REG-M&C Saatchi PLC Interim Results 2009 - Part 1
Released : 24/09/2009 06:00
http://pdf.reuters.com/Regnews/regnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20090924:RnsX5663Z . RNS Number : 5663Z M&C Saatchi PLC 24 September 2009 M&C SAATCHI PLC INTERIM RESULTS SIX MONTHS TO 30TH JUNE 2009 24TH September 2009 GROUP HIGHLIGHTS * Total revenues of £49.8m (2008: £51.8m) * Headline operating profit £5.5m (2008: £7.7m) * Headline profit before tax £5.4m (2008: £8.0m) * Headline basic earnings per share 5.27p (2008: 8.62p) * Interim dividend held at 0.87p The headline results referred to above are stated before accounting for the amortisation and impairment of acquired intangibles (including goodwill), the fair value adjustment to minority put option liabilities and notional interest on contingent consideration. The reconciliation of the difference between the headline results and the reported results (shown on page 7) is set out in note 4 on page 16. The like-for-like revenue comparisons referred to in this report are stated after excluding the impact of foreign currency movements and of discontinued operations. Commenting on the results, David Kershaw, the Chief Executive, said: "We are pleased to report that M&C Saatchi continues to perform well in a very challenging market. Group trading has stabilised against the second half of last year and the business remains in good shape with strong cash flows and balance sheet. "As always, we remain focused on providing a great service to our clients, winning new business and managing costs. Where the possibility exists for significant returns, we will continue to invest in order to provide the basis for future growth. Accordingly, we have opened three new offices this year and we are also extending our current brands into new markets. "The outlook for the full year remains in line with management expectations." For further information please call: M&C Saatchi 020-7543-4500 David Kershaw Tulchan Communications 020-7353-4200 Susanna Voyle Tom Rayner Numis Securities 020-7260-1000 Lee Aston, NOMAD Charles Farquhar, corporate broking SUMMARY OF RESULTS Overview The Board of M&C Saatchi plc announces the unaudited results for the six months ending 30 June 2009. In the first six months of 2009 our clients have faced unprecedented pressure to reduce costs and improve efficiency in the face of the current economic climate. This has impacted both revenue and profitability. Given this backdrop, we are pleased with these results. The business is in good shape, our clients remain loyal and the balance sheet and cash flows are strong. The environment, however, remains difficult and we are focused on managing costs and responding to the challenges that the industry is facing and, despite the depressed conditions, will continue to invest in the future. The Group is reporting a revenue reduction of 3.8% to £49.8m (2008: £51.8m) and on a like-for-like basis, eliminating the positive impact of exchange rate movements on the overseas revenue, the reduction is 7.5%. The headline operating profit is down by 28.4% to £5.5m (2008: £7.7m). The headline operating margin has declined to 11.1% (2008: 14.9%). We have continued with our stated strategy of investing in new geographies and new businesses that we believe are important drivers for future growth. This year we have opened new offices in Geneva, Sao Paulo and Tokyo and the early signs are promising. The expectation is that these businesses will incur losses in the first two years of operation and the impact on this period's results has been, as planned, a revenue contribution of £0.2m and an operating loss of £0.6m. Excluding this investment, the headline operating margin for the Group was 12.3%. Managing costs is a key focus for the Group. The reported results show a revenue decrease of 3.8% compared to an overall cost increase of 0.5% and hence the operating margin decline. The overall cost increase is due to the costs incurred (£0.7m) opening the three new offices. Excluding these costs there was a net year on year decrease of 1.2%. The contribution from the Group's associate in Spain was a loss of £0.1m (2008: £0.1m loss) and reflects the continued difficult trading conditions in that country. The