REG-M&C Saatchi PLC Final Results - 2007 Prelims - Part 1
Released : 27/03/2008 07:04
. RNS Number:8698Q M&C Saatchi PLC 27 March 2008 M&C SAATCHI PLC PRELIMINARY STATEMENT FOR YEAR ENDED 31 DECEMBER 2007 GROUP HIGHLIGHTS - Revenues up 15.5% to £87.6m (2006: £75.9m) - Headline profit before tax up 53.2% to £11.9m (2006: £7.8m) - Headline profit after tax up 66.6% to £8.2m (2006: £4.9m) - Headline basic EPS up 78.3% to 12.55p (2006: 7.04p) - Proposed full year dividend up 13.1% to 3.62p (2006: 3.20p) The headline results referred to above are stated before taking account items excluded from the statutory results. A summary reconciliation of the statutory to headline results is presented on page 2. Commenting on the results, David Kershaw, Chief Executive, said "2007 was a very successful year for the Group in terms of revenue, profit and executing our strategy for growth. The core business has continued to thrive and we have made significant investments in higher growth, higher margin sectors. We have made a good start to the year and the outlook for the rest of the year remains in line with current expectations." For further information please call: M&C Saatchi plc 020 7543 4500 David Kershaw, Chief Executive Tulchan Communications 020 7353 4200 Celia Gordon Shute Numis Securities Charles Farquhar 020 7260 1233 Lee Aston 020 7260 1200 M&C SAATCHI PLC SUMMARY OF RESULTS INTRODUCTION The reported statutory results for 2007 reflect the impact of the accounting changes to which the Group has been subject as a result of adopting and reporting IFRS (International Financial Reporting Standards) for the first time. The board considers that these changes do not affect the underlying operating performance or the cash flows of the Group. Therefore, and in common with our peers, we have excluded those accounting charges which have materially altered the results. Those accounting charges are: -The amortisation of intangible assets under IAS 36. -The revaluation of minority shareholder put options under IAS 32 & IAS 39. -The fair value adjustment to deferred consideration (notional interest) under IFRS 3 & IAS 39 This commentary reports on the financial results for the Group excluding the impact of these accounting charges. A reconciliation of the statutory to headline operating results is presented below: 2007 2006 £000 £000 ------- ------- Headline operating profit 10,222 6,274 Headline profit before taxation 11,926 7,786 Less items excluded from headline results Amortisation of intangible assets - Group company 608 20 Amortisation of intangible assets - associate 53 - Fair value adjustment of minority put options liabilities 3,052 8,970 Notional interest 257 - ------- ------- Statutory profit before taxation 7,956 (1,204) ------- ------- M&C SAATCHI PLC SUMMARY OF RESULTS These results show a very strong performance for 2007. Revenues increased by 15.5% to £87.6m (2006: £75.9m). Headline operating profits increased by 62.9% to £10.2m (2006: £6.3m) and the headline profit before tax increased by 53.2% to £11.9m (2006: £7.8m). The headline basic EPS increased 78.3% to 12.55p (2006: 7.04p). This encouraging level of growth reflects a combination of strong organic growth as well as the contributions from the acquisitions in the UK, Germany and Spain. Our investment, expanding the business into continental Europe, which had a negative impact on earnings in 2005 and 2006 is now making an important contribution to profits. The contribution has come from a combination of the organic start up in Paris in 2005 (which is reporting its first full year profit), the acquisition made in Germany in July 2006, and from the initial 25% investment in our Spanish associate in March 2007. Additionally, our previously loss making operations in the US have moved into profit. In 2007 we made important steps in executing our strategy of moving the Group into higher margin disciplines, with the acquisition of Clear Ideas Ltd (Clear). We also acquired a further 19.5% of Walker Media. Both transactions took place in July. M&C SAATCHI PLC FINANCIAL REVIEW REVENUE Revenue increased 15.5% in the year. Like-for-like revenue growth (excluding the impact of acquisitions and reported at constant exchange rates) was 7.4%. Inc / Dec 2007 2006 Reported Constant £000 £000 rates rates -------- ------- -------- -------- Organic UK 48,284 44,352 8.9% 8.9% Asia & Australia 24,663 25,638 (3.8)% (4.6)% America 3,732 3,632 2.8% 11.5% Europe 4,235 1,800 135.3% 134.5% Acquired Clear 5,454 - - - Germany 1,252 471 - - -------- ------- -------- -------- Total Revenue 87,620 75,893 15.5% 15.6% -------- ------- -------- -------- The organic revenue growth in the UK was driven by the continued growth of Walker Media and in particular its digital activities. The balance of the business had a solid year and is in good shape to deliver the growth expected in 2008. Clear was acquired in July and contributed £5.5m of new revenues from its operations in the UK (£4.5m), Europe (£0.6m) and America (£0.5m). The picture in the Asia Pacific region was mixed. The loss of the IAG account at the end of 2006 in Australia was a setback and the most significant factor affecting the revenue decline for the region. There were positive performances from the offices in India, New Zealand and particularly Malaysia. The offices in Singapore and Thailand did not perform well. In May 2007 we reorganised our business in America. We shifted the focus of our advertising activities to LA and ceased work on accounts that needed servicing in New York. The LA office had an excellent year with revenue up 34.7% at constant rates on the back of account wins in 2006. The impact of resigning the New York business reduced the overall revenue growth 11.5% at constant rates. 