REG-M&C Saatchi PLC Interim Results
Released : 28/09/2006 06:02
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RNS Number:5951J
M&C Saatchi PLC
28 September 2006
M&C Saatchi plc
Interim Results for the Six Months Ended 30 June 2006
M&C Saatchi plc, the international marketing communications group, today
announces its interim results for the six months ended 30 June 2006.
Group Highlights
- Revenues (gross profit) up 8.7% to £34.7m (2005: £31.9m)
- Strong organic growth from all regions driven by significant new business
wins
- Successful launch of second continental European office, M&C Saatchi
Germany
- Profit before tax* down 29.8% to £2.9m (2005: £4.1m) following short-term
investment to support revenue growth
- Interim dividend per share held at 0.77 pence
- Full year profit expectations significantly ahead
* excluding amortisation
Commenting on the results, David Kershaw, Chief Executive, said:
"This has been an encouraging year with the business showing real momentum. We
have seen strong organic revenue growth driven by several new business wins and
our continued expansion into new markets. Although our profits have been
impacted by further investment to support revenue growth and expansion into new
markets, this leaves us well placed to build on our position. The new business
pipeline remains strong and we expect profits for the full year to be
significantly ahead of our previous expectations. The outlook into 2007 is
good."
For further information please contact
M&C Saatchi plc 020 7543 4500
David Kershaw, Chief Executive
Tulchan Communications 020 7353 4200
Miranda Acland
Peter Hewer
Overview
The Group has made good progress during the last six months, winning new
business and growing revenues across all regions. Group revenues were up 8.7% to
£34.7m (8.0% on a constant currency basis), comfortably replacing the lost
revenue from British Airways.
The UK has been the strongest driver of growth, particularly from the media
planning and buying, direct marketing and PR businesses. Our offices in
Australia and Los Angeles also provided good growth and our France office is now
making a contribution. In July, we opened the doors to M&C Saatchi Germany,
adding to our European offering. New business performance from many of our
smaller Asia Pacific offices has also been strong in the first half.
Group profits have been impacted temporarily by increased costs to support our
new offices in India, Thailand and Europe and our offices in New Zealand and
Singapore which have been effected by account losses. This profit impact is
expected to reverse in the second half, and we are confident that profits for
the full year will be significantly ahead of our previous expectations.
Financial review
Reported revenues (gross profit) increased by 8.7% to £34.7m (8.0% on a constant
currency basis). All regions reported an increase in revenues - the UK up 6.6%
to £20.3m, Asia and Australia up 7.2% to £12.3m, America up 11.3% to £1.6m and
Europe at £0.5m.
Revenues in the UK have shown strong organic growth. The growth has been most
notable at Walker Media, but we have also seen strong growth from our direct
marketing and PR businesses.
The growth in Asia and Australia is being driven by Malaysia (up 35%) but more
significantly in terms of absolute contribution, from Australia on the back of
the Tourism Australia account won in the second half of last year. The new
offices in Thailand and India are making a revenue contribution for the first
time, adding £0.3m. Overall growth in the Asia and Australia region has been
significantly held back by account losses in New Zealand (following the Tourism
Australia win) and Singapore, reducing year on year growth across the region to
a net 5.7%.
Our office in Los Angeles has maintained its new business momentum into the
first half of 2006. Revenue is up 43%, more than offsetting the loss of the BA
revenue suffered in New York.
We opened the first of our planned new offices in continental Europe in France
in September last year. It has had an excellent start with revenues in the
first half of 2006 at £0.5m.
The first half profitability has been impacted by the investments we have made
to support our future revenue growth. The most significant of these are the
start up costs associated with opening new offices in India, Thailand and France
, but we have also needed to support short term losses in our Singapore and New
Zealand offices.
The Board has declared an interim dividend of 0.77 pence per share (2005: 0.77
pence) to be paid on 25th October 2006 to shareholders on the register as at 6th
October 2006.
Review of Operations
UK
The UK operations have reported an excellent first half performance, benefiting
from several account wins during 2005 and in the first half of 2006. Revenues
from the UK Group are up 6.6%, comfortably replacing lost revenues from British
Airways, giving an organic growth rate of over 14% when adjusted to exclude
these revenues. New business growth has exceeded our expectations and we are on
track to deliver revenue growth for the full year despite the significant loss
of revenues from British Airways.
The table below list some of our new account wins during 2005 and 2006 which
will be contributing to revenue growth during this year.