Group incurred a net interest charge of £0.1m, compared to a net contribution of £0.3m last year. This was principally due to a tighter working capital environment. The Group's tax rate has increased to 34.5% (2008: 31.7%), due to the unutilised losses trapped in the new offices. The profits attributable to the Group's minorities decreased by 16% to £0.26m (2008: £0.31m). The weighted average number of shares increased to 60.9m from the position at the end of 2008 (60.0m) as a result of shares issued to satisfy the acquisition of the Group's minority in Talk PR and M&C Saatchi Sports and Entertainment. The number of shares in issue at the 30 June 2009 was 61.5m. The net result of all of the above was that the headline basic earning per share decreased to 5.27p (2008: 8.62p). The board is recommending that we hold the interim dividend at 0.87p per share. Cash Flow and Group Debt. At 30 June 2009 the Group had net debt of £0.4m. Cash balances across the Group stood at £4.5m down from £9.3m at end of 2008, and we were utilising £4.9m of the three-year facility provided by RBS which continues until 2011. During the period the Group generated free cash flow of £3.8m. There was a working capital outflow of £6.0m and a debt repayment of £1.7m. The Group paid £0.3m acquiring some of its minority interests (The detail is set out in note 11 to the interim accounts). Other net outflows including exchange revaluations totalled £0.6m. The total net outflow was £4.8m. REVIEW OF OPERATIONS UK Trading in the UK is tough in comparison to previous years. Clients started to reduce communication budgets in the face of the economic headwinds in the last quarter of 2008, but we saw little impact on fees. In 2009 we are seeing significant pressure being applied to fees to reflect the reduction in activity. Revenue declined by 6% to £23.8m (2008: £25.2m) and the headline operating profit declined to £5.0m (2008: £5.8m). Excluding the impact of the Group recharges the headline operating margin declined to 21.1% (2008: 23.1%). We are monitoring costs carefully; focusing on maintaining margin whilst being careful to maintain sufficient resource to properly service clients. In spite of the drop compared to last year, the headline operating margin of our UK business remains healthy. Nevertheless we are taking steps to reduce our variable costs which have been reduced by 3.3% compared to the same period last year and we will continue to focus on costs as future revenue levels become clearer. Important new revenue in this period came from the Department of Health's "Change 4 Life" anti obesity campaign, which was won last year, as well as assignments from Boots (Boots Advantage Card), The Carphone Warehouse, Castrol (sports sponsorship) and for the State of Georgia. Clear Clear's project-based business was the first to be seriously affected by the economic downturn. Revenue declined significantly in the fourth quarter of 2008, but has since shown resilience and revenue in the first half of this year is 9% above the second half 2008. Costs have been reduced by 15% compared with the levels in the first half of last year and while the margin has fallen compared with last year's level of 27.2%, it remains healthy at 19.6%. Europe It is as tough in continental Europe as it is in the UK. There are few new business opportunities and clients are cutting activity and looking for fee reductions. The weakness of sterling is the cause of the reported revenue increase of 9.7% to £4.5m (2008: £4.1m). Using constant rates the revenue has reduced by 4.9%. Again, using constant rates, the costs across our two offices has increased by 1.7% and that reflects the growth of the Paris office prior to the downturn. There are few short-term cost savings to be achieved due to employment legislation, particularly in France, but if the recession persists further action will be taken to manage the margin which has declined to 9.9% (2008: 12.4%). Asia and Australia A comparatively strong performance from this region. On a like-for-like basis, excluding the impact of the offices closed last year and using constant exchange rates, revenue has increased by 1.5%. Australia had a good first six months with a like-for-like revenue