M&C SAATCHI PLC

 

 

 

 

 

INTERIM RESULTS

 

 

SIX MONTHS ENDED

30 JUNE 2022

 

 

 

 

 

7 September 2022

 

 

M&C SAATCHI PLC

(the "Company")

Interim results for the six months

ended 30 June 2022

 

A strong first half performance, with Headline PBT over 50% ahead of H1 2021

 

H1 Highlights

Financial

·      Net revenue of £129.4million, up 9.6% versus H1 2021 (£118.1million). ·      Headline operating profit margin increased to 14.0%, up 3.5pts versus H1 2021. ·      Headline profit before tax ("PBT") of £16.0million, up 52.4% versus H1 2021. ·      Statutory profit before tax of £0.3million, versus £4.8million in H1 2021, impacted by the ongoing takeover transaction costs. ·      Balance sheet strong, with net cash at 30 June 2022 of £39.7million, versus £31.8million at 30 June 2021.

 

Operational

·     The accelerated delivery of our strategy has continued to drive growth with new and existing clients, including Barclays, Samsung, Pepsico and Grab. ·     Technology platforms, new capabilities and collaboration processes have driven connected revenue, which now accounts for over 50% of net revenue. ·     Digitisation continues by scaling the data offering, launching an innovation practice (Thread), andeveloping a proprietary SME marketing SaaS platform (Grow Technology). ·     M&C Saatchi LIFE, our sustainability consultancy, was launched, to address the rapid increase in client demand relating to climate challenges. ·      Start-ups launched in H1 2022 (mentioned above) are already working with significant clients, including Kenwood, Google and Disney+. ·      Simplification of the Group continues, through standardising systems and a global efficiency programme to deliver future cost savings.

 

Current trading and outlook

·     Momentum from H1 has continued into H2, with July Headline PBT ahead of the Board's expectations. ·     Full year Headline PBT is expected to be in the region of £31million, in line with the Board's previous forecast up 15% on FY 2021. ·     Despite deteriorating macro-economic conditions, the diversity of our capabilities, the strength of our counter-cyclical businesses, our geographic breadth, and our unique proposition of Meaningful Change provides resilience. We therefore maintain the Board's 2023 Headline PBT forecast in the region of £41million. ·     Our intention remains to reinstate dividends for 2022.

 

Unaudited Headline¹  Results

 

Six Months To 30 June
	2022 £M		2021 £M		Movement	LFL2
Net Revenue1	129.4		118.1		9.6%	9.6%
Operating profit	18.1		12.4		46.0%	46.1%
Profit before taxation	16.0		10.5		52.4%	44.0%
Earnings3	7.8		4.0		95.0%	84.2%
Operating profit margin	14.0%		10.5%		+3.5pts
EBITDA4	22.8		16.8		35.7%
Net cash1	39.7		31.8		24.8%

 

 

Unaudited Statutory Results

 

Six Months To 30 June
		2022 £M		2021 £M		Movement
Revenue		221.7		171.2		29.5%
Net Revenue1		129.4		118.1		9.6%
Operating profit		2.7		7.0		(61.2%)
Profit before taxation		0.3		4.8		(93.6%)
Earnings3		(4.1)		1.5		(373.3%)
Operating profit margin		2.1%		6.0%		-3.9pts

 

 

1 Refer to page 11 for the definition of Headline, net revenue and net cash.
² Like-for-like growth excluding effect of acquisitions that occurred in 2021 (associates in China, Brazil and Pakistan that became subsidiaries during 2021).
³ Earnings is calculated after deducting tax and the share of profits attributable to non-controlling interests.
⁴ EBITDA is calculated excluding the income statement charges relating to IFRS 16.

 

 

Moray MacLennan, Chief Executive Officer, said:

"Results to be proud of under any circumstances, but particularly with the distraction of a hostile takeover.

