Interim Results - June 2010

Released : 30/09/2010 07:00

RNS Number : 5419T

M&C Saatchi PLC

30 September 2010

M&C SAATCHI PLC

INTERIM RESULTS

SIX MONTHS TO

30 JUNE 2010

30 September 2010

GROUP INTERIM HIGHLIGHTS

·    Total revenues up 17% to £58.2m (2009: £49.8m)

·    Like-for-like revenue up 11% at £55.3m (2009: £49.8m)

·    Headline* operating profit up 13% to £6.3m (2009: £5.5m)

·    Headline* profit before tax up 17% to £6.3m (2009: £5.4m)

·    Headline* basic earnings per share up 23% to 6.49p (2009: 5.27p)

·    Interim dividend held at  0.87p

David Kershaw, Chief Executive, said:

"The Group has started the year well in what remains a challenging market. We have delivered significant revenue momentum and good earnings growth - with revenue and headline profit before tax both up 17% on last year and organic revenues up 11%.

"These results have been driven by both new business wins and continued cost control. The work we have done to expand geographically with new office openings and leverage of our brands across that network is starting to bear fruit. In overall terms, the business remains in good shape with positive cash flows and a strong balance sheet.

"Looking ahead, the environment remains uncertain with limited visibility. Current trading, however, is strong and we continue to manage resources tightly while also seeking further opportunities that will provide the basis for future growth. We therefore remain confident that M&C Saatchi plc will continue to make good progress in the full year and beyond."

For further information please call:

M&C Saatchi                            020-7543-4500
David Kershaw

Tulchan Communications        020-7353-4200
Susanna Voyle
Ashling Cashmore

Numis Securities                      020-7260-1000
Richard Thomas, NOMAD
Charles Farquhar, corporate broking

*      Headline results are stated before accounting for the amortisation of acquired intangibles (including goodwill), the fair value adjustment to minority put option liabilities and call option revaluations. The reconciliation of the difference between the headline results and the reported results is set out in note 4 on page 15. 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.

SUMMARY OF RESULTS

Overview

The Board of M&C Saatchi plc announces the unaudited results for the six months ended 30 June 2010.

We are pleased to report a good set of results for the first six months of 2010 which saw revenue growth of 17% to £58.2m (2009: £49.8m). Like-for-like revenue growth, which excludes the impact of exchange rate movements, acquisitions and discontinued operations, increased by 11% to £55.3m.

Headline operating profit increased 13% to £6.3m (2009: £5.5m). Regionally, there was an especially good first half performances from Europe and, in terms of divisions, from Clear. The headline operating margin dipped from 11.1% in 2009 to 10.7%, with some erosion from pricing pressure in Asia and Australasia.

There was a modest net interest charge of £37k (2009: £63k) and a profit contribution of £31k from the Group's associate in Spain (2009: loss of £107k). This left a headline profit before tax for the Group of £6.3m (2009: £5.4m), up 17% on last year.

The Group's headline tax rate has increased to 36.2% (2009: 34.5%), due to IFRS 3 no longer allowing investment expenses, on which we do not get a tax credit, to be capitalised and the return to profit of our higher tax rate US operations.

In addition, the non controlling interest charge reduced to £8k (2009: £263k) as under IAS27 losses are now attributable to minority shareholders as well as profits.

The headline profit attributable to the equity shareholders of the Group increased 24% to £4.0m.

Headline basic EPS grew 23% to 6.49p (2009: 5.27p).

As at 30 June 2010 the Group had net cash of £6.4m. Cash balances across the Group stood at £12.8m, down from £15.1m at the end of 2009, and we were utilising £6.4m of the £18.0m three-year facility provided by RBS, which continues until 2011.

During the period the Group generated free cash flow of £4.2m. There was a working capital outflow of £6.0m and £1.9m paid in dividends. The Group paid £2.6m for acquisitions that held £1.1m of cash (further detail is set out in note 11 to the interim accounts). The Group received £0.6m as a down payment on disposal of a non-controlling shareholding and £2.0m from debt drawdown. Exchange rate movements meant our cash position improved by £0.3m. The total net outflow was £2.3m.