2005 2006 to date
------ --------------
Direct line - Advertising Allied Bakeries - Advertising
RBS Retail - Advertising Lucozade Energy - Advertising
NatWest mortgages - Advertising CB Richard Ellis - Advertising
Ribena - Advertising Swiss One - Direct Marketing
Mini - Direct Marketing Cosmopolitan - Talk PR
Weetabix - Walker Media
Ind' News and Media - Walker Media
Halfords - Walker Media
Growth in the first half has been driven by our businesses outside the creation
of advertising, particularly media planning and buying (Walker Media), Direct
Marketing (LIDA) and PR (Talk PR). Around 47% (2005: 40%) of the UK's revenues
are now derived from these businesses. Digital and on-line activities are
becoming increasingly important and have been driving growth in both LIDA and
Walker Media, following the launch of Walker-i last year.
The overall advertising environment in the UK remains challenging and
competition is intense. We continue to see downward pressure exerted by the
procurement community on prices and consequently margins, and expect to see this
continue for the foreseeable future.
Asia and Australia
The Asia and Australia region has had a mixed performance. Revenues in this
region were up 7.2%, with particularly strong growth in Australia and Malaysia.
New account wins included Sydney Water, KFC Hong Kong and Pizza Hut New Zealand.
However, performance from our New Zealand and Singapore offices has been
impacted by the loss of some key accounts, including the award-winning Tourism
New Zealand account which had to be sacrificed as a result of winning the
Australia Tourism account last year.
These offices are strategically important - New Zealand to support trans Tasman
business, and Singapore as an Asian hub. We have therefore not reduced
operating costs in response to the loss of revenue, and because these offices
are relatively small this has had a significant impact on short term
profitability. Following a change in management New Zealand is making good
progress and Singapore will be back into profit in the second half.
Profitability has also been impacted by our investment in new offices in
Thailand and India which will support further growth opportunities.
The new business performance in the first half has been very encouraging and we
are confident that the second half will show a significant recovery.
America
The headline numbers for America, which show an operating loss of £0.2m on
revenues of £1.6m, hide the significant progress that has been made to offset
the impact of the loss of BA last year.
Revenue has grown by 11.3%, driven by significant account gains. In Los Angeles,
important wins have been City National Bank and Network Omni, while New York is
also making steady progress with important contributions coming from PODS, won
in June 2005, and AIG, won in May 2006. More recently Los Angeles has won the
$30 million Petco account and an assignment from the John Paul Getty Trust.
Profitability of the region is being impacted by our continued investment in the
New York office, which is offsetting the excellent performance in Los Angeles.
Based on the success of the Los Angeles office we believe that the US market
still offers significant growth opportunities for the Group.
Europe
M&C Saatchi GAD, our first office in continental Europe, opened in France in
September last year and has made an excellent start with revenues of £0.5m in
the first half. Amongst their key new business wins, Pernod Ricard in particular
is proving to be a strong pan-European account which can be serviced from France
. Other wins include S'miles, Branly Museum, Bordeaux Wines and more recently
Yves Rocher.
In July, we launched our second European office, M&C Saatchi Germany, following
the acquisition of a majority stake in local agency International GMBH.
International was founded by Todd Schulz in 2003 and has already built up an
impressive array of clients including K-Swiss Europe, Coca-Cola, Ferrero for
various KINDER products, MTV, VIVA and HypoVereinsbank.
In Spain we are in negotiation with our preferred partners. These negotiations
are unlikely to be completed before the end of this year.
The setting up of our continental European business has been led by Nick Hurrell
, Chairman, Europe. Nick is leaving M&C Saatchi at the end of October to start
his own agency, and we wish him well. Europe including the UK will now be
managed as one region under the leadership of Moray MacLennan, Chairman, UK
Group. This will further facilitate our ability to pitch for pan-European
accounts.
Outlook
As we approach the fourth quarter we now have good visibility through to the end
of the year.
New business performance continues to be strong across the Group, with organic
growth rates which are comfortably offsetting the loss of the BA account last
November.
In the Asia and Australia region, start-up losses in India and Thailand should
reduce in the second half, while our offices in Singapore and New Zealand are
now making significant progress.
In America our office in Los Angeles is doing well, and we are planning to
strengthen the team in New York to capitalise on the potential we see there.
In continental Europe our French office is making good progress in winning new
business, our German office is now fully operational, and negotiations in Spain
are continuing.
The growth of M&C Saatchi is a function of our ability to win new clients and
additional assignments from existing clients, to expand our range of services
and to expand the geographical footprint to enable us to compete for regional
and global business. We are making good progress on all counts.
In summary, the business has regained momentum, and we now expect profits for
the full year to be significantly ahead of our previous expectations. The
outlook into 2007 is good.
