22nd Mar 2007 07:01
M&C Saatchi PLC22 March 2007 22 March 2007 M&C Saatchi plc Preliminary Results for the Twelve Months Ended 31 December 2006 M&C Saatchi plc, today announces its preliminary results for the twelve monthsended 31 December 2006. Group Highlights • Revenues (gross profit) up 11.6% (12.5% at constant currency) to £75.9m (2005: £68.0m) • Strong new business wins across all regions • Profit before tax (excluding amortisation) up 4.2% to £7.8m (2005: £7.5m) • Full year dividend up 25% at 3.2 pence • Successful launch of second continental European office in Germany • Agreement reached to open in Spain via partial acquisition Commenting on the results, David Kershaw, Chief Executive, said: "I am pleasedto say that the Company had a good year. The business gained momentum throughout2006, and we grew our revenues and profits despite the departure of the BAaccount. In 2007 we expect to see our European business move into profit, withboth Asia Pacific and America performing well. However the trading conditions inthe UK remain challenging. Overall the outlook for 2007 remains in line withcurrent expectations. " For further information please call: M&C Saatchi plc 020 7543 4500 David Kershaw, Chief Executive Tulchan Communications 020 7353 4200 Miranda Acland Celia Gordon Shute Definition To give a more meaningful commentary on the underlying performance of thebusiness all references to profit, operating profit, profit before tax andprofit for the financial year have been made before the amortisation ofgoodwill. The charge for the amortisation of goodwill is stated in thepreliminary consolidated profit and loss account which follows this commentary. Overview-------- 2006 has been a successful year for the Group, driven by a strong new businessperformance which gained momentum throughout the year. Reported revenues grew by11.6% (12.5% using constant currencies) to £75.9m (2005: £68.0m), the twelfthsuccessive year of revenue growth. The performance has been the strongest in theUK across all the businesses but in particular Walker Media. In America thegrowth was driven by LA. Our offices in Australia and Malaysia also performedwell. Group profits for 2006 increased by 4.2% to £7.8m (2005: £7.5m), with stronggrowth in the UK, Australia, LA and Malaysia. There were operating losses in NewYork, Asia (excluding Malaysia) and New Zealand. Group margin reduced to 10.2%(2005: 11.0%). Our expansion into Europe remains on track. In July 2006 we acquired Berlinagency International Projects, now re-branded M&C Saatchi to add to our Parisoffice which opened in September 2005. The Paris office had an excellent firstfull year. We are delighted to be able to announce that we have acquired 25% ofa Spanish marketing services group, with a commitment to acquire a further 50%over the next two years. We will make a further announcement once all theformalities have been completed. Financial Review Revenue 2006 2006 Inc/Dec £000's Contribution Reported Constant rates rates --------- ------------ ------- -------- UK 44,336 58% 12.3% 12.3%Asia & Australia 25,638 34% 2.2% 4.4%America 3,632 5% 13.1% 14.6%Europe 2,271 3% **** **** --------- ------------ ------- --------Group Total 75,877 100% 11.6% 12.5% --------- ------------ ------- -------- 2006 was our strongest year of revenue growth since 2000. Organic growth isstill the main driver of the group's success accounting for 11.8% of theunderlying growth of 12.5% (using constant exchange rates). There were good revenue performances from companies across the group, theoutstanding performances coming from Walker Media, in the UK, and from Malaysiaand LA. We are now starting to see an important contribution from our European expansionwith first full year revenues from our office in Paris and second halfcontribution from our Berlin office. Operating Performance Operating Profit Operating Margin (Operating profit : revenue) -------- --------------- --------------------- £'000s 06 V's 05 V's 05 2006 £000's % % % UK 6,307 496 9% -0.5pts 14.2%Asia & Australia 1,496 (621) -29% -2.6pts 5.8%America (261) 61 23% 2.8pts -7.2%Europe (1,284) 145 10% *** *** -------- --------------- --------------------- Group Total 6,258 81 1% -0.8pts 8.2% -------- --------------- --------------------- The headline operating profit increased by 1.3% to £6.3m (2005: £6.2m). Theoperating margin declined by 0.8pts to 8.2%. The operating performance was held back by the final year of investment intoEurope (£1.3m) and the continued support of the New York office which