REG - M&C Saatchi PLC - Audited Results Full Year 2021 and Trading Update
29/04/2022 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220429:nRSc7917Ja&default-theme=true
RNS Number : 7917J M&C Saatchi PLC 29 April 2022
M&C SAATCHI PLC
(the "Company" or "M&C Saatchi")
Audited Results for the Year Ended 31 December 2021 and Trading Update
The Company today announces its audited results for the year ended 31 December
2021. The Company has demonstrated an exceptional turnaround at a time of
unprecedented change and announces that trading is line with expectations for
the first three months of 2022.
Highlights
· 2021 net revenue growth of 10.6%. Like-for-like growth of 15.1%.
· Record 2021 Headline operating profit £31.1m (2020: £12.0m).
Ahead of expectations, reflecting strong new business and deepening client
relationships.
· Record 2021 Statutory profit before tax £21.6m (2020: £8.5m
loss).
· 2021 Headline operating profit margin 12.5% (2020: 5.3%).
· Net cash £34.4m (2020: £32.7m). Borrowings reduced to £20.6m
(2020: £29.6m).
· New client wins and deepened relationships: Google, Uber, WHOOP,
Gorillas, PepsiCo, TikTok and Mondelez.
· Over 50 creative awards won in 2021 and a record number of
effectiveness awards.
· Trading continues to be strong in the first quarter of 2022, with
the Headline profit before tax for the years ending 31 December 2022 and 31
December 2023 expected to be in the region of £31.0m and £41.0m,
respectively.
Financial results for the year ended 31 December 2021
Headline * Statutory
£m 2021 2020 Movement 2021 2020 Movement
Revenue 394.6 323.3 22.1% 394.6 323.3 22.1%
Net revenue ** 249.3 225.4 10.6% - - -
EBITDA ** 40.8 24.1 69.3% - - -
Operating profit/(loss) 31.1 12.0 160.1% 27.3 (4.9) 652.7%
Profit/(loss) before taxation 27.3 8.3 228.0% 21.6 (8.5) 354.3%
Profit/(loss) for the year 20.0 5.0 298.2% 13.2 (9.9) 232.8%
Earnings *** 13.7 1.7 729.5% 12.8 (9.9) 228.9%
Basic Earnings/(loss) per share 11.3p 1.5p 643.4% 10.5p (9.1p) 215.7%
Tax rate 26.6% 39.6% -13.0pts 39.1% -16.6% 55.7pts
* 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
(including amortisation of acquired intangibles and impairment of goodwill).
• 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.
** Net revenue and EBITDA excluded from Statutory results as these are not
IFRS terms.
*** Earnings are calculated after deducting share of profits attributable to
non-controlling interests.
Current trading and outlook
· The strong trading performance and momentum in 2021 has continued
into the first quarter of 2022.
· The Company is now forecasting Headline profit before tax in the
region of £31.0m for the year ending 31 December 2022 (FY22) and £41.0m for
the year ending 31 December 2023 (FY23). Further details are included in the
Company's announcement "Issue of Profit Forecasts" made earlier today.
· The strong trading performance has further strengthened the
group's cash position, providing the balance sheet flexibility to settle put
option liabilities as they fall due in 2022, resume the payment of dividends
and to continue the delivery of the group's accelerated growth strategy. As at
31 March 2022, the Company had net cash of £33.9m and £15.0m of its £47.0m
revolving multicurrency credit facility drawn.
Possible offer by AdvancedAdvT Limited ("AdvT")
· As detailed in the Company's "Further Extension of "Put Up or Shut
Up" Deadline" announcement on 28 April 2022, discussions between the Company
and AdvT remain ongoing and in accordance with Rule 2.6(c) of the City Code on
Takeovers and Mergers, (the "Code") the directors of the Company other than
Vin Murria (the "Independent Directors") have requested, and the Panel has
consented to, an extension to the deadline by which AdvT is required either to
announce a firm intention to make an offer for M&C Saatchi in accordance
with Rule 2.7 of the Code or to announce that it does not intend to make an
offer, in which case the announcement will be treated as a statement to which
Rule 2.8 of the Code applies. Such announcement must now be made by not later
than 5.00 p.m. on 10 May 2022. This deadline can be further extended by the
Independent Directors with the consent of the Takeover Panel.
Board changes
· As previously announced on 19 January 2022, Mickey Kalifa, M&C
Saatchi's Chief Financial Officer, has resigned from the M&C Saatchi board
to pursue other interests. He will step down from his position as Chief
Financial Officer and as a Director of the Company on 13 May 2022.
· The search process for a new Chief Financial Officer is underway. In
the meantime, Bruce Marson, Deputy Chief Financial Officer, has been appointed
as Interim Chief Financial Officer effective from 13 May 2022.
Commenting on the 2021 performance and outlook, Moray MacLennan, Chief
Executive Officer said:
"These record-breaking results reflect the outstanding levels of commitment
and creativity that our teams deliver to clients, on a daily basis.
The strength and depth of our client relationships and the breadth of our
capabilities position us exceptionally well for the remainder of this year,
and beyond."
For further information please call:
M&C Saatchi Plc +44 (0)20-7543-4500
Moray MacLennan, Mickey Kalifa
Brunswick Group +44 (0)207-404-5959
Sumeet Desai, Stuart Donnelly, Kate Pope
Numis Securities +44 (0)20-7260-1000
Nick Westlake, NOMAD
Iqra Amin
Liberum +44 (0)20-3100-2000
Neil Patel, Benjamin Cryer, Will King
Chief Executive Statement
2021 Performance
In 2021 I outlined a new strategy to: become more connected via greater
collaboration across specialisms and regions; drive digital acceleration by
enhancing the Group's technology capabilities including data analytics and
digital innovation; and implement further simplification from efficiencies
delivered by central systems and consolidation. The impact of this strategy is
evidenced by the 2021 performance.
· We had seven consecutive positive trading updates since January
2021.
· We had a record year in many companies across the Group.
· We trebled our Headline profit before tax.
· The Group's net cash position is at its strongest ever, £34.4m
at December 2021.
This was delivered through strong new business, deepening client relationships
and key client retention. Notable new business wins included PepsiCo, WHOOP
and Mondelez, and new campaigns for Uber, De'Longhi and Franklin Templeton. We
extended our client relationships into new specialisms with clients including
Reckitt, GSK, Lexus and Sonos; and retained key clients, including key UK and
US government assignments.
Our creative heartbeat remains strong, with over 50 awards won in the last 12
months including a record number of Effies - the Oscars of campaign
effectiveness.
Specialism Performance
The business operates through five connected specialisms, all of which benefit
from our Central Fuel which provides expertise and capabilities in data and
technology, digital innovation, sustainability and our Growth Team. All
specialisms saw like-for-like growth in 2021.
Advertising & CRM: Blending marketing science with creativity through
earned, owned and paid-for content
Like-for-like net revenue increased by 6% (2021: £121.2m vs. 2020: £114.8m).
New business wins across the specialisms included NHS England, Origin Energy,
Franklin Templeton, Gorillas, PepsiCo, BNY Mellon, Arla and Uber.
Relationships with existing clients including Nando's, Woolworths in
Australia, De'Longhi across Europe, and the UK Government - delivered
significant organic growth as we focused on supporting their digital ambitions
across the marketing ecosystem. We also built new relationships with
organisations at the start-up and scale-up phase.
Highlights included the most successful UK Census Campaign in history, the
Australia office deepening its data capability and reinforcing its position as
one of the leaders in the market, our SS+K office being named in the Top 10
most innovative agencies in the United States, a campaign for Tourism Iceland
that parodied the Metaverse but nevertheless was retweeted by Zuckerberg,
whilst our South African agency became the first African agency in the
Metaverse.
Media & Performance: Connecting brands with digitally connected consumers
Like-for-like net revenue increased by 39% (2021: £32.8m vs. 2020: £23.6m).
As the influence of Covid-19 continued to accelerate the shift to digital, our
Media & Performance business benefitted from new digital advertisers
entering the market.
M&C Saatchi Performance celebrated its fifteenth anniversary, winning
Performance Agency of the Year in Southeast Asia, supporting clients in their
IPOs, and being responsible for millions of new app downloads and mobile
transactions.
Global & Social Issues: Driving global and social change, protecting the
planet and transforming lives for the better
Like-for-like net revenue increased by 19% (2021: £33.2m vs. 2020: £27.9m).
This specialism continued to focus on the development, diplomatic, security
and social impact sectors. It uses the latest in creativity, behavioural
science and tech capabilities to tackle a broad range of critical global and
social issues.
Highlights of 2021 included leading comms for COP26 and new assignments from
the UK, US and Australian Governments, the Conrad N. Hilton Foundation, UNICEF
and the World Health Organisation.
Brand & Experience: Transforming businesses by unlocking existing and new
growth opportunities
Like-for-like net revenue increased by 17% (2021: £30.9m vs. 2020: £26.4m).
This growth reflects the continued demand from clients to re-examine and
re-design their product, service and experience propositions in an
increasingly digital world. Revenue gains were a result of major contract
extensions with Discover and Optus. Growth was also a reflection of impressive
new business wins, with clients including TikTok, Toyota and Diageo added to
the roster.
As we move into 2022, we are further investing in data, digital and
technology, with the addition of new capabilities in digital business
innovation. Our new start-up, Thread, brings key hires from Fjord/Accenture
Interactive. It blends the commercial rigour of consulting with the creativity
of design studios to help clients develop and build high-growth digital
products and services.
Sponsorship & Talent: Connecting brands direct to consumers through
passions and personalities
Like-for-like net revenue increased by 35% (2021: £24.5m vs. 2020: £18.1m).
Following the devastating effects of Covid-19 on the sport and entertainment
industry in 2020, this specialism bounced back to a record high in 2021. We
won more than 40 pitches worldwide throughout the year including major client
wins with Barclays, Red Bull, WHOOP, Dettol, Kia, Dreams and Origin Energy.
The M&C Saatchi Talent Group added new talent and digital-first
influencers and delivered its most successful year to date.
Highlights included creating "live" digital and social campaigns for many
brands throughout EURO 2020 (played in 2021) as well as for the delayed
Olympics in Japan. We added talent including data analysts which gave us
forensic insight into our clients' customers, as well as hiring visual effects
expertise.
Central Fuel
Our central fuel capabilities are shared across the Group enabling growth
through shared platforms consisting of:
· Growth Team: Our focus on connected business is led by our Chief
Growth Officer and the central growth team. This has delivered an increase in
connected business opportunities with client wins including Samsung, Barclays,
Sonos, Healthcode and KLM.
· Data: Our data capability and consultancy, M&C Saatchi
Fluency, launched in January 2021. It has grown its capabilities and client
base, and now works with over 15 blue chip clients and has developed a
proprietary data platform of our eight core data services.
· Sustainability: We strengthened our ESG position both in the way
we work and in the work we do. We are delivering on significant societal
commitments for "People and Planet" including announcing our Net Zero target,
launching M&C Saatchi LIFE, a specialist sustainability consultancy, and
promoting equity and inclusion through a number of initiatives including
Mentor Black Business, Open House, Street Store and our internal colleague
networks.
· Innovation: Our digital innovation consultancy, Thread, launched
in February 2022 to help clients identify, develop and build high-growth
digital products and services.
Accelerated Strategy
The strategy of connection, digitisation and simplification will be
accelerated.
Growth will increasingly come from cross-specialism and cross-border
opportunities. We continue to fuel this through investment in central
capabilities. In 2022 we launched and will scale two new service offerings:
sustainability communications (M&C Saatchi LIFE) and digital innovation
(Thread), and we continue to deepen our data capability by scaling our global
data platform and consultancy. The Growth Team will further strengthen its
resources as opportunities are converted.
The simplification programme makes the Group's services easier for clients to
understand and engage with. We will drive further efficiencies through
accelerating centralisation of Group functions including IT, Finance and HR.
We are investing in platforms to enhance ways of working, encourage
collaboration and to attract and retain talent.
Confidence in our future
With record profits, a strong cash position, a more simplified structure and a
loyal and committed management team, we can face the future with renewed
confidence.
M&C Saatchi is renowned for the impact it has on the world. This year we
reinforced that reputation with leading campaigns addressing the major issues
of the day from Covid-19 to climate change. We navigate, create and lead
meaningful change and this market-leading proposition enables us to attract
and retain the talent that provides solutions for our clients.
2021 Financial Review
Financial key performance indicators
The Group manages its financial performance through a number of key
performance indicators. These are stated below, with the comparative key
performance indicators for 2020.
· Net revenue of £249.3m, up 10.6% from £225.4m; like-for-like
growth of 15.1%.
· Headline staff cost ratio, down 3.7pts from 71.9% to 68.2%.
· Headline operating profit margin, up from 5.3% to 12.5%.
· Statutory operating profit margin, improved from -2.2% to 10.9%.
· Headline profit before tax, up from £8.3m to £27.3m.
· Statutory profit before tax, up from a loss of £8.5m to a profit
of £21.6m.
· Statutory earnings per share up from a loss of 9.1p per share to
positive earnings of 10.5p per share.
· Increase in net cash, up from £32.7m to £34.4m.
Headline results
To assist understanding of the underlying performance of the business, the
commentary concentrates on the Headline measures used by the Board to assess
the underlying profitability of the Group. These Headline figures are
alternative performance measures that the Board considers an appropriate basis
to manage the business, to monitor its results on a month-to-month basis,
enable comparison with industry peers and measure like-for-like year-on-year
performance. The Headline results also more closely correlate with the
operating cashflow position of the Group.
The Group performed well ahead of expectations. Whilst there were stand-out performers amongst individual entities, we saw growth across the board, across virtually all entities and specialisms.
Group net revenue increased by 10.6% or 15.1% on a like-for-like basis. This
is significantly ahead of the 6% CAGR targeted growth in net revenue from 2020
to 2025 announced at the Capital Markets Day in January 2021.
Group Headline operating profit was £31.1m, increasing from £12.0m in 2020.
This represents a 51% increase compared to 2019 (£20.6m profit), showing a
strong recovery in profits following the negative impact of the Covid-19
pandemic. The Group reported a Statutory operating profit of £27.3m (2020
loss of £4.9m; 2019 loss of £11.0m).
Group Headline operating profit margin increased to 12.5% from 5.3% in 2020
and from 8.0% in 2019. This shows good progress towards the Group's operating
profit margin target of 18% by 2025 announced at the Capital Markets Day in
January 2021. The Statutory operating profit margin improved to 10.9% from an
operating loss margin of -2.2% in 2020 and -4.3% in 2019.
The key movements between Statutory to Headline results
Year ended 31 December 2021 Year ended 31 December 2020
Reconciliation of Statutory to Headline profit before taxation £000 £000
Statutory profit/(loss) before taxation 21,632 (8,507)
Separately disclosed items (3,783) 1,972
Amortisation of acquired intangibles 965 1,686
Impairment of non-current assets 2,770 3,920
(Gain)/loss on disposal of subsidiaries and associates 83 (1,432)
Revaluation of associates on transition to subsidiaries 234 -
FVTPL investments under IFRS 9 (2,510) 2,095
Revaluation of contingent consideration 532 446
Dividends paid to IFRS 2 put option holders 4,314 4,728
Put option accounting - IFRS 9 and IFRS 2 3,077 3,420
Headline profit before taxation 27,314 8,328
Some of the larger items causing the movement between Statutory and Headline
results for 2021 are explained below:
Separately disclosed items, including restructuring
One-off credits of £3.8m (2020: costs of £2.0m) arise as a result of the
forgiveness of £2.2m of US Paycheck Protection Program (PPP) loans and the
£2.8m release of a long-term incentive plan accrual relating to an employee
who has now left the business. These are partially reduced by lease surrender
expenses, due to the restructuring of two leases, and the cost arising from
the repayment of £1.0m of furlough money to the UK government. Last year's
charge arose because of one-off restructuring costs, partially offset by the
credits arising from the UK furlough money received.
Impairment of non-current assets
In 2021, the Group recorded goodwill write-offs of £1.9m in Santa Clara
Participações Ltda, which moved from being an associate to a subsidiary
during the year, and in Scarecrow Communications Limited. The remainder
relates to the impairment of M&C Saatchi Little Stories SAS, an associate,
in which the Group increased its ownership in February 2021, and of an
intangible asset in M&C Saatchi Share Inc. The 2020 charge mainly
consisted of a £2.7m impairment against the carrying value of our right of
use of property assets and a £0.9m associate impairment.
Gain/(loss) on disposal of subsidiaries and associates
The Board made a strategic decision at the start of 2020 to eliminate
loss-making businesses from the Group. This process continued into 2021, with
the closure, merger or divestment of our interest in M&C Saatchi PR LLP,
M&C Saatchi Marketing Arts Limited and Create Collective Pte, which
together generated a loss on disposal in 2021 of £83k, net of severance and
legal fees.
Financial assets at fair value through profit and loss - FVTPL investments under IFRS 9
The Group holds unlisted equity investments in early-stage companies (detailed
in Note 19 of the financial statements). The revaluation of these companies is
excluded from Headline results. The portfolio had a much stronger year than in
2020, as several companies bounced back following the Covid-19 pandemic,
resulting in an upwards revaluation of £3.5m. This is partially offset by an
increase in management fees linked to the increase in the value of the
investments.
Put option accounting
These charges relate to the revaluations of the put option liabilities (both
IFRS 2 and IFRS 9) during the year.
Net revenue performance by specialism and region
Group net revenue increased 10.6% in 2021 (15.1% on a like-for-like basis,
which removes entities disposed of or acquired during 2020 and 2021). The
Media & Performance and Sponsorship & Talent specialisms saw the
largest net revenue growth of all specialisms, and except for Advertising
& CRM, all experienced double-digit growth in 2021. All specialisms,
except for Advertising & CRM, have recovered to 2019 net revenue levels,
with Global & Social Issues and Sponsorship & Talent showing growth of
around 30% compared to 2019.
There has been a marked shift in revenue between the different specialisms
over the last two years. Advertising & CRM remains the largest specialism
comprising 50% of total net revenue (2020: 54%) on a like-for-like basis.
However, the other four specialisms have increased their share of total net
revenue to 50% (2020: 46%). This shift away from Advertising & CRM has had
a very significant upwards impact on operating profit, as these have an
operating profit margin of 26% compared to Advertising & CRM with an
operating profit margin of 9%.
At the regional level, the UK remains the largest region in the Group
comprising 43% of total net revenue (2020: 41%) on a like-for-like basis.
Financial income and expense
The Group's finance income and expense includes bank interest, lease interest
and fair value adjustments to minority shareholder put option liabilities
(IFRS 9). Further details can be found in Note 7 of the financial statements.
Bank interest payable for the year was £1.6m (2020: £1.2m). The increase is
mainly due to a higher interest margin on the Group's new revolving
multicurrency credit facility agreement which was signed during the first half
of 2021.
The interest on leases increased to £2.8m (2020: £2.5m), due to new property
leases entered into as old leases expired.
The fair value adjustment of put option liabilities created a charge of
£0.9m (2020: charge of £0.1m). This increase is due to an increase in the
Company's share price year-on-year and the improved profitability in the
agencies where there are outstanding put options.
Tax
Headline Tax
Our Headline tax rate has reduced from 39.6% to 26.6%. The tax rate reduction
is driven by fewer prior year tax adjustments (2020 was affected by the 2019
accounts restatements) and fewer loss-making subsidiaries where we expect no
future tax benefit.
Statutory Tax
Statutory profit this year compared to a Statutory loss last year gave rise to
a much higher tax rate. The Statutory tax rate increased from -16.6% in 2020
to 39.1% in 2021. We expect our effective tax rates to be higher than the
actual tax rates in our markets, as a result of items such as put option
charges being capital in nature and non-deductible for corporation tax
purposes. In 2020 tax was payable despite the Statutory loss and in 2021 the
effective Statutory tax rate is significantly higher than the worldwide
average standard tax rate.
Non-controlling interests (minority interests)
On a Headline basis, the non-controlling interest share of the Group's profit represents the minority shareholders' share of each of the Group's subsidiaries' profit or loss for the year. In 2021, the share of profits attributable to non-controlling interests increased to £6.4m (2020: £3.4m). This reflects the increase in overall Headline profit in 2021. Despite this increase in the share of profits attributable to non-controlling interests, minority interests reduced to 32% of profit after tax in 2021 (2020: 67%) as a result of the settlement of £5.3m of put options during the year.
On a Statutory basis, non-controlling interests excludes any minority
interests which are IFRS 2 put option holders (holders of put options that are
contingent on being employed by the relevant company). Their share of the
entity's Statutory profit is paid as dividends each year, which is reported as
staff costs in the Statutory results.
Dividend
The Company did not pay a dividend to its shareholders in 2021 (2020: nil).
The intention is to reinstate dividends from 2022.
Cash flow and banking arrangements
Total gross cash (excluding bank overdrafts) at 31 December 2021 was £69.4m
(2020: £76.3m). Cash net of bank borrowings was £34.4m, compared to £32.7m
in 2020.
The Group generated operating cash (before working capital) of £41.0m in 2021
(2020: £19.1m). This was offset by a £15.2m net outflow of working capital
(compared to a £16.2m net inflow in 2020), £9.0m of lease payments made
(compared to payments of £9.7m made in 2020) and £5.3m of payments made to
acquire non-controlling interests (2020: £0.2m). The swing in working capital
was driven by £14.5m of agreed deferral of payments from 2020 to 2021
(supplier invoices, UK VAT, UK rent and UK furlough), which was not repeated
at the end of 2021, and the increase in billings issued in the last quarter of
2021, which were collected after 31 December 2021. There was also an increase
in tax payments of £6.8m in 2021 (compared to £1.6m in 2020), due to the
increased profitability across the Group.
On 31 May 2021, the Company entered into a revolving multicurrency credit
facility agreement with National Westminster Bank Plc and Barclays Bank PLC
for up to £47.0m (the "Facility"). The Facility includes a £2.5m overdraft
and the ability to draw up to £3.0m as a bonding facility as required. The
Facility is provided on a three-year term (with two optional one-year
extensions). The primary purpose of the Facility is to provide the Group with
additional liquidity headroom to support any variations in working capital.
At 31 December 2021, £20.0m was drawn on the Facility. This has been reduced
to £15.0m at 31 March 2022.
Capital expenditure
Total capital expenditure in 2021 (including software acquired) decreased to
£2.6m (2020: £3.7m). This included £1.4m (2020: £0.9m) on computer
equipment and £0.8m (2020: £0.5m) on software and film rights. The remaining
£0.4m (2020: £2.3m) was incurred on leasehold improvements and furniture and
fittings.
Share-based incentive arrangements
The Group operates a business model through which certain senior management
have minority ownership in the subsidiary companies they operate, through
share-based incentive (put option) arrangements. Given the Group's strong cash
position, we now intend to settle put options in cash rather than shares, when
the options fall due, which significantly reduces the risk of substantial
share dilution to shareholders.
