REG - M&C Saatchi PLC - Full Year Results
10/04/2024 07:00
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RNS Number : 9480J M&C Saatchi PLC 10 April 2024
M&C SAATCHI PLC
(the "Company", "M&C Saatchi" or the "Group")
Unaudited preliminary results for the year ended 31 December 2023 ("FY 23")
Material profit improvement in H2 and encouraging Q1 like-for-like momentum
Significant progress on transformation programme
Strengthened foundations for future growth
Zillah Byng-Thorne, Executive Chair, said:
"2023 was a year of strategic progress. We have begun to transform into a
leaner and more agile business laying the groundwork for sustained growth and
improved profitability ahead. There is much more to do on simplifying how we
interact with our clients and evolving our go-to-market strategy. With
strengthened cash generation, we expect to re-invest in value accretive
opportunities to enhance shareholder returns.
"I am delighted that Zaid Al-Qassab joins as CEO in May to lead M&C
Saatchi on its next phase of growth, building on a simplified operating model
and supported by our exceptional leaders.
"We are encouraged by our performance in the start to the year, and while
macro-economic uncertainty across our markets remains, our continuing
transformation, which is already delivering, underpins our confidence that we
will meet expectations."
Financial headlines
Headline results Statutory results
FY23 FY22 Change LFL FY23 FY22 Change
£m £m £m £m
Revenue 453.9 462.5 (2)% 453.9 462.5 (2)%
Net revenue 252.8 271.1 (7)% (2)%
EBITDA 41.5 45.2 (8)%
Operating profit 32.4 35.4 (8)% 7.3 10.5 (31)%
Profit before taxation 28.7 31.8 (10)% (1)% 0.7 5.4 (87)%
Earnings per share (EPS) 15.2p 14.8p 3% (2.9)p 0.1p
Operating profit margin 12.8% 13.1%
Dividends per share 1.6p 1.5p 6%
Note throughout: Headline results reflect the underlying
profitability of the business units, by excluding a number of items that are
not part of routine expenses. Note 1 of the financial statements reconciles
Statutory results to Headline results.
A like-for-like basis (LFL) applies constant foreign exchange rates and
removes entities discontinued during 2023.
· Net revenue £252.8m (FY22: £271.1m) down 2% excluding the impact
of the non-core businesses exited in H2 (LFL)
· Headline operating profit £32.4m (FY22: £35.4m) with H2 growing
30% on the prior H2 as a result of actions including:
o £3.9m of annualised cost savings as we accelerated the global efficiency
programme
o Exited non-core businesses representing c.£9m of revenue and c.£3m of
operating losses in FY23
· Operating margin 12.8% (FY22: 13.1%) with significant improvement in
the H2 margin to 16.9% compared with 8.3% in H1
· Headline profit before tax £28.7m (FY22 £31.8m), down 1% LFL
· Headline EPS 15.2p (FY22 14.8p) up 3% reflecting the reduction in
put option liabilities
· Net cash £8.3m (FY22: £30.0m), with liquidity headroom of £55m,
largely reflecting the settlement of put option cash liabilities with minority
interests now 13% of Headline profits (FY22: 25%)
· Proposed increased final dividend of 1.6p (FY22 1.5p) reflecting
our earnings performance
Operational performance
· Challenging market dynamics for Advertising, Consultancy and Media,
however, our actions on costs and progress in rationalising the portfolio
helped the H2 performance
· Strong performances from Issues and Passions contributed to an
increase in their proportion of the portfolio to 34% of net revenue (FY22
27%), demonstrating continuing diversification
· 119 awards and 216 new business wins including World Health
Organization, Porsche, adidas, Nike, Revlon, and McDonalds
Transformation programme
· Significant progress made in delivering our efficiency and
transformation plans including annualised cost efficiencies of £3.9m achieved
in FY23
· New operating model and go-to-market strategy, bringing us closer
to clients and better aligning our global capabilities with their needs
· Strengthened and simplified leadership structures led by Zillah
Byng-Thorne whose appointment as Executive Chair was effective from 1
September 2023
· Appointment of Zaid Al-Qassab as CEO, effective 13 May 2024; he
brings an extensive track record of advertising and market leadership,
managing global teams and brand-building expertise
· New roles of Chief People and Operations Officer to deliver the
transformation programme and Global Chief Creative Officer to be appointed to
deliver the new operating model
Current trading and outlook
· Our confidence in meeting FY24 expectations is underpinned by
encouraging Q1 momentum, despite continuing macroeconomic uncertainty
· Improved free cash generation in 2024 with the expected settlement
of the majority of the remaining put option liabilities
· We are confident that the structural changes we are making to our cost
base alongside our new operating model are increasing our operational leverage
potential which will help support future margin expansion
PRELIMINARY ANNOUNCEMENT
This preliminary announcement was approved by the Board on 9 April 2024. It
is not the Group's statutory accounts. Copies of the Group's audited statutory
accounts for the year ended 31 December 2023 will be available on the
Company's website in the coming days, and a printed version will be dispatched
to shareholders thereafter.
2023 RESULTS PRESENTATION
An in-person presentation will be held today at 9:00am at 36 Golden Square,
London, W1F 9EE, hosted by Zillah Byng-Thorne, Executive Chair, and Bruce
Marson, Chief Financial Officer.
Please email mcsaatchi@headlandconsultancy.com
(mailto:mcsaatchi@headlandconsultancy.com) to register to attend.
A webcast is available for those not able to attend in person:
https://events.teams.microsoft.com/event/cdbcb755-3135-400f-a7bb-e8f4ee9eec2e@bd5a0452-9909-41d4-9092-cf358a7950c5
(https://url.uk.m.mimecastprotect.com/s/hAeYCl5RiBnO5ofGPU4g?domain=events.teams.microsoft.com)
A replay will be also available on the Company's website following the event
https://mcsaatchiplc.com/
(https://url.uk.m.mimecastprotect.com/s/EJJdCmQqcmJ1K5IO4s5t?domain=mcsaatchiplc.com/)
FURTHER INFORMATION
M&C Saatchi +44 (0)20-7543-4500
Zillah Byng-Thorne, Executive Chair
Bruce Marson, Chief Financial Officer
Jill Sherratt, Investor Relations
Headland Consultancy +44 (0)20 3805 4822
Charlie Twigg
Liberum Capital - Nominated adviser and joint broker +44 (0)20-3100-2000
Max Jones, Edward Mansfield, Will King
Deutsche Numis - Joint broker +44 (0)20-7260-1000
Nick Westlake, Iqra Amin
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014.
EXECUTIVE CHAIR STATEMENT
2023 was a year of significant progress for M&C Saatchi. Our financial
results not only reflect the challenging market environment our businesses
operate in, but also the considerable progress that has been made in shaping
the Group to best deliver sustainable growth in the future.
We delivered a materially better financial performance in the second half of
the year, following the more challenging start to the year. This was partly
led by impressive contributions from Issues and Passions. The biggest drivers
of improvement were our own proactive actions on costs, accelerating our
structural transformation, and closing or divesting a number of loss-making
businesses which drove operating margin up from 8.3% in the first half to
16.9% in the second half.
Although much has already been achieved in transforming our Group, there is
more to do and 2024 will deliver further progress. The market environment
remains challenging, but 2024 will also benefit from the full-year impact of
the actions we have already undertaken and the planned actions we are yet to
deliver. This report will cover what we have been doing to improve our Group
and lay the foundations for what we all believe will be an exciting future for
the Company and all of its stakeholders.
PERFORMANCE
Market backdrop
2023 was a challenging year across our industry, particularly in the first
half. However, as we indicated at the interims, we had already accelerated our
global efficiency programme and were taking action on the loss-making,
non-core businesses within our portfolio. As a result, we were able to arrest
the decline and significantly improve profitability in the second half.
The early signs we noted at the half year, that pressure was easing on client
marketing budgets pointing to an improving market backdrop, are being
realised. Nevertheless, looking at the year overall, the more cyclically
exposed parts of our businesses felt pressure throughout the year. As a result
of this, Advertising, Media and Consulting were the most heavily affected
(particularly where they were exposed to large technology clients), while
Issues and Passions, which are less exposed to the broader marketing spend
cycle, continued to deliver strong growth and healthy margins, underpinning
the benefit of our diversified business model.
Operational performance
The resilience that our diversified portfolio lends the Group is evident in
this year's performance.
Advertising
· Represented 42% of the Group net revenue, down from 46% in 2022.
· 2023 was a challenging year encompassing a broad range of outcomes
across our geographical breadth, with the US and the UAE outperforming Asia
and Europe.
· Advertising was most affected by business exits and excluding
these, like-for-like (LFL) net revenue declined 8% (a 12% decline in the first
half and a 5% decline in the second half). Net revenue overall declined 15% in
the full-year, ahead of the 16% decline at the half year.
· Market sentiment has shown signs of improvement, but we remain
cautious on the outlook. Our self-help measures, including strengthened
leadership and internal improvements from operating as integrated, simpler
agencies, will be the key drivers of performance in 2024.
Issues
· Represented 20% of Group net revenue, up from 15% in 2022.
· Characterised by a global client base of both commercial and
non-commercial entities and multi-year engagements, which is less cyclical and
has been a strong contributor to the Group over the last two years.
· Delivered 21% net revenue growth; 22% on a LFL basis.
· The outlook for 2024 remains positive.
Passions
· Represented 14% of Group net revenue, up from 12% in 2022. In FY23,
PR's results are included in Advertising, but will be included in Passions
& PR from FY24 reflecting the consolidation taking place.
· This specialism encompasses our award-winning Sport &
Entertainment and Talent businesses. It is also characterised by multi-year
client engagements and benefits from the growing desire of brands to partner
and engage through consumer events and non-traditional channels.
· Passions delivered 8% net revenue growth; 10% on a LFL basis.
· The outlook for 2024 remains positive, and we expect to invest
further in this business to drive growth.
Consultancy
· Represented 14% of Group net revenue, in line with 2022.
· Broader market challenges in the consultancy sector were evident and
net revenue declined by 9%; 6% on a LFL basis.
· We acted on costs within this specialism, and re-aligned our business
structures and leadership. In addition, we have simplified our proposition,
launching M&C Saatchi Consulting, in order to make it simpler for our
clients to access our services.
· 2024 has started on a firmer footing than 2023, but we remain cautious
about market conditions.
Media
· Represented 10% of Group net revenue, down from 13% in 2022.
· This was the most challenged specialism in 2023 with a 23% decline
in net revenue; 21% decline on a LFL basis, notwithstanding a number of good
client wins. The decline was 30% in the first half and 12% in the second).
· Most impacted by the macro factors at the start of 2023 including the
reduction in spend from technology clients in the first half, coupled with
changes relating to privacy regulations.
· We have addressed costs in this business during the year and have
strengthened leadership to enable a focus on strategic growth.
· While we remain cautious about the structural headwinds the paid media
market faces in the short term, the outlook for 2024 is more promising. We
have seen a stronger start to the year compared to 2023.
PROGRESS ON SENIOR MANAGEMENT AND THE BOARD
Executive management
2023 was a year of significant change from a senior management and Board
perspective.
I would like to thank Moray MacLennan, who stepped down as a director at the
end of September 2023 following his intention to retire as Chief Executive
Officer, for his longstanding contribution and commitment to our Group. Moray
was instrumental in seeing the business return to a sound footing after a
particularly challenging period and laying the groundwork for its subsequent
growth.
We were delighted to announce the appointment of Zaid Al-Qassab as our new
Chief Executive Officer, joining in May 2024. I will then step back from my
interim role as Executive Chair to fulfil the role of Non-Executive Chair. Not
only does Zaid bring significant marketing industry experience with him, he
also brings a client perspective that will be critical to our customer-led
growth journey.
Over the course of the year, a key priority has been to streamline and
rebalance our Executive Leadership Team, resulting in a number of internal
promotions and external appointments. The new role of Chief Operations
Officer, with responsibility for the delivery of our global transformation
project, has been taken by Mark Dickinson-Keen in addition to his Chief People
role. We expect to announce the appointment of a Global Chief Creative Officer
shortly. This role will be critical as we roll out our new operating model,
providing a central focal point for the Group's creative ambition and
activities.
The Board
During the year Gareth Davis, my predecessor as Chair, and Lisa Gordon, Senior
Independent Director, stood down. I would like to thank both Gareth and Lisa
for the support and contribution to the Company over their tenure.
In January 2024, we welcomed Dame Heather Rabbatts to the Board as our new
Senior Independent Director. Dame Heather brings her experience across a range
of industries, including local government, infrastructure, media and sport.
Dame Heather has held a number of executive and non-executive roles.
We also welcomed Chris Sweetland to the Board as a non-independent
Non-Executive Director. Chris is the nominated representative of AdvancedAdvT
Limited and Vinodka Murria, who hold in aggregate 22.2% of the Company's
issued share capital. Chris brings substantial relevant experience as previous
Deputy Group Finance Director of WPP Group and is an excellent addition to our
Board.
PROGRESS ON TRANSFORMATION
The transformation of our business is multi-phased with significant progress
made in 2023.
1. The initial phase has focused on securing short-term efficiency and cost
savings and reviewing the loss-making businesses within our Group. This is now
well underway and we have made very tangible progress.
2. In the next stage, we will focus on shaping our business for the future
and what that means for the structure of our Group.
1. Cost savings and portfolio rationalisation
The purpose of initial phase was three-fold:
· To deliver a structural and long-term improvement to our Group
operating margin.
· To simplify our Group structure and ensure that all the businesses
within Group are wholly aligned with our new operating model and go-to-market
strategy.
· To free up the capital required to support these businesses and
allow this capital to be re-invested where longer-term growth opportunities
are more attractive.
At our interim results we announced that we would be accelerating and
refocusing our global efficiency programme. We have made good progress,
exceeding our 2023 target with £3.9m of fully annualised cost savings
delivered by the year-end. We remain on course to deliver an additional £6.1m
of annualised savings by the end of 2024 totalling c £10m.
In 2023 we incurred £3.3m of exceptional costs relating to our global
efficiency programme, of which £1.1m was cash and £2.2m represented property
impairment charges. For 2024, we expect a higher level of costs to be incurred
but we still expect the total cost of this programme, both cash and accounting
costs, to be in line with our previous guidance of 0.5x to 1.0x the level of
annualised cost savings delivered.
Where we focused our efforts in 2023:
· People. Focus primarily on our Group head office and functions
where roles are no longer necessary or likely to be duplicated.
· Property. Rationalising and optimising our UK, Australian and US
property portfolios.
· Procurement. Seeking greater efficiency around our use of service
suppliers and internal cost centres such as travel.
Looking forward to 2024, we see further material gains to be made from:
· Optimising and rationalising our group support functions including
Finance, IT and HR to create shared service centres to support the Group on a
global basis.
· Further gains from our property portfolio with more efficient use
of our UK property.
· Rationalising our IT service provision through group-wide
deployments.
· Focus on creation of centres of excellence for our middle office
functions and common capabilities, specifically production, data and analytics
and social media.
Business portfolio rationalisation:
Above and beyond the operational cost savings we are making, we have also been
actively reviewing our portfolio, in particular a number of non-core or
loss-making businesses. Significant progress has been made and we have exited
from businesses that, in aggregate, represented a consolidated c.£9m of
revenue and c.£3m of operating losses in 2023, including:
· Sweden. We reduced our interest from 70% to 30%, with the
management team acquiring our interest.