resultedin the net operating loss of £261k across the two offices in America. Thereduction in the Group's operating margin is largely due to the decline inprofit in Asia and Australia down 29% or £621k to £1.5m (2005: £2.1m). The contribution from net interest grew by 10.6% to £1.5m (2005: £1.4m). Profit before tax increased by 4.2% to £7.8m (2005: £7.5m). The effective tax rate for the Group increased marginally to 37.1% (2005:36.1%). The rate remains high due to the Group not being able to utilise tradinglosses where incurred, against current profits. The profit for the financial year (after tax and minority interest) declined by8.9% to £3.7m (2005: 4.1m). This was due to the significant increase in earningsattributable to minorities up 73% to £1.1m (2005: £663k), the principal reasonwas the increase in profits from Walker Media where there is a 25% minority heldby the management. The Board has recommended a final dividend of 2.43 pence per share (2005: 1.78pence), which together with the interim dividend of 0.77 pence per share gives afull year dividend of 3.2 pence (2005: 2.55 pence), an increase of 25%. Thedividend will be paid on the 11th June 2007 to shareholders on the register asat 11th May 2007. Review of Operations-------------------- UK The UK had an excellent year with revenues up by 12.3% to £44.3m (2005: £39.5m).There were strong performances from Walker Media (media planning and buying),LIDA (direct & digital marketing), Talk PR and from M&C Saatchi Sports andEntertainment. Around 53% (2005: 45%) of revenues in the UK are now derived fromservices provided outside the creation of advertising. Account wins across theUK business during 2006 included Kingsmill (Allied Bakeries), Lucozade Energy(GSK), CB Richard Ellis, and Swiss One. Digital and on-line activities arebecoming increasingly important and have continued to drive growth in all partsof the Group but specifically in LIDA and Walker-i. Competitive pressures in the Advertising industry remain strong. Clientscontinue to seek increased service levels at lower fees and a re-pitch isbecoming an opportunity to seek fresh ideas and lower fees. This is having itsinevitable effect on the operating margin which has declined by 0.5pts to 14.2%. Asia and Australia The performance across the region was mixed. Revenues were up by 2.2% (4.4 % atconstant currencies) but profit declined by 29% to £1.5m (2005: £2.1m). Theoperating margin declined by 2.6pts to 5.8%. As already highlighted the officesin Malaysia and Australia both had strong years with the combined profitsincreasing by £449k or 26% to £2.1m. The picture was less good elsewhere. Thestart up offices in India and Thailand contributed to the revenue growth butincurred combined first full year losses of £354k, however 2007 has started wellwith India winning the Jet Airways account. The rest of the region (Greater China, Singapore and New Zealand) reported a netloss of £299k. The operating performance of these offices improved significantlyin the second half and they are in better shape in 2007. America The US business has seen good growth with revenues up 13.1% (14.6% at constantcurrency) to £3.6m (2005: £3.2m). Our highly successful office in Los Angeles isbecoming the focus of our US business with revenues up 47% more thancompensating for the decline in New York. The most significant new business winin the US was Petco in LA. Other important wins included City National Bank,Network Omni and the Getty museum. We have recently scaled back our New York overhead by consolidating the USManagement into LA in order to restore the region to profit. Europe After a good start last autumn, our Paris office has continued its successfulprogress with first full year revenues on budget. New account wins have includedfurther brands from Pernod Ricard, which is developing into a strongpan-European account run from France, S'Miles, Branly Museum, Bordeaux Wines,and Yves Rocher. The year ended on a high following the win of La BanquePostale. Together with the contribution from our Berlin business which hasalready built up an impressive array of clients including Ferrero and Coca Cola,the region generated revenues of £2.3m for the year and is expected to move intoprofit in 2007. As announced above we have made an initial acquisition of 25% of a SpanishMarketing Services group with a commitment to acquire a further 50% over thenext two years. The Spanish group made a PBT of £0.9m in 2006. Outlook--------The investment phase of our European expansion (£1.3m in 2006) is now