The table below presents a range of potential cash payments to settle put
options, LTIPs, restricted share awards and deferred and contingent
consideration for the next six years based on the future share price of the
Company, the estimated future business performance for each business unit and
assuming the put options are exercised as soon as possible. These forecasts
are based on the Group's five-year plans developed as part of our budget
cycle, assuming all Total Shareholder Return LTIP targets are fulfilled, and
that equity is bought by the LTIP in the year of vesting at 168.5p (the share
price at 31 December 2021).
Paid so Potentially payable
Future share price of the Company far in 2022 2022 2023 2024 2025 2026 2027 & 2028 Total
£000
£000 £000 £000 £000 £000 £000 £000
At 150p 1,135 18,879 6,810 6,107 87 1,798 3,163 37,979
At 168.5p 1,135 20,403 7,733 6,806 122 1,985 3,553 41,753
At 190p 1,135 22,091 8,722 7,619 162 2,203 4,007 45,939
At 210p 1,135 23,608 9,589 8,373 200 2,405 4,428 49,738
At 230p 1,135 25,126 10,457 9,130 238 2,607 4,850 53,543
At 250p 1,135 26,643 11,324 9,885 275 2,809 5,272 57,343
At 300p 1,135 30,436 13,492 11,775 370 3,315 6,326 66,849
Put option holders are not required to exercise their options at the first
opportunity. Many do not and prefer to remain shareholders in the subsidiary
companies they manage. As a result, some put option holders may exercise their
options later than the dates we have estimated in the table above.
If, in the future, the Company decides to fulfil the put options in equity,
then the amount of equity that will be provided is equal to the liability
divided by the share price at the date of settlement.
Summary
The Company's performance in 2021 was exceptional. Driven by a 22% increase in
revenue and a very strong increase in operating profit margin to 12.5% (2020:
5.3%), the Company generated the highest operating profit in its history. The
foundations for future growth have now been laid. Trading has continued to be
strong in the first quarter of 2022, with the outlook for the remainder of
2022 very positive.
This statement along with the audited consolidated statutory financial
statements is available on our website:
https://www.mcsaatchiplc.com/reports-results/2021
(https://www.mcsaatchiplc.com/reports-results/2021)
Printed copies of the Annual Report are being posted to shareholders who have
requested hard copies.
Consolidated Financial Statements for the year ended 31 December 2021
Consolidated Income Statement
2021 2020
Total Total
Year ended 31 December Note £000 £000
Billings (unaudited) 533,350 454,504
Revenue 4 394,575 323,250
Project cost/direct cost (145,239) (97,861)
Net revenue 249,336 225,389
Staff costs 5 (172,493) (171,717)
Depreciation 16,17 (9,196) (11,659)
Amortisation 14 (1,412) (2,275)
Impairment charges 14 (2,937) (3,217)
Other operating charges (39,573) (38,635)
Other gains/(losses) 19 3,533 (2,818)
Operating profit/(loss) 27,258 (4,932)
Share of results of associates and joint ventures 15 (190) (113)
Gain on disposal of subsidiaries 11 42 1,432
Impairment of associate investment 15 (357) (895)
Finance income 7 260 364
Finance expense 7 (5,381) (4,363)
Profit/(loss) before taxation 21,632 (8,507)
Taxation 8 (8,459) (1,411)
Profit/(loss) for the year 13,173 (9,918)
Attributable to:
Equity shareholders of the Group 12,757 (9,897)
Non-controlling interests 416 (21)
Profit/(loss) for the year 13,173 (9,918)
Profit/(loss) per share
Basic (pence) 1 10.53p (9.10)p
Diluted (pence)* 1 9.38p (9.10)p
Headline results
Operating profit 1 31,136 11,970
Profit before taxation 1 27,314 8,328
Profit after tax attributable to equity shareholders of the Group 1 13,687 1,650
Basic earnings per share (pence) 1 11.30p 1.52p
Diluted earnings per share (pence)* 1 10.06p 1.31p
EBITDA 40,821 24,105
* It is the intention to fulfil all options by either buying equity from
market or in cash so the difference between Basic and Dilutive EPS is purely
due to fact that the Group still has a choice that we intend not to take.
The following notes form part of these consolidated financial statements.
Consolidated Statement of Other Comprehensive Income
2021 2020
Year ended 31 December £000 £000
Profit / (loss) for the year 13,173 (9,918)
Other comprehensive profit/(loss)*
Exchange differences on translating foreign operations 664 (289)
Other comprehensive profit/(loss) for the year net of tax 664 (289)
Total comprehensive profit/(loss) for the year 13,837 (10,207)
Total comprehensive profit/(loss) attributable to:
Equity shareholders of the Group 13,421 (10,186)
Non-controlling interests 416 (21)
Total comprehensive profit/(loss) for the year 13,837 (10,207)
*All items in the consolidated statement of comprehensive profit/(loss) may be
reclassified to the income statement.
The following notes form part of these consolidated financial statements.
Consolidated Balance Sheet
2021 2020
At 31 December Note £000 £000
Non-current assets
Intangible assets 14 40,499 36,523
Investments in associates and joint ventures 15 202 2,829
Plant and equipment 16 6,333 7,157
Right-of-use assets 17 44,397 34,006
Other non-current assets 18 1,211 3,494
Deferred tax assets 9 6,777 8,301
Financial assets at fair value through profit or loss 19 15,183 11,410
114,602 103,720
Current assets
Trade and other receivables 20 132,741 89,262
Current tax assets 247 2,621
Cash and cash equivalents 69,419 76,295
202,407 168,178
Current liabilities
Trade and other payables 21 (154,049) (124,740)
Provisions 22 (1,193) (666)
Current tax liabilities (837) (2,019)
Borrowings 23 (14,737) (41,083)
Lease liabilities 17 (6,950) (6,250)
Deferred and contingent consideration 13 (984) (1,679)
Minority shareholder put option liabilities 26/27 (20,788) (978)
(199,538) (177,415)
Net current assets/(liabilities) 2,869 (9,237)
Total assets less current liabilities 117,471 94,483
Non-current liabilities
Deferred tax liabilities 9 (777) (405)
Borrowings 23 (19,821) (2,199)
Lease liabilities 17 (49,895) (40,171)
Minority shareholder put option liabilities 26/27 (11,572) (1,804)
Other non-current liabilities 24 (2,549) (4,773)
(84,614) (49,352)
Total net assets 32,857 45,131
2021 2020
At 31 December Note £000 £000
Equity
Share capital 28 1,227 1,159
Share premium 50,327 44,607
Merger reserve 37,554 37,554
Treasury reserve (550) (550)
Minority interest put option reserve (6,615) (4,953)
Non-controlling interest acquired (29,190) (29,190)
Foreign exchange reserve 1,853 1,210
Accumulated losses (22,122) (4,939)
Equity attributable to shareholders of the Group 32,484 44,898
Non-controlling interest 373 233
Total equity 32,857 45,131
The following notes form part of these consolidated financial statements.
Reserves are defined in Note 35.
These consolidated financial statements were approved and authorised for issue
by the Board of Directors on 27 April 2022 and signed on its behalf
by:
Mickey Kalifa
Chief Financial Officer
M&C Saatchi plc
Company Number 05114893
Consolidated Statement of Changes in Equity
Share capital Share premium Merger reserve Treasury reserve MI put option reserve Non-controlling interest acquired Foreign exchange reserves Retained earnings/(accumulated losses) Subtotal Non-controlling interest in equity Total
Note £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
At 31 December 2019 936 44,607 33,400 (550) (4,953) (32,239) 1,181 6,854 49,236 365 49,601
Exercise of Minority Interest put options 26 82 - 4,154 - - - - - 4,236 - 4,236
Exercise of share-based payment schemes 27 141 - - - - - - (683) (542) - (542)
Disposal of subsidiaries - - - - - 3,049 318 (3,367) - 40 40
Share option charge 27 - - - - - - - 3,275 3,275 - 3,275
Reclassification of equity-settled share-based payments to cash-settled - - - - - - - (1,121) (1,121) - (1,121)
Dividends 10 - - - - - - - - - (151) (151)
Total transactions with owners 223 - 4,154 - - 3,049 318 (1,896) 5,848 (111) 5,737
Total loss for the year - - - - - - - (9,897) (9,897) (21) (9,918)
Total other comprehensive loss for the year - - - - - - (289) - (289) - (289)
At 31 December 2020 1,159 44,607 37,554 (550) (4,953) (29,190) 1,210 (4,939) 44,898 233 45,131
Acquisitions including deferred consideration 12,13 54 4,949 - - (2,000) - - - 3,003 - 3,003
Exercise of Minority Interest put options 26 5 419 - - 338 - - - 762 - 762
Transfer from equity to cash-settled put options 27 - - - - - - - (32,555) (32,555) - (32,555)
Transfer from cash to equity-settled put options 27 - - - - - - - 994 994 - 994
Share option charge 27 - - - - - - - 2,235 2,235 - 2,235
Buyout of equity put options in cash - - - - - - - (632) (632) - (632)
Issue of shares 6 352 - - - - - - 358 - 358
Exercise of put options 3 - - - - - - (3) - - -
Disposal of subsidiaries - - - - - - (21) 21 - - -
Dividends 10 - - - - - - - - - (276) (276)
Total transactions with owners 68 5,720 - - (1,662) - (21) (29,940) (25,835) (276) (26,111)
Total profit for the year - - - - - - - 12,757 12,757 416 13,173
Total other comprehensive income for the year - - - - - - 664 - 664 - 664
At 31 December 2021 1,227 50,327 37,554 (550) (6,615) (29,190) 1,853 (22,122) 32,484 373 32,857
The following notes form part of these consolidated financial statements.
Consolidated Cash Flow Statement and Analysis of Net Cash
Year ended 31 December Note 2021 2020
£000
£000
Operating profit/(loss) 27,258 (4,932)
Adjustments for:
Depreciation of plant and equipment 16 2,237 2,555
Depreciation of right-of-use assets 17 6,959 9,104
Impairment of right-of-use asset 17 - 2,651
Loss on sale of plant and equipment 95 640
Impairment of plant and equipment 16 - 374
Loss on sale of software intangibles 824 433
Revaluation of financial assets at FVTPL 19 (3,533) 3,315
Gain on disposal of financial assets at FVTPL 19 - (497)
Revaluation of contingent consideration 13 532 446
Amortisation of acquired intangible assets 14 965 1,686
Impairment of goodwill and other intangibles 14 1,900 -
Impairment and amortisation of capitalised software intangible assets 14 1,484 781
Exercise of share-based payment schemes with cash - (683)
Equity-settled share-based payment expenses 27 2,235 3,275
Operating cash before movements in working capital 40,956 19,148
(Increase)/decrease in trade and other receivables (38,912) 9,052
Increase in trade and other payables 23,434 9,425
Increase/(decrease) in provisions 316 (2,323)
Cash generated from operations 25,794 35,302
Tax paid (6,844) (1,645)
Net cash from operating activities 18,950 33,657
Investing activities
Acquisitions of subsidiaries and deferred consideration paid, net of cash 12,13 633 -
acquired
Disposal of associate or subsidiary (net of cash disposed of) 11 (2) (4,114)
Acquisition of associates 15 - (1)
Acquisitions of unlisted investments 19 (81) (713)
Proceeds from sale of unlisted investments 209 1,233
Proceeds from sale of plant and equipment 223 387
Purchase of plant and equipment 16 (1,789) (3,184)
Purchase of capitalised software 14 (837) (502)
Interest received 7 260 364
Net cash consumed by investing activities (1,384) (6,530)
Net cash from operating and investing activities 17,566 27,127
Financing activities
Dividends paid to non-controlling interest (152) (151)
Cash consideration for non-controlling interest acquired 27 (5,348) (204)
Buyout of equity put options in cash (632) -
Payment of lease liabilities 17 (6,210) (7,224)
Proceeds from bank loans 23 9,301 3,472
Repayment of bank loans 23 (16,909) (8,900)
Borrowing costs (602) (518)
Interest paid 7 (1,555) (1,751)
Interest paid on leases 17 (2,800) (2,471)
Net cash consumed by financing activities (24,907) (17,747)
Net (decrease)/increase in cash and cash equivalents (7,341) 9,380
Effect of exchange rate fluctuations on cash held (55) 246
Cash and cash equivalents at the beginning of the year 62,375 52,749
Total cash and cash equivalents at the end of the year 54,979 62,375
Cash and cash equivalents 69,419 76,295
Bank overdrafts* 23 (14,440) (13,920)
Total cash and cash equivalents at the end of the year 54,979 62,375
Bank loans and borrowings** 23 (20,590) (29,628)
Net cash 34,389 32,747
* These overdrafts are legally offset against balances held in the UK;
however, they have not been netted off in accordance with the requirements of
IAS32.42.
** Bank loans and borrowings are defined in Note 23; they exclude our lease
liability of £56,844k (2020 £46,421k) (Note 17)
The following notes form part of these consolidated financial statements.
Preparation
Basis of preparation
The consolidated financial statements have been prepared in accordance with UK
adopted international accounting standards, in conformity with the
requirements of the Companies Act 2006.
The consolidated financial statements are presented in pounds sterling and,
unless stated otherwise, rounded to the nearest thousand. They have been
prepared under the historical cost convention, except for the revaluation of
certain financial instruments.
Going concern
These consolidated financial statements have been prepared on the going
concern basis.
The Board have concluded that under the most likely going concern scenarios,
the Group will have sufficient liquidity and headroom on bank covenants to
continue to operate for a period of not less than a year from approving the
consolidated financial statements.
The Board have formed their opinion after evaluating four different severe but
plausible forecast scenarios and a reverse stress test, extending to 31
December 2023. The severe but plausible scenarios comprise:
1. A significant reduction in new business wins.
2. A significant increase in wage inflation.
3. A significant number of top clients are lost.
4. A significant economic downturn.
These severe but plausible scenarios are assumed to materialise from the
second quarter of 2022 onwards. The estimated decline in profit before tax
under these scenarios ranges from £8.3m to £19.1m compared to the base case
plan for the cumulative period ending 31 December 2023: a £2.3m to £10.2m
decline in profit before tax in 2022 and a £6.0m to £11.0m decline in profit
before tax in 2023.
The reverse stress test case evaluates how extreme conditions would need to be
for the Group to break its covenants within the going concern review period.
The conditions go significantly further than the severe but plausible
scenarios and reflect a scenario that the Directors consider to be highly
unlikely.
The Directors have also considered the impact of climate change on going
concern, taking into account the Company's support for Ad Net Zero (the
industry initiative to tackle climate change led by the Advertising
Association and its members), and do not believe that there is a significant
financial impact.
The Board is satisfied that the Group's forecasts, which take into account
reasonably possible changes in trading performance, show that there are no
material uncertainties over going concern, and that, even under the severe but
plausible scenarios, the Group will continue to have sufficient liquidity and
headroom to operate within the terms of its banking covenants. The Board,
therefore, have concluded the going concern basis of preparation continues to
be appropriate.
Foreign exchange
Transactions in foreign currencies are translated at the exchange rate ruling
at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the exchange rates ruling at the
balance sheet date, with the resulting exchange differences recognised in the
income statement.
The accounts of each subsidiary are prepared using the functional currency of
that subsidiary. The income statements of foreign subsidiary undertakings are
translated into pounds sterling at average exchange rates on consolidation.
The assets and liabilities of overseas subsidiaries (which comprise the
Group's net investment in foreign operations) are translated at the exchange
rate ruling at the balance sheet date. The resulting exchange differences are
recognised in other comprehensive income and accumulated in equity within the
foreign exchange reserve.
Consolidation
The Group's consolidated financial statements consolidate the results of the
Company and its subsidiary entities and include the share of its joint
ventures' and associates' results accounted for under the equity method.
A subsidiary is an entity controlled by the Group. The Group controls a
subsidiary when it is exposed, or has the rights, to variable returns from its
involvement with the subsidiary and has the ability to affect those returns
through its power over the subsidiary.
The results of subsidiaries are included from the date of acquisition. Where
necessary, adjustments are made to the consolidated financial statements of
subsidiaries to bring their accounting policies into line with those of the
Group. Intra-group transactions, balances, income, and expenses are eliminated
on consolidation.
Where a consolidated company is less than 100% owned by the Group, the
treatment of the non-controlling interest share of the results and net assets
is dependent on how the non-controlling interests' equity award is accounted
for. Where the equity is accounted for as a share-based payment award under
IFRS 2, all dividend outflow is taken to staff costs, and there is no
non-controlling interest. In all other cases, the non-controlling interest
share of the results and net assets is recognised at each reporting date in
equity, separately from the equity attributable to the shareholders of the
Company.
Significant accounting policies
The significant accounting policies applied in the preparation of these
consolidated financial statements are set out in the relevant notes. These
policies have been applied consistently to all the years presented, unless
otherwise stated.
Critical accounting policies
Certain of the Group's significant accounting policies are considered by the
Directors to be critical, due to the level of complexity, judgement, or
estimation involved in their application and their potential impact on the
consolidated financial statements. The critical accounting policies are listed
below and are explained in more detail in the relevant notes to the Group
consolidated financial statements.
Revenue recognition
The Group's revenue is earned from the provision of advertising and marketing
services, together with commission-based income in relation to media spend and
talent performance. Under IFRS 15, revenue from contracts with customers is
recognised as, or when, the performance obligations present within the
contractual agreements are satisfied. Depending on the arrangement with the
client, the Group may act as principal or as agent in the provision of these
services.
See Note 4 for a full listing of the Group's revenue accounting policies.
Put option accounting (IFRS 2 and IFRS 9)
It is common for equity partners in the Group's subsidiaries to hold put
options over their equity, such that they can require the Group to purchase
their non-controlling interest for either a variable number of Company shares
or cash. Dependent on the terms and substance of the underlying agreement,
these options are either recognised as a put option liability under IFRS 9
(Note 26) or as a put option under IFRS 2 (Note 27) - see significant
judgements below.
An IFRS 9 scheme should be considered as reward for future business
performance and is not conditional on the put option holder being an employee
of the business. These instruments are recognised in full at the amortised
cost of the underlying award on the date of inception, with both a liability
on the balance sheet and a corresponding amount within the minority interest
put option reserve being recognised. At each period end, the amortised cost of
the put option liability is calculated in accordance with the put option
agreement, to determine a best estimate of the future value of the expected
award. Resultant movements in the amortised cost of these instruments are
charged to the income statement within finance income/expense. The put option
liability will vary with both the Company's share price and the subsidiary's
financial performance. Upon exercise of an award by a put option holder, the
liability is extinguished, and the associated minority interest put option
reserve is transferred to the non-controlling interest acquired reserve.
An IFRS 2 scheme should be considered as reward for future business
performance and is conditional on the holder being an employee of the
business. These schemes are recognised as staff costs over the vesting period
(if equity-settled) or until the option is exercised (if cash-settled). In
September 2021, the Board made the decision to move to cash settlement of
these put options going forward. This required a fair value assessment on the
day of the modification and a movement between reserves and liabilities.
See Note 27 for a full description of the Group's accounting policy for IFRS 2
put options.
Headline results
As stated in the Financial review, the Directors believe that the Headline
results and Headline earnings per share (see Note 1), provide additional
useful information on the underlying performance of the business. The Headline
results reflect the underlying profitability of the business units, by
excluding a number of items that are not part of routine business income and
expenses.
In addition, the Headline results are used for internal performance management
and reward, and they are also used to calculate minority shareholder put
option liabilities. The term "Headline" is not a defined term in IFRS. Note 1
reconciles Statutory results to Headline results and the segmental reporting
(Note 3) reflects Headline results, in accordance with IFRS 8.
The items that are excluded from Headline results are:
· Exceptional 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.
Unlisted investments
The Group holds certain unlisted equity investments which are classified as
financial assets at FVTPL (see Note 19). These investments are initially
recognised at their fair value. At the end of each reporting period, the fair
value is reassessed, with gains or losses being recognised in the income
statement.
Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing consolidated financial statements, management
necessarily makes judgements and estimates that can have a significant impact
on the consolidated financial statements. The estimates and judgements that
are made are continually evaluated, based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. The estimates and judgements that have a
significant risk of causing a material adjustment to the consolidated
financial statements within the next financial year are outlined below:
Significant accounting judgements
Management has made the following judgements, which have the most significant
effect in terms of the amounts recognised, and their presentation, in the
consolidated financial statements.
Non-controlling interest put option accounting - IFRS 2 or IFRS 9
The key judgement is whether the awards are given beneficially as a result of
employment, which can be determined where there is an explicit service
condition, where the award is given to an existing employee, where the
employee is being paid below market value or where there are other indicators
that the award is a reward for employment. In such cases, the awards are
accounted for as a share-based payment in exchange for employment services
under IFRS 2.
Otherwise, where the holder held shares prior to the Group acquiring the
subsidiary or gained the equity as a result of starting up a subsidiary using
their unique skills and there are no indicators the award should be accounted
for under IFRS 2, then the award is accounted for under IFRS 9.
Impairment - assessment of CGUs and assessment of indicators of impairment
Impairment reviews are undertaken annually, or more frequently if events or
changes in circumstances indicate a potential impairment. Assets with finite
lives are reviewed for indicators of impairment (an impairment "trigger") and
judgement is applied in determining whether such a trigger has occurred.
External and internal factors are monitored by management, including a)
adverse changes in the economic or political situation of the geographic
locale in which the underlying entity operates, b) heightened risk of client
loss or chance of client gain, and c) internal reporting suggesting that an
entity's future economic performance is better or worse than previously
expected. Where management have concluded that such an indication of
impairment exists, then the recoverable amount of the asset is assessed.
The Group assesses whether an impairment is required by comparing the carrying
value of the CGU assets (including the right-of-use assets under IFRS 16) to
their value in use. Generally, discounted cash flow models, based on the
Group's latest budget and five-year financial plan, and a long-term growth
rate, are used to determine the recoverable amount for the CGUs. The
appropriate estimates and assumptions used require judgement and there is
significant estimation uncertainty. The results of impairment reviews
conducted at the end of the year are reported in Note 14 (Intangible Assets),
Note 15 (Associates), Note 16 (Plant and Equipment) and Note 17 (Right-of-use
Assets).
The Group has recognised a total impairment charge of £3,294k in the year
(2020: £4,112k), of which £2,937k relates to intangible assets (2020:
£192k) and £357k relates to associate investments (2020: £895k). There was
no impairment in the year of plant and equipment (2020: £374k), nor of
right-of-use assets (2020: £2,651k).
Deferred tax assets
The Group assesses the future availability of carried forward losses and other
tax attributes, by reference to jurisdiction-specific rules around carry
forward and utilisation, and it assesses whether it is probable that future
taxable profits will be available against which the attribute can be utilised.
Significant estimates and assumptions
Some areas of the Group's consolidated financial statements are subject to key
assumptions and other significant sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial
year. The Group has based its assumptions and estimates on parameters
available when the consolidated financial statements were prepared.
Fair value measurement of financial instruments
The Group holds certain financial instruments, which are recorded on the
balance sheet at fair value at the point of recognition and remeasured at the
end of each reporting period. At the year-end these relate to:
(i) equity investments at FVTPL in non-listed limited
companies (Note 19); and
(ii) certain contingent consideration (Note 13).
No formal market exists to trade these financial instruments and, therefore,
their fair value is measured by the most appropriate valuation techniques
available, which vary based on the nature of the instruments. The inputs to
the valuation models are taken from observable markets where possible, but
where this is not feasible, judgement is required to establish fair values.
The basis of calculation of the estimated fair value of these financial
instruments (in addition to sensitivity analyses on the estimates' salient
inputs) is detailed in Note 29.
Share-based incentive arrangements
Share-based incentives are valued at the date of the grant, using stochastic
Monte Carlo pricing models with non-market vesting conditions. Typically, the
value of these awards is directly related to the performance of a particular
entity of the Group in which the employee holds a minority interest. The key
inputs to the pricing model are risk-free interest rates, share price
volatility and expected future performance of the entity to which the award
relates. Management apply judgement to these inputs, using various sources of
information, including the Company's share price, experience of past
performance and published data on risk-free interest rates (government gilts).
Details of awards made in the year are shown in Note 27.
Leasing estimates
Within IFRS 16, two estimates are used for the recognition of new leases and
making amendments to existing leases:
i. Derivation of the interest rate used for discounting future cash flows
- the discount rate used in the calculation of the lease liability involves
estimation on a lease-by-lease basis. This involves an estimate of incremental
borrowing costs, driven by the territory risk (which comprises both the
currency used and the risk-free rates of that country), the date of lease
inception, and the lease term.
ii. Anticipated length of lease term - IFRS 16 defines the lease term as
the non-cancellable period of a lease, together with the options to extend or
terminate a lease, if the lessee is reasonably certain to exercise that
option. Where a lease includes the option for the Group to extend the lease
term, the Group takes a view, at inception, as to whether it is reasonably
certain that the option will be exercised. This will take into account the
length of time remaining before the option is exercisable, current trading,
future trading forecasts and the level and type of any planned capital
investment. The assessment of whether the option will be exercised is
reassessed in each reporting period. A reassessment of the remaining life of
the lease could result in a recalculation of the lease liability and a
material adjustment to the associated balances.
Non-statutory accounts statement
The financial information for the year ended 31 December 2021 and the year
ended 31 December 2020 does not constitute the company's statutory accounts
for those years.
Statutory accounts for the year ended 31 December 2020 have been delivered to
the Registrar of Companies. The statutory accounts for the year ended 31
December 2021 will be delivered to the Registrar of Companies in due course.
The auditor's report on the accounts for 31 December 2021 was 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. The auditor's
report on the accounts for 31 December 2020 was qualified in respect of the
comparability of the Group loss and cash flows with the 2019 year end and did
not draw attention to any matters by way of emphasis. Solely in respect of the
qualification the auditor included a statement under 498(2) and 498(3) of the
Companies Act 2006.
Notes to the Financial Statements
1. Headline results and earnings per share
The analysis below provides a reconciliation between the Group's Statutory
results and the Headline results for the current year.
Statutory Separately disclosed items Amortisation of acquired intangibles (Note 14) Impairment of non-current assets Net loss on disposal of subsidiaries and related costs (Note 11) Revaluation of associates on transition to subsidiaries (Note 15) Revaluation of contingent consideration (Note 13) Dividends paid to IFRS 2 put holders (Note 5)* Put option accounting (Note 26 & 27) Headline results
2021 (Note 2) (Note 14 & 15)
FVTPL investments under IFRS 9 (Note 19)
Year ended 31 December 2021 Note £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Billings (unaudited) 533,350 533,350
Revenue 394,575 - - - - - - - - - 394,575
Net revenue 249,336 - - - - - - - - - 249,336
Staff costs 5 (172,493) (3,975) - - 28 - - - 5,270 1,225 (169,945)
Depreciation 16,17 (9,196) - - - - - - - - - (9,196)
Amortisation 14 (1,412) - 965 - - - - - - - (447)
Impairments 14 (2,937) - - 2,413 - - - - - - (524)
Other operating charges (39,573) 192 - - 97 - 664 532 - - (38,088)
Other gains 19 3,533 - - - - - (3,533) - - - -
Operating profit 27,258 (3,783) 965 2,413 125 - (2,869) 532 5,270 1,225 31,136
Share of results of associates and joint ventures 15 (190) - - - - 234 - - - - 44
Gain on disposal of subsidiaries 11 42 - - - (42) - - - - - -
Impairment of associate investment 15 (357) - - 357 - - - - - - -
Finance income 7 260 - - - - - - - - - 260
Finance expense 7 (5,381) - - - - - 359 - - 896 (4,126)
Profit before taxation 8 21,632 (3,783) 965 2,770 83 234 (2,510) 532 5,270 2,121 27,314
Taxation 8 (8,459) 743 (246) - - - 680 - 11 - (7,271)
Profit for the year 13,173 (3,040) 719 2,770 83 234 (1,830) 532 5,281 2,121 20,043
Non-controlling interests (416) - - - - - - - (5,940) - (6,356)
Profit attributable to equity holders of the Group** 12,757 (3,040) 719 2,770 83 234 (1,830) 532 (659) 2,121 13,687
* The non-controlling interest charge is moved to operating profit due to
underlying equity being defined as a IFRS 2 put option.
** Headline earnings are profit attributable to equity holders of the Group
after adding back items within the columns above.
The analysis below provides a reconciliation between the Group's Statutory
results and the Headline results for the prior year.
Statutory Separately disclosed items Amortisation of acquired intangibles (Note 14) Impairment of non-current assets Gain on disposal of subsidiaries and associates FVTPL investments under IFRS 9 (Note 19) Revaluation of contingent consideration (Note 13) Dividends paid to IFRS 2 put holders (Note 5)* Put option accounting (Note 26 & 27) Headline results
2020 (Note 2) (Note 15, 16 & 17)
Year ended 31 December 2020 Note £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Billings (unaudited) 454,504 - - - - - - - - 454,504
Revenue 323,250 - - - - - - - - 323,250
Net revenue 225,389 - - - - - - - - 225,389
Staff costs 5 (171,717) 1,661 - - - - - 4,728 3,300 (162,028)
Depreciation 16,17 (11,659) - - - - - - - - (11,659)
Amortisation 14 (2,275) - 1,686 - - - - - - (589)
Impairments 16,17 (3,217) - - 3,025 - - - - - (192)
Other operating charges (38,635) 311 - - - (232) 446 - - (38,110)
Other losses (2,818) - - - - 1,977 - - - (841)
Operating (loss) / profit (4,932) 1,972 1,686 3,025 - 1,745 446 4,728 3,300 11,970
Share of results of associates and joint ventures 15 (113) - - - - - - - - (113)
Gain on disposal of subsidiaries 11 1,432 - - - (1,432) - - - - -
Impairment of associate investment 15 (895) - - 895 - - - - - -
Finance income 7 364 - - - - - - - - 364
Finance expense 7 (4,363) - - - - 350 - - 120 (3,893)
(Loss)/profit before taxation (8,507) 1,972 1,686 3,920 (1,432) 2,095 446 4,728 3,420 8,328
Taxation 8 (1,411) (482) (405) (575) - (398) - - (24) (3,295)
(Loss)/profit for the year (9,918) 1,490 1,281 3,345 (1,432) 1,697 446 4,728 3,396 5,033
Non-controlling interests 21 - - - - - - (3,404) - (3,383)
(Loss)/profit attributable to equity holders of the Group** (9,897) 1,490 1,281 3,345 (1,432) 1,697 446 1,324 3,396 1,650
* The non-controlling interest charge is moved to operating profit due to
underlying equity being defined as a IFRS 2 put option.
** Headline earnings are profit attributable to equity holders of the Group
after adding back the adjustments noted above.
Earnings per share
Basic and diluted earnings per share are calculated by dividing the Group's
appropriate earnings metrics by the weighted average number of shares in issue
during the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue on the assumption of conversion of all
potentially dilutive ordinary shares. Anti-dilutive potential ordinary shares
are excluded. The dilutive effect of unvested outstanding options is
calculated based on the number that would vest had the balance sheet date been
the vesting date.
It is the intention to fulfil all options by either buying equity from market
or in cash so the difference between Basic and Dilutive EPS is purely due to
fact that the Group still has a choice that we intend not to take.
Headline
Year ended 31 December 2021 2021 2021
Profit attributable to equity shareholders of the Group (£000) 12,757 13,687
Basic earnings per share
Weighted average number of shares (thousands) 121,130 121,130
Basic EPS 10.53p 11.30p
Diluted earnings per share
Weighted average number of shares (thousands) as above 121,130 121,130
Add
- LTIP 178 178
- Restricted Shares 649 649
- Deferred consideration (payable in cash) 695 695
- Put options (payable in cash) 13,342 13,342
Total 135,994 135,994
Diluted EPS 9.38p 10.06p
135,994 135,994
Excluding the deferred consideration (payable in cash) (695) (695)
Excluding the put options (payable in cash) (13,342) (13,342)
Weighted average number of shares (thousands) including dilutive shares 121,957 121,957
Diluted EPS - excluding items we intend and are able to pay in cash 10.46p 11.22p
Headline
Year ended 31 December 2020 2020 2020
(Loss)/profit attributable to equity shareholders of the Group (£000) (9,897) 1,650
Basic earnings per share
Weighted average number of shares (thousands) 108,783 108,783
Basic EPS (9.10)p 1.52p
Diluted earnings per share
Weighted average number of shares (thousands) as above 108,783 108,783
Add
- Conditional shares - 11,963
- Put option - 3,356
- Contingent consideration - 1,757
Total 108,783 125,859
Diluted EPS (9.10)p 1.31p
2. Separately disclosed items
Policy
Separately disclosed items include one off, non-recurring revenues, or
expenses. These are shown separately and are excluded from Headline profit to
provide a better understanding of the underlying results of the Group.
Analysis
Separately disclosed items for the year ended 31 December 2021 comprise the
following:
2021 Operating Staff costs Taxation After tax
costs £000 £000 total
£000 £000
Strategic review and restructuring 192 (2,751) 466 (2,093)
Forgiveness of US Payment Protection Program ("PPP") loan - (2,200) 462 (1,738)
Repayment of UK furlough money - 976 (185) 791
Total separately disclosed items 192 (3,975) 743 (3,040)
In 2021, we have recognised the repayment of the UK furlough money that was
received in 2020 and the forgiveness of the US "PPP" loan that was received in
2020. Included within strategic review and restructuring above are:
· Staff costs relating to the release of a long-term incentive plan
accrual for a previous employee who is no longer part of the business (£1.8m
of this relates to pre-2021); and
· Operating costs comprising of the lease surrender expense
incurred during 2021, due to restructuring of two lease spaces.
Separately disclosed items for the year ended 31 December 2020 comprise the
following:
2020 Operating costs Staff costs Taxation After tax total
£000
£000
£000
£000
Restructuring - 2,637 (608) 2,029
Legal fees 311 - (59) 252
Furlough salary expense - (976) 185 (791)
Total separately disclosed items 311 1,661 (482) 1,490
In 2020, the Board continued its strategic review of the Group to improve the
long-term profitability of the business. This restructuring of the Group led
to staff redundancy costs in the year.
3. Segmental information
Headline segmental income statement
Segmental results are reconciled to the income statement in Note 1. The Board
reviews Headline results.
The Group's operating segments are aligned to those business units that are
evaluated regularly by the chief operating decision maker ("CODM"), namely the
Board, in making strategic decisions, assessing performance and allocating
resources.
The operating segments have historically comprised of individual country
entities, the financial information of which is provided to the CODM and is
aggregated into specific geographic regions on a Headline basis, with each
geographic region considered a reportable segment. Each country included in
that region has similar economic and operating characteristics. The products
and services provided by entities in a geographic region are all related to
marketing communications services and generally offer complementary products
and services to their customers.
From 2021, following the Group's strategic review, presented at the Capital
Markets Day in January 2021, we now also assess the Group's performance under
a new structure of specialisms, and this will be reported under two segments:
Advertising & Customer and High Growth Specialisms, excluding Group
Central Costs.
Segmental Information by Geography
UK Europe Middle East and Africa Asia Australia Americas Group Central Costs Total
Year Ended 31 December 2021 £000 £000 £000 £000 £000 £000 £000 £000
Net revenue 104,231 15,207 20,216 17,213 53,997 38,472 - 249,336
Operating profit/(loss) 26,599 1,929 2,842 1,385 5,832 4,709 (12,160) 31,136
Operating profit margin 26% 13% 14% 8% 11% 12% - 12%
Profit/(loss) before tax 26,188 1,906 2,430 756 5,257 3,625 (12,848) 27,314
UK Europe Middle East and Africa Asia Australia Americas Group Central Costs Total
Year Ended 31 December 2020 £000 £000 £000 £000 £000 £000 £000 £000
Net revenue 86,919 28,433 15,648 10,631 47,991 35,767 - 225,389
Operating profit/(loss) 11,687 1,501 640 (706) 3,042 3,668 (7,862) 11,970
Operating profit margin 13% 5% 4% - 6% 10% - 5%
Profit/(loss) before tax 10,623 1,353 282 (1,006) 2,939 2,705 (8,568) 8,328
No revenues were derived from an individual customer with a net revenue
contribution of greater than 10% of the total net revenue during either 2021
or 2020.
Other operating expenses consists of facilities & equipment, legal &
professional fees, establishment, travel, new business and other admin
expenses.
Segmental Information by Specialisms
Advertising & CRM High Growth Specialisms Group Central Costs Total
Year Ended 31 December 2021 £000 £000 £000 £000
Net revenue 127,195 122,141 - 249,336
Operating profit/(loss) 11,052 32,244 (12,160) 31,136
Operating profit margin 9% 26% - 12%
Profit/(loss) before tax 9,370 30,792 (12,848) 27,314
Advertising & CRM High Growth Specialisms Group Central Costs Total
Year Ended 31 December 2020 £000 £000 £000 £000
Net revenue 128,903 96,926 - 225,389
Operating profit/(loss) 5,184 14,648 (7,862) 11,970
Operating profit margin 4% 15% - 5%
Profit/(loss) before tax 4,646 12,249 (8,568) 8,328
4. Revenue from contracts with customers
Billings comprise all gross amounts billed, or billable, to clients and is
stated exclusive of VAT and sales taxes. Billings is a non-GAAP measure and is
included as it influences the quantum of trade and other receivables
recognised at a given date. 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.
Net revenue is a non-GAAP measure and is reviewed by the CODM and other
stakeholders as a key metric of business performance (Note 3).
Revenue recognition policies
Revenue is stated exclusive of VAT and sales taxes. Net revenue is exclusive
of third-party costs recharged to our clients, where we are acting as
principal.
Performance obligations
At the inception of a new contractual arrangement with a customer, the Group
identifies the performance obligations inherent in the agreement. Typically,
the terms of the contracts are such that the services to be rendered are
considered to be either integrated or to represent a series of services that
are substantially the same with the same pattern of transfer to the customer.
Accordingly, this amalgam of services is accounted for as a single performance
obligation.
Where there are contracts with services which are distinct within the
contract, then they are accounted for as separate obligations. In these
instances, the consideration due to be earned from the contract is allocated
to each of the performance obligations, in proportion to their stand-alone
selling price.
Further discussion of performance obligations arising in terms of the main
types of services provided by the Group, in addition to their typical pattern
of satisfaction, is provided below.
Measurement of revenue
Based on the terms of the contractual arrangements entered into with
customers, revenue is typically recognised over time. This is based on either
the fact that (i) the assets generated under the terms of the contracts have
no alternative use to the Group and there is an enforceable right to payment,
or (ii) the client exerts editorial oversight during the course of the
assignment such that they control the service as it is provided.
Principal vs agent
When a third-party supplier is involved in fulfilling the terms of a contract
then, for each performance obligation identified, the Group assesses whether
the Group is acting as principal or agent. The primary indicator used in this
assessment is whether the Group is judged to control the specified services
prior to the transfer of those services to the customer. In this instance it
is typically concluded the Group is acting as principal.
When we act as an agent, the revenue recorded is the net amount retained.
Costs incurred with external suppliers are excluded from revenue. When the
Group acts as principal, the revenue recorded is the gross amount billed and,
when allowable by the terms of the contract, out-of-pocket costs (such as
travel) are also recognised as revenue with a corresponding amount recorded as
an expense.
Treatment of costs
Costs incurred in relation to the fulfilment of a contract are generally
expensed as incurred, if revenue is recognised over time or held in contract
assets, if it is recognised at a point in time.
Disaggregation of revenue
The Group monitors the composition of revenue earned by the Group on a
geographic basis and by specialism.
Net Revenue by Specialism Reported LFL
2021 2021 vs 2020 2021 2021 vs 2020
Specialism £m Movement £m Movement
Advertising & CRM 127.2 (1.3%) 121.2 5.6%
Media & Performance 32.8 39.1% 32.8 39.1%
Global & Social Issues 33.9 21.6% 33.2 18.9%
Brand & Experience 30.9 15.0% 30.9 17.1%
Sponsorship & Talent 24.5 35.3% 24.5 35.3%
Group 249.3 10.6% 242.6 15.1%
Net Revenue by Region Reported LFL
2021 2021 vs 2020 2021 2021 vs 2020
Region £m Movement £m Movement
UK 104.2 19.9% 104.2 20.1%
Europe 15.2 (46.5%) 15.2 (8.4%)
Middle East & Africa 20.2 29.2% 20.2 35.4%
Asia 17.2 61.9% 12.3 16.2%
Australia 54.0 12.5% 54.0 12.5%
Americas 38.5 7.6% 36.6 8.0%
Group 249.3 10.6% 242.6 15.1%
Assets and liabilities related to contracts with customers
Contract assets and liabilities arise when there is a difference (generally
due to timing) in the amount of revenue which can be recognised and the amount
which can be invoiced under the terms of the contractual arrangement.
Where revenue earned from customers is recognised over time, many of the
Group's contractual arrangements have terms which permit the Group to remit
invoices for the amount of work performed to date on a specific contract
(described in our accounting policies as "Right-to-invoice"). Where the terms
of a contractual arrangement do not carry such right to invoice, then a
contract asset is recognised over time, as work is performed until such point
that an invoice can be remitted.
Where revenue earned from customers is recognised at a point in time, then
this will be dependent on satisfaction of a specific performance obligation.
At such point, it is usual that there are no other conditions required to be
met for receipt of consideration and, as such, a trade receivable is
recognised at this point upon raising of an invoice, otherwise it is
recognised as a contract asset.
Contract liabilities comprise instances where a customer has made payments
relating to services prior to their provision. Where payments are received in
advance, IFRS 15 requires assessment of whether these cash transfers contain
any financing component. Under the terms of the contractual arrangements
entered into by the Group, there are no instances where such financing
elements arise. This is the case even for those arrangements where the Group
receives monies more than a year in advance by virtue of the terms of the
contractual agreement so entered into.
The Group operates a standard 30 day credit terms policy. All contract
liabilities and contract assets (other receivables per Note 20) brought
forward have been recognised in the current period.
Revenue recognition policies and performance obligation satisfaction by
category of services performed
Further details regarding revenue recognition and performance obligations of
the Group's main service offerings are summarised below.
Provision of advertising and marketing services
Our provision of advertising and marketing services to our clients typically
meets the criteria identified above for revenue to be recognised over time.
The quantum of revenue to be recognised over the period of the assignments is
either based on the "right-to-invoice" expedient or as the services are
provided, depending on the contractual terms. In measuring the progress of
services provided in an assignment, the Group uses an appropriate measure
depending on the circumstances, which may include inputs (such as internal
labour costs incurred) or outputs (such as media posts). Where projects are
carried out under contracts, the terms of which entitle the Group to payment
for its performance only when a discrete point is reached (such as an event
has occurred or a milestone has been reached), then revenue is recognised at
the time that payment entitlement occurs, i.e. at a point in time.
The provision of advertising and marketing services can encompass provision of
a range of media deliverables in addition to development and deployment of a
media strategy. Regular assessment of the effectiveness of the project with
regards to the objective of the contractual arrangement may also be included.
Often the range of services provided within these arrangements is considered
to be integrated to an extent that no separable performance obligations can be
identified other than a single over-arching combined performance obligation
relating to the delivery of the project. In these instances, revenue is
recognised over time as the performance obligation is being satisfied
depending on the circumstances, which may include inputs (such as internal
labour costs incurred) or outputs (such as media posts).
When services provided are considered separable, and not integrated, then
multiple performance obligations are recognised.
Multiple performance obligations are most common in projects where there are
clearly separable conceptual preparatory obligations culminating in a customer
deliverable, such as an event. In these scenarios the conceptual preparation
element and the deliverable are concluded as forming separate performance
obligations with the revenue and corresponding cost of sales (typically
third-party pass-through costs) assigned to the obligation to which they
relate.
Whilst it is uncommon for projects to be such that revenue is not able to be
recognised over time, examples can occur. In these instances, the element of
the transaction price assigned to each performance obligation (in proportion
to stand-alone selling prices) is recognised as revenue once an obligation has
been fully satisfied, for example an event has occurred or a milestone has
been reached.
The Group enters into retainer fees that relate to arrangements whereby the
nature of the Group's contractual promise is to agree to 'stand-ready' to
deliver services to the customer for a period of time rather than to deliver
the goods or services underlying that promise. Revenue relating to retainer
fees is recognised over the period of the relevant assignments or
arrangements, typically in line with the 'stand-ready' incurred costs.
Where fees are remunerated to the agency in excess of the services rendered
then a contract liability is recognised. Conversely where the services
rendered are in excess of the actual fees paid, then a contract asset is
recognised when there is a right to consideration.
Certain of these arrangements have contractual terms relating to the agency
meeting specific customer identified KPIs. As a result, the overall level of
consideration can vary by increasing or decreasing as a result of performance
against these KPI metrics. To reflect this variability in the overall level of
consideration, management estimate the most likely outcome and then reflect
that outcome in the revenue recognised as the performance obligation(s) of the
contract are satisfied. When determining the likely outturn position the
estimated consideration is such that it is highly probable there will not be
significant reversal of the revenue in the future. The estimated portion of
the variable element is recalculated at the earlier of the completion of the
contract or the next reporting period and revenue is adjusted accordingly.
These estimates are based on historical award experience, anticipated
performance and best judgement at the time.
Commission based income in relation to media spend
The Group arranges for third parties to provide the related goods and services
to its customers in the capacity of an agent. Revenue is recognised in
relation to the amount of commission the Group is entitled to. Often
additional integrated services are provided at the same time with regards to
the development and deployment of an overarching media strategy. Due to the
integration of the services provided under the terms of the contract,
management judgement is applied to assess whether there is a single combined
performance obligation.
The performance obligation for media purchases is considered to have been
satisfied when the associated advertisement has been purchased.
In the majority of instances where the Group purchases media for clients, the
Group is acting as agent.
Commission based income in relation to talent performance
Revenue in relation to talent performance involves the Group acting as agent.
Typically, such arrangements have a single, or a sequence, of specific
performance obligations relating to the talent (or other third party)
providing services. The performance obligations are generally satisfied at a
point in time once the service has been provided, at which point, revenue is
recognised. The consideration for the services is normally for a fixed amount
(as a percentage of the talent's fee) with no degree of variability.
