REG - M&C Saatchi PLC - Audited Results Full Year 2022
18/04/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230418:nRSR5044Wa&default-theme=true
RNS Number : 5044W M&C Saatchi PLC 18 April 2023
M&C SAATCHI PLC
(the "Company" or "M&C Saatchi")
Audited Results for the Year Ended 31 December 2022
The Company today announces its audited results for the year ended 31 December
2022. The Company has delivered another year of record results with its
highest ever net revenue, Headline operating profit, Headline profit before
tax and Headline earnings.
Highlights
· Record 2022 net revenue of £271.1m, growth of 8.7% versus 2021.
· Record 2022 Headline profit before tax of £31.8m (2021: £27.3m).
· Results underpinned by strong growth in the Issues, Consulting and Passions
specialisms, and central cost savings.
· 2022 Statutory profit before tax of £5.4m (2021: £21.6m), adversely affected
predominantly by £10.8m of one-off defence costs relating to the failed
takeover bids for the Company.
· 2022 Headline operating profit margin improved to 13.1% (2021: 12.5%).
· Strong net operating cashflow generation of £42.2m, with cash conversion of
99%.
· Net cash of £30.0m (2021: £34.4m) after paying for put options and one-off
defence costs relating to the takeover bids. Borrowings reduced to £7m (2021:
£20m).
· Reinstated dividend payments with a recommended final dividend of 1.5 pence
per share.
· New wins include: Diageo, Tinder, LVMH, PepsiCo, UK Covid-19 Inquiry account
and Australia Retirement Trust and being appointed to the Emirates Airline,
Samsung, and Volkswagen global rosters.
· Good momentum in recently launched consultancies in the sustainability, data
analytics and digital innovation sectors.
· Completed Phase 1 of a global efficiency programme with material cost savings
identified.
· Planet commitments launched, targets validated by Science Based Targets
initiative.
Financial results for the year ended 31 December 2022
Headline * Statutory
£m 2022 2021 Movement 2022 2021 Movement
Billings** 597.5 533.4 12.0% - - -
Revenue 462.5 394.6 17.2% 462.5 394.6 17.2%
Net revenue** 271.1 249.3 8.7% - - -
EBITDA** 45.2 40.8 10.8% - - -
Operating profit 35.4 31.1 13.8% 10.5 27.3 -61.5%
Profit before taxation 31.8 27.3 16.5% 5.4 21.6 -75.0%
Profit for the year 24.0 20.0 20.5% 0.2 13.2 -98.5%
Earnings*** 18.1 13.7 32.8% 0.1 12.8 -99.2%
Earnings per share 14.9p 11.3p 31.9% 0.1p 10.5p -99.3%
Tax rate 24.5% 26.6% -2.1pts 95.5% 39.1% +56.4pts
* Headline results represent the underlying trading profitability of the group
and exclude:
• 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.
Although our peers may use these same terms, they are not necessarily
calculated on the same basis. However, as measures of Headline performance,
they have been included to better assess the underlying performance of the
business and to enable better comparability both across the industry and when
comparing year-on-year results.
** Billings, 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 Company expects Headline profit before tax for 2023 to be in line with
market expectations of £36.5m-£38.0m, representing a 15-19% increase on the
record profits of 2022.
Along with the wider market, we have seen some impact in the year to date from
the headwinds in the technology sector, particularly in our Media specialism.
However, we continue to see the benefit of our diverse range of businesses
with strong pipelines in the Consulting, Issues and Passions specialisms,
which gives us confidence for the remainder of the year. In addition, the cost
efficiency programme is expected to deliver savings in the second half of
2023. Consequently, profit will be more weighted to the second half of 2023,
than in 2022.
Commenting on the 2022 performance and outlook, Moray MacLennan, Chief
Executive Officer said:
"Another year of record results, in a year not without challenges. Through a
relentless focus on developing core capabilities both within and beyond
advertising, alongside careful cost management, we have delivered high-margin
and high-revenue growth and are pleased to reinstate dividend payments.
We approach 2023 with guarded optimism. Whilst macroeconomic uncertainties
will require careful navigation and management, we have a clear roadmap in
place and look forward to building on our solid foundations for profitable
growth."
For further information please call:
M&C Saatchi plc +44 (0)20-7543-4500
Gareth Davis, Chairman
Moray MacLennan, Chief Executive Officer
Numis Securities +44 (0)20-7260-1000
Nick Westlake, Iqra Amin
Liberum +44 (0)20-3100-2000
Max Jones, Tim Medak, Mark Harrison, Benjamin Cryer, Will King
Brunswick +44 (0)207-404-5959
Andrew Porter, Sumeet Desai, Kate Pope
Chief Executive Statement
2022 was another record year. Unexpected events were met with remarkable
resilience and remarkable profitability. Growth was achieved in spite of
obstacles.
In 2020 we stabilised the Company and laid the foundations for future success.
In 2021 we gained momentum. In 2022 our record net revenue, Headline operating
profit, Headline profit before tax and Headline earnings demonstrated the
extent of the turnaround.
Targets were set at the Capital Markets Day in 2021, and all of our 2022
targets were surpassed. Between 2020 and 2022 we delivered net revenue CAGR of
10%, Headline operating profit CAGR of 71% and an operating margin improvement
from 5% to 13%. As a result, at the Capital Markets Day in February 2023,
the Company set out new five-year growth targets to 2027.
This performance is due to our people. They deliver the award-winning work and
the revenue day-in, day-out.
On new business, we were appointed to the Emirates Airline, Samsung and
Volkswagen global rosters. We won the UK Covid-19 Inquiry account, Australia
Retirement Trust, a new global assignment from Diageo, and Vattenfall, one of
the world's leading sustainable energy companies.
New client offers were launched in four areas: data analytics, sustainability,
digital innovation and B2B SaaS.
We completed the first phase of our global efficiency programme which will
result in further simplification of our operating model globally and start
delivering cost savings in the second half of 2023.
And all of this with a successful defence against the two failed takeover
bids.
Strategy
At our Capital Markets Day this year, we announced our ambition to be the
world's leading creative solutions company, of specialist expertise, connected
through data and tech, to deliver meaningful change.
Our strategy will focus on high-margin organic growth, improved efficiency,
further simplification and M&A.
This includes investment in key capabilities, focusing on data, digital
transformation and CX, across our high-margin businesses, increased
productisation within all specialisms, expansion into geographic growth
markets, and development of a new media proposition.
We initiated a global efficiency programme in the last quarter of 2022, with
cost savings and margin improvements expected to be delivered from the second
half of 2023, and on an ongoing basis thereafter.
The focus on simplification also involves streamlining the operating model and
reducing both legal and operating entities in 2023 and 2024.
We will pursue selective bolt-on M&A opportunities to further strengthen
our market proposition.
Specialism performance
The business operates through five connected specialisms. Today, 75% of our
operating profit and over half of our revenue come from specialisms other than
Advertising. We are no longer just an advertising agency, we are much more
than that, we are a creative solutions company. Specialist expertise in
disciplines you may expect, such as performance media, PR and data analytics.
But also in some that you may not, such as: influencer management, eSports
marketing and behaviour change. This specialist expertise connects, through
data and technology, to deliver meaningful, commercial and societal change.
2022 People and Planet
A global employee engagement survey, The Loop, was launched and initial
results were encouraging with high, positive engagement. A Global Head of
Diversity, Equity and Inclusion ("DE&I") was hired to support and drive
the DE&I strategy. Employee-led networks were expanded globally to support
protected groups, including: gender, ethnicity, LGBTQ+, and family.
Planet commitments were published to halve greenhouse gas emissions across the
Company's own operations and its value chain by 2030, validated by the Science
Based Targets initiative. Commitment has been made to improving the positive
impact of our work, and grow the percentage of revenue from planet-positive
campaigns.
Outlook
Whilst there are clear and obvious headwinds affecting society, business in
general and our sector, we have a clear roadmap for the next stage of our
transformation journey.
We are well placed and remain confident that further progress will be made in
the current year, and that we will continue to accelerate change and deliver
profitable growth.
For the first time, in a long time, we have a clear runway ahead of us.
2022 Financial Review
Financial performance
The Group manages its financial performance through a number of key
performance measures, which are stated below.
· Net revenue of £271.1m, up 8.7% from £249.3m; like-for-like growth of 4.3%.
· Headline operating profit margin of 13.1%, up from 12.5%.
· Headline profit before tax of £31.8m, the highest ever for the Group, up from
£27.3m.
· Statutory profit before tax of £5.4m, down from £21.6m.
· Headline earnings per share of 14.8p, up from 11.3p.
· Statutory earnings per share of 0.1p, down from 10.5p.
· Net cash of £30.0m, down from £34.4m.
· Drawdown on the Company's revolving multicurrency credit facility of £7.0m,
reduced from £20.0m.
Headline
Statutory
£m 2022 2021 Movement 2022 2021 Movement
Billings* 597.5 533.4 12.0% - - -
Revenue 462.5 394.6 17.2% 462.5 394.6 17.2%
Net revenue* 271.1 249.3 8.7% - - -
EBITDA* 45.2 40.8 10.8% - - -
Operating profit 35.4 31.1 13.8% 10.5 27.3 -61.5%
Profit before taxation 31.8 27.3 16.5% 5.4 21.6 -75.0%
Profit for the year 24.0 20.0 20.5% 0.2 13.2 -98.5%
Earnings** 18.1 13.7 32.8% 0.1 12.8 -99.2%
Earnings per share 14.8p 11.3p 31.7% 0.1p 10.5p -99.3%
Tax rate 24.5% 26.6% -2.1pts 95.5% 39.1% +56.4pts
*Billings, net revenue and EBITDA are excluded from Statutory results, as
these are not IFRS terms. Although our peers may use these same terms, they
are not necessarily calculated on the same basis. However, as measures of
Headline performance they have been included to better assess the underlying
performance of the business and to enable better comparability both across the
industry and when comparing year-on-year results.
**Earnings are calculated after deducting share of profits attributable to
non-controlling interests.
Headline results
The Headline results are alternative performance measures that the Board
considers the most appropriate basis to assess the underlying performance of
the business, monitor its results on a month-to-month basis, enable comparison
with industry peers and measure like-for-like, year-on-year performance.
Group Headline operating profit was £35.4m, increasing from £31.1m in 2021.
The Group reported a Statutory operating profit of £10.5m, down from £27.3m
in 2021, due to defence advisory costs and other non-trading items.
The Group's Headline profit improvement compared to 2021 was driven largely by strong performance in the Issues and Passions specialisms and by central cost savings. Despite reduced revenue in Advertising, an improvement in the operating profit margin resulted in increased absolute profit in this specialism.
The Group Headline operating profit margin increased to 13.1% from 12.5% in
2021. This represents continued progress towards the Group's operating profit
margin target of 18% by 2027 announced at the Capital Markets Day in February
2023.
The key movements between Statutory to Headline results
Year ended Year ended
31 December 2022 31 December 2021
£000 £000
Statutory profit before taxation 5,423 21,632
Separately disclosed items 13,352 (3,783)
Dividends paid to IFRS 2 put option holders 7,811 5,270
Put option accounting - IFRS 9 and IFRS 2 2,233 2,121
Movement of FVTPL investments under IFRS 9 1,587 (2,510)
Amortisation of acquired intangibles 597 965
Impairment of non-current assets 564 2,770
Revaluation of contingent consideration 266 532
Loss on disposal of subsidiaries and associates - 83
Revaluation of associates on transition to subsidiaries - 234
Headline profit before taxation 31,833 27,314
The larger items causing the movement between Statutory and Headline results
for 2022 are explained below and further details are provided in Notes 1 and 2
of the financial statements.
Separately disclosed items
During 2022, £10.8m of costs were incurred as the Company was subject to two competing bids to take control and full ownership of the business. Managing the Company's response to these two takeover bids resulted in a number of one-off external advisory and additional internal management costs. In addition, we commenced a global efficiency programme which incurred one-off professional fees of £1.0m, and we restructured and closed a number of businesses with costs of £1.8m. Last year's credit of £3.8m arose 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, partially offset by lease surrender expenses and the cost arising from the repayment of £1.0m of furlough money to the UK government.
Dividends paid to IFRS 2 put option holders
Local management in some of the Group's subsidiaries own minority
shareholdings in those subsidiaries. As shareholders, they also have rights to
receive dividends, and, as they are employees of those subsidiaries, these are
recognised as staff costs.
FVTPL investments under IFRS 9 - financial assets at fair value through profit and loss
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. Market weakness in the technology sector made
fundraising and trading more difficult for them in 2022, resulting in an
impairment of £2.9m and downwards revaluations of £2.7m. However, this was
partially offset by upwards revaluations of £3.0m and profit on disposal of
£1.2m.
Put option accounting - IFRS 9 and IFRS 2
These charges relate to the revaluations of the put option liabilities (both
IFRS 2 and IFRS 9) during the year.
Amortisation of acquired intangibles
Acquired intangibles relate to brand names and customer relationships. Refer
to Note 14 of the financial statements for details.
Impairment of non-current assets
In 2022, the Group recorded an impairment charge of £0.6m, which primarily
relates to the write-off of goodwill in M&C Saatchi (Hong Kong) Limited
and Scarecrow Communications Limited. The 2021 charge mainly consisted of a
£1.9m goodwill write-off in Santa Clara Participações Ltda, along with
smaller intangible write-offs.
Net revenue performance by specialism
Group net revenue increased 8.7% in 2022 (4.3% on a like-for-like basis). A
like-for-like basis applies constant foreign exchange rates and removes
entities disposed of or acquired during 2021, since there were no disposals or
acquisitions during 2022; it also adjusts for any reclassification of entities
between the specialisms. The Passions and Issues specialisms saw the largest
like-for-like net revenue growth of all specialisms in 2022.
