M&C SAATCHI PLC
2020 INTERIM RESULTS
28 OCTOBER 2020
OVERVIEW
COST SAVINGS & RESTRUCTURING
STRATEGY AND STRUCTURE REVIEW
FINANCIALS
REVENUE BY SEGMENT
CONTENTS TOP 10 CLIENTS REGIONAL REVIEW
BALANCE SHEET AND CASH
SHARE OPTION LIABILITY TRADING UPDATE AND OUTLOOK
OVERVIEW
- Resilient, profitable performance, with results ahead of management's expectations
- Strong client retention and new business won across geographies and disciplines
- Restructuring programme ongoing
- On track to present revised strategy at Capital Markets Day in January
- The Headline H1 2020 results (post restatement of H1 2019 results):
Net revenue down to £103.4m from £118.3m
Operating costs down to £99.2m from £112m
Operating margin down to 4.1% % from 5.4%
PBT before exceptional items at £2m, down by 59%
- Strong liquidity performance driven by significant cost savings and payment deferrals. Net cash at 30 June 2020 of £22.4m (£16.6m at 31 Dec 2019) and £28m on 22 Oct 2020
- No interim dividend (2019: 2.45p)
- 2020 full year PBT, excluding exceptional items, expected to be at least £4m
- 2020 year end cash expected to be at least £10m
COSTS SAVINGS AND RESTRUCTURING
Major cost saving and cash preservation initiatives implemented in 2020
- Operating cost reduction vs H1 19 of £12.8m or 12% and approximately £30m savings expected for full year
- Majority of the cost savings expected to be permanent
- Major staff restructuring programmes in the UK, US and Australia
- Office closures, mergers, redundancies and pay-cuts
- Utilisation of government support programmes around the world
- UK, US, Australia, Singapore
- Government grants, tax deferments, furloughs
- Review and reduction of global property portfolio to accommodate a more flexible working environment
- Approximately 25% of real estate in London, Australia, New York and Singapore (how much space in square feet), expected to be surplus to requirements and will be actively marketed
- Divestment and closure programme in H2
REVIEW OF STRATEGY AND STRUCTURE
Fundamental review of Strategy and organisational structure initiated in April 2020. Due for completion in Q4 and full presentation at Capital Markets Day in January 2021
- Strategy review focuses on areas of business where new opportunities lie and which should be discontinued
- Process of functional and geographical rationalisation and simplification already initiated and will bring resource and cost benefits
- New organisational structure will incorporate a strong centralised support function leaving operating companies to focus on content quality and growth
HEADLINE RESULTS
6 MONTHS TO 30 JUNE 2020
2020 | 2019* | Movement | ||||
£m | £m | £m | % | |||
Net revenue | 103.4 | 118.3 | (14.9) | (12.6%) | ||
EBITDA | 10.5 | 12.9 | (2.4) | (18.6%) | ||
Profit before tax | 2.0 | 4.9 | (2.9) | (58.8%) | ||
Taxation | (0.7) | (1.3) | 0.6 | (42.7%) | ||
Profit after tax | 1.3 | 3.6 | (2.3) | (64.6%) | ||
Profit for period | 0.7 | 2.2 | (1.5) | (70.1%) | ||
Basic EPS | 0.64p | 2.53p | -2.29 | (181.7%) | ||
Dividend | 0 | 2.45p | -2.45 | (100.0%) |
*Restated to incorporate previously announced accounting adjustm ents
KEY RATIOS
6 MONTHS TO JUNE 2020
2020 | 2019* | ||
Headline net revenue change | (14.4%) | (3.8%) | |
Operating margin | 4.1% | 5.4% | |
Effective tax rate | 36.9% | 26.4% | |
Basic EPS | 0.64p | 2.53p | |
Diluted EPS | 0.60p | 2.41p |
*Restated to incorporate previously announced accounting adjustm ents
NET REVENUE
6 MONTHS TO JUNE 2020
2020 | 2019 | 2020 vs 2019 | |||
£m | £m | Reported | |||