Recognition of supplier discounts and rebates as revenue from contracts with
customers
The Group receives discounts and rebates from certain suppliers for
transactions entered into on behalf of clients, which the clients have agreed
we can retain. When the contractual terms of the agreements entered into are
such that the Group acts as agent in these instances, then such rebates are
recognised as revenue from contracts with customers. By contrast, when the
contractual terms of the agreements are such that the Group is acting as
principal then such rebates are recognised as a reduction in direct costs.
Certain of the Group's clients, however, have contractual terms such that the
pricing of their contracts is structured with the rebate being passed through
to them.
5. Staff costs
Policy
Contributions to personal pension plans are charged to the income statement in
the period in which they are due. Bonuses are given on an ad hoc basis, or as
otherwise agreed, and are accrued in the year to which the services performed
relate (when there is an expectation these will be awarded).
Analysis
Staff costs (including Directors)
2021 2020
Year ended 31 December £000 £000
Wages and salaries ** 141,615 134,782
Social security costs 13,085 16,360
Pension costs** 5,403 5,070
Other staff costs* 6,950 6,555
Total 167,053 162,767
Allocations and dividends paid to holders of IFRS 2 put options 1 5,270 4,728
Share-based incentive plans:
Cash-settled 27 (2,065) 947
Equity-settled 27 2,235 3,275
Total share-based incentive plans 170 4,222
Total staff costs 172,493 171,717
* Other staff costs include dividends, profit share, LTIP charges, redundancy
costs and insurance.
** Within the 2020 figures we identified an amount of £2.5m that needed to be
presented within pension costs, rather than wages and salaries. This was
correctly accounted for in 2021 and reclassified in 2020 for comparative
purposes.
Staff numbers
UK 734 687
Europe 161 357
Middle East and Africa 383 373
Asia 592 342
Australia 465 436
Americas 318 255
Total 2,653 2,450
These staff numbers are based on the average number of monthly staff in
December each year.
Pensions
The Group does not operate any defined benefit pension schemes. The Group
makes payments, on behalf of certain individuals, to personal pension schemes.
Payments of £5,403k (2020: £5,070k) were made in the year and charged to the
income statement in the period they relate to.
Compensation for key management personnel and Directors
2021 2020
Key management remuneration £000 £000
Short-term employee benefit 2,735 2,325
Post-employment benefit 88 249
Share-based payments 268 485
Total 3,091 3,059
Key management personnel include the Directors and employees responsible for
planning, directing and controlling the activities of the Group.
6. Auditors' remuneration
The Group paid the following amounts to its auditors in respect of the audit
of the consolidated financial statements and for other services provided to
the Group:
other assurance services - interim agreed upon procedures
2021 2020
Year ended 31 December £000 £000
Audit services:
Audit of the Company and its consolidated financial statements 1,450 2,337
Audit of the Company's subsidiaries pursuant to legislation 237 255
1,687 2,592
Other services provided by the Auditors:
Other assurance services - interim agreed upon procedures 46 -
Taxation compliance services 66 -
Taxation advisory services 112 -
224 -
Total 1,911 2,592
In 2020, the Group's auditors were PricewaterhouseCoopers LLP. BDO LLP became
the Group's auditors in 2021.
7. Net finance income/(expense)
Policy
Interest income and expense, including fair value adjustments to IFRS 9 put
options, are recognised in the income statement in the period in which they
are incurred.
Analysis
Year ended 31 December 2021 2020
£000 £000
Bank interest receivable 187 215
Other interest receivable 47 78
Sublease finance income 26 71
Financial income 260 364
Bank interest payable (1,555) (1,240)
Amortisation of loan costs (130) (228)
Other interest payable - (304)
Interest on lease liabilities (2,800) (2,471)
Valuation adjustment to IFRS 9 put option liabilities (Note 26) (896) (120)
Financial expense (5,381) (4,363)
Net finance expense (5,121) (3,999)
8. Current Taxation
Policy
Current tax, including UK and foreign tax, is provided for using the tax rates
and laws that have been substantively enacted at the balance sheet date.
Analysis
Income statement charge for year ended 31 December 2021 2020
£000 £000
Taxation in the year
UK 1,832 (8)
Overseas 4,470 3,765
Withholding taxes payable 31 7
Adjustment for under provision in prior periods * 1,476 1,312
Total 7,809 5,076
Deferred taxation
Recognition/(reversal) of temporary differences 1,651 (3,100)
Adjustment for over provision in prior periods * (974) (565)
Effect of changes in tax rates (27) -
Total 650 (3,665)
Total taxation 8,459 1,411
* The 2020 tax position was adjusted due to the accounting restatements made
in 2019. In 2021, the deferred tax positions became current due to the
increase in profitability in the year.
The differences between the actual tax and the standard rate of corporation
tax in the UK applied to the Group's Statutory profit/(loss) for the year are
as follows:
2021 2021 2020 2020
Year ended 31 December £000 % £000 %
Profit/(loss) before taxation 21,632 (8,507)
Taxation at UK corporation tax rate of 19.00% (2019: 19.00%) 4,110 19.0% (1,616) 19.0%
Different tax rates applicable in overseas jurisdictions (i) 1,467 6.8% 213 (2.5%)
Adjustment for current tax under/(over) provision in prior periods (ii) 1,465 6.8% 1,312 (15.4%)
Adjustment for deferred tax (over)/under provision in prior periods (ii) (974) (4.5%) (565) 6.6%
Option charges not deductible for tax (iii) 925 4.3% 1,303 (15.3%)
Impairment with no tax credit (iv) 537 2.4% 170 (2.0%)
Tax losses for which no deferred tax asset was recognised 528 2.4% 711 (8.3%)
Expenses not deductible for tax 386 1.8% 127 (1.5%)
Disposal of subsidiaries on which no tax is charged 16 0.1% (272) 3.2%
Withholding taxes payable 31 0.1% 7 (0.1%)
Tax effect of associates 1 0.0% 21 (0.3%)
Effect of changes in tax rates on deferred tax (33) (0.1%) - -
Statutory taxation 8,459 39.1% 1,411 (16.6%)
Statutory effective tax rate 39.1% (16.6%)
The key differences between the actual and Statutory tax rates are as follows:
i. Different tax rates applicable in overseas jurisdictions: the Group
operates in multiple locations around the world where tax rates are higher
than the UK (e.g. Australia (30%) and USA (between 21% to 28%)).
ii. The net effect of the adjustment for current and deferred tax in
prior periods is £491k (2020: £747k) of total tax charge.
iii. Option charges include dividends paid to option holders that are not
deductible for tax. Our share-based payment schemes mostly relate to equity
held in subsidiary companies. The Group generally receives no tax benefit on
the exercise of these put options or payment of the dividends.
iv. Impairment with no tax credit: On most of our acquisitions we received
no tax benefit from the acquisition of goodwill and correspondingly there is
no tax benefit from goodwill impairment.
Looking forward, taxes are rising to recover the costs of the Covid-19
pandemic. For instance, UK corporation tax will increase from 19% to 25% from
2023.
We expect large variations in future tax rates due to significant items such
as share-based payments (option charges), put options and investment in
subsidiaries being non-deductible against corporation tax as a result of these
items being capital in nature.
Tax on Headline profits
In 2021, the key difference between the actual and Headline tax rates is
driven by our local entities' profitability in higher tax countries such as
Australia and USA, with central costs being incurred in the UK, a lower tax
market.
Our Headline tax rate has reduced from 39.6% in 2020 to 26.6%. The tax rate
reduction is driven by fewer prior period tax adjustments (2020 was affected
by the 2019 accounts restatements) and fewer loss-making subsidiaries where we
expect no future tax benefit.
2021 2021 2020 2020
Year ended 31 December £000 % £000 %
Headline profit before taxation (Note 1) 27,312 8,328
Taxation at UK corporation tax rate of 19.00% (2020: 19.00%) 5,189 19.0% 1,582 19.0%
Different tax rates applicable in overseas jurisdictions 1,510 5.4% 406 4.8%
Adjustment for current tax under/(over) provision in prior periods 1,476 5.4% 1,312 15.8%
Adjustment for deferred tax (over)/under provision in prior periods (974) (3.6%) (561) (6.7%)
Tax losses for which no deferred tax asset was recognised 528 1.9% 710 8.5%
Expenses not deductible for tax 386 1.4% 127 1.5%
Withholding taxes payable 31 0.1% 7 0.1%
Effect of changes in tax rates (6) (0.0%) - -
Tax effect of associates (44) (0.2%) 21 0.3%
Effect of changes in tax rates on deferred tax (230) (0.8%) - -
Non-controlling interest share of partnership income (595) (2.2%) (309) (3.7%)
Headline taxation (Note 1) 7,271 26.6% 3,295 39.6%
Headline effective tax rate 26.6% 39.6%
9. Deferred taxation
Policy
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
not, however, provided for temporary differences that arise from: (i) initial
recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss, (ii) the initial recognition of goodwill.
Deferred tax is determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are expected to apply
when the related deferred tax asset is realised or the deferred tax liability
is settled.
Deferred tax assets are recognised to the extent that it is probable future
taxable profit will be available against which the temporary differences can
be utilised.
Deferred tax is provided on temporary differences arising on investments in
subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and the Group intends to settle its current tax assets and current tax
liabilities on a net basis.
Current and deferred tax is recognised in profit or loss, except to the extent
that it relates to items recognised in other comprehensive income or directly
in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
Analysis
2021 2020
At 31 December £000 £000
Deferred tax assets 6,777 8,301
Deferred tax liabilities (777) (405)
Net deferred tax 6,000 7,896
The deferred tax asset is recoverable against future profits, and future
corporation tax liabilities. The following table shows the deferred tax
asset/(liability) recognised by Group and movements in 2021 and 2020.
Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total
£000 £000 £000 £000 £000 £000
At 1 January 2020 298 49 1,523 (964) 4,008 4,914
Exchange differences (4) (1) (143) - (54) (202)
Income statement (charge)/credit (58) 1,278 7,136 499 (5,190) 3,665
Disposals (Note 11) - - (13) - (468) (481)
At 31 December 2020 236 1,326 8,503 (465) (1,704) 7,896
Exchange differences (16) (52) (337) - 237 (168)
Income statement (charge)/credit (47) 103 (4,460) (767) 4,522 (649)
Acquisitions (Note 12) (1,150) - 71 - - (1,079)
At 31 December 2021 (977) 1,377 3,777 (1,232) 3,050 6,000
Based on the 2021 Board approved budget and five-year plans, the Group has
reviewed the deferred tax asset created by tax losses for their
recoverability. Where the Group believes such losses are not recoverable, they
have not been recognised on the balance sheet and have been included in
unrecognised deferred tax assets.
Within the local entities £3,101k (2020: £5,733k) of deferred tax has been
naturally offset. Disregarding this offset, the split of deferred tax is as
follows:
Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total
£000 £000 £000 £000 £000 £000
At 31 December 2020
Deferred tax assets 290 1,328 8,503 - 3,953 14,074
Deferred tax liabilities (54) (2) - (465) (5,657) (6,178)
Net deferred tax 236 1,326 8,503 (465) (1,704) 7,896
At 31 December 2021
Deferred tax assets 47 1,377 3,777 - 4,677 9,878
Deferred tax liabilities (1,024) - - (1,232) (1,622) (3,878)
Net deferred tax (977) 1,377 3,777 (1,232) 3,055 6,000
The working capital differences mostly relate to the tax effects of working
capital in Australia which calculates tax on a cash basis rather than the
accruals basis used in other countries; along with the continuing tax effects
of the adoption of IFRS 16 (Leases); and tax provision on any long-term
deferred bonuses.
UK tax legislation was implemented on 24 May 2021 which increased the UK
corporation tax from 19% to 25% with effect from 1 April 2023. The effect on
the revaluation of the deferred tax balance of this change is partly reliant
on projections for 2022 and 2023 profits so is an estimate.
An unrecognised deferred tax asset in respect of carried forward tax losses is
shown below:
Losses Deferred tax impact
£000 £000
At 1 January 2021 4,772 975
Exchange differences (52) (14)
Written off in year (750) (154)
Differences in tax rates - 122
Losses in year 2,456 528
At 31 December 2021 6,426 1,457
Expiry date of losses:
2021 2020
£000 £000
One to five years - -
Five to ten years 648 439
Ten years or more 809 536
Total 1,457 975
The unrecognised deferred tax assets in respect of certain losses in overseas
territories, referred to in the tables above, have not been recognised as
there is insufficient certainty of future taxable profits against which these
would reverse.
10. Dividends
Policy
Equity dividends on ordinary share capital are recognised as a liability in
the period in which they are declared. The interim dividend is recognised when
it has been approved by the Board and the final dividend is recognised when it
has been approved by the shareholders at the Company's Annual General Meeting.
No interim or final dividends were approved for either 2020 or 2021. The
dividend policy was reviewed as part of the Group's recent strategic review,
which concluded that the Group's priority is to return the business to
pre-pandemic levels of profitability and earnings and, thereafter, to grow in
line with the targets set out at the Capital Markets Day held in January
2021. Assuming a return to normal trading conditions, the intention is to
reinstate dividends from 2022.
11. Disposals
Policy
We account for disposals of entities in the Group in accordance with IFRS 10.
When the parent's ownership of a subsidiary company changes and results in the
parent's loss of control of a subsidiary within the Group, the parent:
· Derecognises the assets and liabilities attributable to the
former subsidiary from the consolidated balance sheet.
· Recognises any investment retained in the former subsidiary when
control is lost and subsequently accounts for it and for any amounts owed by
or to the former subsidiary in accordance with relevant IFRS standards.
· Recognises the gain or loss associated with the loss of control
attributable to the former controlling interest.
Analysis
The Board made a strategic decision at the start of 2020 to eliminate
loss-making businesses from the Group by the end of the year. This process
continued into 2021, with four entities either ceasing trading or being
divested. The entities that ceased trading were M&C Saatchi PR LLP and
M&C Saatchi Marketing Arts Limited. The entity that was divested was
Create Collective PTE. These entities contributed £39k of losses to the 2021
results.
The Headline results of the entities disposed in 2021, which have been
included in the results for the year, were as follows:
Year ended 31 December 2021 UK Europe Middle East and Africa Asia and Australia Americas Total
£000 £000 £000 £000 £000 £000
Revenue 5 - - 87 - 92
Project cost/direct cost - - - - -
Net revenue 5 - - 87 - 92
Staff costs (27) - (1) (46) - (74)
Depreciation - - - (1) - (1)
Amortisation - - - - - -
Other operating charges (5) - - (37) (14) (56)
Operating (loss)/gain (27) - (1) 3 (14) (39)
Finance income - - - - - -
Finance expense - - - - - -
(Loss) / profit before taxation (27) - (1) 3 (14) (39)
The Headline results of the entities disposed in 2020, which were included in
the results for 2020, were as follows:
Year ended 31 December 2020 UK Europe Middle East and Africa Asia and Australia Americas Total
£000 £000 £000 £000 £000 £000
Revenue 155 23,170 897 1,209 3,375 28,806
Project cost/direct cost - (11,345) (178) (7) (604) (12,134)
Net revenue 155 11,825 719 1,202 2,771 16,672
Staff costs (664) (9,788) (962) (945) (3,631) (15,990)
Depreciation (2) (833) (17) (2) (327) (1,181)
Amortisation (79) - (4) (291) - (374)
Other operating charges (197) (1,518) (94) (355) (880) (3,044)
Operating loss (787) (314) (358) (391) (2,067) (3,917)
Finance income - - (1) - 2 1
Finance expense - (110) 15 - (32) (127)
Loss before taxation (787) (424) (344) (391) (2,097) (4,043)
The gain on disposal of the subsidiaries is calculated as follows:
2021 2020
£000 £000
Consideration received in cash and cash equivalents - 979
Share consideration receivable - 444
Deferred consideration payable - (536)
Total consideration - 887
Plant and equipment 2 562
Right-of-use assets - 2,661
Other non-current assets - 63
Deferred tax assets - 481
Trade and other receivables 21 11,708
Current tax assets - 583
Cash and cash equivalents 2 5,094
Trade and other payables (67) (17,425)
Borrowings - (1,462)
Lease liabilities - (2,810)
Add net liabilities (42) (545)
Gain on disposal of subsidiaries 42 1,432
Within Note 1, there are costs of £125k that relate to severance and legal
fees for the disposal.
12. Acquisitions of subsidiaries
On 10 February 2021, the Group acquired two entities that were previously
associates, 40.0% of M&C Saatchi (Hong Kong) Limited and 25.1% of Santa
Clara Participações Ltda. In addition, on 1 January 2021 we deemed that we
had control of the 51% held in M&C Saatchi World Services Pakistan (Pvt)
Ltd, therefore obtaining control of the three entities. M&C Saatchi (Hong
Kong) Limited's primary activity is consultancy, and both Santa Clara
Participações Ltda and M&C Saatchi World Services Pakistan (Pvt) Limited
are marketing agencies, of which all qualify as a business as defined in IFRS
3.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below.
M&C Saatchi (Hong Kong) Santa Clara Pakistan Total
£000s £000s £000s £000s
Financial assets 4,158 1,879 482 6,519
Property, plant and equipment 284 29 48 361
Identifiable intangible assets 1,653 2,211 - 3,864
Financial liabilities (3,395) (3,472) (530) (7,397)
Deferred tax assets/(liabilities) (343) (736) - (1,079)
Total identifiable assets acquired and liabilities assumed 2,357 (89) - 2,268
Plus: goodwill (Note 14) 2,677 1,945 - 4,622
Net assets acquired 5,034 1,856 - 6,890
Satisfied by:
Equity instruments 2,627 1,856 - 4,483
Fair value of associate investment 2,407 - - 2,407
Total consideration transferred 5,034 1,856 - 6,882
Net cash inflow arising on acquisition:
Cash and cash equivalent balances acquired 750 513 29 1,292
750 513 29 1,292
M&C Saatchi (Hong Kong) Limited
The fair value of the financial assets includes trade receivables that amount
to £1.1m. It is expected that the full contractual amounts can be collected.
Goodwill is mainly attributable to the workforce and synergies and amounts to
£2.7m. None of the goodwill is expected to be deductible for tax purposes.
The fair value of the Company's 3,027,860 ordinary shares issued as the
consideration (£2,627k) was determined on the basis of the agreed put option
agreement, created at the time M&C Saatchi (Hong Kong) Limited became an
associate in 2015.
The entity acquired contributed £15.5m revenue and £0.1m to the Group's
operating profit for the period between the date of acquisition and the
reporting date.
If the acquisition of this entity had been completed on the first day of the
financial year, Group results for the year would have included £16.4m of
revenue and £0.6m of profit.
Santa Clara Participações Ltda
The fair value of the financial assets includes trade receivables that amount
to £0.8m. The gross amount of trade receivables is £0.8m and it is expected
that the full contractual amounts can be collected.
Goodwill is mainly attributable to the workforce and synergies and amounts to
£1.9m. None of the goodwill is expected to be deductible for tax purposes and
this has been impaired in 2021 by £1.4m.
The fair value of the Company's 2,084,825 ordinary shares issued as the
consideration (£1,856k) was determined on the basis of the agreed put option
agreement, created at the time Santa Clara Participações Ltda. became an
associate.
The entity acquired contributed £8.2m revenue and £0.1m to the Group's
operating profit for the period between the date of acquisition and the
reporting date.
If the acquisition of this entity had been completed on the first day of the
financial year, Group results for the year would have included £8.5m of
revenue and Group profit of £nil.
13. Deferred and contingent consideration
Policy
Certain acquisitions made by the Group include contingent or deferred
consideration, the quantum of which is dependent on the future performance of
the acquired entity. Such consideration is recognised as a liability and
recorded at fair value in line with IFRS 13 (Note 29).
The liability arising is remeasured at the earlier of either the end of each
reporting period or crystallisation of the consideration payment. The
movements in the fair value are recognised in profit or loss.
Analysis
Liabilities 2021 2020
£000 £000
Current
Deferred consideration
Levergy Marketing Agency (Pty) Limited (984) (691)
M&C Saatchi F&Q Brasil Comunicação LTDA - (536)
Contingent consideration
Scarecrow Communications Limited - (452)
Total current (984) (1,679)
Movements in liabilities in the year 2021 2020
£000 £000
At 1 January (1,679) (758)
Exchange differences 48 61
Deferred consideration due on disposals * - (536)
Charged to the income statement ** (532) (446)
Conditional consideration paid in cash *** 659 -
Conditional consideration paid in equity **** 520 -
At 31 December (984) (1,679)
* £536k due to M&C Saatchi F&Q Brasil Comunicação LTDA.
** £984k revaluation of deferred consideration due to Levergy Marketing
Agency (Pty) less £452k revaluation of contingent consideration due to
Scarecrow Communications Limited.
*** £536k paid to M&C Saatchi F&Q Brasil Comunicação LTDA and
£123k paid to Levergy Marketing Agency (Pty).
**** £520k paid to Levergy Marketing Agency (Pty) Limited.
£984k of deferred consideration is payable to Levergy Marketing Agency (Pty)
Limited from the Company and is held as a liability in the Company's own
balance sheet. This has increased in 2021 due to Levergy's increased
profitability in 2021, compared to 2020.
Detail surrounding the fair value measurement of the contingent consideration
recognised at year-end is provided in Note 29.
14. Intangible assets
Policy
Intangible assets are carried at cost less accumulated amortisation and
impairment losses.
Cost
Goodwill
Under the acquisition method of accounting for business combinations, goodwill
is the fair value of consideration transferred, less the net of the fair
values of the identifiable assets acquired and the liabilities assumed.
Other intangibles acquired as part of a business combination
Intangible assets acquired as part of a business combination (which includes
brand names and customer relationships) are capitalised at fair value, if they
are either separable or arise from contractual or other legal rights and their
fair value can be reliably measured.
Software & film
Purchased software and internally created software and film rights are
recorded at cost. Internally created software and film rights are created so
that they can be directly used to generate future client income.
Amortisation
Goodwill is not amortised. Amortisation of other classes of intangible assets
is charged to the income statement on a straight-line basis over their
estimated useful lives as follows:
Software and film rights: 3
years
Customer relationships: 1 to 8 years
Brand name: 1 to 10
years
The Group has no indefinite life intangibles other than goodwill.
Impairment
Goodwill and other intangibles are reviewed for impairment annually or more
frequently if events or changes in circumstances indicate that the assets may
be impaired.
Impairment losses arise when the carrying amount of an asset or CGU is in
excess of the recoverable amount, and these losses are recognised in the
income statement. All recoverable amounts are from future trading (i.e. their
value in use) and not from the sale of unrecognised assets or other
intangibles.
The value in use calculations have been based on the forecast profitability of
each CGU, using the 2022 budget and five-year plans approved by the Board,
with a residual growth rate of 1.5% p.a. applied thereafter. This forecast
data is based on past performance and current business and economic prospects.
A discount rate is then applied to create a discounted future cash flow
forecast (DCF) for each CGU, which forms the basis for determining the
recoverable amount of each CGU. If the DCF of a CGU is not in excess of its
carrying amount (that includes the value of its fixed assets and right-of-use
assets), then an impairment loss would be recognised.