M&C SAATCHI PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT OF THE GROUP
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
Note £'000 £'000 £'000
Turnover 2 150,255 128,172 298,284
Cost of sales (115,600) (96,290) (230,283)
-------- -------- --------
Gross profit 2 34,655 31,882 68,001
Administrative expenses
- ordinary (32,275) (28,263) (61,639)
- share based payment (188) (56) (185)
- amortisation of goodwill (854) (821) (1,688)
-------- -------- --------
(33,317) (29,140) (63,512)
-------- -------- --------
Operating profit 2 1,338 2,742 4,489
-------- -------- --------
Share of operating profit /
(loss) of associates 3 (143) (75)
Interest receivable 675 657 1,384
Interest payable (14) (10) (29)
-------- -------- --------
Profit on ordinary activities
before taxation 2 2,002 3,246 5,769
Taxation on profits from
ordinary activities (1,293) (1,373) (2,690)
-------- -------- --------
Profit on ordinary activities
after taxation 709 1,873 3,079
Minority interests (445) (326) (663)
-------- -------- --------
Profit for the financial 264 1,547 2,416
period
======== ======== ========
Earnings per share 3
- Basic 0.49p 2.85p 4.46p
- Diluted 0.48p 2.83p 4.41p
All amounts relate to continuing activities
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Profit for the financial period
- Group 261 1,690 2,497
- Associates 3 (143) (81)
-------- -------- --------
264 1,547 2,416
Exchange adjustments on foreign
currency net investments (272) (158) (50)
-------- -------- --------
Total recognised gains and losses
for the financial period (8) 1,389 2,366
======== ======== ========
Consolidated reconciliation of movement in shareholders' funds
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Profit for the financial period
- Group 261 1,690 2,497
- Associates 3 (143) (81)
Dividend (965) (629) (1,045)
-------- -------- --------
(701) 918 1,371
Exchange differences (272) (158) (50)
Non cash share based incentive
plans (including options) 119 28 85
Net (reduction) / addition to
shareholders' funds (854) 788 1,406
Opening shareholders' funds 31,616 30,210 30,210
-------- -------- --------
Closing shareholders' funds 30,762 30,998 31,616
======== ======== ========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
BALANCE SHEET
AT 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Fixed assets
Intangible assets 13,773 15,119 14,592
Tangible assets 3,363 3,048 3,194
Investments 55 15 100
-------- -------- --------
17,191 18,182 17,886
Current assets
Work in progress 1,759 1,890 3,277
Debtors - within one year 40,654 26,434 50,552
Debtors - greater than one year 819 817 578
Cash in hand and bank 23,742 25,314 20,486
-------- -------- --------
66,974 54,455 74,893
Creditors: amounts falling due
within one year (51,327) (39,967) (58,969)
Net current assets 15,647 14,488 15,924
Total assets less current
liabilities 32,838 32,670 33,810
Creditors: amounts falling due
after more than one year (568) (758) (868)
Provisions for liabilities and
charges (556) (241) (404)
-------- -------- --------
Net assets 31,714 31,671 32,538
======== ======== ========
Capital & reserves
Share capital 542 542 542
Share premium 9,618 9,618 9,618
Merger reserve 14,144 15,361 14,756
Share option reserve 718 542 599
Profit & loss account 5,740 4,935 6,101
-------- -------- --------
Equity shareholders' funds 30,762 30,998 31,616
Equity minority interests 952 673 922
-------- -------- --------
31,714 31,671 32,538
======== ======== ========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Operating profit 1,338 2,742 4,489
Amortisation on intangible fixed
assets 854 821 1,688
Depreciation 573 558 1,183
Loss on sale of tangible fixed
assets 1 57 59
Decrease in work in progress 1,394 1,575 224
Decreases / (Increase) in debtors 9,356 20,212 (3,003)
(Decrease) / Increase in creditors (7,262) (16,383) 2,399
Non cash share based incentive
plans (including options) 119 - 85
Exchange differences (19) (105) (78)
-------- -------- --------
Cash inflow from operating
activities 6,354 9,477 7,046
Returns on investment and servicing
of finance
Interest received 675 657 1,384
Interest paid (9) (2) (8)
Interest element of finance lease
rental payments (5) (8) (15)
Minority interest dividend paid (471) (232) (428)
Taxation (1,130) (926) (2,544)
Capital expenditure and financial investment
Purchase of tangible fixed assets (760) (591) (1,289)
Sale of tangible fixed assets - 44 37
Acquisitions & disposals
Investment in subsidiary (8) - (369)
Cash acquired with subsidiary
undertaking - - 187
Equity dividends paid (965) (629) (1,045)
-------- -------- --------
Net cash inflow before financing 3,681 7,790 2,956
Financing
Shares issued to minorities - 116 124
Repayment of overdraft (29) - -