2007 was a very good year for our European business. Our Paris office continues its excellent progress winning the Pages Jaunes account. Together with the contribution from the Berlin office and our Spanish associate (accounted for under associates so no contribution to revenue) the contribution from our expansion into continental Europe has been significant. OPERATING PROFIT 2007 2006 Inc/Dec £000 £000 £000 % -------- -------- -------- ------- UK 8,369 6,323 2,046 32.4% Asia Pacific 550 1,496 (946) (63.2)% USA 581 (261) 842 - Europe 722 (1,284) 2,006 - -------- -------- -------- ------- Group Total 10,222 6,274 3,948 62.9% -------- -------- -------- ------- The headline operating profit increased 62.9% to £10.2m (2006: £6.3m). The headline operating margin increased to 11.7% (2006: 8.3%). The key drivers of profit growth were the strong performance in the UK and the significant improvements from a loss in 2006 to a profit in 2007 by the USA and European businesses. Our Asia Pacific business had a disappointing first half following the loss of the IAG business in Australia at the end of 2006. Trading improved in the region in the second half, as Australia won significant business from Westfield and Abu Dhabi Tourism. ASSOCIATES The Group's share of headline profit after tax (excluding the amortisation of intangibles) from its associates increased to £334k (2006: £5k). In March 2007 we acquired an initial 25% of Spanish agency group Zapping/M&C Saatchi. The contribution from Zapping for the 9 month period was £309k. The balance of £25k is from our UK based digital business Play London Ltd. NET INTEREST The headline net interest contribution (after excluding the notional interest of £0.3m, on the estimated deferred consideration and the fair value adjustment to minority shareholder put option liabilities of £3.2m) declined to £1.4m (2006: £1.5m). The Group earned £1.8m (2006: £1.5m) on the positive operating cash flows and paid £0.4m (2006: £Nil) on the Group's borrowings which stood at £8.6m at 31 December 2007. HEADLINE TAX RATE The Group's headline tax rate reduced to 31.1% (2006: 36.7%). The reduction is due to the significant reduction in the unutilised losses that was incurred in New York, Asia and France in 2006. We expect the tax rate to stabilise around 30% to 31% based on the current operating mix. MINORITY INTERESTS The profit after taxation attributable to the Group's minority shareholders increased marginally to £1.2m (2006: £1.1m). More significantly the proportion of the headline profit after taxation attributable to the minority shareholders decreased to 14.2% (2006: 23.3%). This was due to the acquisition of 19.5% of the remaining 25% minority in Walker Media in July and to the significant reduction in the operating losses incurred in the USA, Europe and parts of Asia Pacific, all of which are attributable to the Group's equity shareholders. CASH FLOW AND GROUP DEBT In 2007 the headline profit before tax before associates was £11.6m and the provision for depreciation and the share based incentive plans was £2.0m. The tax paid in the period was £4.1m and the amount spent on capital expenditure, excluding acquisitions, was £1.5m. There was a reduction in the positive contribution to working capital of £3.2m and the dividends paid to the Group's equity and minority shareholders was £3.2m. The net cash inflow was £1.5m. The net cash consumed by the Group's acquisitions was £24.6m and this was funded from a combination of existing Group cash reserves and facilities provided by RBS. The maximum facility available from RBS is £13m of which £8.6m was being utilised at the 31 December 2007. DIVIDEND The board is proposing a final dividend of 2.75 pence per share (2006: 2.43 pence), giving a full year dividend of 3.62 pence (2006: 3.20 pence), and an increase of 13.1%. The dividend will be paid on the 7 July 2008 to shareholders on the register as at the 6 June 2008. OPERATING REVIEW STRATEGY At the time of the float in July 2004 we set out our ambitions to grow M&C Saatchi into a global network, extending our marketing services into higher margin and higher growth disciplines and extending our geographic reach into continental Europe. This year has been a very important one in realising these goals. We now have a strong network across the world. This year, our business in Continental Europe has exited from the investment phase and has made a profit contribution to the Group. Our US business is now stabilised, contributing a profit from a previously loss making position. Asia and Australia have had a tough first half, but ended the year well following some important clients wins. 2007 was a very important year in consolidating the Group's move into attractive growth markets and higher margin categories. We purchased a further 19.5% of Walker Media which