PRELIMINARY RESULTS 2010

Released : 24/03/2011 07:00

RNS Number : 5204D

M&C Saatchi PLC

24 March 2011

M&C SAATCHI PLC

PRELIMINARY RESULTS

YEAR ENDED

31 DECEMBER 2010

24 MARCH 2011

Group Highlights

·    Strong financial and operational results, with growing momentum throughout 2010

·    Group revenues up 21% at £125.1m (2009: £103.4m); up 15.6% using constant currencies

·    Headline operating profit up 28.3% to £13.3m (2009: £10.4m)

·    Headline operating margin 10.6% (2009: 10.0%)

·    Statutory operating profit up 24.5% to £12.7m (2009: £10.2m)  

·    Headline profit before tax up 29% to £13.3m (2009: £10.3m)

o UK: revenues up 9% in competitive market

o Europe: like-for-like revenues up 18%, despite challenging trading conditions

o Asia and Australia: like-for-like revenues up 14%

o Clear: operating profits up 53%, with good growth in the US and Asia

·    Cash at year-end of £31m (2009: £15m), of which £19m is advance 2011 client payments

·    Balance sheet further strengthened, with Group debt reduced to £2.3m (2009: £4.4m)

·    Headline basic earnings per share up 24% at 12.59p (2009: 10.15p)

·    Final dividend up 10.2% to 3.03p (2009: 2.75p); total dividend up 7.7% to 3.90p (2009: 3.62p)

See note 1 for definition of headline. In discussing segmental results, operating profit is stated excluding the impact of Group recharges.

Operational highlights

·    Strong new business performance; UK with best levels of wins since 2004

·    Three new offices opened (Cape Town, Johannesburg and Milan), in line with strategy of organic development in key markets

·    Acquisition of Inside Mobile, a specialist mobile marketing business

·    Launch of M&C Saatchi MENA in partnership with Quantum Group

Developments in 2011

·    Continued roll-out of higher margin growth businesses (Clear, Sport & Entertainment and Mobile) across M&C's international network

·    Investment in future growth:

o Completion of global network with formation of 50/50 joint venture in Russia with EMCG, one of Russia's leading independent agencies

o Acquisition of a 25% stake in both a start-up data business and Human Digital, a new social media insight business, in the UK

·    M&C Saatchi network now operating from 26 offices in 19 countries across six continents, allowing us to deliver a global offering to international clients - whilst retaining M&C Saatchi's unique entrepreneurial approach

·    Significant momentum from 2010 continuing into 2011

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

"M&C Saatchi made excellent progress in 2010 - delivering strong growth in revenues and profitability against a backdrop of competitive markets. At the same time, we continued to invest for future growth, expanding into more geographies and taking our brands into new market segments.

"That success leaves us well placed to make further progress and winning more global new business is a key focus. With the formation of a joint venture in Russia, our global network is complete - operating from 26 offices in 19 countries across six continents - meaning we are better placed than ever before to drive international revenue growth. M&C Saatchi has grown internationally by backing owner managers starting up agencies, rather than through acquisition. This ensures that our clients have the benefit of the best and most entrepreneurial operators in each market. At the same time, we are also exporting our newer businesses such as Clear, Sport & Entertainment and Mobile, across our unique international network.

"2011 has started well with the good revenue momentum built through 2010 continuing into the new year. Given this backdrop, while we remain cautious about the macro environment, the Board is confident that we will continue to make progress in 2011 and beyond."

For further information please call:

M&C Saatchi                         +44 (0)20-7543-4500

David Kershaw

Tulchan Communications     +44 (0)20-7353-4200

Susanna Voyle

Tom Murray

Numis Securities                   +44 (0)20-7260-1000

Richard Thomas, NOMAD

Charles Farquhar, Corporate Broking

SUMMARY OF RESULTS

2010 was a year of healthy progress for M&C Saatchi. We ended the year with significant momentum having delivered good growth in both revenue and profits. The overall figures were excellent: revenue was up 21%, with like-for-like (excluding exchange movements) revenues increasing by 16%, the headline operating margin was up from 10.0% to 10.6%, while the headline profit before tax advanced 29% to £13.3m and headline net earnings rose 25%.

