Final Results

Released : 16/03/2017 07:00

RNS Number : 6057Z

M&C Saatchi PLC

16 March 2017

M&C SAATCHI PLC

FINAL RESULTS

YEAR ENDED

31 DECEMBER 2016

16 March 2017

M&C Saatchi PLC

Final Results for the year ended 31 December 2016

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

Operational Highlights

·    Record results in terms of both revenue and earnings

·    The Global network performed well across all geographies:

·    UK: like-for-like revenues up 5%, with CRM, Sport & Entertainment and Mobile continuing to perform particularly positively; operating profit was down 12%, impacted by the previously announced restructuring costs in the advertising agency

·    Europe: like-for-like revenues up 5%, operating profit increased 10%

·    Middle East and Africa: like-for-like revenues up 23%, operating profit up 4%

·    Asia and Australasia: like-for-like revenues up 13%, operating profit was up 37%

·    Americas: constant currency revenues up 97% following New York investments and like-for-like revenues up 18%, operating profit up 118%

·    Final dividend increased 15% to 6.44p, full-year dividend up 15% to 8.29p

David Kershaw, Chief Executive, said:

"2016 was an outstanding year for M&C Saatchi. We continue to roll out our proven strategy of winning new business and starting new businesses and see positive momentum across our global network and business channels.

The year has started well and we are confident that we will continue to make good progress in 2017 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 associates and investments; profit and loss on disposal of associates; and the income statement impact of put option accounting and share based payment charges. See Note 3 for a reconciliation between the Group's statutory results and the headline results.

Like-for-like

The like-for-like revenue comparisons referred to in this report are stated after excluding the impact of foreign currency movements and corporate acquisitions and disposals during 2016. See Note 4 for for a reconciliation between the Group's headline results and like-for-like results. 

SUMMARY OF RESULTS

2016 saw record headline results with both excellent revenue momentum and earnings growth. Actual revenues grew by 26%, with constant currency revenues increasing 19%, whilst we increased like-for-like revenues 9%. We returned a headline operating margin of 10.2%, down from 10.4% in 2015, with the previously announced UK restructuring costs causing the drag. If these are excluded then the 2016 headline operating margin increased to 10.9%. The headline profit before tax advanced 18% to £23.7m and headline net earnings rose 17%.

UK

Like-for-like revenue in the UK was up 5%, with CRM, Sport & Entertainment, PR and Mobile continuing to perform particularly positively. We experienced a commendable run of account wins across our group of businesses in the year, including Virgin Red, the Home Office, NN Investment Partners, E.ON, PHE (Antimicrobial Resistance), the Rail Delivery Group, the Civil Aviation Authority and the Department of Work and Pensions.

M&C Saatchi Mobile was awarded Digital Agency of the Year and Most Effective Media Agency of the Year, whilst M&C Saatchi Sport & Entertainment won Agency of the Year (for the fifth time). We are launching Re, our successful Australian brand identity unit, in the UK in the first quarter of 2017.

The UK headline operating profit was 12% down on 2015 but included previously announced restructuring costs of £1.6m in the advertising agency unit, which if discounted, meant operating profit actually grew 2% on 2015. The headline operating margin decreased to 11.7% compared with 2015's 14.0% but if the restructuring costs are excluded then the margin came in at 13.6%.  These margins exclude the impact of Group recharges. The restructure is complete and the new management team is in place and making good progress.

Europe

European like-for-like revenues increased 5% year on year. Headline operating profit was up 10%, with a headline operating margin of 15.1% (2015: 16.1%).

Our Stockholm office kept up its strong new business record and won the TV and broadband supplier Com Hem. Both Germany and Italy continue to shine, with Italy winning E.ON. In France, advertising was still slow but our agency was appointed by YouTube and Google for some projects and continues to grow through diversification. 

Our office in Spain is much improved, winning Codorniu and Huawei, and as a consequence we are increasing our shareholding from 24% to 51%. We are starting a sponsorship company in Madrid as well as opening Clear in Berlin.

Middle East and Africa

Like-for-like revenues in the Middle East and Africa were up 23%.

South Africa finished strongly, having lost their Edgars client mid-year but subsequently picked up the Sun International and Strongbow accounts. We are making a small acquisition in Johannesburg of 51% of Levergy, a sport and entertainment company, which will capitalise on the large South African sports market. Abu Dhabi lost Etihad and has subsequently been rebuilding revenues. Our Dubai office is growing steadily, as is Tel Aviv. 

Operating profit in the region was up 4% and the headline operating margin dipped to 9.3% from 12.3% in 2015.

Asia and Australia

In Asia and Australia, like-for-like revenue was up 13% year on year.

