Final Results

Released : 18/03/2016 07:00

RNS Number : 5001S

M&C Saatchi PLC

18 March 2016

M&C SAATCHI PLC

FINAL RESULTS

YEAR ENDED

31 DECEMBER 2015

18 March 2016

M&C Saatchi PLC

Final Results for the year ended 31 December 2015

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

Operational Highlights

·      Record results with very good revenue momentum and earnings growth

The Global network performed well across all geographies:

·      UK: revenues up 6%, with CRM and Mobile continuing to excel; operating profit was flat, suppressed by a restructuring cost in the advertising agency

·      Europe: like-for-like revenues up 19%, operating profit increased 27%

·      Middle East and Africa: like-for-like revenues up 11%, operating profit up 2%

·      Asia and Australasia: like-for-like revenues up 5% , operating profit was down 17% with a drag from strong foreign currency headwinds

·      Americas: like-for-like revenues up 27%, operating profit of £3.3m

·      Enhanced US position: just acquired 51% of MCD Partners in New York to develop our US CRM offer and increased our holding in SS+K from 33% to 51%

·      Robust balance sheet maintained with net year-end cash of £8.6m

·      Final dividend increased 15% to 5.60p, full-year dividend up 15% to 7.21p

David Kershaw, Chief Executive, said:

"2015 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 current strong performance across the Global network positions us well for the future.

We are confident we will continue to make good progress in 2016 and beyond."  

For further information please call:

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

David Kershaw

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

Andrew Grant

Tom Murray

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

Nick Westlake, NOMAD

Charles Farquhar, Corporate Broking

Notes to Editors

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 and acquired intangibles, but excluding software) acquired in business combinations, changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investment in associate; profit /loss on disposal of associates; income statement impact of put option accounting (whether accounted under IFRS2 or IAS39).

SUMMARY OF RESULTS

2015 saw record results with very good revenue momentum and earnings growth.

UK

Revenue in the UK was up 6%, with CRM and Mobile continuing to perform particularly positively. We experienced a strong run of account wins across our group of businesses, including Airbus, BNY Mellon, Carnival, PHE (adult health), Royal Mail, Samsung, Pernod Ricard's Passport Scotch and Unilever's Toni & Guy and Cornetto.

M&C Saatchi Mobile was again awarded Mobile Agency of the Year. We are rolling out LIDA, our CRM agency together with M&C Saatchi PR internationally, which follows successful roll-outs in recent years of our Mobile and Sport & Entertainment operations. In addition, we have launched M&C Saatchi Shop to help clients drive purchase conversion.

As ever, we retained a careful watch on costs to support margins, resulting in a headline operating margin of 14.0% (2014: 14.9%). Both margins exclude the impact of Group recharges. The UK headline operating profit was flat on 2014 but included restructuring costs of £900k in the advertising agency unit, which if discounted meant operating profit actually grew 8% on 2014 and a restated 2015 operating margin of 15.1%.  We are also now selling 30% of the advertising agency to management following our proven owner driver model.

Europe

European like-for-like revenues increased 19% year on year. Stockholm has maintained its very good new business performance, winning E.ON and the TV and broadband supplier Com Hem. Both Germany and Italycontinue to shine, with Italy winning Becks, ING and Unicredit. In spite of a slow advertising market, the French office is benefitting from PR and digital diversification.

In July, we acquired a minority stake in INSPI(RED) and formed M&C Saatchi Istanbul. Our associate in Spain fared better compared with recent years, winning the state train operator RENFE as well as some assignments from Google, Jacobs Douwe Egberts' Saimaza and the utility provider Endesa. Regionally, operating profit increased 27%, with a headline operating margin of 16.1% (2014: 13.7%).

Middle East and Africa

Like-for-like revenues increased 11% with increased second half contributions from both Cape Town and Johannesburg. Key new business wins in South Africa were Continental Tyres projects, Lancewood (a cheese brand), Twinsaver (tissues) and significantly Nando's. They also picked up Agency of the Year.

Our Abu Dhabi office is steadily building revenues beyond Etihad including Abu Dhabi Tourism and also opened in Dubai last month. In January 2015, we acquired a majority stake in Ben-Natan Golan Advertising in Tel Aviv, Israel, forming a new agency M&C Saatchi Tel Aviv. With our associate in Beirut and our offices in Abu Dhabi and Dubai, we now have a strong presence in the region. Overall, headline operating profit was up 2%, with a headline operating margin of 12.3% (2014: 12.8%).

Asia and Australasia

In Asia and Australasia, like-for-like revenue was up 5% year on year. Australia is doing very well and in the first quarter of this year won Woolworths, the second largest account in Australia without a pitch. They were deservedly again awarded Agency of the Year.

Otherwise, our associate in China, aeiou, continues to build its presence and impress network clients.  Malaysia thrives and won Mitsubishi, Wonda coffee and the Global relaunch of Malaysian Airlines. Singaporeis developing positively and has been steadily picking up more Government assignments. Japan proved challenging with the loss of some clients and the business is now under review.