rates | |||||
UK | 36.8 | 44.0 | (16.4%) | ||
Europe | 12.9 | 14.2 | (9.2%) | ||
Middle East & Africa | 7.7 | 7.2 | 6.9% | ||
Asia & Australia | 26.4 | 32.2 | (18.0%) | ||
Americas | 19.5 | 20.7 | (5.8%) | ||
Group total | 103.4 | 118.3 | (12.6%) | ||
THE HEADLINE REGIONAL P&L
6 MONTHS TO JUNE 2020
Middle | |||||||
East & | Asia & | Head | Group | ||||
£m | UK | Europe | Africa | Australia | Americas | Office | total |
Net revenue | 36.8 | 12.9 | 7.7 | 26.4 | 19.5 | - | 103.4 |
vs 2019 (reported rates)* | (16.4%) | (9.2%) | 6.9% | (18.0%) | (5.8%) | 0.0% | 3.0% |
Operating profit | 3.4 | 0.3 | 0.2 | 1.0 | 2.1 | (2.7) | 4.2 |
vs 2019 (reported rates)* | (30.9%) | (20.4%) | 82.7% | (57.7%) | 61.5% | 3.3% | (33.1%) |
Operating margin | 9.2% | 2.5% | 2.1% | 3.6% | 11.0% | 4.1% | |
2019 margin | 11.2% | 2.9% | 1.2% | 7.0% | 6.4% | 5.4% | |
Share of associates | - | - | - | (0.1) | (0.2) | (0.3) | |
Net interest | (1.0) | (0.1) | (0.2) | (0.1) | (0.5) | (0.2) | (2.0) |
Profit before tax | 2.4 | 0.2 | (0.0) | 0.8 | 1.5 | (2.9) | 2.0 |
Tax rate | 22% | 36% | 29% | 26% | 17% | 37% | |
Profit after tax | 1.9 | 0.1 | (0.0) | 0.6 | 1.1 | (2.4) | 1.3 |
Non-controlling interest | (0.2) | - | - | (0.5) | 0.1 | - | (0.6) |
Profit for period | 1.7 | 0.1 | (0.0) | 0.1 | 1.2 | (2.4) | 0.7 |
*Restated to incorporate previously announced accounting adjustm ents
REVENUE BY SPECIALISM & CLIENT TYPE
SPECIALISM MIX
H1 2020 | H1 2019 | |||||||
Sport, | Talent and | Talent and | ||||||
Influencer | Sport, | Influencer | Global and | |||||
Entertainment, 2% | Global and | Entertainment, | 1% | |||||
Social Issues | ||||||||
Culture, | Social Issues | Culture, | ||||||
11% | ||||||||
Activation | 14% | Activation | ||||||
8% | 8% | |||||||
Media | ||||||||
Media | Advertising | 9% | ||||||
62% | ||||||||
14% | Advertising | |||||||
71% | ||||||||
CLIENT MIX
Clients and revenue are heavily weighted towards more recession-resilient industry sectors
Our revenue is heavily weighted to:
- Government, TMT/e-commerce and Financial
Much less weighted and less reliant on sectors suffering in the global economic downturn
- Retail, Automotive, FMCG
TOP 10 CLIENTS
• | Commonwealth Bank | • | Sky |
• | Heineken | • | Standard Bank |
• | Lexus | • | TAB |
• | O₂ | • US & UK Governments | |
• | Optus | • | Woolworths |
TOP 10 = 31% OF NET REVENUE (H1 2019 25%)
REGIONAL REVIEW
UK
- Net revenue down 16% (2020: £36.8million; 2019: £44million). Headline operating profit down 31% (2020, £3.4million, 2019, £4.9million). Headline operating costs down 14%
- World Services was stand-out performer, continuing and winning new engagements with governments and NGO's globally
- Elsewhere, trading was more difficult - client budgets reduced and/or frozen. Activity typically smaller projects
- Sports and Entertainment hit hard. Disruption to sports and live events calendar, including postponement of the 2020 Euros and the Olympics
- Extensive restructuring programmes in UK agency and PR divisions early in the year, have resulted in a substantially reduced cost base. Both had notable successes with new clients in the second half of the year
REGIONAL REVIEW
EUROPE
- Net revenue down by 9% (2020: £12.9 million; 2019: £14.2 million). Headline operating profit down by 36%. (2020, £0.3million; 2019, £0.4million). Headline operating costs down by 8%
- Despite country being hit hard by Covid-19, the Italian operation performed extremely well and at similar levels to 2019
- Germany and Sweden also performed well