Net revenue by Reported Like-for-Like
Specialism 2022 Growth 2022 Growth
£m versus 2021 £m v
e
r
s
u
s
2
0
2
1
Advertising 124.3 (2.3)% 118.1 (4.0)%
Media 34.2 4.2% 34.2 (1.5)%
Issues 42.2 24.4% 41.4 22.0%
Consulting 37.0 19.6% 37.0 7.7%
Passions 33.4 36.7% 33.4 22.6%
Group 271.1 8.7% 264.1 4.3%
Advertising remains the largest specialism, comprising 46% of total net
revenue (2021: 51%) on a reported basis. However, the other four specialisms
have increased their share of total net revenue to 54% (2020: 49%). This shift
away from Advertising continues to support operating profit growth, as these
other specialisms have an average operating profit margin of 24% compared to
Advertising with an operating profit margin of 9%. There has been a marked
shift in revenue between the different specialisms over recent years as shown
by the table below:
Reported net revenue Advertising Media Issues Consulting Passions Total
2022 46% 13% 15% 14% 12% 100%
2021 51% 13% 14% 12% 10% 100%
2020 61% 10% 13% 8% 8% 100%
2019 64% 11% 10% 7% 8% 100%
Net revenue performance by region
At a regional level, 2022 saw a reduction in Australia's reported revenue, due
to the loss of two major clients. The largest regional increase was in the
Americas with a 33% increase in reported revenue but the Middle East and
Africa, and Asia also grew significantly.
Net revenue by Reported Like-for-Like
Region 2022 Growth 2022 Growth
£m versus 2021 £m versus 2021
UK 98.2 3.3% 98.2 3.3%
Europe 15.3 0.7% 15.3 (1.1)%
Middle East and Africa 23.4 15.6% 23.4 11.7%
Asia 26.1 12.1% 22.1 10.3%
Australia 52.9 (2.1)% 52.9 (5.4)%
Americas 55.2 33.1% 52.2 13.9%
Group 271.1 8.7% 264.1 4.3%
The UK remains the largest region in the Group comprising 36% of total net
revenue (2021: 39%) on a reported revenue basis. The recent shifts in share of
revenue by region can be seen in the table below:
Reported net revenue UK Europe* Middle East and Africa Asia* Australia Americas* Total
2022 36% 6% 9% 10% 19% 20% 100%
2021 39% 6% 8% 8% 22% 17% 100%
2020 39% 13% 7% 5% 21% 15% 100%
2019 40% 12% 7% 5% 20% 16% 100%
*Includes material acquisitions or disposals during this period. The
businesses in France and Spain (Europe) were disposed of and the businesses in
China and Pakistan (Asia) and Brazil (Americas) were acquired.
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 £1.2m (2021: £1.6m). Higher interest
rates on the Company's revolving multicurrency credit facility agreement were
offset by optimal allocation of cash around the Group, which reduced the
drawdown on the Facility.
The interest on leases increased to £3.0m (2021: £2.8m) due to the full-year
impact of leases entered into in 2021.
The fair value adjustment of put option liabilities created a charge of £1.1m
(2021: charge of £0.9m). This increase is due to increased profitability in
the agencies where there are outstanding put option arrangements.
Tax
Headline Tax
Our Headline tax rate has reduced marginally from 26.6% to 24.5%. The
reduction is due to the use of prior years' tax losses (caused in part by the
Covid-19 pandemic) to offset current profitability and an increase in profits
from countries with lower tax rates, partly offset by increased expenditure on
disallowable costs.
Statutory Tax
The Statutory tax rate increased from 39.1% in 2021 to 95.5% in 2022. In
general, we expect large variations in Statutory tax rates. This is because
items such as share-based payments (option charges) and put options arising
from investments in subsidiaries are non-deductible against corporation tax,
due to their being capital in nature. In 2022, two parties tried to acquire
the Company and a proportion of the defence costs was disallowable due to
their being capital in nature. This increased our non-deductible expenses.
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 2022, the share of profits attributable to non-controlling interests reduced to £5.9m (2021: £6.4m) and minority interests reduced to 25% of profit after tax (2021: 32%). This reflects a reduction during the year in the minority interest shareholdings in several Group entities, as a result of the settlement of put options, to the value of £12.1m.
On a Statutory basis, non-controlling interests excludes any minority
interests which relate to IFRS 2 put option holders (holders of put options
that are contingent on being employed by the relevant company), whose share of
the entity's Statutory profit is paid as dividends each year, and are reported
as staff costs in the Statutory results.
Dividends
The Board believes that the Group has significant growth potential.
Accordingly, the Board believes that the Group would be best served, and this
potential realised, from investing annual profits back into the business and
into new growth initiatives.
However, the Board recognises the importance of dividends within the Company's
capital allocation policy, alongside the settlement of put options and
investment in growth initiatives. The Board has therefore decided to resume
payment of dividends in 2023 and intends to adopt a progressive dividend
policy in future, targeting a payout ratio of 25% in the medium term.
The Company did not pay a dividend to its shareholders in 2022 (2021: nil).
But given the financial performance during the year, the Board is recommending
the payment of a final dividend of 1.5 pence per share.
Subject to shareholder approval at the Annual General Meeting, to be held on
14 June 2023, the dividend will be paid on 12 July 2023 to shareholders on the
register of members at 9 June 2023. The shares will go ex-dividend on 8 June
2023.
Cash flow and banking arrangements
Total gross cash (excluding bank overdrafts) at 31 December 2022 was £41.5m
(2021: £69.4m). Cash net of bank borrowings was £30.0m, compared to £34.4m
in 2021.
In 2022, the Group generated operating cash from trading (before working
capital) of £43.0m, before the costs associated with the takeover defence
(£10.8m) and before dividends and allocations paid to IFRS 2 put option
holders (£7.8m). There was a £4.8m net inflow from working capital (2021:
£15.2m outflow), driven mainly by a focus on billing more quickly and
collecting more promptly. This was offset by £10.3m of lease payments (2021:
£9.0m) and £12.1m of payments to acquire non-controlling interests (2021:
£5.3m). In addition, £5.6m of tangible and intangible fixed assets were
purchased in 2022 (compared to £2.6m in 2021), primarily due to investment in
the new office in Sydney, Australia.
Net operating cashflow (operating cash from trading, net of working capital,
purchases of intangible/tangible fixed assets, and the principal payment on
leases) for the year was £34.9m, which represents a cash conversion from
Headline operating profit of 99%.
The following table sets out the key movements in net cash during 2022:
Movement in net cash during 2022 £m
Net cash at the beginning of the year 34.4
Increase in cash from trading 43.0
Increase in cash from working capital movements 4.8
Net interest paid (0.8)
Purchases of intangible/tangible fixed assets (5.6)
Tax paid (6.7)
Dividends and allocations paid to IFRS 2 put option holders (7.8)
Payment of lease liabilities (10.3)
Costs associated with the takeover defence (10.8)
Cash consideration for non-controlling interest acquired (12.1)
Other movements 1.9
Net cash at the end of the year 30.0
The Company has a revolving multicurrency credit facility agreement with
National Westminster Bank Plc and Barclays Bank PLC for up to £47.0m (the
"Facility") which terminates on 21 May 2024, with an option to extend for an
additional year. The Facility includes a £2.5m overdraft and the ability to
draw up to £3.0m as a bonding facility as required. 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 2022, £7.0m was drawn on the Facility compared to £20.0m at
31 December 2021.
Capital expenditure
Total capital expenditure in 2022 (including software acquired) increased to
£5.6m (2021: £2.6m). This included £1.7m on furniture, fittings and other
equipment (2021: £0.3m), £1.6m (2021: £1.4m) on computer equipment, £1.1m
(2021: £0.1m) on leasehold improvements, and £1.0m (2021: £0.8m) on
software and film rights. The remaining £0.2m (2021: nil) was spent on
acquiring the customer relationships of the Channel Mum influencer network.
Share-based incentive arrangements
The Group operates a business model through which certain members of 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 intend to settle put options in cash rather than
shares when the options fall due, which reduces the risk of substantial share
dilution to shareholders.
The table below presents a range of potential cash payments to settle put
options 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 three-year plans which were developed as part of our budget
cycle.
Potentially payable
Future Share Price of the Company 2023 2024 2025 2026 2027 2028 Total
£000
£000 £000 £000 £000 £000 £000
At 151p* £17,498 £2,470 £373 £2,932 £924 £740 £24,937
At 160p £18,324 £2,609 £401 £2,978 £979 £784 £26,075
At 175p £19,746 £2,841 £448 £3,102 £1,071 £858 £28,066
At 200p £22,323 £3,227 £526 £3,522 £1,224 £981 £31,803
At 225p £24,800 £3,512 £604 £3,941 £1,377 £1,103 £35,337
At 250p £27,226 £3,747 £682 £4,360 £1,530 £1,226 £38,771
At 300p £32,121 £4,217 £838 £5,199 £1,836 £1,471 £45,682
*Share price at 31 December 2022
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 by way of
shares in the Company, then the number of shares in the Company that will be
provided is equal to the liability divided by the Company's share price at the
date of exercise.
Summary
The Company's performance in 2022 was strong, particularly given the
distractions of the potential takeovers. Driven by a 9% increase in revenue
and a further increase in Headline operating profit margin to 13.1% (2021:
12.5%), the Company generated its highest ever net revenue, Headline operating
profit, Headline profit before tax and Headline earnings. The strategy set out
in 2021, and reinforced in 2023, continues to reap rewards and we have a clear
path towards further margin and profit increases.
The Company expects Headline profit before tax for 2023 to be in line with
market expectations of £36.5m-£38.0m, representing a 15-19% increase on the
record profits of 2022.
Along with the wider market, we have seen some impact in the year to date from
the headwinds in the technology sector, particularly in our Media specialism.
However, we continue to see the benefit of our diverse range of businesses
with strong pipelines in the Consulting, Issues and Passions specialisms,
which gives us confidence for the remainder of the year. In addition, the cost
efficiency programme is expected to deliver savings in the second half of
2023. Consequently, profit will be more weighted to the second half of 2023,
than in 2022.
This statement along with the audited consolidated statutory financial
statements is available on our website:
https://www.mcsaatchiplc.com/reports-results/2022
(https://www.mcsaatchiplc.com/reports-results/2022)
Printed copies of the Annual Report are being posted to shareholders who have
requested hard copies.
Consolidated Income Statement
2022 2021
Total Total
Year ended 31 December Note £000 £000
Billings (unaudited) 4 597,520 533,350
Revenue 4 462,533 394,575
Project cost / direct cost (191,393) (145,239)
Net revenue 4 271,140 249,336
Staff costs 5 (198,765) (172,493)
Depreciation 16,17 (9,326) (9,196)
Amortisation 14 (1,060) (1,412)
Impairment charges 14,17 (564) (2,937)
Other operating charges (49,474) (39,573)
Other (losses) / gains 19 (1,403) 3,533
Operating profit 10,548 27,258
Share of results of associates and joint ventures 15 (10) (190)
Gain on disposal of subsidiaries 11 - 42
Impairment of associate investment 15 - (357)
Finance income 7 391 260
Finance expense 7 (5,506) (5,381)
Profit before taxation 5,423 21,632
Taxation 8 (5,178) (8,459)
Profit for the year 245 13,173
Attributable to:
Equity shareholders of the Group 90 12,757
Non-controlling interests 155 416
Profit for the year 245 13,173
Profit per share
Basic (pence) 1 0.07p 10.53p
Diluted (pence) 1 0.07p 9.38p
Headline results
Operating profit 1 35,388 31,136
Profit before taxation 1 31,833 27,314
Profit after tax attributable to equity shareholders of the Group 1 18,105 13,687
Basic earnings per share (pence) 1 14.81p 11.30p
Diluted earnings per share (pence) 1 13.47p 10.06p
EBITDA 45,168 40,821
The following notes form part of these consolidated financial statements.
Consolidated Statement of Other Comprehensive Income
2022 2021
Year ended 31 December £000 £000
Profit for the year 245 13,173
Other comprehensive profit*
Exchange differences on translating foreign operations 4,785 664
Other comprehensive profit for the year net of tax 4,785 664
Total comprehensive profit for the year 5,030 13,837
Total comprehensive profit attributable to:
Equity shareholders of the Group 4,875 13,421
Non-controlling interests 155 416
Total comprehensive profit for the year 5,030 13,837
*All items in the consolidated statement of comprehensive income may be
reclassified to the income statement.
The following notes form part of these consolidated financial statements.
Consolidated Balance Sheet
2022 2021
At 31 December Note £000 £000
Non-current assets
Intangible assets 14 41,968 40,499
Investments in associates and JV 15 191 202
Plant and equipment 16 8,310 6,333
Right-of-use assets 17 43,992 44,397
Other non-current assets 18 1,107 1,211
Deferred tax assets 9 5,131 6,777
Financial assets at fair value through profit or loss 19 11,986 15,183
Deferred and contingent consideration 13 914 -
113,599 114,602
Current assets
Trade and other receivables 20 132,067 132,741
Current tax assets 3,909 247
Cash and cash equivalents 41,492 69,419
177,468 202,407
Current liabilities
Trade and other payables 21 (155,547) (154,049)
Provisions 22 (1,056) (1,193)
Current tax liabilities (481) (837)
Borrowings 23 (4,430) (14,737)
Lease liabilities 17 (6,448) (6,950)
Deferred and contingent consideration 13 - (984)
Minority shareholder put option liabilities 26/27 (18,419) (20,788)
(186,381) (199,538)
Net current (liabilities) / assets (8,913) 2,869
Total assets less current liabilities 104,686 117,471
Non-current liabilities
Deferred tax liabilities 9 (1,245) (777)
Corporation tax liabilities 9 (856) -
Borrowings 23 (6,802) (19,821)
Lease liabilities 17 (49,122) (49,895)
Minority shareholder put option liabilities 26/27 (4,429) (11.572)
Other non-current liabilities 24 (4,046) (2,549)
(66,500) (84,614)
Total net assets 38,186 32,857
2022 2021
At 31 December Note £000 £000
Equity
Share capital 28 1,227 1,227
Share premium 50,327 50,327
Merger reserve 37,554 37,554
Treasury reserve (550) (550)
Minority interest put option reserve (2,896) (6,615)
Non-controlling interest acquired (32,984) (29,190)
Foreign exchange reserve 6,638 1,853
Accumulated losses (21,303) (22,122)
Equity attributable to shareholders of the Group 38,013 32,484
Non-controlling interest 173 373
Total equity 38,186 32,857
Reserves are defined in note 35.