Cash flow continued to be strong and our balance sheet remains in good shape. We have been closely managing our working capital so debt has been reduced and cash materially increased.

UK

We enjoyed a strong year in the UK, delivering the best annual new business performance since we listed in 2004. UK revenues advanced 9% year on year. This performance came  in spite of the continued highly competitive nature of the market. Key new clients included iShares, BlackRock, the Mail on Sunday, the Olympic Delivery Authority, Bathstore, IKEA, Netjets, Memega and the Government's Cancer Awareness campaign for the COI. Importantly, several of the larger wins were integrated mandates, with a number of Group companies benefiting.We retain a close focus on margin and cost control, but continue to experience pressure on media buying remuneration. This resulted in the headline operating margin dipping from 21.3% to 20.5%. The UK operating profit improved 5% on 2009. 

Europe

We made good progress in our offices in Continental Europe, with our offices growing well in a market that proved to be no easier. Like-for-like revenues  rose 18%, the headline operating margin increased from 11.5% to 15.1% and operating profits were up 49% year on year. Germany delivered a particularly impressive performance, whilst in France we benefited from our expansion into direct marketing, digital and PR as the core advertising market remains tough.

Asia and Australasia

There was improvement from our operations in Asia and Australasia. Like-for-like revenue increased 14%, headline operating margin was up from 6.8% to 8.2% and operating profits rose a notable 59% to £3.6m.

New accounts in Australia included Brand Australia, David Jones, ING, Woolworths hardware and Georg Jensen. Malaysia also turned in a strong new business performance, winning Volkswagen, Bursa Malaysia and MAB.

Elsewhere in the region, Japan and New Zealand are growing and made good progress. China and India's clients remain project based and relatively small; both markets are currently working to secure larger retained clients. 

Americas

We continued to make progress in the US, albeit with our operations that remain modest. We have explored alliances in New York and are currently establishing a hub for our growing non-advertising businesses.

Los Angeles was successful on the new business front in the second half, winning Trafalgar Travel, Proximo Spirits (Three Olives Vodka) and Ugg boots.

Brazil has found it hard to compete through lack of scale, leading to a portfolio reliant on project-based work. To rectify this we are acquiring 60% of a larger agency and merging this into our Sao Paulo operation.

Global Network

One of the key focuses last year was the continued work to complete the M&C Saatchi global network. This has been developed in line with our strategy of organically developing offerings in key markets. In 2010 we opened three new offices; in South Africa (Cape Town in February and Johannesburg in October) and Italy (Milan in June) in line with our strategy of organically developing offerings in key markets. These moves meant that by the year end we were operating in 18 countries across 6 continents with 25 offices, allowing us to deliver a global offering to international clients - whilst retaining M&C Saatchi's unique entrepreneurial approach, based on incorporating Brutal Simplicity of Thought.

In 2010, the new offices contributed £1.2m of new revenues and £0.8m of operating losses. We generally expect our new offices to incur two years of operating losses and were delighted that Milan managed to break even in its first year.

Since the year end, we have announced plans to open in Russia - a move which completes our global network - via the formation of a 50/50 joint venture with EMCG, one of Russia's leading independent agencies.

They will now work under the M&C Saatchi name, giving us access to another key growth market.  

In June we acquired Inside Mobile, the leading mobile marketing specialist, and are delighted with the progress they are making as part of the Group. We continue to add new businesses, investing for future growth.

Clear

Clear maintained a strong first half performance, with good growth in the US and Asia. Like-for-like revenue was up 29% on 2009, the headline operating margin advanced from 15.2% to 17.9% and operating profits increased by 53%.

New clients in the UK were BSkyB, Coors and Skandia, whilst the Netherlands added Philips and TomTom, the USA Pizza Hut and Celgene and Asia Pepsi, Celcom and Colgate.

There was a healthy referral of clients across the Clear network and all offices now handle assignments from Unilever.

We opened a new Clear office in Australia at the start of 2010 and are just adding a further office in Singapore to attract regionally based multinationals. 

Outlook

2011 has started well. Despite caution regarding the macro environment, we are currently enjoying good revenue momentum. We believe the Network is now in place with offices in all the key regions. Winning global new business is a key focus. In this respect, already in 2011 we have won Visit Britain, FTI Consulting, Kaspersky, BAE Systems and Garmin.