- Operations in France, with heavy concentration of retail clients was severely impacted. Heavy losses for full year expected
REGIONAL REVIEW
MIDDLE EAST AND
AFRICA
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Net revenue up by 7% (2020: £8million; 2019: £7.5million). Headline operating profit up by 81% (2020:
£0.16million; 2019: £0.1million). Headline operating costs up by 6% - South Africa business won the Standard Bank client midway through 2019 and sees benefits of a full year of revenues in 2020
- Dubai strengthened through regional new business assignments
REGIONAL REVIEW
AUSTRALIA AND
ASIA
- Net revenues down by 18% (2020: £26.9million; 2019: £32.8million). Headline operating profit down by 69% (2020, £0.7million; 2019, £2.3million). Headline operating costs down by 14%
- Australia impacted by Covid-19 and devastating fires, particularly impacting Tourism Australia client.
- However, strong client base, including Commonwealth Bank, Woolworths and Optus a stable base for trading in the second half 2020
- Asia
- Indonesia has performed strongly and has grown rapidly from its start up base
- Shanghai associate and KL operations have proved resilient
- Singapore has faced significant challenges through local lockdown. Expect to report substantial full year losses
REGIONAL REVIEW
AMERICAS
- Net revenues down by 6% (2020: £18.8million; 2019: £19.9million). Headline operating profit down by 18% (2020, £1.6million; 2019, £1.3million). Headline operating costs down by 7%
- The New York group performed relatively well given the extraordinary circumstances. MCD, SS+K and the US division of Performance all had noticeable successes. Clear and Sport & Entertainment had good new business wins
- Material losses in Brazil, Mexico and LA where Advertising agency was closed in the second quarter
BALANCE SHEET
Six months ended | Year ended 31 | Variance | ||||
30 June 2020 | December 2019 | |||||
£000 | £000 | £000 | % | |||
Non-current assets | ||||||
Intangible assets | 38,674 | 38,207 | 467 | 1% | ||
Investm ents in associates and JV | 4,086 | 3,780 | 306 | 8% | ||
Plant and equipm ent | 8,843 | 9,455 | -612 | -6% | ||
Right-of-use assets | 41,902 | 46,542 | -4,640 | -10% | ||
Other non-current assets | 4,516 | 3,923 | 593 | 15% | ||
Deferred tax assets | 5,753 | 5,455 | 298 | 5% | ||
Financial assets at fair value through profit or loss | 15,735 | 14,851 | 884 | 6% | ||
119,509 | 122,213 | -2,704 | -2% | |||
Current assets | ||||||
Trade and other receivables | 107,871 | 116,153 | -8,282 | -7% | ||
Current tax assets | 8,336 | 6,316 | 2,020 | 32% | ||
Cash and cash equivalents | 76,214 | 67,221 | 8,993 | 13% | ||
Non-current assets classified as Held-for-sale | 0 | 0 | 0 | 0% | ||
192,421 | 189,690 | 2,731 | 1% | |||
Current liabilities | ||||||
Trade and other payables | 138,581 | 140,415 | -1,834 | -1% | ||
Provisions | 1,206 | 2,809 | -1,603 | -57% | ||
Current tax liabilities | 4,108 | 1,374 | 2,734 | 199% | ||
Borrowings | 53,059 | 50,452 | 2,607 | 5% | ||
Lease liabilities | 7,924 | 10,770 | -2,846 | -26% | ||
Deferred and contingent consideration | 445 | 445 | 0 | 0% | ||
Minority shareholder put option liabilities | 144 | 3,183 | -3,039 | -95% | ||
205,467 | 209,448 | -3,981 | -2% | |||
Net current liabilities | - | 13,046 | - | 19,758 | 6,712 | -34% |
Total assets less current liabilities | 106,463 | 102,455 | 4,008 | 4% | ||
Non-current liabilities | ||||||
Deferred tax liabilities | 285 | 541 | -256 | -47% | ||
Borrowings | 771 | 162 | 609 | 376% | ||
Lease liabilities | 42,900 | 44,000 | -1,100 | -3% | ||
