Final Results 2013

Released : 20/03/2014 07:00

RNS Number : 7265C

M&C Saatchi PLC

20 March 2014

M&C SAATCHI PLC

FINAL RESULTS

YEAR ENDED

31 DECEMBER 2013

20 March 2014

M&C Saatchi PLC

Final Results for the year ended 31 December 2013

Record revenue and profit

The highlights are pro forma headline results, see note on next page for definition.

Operational Highlights

·      Strong growth in revenue and earnings coming from new business wins and new businesses

·      The Global Network performed well across all geographies:

°           UK: revenues up 13%, with exceptional growth from CRM and Mobile, operating profit up 12%

°           Europe: revenues up 20%, operating profit impacted by investment in Stockholm, down 18%

°           Middle East and Africa: revenues up 22%, operating profit increased 59%

°           Asia and Australasia: revenues fell 10% (5% in constant currencies), operating profit up 29% with much reduced losses in China and New Zealand

°           Americas: revenues up 31%, operating loss of £90k as a result of  further investment in New York

°           Clear profits materially up following strategic review

·      Strong balance sheet maintained with net year-end cash of £33.2m ahead of January's £21m share buyback, following the sale of 75% of Walker Media

·      Final dividend increased 10% to 4.24p, full-year dividend up 10% to 5.45p

David Kershaw, Chief Executive, said:

"2013 was another year of outstanding progress for M&C Saatchi. Our proven strategy of winning new business and starting new businesses continues to deliver with the Group producing record revenue and profits.

"The strategic sale of 75% of Walker Media, and the current strong performance across the Global Network positions us well for the future."   

For further information please call:

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

David Kershaw

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

Lucy Legh

Susanna Voyle

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

Nick Westlake, NOMAD

Charles Farquhar, Corporate Broking

Notes to Editors

Pro forma headline results

The term headline is not a defined term in IFRS. The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill, but excluding software) acquired in business combinations, changes to contingent and deferred consideration taken to the income statement; impairment of investment in associate; and fair value gains and losses on liabilities caused by our put and call option agreements. Pro forma headline results treat discontinued operations as if they had not been disposed. For the 2013 headline results, we have included Walker Media in full for the year within our headline pro forma numbers.

SUMMARY OF RESULTS

2013 saw another strong performance with revenue momentum and earnings growth.

We have monitored the 2013 results on a pro forma basis, this assumes we have owned Walker Media for the full year (see note 3). On this basis Headline revenues increased 4.7% (6.5% in constant currencies). The overall Group headline profit before tax advanced an impressive 8% to £18.6m. Headline net earnings rose 15% to £11.0m aided by a reduced corporation tax rate (30.0% in 2013, compared with 32.4% in 2012).

UK (Excluding Walker Media)

Revenue in the UK was up 13%, with both CRM and Mobile particularly strong. UK headline operating profit improved 12% on 2012. Our success with new business, including HMG Cyber Security, Land Rover, O₂ and the Boots, De Beers and RBS digital business more than offset the loss of Dixons in January  2014. Our international capabilities were recognised by BASF and Douwe Egberts both of whom appointed us globally. Our CRM offering through LIDA remains outstanding and they deservedly won Customer Engagement Agency of the year. We are now exporting CRM and PR to our overseas offices, alongside Sport & Entertainment and Mobile. Our disciplined approach to cost and margins resulted in the headline operating margin improving slightly to 16.2% (2012: 16.1%).

Europe

European revenues increased 20% year on year. Operating profit fell 18%, impacted by the investment associated with opening our Stockholm office. Stockholm has started well and clients include Alliansen, Carlsberg, LG, SPP and Viasat. In spite of a difficult advertising market the French office successfully won the Mini account in October. Additionally, we are benefitting from PR and digital diversification. Germany and Italy continue to perform well.

Middle East and Africa

Revenues increased 22% with strong contributions from both Cape Town and Johannesburg. Headline operating profit was up 58% but the headline operating margin remained low due to investment in Abu Dhabi. Key new business wins in the year were the City of Cape Town, the Democratic Alliance, Heineken, Primus, Voltaren and 10X Investments. We have formed a new unit to service a growing African market and they are working with Guinness in Ghana. We have strengthened the management in Abu Dhabi and they have been looking to build revenues beyond the Etihad account. Projects won in the second half came from Image Nation, Mubadala and Senaat.

Asia and Australasia

In Asia and Australasia, revenue was impacted by currency headwinds, down 10% (5% in constant currencies) and the channelling of our Chinese revenues through our new associate, aeiou. Headline operating profit for the region rose 29% with headline operating margin up to 9.2%. The improved profitability came largely from the successful merger with aeiou in China. aeiou are proving a valuable addition to the network and have already started winning business, adding some Microsoft business. Another key driver of the increased profitability was an improving New Zealand office, which won some Government work whilst significantly downsizing their cost base. Malaysia continued to excel and had another very good year with key client wins including 1Malaysia. Japan and India both returned modest profits. We are looking for a new Indian partner as an associate to bolster our operation there. Singapore also made a small profit in their second year of trading, winning Jaguar Land Rover and the Singapore Tourism Board as well as continuing to win Government work. The Australian business responded quickly to the loss of the David Jones account, protecting profits through cutting costs accordingly.

