Half Yearly Report - June 2011

Released : 21/09/2011 07:00

RNS Number : 6078O

M&C Saatchi PLC

21 September 2011

M&C SAATCHI PLC

INTERIM RESULTS

SIX MONTHS TO

30 JUNE 2011

21 September 2011

INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2011

21 September 2011

GROUP HIGHLIGHTS

¬ Revenues up by 23% to £71.9m (2010: £58.2m)

¬ Like-for-like* revenue up 21%

¬ Headline* operating profit up 22% to £7.6m (2010: £6.3m)

¬ Headline* profit before tax up 24% to £7.7m (2010: £6.3m)

¬ Headline* basic earnings per share up 10% to 7.15p (2010: 6.49p)

¬ Interim dividend increased 15% to 1.0p (2010: 0.87p)

Commenting on the results, David Kershaw, the Chief Executive, said:

"The results for the period show significant progress. Trading has been strong in a tough market. We experienced good growth in our UK and other European businesses. The Asia and Australasia region had a more challenging half but we are pleased that our African and American operations are all moving towards profit. Revenue was 23% up on the same period last year and profit before tax increased 24%. 

"The network is now in place and the new offices are all on course to be profitable by the end of the year. We have more multi-national clients as well as rolling out our higher growth companies. We are confident about our progress but conscious of any macro effects beyond our control in 2012. We remain vigilant about costs and maintaining our strong balance sheet."

For further information please call:

David Kershaw                           - M&C Saatchi                                   020-7543-4500

Susanna Voyle                           - Tulchan Communications               020-7353-4200
Tom Murray
 

Richard Thomas, Nomad          - Numis Securities                             020-7260-1000

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, revisions to contingent consideration 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 14. The like-for-like revenue comparisons referred to in this report are stated after excluding the impact of foreign currency movements.

SUMMARY OF RESULTS

Overview

The Board of M&C Saatchi plc announces the unaudited results for the six months ended
30 June 2011.

We are pleased to report a strong set of results for the first six months of 2011 which saw revenue growth of 23% to £71.9m (2010: £58.2m). Like-for-like revenue growth which excludes the impact of exchange rate movements increased by 21% to £70.6m (2010: £55.3m).

Headline operating profit was up 22% to £7.6m (2010: £6.3m). Regionally, there were especially good first half performances from both the UK and the rest of Europe. The overall operating margin dipped from 10.7% in 2010 to 10.6%, due to some pricing pressure in China and Australia.

There was a net nil interest charge in the period (2010: £36k) and a profit contribution of £105k from the Group's associates in Spain and the Middle East (2010: £31k). This left a headline profit before tax of £7.7m (2010: £6.3m), 24% up on last year.

The Group's headline tax rate (excluding associates) has gone down to 32.5% (2010: 36.2%). The decrease is due to a reduction in our organic start-up losses, with some companies now making a profit and utilising their historic tax losses. Our present and projected tax rate has further been reduced by the reduction in the rate of UK corporation tax.

With many of these newer companies within the Group now making a profit, the minority interest charge has risen to £829k (2010: £8k).

The headline profit attributable to the equity shareholders of the Group increased 11% to £4.4m.

Headline basic EPS has grown 10% to 7.15p (2010: 6.49p).

At 30 June 2011 the Group had net cash of £14.8m (2010: 7.3m). Cash balances across the Group stood at £17.4m down from £31.4m at the 2010 year-end, with the release to suppliers over the first half of some exceptionally large client advance payments received at the end of 2010. We were utilising £2.6m of the three-year £10m facility provided by RBS, which continues until 2014.

During the period the Group generated free cash flow of £6.8m. There was a working capital outflow of £19.0m and £1.6m spent on acquisitions. The total net outflow was £14.0m primarily due to the release to suppliers of the client 2010 advance payments. Other net outflows including dividends paid to minority interest shareholders totalled £0.2m.