In conducting the review, a residual growth rate of 1.5% has been used for all
countries. Market betas of 1.0 have been used for Brazil, South Africa and
China, while 1.4 has been used for India and 1.2 has been used for rest of the
world.
Pre-tax discount rates are based on the Group's nominal weighted average cost
of capital adjusted for the specific risks relating to the country and market
in which the CGU operates.
Key assumptions used for impairment review Residual growth rates 2021 Residual growth rates 2020 Pre-tax discount rates 2021 Pre-tax discount rates 2020
Market % % % %
UK 1.5 1.5 14-17 12-13
Asia and Australia 1.5 1.5 16-19 13-14
Middle East 1.5 1.5 17 12
India 1.5 1.5 23 18
South Africa 1.5 1.5 28 24
Europe 1.5 1.5 15 11
Americas 1.5 1.5 15-18 12-13
Analysis
Goodwill Brand name Customer relationships Software and film rights Total
£000
£000
£000
£000
£000
Cost
At 1 January 2020 57,105 8,769 14,090 3,598 83,562
Exchange differences 12 (17) (173) 185 7
Acquired - - - 502 502
Disposal (2,809) (1,404) (2,766) (776) (7,755)
Reclassification* - - - 850 850
At 31 December 2020 54,308 7,348 11,151 4,359 77,166
Exchange differences (493) (73) (1) (46) (613)
Acquired - business combinations 4,621 919 2,901 45 8,486
Acquired - - - 837 837
Disposal - - - (1,963) (1,963)
At 31 December 2021 58,436 8,194 14,051 3,232 83,913
Accumulated amortisation and impairment
At 1 January 2020 23,539 8,091 12,308 1,417 45,355
Exchange differences 125 5 (162) 175 143
Amortisation charge - 335 1,351 589 2,275
Impairment - - - 192 192
Disposal (2,809) (1,404) (2,766) (343) (7,322)
At 31 December 2020 20,855 7,027 10,731 2,030 40,643
Exchange differences (295) (79) (20) (45) (439)
Amortisation charge - 181 784 447 1,412
Impairment** 1,900 - - 1,037 2,937
Disposal - - - (1,139) (1,139)
At 31 December 2021 22,460 7,129 11,495 2,330 43,414
Net book value
At 31 December 2019 33,566 678 1,782 2,181 38,207
At 31 December 2020 33,453 321 420 2,329 36,523
At 31 December 2021 35,976 1,065 2,556 902 40,499
* In 2020, there was a reclassification of property, plant and equipment
and intangible assets, relating to software previously classified within
computer equipment.
** The difference to Note 1 relates to the impairment of the Skategoat film
which is yet to be released. This is treated as a headline expense.
31 December 31 December Segment
Goodwill 2021 2020
£000 £000
Cash generating units (CGUs)
M&C Saatchi Sport & Entertainment Limited 1,184 1,184 UK
M&C Saatchi Mobile Limited 4,283 4,283 UK
M&C Saatchi Merlin Limited 765 765 UK
Talk PR Limited 625 625 UK
M&C Saatchi Social Limited 2,612 2,612 UK
Clear Ideas Limited 5,031 5,031 Europe
M&C Saatchi Advertising GmbH 1,306 1,392 Europe
M&C Saatchi Middle East Fz LLC (Dubai) 684 677 Middle East and Africa
Levergy Marketing Agency (PTY) Limited (South Africa) 820 882 Middle East and Africa
M&C Saatchi Agency Pty Limited (Australia) 2,719 2,860 Australia
Bohemia Group Pty Limited (Australia) 1,812 1,907 Australia
Shepardson Stern + Kaminsky LLP 5,375 5,321 Americas
LIDA NY LLP (MCD) 5,198 5,145 Americas
Santa Clara Participações Ltda.* 529 - Americas
M&C Saatchi (Hong Kong) Limited* 2,806 - Asia
Scarecrow Communications Limited* 159 663 Asia
M&C Saatchi (M) SDN BHD 68 106 Asia
Total 35,976 33,453
* With exception of CGUs marked, all other movements in the table above are
due to foreign exchange differences.
During the year the Group made impairments of Santa Clara Participações
Ltda. £1,400k and Scarecrow Communications Limited £500k (2020: Nil).
Excluding the CGUs that have been impaired, the following sensitivity analysis
of the remaining CGUs shows the impairment required, if the profit forecasts
reduced and the discount rates increased.
Annual profit forecast reduced by
Discount rates increased by 0% 10% 20% 30%
0% - - 174 894
1% - - 588 1,477
3% 170 710 1,767 2,955
5% 975 1,984 3,033 4,076
The CGUs affected by this sensitivity analysis are LIDA NY LLP (MCD), M&C
Saatchi Advertising GmbH, M&C Saatchi (Hong Kong) Limited (AEIOU) and
Levergy Marketing Agency (PTY) Limited (South Africa). These entities remain
at risk of impairment.
15. Investments in associates and joint ventures
Policy
The Group invests in associates and joint ventures, either to deliver its
services to a strategic marketplace, or to gain strategic mass by being part
of a larger local or functional entity.
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but it is neither control nor
joint control over those policies.
The carrying value of these investments comprise the Group's share of their
net assets and any purchased goodwill. These carrying amounts are reviewed at
each balance sheet date, to determine whether there is any indication of
impairment.
Analysis
Investment in associates Proportion of ownership interest held at 31 December
2021 2020 2021 2020
Region & Name Nature of business Country of incorporation or registration £000 £000
Europe
M&C Saatchi Istanbul**** Advertising Turkey - - - 25%
M&C Saatchi Little Stories SAS* PR France - - 25% 6%
M&C Saatchi SAL Advertising Lebanon - - 10% 10%
Asia and Australia
M&C Saatchi (Hong Kong) Limited** Advertising China - 2,365 80% 40%
February Communications Private Limited*** Advertising India - 18 20% 20%
M&C Saatchi Limited*** Advertising Japan - 2 10% 10%
Love Frankie Limited Advertising Thailand 202 185 25% 25%
Americas
Technology, Humans and Taste LLC**** Advertising USA - 3 - 30%
Santa Clara Participações Ltda** Advertising Brazil - 256 50% 25%
Total 202 2,829
* In February 2021, the minority shareholders in M&C Saatchi
Little Stories SAS exercised their right to put their shares on the Group,
increasing the Group's interest to 25%.This investment in associate has been
fully impaired.
** In February 2021, the Group took a controlling stake in both these
entities, becoming subsidiaries of the Group. They are therefore no longer
associates.
*** The investments for these associates have been fully impaired.
**** Disposed in the year.
The above associates at 31 December 2021 have the following subsidiaries:
M&C Mena Limited and Al Dallah For Creativity & Design LLC.
All shares in associates are held by subsidiary companies in the Group and
have no special rights. Where an associate has the right to use our brand
name, we hold the right to withdraw such use, to protect it from damage.
The Group holds neither associates nor joint ventures in Australia, Middle
East & Africa, or the UK.
Disposals in the year
M&C Saatchi International Holdings B.V. previously held a 25% investment
in its associate M&C Saatchi Istanbul, but the parties agreed to dispose
of the investment and terminate the licence agreement with effect from October
2021. No consideration was received for the disposal of the associate. The
entity has been loss-making in the last few years and the investment was fully
impaired in 2020.
M&C Saatchi Agency Inc. held a 30% investment in its associate Technology,
Humans and Taste LLC (THAT). On 21 December 2021, the membership interest in
THAT was transferred back to the company (THAT), following which we no longer
held any interest in THAT. The entity has been loss-making in the last few
years and the investment in THAT was fully impaired in 2020. M&C Saatchi
Agency Inc. received a credit of $200k as consideration for services to be
provided by THAT, which can be used across the Group over the 36 months as of
21 December 2021. The fair value of the consideration is valued at nil as of
31 December 2021.
2021 2020
Balance sheet value at 31 December £000 £000
Investments intended to be held in the long-term 202 2,829
Investments categorised as held-for-sale - -
Total associate investments 202 2,829
2021 2020
Balance sheet movements £000 £000
At 1 January 2,829 3,780
Exchange movements (11) 56
Transferred to subsidiary (2,407) -
Revaluation of associates on transition to subsidiaries (233) -
Acquisition of associates 338 1
Impairment of associate (357) (895)
Share of profit/(loss) after taxation 43 (113)
At 31 December 202 2,829
2021 2020
Income statement £000 £000
Profit net of cost of disposal - -
Share of profit/(loss) after taxation 43 (113)
Revaluation of associates on transition to subsidiaries (233) -
Share of result of and gain on disposal of Associates and Joint Ventures (190) (113)
Impairment of associate investment (357) (895)
Year to 31 December (547) (1,008)
The results and net assets of the associate entities are set out below, along
with our share of these results and net assets:
2020
Asia Europe Total 2020
Americas Total 2021 Asia Americas
Income statement £000 £000 £000 £000 £000 £000 £000
Revenue 4,240 2,580 148 6,968 8,953 3,822 12,775
Operating profit/(loss) 940 71 (14) 997 (367) 12 (355)
Profit/(loss) before taxation 215 71 (25) 261 (343) (151) (494)
Profit/(loss) after taxation 174 49 (32) 191 (325) (251) (576)
Group's share 43 12 (12) 43 (32) (81) (113)
Dividends received - - - - - - -
Asia Europe Total 2021 Total 2020
Americas* Asia Americas
Balance sheet £000 £000 £000 £000 £000 £000 £000
Total assets 1,410 804 - 2,214 6,768 3,451 10,219
Total liabilities (914) (854) - (1,768) (3,950) (4,909) (8,859)
Net assets/(liabilities) 496 (50) - 446 2,818 (1,458) 1,360
Our share 124 (12) - 112 1,172 (365) 807
Losses not recognised 12 12 - 24 178 365 543
Goodwill 66 - - 66 1,219 260 1,479
Total 202 - - 202 2,569 260 2,829
* Technology, Humans and Taste LLC was disposed of in the year, therefore we
are showing an income statement above, but nil for the balance sheet at
December 31, 2021.
16. Plant and equipment
Policy
Tangible fixed assets are stated at historical cost less accumulated
depreciation. Depreciation is provided to write off the cost of all fixed
assets, less estimated residual values, evenly over their expected useful
lives.
Depreciation is calculated at the following annual rates:
Leasehold improvements - Lower of useful life and over the
period of the lease
Furniture and fittings - 10% straight-line
basis
Computer equipment - 33% straight-line basis
Other equipment - 25%
straight-line basis
Motor vehicles - 25%
straight-line basis
The need for any fixed asset impairment write-down is assessed by a comparison
of the carrying value of the asset against the higher of a) the fair value
less costs to sell, or b) the value in use.
Assets under construction are recognised at cost and only commence
depreciation once the assets are completed and ready for use.
Analysis
Leasehold improvements Furniture, fittings and other equipment Computer equipment Motor vehicles Total
£000 £000 £000 £000 £000
Cost
At 1 January 2020 10,299 5,387 6,109 66 21,861
Exchange differences (1,080) 551 136 11 (382)
Additions 1,442 826 916 - 3,184
Reclassifications** - - (88) - (88)
Disposals (2,171) (2,743) (2,228) (60) (7,202)
At 31 December 2020 8,490 4,021 4,845 17 17,373
Exchange differences (114) (48) (86) 1 (227)
Additions 145 266 1,352 41 1,789
Additions - business combinations 3 152 177 29 361
Disposals (1,228) (473) (456) (10) (2,172)
At 31 December 2021 7,296 3,918 5,832 78 17,124
Depreciation
At 1 January 2020 4,830 3,977 3,596 3 12,406
Exchange differences (856) 381 201 6 (268)
Depreciation charge 1,046 551 941 17 2,555
Impairment* 374 - - - 374
Reclassifications** - - 762 - 762
Disposals (1,310) (2,264) (2,015) (24) (5,613)
At 31 December 2020 4,084 2,645 3,485 2 10,216
Exchange differences 84 50 53 4 191
Depreciation charge 802 409 1,001 25 2,237
Disposals (940) (449) (449) (15) (1,853)
At 31 December 2021 4,030 2,655 4,090 16 10,791
Net book value
At 31 December 2019 5,469 1,410 2,513 63 9,455
At 31 December 2020 4,406 1,376 1,360 15 7,157
At 31 December 2021 3,266 1,263 1,742 62 6,333
* Leasehold improvement impairment relates to the impairment of the
right-of-use assets in 2020.
** In 2020, there was a reclassification of property, plant and equipment and
intangible assets, relating to software previously classified within computer
equipment.
Total depreciation in the income statement is broken down as follows:
Note 2021 2020
£000
£000
From plant and equipment 16 2,237 2,555
From right-of-use assets 17 6,959 9,104
9,196 11,659
17. Leases
The Group leases various assets, comprising properties, equipment, and motor
vehicles. The determination whether an arrangement is, or contains, a lease is
based on whether the contract conveys a right to control the use of an
identified asset for a period of time in exchange for consideration.
Policy
The following sets out the Group's lease accounting policy for all leases,
with the exception of leases with a term of 12 months or less and those of low
value assets. In both these instances the Group applies the exemptions
permissible by IFRS 16 Leases. These are typically expensed to the income
statement as incurred.
Right-of-use assets and lease liabilities
At the inception of a lease, the Group recognises a right-of-use asset and a
lease liability.
The value of the lease liability is determined by reference to the present
value of the future lease payments, as determined at the inception of the
lease. Lease liabilities are disclosed separately on the balance sheet. These
are measured at amortised cost, using the effective interest rate method.
Lease payments are apportioned between a finance charge and a reduction of the
lease liability, based on a constant interest rate applied to the remaining
balance of the liability. Interest expense is included within net finance
costs in the consolidated income statement. The interest rate applied to a
lease is typically the incremental borrowing rate of the entity entering into
the lease. This is as a result of the interest rates implicit in our leases
not being readily determined. The incremental borrowing rate applied by each
relevant entity is determined based on the interest rate adjudged to be
required to be paid by that entity to borrow a similar amount over a similar
term for a similar asset in a similar economic environment.
A corresponding right-of-use fixed asset is also recognised at an equivalent
amount adjusted for a) any initial direct costs, b) payments made before the
commencement date (net of lease incentives), and c) the estimated cost for any
restoration costs the Group is obligated to at lease inception. Right-of-use
assets are subsequently depreciated on a straight-line basis over the shorter
of the lease term or the assets' estimated life. Under IFRS 16, right-of-use
assets are tested for impairment in accordance with IAS 36 'Impairment of
Assets', when there is an indication of impairment.
Lease term
The lease term comprises the non-cancellable period of the lease contract.
Periods covered by an option to extend the lease are included, if the Group
has reasonable certainty that the option will be exercised. Periods covered by
an option to terminate are included, if it is reasonably certain that this
option will not be exercised.
Lease payments
Lease payments comprise fixed payments and variable lease payments (that
depend on an index or a rate, initially measured using the minimum index or
rate at inception date). Payments include any lease incentives and any penalty
payments for terminating the lease, if the lease term reflects the lessee
exercising that option. The lease liability is subsequently remeasured (with a
corresponding adjustment to the related right-of-use asset) when there is a
change in future lease payments due to a) a renegotiation or market rent
review, b) a change of an index or rate, or c) a reassessment of the lease
term.
Lease modifications
Where there are significant changes in the scope of the lease, then the
arrangement is reassessed to determine whether a lease modification has
occurred and, if there is such a modification, what form it takes. This may
result in a modification of the original lease or, alternatively, recognition
of a separate new lease.
Subleases
At times entities of the Group will sublet certain of their properties when
their underlying business requirements change. Under IFRS 16, the Group
assesses the classification of these subleases with reference to the
right-of-use asset, not the underlying asset.
When the Group acts as an intermediate lessor, it accounts for its interests
in the head lease and the sublease separately. At lease commencement, a
determination is made whether the lease is a finance lease or an operating
lease. To classify each lease, the Group makes an overall assessment of
whether the lease transfers to the lessee substantially all of the risks and
rewards of ownership in relation to the underlying asset. If this is the case,
then the lease is a finance lease; if not, then it is an operating lease. The
Group recognises lessor payments under operating leases as income on a
straight-line basis over the lease term. The Group accounts for finance leases
as finance lease receivables, using the effective interest rate method. It is
typically the case that subleases into which the Group enters are determined
to be finance leases in nature.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to those leases
that have a lease term of 12 months or less from the commencement date and do
not contain a purchase option. It also applies the lease of low-value assets
recognition exemption to leases of office equipment that are considered of low
value (defined by the Group as being below £3,000). Lease payments on
short-term leases and leases of low-value assets are recognised as an expense
on a straight-line basis over the lease term.
Estimates relating to leases
The Group has made estimates in adopting IFRS 16, additions subsequent to
adoption, along with the ongoing recognition of amendments and modifications,
which are considered to be: determining the interest rate used for discounting
of future cash flows, and the lease term.
Analysis
Set out below are the carrying amounts of right-of-use assets and lease
liabilities recognised, and the movements during the year:
Land & Buildings Computer equipment Motor vehicles
Total
Right-of-use assets £000 £000 £000 £000
At 1 January 2020 45,839 607 96 46,542
Additions 1,097 426 51 1,574
Modifications 640 - - 640
Sublease (259) - - (259)
Disposals (30) - - (30)
Depreciation (8,705) (328) (71) (9,104)
Impairment (2,651) - - (2,651)
Subsidiary disposals (2,661) - - (2,661)
Foreign exchange (62) 11 6 (45)
At 1 January 2021 33,208 716 82 34,006
Additions 16,802 24 60 16,886
Modifications 1,048 9 34 1,091
Disposals (394) (4) - (398)
Depreciation (6,563) (309) (87) (6,959)
Foreign exchange (209) (14) (6) (229)
At 31 December 2021 43,892 422 83 44,397
Land & Buildings Computer equipment Motor vehicles
Total
Lease liabilities £000 £000 £000 £000
At 1 January 2020 54,014 659 97 54,770
Additions 1,097 426 51 1,574
Modifications 640 - - 640
Covid modifications (600) (59) - (659)
Disposals (30) - - (30)
Accretion of interest 2,428 38 5 2,471
Payments (9,328) (289) (78) (9,695)
Subsidiary Disposals (2,810) - - (2,810)
Dilapidations 211 - - 211
Foreign exchange (49) (8) 6 (51)
At 1 January 2021 45,573 767 81 46,421
Additions 16,789 24 50 16,863
Modifications 823 9 34 866
Disposals (425) (4) 0 (429)
Accretion of interest 2,766 31 3 2,800
Payments (8,557) (358) (95) (9,010)
Reclassification* (211) - - (211)
Foreign exchange (426) (24) (5) (455)
At 31 December 2021 56,332 445 68 56,845
*This relates to lease dilapidations which have been reclassified to
Provisions in 2021, refer to Note 22.
The additions in 2021 predominately relate to the new offices in Sydney,
Australia, and New York, Americas.
Of lease payments made in the year of £9,010k (2020: £9,695k), £6,210k
(2020: £7,224k) related to payment of principal on the corresponding lease
liabilities and the balance to payment of interest £2,800k (2020: £2,471k)
due on the lease liabilities.
Lease liabilities Land & Buildings Computer equipment Motor vehicles Total
£000 £000 £000 £000
Amounts due within one year 6,624 283 43 6,950
Amounts due after one year 49,708 162 25 49,895
At 31 December 2021 56,332 445 68 56,845
Amounts due within one year 5,859 335 56 6,250
Amounts due after one year 39,714 432 25 40,171
At 31 December 2020 45,573 767 81 46,421
Income statement charge 2021 2020
£000 £000
Depreciation of right-of-use assets (6,959) (9,104)
Short-term lease expense (300) (337)
Low-value lease expense (263) (220)
Short-term sublease income 94 94
Right-of-use asset impairment - (2,651)
Charge to operating profit (7,428) (12,218)
Sublease finance income 26 71
Lease liability interest expense (2,800) (2,471)
Lease charge to profit before tax (10,202) (14,618)
The Group does not face a significant liquidity risk with regard to its lease
liabilities and manages them in line with its approach to other month-to-month
liquidity matters, as described in Note 30.
The cash payment maturity of the lease liabilities held at 31 December 2021,
net of sublease receipts, is as follows:
Future cash payments 2021 2020
£000 £000
Period ending 31 December:
2022 9,280 8,974
2023 8,074 8,223
2024 6,730 5,448
2025 6,689 5,062
2026 5,922 4,199
Later years 35,943 26,546
Gross future liability before discounting 72,638 58,452
Of the future lease payments post-2026, £24.9m relates to a single office
lease which expires in 2034. This lease agreement was entered into in December
2019.
18. Other non-current assets
Policy
Loans to employees
Represent financial assets at amortised cost and subsequently measured using
the effective interest rate method.
Analysis
2021 2020
At 31 December £000 £000
Other debtors including rent deposits 1,113 1,244
Loans to employees* 98 2,250
Total other non-current assets 1,211 3,494
* During the year the Group reclassified many of its put options from
equity-settled to cash-settled, creating a liability on the balance sheet, as
£1,967k of loans that the Group lent local management of M&C Saatchi
Agency Pty Limited in 2015 to enable them to acquire 20% of that business will
be extinguished by the put option liability when the shares are put, the debt
and liability were offset at the time of the put options reclassification. The
remaining employee loans relate to South African £98K (2020: £283K) loans
that the Group lent investors in South African companies to enable them to
acquire equity in the South African Group business. The full recourse loans
are repayable in full if the purchasers no longer have a beneficial interest
in the shares of the South African Group or are no longer employed. The loan
is unsecured and charged interest at 2% above the LIBOR. The carrying value
of the loans approximately equates to fair value.
19. Financial assets at fair value through profit and loss (FVTPL)
Policy
The Group holds certain unlisted equity investments, which are classified as
financial assets at FVTPL. These investments are initially recognised at their
fair value. At the end of each reporting period the fair value is reassessed,
with gains or losses being recognised in the income statement.
The valuations are based on several factors, including the share price from
the latest funding round, recent financial performance (where available),
discounting for liquidation preference shares and discounting for convertible
loan notes.
Analysis
The unlisted equity investments held by the Group mainly relate to 20 (2020:
26) early-stage companies in the SaatchInvest portfolio. In addition, overseas
investments are owned by:
· M&C Saatchi International Holdings B.V. which owns
shareholdings in a French company, Australie SAS, and an Australian company,
Sesión Tequila Holdings Pty Limited;
· M&C Saatchi Agency Pty Limited (Australia) which also owns a
shareholding in Sesión Tequila Holdings Pty Limited;
· M&C Saatchi European Holdings Limited which owns a 10%
shareholding in a Spanish company, M&S Saatchi Madrid SL.
With regards to the early-stage non-client investments, the most we have
invested in any one company over time is £0.7m and the least is £0.1m. The
Group invests in these companies for long-term return.
The activity in the year relating to our equity investments held at FVTPL is
presented below:
Financial assets held at FVTPL 2021 2020
£000 £000
At 1 January 11,410 14,851
Additions 501 713
Disposals (209) (736)
Revaluations 3,533 (3,315)
Foreign exchange (52) (103)
At 31 December 15,183 11,410
Other gains/(losses) in income statement 2021 2020
£000 £000
Gains on disposal - 497
Revaluations 3,533 (3,315)
Total 3,533 (2,818)
Of the 2021 additions of £501k, £420k relates to a 10% shareholding in an
unlisted investment, Australie SAS, acquired as part of a share for share
exchange, and the remainder relates to additions of £81k in SaatchInvest
which were paid in cash. Of the 2020 additions, the £713k related to
additions in SaatchInvest and was paid in cash. Refer to Note 30 and the
significant estimate in relation to financial instruments.
In 2021, the £209k disposal was of a company in the SaatchInvest portfolio
and it resulted in neither a gain nor loss on disposal. The 2020 disposals of
£736k both related to companies in the SaatchInvest portfolio and resulted in
a gain on disposal of £497k.
Of the 2021 revaluations, £3,758k relates to the unlisted investments held by
SaatchInvest Limited (2020 - downward revaluation of £2,477k), which is
partially offset by a reduction relating to the shareholding held by our
Australian business and M&C Saatchi International Holdings B.V. in Sesión
Tequila Holdings Pty Limited.
The Group also holds 10% shareholdings in M&C Saatchi Madrid SL, Send Me A
Sample Limited and 59A Limited. All of these investments are valued at nil.
20. Trade and other receivables
Policy
Trade receivables
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. These financial assets give rise
to cash flows that are "solely payments of principal and interest" on the
principal amount outstanding. They are generally due for settlement within 30
- 90 days and therefore are all classified as current. Trade receivables are
recognised initially at the amount of consideration that is unconditional. The
Group holds trade receivables with the objective to collect the contractual
cash flows and therefore measures them subsequently at amortised cost using
the effective interest method.
Impairment - Expected credit losses
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance ("ECL") for all trade
receivables and contract assets. To calculate the lifetime ECL the Group has
established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and
economic environments in which the Group operates.
Analysis
2021 2020
£000 £000
Trade receivables 86,302 58,534
Loss allowance (877) (677)
Net trade receivables 85,425 57,857
Prepayments 2,664 3,504
Amounts due from associates 123 837
VAT and sales tax recoverable 52 304
Other receivables* 44,477 26,760
Total trade and other receivables 132,741 89,262
* Other receivables comprises accrued income of £13.9m (31 December 2020:
£7.7m), which is considered to constitute trade receivables as defined in
IFRS 15 on the basis its collectability is subject only to the passage of
time, as well as contract assets of £2.4m (31 December 2020: £1.4m) and
other amounts receivable of £28.2m (31 December 2020: £17.7m).
Set out below is the movement in the loss allowance (which includes provision
for expected credit losses) of trade receivables and contract assets.
2021 2020
£000 £000
At 1 January (677) (1,621)
(Increase)/release for expected losses during the year (40) 32
Movement in forward looking provision for specific bad debts:
- Charge during the year (375) (555)
- Released during the year 190 756
- Utilisation of provision 25 711
At 31 December (877) (677)
The information about credit exposures is disclosed in Note 30.
21. Trade and other payables
Policy
Trade and other liabilities are non-interest bearing and are stated at their
amortised cost subsequent to initial recognition at their fair value, which is
considered to be equivalent to their carrying amount due to their short-term
nature.
Analysis
2021 2020
£000 £000
Trade creditors 36,578 39,490
Contract liabilities 18,939 22,022
Sales taxation and social security payables 6,059 6,803
Accruals 75,466 42,267
Other payables 17,007 14,158
Total trade and other payables 154,049 124,740
Settlement of trade and other payables is in accordance with the terms of
trade established with the Group's local suppliers.
22. Provisions
Policy
Provisions are recognised when the Group has a present legal or constructive
obligation arising as a result of past events and where it is more likely than
not an outflow of resources will be required to settle the obligation and the
amount can be reliably estimated. Provisions are measured at management's best
estimate of the expenditure required to settle the obligation at the balance
sheet date.
Provisions charged to the income statement in 2020 were higher than in 2021,
because of the continued costs of the Group restructuring programme initiated
in 2019, the principal cost being staff redundancy. There were also additional
provisions in 2020 relating to overseas sales and payroll tax provisions in
India and Kenya, along with an income protection provision in the UK, which
increased in value in 2021.
Analysis
The year-end provision of £1.2m (2020: £0.7m) comprises of costs relating to
the tax liabilities in India and Kenya, and income protection schemes of
£0.6m (2020: £0.4m), along with £0.3m (2020: £0.3m) relating to costs for
the accounting misstatements (which required the Group's result for the year
ended 31 December 2018 to be restated) and £0.3m relation to property
dilapidations.
2021 2020
£000 £000
At 1 January (666) (2,989)
Reclassification* (346) -
Charged to the income statement:
- Restructuring costs - (2,688)
- Costs associated with accounting misstatements - (260)
- Overseas sales taxation and social security liabilities (16) (220)
- Income protection provision (165) (145)
Utilised in the year
- Restructuring costs - 5,376
- Costs associated with accounting misstatements - 260
At 31 December (1,193) (666)
*This relates to lease dilapidations which were included within the lease
liability at 31 December 2020 (£0.2m), refer to Note 17, plus £0.1m included
within other creditors at 31 December 2020.
At the end of 2021 all amounts recognised as provisions were expected to be
utilised within 12 months and are held as current liabilities. The Directors
do not anticipate that any of the above will have a material adverse effect on
the Group's financial position or on the results of its operations.
23. Borrowings
Policy
Loans and overdrafts are recognised initially at fair value, less attributable
transaction costs. Subsequently, loans and overdrafts are recorded at
amortised cost with interest charged to the income statement under the
Effective Interest Rate (EIR) method.
Interest payable is included within accruals as a current liability.
Analysis
Amounts due within one year
2021 2020
At 31 December £000 £000
Overdrafts* (14,440) (13,920)
Local bank loans (297) (158)
Secured bank loans - (27,005)
(14,737) (41,083)
* These overdrafts are legally offsetable. However, they have not been netted
off in accordance with IAS32.42 as we do not intend to settle on a net basis.
Amounts due after one year
2021 2020
At 31 December £000 £000
Local bank loans* (293) (2,199)
Secured bank loans (19,528) -
(19,821) (2,199)
* The local bank loans in 2020 included the US Paycheck Protection Program
(PPP) loans, which were forgiven in 2021.
Secured bank loans
On 31 May 2021, the Company entered into a revolving multicurrency credit
facility agreement with National Westminster Bank Plc and Barclays Bank PLC
for up to £47.0m (the "Facility"). The Facility includes a £2.5m net
overdraft and the ability to draw up to £3.0m as a bonding facility, as
required. The Facility is provided on a three-year term (with two optional
one-year extensions). The Facility replaced the Company's previous £33.0m
credit facility and £5.0m overdraft which were due to terminate on 30 June
2021, and previously included as short-term.
The Facility includes two financial covenants, which if either were to be
breached would result in a default of the Facility:
1. Interest Cover - EBIT for the previous 12 months must exceed 4 times
the net finance charge (external debt interest, excluding IFRS 16 finance
lease interest payments) for the previous 12 months (increases to 5 times from
30 June 2022).
2. Leverage - Total Indebtedness at the period end must not exceed 3.5
times EBITDA for the previous 12 months (adjusted for acquisitions and
disposals). This reduces to 3.0 times from 31 March 2022, 2.5 times from 30
June 2022, and 2.0 times from 31 March 2023.
At 31 December 2021, the Group had up to £47.0m (2020: £33.0m) of funds
available under the Facility.
2021 2020
At 31 December £000 £000
Gross secured bank loans (20,000) (27,271)
Capitalised finance costs 472 266
Total secured bank loans (19,528) (27,005)
Total secured bank loans are due as follows:
2021 2020
At 31 December £000 £000
In one year or less, or on demand - (27,005)
In more than one year but not more than five years (19,528) -
(19,528) (27,005)
Total bank loans and borrowings used to calculate net cash are as follows,
excluding IFRS 16 leases in accordance with our bank covenants:
Gross secured Local bank loans Total bank loans
bank loans £000 £000
£000
At 1 January 2020 (35,677) (502) (36,179)
Cash movements 8,900 (3,472) 5,428
Disposals - 1,462 1,462
Non-cash movements
- Foreign exchange - - -
- Lease (494) 155 (339)
At 31 December 2020 (27,271) (2,357) (29,628)
Cash movements 7,608 - 7,608
Disposals - - -
Acquisitions - business combinations - (468) (468)
Non-cash movements
- Leases - - -
- Foreign exchange (337) 35 (302)
- Other* - 2,200 2,200
At 31 December 2021 (20,000) (590) (20,590)
* Other includes the forgiveness of the US Paycheck Protection Program (PPP)
loans.
24. Other non-current liabilities
2021 2020
At 31 December £000 £000
Employment benefit provisions* 561 1,416
Long-term bonus provision 1,014 1,765
Other** 974 1,592
2,549 4,773
* This relates to long-term service leave in some locations, deferred
contributions to pension schemes, employers' tax on put option and long-term
bonus plans.
** The main item includes a Termination Indemnity Plan in Italy of £547k
(2020: £576k), this liability is for the 13(th) month salary accrual for all
Italian employees to be paid to them when they leave the company.
25. Equity related liabilities
This disclosure note summarises information relating to all share schemes
disclosed in Notes 13, 26 and 27.
In the case of deferred consideration (Note 13), IFRS 9 minority shareholder
put option liabilities (Note 26), and IFRS 2 put option schemes (Note 27), the
Group has a choice to pay in cash or equity. As part of approving the Group's
interim statement, issued on 21 September 2021, the Board made the decision
and communicated externally that put options will, from now on, be settled in
cash, where we have cash resources to do so. In the case of LTIP and
restricted share awards, it is the Board's intention that an ESOP trust is set
up to acquire the shares and fulfil these schemes using the acquired equity.
In the table below, we present the potential cash payments, based on the 2021
year-end share price of 168.5p and the estimated future business performance
for each business unit. The payments are classified based on the year at which
the put option schemes first become exercisable. The forecasts are based on
the Group's five-year plans, developed as part of our budget cycle, and assume
all TSR targets are fulfilled, and that equity is bought by the LTIP in the
year of vesting at 168.5p. The table also shows the amount of these potential
cash payments that has been recognised as a liability at 31 December 2021,
with the percentage of the related employment services not yet delivered to
the Group at that date.
Total future expected liabilities at 31 December 2021
Paid so far Potentially payable Services not yet delivered at 31 Dec 2021 Balance sheet liability at 31 Dec 2021
%*
£000
At 168.5p In 2022 2022 2023 2024 2025 2026 2027 Total
& 2028
£000
£000 £000 £000 £000 £000 £000
£000
IFRS 9 put option schemes - 3,238 - 1,000 - - 1,000 5,238 - 5,238
IFRS 2 put option schemes 1,135 16,181 6,815 2,131 122 1,985 2,553 30,922 14% 27,122
LTIP - - - 3,247 - - - 3,247 92% -**
Restricted share awards - - 918 428 - - - 1,346 86% -**
Deferred and contingent consideration - 984 - - - - - 984 - 984
1,135 20,403 7,733 6,806 122 1,985 3,553 41,737 - 31,344
* Share-based payments (Note 27) charge liability to income statement over
period of vesting i.e. as the employee fulfils their time obligation to earn
the put option.
** LTIP & restricted shares are accounted for as equity-settled, and thus
do not create a balance sheet liability.
Put option holders are not required to exercise their options at the first
opportunity. Many do not and prefer to remain shareholders in the subsidiary
companies they manage. As a result, some put option holders may exercise their
options later than the dates we have estimated in the table above.
If the Company in the future decides to settle in equity, then the amount of
equity that will be provided is equal to the liability divided by the share
price.
Effect of a change in share price
The same data from the table above is presented in the table below, but in
this analysis the potential payments are based on a range of different
potential future share prices.
Paid so Potentially payable
Future Share Price of the Company far in 2022 2022 2023 2024 2025 2026 2027 & 2028 Total
£000
£000 £000 £000 £000 £000 £000 £000
At 150p 1,135 18,879 6,810 6,107 87 1,798 3,163 37,979
At 168.5p 1,135 20,403 7,733 6,806 122 1,985 3,553 41,737
At 190p 1,135 22,091 8,722 7,619 162 2,203 4,007 45,939
At 210p 1,135 23,608 9,589 8,373 200 2,405 4,428 49,738
At 230p 1,135 25,126 10,457 9,130 238 2,607 4,850 53,543
At 250p 1,135 26,643 11,324 9,885 275 2,809 5,272 57,343
At 300p 1,135 30,436 13,492 11,775 370 3,315 6,326 66,849
26. Minority shareholder put option liabilities (IFRS 9)
Policy
See below but also the Basis of Preparation Note.
Some of our subsidiaries' local management have a put option. The put options
give these employees a right to exchange their minority holdings in the
subsidiary into shares in the Company's or cash (at the Company's election).
These IFRS 9 schemes should be considered as rewards for future business
performance and are not conditional on the holder being an employee of the
business.
These instruments are recognised in full at the present value of the
redemption amount of the underlying award on the date of inception, with both
a liability on the balance sheet and a corresponding amount within the
minority interest put option reserve being recognised. At each period end, the
present value of the redemption amount of the put option liability is
calculated in accordance with the put option agreement, to determine a best
estimate of the future value of the expected award. Resultant movements in the
present value of the redemption amount of these instruments are charged to the
income statement within finance income/expense.
The put option liability will vary with both the Company's share price and the
subsidiary's financial performance. Current liabilities are determined by the
Company's year-end share price and the historical results of the companies in
which the minority interest holders can exercise their put options in 2022.
Non-current liabilities are determined by the Company's year-end share price
and the projected results of the companies in which the minority interest
holders can exercise their put options after 2022.
Upon exercise of an award by a holder, the liability is extinguished and the
associated minority interest put option reserve is transferred to the
non-controlling interest acquired reserve.
Analysis
IFRS 9 put options exercisable from the year ended 31 December:
Subsidiary Year % of subsidiaries' shares exercisable
M&C Saatchi (Switzerland) SA Vested 21.0
M&C Saatchi Merlin Limited Vested 15.0
Resolution Design Pty Limited Vested 15.0
Bohemia Group Pty Limited Vested 25.9
This Film Studio Pty Limited 2022 30.0
Santa Clara Participações Ltda* 2024 25.0
Santa Clara Participações Ltda* 2027 24.9
* Entity acquired with existing put options in year.
It is the Company's option to fulfil these options in equity or cash and it is
the Company's present intention to fulfil the options in cash (if available).
However, if we fulfil in equity, the estimated number of Company shares that
will be issued to fulfil these options at 168.50p is 3,108,605 shares (2020:
83.6p is 3,327,751 shares).
2021 2020
Liability at 31 December £000 £000
Amounts falling due within one year (3,238) (978)
Amounts falling due after one year (2,000) (1,804)
(5,238) (2,782)
2021 2020
Movement in liability during the year £000 £000
At 1 January (2,782) (7,101)
Exchange difference 16 (1)
Exercises 424 4,440
Acquisitions (2,000) -
Income statement charge due to:
- Change in profit estimates (399) 1,671
- Change in share price of the Company (497) (1,732)
- Amortisation of discount - (59)
Total income statement charge (Note 7) (896) (120)
At 31 December (5,238) (2,782)
Put options exercised in year 2021 2020
£000 £000
Paid in equity 424 4,236
Paid in cash - 204
Exchange difference - -
Total 424 4,440
27. Share-based payments (IFRS 2)
Policy
See below but also Basis of Preparation note.
Local management in some of the Group's subsidiaries' (who are minority
interests of the Group) have the right to a put option over the equity they
hold in the relevant subsidiary. Where this put option is dependent upon the
holders' continued employment by the Group, or where the holder received the
option as a result of employment with the Group, these options are accounted
for under IFRS 2 as equity-settled share-based payments to employees or as
cash-settled share-based payment schemes. These are redeemable, at the choice
of the Group, either in shares of the Company or by means of a cash payment to
the holder. Such schemes should be considered as rewards for future business
performance, which are conditional on the holder being an employee of the
business.
Equity-settled share-based payment schemes
Where an award is intended to be settled in equity, then the fair value of the
award is calculated at the grant date of each scheme based on the present
Company's share price and its relevant multiple. The fair value of the awards
is calculated by means of a Monte Carlo model with inputs made in terms of the
Company's share price at date of grant, risk free rate, historic volatility of
share price, dividend yield and time to vest. The Group estimates the shares
that will ultimately vest, using assumptions over conditions, such as
profitability of the subsidiary, to which the awards relate. This value is
recognised as an expense in the income statement over the shorter of the
vesting period or the period of required employment on a straight-line basis,
with a corresponding increase in reserves.
In the event an employee's contract includes a business continuity clause on
departure, that element of the award at issue is treated as vested and charged
to the income statement at the grant date valuation, and no credit to the
income statement is taken for it in the future. All the remaining award is
revalued annually for the non-market condition (profitability of the
subsidiary) and allocated to the income statement on a straight-line basis.
Upon exercise of the awards, the nominal value of the shares issued is
credited to share capital with the balance to retained income.
Cash-settled share-based payment schemes
When an award is intended to be settled in cash, then a liability is
recognised at inception of the award, based on the present Company's share
price and its relevant multiple. This value is recognised as an expense in the
income statement from the date of award to the date it is exercised, on a
straight-line basis, with a corresponding increase in liabilities.
Conversion from equity-settled to cash-settled
In the past, the Group has settled the options using equity, where there was a
choice to cash-settle or equity-settle. As part of approving the Group's
interim statement, issued 21 September 2021, the Board made the decision that
put options will from now on be settled in cash, where we have cash resources
to do so. Up to 21 September 2021 we have accounted for these put option as
equity-settled, from 21 September 2021 we have accounted for these put options
as cash-settled.
The transition from equity-settled to cash-settled requires a fair value
assessment on the day of the modification and a movement between equity and
liabilities.
Where, for an unvested scheme, the Company's share price multiple (the market
condition) at the inception of the option was higher than the current
Company's share price multiple, then the difference is charged to the income
statement, from 21 September 2021 onwards.
The following table sets out a comparison between equity settlement and cash
settlement of IFRS 2 put options:
Equity-Settled IFRS 2 scheme Cash-Settled IFRS 2 scheme
Cost of the put option Booked to staff costs. Booked to staff costs.
Liability of the put option Booked to equity (no impact on net assets). Booked to liabilities (reduces net assets).
Recognition of the cost Spread evenly between the date the put option is issued and the date the put Spread evenly between the date the put option is issued and the date the put
option vests. No further costs after vesting date. option vests. Further valuation adjustments are made to the income statement
until the option is exercised.
Revaluation adjustments Adjusted by changes in the profit of the subsidiary only. Adjusted by changes in the profit of the subsidiary and the relevant share
price multiple.
Exercise of put option New Company shares issued to put option holders. Cash issued to put option holders.
Summary of schemes
The Group has the following share-based payment schemes, and in the year these
have been the major changes to them:
· Put options - from 21 September 2021 we have accounted for these
put options as cash-settled.
· South African equity purchased with non-recourse loans - some of
our South African subsidiaries have sold equity to employees with non-recourse
loans that are repaid out of dividends and from the proceeds of selling the
equity to other employees, with the entity that has issued the equity acting
as an intermediary. The equity does not have any put rights, so there is no
obligation to acquire the equity, however the South African Rand 17,706k debt
lent to acquire the liability (netted against the fair value of the award) is
at risk.
· Cash awards - these are long-term cash schemes that were
historically treated as a share-based scheme. At the end of 2021 one of the
put option award holders resigned, causing a one-off reversal in the charge.
· Executive LTIP - on 28 September 2021 and 21 December 2021, the
Group issued equity-settled LTIPs to senior executive managers. This scheme
grants a future award of the Group's shares, dependent on the achievement of
certain future performance conditions:
o Group's total shareholder return versus the total shareholder return of
the FTSE Small Cap Index over the 3 years from December 2020 to December 2023
(70% of the award);
o Group's Full Year Headline profit before tax performance in 2023 versus
target (30% of the award).
· Restricted share awards - the two cash awards made to the Chief
Financial Officer on his recruitment were converted to restricted share awards
on 28 September 2021, based on the 45-day average share price to 28 May 2021
of 137.7p. No further shares will be issued under the plan.
Analysis
For the Executive LTIP and restricted share awards, it is intended that an
ESOP trust is set up to acquire the shares to fulfil these schemes in equity;
thus the schemes are accounted for as equity-settled. The inputs to Monte
Carlo models used to calculate the fair value of these share awards granted
during the year are as follows:
2021 2021 2021 2021
LTIP
LTIP
Restricted share awards
Restricted share awards
Issue date 21/12/2021 28/09/2021 28/09/2021 28/09/2021
Vesting date 21/12/2024 28/09/2024 15/05/2023 15/05/2024
Share price at grant £1.63 £1.56 £1.56 £1.56
Expected volatility 80% 81% 88% 85%
Risk free rate 0.67% 0.51% 0.40% 0.51%
Dividend yield 0% 0% 0% 0%
Fair value of award per share £1.62 £1.55 £1.56 £1.55
TSR element against FTSE Small Cap index:
Expected volatility 147% 158%
Fair value of award per share £0.72 £0.67
The weighted average share price of options exercised during the period was
£1.27 (2020: £0.33).