We are also exporting our newer businesses; we have been rolling out Clear, Sport & Entertainment and Mobile across international markets.

Lastly, we continue to invest for future growth. In the UK, we are taking a 25% minority in both a start up data business and Human Digital, a new social media insight business.

The Board is confident that we will continue to make progress in 2011 and beyond.

M&C SAATCHI PLC

AUDITED CONSOLIDATED INCOME STATEMENT

M&C SAATCHI PLC

AUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

M&C SAATCHI PLC

AUDITED CONSOLIDATED BALANCE SHEET

M&C SAATCHI PLC

AUDITED CONSOLIDATED BALANCE SHEET (CONTINUED)

M&C SAATCHI PLC

AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Details of Other reserves can be found in note 14.
The reclassification of share to cash based options is due to the Group paying cash equal to the employment tax payable and issuing a reduced number of shares on exercise of its employee share options.
The reclassification of cash to share based options is due to a reclassification of share based options which had previously been held as a liability.

M&C SAATCHI PLC

AUDITED CONSOLIDATED CASH FLOW STATEMENT

M&C SAATCHI PLC

NOTES TO THE PRELIMINARY STATEMENTS

YEAR ENDED 31 DECEMBER 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.

These 2010 audited preliminary financial statements were approved for issue on 23 March 2011.

The financial information set out below does not constitute the company's statutory accounts for 2009 or 2010. Statutory accounts for the years ended 31 December 2009 and 31 December 2010 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2009 and 2010 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Statutory accounts for the year ended 31 December 2009 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2010 will be delivered to the Registrar in due course.

Headline results

The directors believe that the headline results and headline earnings per share provide additional useful information on the underlying performance of the business. In addition, the headline results are used for internal performance management, the calculation of rewards in the Group's Long Term Incentive Plan (LTIP) scheme and minority shareholder put option liabilities. The term headline is not a defined term in IFRS.

Our segmental reporting reflects our headline results in accordance with IFRS8.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill) acquired in business combinations, impairment of investment in associates, and fair value gains and losses on liabilities caused by our put and call option agreements. 

Basis of preparation

The financial information set out in these preliminary results does not constitute the company's statutory accounts for 2009 or 2010. Statutory accounts for the years ended 31 December 2010 and 31 December 2009 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2010 and 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 December 2009 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 December 2010 will be delivered to the Registrar in due course.

2.   ACCOUNTING POLICIES

The financial information set out in these final results has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The accounting policies adopted in these final results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 December 2010. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2009, except as described below.

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. Acquisition and disposals without a change in control do not have an effect on the income statement. It has affected the reported results of the Group in the following ways:-

a) Non controlling interests. Where we have a loss making subsidiary with net liabilities, 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 2010 profits attributable to equity shareholders of the Group being £570k higher that they would have been under the old standard.

b) Disposals of subsidiaries equity that do 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. This change has resulted in the 2010 profits attributable to equity shareholders of the Group being £2,540k lower, and goodwill £757k higher that they would have been under the old standard.

c) Acquisitions of subsidiaries' equity that do not affect control no longer change 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. This change has no impact on the income statement, and has resulted in goodwill being £64k lower than it would have been under the old standard.

None of the other new standards and amendments affect the Group.

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

4.   SEGMENTAL INFORMATION

This segmental information is reconciled to the statutory results in Note 3.

SEGMENTAL INCOME STATEMENT TRANSLATED AT 2009 EXCHANGE RATES

It is normal practice in our industry to provide like for like results. In the year we had not acquired any significant new businesses therefore the only difference in our like for like results is the impact from movements in exchange rates. Had our 2010 results been translated at 2009 exchange rate then our results would have been:

MARKET RISK

5.   OPERATING COSTS

6.   SHARE OF ASSOCIATES
 

7.   FINANCE INCOME
 

8.   FINANCE COSTS

9.   TAXATION

The difference between the actual tax and the standard rate of corporation tax in the UK applied to profits for the year are as follows:

10.  DIVIDENDS

Proposed final dividend of 3.03p totalling £1,873k

The dividend relates to the following years: