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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| M&C Saatchi | AQSE:SAA.GB | Aquis Stock Exchange | Ordinary Share | GB00B01F7T14 | Ordinary Shares 1p |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 181.50 | 173.00 | 190.00 | 181.50 | 181.50 | 181.50 | 0.00 | 06:36:23 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Mar 2023 to Mar 2025
TIDMSAA
RNS Number : 5044W
M&C Saatchi PLC
18 April 2023
M&C SAATCHI PLC
(the "Company" or "M&C Saatchi")
Audited Results for the Year Ended 31 December 2022
The Company today announces its audited results for the year ended 31 December 2022. The Company has delivered another year of record results with its highest ever net revenue, Headline operating profit, Headline profit before tax and Headline earnings.
Highlights
Hot Features
Premium
-- Record 2022 net revenue of GBP271.1m, growth of 8.7% versus
2021.
-- Record 2022 Headline profit before tax of GBP31.8m (2021:
GBP27.3m).
-- Results underpinned by strong growth in the Issues, Consulting
and Passions specialisms, and central cost savings.
-- 2022 Statutory profit before tax of GBP5.4m (2021: GBP21.6m),
adversely affected predominantly by GBP10.8m of one-off
defence costs relating to the failed takeover bids for
the Company.
-- 2022 Headline operating profit margin improved to 13.1%
(2021: 12.5%).
-- Strong net operating cashflow generation of GBP42.2m,
with cash conversion of 99%.
-- Net cash of GBP30.0m (2021: GBP34.4m) after paying for
put options and one-off defence costs relating to the
takeover bids. Borrowings reduced to GBP7m (2021: GBP20m).
-- Reinstated dividend payments with a recommended final
dividend of 1.5 pence per share.
-- New wins include: Diageo, Tinder, LVMH, PepsiCo, UK Covid-19
Inquiry account and Australia Retirement Trust and being
appointed to the Emirates Airline, Samsung, and Volkswagen
global rosters.
-- Good momentum in recently launched consultancies in the
sustainability, data analytics and digital innovation
sectors.
-- Completed Phase 1 of a global efficiency programme with
material cost savings identified.
-- Planet commitments launched, targets validated by Science
Based Targets initiative.
Financial results for the year ended 31 December 2022
Headline * Statutory
GBPm 2022 2021 Movement 2022 2021 Movement
Billings** 597.5 533.4 12.0% - - -
Revenue 462.5 394.6 17.2% 462.5 394.6 17.2%
Net revenue** 271.1 249.3 8.7% - - -
EBITDA** 45.2 40.8 10.8% - - -
Operating profit 35.4 31.1 13.8% 10.5 27.3 -61.5%
Profit before taxation 31.8 27.3 16.5% 5.4 21.6 -75.0%
Profit for the year 24.0 20.0 20.5% 0.2 13.2 -98.5%
Earnings*** 18.1 13.7 32.8% 0.1 12.8 -99.2%
Earnings per share 14.9p 11.3p 31.9% 0.1p 10.5p -99.3%
Tax rate 24.5% 26.6% -2.1pts 95.5% 39.1% +56.4pts
* Headline results represent the underlying trading profitability of the group and exclude:
-- Separately disclosed items that are one-off in nature and are not part of running the business.
-- Acquisition-related costs (including amortisation of acquired intangibles and impairment of goodwill).
-- Gains or losses generated by disposals of subsidiaries and associates.
-- Fair value adjustments to unlisted equity investments, acquisition related contingent consideration and put options.
-- Dividends paid to IFRS 2 put option holders.
Although our peers may use these same terms, they are not necessarily calculated on the same basis. However, as measures of Headline performance, they have been included to better assess the underlying performance of the business and to enable better comparability both across the industry and when comparing year-on-year results.
** Billings, net revenue and EBITDA excluded from Statutory results as these are not IFRS terms.
*** Earnings are calculated after deducting share of profits attributable to non-controlling interests.
Current trading and outlook
The Company expects Headline profit before tax for 2023 to be in line with market expectations of GBP36.5m-GBP38.0m, representing a 15-19% increase on the record profits of 2022.
Along with the wider market, we have seen some impact in the year to date from the headwinds in the technology sector, particularly in our Media specialism. However, we continue to see the benefit of our diverse range of businesses with strong pipelines in the Consulting, Issues and Passions specialisms, which gives us confidence for the remainder of the year. In addition, the cost efficiency programme is expected to deliver savings in the second half of 2023. Consequently, profit will be more weighted to the second half of 2023, than in 2022.
Commenting on the 2022 performance and outlook, Moray MacLennan, Chief Executive Officer said:
"Another year of record results, in a year not without challenges. Through a relentless focus on developing core capabilities both within and beyond advertising, alongside careful cost management, we have delivered high-margin and high-revenue growth and are pleased to reinstate dividend payments.
We approach 2023 with guarded optimism. Whilst macroeconomic uncertainties will require careful navigation and management, we have a clear roadmap in place and look forward to building on our solid foundations for profitable growth."
For further information please call: M&C Saatchi plc +44 (0)20-7543-4500 Gareth Davis, Chairman Moray MacLennan, Chief Executive Officer Numis Securities +44 (0)20-7260-1000 Nick Westlake, Iqra Amin Liberum +44 (0)20-3100-2000 Max Jones, Tim Medak, Mark Harrison, Benjamin Cryer, Will King Brunswick +44 (0)207-404-5959 Andrew Porter, Sumeet Desai, Kate Pope
Chief Executive Statement
2022 was another record year. Unexpected events were met with remarkable resilience and remarkable profitability. Growth was achieved in spite of obstacles.
In 2020 we stabilised the Company and laid the foundations for future success. In 2021 we gained momentum. In 2022 our record net revenue, Headline operating profit, Headline profit before tax and Headline earnings demonstrated the extent of the turnaround.
Targets were set at the Capital Markets Day in 2021, and all of our 2022 targets were surpassed . Between 2020 and 2022 we delivered net revenue CAGR of 10%, Headline operating profit CAGR of 71% and an operating margin improvement from 5% to 13%. As a result, at the Capital Markets Day in February 2023, the Company set out new five-year growth targets to 2027.
This performance is due to our people. They deliver the award-winning work and the revenue day-in, day-out.
On new business, we were appointed to the Emirates Airline, Samsung and Volkswagen global rosters. We won the UK Covid-19 Inquiry account, Australia Retirement Trust, a new global assignment from Diageo, and Vattenfall, one of the world's leading sustainable energy companies.
New client offers were launched in four areas: data analytics, sustainability, digital innovation and B2B SaaS.
We completed the first phase of our global efficiency programme which will result in further simplification of our operating model globally and start delivering cost savings in the second half of 2023.
And all of this with a successful defence against the two failed takeover bids.
Strategy
At our Capital Markets Day this year, we announced our ambition to be the world's leading creative solutions company, of specialist expertise, connected through data and tech, to deliver meaningful change.
Our strategy will focus on high-margin organic growth, improved efficiency, further simplification and M&A.
This includes investment in key capabilities, focusing on data, digital transformation and CX, across our high-margin businesses, increased productisation within all specialisms, expansion into geographic growth markets, and development of a new media proposition.
We initiated a global efficiency programme in the last quarter of 2022, with cost savings and margin improvements expected to be delivered from the second half of 2023, and on an ongoing basis thereafter.
The focus on simplification also involves streamlining the operating model and reducing both legal and operating entities in 2023 and 2024.
We will pursue selective bolt-on M&A opportunities to further strengthen our market proposition.
Specialism performance
The business operates through five connected specialisms. Today, 75% of our operating profit and over half of our revenue come from specialisms other than Advertising. We are no longer just an advertising agency, we are much more than that, we are a creative solutions company. Specialist expertise in disciplines you may expect, such as performance media, PR and data analytics. But also in some that you may not, such as: influencer management, eSports marketing and behaviour change. This specialist expertise connects, through data and technology, to deliver meaningful, commercial and societal change.
2022 People and Planet
A global employee engagement survey, The Loop, was launched and initial results were encouraging with high, positive engagement. A Global Head of Diversity, Equity and Inclusion ("DE&I") was hired to support and drive the DE&I strategy. Employee-led networks were expanded globally to support protected groups, including: gender, ethnicity, LGBTQ+, and family.
Planet commitments were published to halve greenhouse gas emissions across the Company's own operations and its value chain by 2030, validated by the Science Based Targets initiative. Commitment has been made to improving the positive impact of our work, and grow the percentage of revenue from planet-positive campaigns.
Outlook
Whilst there are clear and obvious headwinds affecting society, business in general and our sector, we have a clear roadmap for the next stage of our transformation journey.
We are well placed and remain confident that further progress will be made in the current year, and that we will continue to accelerate change and deliver profitable growth.
For the first time, in a long time, we have a clear runway ahead of us.
2022 Financial Review
Financial performance
The Group manages its financial performance through a number of key performance measures, which are stated below.
-- Net revenue of GBP271.1m, up 8.7% from GBP249.3m; like-for-like
growth of 4.3%.
-- Headline operating profit margin of 13.1%, up from 12.5%.
-- Headline profit before tax of GBP31.8m, the highest ever
for the Group, up from GBP27.3m.
-- Statutory profit before tax of GBP5.4m, down from GBP21.6m.
-- Headline earnings per share of 14.8p, up from 11.3p.
-- Statutory earnings per share of 0.1p, down from 10.5p.
-- Net cash of GBP30.0m, down from GBP34.4m.
-- Drawdown on the Company's revolving multicurrency credit
facility of GBP7.0m, reduced from GBP20.0m.
Headline Statutory
GBPm 2022 2021 Movement 2022 2021 Movement
Billings* 597.5 533.4 12.0% - - -
Revenue 462.5 394.6 17.2% 462.5 394.6 17.2%
Net revenue* 271.1 249.3 8.7% - - -
EBITDA* 45.2 40.8 10.8% - - -
Operating profit 35.4 31.1 13.8% 10.5 27.3 -61.5%
Profit before taxation 31.8 27.3 16.5% 5.4 21.6 -75.0%
Profit for the year 24.0 20.0 20.5% 0.2 13.2 -98.5%
Earnings** 18.1 13.7 32.8% 0.1 12.8 -99.2%
Earnings per share 14.8p 11.3p 31.7% 0.1p 10.5p -99.3%
Tax rate 24.5% 26.6% -2.1pts 95.5% 39.1% +56.4pts
*Billings, net revenue and EBITDA are excluded from Statutory results, as these are not IFRS terms. Although our peers may use these same terms, they are not necessarily calculated on the same basis. However, as measures of Headline performance they have been included to better assess the underlying performance of the business and to enable better comparability both across the industry and when comparing year-on-year results.
**Earnings are calculated after deducting share of profits attributable to non-controlling interests.
Headline results
The Headline results are alternative performance measures that the Board considers the most appropriate basis to assess the underlying performance of the business, monitor its results on a month-to-month basis, enable comparison with industry peers and measure like-for-like, year-on-year performance.
Group Headline operating profit was GBP35.4m, increasing from GBP31.1m in 2021. The Group reported a Statutory operating profit of GBP10.5m, down from GBP27.3m in 2021, due to defence advisory costs and other non-trading items.
The Group's Headline profit improvement compared to 2021 was driven largely by strong performance in the Issues and Passions specialisms and by central cost savings. Despite reduced revenue in Advertising, an improvement in the operating profit margin resulted in increased absolute profit in this specialism.
The Group Headline operating profit margin increased to 13.1% from 12.5% in 2021. This represents continued progress towards the Group's operating profit margin target of 18% by 2027 announced at the Capital Markets Day in February 2023.
The key movements between Statutory to Headline results
Year ended Year ended
31 December 31 December
2022 2021
---------------------------------------- ------------ ------------
GBP000 GBP000
Statutory profit before taxation 5,423 21,632
Separately disclosed items 13,352 (3,783)
Dividends paid to IFRS 2 put option
holders 7,811 5,270
Put option accounting - IFRS 9
and IFRS 2 2,233 2,121
Movement of FVTPL investments under
IFRS 9 1,587 (2,510)
Amortisation of acquired intangibles 597 965
Impairment of non-current assets 564 2,770
Revaluation of contingent consideration 266 532
Loss on disposal of subsidiaries
and associates - 83
Revaluation of associates on transition
to subsidiaries - 234
Headline profit before taxation 31,833 27,314
The larger items causing the movement between Statutory and Headline results for 2022 are explained below and further details are provided in Notes 1 and 2 of the financial statements.
Separately disclosed items
During 2022, GBP10.8m of costs were incurred as the Company was subject to two competing bids to take control and full ownership of the business. Managing the Company's response to these two takeover bids resulted in a number of one-off external advisory and additional internal management costs. In addition, we commenced a global efficiency programme which incurred one-off professional fees of GBP1.0m, and we restructured and closed a number of businesses with costs of GBP1.8m. Last year's credit of GBP3.8m arose as a result of the forgiveness of GBP2.2m of US Paycheck Protection Program (PPP) loans and the GBP2.8m release of a long-term incentive plan accrual, partially offset by lease surrender expenses and the cost arising from the repayment of GBP1.0m of furlough money to the UK government.
Dividends paid to IFRS 2 put option holders
Local management in some of the Group's subsidiaries own minority shareholdings in those subsidiaries. As shareholders, they also have rights to receive dividends, and, as they are employees of those subsidiaries, these are recognised as staff costs.
FVTPL investments under IFRS 9 - financial assets at fair value through profit and loss
The Group holds unlisted equity investments in early-stage companies (detailed in Note 19 of the financial statements). The revaluation of these companies is excluded from Headline results. Market weakness in the technology sector made fundraising and trading more difficult for them in 2022, resulting in an impairment of GBP2.9m and downwards revaluations of GBP2.7m. However, this was partially offset by upwards revaluations of GBP3.0m and profit on disposal of GBP1.2m.
Put option accounting - IFRS 9 and IFRS 2
These charges relate to the revaluations of the put option liabilities (both IFRS 2 and IFRS 9) during the year.
Amortisation of acquired intangibles
Acquired intangibles relate to brand names and customer relationships. Refer to Note 14 of the financial statements for details.
Impairment of non-current assets
In 2022, the Group recorded an impairment charge of GBP0.6m, which primarily relates to the write-off of goodwill in M&C Saatchi (Hong Kong) Limited and Scarecrow Communications Limited. The 2021 charge mainly consisted of a GBP1.9m goodwill write-off in Santa Clara Participações Ltda, along with smaller intangible write-offs.
Net revenue performance by specialism
Group net revenue increased 8.7% in 2022 (4.3% on a like-for-like basis). A like-for-like basis applies constant foreign exchange rates and removes entities disposed of or acquired during 2021, since there were no disposals or acquisitions during 2022; it also adjusts for any reclassification of entities between the specialisms. The Passions and Issues specialisms saw the largest like-for-like net revenue growth of all specialisms in 2022.
Net revenue Reported Like-for-Like
by
---------------------------- --------------------
Specialism 2022 Growth 2022 Growth
GBPm versus 2021 GBPm versus 2021
Advertising 124.3 (2.3)% 118.1 (4.0)%
Media 34.2 4.2% 34.2 (1.5)%
Issues 42.2 24.4% 41.4 22.0%
Consulting 37.0 19.6% 37.0 7.7%
Passions 33.4 36.7% 33.4 22.6%
Group 271.1 8.7% 264.1 4.3%
Advertising remains the largest specialism, comprising 46% of total net revenue (2021: 51%) on a reported basis. However, the other four specialisms have increased their share of total net revenue to 54% (2020: 49%). This shift away from Advertising continues to support operating profit growth, as these other specialisms have an average operating profit margin of 24% compared to Advertising with an operating profit margin of 9%. There has been a marked shift in revenue between the different specialisms over recent years as shown by the table below:
Reported net revenue Advertising Media Issues Consulting Passions Total
2022 46% 13% 15% 14% 12% 100%
2021 51% 13% 14% 12% 10% 100%
2020 61% 10% 13% 8% 8% 100%
2019 64% 11% 10% 7% 8% 100%
Net revenue performance by region
At a regional level, 2022 saw a reduction in Australia's reported revenue, due to the loss of two major clients. The largest regional increase was in the Americas with a 33% increase in reported revenue but the Middle East and Africa, and Asia also grew significantly.
Net revenue Reported Like-for-Like
by
-------------------- --------------------
Region 2022 Growth 2022 Growth
GBPm versus 2021 GBPm versus 2021
UK 98.2 3.3% 98.2 3.3%
Europe 15.3 0.7% 15.3 (1.1)%
Middle East and
Africa 23.4 15.6% 23.4 11.7%
Asia 26.1 12.1% 22.1 10.3%
Australia 52.9 (2.1)% 52.9 (5.4)%
Americas 55.2 33.1% 52.2 13.9%
Group 271.1 8.7% 264.1 4.3%
The UK remains the largest region in the Group comprising 36% of total net revenue (2021: 39%) on a reported revenue basis. The recent shifts in share of revenue by region can be seen in the table below:
Reported net UK Europe* Middle Asia* Australia Americas* Total
revenue East and
Africa
2022 36% 6% 9% 10% 19% 20% 100%
2021 39% 6% 8% 8% 22% 17% 100%
2020 39% 13% 7% 5% 21% 15% 100%
2019 40% 12% 7% 5% 20% 16% 100%
*Includes material acquisitions or disposals during this period. The businesses in France and Spain (Europe) were disposed of and the businesses in China and Pakistan (Asia) and Brazil (Americas) were acquired.
Financial income and expense
The Group's finance income and expense includes bank interest, lease interest and fair value adjustments to minority shareholder put option liabilities (IFRS 9). Further details can be found in Note 7 of the financial statements.
Bank interest payable for the year was GBP1.2m (2021: GBP1.6m). Higher interest rates on the Company's revolving multicurrency credit facility agreement were offset by optimal allocation of cash around the Group, which reduced the drawdown on the Facility.
The interest on leases increased to GBP3.0m (2021: GBP2.8m) due to the full-year impact of leases entered into in 2021.
The fair value adjustment of put option liabilities created a charge of GBP1.1m (2021: charge of GBP0.9m). This increase is due to increased profitability in the agencies where there are outstanding put option arrangements.
Tax
Headline Tax
Our Headline tax rate has reduced marginally from 26.6% to 24.5%. The reduction is due to the use of prior years' tax losses (caused in part by the Covid-19 pandemic) to offset current profitability and an increase in profits from countries with lower tax rates, partly offset by increased expenditure on disallowable costs.
Statutory Tax
The Statutory tax rate increased from 39.1% in 2021 to 95.5% in 2022. In general, we expect large variations in Statutory tax rates. This is because items such as share-based payments (option charges) and put options arising from investments in subsidiaries are non-deductible against corporation tax, due to their being capital in nature. In 2022, two parties tried to acquire the Company and a proportion of the defence costs was disallowable due to their being capital in nature. This increased our non-deductible expenses.
Non-controlling interests (minority interests)
On a Headline basis, the non-controlling interest share of the Group's profit represents the minority shareholders' share of each of the Group's subsidiaries' profit or loss for the year. In 2022, the share of profits attributable to non-controlling interests reduced to GBP5.9m (2021: GBP6.4m) and minority interests reduced to 25% of profit after tax (2021: 32%). This reflects a reduction during the year in the minority interest shareholdings in several Group entities, as a result of the settlement of put options, to the value of GBP12.1m.
On a Statutory basis, non-controlling interests excludes any minority interests which relate to IFRS 2 put option holders (holders of put options that are contingent on being employed by the relevant company), whose share of the entity's Statutory profit is paid as dividends each year, and are reported as staff costs in the Statutory results.
Dividends
The Board believes that the Group has significant growth potential. Accordingly, the Board believes that the Group would be best served, and this potential realised, from investing annual profits back into the business and into new growth initiatives.
However, the Board recognises the importance of dividends within the Company's capital allocation policy, alongside the settlement of put options and investment in growth initiatives. The Board has therefore decided to resume payment of dividends in 2023 and intends to adopt a progressive dividend policy in future, targeting a payout ratio of 25% in the medium term.
The Company did not pay a dividend to its shareholders in 2022 (2021: nil). But given the financial performance during the year, the Board is recommending the payment of a final dividend of 1.5 pence per share.
Subject to shareholder approval at the Annual General Meeting, to be held on 14 June 2023, the dividend will be paid on 12 July 2023 to shareholders on the register of members at 9 June 2023. The shares will go ex-dividend on 8 June 2023.
Cash flow and banking arrangements
Total gross cash (excluding bank overdrafts) at 31 December 2022 was GBP41.5m (2021: GBP69.4m). Cash net of bank borrowings was GBP30.0m, compared to GBP34.4m in 2021.