The headline regional operating margin was down from 11.5% to 9.9%, with the headline operating profit falling 17% hit by currency headwinds and the drag from Japan. 

Americas

Like-for-like revenues increased 27% with an excellent 631% increase in operating profit to £3.3m. The SS+K relationship in New York is flourishing. Their new business wins included: the lawyers Baker & McKenzie, the spa group Canyon Ranch, Delta, NCAA, The New Yorker and Planned Parenthood. In the light of this outstanding growth, this month we increased our shareholding in SS+K from 33% to 51%. We have also just acquired 51% of MCD Partners in New York and Chicago, which gives us a significant foothold in the US to develop our CRM offer and to export our LIDA skills.

Our office in Los Angeles performed impressively and acquired Heavenspot, a small social media and digital agency last June, which will enhance our LA online capabilities. We completed our Sao Paulo upgrade in February 2015, acquiring 25% of Santa Clara following the Chinese associate model. It is a high quality independent agency which will add further to the network's creative capability.

Outlook

2015 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 current strong performance across the Global network positions us well for the future.

We are confident we will continue to make good progress in 2016 and beyond.

Audited Consolidated income statement

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

The notes on pages 12 to 22 form part of these consolidated financial statements.

AUDITED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

* All items in consolidated statement of comprehensive income will be reclassified to the income statement.

The notes on pages 12 to 22 form part of these consolidated financial statements.

AUDITED CONSOLIDATED BALANCE SHEET

The notes on pages 12 to 22 form part of these consolidated financial statements.

AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes on pages 12 to 22 form part of these consolidated financial statements.

AUDITED CONSOLIDATED CASH FLOW STATEMENT

AND ANALYSIS OF NET DEBT

The notes on pages 12 to 22 form part of these consolidated financial statements.

The notes on pages 12 to 22 form part of these consolidated financial statements.

NOTES TO THE PRELIMINARY STATEMENTS

YEAR ENDED 31 DECEMBER 2015

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 2015 audited preliminary financial statements were approved for issue on 18 March 2016.

The financial information set out below does not constitute the company's statutory accounts for 2014 or 2015. Statutory accounts for the years ended 31 December 2014 and 31 December 2015 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2014 and 2015 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 2014 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2015 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. The headline result is used for internal performance management, calculating the value of subsidiary convertible shares and minority interest put options. The term headline is not a defined term in IFRS. Note 3 reconciles reported to headline results.

Our segmental reporting (note 4) reflects our headline results in accordance with IFRS 8, and aggregation of similar activities by geography in accordance with IFRS12.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill and acquired intangibles, but excluding software) acquired in business combinations, changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investment in associate; profit /loss on disposal of associates; income statement impact of put option accounting (whether accounted under IFRS2 or IAS39).

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 2015. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2014.

Notes to the preliminary statements

Continued

3. Headline results and earnings per share

The analysis below provides a reconciliation between the Group's statutory results and the headline results.

* These values represent put options accounted for under IFRS2 (£1,125k) and fair value adjustments to minority put
   option liabilities (£3,706k) (note 10).

* Of the £5,649k, £76k relates to a loss on disposal of an Indian subsidiary and £5,573k relates to impairment of goodwill.

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.

* All the put options detailed in note 10 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

Segmental results are reconciled to the income statement in note 3. Our segmental and headline results are one and the same. The above segments reflect the fact that our business is run on an operating unit basis. In accordance with IFRS 8 paragraph 12 we have aggregated our operating units into regional segments.

Segmental and headline pro-forma income statement

Notes to the preliminary statements

Continued

4. Segmental information continued

Segmental income statement translated at 2014 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 2015 results been translated at 2014 exchange rates then our results would have been:

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

Notes to the preliminary statements

Continued

5. Share of associates and joint ventures

6. Finance income

7. Finance costs

8. Taxation

Notes to the preliminary statements

Continued

9. Dividends

Proposed final dividend of 5.60p totalling £4,033k. Subject to shareholders approval at 8 June 2016 AGM, the dividend is payable on 8 July 2016 to shareholders on the register 10 June 2016.

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 2 and 3.

* 2014 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 2014.

Notes to the preliminary statements

Continued

10. 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).

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

*Relating to Creative Spark Interactive (PTY) LTD and M&C Saatchi Agency Pty Ltd.

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

** The reclassification relate to M&C Saatchi LA Inc. and M&C Saatchi
    (S) Pte Ltd where due to changes in shareholder agreements the put
    options are now accounted for as conditional share awards under
    IFRS2.

Put options are exercisable from:

* New put options in 2015.

Notes to the preliminary statements

Continued

10. Minority shareholder put option liabilities continued

At each period end the fair value of the put option 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 (2015: 326.5p, 2014: 330.0).

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 2015 results of the companies who can exercise in 2016. Non current liabilities are determined by our year end share price and the projected results of the companies who can exercise after 2016. The projected results show management's best estimate of the growth rates and margin of the companies who can exercise after 2016. 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 326.5p (2014: 330.0p). The 2015 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 (assuming no change in Group's forecast):

This information is provided by RNS

The company news service from the London Stock Exchange

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