· Asia. We have closed, wound down, or exited through local
management buy-outs, a number of our smaller offices across this region,
including in China, Hong Kong, Indonesia and Singapore. We have also
consolidated our regional structure into a unified regional headquarters for
APAC.
· UK. We have exited several of our smaller, non-core businesses and
have merged our agencies into an integrated new UK Agency.
For a number of the businesses that have been disposed of, we have entered
into future relationship agreements that enable these businesses to continue
to use the M&C Saatchi brand. In return for the use of our brand rights,
and to remain connected to our global network, these businesses will pay an
ongoing licence fee to the Group. This allows us to continue to share in their
success as independent businesses, albeit not solely at the equity level, and
transforms them into a profit centre for the Group rather than a cost centre.
In the first quarter of 2024, the Group divested of its shareholdings in its
three French associate investments, for €1m. More recently on 9 April 2024,
the Group announced the divestment of its shares in the M&C Saatchi South
Africa Group for £5.6m. Once completed, these transactions mean that we will
have materially completed the simplification of our business portfolio.
2. Shaping of the business for the future
Building on our creative heritage
Creativity is a word that has often been associated with M&C Saatchi, and
with good reason. Our position in the market has been hard won over the years
through a dedication to creativity to empower our clients by cutting through a
crowded and competitive brand landscape. M&C Saatchi has always been a
business that has dared to be different.
However, creativity must have a purpose and be accompanied, supported, and
enhanced by other skills and specialisms that fit the broader and evolving
needs of our clients. M&C Saatchi exemplifies exactly that exciting
breadth of skills and passions.
The challenge is not whether we have the capability, it is how best to align
these capabilities with our customers. This is about removing the internal
barriers to growth that our historic approach had put in place to reflect the
changing needs of our clients.
Regional first
We solve the problem of client complexity and proximity by going towards, and
becoming closer to, our clients and presenting a clear and integrated solution
to them. Our existing regional presence already places us close to our clients
but rather than presenting a narrow, regional set of solutions to them, we
will open up the full range of capabilities that exist within our global
specialisms.
We also need to recognise the client opportunities that this model is ideally
suited for. These are the regional champions that need the full suite of our
capabilities but have yet to go fully global themselves. These are the
businesses that we can grow with over the long term and deliver a meaningful
impact to. We recognise that we have a core competency in helping the
businesses that are ambitious, that are at an inflection point facing
competitive or market challenges that we can deliver solutions to.
Global specialism delivery
A regional first focus does not imply no global client mandates. Our
specialisms already work with a wide array of global clients on a global
basis, and we do not see this changing. Instead, a regional first focus means
that our global specialist teams will be exposed to a broader array of
clients. We want our global specialisms to be busier. We see this as the
fastest route to bring our unique suite of skills closer to more of our
clients.
Supported by global shared services and an integrated agency model
Critical to the success of this regional first, global specialism delivery
model is a group and agency structure that will enable delivery on this basis
and remove internal barriers.
· Global shared services. This is about efficiency and the speeding
up of client delivery. By creating global service centres that deliver
Group-wide support and back-office functions, we can streamline and increase
the agility of our client-facing regional hubs. Not only will this enhance our
margins by removing duplicated functions and reducing procurement costs, it
will also decrease complexity, and increase our flexibility and speed of
response.
· Integrated agency model. We reduce the complexity of our client
offer by reducing the number of distinct, and often disconnected, faces we
present to them. Our clients need to see us as a partner that can deploy the
requisite skills at the right time to solve the issues they face.
Our Australian businesses are an integrated agencies into a single,
go-to-market proposition. We have created a new integrated agency in the UK
and we will see further integration as the year progresses. This is about
recognising that the template for success already exists within the Group and
ensuring that we make this our uniform approach.
The simplification of our structure, coupled with the simplification of our
balance sheet will liberate the capital, both fixed and working, that will be
needed to deliver this new operating model across the Group.
CAPITAL ALLOCATION
M&C Saatchi is capable, over the medium-term, of converting at least 80%
of its operating profits into cash, although each future year will undoubtedly
see some degree of variability through the cycle. Putting aside the one-off
impacts on cash generation in 2023, our streamlined portfolio of businesses,
our new operating model and go-to-market strategy give us a high degree of
confidence in the potential for sustainable and growing free cash generation.
Our strategy to evolve and grow M&C Saatchi will require investment.
Aligned to our regional first, global delivery-led approach, we will seek to
re-invest to drive long-term growth and to add capability, capacity and scale
in the parts of the Group that will generate the greatest return. We will
remain open to opportunities to accelerate that through selective M&A. We
expect that the majority of acquisitions would be bolt-on in nature and
address gaps in our client-facing capabilities and regional coverage.
Our confidence in the Group's ability to generate sustainable and growing free
cash underpins our view on capital allocation. We are comfortable operating
with a net debt to EBITDA ratio not exceeding 1.5 times, although we would
allow for a temporary spike in the case of a material acquisition.
By simplifying our Group, good execution, re-investing in growth, and
selective bolt-on acquisitions, we believe we can deliver a compelling
proposition of returns to shareholders including capital growth, a progressive
dividend, and a robust, optimal balance sheet.
OUTLOOK
Over the last 12 months, there have been many changes at M&C Saatchi
against a background of significant market volatility. The Board has
materially changed, including the appointment of a new Chair and Chief
Executive Officer designate while our markets have been challenging,
particularly in the technology sector. As such, we have taken the decision to
no longer provide long-term targets and will, instead, provide nearer-term
guidance.
2024 has started with renewed energy and focus and encouraging first quarter
momentum. While our end markets continue to be affected by macro-economic
uncertainty, we expect Headline profit before tax for 2024 to be in line with
expectations. We are confident that the structural changes we are making to
our cost base alongside our new operating model are increasing our operational
leverage potential which will help support future margin expansion.
We have evolved the senior leadership team increasing capabilities and
alignment. Zaid Al-Qassab's arrival as our new Chief Executive Officer is at
the core of this process and sets the scene for our delivery over the coming
years.
We are well progressed on building a simplified operating model which places
our regional focus and global specialist expertise at the heart of everything
we do. This will ensure we can continue to be unashamedly bold, creative,
entrepreneurial and fearless in the work we do with our clients.
Our focus is on growing returns for our shareholders by investing in
capabilities and driving the Group forward with renewed purpose. We have a
marked advantage in being able to operate at scale with the agility of a
start-up, allowing us to move at pace.
FINANCIAL REVIEW
Headline results Statutory results
£m FY23 FY22 Movement FY23 FY22 Movement
Revenue 453.9 462.5 (2)% 453.9 462.5 (2)%
Net revenue* 252.8 271.1 (7)% - - -
EBITDA* 41.5 45.2 (8)% - - -
Operating profit 32.4 35.4 (8)% 7.3 10.5 (31)%
Profit before taxation 28.7 31.8 (10)% 0.7 5.4 (87)%
Profit/(loss) for the year 21.3 24.0 (11)% (2.8) 0.2 -
Earnings/(loss)** 18.5 18.1 2% (3.5) 0.1 -
Earnings/(loss) per share 15.2p 14.8p 3% (2.9)p 0.1p -
Operating profit margin % 12.8% 13.1% (0.3) pts - - -
Dividends per share 1.6p 1.5 6%
The Group generated £252.8m of net revenue in 2023, 7% lower than last year,
but with strong growth in our Issues business (+21%) and in our Passions
business (+8%). The downturn in the technology sector and client hesitancy to
commit to new projects affected Media (-23%), Advertising (-15%) and
Consultancy (-9%).
Headline operating profit for the Group in 2023 was £32.4m, £3.0m lower than
last year, with the full impact of our cost actions benefitting the second
half of the year (H2 operating profit of £22.4m, £5.1m (30%) higher than
last year). Headline operating profit margin for the full year was 12.8% (0.3
pts lower than last year), with H2 margin of 16.9% (4.7 pts higher than last
year).
H1 Headline results H2 Headline results
£m H123 H122 Movement H223 H222 Movement
Net revenue 120.4 129.4 (7)% 132.4 141.7 (7)%
Operating profit 10.0 18.1 (45)% 22.4 17.3 30%
Profit before taxation 8.8 16.0 (45)% 19.9 15.8 26%
Earnings 5.5 7.8 (30)% 12.6 10.3 22%
Operating profit margin 8.3% 14.0% (5.7) pts 16.9% 12.2% 4.7 pts
Headline profit before tax in 2023 for the Group was £28.7m (2022: £31.8m).
Excluding Advertising, the other specialisms contributed £29.8m of profit
before tax (2022: £31.6m), driven by ongoing growth and margin improvement in
Issues, offset by lower revenue and margin declines in Media and Consulting,
with Passions delivering similar profit to last year. Advertising contributed
£6.2m of profit before tax (2022: £9.9m), with profit growth in the UK,
South Africa and the UAE offset by declines in Australia, Asia, Europe and the
US. The Group's central costs reduced by £2.3m to £7.4m, due to lower
bonuses and audit fees.
Exceptional costs relating to our global efficiency programme amounted to
£3.3m of which £1.1m was cash and £2.2m represented property impairment
charges. For 2024, we expect a higher level of exceptional costs to be
incurred but we still expect the total cost of this programme, both cash and
accounting items, to remain in line with our previous guidance of 0.5x to 1.0x
the level of annualised cost savings delivered.
On a statutory basis, the Group delivered operating profit of £7.3m (2022:
£10.5m) and a profit before tax of £0.7m (2022: £5.4m profit).
Due to the exercise of put options in the year, minority interests have
diminished to 13% of Headline profits (2022: 25%), which results in Headline
earnings of £18.5m, 2% higher than last year. Headline earnings per share has
grown 3% to 15.2p (2022: 14.8p). Statutory earnings per share were (0.6p)
(2022: 0.1p).
The Group remains in a net cash position of £8.3m (2022: £30.0m), after
£15.4m of put option payments and a £14.5m of working capital absorption
(driven by £8m reduction in bonus accruals, a £3m reduction in minority
interest profit share liabilities and £3m relating to changing revenue mix).
Our net cash position at the end of the first quarter showed an improvement
compared with December.
Segmental review
Advertising remains the largest specialism, comprising 42% of total net
revenue (2022: 46%). The other four specialisms have increased their share of
total net revenue to 58% (2022: 54%). This shift away from Advertising
continues to improve our overall operating margin mix, as these other
specialisms have an average operating profit margin of 22%, compared to
Advertising with an operating profit margin of 8%.
There has been a marked shift in revenue between the different specialisms
over recent years as shown by the table below, with Issues, Passions and
Consulting all increasing their contribution to the Group since 2020.
Net revenue Advertising Issues Passions Consulting Media Total
share
2023 42% 20% 14% 14% 10% 100%
2022 46% 15% 12% 14% 13% 100%
2021 51% 14% 10% 12% 13% 100%
2020 61% 13% 8% 8% 10% 100%
The Group's net revenue decreased 7% in 2023. However, the reduction was 2%
on a LFL basis, if we exclude those entities the Group disposed of, closed or
wound down through the course of 2023, and the impact of foreign exchange
movements. During the year, the Group disposed of Clear Deutschland, and more
recently M&C Saatchi Spencer Hong Kong Limited, and reduced its interest
in M&C Saatchi Sweden AB. The Group also announced in 2023 that it was in
negotiations to divest of M&C Saatchi Holdings Asia Pte. Limited, which is
now complete. During 2023 the decision was made to wind down a number of
smaller, non-core businesses in Advertising and Consulting. No businesses were
acquired in 2023.
Net revenue by Reported Like-for-like
specialism FY23 Movement FY23 Movement
£m versus 2022 £m versus 2022
Advertising 105.5 (15)% 97.4 (8)%
Issues 51.1 21% 51.1 22%
Passions 36.2 8% 36.2 10%
Consulting 33.7 (9)% 33.1 (6)%
Media 26.3 (23)% 26.3 (21)%
Group 252.8 (7)% 244.1 (2)%
Note: A like-for-like basis applies constant foreign exchange rates and
removes entities discontinued during 2023.
Due to the tougher trading conditions in Advertising, cost actions were taken
which reduced operating costs by 13% in 2023. This helped maintain operating
Advertising profit margins at 8% (2022: 9%).
Operating costs outside of Advertising grew 3% in 2023, driven by the growth
of Issues and Passions, partially offset by cost reduction actions in Media
and Consulting in reaction to their lower client spend. The net result was a
slight reduction in our non-Advertising specialisms operating margin to 22%
(2022: 24%).
The impact of our global efficiency programme reduced our Group central
operating costs by £3.7m (33%). This helped the Group maintain its overall
operating margin of 13%.
Advertising Other specialisms Group central costs Total
FY23 £m £m £m £m
Net revenue 105.5 147.3 - 252.8
Operating costs (97.5) (115.2) (7.7) (220.4)
Operating profit / (loss) 8.0 32.1 (7.7) 32.4
Operating profit margin 8% 22% - 13%
Profit / (loss) before tax 6.2 29.8 (7.3) 28.7
Advertising Other specialisms Group central costs Total
FY22 £m £m £m £m
Net revenue 124.3 146.8 - 271.1
Operating costs (112.6) (111.8) (11.3) (235.7)
Operating profit / (loss) 11.7 35.0 (11.3) 35.4
Operating profit margin 9% 24% - 13%
Profit / (loss) before tax 9.9 31.6 (9.7) 31.8
Regional review
On a geographic basis, the UK remains our biggest region, supported by the
significant growth of Issues, which offsets the contraction of UK Advertising.
Following the decision to discontinue many of the Asia businesses, we have
merged Asia and Australia into a new APAC region, managed from Australia.
Also, given the growth and prospects in the Middle East and our new executive
leadership structure, we have split out Middle East and Africa. However, we
retain a good geographic mix of businesses. The recent shifts in share of
revenue by region can be seen in the table below:
Net revenue UK APAC Americas Africa Europe Middle East Total
share
2023 40% 26% 19% 6% 6% 3% 100%
2022 36% 29% 20% 6% 6% 2% 100%
2021 39% 30% 17% 6% 6% 2% 100%
2020 39% 26% 15% 5% 13% 2% 100%
Net revenue by Reported Like-for-like
region FY23 Movement FY23 Movement
£m versus 2022 £m versus 2022
UK 102.3 0% 101.2 1%
APAC 65.6 (17)% 60.7 (10)%
Americas 46.9 (10)% 46.9 (8)%
Africa 16.1 (6)% 16.1 8%
Europe 14.4 (5)% 11.7 18%
Middle East 7.5 18% 7.5 19%
Group 252.8 (7)% 244.1 (2)%
Note: A like-for-like basis applies constant foreign exchange rates and
removes entities discontinued during 2023.
Discontinued businesses
At the end of 2023, it was decided to dispose, wind-down or close a number of
non-core businesses in Advertising (Hong Kong, Singapore, Indonesia, China,
Sweden, Majority and Accelerator) and in Consulting (Thread Innovation and
M&C Saatchi Life). In 2023, these businesses contributed £8.7m in net
revenue and a loss before tax of £3.1m. The Group's 2023 net revenue
excluding these discontinued operations would have been £244.1m (2% lower
than last year) and the Group's 2023 profit before tax would have been £31.8m
(1% lower than last year), with an operating profit margin of 14.2% (0.2 pts
higher than last year).