Americas

Revenues increased 31% with a small operating loss of £90k as a result of our investment in New York office which continues to be an invaluable asset for global pitches. The team there have focused on developing key relationships and wins include CityMD, Kind Healthy Snacks and Profoot as well as projects from General Electric and Pernod Ricard. We made good progress in Los Angeles and opened a Mobile office in San Francisco. Additionally, we are upgrading our São Paulo office, replicating the investment approach we took in China and we have found a strong independent agency in which we plan to take a 20% shareholding.

Clear

Clear had a much improved year following a restructure undertaken in the fourth quarter of 2012. Clear's operating profit improved threefold, from £0.3m to £0.9m as a result of a streamlined cost base and new client wins included Cerebos, Guardian Life, John Lewis, Magners, North Face, Pernod Ricard, Suncorp and Wagamama. Their new business pipeline remains promising, fuelled by their Brand Desire research.

Discontinued operation Walker Media

Walker Media saw a small 3% headline revenue increase, though planned resource investment saw headline operating profit (excluding the impact of Group recharges) decrease 10.1% to £5.0m for the full year. On 27^thNovember last year, we sold 75.1% of our shareholding in Walker Media to Publicis. The strategic rationale for this was clear; in all our businesses we look for entrepreneurial competitive advantage. However, one exception is media buying where scale is a critical factor and we have been increasingly unable to compete with the larger Groups. We very much believe in our media leadership and talent. During 2013 we therefore sought a new home for Walker Media, with the objectives of seeking a good price, retaining a 24.9% stake and developing a worldwide media partnership. This led to the successful sale to Publicis and we are satisfied that with the support of a large Group's media buying infrastructure that our investment will continue to grow. Following on from this sale, on 23^rdJanuary, 2014 we returned a majority of the proceeds to shareholders by way of a share buyback.

Outlook

2013 was another year of outstanding progress for M&C Saatchi. Our proven strategy of winning new business and starting new businesses continues to deliver with the Group producing record revenue and profits.

The strategic sale of 75% of Walker Media, and the current strong performance across the Global Network positions us well for the future.

Audited consolidated income statement

* The results of Walker Media have been presented as a discontinued operation (note 10).

*he reconciliation of headline to statutory results above can be found in note 3.

***On a pro forma basis (note 3)

The notes on pages 14 to 29 form part of these financial statements.

Audited consolidated statement of comprehensive income 

* There are no items in other comprehensive income that would never be reclassified to the income statement.

The notes on pages 14 to 29 form part of these financial statements.

Audited consolidated balance sheet

The notes on pages 14 to 29 form part of these financial statements.
 

The notes on pages 14 to 29 form part of these financial statements.

Audited consolidated statement of changes in equity

The notes on pages 14 to 29 form part of these financial statements.

Consolidated cash flow statement and analysis of net debt

The notes on pages 14 to 29 form part of these financial statements.

Consolidated cash flow statement and analysis of net debt Continued

* 2012 comparatives have been restated for discontinued operations (note 10).

The notes on pages 14 to 29 form part of these financial statements.

Notes to the preliminary statements

Year ended 31 December 2013

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 2013 audited preliminary financial statements were approved for issue on 19 March 2014.

The financial information set out below does not constitute the company's statutory accounts for 2012 or 2013. Statutory accounts for the years ended 31 December 2012 and 31 December 2013 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2012 and 2013 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 2012 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 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) schemes 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 IFRS 8.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill, but excluding software) acquired in business combinations, changes to contingent and deferred consideration taken to the income statement; impairment of investment in associate; and fair value gains and losses on liabilities caused by our put and call option agreements. Headline results treats discontinued operations as if they had not been disposed.
 

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 2013. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2012.

Notes to the preliminary statements

Continued

3. Headline results and earnings per share

The analysis below provides a reconciliation between the Group's statutory continuing results and the headline continuing results. Then between the headline continuing results and pro forma headline results, which assume that the discontinued operation continued as a 100% subsidiary. The pro forma headline results with full year consolidation of discontinued operation as a 100% owned continued operation have been what management have used for management and control.

* Unaudited.

The Directors believe that the pro forma headline results and headline earnings per share provide additional useful information on the underlying performance. The pro forma headline result is used for internal performance management, calculating the value of subsidiary convertible shares and minority interest put options. The term pro forma headline is not a defined term in IFRS.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill, but excluding software) acquired in business combinations, changes to contingent and deferred consideration taken to the income statement; impairment of investment in associate; and fair value gains and losses on liabilities caused by our put and call option agreements. Pro forma headline results treats discontinued operations as if they had not been disposed.