In 2022, the Group generated operating cash from trading (before working capital) of GBP43.0m, before the costs associated with the takeover defence (GBP10.8m) and before dividends and allocations paid to IFRS 2 put option holders (GBP7.8m). There was a GBP4.8m net inflow from working capital (2021: GBP15.2m outflow), driven mainly by a focus on billing more quickly and collecting more promptly. This was offset by GBP10.3m of lease payments (2021: GBP9.0m) and GBP12.1m of payments to acquire non-controlling interests (2021: GBP5.3m). In addition, GBP5.6m of tangible and intangible fixed assets were purchased in 2022 (compared to GBP2.6m in 2021), primarily due to investment in the new office in Sydney, Australia.
Net operating cashflow (operating cash from trading, net of working capital, purchases of intangible/tangible fixed assets, and the principal payment on leases) for the year was GBP34.9m, which represents a cash conversion from Headline operating profit of 99%.
The following table sets out the key movements in net cash during 2022:
Movement in net cash during 2022 GBPm Net cash at the beginning of the year 34.4 Increase in cash from trading 43.0 Increase in cash from working capital movements 4.8 Net interest paid (0.8) Purchases of intangible/tangible fixed assets (5.6) Tax paid (6.7) Dividends and allocations paid to IFRS 2 put option holders (7.8) Payment of lease liabilities (10.3) Costs associated with the takeover defence (10.8) Cash consideration for non-controlling interest acquired (12.1) Other movements 1.9 Net cash at the end of the year 30.0
The Company has a revolving multicurrency credit facility agreement with National Westminster Bank Plc and Barclays Bank PLC for up to GBP47.0m (the "Facility") which terminates on 21 May 2024, with an option to extend for an additional year. The Facility includes a GBP2.5m overdraft and the ability to draw up to GBP3.0m as a bonding facility as required. The primary purpose of the Facility is to provide the Group with additional liquidity headroom to support any variations in working capital.
At 31 December 2022, GBP7.0m was drawn on the Facility compared to GBP20.0m at 31 December 2021.
Capital expenditure
Total capital expenditure in 2022 (including software acquired) increased to GBP5.6m (2021: GBP2.6m). This included GBP1.7m on furniture, fittings and other equipment (2021: GBP0.3m), GBP1.6m (2021: GBP1.4m) on computer equipment, GBP1.1m (2021: GBP0.1m) on leasehold improvements, and GBP1.0m (2021: GBP0.8m) on software and film rights. The remaining GBP0.2m (2021: nil) was spent on acquiring the customer relationships of the Channel Mum influencer network.
Share-based incentive arrangements
The Group operates a business model through which certain members of senior management have minority ownership in the subsidiary companies they operate, through share-based incentive (put option) arrangements. Given the Group's strong cash position, we intend to settle put options in cash rather than shares when the options fall due, which reduces the risk of substantial share dilution to shareholders.
The table below presents a range of potential cash payments to settle put options for the next six years based on the future share price of the Company, the estimated future business performance for each business unit and assuming the put options are exercised as soon as possible. These forecasts are based on the Group's three-year plans which were developed as part of our budget cycle.
Potentially payable
2023 2024 2025 2026 2027 2028 Total
Future Share Price of the Company GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 151p* GBP17,498 GBP2,470 GBP373 GBP2,932 GBP924 GBP740 GBP24,937
At 160p GBP18,324 GBP2,609 GBP401 GBP2,978 GBP979 GBP784 GBP26,075
At 175p GBP19,746 GBP2,841 GBP448 GBP3,102 GBP1,071 GBP858 GBP28,066
At 200p GBP22,323 GBP3,227 GBP526 GBP3,522 GBP1,224 GBP981 GBP31,803
At 225p GBP24,800 GBP3,512 GBP604 GBP3,941 GBP1,377 GBP1,103 GBP35,337
At 250p GBP27,226 GBP3,747 GBP682 GBP4,360 GBP1,530 GBP1,226 GBP38,771
At 300p GBP32,121 GBP4,217 GBP838 GBP5,199 GBP1,836 GBP1,471 GBP45,682
*Share price at 31 December 2022
Put option holders are not required to exercise their options at the first opportunity. Many do not and prefer to remain shareholders in the subsidiary companies they manage. As a result, some put option holders may exercise their options later than the dates we have estimated in the table above.
If, in the future, the Company decides to fulfil the put options by way of shares in the Company, then the number of shares in the Company that will be provided is equal to the liability divided by the Company's share price at the date of exercise.
Summary
The Company's performance in 2022 was strong, particularly given the distractions of the potential takeovers. Driven by a 9% increase in revenue and a further increase in Headline operating profit margin to 13.1% (2021: 12.5%), the Company generated its highest ever net revenue, Headline operating profit, Headline profit before tax and Headline earnings. The strategy set out in 2021, and reinforced in 2023, continues to reap rewards and we have a clear path towards further margin and profit increases.
The Company expects Headline profit before tax for 2023 to be in line with market expectations of GBP36.5m-GBP38.0m, representing a 15-19% increase on the record profits of 2022.
Along with the wider market, we have seen some impact in the year to date from the headwinds in the technology sector, particularly in our Media specialism. However, we continue to see the benefit of our diverse range of businesses with strong pipelines in the Consulting, Issues and Passions specialisms, which gives us confidence for the remainder of the year. In addition, the cost efficiency programme is expected to deliver savings in the second half of 2023. Consequently, profit will be more weighted to the second half of 2023, than in 2022.
This statement along with the audited consolidated statutory financial statements is available on our website: https://www.mcsaatchiplc.com/reports-results/2022
Printed copies of the Annual Report are being posted to shareholders who have requested hard copies.
Consolidated Income Statement
2022 2021
Total Total
Year ended 31 December Note GBP000 GBP000
---------- ----------
Billings (unaudited) 4 597,520 533,350
------------------------------------------ ------ ---------- ----------
Revenue 4 462,533 394,575
Project cost / direct cost (191,393) (145,239)
Net revenue 4 271,140 249,336
Staff costs 5 (198,765) (172,493)
Depreciation 16,17 (9,326) (9,196)
Amortisation 14 (1,060) (1,412)
Impairment charges 14,17 (564) (2,937)
Other operating charges (49,474) (39,573)
Other (losses) / gains 19 (1,403) 3,533
Operating profit 10,548 27,258
------------------------------------------ ------ ---------- ----------
Share of results of associates and joint
ventures 15 (10) (190)
Gain on disposal of subsidiaries 11 - 42
Impairment of associate investment 15 - (357)
Finance income 7 391 260
Finance expense 7 (5,506) (5,381)
------------------------------------------ ------ ---------- ----------
Profit before taxation 5,423 21,632
------------------------------------------ ------ ---------- ----------
Taxation 8 (5,178) (8,459)
------------------------------------------ ------ ---------- ----------
Profit for the year 245 13,173
------------------------------------------ ------ ---------- ----------
Attributable to:
Equity shareholders of the Group 90 12,757
Non-controlling interests 155 416
------------------------------------------ ------ ---------- ----------
Profit for the year 245 13,173
------------------------------------------ ------ ---------- ----------
Profit per share
Basic (pence) 1 0.07p 10.53p
Diluted (pence) 1 0.07p 9.38p
------------------------------------------ ------ ---------- ----------
Headline results
Operating profit 1 35,388 31,136
Profit before taxation 1 31,833 27,314
Profit after tax attributable to equity
shareholders of the Group 1 18,105 13,687
Basic earnings per share
(pence) 1 14.81p 11.30p
Diluted earnings per
share (pence) 1 13.47 p 10.06p
EBITDA 45,168 40,821
------------------------------------------ --- -------- -------
The following notes form part of these consolidated financial statements.
Consolidated Statement of Other Comprehensive Income
2022 2021
Year ended 31 December GBP000 GBP000
--------------------------------------------- ------- -------
Profit for the year 245 13,173
--------------------------------------------- ------- -------
Other comprehensive profit*
Exchange differences on translating foreign
operations 4,785 664
--------------------------------------------- ------- -------
Other comprehensive profit for the year
net of tax 4,785 664
Total comprehensive profit for the year 5,030 13,837
--------------------------------------------- ------- -------
Total comprehensive profit attributable
to:
Equity shareholders of the Group 4,875 13,421
Non-controlling interests 155 416
--------------------------------------------- ------- -------
Total comprehensive profit for the year 5,030 13,837
--------------------------------------------- ------- -------
*All items in the consolidated statement of comprehensive income may be reclassified to the income statement.
The following notes form part of these consolidated financial statements.
Consolidated Balance Sheet
2022 2021
At 31 December Note GBP000 GBP000
--------------------------------------- ----- --------- ---------
Non-current assets
Intangible assets 14 41,968 40,499
Investments in associates and JV 15 191 202
Plant and equipment 16 8,310 6,333
Right-of-use assets 17 43,992 44,397
Other non-current assets 18 1,107 1,211
Deferred tax assets 9 5,131 6,777
Financial assets at fair value through
profit or loss 19 11,986 15,183
Deferred and contingent consideration 13 914 -
---------------------------------------
113,599 114,602
--------------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 20 132,067 132,741
Current tax assets 3,909 247
Cash and cash equivalents 41,492 69,419
---------------------------------------
177,468 202,407
--------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 21 (155,547) (154,049)
Provisions 22 (1,056) (1,193)
Current tax liabilities (481) (837)
Borrowings 23 (4,430) (14,737)
Lease liabilities 17 (6,448) (6,950)
Deferred and contingent consideration 13 - (984)
Minority shareholder put option
liabilities 26/27 (18,419) (20,788)
--------------------------------------- ----- ---------
(186,381) (199,538)
--------------------------------------- ----- --------- ---------
Net current (liabilities) / assets (8,913) 2,869
--------------------------------------- ----- --------- ---------
Total assets less current liabilities 104,686 117,471
--------------------------------------- ----- --------- ---------
Non-current liabilities
Deferred tax liabilities 9 (1,245) (777)
Corporation tax liabilities 9 (856) -
Borrowings 23 (6,802) (19,821)
Lease liabilities 17 (49,122) (49,895)
Minority shareholder put option
liabilities 26/27 (4,429) (11.572)
Other non-current liabilities 24 (4,046) (2,549)
--------------------------------------- ----- ---------
(66,500) (84,614)
--------------------------------------- ----- --------- ---------
Total net assets 38,186 32,857
--------------------------------------- ----- --------- ---------
2022 2021
At 31 December Note GBP000 GBP000
------------------------------------- ---- -------- --------
Equity
Share capital 28 1,227 1,227
Share premium 50,327 50,327
Merger reserve 37,554 37,554
Treasury reserve (550) (550)
Minority interest put option reserve (2,896) (6,615)
Non-controlling interest acquired (32,984) (29,190)
Foreign exchange reserve 6,638 1,853
Accumulated losses (21,303) (22,122)
------------------------------------- ---- -------- --------
Equity attributable to shareholders
of the Group 38,013 32,484
Non-controlling interest 173 373
------------------------------------- ---- -------- --------
Total equity 38,186 32,857
------------------------------------- ---- -------- --------
Reserves are defined in note 35.
These consolidated financial statements were approved and authorised for issue by the Board of Directors on 17 April 2023 and signed on its behalf by:
Bruce Marson
Chief Financial Officer
M&C Saatchi plc
Company Number 05114893
Consolidated Statement of Changes in Equity
Retained
earnings
MI put Non-controlling Foreign / Non-controlling
Share Share Merger Treasury option interest exchange (accumulated Sub interest
capital premium reserve reserve reserve acquired reserves losses) total in equity Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
At 31 December
2020 1,159 44,607 37,554 (550) (4,953) (29,190) 1,210 (4,939) 44,898 233 45,131
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
Acquisitions
including
deferred
consideration 12,13,26 54 4,949 - - (2,000) - - - 3,003 - 3,003
Exercise of
Minority
Interest put
options 26 5 419 - - 338 - - - 762 - 762
Transfer from
equity
to
cash-settled
put
options 27 - - - - - - - (32,555) (32,555) - (32,555)
Transfer from
cash
to
equity-settled
put options 27 - - - - - - - 994 994 - 994
Share option
charge 27 - - - - - - - 2,235 2,235 - 2,235
Buyout of
equity
put options in
cash - - - - - - - (632) (632) - (632)
Issue of shares 6 352 - - - - - - 358 - 358
Exercise of put
options 3 - - - - - - (3) - - -
Disposal of
subsidiaries - - - - - - (21) 21 - - -
Dividends 10 - - - - - - - - - (276) (276)
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
Total
transactions
with owners 68 5,720 - - (1,662) - (21) (29,940) (25,835) (276) (26,111)
Total profit
for
the year - - - - - - - 12,757 12,757 416 13,173
Total other
comprehensive
income for the
year - - - - - - 664 - 664 - 664
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
At 31 December
2021 1,227 50,327 37,554 (550) (6,615) (29,190) 1,853 (22,122) 32,484 373 32,857
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
Share option
charge 27 - - - - - - - 1,229 1,229 - 1,229
Amounts paid on
settlement
of LTIP 27 - - - - - - - (500) (500) - (500)
Exercise of put
options 26 - - - - 3,719 (3,794) - - (75) 75 -
Dividends 10 - - - - - - - - - (430) (430)
--------------- -------- -------
Total
transactions
with owners - - - - 3,719 (3,794) - 729 654 (355) 299
Total profit
for
the year - - - - - - - 90 90 155 245
Total other
comprehensive
income for the
year - - - - - - 4,785 - 4,785 - 4,785
--------------- --------
At 31 December
2022 1,227 50,327 37,554 (550) (2,896) (32,984) 6,638 (21,303) 38,013 173 38,186
--------------- -------- ------- ------- ------- -------- ------- --------------- -------- ------------ -------- --------------- --------
The following notes form part of these consolidated financial statements.
Consolidated Cash Flow Statement
2022 2021
Year ended 31 December Note GBP000 GBP000
-------------------------------------------------- ---- -------- --------
Operating profit 10,548 27,258
-------------------------------------------------- ---- -------- --------
Adjustments for:
Depreciation of plant and equipment 16 2,480 2,237
Depreciation of right-of-use assets 17 6,846 6,959
Loss on sale of plant and equipment 165 95
Loss on sale of software intangibles 175 824
Revaluation of financial assets at FVTPL 19 1,403 (3,533)
Revaluation of contingent consideration 13 266 532
Amortisation of acquired intangible assets 14 597 965
Impairment of goodwill and other intangibles 14 556 1,900
Impairment and amortisation of capitalised
software intangible assets 14 635 1,484
Exercise of share-based payment schemes with
cash 26 (500) -
Equity settled share-based payment expenses 27 1,229 2,235
-------------------------------------------------- ---- -------- --------
Operating cash before movements in working
capital 24,400 40,956
-------------------------------------------------- ---- -------- --------
(Increase) in trade and other receivables (4,187) (38,912)
Increase in trade and other payables 9,104 23,434
(Decrease) / increase in provisions (137) 316
-------------------------------------------------- ---- -------- --------
Cash generated from operations 29,180 25,794
-------------------------------------------------- ---- -------- --------
Tax paid (6,712) (6,844)
-------------------------------------------------- ---- -------- --------
Net cash from operating activities 22,468 18,950
-------------------------------------------------- ---- -------- --------
Investing activities
Acquisitions of subsidiaries net of cash acquired 12 - 633
Disposal of associate or subsidiary (net of
cash disposed of) 11 - (2)
Acquisitions of unlisted investments 19 - (81)
Proceeds from sale of unlisted investments 19 918 209
Proceeds from sale of plant and equipment - 223
Purchase of plant and equipment 16 (4,383) (1,789)
Purchase of capitalised software 14 (1,192) (837)
Interest received 7 391 260
-------------------------------------------------- ---- -------- --------
Net cash consumed by investing activities (4,266) (1,384)
-------------------------------------------------- ---- -------- --------
Net cash from operating and investing activities 18,202 17,566
-------------------------------------------------- ---- -------- --------
Financing activities
-------------------------------------------------- ---- -------- --------
Dividends paid to non-controlling interest (430) (152)
Cash consideration for non-controlling interest
acquired and other options 27 (12,104) (5,348)
Payment of deferred consideration 13 (1,250) -
Buyout of equity put options in cash - (632)
Payment of lease liabilities 17 (7,307) (6,210)
Proceeds from bank loans 23 - 9,301
Repayment of bank loans 23 (13,410) (16,909)
Borrowing costs - (602)
Interest paid 7 (1,200) (1,555)
Interest paid on leases 17 (2,970) (2,800)
-------------------------------------------------- ---- -------- --------
Net cash consumed by financing activities (38,671) (24,907)
-------------------------------------------------- ---- -------- --------
Net decrease in cash and cash equivalents (20,469) (7,341)
-------------------------------------------------- ---- -------- --------
Effect of exchange rate fluctuations on cash
held 2,711 (55)
Cash and cash equivalents at the beginning
of the year 54,979 62,375
-------------------------------------------------- ---- -------- --------
Total cash and cash equivalents at the end
of the year 37,221 54,979
-------------------------------------------------- ---- -------- --------
Cash and cash equivalents 41,492 69,419
Bank overdrafts* 23 (4,271) (14,440)
-------------------------------------------------- ---- -------- --------
Total cash and cash equivalents at the end
of the year 37,221 54,979
-------------------------------------------------- ---- -------- --------
Bank loans and borrowings** 23 (7,212) (20,590)
-------------------------------------------------- ---- -------- --------
Net cash 30,009 34,389
-------------------------------------------------- ---- -------- --------
*These overdrafts are legally offset against balances held in the UK; however, they have not been netted off in accordance with the requirements of IAS32.42.
**Bank loans and borrowings are defined in note 23; they exclude the lease liability of GBP55,570k (2021 GBP56,845k) (note 17)
The following notes form part of these consolidated financial statements.
Preparation
Basis of preparation
The consolidated financial statements have been prepared in accordance with UK adopted international accounting standards, in conformity with the requirements of the Companies Act 2006.
The consolidated financial statements are presented in pounds sterling and, unless stated otherwise, rounded to the nearest thousand. They have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.
Going concern
These financial statements have been prepared on the going concern basis.
The Board have concluded that under the most likely going concern scenarios, the Group will have sufficient liquidity and headroom on bank covenants to continue to operate for a period of not less than a year from approving the financial statements.
The Board have formed their opinion after evaluating 5 different severe but plausible forecast scenarios and a reverse stress test, extending to 31 December 2025, comprising:
1. a significant reduction in new business wins; 2. a significant increase in wage inflation; 3. a significant number of top clients are lost; 4. a significant economic downturn; and 5. a reverse stress test case.
These severe but plausible scenarios are assumed to materialise from Q1 2023 onwards. The estimated decline in profit before tax ranges from GBP22m to GBP26m compared to the base case plan for the cumulative period ending 31 December 2024, including a GBP11m to GBP18m decline in profit before tax in 2023.
The reverse stress test case evaluates how extreme conditions would need to be for the Group to break its covenants within the going concern review period. The conditions go significantly further than the severe but plausible scenarios and reflect a scenario that the Directors consider to be highly unlikely.
The Directors have also considered the impact of climate change on going concern, taking into account the Company's support for Ad Net Zero (the industry initiative to tackle climate change led by the Advertising Association and its members), and do not believe that there is a significant financial impact.
The Board is satisfied that the Group's forecasts, which take into account reasonably possible changes in trading performance, show that there are no material uncertainties over going concern, and that, even under the severe but plausible scenarios, the Group will continue to have sufficient liquidity and headroom to operate within the terms of its banking covenants. The Board, therefore, have concluded the going concern basis of preparation continues to be appropriate.
Foreign exchange
Transactions in foreign currencies are translated at the exchange rate ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date, with the resulting exchange differences recognised in the income statement.
The accounts of each subsidiary are prepared using the functional currency of that subsidiary. The income statements of foreign subsidiary undertakings are translated into pounds sterling at average exchange rates on consolidation. The assets and liabilities of overseas subsidiaries (which comprise the Group's net investment in foreign operations) are translated at the exchange rate ruling at the balance sheet date. The resulting exchange differences are recognised in other comprehensive income and accumulated in equity within the foreign exchange reserve.
Consolidation
The Group's financial statements consolidate the results of the Company and its subsidiary entities, and include the share of its joint ventures' and associates' results accounted for under the equity method.
A subsidiary is an entity controlled by the Group. The Group controls a subsidiary when it is exposed, or has the rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.
The results of subsidiaries are included from the date of acquisition. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of the Group. Intra-group transactions, balances, income, and expenses are eliminated on consolidation.
Where a consolidated company is less than 100% owned by the Group, the treatment of the non-controlling interest share of the results and net assets is dependent on how the non-controlling interests' equity award is accounted for. Where the equity is accounted for as a share-based payment award under IFRS 2, all dividend outflow is taken to staff costs, and there is no non-controlling interest. In all other cases, the non-controlling interest share of the results and net assets is recognised at each reporting date in equity, separately from the equity attributable to the shareholders of the Company.