Headline results Like-for-like
£m FY23 FY22 Movement FY23 FY22 Movement
Net revenue 252.8 271.1 (7)% 244.1 249.9 (2)%
Operating profit 32.4 35.4 (8)% 34.6 35.1 (1)%
Profit before taxation 28.7 31.8 (10)% 31.8 32.0 (1)%
Operating profit margin % 12.8% 13.1% (0.3 pts) 14.2% 14.0% 0.2 pts
Key movements between Statutory to 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.
FY23 FY22
£000 £000
Statutory profit before taxation 715 5,423
Separately disclosed items 7,652 13,352
Put option accounting - IFRS 9 and IFRS 2 6,316 2,233
FVTPL investments under IFRS 9 5,067 1,587
Impairment of intangible assets 4,794 564
Dividends paid to IFRS 2 put option holders 2,499 7,811
Impairment of non-current assets 2,004 -
Amortisation of acquired intangibles 537 597
Revaluation of contingent consideration - 266
Revaluation of associates on disposal (133) -
Gain on disposal of subsidiaries and associates (782) -
Headline profit before taxation 28,669 31,833
Financial income and expense
The Group's financial income and expense includes bank interest, lease
interest and fair value adjustments to minority shareholder put option
liabilities (IFRS 9).
Bank interest payable for the year was £2.3m (2022: £1.2m) due to higher
interest rates on the Company's revolving multicurrency credit facility
agreement and increased drawdown on the facility during the year.
The interest on leases decreased to £2.9m (2022: £3.0m) due to leases ending
in 2022.
The fair value adjustment of put option liabilities created a charge of £2.1m
(2022: charge of £1.1m). This increase is due to increased profitability in
the agencies where there are outstanding IFRS 9 put option arrangements.
Tax
Headline tax
Our Headline tax rate has increased from 24.5% to 25.6%. The increase is
primarily due to the increase in the effective UK corporation tax rate from
19.0% to 23.5%.
Statutory tax
The Statutory tax rate changed from 96% in 2022 to 492% in 2023. We expect
large variations in Statutory tax rates, 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.
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 2023, the share of profits
attributable to non-controlling interests reduced to £2.8m (2022: £5.9m)
representing a reduction in minority interests to 13% of profit after tax
(2022: 25%). 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 £15.4m.
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). Their share of
the entity's Statutory profit is paid as dividends each year, which are
reported as staff costs in the Statutory results.
Dividends
The Company paid a 2022 dividend of £1.8m (1.5p per share) to its
shareholders in 2023 (2022: £nil). We understand the importance of returning
capital to shareholders, and, given the earnings performance during the year,
the Board is recommending the payment of an increased final dividend of 1.6
pence per share.
Subject to shareholder approval at the Annual General Meeting, to be held on
16 May 2024, the dividend will be paid on 24 June 2024 to shareholders on the
register at 10 May 2024. The shares will go ex-dividend on 9 May 2024.
Cash flow
Total gross cash (excluding bank overdrafts) at 31 December 2023 was £24.3m
(2022: £41.5m). Cash net of bank borrowings (net cash) was £8.3m, compared
to £30.0m in 2022.
In 2023, the Group generated operating cash from trading (before working
capital) of £31.5m (2022: £40.3m) before dividends to IFRS 2 put option
holders (£2.5m) and £15.4m of payments to acquire non-controlling interests
(2022: £12.1m). There was a £14.5m net outflow from working capital (2022:
£4.8m inflow), driven by £8m reduction in bonus accruals, £3m reduction in
minority interest profit share liabilities, and £3m relating to changing
revenue mix. The Company made £9.1m of lease payments (2022: £10.3m). In
addition, £1.8m of tangible and intangible fixed assets and investments were
purchased in 2023 (compared to £5.6m in 2022, which was primarily due to the
one-off investment in the new office in Sydney, Australia).
Net operating cash flow (operating cash generated from operating (excluding
put option payments and non-Headline cash costs) net of purchases of
intangible / tangible fixed assets and the principal payment on leases) for
the year was £17.3m which represents a cash conversion from Headline
operating profit of 53% (2022: 106%).
The following table sets out the key movements in net cash during 2023:
Movement in net cash FY23 FY22
£m £m
Net cash at the beginning of the year 30.0 34.4
Increase in cash from trading 31.5 40.3
Cash consideration for non-controlling interest acquired (15.4) (12.1)
Decrease in cash from working capital movements (14.5) 4.8
Payment of lease liabilities (9.1) (10.3)
Tax paid (4.2) (6.7)
Dividends paid to IFRS 2 put option holders (2.5) (7.8)
FX movement on cash held (2.2) 2.7
Purchases of intangible/tangible fixed assets (1.8) (5.6)
Dividends paid to Company shareholders (1.8) -
Net interest paid (1.5) (0.8)
Costs associated with the takeover defence - (10.8)
Other movements (0.2) 1.9
Net cash at the end of the year 8.3 30.0
Banking arrangements
On 7 March 2024, the Company entered into a new revolving multicurrency
facility agreement with National Westminster Bank Plc, HSBC UK Bank plc and
Barclays Bank PLC for up to £50m (the "New Facility"), with a further £50m
extension if required for strategic acquisitions.
The New Facility is provided on a three-year term with two one-year
extensions. This New Facility is to refinance the existing £47m facility with
National Westminster Bank Plc and Barclays Bank PLC (the "Old Facility") which
would have matured on 31 May 2024. At 31 December 2023, the Group had up to
£47.0m (2022: £47.0m) of funds available under the Old Facility.
The primary purpose of the New Facility is to provide the Group with
additional liquidity headroom to support any variations in working capital and
provide funding for bolt-on acquisitions. At 31 December 2023, £16.0m was
drawn on the Old Facility compared to £7.0m at 31 December 2022.
Capital expenditure
Total capital expenditure in 2023 (including software acquired) decreased to
£1.8m (2022: £5.6m). This included £0.7m on furniture, fittings and other
equipment (2022: £1.7m), £0.6m on computer equipment (2022: £1.6m), £0.5m
on leasehold improvements (2022: £1.1m), and £0.0m on software and film
rights (2022: £1.0m).
SUMMARY
Our performance in 2023 was mixed in several ways. A challenging first half
was followed by a more encouraging second half and we saw strong revenue
growth in Issues and Passions, while fighting difficult market conditions in
Advertising, Media and Consulting. As we look ahead, the Group has started
2024 with renewed energy and focus. While our end markets continue to be
affected by macro-economic uncertainty, we expect Headline profit before tax
for 2024 to be in line with expectations. We are confident that the structural
changes we are making to our cost base alongside our new operating model are
increasing our operational leverage potential which will help support future
margin expansion.
UNAUDITED CONSOLIDATED INCOME STATEMENT
2023 2022
Total Total
Year ended 31 December Note £000 £000
Billings (unaudited) 4 526,013 597,520
Revenue 4 453,913 462,533
Project cost / direct cost (201,148) (191,393)
Net revenue 4 252,765 271,140
Staff costs 5 (187,621) (198,765)
Depreciation 17,18 (8,816) (9,326)
Amortisation 15 (841) (1,060)
Impairment charges 15,18 (6,798) (564)
Other operating charges (36,876) (48,522)
Other (losses) / gains 20 (4,898) (1,403)
Loss allowance 21 (422) (952)
Gain on disposal of subsidiaries 11 782 -
Operating profit 7,275 10,548
Share of results of associates and joint ventures 16 121 (10)
Finance income 7 831 391
Finance expense 7 (7,512) (5,506)
Profit before taxation 715 5,423
Taxation 8 (3,517) (5,178)
(Loss)/Profit for the year (2,802) 245
Attributable to:
Equity shareholders of the Group (3,529) 90
Non-controlling interests 727 155
(Loss)/Profit for the year (2,802) 245
Profit per share
Basic (pence) 1 (2.89)p 0.07p
Diluted (pence) 1 (2.89)p 0.07p
Headline results
Operating profit 1 32,436 35,388
Profit before taxation 1 28,669 31,833
Profit after tax attributable to equity shareholders of the Group 1 18,545 18,105
Basic earnings per share (pence) 1 15.17p 14.81p
Diluted earnings per share (pence) 1 14.38p 13.47p
EBITDA 1 41,544 45,167
The notes form part of these financial statements.
UNAUDITED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
2023 2022
Year ended 31 December £000 £000
(Loss)/Profit for the year (2,802) 245
Other comprehensive (loss)/profit*
Exchange differences on translating foreign operations (4,287) 4,785
Other comprehensive (loss)/profit for the year net of tax (4,287) 4,785
Total comprehensive (loss)/profit for the year (7,089) 5,030
Total comprehensive profit attributable to:
Equity shareholders of the Group (7,816) 4,785
Non-controlling interests 727 155
Total comprehensive (loss)/profit for the year (7,089) 5,030
*All items in the consolidated statement of comprehensive income may be
reclassified to the income statement.
The notes form part of these financial statements.
UNAUDITED CONSOLIDATED BALANCE SHEET
2023 2022
At 31 December Note £000 £000
Non-current assets
Intangible assets 15 34,593 41,968
Investments in associates and JV 16 138 191
Plant and equipment 17 7,007 8,310
Right-of-use assets 18 33,772 43,992
Investment properties 13 2,369 -
Other non-current assets 19 2,302 1,107
Deferred tax assets 9 6,036 5,131
Financial assets at fair value through profit or loss 20 7,227 11,986
Deferred and contingent consideration 14 738 914
94,182 113,599
Current assets
Trade and other receivables 21 123,686 132,067
Current tax assets 4,321 3,909
Cash and cash equivalents 24,326 41,492
152,333 177,468
Assets held for sale 12 780 -
153,113 177,468
Current liabilities
Trade and other payables 22 (133,850) (155,547)
Provisions 23 (1,050) (1,056)
Current tax liabilities (743) (481)
Borrowings 24 (15,943) (4,430)
Lease liabilities 18 (5,751) (6,448)
Minority shareholder put option liabilities 27/28 (9,891) (18,419)
(167,228) (186,381)
Net current liabilities (14,115) (8,913)
Total assets less current liabilities 80,067 104,686
Non-current liabilities
Deferred tax liabilities 9 (1,235) (1,245)
Corporation tax liabilities 9 - (856)
Borrowings 24 - (6,802)
Lease liabilities 18 (43,692) (49,122)
Minority shareholder put option liabilities 27/28 (3,525) (4,429)
Other non-current liabilities 25 (2,079) (4,046)
(50,531) (66,500)
Total net assets 29,536 38,186
2023 2022
At 31 December Note £000 £000
Equity
Share capital 29 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 (2,506) (2,896)
Non-controlling interest acquired (33,168) (32,984)
Foreign exchange reserve 2,351 6,638
Accumulated losses (26,232) (21,303)
Equity attributable to shareholders of the Group 29,003 38,013
Non-controlling interest 533 173
Total equity 29,536 38,186
Reserves are defined in Note 36 of the financial statements.
These financial statements were approved and authorised for issue by the Board
of Directors on 9 April 2024 and signed on its behalf by:
Bruce Marson
Chief Financial Officer
M&C Saatchi plc
Company number 05114893
The notes form part of these financial statements.
UNAUDITED 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 2021 1,227 50,327 37,554 (550) (6,615) (29,190) 1,853 (22,122) 32,484 373 32,857
Share option charge 28 - - - - - - - 1,229 1,229 - 1,229
Amounts paid on settlement of LTIP 28 - - - - - - - (500) (500) - (500)
Exercise of put options 27 - - - - 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
Share option charge 28 - - - - - - - 434 434 - 434
Exercise of put options 27 - - - - 390 (184) - - 206 (206) -
Dividends 10 - - - - - - - (1,834) (1,834) (161) (1,995)
Total transactions with owners - - - - 390 (184) - (1,400) (1,194) (367) (1,561)
Total profit for the year - - - - - - - (3,529) (3,529) 727 (2,802)
Total other comprehensive income for the year - - - - - - (4,287) - (4,287) - (4,287)
At 31 December 2023 1,227 50,327 37,554 (550) (2,506) (33,168) 2,351 (26,232) 29,003 533 29,536
The notes form part of these financial statements.
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December Note 2023 2022
£000
Restated*
£000
Operating profit 7,275 10,548
Adjustments for:
Depreciation of plant and equipment 17 2,573 2,480
Depreciation of right-of-use assets 18 6,243 6,846
Impairment of right-of-use assets 18 1,884 -
Loss on sale of plant and equipment 271 165
Impairment of plant and equipment 17 132 -
Loss on sale of software intangibles - 175
Revaluation of financial assets at FVTPL 20 4,722 1,403
Revaluation of contingent consideration 14 176 266
Amortisation and impairment of acquired intangible assets 15 1,764 597
Impairment of goodwill and other intangibles 15 3,733 556
Impairment and amortisation of capitalised software intangible assets 15 138 635
Exercise of share-based payment schemes with cash 27 - (500)
Exercise of put options* 28 (14,637) (9,607)
Equity settled share-based payment expenses 28 841 1,229
Operating cash before movements in working capital 15,115 14,793
Decrease/(Increase) in trade and other receivables 9,924 (4,187)
(Decrease)/Increase in trade and other payables (24,437) 9,104
(Decrease) / Increase in provisions (6) (137)
Cash (consumed by)/generated from operations 596 19,573
Tax paid (4,156) (6,712)
Net cash from operating activities (3,560) 12,861
Investing activities
Disposal of associate or subsidiary (net of cash disposed of) 11 (209) -
Investment loans 20 (608) -
Proceeds from sale of unlisted investments 20 49 918
Purchase of plant and equipment 17 (1,827) (4,383)
Purchase of capitalised software 15 (19) (1,192)
Interest received 7 831 391
Net cash consumed by investing activities (1,783) (4,266)
Net cash from operating and investing activities (5,343) 8,595
Financing activities
Dividends paid to equity holders of the Company (1,834) -
Dividends paid to non-controlling interest (161) (430)
Cash consideration for non-controlling interest acquired and other options* 27 (785) (2,497)
Payment of deferred consideration - (1,250)
Payment of lease liabilities 18 (6,228) (7,307)
Proceeds from bank loans 24 9,000 -
Repayment of bank loans 24 (164) (13,410)
Interest paid 7 (2,318) (1,200)
Interest paid on leases 18 (2,876) (2,970)
Net cash consumed by financing activities (5,366) (29,064)
Net decrease in cash and cash equivalents (10,709) (20,469)
Effect of exchange rate fluctuations on cash held (2,186) 2,711
Cash and cash equivalents at the beginning of the year 37,221 54,979
Total cash and cash equivalents at the end of the year 24,326 37,221
Net debt reconciliation
Cash and cash equivalents 24,326 41,492
Bank overdrafts*** 24 - (4,271)
Total cash and cash equivalents at the end of the year 24,326 37,221
Bank loans and borrowings** 24 (16,043) (7,212)
Net cash 8,283 30,009
* The cashflow statement for 2022 has been restated (Note 28 of the financial
statements).