Looking forward, the counter-cyclical nature of key growth businesses, together with a global efficiency programme, gives confidence in our strong standalone future and the outlook for the remainder of 2022 and into 2023.

The plan is clear. Delivery is accelerating. Resilience proven."

 

 

Gareth Davis, Chairman, said:

"Delivery of a 52.4% increase in Headline PBT is an outstanding achievement by our management team.

Despite considerable challenges created by a prolonged hostile takeover process, and strengthening economic headwinds, focus has been maintained on client services and growing the business.

This continued performance, building on record profits in 2021, reinforces the Board's belief in a strong independent future for M&C Saatchi.

The Board laid out its concerns over the low value and high risks involved in ADV's hostile bid. These concerns have been significantly increased due to ADV's continual refusal to seek US government regulatory approval (CFIUS). It is our belief that this could lead to the termination of key client contracts.

I would respectfully request that shareholders support us in retaining our independence and therefore take no action at this time."

 

For further information please call: M&C Saatchi plc	+44 (0)20-7543-4500
Gareth Davis, Chairman
Numis Securities	+44 (0)20-7260-1000
Nick Westlake, Stuart Ord, Iqra Amin, Gary Barford
Liberum	+44 (0)20-3100-2000
Neil Patel, Benjamin Cryer, Will King Tim Medak, Mark Harrison, M&A
Brunswick	+44 (0)207-404-5959
Sumeet Desai, Stuart Donnelly, Kate Pope

SUMMARY OF RESULTS

 

Performance in the first half of 2022 has been strong, well ahead of the first half of 2021.

·   Net revenue increased by 9.6% to £129.4million, or 9.6% to £126.5million on a like-for-like basis (excluding the contribution from those entities that became subsidiaries in 2021). ·   Headline operating profit margin increased to 14.0%, up 3.5pts; on a like-for-like basis, margin increased by 3.6pts to 14.5%. ·      H1 2022 Headline PBT of £16.0million, 52.4% ahead of the H1 2021 result (£10.5million).

 

The revenue growth has been led by strong performance across our high margin, High Growth Specialisms, notably Global & Social Issues (29.7% growth) and Sponsorship & Talent (20.2% growth).

Costs continued to be tightly controlled. Headline operating costs increased by 5.3% to £111.3million (2021: £105.7million), significantly below the rate of revenue growth. We continue to see the benefits of the Group's operating leverage flow through to operating profit margin, which at Headline level has increased by 3.5pts to 14.0% (2021:10.5%).

Headline profit before tax increased by 52.4% to £16.0million (2021: £10.5million). Statutory profit before tax decreased to £0.3million (2021: £4.8million) due to the significant costs associated with the ongoing takeover approaches (£9.5million) (see Note 5).

Our focus on cash management continues, resulting in an increase in net cash to £39.7million (from £34.4million at 31 December 2021). Use of the revolving credit facility has further reduced to £10.0million at 30 June 2022 (from £20.0million at 31 December 2021). This provides the balance sheet flexibility to settle put option liabilities in cash as they fall due. The Board believes the immediate priorities for the business are to continue reinvesting in supporting the growth strategy and to reduce debt as interest rates continue to rise. Our intention remains to reinstate dividends for 2022.

Market Dynamics

After a strong recovery in the industry in 2021, market growth has slowed to an expectation of 8.6% for 2022, and 6.4% for 2023.

Key trends in the industry include:

·      Increased talent costs and churn, as inflation rises and the employment market tightens,

·      Increased focus on efficiencies within our competitor set,

·      Clients looking to simplify their marketing ecosystems with a focus on efficiencies,

·      Digital, data and technology remaining a key focus as a driver of performance,  

·      A heightened focus on creativity,

·      Climate change becoming top of mind for clients.

We are well positioned to withstand these pressures, as a result of our broad diversified client base, geographic breadth, and specialist capabilities in resilient segments: public sector, issue-based marketing, performance media, and sponsorship and talent. These include material counter-cyclical businesses.