Notes to the preliminary statements

Continued

3. Headline results and earnings per share continued

Notes to the preliminary statements

Continued

3. Headline results and earnings per share continued

Basic and diluted earnings per share is calculated by dividing profit attributable to equity holders of the Group by the weighted average number of shares in issue during the year.

Notes to the preliminary statements

Continued

3. Headline results and earnings per share continued

**Apart from one entity, in 2013, all the other put options detailed in note 11 are non dilutive as the exercise price approximates fair value of the underlying non controlling interest.

*** There is no dilutive effect on losses.

Notes to the preliminary statements

Continued

4. Segmental information

Segmental and headline income statement

Notes to the preliminary statements

Continued

4. Segmental information continued

Segmental and headline income statement

* UK has been restated to remove discontinued operations.

Notes to the preliminary statements

Continued

4. Segmental information continued

Segmental income statement translated at 2012 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 2013 results been translated at 2012 exchange rate then our results would have been: 

The key currencies that affect us and the average exchange rate used were:

Notes to the preliminary statements

Continued

5. Share of associates and joint ventures

6. Finance income

7. Finance costs

Notes to the preliminary statements

Continued

8. Taxation

Notes to the preliminary statements

Continued

9. Dividends

Proposed final dividend of 4.24p totalling £2,629k. Subject to shareholders approval on 11 June 2014, the dividend is payable on 4 July 2014 to shareholders on the register 6 June 2014.

Dividends relate to the profit of the following years:

Headline dividend cover is calculated by taking headline profit after tax attributable to equity shareholders and dividing it by the total dividends that relate to that year's profits. The Group seeks to maintain a long term headline dividend cover of between 3 and 4.

* 2012 dividend has been restated to reflect the number of shares in issue when the dividend was paid, as opposed to the number of shares in existence at 31 December 2012.

Notes to the preliminary statements

Continued

10. Discontinued Operations

On 28 November 2013 the Group sold its 75.1% of Walker Media Limited. No gain or loss arose on the measurement to fair value less cost to sell on this reclassification.

75.1% of Walker Media Limited was sold for £36.0m cash and a pre-tax and post-tax gain of £7.0m was recorded. At the time of disposal it was stated that the majority of proceeds would be returned to shareholders. On 23 January 2014 the Company completed a tender offer returning £21.2m to shareholders in return for 6,337,800 M&C Saatchi plc shares that were cancelled.

The results of discontinued operations can be seen in note 3 and on face of the income statement.

Effect of the disposals on individual assets and liabilities:

Notes to the preliminary statements

Continued

11. Minority shareholder put option liabilities

Some of our subsidiaries' minorities have the right to a put option. The put options give the minorities a right to exchange their minority holdings in the subsidiary into shares in M&C Saatchi plc or cash (as per the agreement).

Notes to the preliminary statements

Continued

27. Minority shareholder put option liabilities continued

The movements in the year relating to the minority interest put options that are payable in cash and in equity are as follows:

he estimated number of M&C Saatchi plc shares that will be issued, in thousands, to fulfil.

Notes to the preliminary statements

Continued

27. Minority shareholder put option liabilities continued

Put options are exercisable from:

* New or amended options in 2013.

** Holding changed or shares put in 2013.

Notes to the preliminary statements

Continued

27. Minority shareholder put option liabilities continued

At each period end the fair value of the put options' liability is calculated in accordance with the shareholders' agreement and any movement is charged to the income statement. Where the agreement gives a right to convert to a variable number of shares (rather than a value), the number of shares is converted to a value by using the period end share price (2013: 333.3p, 2012: 180.5p).

The liability will vary with our share price, and with the results of the subsidiary companies. Current liabilities are determined by our year end share price and the 2013 results of the companies who can exercise in 2014. Non current liabilities are determined by our year end share price and the projected results of the companies who can exercise after 2014. The projected results show management's best estimate of the growth rates and margin of the companies who can exercise after 2014, given that these companies are small, single account wins/losses can have a significant effect on their results. Such account wins are far more significant than changes to exchange rates and underlying economic growth rates.

The fair value of minority shareholder put option liabilities is measured using some inputs that are not based on observable market data (i.e. IFRS13, Level 3 fair value measurement).

Share price risk

Changes in our year end share price will impact the fair value adjustment to minority shareholder put options. The year end share price was 333.3p (2012: 180.5p). The 2013 charges would have changed as follows, had the share price been:
 

Forecast accuracy

Difference in actual and projected results of the companies could have an impact on the fair value adjustments as follows:

This information is provided by RNS

The company news service from the London Stock Exchange

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