Significant accounting policies
The significant accounting policies applied in the preparation of these consolidated financial statements are set out in the relevant notes. These policies have been applied consistently to all the years presented, unless otherwise stated.
Critical accounting policies
Certain of the Group's significant accounting policies are considered by the Directors to be critical, due to the level of complexity, judgement, or estimation involved in their application and their potential impact on the consolidated financial statements. The critical accounting policies are listed below and explained in more detail in the relevant notes to the Group financial statements.
Revenue recognition
The Group applied IFRS 15 Revenue on contracts with customers from the start of 2018.
The Group's revenue is earned from the provision of advertising and marketing services, together with commission-based income in relation to media spend and commission-based income in relation to talent performance. Revenue from contracts with customers is recognised as, or when, the performance obligations present within the contractual agreements are satisfied. Depending on the arrangement with the client, the Group may act as principal or as agent in the provision of these services.
See note 4 for a full listing of the Group's revenue accounting policies.
Put option accounting (IFRS 2 and IFRS 9)
It is common for equity partners in the Group's subsidiaries to hold put options over their equity, such that they can require the Group to purchase their non-controlling interest for either a variable number of the Company shares or cash. Dependent on the terms and substance of the underlying agreement, these options are either recognised as a put option liability under IFRS 9 (note 26) or as a put option under IFRS 2 (note 27) - see significant judgements below.
An IFRS 9 scheme should be considered as reward for future business performance and is not conditional on the holder being an employee of the business. These instruments are recognised in full at the amortised cost of the underlying award on the date of inception, with both a liability on the balance sheet and a corresponding amount within the minority interest put option reserve being recognised. At each period end, the amortised cost of the put option liability is calculated in accordance with the put option agreement, to determine a best estimate of the future value of the expected award. Resultant movements in the amortised cost of these instruments are charged to the income statement within finance income/expense. The put option liability will vary with both the Group's share price and the subsidiary's financial performance. Upon exercise of an award by a holder, the liability is extinguished and the associated minority interest put option reserve is transferred to the non-controlling interest acquired reserve.
An IFRS 2 scheme should be considered as reward for future business performance and is conditional on the holder being an employee of the business. These schemes are recognised as staff costs over the vesting period (if equity-settled) or until the option is exercised (if cash-settled). In September 2021, the Board made the decision to move to cash settlement of these put options going forward. This required a fair value assessment on the day of the modification and a movement between reserves and liabilities.
See note 27 for a full description of the Group's accounting policy for IFRS 2 put options.
Headline results
As stated in the Financial Review, the Directors believe that the Headline results and Headline earnings per share (see note 1) provide additional useful information on the underlying performance of the business. The Headline results reflect the underlying profitability of the business units, by excluding a number of items that are not part of routine business income and expenses.
In addition, the Headline results are used for internal performance management and reward, and they are also used to calculate minority shareholder put option liabilities. The term 'Headline' is not a defined term in IFRS. Note 1 reconciles Statutory results to Headline results and the segmental reporting (note 3) reflects Headline results, in accordance with IFRS 8.
The items that are excluded from Headline results are:
-- Exceptional separately disclosed items that are one-off in nature and are not part of running
the business.
-- Acquisition-related costs.
-- Gains or losses generated by disposals of subsidiaries and associates.
-- Fair value adjustments to unlisted equity investments, acquisition related contingent consideration
and put options.
-- Dividends paid to IFRS 2 put option holders.
Unlisted investments
The Group holds certain unlisted equity investments which are classified as financial assets at FVTPL (see note 19). These investments are initially recognised at their fair value. At the end of each reporting period, the fair value is reassessed, with gains or losses being recognised in the income statement.
Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing financial statements, management necessarily makes judgements and estimates that can have a significant impact on the financial statements. The estimates and judgements that are made are continually evaluated, based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and judgements that have a significant risk of causing a material adjustment to the financial statements within the next financial year are outlined below:
Significant accounting judgements
Management has made the following judgements, which have the most significant effect in terms of the amounts recognised, and their presentation, in the consolidated financial statements.
Non-controlling interest put option accounting - IFRS 2 or IFRS 9
The key judgement is whether the awards are given beneficially as a result of employment, which can be determined where there is an explicit service condition, where the award is given to an existing employee, where the employee is being paid below market value or where there are other indicators that the award is a reward for employment. In such cases, the awards are accounted for as a share-based payment in exchange for employment services under IFRS 2.
Otherwise, where the holder held shares prior to the Group acquiring the subsidiary, or gained the equity to start a subsidiary using their unique skills, and there are no indicators it should be accounted for under IFRS 2, then the award is accounted for under IFRS 9.
Impairment - assessment of CGUs and assessment of indicators of impairment
Impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. Assets with finite lives are reviewed for indicators of impairment (an impairment "trigger") and judgement is applied in determining whether such a trigger has occurred. External and internal factors are monitored by management, including a) adverse changes in the economic or political situation of the geographic locale in which the underlying entity operates, b) heightened risk of client loss or chance of client gain, and c) internal reporting suggesting that an entity's future economic performance is better or worse than previously expected. Where management have concluded that such an indication of impairment exists, then the recoverable amount of the asset is assessed.
The Group assesses whether an impairment is required by comparing the carrying value of the CGU assets (including the right-of-use assets under IFRS 16) to their value in use. Discounted cash flow models, based on the Group's latest budget and 3 year financial plan, and a long term growth rate, are used to determine the recoverable amount for the CGUs. The appropriate estimates and assumptions used require judgement and there is significant estimation uncertainty. The results of impairment reviews conducted at the end of the year are reported in note 14 (Intangible Assets), note 15 ( Investments in associates and joint ventures ), and note 17 ( Leases ).
The Group has recognised a total impairment charge of GBP564k in the year (2021: GBP3,294k), of which GBP728k relates to Intangibles (2021: GBP2,937k) and GBP164k relates to the reversal of a previous impairment of right-of-use assets, for a property which has been sublet in 2022 (2021: GBPNil). There was no impairment in the year of plant and equipment (2021: GBPNil), or associate investments (2021: GBP357k).
Significant estimates and assumptions
Some areas of the Group's financial statements are subject to key assumptions and other significant sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Group has based its assumptions and estimates on parameters available when the financial statements were prepared.
Deferred tax assets
The Group assesses the future availability of carried forward losses and other tax attributes, by reference to jurisdiction-specific rules around carry forward and utilisation, and it assesses whether it is probable that future taxable profits will be available against which the attribute can be utilised.
Fair value measurement of financial instruments
The Group holds certain financial instruments, which are recorded on the balance sheet at fair value at the point of recognition and remeasured at the end of each reporting period. At the year-end these relate to:
i. equity investments at FVTPL in non-listed limited companies (note 19); and
ii. certain contingent consideration (note 13).
No formal market exists to trade these financial instruments and, therefore, their fair value is measured by the most appropriate valuation techniques available, which vary based on the nature of the instruments. The inputs to the valuation models are taken from observable markets where possible, but, where this is not feasible, judgement is required to establish fair values.
The basis of calculation of the estimated fair value of these financial instruments (in addition to sensitivity analyses on the estimates' salient inputs) is detailed in note 29.
Share-based incentive arrangements
Share-based incentives are valued at the date of the grant, using stochastic Monte Carlo pricing models with non-market vesting conditions. Typically, the value of these awards is directly related to the performance of a particular entity of the Group in which the employee holds a minority interest. The key inputs to the pricing model are risk-free interest rates, share price volatility and expected future performance of the entity to which the award relates. Management apply judgement to these inputs, using various sources of information, including the Group's share price, experience of past performance and published data on risk-free interest rates (government gilts).
Details of awards made in the year are shown in note 27.
Leasing estimates
Within IFRS 16, two estimates are used for the recognition of new leases and making amendments to existing leases:
i. Derivation of the interest rate used for discounting future cash flows - the discount rate used
in the calculation of the lease liability involves estimation on a lease-by-lease basis. This
involves an estimate of incremental borrowing costs, driven by the territory risk (which comprises
both the currency used and the risk-free rates of that country), the date of lease inception,
and the lease term.
ii. Anticipated length of lease term - IFRS 16 defines the lease term as the non-cancellable period
of a lease, together with the options to extend or terminate a lease, if the lessee is reasonably
certain to exercise that option. Where a lease includes the option for the Group to extend the
lease term, the Group takes a view, at inception, as to whether it is reasonably certain that
the option will be exercised. This will take into account the length of time remaining before
the option is exercisable, current trading, future trading forecasts and the level and type of
any planned capital investment. The assessment of whether the option will be exercised is reassessed
in each reporting period. A reassessment of the remaining life of the lease could result in a
recalculation of the lease liability and a material adjustment to the associated balances.
Non-statutory accounts statement
The financial information for the year ended 31 December 2022 and the year ended 31 December 2021 does not constitute the company's statutory accounts for those years.
Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies in due course.
The auditor's reports on the accounts for 31 December 2022 and 2021 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain any statement under 498(2) or 498(3) of the Companies Act 2006.
Notes to the Financial Statements
1. Headline results and earnings per share
The analysis below provides a reconciliation between the Group's Statutory results and the Headline results for the current year.
Dividends
Impairment paid to
Separately of FVTPL IFRS 2
disclosed Amortisation non-current investments Revaluation put Put option
items of acquired assets under IFRS of contingent holders accounting
Statutory (note intangibles (note 14 9 (note consideration (note (note 26 Headline
2022 2) (note 14) & 17) 19) (note 13) 5)* & 27) results
Year ended 31
December
2022 Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Billings
(unaudited) 597,520 - - - - - - - 597,520
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Revenue 462,533 - - - - - - - 462,533
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Net revenue 271,140 - - - - - - - 271,140
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Staff costs 5 (198,765) 3,412 - - - - 7,811 1,119 (186,423)
Depreciation 16,17 (9,326) - - - - - - - (9,326)
Amortisation 14 (1,060) - 597 - - - - - (463)
Impairments 14,17 (564) - - 564 - - - - -
Other operating
charges (49,474) 9,940 - - (272) 266 - - (39,540)
Other losses 19 (1,403) - - - 1,403 - - - -
-----
Operating profit 10,548 13,352 597 564 1,131 266 7,811 1,119 35,388
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Share of results
of associates
and JV 15 (10) - - - - - - - (10)
Finance income 7 391 - - - - - - - 391
Finance expense 7 (5,506) - - - 456 - - 1,114 (3,936)
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ----------
Profit before
taxation 8 5,423 13,352 597 564 1,587 266 7,811 2,233 31,833
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Taxation 8 (5,178) (1,982) (174) - (409) - - (47) (7,790)
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Profit for the
year 245 11,370 423 564 1,178 266 7,811 2,186 24,043
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
Non-controlling
interests (155) - - - - - (5,783) - (5,938)
---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- --------- Profit attributable to equity holders of the Group** 90 11,370 423 564 1,178 266 2,028 2,186 18,105 ---------------- ----- --------- ---------- ------------ ----------- ------------ ------------- --------- ---------- ---------
* The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a IFRS 2 put option.
** Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above.
1. Headline results and earnings per share continued
The analysis below provides a reconciliation between the Group's Statutory results and the Headline results for the prior year.
Revaluation
Gain on of Dividends
Impairment disposal associates FVTPL paid to
Separately of of on investments IFRS 2
disclosed Amortisation non-current subsidiaries transition under IFRS Revaluation put Put option
items of acquired assets and related to 9 (note of contingent holders accounting
Statutory (note intangibles (note costs (note subsidiaries 19) consideration (note (note 26 Headline
2021 2) (note 14) 14 & 15) 11) (note 15) (note 13) 5)* & 27) results
Year ended 31
December
2021 Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Billings
(unaudited) 533,350 - - - - - - - - - 533,350
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Revenue 394,575 - - - - - - - - - 394,575
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Net revenue 249,336 - - - - - - - - - 249,336
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Staff costs 5 (172,493) (3,975) - - 28 - - - 5,270 1,225 (169,945)
Depreciation 16,17 (9,196) - - - - - - - - - (9,196)
Amortisation 14 (1,412) - 965 - - - - - - - (447)
Impairments 14 (2,937) - - 2,413 - - - - - - (524)
Other operating
charges (39,573) 192 - - 97 - 664 532 - - (38,088)
Other gains 19 3,533 - - - - - (3,533) - - - -
-----
Operating profit 27,258 (3,783) 965 2,413 125 - (2,869) 532 5,270 1,225 31,136
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Share of results
of
associates and
JV 15 (190) - - - - 234 - - - - 44
Gain on disposal
of
subsidiaries 11 42 - - - (42) - - - - - -
Impairment of
associate
investment 15 (357) - - 357 - - - - - - -
Finance income 7 260 - - - - - - - - - 260
Finance expense 7 (5,381) - - - - - 359 - - 896 (4,126)
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ----------
Profit before
taxation 8 21,632 (3,783) 965 2,770 83 234 (2,510) 532 5,270 2,121 27,314
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Taxation 8 (8,459) 743 (246) - - - 680 - 11 - (7,271)
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Profit for the
year 13,173 (3,040) 719 2,770 83 234 (1,830) 532 5,281 2,121 20,043
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Non-controlling
interests (416) - - - - - - - (5,940) - (6,356)
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
Profit
attributable
to equity
holders
of the Group** 12,757 (3,040) 719 2,770 83 234 (1,830) 532 (659) 2,121 13,687
----------------- ----- --------- ---------- ------------ ----------- ------------ ------------ ------------ ------------- --------- ---------- ---------
* The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a IFRS 2 put option.
**Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above.
Headline results and earnings per share continued
Earnings per share
Basic and diluted earnings per share are calculated by dividing the appropriate earnings metrics by the weighted average number of shares of the Company in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of the Company's ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. Anti-dilutive potential ordinary shares are excluded. The dilutive effect of unvested outstanding options is calculated based on the number that would vest had the balance sheet date been the vesting date. Where schemes have moved from equity to cash payment and vice-versa the potential dilution is calculated as though they had been in their year-end position for the whole year.
Headline
Year ended 31 December 2022 2022 2022
Profit attributable to equity shareholders of the
Group (GBP000) 90 18,105
--------------------------------------------------------- -------- --------
Basic earnings per share
Weighted average number of shares (thousands) 122,257 122,257
Basic EPS 0.07p 14.81p
--------------------------------------------------------- -------- --------
Diluted earnings per share
Weighted average number of shares (thousands) as
above 122,257 122,257
Add
- LTIP 905 905
- Put options 11,302 11,302
--------------------------------------------------------- -------- --------
Total 134,464 134,464
Diluted EPS 0.07p 13.47p
--------------------------------------------------------- -------- --------
Excluding the put options (payable in cash) (11,302) (11,302)
Weighted average number of shares (thousands) including
dilutive shares 123,162 123,162
--------------------------------------------------------- -------- --------
Diluted EPS - excluding items the Group intends
and is able to pay in cash 0.07p 14.70p
--------------------------------------------------------- -------- --------
Headline
Year ended 31 December 2021 2021 2021
Profit attributable to equity shareholders of the
Group (GBP000) 12,757 13,687
--------------------------------------------------------- -------- --------
Basic earnings per share
Weighted average number of shares (thousands) 121,130 121,130
Basic EPS 10.53p 11.30p
--------------------------------------------------------- -------- --------
Diluted earnings per share
Weighted average number of shares (thousands) as
above 121,130 121,130
Add
- LTIP 178 178
- Restrictive Shares 649 649
- Deferred consideration (payable in cash) 695 695
- Put options (payable in cash) 13,342 13,342
--------------------------------------------------------- -------- --------
Total 135,994 135,994
Diluted EPS 9.38p 10.06p
--------------------------------------------------------- -------- --------
135,994 135,994
Excluding the deferred consideration (payable in
cash) (695) (695)
Excluding the put options (payable in cash) (13,342) (13,342)
Weighted average number of shares (thousands) including
dilutive shares 121,957 121,957
--------------------------------------------------------- -------- --------
Diluted EPS - excluding items the Group intends
and is able to pay in cash 10.46p 11.22p
--------------------------------------------------------- -------- --------
2. Separately disclosed items
Policy
Separately disclosed items include one off, non-recurring revenues or expenses. These are shown separately and are excluded from Headline profit to provide a better understanding of the underlying results of the Group.
Analysis
Separately disclosed items for the year ended 31 December 2022 comprise of the following:
After
Operating Staff tax
costs costs Taxation total
2022 GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- ------- -------- -------
Takeover transaction costs 9,210 1,623 (1,294) 9,539
Strategic review and restructuring 992 1,789 (688) 2.093
Other (262) - - (262)
Total separately disclosed items 9,940 3,412 (1,982) 11,370
----------------------------------- --------- ------- -------- -------
During 2022, the Company has been subject to two competing bids to take control and full ownership of the business. Managing the Company's response to these two bids has resulted in a number of external advisory costs and a refocusing of several key internal personnel away from the day-to-day running of the business. Included in the above is GBP811k related to senior management costs (including GBP360k 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 GBP594k to reflect the significant additional workload they had to undertake.
In 2022, the Group has commenced a global cost efficiency programme, with the assistance of PricewaterhouseCoopers LLP. The professional fees incurred in relation to this project have been classified as non-Headline (GBP992k). In addition, within three of the agencies in the Group, a strategic review has been commenced which has resulted in staff redundancy costs in the year (GBP1,789k).
Other separately disclosed items relate to the release of the provision associated with the Financial Conduct Authority investigation, which is now closed with no enforcement action being taken, the cost of which was previously treated as non-Headline. In addition, legal fees were incurred in relation to a put option.
Separately disclosed items for the year ended 31 December 2021 comprise the following:
After
Operating Staff tax
costs costs Taxation total
2021 GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- ------- -------- -------
Strategic review and restructuring 192 (2,751) 466 (2,093)
Forgiveness of US Payment Protection
Program ("PPP") loan - (2,200) 462 (1,738)
Repayment of UK furlough money - 976 (185) 791
Total separately disclosed items 192 (3,975) 743 (3,040)
------------------------------------- --------- ------- -------- -------
In 2021, the Group recognised the repayment of the UK furlough money that was received in 2020 and the forgiveness of the US "PPP" loans that were received in 2020. Included within strategic review and restructuring are the release of a long-term incentive plan accrual for a previous employee who is no longer part of the business (GBP1.8m of this relates to pre-2021), and the lease surrender expense, due to restructuring of two lease spaces.
3. Segmental information
Headline segmental income statement
Segmental results are reconciled to the income statement in note 1. The Board reviews Headline results.
The Group's operating segments are aligned to those business units that are evaluated regularly by the chief operating decision maker ("CODM"), namely, the Board, in making strategic decisions, assessing performance, and allocating resources.
The operating segments have historically comprised of individual country entities, the financial information of which is provided to the CODM and is aggregated into specific geographic regions on a headline basis, with each geographic region considered a reportable segment. Each country included in that region has similar economic and operating characteristics. The products and services provided by entities in a geographic region are all related to marketing communications services and generally offer complementary products and services to their customers.
The Group's performance is also assessed under a structure of specialisms, and this is reported under two segments: Advertising and High Growth Specialisms, excluding Group Central Costs.
Segmental Information by Geography
UK Europe Middle Asia Australia Americas Group Total
East and Central
Africa Costs
Year Ended GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
31 December
2022
------------- -------- -------- ---------- -------- ---------- --------- ------------- ---------
Net revenue 98,241 15,316 23,368 26,154 52,855 55,206 - 271,140
Operating
profit /
(loss) 19,528 1,852 2,625 6,951 5,817 9,970 (11,355) 35,388
Operating
profit
margin 19% 12% 11% 29% 11% 18% - 13%
Profit /
(loss)
before
tax 17,416 1,832 2,345 6,757 4,904 8,278 (9,699) 31,833
------------- -------- -------- ---------- -------- ---------- --------- ------------- ---------
UK Europe Middle Asia Australia Americas Group Central Total
East and Costs
Africa
Year Ended 31 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
December
2021*
-------------- -------- -------- ---------- -------- ---------- --------- -------------- ---------
Net revenue 95,104 15,207 20,216 23,324 53,997 41,488 - 249,336
Operating
profit /
(loss) 17,837 1,929 2,842 7,331 5,832 7,525 (12,160) 31,136
Operating
profit
margin 19% 13% 14% 31% 11% 18% - 12%
Profit /
(loss)
before
tax 17,426 1,906 2,430 6,702 5,257 6,441 (12,848) 27,314
-------------- -------- -------- ---------- -------- ---------- --------- -------------- ---------
*2021 figures have been restated to bring geographical split of Performance entities in line with internal management reporting.
Included within the Group's revenues is a customer that makes up more than 10% of total revenue, contributing GBP32.8m (2021: GBP23.6m). This is included within UK, Americas and within the High Growth Specialisms.