**Bank loans and borrowings are defined in Note 24 of the financial
statements; they exclude the lease liability of £53,735k (2022: £55,570k)
(Note 18 of the financial statements).
*** These overdrafts can be legally offset with other cash balances. They have
not been netted off in accordance with IAS32.42 in 2022 as there was no
intention to settle on a net basis. However, they have been netted off in 2023
as the cash balance and the overdraft balance is with the same bank and there
is intention to settle this on a net basis.
The notes form part of these financial statements.
PREPARATION
Preliminary announcement
This preliminary announcement was approved by the board of directors on 9
April 2024. It is not the Group's statutory accounts. Copies of the Group's
audited statutory accounts for the year ended 31 December 2023 will be
available at the company's website in the coming days, and a printed version
will be dispatched to shareholders thereafter.
Basis of preparation
The financial statements have been prepared in accordance with UK adopted
international accounting standards, in conformity with the requirements of the
Companies Act 2006.
The 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, as
discussed in the Directors' Report and the Report of the Audit & Risk
Committee.
The Board has 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 has formed its opinion after evaluating four different severe but
plausible forecast scenarios and a reverse stress test, extending to 31
December 2025. The four scenarios comprise:
1. A significant reduction in new business wins.
2. A significant increase in wage inflation.
3. A significant number of top clients are lost.
4. A significant economic downturn.
These severe but plausible scenarios are assumed to materialise from Q1 2024
onwards. The estimated decline in EBITDA ranges from £11m to £24m compared
to the base case plan for the cumulative period ending 31 December 2025,
including a £5m to £14m decline in EBITDA in 2024.
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, has concluded that the going concern basis of preparation continues
to be appropriate.
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.
Material accounting policies
Certain of the Group's accounting policies are considered by the Directors to
be material due to the level of complexity, judgement, or estimation involved
in their application and their potential impact on the financial statements.
The critical accounting policies are listed below and explained in more detail
in the relevant notes to the financial statements.
Revenue recognition
The Group's revenue is earned from the provision of advertising and marketing
services, together with commission-based income in relation to media spend and
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 of the financial statements 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 27 of the financial statements) or as a put option under IFRS 2
(Note 28 of the financial statements) - 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 28 of the financial statements 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 of the financial
statements) 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 of the financial statements) 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.
· Revaluation of associates on transition to assets held for sale.
· Impairment of right-of-use assets, leasehold improvements, acquired
intangibles and goodwill.
· Gains or losses generated by disposals of subsidiaries.
· Fair value adjustments to unlisted equity investments,
acquisition-related contingent consideration and put options.
· Dividends paid to IFRS 2 put option holders. However, in
non-controlling interest, we deduct profit share attributable 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 20 of the financial statements). 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
financial statements.
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 has 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 three 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 15 (Intangible Assets) of the financial statements,
Note 16 (Investments in associates and joint ventures) of the financial
statements, and Note 18 (Leases) of the financial statements.
The Group has recognised a total impairment charge of £6,798k in the year
(2022: £564k), of which £4,794k relates to Intangibles (2022: £728k) and
£1,884k relates to the impairment of right-of-use assets (2022: reversal of
£164k). There was a £132k impairment in the year of plant and equipment
(2022: £nil). There was no impairment in the year of associate investments
(2022: nil).
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.
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.
Changes in such estimates would allow unrecognised deferred tax to be
recognised and vice versa. Analysis of deferred tax can be seen in Note 9 of
the financial statements.
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 20
of the financial statements).
ii. Certain contingent consideration (Note 14 of the financial
statements).
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 30 of the financial statements.
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 applies 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 28 of the financial
statements.
Leasing estimates
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.
NOTES TO THE FINANCIAL STATEMENTS
1. Headline results, earnings per share and EBITDA
The analysis below provides a reconciliation between the Group's Statutory
results and the Headline results for the current year.
Statutory Separately disclosed items Gain/loss on disposal of subsidiaries Revaluation of associates on transition to assets held for sale Impairment of intangible assets Impairment of non-current assets Dividends paid to IFRS 2 put holders Put option accounting Headline results
2023 (Note 2) (Note 15) (Note 17, 18) (Note 5)* (Note 27 & 28)
Amortisation of acquired intangibles FVTPL investments under IFRS 9 (Note 20)
(Note 15)
Year ended 31 December 2023 Note £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000
Billings (unaudited) 526,013 - - - - - - - - - 526,013
Revenue 453,913 - - - - - - - - - 453,913
Net revenue 252,765 - - - - - - - - - 252,765
Staff costs 5 (187,621) 6,908 - - - - - - 2,499 4,203 (174,011)
Depreciation 17,18 (8,816) - - - - - - - - - (8,816)
Amortisation 15 (841) - - - 537 - - - - - (304)
Impairments 15,18 (6,798) - - - - 4,794 2,004 - - - -
Other operating charges (37,298) 744 - - - - - (644) - - (37,198)
Other losses 20 (4,898) - - - - - - 4,898 - - -
Gain on disposal of subsidiaries 782 - (782) - - - - - - - -
Operating profit 7,275 7,652 (782) - 537 4,794 2,004 4,254 2,499 4,203 32,436
Share of results of associates and JV 16 121 - - (133) - - - - - - (12)
Finance income 7 831 - - - - - - - - - 831
Finance expense 7 (7,512) - - - - - - 813 - 2,113 (4,586)
Profit before taxation 8 715 7,652 (782) (133) 537 4,794 2,004 5,067 2,499 6,316 28,669
Taxation 8 (3,517) (1,821) - - (198) (28) (536) (1,178) - (65) (7,343)
Profit for the year (2,802) 5,831 (782) (133) 339 4,766 1,468 3,889 2,499 6,251 21,326
Non-controlling interests 727 - - - - - - - 2,054 - 2,781
Profit attributable to equity holders of the Group** (3,529) 5,831 (782) (133) 339 4,766 1,468 3,889 4,553 6,251 18,545
The non-controlling interest charge is moved to operating profit due to
underlying equity being defined as an 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, earnings per share and EBITDA 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 Impairment of non-current assets Revaluation of contingent consideration (Note 14) Dividends paid to IFRS 2 put holders Put option accounting Headline results
2022 (Note 2) (Note 15) (Note 15 & 18) (Note 5)* (Note 27 & 28)
FVTPL investments under IFRS 9 (Note 20)
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 17,18 (9,326) - - - - - - - (9,326)
Amortisation 15 (1,060) - 597 - - - - - (463)
Impairments 15,18 (564) - - 564 - - - - -
Other operating charges (49,474) 9,940 - - (272) 266 - - (39,540)
Other losses 20 (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 16 (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 an 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, earnings per share and EBITDA 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 2023 2023 2023
Profit attributable to equity shareholders of the Group (£000) (3,529) 18,545
Basic earnings per share
Weighted average number of shares (thousands) 122,257 122,257
Basic EPS (2.89)p 15.17p
Diluted earnings per share
Weighted average number of shares (thousands) as above
Add
- LTIP - 1,500
- Put options - 5,247
Total 122,257 129,004
Diluted EPS (2.89)p 14.38p
Excluding the put options (payable in cash) - (5,247)
Weighted average number of shares (thousands) including dilutive shares 122,257 123,757
Diluted EPS - excluding items the Group intends and is able to pay in cash (2.89)p 14.99p
As 2023 Basic EPS is negative, no adjustment has been made for LTIP and put
options in the Dilutive EPS calculation, as these would be anti-dilutive, i.e.
would increase EPS had they been included.
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 (payable in cash) 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 EBITDA
2023 2022
£000 £000
Profit Before Tax (Headline) 28,669 31,833
Add back:
Headline depreciation & amortisation (incl. IFRS 16) 9,120 9,789
Headline finance expense (incl. IFRS 16) 4,586 3,936
Headline finance income (831) (391)
EBITDA 41,554 45,167
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 2023 comprise of the
following:
2023 Staff costs Operating Taxation After tax
£000 costs £000 total
£000 £000
Restructuring - discontinued businesses 1,481 18 (340) 1,159
Restructuring - ongoing businesses 3,200 85 (810) 2,475
Restructuring - global efficiency programme 438 251 (160) 529
CEO/Executive Chair compensation 1,514 - (355) 1,159
Transformation project costs 275 390 (156) 509
Total separately disclosed items 6,908 744 (1,821) 5,831
The Group has been pursuing a strategy to simplify its operating structure and
improve efficiency across the Group. In 2023, three programmes of
restructuring have been undertaken:
· The Group has shut down certain loss-making overseas and UK
subsidiaries and incurred redundancy costs as part of the agreement with the
disposed or closed businesses. This programme will continue into 2024.
· The Group's global efficiency programme has also started to
identify and reduce specific central HQ roles, which will no longer be
required in the Group. This programme will continue into 2024.
· Local businesses within the Group have reviewed their own future,
permanent operational structures, following market changes, which has resulted
in staff redundancy costs in the period across 28 ongoing businesses across
the Group. The restructuring costs are treated as separately disclosed items
only when a role has been permanently eliminated from the business (there
should be no intention for the role to be replaced in the next 12 months).
These local programmes have been completed, but new programmes may be
undertaken in future, depending on local market conditions.
The staff costs associated with these restructuring programmes have been
treated as an exceptional non-Headline cost, as they are one-off exit costs
relating to compensation to employees for periods not worked. The operating
costs mainly relate to the future rates and service charges for the 30 Great
Pulteney Street office in London, which has now been vacated (£233k).
CEO compensation relates to the 12 months of staff costs relating to the
gardening leave of the former CEO, which has not been worked. These have been
treated as an exceptional non-Headline cost, as these costs are legally
committed by the business, but with no benefit to the business.
The Executive Chair has fulfilled the CEO role, which triggered the loss of
future compensation from her previous employment, which the Company has agreed
to bear. These have been treated as an exceptional non-Headline cost, as these
costs relate to the Executive Chair's performance in another business.
In the second half of 2022, the Group commenced a global efficiency programme,
with the assistance of PricewaterhouseCoopers LLP (PwC). PwC's professional
fees (£390k) and the staff costs of the project team dedicated to this
transformation project (£275k) have been classified as separately disclosed
items in line with the treatment in 2022, as this is a strategic, one-off
project with a finite end that is not part of the underlying operations of the
business. PwC have completed its work, but the project team will continue to
manage the project through to conclusion in 2025.
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 was subject to two competing bids to take control and
full ownership of the business. Managing the Company's response to these two
bids 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, PwC's professional fees in relation to the global cost efficiency
programme were classified as non-Headline (£992k). In addition, within three
of the agencies in the Group, a strategic review 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 dispute in relation to a put option arrangement.
3. Segmental information
Headline segmental income statement
Segmental results are reconciled to the income statement in Note 1 of the
financial statements. 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 Americas Asia Pacific Africa Europe Middle East Group Central Costs Total
(APAC)
Year Ended 31 December 2023 £000 £000 £000 £000 £000 £000 £000 £000
Net revenue 102,709 46,933 64,959 16,080 14,575 7,509 - 252,765
Operating profit / (loss) 20,867 6,608 7,816 1,869 1,570 1,343 (7,637) 32,436
Operating profit margin 20% 14% 12% 12% 11% 18% - 13%
Profit / (loss) before tax 19,235 5,542 6,776 1,753 1,459 1,294 (7,390) 28,669
UK Americas Asia Pacific Africa Europe Middle East Group Central Costs Total
(APAC)
Year Ended 31 December 2022 £000 £000 £000 £000 £000 £000 £000 £000
Net revenue 98,241 55,205 79,010 17,012 15,316 6,356 - 271,140
Operating profit / (loss) 19,528 9,970 12,768 2,000 1,852 625 (11,355) 35,388
Operating profit margin 19% 18% 16% 14% 12% 10% - 13%
Profit / (loss) before tax 17,416 8,278 11,726 1,655 1,832 625 (9,699) 31,833
Included within the Group's revenues is a customer that makes up more than 10%
of total revenue, contributing £43.1m (2022: £32.8m). This is included
within the UK, Americas and within the High Growth Specialisms.
Segmental Information by Division
Advertising Specialisms Group Central Costs Total
Year Ended 31 December 2023 £000 £000 £000 £000
Net revenue 105,456 147,309 - 252,765
Operating profit / (loss) 8,011 32,062 (7,637) 32,436
Operating profit margin 8% 22% - 13%
Profit / (loss) before tax 6,238 29,821 (7,390) 28,669
Advertising 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
Non-current assets other than excluded items:
2023 2022
As at 31 December £000 £000
UK 40,386 41,293
Asia Pacific (APAC) 16,127 26,342
Americas 15,315 17,131
Europe 4,735 6,136
Africa 2,696 3,782
Middle East 1,660 884
Total non-current assets other than excluded items 80,919 95,568
Non-current assets excluded from analysis above:
Deferred tax assets 6,036 5,131
Other financial assets 7,227 11,986
Total non-current assets per balance sheet 94,182 112,685
Allocation of non-current assets by country is based on the location of the
business units. Items included comprise fixed assets, intangible assets, IFRS
16 assets and equity accounted investments.
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 of the financial
statements).
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 that 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 2023 2022 2023 vs 2022
Specialism £m £m Movement
Advertising 205.0 221.8 (8)%
Issues 111.4 92.7 20%
Passions 69.5 65.5 6%
Consulting 38.7 45.9 (16)%
Media 29.3 36.6 (20)%
Group 453.9 462.5 (2)%
Reported
Revenue 2023 2022 2023 vs 2022
Region £m £m Movement
UK 199.1 139.3 43%
Asia Pacific (APAC) 101.7 128.5 (21)%
Americas 72.7 116.8 (38)%
Africa 33.8 32.8 (3)%
Europe 29.4 24.9 18%
Middle East 17.3 20.2 (15)%
Group 453.9 462.5 (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 purchase order 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 21 of the
financial statements) brought forward have been realised 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
regard 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.
Some entities within the Group enter 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, the most likely outcome is estimated by management and then
that outcome is reflected 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 regard 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)
Note 2023 2022
Year ended 31 December £000 £000
Wages and salaries** 152,647 156,476
Social security costs 14,600 16,152
Pension costs 8,393 8,833
Other staff costs* 4,205 5,832
Total 179,845 187,293
Allocations and dividends paid to holders of IFRS 2 put options 1 2,499 7,811
Share based incentive plans:
Cash settled 28 4,843 2,432
Equity settled 28 434 1,229
Total share based incentive plans 5,277 3,661
Total staff costs 187,621 198,765
* Other staff costs include profit share, LTIP charges and other staff
benefits.
** Includes bonuses
Staff numbers 2023 2022
UK 769 772
Europe 182 166
Middle East 76 73
Africa 368 348
Asia Pacific (APAC) 969 1,035
Americas 342 340
Total 2,706 2,734
These staff numbers are based on the average number of staff throughout the
year in 2023.
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
2023 2022
Key management remuneration £000 £000
Wages and salaries 1,750 2,214
Pension costs 53 53
Share based payments* - 381
Total 1,803 2,648
*Included within share based payments is £nil (2022: £174k) 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. Refer to the
Directors' Remuneration Report for details of the Directors' remuneration,
including the highest paid Director.