REVIEW OF OPERATIONS 

With the worldwide agency network now in place, the key development from a year ago has been the network's ability to win regional and international business. As well as the first quarter wins confirmed with the preliminary results (FTI Consulting, Kasperski and Garmin), we have maintained this momentum winning new assignments from Vertu, Google, Siemens, Lenovo and Pernod Ricard.

UK 

Our first half financial performance was very good. Revenue increased by 24% to £31.4m (2010: £25.3m) and the headline operating profit (excluding Group costs) increased 23% to £6.5m (2010: £5.3m). Excluding the impact of the Group recharges, the headline operating margin remained steady at 20.8% (2010: 21.0%), which was pleasing in the context of a media buying market that continues to be very competitive.

The UK has been the lead country in most of the international wins. Importantly, the new management has succeeded in developing a robust integrated offer, which clients are increasingly finding appealing. Data and social media operations were launched in the second quarter and are very much in demand. M&C Saatchi Mobile (acquired last year as Inside Mobile) is growing fast and has developed an extensive client portfolio that includes Boots, BMW, Ernst & Young, Hyundai, Pfizer and Wonga.

Europe

Our offices all made good progress in the first half. Germany delivered positive results, adding more Ferrero brands. France is still a tough market but benefited from strong digital and PR performances. Italy won Sky and very impressively was voted the country's Best Independent Agency in its first year of trading. Spain (an Associate) made a better contribution and won Correos, the national postal service.

Revenues increased 26% to £6.6m (2010: £5.3m). Using constant currency rates meant that the revenue increased by 25%. Headline operating profit (excluding Group costs) increased 44% to £0.9m (2010: £0.6m) and the headline operating margin for the first half increased to 12.9% (2010: 11.2%),  

Middle East & Africa

Both our African offices made big steps forward in revenue terms and Cape Town and Johannesburg are set to be profitable in the second half. First half 2011 revenues were £1.1m (2010: £0.1m) and there is now a significant client base with key wins in the period being Samsung and Nestlé. The offices were virtually at breakeven in the first half, which compares with a loss of £0.3m for the same period last year. We feel they are very well positioned to take advantage of the growing African market.

MENA (an associate) had a challenging period with their performance severely hit by the Arab spring. Under our agreed contract, the Group's share of losses was negligible. However, opportunities are beginning to emerge within the region as stability begins to return.

Asia and Australasia

A relatively weaker result was returned from the Asian and Australasian region with the performance eroded by Australia's ANZ advertising loss at the end of last year. This together with some market pricing pressure in both Australia and China meant lower operating margins. On a like-for-like basis and using constant exchange rates, revenue has increased by 8%. Operating profit was down 17% to £1.3m (2010: £1.6) with a fall in operating margin from 7.9% in 2010 to 5.6%.

Australia has clawed back much of the loss through cost control and new business wins, including EFTPOS, Tennis Australia and Dick Smith. Greater China has been gaining some revenue momentum and led the Lenovo new business win. Malaysia maintained their strong financial performance, whilst New Zealand had a good first half winning Education NZ. Our challenge in India is to develop advertising scale to add to our strong direct and digital offering. 

Americas

In New York, we now have a single property to house Clear, Sport & Entertainment and Mobile in one hub. This will form the foundation for growth into other marketing services and will be a key development focus in the next eighteen months. Los Angeles has been slow; the office won Ugg but several client losses resulted in a profit decline. The new acquisition in Brazil has meant scale and profitability. Sao Paulo now has a good impetus and has been winning new business; including Minerva and Tetra Pak. 

Revenues using constant exchange rates were up 76% to £3.0m (2010: £1.7m) boosted by the new acquisition revenues. The region made a small operating loss of £0.1m (2010:  a loss of £0.1m) 

Clear

Clear experienced a slow start in the UK but is now performing more in line with our expectations under a new management team. Asia continues to grow well, whilst the US is flourishing.