completeand we expect that the region will move into profit in 2007. Conditions are fairly tough in the UK and Australia. However, there issignificant room for improvement from the offices in Asia Pacific and New York.There remains broader opportunities for new business development and earningsgrowth around the world. Taking all of this into account, the outlook for 2007 remains in line withcurrent expectations. M&C SAATCHI PLC PRELIMINARY CONSOLIDATED PROFIT AND LOSS ACCOUNT Note Unaudited Audited year year ended ended 31-Dec 31-Dec 2006 2005 £000 £000Turnover- Continuing operations 368,918 298,284- Acquisitions 572 -________________________________________________________________Turnover 2 369,490 298,284Cost of sales 3 (293,613) (230,283)________________________________________________________________Gross profit 75,877 68,001________________________________________________________________Administrative expenses- Ordinary (69,197) (61,639)- Share based payment (422) (185)- Amortisation of goodwill (1,735) (1,688)________________________________________________________________Administrative expenses 3 (71,354) (63,512) Operating profit- Continuing operations 4,455 4,480- Acquisitions 68 9________________________________________________________________Operating profit 4,523 4,489 Share of operating profit /(loss) 15 (75)of associatesInterest receivable 1,540 1,384Interest payable (41) (29)________________________________________________________________Profit on ordinary activities 6,037 5,769before taxation________________________________________________________________Taxation on profit on ordinary 4 (2,886) (2,690)activities________________________________________________________________Profit on ordinary activities 3,151 3,079after taxation________________________________________________________________Minority interests (1,148) (663)________________________________________________________________Profit for the financial year 2,003 2,416________________________________________________________________Earnings per share- Basic 6 3.73p 4.46p- Diluted 6 3.69p 4.41p All amounts relate to continuing activities.The reconciliation of movements in shareholders' funds is shown in note 8. M&C SAATCHI PLC PRELIMINARY CONSOLIDATED STATEMENT OFTOTAL RECOGNISED GAINS AND LOSSES Unaudited Audited Year Year ended ended 31-Dec 31-Dec 2006 2005 £000 £000Profit for the financial year- Group 1,998 2,497- Associates 5 (81)____________________________________________________________ 2,003 2,416 Exchange differences on (305) (50)retranslation of opening reserves____________________________________________________________Total recognised gains and losses 1,698 2,366for the financial year____________________________________________________________ M&C SAATCHI PLC PRELIMINARY CONSOLIDATED BALANCE SHEET Note Unaudited Unaudited Audited Audited At At At At 31-Dec 31-Dec 31-Dec 31-Dec 2006 2006 2005 2005 £000 £000 £000 £000Fixed assetsIntangible assets 13,555 14,592Tangible assets 3,618 3,194Investments 93 100________________________________________________________________________________ 17,266 17,886Current assetsWork in progress 2,416 3,277Debtors- Due within one year 45,988 50,552- Due after more than one year 1,141 578________________________________________________________________________________Total debtors 47,129 51,130Cash at bank and in hand 31,312 20,486________________________________________________________________________________ 80,857 74,893Creditors- Amounts falling due within one year 64,494 58,969________________________________________________________________________________Net current assets 16,363 15,924________________________________________________________________________________Total assets less current 33,629 33,810liabilities Creditors- Amounts falling due after more 759 868than one yearProvisions for liabilities and 350 404charges________________________________________________________________________________ 32,520 32,538________________________________________________________________________________ Capital and reservesShare capital 7 542 542Share premium account 7 9,618 9,618Merger reserve 7 13,553 14,756Treasury shares 7 (792) -Share option reserve 7 812 599Profit and loss account 7 7,625 6,101________________________________________________________________________________Shareholders' funds - equity 7 31,358 31,616Minority interests - equity 1,162 922________________________________________________________________________________ 32,520 