increase of 7%. Important new assignments have come from Freedom Furniture, Mitre 10, KR Castlemaine and Deacons. The offices in Greater China (Hong Kong and Shanghai) are also gaining momentum, reporting a like-for-like revenue increase of 9%. Elsewhere in the region it is more difficult. Revenue was flat in Malaysia and there were declines in New Zealand and India. The headline operating profit increase of 56% includes the benefit of eliminating the 0.5m losses incurred in Thailand and Singapore last year. Excluding this effect, the headline operating profit remained flat at £1.6m and the headline operating margin declined marginally to 11.5% (2008: 12.3%). America Our office in Los Angeles was one of the first to suffer from the economic downturn and it remains difficult. On a like-for-like basis revenue declined by 36%. Clients have continued to reduce spend and Ketel One, an important and valued client, was lost following the sale of the brand to Diageo. New Offices As we reported in March, in spite of the difficult trading environment we have been pursuing opportunities to expand organically by opening new businesses and extending existing businesses into new markets. We opened new offices in Geneva in February, Sao Paulo in March and Tokyo in August. It is still very early in their life cycle but they are trading in line with expectations. During the period the new offices contributed £0.2m of new revenue and incurred an operating loss of £0.6m. Outlook The outlook for the full year remains in line with management expectations. In the current environment long-term forecasting is difficult, but what we can see suggests that conditions will remain depressed for the medium term as long as the budget outlook for our clients remains uncertain. We believe however the Group is in good shape. Resource levels are being tightly managed, the balance sheet is strong, and we will continue to seek further opportunities to provide the basis for future growth. This report comments on the unaudited consolidated income statement of M&C Saatchi plc (the "Group") for the six months to 30 June 2009 compared with unaudited consolidated income statement for the same period in 2008. The report also comments on the numbers before the impact of fair value adjustments to minority shareholder put option liabilities and amortisation and impairment of intangible assets (headline numbers). M&C SAATCHI PLC UNAUDITED CONSOLIDATED INCOME STATEMENT AT 30 JUNE 2009 Six months Six months Year ended ended ended 30 June 2009 30 June 2008 31 December 2008 Note £000 £000 £000 Billings 174,622 222,753 436,506 Revenue 4 49,801 51,769 104,383 Operating costs (44,339) (44,514) (93,617) Operating profit 4 5,462 7,255 10,766 Share of results of associates (107) (114) (81) Impairment of associate - - (2,400) Finance income 6 564 978 3,350 Finance costs 7 (198) (572) (1,142) Profit before taxation 4 5,721 7,547 10,493 Taxation on profits 8 (1,865) (2,470) (3,904) Profit for the financial period 3,856 5,077 6,589 Profit attributable to: Equity shareholders of the Group 4 3,593 4,763 6,021 Minority interests 263 314 568 3,856 5,077 6,589 Earnings per share 4 Basic 5.90p 8.06p 10.04p Diluted 5.75p 7.50p 9.75p Headline results 4 Operating profit 5,527 7,721 13,739 Profit before tax 5,357 7,962 14,095 Profit attributable to equity shareholders 3,210 5,096 9,024 HEADLINE Earnings per share 4 Basic 5.27p 8.62p 15.05p Diluted 5.14p 8.02p 14.62p M&C SAATCHI PLC UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AT 30 JUNE 2009 Six months Six months Year ended ended ended 30 June 2009 30 June 2008 31 December 2008 £000 £000 £000 Profit for the period 3,856 5,077 6,589 Other comprehensive income: Exchange differences on translating foreign operations (990) 566 2,403 before tax Tax benefit / (expense) 135 (103) (311) Other comprehensive income for the period net of tax (855) 463 2,092 Total comprehensive income for the period 3,001 5,540 8,681 Total comprehensive income attributable to: Equity shareholders of the Company 2,802 5,222 7,952 Minority interests 199 318 729 3,001 5,540 8,681 M&C SAATCHI PLC UNAUDITED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2009 30 June 2009 30 June 2008 31 December 2008 £000 £000 £000 NON