 

Strategy Update

Simplification

 

We have invested in, and continue to drive efficiencies from, technology platforms that automate and standardise working together across the Group including people, finance and business analytics systems.

 

Since the end of H1 2022, we have initiated a global efficiency programme. This will identify savings during H2 2022 to be introduced in 2023 and beyond. Although this is later than planned, tactical local and central cost reduction initiatives have been undertaken during H1 to offset this delay.

 

Connection

 

Our strategy of connecting multi-disciplinary capabilities is achieving results, as client demand for connection and consolidation in their marketing ecosystems increases. This has been further enhanced by the launch of M&C Saatchi LIFE, a dedicated sustainability consultancy.

 

Our dedicated global growth team has enabled us to win more cross-discipline and cross-market clients including Sky Showtime, Barclays and Samsung.

 

Digitisation

 

We continue to scale our data analytics businesses Fluency and Precision. During H1 this included developing and launching Brand Desire, our proprietary AI-powered brand intelligence platform. We have also hired a Chief Data and Technology Officer to accelerate growth from H2.

 

We have also continued to invest in central capabilities that fuel growth: innovation studio Thread and a proprietary SME marketing SaaS start-up (Grow Technology).

 

Technology platforms, including Hubspot (CRM), CoreBook (brand guidelines) and our global intranet platform, are being deployed to fuel new connected business growth.

 

 

Headline Segmental Information (Like-for-Like)[1]

Specialisms

	Net Revenue	Net Revenue			Operating Profit	Operating Profit			Operating Profit Margin	Operating Profit Margin
	H1 2022	H1 2021	Movement		H1 2022	H1 2021	Movement		H1 2022	H1 2021	Movement
	£000	£000			£000	£000
Advertising & CRM	58,577	59,120	(0.9)%		3,243	5,280	(38.6)%		5.5%	8.9%	(3.4)pts
High Growth Specialisms	67,982	56,350	20.6%		20,075	13,328	50.6%		29.5%	23.7%	5.8pts
Group Central Costs	-	-	-		(4,922)	(6,018)	(18.2)%		-	-	-
Total	126,559	115,470	9.6%		18,396	12,590	46.1%		14.5%	10.9%	3.6pts

[1] Like-for-like excludes the effect of acquisitions in 2021.

Advertising and CRM comprised £58.6million (46.3%) of the Group's net revenue (H1 2021: £59.1million, 51.2%) and £3.2million (17.6%) of the Group's Headline operating profit (H1 2021: £5.3million, 41.9%). Net revenue decreased by £0.5million (0.9%) compared to H1 2021. Operating profit margins decreased by 3.4pts to 5.5% from 8.9% in H1 2021.

The High Growth Specialisms comprised £68.0million (53.7%) of the Group's net revenue (H1 2021: £56.4million, 48.8%), and £20.1million (109.1%) of the Group's Headline operating profit (H1 2021: £13.3million, 105.9%). Net revenue increased by £11.6million (20.6%) compared to H1 2021. Headline operating profit margins increased by 5.8pts to 29.5% from 23.7% in H1 2021.

·      Advertising & CRM - Blending marketing science with creativity through earned, owned and paid-for content

The net revenue decrease of £0.5million to £58.6million (0.9%) was driven by the UK Agency (predominantly due to a reduction in Home Office revenues and in particular the Census work that was carried out in 2021), Australia (a reduction in spend from Tourism Australia compared to 2021) and China (due to the lockdowns experienced in 2022).

These decreases have been partially offset by revenue growth in South Africa (driven by an increase in retainer fees across a number of existing clients and new client wins) and in Indonesia (where clients, including TikTok, have engaged in new campaigns).

Operating profit margin is expected to improve in H2, as it does most years due to the seasonal increases in client spending. The global efficiency programme will especially drive further margin improvements in this segment, given the large number of small entities in this segment that will benefit from deduplication and centralisation.