Capital elements of finance lease
rental payments (53) (57) (142)
-------- -------- --------
Increase in cash in the period 3,599 7,849 2,938
======== ======== ========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
CONSOLIDATED CASH FLOW STATEMENT (continued)
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Reconciliation of net cash flow to movement in net funds
Increase in cash
in the period 3,599 7,849 2,938
Cash outflow
from payment of
overdraft 29 - -
Cash outflow
from decrease in
lease finance 53 57 142
Inception of
finance leases (15) (15) (14)
Exchange
differences (337) 132 184
-------- -------- --------
Movement in net
funds in the
period 3,329 8,023 3,250
Net funds at
start of year 20,329 17,079 17,079
-------- -------- --------
Net funds at end
of period 23,658 25,102 20,329
======== ======== ========
Analysis of changes in net funds
Balance at 1 Cash Finance Exchange Balance at 30
January 2006 inflow lease Movements June 2006
£'000 £'000 £'000 £'000 £'000
Cash at bank
and in hand 20,486 3,599 - (343) 23,742
Overdraft (29) 29 - - -
Finance leases (128) 53 (15) 6 (84)
-------- ------ ------ -------- ----------
Total 20,329 3,681 (15) (337) 23,658
======== ====== ====== ======== ==========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
NOTES TO THE FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 JUNE 2006
1. Accounting policies
The financial information included in this report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The interim
accounts for the six months to 30 June 2006 and 30 June 2005 are unaudited. The
financial information for the year ended 31 December 2005 has been extracted
from the statutory accounts for that period, a copy of which has been delivered
to the Registrar of Companies.
The interim accounts for the six months ended 30 June 2006 have been prepared on
the basis of the accounting policies set out in the statutory accounts for the
year ended 31 December 2005.
2. Profit and net assets
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Turnover
Turnover arises from the principal activity of the Group.
An analysis by geographical market.
By origin
UK 118,339 101,840 245,926
Asia and Australia 27,201 23,352 45,636
America 3,341 2,980 6,417
Europe 1,374 - 305
-------- -------- --------
150,255 128,172 298,284
======== ======== ========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
NOTES TO THE FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2006
£'000 £'000 £'000
Gross profit (Revenue)
An analysis by geographical market.
By origin
UK 20,278 19,026 39,470
Asia and Australia 12,281 11,458 25,084
America 1,556 1,398 3,211
Europe 540 - 236
-------- -------- --------
34,655 31,882 68,001
======== ======== ========
Operating profit / (loss) before amortisation of goodwill
An analysis by geographical market.
By origin
UK 3,376 3,352 5,811
Asia and Australia 9 882 2,117
America (238) (149) (322)
Europe (955) (522) (1,429)
-------- -------- --------
2,192 3,563 6,177
======== ======== ========
Operating profit / (loss)
An analysis by geographical market.
By origin
UK 2,522 2,531 4,123
Asia and Australia 9 882 2,117
America (238) (149) (322)
Europe (955) (522) (1,429)
-------- -------- --------
1,338 2,742 4,489
======== ======== ========
Profit before taxation (before amortisation of goodwill)
An analysis by geographical market.
By origin
UK 3,988 3,816 7,006
Asia and Australia 64 921 2,202
America (234) (148) (319)
Europe (962) (522) (1,432)
-------- -------- --------
2,856 4,067 7,457
======== ======== ========
Profit before taxation
An analysis by geographical market.
By origin
UK 3,134 2,995 5,318
Asia and Australia 64 921 2,202
America (234) (148) (319)
Europe (962) (522) (1,432)
-------- -------- --------
2,002 3,246 5,769
======== ======== ========
The accompanying notes form part of the unaudited financial statements
M&C SAATCHI PLC
NOTES TO THE FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 JUNE 2006
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
£'000 £'000 £'000
Net assets
An analysis by geographical market.
By origin
UK 34,409 31,466 32,008
Asia and Australia 2,668 3,143 3,646
America (3,377) (2,514) (1,950)
Europe (1,986) (424) (1,166)
-------- -------- --------
31,714 31,671 32,538
======== ======== ========
3. Earnings per share
UNAUDITED UNAUDITED AUDITED
Six months Six months Year
ended ended ended
30 June 2006 30 June 2005 31 December
2005
Earning per share before amortisation of goodwill
- Basic 2.06p 4.37p 7.57p
- Diluted 2.04p 4.33p 7.50p
Earnings per share
- Basic 0.49p 2.85p 4.46p
- Diluted 0.48p 2.83p 4.41p
The accompanying notes form part of the unaudited financial statements
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