M&C SAATCHI PLC

FINAL RESULTS

YEAR ENDED

31 DECEMBER 2017

22 March 2018

M&C Saatchi PLC - Preliminary Statement

Final Results for the year ended 31 December 2017

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:

·    UK: revenues up 6%, with Sport & Entertainment, PR and Mobile continuing to perform particularly positively; operating profit was up 46% without last year's restructuring costs

·    Europe: revenues up 26%, operating profit increased 30%

·    Middle East and Africa: revenues up 26%, operating profit up 45%

·    Asia and Australia: revenues up 23%, operating profit up 37%

·    Americas: revenues were down 3% following a second half slowdown in New York advertising revenues, operating profit was down 53%. A major restructuring was undertaken, and the agency is profitable in Q1 2018

·    Final dividend increased 15% to 7.40p, full-year dividend up 15% to 9.53p

David Kershaw, Chief Executive, said:

"2017 was another record year for M&C Saatchi in terms of both revenue and earnings. Our established strategy of winning new business and starting new businesses continues to deliver.

This year has begun well, and we are confident that we will continue to make good progress in 2018 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; profit/loss on disposal of associates; and income statement impact of put option accounting (whether accounted under IFRS2 or IAS39). See note 3 for reconciliation between the Group's statutory results and the headline results.

SUMMARY OF RESULTS

2017 saw record results in terms of both revenue and earnings. Revenues grew by 12%, with constant currency revenues increasing 7%. Excluding the costs of businesses started in the year, we returned a headline operating margin of 11.3%, up from 10.2% in 2016. The headline profit before tax advanced 16% to £27.7m and headline net earnings also rose 17%. Statutory profit before tax was up 37% from £6.8m to £9.3m.

Our competitive advantages continue to deliver market-beating growth. We have an entrepreneurial culture and ownership structure that motivates our people to deliver exceptional performance. We have a genuine integrated offering that delivers greater effectiveness and efficiency to our clients. We are not dependent upon multinational packaged goods clients, media buying or M&A. We are of a scale and nimbleness where the birth, growth and success of our businesses can mitigate against macro headwinds. Lastly, we start companies with the best talent in attractive geographies and in new growth channels, with 16 new businesses started in 2017.  

UK

Revenue in the UK was up 6%, with Sport & Entertainment, PR and Mobile continuing to trade particularly positively. New business wins included Dreams, Visit Britain, Little Dish, Lipton, The Body Shop, Costa Coffee and Clinique.

M&C Saatchi Sport & Entertainment won Large Sponsorship Consultancy of the year, M&C Saatchi PR was awarded Mid-sized PR Agency of the year and M&C Saatchi Mobile won Most Effective Mobile Agency.

Our London advertising agency management team is now complete, incentivised with shares and building good new business momentum.

M&C Saatchi Merlin, our talent management agency, launched a social influencer division in May which has very positive growth potential. We started Re, our successful Australian brand identity unit, in the UK in June.

The UK headline operating profit was up 46% on 2016 without last year's one-off restructuring costs in the London advertising agency. The headline operating margin also benefited from this, increasing to 16.1% compared with 2016's 11.7%.  These margins exclude the impact of Group recharges.

Europe

European revenues increased 26% year on year. Headline operating profit was up 30%, with a headline operating margin of 15.3% (2016: 15.1%).

The Stockholm office maintained its dynamic new business performance, winning the property company AMFF, the engineering client PE Consulting and the political party Centerpartiet.

Both Germany and Italy continue to excel. Mobile opened in Berlin whilst Italy was appointed by Sisal, a gaming company, in addition to being reappointed by Unicredit. 

France remains challenging but in the second half the Paris office won projects from Casino Supermarkets, the sugar free children's fruit snacks provider Charles & Alice and Bonduelle, the processed vegetable producer.

The Madrid office is much improved, and we started a sponsorship operation there in April.

Middle East and Africa

Revenues in the Middle East and Africa were up 26%.

South Africa converted Windhoek, Heineken Export and the South African Reserve Bank. In January 2018, they picked up Lexus and the second-hand car retailer Automark. We also acquired Johannesburg based sport and entertainment company Levergy.

UAE won the accounts of Aldar Properties, UAE Banks Federation and Unilever's Lipton account. M&C Saatchi PR opened in the UAE and won the Abu Dhabi Motors Rolls Royce account. 