CURRENT ASSETS Intangible assets 58,209 63,568 58,114 Investments in associates 1,585 4,098 1,711 Plant and equipment 3,977 3,943 4,239 Deferred tax assets 1,919 2,078 1,924 Other non current assets 1,543 544 707 67,233 74,231 66,695 CURRENT ASSETS Trade and other receivables 49,581 64,088 60,784 Current tax assets 781 206 649 Cash and cash equivalents 4,470 1,980 9,271 54,832 66,274 70,704 CURRENT LIABILITIES Trade and other payables (57,197) (70,360) (73,583) Current tax liabilities (2,778) (1,904) (3,030) Other financial liabilities (3) (13) (37) Deferred and contingent consideration (229) (112) (116) Minority shareholder put options liabilities (508) (1,983) (1,881) (60,715) (74,372) (78,647) Net current liabilities (5,883) (8,098) (7,943) Total assets less current liabilities 61,350 66,133 58,752 Non current liabilities Deferred tax liabilities (924) (1,526) (928) Other financial liabilities (4,861) (7,468) (6,702) Deferred and contingent consideration - (4,917) - Minority shareholder put options liabilities (1,824) (3,268) (1,816) Other non current liabilities (524) (1,344) (483) (8,133) (18,523) (9,929) Net assets 53,217 47,610 48,823 M&C SAATCHI PLC UNAUDITED CONSOLIDATED BALANCE SHEET (CONTINUED) AT 30 JUNE 2009 30 June 2009 30 June 2008 31 December 2008 £000 £000 £000 Equity Equity attributable to shareholders of the parent Share capital 622 610 615 Share premium 12,758 12,758 12,758 Merger reserve 22,257 21,685 21,777 Treasury reserve (792) (792) (792) Minority interest put option reserve (4,062) (4,436) (4,463) Foreign exchange reserve 1,458 777 2,249 Retained earnings 20,110 16,552 15,869 Total shareholders' equity 52,351 47,154 48,013 Minority interestS 866 456 810 TOTAL EQUITY 53,217 47,610 48,823 M&C SAATCHI PLC UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY SIX MONTHS ENDED 30 JUNE 2009 Share capital Share premium Merger reserve Treasury reserve Minority interest put option reserve Translation of foreign operations Retained earnings Subtotal Minority interests Total £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 31 December 2007 597 12,758 20,285 (792) (6,876) 318 9,053 35,343 555 35,898 Reserve movements for the Year ending 31 December 2008 Issue of shares for acquisitions 18 - 1,925 - - - - 1,943 - 1,943 Repayment of minority share capital - - - - - - - - (19) (19) Exercise of minority put options - - - - 2,413 - 2,657 5,070 (19) 5,051 Transfer to majority reserves - - - - - - (212) (212) 212 - Transfer of reserves - - (433) - - - 433 - - - Equity settled share based payments - - - - - - 104 104 - 104 Dividends - - - - - - (2,187) (2,187) (648) (2,835) Total comprehensive income for the year - - - - - 1,931 6,021 7,952 729 8,681 31 December 2008 615 12,758 21,777 (792) (4,463) 2,249 15,869 48,013 810 48,823 Reserve movements for the Six months ending 30 June 2009 Issue of shares to new minorities - - - - - - - - 102 102 Issue of shares for acquisitions 7 - 480 - - - - 487 - 487 Exercise of minority put options - - - - 401 - 537 938 (57) 881 Equity settled share based payments - - - - - - 111 111 - 111 Dividends - - - - - - - - (188) (188) Total comprehensive income for the period - - - - - (791) 3,593 2,802 199 3,001 30 June 2009 622 12,758 22,257 (792) (4,062) 1,458 20,110 52,351 866 53,217 M&C SAATCHI PLC UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED) SIX MONTHS ENDED 30 JUNE 2009 Share capital Share premium Merger reserve Treasury reserve Minority interest put option reserve Translation of foreign operations Retained earnings Subtotal Minority interests Total £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 31 December 2007 597 12,758 20,285 (792) (6,876) 318 9,053 35,343 555 35,898 Reserve movements for the Six month ending 30 June 2008 Issue of shares for acquisitions 13 - 1,400 - - - 71 1,484 - 1,484 Exercise of minority put options - - - - 2,440 - 2,619 5,059 - 5,059 Equity settled share based payments - - - - - - 125 125 - 125 Transfer between majority and minority reserves - - - - - - (79) (79) 79 - Dividends - - - - - - - - (496) (496) Total comprehensive income for the period - - - - - 459 4,763 5,222 318 5,540 30 June 2008 610 12,758 21,685 (792) (4,436) 777 16,552 47,154 456 47,610 M&C SAATCHI PLC UNAUDITED