32,538________________________________________________________________________________ M&C SAATCHI PLC PRELIMINARY Consolidated Cash Flow Statement Note Unaudited Audited Year Year ended ended 31-Dec 31-Dec 2006 2005 £000 £000Cash inflow from operating 18,506 7,046activities Returns on investments and 9 543 933servicing of finance 9 (3,275) (2,544) Taxation 9 (1,670) (1,252) Capital expenditure and financialinvestment 9 (628) (182) Acquisitions and disposalsEquity dividends paid 5 (1,377) (1,045)____________________________________________________________________Net cash inflow before financing 12,099 2,956 Financing 9 (866) (18)____________________________________________________________________Increase in cash in the year 11 11,233 2,938____________________________________________________________________ NET CASH INFLOW FROM OPERATING ACTIVITIES Unaudited Audited Year Year ended ended 31-Dec 31-Dec 2006 2005 £000 £000Operating profit 4,523 4,489Amortisation of intangible fixed 1,735 1,688assetsDepreciation 1,212 1,183Loss on sale of tangible fixed 4 59assetsDecrease in work in progress 747 224Decrease / (Increase) in debtors 3,036 (3,003)Increase in creditors 6,775 2,213Increase in provision 189 186Option charge 213 85Exchange differences 72 (78)____________________________________________________________________ 18,506 7,046____________________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT 1. Statutory information The financial information contained in this announcement, for the years ended31st December 2006 or 2005, does not constitute statutory financial statementswithin the meaning of section 240 of the Companies Act 1985. The financialinformation for the year ended 31st December 2005 is derived from the statutoryaccounts for that year which have been delivered to the Registrar of Companies.The auditors report on those accounts was unqualified. The statutory accountsfor the year ended 31st December 2006 will be finalised on the basis of thefinancial information presented by the directors in this unaudited preliminaryannouncement and will be delivered to the Registrar of Companies following thecompany's annual general meeting. The audit report for the year ended 31stDecember 2006 has yet to be signed. The preliminary announcement was approved by the board of directors on 21stMarch 2007. M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 2. Turnover, profit and net assets Turnover and profit before taxation are attributable to the provision ofadvertising and marketing services. Unaudited Audited 2006 2005 £000 £000 TurnoverAnalysis by geographical market: By origin and destinationUK 306,291 245,926Asia and Australia 51,995 45,636America 6,802 6,417Europe 4,402 305____________________________________________________________ 369,490 298,284____________________________________________________________ Gross profitAnalysis by geographical market: By originUK 44,336 39,470Asia and Australia 25,638 25,084America 3,632 3,211Europe 2,271 236____________________________________________________________ 75,877 68,001____________________________________________________________ Operating profit / (loss) - excluding amortisation ofgoodwillAnalysis by geographical market: By originUK 6,307 5,811Asia and Australia 1,496 2,117America (261) (322)Europe (1,284) (1,429)____________________________________________________________ 6,258 6,177____________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 2. Turnover, profit and net assets CONTINUED Unaudited Audited 2006 2005 £000 £000Operating profit/(loss)Analysis by geographical market: By originUK 4,572 4,123Asia and Australia 1,496 2,117America (261) (322)Europe (1,284) (1,429)____________________________________________________________ 4,523 4,489____________________________________________________________ Profit/(loss) before taxationAnalysis by geographical market: By originUK 6,034 5,318Asia and Australia 1,558 2,202America (254) (319)Europe (1,301) (1,432)____________________________________________________________ 6,037 5,769____________________________________________________________ Net assets/(liabilities)Analysis by geographical market: By originUK 34,621 32,008Asia and Australia 3,095 3,646America (3,032) (1,950)Europe (2,164) (1,166)____________________________________________________________ 32,520 32,538____________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 3. Cost of sales and administrative expenses Unaudited Audited 2006 2005 £000 £000Cost of salesContinuing operations 293,512 230,283Acquisitions 101 -____________________________________________________________ 293,613 230,283____________________________________________________________ Administrative expensesContinuing operations 70,951 63,512Acquisitions 403 -____________________________________________________________ 71,354 63,512____________________________________________________________ The acquisition in the year relates to 03 International Projects GmbH which wasacquired and rebranded as M&C Saatchi Berlin GmBH on 24th July 2007. M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 4. TAXATION ON PROFIT FROM ORDINARY ACTIVITIES Unaudited Unaudited Audited Audited Year ended Year Year ended Year ended ended 2006 2006 2005 2005 £000 £000 £000 £000Current tax UK corporation tax on profit for 2,275 1,991the yearOverseas tax payable 916 605Adjustment in respect of previous (68) 53yearsAssociates 2 -________________________________________________________________________________Total current tax 3,125 2,649Deferred taxOrigination and reversal of (239) 41timing differences________________________________________________________________________________Taxation on profit on ordinary 2,886 2,690activities________________________________________________________________________________ The tax assessed for the year differs from that obtained by using the standardrate of corporation tax in the UK. The differences are explained below: Unaudited Audited Year Year ended ended 2006 2005 £000 £000________________________________________________________________________________Profit on ordinary activities 6,037 5,769before tax________________________________________________________________________________ Profit on ordinary activities at the standardrate of corporationtax in the UK of 30% (2005: 30%) 1,811 1,731 Effects of:Expenses not deductible for tax 238 215Goodwill amortisation 520 506Unrelieved losses carried forward 292 204Differences between capital allowances and (23) 23depreciationShort term timing differences 188 (113)Short term timing differences due to provisionon optionsand phantom bonus accruals 112 49Adjustment to tax charge in respect of previous (68) 53yearsTax rate differences 55 (19)________________________________________________________________________________Current tax charge for year 3,125 2,649________________________________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 5. Dividends Unaudited Audited Year Year ended ended 2006 2005 £000 £000 2005 Final dividend 1.78p (2004: 965 6291.16p) 2006 Interim dividend of 0.77p 412 416per share (2005: 0.77p)_________________________________________________________________ 1,377 1,045_________________________________________________________________2006 Final dividend 2.43p (£1,300,000) M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 6. Earnings per share Basic and diluted earnings per share are calculated by dividing profit after taxand minority interest by the number of shares in issue during the year. Earnings per share are calculated as follows: Unaudited Audited Year ended Year ended 2006 2005 £000 £000Numerator for calculation of 2,003 2,416basic and diluted EPS__________________________________________________________________ DenominatorWeighted average number of 53,677,484 54,206,799ordinary shares used in basic EPSSharesave options 258,682 130,138Options 411,050 411,050__________________________________________________________________Weighted average number of 54,347,216 54,747,987ordinary shares used in diluted EPS__________________________________________________________________ Earnings per shareBasic 3.73p 4.46pDiluted 3.69p 4.41p On 31st December 2006 there were 669,732 (2005: 670,634) outstanding options. Headline earnings per share The headline (IIMR) earnings per share is based on headline earnings asrecommended by Statement of Investment Practice No.1. This is earningsexcluding:- amortisation of goodwill- profit or loss on disposal of fixed assets; and- profit or losses on the disposal of discontinued operations (which we havenone) The directors believe that this gives a better view of ongoing maintainableearnings.Headline Earnings per shareBasic 6.97p 7.68pDiluted 6.89p 7.61p Numerator for calculation of basic 2006 2005and diluted headline EPSProfit for financial year 2,003 2,416Goodwill amortisation 1,735 1,688Loss on disposal of fixed assets 4 59__________________________________________________________________Earnings used for calculation of 3,742 4,163headline basic and diluted EPS__________________________________________________________________ Denominator - The number of shares is the same as calculated for statutory EPS M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 7. Reserves Ordinary Share Share Profit share premium Merger Treasury option and loss capital account reserve reserve reserve account Total £000 £000 £000 £000 £000 £000 £000At 1 January 2005 542 9,618 14,756 - 599 6,101 31,616(audited)Exchange differences - - - - - (305) (305)Non cash share based - - - 213 - 213incentive plansMerger reserve release on - - (1,203) - - 1,203 -goodwill amortisationDividends - - - - - (1,377) (1,377)Purchase of own shares - - - (792) - - (792)Retained profit for the - - - - - 2,003 2,003year________________________________________________________________________________At 31 December 2006 542 9,618 13,553 (792) 812 7,625 31,358(unaudited)________________________________________________________________________________ 8. Reconciliation of movement in shareholders' funds Unaudited Audited Year Year ended ended 2006 2005 £000 £000Profit for the financial year- Group 1,998 2,497- Associates 5 (81)Dividend (1,377) (1,045)___________________________________________________________ 626 1,371 Exchange differences (305) (50)Non cash share based incentive 213 85plansPurchase of own shares (792) -___________________________________________________________ Net (reduction) / addition toshareholders' funds (258) 1,406Opening shareholders' funds 31,616 30,210___________________________________________________________Closing shareholders' funds 31,358 31,616___________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 9. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT Unaudited Audited Year Year ended ended 31-Dec 31-Dec 2006 2005 £000 £000 Returns on investments andservicing of financeInterest received 1,540 1,384Interest paid (20) (8)Interest element of finance leaserental payments (13) (15)Minority interest dividend paid (964) (428)___________________________________________________________________ 543 933___________________________________________________________________ TaxationUK taxation paid (2,215) (1,851)Overseas taxation paid (1,060) (693)___________________________________________________________________ (3,275) (2,544)___________________________________________________________________ Capital expenditure and financialinvestmentPurchase of tangible fixed assets (1,686) (1,289)Sale of tangible fixed assets 16 37___________________________________________________________________ (1,670) (1,252)___________________________________________________________________ Acquisitions and disposalsInvestment in subsidiary (741) (369)Cash acquired with subsidiary 113 187undertakings___________________________________________________________________ (628) (182)___________________________________________________________________ FinancingPurchase of own shares (792) -Shares issued to minorities in - 124subsidiariesInception of bank loans 34 -Repayment of bank loans (2) -Capital element of finance lease (106) (142)rental payments___________________________________________________________________ (866) (18)___________________________________________________________________ M&C SAATCHI PLC NOTES TO THE PRELIMINARY STATEMENT (Continued) 10. ANALYSIS OF CHANGES IN NET FUNDS Balance Balance at at 01-Jan Cash Finance Exchange 31-Dec 2006 inflow leases movements 2006 (Audited) (Unaudited) £000 £000 £000 £000 £000Cash at bank and in 20,486 11,233 - (407) 31,312handOverdrafts (29) - - 1 (28)Bank loan - (32) - - (32)Finance leases (128) 106 (6) (3) (31)_________________________________________________________________________Total 20,329 11,307 (6) (409) 31,221_________________________________________________________________________ 11. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Unaudited Unaudited Audited Audited Year Year Year Year ended ended ended ended 2006 2006 2005 2005 £000 £000 £000 £000Increase in cash in the year 11,233 2,938Cash outflow from decreasein lease financing 106 142Inception of finance leases (6) (14)Exchange differences (409) 184Cash outflow from repayment of 2 -bank loanInception of bank loan (34) -Movement in net funds in the year 10,892 3,250Net funds at start of year 20,329 17,079___________________________________________________________________________Net funds at end of year 31,221 20,329___________________________________________________________________________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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