Segmental Information by Specialisms
Advertising High Growth Group Central Total
Specialisms Costs
Year Ended 31 December 2022 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------ ------------- -------------- ---------
Net revenue 124,300 146,840 - 271,140
Operating profit / (loss) 11,728 35,015 (11,355) 35,388
Operating profit margin 9% 24% - 13%
Profit / (loss) before tax 9,928 31,604 (9,699) 31,833
----------------------------- ------------ ------------- -------------- ---------
Advertising* High Growth Group Central Total
Specialisms* Costs
Year Ended 31 December 2021 GBP000 GBP000 GBP000 GBP000
----------------------------- ------------- -------------- -------------- ---------
Net revenue 127,195 122,141 - 249,336
Operating profit / (loss) 11,052 32,244 (12,160) 31,136
Operating profit margin 9% 26% - 12%
Profit / (loss) before tax 9,370 30,792 (12,848) 27,314
----------------------------- ------------- -------------- -------------- ---------
*In 2022 two agencies were included in High Growth Specialisms, compared to Advertising in 2021. The figures relating to these entities in 2021 were net revenue, GBP2,623k, operating loss, GBP175k and loss before tax, GBP156k.
4. Revenue from contracts with customers
Billings comprise all gross amounts billed, or billable, to clients and is stated exclusive of VAT and sales taxes. Billings is a non-GAAP measure and is included as it influences the quantum of trade and other receivables recognised at a given date. The difference between Billings and Revenue is represented by costs incurred on behalf of clients with whom entities within the Group operate as an agent, and timing differences, where invoicing occurs in advance or in arrears of the related revenue being recognised.
Net revenue is a non-GAAP measure and is reviewed by the CODM and other stakeholders as a key metric of business performance (note 3).
Revenue recognition policies
Revenue is stated exclusive of VAT and sales taxes. Net revenue is exclusive of third-party costs recharged to clients, where entities within the Group are acting as principal.
Performance obligations
At the inception of a new contractual arrangement with a customer, the Group identifies the performance obligations inherent in the agreement. Typically, the terms of the contracts are such that the services to be rendered are considered to be either integrated or to represent a series of services that are substantially the same with the same pattern of transfer to the customer. Accordingly, this amalgam of services is accounted for as a single performance obligation.
Where there are contracts with services which are distinct within the contract, then they are accounted for as separate obligations. In these instances, the consideration due to be earned from the contract is allocated to each of the performance obligations, in proportion to their stand-alone selling price.
Further discussion of performance obligations arising in terms of the main types of services provided by the Group, in addition to their typical pattern of satisfaction, is provided below.
Measurement of revenue
Based on the terms of the contractual arrangements entered into with customers, revenue is typically recognised over time. This is based on either the fact that (i) the assets generated under the terms of the contracts have no alternative use to the Group and there is an enforceable right to payment, or (ii) the client exerts editorial oversight during the course of the assignment such that they control the service as it is provided.
Principal vs agent
When a third-party supplier is involved in fulfilling the terms of a contract then, for each performance obligation identified, the Group assesses whether the Group is acting as principal or agent. The primary indicator used in this assessment is whether the Group is judged to control the specified services prior to the transfer of those services to the customer. In this instance it is typically concluded the Group is acting as principal.
When entities within the Group act as an agent, the revenue recorded is the net amount retained. Costs incurred with external suppliers are excluded from revenue. When the Group acts as principal the revenue recorded is the gross amount billed and when allowable by the terms of the contract, out-of-pocket costs, such as travel, are also recognised as the gross amount billed with a corresponding amount recorded as an expense.
Treatment of costs
Costs incurred in relation to the fulfilment of a contract are generally expensed as incurred if revenue is recognised over time.
Disaggregation of revenue
The Group monitors the composition of revenue earned by the Group on a geographic basis and by specialism.
Reported
2022 vs
Revenue 2022 2021 2021
------ ------ ---------
Specialism GBPm GBPm Movement
-------------- ------ ------ ---------
Advertising* 221.8 193.8 14.5%
Media 36.6 33.1 10.6%
Issues 92.7 87.7 5.7%
Consulting* 45.9 39.5 16.1%
Passions* 65.5 40.5 61.6%
-------------- ------ ------ ---------
Group 462.5 394.6 17.2%
-------------- ------ ------ ---------
*Included in 2021 Advertising Revenue is GBP2,441k relating to an agency recognised in Passions in 2022 and GBP1,345k relating to an agency recognised in Consulting in 2022.
Reported
2022 vs
Revenue 2022 2021 2021
------ ------ ---------
Region GBPm GBPm Movement
---------------------- ------ ------ ---------
UK 139.3 101.1 38.1%
Europe 24.9 26.9 (7.5)%
Middle East & Africa 53.0 37.9 39.8%
Asia 39.0 41.3 (5.7)%
Australia 89.5 82.8 8.%
Americas 116.8 104.6 11.5%
---------------------- ------ ------ ---------
Group 462.5 394.6 17.2%
---------------------- ------ ------ ---------
Assets and liabilities related to contracts with customers
Contract assets and liabilities arise when there is a difference (generally due to timing) in the amount of revenue which can be recognised and the amount which can be invoiced under the terms of the contractual arrangement.
Where revenue earned from customers is recognised over time, many of the Group's contractual arrangements have terms which permit the Group to remit invoices for the amount of work performed to date on a specific contract (described in the accounting policies as 'right-to-invoice'). Where the terms of a contractual arrangement do not carry such right to invoice, then a contract asset is recognised over time, as work is performed until such point that an invoice can be remitted.
Where revenue earned from customers is recognised at a point in time, then this will be dependent on satisfaction of a specific performance obligation. At such point, it is usual that there are no other conditions required to be met for receipt of consideration and, as such, a trade receivable should be recognised at the point the entity's right to consideration is unconditional, which normally will be at the time the PO is satisfied (which may not be the same as when an invoice is raised).
Contract liabilities comprise instances where a customer has made payments relating to services prior to their provision. Where payments are received in advance, IFRS 15 requires assessment of whether these cash transfers contain any financing component. Under the terms of the contractual arrangements entered into by entities within the Group, there are no instances where such financing elements arise. This is the case even for those arrangements where the Group receives monies more than a year in advance by virtue of the terms of the contractual agreement so entered into.
The Group operates a standard 30 day credit terms policy. All contract liabilities and contract assets (other receivables per note 20) brought forward have been recognised in the current period.
Revenue recognition policies and performance obligation satisfaction by category of services performed
Further details regarding revenue recognition and performance obligations of the Group's main service offerings are summarised below.
Provision of advertising and marketing services
The provision of advertising and marketing services to clients typically meets the criteria identified above for revenue to be recognised over time. The quantum of revenue to be recognised over the period of the assignments is either based on the 'right-to-invoice' expedient or as the services are provided, depending on the contractual terms. In measuring the progress of services provided in an assignment, the Group uses an appropriate measure depending on the circumstances, which may include inputs (such as internal labour costs incurred) or outputs (such as media posts). Where projects are carried out under contracts, the terms of which entitle an entity within the Group to payment for its performance only when a discrete point is reached (such as an event has occurred or a milestone has been reached), then revenue is recognised at the time that payment entitlement occurs, i.e. at a point in time.
The provision of advertising and marketing services can encompass provision of a range of media deliverables in addition to development and deployment of a media strategy. Regular assessment of the effectiveness of the project with regards to the objective of the contractual arrangement may also be included. Often the range of services provided within these arrangements is considered to be integrated to an extent that no separable performance obligations can be identified other than a single over-arching combined performance obligation relating to the delivery of the project. In these instances, revenue is recognised over time as the performance obligation is being satisfied depending on the circumstances, which may include inputs (such as internal labour costs incurred) or outputs (such as media posts).
When services provided are considered separable, and not integrated, then multiple performance obligations are recognised. Multiple performance obligations are most common in projects where there are clearly separable conceptual preparatory obligations culminating in a customer deliverable, such as an event. In these scenarios the conceptual preparation element and the deliverable are concluded as forming separate performance obligations with the revenue and corresponding cost of sales (typically third-party pass-through costs) assigned to the obligation to which they relate.
Whilst it is uncommon for projects to be such that revenue is not able to be recognised over time, examples can occur. In these instances, the element of the transaction price assigned to each performance obligation (in proportion to stand-alone selling prices) is recognised as revenue once an obligation has been fully satisfied, for example an event has occurred or a milestone has been reached.
The entity within the Group enters into retainer fees that relate to arrangements whereby the nature of the entity's contractual promise is to agree to 'stand-ready' to deliver services to the customer for a period of time rather than to deliver the goods or services underlying that promise. Revenue relating to retainer fees is recognised over the period of the relevant assignments or arrangements, typically in line with the 'stand-ready' incurred costs.
Where fees are remunerated to the agency in excess of the services rendered then a contract liability is recognised. Conversely where the services rendered are in excess of the actual fees paid, then a contract asset is recognised when there is a right to consideration.
Certain of these arrangements have contractual terms relating to the agency meeting specific customer identified KPIs. As a result, the overall level of consideration can vary by increasing or decreasing as a result of performance against these KPI metrics. To reflect this variability in the overall level of consideration, management estimate the most likely outcome and then reflect that outcome in the revenue recognised as the performance obligation(s) of the contract are satisfied. When determining the likely outturn position the estimated consideration is such that it is highly probable there will not be significant reversal of the revenue in the future. The estimated portion of the variable element is recalculated at the earlier of the completion of the contract or the next reporting period and revenue is adjusted accordingly. These estimates are based on historical award experience, anticipated performance and best judgement at the time.
Commission based income in relation to media spend
The Group arranges for third parties to provide the related goods and services to its customers in the capacity of an agent. Revenue is recognised in relation to the amount of commission the Group is entitled to. Often additional integrated services are provided at the same time with regards to the development and deployment of an overarching media strategy. Due to the integration of the services provided under the terms of the contract, management judgement is applied to assess whether there is a single combined performance obligation.
The performance obligation for media purchases is considered to have been satisfied when the associated advertisement has been purchased. In the majority of instances where the Group purchases media for clients, the Group is acting as agent.
Commission based income in relation to talent performance
Revenue in relation to talent performance involves the Group acting as agent. Typically, such arrangements have a single, or a sequence, of specific performance obligations relating to the talent (or other third party) providing services. The performance obligations are generally satisfied at a point in time once the service has been provided, at which point, revenue is recognised. The consideration for the services is normally for a fixed amount (as a percentage of the talent's fee) with no degree of variability.
Recognition of supplier discounts and rebates as revenue from contracts with customers
The Group receives discounts and rebates from certain suppliers for transactions entered into on behalf of clients, which the clients have agreed the Group can retain. When the contractual terms of the agreements entered into are such that the Group acts as agent in these instances, then such rebates are recognised as revenue from contracts with customers. By contrast, when the contractual terms of the agreements are such that the Group is acting as principal then such rebates are recognised as a reduction in direct costs. Certain of the Group's clients, however, have contractual terms such that the pricing of their contracts is structured with the rebate being passed through to them.
5. Staff costs
Policy
Contributions to personal pension plans are charged to the income statement in the period in which they are due. Bonuses are given on an ad hoc basis, or as otherwise agreed, and are accrued in the year to which the services performed relate (when there is an expectation these will be awarded).
Staff costs (including Directors)
2022 2021
Year ended 31 December GBP000 GBP000
------------------------------------------------ -------- --------
Wages and salaries 156,476 141,615
Social security costs 16,152 13,085
Pension costs 8,833 5,403
Other staff costs* 5,832 6,950
------------------------------------------------ -------- --------
Total 187,293 167,053
------------------------------------------------ -------- --------
Allocations and dividends paid to holders
of IFRS 2 put options 1 7,811 5,270
------------------------------------------- --- -------- --------
Share based incentive plans:
Cash settled 27 2,432 (2,065)
Equity settled 27 1,229 2,235
------------------------------------------- --- -------- --------
Total share based incentive plans 3,661 170
------------------------------------------- --- -------- --------
Total staff costs 198,765 172,493
------------------------------------------- --- -------- --------
*Other staff costs include profit share, LTIP charges and other staff benefits.
Staff numbers 2022 2021 ------------------------ ------ ------ UK 772 734 Europe 166 161 Middle East and Africa 421 383 Asia 596 592 Australia 439 465 Americas 340 318 ------------------------ Total 2,734 2,653 ------------------------ ------ ------
These staff numbers are based on the average number of staff throughout the year in 2022.
Pensions
The Group does not operate any defined benefit pension schemes. The Group makes payments, on behalf of certain individuals, to personal pension schemes.
Compensation for key management personnel and directors
2022 2021
Key management remuneration GBP000 GBP000
----------------------------- ------- -------
Wages and salaries 2,214 2,741
Pension costs 53 82
Share based payments* 381 268
----------------------------- ------- -------
Total 2,648 3,091
----------------------------- ------- -------
* Included within share based payments is GBP174k (2021: GBP220k) relating to Mickey Kalifa who left the Company in May 2022.
Key management personnel include the Directors and employees responsible for planning, directing and controlling the activities of the Group.
6. Auditors' remuneration
The Company paid the following amounts to its auditors in respect of the audit of the financial statements and for other services provided to the Group:
2022 2021
Year ended 31 December GBP000 GBP000
---------------------------------------------------------------------- ------- -------
Audit services
Fees payable to the Company's auditor for the audit of the Company's
annual accounts 1,506 1,450
Fees payable to associates of the Company's auditor for the audit
of the accounts of subsidiaries 174 237
Audit fees relating to the prior period 300 -
---------------------------------------------------------------------- ------- -------
1,980 1,687
---------------------------------------------------------------------- ------- -------
Other services provided by the Auditors:
Other assurance services - interim agreed upon procedures 25 46
Corporate finance services 499 -
Taxation compliance services 168 66
Taxation advisory services 176 112
---------------------------------------------------------------------- ------- -------
868 224
---------------------------------------------------------------------- ------- -------
Total 2,848 1,911
---------------------------------------------------------------------- ------- -------
7. Net finance expense
Policy
Interest income and expense, including fair value adjustments to IFRS 9 put options, are recognised in the income statement in the period in which they are incurred, except for the amortisation of loan costs which are recognised over the life of the loan.
Analysis
Year ended 31 December 2022 2021
GBP000 GBP000
------------------------------------------------------- -------- --------
Bank interest receivable 331 187
Other interest receivable 55 47
Sublease finance income 5 26
Financial income 391 260
------------------------------------------------------- -------- --------
Bank interest payable (1,200) (1,555)
Amortisation of loan costs (222) (130)
Interest on lease liabilities (2,970) (2,800)
Valuation adjustment to IFRS 9 put option liabilities
(Note 26) (1,114) (896)
Financial expense (5,506) (5,381)
------------------------------------------------------- -------- --------
Net finance expense (5,115) (5,121)
------------------------------------------------------- -------- --------
8. Current taxation
Policy
Current tax, including UK and foreign tax, is provided for using the tax rates and laws that have been substantively enacted at the balance sheet date.
Analysis
Income statement charge for year ended
31 December 2022 2021
GBP000 GBP000
----------------------------------------- ------- -------
Taxation in the year
UK 730 1,832
Overseas 3,020 4,470
Withholding taxes payable 14 31
Adjustment for (over) / under provision
in prior periods (986) 1,476
------------------------------------------ ------- -------
Total 2,778 7,809
------------------------------------------ ------- -------
Deferred taxation
Recognition of temporary differences 1,719 1,651
Adjustment for under / (over) provision
in prior periods 709 (974)
Effect of changes in tax rates (28) (27)
------------------------------------------ ------- -------
Total 2,400 650
------------------------------------------ ------- -------
Total taxation 5,178 8,459
------------------------------------------ ------- -------
The differences between the actual tax and the standard rate of corporation tax in the UK applied to the Group's statutory profit for the year are as follows:
2022 2022 2021 2021
Year ended 31 December GBP000 % GBP000 %
----------------------------------------------------------- ------- ------- ------- ------
Profit before taxation 5,423 21,632
----------------------------------------------------------- ------- ------- ------- ------
Taxation at UK corporation tax rate of 19.00% (2019:
19.00%) 1,030 19.0% 4,110 19.0%
Expenses not deductible for tax 1,314 24.2% 386 1.8%
Different tax rates applicable in overseas jurisdictions 1,081 20.0% 1,467 6.8%
Option charges not deductible for tax 1,070 19.7% 925 4.3%
Tax losses for which no deferred tax asset was recognised 834 15.4% 528 2.4%
Impairment with no tax credit 138 2.5% 537 2.5%
Withholding taxes payable 14 0.3% 31 0.1%
Tax effect of associates 2 0.0% 1 0.0%
Effect of changes in tax rates on deferred tax (28) -0.5% (27) -0.1%
Adjustment for tax (over)/under provision in prior
periods (277) -5.1% 491 2.3%
Effect of changes in tax rates - 0.0% (6) 0.0%
Disposal of subsidiaries on which no tax is charged - 0.0% 16 0.1%
------- ------- ------- ------
Total taxation 5,178 95.5 % 8,459 39.1%
----------------------------------------------------------- ------- ------- ------- ------
Effective tax rate 95.5 % 39.1%
----------------------------------------------------------- ------- ------- ------- ------
Large variations in future tax rates of the statutory accounts are expected due to significant items such as share-based payments (option charges) and put options being non-deductible against corporation tax as a result of these items being capital in nature.
The key differences between actual and standard tax rates are as follows:
-- Expenses not deductible for tax: in 2022 two parties tried to acquire the Company and a proportion
of the defence costs was disallowable due to their being capital in nature. This increased the
non-deductible expenses. In addition, as the world returned to normal following the Covid-19
pandemic, there was increased client entertaining which is disallowable for corporation tax
purposes. There were also capital allowances resulting from office refurbishment that could
not be claimed.
-- Option charges include dividends paid to those shareholders in the subsidiary companies that
also have a put option arrangement in place within that entity, which are not deductible for
tax: the Group's share-based payment schemes mostly relate to equity held in subsidiary companies.
The Group generally receives no tax benefit on the exercise of these put options nor on the
payment of the dividends.
-- Different tax rates applicable in overseas jurisdictions. The Group operates in multiple locations
round the world where tax rates are higher than the UK, e.g., Australia (30%) and USA (between
21% to 28%).
-- The net effect of the adjustment for current and deferred tax in prior periods is a release
of an over provision of GBP279k (2021: GBP491k under provision) of total tax charge.
-- Impairment with no tax credit: On most of the acquisitions no tax benefit was received from
the acquisition of goodwill. During the period some of the goodwill was impaired with no future
tax benefit of such impairments.
Looking forward, UK corporation tax will increase from 19% to 25% from April 2023. Large variations in future tax rates are expected due to significant items such as share-based payments (option charges), put options and investment in subsidiaries being non-deductible against corporation tax as a result of these items being capital in nature.
Tax on Headline profits
As can be seen in the Headline tax reconciliation, the largest drivers of Headline tax charge are the local entities' profitability with central costs being incurred in the UK, a lower tax market, and profits being made in higher tax countries such as Australia and USA.
Our Headline tax rate has reduced from 26.6% to 24.5%. The reduction is due to the use of prior years' tax losses (caused in part by the Covid-19 pandemic) to offset current profitability and an increase in profits from countries with lower tax rates, partly offset by increased expenditure on disallowable costs.
2022 2022 2021 2021
Year ended 31 December GBP000 % GBP000 %
-------------------------------------------------------------- ------- ------ ------- ------
Headline profit before taxation (Note 1) 31,833 27,314
-------------------------------------------------------------- ------- ------ ------- ------
Taxation at UK corporation tax rate of 19.00% (2021: 19.00%) 6,048 19.0% 5,189 19.0%
Different tax rates applicable in overseas jurisdictions 1,297 4.1% 1,510 5.4%
Tax losses for which no deferred tax asset was recognised 683 2.1% 528 1.9%
Expenses not deductible for tax 781 2.5% 386 1.4%
Effect of changes in tax rates on deferred tax 29 0.1% (230) -0.8%
Withholding taxes payable 14 0.0% 31 0.1%
Tax effect of associates 2 0.0% (44) -0.2%
Adjustment for tax (over)/under provision in prior periods (246) -0.8% 502 1.8%
Non-controlling interest share of partnership income (818) -2.6% (595) -2.2%
Effect of changes in tax rates - 0.0% (6) 0.0%
------- ------ ------- ------
Headline taxation (Note 1) 7,790 24.5% 7,271 26.6%
-------------------------------------------------------------- ------- ------ ------- ------
Headline effective tax rate 24.5% 26.6%
-------------------------------------------------------------- ------- ------ ------- ------
9. Deferred taxation
Policy
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not, however, provided for temporary differences that arise from: (i) initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, (ii) the initial recognition of goodwill.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable future taxable profit will be available against which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and the Group intends to settle its current tax assets and current tax liabilities on a net basis.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Analysis
2022 2021
At 31 December GBP000 GBP000
-------------------------- -------- -------
Deferred tax assets 5,131 6,777
Deferred tax liabilities (1,245) (777)
-------------------------- -------- -------
Net deferred tax 3,886 6,000
-------------------------- -------- -------
The Deferred tax asset is recoverable against future profits, and future corporation tax liabilities. The following table shows the deferred tax asset / (liability) recognised by Group and movements in 2022 and 2021.
