poised for growth. We all know what's going on in the world is tough for everybody at the moment, impacting across the piece, whether it's just consumer confidence on company performance. None of our clients are oblivious to that. And so we are working with them to deliver. But value-added services, efficient delivery, key strategic and cultural support is good in any piece, and that is what we're delivering at the moment and continuing to try to deliver. I think Giles made a great point at the start of this presentation that in times like this, having relationships that have gone back 20 years, 10 years, 5 years are hugely beneficial because we've been through similar cycles in the past with our clients. We know how to show up. We know how to support, and I hope we will continue to do and do that to the best of our ability.

Okay. Thank you.

Perfect. That's great. Thank you for answering all those questions you have from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, John, could I please just ask you for a few closing comments?

I think I've said a lot about the business and a lot about where we are. I think the most important thing for me is to say thank you to you as investors for your resilience, for your support. I do not take it for granted. I promise you every day we show up to the office and the teams show up to the office with a clear objective, to deliver better performance, better returns for our investors, and we will continue to do that to the absolute best of our ability.

That's great. Thank you both for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good afternoon to you all.