Operating profit in the region was up 45% and the headline operating margin increased to 10.7% from 9.3% in 2016.

Asia and Australia

In Asia and Australia, revenues were up 23% year on year.

Australia performed well, benefiting from a full-year of Woolworths. They won some projects from Pfizer, Prudential and Jack Daniels, although one significant account in the year was lost, IAG. In February 2017, we acquired 51% of Bohemia, a media buying and planning operation. This wider offer is

important in this market, where clients are increasingly looking for a tighter relationship between the creative providers and media buying and planning. In March, we launched The Source, our successful UK research operation, in Melbourne.

We opened a new office in Jakarta in January 2018.

The headline regional operating margin was 11.4% (2016: 11.0%), with the headline operating profit ahead 37% on 2016. 

Americas

Revenues decreased 3% and headline operating profit was down 53% with a headline operating margin of 7.4% (2016: 15.5%).

Our Mobile operations continue to perform well and are building a potent network across the US.

There was a drag in New York with a slowdown in advertising revenues, which dented the overall region's performance. SS+K 's political and charitable project revenues were particularly hard hit in the second half. A major restructuring was undertaken, and the agency is profitable in the first quarter of 2018. LIDA New York opened for business and was appointed by Aston Martin.

Our Los Angeles office had a better year and was appointed by Pacific Life. We unveiled both Clear and Sport & Entertainment there in the first half and our Mexico City office opened its doors in September. This year we launched Majority in Los Angeles, a production company with an initially all-women Director roster.

Outlook

2017 was another record year for M&C Saatchi in terms of both revenue and headline earnings. Our established strategy of winning new business and starting new businesses continues to deliver.

This year has begun well, and we are confident that we will continue to make good progress in 2018 and beyond.

CONSOLIDATED INCOME STATEMENT

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

The notes on pages 13 to 22 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 13 to 22 form part of these preliminary statements.

CONSOLIDATED BALANCE SHEET

The notes on pages 13 to 22 form part of these preliminary statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The notes on pages 13 to 22 form part of these preliminary statements.

CONSOLIDATED CASH FLOW

The notes on pages 13 to 22 form part of these preliminary statements.

* Bank loans and borrowings excludes £2,915k (2016: £3,645k) of invoice discounting.

The notes on pages 13 to 22 form part of these preliminary statements.

NOTES TO THE PRELIMINARY STATEMENTS

YEAR ENDED 31 DECEMBER 2017

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 2017 preliminary statements were approved for issue on 21 March 2018.

The financial information set out below does not constitute the company's statutory accounts for 2016 or 2017. Statutory accounts for the years ended 31 December 2016 and 31 December 2017 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2016 and 2017 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 2016 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2017 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 2017. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2016.

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.

*   The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a conditional share award.

** These values represent put options accounted for as conditional share awards (£13,501k) and fair value adjustments to minority put option liabilities (£3,037k).

*** Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above. The increase is calculated as the difference between 2016 and 2017 measures. Headline operating margin is calculated as: Headline operating profit divided by revenue. Headline operating margin excluding new businesses is calculated as: Headline operating profit after adding back the cost of businesses started divided by revenue.  This cost of business started during the year has been calculated as £1.6m (2016: £0.1m).

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 are 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 minority interest put options are non-dilutive as the exercise price approximates fair value of the underlying non-controlling interest.

** Conditional share with dividend rights are excluded from any calculation of conditional share awards that uses diluted EPS growth as a measure.

* All the minority interest put options are non-dilutive as the exercise price approximates fair value of the underlying non-controlling interest.

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

4. Segmental information

Segmental and headline income statement 2017

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 2016

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

4. Segmental information continued

Segmental income statement translated at 2016 exchange rates

It is normal practice in our industry to provide constant currency results.

Had our 2017 results been translated at 2016 exchange rates then our constant currency 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

* In the most part this relates to our US offices.

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

NOTES TO THE PRELIMINARY STATEMENTS

CONTINUED

9. Dividends

The 2017 proposed final dividend of 7.40p, totalling £5,996,827. Subject to shareholders approval at 8 June 2018 AGM, the dividend is payable on 6 July 2018 to shareholders on the register 8 June 2018.

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.

This information is provided by RNS

The company news service from the London Stock Exchange

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