takes our ownership to 94.5% and further strengthens our position in this profitable marketplace. Additionally, we acquired Clear in the first half of the year, which takes us into the growing brand consultancy market in the UK, Europe and America. M&C SAATCHI PLC REVIEW BY REGION THE UK It was a very encouraging year for our UK businesses with revenues up by 18.9% to £52.8m (2006: £44.4m), incorporating organic growth of 8.9%. The operating profit increased 32.4% to £8.4m (2006: £6.3m). The operating margin increased to 15.9% (2006: 14.3%). Clear made a contribution to revenue of £4.5m in the UK. 2007 was a second successive year of strong growth for Walker Media coming from both traditional media assignments and from the digital arm Walker-i. The balance of the business in the UK had a solid year. There were important wins from Vodafone and Findus by LIDA (our direct and digital business), new advertising assignments from Ladbrokes and GlaxoSmithKline (Macleans). A new and growing stream of business this year has been assignments from clients based in the Middle East but handled out of the UK. In July we acquired brand consultancy group, Clear. Clear's offering includes brand strategy, growth mapping, innovation and training and engagement. The addition of the business to the Group is consistent with our strategy to move into higher margin and more profitable areas of the marketing services arena. Additionally, early indications suggest that there will be numerous opportunities to refer clients to and from the Clear business within the network. In July last year Christine Walker who founded Walker Media with Phil Georgiadis in 1997 chose to retire and step down as Chairman of the business. At this point the Group acquired her remaining minority shareholding in Walker Media. Phil Georgiadis also chose to sell half of the equity he owned. M&C Saatchi now holds 94.5% of the equity of Walker Media. Phil Georgiadis has advised the company that he will exercise his put option over his remaining shares, ahead of the changes to CGT rules on 5 April. The consideration will be approximately £4.8m of which 80% will be paid in cash and remaining 20% settled by the issue of new plc shares. Phil Georgiadis has taken over as Chairman and the business remains in excellent shape. EUROPE After two years of significant investment our European businesses have made positive contributions to Group profits. The businesses delivered revenues of £6.1m (2006: £2.3m) and an operating profit of £0.7m (2006: £(1.3)m), with an operating margin of 11.9% (2006: (5.7)%). Our French office which opened in 2006 continues its excellent progress with very significant new business wins from Pages Jaunes and Jameson (Pernod Richard). They have also extended their offering with a move into Corporate PR. 2007 is the first full year which includes a contribution from our German business, based in Berlin, with important client wins from Coca Cola (Apollinaris Water) and the Green Party of Germany. In March we extended our European reach into Spain following the acquisition of an initial 25% of Madrid based agency, Zapping. We will acquire a further 26% in 2008 and a final 24% in 2009. The acquisition of Clear gives the Group a presence in Amsterdam. The office was opened 2005 and contributed £0.6m of revenues in the second half. ASIA AND AUSTRALIA Performance in the Asia Pac region was mixed, the first half was disappointing followed by a more stable second half (and the retention and win of some important clients for the region). Revenue was down by 3.8% and operating profits were down to £0.6m (2006: £1.5m). The operating margin declined to 2.2% (2006: 5.8%). Australia is the biggest market in the region with 63% of the revenue share. It has been one of our most dynamic markets over the last 13 years; the office has consistently won significant accounts and has award winning creative credentials. As previously reported the business lost a critical client, IAG at the end of 2006. Following this disappointment, the business won significant new business from Westfield and from Abu Dhabi Tourism, which provides encouragement for the current year. The office has been very successful at retaining and growing business from other important clients, particularly Optus and we believe they begin 2008 in good shape with a focus on new business and improving the operating margin. The Asian businesses are now being managed by new regional CEO, Chris Jaques hired in December 2007 and as a result, our strategy has been under review. We are working to build on the good regional performers such as Hong Kong, India and Malaysia while developing new approaches in the other key markets. AMERICA In May 2007 we reorganised our business in America and now our advertising activities are now based in LA. Our other marketing service activities in the region are based in New York which includes Clear. We incurred reorganisation costs of £0.3m. The Clear office was opened 2007 and is ahead of budget, revenue were £0.4m from July. Our refocused business in LA had an excellent year with revenues up by 34% (at constant rates). The operating profit for the region increased by £0.9m to £0.6m (2006: £(0.3)m) and the operating margin increased to 14.1% (2006: (7.2)% ). In the fourth