·      High Growth Specialisms

o  Performance Media - connecting brands with today's connected customers

The net revenue increase of £2.4million to £17.4million (15.9%) was driven by revenue growth across Asia, Americas and the UK, both from new and existing clients.

o Global & Social Issues - driving critical global and social change, protecting the planet, transforming lives for the better

The net revenue increase of £4.4million to £19.0million (29.7%) was driven by World Services, due to a much stronger start to 2022 for the Security & Defence business.

o Brand & Experience - transforming businesses by unlocking existing and new growth opportunities

The net revenue increase of £1.8million to £17.0million (11.6%) was primarily due to strong revenue growth in MCD Partners (CX), due to additional projects from existing clients as well as new client wins. There has also been strong revenue growth in the Re Agency in the UK (brand design) and the Clear Group (consulting).

o Sponsorship & Talent - connecting brands direct to consumers through passions and personalities

The net revenue increase of £3.1million to £14.7million (20.2%) was driven by Sport & Entertainment in the UK and US, due to the post-Covid-19 recovery in sporting events.

·      Group Central Costs

Central costs have reduced by £1.1million to £4.9million (18.2%). This is driven primarily by the recognition of £0.9million of staff costs as Non-Headline in relation to the takeover approaches (refer to Note 5 for further detail). In addition, there were savings as a result of replacing freelancers with permanent employees, along with lower executive bonus costs in 2022 versus the prior year.

Geographical

	Net Revenue	Net Revenue			Operating Profit	Operating Profit			Operating Profit Margin	Operating Profit Margin
	H1 2022	H1 2021	Movement		H1 2022	H1 2021	Movement		H1 2022	H1 2021	Movement
	£000	£000			£000	£000
UK	49,126	44,278	10.3%		11,233	5,907	90.2%		22.9%	13.3%	9.4pts
Europe	7,644	7,470	2.3%		715	958	(25.4)%		9.4%	12.8%	(3.4)pts
Middle East and Africa	10,900	10,214	6.7%		912	2,155	(57.7)%		8.4%	21.1%	(12.7)pts
Asia	10,509	8,866	18.5%		4,544	4,089	11.1%		43.2%	46.1%	(2.9)pts
Australia	25,726	25,980	(1.0)%		2,091	1,979	5.7%		8.1%	7.6%	0.5pts
Americas	22,654	18,662	21.4%		3,823	3,520	8.6%		16.9%	18.9%	(2.0)pts
Group Central Costs	-	-	-		(4,922)	(6,018)	18.2%		-	-	-
Total	126,559	115,470	9.6%		18,396	12,590	46.1%		14.5%	10.9%	3.6pts

Income Statement

·      Headline Profit Before Tax

The net revenue increase of 9.6% has been explained above in the segmental review. Headline operating costs have increased 5.2%, which is predominately due to an increase in staff costs to service the increased revenues.  There continues to be a strong focus on cost control, with costs increasing at a much lower rate than revenues, in turn leading to a significant increase in Headline operating margins to 14.0% in H1 2022 (H1 2021: 10.5%).

·      Statutory Profit Before Tax

Statutory operating costs have increased 14.1%, in addition to the increase in staff costs noted above. This is predominately due to the takeover transaction costs that have been incurred as a result of the response required to the two offers for the Company. These have been treated as Non-Headline costs (refer to Note 5 for further detail).

·      Taxation

In relation to the transaction costs identified above, we have treated the majority of these costs as non-deductible for corporation tax provision purposes, pending further detailed analysis of the external fees, which will be clarified in H2 2022.

Balance sheet and cashflow

·      Cash and Borrowings

Cash net of bank borrowings at 30 June 2022 is £39.7million, compared to £34.4million of net cash at 31 December 2021 and £31.8million net cash at 30 June 2021. The Group has made good progress in managing its cash, including focusing on centralising cash to reduce the interest cost of borrowings. As a result, £10.0million of the revolving credit facility was drawn at 30 June 2022, compared with £20.0million at 31 December 2021.

Net cash from operating activities was £12.6million (£4.7million in H1 2021).

·      Working Capital Movement

Trade and other receivables increased by £13.1million (9.8%) between 31 December 2021 and 30 June 2022. This reflects the strong revenue performance in H1 2022.

Trade and other payables increased by £19.9million (12.9%) between 31 December 2021 and 30 June 2022. Within this movement, £8.4million of the increase is driven by the takeover transaction costs accrued during H1 2022, in addition to £2.7million of dividends paid to minority shareholders in July 2022.

·      Other Balance Sheet Movements

The other movements include the revaluation of unlisted equity investments held in early-stage companies. The revaluation of these companies is excluded from Headline results. Overall, the portfolio continues to strengthen, as several companies bounced back following the Covid-19 pandemic. However, this is partially offset by one specific investment that has been written down by £3.3million to nil in the period. This has resulted in a net upwards revaluation of £0.5m.

 

Notes to Editors

 

Company

M&C Saatchi plc, a company incorporated and domiciled in England and Wales with company number 05114893, listed on the AIM Market of the London Stock Exchange plc.

 

Group

The Company and its subsidiaries.

 

Headline results

A self-defined alternative measure of profit that provides a different perspective to the Statutory results. The Directors believe it provides a better view of the underlying performance of the Company, because it excludes a number of items that are not part of routine business income and expenses. These Headline figures are a better

way to measure and manage the business and are used for internal performance management and reward. "Headline results" is not a defined term in IFRS.

 

Headline results represent the underlying trading profitability of the Group and excludes:

• Separately disclosed items that are one-off in nature and are not part of running the business.

• Acquisition-related costs.

• Gains or losses generated by disposals of subsidiaries and associates.

• Fair value adjustments to unlisted equity investments, acquisition related contingent consideration and put options.

• Dividends paid to IFRS 2 put option holders.

 

A reconciliation of Statutory to Headline results is presented in Note 4.

 

Operating profit margin

Operating profit margin refers to the percentage calculated through dividing operating profit by net revenue.

 

Net cash

Net cash refers to cash and cash equivalents, less borrowings of the Group, derived from the accounts in the balance sheet, excluding lease liabilities.  

 

Net revenue

Net revenue is equal to revenue less project cost / direct cost. It is not an IFRS defined term. It is, however, used as a key performance indicator by the Group.

 

Revenue

Revenue comprises the total of all gross amounts billed, or billable to clients in respect of commission-based, fee-based and any other income where we act as principal and our share of income where we act as an agent. The difference between Billings and Revenue is represented by costs incurred on behalf of clients with whom we operate as an agent, and timing differences where invoicing occurs in advance or in arrears of the related revenue being recognised.

 

EBITDA

EBITDA is earnings before depreciation, amortisation, finance expense and taxation, and excludes any charges relating to IFRS 16. It is not an IFRS defined term. It is, however, used as a key performance indicator by the Group.

 

Billings

Billings comprise all gross amounts billed, or billable to clients in respect of commission-based and fee-based income, whether acting as agent or principal, together with the total of other fees earned, in addition to those instances where the Group has made payments on behalf of customers to third parties. It is stated exclusive of VAT and sales taxes.

 

Minority interests and non-controlling interests

Within the Group, there are a number of subsidiary companies and partnerships in which employees hold a direct interest in the equity of those companies. These employees are referred to as minority shareholders. Of these subsidiary companies and partnerships, most account for the shareholding of their minority shareholders as a management incentive (through the award of conditional shares) and are 100% consolidated in the Group's financial statements. The remaining seven subsidiary companies (including one without a put option) account for their minority shareholders as non-controlling interests, a defined IFRS term, with their share of the Group's profits being shown separately on the Income Statement.