These consolidated financial statements were approved and authorised for issue
by the Board of Directors on 17 April 2023 and signed on its behalf by:
Bruce Marson
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) Sub total Non-controlling interest in equity Total
Note £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
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 12,13,26 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
Share option charge 27 - - - - - - - 1,229 1,229 - 1,229
Amounts paid on settlement of LTIP 27 - - - - - - - (500) (500) - (500)
Exercise of put options 26 - - - - 3,719 (3,794) - - (75) 75 -
Dividends 10 - - - - - - - - - (430) (430)
Total transactions with owners - - - - 3,719 (3,794) - 729 654 (355) 299
Total profit for the year - - - - - - - 90 90 155 245
Total other comprehensive income for the year - - - - - - 4,785 - 4,785 - 4,785
At 31 December 2022 1,227 50,327 37,554 (550) (2,896) (32,984) 6,638 (21,303) 38,013 173 38,186
The following notes form part of these consolidated financial statements.
Consolidated Cash Flow Statement
Year ended 31 December Note 2022 2021
£000 £000
Operating profit 10,548 27,258
Adjustments for:
Depreciation of plant and equipment 16 2,480 2,237
Depreciation of right-of-use assets 17 6,846 6,959
Loss on sale of plant and equipment 165 95
Loss on sale of software intangibles 175 824
Revaluation of financial assets at FVTPL 19 1,403 (3,533)
Revaluation of contingent consideration 13 266 532
Amortisation of acquired intangible assets 14 597 965
Impairment of goodwill and other intangibles 14 556 1,900
Impairment and amortisation of capitalised software intangible assets 14 635 1,484
Exercise of share-based payment schemes with cash 26 (500) -
Equity settled share-based payment expenses 27 1,229 2,235
Operating cash before movements in working capital 24,400 40,956
(Increase) in trade and other receivables (4,187) (38,912)
Increase in trade and other payables 9,104 23,434
(Decrease) / increase in provisions (137) 316
Cash generated from operations 29,180 25,794
Tax paid (6,712) (6,844)
Net cash from operating activities 22,468 18,950
Investing activities
Acquisitions of subsidiaries net of cash acquired 12 - 633
Disposal of associate or subsidiary (net of cash disposed of) 11 - (2)
Acquisitions of unlisted investments 19 - (81)
Proceeds from sale of unlisted investments 19 918 209
Proceeds from sale of plant and equipment - 223
Purchase of plant and equipment 16 (4,383) (1,789)
Purchase of capitalised software 14 (1,192) (837)
Interest received 7 391 260
Net cash consumed by investing activities (4,266) (1,384)
Net cash from operating and investing activities 18,202 17,566
Financing activities
Dividends paid to non-controlling interest (430) (152)
Cash consideration for non-controlling interest acquired and other options 27 (12,104) (5,348)
Payment of deferred consideration 13 (1,250) -
Buyout of equity put options in cash - (632)
Payment of lease liabilities 17 (7,307) (6,210)
Proceeds from bank loans 23 - 9,301
Repayment of bank loans 23 (13,410) (16,909)
Borrowing costs - (602)
Interest paid 7 (1,200) (1,555)
Interest paid on leases 17 (2,970) (2,800)
Net cash consumed by financing activities (38,671) (24,907)
Net decrease in cash and cash equivalents (20,469) (7,341)
Effect of exchange rate fluctuations on cash held 2,711 (55)
Cash and cash equivalents at the beginning of the year 54,979 62,375
Total cash and cash equivalents at the end of the year 37,221 54,979
Cash and cash equivalents 41,492 69,419
Bank overdrafts* 23 (4,271) (14,440)
Total cash and cash equivalents at the end of the year 37,221 54,979
Bank loans and borrowings** 23 (7,212) (20,590)
Net cash 30,009 34,389
*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 the lease
liability of £55,570k (2021 £56,845k) (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 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
financial statements.
The Board have formed their opinion after evaluating 5 different severe but
plausible forecast scenarios and a reverse stress test, extending to 31
December 2025, comprising:
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; and
5. a reverse stress test case.
These severe but plausible scenarios are assumed to materialise from Q1 2023
onwards. The estimated decline in profit before tax ranges from £22m to £26m
compared to the base case plan for the cumulative period ending 31 December
2024, including a £11m to £18m 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 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 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 explained in more detail in the relevant notes to the Group
financial statements.
Revenue recognition
The Group applied IFRS 15 Revenue on contracts with customers from the start
of 2018.
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
commission-based income in relation to talent performance. 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 the 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 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 Group's share price and the subsidiary's
financial performance. 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.
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 financial statements, management necessarily makes
judgements and estimates that can have a significant impact on the 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 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 to start a subsidiary using their unique
skills, and there are no indicators it 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. Discounted cash flow models, based on the Group's latest
budget and 3 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 (Investments in
associates and joint ventures), and note 17 (Leases).
The Group has recognised a total impairment charge of £564k in the year
(2021: £3,294k), of which £728k relates to Intangibles (2021: £2,937k) and
£164k relates to the reversal of a previous impairment of right-of-use
assets, for a property which has been sublet in 2022 (2021: £Nil). There was
no impairment in the year of plant and equipment (2021: £Nil), or associate
investments (2021: £357k).
Significant estimates and assumptions
Some areas of the Group's 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
financial statements were prepared.
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.
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 Group'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 2022 and the year
ended 31 December 2021 does not constitute the company's statutory accounts
for those years.
Statutory accounts for the year ended 31 December 2021 have been delivered to
the Registrar of Companies. The statutory accounts for the year ended 31
December 2022 will be delivered to the Registrar of Companies in due course.
The auditor's reports on the accounts for 31 December 2022 and 2021 were
unqualified, did not draw attention to any matters by way of emphasis, and did
not contain any statement under 498(2) or 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 Impairment of non-current assets Revaluation of contingent consideration (note 13) Dividends paid to IFRS 2 put holders Put option accounting Headline results
2022 (note 2) (note 14) (note 14 & 17) (note 5)* (note 26 & 27)
FVTPL investments under IFRS 9 (note 19)
Year ended 31 December 2022 Note £000 £000 £000 £000 £000 £000 £000 £000 £000
Billings (unaudited) 597,520 - - - - - - - 597,520
Revenue 462,533 - - - - - - - 462,533
Net revenue 271,140 - - - - - - - 271,140
Staff costs 5 (198,765) 3,412 - - - - 7,811 1,119 (186,423)
Depreciation 16,17 (9,326) - - - - - - - (9,326)
Amortisation 14 (1,060) - 597 - - - - - (463)
Impairments 14,17 (564) - - 564 - - - - -
Other operating charges (49,474) 9,940 - - (272) 266 - - (39,540)
Other losses 19 (1,403) - - - 1,403 - - - -
Operating profit 10,548 13,352 597 564 1,131 266 7,811 1,119 35,388
Share of results of associates and JV 15 (10) - - - - - - - (10)
Finance income 7 391 - - - - - - - 391
Finance expense 7 (5,506) - - - 456 - - 1,114 (3,936)
Profit before taxation 8 5,423 13,352 597 564 1,587 266 7,811 2,233 31,833
Taxation 8 (5,178) (1,982) (174) - (409) - - (47) (7,790)
Profit for the year 245 11,370 423 564 1,178 266 7,811 2,186 24,043
Non-controlling interests (155) - - - - - (5,783) - (5,938)
Profit attributable to equity holders of the Group** 90 11,370 423 564 1,178 266 2,028 2,186 18,105
* 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.
1. Headline results and earnings per share continued
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 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 JV 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 the adjustments noted above.
Headline results and earnings per share continued
Earnings per share
Basic and diluted earnings per share are calculated by dividing the
appropriate earnings metrics by the weighted average number of shares of the
Company in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of the Company's 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. Where schemes have moved from equity
to cash payment and vice-versa the potential dilution is calculated as though
they had been in their year-end position for the whole year.
Headline
Year ended 31 December 2022 2022 2022
Profit attributable to equity shareholders of the Group (£000) 90 18,105
Basic earnings per share
Weighted average number of shares (thousands) 122,257 122,257
Basic EPS 0.07p 14.81p
Diluted earnings per share
Weighted average number of shares (thousands) as above 122,257 122,257
Add
- LTIP 905 905
- Put options 11,302 11,302
Total 134,464 134,464
Diluted EPS 0.07p 13.47p
Excluding the put options (payable in cash) (11,302) (11,302)
Weighted average number of shares (thousands) including dilutive shares 123,162 123,162
Diluted EPS - excluding items the Group intends and is able to pay in cash 0.07p 14.70p
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
- Restrictive 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 the Group intends and is able to pay in cash 10.46p 11.22p
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 2022 comprise of the
following:
2022 Operating Staff costs Taxation After tax
costs £000 £000 total
£000 £000
Takeover transaction costs 9,210 1,623 (1,294) 9,539
Strategic review and restructuring 992 1,789 (688) 2.093
Other (262) - - (262)
Total separately disclosed items 9,940 3,412 (1,982) 11,370
During 2022, the Company has been subject to two competing bids to take
control and full ownership of the business. Managing the Company's response to
these two bids has resulted in a number of external advisory costs and a
refocusing of several key internal personnel away from the day-to-day running
of the business. Included in the above is £811k related to senior management
costs (including £360k representing CEO time), as an estimate of time spent
on the transaction where they have been unable to undertake other planned
strategic activities and day-to-day management of the business. In addition,
incremental bonus costs were paid to several key individuals of £594k to
reflect the significant additional workload they had to undertake.
In 2022, the Group has commenced a global cost efficiency programme, with the
assistance of PricewaterhouseCoopers LLP. The professional fees incurred in
relation to this project have been classified as non-Headline (£992k). In
addition, within three of the agencies in the Group, a strategic review has
been commenced which has resulted in staff redundancy costs in the year
(£1,789k).
Other separately disclosed items relate to the release of the provision
associated with the Financial Conduct Authority investigation, which is now
closed with no enforcement action being taken, the cost of which was
previously treated as non-Headline. In addition, legal fees were incurred in
relation to a put option.
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, the Group recognised the repayment of the UK furlough money that was
received in 2020 and the forgiveness of the US "PPP" loans that were received
in 2020. Included within strategic review and restructuring are 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 the lease
surrender expense, due to restructuring of two lease spaces.
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.
The Group's performance is also assessed under a structure of specialisms, and
this is reported under two segments: Advertising 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 2022 £000 £000 £000 £000 £000 £000 £000 £000
Net revenue 98,241 15,316 23,368 26,154 52,855 55,206 - 271,140
Operating profit / (loss) 19,528 1,852 2,625 6,951 5,817 9,970 (11,355) 35,388
Operating profit margin 19% 12% 11% 29% 11% 18% - 13%
Profit / (loss) before tax 17,416 1,832 2,345 6,757 4,904 8,278 (9,699) 31,833
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 95,104 15,207 20,216 23,324 53,997 41,488 - 249,336
Operating profit / (loss) 17,837 1,929 2,842 7,331 5,832 7,525 (12,160) 31,136
Operating profit margin 19% 13% 14% 31% 11% 18% - 12%
Profit / (loss) before tax 17,426 1,906 2,430 6,702 5,257 6,441 (12,848) 27,314
*2021 figures have been restated to bring geographical split of Performance
entities in line with internal management reporting.
Included within the Group's revenues is a customer that makes up more than 10%
of total revenue, contributing £32.8m (2021: £23.6m). This is included
within UK, Americas and within the High Growth Specialisms.
Segmental Information by Specialisms
Advertising High Growth Specialisms Group Central Costs Total
Year Ended 31 December 2022 £000 £000 £000 £000
Net revenue 124,300 146,840 - 271,140
Operating profit / (loss) 11,728 35,015 (11,355) 35,388
Operating profit margin 9% 24% - 13%
Profit / (loss) before tax 9,928 31,604 (9,699) 31,833
Advertising* 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
*In 2022 two agencies were included in High Growth Specialisms, compared to
Advertising in 2021. The figures relating to these entities in 2021 were net
revenue, £2,623k, operating loss, £175k and loss before tax, £156k.
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 entities within
the Group 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 clients, where entities within the Group 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 entities within the Group 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 the gross amount billed 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.
Disaggregation of revenue
The Group monitors the composition of revenue earned by the Group on a
geographic basis and by specialism.
Reported
Revenue 2022 2021 2022 vs 2021
Specialism £m £m Movement
Advertising* 221.8 193.8 14.5%
Media 36.6 33.1 10.6%
Issues 92.7 87.7 5.7%
Consulting* 45.9 39.5 16.1%
Passions* 65.5 40.5 61.6%
Group 462.5 394.6 17.2%
*Included in 2021 Advertising Revenue is £2,441k relating to an agency
recognised in Passions in 2022 and £1,345k relating to an agency recognised
in Consulting in 2022.
Reported
Revenue 2022 2021 2022 vs 2021
Region £m £m Movement
UK 139.3 101.1 38.1%
Europe 24.9 26.9 (7.5)%
Middle East & Africa 53.0 37.9 39.8%
Asia 39.0 41.3 (5.7)%
Australia 89.5 82.8 8.%
Americas 116.8 104.6 11.5%
Group 462.5 394.6 17.2%
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 the 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 should be
recognised at the point the entity's right to consideration is unconditional,
which normally will be at the time the PO is satisfied (which may not be the
same as when an invoice is raised).
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 entities within 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
The provision of advertising and marketing services to 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 an entity within 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 entity within the Group enters into retainer fees that relate to
arrangements whereby the nature of the entity'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
the Group 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).
Staff costs (including Directors)
2022 2021
Year ended 31 December £000 £000
Wages and salaries 156,476 141,615
Social security costs 16,152 13,085
Pension costs 8,833 5,403
Other staff costs* 5,832 6,950
Total 187,293 167,053
Allocations and dividends paid to holders of IFRS 2 put options 1 7,811 5,270
Share based incentive plans:
Cash settled 27 2,432 (2,065)
Equity settled 27 1,229 2,235
Total share based incentive plans 3,661 170
Total staff costs 198,765 172,493
*Other staff costs include profit share, LTIP charges and other staff
benefits.
Staff numbers 2022 2021
UK 772 734
Europe 166 161
Middle East and Africa 421 383
Asia 596 592
Australia 439 465
Americas 340 318
Total 2,734 2,653
These staff numbers are based on the average number of staff throughout the
year in 2022.
Pensions
The Group does not operate any defined benefit pension schemes. The Group
makes payments, on behalf of certain individuals, to personal pension schemes.
Compensation for key management personnel and directors
2022 2021
Key management remuneration £000 £000
Wages and salaries 2,214 2,741
Pension costs 53 82
Share based payments* 381 268
Total 2,648 3,091
*Included within share based payments is £174k (2021: £220k) relating to
Mickey Kalifa who left the Company in May 2022.
Key management personnel include the Directors and employees responsible for
planning, directing and controlling the activities of the Group.
6. Auditors' remuneration
The Company paid the following amounts to its auditors in respect of the audit
of the financial statements and for other services provided to the Group:
2022 2021
Year ended 31 December £000 £000
Audit services
Fees payable to the Company's auditor for the audit of the Company's annual 1,506 1,450
accounts
Fees payable to associates of the Company's auditor for the audit of the 174 237
accounts of subsidiaries
Audit fees relating to the prior period 300 -
1,980 1,687
Other services provided by the Auditors:
Other assurance services - interim agreed upon procedures 25 46
Corporate finance services 499 -
Taxation compliance services 168 66
Taxation advisory services 176 112
868 224
Total 2,848 1,911
7. Net finance 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, except for the amortisation of loan costs which are recognised
over the life of the loan.
Analysis
Year ended 31 December 2022 2021
£000 £000
Bank interest receivable 331 187
Other interest receivable 55 47
Sublease finance income 5 26
Financial income 391 260
Bank interest payable (1,200) (1,555)
Amortisation of loan costs (222) (130)
Interest on lease liabilities (2,970) (2,800)
Valuation adjustment to IFRS 9 put option liabilities (Note 26) (1,114) (896)
Financial expense (5,506) (5,381)
Net finance expense (5,115) (5,121)
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 2022 2021
£000 £000
Taxation in the year
UK 730 1,832
Overseas 3,020 4,470
Withholding taxes payable 14 31
Adjustment for (over) / under provision in prior periods (986) 1,476
Total 2,778 7,809
Deferred taxation
Recognition of temporary differences 1,719 1,651
Adjustment for under / (over) provision in prior periods 709 (974)
Effect of changes in tax rates (28) (27)
Total 2,400 650
Total taxation 5,178 8,459
The differences between the actual tax and the standard rate of corporation
tax in the UK applied to the Group's statutory profit for the year are as
follows:
2022 2022 2021 2021
Year ended 31 December £000 % £000 %
Profit before taxation 5,423 21,632
Taxation at UK corporation tax rate of 19.00% (2019: 19.00%) 1,030 19.0% 4,110 19.0%
Expenses not deductible for tax 1,314 24.2% 386 1.8%
Different tax rates applicable in overseas jurisdictions 1,081 20.0% 1,467 6.8%
Option charges not deductible for tax 1,070 19.7% 925 4.3%
Tax losses for which no deferred tax asset was recognised 834 15.4% 528 2.4%
Impairment with no tax credit 138 2.5% 537 2.5%
Withholding taxes payable 14 0.3% 31 0.1%
Tax effect of associates 2 0.0% 1 0.0%
Effect of changes in tax rates on deferred tax (28) -0.5% (27) -0.1%
Adjustment for tax (over)/under provision in prior periods (277) -5.1% 491 2.3%
Effect of changes in tax rates - 0.0% (6) 0.0%
Disposal of subsidiaries on which no tax is charged - 0.0% 16 0.1%
Total taxation 5,178 95.5% 8,459 39.1%
Effective tax rate 95.5% 39.1%
Large variations in future tax rates of the statutory accounts are expected
due to significant items such as share-based payments (option charges) and put
options being non-deductible against corporation tax as a result of these
items being capital in nature.
The key differences between actual and standard tax rates are as follows:
· Expenses not deductible for tax: in 2022 two parties tried to acquire the
Company and a proportion of the defence costs was disallowable due to their
being capital in nature. This increased the non-deductible expenses. In
addition, as the world returned to normal following the Covid-19 pandemic,
there was increased client entertaining which is disallowable for corporation
tax purposes. There were also capital allowances resulting from office
refurbishment that could not be claimed.
· Option charges include dividends paid to those shareholders in the subsidiary
companies that also have a put option arrangement in place within that entity,
which are not deductible for tax: the Group's 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 nor on the
payment of the dividends.
· Different tax rates applicable in overseas jurisdictions. The Group operates
in multiple locations round the world where tax rates are higher than the UK,
e.g., Australia (30%) and USA (between 21% to 28%).
· The net effect of the adjustment for current and deferred tax in prior periods
is a release of an over provision of £279k (2021: £491k under provision) of
total tax charge.
· Impairment with no tax credit: On most of the acquisitions no tax benefit was
received from the acquisition of goodwill. During the period some of the
goodwill was impaired with no future tax benefit of such impairments.
Looking forward, UK corporation tax will increase from 19% to 25% from April
2023. Large variations in future tax rates are expected 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
As can be seen in the Headline tax reconciliation, the largest drivers of
Headline tax charge are the local entities' profitability with central costs
being incurred in the UK, a lower tax market, and profits being made in higher
tax countries such as Australia and USA.
Our Headline tax rate has reduced from 26.6% to 24.5%. The reduction is due to
the use of prior years' tax losses (caused in part by the Covid-19 pandemic)
to offset current profitability and an increase in profits from countries with
lower tax rates, partly offset by increased expenditure on disallowable costs.
2022 2022 2021 2021
Year ended 31 December £000 % £000 %
Headline profit before taxation (Note 1) 31,833 27,314
Taxation at UK corporation tax rate of 19.00% (2021: 19.00%) 6,048 19.0% 5,189 19.0%
Different tax rates applicable in overseas jurisdictions 1,297 4.1% 1,510 5.4%
Tax losses for which no deferred tax asset was recognised 683 2.1% 528 1.9%
Expenses not deductible for tax 781 2.5% 386 1.4%
Effect of changes in tax rates on deferred tax 29 0.1% (230) -0.8%
Withholding taxes payable 14 0.0% 31 0.1%
Tax effect of associates 2 0.0% (44) -0.2%
Adjustment for tax (over)/under provision in prior periods (246) -0.8% 502 1.8%
Non-controlling interest share of partnership income (818) -2.6% (595) -2.2%
Effect of changes in tax rates - 0.0% (6) 0.0%
Headline taxation (Note 1) 7,790 24.5% 7,271 26.6%
Headline effective tax rate 24.5% 26.6%
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
2022 2021
At 31 December £000 £000
Deferred tax assets 5,131 6,777
Deferred tax liabilities (1,245) (777)
Net deferred tax 3,886 6,000
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 2022 and 2021.
Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total
£000 £000 £000 £000 £000 £000
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 (1,150) - 71 - - (1,079)
At 31 December 2021 (977) 1,377 3,777 (1,232) 3,055 6,000
Exchange differences 124 (15) (198) - 375 286
Income statement (charge) / credit 484 581 (1,561) 238 (2,142) (2,400)
At 31 December 2022 (369) 1,943 2,018 (994) 1,288 3,886
Based on the 2023 budget and 3-year plans, approved by the Board, the Group
has reviewed the deferred tax asset created by tax losses for their
recoverability. Where the Group believes such losses may not be recoverable
they have not been recognised on the balance sheet and have been included in
unrecognised deferred tax assets.
Within the local entities £1,556k (2021: £3,101k) 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 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
At 31 December 2022
Deferred tax assets 706 1,943 2,304 - 1,734 6,687
Deferred tax liabilities (1,075) - (286) (994) (446) (2,801)
Net deferred tax (369) 1,943 2,018 (994) 1,288 3,886
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 IFRS16 (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 future projections so it is an estimate.
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. An unrecognised deferred tax asset in respect of carried
forward tax losses is shown below:
Losses Deferred tax impact
£000 £000
At 1 January 2022 6,426 1,457
Exchange differences 772 180
Written off in year (1,158) (326)
Losses utilised in year (1,653) (465)
Losses in year 6,246 1,299
At 31 December 2022 10,633 2,145
Expiry date of losses:
2022 2021
£000 £000
One to five years 24 -
Five to ten years 565 648
Ten years or more 1,556 809
Total 2,145 1,457
10. Dividends
Policy
Interim dividends are recognised when they have been approved by the Board and
are legally payable. Final dividends are recognised when they have been
approved by the shareholders at the Company's Annual General Meeting.
No interim or final dividends were declared for 2021. No interim dividends
were declared in 2022.
A final dividend of 1.5 pence per share has been recommended by the Board,
which is a total amount of £1,834k. The final dividend, if approved at the
Company's Annual General Meeting on 14 June 2023, will be paid on 12 July 2023
to all shareholders on the Company's register of members as at 9 June 2023.
The ex-dividend date for the shares is 8 June 2023.
The payment of this dividend will not have any tax consequences for the Group.
11. Disposals
Policy
Disposals of entities in the Group are accounted for in accordance with IFRS
10:25 (https://library.croneri.co.uk/cch_uk/iast/ifrs10-201105&p=#25) .
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; and
· recognises the gain or loss associated with the loss of control attributable
to the former controlling interest.
Analysis
There were no disposals in 2022.
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, which was
communicated to the market and to shareholders. This process continued into
2021, with four entities either ceasing trading or being divested. These
entities were Creative Spark (Pty) Ltd, M&C Saatchi PR LLP, M&C
Saatchi Marketing Arts Ltd and Create Collective PTE Ltd. These entities
contributed £39k of losses to the 2021 results.
The Headline results of the entities disposed, which were included in the
results, were as follows:
2022 2021
£000 £000
Plant and equipment - 2
Trade and other receivables - 21
Cash and cash equivalents - 2
Trade and other payables - (67)
Add net liabilities - (42)
Gain on disposal of subsidiaries - 42
Within note 1 in 2021, there are costs of £125k that relate to severance and
legal fees for the disposal.
12. Acquisitions of subsidiaries
There were no acquisitions in 2022.
On 2 February 2021, the Group acquired two entities that were previously
associates, 40% of M&C Saatchi (Hong Kong) Ltd and 25.1% of Santa Clara
Participações Ltda. In addition, on 1 January 2021, the Group 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) Ltd are marketing agencies,
these qualify as a business as defined in IFRS 3.
The amounts recognised in 2021, 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 liabilities (343) (736) - (1,079)
Total identifiable assets acquired and liabilities assumed 2,357 (89) - 2,268
Plus: goodwill 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 - 6,890
Net cash outflow arising on acquisition:
Cash and cash equivalent balances acquired 750 513 29 1,292
750 513 29 1,292
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 recorded at fair value in line with
IFRS 13 (note 29).
The balances are 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 2022 2021
£000 £000
Current
Deferred consideration
Levergy Marketing Agency (Pty) Limited - (984)
Total current - (984)
Assets 2022 2021
£000 £000
Non-current
Contingent consideration
Saatchinvest Ltd 914 -
Total non-current 914 -
Movements in liabilities in the year 2022 2021
£000 £000
At 1 January (984) (1,679)
Exchange differences - 48
Charged to the income statement * (266) (532)
Conditional consideration paid in cash ** 1,250 659
Conditional consideration paid in equity - 520
At 31 December - (984)
* £266k revaluation of deferred consideration due to Levergy Marketing Agency
(Pty) Limited on payment
** £1,250k paid to Levergy Marketing Agency (Pty) Limited.
Movements in assets in the year 2022 2021
£000 £000
At 1 January - -
Reclassification from financial assets at fair value through profit or loss 914 -
(note 19) ***
At 31 December 914 -
*** The £914k of contingent consideration relates to the sale of Dataseat Ltd
("Dataseat"), one of the entities in the Group's portfolio of unlisted
companies, in which it held a 5.18% shareholding. The sale to Verve Group took
place in July 2022, and £779k of cash was received as initial consideration.
Verve Group is part of Media and Games Invest Se ("MGI"), a Swedish company
which is listed on the Nasdaq Market in Stockholm and in the Scale segment of
the Frankfurt Stock Exchange. Two further tranches of consideration may be
received, on which the Group has undertaken a probability assessment in
determining the value recognised:
Tranche 2:
Up to £534k to be received as cash or MGI shares. The exact amount to be
received will be reduced proportionately based on:
1) one or both of the two Dataseat founders leaving the employment of Dataseat
before July 2025,
2) if they leave, the terms and timing of their departures,
3) whether the consideration is paid in cash or shares. Receiving shares
results in a maximum consideration of £534k rather than £485k, and the
minimum is 0.
Tranche 3:
Up to £924k to be received as cash or MGI shares as part of an earn-out
calculation. The earn-out consideration is dependent on Dataseat's 2024 net
revenue and must be paid by August 2025. The contingent consideration was
calculated following a review of Dataseat's future prospects and potential net
revenues and involved sensitivity analysis of different revenue scenarios.
Receiving any earn-out consideration is also dependent on the two founders
remaining employed by Dataseat until July 2025. The maximum consideration
which could be received for tranche 3 is £1,458k and the minimum is 0, this
has been valued at £426k.
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 subsumed.
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 2023 budget and 3-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 2022 Residual growth rates 2021 Pre-tax discount rates 2022 Pre-tax discount rates 2021
Market % % % %
UK 1.5 1.5 16-18 14-17
Asia and Australia 1.5 1.5 15-18 16-19
Middle East 1.5 1.5 15 17
India 1.5 1.5 23 23
South Africa 1.5 1.5 27 28
Europe 1.5 1.5 12 15
Americas 1.5 1.5 14-16 15-18
Analysis
Goodwill Brand name Customer relationships Software and film rights Total
£000
£000
£000
£000
£000
Cost
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
Exchange differences 2,258 169 355 145 2,927
Acquired - - 200 992 1,192
Disposal - - - (678) (678)
At 31 December 2022 60,694 8,363 14,606 3,691 87,354
Accumulated amortisation and impairment
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
Exchange differences 489 28 57 113 687
Amortisation charge - 104 493 463 1,060
Impairment 556 - - 172 728
Disposal - - - (503) (503)
At 31 December 2022 23,505 7,261 12,045 2,575 45,386
Net book value
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
At 31 December 2022 37,189 1,102 2,561 1,116 41,968
31 December 31 December Region
Goodwill 2022 2021
£000 £000
Cash generating units (CGUs) Specialism
Shepardson Stern + Kaminsky LLP 5,899 5,375 Americas Advertising
LIDA NY LLP (MCD) 5,821 5,198 Americas Consulting
Clear Ideas Ltd 5,031 5,031 Europe Consulting
M&C Saatchi Mobile Ltd 4,283 4,283 UK Media
M&C Saatchi Agency Pty Ltd (Australia) 2,863 2,719 Australia Various
M&C Saatchi Social Ltd 2,612 2,612 UK Passions
M&C Saatchi (Hong Kong) Limited* 2,506 2,806 Asia Advertising
Bohemia Group Pty Ltd (Australia) 1,904 1,812 Australia Media
M&C Saatchi Advertising GmbH 1,376 1,306 Europe Advertising
M&C Saatchi Sport & Entertainment Ltd 1,184 1,184 UK Passions
Levergy Marketing Agency (PTY) Limited (South Africa) 860 820 Middle East and Africa Passions
M&C Saatchi Merlin Ltd 765 765 UK Passions
M&C Saatchi Middle East Fz LLC (Dubai) 765 684 Middle East and Africa Advertising
M&C Saatchi Talk Ltd 625 625 UK Advertising
Santa Clara Participações Ltda 624 529 Americas Advertising
M&C Saatchi (M) SDN BHD 71 68 Asia Advertising
Scarecrow Communications Ltd* - 159 Asia Advertising
Total 37,189 35,976
* With exception of CGUs marked, all other movements in the table above are
due to foreign exchange differences.
The 2022 review of goodwill was undertaken as at 31 December, and resulted in
the impairments of M&C Saatchi (Hong Kong) Limited £396k and Scarecrow
Communications Ltd £160k (2021: £500k).
The following sensitivity analysis has been performed, showing the impairment
required, if the profit forecasts reduced and the discount rates increased.
The CGUs included in this sensitivity analysis are those for which a
reasonably possible change in a key assumption could give rise to impairment,
being Bohemia Group Pty Ltd (Australia), Levergy Marketing Agency (PTY)
Limited (South Africa), M&C Saatchi (Hong Kong) Limited and Santa Clara
Participações Ltda (Brazil). These entities remain at risk of impairment.
Annual profit forecast reduced by
Discount rates increased by 0% 10% 20% 30%
0% - 603 2,114 3,490
1% - 1,272 2,653 3,913
3% 1,072 2,345 3,519 4,593
5% 2,069 3,168 4,184 5,116
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
2022 2021 2022 2021
Region & Name Nature of business Country of incorporation or registration £000 £000
Europe
Cometis SARL* Advertising France 56 - 49% -
M&C Saatchi Little Stories SAS PR France - - 25% 25%
M&C Saatchi SAL Advertising Lebanon - - 10% 10%
Asia and Australia
Love Frankie Ltd Advertising Thailand 135 202 25% 25%
February Communications Private Limited Advertising India - - 20% 20%
M&C Saatchi Limited Advertising Japan - - 25% 25%
Total 191 202
* In January 2022, as a result of two put option arrangements, the Group
acquired a 49% holding in Cometis SARL, a French company.
M&C Saatchi SAL has the following subsidiaries: M&C Saatchi Mena Ltd
and Al Dallah For Creativity & Design LLC.
All shares in associates are held by subsidiary companies in the Group. Where
an associate has the right to use the brand name, the Group holds the right to
withdraw such use, to protect it from damage.
The Group holds neither associates nor joint ventures in Australia, Africa, or
the UK.
2022 2021
Balance sheet value as at 31 December £000 £000
Investments intended to be held in the long term 191 202
Investments categorised as held-for-sale - -
Total associate investments 191 202
2022 2021
Balance sheet movements £000 £000
At 1 January 202 2,829
Exchange movements (1) (10)
Transferred to subsidiary - (2,407)
Revaluation of associates on transition to subsidiaries - (234)
Acquisition of associates - 338
Impairment of associate - (357)
Share of (loss) / profit after taxation (10) 43
At 31 December 191 202
2022 2021
Income statement £000 £000
Share of (loss) / profit after taxation (10) 43
Revaluation of associates on transition to subsidiaries - (233)
Share of result of Associates and Joint Ventures (10) (190)
Impairment of associate investment - (357)
Year to 31 December (10) (547)
The results and net assets of the associate entities are set out below, along
with the Group's share of these results and net assets:
2020
2022 2021
Asia Europe Asia Europe Americas Total
Total
Income statement £000 £000 £000 £000 £000 £000 £000
Revenue 4,006 712 4,718 4,240 2,580 148 6,968
Operating profit / (loss) 765 165 930 940 71 (14) 997
Profit / (loss) before taxation (201) 143 (58) 215 71 (25) 261
Profit / (loss) after taxation (208) 113 (95) 174 49 (32) 191
Group's share (65) 55 (10) 43 12 (12) 43
Dividends received - - - - - - -
2022 2021
Europe Total Asia Europe Americas* Total
Asia
Balance sheet £000 £000 £000 £000 £000 £000 £000
Total assets 1,557 151 1,708 1,410 804 - 2,214
Total liabilities (1,088) (38) (1,126) (914) (854) - (1,768)
Net assets / (liabilities) 469 113 583 496 (50) - 446
Our share 117 56 173 124 (12) - 112
Losses not recognised 13 - 13 12 12 - 24
Goodwill 5 - 5 66 - - 66
Total 135 56 191 202 - - 202
* Technology, Humans and Taste LLC was disposed of in 2021, therefore an
income statement is shown above, but nil for the balance sheet at 31 December
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
Cost £000 £000 £000 £000 £000
At 31 December 2020 8,490 4,021 4,845 17 17,373
Exchange differences (114) (48) (86) 21 (227)
Additions 145 266 1,352 26 1,789
Additions - business combinations 3 152 177 29 361
Disposals (1,228) (473) (456) (15) (2,172)
At 31 December 2021 7,296 3,918 5,832 78 17,124
Exchange differences 324 121 259 4 708
Additions* 1,145 1,674 1,551 13 4,383
Disposals (1,596) (1,066) (404) - (3,066)
At 31 December 2022 7,169 4,647 7,238 95 19,149
Depreciation
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
Exchange differences 230 53 183 3 469
Depreciation charge 990 381 1,087 22 2,480
Disposals (1,579) (926) (396) - (2,901)
At 31 December 2022 3,671 2,163 4,964 41 10,839
Net book value
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
At 31 December 2022 3,498 2,484 2,274 54 8,310
* The additions in 2022 relate mainly to Australia for the lease that was
entered into at the end of 2021 (£745k of Leasehold Improvements and £1,225k
of furniture, fittings and other equipment)
Total depreciation in the income statement is broken down as follows:
Note 2022 2021
£000
£000
From plant and equipment 16 2,480 2,237
From right-of-use assets 17 6,846 6,959
9,326 9,196
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 the 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 asset's 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 sublease 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.
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 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 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 1 January 2022 43,892 422 83 44,397
Additions 3,966 395 134 4,495
Modifications 950 - 24 974
Disposals (96) (116) (49) (261)
Depreciation (6,495) (267) (84) (6,846)
Reversal of impairment 164 - - 164
Sublease (164) - - (164)
Foreign exchange 1,203 29 1 1,233
At 31 December 2022 43,420 463 109 43,992
Land & Buildings Computer equipment Motor vehicles
Total
Lease liabilities £000 £000 £000 £000
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 1 January 2022 56,332 445 68 56,845
Additions 3,966 395 134 4,495
Modifications 260 - 24 284
Disposals (132) (94) (50) (276)
Accretion of interest 2,945 21 4 2,970
Payments (9,889) (308) (80) (10,277)
Foreign exchange 1,508 20 1 1,529
At 31 December 2022 54,990 479 101 55,570
*This relates to lease dilapidations which were reclassified to Provisions in
2021.
The additions in 2022 predominately relate to the new offices in Berlin
(Germany), Sydney and Melbourne (Australia).
Of lease payments made in the year of £10,277k (2021: £9,010k), £7,307k
(2021: £6,210k) related to payment of principal on the corresponding lease
liabilities and the balance to payment of interest £2,970k (2021: £2,800k)
due on the lease liabilities.
Lease liabilities Land & Buildings Computer equipment Motor vehicles Total
£000 £000 £000 £000
Amounts due within one year 6,196 196 56 6,448
Amounts due after one year 48,794 283 45 49,122
At 31 December 2022 54,990 479 101 55,570
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
Income statement charge 2022 2021
£000 £000
Depreciation of right-of-use assets (6,846) (6,959)
Short-term lease expense (505) (300)
Low-value lease expense (68) (263)
Short-term sublease income - 94
Right-of-use asset impairment* 164 -
Charge to operating profit (7,255) (7,428)
Sublease finance income 5 26
Lease liability interest expense (2,970) (2,800)
Lease charge to profit before tax (10,220) (10,202)
*This is the reversal of an impairment from 2020, as the impaired asset was
sublet during 2022.
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 as at 31 December
2022, net of sublease receipts, is as follows:
Future cash payments 2022 2021
£000 £000
Period ending 31 December:
2023 9,026 8,074
2024 8,149 6,730
2025 7,870 6,689
2026 6,935 5,922
2027 6,415 5,716
Later years 31,363 30,227
Gross future liability before discounting 69,758 63,358
Of the future lease payments post-2027, £21.8m relates to a single office
lease which expires in 2034. This lease agreement was entered into in December
2019.
18. Other non-current assets
2022 2021
At 31 December £000 £000
Other debtors including rent deposits 1,107 1,113
Loans to employees - 98
Total other non-current assets 1,107 1,211
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 held by other shareholders and
discounting for convertible loan notes.
Analysis
The unlisted equity investments held by Saatchinvest Ltd mainly relate to 18
(2021: 20) early-stage companies. The Group also owns 10% of one UK company,
59A Limited (via Alive & Kicking Global Limited). In addition, overseas
investments are owned by:
· M&C Saatchi International Holdings BV, which owns a 10% shareholding in
Australie SAS and a 0.76% shareholding in Sesión Tequila Holdings Pty Ltd
(Australia).
· M&C Saatchi Agency Pty Ltd (Australia), which also owns a 2.1%
shareholding in Sesión Tequila Holdings Pty Ltd.
· M&C Saatchi European Holdings Limited, which owns a 10% shareholding in
M&C Saatchi Madrid SL (Spain).
With regards to the early-stage non-client investments, the most the Group has
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 the equity investments held at FVTPL is
presented below:
2022 2021
£000 £000
At 1 January 15,183 11,410
Additions - 501
Disposals (918) (209)
Gain/loss on disposal 1,168 -
Impairment (2,863) -
Revaluation upwards 3,016 4,255
Revaluation downwards (2,724) (722)
Reclassification to contingent consideration (note 13) (914) -
Foreign exchange 38 (52)
At 31 December 11,986 15,183
Other gains/(losses) in income statement 2022 2021
£000 £000
Revaluations 292 3,533
Gain/loss on disposal 1,168 -
Impairment (2,863) -
Total (1,403) 3,533
In 2022, there were no additions and the disposals related to companies in the
Saatchinvest portfolio. £918k of cash was received in respect of the
disposals, which resulted in a gain on disposal of £1,168k. Within this,
£779k related to the disposal of Dataseat, and as part of this disposal there
was an additional amount of contingent consideration recognised, refer to note
13 for further detail.
An impairment of £2,863k was recognised relating to the investment in
StreetTeam Software Limited (Pollen). The £3,016k revaluation upwards and
£2,705k of the revaluation downwards relates to the unlisted investments held
by Saatchinvest Ltd. £1,741k of the revaluation upwards relates to Picasso
Labs, Inc. and £1,484k of the revaluation downwards relates to Citymapper
Limited.
Other revaluation movements relate to investments held by both the Australian
business and M&C Saatchi International Holdings B.V. in Sesión Tequila
Holdings Pty Ltd.
Within the value of £11,986k above, investments with a value of £6,082k have
no price points since 1 January 2021. The absence of a market transaction
means the Group has less reliable information on which to base its estimate of
fair value, as in many cases there is limited quantitative financial
information available as the Group is a small minority shareholder in early
stage businesses. There is a greater degree of judgement and exposure to
future movements in fair value upwards and downwards on these investments in
particular, as is evident in the case of some of the 2022 downwards
revaluations, 85% of which result from fair value movements on 2 investment
holdings.
In 2021 there were additions of £501k, within this £420k relates to a 10%
shareholding in an unlisted investment, Australie SAS, acquired as part of a
share for share exchange and the remainder related to additions of £81k by
Saatchinvest Ltd. In 2021, the £209k disposal was of a company in the
Saatchinvest portfolio and it resulted in neither a gain nor a loss on
disposal.
The Group's 10% shareholdings in M&C Saatchi Madrid SL and 59A Limited are
all 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.
2022 2021
£000 £000
Trade receivables 97,431 86,302
Loss allowance (1,829) (877)
Net trade receivables 95,602 85,425
Prepayments 4,890 2,664
Amounts due from associates 38 123
VAT and sales tax recoverable 167 52
Other receivables* 31,370 44,477
Total trade and other receivables 132,067 132,741
*Other receivables comprises accrued income of £12.7m (31 December 2021:
£13.9m), 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 £2.2m (31 December 2021 £2.4m), unbilled
media receivables balances of £12.3m (31 December 2021:£23.3m) and other
amounts receivable of £4.3m (31 December 2021: £4.9m). There is no
additional ECL recorded in relation to these amounts.
Set out below is the movement in the loss allowance (which includes provision
for expected credit losses) of trade receivables and contract assets.
2022 2021
£000 £000
As at 1 January (877) (677)
Release / (increase) for expected losses during the year 96 (40)
Movement in forward looking provision for specific bad debts:
- Charge during the year (1,469) (375)
- Released during the year 421 190
- Utilisation of provision 0 25
Year-end provision (1,829) (877)
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.
2022 2021
£000 £000
Trade creditors 50,437 36,578
Contract liabilities 20,502 18,939
Sales taxation and social security payables 3,495 6,059
Accruals 67,601 75,466
Other payables 13,512 17,007
Total trade and other payables 155,547 154,049
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.
The year-end provision of £1.1m (2021: £1.2m) comprises of costs relating to
the tax liabilities in Kenya of £0.3m (2021: £0.2m), and income protection
schemes of £0.5m (2021: £0.6m), and £0.3m (2021: £0.4m) in relation to
property dilapidations.
2022 2021
£000 £000
At 1 January (1,193) (666)
Reclassification* - (346)
Charged to the income statement:
- Overseas sales taxation and social security liabilities (92) (16)
- Income protection provision (92) (165)
Utilised or released in the year
- Lease dilapidations 21 -
- Release associated with the FCA investigation 300 -
At 31 December (1,056) (1,193)
*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.
As at the end of 2022 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. Where there is a significant change to
the future cash flows, the EIR is reassessed with a corresponding change in
the carrying amount of the amortised cost. The change in the carrying amount
is recognised in profit or loss as income or expense.
Interest payable is included within accruals as a current liability.
Analysis
Amounts due within one year
2022 2021
At 31 December £000 £000
Overdrafts* (4,271) (14,440)
Local bank loans (159) (297)
(4,430) (14,737)
* These overdrafts can be legally offset with other cash balances. However,
they have not been netted off in accordance with IAS32.42 as there is no
intention to settle on a net basis.
Amounts due after one year
2022 2021
At 31 December £000 £000
Local bank loans (52) (293)
Secured bank loans (6,750) (19,528)
(6,802) (19,821)
Secured bank loans
On 31 May 2021, the Company entered into a revolving multicurrency facility
agreement with National Westminster Bank Plc and Barclays Bank PLC for up to
£47m (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 an option to extend until the fourth
anniversary. At 31 December 2022, the Group had up to £47.0m (2021: £47.0m)
of funds available under the Facility.
The Facility includes two financial covenants, which if either were to be
breached would result in a default of the agreement:
1. Interest Cover - EBIT for the previous 12 months must exceed 5 times the net
finance charge (external debt interest, excluding IFRS16 finance lease
interest payments) for the previous 12 months.
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 reduced to 3.0 times from 31 March 2022, 2.5 times from 30 June 2022, and
reduces to 2.0 times from 31 March 2023.
2022 2021
At 31 December £000 £000
Gross secured bank loans (7,000) (20,000)
Capitalised finance costs 250 472
Total secured bank loans (6,750) (19,528)
Total secured bank loans are due as follows:
2022 2021
At 31 December £000 £000
In one year or less, or on demand - -
In more than one year but not more than five years (6,750) (19,528)
(6.750) (19,528)
Total bank loans and borrowings used to calculate net cash are as follows,
IFRS 16 Leases is excluded from the calculation of net cash in accordance with
the Group's bank covenants:
Gross secured Local bank loans Total bank loans*
bank loans £000 £000
£000
At 31 December 2020 (27,271) (2,357) (29,628)
Cash movements 7,608 - 7,608
Acquisitions - business combinations - (468) (468)
Non-cash movements
- Foreign exchange (337) 35 (302)
- Other** - 2,200 2,200
At 31 December 2021 (20,000) (590) (20,590)
Cash movements 13,000 410 13,410
Non-cash movements
- Foreign exchange - (32) (32)
At 31 December 2022 (7,000) (212) (7,212)
* The borrowing used to calculate net cash.
**Other includes the forgiveness of the US Paycheck Protection Program (PPP)
loans.
24. Other non-current liabilities
2022 2021
31 December £000 £000
Employment benefits* 1,846 1,108
Long term bonuses 1,362 1,014
Other** 838 427
4,046 2,549
*This relates to long term service leave in some locations, deferred
contributions to pension schemes and long-term bonus plans. In addition, a
termination indemnity plan in Italy of £535k (2021: £547k), this liability
is for the 13(th) month salary accrual for all Italian employees to be paid to
them when they leave the Company, this was included in 'other' in 2021,
reclassified within the table for comparability.
**The main items include a contractual make good liability in relation to the
Australia office lease of £690k (2021: £116k).
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 contingent consideration (note 13) (value 2022 Nil), 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. The Board
made the decision during 2021 that put options would, from then on, be settled
in cash, where the Group has cash resources to do so. In the case of the LTIP
schemes, it is the Board's intention that an Employee Benefits Trust is set up
to acquire the shares and fulfil these schemes using the acquired equity.
In the table below, potential cash payments are presented, based on the 2022
year-end share price of the Company of 151.0p and the estimated future
business performance for each business unit. The payments are stated in the
year at which the put option schemes first become exercisable. The forecasts
are based on the Group's three-year plans, developed as part of the budget
cycle, and assume all TSR targets are fulfilled, and that equity is bought by
the Employee Benefits Trust in the year of vesting at a Company share price of
151.0p. The table also shows the amount of these potential cash payments that
has been recognised as a liability as at 31 December 2022, with the % of the
related employment services not yet delivered to the Group at that date.
Total future expected liabilities as at 31 December 2022
Potentially payable Services not yet delivered as at Balance sheet liability as at 31 Dec 2022
31 Dec 2022
£000
%*
At Company share price of 151.0p 2023 2024 2025 2026 2027 2028 Total
£000
£000 £000 £000 £000 £000 £000
IFRS 9 put option schemes 2,584 - - 1,983 - - 4,567 16% 3,856
IFRS 2 put option schemes 14,914 2,470 373 949 924 740 20,370 7% 18,992
LTIPs - 2,071 2,881 - - - 4,952 72% -**
17,498 4,541 3,254 2,932 924 740 29,889
*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.
**LTIPs are accounted for as equity-settled, and thus do not create a balance
sheet liability. The 2025 value of £2,881k relates to the LTIPs issued in
December 2022, the new awards have increased the total potentially payable in
the table below, compared to the previous forecast issued with the interim
financial statements.
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 not exercise
their options on the dates estimated in the table above.
If the Group 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.
Potentially payable
Future Company share price 2023 2024 2025 2026 2027 2028 Total
£000
£000 £000 £000 £000 £000 £000
At 151p £17,498 £4,541 £3,254 £2,932 £924 £740 £29,889
At 160p £18,324 £4,804 £3,453 £2,978 £979 £784 £31,322
At 175p £19,746 £5,241 £3,787 £3,102 £1,071 £858 £33,805
At 200p £22,323 £5,970 £4,342 £3,522 £1,224 £981 £38,362
At 225p £24,800 £6,598 £4,896 £3,941 £1,377 £1,103 £42,715
At 250p £27,226 £7,176 £5,451 £4,360 £1,530 £1,226 £46,969
At 300p £32,121 £8,332 £6,561 £5,199 £1,836 £1,471 £55,520
26. Minority shareholder put option liabilities (IFRS 9)
Policy
See below but also Basis of Preparation note.
Some of the subsidiaries' local management have a put option arrangement in
place. The put option arrangements give these employees a right to exchange
their minority holdings in the subsidiary into shares in the Company or cash
(at the Group's choice).
These schemes are considered as rewarding future business performance and, as
they are not conditional on the holder being an employee of the business, they
are accounted for in accordance with IFRS 9.
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. Current liabilities are determined by the
Company's year-end share price and the historical results of the companies
where the option holders can exercise within the next twelve months.
Non-current liabilities are determined by the Company's year-end share price
and the projected results of the companies where the option holders cannot
exercise their options within the next twelve months.
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 year ended 31 December 2022:
Subsidiary Year % of subsidiaries' shares exercisable
M&C Saatchi (Switzerland) SA 2023 21.0
M&C Saatchi Merlin Ltd 2023 15.0
Santa Clara Participações Ltda 2023 25.0
Santa Clara Participações Ltda 2026 24.9
This Film Studio Pty Ltd 2023 30.0
It is the Group's option to fulfil these options in equity or cash and it is
the Group's present intention to fulfil the options in cash (if available).
However, if they are fulfilled in equity, the estimated number of the Company
shares that will be issued to fulfil these options at 151.0p is 2,553,018
shares (2021: at 168.50p, 3,108,605 shares would need to be issued).
2022 2021
Liability as at 31 December £000 £000
Amounts falling due within one year (2,584) (3,238)
Amounts falling due after one year, but less than three years (1,272) -(2,000)
(3,856) (5,238)
2022 2021
Movement in liability during the year £000 £000
At 1 January (5,238) (2,782)
Exchange difference (1) 16
Exercises 2,497 424
Acquisitions - (2,000)
Income statement charge due to:
- Change in profit estimates (970) (399)
- Change in Company share price 406 (497)
- Amortisation of discount (550) -
Total income statement charge (Note 7) (1,114) (896)
At 31 December (3,856) (5,238)
Put options exercised in year 2022 2021
£000 £000
Paid in equity - 424
Paid in cash 2,497 -
Total 2,497 424
During the year the put options for 25.9% of Bohemia Group Pty Limited and
15.0% of Resolution Design Pty Limited were exercised, and the equity was
acquired by the Group.
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 relevant subsidiary, or where the holder
received the option as a result of employment with the relevant subsidiary,
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 the date of grant, risk free rate, the historic
volatility of the share price, the dividend yield and the 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 a put option arrangement includes a business continuation 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 share premium.
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
Before 21 September 2021 the Group had settled the options using equity, where
there was a choice to cash settle or equity-settle. The Board made the
decision that put options from that date would be settled in cash, where cash
resources are available to do so. Up to 21 September 2021, the Group accounted
for these put options as equity-settled. From 21 September 2021, the Group
accounted for these put options as cash-settled.
The transition from equity-settled to cash-settled required a fair value
assessment on the day of the modification and a movement between equity and
liabilities.
Where, for an unvested scheme that existed at 21 September 2021, the Company's
share price multiple (the market condition) at the inception of the option is
higher than the current Company's share price multiple, then the difference is
charged to the income statement.
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:
· Put options - from 21 September 2021 these put options have been accounted for
as cash settled.
· South African equity purchased with non-recourse loans - some of the South
African subsidiaries have sold equity to staff 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 14,009k (2021
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 in the prior year.
· 2021 LTIP awards - on 28 September 2021 and 21 December 2021, the Group
awarded equity-settled LTIPs to senior executive managers. This scheme grants
a future award of the Company's shares, dependent on the achievement of
certain future performance conditions:
o Group's total shareholder return (TSR) versus the total shareholder return
(TSR) 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 PBT performance in 2023 versus target (30% of the
award).
· 2022 LTIP awards - on 12 December 2022, the Group awarded equity-settled LTIPs
to senior executive managers. This scheme grants a future award of the
Company's shares, dependent on the achievement of certain future performance
conditions:
o Group's total shareholder return (TSR) versus the total shareholder return
(TSR) of the FTSE Small Cap Index over the 3 years from December 2021 to
December 2024 (50% of the award).
o Group's full year Headline PAT performance per share in 2023 versus target
(50% of the award).
· Restrictive share awards - the two cash awards made to the previous Chief
Financial Officer on his recruitment were converted to restrictive share
awards on 28 September 2021, based on the 45 day average share price to 28 May
2021 of 137.7p. On departure of the previous Chief Financial Officer a partial
payment was made in cash. At 31 December 2022 there are no restrictive awards
in existence.
·
2022 LTIP awards - on 12 December 2022, the Group awarded equity-settled LTIPs
to senior executive managers. This scheme grants a future award of the
Company's shares, dependent on the achievement of certain future performance
conditions:
o Group's total shareholder return (TSR) versus the total shareholder return
(TSR) of the FTSE Small Cap Index over the 3 years from December 2021 to
December 2024 (50% of the award).
o Group's full year Headline PAT performance per share in 2023 versus target
(50% of the award).
·
Restrictive share awards - the two cash awards made to the previous Chief
Financial Officer on his recruitment were converted to restrictive share
awards on 28 September 2021, based on the 45 day average share price to 28 May
2021 of 137.7p. On departure of the previous Chief Financial Officer a partial
payment was made in cash. At 31 December 2022 there are no restrictive awards
in existence.
For the LTIPs it is intended that an Employee Share Option Plan (Employee
Benefits 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:
2022 2021 2021
LTIP
LTIP
LTIP
Issue date 12/12/2022 21/12/2021 28/09/2021
Vesting date 31/05/2025 21/12/2024 28/09/2024
Share price at grant £1.48 £1.63 £1.56
Expected volatility 76% 80% 81%
Risk free rate 3.32% 0.67% 0.51%
Dividend yield 0% 0% 0%
Fair value of award per share £1.47 £1.62 £1.55
TSR element against FTSE Small Cap index:
Expected volatility 291% 147% 158%
Fair value of award per share £0.63 £0.72 £0.67
Income statement charge
2022 2022 2022 2021 2021 2021
Equity
Cash
Total
Equity
Cash
Total
£000
£000
£000
£000
£000
£000
Put options to 21 September 2021 - equity settled - - - 1,283 - 1,283
Put options from 22 September 2021
- imputed equity charge due to transition - - - 779 - 779
- charge/(credit) since transition (see below) 580 432 1,012 - (797) (797)
South Africa non-recourse loan scheme - 107 107 - (40) (40)
Total not affecting headline results (Note 1) 580 539 1,119 2,062 (837) 1,225
Release of cash award due to leaver (Note 1) - - - - (2,598) (2,598)
LTIPs 438 - 438 135 - 135
Restrictive share awards 211 - 211 38 - 38
Cash awards - 1,893 1,893 - 1,370 1,370
Total 1,229 2,432 3,661 2,235 (2,065) 170
Total put option liability
2022 2021
Total
Total
£000
£000
Put options liability (IFRS 2) (18,992) (27,122)
Put options liability (IFRS 9) (3,856) (5,238)
Total put options (Note 25) (22,848) (32,360)
Current - Minority shareholder put option liabilities (18,419) (20,788)
Non-current - Minority shareholder put option liabilities (4,429) (11,572)
Total (22,848) (32,360)
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 2021 - (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)
(Charge) / credit 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 state (charge) / credit 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)
(Charge) / credit to income statement
- Straight-line recognition (963) - (1,893) (2,856)
- Change in subsidiary profit estimates (1,858) (231) - (2,089)
- Change in Company multiple 2,389 124 - 2,513
Total income statement charge (432) (107) (1,893) (2,432)
Settled 8,553 - 1,054 9,607
Foreign exchange 9 (23) - (14)
At 31 December 2022 (18,992) (598) (1,165) (20,755)
Cash consideration for non-controlling interest acquired and other options
2022 2021
Total
Total
£000
£000
Put options liability (IFRS 2) (9,607) (5,348)
Put options liability (IFRS 9) (2,497) -
Total cash consideration for non-controlling interest acquired and other (12,104) (5,348)
options
Put Options
Vesting % Entity subject to the put option
Clear Deutschland GmbH 2024 20.00%
Clear Deutschland GmbH 2026 20.00%
Clear Ideas (Singapore) Ltd 2023 10.00%
Clear Ideas Ltd - B1 shares Vested 5.00%
Clear Ideas Ltd - B2 shares Vested 5.00%
Clear LA LLC Vested 12.00%
FCINQ SAS Vested 11.62%
Greenhouse Australia Pty Ltd 2023 8.53%
Greenhouse Australia Pty Ltd 2024 4.80%
Human Digital Ltd 2023 23.00%
Human Digital Ltd 2024 17.00%
LIDA NY LLP (MCD) Vested 24.50%
M&C Saatchi (Hong Kong) Limited Vested 20.00%
M&C Saatchi AB Vested 30.00%
M&C Saatchi Advertising GmbH 2023 4.10%
M&C Saatchi Agency Pty Ltd Vested 10.00%
M&C Saatchi Fluency Limited* 2026 7.50%
M&C Saatchi Fluency Limited* 2027 10.00%
M&C Saatchi Fluency Limited* 2028 2.50%
M&C Saatchi Holdings Asia Pte Ltd (Indonesia) 2024 27.40%
M&C Saatchi Holdings Asia Pte Ltd (Indonesia) 2026 22.50%
M&C Saatchi Merlin Ltd 2023 15.00%
M&C Saatchi Middle East Holdings Ltd Vested 20.00%
M&C Saatchi Share Inc Vested 20.00%
M&C Saatchi Social Ltd 2023 16.00%
M&C Saatchi Spencer Hong Kong Limited 2024 30.00%
M&C Saatchi Sport & Entertainment Ltd Vested 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 LTD Vested 10.00%
M&C Saatchi Sports & Entertainment GmbH Vested 7.00%
M&C Saatchi Talk Ltd Vested 39.00%
M&C Saatchi Talk Ltd 2023 10.00%
M&C Saatchi World Services LLP Vested 15.00%
M&C Saatchi, S.A. DE C.V. 2023 40.00%
Majority LLC 2024 8.00%
RE Team Pty Ltd Vested 13.00%
RE Worldwide UK Ltd Vested 43.20%
Scarecrow M&C Saatchi Ltd Vested 49.00%
The Source (W1) LLP Vested 10.00%
The Source Insight Australia Pty Ltd 2025 35.00%
Thread Innovation Ltd 2027 10.00%
Thread Innovation Ltd 2028 10.00%
*New scheme in year.