Income statement charge
2021 2021 2021 2020 2020 2020
Equity
Cash
Total
Equity
Cash
Total
£000
£000
£000
£000
£000
£000
Put options to 21 September 2021 - equity-settled 1,283 - 1,283 3,275 - 3,275
Put options from 22 September 2021
- imputed equity charge due to transition 779 - 779 - - -
- charge/(credit) since transition (see below) - (797) (797) - - -
South Africa non-recourse loan scheme - (40) (40) - 25 25
Total not affecting Headline results (Note 1) 2,062 (837) 1,225 3,275 25 3,300
Release of cash award due to leaver (Note 1) - (2,598) (2,598) - - -
Executive LTIP 135 - 135 - - -
Restricted share awards 38 - 38 - - -
Cash awards - 1,370 1,370 - 922 922
Total 2,235 (2,065) 170 3,275 947 4,222
Total put option liability
2021 2020
Total
Total
£000
£000
Put options liability (IFRS 2) (Note 27) (27,122) -
Put options liability (IFRS 9) (Note 26) (5,238) (2,782)
Total put options (Note 25) (32,360) (2,782)
Current - minority shareholder put option liabilities (20,788) (978)
Non-current - minority shareholder put option liabilities (11,572) (1,804)
Total (32,360) (2,782)
Cash-settled liability
The movement in the liability by scheme is detailed below:
Put options South Africa non-recourse loan scheme Cash awards Total
£000
£000 £000 £000
At 1 January 2020 - (571) - (571)
Equity-settled transferred to cash-based and cash-settled awards - - (1,121) (1,121)
Charged to income statement - (25) (922) (947)
Foreign exchange - 51 - 51
At 31 December 2020 - (545) (2,043) (2,588)
Equity-settled options transferred to cash-settled awards (32,555) - - (32,555)
Offsetable debt 1,691 - - 1,691
Acquisitions (Note 12) (1,848) - - (1,848)
Charged to income statement
- Straight-line recognition (692) - (1,043) (1,735)
- Change in subsidiary profit estimates (3,382) - (327) (3,709)
- Change in Company multiple 4,871 40 - 4,911
Total income statement charge 797 40 (1,370) (533)
Reversal of charge caused by employee resignation - - 2,598 2,598
Settled 4,859 - 489 5,348
Foreign exchange (66) 37 - (29)
At 31 December 2021 (27,122) (468) (326) (27,916)
Put Options
Vesting % Entity subject to the put option
Clear Deutschland GmbH 2024 20.00%
Clear Deutschland GmbH 2026 20.00%
Clear Ideas (Singapore) Limited 2023 10.00%
Clear Ideas Ltd - B1 shares*** 2022 5.00%
Clear Ideas Ltd - B2 shares*** 2022 10.00%
Clear LA LLC 2022 12.00%
Cometis SARL Vested 49.00%
FCINQ SAS Vested 11.62%
Greenhouse Australia Pty Limited 2022 11.00%
Greenhouse Australia Pty Limited 2023 1.80%
Greenhouse Australia Pty Limited 2024 7.20%
Human Digital Limited*** Vested 11.50%
Human Digital Limited*** 2022 11.50%
Human Digital Limited*** 2023 17.00%
Levergy Marketing Agency (Pty) Limited*** Vested 11.90%
LIDA NY LLP (MCD) Vested 24.50%
M&C Saatchi (Hong Kong) Limited** Vested 20.00%
M&C Saatchi (UK) Limited 2023 12.00%
M&C Saatchi AB Vested 30.00%
M&C Saatchi Advertising GmbH Vested 8.20%
M&C Saatchi Advertising GmbH 2023 4.10%
M&C Saatchi Advertising GmbH 2024 10.00%
M&C Saatchi Agency Pty Limited Vested 10.00%
M&C Saatchi Digital GmbH 2022 5.00%
M&C Saatchi Holdings Asia Pte Limited (Indonesia) 2024 27.40%
M&C Saatchi Holdings Asia Pte Limited (Indonesia) 2026 22.50%
M&C Saatchi Merlin Limited 2023 15.00%
M&C Saatchi Middle East Holdings Limited Vested 20.00%
M&C Saatchi Share Inc Vested 20.00%
M&C Saatchi Social Limited*** Vested 13.50%
M&C Saatchi Social Limited*** 2023 13.50%
M&C Saatchi Spencer Hong Kong Limited 2024 30.00%
M&C Saatchi Sport & Entertainment Limited 2022 25.00%
M&C Saatchi Sport & Entertainment NY LLP Vested 13.00%
M&C Saatchi Sport & Entertainment NY LLP 2024 12.50%
M&C Saatchi Sport & Entertainment NY LLP 2025 5.00%
M&C Saatchi Sport & Entertainment Pty Limited Vested 10.00%
M&C Saatchi Sports & Entertainment GmbH Vested 14.00%
M&C Saatchi Talk Limited Vested 39.00%
M&C Saatchi Talk Limited 2023 10.00%
M&C Saatchi World Services LLP*** Vested 4.00%
M&C Saatchi World Services LLP*** Vested 6.00%
M&C Saatchi World Services LLP*** 2022 6.00%
M&C Saatchi, S.A. DE C.V. 2023 40.00%
Majority LLC 2024 8.00%
RE Team Pty Limited Vested 13.00%
RE Worldwide UK Limited*** 2022 49.90%
Scarecrow M&C Saatchi Limited*** 2020 24.50%
Scarecrow M&C Saatchi Limited*** 2022 24.50%
The Source (W1) LLP Vested 10.00%
The Source Insight Australia Pty Limited 2022 14.00%
The Source Insight Australia Pty Limited 2025 21.00%
Thread Innovation Limited* 2027 10.00%
Thread Innovation Limited* 2028 10.00%
* New scheme in year.
** Entity acquired with existing put options in year.
*** Shown as a liability in M&C Saatchi plc Company accounts.
Shares issuable
At the start of the year all our equity-settled share-based payment schemes
are put options (referred to as conditional shares in last year's Annual
Report and Accounts). The shareholder holds equity in a subsidiary company and
has a right, after a period of time, to convert it to shares in the Company.
Changes to the Company's share price, local subsidiary profitability or Group
profitability affect the number of shares we are committed to pay in exchange
for these put options. During the year we also issued Executive LTIPs and
restricted share awards.
The table below shows the number of shares that we will issue at the share
price at 31 December 2021 of 168.5p (2020: 83.6p) assuming:
1) The put option was exercised at the first available opportunity, even if
that gives no reward.
2) We do not exercise our right under business continuity clauses to block the
exercise (and assuming no revenue declines in the year after the put).
3) All LTIP and restricted awards are held to their vesting date and fully
vest.
Number of Shares Put options LTIP Restricted shares Total
000
000
000
000
At 1 January 2021 22,511 - - 22,511
Exercised - Shares issued (£1.27) (327) - - (327)
Reclassification to cash-settled scheme (22,184) - - (22,184)
Granted or amended - 1,927 799 2,726
At 31 December 2021 - 1,927 799 2,726
Shares issuable used in these accounts
Note 2021 Number of shares 2021 2020 Number of shares 2020
000
Share price used
000
Share price used
Per EPS calculation 1 828 141.6p 11,963 65.1p
Share-based payments 27 2,726 155p-162p 22,511 83.6p
The share-based payments (Note 27) calculates the number of shares that could
be issued at the first vesting date after the year. The EPS calculation (Note
1) uses the average share price for the year, calculating the number of shares
to be issued using its formula value had it been possible to exercise on the
year-end date, and takes a deduction for any remaining uncharged share option
charge at the start of the year and the share of profits the is allocatable to
the equity during the year. Where a scheme has been issued for part of the
year (and is not converted from an existing cash-based scheme) the shares are
reduced by the proportion of the year that they are in issue. The EPS
calculation is thus attempting to show the dilutive effect rather than the
likely shares we will issue and is income statement focused rather than the
true future position.
28. Issued share capital (allotted, called up and fully paid)
Policy
Ordinary shares are classified as equity. Incremental costs attributable to
the issuance of new shares are shown in equity as a deduction from proceeds,
net of tax.
Where the Group re-acquires its own equity instruments (treasury shares), the
consideration paid is deducted from equity attributable to the owners of the
Group and recognised within the treasury reserve.
Analysis
1p Ordinary shares
Number of shares £000
At 31 December 2019 93,596,760 936
Exercise of M&C Saatchi Mobile share options 13,671,602 137
Final payment for acquisition of 33% of Shepardson Stern & Kaminsky LLP 8,295,033 82
Acquisition of 22% M&C Saatchi Social Limited 353,195 4
At 31 December 2020 115,916,590 1,159
Acquisition of 40% of M&C Saatchi (Hong Kong) Limited 3,027,860 30
Acquisition of 25.1% of Santa Clara Participações Ltda 2,084,825 21
Acquisition of 19.9% of Little Stories SAS 475,730 5
Acquisition of 5% M&C Saatchi Mobile Asia Pacific PTE. Limited 327,239 3
Shares issued for cash 620,180 6
Payment of deferred consideration 291,011 3
At 31 December 2021 122,743,435 1,227
The Company holds 485,970 (2020: 485,970) of the above shares in the Company
in treasury.
29. Fair value measurement
Policy
See also basis of preparation.
Some of the Group's financial assets and liabilities, in addition to certain
non-financial assets and liabilities, are held at fair value. The fair value
of an asset or liability is the price that would be received from selling the
asset or paid to transfer a liability in an orderly transaction between market
participants at the balance sheet date.
Both financial and non-financial assets and liabilities measured at fair value
in the Balance Sheet are grouped into three levels of a fair value hierarchy.
The three levels are defined based on the observability of significant inputs
to the measurement, as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly; and
Level 3: unobservable inputs for the asset or liability.
The Group holds both assets and liabilities which are measured at fair value
on a recurring basis and those which are measured at fair value on a
non-recurring basis. Items measured at fair value on a non-recurring basis
typically relate to non-financial assets arising as a result of business
combinations as accounted for under the acquisition method. In this regard,
during the year the Group has recognised additions to intangible assets (brand
names and customer lists) totalling £3,819k (2020: £Nil). Refer to Note 14
for full details.
In addition, the Group also calculates the fair value of certain non-financial
assets when there is the need to conduct an impairment review. These
calculations also fall within Level 3 of the IFRS 13 hierarchy and, where
applicable, are described in Note 14.
Analysis
Assets and liabilities measured at fair value on a recurring basis.
The following table shows the levels within the hierarchy of financial assets
and liabilities measured at fair value on a recurring basis at 31 December
2021 and 31 December 2020:
Level 1 Level 2 Level 3
At 31 December 2021 £000 £000 £000
Financial assets
Equity investments at FVTPL - - 15,185
Financial liabilities
Contingent consideration - - -
Level 1 Level 2 Level 3
At 31 December 2020 £000 £000 £000
Financial assets
Equity investments at FVTPL - - 11,410
Financial liabilities
Contingent consideration - - (452)
The level at which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
The movements in the fair value of the level 3 recurring financial assets and
liabilities are shown as follows:
Equity instruments at FVTPL Contingent consideration
£000 £000
At 1 January 2021 11,410 (452)
Net gain in the income statement 3,473 452
Additions 501 -
Disposal (209) -
Currency movements 10 -
At 31 December 2021 15,185 -
£452k of contingent consideration relating to management's put option in
Scarecrow Communications Limited has been written off because current results
indicate that nothing will be payable under the put option scheme.
Valuation and sensitivity to valuation
The Group's finance team performs valuations of financial items for financial
reporting purposes, including level 3 fair values.
The equity instruments at FVTPL relate to unlisted equity investments as
detailed in Note 19. Management bases its primary assessment of their fair
values on the share price from the last funding round but also incorporates
discounts depending on performance, more senior shareholdings held by other
investors and the possibility of future dilution due to the presence of
convertible loan notes. Fluctuations in the share price would change the fair
value of the investments recognised at year-end as follows assuming a 10%
uplift or downwards movement in the price:
Increase/ Increase/
(decrease) in (decrease) in
fair value of fair value of
asset asset
2021 2020
Adjusted share price £000 £000
+10% 1,519 1,141
-10% (1,519) (1,141)
In addition, management considers there to be a risk that the most recent
purchase prices are sensitive to a decision to sell the investments to an
unwilling market. If such a market existed, then discounting the investments
to reflect such risk could impact the value as shown below:
Decrease in fair value of asset Decrease in fair value of asset
2021 2020
Risk adjusted sales price £000 £000
-30% sales discount due to illiquid nature* (4,556) (3,423)
-12% risk discount for unwilling marketplace** (1,276) (958)
Value after discounts 9,353 7,029
* If these illiquid securities were to be sold then such a sale is expected to
yield between a 10% and 50% discount, so sensitivity based on 30%.
** Risk that if the cash supply dries up, some of the investments with
future growth prospects will run out of cash requiring a fire sale, reflected
by additional risk discount of 12%.
30. Financial risk management
Principal financial instruments
The principal financial instruments held by the Group, from which financial
instrument risk arises, include trade and other receivables, cash and cash
equivalents, trade and other payables, loans and borrowings, put options
accounted under IFRS 9 as liabilities and equity instruments representing
long-term investments in non-listed entities.
The Group does not typically use derivative financial instruments to hedge its
exposure to foreign exchange or interest rate risks arising from operational,
financing and investment activities.
30.1 - General objective, policies and processes
The Board has overall responsibility for the determination of the Group's and
Company's risk management objectives and policies. Whilst retaining ultimate
responsibility for them, the Board has delegated the authority for designing
and operating processes that ensure the effective implementation of the
objectives and policies to the Group's senior management of each core business
unit. The Board receives monthly reports from management through which it
reviews the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's competitiveness and
flexibility of the global businesses of which it is comprised. Further details
regarding these policies are set out below.
30.2 - Market risk
Market risk arises from the Group's use of interest-bearing financial
instruments and foreign currency cash holdings. It is the risk that the fair
value of future cash flows on its debt finance and cash investments will
fluctuate because of changes in interest rates (interest rate risk), foreign
exchange rates (currency risk) and other price risk such as equity price risk
and share price risk. Financial instruments affected by market risk include
loans and borrowings, deposits, debt, equity investments and minority interest
put options.
Exposure to market risk arises in the normal course of the Group's business.
30.3 - Foreign exchange risk
Foreign exchange risk arises from transactions and recognised assets and
liabilities and net investments in foreign operations. The Group's general
operating policy historically has been to conduct business in the currency of
the local area in which businesses of the Group are geographically located,
thereby naturally hedging the consideration resulting from client work.
Businesses of the Group maintain bank accounts in the currency of these
transactions solely for working capital purposes. As the Group has grown there
has been an increase in services rendered being exported from the UK
businesses to clients who transact in non-GBP currencies. The transactional
risk arising from such exports is mitigated in terms of the structuring of the
billing arrangements and agreement to regular invoices being remitted and
promptly paid (<30 days).
The Group is exposed to movements in foreign currency exchange rates in
respect of the translation of net assets and income statements of foreign
subsidiaries and equity accounted investments. The Group does not hedge the
translation effect of exchange rate movements on the income statements or
balance sheets of foreign subsidiaries and equity accounted investments as it
regards these as long-term investments.
The estimated impact on foreign exchange gains and losses of a +/- 10%
movement in the exchange rate of the Group's significant currencies is as
follows:
Increase/ Increase/ Increase/ Increase/
(decrease) (decrease) (decrease) (decrease)
in profit in profit in profit in profit
before tax after tax before tax after tax
2021 2021 2020 2020
Exchange rate £000 £000 £000 £000
USD +10% 362 214 764 625
USD -10% (330) (195) (695) (568)
AUD +10% 526 349 268 172
AUD -10% (478) (317) (244) (156)
The year-end and average exchange rates to GBP for the significant currencies
are as follows:
Year End Rate Average Rate
Currency 2021 2020 2021 2020
USD 1.35 1.37 1.35 1.29
AUD 1.86 1.77 1.87 1.87
The Group assumes that currencies will either be freely convertible, or the
currency can be used in the local market to pay for goods and services, which
we can sell to clients in a freely convertible currency. Within our 2021
year-end cash balances we hold £307k in Indian Rupees; £637k in Libyan
Dinars; and £2,191k in South African Rands.
30.4 - Interest rate risk
The Group is exposed to interest rate risk because it has a banking facility
of up to £47.0m and a net overdraft facility of up to £2.5m, both based on
floating interest rates. The Group does not consider this risk to be
significant.
The sensitivity analysis below has been determined based on the exposure to
interest rates for financial instruments held at the balance sheet date. The
analysis is prepared assuming the amount of borrowings outstanding at the
balance sheet date were outstanding for the whole year. A 50-basis point
increase or decrease is used when reporting interest rate risk internally to
key management personnel and represents management's assessment of the
reasonably possible changes in interest rates.
If interest rates had been 50 basis points higher/lower and all other
variables were held constant, the Group's profit for the year ended 31
December 2021 would (decrease)/increase by £(100)k/£100k (2020:
£(138)k/£138k). This is principally attributable to the Group's exposure to
interest rates on its floating rate loan.
30.5 - Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and, when appropriate, principal repayments on its debt
instruments. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as and when they fall due. The Group's debt
instruments carry interest at LIBOR +3.0%.
The Group's policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they fall due. To achieve this aim, the
Group has a planning and budgeting process in place to determine the funds
required to meet its normal operating requirements on an ongoing basis. The
Group and Company ensures that there are sufficient funds to meet its
short-term business requirements, taking into account its anticipated cash
flows from operations, its holdings of cash and cash equivalent and proposed
strategic investments.
The Board receives rolling 12-month cash flow projections on a monthly basis
as well as information regarding cash balances. At the end of the financial
year, these projections indicated that the Group had sufficient liquid
resources to meet its obligations under all reasonably expected circumstances.
The following table sets out the contractual maturities (representing
undiscounted contractual cash flows) of financial liabilities:
Group
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
£000 £000 £000 £000 £000
At 31 December 2021
Trade and other payables* (96,561) (25,359) (5,285) (1,846) (1)
Lease liabilities (2,320) (6,960) (8,074) (19,342) (35,943)
Loans and borrowings - - - (19,528) -
Overdrafts (14,440) - - - -
IFRS 9 put options - (3,238) - (1,000) -
Deferred and contingent consideration - (984) - - -
Total (113,321) (36,541) (13,359) (41,716) (35,944)
* Excludes taxes as these are not considered financial instruments and
contract liabilities as these are not financial liabilities
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
£000 £000 £000 £000 £000
At 31 December 2020
Trade and other payables (65,915) (30,000) - - -
Lease liabilities (2,244) (6,731) (8,223) (14,709) (26,546)
Loans and borrowings - (27,163) (2,199) - -
Overdrafts (13,920) - - - -
IFRS 9 put options - (978) (1,804) - -
Deferred and contingent consideration - (1,679) - - -
Total (82,079) (66,551) (12,226) (14,709) (26,546)
Company
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
£000 £000 £000 £000 £000
At 31 December 2021
Trade and other payables (3,551) (361) (292) (161) -
Loans and borrowings - - - (19,528) -
Total (3,551) (361) (292) (19,689) -
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
£000 £000 £000 £000 £000
At 31 December 2020
Trade and other payables (2,887) (45,355) - - -
Loans and borrowings - (21,600) - - -
Total (2,887) (66,955) - - -
The Group breached no banking covenants during the year.
30.6 - Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations.
The Group monitors credit risk at both a local and Group level. Credit terms
are set and monitored at a local level according to local business practices
and commercial trading conditions. The age of debt, and the levels of accrued
and deferred income are reported regularly. Age profiling is monitored, both
at local customer level and at consolidated entity level. There is only local
exposure to debt from our significant global clients. The Group continues to
review its debt exposure to foreign currency movements and will review
efficient strategies to mitigate risk as the Group's overseas debt increases.
Management determines concentrations of credit risk by reviewing amounts due
from customers monthly. The only significant concentrations of credit risk
which are accepted are with multinational blue chip (or their equivalent)
organisations where credit risk is not considered an issue, the risk of
default is considered low.
Impairment
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade
receivables.
The expected loss rates for each business are based on the payment profiles of
sales at least over a period of 24 months before 31 December 2021 or 31
December 2020 respectively and the corresponding historical credit losses
experienced within this period. The historical loss rates are adjusted to
reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle the receivables.
The expected credit loss allowance at 31 December 2021 and 31 December 2020
was determined as follows for trade receivables under IFRS 15.
Trade receivables
31 December 2021 Not past due 0 - 30 days past due 31 - 90 days past due 91 - 120 days past due > 120 days past due
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables 72,941 19,200 6,107 956 3,302
Loss allowance 11 2 1 5 117
Trade receivables
31 December 2020 Not past due* 0 - 30 days past due 31 - 90 days past due 91 - 120 days past due > 120 days past due
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables 53,918 13,312 4,501 966 1,338
Loss allowance 8 1 1 5 47
Under IFRS 9 financial instruments, the expected credit loss is the difference
between asset's gross carrying amount and the present value of the estimated
future cashflows discounted at the asset's original effective interest
rate.
Contract assets relate to work-in-progress, and as we have no experience of
material write offs in relation to these financial assets, no expected credit
loss allowance is recognised.
30.7 - Share price risk
As detailed in Note 27, the Group uses put option awards to incentivise
certain local key management. The value of these awards is in part dependent
upon the Company's share price.
30.8 - Equity price risk
The Group's non-listed equity investments are susceptible to market price risk
arising from uncertainties about future values of the investment securities.
The Group manages equity price risk through diversification and by placing
limits on individual and total equity investment securities. Reports on the
equity portfolio are submitted to the Group's senior management on a regular
basis. The Board reviews and approves all equity investment decisions. The
basis of the fair value calculations and the sensitivity of these calculations
to the key inputs is detailed in Note 29.
30.9 - Capital management
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to
shareholders through the optimisation of the debt and equity balance. Strong
financial capital management is an integral element of the Directors' strategy
to achieve the Group's stated objectives. The Directors review financial
capital reports on a regular basis and the Group finance function does so on a
daily basis ensuring that the Group has adequate liquidity. The Directors'
consideration of going concern is detailed in the Directors' report.
The capital structure of the Group consists of debt, which includes the
borrowings disclosed in Note 23, cash and cash equivalents as disclosed in the
cash flow statement and equity attributable to equity holders of the parent as
disclosed in the statement of changes in equity.
31. Group companies
Key
* Entities in which the Group holds less than 50% of the share capital and
which are accounted for as Associates (Note 15). All subsidiary companies
which the Group controls in line with the requirements of IFRS 10 have been
included in the consolidated financial statements.
** This subsidiary company is entitled to, and has opted to take, the
exemption from the requirement relating to the audit of its individual
accounts for the year/period ended 31 December 2021 by virtue of Section 479A
of the Companies Act 2006 as the Company will guarantee the subsidiary company
under Section 479C of the Companies Act 2006.
*** With the exception of M&C Saatchi Network Limited, our South African
subsidiaries, Scarecrow Communication Limited and M&C Saatchi Social
Limited (as indicated in the table below) where all our equity is directly
held by the Company, all other subsidiary companies' equity is either in part
or wholly held via subsidiaries of the Company.