There were good new business wins, including Bacardi, Fonterra, HTC, VFC  and Pepsi.

In January, Clear added a new office in Singapore and is now looking to open an office in San Francisco to capitalise on the US demand.

Like-for-like revenues were up 17% to £6.2m (2010: £5.3m). Headline operating profit was flat at £1.2m with Clear's operating margin slipping to 19.9% (2010: 22.3%) due to some pressure on pricing, mainly in the UK.

Outlook

The network is now in place and the new offices are all on course to be profitable by the end of the year. We have more multi-national clients. We have successfully invested in new higher growth businesses and subsequently rolled out proven models.

We are confident about our progress but are conscious of any macro effects beyond our control in 2012. Consequently, we remain vigilant about costs and maintaining our strong balance sheet.

This report comments on the unaudited consolidated income statement of M&C Saatchi plc (the "Group") for the six months to 30 June 2011 compared with unaudited consolidated income statement for the same period in 2010.  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, revisions to contingent consideration and call option revaluations.

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED INCOME STATEMENT

ENDED 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

ENDED 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED BALANCE SHEET (CONTINUED)

AT 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

SIX MONTHS ENDED 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

SIX MONTHS ENDED 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

SIX MONTHS ENDED 30 JUNE 2011

M&C SAATCHI PLC

UNAUDITED NOTES TO THE INTERIM STATEMENTS

SIX MONTHS ENDED 30 JUNE 2011

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
20 September 2011.

These results do not constitute the Group's statutory accounts.  The information presented in relation to 31 December 2010 is extracted from the statutory financial statements for the year then ended and which have been delivered to the Registrar of Companies. The auditor's report on the statutory financial statements for the year ended 31 December 2010 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 2011 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 2010.

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 2010 and which will form the basis of the 2011 financial statements, except as described below.

The Group has decided to cease using its new offices segment, and create a new Middle East and Africa segment. Our 2010 comparatives reflect this change.

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

 

5.   SEGMENTAL INFORMATION

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

As Middle East & Africa is a new segment we have reanalysed this data to give the correct comparative.

As Middle East & Africa is a new segment we have reanalysed this data to give the correct comparative.

6. FINANCE INCOME

7. FINANCE COSTS

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 2011 is 33.9% (30 June 2010: 46.1%).

The headline effective annual tax rate (excluding associates) used for the period to 30 June 2011 is 32.5% (30 June 2010: 36.2%).

The decrease in the headline tax rate to closer to our long term levels is due to a reduction in our organic start losses, with some companies now making a profit and utilising their historic tax losses. Our present and long term tax rate has further been reduced by the reduction in UK corporation tax.

The difference between the headline and statutory tax rates is caused by a difference in the profit before tax due to the impact of fair value adjustments to minority shareholder put option liabilities has no effect on the tax charge.

9. DIVIDENDS

he 2010 final dividend of £1,895k (3.03p per share) was paid in July 2011 and therfore is not included in the statement of changes in equity for the period to 30 June 2011.

The directors propose an interim dividend of 1.00p per share (2010: 0.87p per share) payable on 
18 November 2011 to shareholders who are on the register at 4 November 2011. This interim dividend, amounting to £626k (2010: £537k) has not been recognised as a liability in this half-yearly financial report.

10.  CHANGES TO PUT OPTIONS

New issue of put options

During the period equity was issued in the following subsidary enterprises, the equity has the right to be put into M&C Saatchi plc:-

his is a share in capital above its present value

Revised put options

The following put option agreements have been revised:-

** Some of the M&C Saatchi GAD SAS shareholders have agreed to delay their right to put their shares by between one and three years, in return, the fair market value formula has been revised to reflect the Group multiple as well as a minimum value per share.

*** As part of the reorganization of Brazil the put option exercise date has been delayed by two years and the formula adjusted.

Deleted put option

The following put option was deleted as part of the Brazil reorganisation.

11.  CASH GENERATED FROM OPERATIONS