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 
- 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 
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 
                                                                     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) 
                                                                   -------      ------- 
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: 
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 
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. 
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 
                          --------           -------     --------     -------- 
   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% 
   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 
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. 
                        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. 
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. 
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. 
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. 
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. 
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. 
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. 
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 
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. 
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 
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 
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. 
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. 
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. 
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. 
                                                              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 
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        - 
----------------------------------                          --------    -------- 
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) 
----------------------------------                          --------    -------- 
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 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