Capital Purchased Working
Intangibles allowances Tax losses investments capital differences Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ------------ ------------ ----------- ------------- -------------------- --------
At 31 December 2020 236 1,326 8,503 (465) (1,704) 7,896
--------------------
Exchange
differences (16) (52) (337) - 237 (168)
Income statement
(charge) / credit (47) 103 (4,460) (767) 4,522 (649)
Acquisitions (1,150) - 71 - - (1,079)
------------ ------------ ----------- ------------- -------------------- --------
At 31 December 2021 (977) 1,377 3,777 (1,232) 3,055 6,000
-------------------- ------------ ------------ ----------- ------------- -------------------- --------
Exchange
differences 124 (15) (198) - 375 286
Income statement
(charge) / credit 484 581 (1,561) 238 (2,142) (2,400)
------------ ------------ ----------- ------------- -------------------- --------
At 31 December 2022 (369) 1,943 2,018 (994) 1,288 3,886
-------------------- ------------ ------------ ----------- ------------- -------------------- --------
Based on the 2023 budget and 3-year plans, approved by the Board, the Group has reviewed the deferred tax asset created by tax losses for their recoverability. Where the Group believes such losses may not be recoverable they have not been recognised on the balance sheet and have been included in unrecognised deferred tax assets.
Within the local entities GBP1,556k (2021: GBP3,101k) of deferred tax has been naturally offset. Disregarding this offset, the split of deferred tax is as follows:
Capital Purchased Working capital
Intangibles allowances Tax losses investments differences Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------------ ------------ ----------- ------------- ---------------- --------
At 31 December 2021
Deferred tax assets 47 1,377 3,777 - 4,677 9,878
Deferred tax liabilities (1,024) - - (1,232) (1,622) (3,878)
--------------------------
Net deferred tax (977) 1,377 3,777 (1,232) 3,055 6,000
-------------------------- ------------ ------------ ----------- ------------- ---------------- --------
At 31 December 2022
Deferred tax assets 706 1,943 2,304 - 1,734 6,687
Deferred tax liabilities (1,075) - (286) (994) (446) (2,801)
-------------------------- ------------ ------------ ----------- ------------- ---------------- --------
Net deferred tax (369) 1,943 2,018 (994) 1,288 3,886
-------------------------- ------------ ------------ ----------- ------------- ---------------- --------
The working capital differences mostly relate to the tax effects of working capital in Australia which calculates tax on a cash basis rather tha n the accruals basis used in other countries; along with the continuing tax effects of the adoption of IFRS16 (Leases); and tax provision on any long term deferred bonuses.
UK tax legislation was implemented on 24 May 2021 which increased the UK corporation tax from 19% to 25% with effect from 1 April 2023. The effect on the revaluation of the deferred tax balance of this change is partly reliant on future projections so it is an estimate.
The unrecognised deferred tax assets in respect of certain losses in overseas territories, referred to in the tables above, have not been recognised as there is insufficient certainty of future taxable profits against which these would reverse. An unrecognised deferred tax asset in respect of carried forward tax losses is shown below:
Deferred
Losses tax impact
GBP000 GBP000
------------------------- -------- ------------
At 1 January 2022 6,426 1,457
Exchange differences 772 180
Written off in year (1,158) (326)
Losses utilised in year (1,653) (465)
Losses in year 6,246 1,299
------------------------- -------- ------------
At 31 December 2022 10,633 2,145
------------------------- -------- ------------
Expiry date of losses:
2022 2021
GBP000 GBP000
------------------- ------- -------
One to five years 24 -
Five to ten years 565 648
Ten years or more 1,556 809
-------------------- ------- -------
Total 2,145 1,457
-------------------- ------- -------
10. Dividends
Policy
Interim dividends are recognised when they have been approved by the Board and are legally payable. Final dividends are recognised when they have been approved by the shareholders at the Company's Annual General Meeting.
No interim or final dividends were declared for 2021. No interim dividends were declared in 2022.
A final dividend of 1.5 pence per share has been recommended by the Board, which is a total amount of GBP1,834k. The final dividend, if approved at the Company's Annual General Meeting on 14 June 2023, will be paid on 12 July 2023 to all shareholders on the Company's register of members as at 9 June 2023. The ex-dividend date for the shares is 8 June 2023.
The payment of this dividend will not have any tax consequences for the Group.
11. Disposals
Policy
Disposals of entities in the Group are accounted for in accordance with IFRS 10:25 . When the parent's ownership of a subsidiary company changes and results in the parent's loss of control of a subsidiary within the Group, the parent:
-- derecognises the assets and liabilities attributable to the former subsidiary from the consolidated
balance sheet;
-- recognises any investment retained in the former subsidiary when control is lost and subsequently
accounts for it and for any amounts owed by or to the former subsidiary in accordance with relevant
IFRS standards; and
-- recognises the gain or loss associated with the loss of control attributable to the former controlling
interest.
Analysis
There were no disposals in 2022.
The Board made a strategic decision at the start of 2020 to eliminate loss-making businesses from the Group by the end of the year, which was communicated to the market and to shareholders. This process continued into 2021, with four entities either ceasing trading or being divested. These entities were Creative Spark (Pty) Ltd, M&C Saatchi PR LLP, M&C Saatchi Marketing Arts Ltd and Create Collective PTE Ltd. These entities contributed GBP39k of losses to the 2021 results.
The Headline results of the entities disposed, which were included in the results, were as follows:
2022 2021
GBP000 GBP000
------------------------------------------------- ---------- ---------
Plant and equipment - 2
Trade and other receivables - 21
Cash and cash equivalents - 2
Trade and other payables - (67)
Add net liabilities - (42)
------------------------------------------------- ---------- ---------
Gain on disposal of subsidiaries - 42
------------------------------------------------- ---------- ---------
Within note 1 in 2021, there are costs of GBP125k that relate to
severance and legal fees for the disposal.
12. Acquisitions of subsidiaries
There were no acquisitions in 2022.
On 2 February 2021, the Group acquired two entities that were previously associates, 40% of M&C Saatchi (Hong Kong) Ltd and 25.1% of Santa Clara Participações Ltda. In addition, on 1 January 2021, the Group had control of the 51% held in M&C Saatchi World Services Pakistan (Pvt) Ltd , therefore obtaining control of the three entities. M&C Saatchi (Hong Kong) Limited's primary activity is consultancy, and both Santa Clara Participações Ltda and M&C Saatchi World Services Pakistan (Pvt) Ltd are marketing agencies, these qualify as a business as defined in IFRS 3.
The amounts recognised in 2021, in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
M&C Saatchi Santa Clara Pakistan Total
(Hong Kong) GBP000s GBP000s GBP000s
GBP000s
-------------------------------------------- ------------- ------------ --------- ---------
Financial assets 4,158 1,879 482 6,519
Property, plant and equipment 284 29 48 361
Identifiable intangible assets 1,653 2,211 - 3,864
Financial liabilities (3,395) (3,472) (530) (7,397)
Deferred tax liabilities (343) (736) - (1,079)
-------------------------------------------- ------------- ------------ --------- ---------
Total identifiable assets acquired and
liabilities assumed 2,357 (89) - 2,268
Plus: goodwill 2,677 1,945 - 4,622
Net assets acquired 5,034 1,856 - 6,890
Satisfied by:
Equity instruments 2,627 1,856 - 4,483
Fair value of associate investment 2,407 - - 2,407
Total consideration transferred 5,034 1,856 - 6,890
-------------------------------------------- ------------- ------------ --------- ---------
Net cash outflow arising on acquisition:
Cash and cash equivalent balances acquired 750 513 29 1,292
750 513 29 1,292
-------------------------------------------- ------------- ------------ --------- ---------
13. Deferred and contingent consideration
Policy
Certain acquisitions made by the Group include contingent or deferred consideration, the quantum of which is dependent on the future performance of the acquired entity. Such consideration is recorded at fair value in line with IFRS 13 (note 29).
The balances are remeasured at the earlier of either the end of each reporting period or crystallisation of the consideration payment. The movements in the fair value are recognised in profit or loss.
Analysis
Liabilities 2022 2021
GBP000 GBP000
---------------------------------------- ------- -------
Current
Deferred consideration
Levergy Marketing Agency (Pty) Limited - (984)
Total current - (984)
---------------------------------------- ------- -------
Assets 2022 2021
GBP000 GBP000
-------------------------- ------- -------
Non-current
Contingent consideration
Saatchinvest Ltd 914 -
Total non-current 914 -
-------------------------- ------- -------
Movements in liabilities in the year 2022 2021
GBP000 GBP000
------------------------------------------- ------- --------
At 1 January (984) (1,679)
Exchange differences - 48
Charged to the income statement * (266) (532)
Conditional consideration paid in cash ** 1,250 659
Conditional consideration paid in equity - 520
At 31 December - (984)
------------------------------------------- ------- --------
* GBP266k revaluation of deferred consideration due to Levergy Marketing Agency (Pty) Limited on payment
** GBP1,250k paid to Levergy Marketing Agency (Pty) Limited.
Movements in assets in the year 2022 2021
GBP000 GBP000
------------------------------------------------------ ------- -------
At 1 January - -
Reclassification from financial assets at fair value 914 -
through profit or loss (note 19) ***
At 31 December 914 -
------------------------------------------------------ ------- -------
*** The GBP914k 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 GBP779k 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 GBP534k 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 GBP534k rather than GBP485k, and the minimum is 0.
Tranche 3:
Up to GBP924k 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 GBP1,458k and the minimum is 0, this has been valued at GBP426k.
14. Intangible assets
Policy
Intangible assets are carried at cost less accumulated amortisation and impairment losses.
Cost
Goodwill
Under the acquisition method of accounting for business combinations, goodwill is the fair value of consideration transferred, less the net of the fair values of the identifiable assets acquired and the liabilities subsumed.
Other intangibles acquired as part of a business combination
Intangible assets acquired as part of a business combination (which includes brand names and customer relationships) are capitalised at fair value, if they are either separable or arise from contractual or other legal rights and their fair value can be reliably measured.
Software & film
Purchased software, and internally created software and film rights are recorded at cost. Internally created software and film rights are created so that they can be directly used to generate future client income.
Amortisation
Goodwill is not amortised. Amortisation of other classes of intangible assets is charged to the income statement on a straight-line basis over their estimated useful lives as follows:
Software and film 3 years
rights:
Customer relationships: 1 to 8
years
--------
Brand name: 1 to 10
years
--------
The Group has no indefinite life intangibles other than goodwill.
Impairment
Goodwill and other intangibles are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the assets may be impaired.
Impairment losses arise when the carrying amount of an asset or CGU is in excess of the recoverable amount, and these losses are recognised in the income statement. All recoverable amounts are from future trading (i.e., their value in use) and not from the sale of unrecognised assets or other intangibles.
The value in use calculations have been based on the forecast profitability of each CGU, using the 2023 budget and 3-year plans approved by the Board, with a residual growth rate of 1.5% p.a. applied thereafter. This forecast data is based on past performance and current business and economic prospects. A discount rate is then applied to create a discounted future cash flow forecast (DCF) for each CGU, which forms the basis for determining the recoverable amount of each CGU. If the DCF of a CGU is not in excess of its carrying amount (that includes the value of its fixed assets and right-of-use assets), then an impairment loss would be recognised.
In conducting the review, a residual growth rate of 1.5% has been used for all countries. Market betas of 1.0 have been used for Brazil, South Africa and China, while 1.4 has been used for India and 1.2 has been used for rest of the world.
Pre-tax discount rates are based on the Group's nominal weighted average cost of capital adjusted for the specific risks relating to the country and market in which the CGU operates.
Key assumptions used for impairment review Residual Residual Pre-tax Pre-tax
growth growth discount discount
rates rates rates rates
2022 2021 2022 2021
Market % % % %
-------------------------------------------- --------- --------- ---------- ----------
UK 1.5 1.5 16-18 14-17
Asia and Australia 1.5 1.5 15-18 16-19
Middle East 1.5 1.5 15 17
India 1.5 1.5 23 23
South Africa 1.5 1.5 27 28
Europe 1.5 1.5 12 15
Americas 1.5 1.5 14-16 15-18
-------------------------------------------- --------- --------- ---------- ----------
Analysis
Software
Brand Customer and film
Goodwill name relationships rights Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
--------- -------- ---------------- ---------- --------
At 31 December 2020 54,308 7,348 11,151 4,359 77,166
---------------------------------- --------- -------- ---------------- ---------- --------
Exchange differences (493) (73) (1) (46) (613)
Acquired - business combinations 4,621 919 2,901 45 8,486
Acquired - - - 837 837
Disposal - - - (1,963) (1,963)
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2021 58,436 8,194 14,051 3,232 83,913
---------------------------------- --------- -------- ---------------- ---------- --------
Exchange differences 2,258 169 355 145 2,927
Acquired - - 200 992 1,192
Disposal - - - (678) (678)
--------- -------- ---------------- ---------- --------
At 31 December 2022 60,694 8,363 14,606 3,691 87,354
---------------------------------- --------- -------- ---------------- ---------- --------
Accumulated amortisation and
impairment
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2020 20,855 7,027 10,731 2,030 40,643
---------------------------------- --------- -------- ---------------- ---------- --------
Exchange differences (295) (79) (20) (45) (439)
Amortisation charge - 181 784 447 1,412
Impairment 1,900 - - 1,037 2,937
Disposal - - - (1,139) (1,139)
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2021 22,460 7,129 11,495 2,330 43,414
---------------------------------- --------- -------- ---------------- ---------- --------
Exchange differences 489 28 57 113 687
Amortisation charge - 104 493 463 1,060
Impairment 556 - - 172 728
Disposal - - - (503) (503)
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2022 23,505 7,261 12,045 2,575 45,386
---------------------------------- --------- -------- ---------------- ---------- --------
Net book value
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2020 33,453 321 420 2,329 36,523
At 31 December 2021 35,976 1,065 2,556 902 40,499
---------------------------------- --------- -------- ---------------- ---------- --------
At 31 December 2022 37,189 1,102 2,561 1,116 41,968
---------------------------------- --------- -------- ---------------- ---------- --------
Goodwill 31 December 31 December
2022 2021
Cash generating units (CGUs) GBP000 GBP000 Region Specialism
------------------------------------------ ------------ ------------ ---------------- -------------
Shepardson Stern + Kaminsky LLP 5,899 5,375 Americas Advertising
LIDA NY LLP (MCD) 5,821 5,198 Americas Consulting
Clear Ideas Ltd 5,031 5,031 Europe Consulting
M&C Saatchi Mobile Ltd 4,283 4,283 UK Media
M&C Saatchi Agency Pty Ltd (Australia) 2,863 2,719 Australia Various
M&C Saatchi Social Ltd 2,612 2,612 UK Passions
M&C Saatchi (Hong Kong) Limited* 2,506 2,806 Asia Advertising
Bohemia Group Pty Ltd (Australia) 1,904 1,812 Australia Media
M&C Saatchi Advertising GmbH 1,376 1,306 Europe Advertising
M&C Saatchi Sport & Entertainment Ltd 1,184 1,184 UK Passions
Levergy Marketing Agency (PTY) Limited Middle East and
(South Africa) 860 820 Africa Passions
M&C Saatchi Merlin Ltd 765 765 UK Passions
Middle East and
M&C Saatchi Middle East Fz LLC (Dubai) 765 684 Africa Advertising
M&C Saatchi Talk Ltd 625 625 UK Advertising
Santa Clara Participações Ltda 624 529 Americas Advertising
M&C Saatchi (M) SDN BHD 71 68 Asia Advertising
Scarecrow Communications Ltd* - 159 Asia Advertising
Total 37,189 35,976
------------------------------------------ ------------ ------------ ---------------- -------------
* With exception of CGUs marked, all other movements in the table above are due to foreign exchange differences.
The 2022 review of goodwill was undertaken as at 31 December, and resulted in the impairments of M&C Saatchi (Hong Kong) Limited GBP396k and Scarecrow Communications Ltd GBP160k (2021: GBP500k).
The following sensitivity analysis has been performed, showing the impairment required, if the profit forecasts reduced and the discount rates increased. The CGUs included in this sensitivity analysis are those for which a reasonably possible change in a key assumption could give rise to impairment, being Bohemia Group Pty Ltd (Australia), Levergy Marketing Agency (PTY) Limited (South Africa), M&C Saatchi (Hong Kong) Limited and Santa Clara Participações Ltda (Brazil). These entities remain at risk of impairment.
Annual profit forecast reduced by
Discount rates increased by 0% 10% 20% 30%
---------------------------- --------- --------- -------- ---------
0% - 603 2,114 3,490
1% - 1,272 2,653 3,913
3% 1,072 2,345 3,519 4,593
5% 2,069 3,168 4,184 5,116
---------------------------- --------- --------- -------- ---------
15. Investments in associates and joint ventures
Policy
The Group invests in associates and joint ventures, either to deliver its services to a strategic marketplace, or to gain strategic mass by being part of a larger local or functional entity.
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it is neither control nor joint control over those policies.
The carrying value of these investments comprise the Group's share of their net assets and any purchased goodwill. These carrying amounts are reviewed at each balance sheet date, to determine whether there is any indication of impairment.
Analysis
Proportion of ownership
Investment in interest held at 31
associates December
2022 2021 2022 2021
-------------------------------------------------------- -------------- ------- -------------------- -----
Country of
Nature of incorporation
Region & Name business or registration GBP000 GBP000
--------------------- -------------- ------- -------------------- -----
Europe
Cometis SARL* Advertising France 56 - 49% -
M&C Saatchi Little
Stories
SAS PR France - - 25% 25%
M&C Saatchi SAL Advertising Lebanon - - 10% 10%
Asia and Australia
Love Frankie Ltd Advertising Thailand 135 202 25% 25%
February
Communications
Private
Limited Advertising India - - 20% 20%
M&C Saatchi Limited Advertising Japan - - 25% 25%
Total 191 202
* In January 2022, as a result of two put option arrangements, the Group acquired a 49% holding in Cometis SARL, a French company.
M&C Saatchi SAL has the following subsidiaries: M&C Saatchi Mena Ltd and Al Dallah For Creativity & Design LLC.
All shares in associates are held by subsidiary companies in the Group. Where an associate has the right to use the brand name, the Group holds the right to withdraw such use, to protect it from damage.
The Group holds neither associates nor joint ventures in Australia, Africa, or the UK.
2022 2021
Balance sheet value as at 31 December GBP000 GBP000
Investments intended to be held in the
long term 191 202
Investments categorised as held-for-sale - -
Total associate investments 191 202
2022 2021
Balance sheet movements GBP000 GBP000
At 1 January 202 2,829
Exchange movements (1) (10)
Transferred to subsidiary - (2,407)
Revaluation of associates on transition
to subsidiaries - (234)
Acquisition of associates - 338
Impairment of associate - (357)
Share of (loss) / profit after taxation (10) 43
At 31 December 191 202
2022 2021
Income statement GBP000 GBP000
Share of (loss) / profit after taxation (10) 43
Revaluation of associates on transition
to subsidiaries - (233)
Share of result of Associates and Joint
Ventures (10) (190)
Impairment of associate investment - (357)
Year to 31 December (10) (547)
The results and net assets of the associate entities are set out below, along with the Group's share of these results and net assets:
2020
2022 2021
Asia Europe Total Asia Europe Americas Total
Income statement GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue 4,006 712 4,718 4,240 2,580 148 6,968
Operating profit / (loss) 765 165 930 940 71 (14) 997
Profit / (loss) before taxation (201) 143 (58) 215 71 (25) 261
Profit / (loss) after taxation (208) 113 (95) 174 49 (32) 191
Group's share (65) 55 (10) 43 12 (12) 43
Dividends received - - - - - - -
2022 2021
Asia Europe Total Asia Europe Americas* Total
Balance sheet GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Total assets 1,557 151 1,708 1,410 804 - 2,214
Total liabilities (1,088) (38) (1,126) (914) (854) - (1,768)
Net assets / (liabilities) 469 113 583 496 (50) - 446
Our share 117 56 173 124 (12) - 112
Losses not recognised 13 - 13 12 12 - 24
Goodwill 5 - 5 66 - - 66
Total 135 56 191 202 - - 202
* Technology, Humans and Taste LLC was disposed of in 2021, therefore an income statement is shown above, but nil for the balance sheet at 31 December 2021.
16. Plant and equipment
Policy
Tangible fixed assets are stated at historical cost less accumulated depreciation. Depreciation is provided to write off the cost of all fixed assets, less estimated residual values, evenly over their expected useful lives.