Contingent consideration | 313 | 313 | 0 | 0% | ||
Minority shareholder put option liabilities | 3,724 | 3,918 | -194 | -5% | ||
Other non-current liabilities | 1,406 | 1,130 | 276 | 24% | ||
49,399 | 50,064 | -665 | -1% | |||
Total net assets | 57,064 | 52,391 | 4,673 | 9% | ||
Unlisted investments - The group's holding of a number of unlisted
investments through Saatchnvest (UK), Saatchi Ventures (Australia) and in LA. These investments are initially recognised at their fair
Right-of-use assets decreased by £4.6M, mainly driven by: (£1.8M) WW UK
(0.9M) Australia
(0.8M) SA Abel
Short-term lease liabilities decreased by £2.8M, mainly driven by:
(£1M) WW UK
(£1.3M) Australia
Decrease in trade and other receivables mainly due to £12M decrease in trade receivables and £3M increase in earned but
unbilled fees. In line with expectation given revenue decreased by 13% compared to the sam e period last year .
Increase in non-current borrowings due toGovernment-backed business loan programmes
CASH
- Net cash of £21.6m (2019: £16.6m)
- Current net cash of £28m at 20 October 2020
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Significant progress in improving treasury and cash management function
Improvements in working capital assisted by deferral of taxes and other government schemes
Conservatively expect net cash at 31 December 2020 to be at least £10m Extension of RCF to 30 June 2021, which is fully drawn
- Reduces from £36m to £33m in December 2020
- £7m Coronavirus Large Business Interruption Loan Scheme (CLBILS)
SHARE BASED PAYMENTS
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Action being taken to minimise dilution from share option liability
Intention is to give certainty and clarity over the total liability and maximum number of shares to be issued to settle the liability over the next 5 years
As and if PLC share price increases over next 5 years, dilution is reduced
Strong demand for shares capable of absorbing the shares to be issued to settle the put option liabilty
Estimate of put option liability: 2020-25 (based on different valuations/share prices
Shares total by year | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
'000 | '000 | '000 | '000 | '000 | '001 | |
At 57p | 9,422 | 12,841 | 17,788 | 1,732 | 2,316 | 4,834 |
At 100p | 9,422 | 14,035 | 14,108 | 1,651 | 1,931 | 2,980 |
At 150p | 9,422 | 13,852 | 12,495 | 1,650 | 1,905 | 2,175 |
At 200p | 9,422 | 13,722 | 11,708 | 1,710 | 2,015 | 1,838 |
Dilution of 30 June | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
2020 shareholders | ||||||
At 57p | 8% | 11% | 15% | 2% | 2% | 4% |
At 100p | 8% | 12% | 12% | 1% | 2% | 3% |
At 150p | 8% | 12% | 11% | 1% | 2% | 2% |
At 200p | 8% | 12% | 10% | 1% | 2% | 2% |
OUTLOOK
- Expect full year 2020 underlying profit before tax excluding exceptional items to be at least £4m
- Exiting and divesting from loss-making companies will result in elimination of approximately £4m-£5m of losses on annualised basis
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Year end net cash expected to be at least £10m
Capital markets day planned in January 2021 to present strategic plan
We have come through a transformational period. Lessons have been learned, we have stronger central governance and greater central financial controls
- We will come out of 2020 a stronger, leaner and more focused organisation
Q&A
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M&C Saatchi plc published this content on 28 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 October 2020 15:04:06 UTC