While the business has made good progress in the first half, the outlook remains uncertain and, given this backdrop, the Board has decided to hold the interim dividend at 0.87p a share. This is a reflection of the fact that the dividend has been held since 2008, in the face of the difficult economic conditions. The Board is mindful of the need to provide a progressive dividend and will review the full-year payout in the light of that need and the performance for the year as a whole at a time when we should have greater clarity on the outlook for the Group and the markets in which we operate.

REVIEW OF OPERATIONS

UK

Trading in the UK remained tough. The new business performance was very good with notable wins from iShares, Mail on Sunday, Network Rail, the Olympic Delivery Authority, Bathstore, the Conservative Party, FTI Consulting, the Turkish Tourist Board, IKEA and Netjets. There were, however, client losses. We completed 2009 without any major client reviews. This year, however, we have lost Fosters, Lucozade and Halfords on the content front after reviews. In addition, the Change4Life campaign has been cancelled as part of the new Government's cost-saving measures.

Revenue increased by 6% to £25.3m (2009: £23.8m) and the headline operating profit increased to £5.3m (2009: £5.0m). Excluding the impact of the Group recharges, the headline operating margin was steady at 21.0% (2009: 21.1%), which was especially pleasing in the context of a very competitive media buying market.

Clear

Clear, our project-based consultancy, started the year positively after a difficult couple of years. Revenue rose 14% to £5.4m (2009: £4.7m) and Clear's operating margin increased to 22.3% (2009: 19.6%).The new offices in the US and Asia are trading well and a further office has been opened in Australia. New assignments have been won from Barclays, Celgene, Coors, Philips and Skandia.

Europe

The market within Continental Europe remained as challenging as in the UK. Our offices, however, performed favourably in the first half, in particular in Germany. Revenues increased 11% to £5.1m (2009: £4.6m).

Using constant exchange rates and stripping out the effect of the Sterling strengthening, revenue increased by 14%. 

Asia and Australasia

Asia and Australasia returned a comparatively strong performance in revenue terms. On a like-for-like basis and using constant exchange rates, revenue increased by 14%. Operating profit, however, rose by 9%, with some erosion of operating margin which fell to 7.9% from 9.6% in 2009, primarily due to pricing pressure in the Australian market.

Australia had a good first six months, with important new business wins from Brand Australia, David Jones and ING. Greater China (Beijing, Shanghai, Guangzhow and Hong Kong) continued to gain momentum, while Malaysia added a strong profit contribution and won new business from Volkswagen, the Malaysian stock exchange Bursa Malaysia and MAB (who manage and run all Malaysian airports). Elsewhere in the region, New Zealand and India were relatively weak.

Americas

Los Angeles made a good start to the year, winning business from the California Department of Public Health, Epson and the Hotel Bel Air. Brazil's trading improved and they are approaching profitability after 18 months of operation. Total Americas revenues using constant exchange rates were up 27%, with published revenues of £1.7m (2009: £1.3m).

New Offices

We opened new offices in Cape Town in February and in Milan in June. 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 £0.3m.

Outlook

Looking ahead, the environment remains uncertain with limited visibility around our clients' exposure to economic pressures. Current trading, however, is strong and we continue to manage resources tightly while also seeking further opportunities that will provide the basis for future growth. We therefore remain confident that M&C Saatchi plc will continue to make good progress in the full year and beyond.

This report comments on the unaudited consolidated income statement of M&C Saatchi plc (the "Group") for the six months to 30 June 2010 compared with unaudited consolidated income statement for the same period in 2009.  The report also comments on the numbers before accounting for the amortisation of acquired intangibles (including goodwill), the fair value adjustment to minority put option liabilities and call option revaluations.

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED INCOME STATEMENT

AT 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

AT 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED BALANCE SHEET (CONTINUED)

AT 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SIX MONTHS ENDED 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

SIX MONTHS ENDED 30 JUNE 2010

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

SIX MONTHS ENDED 30 JUNE 2010

NOTES TO THE INTERIM STATEMENTS

SIX MONTHS ENDED 30 JUNE 2010

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 consolidated half-yearly financial information was approved for issue on 29 September 2010.