Depreciation is calculated at the following annual rates:
Leasehold improvements - Lower of useful life and over the period of the lease Furniture and fittings - 10% straight-line basis Computer equipment - 33% straight-line basis Other equipment - 25% straight-line basis Motor vehicles - 25% straight-line basis
The need for any fixed asset impairment write-down is assessed by a comparison of the carrying value of the asset against the higher of a) the fair value less costs to sell, or b) the value in use.
Assets under construction are recognised at cost and only commence depreciation once the assets are completed and ready for use.
Analysis
Furniture,
fittings
Leasehold and other Computer
improvements equipment equipment Motor vehicles Total
Cost GBP000 GBP000 GBP000 GBP000 GBP000
At 31 December 2020 8,490 4,021 4,845 17 17,373
Exchange differences (114) (48) (86) 21 (227)
Additions 145 266 1,352 26 1,789
Additions - business combinations 3 152 177 29 361
Disposals (1,228) (473) (456) (15) (2,172)
At 31 December 2021 7,296 3,918 5,832 78 17,124
Exchange differences 324 121 259 4 708
Additions* 1,145 1,674 1,551 13 4,383
Disposals (1,596) (1,066) (404) - (3,066)
At 31 December 2022 7,169 4,647 7,238 95 19,149
Depreciation
At 31 December 2020 4,084 2,645 3,485 2 10,216
Exchange differences 84 50 53 4 191
Depreciation charge 802 409 1,001 25 2,237
Disposals (940) (449) (449) (15) (1,853)
At 31 December 2021 4,030 2,655 4,090 16 10,791
Exchange differences 230 53 183 3 469
Depreciation charge 990 381 1,087 22 2,480
Disposals (1,579) (926) (396) - (2,901)
At 31 December 2022 3,671 2,163 4,964 41 10,839
Net book value
At 31 December 2020 4,406 1,376 1,360 15 7,157
At 31 December 2021 3,266 1,263 1,742 62 6,333
At 31 December 2022 3,498 2,484 2,274 54 8,310
* The additions in 2022 relate mainly to Australia for the lease that was entered into at the end of 2021 (GBP745k of Leasehold Improvements and GBP1,225k of furniture, fittings and other equipment)
Total depreciation in the income statement is broken down as follows:
2022 2021
Note GBP000 GBP000
From plant and equipment 16 2,480 2,237
From right-of-use assets 17 6,846 6,959
9,326 9,196
17. Leases
The Group leases various assets, comprising properties, equipment, and motor vehicles. The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
Policy
The following sets out the Group's lease accounting policy for all leases, with the exception of leases with a term of 12 months or less and those of low value assets. In both these instances the Group applies the exemptions permissible by IFRS 16 Leases. These are typically expensed to the income statement as incurred.
Right-of-use assets and lease liabilities
At the inception of a lease, the Group recognises a right-of-use asset and a lease liability.
The value of the lease liability is determined by reference to the present value of the future lease payments, as determined at the inception of the lease. Lease liabilities are disclosed separately on the balance sheet. These are measured at amortised cost, using the effective interest rate method. Lease payments are apportioned between a finance charge and a reduction of the lease liability, based on a constant interest rate applied to the remaining balance of the liability. Interest expense is included within net finance costs in the consolidated income statement. The interest rate applied to a lease is typically the incremental borrowing rate of the entity entering into the lease. This is as a result of the interest rates implicit in the leases not being readily determined. The incremental borrowing rate applied by each relevant entity is determined based on the interest rate adjudged to be required to be paid by that entity to borrow a similar amount over a similar term for a similar asset in a similar economic environment.
A corresponding right-of-use fixed asset is also recognised at an equivalent amount adjusted for a) any initial direct costs, b) payments made before the commencement date (net of lease incentives), and c) the estimated cost for any restoration costs the Group is obligated to at lease inception. Right-of-use assets are subsequently depreciated on a straight-line basis over the shorter of the lease term or the asset's estimated life. Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 'Impairment of Assets', when there is an indication of impairment.
Lease term
The lease term comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are included, if the Group has reasonable certainty that the option will be exercised. Periods covered by an option to terminate are included, if it is reasonably certain that this option will not be exercised.
Lease payments
Lease payments comprise fixed payments and variable lease payments (that depend on an index or a rate, initially measured using the minimum index or rate at inception date). Payments include any lease incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option. The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments due to a) a renegotiation or market rent review, b) a change of an index or rate, or c) a reassessment of the lease term.
Lease modifications
Where there are significant changes in the scope of the lease, then the arrangement is reassessed to determine whether a lease modification has occurred and, if there is such a modification, what form it takes. This may result in a modification of the original lease or, alternatively, recognition of a separate new lease.
Subleases
At times, entities of the Group will sublet certain of their properties when their underlying business requirements change. Under IFRS 16, the Group assesses the classification of these subleases with reference to the right-of-use asset, not the underlying asset.
When the Group acts as an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. At lease commencement, a determination is made whether the lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership in relation to the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. The Group recognises lessor payments under operating leases as sublease income on a straight-line basis over the lease term. The Group accounts for finance leases as finance lease receivables, using the effective interest rate method.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (defined by the Group as being below GBP3,000). Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.
Estimates relating to leases
The Group has made estimates in determining the interest rate used for discounting of future cash flows, and the lease term.
Analysis
Set out below are the carrying amounts of right-of-use assets and lease liabilities recognised, and the movements during the year:
Land & Computer Motor
Buildings equipment vehicles Total
Right-of-use assets GBP000 GBP000 GBP000 GBP000
At 1 January 2021 33,208 716 82 34,006
Additions 16,802 24 60 16,886
Modifications 1,048 9 34 1,091
Disposals (394) (4) - (398)
Depreciation (6,563) (309) (87) (6,959)
Foreign exchange (209) (14) (6) (229)
At 1 January 2022 43,892 422 83 44,397
Additions 3,966 395 134 4,495
Modifications 950 - 24 974
Disposals (96) (116) (49) (261)
Depreciation (6,495) (267) (84) (6,846)
Reversal of impairment 164 - - 164
Sublease (164) - - (164)
Foreign exchange 1,203 29 1 1,233
At 31 December 2022 43,420 463 109 43,992
Land & Computer Motor
Buildings equipment vehicles Total
Lease liabilities GBP000 GBP000 GBP000 GBP000
At 1 January 2021 45,573 767 81 46,421
Additions 16,789 24 50 16,863
Modifications 823 9 34 866
Disposals (425) (4) 0 (429)
Accretion of interest 2,766 31 3 2,800
Payments (8,557) (358) (95) (9,010)
Reclassification* (211) - - (211)
Foreign exchange (426) (24) (5) (455)
At 1 January 2022 56,332 445 68 56,845
Additions 3,966 395 134 4,495
Modifications 260 - 24 284
Disposals (132) (94) (50) (276)
Accretion of interest 2,945 21 4 2,970
Payments (9,889) (308) (80) (10,277)
Foreign exchange 1,508 20 1 1,529
At 31 December 2022 54,990 479 101 55,570
*This relates to lease dilapidations which were reclassified to Provisions in 2021.
The additions in 2022 predominately relate to the new offices in Berlin (Germany), Sydney and Melbourne (Australia).
Of lease payments made in the year of GBP10,277k (2021: GBP9,010k), GBP7,307k (2021: GBP6,210k) related to payment of principal on the corresponding lease liabilities and the balance to payment of interest GBP2,970k (2021: GBP2,800k) due on the lease liabilities.
Lease liabilities Land & Buildings Computer equipment Motor vehicles Total
GBP000 GBP000 GBP000 GBP000
Amounts due within one year 6,196 196 56 6,448
Amounts due after one year 48,794 283 45 49,122
At 31 December 2022 54,990 479 101 55,570
Amounts due within one year 6,624 283 43 6,950
Amounts due after one year 49,708 162 25 49,895
At 31 December 2021 56,332 445 68 56,845
2022 2021
Income statement charge GBP000 GBP000
Depreciation of right-of-use
assets (6,846) (6,959)
Short-term lease expense (505) (300)
Low-value lease expense (68) (263)
Short-term sublease income - 94
Right-of-use asset impairment* 164 -
Charge to operating profit (7,255) (7,428)
Sublease finance income 5 26
Lease liability interest expense (2,970) (2,800)
Lease charge to profit before
tax (10,220) (10,202)
*This is the reversal of an impairment from 2020, as the impaired asset was sublet during 2022.
The Group does not face a significant liquidity risk with regard to its lease liabilities and manages them in line with its approach to other month-to-month liquidity matters, as described in note 30.
The cash payment maturity of the lease liabilities held as at 31 December 2022, net of sublease receipts, is as follows:
2022 2021
Future cash payments GBP000 GBP000
Period ending 31 December:
2023 9,026 8,074
2024 8,149 6,730
2025 7,870 6,689
2026 6,935 5,922
2027 6,415 5,716
Later years 31,363 30,227
Gross future liability before
discounting 69,758 63,358
Of the future lease payments post-2027, GBP21.8m relates to a single office lease which expires in 2034. This lease agreement was entered into in December 2019.
18. Other non-current assets
2022 2021
At 31 December GBP000 GBP000
Other debtors including rent deposits 1,107 1,113
Loans to employees - 98
Total other non-current assets 1,107 1,211
19 . Financial assets at fair value through profit and loss (FVTPL)
Policy
The Group holds certain unlisted equity investments, which are classified as financial assets at FVTPL. These investments are initially recognised at their fair value. At the end of each reporting period the fair value is reassessed, with gains or losses being recognised in the income statement.
The valuations are based on several factors, including the share price from the latest funding round, recent financial performance (where available), discounting for liquidation preference shares held by other shareholders and discounting for convertible loan notes.
Analysis
The unlisted equity investments held by Saatchinvest Ltd mainly relate to 18 (2021: 20) early-stage companies. The Group also owns 10% of one UK company, 59A Limited (via Alive & Kicking Global Limited). In addition, overseas investments are owned by:
-- M&C Saatchi International Holdings BV, which owns a 10% shareholding in Australie SAS and a
0.76% shareholding in Sesión Tequila Holdings Pty Ltd (Australia).
-- M&C Saatchi Agency Pty Ltd (Australia), which also owns a 2.1% shareholding in Sesión
Tequila Holdings Pty Ltd.
-- M&C Saatchi European Holdings Limited, which owns a 10% shareholding in M&C Saatchi Madrid
SL (Spain).
With regards to the early-stage non-client investments, the most the Group has invested in any one company over time is GBP0.7m and the least is GBP0.1m. The Group invests in these companies for long term return.
The activity in the year relating to the equity investments held at FVTPL is presented below:
2022 2021
GBP000 GBP000
At 1 January 15,183 11,410
Additions - 501
Disposals (918) (209)
Gain/loss on disposal 1,168 -
Impairment (2,863) -
Revaluation upwards 3,016 4,255
Revaluation downwards (2,724) (722)
Reclassification to contingent consideration
(note 13) (914) -
Foreign exchange 38 (52)
At 31 December 11,986 15,183
Other gains/(losses) in income statement 2022 2021
GBP000 GBP000
Revaluations 292 3,533
Gain/loss on disposal 1,168 -
Impairment (2,863) -
Total (1,403) 3,533
In 2022, there were no additions and the disposals related to companies in the Saatchinvest portfolio. GBP918k of cash was received in respect of the disposals, which resulted in a gain on disposal of GBP1,168k. Within this, GBP779k related to the disposal of Dataseat, and as part of this disposal there was an additional amount of contingent consideration recognised, refer to note 13 for further detail.
An impairment of GBP2,863k was recognised relating to the investment in StreetTeam Software Limited (Pollen). The GBP3,016k revaluation upwards and GBP2,705k of the revaluation downwards relates to the unlisted investments held by Saatchinvest Ltd. GBP1,741k of the revaluation upwards relates to Picasso Labs, Inc. and GBP1,484k of the revaluation downwards relates to Citymapper Limited.
Other revaluation movements relate to investments held by both the Australian business and M&C Saatchi International Holdings B.V. in Sesión Tequila Holdings Pty Ltd.
Within the value of GBP11,986k above, investments with a value of GBP6,082k have no price points since 1 January 2021. The absence of a market transaction means the Group has less reliable information on which to base its estimate of fair value, as in many cases there is limited quantitative financial information available as the Group is a small minority shareholder in early stage businesses. There is a greater degree of judgement and exposure to future movements in fair value upwards and downwards on these investments in particular, as is evident in the case of some of the 2022 downwards revaluations, 85% of which result from fair value movements on 2 investment holdings.
In 2021 there were additions of GBP501k, within this GBP420k relates to a 10% shareholding in an unlisted investment, Australie SAS, acquired as part of a share for share exchange and the remainder related to additions of GBP81k by Saatchinvest Ltd. In 2021, the GBP209k disposal was of a company in the Saatchinvest portfolio and it resulted in neither a gain nor a loss on disposal.
The Group's 10% shareholdings in M&C Saatchi Madrid SL and 59A Limited are all valued at nil.
20. Trade and other receivables
Policy
Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. These financial assets give rise to cash flows that are 'solely payments of principal and interest' on the principal amount outstanding. They are generally due for settlement within 30 - 90 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional. The Group holds trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.
Impairment - Expected credit losses
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance ('ECL') for all trade receivables and contract assets. To calculate the lifetime ECL the Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and economic environments in which the Group operates.
2022 2021
GBP000 GBP000
Trade receivables 97,431 86,302
Loss allowance (1,829) (877)
Net trade receivables 95,602 85,425
Prepayments 4,890 2,664
Amounts due from associates 38 123
VAT and sales tax recoverable 167 52
Other receivables* 31,370 44,477
Total trade and other receivables 132,067 132,741
*Other receivables comprises accrued income of GBP12.7m (31 December 2021: GBP13.9m), which is considered to constitute trade receivables as defined in IFRS 15 on the basis its collectability is subject only to the passage of time, as well as contract assets of GBP2.2m (31 December 2021 GBP2.4m), unbilled media receivables balances of GBP12.3m (31 December 2021:GBP23.3m) and other amounts receivable of GBP4.3m (31 December 2021: GBP4.9m). There is no additional ECL recorded in relation to these amounts.
Set out below is the movement in the loss allowance (which includes provision for expected credit losses) of trade receivables and contract assets.
2022 2021
GBP000 GBP000
As at 1 January (877) (677)
Release / (increase) for expected losses
during the year 96 (40)
Movement in forward looking provision
for specific bad debts:
- Charge during the year (1,469) (375)
- Released during the year 421 190
- Utilisation of provision 0 25
Year-end provision (1,829) (877)
The information about credit exposures is disclosed in note 30.
21. Trade and other payables
Policy
Trade and other liabilities are non-interest bearing and are stated at their amortised cost subsequent to initial recognition at their fair value, which is considered to be equivalent to their carrying amount due to their short-term nature.
2022 2021
GBP000 GBP000
Trade creditors 50,437 36,578
Contract liabilities 20,502 18,939
Sales taxation and social security
payables 3,495 6,059
Accruals 67,601 75,466
Other payables 13,512 17,007
Total trade and other payables 155,547 154,049
Settlement of trade and other payables is in accordance with the terms of trade established with the Group's local suppliers.
22. Provisions
Policy
Provisions are recognised when the Group has a present legal or constructive obligation arising as a result of past events and where it is more likely than not an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the balance sheet date.
The year-end provision of GBP1.1m (2021: GBP1.2m) comprises of costs relating to the tax liabilities in Kenya of GBP0.3m (2021: GBP0.2m), and income protection schemes of GBP0.5m (2021: GBP0.6m), and GBP0.3m (2021: GBP0.4m) in relation to property dilapidations.
2022 2021
GBP000 GBP000
At 1 January (1,193) (666)
Reclassification* - (346)
Charged to the income statement:
* Overseas sales taxation and social security
liabilities (92) (16)
* Income protection provision (92) (165)
Utilised or released in the year
- Lease dilapidations 21 -
- Release associated with the FCA investigation 300 -
At 31 December (1,056) (1,193)
*This relates to lease dilapidations which were included within the lease liability at 31 December 2020 (GBP0.2m), refer to note 17, plus GBP0.1m included within other creditors at 31 December 2020.
As at the end of 2022 all amounts recognised as provisions were expected to be utilised within 12 months and are held as current liabilities. The Directors do not anticipate that any of the above will have a material adverse effect on the Group's financial position or on the results of its operations.
23. Borrowings
Policy
Loans and overdrafts are recognised initially at fair value, less attributable transaction costs. Subsequently, loans and overdrafts are recorded at amortised cost with interest charged to the income statement under the Effective Interest Rate (EIR) method. Where there is a significant change to the future cash flows, the EIR is reassessed with a corresponding change in the carrying amount of the amortised cost. The change in the carrying amount is recognised in profit or loss as income or expense.
Interest payable is included within accruals as a current liability.
Analysis
Amounts due within one year
2022 2021
At 31 December GBP000 GBP000
Overdrafts* (4,271) (14,440)
Local bank loans (159) (297)
(4,430) (14,737)
* These overdrafts can be legally offset with other cash balances. However, they have not been netted off in accordance with IAS32.42 as there is no intention to settle on a net basis.
Amounts due after one year
2022 2021
At 31 December GBP000 GBP000
Local bank loans (52) (293)
Secured bank loans (6,750) (19,528)
(6,802) (19,821)
Secured bank loans
On 31 May 2021, the Company entered into a revolving multicurrency facility agreement with National Westminster Bank Plc and Barclays Bank PLC for up to GBP47m (the "Facility"). The Facility includes a GBP2.5m overdraft and the ability to draw up to GBP3.0m as a bonding facility, as required. The Facility is provided on a three-year term with an option to extend until the fourth anniversary. At 31 December 2022, the Group had up to GBP47.0m (2021: GBP47.0m) of funds available under the Facility.
The Facility includes two financial covenants, which if either were to be breached would result in a default of the agreement:
1. Interest Cover - EBIT for the previous 12 months must exceed 5 times the net finance charge (external
debt interest, excluding IFRS16 finance lease interest payments) for the previous 12 months.
2. Leverage - total indebtedness at the period end must not exceed 3.5 times EBITDA for the previous
12 months (adjusted for acquisitions and disposals). This reduced to 3.0 times from 31 March
2022, 2.5 times from 30 June 2022, and reduces to 2.0 times from 31 March 2023.
2022 2021
At 31 December GBP000 GBP000
Gross secured bank loans (7,000) (20,000)
Capitalised finance costs 250 472
Total secured bank loans (6,750) (19,528)
Total secured bank loans are due as follows:
2022 2021
At 31 December GBP000 GBP000
In one year or less, or on demand - -
In more than one year but not more than
five years (6,750) (19,528)
(6.750) (19,528)
Total bank loans and borrowings used to calculate net cash are as follows, IFRS 16 Leases is excluded from the calculation of net cash in accordance with the Group's bank covenants:
Gross secured
bank loans Local bank loans Total bank loans*
GBP000 GBP000 GBP000
At 31 December 2020 (27,271) (2,357) (29,628)
Cash movements 7,608 - 7,608
Acquisitions - business combinations - (468) (468)
Non-cash movements
- Foreign exchange (337) 35 (302)
- Other** - 2,200 2,200
At 31 December 2021 (20,000) (590) (20,590)
Cash movements 13,000 410 13,410
Non-cash movements
- Foreign exchange - (32) (32)
At 31 December 2022 (7,000) (212) (7,212)
* The borrowing used to calculate net cash.
**Other includes the forgiveness of the US Paycheck Protection Program (PPP) loans.
24. Other non-current liabilities
2022 2021
31 December GBP000 GBP000
Employment benefits* 1,846 1,108
Long term bonuses 1,362 1,014
Other** 838 427
4,046 2,549
*This relates to long term service leave in some locations, deferred contributions to pension schemes and long-term bonus plans. In addition, a termination indemnity plan in Italy of GBP535k (2021: GBP547k), this liability is for the 13(th) month salary accrual for all Italian employees to be paid to them when they leave the Company, this was included in 'other' in 2021, reclassified within the table for comparability.
** The main items include a contractual make good liability in relation to the Australia office lease of GBP690k (2021: GBP116k).
25. Equity related liabilities
This disclosure note summarises information relating to all share schemes disclosed in notes 13, 26 and 27.
In the case of contingent consideration (note 13) (value 2022 Nil), IFRS 9 minority shareholder put option liabilities (note 26), and IFRS 2 put option schemes (note 27), the Group has a choice to pay in cash or equity. The Board made the decision during 2021 that put options would, from then on, be settled in cash, where the Group has cash resources to do so. In the case of the LTIP schemes, it is the Board's intention that an Employee Benefits Trust is set up to acquire the shares and fulfil these schemes using the acquired equity.