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:
2023 2022
Year ended 31 December £000 £000
Audit services
Fees payable to the Company's auditor for the audit of the Company's annual 1,450 1,506
accounts
Fees payable to associates of the Company's auditor for the audit of the 205 174
accounts of subsidiaries
Audit fees relating to the prior period 154 300
1,809 1,980
Other services provided by the auditors:
Other assurance services - interim agreed upon procedures 8 25
Corporate finance services 3 499
Taxation compliance services 149 168
Taxation advisory services 73 176
233 868
Total 2,042 2,848
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 2023 2022
£000 £000
Bank interest receivable 412 331
Other interest receivable 414 55
Sublease finance income 5 5
Financial income 831 391
Bank interest payable (2,318) (1,200)
Amortisation of loan costs (190) (222)
Other interest payable (14) -
Interest on lease liabilities (2,876) (2,970)
Valuation adjustment to IFRS 9 put option liabilities (Note 27) (2,114) (1,114)
Financial expense (7,512) (5,506)
Net finance expense (6,681) (5,115)
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 2023 2022
£000 £000
Taxation in the year
UK 1,955 730
Overseas 3,832 3,020
Withholding taxes payable 54 14
Adjustment for (over) / under provision in prior periods (606) (986)
Total 5,235 2,778
Deferred taxation
Recognition of temporary differences (1,320) 1,719
Adjustment for under / (over) provision in prior periods 253 709
Recognition of previously unrecognised deferred tax (548) -
Effect of changes in tax rates (103) (28)
Total (1,718) 2,400
Total taxation 3,517 5,178
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:
2023 2023 2022 2022
Year ended 31 December £000 % £000 %
Profit before taxation 715 5,423
Taxation at UK corporation tax rate of 23.50% (2022: 19.00%) 168 23.5% 1,030 19.0%
Option charges not deductible for tax 1,724 241.8% 1,070 19.7%
Impairment with no tax credit 1,099 154.2% 138 2.5%
Tax losses for which no deferred tax asset was recognised 962 134.9% 834 15.4%
Expenses not deductible for tax 627 88.0% 1,314 24.2%
Different tax rates applicable in overseas jurisdictions 140 19.6% 1,081 20.0%
Withholding taxes payable 54 7.6% 14 0.3%
Tax effect of associates 3 0.4% 2 0.0%
Disposal of associate on which no tax is charged (72) -10.1% - -
Effect of changes in tax rates (103) -14.4% - -
Disposal of subsidiaries on which no tax is charged (184) -25.8% - -
Adjustment for tax (over)/under provision in prior periods (353) -49.5% (277) -5.1%
Recognition of previously unrecognised deferred tax (548) -76.9% - -
Effect of changes in tax rates on deferred tax - - (28) -0.5%
Total taxation 3,517 493.3% 5,178 95.5%
Effective tax rate 493.3% 95.5%
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:
· 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.
· 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.
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 them
being capital in nature. This increased the non-deductible expenses in 2022
that has not been repeated in 2023.
· The net effect of the adjustment for current and deferred tax in
prior periods is a release of an over provision of £353k (2022: £277k over
provision) of total tax charge.
· Due to restructuring, we were able to recognise £548k (2022:
£nil) of unrecognised deferred tax.
· 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 the US (between 21% to 28%), the difference
reduced in the year as the UK tax rate increased from 19% to 25% in April
2023.
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 the US.
Our Headline tax rate has increased from 24.5% to 25.6%. The key movements in
the Headline tax rates are as follows:
· Tax losses for which no deferred tax asset is recognised and
recognition of historic unprovided deferred tax caused a net (1.6)% reduction
in taxation. We continue to explore ways to recognise our historic
unrecognised tax. Our disposals will reduce the number potential entities with
tax losses that we have no certainty on future profits.
· Our acquisition of partnership interest has boosted tax by 1.6%
although this is offset by reduced minority share (this is because partnership
share of profits are received by minorities without tax deduction).
· There was an increase in our historical overprovision of tax
causing a net (0.4)% reduction in tax rates.
· The increase in the UK tax rates offset by a reduced difference to
overseas tax rates increased our tax charge by 1.8%.
· Other movements (0.3)%.
2023 2023 2022 2022
Year ended 31 December £000 % £000 %
Headline profit before taxation (Note 1) 28,669 31,833
Taxation at UK corporation tax rate of 23.50% (2022: 19.00%) 6,737 23.5% 6,048 19.0%
Tax losses for which no deferred tax asset was recognised 693 2.4% 683 2.1%
Expenses not deductible for tax 627 2.2% 781 2.5%
Different tax rates applicable in overseas jurisdictions 439 1.5% 1,297 4.1%
Withholding taxes payable 54 0.2% 14 0.0%
Tax effect of associates 3 0.0% 2 0.0%
Effect of changes in tax rates (24) -0.1% - -
Non-controlling interest share of partnership income (285) -1.0% (818) -2.6%
Adjustment for tax (over)/under provision in prior periods (353) -1.2% (246) -0.8%
Recognition of unprovided for deferred tax (548) -1.9% - -
Effect of changes in tax rates on deferred tax - - 29 0.1%
Headline taxation (Note 1) 7,343 25.6% 7,790 24.5%
Headline effective tax rate 25.6% 24.5%
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 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, or (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 that
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
2023 2022
At 31 December £000 £000
Deferred tax assets 6,036 5,131
Deferred tax liabilities (1,235) (1,245)
Net deferred tax 4,801 3,886
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 the Group and movements in 2023 and 2022.
Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total
£000 £000 £000 £000 £000 £000
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
Exchange differences 154 207 (322) - (820) (781)
Income statement (charge) / credit (1,040) 243 51 994 1,470 1,718
Disposals - - (23) - 1 (22)
At 31 December 2023 (1,255) 2,393 1,724 - 1,939 4,801
Based on the 2024 budget and three-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 £711k (2022: £1,556k) 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 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
At 31 December 2023
Deferred tax assets 197 2,441 1,724 - 2,385 6,747
Deferred tax liabilities (1,452) (48) - - (446) (1,946)
Net deferred tax (1,255) 2,393 1,724 - 1,939 4,801
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.
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:
Interest Capital revaluation Losses Total Deferred tax impact*
£000 £000 £000 £000 £000
At 1 January 2023 - - 10,633 10,633 2,145
Exchange differences - - (356) (356) (60)
Written off in year - - (3,499) (3,499) (863)
Previously unrecognised 5,589 - - 5,589 1,174
Losses utilised in year (732) - (1,878) (2,610) (548)
Losses in year - 228 3,464 3,692 962
At 31 December 2023 4,857 228 8,364 13,449 2,810
* At local tax rates.
Expiry date of unrecognised deferred tax:
2023 2022
£000 £000
One to five years 89 24
Five to ten years 3 565
Ten years or more 2,718 1,556
Total 2,810 2,145
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 dividends were declared in 2022 or 2023.
A final dividend for 2022 of 1.5 pence per share was approved at the Company's
Annual General Meeting on 14 June 2023, which was a total amount of £1,834k.
This was 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 was 8 June
2023.
The payment of this dividend did not have any tax consequences for the Group.
A final dividend for 2023 of 1.6 pence per share has been recommended by the
Board, which is a total amount of £1,956k. The final dividend, if approved at
the Company's Annual General Meeting on 16 May 2024, will be paid on 24 June
2024 to all shareholders on the Company's register of members as at 10 May
2024. The ex-dividend date for the shares is 9 May 2024.
2023 2022
£000 £000
2022 final dividend paid 1.5p on 12 July 2023 1,834 -
Total 1,834 -
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.
· Recognises the gain or loss associated with the loss of control
attributable to the former controlling interest.
Analysis
The Group divested of certain overseas subsidiaries in line with its strategy
to simplify its operating structure and improve efficiency across the Group.
M&C Saatchi AB and M&C Saatchi Spencer Hong Kong Limited predominately
formed part of Advertising and were acquired by the existing local leadership
teams. Clear Deutschland GmbH formed part of Consulting and was acquired by
the existing local leadership teams.
The Group disposed its entire shareholding in M&C Saatchi Spencer Hong
Kong Limited for nil consideration and in Clear Deutschland GmbH for a
consideration of €102k.
The Group reduced its interest in M&C Saatchi AB from 70% to 30% with the
management team and directors of M&C Saatchi AB, acquiring the Company's
interest for nominal consideration. M&C Saatchi AB became an equity
accounted investment.
The total cash outflow relating to the disposal of these subsidiaries was
£209k.
The Headline results of the entities disposed in 2023, which have been
included in the results for the year, were as follows:
Year ended 31 December 2023 Europe APAC Total
£000 £000 £000
Revenue 3,502 2,059 5,561
Project cost / direct cost (834) (1,346) (2,180)
Net revenue 2,668 713 3,381
Staff costs (2,358) (862) (3,220)
Depreciation (137) (94) (231)
Other operating charges (442) (230) (672)
Operating (loss) / gain (269) (473) (742)
Finance expense (67) (43) (110)
(Loss) / profit before taxation (336) (516) (852)
There were no disposals in 2022.
The gain on disposal of the subsidiaries is calculated as follows:
2023 2022
£000 £000
Consideration received in cash and cash equivalents 88 -
Total consideration 88 -
Plant and equipment 6 -
Right-of-use assets 321 -
Other non-current assets 22 -
Deferred tax assets 23 -
Trade and other receivables 2,370 -
Current tax assets 52 -
Cash and cash equivalents 297 -
Trade and other payables (2,934) -
Current tax liabilities (52) -
Lease liabilities (327) -
Less net liabilities 310 -
Reversal of put option liability* 472
Gain on disposal of subsidiaries 782 -
* As part of the disposals, all put option obligations have been rescinded.
12. Assets held for sale
Policy
Non-current assets, or disposal groups comprising assets and liabilities, are
classified as held-for-sale if it is highly probable that they will be
recovered primarily through sale rather than through continuing use.
The following conditions must be met for an asset to be classified as held for
sale (IFRS 5.6-8):
· Management is committed to a plan to sell.
· The asset is available for immediate sale.
· An active program to locate the buyer is initiated.
· The sale is highly probable, within 12 months of classification as
held for sale.
· The asset is being actively marketed for sale at a sales price
reasonable in relation to its fair value.
· Actions required to complete the plan indicate that it is unlikely
that plan will be significantly changed or withdrawn.
· The assets need to be disposed of through sale.
Measurement
· At the time of classification as held for sale: immediately before
the initial classification of the asset as held for sale, the carrying amount
of the asset will be measured in accordance with applicable IFRSs. Resulting
adjustments are also recognised in accordance with applicable IFRSs (IFRS
5.18).
· After classification as held for sale: non-current assets that are
classified as held for sale are measured at the lower of carrying amount and
fair value less costs to sell. (IFRS 5.15-15A).
Analysis
Investments in subsidiaries
The Group sold its shares in PT MCS Saatchi Indonesia to the company's founder
for a consideration of £500k on 16 January 2024. The investment was held at
nil value in December 2023.
Investments in associates and financial assets at fair value through profit or
loss
The Group owns a 10% shareholding in Australie SAS (France) that was acquired
in March 2021. This investment is held as financial assets at fair value
through profit or loss in the consolidated balance sheet. The Group owns 49%
in Cometis SARL and 25% in M&C Saatchi Little Stories SAS. These
investments are held as Investments in associates in the consolidated balance
sheet. The sale process of these investments commenced in the last quarter of
2023 and completed on 28 March 2024 for consideration of €1m.
The investment in Australie, the investment in our associates in France and
the investment in PT MCS Saatchi Indonesia, were reclassified to Assets held
for sale as of December 2023 according to IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations.
2023 2022
£000 £000
At 1 January - -
Reclassification from investment in associates (Note 16) 172 -
Reclassification from FVTPL (Note 20) 608 -
At 31 December 780 -
13. Investment property
Policy
IAS 40 Investment property applies to the accounting for property (land and/or
buildings, or part of a building, or both) held (by the owner, or by the
lessee, under a finance lease) to earn rentals or for capital appreciation (or
both).
Investment property is initially measured at cost and subsequently at fair
value with any change recognised in profit or loss.
Up to the date when an owner-occupied property becomes an investment property
carried at fair value, an entity depreciates the property (or the right-of-use
asset) and recognises any impairment losses that have occurred. The entity
treats any difference at that date between the carrying amount of the property
in accordance with IAS 16 or IFRS 16 and its fair value in the same way as a
revaluation in accordance with IAS 16.
Rental income from investment property is recognised on a straight-line basis
over the term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income, over the term of the lease.
Analysis
At times, entities of the Group will sublet certain of their properties when
their underlying business requirements change.
Investment property compromises one floor in our London (UK) office valued at
£802k and one floor in our Sydney (Australia) office valued at £1,568k. We
moved out from these floors in November and in December 2023 respectively.
These properties are currently on the market with the aim to sublet them.
The investment property value represents the estimated rental income that the
Group could get in the current market by renting out these spaces.
2023 2022
£000 £000
At 1 January - -
Reclassification from Right-of-use assets (Note 18) 2,369 -
Foreign exchange - -
At 31 December 2,369 -
14. 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 30 of the financial statements).
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
Assets 2023 2022
£000 £000
Non-current
Contingent consideration
Saatchinvest Ltd 738 914
Total non-current 738 914
Liabilities 2023 2022
£000 £000
Current
Contingent consideration
Scarecrow M&C Saatchi Ltd* - -
Total current - -
*There is contingent consideration owed to shareholders of Scarecrow M&C
Saatchi Limited, however, due to its present level of profitability it is
currently valued at £nil (2022: £nil).
Movements in liabilities in the year 2023 2022
£000 £000
At 1 January - (984)
Exchange differences - -
Charged to the income statement * - (266)
Conditional consideration paid in cash ** - 1,250
Conditional consideration paid in equity - -
At 31 December - -
* £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 2023 2022
£000 £000
At 1 January 914 -
Reclassification from financial assets at fair value through profit or loss - 914
(Note 20) ***
Revaluation (176) -
At 31 December 738 914
*** 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.
We received the £485k cash on 27 February 2024.
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 £253k after discounting the remaining receivable amount.
15. Intangible assets
Policy
Intangible assets are carried at cost less accumulated amortisation and
impairment losses.
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 and 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 2024 budget and three-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.
Revenue growth rates by year and geography were determined using PwC's 2023
Global Entertainment and Media Outlook report, and operating cost growth was
limited to a % of revenue growth aligned with current margins and improvements
driven by Project Forward.
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 the UK, the US, Europe,
Australia, Malaysia, the UAE, Brazil and South Africa, 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 2023 Residual growth rates 2022 Pre-tax discount rates 2023 Pre-tax discount rates 2022
Market % % % %
UK 1.5 1.5 17 16-18
Asia and Australia 1.5 1.5 15-18 15-18
Middle East 1.5 1.5 15 15
South Africa 1.5 1.5 27 27
Americas 1.5 1.5 14-26 14-16
Analysis
Goodwill Brand name Customer relationships Software and film rights Total
£000
£000
£000
£000
£000
Cost
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
Exchange differences (1,836) (10) 25 (411) (2,232)
Acquired - - - 19 19
Reclassified* - - - (636) (636)
Disposal - - - (120) (120)
Disposal of subsidiaries (including no longer in use) - - - - -
At 31 December 2023 58,858 8,353 14,631 2,543 84,385
Accumulated amortisation and impairment
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
Exchange differences (855) (33) (28) (193) (1,109)
Amortisation charge - 136 567 138 841
Impairment 3,733 295 766 - 4,794
Disposal - - - (120) (120)
At 31 December 2023 26,383 7,659 13,350 2,400 49,792
Net book value
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
At 31 December 2023 32,475 694 1,281 143 34,593
* Relates to assets reclassified from intangible assets to assets held at fair
value through profit and loss (Note 20 of the financial statements), following
the spinoff of our investment to DragnDrop Limited.