At 31 December Specialism Country Company Number Address Effective % ownership 2021
UK
Lean Mean Fighting Machine Limited** Advertising & CRM United Kingdom 5038272 36 Golden Square, London, W1F 9EE 88
LIDA (UK) LLP** Advertising & CRM United Kingdom OC395890 36 Golden Square, London, W1F 9EE 88
LIDA Limited** Advertising & CRM United Kingdom 3860916 36 Golden Square, London, W1F 9EE 88
M&C Saatchi (UK) Limited** Advertising & CRM United Kingdom 3003693 36 Golden Square, London, W1F 9EE 88
M&C Saatchi Accelerator Limited** Advertising & CRM United Kingdom 9660056 36 Golden Square, London, W1F 9EE 89
M&C Saatchi Export Limited** Advertising & CRM United Kingdom 3920028 36 Golden Square, London, W1F 9EE 91
M&C Saatchi Fluency Limited** Advertising & CRM United Kingdom 12853921 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Marketing Arts Limited** Advertising & CRM United Kingdom 3357727 36 Golden Square, London, W1F 9EE 50
M&C Saatchi PR International Limited** Advertising & CRM United Kingdom 8838406 36 Golden Square, London, W1F 9EE 100
M&C Saatchi PR Limited** Advertising & CRM United Kingdom 7280464 36 Golden Square, London, W1F 9EE 100
M&C Saatchi PR UK LLP** Advertising & CRM United Kingdom OC362334 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Shop Limited** Advertising & CRM United Kingdom 9660100 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Talk Limited** Advertising & CRM United Kingdom 4239240 36 Golden Square, London, W1F 9EE 51
Talk.Purpose Limited** Advertising & CRM United Kingdom 11557398 36 Golden Square, London, W1F 9EE 51
The Source (London) Limited** Advertising & CRM United Kingdom 7140265 36 Golden Square, London, W1F 9EE 100
The Source (W1) LLP** Advertising & CRM United Kingdom OC384624 36 Golden Square, London, W1F 9EE 90
This Is Noticed Limited** Advertising & CRM United Kingdom 11843904 36 Golden Square, London, W1F 9EE 69
Thread Innovation Limited** Advertising & CRM United Kingdom 13510974 36 Golden Square, London, W1F 9EE 80
Alive & Kicking Global Limited** Brand & Experience United Kingdom 11250736 36 Golden Square, London, W1F 9EE 100
Clear Ideas Consultancy LLP** Brand & Experience United Kingdom OC362532 36 Golden Square, London, W1F 9EE 85
Clear Ideas Limited** Brand & Experience United Kingdom 4529082 36 Golden Square, London, W1F 9EE 85
Influence Communications Limited** Brand & Experience United Kingdom 4917646 36 Golden Square, London, W1F 9EE 95
Re Worldwide Limited** Brand & Experience United Kingdom 10503044 36 Golden Square, London, W1F 9EE 57
Black & White Strategy Limited** Dormant United Kingdom 11295145 36 Golden Square, London, W1F 9EE 100
H2R Research Limited** Dormant United Kingdom 11668322 36 Golden Square, London, W1F 9EE 80
Human Digital Limited** Global & Social Issues United Kingdom 7510403 36 Golden Square, London, W1F 9EE 60
M&C Saatchi World Services LLP** Global & Social Issues United Kingdom OC364842 36 Golden Square, London, W1F 9EE 80
M&C Saatchi WS .ORG Limited** Global & Social Issues United Kingdom 10898282 36 Golden Square, London, W1F 9EE 80
Tricycle Communications Limited** Global & Social Issues United Kingdom 7643884 36 Golden Square, London, W1F 9EE 80
M&C Saatchi Network Limited** + *** Group Central Costs United Kingdom 7844657 36 Golden Square, London, W1F 9EE 100
SaatchInvest Limited** Group Central Costs United Kingdom 7498729 36 Golden Square, London, W1F 9EE 100
M&C Saatchi International Holdings B.V. Local Central Costs United Kingdom 24295679 36 Golden Square, London, W1F 9EE 100
M&C Saatchi European Holdings Limited** Local Central Costs United Kingdom 5982868 36 Golden Square, London, W1F 9EE 96
M&C Saatchi German Holdings Limited** Local Central Costs United Kingdom 6227163 36 Golden Square, London, W1F 9EE 100
M&C Saatchi International Limited** Local Central Costs United Kingdom 3375635 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Middle East Holdco Limited** Local Central Costs United Kingdom 9374189 36 Golden Square, London, W1F 9EE 80
M&C Saatchi WMH Limited** Local Central Costs United Kingdom 3457658 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Worldwide Limited** Local Central Costs United Kingdom 2999983 36 Golden Square, London, W1F 9EE 100
FYND Media Limited** Media & Performance United Kingdom 10104986 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Mobile Limited** Media & Performance United Kingdom 5437661 36 Golden Square, London, W1F 9EE 100
M&C Saatchi Merlin Limited** Sponsorship & Talent United Kingdom 3422630 36 Golden Square, London, W1F 9EE 67
M&C Saatchi Social Limited** + *** Sponsorship & Talent United Kingdom 9110893 36 Golden Square, London, W1F 9EE 73
M&C Saatchi Sport & Entertainment Limited** Sponsorship & Talent United Kingdom 3306364 36 Golden Square, London, W1F 9EE 75
Europe
M&C Saatchi (Switzerland) SA Advertising & CRM Switzerland 660-0442009-4 Boulevard Des Promenades 8, 1227, Carouge, Geneva 76
M&C Saatchi AB Advertising & CRM Sweden 556902-1792 Skeppsbron 16, 11130, Stockholm 70
M&C Saatchi Advertising GmbH Advertising & CRM Germany 95484 Munzstrasse 21-23, 10178, Berlin 78
M&C Saatchi Digital GmbH Advertising & CRM Germany 137809 Munzstrasse 21-23, 10178, Berlin 95
M&C Saatchi Go! AB Advertising & CRM Sweden 559076-6076 Skeppsbron 16, 11130, Stockholm 70
M&C Saatchi Little Stories SAS* Advertising & CRM France 449386944 32 Rue Notre Dame Des Victoires, 75002 Paris 26
M&C Saatchi PR AB Advertising & CRM Sweden 559103-4201 Skeppsbron 16, 11130, Stockholm 70
M&C Saatchi PR Srl Advertising & CRM Italy IT08977250961 V.Le Monte Nero 76, Milano, 20135 100
M&C Saatchi SpA Advertising & CRM Italy IT07039280966 V.Le Monte Nero 76, Milano, 20135 100
Clear Deutschland GmbH Brand & Experience Germany 113523 C/O Wework, Taunusanlage 8, 60329, Frankfurt Am Main 51
M&C Saatchi Sport & Entertainment Benelux BV Sponsorship & Talent Netherlands 860734560 Keizersgracht, 81015cn, Amsterdam 100
M&C Saatchi Sports & Entertainment GmbH Sponsorship & Talent Germany 142905 Munzstrasse 21-23, 10178, Berlin 93
Middle East and Africa
Black & White Customer Strategy (Pty) Ltd Advertising & CRM South Africa 211/005859/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
Creative Spark Interactive (Pty) Ltd*** Advertising & CRM South Africa 2010/016508/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
Dalmatian Communications (Pty) Ltd*** Advertising & CRM South Africa 2015/396439/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
M&C Saatchi Abel (Pty) Ltd Advertising & CRM South Africa 2009/022172/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
M&C Saatchi Africa (Pty) Ltd*** Advertising & CRM South Africa 2013/037719 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
M&C Saatchi FZ LLC Advertising & CRM United Arab Emirates 177 PO Box: 77932, Abu Dhabi 80
M&C Saatchi Middle East FZ LLC Advertising & CRM United Arab Emirates 30670 M&C Saatchi, Penthouse, Building 1, Twofour54, PO Box 77932, Abu Dhabi 80
M&C Saatchi SAL* Advertising & CRM Lebanon 1010949 Quantum Tower, Charles Malek Avenue, St Nicolas, Beirut 10
Razor Media (Pty) Ltd Advertising & CRM South Africa 2017/177757/07 9 8(th) Street, Houghton, Johannesburg, Gauteng, 2198 49
M&C Saatchi Bahrain WLL Dormant Bahrain 74157 Venture Capital House 6(th) Floor, PO Box 11409, Manama 90
M&C Saatchi Connect (Pty) Ltd*** Media & Performance South Africa 2013/037737/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, 50
Cape Town
Levergy Marketing Agency (Pty) Ltd*** Sponsorship & Talent South Africa 2005/021589/07 9 8(th) Street, Houghton, Johannesburg, Gauteng, 2198 58
Asia
Design Factory Sdn Bhd Advertising & CRM Malaysia 201001000000 Unit 10 - 2, 10(th) Floor, Bangunan Malaysian Re, No.17, Lorong Dungun, 100
Damansara Heights, 50490 Kuala Lumpur
February Communications Pvt Ltd* Advertising & CRM India U74999DL2012PTC233245 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049 20
M&C Saatchi Advertising (Shanghai) Ltd Advertising & CRM China 91310000740556813A Room 248, Floor 2, Unit 5, No.11, Wanghang Road, New Lingang Area, Pilot Free 80
Trade Zone
M&C Saatchi Spencer Hong Kong Ltd Advertising & CRM Hong Kong 2661802 1(st) Floor, Catic Plaza, No.8 Causeway Road 70
M&C Saatchi Communications Pvt Ltd Advertising & CRM India U74300DL2005PTC141682 Flat No.270-D, Pocket C Mayur Vihar Phase II, New Delhi, 110091 95
Scarecrow M&C Saatchi Ltd*** Advertising & CRM India U22190MH2008PLC188548 2(nd) Floor, Kamani Chambers 32 Ramjibhai Kamani Marg, Ballard Estate, Mumbai, 51
Mumbai City, 400038
PT. MCS Saatchi Indonesia Advertising & CRM Indonesia 576/1/IU/PMA/2018 Dea Tower 1, Mezzanine Floor, Jl. Mega Kuningan Kav.e4.3 No.1-2, Kuningan 50
Timur, Setiabudi, Jakarta Selatan, 12920
M&C Saatchi Ltd* Advertising & CRM Japan 0110-01-060760 1-26-1 Ebisu-Nishi, Shibuya-Ku, Tokyo 150-0021 10
M&C Saatchi (M) Sdn Bhd Advertising & CRM Malaysia 606116-D No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah 49
Alam, Selangor
M&C Saatchi Source (M) SDN BHD Advertising & CRM Malaysia 1313653-D No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah 49
Alam, Selangor
Watermelon Productions Sdn Bhd Advertising & CRM Malaysia 1083441 -M No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah 49
Alam, Selangor
M&C Saatchi World Services Pakistan (Pvt) Ltd Advertising & CRM Pakistan 81911 2(nd) Floor, Mir Square, Civic Center, G-6 Markaz, Islamabad, Islamabad 41
Capital Territory
M&C Saatchi (S) Pte Ltd Advertising & CRM Singapore 199504816C 59 Mohamed Sultan Road, #02-08, Sultan-Link 100
Love Frankie Ltd* Advertising & CRM Thailand 105557000000 571 Rsu Tower, 10(th) Floor, Soi Sukhumvit 31, Sukhumvit Road, Wattana 20
District, Bangkok
Clear Ideas (Singapore) Pte Ltd Brand & Experience Singapore 201020335R 59 Mohamed Sultan Road, #02-08, Sultan-Link 86
Clear Asia Ltd Dormant Hong Kong 1289028 6(th) Floor, Alexandra House, 18 Chater Road, Central 95
Re HK Ltd Dormant Hong Kong 2699219 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 100
M&C Saatchi World Services (Singapore) Pte Ltd Global & Social Issues Singapore 202104508W 59 Mohamed Sultan Road, #02-08, Sultan-Link 80
M&C Saatchi (Hong Kong) Ltd Local Central Costs Hong Kong 509500 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 80
M&C Saatchi Asia Ltd Local Central Costs Hong Kong 1959819 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 100
M&C Saatchi Holdings Asia Pte Ltd Local Central Costs Singapore 20172 5519K 1 Coleman Street, #05-06a, The Adelphi, 179803 50
M&C Saatchi Mobile India LLP Media & Performance India AAK-8869 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049 100
M&C Saatchi Mobile Asia Pacific Pte Ltd Media & Performance Singapore 201410399M 59 Mohamed Sultan Road, #02-08, Sultan-Link 100
Australia
1440 Agency Pty Ltd Advertising & CRM Australia 100 473 363 99 Macquarie Street, Sydney, NSW 2000 90
Bellwether Global Pty Ltd Advertising & CRM Australia 114 615 226 99 Macquarie Street, Sydney, NSW 2000 90
Brands In Space Pty Ltd Advertising & CRM Australia 129 800 639 99 Macquarie Street, Sydney, NSW 2000 90
Elastic Productions Pty Ltd Advertising & CRM Australia 635 737 861 99 Macquarie Street, Sydney, NSW 2000 90
Go Studios Pty Ltd Advertising & CRM Australia 092 941 878 99 Macquarie Street, Sydney, NSW 2000 90
Greenhouse Australia Pty Ltd Advertising & CRM Australia 629 584 121 99 Macquarie Street, Sydney, NSW 2000 72
Hidden Characters Pty Ltd Advertising & CRM Australia 108 886 291 99 Macquarie Street, Sydney, NSW 2000 86
House Key Productions Pty Ltd Advertising & CRM Australia 634 729 374 99 Macquarie Street, Sydney, NSW 2000 90
LIDA Australia Pty Ltd Advertising & CRM Australia 125 908 009 99 Macquarie Street, Sydney, NSW 2000 90
M&C Saatchi Direct Pty Ltd Advertising & CRM Australia 072 221 811 99 Macquarie Street, Sydney, NSW 2000 90
M&C Saatchi Melbourne Pty Ltd Advertising & CRM Australia 004 777 379 99 Macquarie Street, Sydney, NSW 2000 90
M&C Saatchi Sydney Pty Ltd Advertising & CRM Australia 637 963 323 99 Macquarie Street, Sydney, NSW 2000 90
Park Avenue PR Pty Ltd Advertising & CRM Australia 604 298 071 99 Macquarie Street, Sydney, NSW 2000 90
Resolution Design Pty Ltd Advertising & CRM Australia 621 985 288 99 Macquarie Street, Sydney, NSW 2000 77
Saatchi Ventures Pty Ltd Advertising & CRM Australia 614 007 957 99 Macquarie Street, Sydney, NSW 2000 54
The Source Insight Australia Pty Ltd Advertising & CRM Australia 618 841 928 99 Macquarie Street, Sydney, NSW 2000 59
This Film Studio Pty Limited Advertising & CRM Australia 624 003 541 99 Macquarie Street, Sydney, NSW 2000 63
Tricky Jigsaw Pty Limited Advertising & CRM Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000 88
Ugly Sydney Pty Limited Advertising & CRM Australia 618 242 710 99 Macquarie Street, Sydney, NSW 2000 68
Re Team Pty Limited Brand & Experience Australia 105 887 321 99 Macquarie Street, Sydney, NSW 2000 79
Yes Agency Pty Limited Brand & Experience Australia 621 425 143 99 Macquarie Street, Sydney, NSW 2000 79
eMCSaatchi Pty Limited Dormant Australia 089 856 093 99 Macquarie Street, Sydney, NSW 2000 90
World Services (Australia) Pty Limited Global & Social Issues Australia 629 191 420 C/O Walker Wayland Services Pty Limited, Suite 11.01, Leve 11, 60 Castlereagh 80
St, Sydney NSW
M&C Saatchi Agency Pty Limited Local Central Costs Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000 90
M&C Saatchi Asia Pac Holdings Pty Limited Local Central Costs Australia 097 299 020 99 Macquarie Street, Sydney, NSW 2000 100
Bohemia Group Pty Limited Media & Performance Australia 154 100 562 99 Macquarie Street, Sydney, NSW 2000 67
M&C Saatchi Sport & Entertainment Pty Limited Sponsorship & Talent Australia 139 568 102 99 Macquarie Street, Sydney, NSW 2000 90
Americas
Agência Digital Zeroacem Ltda Advertising & CRM Brazil NIRE-3522979148 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 46
CSZ Comunicação Ltda Advertising & CRM Brazil 03.910.644/0001-05 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 50
Lily Participações Ltda Advertising & CRM Brazil 21.188.539/0001-96 Avenida Brigadeiro Faria Lima, 1355, Jardim Paulistano 16 Andar, Sal, Sao 100
Paulo, 01452-919
M&C Saatchi Brasil Participações Ltda Advertising & CRM Brazil 10.570.593/0001-85 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 100
M&C Saatchi, S.A. DE. C.V Advertising & CRM Mexico N-2017052183 Darwin 74, Piso 1, Miguel Hidalgo, 11590 Ciudad de México, CDMX, Mexico 60
Majority LLC Advertising & CRM USA 5445173 874 Walker Rd Ste C, Dover, Kent, 19904 92
Santa Clara Participações Ltda Advertising & CRM Brazil 09.349.720/0001-31 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 50
Shepardson Stern + Kaminsky LLP Advertising & CRM USA 4656653 80 State Street, Albany, 12207-2543, New York 100
Clear USA LLC Brand & Experience USA 20-8599548 138 West 25(th) Street, Floor 5, New York, Ny 10001 95
LIDA NY LLP (MCD) Brand & Experience USA 4902983 138 West 25(th) Street, Floor 5, New York, NY 10001 76
Clear LA LLC Dormant USA 6241713 2711 Centerville Road, Suite 400, Wilmington, De 19808 95
Clear NY LLP Dormant USA 30-0891764 1209 Orange Street Wilmington De 19801 95
LIDA USA LLP Dormant USA 6333479 251 Little Falls Drive, Wilmington, New Castle, 19808, Delaware 100
M&C Saatchi NY LLP Dormant USA 45-4683918 874 Walker Rd Ste C, Dover, Kent, 19904 90
M&C Saatchi PR LLP Dormant USA 27-1665526 1740 Broadway, New York, 10019 100
M&C Saatchi Share Inc. Dormant USA 5580330 160 Greentree Dr Ste 101, Dover, Kent, De, 19904 80
World Services US Inc. (California) Global & Social Issues USA C2543767 2032 Broadway, Santa Monica Ca, 90404 100
World Services US Inc. (New York) Global & Social Issues USA 90-0851801 1740 Broadway, New York, 10019 100
M&C Saatchi Agency Inc. Local Central Costs USA 13-3839670 304 East 45(th) Street, New York, New York, 10017 100
M&C Saatchi Mobile LLC Media & Performance USA 45-3638296 2032 Broadway, Santa Monica Ca, 90404 100
M&C Saatchi Sport & Entertainment LA LLC Sponsorship & Talent USA 6369786 874 Walker Rd Ste C, Dover, Kent, 19904 65
M&C Saatchi Sport & Entertainment NY LLP Sponsorship & Talent USA 46-5182795 160 Greentree Dr Ste 101, Dover, Kent, De, 19904 70
Within the above list the following companies are associates: Love Frankie
Limited, M&C Saatchi Limited (Japan), February Communications Private
Limited, M&C Saatchi Little Stories SAS and M&C Saatchi SAL. The Group
has a 49% effective shareholding in Razor Media (Pty) Limited but retains
control so the company is treated as a subsidiary.
32. Related party transactions
Key management remuneration
Key management remuneration is disclosed in Note 5.
Audited detail on Directors' remuneration is disclosed in the Directors'
remuneration report.
Other related parties
During the year, the Group made purchases of £418k (2020: £1,534k) from its
associates. At 31 December 2021, there was £35k due to associates in respect
of these transactions (2020: £118k). During the year, £420k (2020: £574k)
of fees were charged by Group companies to associates. At 31 December 2021,
associates owed Group companies £123k (2020: £837k).
33. Commitments
With the introduction of IFRS 16 Leases in 2019, all of the Group's
commitments are shown on the balance sheet except for those below:
Leases
There has been one lease entered into, post balance sheet, in Indonesia, which
commenced on 1 February 2022 for three years, terminating on 31 October 2025.
The annual cash payments for this space are IDR972.8m (£0.05m).
Capital commitments
At the year-end we had £nil committed costs (2020: £677k) to acquire
property plant and equipment.
Other commitments
Other than our normal contractual commitments to employees and the commitment
to complete profitable projects for our clients, the Group does not have any
other material commitments which are not reflected on the balance sheet.
34. Post-balance sheet events
As announced on 6 January 2022, the Company has received a preliminary
approach from AdvancedAdvT Limited, a vehicle connected with Vin Murria. The
Company has facilitated access to provide AdvancedAdvT Limited with the
opportunity to make a formal offer to the Company's shareholders, but to date
no offer has been received.
On 18 January 2022, the Chief Financial Officer, Mickey Kalifa, notified the
Board of his resignation from his executive role of Chief Financial Officer.
On 19 January 2022, as a result of the exercise of two put option
arrangements, the Group acquired a 49% holding in Cometis SARL, a French
company.
On 21 January 2022, the Company reported that the Financial Conduct Authority
had notified the Company that its investigation of the Company was being
closed and that no enforcement action would be taken by it against the
Company.
In February 2022, the Group launched two new businesses, a digital innovation
consultancy, Thread, and a specialist sustainability consultancy, M&C
Saatchi LIFE.
The Directors are not aware of any other events since the end of the financial
year that have had, or may have, a significant impact on the Group's
operations, the results of those operations, or the state of affairs of the
Group in future years.
35. Other accounting policies
Reserves
Equity comprises the following:
Share capital
Represents the nominal value of equity shares in issue.
Share premium
Represents the excess over nominal value of the fair value of consideration
received for equity shares, net of issuance costs.
Other reserves
Merger reserve
Represents the premium paid for shares above the nominal value of share
capital, caused by the acquisition of more than 90% of a subsidiaries' shares.
The merger reserve is released to retained earnings when there is a disposal,
impairment charge or amortisation charge posted in respect of the investment
that created it.
Treasury reserve
Represents the amount paid to acquire our own shares for future use.
Minority interest put option reserve
Represents the initial fair value of the IFRS 9 put option liabilities at
creation. When the put option is exercised, the related amount in this reserve
is taken to the non-controlling interest acquired reserve.
Non-controlling interest acquired reserve
From 1 January 2010, a non-controlling interest acquired reserve has been used
when the Group acquires an increased stake in a subsidiary. It represents
either a) the minority interest put option reserve transferred less the book
value of the minority interest acquired (where the acquisition is due to an
IFRS 9 put option), or b) the consideration paid less the book value of the
minority interest acquired. If the equity stake in the subsidiary is
subsequently sold, impaired or disposed of, then the related balance from this
reserve will be transferred to retained earnings.
Foreign exchange reserve
For overseas operations, income statement results are translated at the annual
average rate of exchange and balance sheets are translated at the closing rate
of exchange. The annual average rate of exchange approximates to the rate on
the date that the transactions occurred. Exchange differences arising from the
translation of foreign subsidiaries are taken to this reserve. Such
translation differences will be recognised as income or expense in the period
in which the operation is disposed of.
Retained earnings
Represents the cumulative gains and losses recognised in the income statement.
36. New and revised standards issued but not yet effective
In the current year, the following standard and interpretation became
effective:
· Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16).
We do not believe that the Interest Rate Benchmark Reform has had a material
difference on the Group's accounts.
At the date of authorisation of these consolidated financial statements, the
Group has not applied the following new and revised IFRS Standards that have
been issued but are not yet effective:
Amendments to IFRS 17 Changes to international insurance accounting
Applying IFRS 9 "Financial Instruments" with IFRS 4 'Insurance Contracts' IFRS Insurance
(Amendments to IFRS 4)
Reference to the Conceptual Framework Amendments to IFRS 3
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) Application of consistency
Property, Plant and Equipment - proceeds before intended use (Amendments to Recognition criteria
IAS 16)
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Application of materiality
Statement 2)
Annual Improvements 2018 - 2020 Cycle Impacts IFRS 1, IFRS 9, IFRS 16 and IAS 41
Extension of the temporary exemption from applying IFRS 9 (Amendments to IFRS Fixed expiry date variation
4)
Deferred Tax - Amendments to IAS 12 Income Taxes Recognising deferred tax on leases
Onerous Contracts - (Amendments to IAS 37) Cost of fulfilling a contract
Definition of Accounting Estimate (Amendments to IAS 8) Distinguishing between accounting policies and estimates
Initial Application of IFRS 17 and IFRS 9 - comparative information Presentational around comparative information
(Amendments to IFRS 17)
The Directors do not expect that the adoption of the standards listed above
will have a material impact on the consolidated financial statements of the
Group in future periods.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR FIFIISSIAFIFRecent news on M&C Saatchi
See all newsREG - M&C Saatchi PLC - Director/PDMR Shareholding
AnnouncementREG - M&C Saatchi PLC - Acquisition
AnnouncementREG - M&C Saatchi PLC - Director/PDMR Shareholding
AnnouncementREG - M&C Saatchi PLC - Result of AGM
AnnouncementREG - M&C Saatchi PLC - AGM Trading Update
Announcement