In the table below, potential cash payments are presented, based on the 2022 year-end share price of the Company of 151.0p and the estimated future business performance for each business unit. The payments are stated in the year at which the put option schemes first become exercisable. The forecasts are based on the Group's three-year plans, developed as part of the budget cycle, and assume all TSR targets are fulfilled, and that equity is bought by the Employee Benefits Trust in the year of vesting at a Company share price of 151.0p. The table also shows the amount of these potential cash payments that has been recognised as a liability as at 31 December 2022, with the % of the related employment services not yet delivered to the Group at that date.
Total future expected liabilities as at 31 December 2022
Potentially payable
Services not
yet delivered Balance sheet
as at liability as
At Company share price 2023 2024 2025 2026 2027 2028 Total 31 Dec 2022 at 31 Dec 2022
of 151.0p GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 %* GBP000
IFRS 9 put option
schemes 2,584 - - 1,983 - - 4,567 16% 3,856
IFRS 2 put option
schemes 14,914 2,470 373 949 924 740 20,370 7% 18,992
LTIPs - 2,071 2,881 - - - 4,952 72% -**
17,498 4,541 3,254 2,932 924 740 29,889
*Share based payments (Note 27) charge liability to income statement over period of vesting i.e., as the employee fulfils their time obligation to earn the put option.
**LTIPs are accounted for as equity-settled, and thus do not create a balance sheet liability. The 2025 value of GBP2,881k relates to the LTIPs issued in December 2022, the new awards have increased the total potentially payable in the table below, compared to the previous forecast issued with the interim financial statements.
Put option holders are not required to exercise their options at the first opportunity. Many do not and prefer to remain shareholders in the subsidiary companies they manage. As a result, some put option holders may not exercise their options on the dates estimated in the table above.
If the Group in the future decides to settle in equity, then the amount of equity that will be provided is equal to the liability divided by the share price.
Effect of a change in share price
The same data from the table above is presented in the table below, but in this analysis the potential payments are based on a range of different potential future share prices.
Potentially payable
Future Company share 2023 2024 2025 2026 2027 2028 Total
price GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 151p GBP17,498 GBP4,541 GBP3,254 GBP2,932 GBP924 GBP740 GBP29,889
At 160p GBP18,324 GBP4,804 GBP3,453 GBP2,978 GBP979 GBP784 GBP31,322
At 175p GBP19,746 GBP5,241 GBP3,787 GBP3,102 GBP1,071 GBP858 GBP33,805
At 200p GBP22,323 GBP5,970 GBP4,342 GBP3,522 GBP1,224 GBP981 GBP38,362
At 225p GBP24,800 GBP6,598 GBP4,896 GBP3,941 GBP1,377 GBP1,103 GBP42,715
At 250p GBP27,226 GBP7,176 GBP5,451 GBP4,360 GBP1,530 GBP1,226 GBP46,969
At 300p GBP32,121 GBP8,332 GBP6,561 GBP5,199 GBP1,836 GBP1,471 GBP55,520
26. Minority shareholder put option liabilities (IFRS 9)
Policy
See below but also Basis of Preparation note.
Some of the subsidiaries' local management have a put option arrangement in place. The put option arrangements give these employees a right to exchange their minority holdings in the subsidiary into shares in the Company or cash (at the Group's choice).
These schemes are considered as rewarding future business performance and, as they are not conditional on the holder being an employee of the business, they are accounted for in accordance with IFRS 9.
These instruments are recognised in full at the amortised cost of the underlying award on the date of inception, with both a liability on the balance sheet and a corresponding amount within the minority interest put option reserve being recognised. At each period end, the amortised cost of the put option liability is calculated in accordance with the put option agreement, to determine a best estimate of the future value of the expected award. Resultant movements in the amortised cost of these instruments are charged to the income statement within finance income/expense.
The put option liability will vary with both the Company's share price and the subsidiary's financial performance. Current liabilities are determined by the Company's year-end share price and the historical results of the companies where the option holders can exercise within the next twelve months. Non-current liabilities are determined by the Company's year-end share price and the projected results of the companies where the option holders cannot exercise their options within the next twelve months.
Upon exercise of an award by a holder, the liability is extinguished and the associated minority interest put option reserve is transferred to the non-controlling interest acquired reserve.
Analysis
IFRS 9 put options exercisable from year ended 31 December 2022:
% of subsidiaries'
Subsidiary Year shares exercisable
M&C Saatchi (Switzerland)
SA 2023 21.0
M&C Saatchi Merlin Ltd 2023 15.0
Santa Clara Participações
Ltda 2023 25.0
Santa Clara Participações
Ltda 2026 24.9
This Film Studio Pty Ltd 2023 30.0
It is the Group's option to fulfil these options in equity or cash and it is the Group's present intention to fulfil the options in cash (if available). However, if they are fulfilled in equity, the estimated number of the Company shares that will be issued to fulfil these options at 151.0p is 2,553,018 shares (2021: at 168.50p, 3,108,605 shares would need to be issued).
2022 2021
Liability as at 31 December GBP000 GBP000
Amounts falling due within one year (2,584) (3,238)
Amounts falling due after one year,
but less than three years (1,272) -(2,000)
(3,856) ( 5,238)
2022 2021
Movement in liability during the year GBP000 GBP000
At 1 January (5,238) (2,782)
Exchange difference (1) 16
Exercises 2,497 424
Acquisitions - (2,000)
Income statement charge due to:
- Change in profit estimates (970) (399)
- Change in Company share price 406 (497)
- Amortisation of discount (550) -
Total income statement charge (Note
7) (1,114) (896)
At 31 December (3,856) (5,238)
Put options exercised in year 2022 2021
GBP000 GBP000
Paid in equity - 424
Paid in cash 2,497 -
Total 2,497 424
During the year the put options for 25.9% of Bohemia Group Pty Limited and 15.0% of Resolution Design Pty Limited were exercised, and the equity was acquired by the Group.
27. Share-based payments (IFRS 2)
Policy
See below but also Basis of Preparation note.
Local management in some of the Group's subsidiaries (who are minority interests of the Group) have the right to a put option over the equity they hold in the relevant subsidiary. Where this put option is dependent upon the holders' continued employment by the relevant subsidiary, or where the holder received the option as a result of employment with the relevant subsidiary, these options are accounted for under IFRS 2 as equity-settled share-based payments to employees or as cash-settled share-based payment schemes. These are redeemable, at the choice of the Group, either in shares of the Company or by means of a cash payment to the holder. Such schemes should be considered as rewards for future business performance, which are conditional on the holder being an employee of the business.
Equity-settled share-based payment schemes
Where an award is intended to be settled in equity, then the fair value of the award is calculated at the grant date of each scheme based on the present Company's share price and its relevant multiple. The fair value of the awards is calculated by means of a Monte Carlo model with inputs made in terms of the Company's share price at the date of grant, risk free rate, the historic volatility of the share price, the dividend yield and the time to vest. The Group estimates the shares that will ultimately vest, using assumptions over conditions, such as profitability of the subsidiary to which the awards relate. This value is recognised as an expense in the income statement over the shorter of the vesting period or the period of required employment on a straight-line basis, with a corresponding increase in reserves.
In the event a put option arrangement includes a business continuation clause on departure, that element of the award at issue is treated as vested and charged to the income statement at the grant date valuation, and no credit to the income statement is taken for it in the future. All the remaining award is revalued annually for the non-market condition (profitability of the subsidiary) and allocated to the income statement on a straight-line basis.
Upon exercise of the awards, the nominal value of the shares issued is credited to share capital with the balance to share premium.
Cash-settled share-based payment schemes
When an award is intended to be settled in cash, then a liability is recognised at inception of the award, based on the present Company's share price and its relevant multiple. This value is recognised as an expense in the income statement from the date of award to the date it is exercised, on a straight-line basis, with a corresponding increase in liabilities.
Conversion from equity-settled to cash-settled
Before 21 September 2021 the Group had settled the options using equity, where there was a choice to cash settle or equity-settle. The Board made the decision that put options from that date would be settled in cash, where cash resources are available to do so. Up to 21 September 2021, the Group accounted for these put options as equity-settled. From 21 September 2021, the Group accounted for these put options as cash-settled.
The transition from equity-settled to cash-settled required a fair value assessment on the day of the modification and a movement between equity and liabilities.
Where, for an unvested scheme that existed at 21 September 2021, the Company's share price multiple (the market condition) at the inception of the option is higher than the current Company's share price multiple, then the difference is charged to the income statement.
The following table sets out a comparison between equity settlement and cash settlement of IFRS 2 put options:
Equity-settled IFRS 2 scheme Cash-settled IFRS 2 scheme
Cost of the put option Booked to staff costs Booked to staff costs
Liability of the put Booked to equity (no impact on net Booked to liabilities (reduces net assets)
option assets)
Recognition of the cost Spread evenly between the date the Spread evenly between the date the put
put option is issued and the date the option is issued and the date the put option
put option vests. No further costs after vests. Further valuation adjustments are
vesting date. made to the income statement until the
option is exercised.
Revaluation adjustments Adjusted by changes in the profit of Adjusted by changes in the profit of the
the subsidiary only. subsidiary and the relevant share price
multiple.
Exercise of put option New Company shares issued to put option Cash issued to put option holders.
holders.
Summary of schemes
The Group has the following share-based payment schemes:
-- Put options - from 21 September 2021 these put options have been accounted for as cash settled.
-- South African equity purchased with non-recourse loans - some of the South African subsidiaries
have sold equity to staff with non-recourse loans that are repaid out of dividends and from
the proceeds of selling the equity to other employees, with the entity that has issued the equity
acting as an intermediary. The equity does not have any put rights, so there is no obligation
to acquire the equity, however the South African Rand 14,009k (2021 Rand 17,706k) debt lent
to acquire the liability (netted against the fair value of the award) is at risk.
-- Cash awards - these are long term cash schemes that were historically treated as a share-based
scheme. At the end of 2021 one of the put option award holders resigned, causing a one-off reversal
in the charge in the prior year.
-- 2021 LTIP awards - on 28 September 2021 and 21 December 2021, the Group awarded equity-settled
LTIPs to senior executive managers. This scheme grants a future award of the Company's shares,
dependent on the achievement of certain future performance conditions: o Group's total shareholder return (TSR) versus the total shareholder return
(TSR) of the
FTSE Small Cap Index over the 3 years from December 2020 to December 2023 (70%
of the award).
o Group's full year Headline PBT performance in 2023 versus target (30% of the
award).
-- 2022 LTIP awards - on 12 December 2022, the Group awarded equity-settled LTIPs to senior executive
managers. This scheme grants a future award of the Company's shares, dependent on the achievement
of certain future performance conditions: o Group's total shareholder return (TSR) versus the total shareholder return
(TSR) of
the FTSE Small Cap Index over the 3 years from December 2021 to December 2024
(50%
of the award).
o Group's full year Headline PAT performance per share in 2023 versus target (50%
of
the award).
-- Restrictive share awards - the two cash awards made to the previous Chief Financial Officer
on his recruitment were converted to restrictive share awards on 28 September 2021, based on
the 45 day average share price to 28 May 2021 of 137.7p. On departure of the previous Chief
Financial Officer a partial payment was made in cash. At 31 December 2022 there are no restrictive
awards in existence.
For the LTIPs it is intended that an Employee Share Option Plan (Employee Benefits Trust ) is set up to acquire the shares to fulfil these schemes in equity; thus the schemes are accounted for as equity settled. The inputs to Monte Carlo models used to calculate the fair value of these share awards granted during the year are as follows:
2022 2021 2021
LTIP LTIP LTIP
Issue date 12/12/2022 21/12/2021 28/09/2021
Vesting date 31/05/2025 21/12/2024 28/09/2024
Share price at grant GBP1.48 GBP1.63 GBP1.56
Expected volatility 76% 80% 81%
Risk free rate 3.32% 0.67% 0.51%
Dividend yield 0% 0% 0%
Fair value of award per share GBP1.47 GBP1.62 GBP1.55
TSR element against FTSE Small Cap
index:
Expected volatility 291% 147% 158%
Fair value of award per share GBP0.63 GBP0.72 GBP0.67
Income statement charge
2022 2022 2022 2021 2021 2021
Equity Cash Total Equity Cash Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Put options to 21 September 2021 - equity
settled - - - 1,283 - 1,283
Put options from 22 September 2021
- imputed equity charge due to transition - - - 779 - 779
- charge/(credit) since transition (see below) 580 432 1,012 - (797) (797)
South Africa non-recourse loan scheme - 107 107 - (40) (40)
Total not affecting headline results (Note
1) 580 539 1,119 2,062 (837) 1,225
Release of cash award due to leaver (Note
1) - - - - (2,598) (2,598)
LTIPs 438 - 438 135 - 135
Restrictive share awards 211 - 211 38 - 38
Cash awards - 1,893 1,893 - 1,370 1,370
Total 1,229 2,432 3,661 2,235 (2,065) 170
Total put option liability
2022 2021
Total Total
GBP000 GBP000
Put options liability (IFRS 2) (18,992) (27,122)
Put options liability (IFRS 9) (3,856) (5,238)
Total put options (Note 25) (22,848) ( 32,360)
Current - Minority shareholder put
option liabilities (18,419) (20,788)
Non-current - Minority shareholder
put option liabilities (4,429) (11,572)
Total (22,848) (32,360)
Cash-settled liability
The movement in the liability by scheme is detailed below:
Put options South Africa Cash awards Total
non-recourse
loan scheme
GBP000
GBP000 GBP000 GBP000
At 1 January 2021 - (545) (2,043) (2,588)
Equity-settled options transferred to cash-settled
awards (32,555) - - (32,555)
Offsetable debt 1,691 - - 1,691
Acquisitions (Note 12) (1,848) - - (1,848)
(Charge) / credit to income statement
- Straight-line recognition (692) - (1,043) (1,735)
- Change in subsidiary profit estimates (3,382) - (327) (3,709)
- Change in Company multiple 4,871 40 - 4,911
Total income state (charge) / credit 797 40 (1,370) (533)
Reversal of charge caused by employee resignation - - 2,598 2,598
Settled 4,859 - 489 5,348
Foreign exchange (66) 37 - (29)
At 31 December 2021 (27,122) (468) (326) (27,916)
(Charge) / credit to income statement
- Straight-line recognition (963) - (1,893) (2,856)
- Change in subsidiary profit estimates (1,858) (231) - (2,089)
- Change in Company multiple 2,389 124 - 2,513
Total income statement charge (432) (107) (1,893) (2,432)
Settled 8,553 - 1,054 9,607
Foreign exchange 9 (23) - (14)
At 31 December 2022 (18,992) (598) (1,165) (20,755)
Cash consideration for non-controlling interest acquired and other options
2022 2021
Total Total
GBP000 GBP000
Put options liability (IFRS 2) (9,607) (5,348)
Put options liability (IFRS 9) (2,497) -
Total cash consideration for non-controlling interest
acquired and other options (12,104) ( 5,348)
Put Options
Vesting % Entity
subject
to the
put option
Clear Deutschland GmbH 2024 20.00%
Clear Deutschland GmbH 2026 20.00%
Clear Ideas (Singapore) Ltd 2023 10.00%
Clear Ideas Ltd - B1 shares Vested 5.00%
Clear Ideas Ltd - B2 shares Vested 5.00%
Clear LA LLC Vested 12.00%
FCINQ SAS Vested 11.62%
Greenhouse Australia Pty Ltd 2023 8.53%
Greenhouse Australia Pty Ltd 2024 4.80%
Human Digital Ltd 2023 23.00%
Human Digital Ltd 2024 17.00%
LIDA NY LLP (MCD) Vested 24.50%
M&C Saatchi (Hong Kong) Limited Vested 20.00%
M&C Saatchi AB Vested 30.00%
M&C Saatchi Advertising GmbH 2023 4.10%
M&C Saatchi Agency Pty Ltd Vested 10.00%
M&C Saatchi Fluency Limited* 2026 7.50%
M&C Saatchi Fluency Limited* 2027 10.00%
M&C Saatchi Fluency Limited* 2028 2.50%
M&C Saatchi Holdings Asia Pte Ltd
(Indonesia) 2024 27.40%
M&C Saatchi Holdings Asia Pte Ltd
(Indonesia) 2026 22.50%
M&C Saatchi Merlin Ltd 2023 15.00%
M&C Saatchi Middle East Holdings Ltd Vested 20.00%
M&C Saatchi Share Inc Vested 20.00%
M&C Saatchi Social Ltd 2023 16.00%
M&C Saatchi Spencer Hong Kong Limited 2024 30.00%
M&C Saatchi Sport & Entertainment
Ltd Vested 25.00%
M&C Saatchi Sport & Entertainment
NY LLP Vested 13.00%
M&C Saatchi Sport & Entertainment
NY LLP 2024 12.50%
M&C Saatchi Sport & Entertainment
NY LLP 2025 5.00%
M&C Saatchi Sport & Entertainment
Pty LTD Vested 10.00%
M&C Saatchi Sports & Entertainment
GmbH Vested 7.00%
M&C Saatchi Talk Ltd Vested 39.00%
M&C Saatchi Talk Ltd 2023 10.00%
M&C Saatchi World Services LLP Vested 15.00%
M&C Saatchi, S.A. DE C.V. 2023 40.00%
Majority LLC 2024 8.00%
RE Team Pty Ltd Vested 13.00%
RE Worldwide UK Ltd Vested 43.20%
Scarecrow M&C Saatchi Ltd Vested 49.00%
The Source (W1) LLP Vested 10.00%
The Source Insight Australia Pty Ltd 2025 35.00%
Thread Innovation Ltd 2027 10.00%
Thread Innovation Ltd 2028 10.00%
*New scheme in year.
At any point in time, the valuation of certain put option schemes may be in dispute with the put option holders who have challenged the valuation of the schemes. We believe we have taken a prudent position in assessing the liabilities, and therefore consider any adverse outturn to be unlikely. As at 31 December 2022, the maximum aggregate liability that is not accrued amounts to [GBP2.4m] (2021: GBPnil), which is approximately 10% of the put option liability.
LTIP and Restrictive Shares
Shares issuable
During the year the Group also awarded LTIPs and settled restrictive share awards.
The table below shows the number of shares that the Company will issue at the Company's share price at 31 December 2022 of 151.0p (2021: 168.5p) assuming all awards under the LTIPs are held to their vesting date and fully vest.
Restrictive
LTIP shares Total
Number of Shares '000 '000 '000
At 1 January 2022 1,927 799 2,726
Forfeited on departure (556) - (556)
Vested and reclassification to cash settled
scheme on employee departure - (799) (799)
Granted or amended 1,904 - 1,904
At 31 December 2022 3,275 - 3,275
Shares issuable used in these accounts
2022
Number 2022 2021 Number 2021
of shares Share price of shares Share
Note '000 used '000 price used
Per EPS calculation 1 905 163p 828 141.6p
Share based payments 27 3,275 147p-162p 2,726 155p-162p
The share-based payments calculation (note 27) uses the number of shares that could be issued at the first possible vesting date after the year. The EPS calculation (note 1) uses the average share price for the year, calculating the number of shares to be issued using its formula value had it been possible to exercise on the year-end date, and takes a deduction for any remaining uncharged share option charge at start of year and the share of profits that is allocatable to the equity during the year. Where the scheme has been issued for part of the year (and is not converted from an existing cash-based scheme) the shares are reduced by the proportion of the year that they are in issue. The EPS calculation is thus attempting to show the dilutive effect rather than the likely shares that will be issued and is income statement focused rather than the true future position.
28. Issued share capital (allotted, called up and fully paid)
Policy
Ordinary shares are classified as equity. Incremental costs attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax.
Where the Company reacquires its own equity instruments (treasury shares), the consideration paid is deducted from equity attributable to the Company's shareholders and recognised within the treasury reserve.
Analysis
1p Ordinary
shares
Number of shares GBP000
At 31 December 2020 115,916,590 1,159
Acquisition of 40% of M&C Saatchi (Hong Kong)
Limited 3,027,860 30
Acquisition of 25.1% of Santa Clara Participações
Ltda 2,084,825 21
Acquisition of 19.9% of Little Stories SAS 475,730 5
Acquisition of 5% M&C Saatchi Mobile Asia Pacific
PTE. Ltd 327,239 3
Shares issued for cash 620,180 6
Payment of deferred consideration 291,011 3
At 31 December 2021 122,743,435 1,227
No issue of shares - -
At 31 December 2022 122,743,435 1,227
The Group holds 485,970 (2021: 485,970) of the above Company shares in treasury.
29. Fair value measurement
Policy
See also basis of preparation note.
Some of the Group's financial assets and liabilities, in addition to certain non-financial assets and liabilities, are held at fair value.
The fair value of an asset or liability is the price that would be received from selling the asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date.
Both financial and non-financial assets and liabilities measured at fair value in the balance sheet are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly or indirectly; and
- Level 3: unobservable inputs for the asset or liability.