Balance held Balance held Region
Goodwill 31 December Headroom 31 December Headroom
2023 31 December 2023 2022 31 December
Cash generating units (CGUs) £000 % £000 2022
% Specialism
Shepardson Stern + Kaminsky LLP 5,649 36% 5,899 120% Americas Advertising
LIDA NY LLP (MCD) 5,573 24% 5,821 49% Americas Consulting
Clear Ideas Ltd 5,031 266% 5,031 282% Europe Consulting
M&C Saatchi Mobile Ltd 4,283 618% 4,283 1248% UK Media
M&C Saatchi Agency Pty Ltd (Australia) 2,790 249% 2,863 237% Asia Pacific (APAC) Various
M&C Saatchi Social Ltd 2,612 41% 2,612 87% UK Passions
Bohemia Group Pty Ltd (Australia) 1,768 76% 1,904 36% Asia Pacific (APAC) Media
M&C Saatchi Sport & Entertainment Ltd 1,184 1351% 1,184 839% UK Passions
M&C Saatchi Merlin Ltd 765 701% 765 867% UK Passions
Levergy Marketing Agency (PTY) Limited (South Africa) 743 65% 860 30% Africa Passions
M&C Saatchi Middle East Fz LLC (Dubai) 734 332% 765 515% Middle East Advertising
Santa Clara Participações Ltda 649 45% 624 4% Americas Advertising
M&C Saatchi Talk Ltd 625 615% 625 630% UK Advertising
M&C Saatchi (M) SDN BHD 69 1987% 71 2748% Asia Pacific (APAC) Advertising
M&C Saatchi (Hong Kong) Limited* - 0% 2,506 0% Asia Pacific (APAC) Advertising
M&C Saatchi Advertising GmbH* - 0% 1,376 94% Europe Advertising
Total 32,475 253% 37,189 276%
* With exception of CGUs marked, all other movements in the table above are
due to foreign exchange differences.
During the year goodwill balances were fully impaired in relation to M&C
Saatchi (Hong Kong) Limited £2,357k (2022: £396k) when a decision was made
to exit this market; and M&C Saatchi Advertising GmbH £1,376k (2022:
£nil) after the agency lost its main client during the year.
Based on the considerations above, impairments were also made in relation to
brand name £295k (2022: £nil) and customer relationships £766k (2022:
£nil) held by M&C Saatchi (Hong Kong) Limited.
The 2023 review of goodwill was undertaken as at 31 December, and resulted in
no further impairments of goodwill.
A sensitivity analysis has been performed, showing the impact required if the
profit forecasts reduced by 20% and the discount rates increase by 10% across
the Group. This would give rise to an impairment in six CGUs (2022: eight) and
a total impairment of £16,993k (2022: £21,603k).
16. 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
2023 2022 2023 2022
Region & Name Nature of business Country of incorporation or registration £000 £000
Europe
Cometis SARL Advertising France - 56 49% 49%
M&C Saatchi Little Stories SAS PR France - - 25% 25%
M&C Saatchi SAL Advertising Lebanon - - 10% 10%
M&C Saatchi AB* Advertising Sweden - - 30% 70%
APAC
Love Frankie Ltd Advertising Thailand 138 135 25% 25%
February Communications Private Limited Advertising India - - 20% 20%
M&C Saatchi Limited Advertising Japan - - 10% 10%
Total 138 191
* In December 2023, the Group sold majority of its shares in M&C Saatchi
AB and only retained 30%.
M&C Saatchi SAL has the following subsidiaries: M&C 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.
The sale process of these investments commenced in the last quarter of 2023
and is expected to be completed in the first quarter of 2024 for a
consideration of €1 million.
The sale process of the French associates, 49% in Cometis SARL and 25% in
M&C Saatchi Little Stories SAS, commenced in the last quarter of 2023 and
completed on 28 March 2024. Therefore these investments were reclassified to
Assets held for sale as of December 2023 according to IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations.
2023 2022
Balance sheet value as at 31 December £000 £000
Investments intended to be held in the long term 138 191
Investments categorised as held-for-sale 133 -
Total associate investments 271 191
2023 2022
Balance sheet movements £000 £000
At 1 January 191 202
Exchange movements (1) (1)
Revaluation of associates on transition to assets held for sale 133 -
Transferred to assets held for sale (Note 12) (172) -
Acquisition of associates - -
Impairment of associate - -
Share of (loss) / profit after taxation (13) (10)
At 31 December 138 191
2023 2022
Income statement £000 £000
Share of (loss) / profit after taxation (13) (10)
Revaluation of associates on transition to assets held for sale 133 -
Other movements 1 -
Share of result of associates and joint ventures 121 (10)
Impairment of associate investment - -
Year to 31 December 121 (10)
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
2023 2022
APAC Europe* APAC Europe Total
Total
Income statement £000 £000 £000 £000 £000 £000
Revenue 3,181 1,201 4,382 4,006 712 4,718
Operating profit / (loss) 874 23 897 765 165 930
Profit / (loss) before taxation (565) 29 (536) (201) 143 (58)
Profit / (loss) after taxation (547) 23 (524) (208) 113 (95)
Group's share 5 (18) (13) (65) 55 (10)
Dividends received - - - - - -
2023 2022
Europe* Total APAC Europe Total
APAC
Balance sheet £000 £000 £000 £000 £000 £000
Total assets 932 2,762 3,694 1,557 151 1,708
Total liabilities (987) (2,683) (3,670) (1,088) (38) (1,126)
Net assets / (liabilities) (55) 79 24 469 113 583
Our share (14) 24 10 117 56 173
Losses not recognised (142) - (142) 13 - 13
Goodwill 294 (24) 270 5 - 5
Total 138 - 138 135 56 191
*Income statement includes the YTD results for France. The investment in
France has been reclassified to Assets held for sale as of 31 December 2023,
therefore no balance sheet included for France. The Balance sheet includes
M&C Saatchi AB net assets. The company became an associate on 21 December
2023, therefore no YTD results included in the income statement disclosure.
17. 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.
Analysis
Leasehold improvements Furniture, fittings and other equipment Computer equipment Motor vehicles Total
Cost £000 £000 £000 £000 £000
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
Exchange differences (207) 126 (733) 5 (809)
Additions 515 666 637 9 1,827
Disposals (429) (155) (501) (28) (1,113)
At 31 December 2023 7,048 5,284 6,641 81 19,054
Accumulated depreciation and impairment
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
Exchange differences (492) 643 (857) 51 (655)
Depreciation charge 1,143 225 1,203 2 2,573
Impairment (Note 1) 101 31 - - 132
Disposals (358) (127) (334) (23) (842)
At 31 December 2023 4,065 2,935 4,976 71 12,047
Net book value
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
At 31 December 2023 2,983 2,349 1,665 10 7,007
Total depreciation in the income statement is broken down as follows:
Note 2023 2022
£000
£000
From plant and equipment 17 2,573 2,480
From right-of-use assets 18 6,243 6,846
8,816 9,326
18. 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.
Up to the date when an owner-occupied property becomes an investment property
carried at fair value, an entity depreciates the property (or the right-of-use
asset) and recognises any impairment losses that have occurred. The entity
treats any difference at that date between the carrying amount of the property
in accordance with IAS 16 or IFRS 16 and its fair value in the same way as a
revaluation in accordance with IAS 16.
Rental income from investment property is recognised on a straight-line basis
over the term of the lease. Lease incentives granted are recognised as an
integral part of the total rental income, over the term of the lease.
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. Details relating to
these estimates can be found in the basis of preparation note.
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 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 1 January 2023 43,420 463 109 43,992
Additions 1,761 12 - 1,773
Modifications 592 6 5 603
Disposals (243) (2) (11) (256)
Depreciation (5,991) (189) (63) (6,243)
Impairment (Note 1)** (1,872) - - (1,872)
Reclassification to investment property (Note 13)* (2,369) - - (2,369)
Foreign exchange (1,835) (19) (2) (1,856)
At 31 December 2023 33,463 271 38 33,772
* Investment property compromises one floor in our London (UK) office valued
at £802k and one floor in our Sydney (Australia) office valued at £1,568k.
We moved out from these floors in November and in December 2023 respectively.
These properties are currently on the market with the aim to sublet them. The
investment property value represents the estimated rental income that the
Group could get in the current market by renting out these spaces.
** The impairment amount of £1872k consists of:
£992k - M&C Saatchi Agency Pty Ltd: 99 Macquarie Street, Sydney,
Australia (we moved out from this floor in December 2023),
£364k - M&C Saatchi Worldwide Ltd: 36 Golden Square, London, UK (we moved
out from this floor in November 2023),
£463k - M&C Saatchi Worldwide Ltd: 30GPS 1st floor, London, UK (fully
impaired in H1 2023),
£26k - M&C Saatchi Asia Hong Kong Ltd (due to the closure of the Asia
HQ),
£27k - M&C Saatchi World Services (Singapore) PTE LTD (due to move to a
new, bigger office in the year).
Land & Buildings Computer equipment Motor vehicles
Total
Lease liabilities £000 £000 £000 £000
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 1 January 2023 54,990 479 101 55,570
Additions 1,761 12 - 1,773
Modifications - 6 5 11
Disposals (254) (2) (9) (265)
Accretion of interest 2,852 21 3 2,876
Payments (8,831) (213) (60) (9,104)
Foreign exchange (1,396) (19) (3) (1,418)
At 31 December 2023 49,122 284 37 49,443
The additions in 2023 predominately relate to the new offices in Dubai (the
UAE) and Singapore.
The Group signed a lease agreement for a new office space in New York in
August 2023. Due to extensive renovation work we did not move into that office
until January 2024. We recognised the right-of-use asset and the lease
liability of £3.8m in the consolidated balance sheet in January 2024.
Of lease payments made in the year of £9,105k (2022: £10,277k), £6,208k
(2022: £7,307k) related to payment of principal on the corresponding lease
liabilities and the balance to payment of interest £2,897k (2022: £2,970k)
due on the lease liabilities.
Lease liabilities Land & Buildings Computer equipment Motor vehicles Total
£000 £000 £000 £000
Amounts due within one year 5,620 108 23 5,751
Amounts due after one year 44,156 176 13 44,345
At 31 December 2023 49,776 284 36 50,096
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
Income statement charge 2023 2022
£000 £000
Depreciation of right-of-use assets (6,243) (6,846)
Short-term lease expense 31 (505)
Low-value lease expense 240 (68)
Short-term sublease income - -
Right-of-use asset impairment* (1,872) 164
Charge to operating profit (7,844) (7,255)
Sublease finance income 5 5
Lease liability interest expense (2,897) (2,970)
Lease charge to profit before tax (10,736) (10,220)
*In 2022 there was a reversal of an impairment from 2020, as the impaired
asset was sublet during the year.
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 31 of the financial statements.
The cash payment maturity of the lease liabilities held as at 31 December
2023, net of sublease receipts, is as follows:
Future cash payments 2023 2022
£000 £000
Period ending 31 December:
2024 8,748 8,149
2025 8,742 7,870
2026 7,745 6,935
2027 7,271 6,415
2028 6,761 6,019
Later years 28,448 25,344
Gross future liability before discounting 67,715 60,732
Of the future lease payments post-2028, £21.8m relates to a single office
lease which expires in 2034. This lease agreement was entered into in December
2019.
The Group signed a lease agreement for a new office space in New York in
August 2023. Due to extensive renovation work we did not move into that office
until January 2024. We recognised the right-of-use asset and the lease
liability of £3.8m in the consolidated balance sheet in January 2024. The
future cash payments include the payments of this lease.
19. Other non-current assets
2023 2022
At 31 December £000 £000
Other debtors including rent deposits 1,262 1,107
Long term loans receivable* 1,040 -
Total other non-current assets 2,302 1,107
*This balance relates to £607k convertible loan to DragNDrop Limited, and
€500k M&C Saatchi Madrid loan provision reversal.
20. 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,
discount based on time elapsed since last price-point and discounting for
convertible loan notes.
Analysis
The Group's unlisted equity investments consist of:
Investments held by Saatchinvest Ltd, mainly relating to 18 (2022: 18)
early-stage companies.
A £636k convertible investment in DragNDrop Limited (which has built an
end-to-end advertising design tool to help small businesses with their
marketing), following its spinoff from the Group in 2023.
A 2.86% shareholding in Sesión Tequila Holdings Pty Ltd (Australia).
A 10% shareholding in M&C Saatchi Madrid SL (Spain).
A 10% shareholding of 59A Limited.
A 10% shareholding in Australie SAS (which has been reclassified as an asset
held for sale).
The closing balance of the equity investments held at FVTPL consists of:
Saatchinvest (£6,441), DragNDrop Limited (£636k) and Sesión Tequila
Holdings Pty Ltd (£151k). The Group's 10% shareholdings in M&C Saatchi
Madrid SL and 59A Limited are all valued at nil.
With regard to DragNDrop , the Group paid £636k in respect of the development
of the DragNDrop IP. The Group invested a further £607k in DragNDrop Limited
in a form of a convertible loan, which is included in other non-current assets
in the balance sheet.
With regard 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:
2023 2022
£000 £000
At 1 January 11,986 15,183
Disposals (49) (918)
Gain/(loss) on disposal - 1,168
Impairment - (2,863)
Revaluation upwards 176 3,016
Revaluation downwards (4,898) (2,724)
Reclassification from intangible assets (Note 15) 636 -
Reclassification to assets held for sale (Note 12) (608) -
Reclassification to contingent consideration (Note 14) - (914)
Foreign exchange (16) 38
At 31 December 7,227 11,986
Other gains/(losses) in income statement 2023 2022
£000 £000
Revaluations (4,722) 292
Gain/loss on disposal - 1,168
Impairment - (2,863)
Total (4,722) (1,403)
Saatchinvest
As well as the potential for making gains when selling these assets in the
future, the strategy for making these investments originally envisaged
synergies from exposure to, and contact with, such high potential companies.
This portfolio is not strategically important and we will not be adding to it
in the future.
In 2023, there were no additions, but the investment in Citymapper was
disposed of in the year.
The £4,898k revaluation downwards included £1,909k relating to Ometria,
£1,114k relating to Picasso Labs, £765k relating to Kyra and £546k relating
to Touchcast.