At any point in time, the valuation of certain put option schemes may be in
dispute with the put option holders who have challenged the valuation of the
schemes. We believe we have taken a prudent position in assessing the
liabilities, and therefore consider any adverse outturn to be unlikely. As
at 31 December 2022, the maximum aggregate liability that is not accrued
amounts to £2.4m (2021: £nil), which is approximately 10% of the put
option liability.
LTIP and Restrictive Shares
Shares issuable
During the year the Group also awarded LTIPs and settled restrictive share
awards.
The table below shows the number of shares that the Company will issue at the
Company's share price at 31 December 2022 of 151.0p (2021: 168.5p) assuming
all awards under the LTIPs are held to their vesting date and fully vest.
Number of Shares LTIP Restrictive shares Total
'000
'000
'000
At 1 January 2022 1,927 799 2,726
Forfeited on departure (556) - (556)
Vested and reclassification to cash settled scheme on employee departure - (799) (799)
Granted or amended 1,904 - 1,904
At 31 December 2022 3,275 - 3,275
Shares issuable used in these accounts
Note 2022 Number of shares 2022 2021 Number of shares 2021
'000
Share price used
'000
Share price used
Per EPS calculation 1 905 163p 828 141.6p
Share based payments 27 3,275 147p-162p 2,726 155p-162p
The share-based payments calculation (note 27) uses the number of shares that
could be issued at the first possible 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 start of year and the share of profits that
is allocatable to the equity during the year. Where the 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 that will be issued 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 Company reacquires its own equity instruments (treasury shares), the
consideration paid is deducted from equity attributable to the Company's
shareholders and recognised within the treasury reserve.
Analysis
1p Ordinary shares
Number of shares £000
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. Ltd 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
No issue of shares - -
At 31 December 2022 122,743,435 1,227
The Group holds 485,970 (2021: 485,970) of the above Company shares in
treasury.
29. Fair value measurement
Policy
See also basis of preparation note.
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 £200k (2021: £3,819k). 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.
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
2022 and 31 December 2021:
Level 1 Level 2 Level 3
At 31 December 2022 £000 £000 £000
Financial assets
Equity investments at FVTPL - - 11,986
Contingent consideration - - 914
Total - - 12,900
Level 1 Level 2 Level 3
At 31 December 2021 £000 £000 £000
Financial assets
Equity investments at FVTPL - - 15,183
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
£000
At 1 January 2022 15,183
Disposals (918)
Gain on disposal 1,168
Revaluations 292
Impairment (2,863)
Currency movements 38
At 31 December 2022 12,900
Valuation and sensitivity to valuation
The Group's finance team performs valuations of financial items for financial
reporting purposes, including Level 3 fair values. Where appropriate such
valuations are performed in consultation with third-party valuation
specialists for complex calculations.
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. Within the value of £12,900k above, £6,082k have no
price points in the past 12 months. 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
2022 2021
Adjusted share price £000 £000
+10% 1,290 1,519
-10% (1,290) (1,519)
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
2022 2021
Risk adjusted sales price £000 £000
-30% sales discount due to illiquid nature* (3,870) (4,556)
-12% risk discount for unwilling market place** (1,084) (1,276)
Value after discounts 7,946 9,353
* 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 contract assets, trade and other receivables,
cash and cash equivalents, contract liabilities, trade and other payables,
loans and borrowings, minority interest 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 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
(MI) 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
2022 2022 2021 2021
Exchange rate £000 £000 £000 £000
USD +10% 848 727 362 214
USD -10% (771) (661) (330) (195)
AUD +10% 490 321 526 349
AUD -10% (446) (292) (478) (317)
The year-end and average exchange rates to GBP for the significant currencies
are as follows:
Year-End Rate Average Rate
Currency 2022 2021 2022 2021
USD 1.21 1.35 1.20 1.35
AUD 1.77 1.86 1.77 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
the Group can sell to clients in a freely convertible currency. Within the
2022 year-end cash balances the Group holds £1,242k in Indian Rupees; £524k
in Libyan Dinars; and £3,725k in South African Rands.
30.4 - Interest rate risk
The Group is exposed to interest rate risk because it holds a banking facility
of up to £47m and a net overdraft facility of up to £2.5m, both based on
floating interest risks. 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 before tax for the year ended
31 December 2022 would (decrease)/increase by £(35)k / £35k (2021: £(100)k
/ £100k). 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 SONIA + 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 come 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 current year 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
At 31 December 2022 £000 £000 £000 £000 £000
Trade and other payables* (93,060) (34,996) (2,508) (976) (10)
Lease liabilities (2,256) (6,770) (8,149) (21,220) (31,363)
Loans and borrowings (59) (100) (6,802) - -
Overdrafts (4,271) - - - -
IFRS 9 put options - (2,584) - (1,272) -
Total (99,746) (44,350) (17,459) (23,468) (31,373)
* 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
At 31 December 2021 £000 £000 £000 £000 £000
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) (1,000)
Deferred and contingent consideration - (984) - - -
Total (113,321) (36,541) (13,359) (41,716) (36,944)
* excludes taxes as these are not considered financial instruments and
contract liabilities as these are not financial liabilities
Company
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
At 31 December 2022 £000 £000 £000 £000 £000
Trade and other payables (5,190) - - - -
Overdrafts (4,271) - - - -
Loans and borrowings - - (6,750) - -
Total (9,461) - (6,750) - -
At 31 December 2021 Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
£000 £000 £000 £000 £000
Trade and other payables (3,551) (361) (292) (161) -
Loans and borrowings - - - (19,528) -
Total (3,551) (361) (292) (19,689) -
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 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 and the risk of
default is considered low.
Impairment
The Group has one principal class of assets in scope for expected credit loss
test, trade receivables.
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 2022 or 31
December 2021 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 as at 31 December 2022 and 31 December 2021
was determined as follows for trade receivables under IFRS 15.
Trade receivables
31 December 2022 Not past due 0 - 30 days past due 31 - 90 days past due 91 - 120 days past due > 120 days past due Total
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables (£000's) 70,673 25,496 9,333 2,701 4,124 112,327
Calculated expected credit loss provision (£000's) 11 3 2 14 146 176
Specific further loss allowances (£000's) - - - - 1,653 1,653
Total loss allowance (£000's) 11 3 2 14 1,799 1,829
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 Total
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables (£000's) 72,941 19,200 6,107 956 3,302 102,506
Calculated expected credit loss provision (£000's) 11 2 1 5 117 136
Specific further loss allowances (£000's) - - - - 741 741
Total loss allowance (£000's) 11 2 1 5 858 877
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 the Group has 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 has used put option awards to incentivise
certain local key management (who are non controlling interest). 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
* This subsidiary company is exempt from the requirements relating to the audit
of individual accounts for the year ended 31 December 2022 by virtue of
Section 479A of the Companies Act 2006. M&C Saatchi plc (the "Company")
will guarantee the debts and liabilities of the subsidiary company in
accordance with Section 479C of the Companies Act 2006.
** Entities where all equity is directly held by the Company, all other
subsidiary companies' equity is either in part or wholly held via subsidiaries
of the Company.
As at 31 December 2022 Country Company Number Registered Office Address Specialism Effective % ownership 2022
United Kingdom
LIDA (UK) LLP* United Kingdom OC395890 36 Golden Square, London, W1F 9EE Advertising 100
LIDA Limited* United Kingdom 03860916 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi (UK) Limited* United Kingdom 03003693 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi Accelerator Limited* United Kingdom 09660056 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi Export Limited* United Kingdom 03920028 36 Golden Square, London, W1F 9EE Advertising 100
M & C Saatchi Marketing Arts Limited* United Kingdom 03357727 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi PR International Limited* United Kingdom 08838406 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi PR Limited* United Kingdom 07280464 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi PR UK LLP* United Kingdom OC362334 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi Shop Limited* United Kingdom 09660100 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi Talk Limited* United Kingdom 04239240 36 Golden Square, London, W1F 9EE Advertising 51
The Source (London) Limited* United Kingdom 07140265 36 Golden Square, London, W1F 9EE Advertising 100
The Source (W1) LLP* United Kingdom OC384624 36 Golden Square, London, W1F 9EE Advertising 90
This Is Noticed Limited* United Kingdom 11843904 36 Golden Square, London, W1F 9EE Advertising 68.5
Clear Ideas Consultancy LLP* United Kingdom OC362532 36 Golden Square, London, W1F 9EE Consulting 90
Clear Ideas Limited* United Kingdom 04529082 36 Golden Square, London, W1F 9EE Consulting 90
M&C Saatchi Fluency Limited* United Kingdom 12853921 36 Golden Square, London, W1F 9EE Consulting 80
M&C Saatchi Life Limited* United Kingdom 14338008 36 Golden Square, London, W1F 9EE Consulting 100
Influence Communications Limited* United Kingdom 04917646 36 Golden Square, London, W1F 9EE Consulting 95
Re Worldwide Ltd* United Kingdom 10503044 36 Golden Square, London, W1F 9EE Consulting 56.8
Thread Innovation Limited* United Kingdom 13510974 36 Golden Square, London, W1F 9EE Consulting 80
Alive & Kicking Global Limited* United Kingdom 11250736 36 Golden Square, London, W1F 9EE Dormant 100
Black & White Strategy Limited* United Kingdom 11295145 36 Golden Square, London, W1F 9EE Dormant 100
H2R Research Limited* United Kingdom 11668322 36 Golden Square, London, W1F 9EE Dormant 85
Human Digital Limited* United Kingdom 07510403 36 Golden Square, London, W1F 9EE Issues 60
M&C Saatchi World Services LLP* United Kingdom OC364842 36 Golden Square, London, W1F 9EE Issues 85
M&C Saatchi WS .ORG Limited* United Kingdom 10898282 36 Golden Square, London, W1F 9EE Issues 85
Tricycle Communications Limited* United Kingdom 07643884 36 Golden Square, London, W1F 9EE Issues 85
M & C Saatchi Network Limited* & ** United Kingdom 07844657 36 Golden Square, London, W1F 9EE Group Central Costs 100
Saatchinvest Ltd* United Kingdom 07498729 36 Golden Square, London, W1F 9EE Group Central Costs 100
M&C Saatchi International Holdings B.V. United Kingdom 24295679 (FC024340) 36 Golden Square, London, W1F 9EE Group Central Costs 100
M&C Saatchi European Holdings Limited* United Kingdom 05982868 36 Golden Square, London, W1F 9EE Group Central Costs 96
M&C Saatchi German Holdings Limited* United Kingdom 06227163 36 Golden Square, London, W1F 9EE Group Central Costs 100
M & C Saatchi International Limited* United Kingdom 03375635 36 Golden Square, London, W1F 9EE Local Central Costs 100
M&C Saatchi Middle East Holdco Limited* United Kingdom 09374189 36 Golden Square, London, W1F 9EE Local Central Costs 80
M&C Saatchi WMH Limited* United Kingdom 03457658 36 Golden Square, London, W1F 9EE Local Central Costs 100
M&C Saatchi Worldwide Limited* United Kingdom 02999983 36 Golden Square, London, W1F 9EE Local Central Costs 100
FYND Media Limited* United Kingdom 10104986 36 Golden Square, London, W1F 9EE Media 100
M&C Saatchi Mobile Limited* United Kingdom 05437661 36 Golden Square, London, W1F 9EE Media 100
M&C Saatchi Merlin Limited* United Kingdom 03422630 36 Golden Square, London, W1F 9EE Passions 70
M&C Saatchi Social Limited* (&) ** United Kingdom 09110893 36 Golden Square, London, W1F 9EE Passions 84
M&C Saatchi Sport & Entertainment Limited* United Kingdom 03306364 36 Golden Square, London, W1F 9EE Passions 75
Europe
M&C Saatchi (Switzerland) SA Switzerland 660-0442009-4 Boulevard Des Promenades 8, 1227, Carouge, Geneva, Switzerland Advertising 76
M&C Saatchi AB Sweden 556902-1792 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 70
M&C Saatchi Advertising GmbH Germany 95484 Munzstrasse 21-23, 10178, Berlin, Germany Advertising 96
M&C Saatchi Digital GmbH Germany 137809 Munzstrasse 21-23, 10178, Berlin, Germany Advertising 100
M&C Saatchi Go! AB Sweden 559076-6076 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 70
M&C Saatchi PR AB Sweden 559103-4201 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 70
M&C Saatchi PR S.r.L Italy IT08977250961 V.Le Monte Nero 76, Milano, 20135, Italy Advertising 100
M&C Saatchi SpA Italy IT07039280966 V.Le Monte Nero 76, Milano, 20135, Italy Advertising 100