Australia had another good year, winning Woolworths (without a pitch), BBQ Galore, eBay and Tabcorp. They were awarded 'Most Innovative Communications Company in Australia', reflecting some of their ground breaking and pioneering work for their clients. In February of this year, we acquired 51% of Bohemia, a media buying and planning operation. This add on positions us well for satisfying the needs of our clients, who are increasingly seeking a closer relationship between their media agency and the content and creative providers. We also are launching The Source, our successful UK research operation, in Melbourne.

Our associate in China, aeiou, had a good second half. Malaysia is still excelling and won the KLIA and Pr1ma accounts. Singapore is developing positively and won Shell and Bridgestone.

Our Mobile operation continues to thrive in the region and we added new offices in New Delhi and Bangaloreto work alongside our mobile offices in Singapore and Sydney.

The headline regional operating margin was 11.0% (2015: 9.9%), with the headline operating profit ahead an impressive 37% on 2015. 

Americas

Constant currency revenues increased 97%, with like-for-like up 18%. With the acquisitions' contribution, there was a very good 118% increase in operating profit to £7.0m and a headline operating margin of 15.4% (2015: 15.2%).

Mobile are performing exceptionally well and building a formidable client base across the US.

The SS+K relationship in New York is thriving. In the light of this outstanding growth, we increased our shareholding in SS+K from 33% to 51% in March of last year and then to 67% in February of this. Also in March last year, we acquired 51% of MCD Partners in New York and Chicago, who specialise in customer digital experience. This business is progressing well. 

Our office in Los Angeles lost the UGG account in the first quarter but later in the year won some projects for Reebok and Fox. Brazil's macro-economic factors and trading remained tough, and appropriately we made an impairment charge of £3.7m for our Santa Clara associate.

Both Clear and Sport & Entertainment are planning to open in Los Angeles in the first half and we are looking to open an office in Mexico, where the management of our Madrid office has a strong network of clients and contacts.

Outlook

2016 was an outstanding year for M&C Saatchi. We continue to roll out our proven strategy of winning new business and starting new businesses and see positive momentum across our global network and business channels. 

The year has started well and we are confident that we will continue to make good progress in 2017 and beyond.

CONSOLIDATED INCOME STATEMENT

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

The notes on pages 12 to 21 form part of these preliminary statements.

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 21 form part of these preliminary statements.

CONSOLIDATED BALANCE SHEET

The notes on pages 12 to 21 form part of these preliminary statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes on pages 12 to 21 form part of these preliminary statements.

CONSOLIDATED CASH FLOW

The notes on pages 12 to 21 form part of these preliminary statements.

* Bank loans and borrowings excludes £3,645k (2015: £3,130k) of Invoice discounting.

** Gearing ratio and net cash are not defined under IFRS.

The notes on pages 12 to 21 form part of these preliminary statements.

NOTES TO THE PRELIMINARY STATEMENTS

YEAR ENDED 31 DECEMBER 2016

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 is listed on the AIM market of the London Stock Exchange.

These 2016 preliminary statements were approved for issue on 15 March 2017.

The financial information set out below does not constitute the company's statutory accounts for 2015 or 2016. Statutory accounts for the years ended 31 December 2015 and 31 December 2016 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2015 and 2016 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 2015 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2016 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.

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 associates and investments; profit and loss on disposal of associates; and the income statement impact of put option accounting and share based payment charges. See Note 3 for a reconciliation between the Group's statutory results and the headline results.

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

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 2016. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2015.

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 share based payment charges (£7,997k) and fair value adjustments to minority put option liabilities (£597k), the non-controlling interest charge is the additional charge had the put option not been accounted for under IFRS2 conditional share awards.

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

3. Headline results and earnings per share continued

* These values represent share based payment charges (£1,125k) and fair value adjustments to minority put option liabilities (£3,706k).

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

3. Headline results and earnings per share continued

Basic and diluted earnings per share are 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

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.

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

4. Segmental information continued

Segmental and headline income statement

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

4. Segmental information continued

Segmental income statement translated at 2015 exchange rates

It is normal practice in our industry to provide like-for-like results and constant currency results. In the year, we have 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 2016 results been translated at 2015 exchange rates then our constant currency results would have been:

Had our 2016 results been translated at 2015 exchange rates, with the companies we owned in 2015, then our like-for-like 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

* Recognised to reflect the probable future corporation tax that we can reclaim.

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

9. Dividends

The 2016 proposed final dividend of 6.44p, totalling £4,876k. Subject to shareholders approval at 7 June 2017 AGM, the dividend is payable on 7 July 2017 to shareholders on the register 9 June 2017.

The 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. Retained profits are used to reinvest in the long term growth of the Group through funding working capital and Investing activities; and to repaying bank debt.

* 2015 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 2015.

This information is provided by RNS

The company news service from the London Stock Exchange

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