These results do not constitute the Group's statutory accounts.  The information presented in relation to 31 December 2009 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 2009 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 Section 498 (2) or (3) of the Companies Act 2006.

2.   BASIS OF PREPARATION

This consolidated half-yearly financial information for the half-year ended 30 June 2010 has been prepared in accordance with the AIM Rules for companies. The half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2009.

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 2009 and which will form the basis of the 2010 financial statements, except as described below.

The Group has decided to define its new offices segment, as new offices created in the year (in our 2009 financial statements we stated that this segment would be for the first 2 years of a new office's life). This change has no effect, and would have no affect if it was reapplied to our 2009 financial statements.

A number of new and amended standards become effective for periods beginning on or after 1 January 2010.  The principal changes that are relevant to the Group are:

IFRS 3 Business Combinations (Revised); apart from no longer capitalising acquisition expenses, there has been no effect on the reported results or previous financial position of the Group.

IAS 27 Consolidated and separate financial statements (as amended) has had no effect on the previous financial position of the Group. However it has affected the reported results of the Group in the following ways:-

a) Non controlling interests. Where we have a loss making subsidiary whose losses are funded by the Group, previously and as stated in 2009 results 100% of those losses would be attributable to Equity holders of the Group, in 2010 the losses are shared between the Group and the non controlling interest, in proportion to the interests in the subsidiary. This change has resulted in the half years 2010 profits attributable to equity shareholders of the Group increasing by £273k.

b) Disposals of subsidiaries equity that does not affect control, no longer affect the value of Goodwill or create a profit / loss on disposal in the income statement. Proceeds less transfer to non controlling interests are credited directly to retained earnings. In the event that equity had previously been acquired under this revised standard then such a disposal will result in a release from Non controlling interest acquired reserve to retained earnings. 

c) Acquisition of subsidiaries equity that does not affect control, no longer changes the value of Goodwill. If a minority interest put option exists then the amount paid is provided by the minority shareholder put option liability, and its related minority interest put option reserve is taken to Non controlling interest acquired reserve. If no minority interest put option exists then the amount paid is taken to Non controlling interest acquired reserve. In both cases the share of net assets in Non controlling interest reserve, is transferred to the Non controlling interest acquired reserve.

NOTES TO THE INTERIM STATEMENTS

SIX MONTHS ENDED 30 JUNE 2010

4.   EARNINGS PER SHARE AND RECONCILIATION BETWEEN HEADLINE AND STATUTORY RESULTS

NOTES TO THE INTERIM STATEMENTS

SIX MONTHS ENDED 30 JUNE 2010

5.   SEGMENTAL INFORMATION

This segmental information is reconciled to the statutory results in Note 4.

As new offices are offices that were opened in 2010 we have reanalysed this data to give the correct comparative.

As new offices are offices that were opened in 2010 we have reanalysed this data to give the correct comparative.

6.   FINANCE INCOME

7.   FINANCE EXPENSE

NOTES TO THE INTERIM STATEMENTS

SIX MONTHS ENDED 30 JUNE 2010

8. TAXATION

Income tax expenses are recognised based on management's estimate of the average annual income tax expected for the full financial year.

The estimated effective annual tax rate for the period to 30 June 2010 is 46.1% (30 June 2009: 32.6%).

The headline effective annual tax rate (excluding associate) used for the period to 30 June 2010 is 35.9% (30 June 2009: 34.5%).

The increase in headline tax rate is due to IFRS 3 no longer allowing investment expenses on which we do not get a tax credit to be capitalised and our higher tax rate US operations returning to profit.

The difference between the headline and statutory tax rates is caused by a difference in the profit before tax as neither the impact of fair value adjustments to minority shareholder put option liabilities or revaluation of call option has any effect on the tax charge.

9.   DIVIDENDS

*Due to a second interim dividend being paid there was no 2009 final dividend.

The directors propose an interim dividend of 0.87p per share (2009: 0.87p per share) payable on 19 November 2010 to shareholders who are on the register at 5 November 2010. This interim dividend, amounting to £537k (2009: £529k) has not been recognised as a liability in this half-yearly financial report.

10.  CASH GENERATED FROM OPERATIONS

11.  CASH CONSUMED BY ACQUISITIONS