The following summary shows the material investments held by Saatchinvest and
quantitative information about the significant unobservable inputs used for
fair value measurements:
Company Closing Fair Value Quantitative information
31 December 2023
for fair value measurements
£000
Ometria 1,500 10% performance discount, 66% discount based on time elapsed since last
price-point, 10% discounting for liquidation preference shares held by other
shareholders
Picasso Labs/Creative X 875 10% performance discount, 10% discounting for liquidation preference shares
held by other shareholders, 56% discount based on time elapsed since last
price-point
Kindred 732 10% discounting for liquidation preference shares held by other shareholders
Metomic 560 10% discounting for liquidation preference shares held by other shareholders
Farewill 531 10% discounting for liquidation preference shares held by other shareholders
Touchcast 528 50% performance discount,
ThingThing 513 10% discounting for liquidation preference shares held by other shareholders
Other 10 investments 1,202
(each below £500k)
Total 6,441
Australie
The £176k revaluation upwards relates to the unlisted investments held by
M&C Saatchi International Holdings B.V. in Australie SAS.
A sale process of this investment commenced in the last quarter of 2023 and
completed on 28 March 2024. Consequently, the 10% investment in Australie was
reclassified to Assets held for sale as of December 2023, according to IFRS 5
Non-current Assets Held for Sale and Discontinued Operations.
21. 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.
2023 2022
£000 £000
Trade receivables 87,853 97,431
Loss allowance (2,251) (1,829)
Net trade receivables 85,602 95,602
Prepayments 6,226 4,890
Amounts due from associates 271 38
VAT and sales tax recoverable 160 167
Accrued income 12,238 12,716
Contract assets 2,845 2,180
Other receivables* 16,344 16,474
Total trade and other receivables 123,686 132,067
*Other receivables comprises unbilled media receivables balances of £14.2m
(31 December 2022: £12.3m) and other amounts receivable of £2.1m (31
December 2022: £4.3m). 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.
2023 2022
£000 £000
As at 1 January (1,829) (877)
Release / (increase) for expected losses during the year 115 96
Movement in forward looking provision for specific bad debts:
- Charge during the year (574) (1,469)
- Released during the year 24 421
- Utilisation of provision - -
Foreign exchange movement 13 -
Year-end provision (2,251) (1,829)
The information about credit exposures is disclosed in Note 31 of the
financial statements.
22. 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.
2023 2022
£000 £000
Trade creditors 35,176 50,437
Contract liabilities* 17,683 20,502
Sales taxation and social security payables 4,855 3,495
Accruals 63,336 67,601
Other payables 12,800 13,512
Total trade and other payables 133,850 155,547
* Contract liabilities relates to deferred income of £17.6m (2022: £20.5m).
This has decreased in line with the decrease in revenue, as customers reduced
budgets and cut spending throughout the year. The amount of the 2022 balance
was recognised within revenue in the current year.
Settlement of trade and other payables is in accordance with the terms of
trade established with the Group's local suppliers.
23. 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 (2022: £1.1m) comprises of costs relating to
income protection schemes of £0.1m (2022: £0.5m); £0.2m (2022: £0.3m) in
relation to property dilapidations; and £0.8m (2022: £nil) in relation to
retrospective rent reviews.
2023 2022
£000 £000
At 1 January (1,056) (1,193)
Charged to the income statement:
- Overseas sales taxation and social security liabilities - (92)
- Income protection provision - (92)
- Provision for retrospective rent reviews (800) -
Utilised or released in the year
- Lease dilapidations 10 21
- Release income protection provision 402 -
- Release of overseas tax provision 327 -
- Release of other provisions 67 -
- Release associated with the FCA investigation - 300
At 31 December (1,050) (1,056)
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.
24. 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
2023 2022
At 31 December £000 £000
Overdrafts* - (4,271)
Secured** bank loans (15,900) -
Local bank loans (43) (159)
(15,943) (4,430)
*These overdrafts can be legally offset with other cash balances.They have not
been netted off in accordance with IAS32.42 in 2022 as there was no intention
to settle on a net basis. However, they have been netted off in 2023 as the
cash balance and the overdraft balance is with the same bank and there is
intention to settle this on a net basis.
** Bank loans are secured on share charges & debentures for England &
Wales Incorporated Guarantors and share charges only for non England &
Wales Incorporated Guarantors
Amounts due after one year
2023 2022
At 31 December £000 £000
Local bank loans - (52)
Secured bank loans - (6,750)
- (6,802)
Secured bank loans
On 7 March 2024, the Company entered into a new revolving multicurrency
facility agreement with National Westminster Bank plc, HSBC UK Bank plc and
Barclays Bank PLC for up to £50m (the "New Facility"), with a further £50m
extension if required for strategic acquisitions. The New Facility is provided
on a three-year term with two one year extensions. Interest is charged based
on a reference rate plus a margin, which is based on the current leverage of
the Group (margin ranges from 2.25% to 3.25%, as at Q1 2024 ). This New
Facility is to refinance the existing £47m facility with National Westminster
Bank plc and Barclays Bank PLC (the "Old Facility") which would have matured
on 31 May 2024. At 31 December 2023, the Group had up to £47.0m (2022:
£47.0m) of funds available under the Old Facility with £16.0m drawn (2022:
£7.0m).
Each facility includes two financial covenants, which if either were to be
breached would result in a default of the relevant facility agreement:
Old Facility
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.
New Facility
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 2.75
times EBITDA for the previous 12 months (adjusted for acquisitions and
disposals). This increases to 3.25 times for a six month period after an
acquisition.
The Company has been compliant with the covenants in the Old Facility
throughout the period. The actual calculation is based on Headline results,
though with specific additional addbacks defined by the bank.
2023 2022
At 31 December £000 £000
Gross secured bank loans (16,000) (7,000)
Capitalised finance costs 100 250
Total secured bank loans (15,900) (6,750)
Total secured bank loans are due as follows:
2023 2022
At 31 December £000 £000
In one year or less, or on demand (15,900) -
In more than one year but not more than five years - (6,750)
(15,900) (6,750)
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 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)
Cash movements (9,000) 164 (8,836)
Non-cash movements
- Foreign exchange - 5 5
At 31 December 2023 (16,000) (43) (16,043)
* The borrowing used to calculate net cash.
25. Other non-current liabilities
2023 2022
31 December £000 £000
Employment benefits* 875 1,846
Long term bonuses 414 1,362
Other** 790 838
2,079 4,046
*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 £524k (2022: £535k), this liability
is for the 13(th) month salary accrual for all Italian employees to be paid to
them when they leave the Company.
**The main items include a contractual make good liability in relation to the
Australia office lease of £653k (2022: £690k).
26. Equity related liabilities
This disclosure note summarises information relating to all share schemes
disclosed in Notes 14, 27 and 28 of the financial statements.
In the case of contingent consideration (Note 14 of the financial statements),
IFRS 9 minority shareholder put option liabilities (Note 27 of the financial
statements), and IFRS 2 put option schemes (Note 28 of the financial
statements), 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 ESOP 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 2023
year-end share price of the Company of 160.0 pence 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 ESOP Trust in the year of vesting at a Company share price of 160.0 pence.
The table also shows the amount of these potential cash payments that has been
recognised as a liability as at 31 December 2023, with the % of the related
employment services not yet delivered to the Group at that date.
Total future expected liabilities as at 31 December 2023
Potentially payable Services not yet delivered as at Balance sheet liability as at 31 Dec 2023
31 Dec 2023
£000
%*
At Company share 2024 2025 2026 2027 2028 2029 Total
£000
price of 160.0p £000 £000 £000 £000 £000 £000
IFRS 9 put option schemes 3,050 - 2,675 - - - 5,725 9% 5,184
IFRS 2 put option schemes 6,833 1,283 216 301 83 - 8,716 5% 8,232
LTIPs 1,948 2,574 2,546 - - - 7,068 79% -**
11,831 3,857 5,437 301 83 - 21,509
*Share based payments (Note 28) 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 Total value of £7,068k relates to the LTIPs issued and
outstanding at 31 December 2023.
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 2024 2025 2026 2027 2028 2029 Total
£000
£000
£000 £000 £000 £000 £000
At 140p £10,939 £3,363 £5,091 £263 £73 - £19,729
At 160p £11,831 £3,857 £5,437 £301 £83 - £21,509
At 175p £12,503 £4,228 £5,695 £329 £91 - £22,846
At 200p £13,547 £4,770 £6,234 £376 £104 - £25,031
At 225p £14,536 £5,258 £7,013 £423 £117 - £27,347
At 250p £15,524 £5,745 £7,792 £470 £130 - £29,661
At 300p £17,262 £6,720 £9,351 £564 £156 - £34,053
Total put option liability
2023 2023 2022 2022
Company Group Company Group
Total
Total
Total
Total
£000
£000
£000
£000
Put options liability (IFRS 2) (17) (8,232) (7,002) (18,992)
Put options liability (IFRS 9) - (5,184) - (3,856)
Total (17) (13,416) (7,002) (22,848)
Current - Minority shareholder put option liabilities (17) (9,891) (7,002) (18,419)
Non-current - Minority shareholder put option liabilities - (3,525) - (4,429)
Total (17) (13,416) (7,002) (22,848)
27. 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 fair value 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 2023:
Subsidiary Year % of subsidiaries' shares exercisable
M&C Saatchi (Switzerland) SA 2023 21.0
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 160.0p is 3,239,556
shares (2022: at 151.0p, 2,553,018 shares).
2023 2022
Liability as at 31 December £000 £000
Amounts falling due within one year (3,050) (2,584)
Amounts falling due after one year, but less than three years (2,134) -(1,272)
(5,184) (3,856)
2023 2022
Movement in liability during the year £000 £000
At 1 January (3,855) (5,238)
Exchange difference - (1)
Exercises 785 2,497
Income statement charge due to:
- Change in profit estimates (2,142) (970)
- Change in Company share price 198 406
- Amortisation of discount (170) (550)
Total income statement charge (Note 7) (2,114) (1,114)
At 31 December (5,184) (3,856)
Put options exercised in year 2023 2022
£000 £000
Paid in equity - -
Paid in cash 785 2,497
Total 785 2,497
During the year a put option arrangement for a 10% shareholding of M&C
Saatchi Merlin Limited was exercised by the put option holder, and the equity
was acquired by the Group.
28. 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.
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
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.
If a put option existed at 21 September 2021 and is still unvested and 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 entities lent Rand
16,082k (2022 Rand 14,009k) 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. These awards were fulfilled in
the year.
· 2021 LTIP awards - on 28 September 2021 and 21 December 2021, the
Company 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 Company's total shareholder return (TSR) versus the total shareholder
return (TSR) of the FTSE Small Cap Index over the three years from December
2020 to December 2023 (70% of the award).
o Company's full year Headline PBT performance in 2023 versus target (30% of
the award).
· 2022 LTIP awards - on 12 December 2022, the Company 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 Company's total shareholder return (TSR) versus the total shareholder
return (TSR) of the FTSE Small Cap Index over the three years from December
2021 to December 2024 (50% of the award).
o Company's full year Headline PAT performance per share in 2024 versus
target (50% of the award).
· 2023 LTIP awards - on 2 August 2022, the Company 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 Company's total shareholder return (TSR) versus the total shareholder
return (TSR) of the FTSE Small Cap Index over the three years from December
2022 to December 2025 (50% of the award).
o Company's full year Headline PAT performance per share in 2025 versus
target (50% of the award).
For the LTIPs, an Employee Benefit Trust (EBT) has been 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:
2023 2022 2021* 2021
LTIP
LTIP
LTIP
LTIP
Issue date 02/08/2023 12/12/2022 21/12/2021 28/09/2021
Vesting date 02/08/2026 31/05/2025 21/12/2024 28/09/2024
Share price at grant £1.34 £1.48 £1.63 £1.56
Expected volatility 55% 76% 80% 81%
Risk free rate 5.15% 3.32% 0.67% 0.51%
Dividend yield 0% 0% 0% 0%
Fair value of award per share £1.34 £1.47 £1.62 £1.55
TSR element against FTSE Small Cap index:
Expected volatility 268% 291% 147% 158%
Fair value of award per share £0.21 £0.63 £0.72 £0.67
*During 2023, the last remaining recipient of this reward left the Group's
employment, and nothing will now vest under this scheme.
Income statement charge
Group
2023 2023 2023 2022 2022 2022
Equity
Cash
Total
Equity
Cash
Total
£000
£000
£000
£000
£000
£000
Put options (407) 4,349 3,942 580 432 1,012
South Africa non-recourse loan scheme - 261 261 - 107 107
Total not affecting Headline results (Note 1) (407) 4,610 4,203 580 539 1,119
LTIPs 841 - 841 438 - 438
Restrictive share awards - - - 211 - 211
Cash awards - 233 233 - 1,893 1,893
Total 434 4,843 5,277 1,229 2,432 3,661
Cash-settled liability
Group
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 2022 (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 state (charge) / credit (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)
(Charge) / credit to income statement
- Straight-line recognition (366) (261) (233) (860)
- Change in subsidiary profit estimates (203) - - (203)
- Change in Company multiple (3,780) - - (3,780)
Total income statement charge (4,349) (261) (233) (4,843)
Disposed 472 - - 472
Settled 14,637 - 1,398 16,035
Foreign exchange - 65 - 65
At 31 December 2023 (8,232) (794) - (9,026)
* Following a review of the Group's 2022 financial statements by the Financial
Reporting Council's Corporate Reporting Review Team (CRRT), the Group has
reclassified these settlements of cash liabilities in the cash flow statement
as operating activities, instead of financing activities. The correction of
this error resulted in the net cash from operating activities for 2022
reducing by £9,607k from £22,468 to £12,861k, with cash from financing
activities increasing by the same amount. The FRC has confirmed that the
matter is now closed. The Group recognises that the FRC's review was based on
the Company's Annual Report and Accounts for the year ended 31 December 2022
and did not benefit from detailed knowledge of the Company's business or an
understanding of the underlying transactions entered into. The FRC's role is
not to verify the information provided but to consider compliance with
reporting requirements. Therefore, given the scope and inherent limitations of
their review, it would not be appropriate for the Company or any third party,
including but not limited to investors and shareholders, to infer any
assurance from the FRC's review that the Company's 2022 Annual Report and
Accounts were correct in all material respects.
Company
The movement in the liability by scheme is detailed below:
Total
£000
At 1 January 2022 (11,850)
Settled 871
Revaluation of investment 3,977
At 31 December 2022 (7,002)
Settled 469
Revaluation of investment 6,516
At 31 December 2023 (17)
Put options
Vesting % Entity subject to the put option
Clear Ideas (Singapore) Ltd Vested 10.00%
Clear LA LLC Vested 12.00%
LIDA NY LLP (MCD) Vested 24.50%
M&C Saatchi (Hong Kong) Limited Vested 20.00%
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 Vested 14.20%
M&C Saatchi Middle East Holdings Ltd Vested 20.00%
M&C Saatchi Social Ltd Vested 5.00%
M&C Saatchi Sport & Entertainment NY LLP 2024 12.50%
M&C Saatchi Sport & Entertainment NY LLP 2025 5.00%
M&C Saatchi Talk Ltd Vested 39.00%
M&C Saatchi Talk Ltd Vested 10.00%
M&C Saatchi, S.A. DE C.V. Vested 40.00%
RE Worldwide UK Ltd Vested 15.0%
Scarecrow M&C Saatchi Ltd Vested 49.00%
The Source (W1) LLP Vested 10.00%
The Source Insight Australia Pty Ltd 2025 35.00%
*In the case of M&C Saatchi Holdings Asia Pte Ltd (Indonesia) this entity
was disposed during January 2024 and the £0.5m put option liability was
extinguished.
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 2023, the maximum aggregate liability that is not accrued
amounts to £1.2m (2022: £2.4m), which is approximately 10% of the put option
liability.
LTIP
Shares issuable
During the year the Company also awarded LTIPs.
The table below shows the number of shares that the Company will issue at the
Company's share price at 31 December 2023 of 160.0 pence (2021: 151.0 pence)
assuming all awards under the LTIPs are held to their vesting date and fully
vest.
Number of Shares LTIP
'000
At 1 January 2023 3,275
Forfeited on departure (629)
Granted 1,771
At 31 December 2023 4,417
Shares issuable used in these accounts
Note 2023 Number of shares 2023 2022 Number of shares 2022
'000
Share price used
'000
Share price used
Per EPS calculation 1 1,500 155 905 163p
Share based payments 28 4,417 134p-162p 3,275 147p-162p
The share-based payments calculation (Note 28 of the financial statements)
uses the number of shares that could be issued at the first possible vesting
date after the year-end. The EPS calculation (Note 1 of the financial
statements) 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.
29. 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 2021 122,743,435 1,227
No issue of shares - -
At 31 December 2022 122,743,435 1,227
No issue of shares - -
At 31 December 2023 122,743,435 1,227
The Company holds 485,970 (2022: 485,970) of its own shares in treasury.
30. 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.
- 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 did not recognise additions to intangible assets
(brand names and customer lists) (2022: £200k).
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 15 of the financial statements.
Assets and liabilities measured at fair value on a recurring basis.
The following table shows the levels within the hierarchy of assets and
liabilities measured at fair value on a recurring basis at 31 December 2023
and 31 December 2022:
Level 1 Level 2 Level 3
At 31 December 2023 £000 £000 £000
Assets
Equity investments at FVTPL - - 7,227
Investment property - - 2,369
Contingent consideration - - 738
Total - - 10,334
Level 1 Level 2 Level 3
At 31 December 2022 £000 £000 £000
Assets
Equity investments at FVTPL - - 11,986
Contingent consideration - - 914
Total - - 12,900
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 Investment property Total
£000
£000
£000
At 1 January 2023 12,900 - 12,900
Disposals (49) - (49)
Revaluations (4,898) - (4,898)
Reclassification from intangible assets 636 - 636
Reclassification to assets held for sale (608) - (608)
Reclassification from right-of-use assets (Note 18) - 2,369 2,369
Foreign exchange (16) - (16)
At 31 December 2023 7,965 2,369 10,334
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 20 of the financial statements. 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, long-term
inactivity, more senior shareholdings held by other investors and the
possibility of future dilution due to the presence of convertible loan notes.
Fluctuations in the share price would change the fair value of the investments
recognised at year-end as follows, assuming a 10% uplift or downwards movement
in the price:
Increase/ Increase/
(decrease) in (decrease) in
fair value of fair value of
asset asset
2023 2022
Adjusted share price £000 £000
+10% 797 1,290
-10% (797) (1,290)
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
2023 2022
Risk adjusted sales price £000 £000
-30% sales discount due to illiquid nature* (2,390) (3,870)
-12% risk discount for unwilling market place** (956) (1,084)
Value after discounts 6,988 7,946
* 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%.
31. 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.
Financial assets
Fair value through profit or loss Amortised cost
2023 2022 2023 2022
At 31 December £000 £000 £000 £000
Trade and other receivables - - 120,841 129,887
Contract assets - - 2,845 2,180
Cash and cash equivalents - - 24,326 41,492
Equity instruments 7,227 11,986 - -
Total financial assets 7,227 11,986 148,012 173,559
31.1 - 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.
31.2 - 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.
31.3 - 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
2023 2023 2022 2022
Exchange rate £000 £000 £000 £000
USD +10% 697 591 848 727
USD -10% (634) (537) (771) (661)
AUD +10% 378 212 490 321
AUD -10% (344) (193) (446) (292)
The year-end and average exchange rates to GBP for the significant currencies
are as follows:
Year-End Rate Average Rate
Currency 2023 2022 2023 2022
USD 1.27 1.21 1.26 1.20
AUD 1.87 1.77 1.90 1.77
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
2023 year-end cash balances the Group holds £323k in Indian rupees; £605k in
Libyan dinars; and £3,401k in South African rand.
31.4 - 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 was 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 2023 would (decrease)/increase by £(113)k / £113k (2022: £(35)k
/ £35k). This is principally attributable to the Group's exposure to interest
rates on its floating rate loan.
31.5 - 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%. This will change in 2024 under the
new revolving facility to a margin grid based on the Company's leverage.
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 their
short-term business requirements, taking into account their 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 Group
breached no banking covenants during the year.
The following table sets out the contractual maturities (representing
undiscounted contractual cash flows) of financial liabilities, all of which
are held at amortised cost:
Group
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
At 31 December 2023 £000 £000 £000 £000 £000
Trade and other payables* (82,375) (14,146) (2,940) 961 (12)
Lease liabilities (2,187) (6,561) (8,742) (21,777) (29,101)
Loans and borrowings (15,943) - - - -
Overdrafts - - - - -
IFRS 9 put options - (3,050) - (2,134) -
Total (100,505) (23,757) (11,682) (22,950) (29,113)
* 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 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 (99,646) (44,450) (17,459) (23,468) (31,373)
* 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 2023 £000 £000 £000 £000 £000
Trade and other payables (2,577) (79) (68) - -
Overdrafts - - - - -
Loans and borrowings (15,900) - - - -
Total (18,477) (79) (68) - -
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) - -
31.6 - 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. Contract assets are also included in the review, but
the impairment in relation to these assets is not material.
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 2023 or 31
December 2022 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 macro-economic factors
affecting the ability of the customers to settle the receivables.
The expected credit loss allowance as at 31 December 2023 and 31 December 2022
was determined as follows for trade receivables under IFRS 15.
Trade receivables
31 December 2023 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 (%) 0.0% 0.0% 0.0% 0.2% 0.8%
Trade receivables (£000's) 59,744 17,373 4,906 2,541 3,289 87,853
Calculated expected credit loss provision (£000's) 3 1 1 4 40 49
Specific further loss allowances (£000's) 2,202 2,202
Total loss allowance (£000's) 3 1 1 4 2,242 2,251
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
Under IFRS 9 "Financial Instruments", the expected credit loss is the
difference between the asset's gross carrying amount and the present value of
the estimated future cash flows 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.
31.7 - Share price risk
The Group has used put option awards to incentivise certain local key
management. The value of these awards is in part dependent upon the Company's
share price.
31.8 - 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 are detailed in Note 30 of the financial statements.
31.9 - 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 24 of the financial statements, 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.
32. Group companies
Key
* This subsidiary company is exempt from the
requirements relating to the audit of individual accounts for the year ended
31 December 2023 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.
*** Subsidiaries of subsidiaries with minorities at multiple levels in which
we have control.
As at 31 December 2023 Country Company Number Registered Office Address Specialism Effective % ownership 2023
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 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 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 100
Clear Ideas Limited* United Kingdom 04529082 36 Golden Square, London, W1F 9EE Consulting 100
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
Re Worldwide Ltd* United Kingdom 10503044 36 Golden Square, London, W1F 9EE Consulting 77.5
Thread Innovation Limited* United Kingdom 13510974 36 Golden Square, London, W1F 9EE Consulting 100
Alive & Kicking Global Limited* United Kingdom 11250736 36 Golden Square, London, W1F 9EE Dormant 100
Human Digital Limited* United Kingdom 07510403 36 Golden Square, London, W1F 9EE Issues 100
M&C Saatchi World Services LLP* United Kingdom OC364842 36 Golden Square, London, W1F 9EE Issues 100
M&C Saatchi WS .ORG Limited* United Kingdom 10898282 36 Golden Square, London, W1F 9EE Issues 100
Tricycle Communications Limited* United Kingdom 07643884 36 Golden Square, London, W1F 9EE Issues 100
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 100
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 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 85.8
M&C Saatchi Social Limited* (&) ** United Kingdom 09110893 36 Golden Square, London, W1F 9EE Passions 95
M&C Saatchi Sport & Entertainment Limited* United Kingdom 03306364 36 Golden Square, London, W1F 9EE Passions 100
M&C Saatchi Football Limited* United Kingdom 14970667 36 Golden Square, London, W1F 9EE Dormant 51
Europe
M&C Saatchi (Switzerland) SA Switzerland 660-0442009-4 Boulevard Des Promenades 8, 1227, Carouge, Geneva, Switzerland Advertising 76
M&C Saatchi Advertising GmbH Germany 95484 Munzstrasse 21-23, 10178, Berlin, Germany Advertising 100
M&C Saatchi Digital GmbH Germany 137809 Munzstrasse 21-23, 10178, Berlin, Germany Advertising 100
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
M&C Saatchi Sport & Entertainment Benelux B.V. Netherlands 860734560 Keizersgracht, 81015CN, Amsterdam Passions 100
M&C Saatchi Sport & Entertainment GmbH Germany 142905 Munzstrasse 21-23, 10178, Berlin, Germany Passions 100
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 50.6
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 50.5
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 Centre 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 53.8
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
World Services Middle East FZ‐LLC United Arab Emirates 102798 309, Third Floor, Thuraya 1, Dubai, UAE Issues 100
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 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 51
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 90
Clear Asia Limited Hong Kong 1289028 6(th) Floor, Alexandra House, 18 Chater Road, Central, Hong Kong Dormant 100
M&C Saatchi World Services (Singapore) Pte Limited Singapore 202104508W 59 Mohamed Sultan Road, #02-08, Sultan-Link, Singapore Issues 100
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
PT MCSaatchi Mobile Indonesia Indonesia 2212230035592 Epicentrum walk 3rd Floor A 306 - A 307, Kawasan Rasuna Epicentrum Jl. HR. Media 100
Rasuna Said, Desa/Kelurahan Karet Kuningan, Kec. Setiabudi, Kota Adm. Jakarta
Selatan, Provinsi DKI Jakarta, Kode Pos: 12940.
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 90
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 90
Yes Agency Pty Limited Australia 621 425 143 99 Macquarie Street, Sydney, NSW 2000, Australia Consulting 90
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 Issues 90
Street, 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 90
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, S.A. DE. C.V Mexico N-2017052183 Darwin 74, Piso 1, Miguel Hidalgo, 11590 Ciudad de México, CDMX, Mexico Advertising 60
USMAJ LLC USA 5445173 874 Walker Road, Suite C, Dover, Kent, Delaware 19904 USA Advertising 100
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, 10001, USA Consulting 100
LIDA NY LLP (MCD PARTNERS) 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 100
LIDA USA LLP USA 6333479 251 Little Falls Drive, Wilmington, Delaware, 19808 USA Dormant 100
World Services US Inc. USA C2543767 88 Pine Street, 30(th) Floor, New York 10005, United States Issues 100
M&C Saatchi Agency Inc. USA 13-3839670 304 East 45(th) Street, 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 Road Suite C, Dover, Kent, Delaware 19904, USA Passions 100
M&C Saatchi Sport & Entertainment NY LLP USA 46-5182795 160 Greentree Drive, Suite 101, Dover, Kent, Delaware, 19904, USA Passions 82.5
Associate Entities
Entities in which the Group holds less than 50% of the share capital and which
are accounted for as Associates (Note 16). 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 2023 Country Company Number Registered Office Address Specialism Effective % ownership 2023
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 SARL 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
M&C Saatchi AB Sweden 556902-1792 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 30
M&C Saatchi Go! AB Sweden 559076-6076 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 30
M&C Saatchi PR AB Sweden 559103-4201 Skeppsbron 16, 11130, Stockholm, Sweden Advertising 30
UK companies dissolved in January 2024
Influence Communications Limited United Kingdom 04917646 36 Golden Square, London, W1F 9EE Consulting 95
M&C Saatchi PR International Limited United Kingdom 08838406 36 Golden Square, London, W1F 9EE Advertising 100
M&C Saatchi WMH Limited United Kingdom 03457658 36 Golden Square, London, W1F 9EE Local Central Costs 100
M&C Saatchi Shop Limited United Kingdom 09660100 36 Golden Square, London, W1F 9EE Advertising 100
33. Related party transactions
Key management remuneration
Key management remuneration is disclosed in Note 5 of the financial
statements.
Details on Directors' remuneration is disclosed in the Directors'
Remuneration Report.
Other related parties
During the year, the Group made purchases of £312k (2022: £84k) from its
associates. At 31 December 2023, £45k was due to associates in respect of
these transactions (2022: £31k).
During the year, £496k (2022: £127k) of fees were charged by Group companies
to associates. At 31 December 2023, associates owed Group companies £271k
(2021: £38k).
34. Commitments
Capital commitments
At the year-end, the Group did not have committed costs (2022: £56k) to
acquire property plant and equipment.
Other commitments
The Group signed a lease agreement for a new office space in New York in
August 2023. Due to extensive renovation work, we did not move into that
office until January 2024. We recognised the right-of-use asset and the lease
liability of £3.8m in the consolidated balance sheet in January 2024.
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.
35. Post-balance sheet events
As part of our simplification strategy, the Group continued to close down
small entities including each of Influence Communications Limited, M&C
Saatchi PR International Limited, M&C Saatchi WMH Limited and M&C
Saatchi Shop Limited.
The Group sold its shares in PT MCS Saatchi Indonesia to the founder for a
consideration of £500k on 16 January 2024.
On 28 March 2024, the Group disposed of its 10% shareholding in Australie SAS
(France) which it acquired in March 2021, its 49% shareholding in Cometis SARL
and its 25% shareholding in M&C Saatchi Little Stories SAS for
consideration of €1m.
On 9 April 2024, the Group entered into an agreement to divest of its
shareholdings in the Group's subsidiaries forming the South Africa Group,
being each of M&C Saatchi Abel (Pty) Limited, M&C Saatchi Connect
(Pty) Limited, Dalmatian Communications (Pty) Limited, Levergy Marketing
Agency (Pty) Limited, Razor Media (Pty) Limited and Black & White Customer
Strategy (Pty) Limited for consideration of £5.6m.
On 7 March 2024, the Company entered into a new revolving multicurrency
facility agreement with National Westminster Bank plc, HSBC UK Bank plc and
Barclays Bank PLC for up to £50m, with a further £50m extension if required
for strategic acquisitions.
The Board is recommending the payment of a final dividend of 1.6pence per
share.
The Company announced the appointment of Zaid Al-Qassab as the Company's new
Chief Executive Officer. Zaid will be taking up his role in May 2024.
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.
36. 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
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.
37. New and revised standards issued but not yet effective
In the current year, the following Standards and Interpretations became
effective:
IFRS 17 and Amendments to IFRS 17 - Insurance Contracts: Changes to
international insurance accounting.
Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting
Policies: Application of Materiality.
Amendments to IAS 8 - Definition of Accounting Estimates: Distinguish between
accounting policies and estimates.
Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising
from a Single Transaction: Recognising deferred tax on leases.
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 16 Leases on sale and leaseback
Amendment to IAS 1 Non-current liabilities with covenants
Amendments to IAS 7 and IFRS 7 Supplier finance
Amendments to IAS 21 Lack of Exchangeability
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.
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