CONSOLIDATED CASH FLOW STATEMENT SIX MONTHS ENDED 30 JUNE 2009 Six months ended Six months ended Year 30 June 2009 30 June 2008 ended 31 December 2008 Notes £000 £000 £000 Cash generated from operations 10 688 2,921 15,050 Tax paid (1,923) (2,159) (3,592) Net cash (Out) / In flow from operating activities (1,235) 762 11,458 Acquisitions 11 (333) (14,082) (14,156) Proceeds from sale of plant and equipment 9 4 5 Purchase of plant and equipment (863) (627) (1,605) Purchase of capitalised software (28) (41) (100) Dividends received from associates - 56 125 Interest earned from cash held by trading entities 134 737 1,401 Interest received on centrally held cash - 7 10 Net cash consumed by investing activities (1,081) (13,946) (14,320) Dividends paid - - (2,187) Minority dividends paid (189) (496) (648) Subsidiaries' purchase of own shares from minorities 111 - (19) Repayment of finance leases (12) (10) (12) Inception of bank loans - 10,722 12,620 Repayment of bank loans (1,705) (11,780) (14,703) Interest paid (197) (403) (974) Interest on finance leases - - (1) Net cash consumed from financing activities (1,992) (1,967) (5,924) Net decrease in cash and cash equivalents (4,308) (15,151) (8,786) Cash and cash equivalents at the beginning of the period 9,271 16,895 16,895 Effect of exchange rate changes (493) 236 1,162 Cash and cash equivalents at the end of the period 4,470 1,980 9,271 1. GENERAL INFORMATION The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 36 Golden Square, London W1F 9EE. The Company has its primary listing on the AiM market of the London Stock Exchange. This condensed consolidated half-yearly financial information was approved for issue on 23 September 2009. This interim report does not constitute the Group's statutory accounts. The information presented in relation to 31 December 2008 is extracted from the statutory financial statements for the year then ended and which have been delivered to the Registrar of Companies. The auditors' report on the statutory financial statements for the year ended 31 December 2008 was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report(s) and did not contain statements under S237(2) or (3) of the Companies Act 1985. 2. Basis of preparation This condensed consolidated half-yearly financial information for the half-year ended 30 June 2009 has been prepared in accordance with the AiM Rules for companies. The half-yearly condensed consolidated financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2008. 3. Accounting policies The financial information in these interim results is that of the holding company and all of its subsidiaries (the Group). It has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2008 and which will form the basis of the 2009 financial statements, except as described below. A number of new and amended standards become effective for periods beginning on or after 1 January 2009. The principal changes that are relevant to the Group are: IFRS 8 Operating Segments is a disclosure standard only; there has been no effect on the reported results or previous financial position of the Group. The segments reported in these interims results reflect the guidance under IFRS 8 and full note disclosures will be provided in the 2009 financial statements. IAS 1 Presentation of Financial Statements (revised 2007) has introduced a number of terminology changes (including new titles for the condensed financial statements) and has resulted in a number of changes in presentation and disclosure. There has been no effect on the reported results or previous financial position of the Group. Full supporting note disclosures will be provided in the 2009 financial statements. None of the other new standards and amendments is expected materially to affect the Group. 4. Earnings per share and reconciliation between headline and statutory results Six months ended 30 June 2009 Reported results Amortisation of acquired intangibles & write off of Fair value adjustments to minority put option liabilities Notional interest on deferred consideration Headline & Segmental results goodwill £000 £000 £000 £000 £000 Revenue 49,801 - - - 49,801 Operating profit 5,462 65 - - 5,527 Share of results of associates (107) - - - (107) More to follow