quarter we observed trading conditions soften, and a tightening of fees with a resulting negative impact on revenues. While the year ended well, full year operating profits fell below our own expectations. OUTLOOK The prospects for our UK business are good, particularly in the higher margin areas such as Clear and Walker Media. Our UK based advertising and marketing services business is also performing well in a very competitive market having risen to third in the Campaign ranking for 2007. We expect our European businesses to progress, as they continue to move out of investment phase. Conditions look more challenging in America as the economic sentiment continues to weaken. The early signs in Australia are positive and we have plans underway to strengthen the Asian business. Overall 2008 has started well and the outlook for the full year remains in line with current expectations. M&C SAATCHI PLC UNAUDITED STATUTORY CONSOLIDATED INCOME STATEMENT 2007 2006 Year ended 31 December Note £000 £000 Billings 412,746 368,645 ---------------------------------- ----- -------- -------- Revenue 3 87,620 75,893 ---------------------------------- ----- -------- -------- Operating costs 4 (78,006) (69,639) ---------------------------------- ----- -------- -------- Operating profit 2,3 9,614 6,254 ---------------------------------- ----- -------- -------- Share of results of associates 5 281 5 Finance income 6 1,809 1,540 Finance costs 7 (3,748) (9,003) ---------------------------------- ----- -------- -------- Profit / (loss) before taxation 2,3 7,956 (1,204) ---------------------------------- ----- -------- -------- Taxation on profit / (loss) 8 (3,530) (2,857) ---------------------------------- ----- -------- -------- Profit / (loss) for the year 4,426 (4,061) ---------------------------------- ----- -------- -------- Attributable to: Equity shareholders of the Group 2 3,258 (5,209) Minority interests 1,168 1,148 ---------------------------------- ----- -------- -------- Profit / (loss) for the year 4,426 (4,061) ---------------------------------- ----- -------- -------- Earnings per share Basic 2 5.80p (9.70)p Diluted 2 5.59p (9.70)p Headline results Headline operating profit 2 10,222 6,274 Headline profit before tax 2 11,926 7,786 Headline profit after tax attributable to equity shareholders 2 7,046 3,781 M&C SAATCHI PLC UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended 31 December 2007 2006 £000 £000 Profit for the year 4,426 (4,061) Currency translation differences 828 (410) Tax effect on gains and losses recognised directly in equity (145) - Gains from exercising put options in minority 8,353 - interests ---------------------------------- -------- -------- Total recognised income and expenses for the year 13,462 (4,471) ---------------------------------- -------- -------- Attributable to: Equity shareholders of the Company 12,294 (5,619) Minority interests 1,168 1,148 ---------------------------------- -------- -------- 13,462 (4,471) ---------------------------------- -------- -------- M&C SAATCHI PLC UNAUDITED CONSOLIDATED BALANCE SHEET At 31 December Notes 2007 2006 £000 £000 Non current assets Intangible assets 61,409 15,357 Investments in associates 10 4,086 - Plant & equipment 3,954 3,531 Deferred tax assets 2,034 1,676 Other non current assets 565 460 ---------------------------------- ----- -------- -------- 72,048 21,024 ---------------------------------- ----- -------- -------- Current assets Trade and other receivables 74,872 48,321 Current tax assets 519 88 Cash and cash equivalents 16,895 31,284 ---------------------------------- ----- -------- -------- 92,286 79,693 ---------------------------------- ----- -------- -------- Current liabilities Trade and other payables (86,850) (66,510) Current tax liabilities (1,610) (1,036) Other financial liabilities (18) (34) Deferred and contingent consideration 11 (9,811) (67) Minority shareholder put option liabilities (6,854) (11,077) ---------------------------------- ----- -------- -------- (105,143) (78,724) ---------------------------------- ----- -------- -------- Net current (liabilities) / assets (12,857) 969 Total assets less current liabilities 59,191 21,993 Non current liabilities Deferred tax liabilities (1,604) (141) Other financial liabilities (8,531) (29) Deferred and contingent consideration (8,325) - Minority shareholder put option liabilities (3,691) (11,211) Other non current liabilities (1,142) (862) ---------------------------------- ----- -------- -------- (23,293) (12,243) ---------------------------------- ----- -------- -------- Total net assets 35,898 9,750 ================================== ===== ======== ======== Equity Equity attributable to shareholders of the parent Share capital 12 597 542 Share premium 12 12,758 9,618 Merger reserve 12 20,285 14,756 Treasury reserve 12 (792) (792) Minority interest put option reserve 12 (6,876) (13,318) Foreign exchange reserve 12 318 (371) Retained earnings / (loss) 12 9,053 (1,261) ---------------------------------- ----- -------- -------- 35,343 9,174 ---------------------------------- ----- -------- -------- Minority interests 12 555 576 ---------------------------------- ----- -------- -------- Total equity 35,898 9,750 ================================== ===== ======== ======== More to follow