Clear Deutschland GmbH Germany 113523 C/O Wework, Taunusanlage 8, 60329, Frankfurt Am Main, Germany Consulting 57
M&C Saatchi Sport & Entertainment Benelux B.V. Netherlands 860734560 Keizersgracht, 81015CN, Amsterdam Passions 100
M&C Saatchi Sports & Entertainment GmbH Germany 142905 Munzstrasse 21-23, 10178, Berlin, Germany Passions 93
Middle East and Africa
Black & White Customer Strategy (Pty) Limited South Africa 211/005859/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Advertising 50.1
Cape Town, South Africa
Creative Spark Interactive (Pty) Limited** South Africa 2010/016508/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Advertising 50.1
Cape Town, South Africa
Dalmatian Communications (Pty) Limited** South Africa 2015/396439/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Advertising 50.1
Cape Town, South Africa
M&C Saatchi Abel (Pty) Limited South Africa 2009/022172/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Advertising 50
Cape Town, South Africa
M&C Saatchi Africa (Pty) Limited** South Africa 2013/037719 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Advertising 50.1
Cape Town, South Africa
M&C Saatchi FZ LLC United Arab Emirates 177 PO Box: 77932, Abu Dhabi, United Arab Emirates Advertising 80
M&C Saatchi Middle East FZ LLC United Arab Emirates 30670 M&C Saatchi, Penthouse, Building 1, Twofour54, PO Box 77932, Abu Dhabi, Advertising 80
United Arab Emirates
Razor Media (Pty) Limited South Africa 2017/177757/07 9 8(th) Street, Houghton, Johannesburg, Gauteng, 2198, South Africa Advertising 49
M&C Saatchi Bahrain W.L.L Bahrain 74157 51,122,1605,316, Manama Center Dormant 100
M&C Saatchi Connect (Pty) Limited** South Africa 2013/037737/07 Media Quarter, 5(th) Floor, Corner, Somerset And De Smit Street, De Waterkant, Media 50.1
Cape Town, South Africa
Levergy Marketing Agency (Pty) Limited** South Africa 2005/021589/07 9 8(th) Street, Houghton, Johannesburg, Gauteng, 2198, South Africa Passions 70
Asia
Design Factory Sdn Bhd Malaysia 201001034805 No. 15B, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Advertising 100
Alam, Selangor Darul Ehsan, Malaysia
M&C Saatchi Advertising (Shanghai) Limited China 91310000740556813A Room 248, Floor 2, Unit 5, No.11, Wanghang Road, New Lingang Area, China Advertising 80
(Shanghai) Pilot Free Trade Zone, China
M&C Saatchi (Hong Kong) Limited Hong Kong 509500 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point, Hong Advertising 80
Kong
M&C Saatchi Spencer Hong Kong Limited Hong Kong 2661802 1(st) Floor, Catic Plaza, No.8 Causeway Road, Causeway Bay, Hong Kong Advertising 70
M&C Saatchi Communications Pvt Limited India U74300DL2005PTC141682 Flat No.270-D, Pocket C Mayur Vihar Phase II, New Delhi, 110091, India Advertising 94.8
Scarecrow M&C Saatchi Limited** India U22190MH2008PLC188548 2(nd) Floor, Kamani Chambers 32 Ramjibhai Kamani Marg, Ballard Estate Mumbai, Advertising 51
Mumbai City, MH 400038 IN, India
PT. MCS Saatchi Indonesia Indonesia 576/1/IU/PMA/2018 Dea Tower 1 Mezanine Floor, Jl. Mega Kuningan Kav.e4.3 No.1-2, Kuningan Timur, Advertising 50.1
Setiabudi, Jakarta Selatan, 12920, Indonesia
M&C Saatchi (M) Sdn Bhd Malaysia 606116-D No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Advertising 100
Alam, Selangor, Malaysia
M&C Saatchi Source (M) SDN BHD Malaysia 1313653-D No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Advertising 100
Alam, Selangor, Malaysia
Watermelon Production Sdn Bhd Malaysia 1083441 -M No.15b, 2(nd) Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Advertising 100
Alam, Selangor, Malaysia
M&C Saatchi World Services Pakistan (Pvt) Ltd Pakistan 0081911 48m, Block 6, P.Ec.H.S, Karachi, Pakistan Issues 43
M&C Saatchi (S) Pte Limited Singapore 199504816C 59 Mohamed Sultan Road, #02-08, Sultan-Link, Singapore Advertising 100
Clear Ideas (Singapore) Pte Limited Singapore 201020335R 59 Mohamed Sultan Road, #02-08, Sultan-Link, Singapore Consulting 86
Clear Asia Limited Hong Kong 1289028 6(th) Floor, Alexandra House, 18 Chater Road, Central, Hong Kong Dormant 95
Re HK Limited Hong Kong 2699219 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point, Hong Dormant 100
Kong
M&C Saatchi World Services (Singapore) Pte Limited Singapore 202104508W 59 Mohamed Sultan Road, #02-08, Sultan-Link, Singapore Issues 85
M&C Saatchi Asia Limited Hong Kong 1959819 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point, Hong Local Central Costs 100
Kong
M&C Saatchi Holdings Asia Pte Limited Singapore 20172 5519K 1 Coleman Street, #05-06a, The Adelphi, 179803 Singapore Local Central Costs 50.1
M&C Saatchi Mobile India LLP India AAK-8869 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049, India Media 100
M&C Saatchi Mobile Asia Pacific Pte Limited Singapore 201410399M 59 Mohamed Sultan Road, #02-08, Sultan-Link, Singapore Media 100
Australia
1440 Agency Pty Limited Australia 100 473 363 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Bellwether Global Pty Limited Australia 114 615 226 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Brands In Space Pty Limited Australia 129 800 639 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Elastic Productions Pty Limited Australia 635 737 861 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Go Studios Pty Limited Australia 092 941 878 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Greenhouse Australia Pty Limited Australia 629 584 121 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 78
Hidden Characters Pty Limited Australia 108 886 291 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 85.5
LIDA Australia Pty Limited Australia 125 908 009 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
M&C Saatchi Direct Pty Limited Australia 072 221 811 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
M&C Saatchi Melbourne Pty Limited Australia 004 777 379 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 89.9
M&C Saatchi Sydney Pty Limited Australia 637 963 323 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Park Avenue PR Pty Limited Australia 604 298 071 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Resolution Design Pty Limited Australia 621 985 288 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 90
Saatchi Ventures Pty Limited Australia 614 007 957 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 54
The Source Insight Australia Pty Limited Australia 618 841 928 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 58.5
This Film Studio Pty Limited Australia 624 003 541 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 63
Tricky Jigsaw Pty Limited Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 88
Ugly Sydney Pty Limited Australia 618 242 710 99 Macquarie Street, Sydney, NSW 2000, Australia Advertising 67.5
Re Team Pty Limited Australia 105 887 321 99 Macquarie Street, Sydney, NSW 2000, Australia Consulting 78.8
Yes Agency Pty Limited Australia 621 425 143 99 Macquarie Street, Sydney, NSW 2000, Australia Consulting 78.8
eMCSaatchi Pty Limited Australia 089 856 093 99 Macquarie Street, Sydney, NSW 2000, Australia Dormant 90
World Services (Australia) Pty Limited Australia 629 191 420 C/O Walker Wayland Services Pty Ltd, Suite 11.01, Leve 11, 60 Castlereagh St, Issues 85
Sydney NSW, Australia
M&C Saatchi Agency Pty Limited Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000, Australia Local Central Costs 90
M&C Saatchi Asia Pac Holdings Pty Limited Australia 097 299 020 99 Macquarie Street, Sydney, NSW 2000, Australia Local Central Costs 100
Bohemia Group Pty Limited Australia 154 100 562 99 Macquarie Street, Sydney, NSW 2000, Australia Media 90
M&C Saatchi Sport & Entertainment Pty Limited Australia 139 568 102 99 Macquarie Street, Sydney, NSW 2000, Australia Passions 81
Americas
Agência Digital Zeroacem Ltda Brazil NIRE-3522979148 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080, Brazil Advertising 46
CSZ Comunicação Ltda Brazil 03.910.644/0001-05 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080, Brazil Advertising 50.1
Lily Participações Ltda Brazil 21.188.539/0001-96 Avenida Brigadeiro Faria Lima, 1355, Jardim Paulistano 16 Andar, Sal, Sao Advertising 100
Paulo, 01452-919, Brazil
M&C Saatchi Brasil Participações Ltda Brazil 10.570.593/0001-85 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080, Brazil Advertising 100
M&C Saatchi, S.A. DE. C.V Mexico N-2017052183 Darwin 74, Piso 1, Miguel Hidalgo, 11590 Ciudad de México, CDMX, Mexico Advertising 60
Majority LLC USA 5445173 874 Walker Rd Ste C, Dover, Kent, Delaware 19904 USA Advertising 92.32
Santa Clara Participações Ltda Brazil 09.349.720/0001-31 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080, Brazil Advertising 50.1
Shepardson Stern + Kaminsky LLP USA 4656653 80 State Street, Albany, 12207-2543, New York, USA Advertising 100
Clear USA LLC USA 20-8599548 138 West 25(th) Street, Floor 5, New York, Ny 10001, USA Consulting 95
LIDA NY LLP (MCD) USA 4902983 138 West 25(th) Street, Floor 5, New York, NY 10001, USA Consulting 75.5
Clear LA LLC USA 6241713 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808, USA Dormant 95
Clear NY LLP USA 30-0891764 1209 Orange Street Wilmington, Delaware 19801, USA Dormant 95
LIDA USA LLP USA 6333479 251 Little Falls Drive, Wilmington, New Castle, 19808Delaware, USA Dormant 100
M&C Saatchi NY LLP USA 45-4683918 874 Walker Rd Ste C, Dover, Kent, Delaware 19904, USA Dormant 95
M&C Saatchi PR LLP USA 27-1665526 1740 Broadway, New York, 10019, USA Dormant 100
M&C Saatchi Share Inc. USA 5580330 160 Greentree Dr Ste 101, Dover, Kent, Delaware, 19904 USA Dormant 80
World Services US Inc. USA C2543767 88 Pine Street, 30(th) Floor Issues 100
New York NY 10005
United States
M&C Saatchi Agency Inc. USA 13-3839670 304 East 45(th) Street, New York, New York, 10017, USA Local Central Costs 100
M&C Saatchi Mobile LLC USA 45-3638296 2032 Broadway, Santa Monica California, 90404 USA Media 100
M&C Saatchi Sport & Entertainment LA LLC USA 6369786 874 Walker Rd Ste C, Dover, Kent, Delaware 19904 USA Passions 90
M&C Saatchi Sport & Entertainment NY LLP USA 46-5182795 160 Greentree Dr Ste 101, Dover, Kent, Delaware, 19904 USA Passions 69.5
Associate Entities
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.
As at 31 December 2022 Country Company Number Registered Office Address Specialism Effective % ownership 2022
Love Frankie Limited Thailand 105557000000 571 Rsu Tower, 10(th) Floor, Soi Sukhumvit 31, Sukhumvit Road, Wattana Advertising 21
District, Bangkok, Thailand
M&C Saatchi SAL Lebanon 1010949 Quantum Tower, Charles Malek Avenue, St Nicolas, Beirut, Lebanon Advertising 10
M&C Saatchi Little Stories SAS France 449386944 32 Rue Notre Dame Des Victoires, 75002 Paris, France Advertising 25.77
Cometis S.a.r.l France 384769592 14 Rue Meslay, 75003 Paris, France Advertising 49
M&C Saatchi Limited Japan 0110-01-060760 1-26-1 Ebisu-Nishi, Shibuya-Ku, Tokyo 150-0021, Japan Advertising 10
February Communications Pvt Limited India U74999DL2012PTC233245 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049, India Advertising 20
32. Related party transactions
Key management remuneration
Key management remuneration is disclosed in note 5.
Other related parties
During the year, the Group made purchases of £84k (2021: £418k) from its
associates. At 31 December 2022, there was £31k due to associates in respect
of these transactions (2021: £35k).
During the year, £127k (2021: £420k) of fees were charged by Group companies
to associates. At 31 December 2022, associates owed Group companies £38k
(2021: £123k).
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:
Capital commitments
At the year-end the Group had £56k committed costs (2021: £Nil) to acquire
property plant and equipment.
Other commitments
Other than the normal contractual commitments to staff and the commitment to
complete profitable projects for clients, the Group does not have any other
material commitments which are not reflected on the balance sheet.
34. Post-balance sheet events
As part of our simplification strategy, the Group continued to close down
small entities including Clear Deutschland GmbH, M&C Saatchi Share Inc and
Black & White Strategy Limited.
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 the Company's 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 the
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 Standards and Interpretations became
effective:
· Amendments to IAS 37 - Onerous Contracts: Cost of Fulfilling a Contract
· Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended
Use
· AIP (2018-2020 cycle): IFRS 9 Financial Instruments - Fees in the '10 per
cent' Test for Derecognition of Financial Liabilities
· Amendments to IFRS 3 - Reference to the Conceptual Framework
The above amendments do not have a material difference on the Group's
accounts.
At the date of authorisation of these 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 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
Applying IFRS 9 "Financial Instruments" with IFRS 4 'Insurance Contracts' IFRS Insurance
(Amendments to IFRS 4)
Amendments to IFRS 17 Changes to international insurance accounting
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) Application of consistency
Definition of Accounting Estimate (Amendments to IAS 8) Distinguishing between accounting policies and estimates
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practise Application of Materiality
Statement 2)
Deferred Tax - Amendments to IAS 12 Income Taxes Recognising deferred tax on leases
The Directors do not expect that the adoption of the Standards listed above
will have a material impact on the 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 KDLFFXZLZBBDRecent news on M&C Saatchi
See all newsREG - M&C Saatchi PLC - Notice of AGM
AnnouncementREG - M&C Saatchi PLC - Board changes
AnnouncementREG - M&C Saatchi PLC - Publication of Audited Annual Report and Accounts
AnnouncementREG - M&C Saatchi PLC - Full Year Results
AnnouncementREG - M&C Saatchi PLC - Notice of Results
Announcement