The Group holds both assets and liabilities which are measured at fair value on a recurring basis and those which are measured at fair value on a non-recurring basis. Items measured at fair value on a non-recurring basis typically relate to non-financial assets arising as a result of business combinations as accounted for under the acquisition method. In this regard, during the year the Group has recognised additions to intangible assets (brand names and customer lists) totalling GBP200k (2021: GBP3,819k). Refer to note 14 for full details.
In addition, the Group also calculates the fair value of certain non-financial assets when there is the need to conduct an impairment review. These calculations also fall within Level 3 of the IFRS 13 hierarchy and, where applicable, are described in note 14.
Assets and liabilities measured at fair value on a recurring basis.
The following table shows the levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 31 December 2022 and 31 December 2021:
Level Level Level
1 2 3
At 31 December 2022 GBP000 GBP000 GBP000
Financial assets
Equity investments
at FVTPL - - 11,986
Contingent consideration - - 914
Total - - 12,900
Level Level
1 2 Level 3
At 31 December
2021 GBP000 GBP000 GBP000
Financial assets
Equity investments
at FVTPL - - 15,183
The level at which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.
The movements in the fair value of the level 3 recurring financial assets and liabilities are shown as follows:
Equity instruments
at FVTPL
GBP000
At 1 January 2022 15,183
Disposals (918)
Gain on disposal 1,168
Revaluations 292
Impairment (2,863)
Currency movements 38
At 31 December 2022 12,900
Valuation and sensitivity to valuation
The Group's finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values. Where appropriate such valuations are performed in consultation with third-party valuation specialists for complex calculations.
The equity instruments at FVTPL relate to unlisted equity investments as detailed in note 19. Management bases its primary assessment of their fair values on the share price from the last funding round but also incorporates discounts depending on performance, more senior shareholdings held by other investors and the possibility of future dilution due to the presence of convertible loan notes. Within the value of GBP12,900k above, GBP6,082k have no price points in the past 12 months. Fluctuations in the share price would change the fair value of the investments recognised at year-end as follows assuming a 10% uplift or downwards movement in the price:
Increase/ Increase/
(decrease) (decrease)
in in
fair value fair value
of of
asset asset
2022 2021
Adjusted share price GBP000 GBP000
+10% 1,290 1,519
-10% (1,290) (1,519)
In addition, management considers there to be a risk that the most recent purchase prices are sensitive to a decision to sell the investments to an unwilling market. If such a market existed, then discounting the investments to reflect such risk could impact the value as shown below:
Decrease Decrease
in fair in fair
value value
of asset of asset
2022 2021
Risk adjusted sales price GBP000 GBP000
-30% sales discount due to illiquid
nature* (3,870) (4,556)
-12% risk discount for unwilling market
place** (1,084) (1,276)
Value after discounts 7,946 9,353
* If these illiquid securities were to be sold then such a sale is expected to yield between a 10% and 50% discount, so sensitivity based on 30%.
** Risk that if the cash supply dries up, some of the investments with future growth prospects will run out of cash requiring a fire sale, reflected by additional risk discount of 12%.
30. Financial risk management
Principal financial instruments
The principal financial instruments held by the Group, from which financial instrument risk arises, include contract assets, trade and other receivables, cash and cash equivalents, contract liabilities, trade and other payables, loans and borrowings, minority interest put options accounted under IFRS 9 as liabilities and equity instruments representing long term investments in non-listed entities.
The Group does not typically use derivative financial instruments to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and investment activities.
30.1 - General objective, policies and processes
The Board has overall responsibility for the determination of the Group's and Company's risk management objectives and policies. Whilst retaining ultimate responsibility for them, the Board has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's senior management of each core business unit.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility of the global businesses of which it is comprised. Further details regarding these policies are set out below.
30.2 - Market risk
Market risk arises from the Group's use of interest-bearing financial instruments and foreign currency cash holdings. It is the risk that the fair value of future cash flows on its debt finance and cash investments will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) and other price risk such as equity price risk and share price risk. Financial instruments affected by market risk include loans and borrowings, deposits, debt, equity investments and minority interest (MI) put options.
Exposure to market risk arises in the normal course of the Group's business.
30.3 - Foreign exchange risk
Foreign exchange risk arises from transactions and recognised assets and liabilities and net investments in foreign operations. The Group's general operating policy historically has been to conduct business in the currency of the local area in which businesses of the Group are geographically located, thereby naturally hedging the consideration resulting from client work. Businesses of the Group maintain bank accounts in the currency of these transactions solely for working capital purposes. As the Group has grown there has been an increase in services rendered being exported from the UK businesses to clients who transact in non-GBP currencies. The transactional risk arising from such exports is mitigated in terms of the structuring of the billing arrangements and agreement to regular invoices being remitted and promptly paid (<30 days).
The Group is exposed to movements in foreign currency exchange rates in respect of the translation of net assets and income statements of foreign subsidiaries and equity accounted investments. The Group does not hedge the translation effect of exchange rate movements on the income statements or balance sheets of foreign subsidiaries and equity accounted investments as it regards these as long-term investments.
The estimated impact on foreign exchange gains and losses of a +/- 10% movement in the exchange rate of the Group's significant currencies is as follows:
Increase/ Increase/ Increase/ Increase/
(decrease) (decrease) (decrease) (decrease)
in profit in profit in profit in profit
before after tax before after tax
tax tax
2022 2022 2021 2021
Exchange rate GBP000 GBP000 GBP000 GBP000
USD +10% 848 727 362 214
USD -10% (771) (661) (330) (195)
AUD +10% 490 321 526 349
AUD -10% (446) (292) (478) (317)
The year-end and average exchange rates to GBP for the significant currencies are as follows:
Year-End Rate Average Rate
Currency 2022 2021 2022 2021
USD 1.21 1.35 1.20 1.35
AUD 1.77 1.86 1.77 1.87
The Group assumes that currencies will either be freely convertible, or the currency can be used in the local market to pay for goods and services, which the Group can sell to clients in a freely convertible currency. Within the 2022 year-end cash balances the Group holds GBP 1,242k in Indian Rupees; GBP524k in Libyan Dinars; and GBP3,725k in South African Rands.
30.4 - Interest rate risk
The Group is exposed to interest rate risk because it holds a banking facility of up to GBP47m and a net overdraft facility of up to GBP2.5m, both based on floating interest risks. The Group does not consider this risk to be significant.
The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments held at the balance sheet date. The analysis is prepared assuming the amount of borrowings outstanding at the balance sheet date were outstanding for the whole year. A 50-basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible changes in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group's profit before tax for the year ended 31 December 2022 would (decrease)/increase by GBP(35)k / GBP 35k (2021: GBP(100)k / GBP100k). This is principally attributable to the Group's exposure to interest rates on its floating rate loan.
30.5 - Liquidity risk
Liquidity risk arises from the Group's management of working capital and the finance charges and, when appropriate, principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as and when they fall due. The Group's debt instruments carry interest at SONIA + 3.0%.
The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they come due. To achieve this aim, the Group has a planning and budgeting process in place to determine the funds required to meet its normal operating requirements on an ongoing basis. The Group and Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and cash equivalent and proposed strategic investments.
The Board receives current year cash flow projections on a monthly basis as well as information regarding cash balances. At the end of the financial year, these projections indicated that the Group had sufficient liquid resources to meet its obligations under all reasonably expected circumstances.
The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:
Group
Up to 3 3 to 12
months months 1 to 2 years 2 to 5 years over 5 years
At 31 December 2022 GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other payables* (93,060) (34,996) (2,508) (976) (10)
Lease liabilities (2,256) (6,770) (8,149) (21,220) (31,363)
Loans and borrowings (59) (100) (6,802) - -
Overdrafts (4,271) - - - -
IFRS 9 put options - (2,584) - (1,272) -
Total (99,746) (44,350) (17,459) (23,468) (31,373)
* excludes taxes as these are not considered financial instruments and contract liabilities as these are not financial liabilities
Up to 3 3 to 12
months months 1 to 2 years 2 to 5 years over 5 years
At 31 December 2021 GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other payables* (96,561) (25,359) (5,285) (1,846) (1)
Lease liabilities (2,320) (6,960) (8,074) (19,342) (35,943)
Loans and borrowings - - - (19,528) -
Overdrafts (14,440) - - - -
IFRS 9 put options - (3,238) - (1,000) (1,000)
Deferred and contingent consideration - (984) - - -
Total (113,321) (36,541) (13,359) (41,716) (36,944)
* excludes taxes as these are not considered financial instruments and contract liabilities as these are not financial liabilities
Company
Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
At 31 December 2022 GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other payables (5,190) - - - -
Overdrafts (4,271) - - - -
Loans and borrowings - - (6,750) - -
Total (9,461) - (6,750) - -
At 31 December 2021 Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years
GBP000 GBP000 GBP000 GBP000 GBP000
Trade and other payables (3,551) (361) (292) (161) -
Loans and borrowings - - - (19,528) -
Total (3,551) (361) (292) (19,689) -
The Group breached no banking covenants during the year.
30.6 - Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Group monitors credit risk at both a local and Group level. Credit terms are set and monitored at a local level according to local business practices and commercial trading conditions. The age of debt, and the levels of accrued and deferred income are reported regularly. Age profiling is monitored, both at local customer level and at consolidated entity level. There is only local exposure to debt from significant global clients. The Group continues to review its debt exposure to foreign currency movements and will review efficient strategies to mitigate risk as the Group's overseas debt increases.
Management determines concentrations of credit risk by reviewing amounts due from customers monthly. The only significant concentrations of credit risk which are accepted are with multinational blue chip (or their equivalent) organisations where credit risk is not considered an issue and the risk of default is considered low.
Impairment
The Group has one principal class of assets in scope for expected credit loss test, trade receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.
The expected loss rates for each business are based on the payment profiles of sales at least over a period of 24 months before 31 December 2022 or 31 December 2021 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
The expected credit loss allowance as at 31 December 2022 and 31 December 2021 was determined as follows for trade receivables under IFRS 15.
Trade receivables
0 - 30 31 - 91 - > 120 Total
Not past days past 90 days 120 days days past
31 December 2022 due due past due past due due
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables (GBP000's) 70,673 25,496 9,333 2,701 4,124 112,327
Calculated expected credit loss provision
(GBP000's) 11 3 2 14 146 176
Specific further loss allowances (GBP000's) - - - - 1,653 1,653
Total loss allowance (GBP000's) 11 3 2 14 1,799 1,829
Trade receivables
0 - 30 31 - 91 - > 120 Total
Not past days past 90 days 120 days days past
31 December 2021 due due past due past due due
Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55%
Trade receivables (GBP000's) 72,941 19,200 6,107 956 3,302 102,506
Calculated expected credit loss provision
(GBP000's) 11 2 1 5 117 136
Specific further loss allowances (GBP000's) - - - - 741 741
Total loss allowance (GBP000's) 11 2 1 5 858 877
Under IFRS 9 Financial Instruments, the expected credit loss is the difference between asset's gross carrying amount and the present value of the estimated future cashflows discounted at the asset's original effective interest rate.
Contract assets relate to work-in-progress, and as the Group has no experience of material write offs in relation to these financial assets, no expected credit loss allowance is recognised.
30.7 - Share price risk
As detailed in note 27, the Group has used put option awards to incentivise certain local key management (who are non controlling interest). The value of these awards is in part dependent upon the Company's share price.
30.8 - Equity price risk
The Group's non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages equity price risk through diversification and by placing limits on individual and total equity investment securities. Reports on the equity portfolio are submitted to the Group's senior management on a regular basis. The Board reviews and approves all equity investment decisions. The basis of the fair value calculations and the sensitivity of these calculations to the key inputs is detailed in note 29.
30.9 - Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. Strong financial capital management is an integral element of the Directors' strategy to achieve the Group's stated objectives. The Directors review financial capital reports on a regular basis and the Group finance function does so on a daily basis ensuring that the Group has adequate liquidity. The Directors' consideration of going concern is detailed in the Directors' Report.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 23, cash and cash equivalents as disclosed in the cash flow statement and equity attributable to equity holders of the parent as disclosed in the Statement of Changes in Equity.
31. Group companies
Key
* This subsidiary company is exempt from the requirements relating to the audit of individual accounts
for the year ended 31 December 2022 by virtue of Section 479A of the Companies Act 2006. M&C Saatchi
plc (the "Company") will guarantee the debts and liabilities of the subsidiary company in accordance
with Section 479C of the Companies Act 2006.
** Entities where all equity is directly held by the Company, all other subsidiary companies' equity
is either in part or wholly held via subsidiaries of the Company.
As at 31 December Country Company Number Registered Specialism Effective % ownership
2022 Office 2022
Address
United Kingdom
36 Golden
United Square,
LIDA (UK) LLP* Kingdom OC395890 London, W1F 9EE Advertising 100
36 Golden
United Square,
LIDA Limited* Kingdom 03860916 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi (UK) United Square,
Limited* Kingdom 03003693 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi Accelerator United Square,
Limited* Kingdom 09660056 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi Export United Square,
Limited* Kingdom 03920028 London, W1F 9EE Advertising 100
36 Golden
M & C Saatchi Marketing United Square,
Arts Limited* Kingdom 03357727 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi PR United Square,
International Limited* Kingdom 08838406 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi PR United Square,
Limited* Kingdom 07280464 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi PR United Square,
UK LLP* Kingdom OC362334 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi Shop United Square,
Limited* Kingdom 09660100 London, W1F 9EE Advertising 100
36 Golden
M&C Saatchi Talk United Square,
Limited* Kingdom 04239240 London, W1F 9EE Advertising 51
36 Golden
The Source (London) United Square,
Limited* Kingdom 07140265 London, W1F 9EE Advertising 100
36 Golden
The Source (W1) United Square,
LLP* Kingdom OC384624 London, W1F 9EE Advertising 90
36 Golden
This Is Noticed United Square,
Limited* Kingdom 11843904 London, W1F 9EE Advertising 68.5
36 Golden
Clear Ideas Consultancy United Square,
LLP* Kingdom OC362532 London, W1F 9EE Consulting 90
36 Golden
United Square,
Clear Ideas Limited* Kingdom 04529082 London, W1F 9EE Consulting 90
36 Golden
M&C Saatchi Fluency United Square,
Limited* Kingdom 12853921 London, W1F 9EE Consulting 80
36 Golden
M&C Saatchi Life United Square,
Limited* Kingdom 14338008 London, W1F 9EE Consulting 100
36 Golden
Influence Communications United Square,
Limited* Kingdom 04917646 London, W1F 9EE Consulting 95
36 Golden
United Square,
Re Worldwide Ltd* Kingdom 10503044 London, W1F 9EE Consulting 56.8
36 Golden
Thread Innovation United Square,
Limited* Kingdom 13510974 London, W1F 9EE Consulting 80
36 Golden
Alive & Kicking United Square,
Global Limited* Kingdom 11250736 London, W1F 9EE Dormant 100
36 Golden
Black & White Strategy United Square,
Limited* Kingdom 11295145 London, W1F 9EE Dormant 100
36 Golden
United Square,
H2R Research Limited* Kingdom 11668322 London, W1F 9EE Dormant 85
36 Golden
United Square,
Human Digital Limited* Kingdom 07510403 London, W1F 9EE Issues 60
36 Golden
M&C Saatchi World United Square,
Services LLP* Kingdom OC364842 London, W1F 9EE Issues 85
36 Golden
M&C Saatchi WS United Square,
.ORG Limited* Kingdom 10898282 London, W1F 9EE Issues 85
36 Golden
Tricycle Communications United Square,
Limited* Kingdom 07643884 London, W1F 9EE Issues 85
36 Golden
M & C Saatchi Network United Square, Group Central
Limited* & ** Kingdom 07844657 London, W1F 9EE Costs 100
36 Golden
United Square, Group Central
Saatchinvest Ltd* Kingdom 07498729 London, W1F 9EE Costs 100
M&C Saatchi 36 Golden
International United Square, Group Central
Holdings B.V. Kingdom 24295679 (FC024340) London, W1F 9EE Costs 100
36 Golden
M&C Saatchi European United Square, Group Central
Holdings Limited* Kingdom 05982868 London, W1F 9EE Costs 96
36 Golden
M&C Saatchi German United Square, Group Central
Holdings Limited* Kingdom 06227163 London, W1F 9EE Costs 100
M & C Saatchi 36 Golden
International United Square, Local Central
Limited* Kingdom 03375635 London, W1F 9EE Costs 100
36 Golden
M&C Saatchi Middle United Square, Local Central
East Holdco Limited* Kingdom 09374189 London, W1F 9EE Costs 80
36 Golden
M&C Saatchi WMH United Square, Local Central
Limited* Kingdom 03457658 London, W1F 9EE Costs 100
36 Golden
M&C Saatchi Worldwide United Square, Local Central
Limited* Kingdom 02999983 London, W1F 9EE Costs 100
36 Golden
United Square,
FYND Media Limited* Kingdom 10104986 London, W1F 9EE Media 100
36 Golden
M&C Saatchi Mobile United Square,
Limited* Kingdom 05437661 London, W1F 9EE Media 100
36 Golden
M&C Saatchi Merlin United Square,
Limited* Kingdom 03422630 London, W1F 9EE Passions 70
36 Golden
M&C Saatchi Social United Square,
Limited* (&) ** Kingdom 09110893 London, W1F 9EE Passions 84
M&C Saatchi Sport 36 Golden
& Entertainment United Square,
Limited* Kingdom 03306364 London, W1F 9EE Passions 75
Europe
Boulevard Des
Promenades
8, 1227,
M&C Saatchi Carouge,
(Switzerland) Geneva,
SA Switzerland 660-0442009-4 Switzerland Advertising 76
Skeppsbron 16,
11130,
Stockholm,
M&C Saatchi AB Sweden 556902-1792 Sweden Advertising 70
Munzstrasse
21-23,
M&C Saatchi Advertising 10178, Berlin,
GmbH Germany 95484 Germany Advertising 96
Munzstrasse
21-23,
M&C Saatchi Digital 10178, Berlin,
GmbH Germany 137809 Germany Advertising 100
Skeppsbron 16,
11130,
M&C Saatchi Go! Stockholm,
AB Sweden 559076-6076 Sweden Advertising 70
Skeppsbron 16,
11130,
M&C Saatchi PR Stockholm,
AB Sweden 559103-4201 Sweden Advertising 70
V.Le Monte Nero
76, Milano,
M&C Saatchi PR 20135,
S.r.L Italy IT08977250961 Italy Advertising 100
V.Le Monte Nero
76, Milano,
20135,
M&C Saatchi SpA Italy IT07039280966 Italy Advertising 100
C/O Wework,
Taunusanlage
8, 60329,
Clear Deutschland Frankfurt
GmbH Germany 113523 Am Main, Germany Consulting 57
M&C Saatchi Sport Keizersgracht,
& Entertainment 81015CN,
Benelux B.V. Netherlands 860734560 Amsterdam Passions 100
Munzstrasse
M&C Saatchi Sports 21-23,
& Entertainment 10178, Berlin,
GmbH Germany 142905 Germany Passions 93
Middle East and
Africa
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Black & White Customer Waterkant, Cape
Strategy (Pty) Town, South
Limited South Africa 211/005859/07 Africa Advertising 50.1
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Creative Spark Waterkant, Cape
Interactive (Pty) Town, South
Limited** South Africa 2010/016508/07 Africa Advertising 50.1
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Waterkant, Cape
Dalmatian Communications Town, South
(Pty) Limited** South Africa 2015/396439/07 Africa Advertising 50.1
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Waterkant, Cape
M&C Saatchi Abel Town, South
(Pty) Limited South Africa 2009/022172/07 Africa Advertising 50
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Waterkant, Cape
M&C Saatchi Africa Town, South
(Pty) Limited** South Africa 2013/037719 Africa Advertising 50.1
PO Box: 77932,
Abu Dhabi,
M&C Saatchi FZ United Arab United
LLC Emirates 177 Arab Emirates Advertising 80
M&C Saatchi,
Penthouse,
Building 1,
Twofour54,
PO Box 77932,
Abu
Dhabi, United
M&C Saatchi Middle United Arab Arab
East FZ LLC Emirates 30670 Emirates Advertising 80
9 8(th) Street,
Houghton,
Johannesburg,
Razor Media (Pty) Gauteng, 2198,
Limited South Africa 2017/177757/07 South Africa Advertising 49
M&C Saatchi Bahrain 51,122,1605,316,
W.L.L Bahrain 74157 Manama Center Dormant 100
Media Quarter,
5(th) Floor,
Corner,
Somerset And De
Smit Street, De
Waterkant, Cape
M&C Saatchi Connect Town, South
(Pty) Limited** South Africa 2013/037737/07 Africa Media 50.1
9 8(th) Street,
Houghton,
Johannesburg,
Levergy Marketing Gauteng, 2198,
Agency (Pty) Limited** South Africa 2005/021589/07 South Africa Passions 70
Asia
No. 15B, 2(nd)
Floor, Jalan
Tengku
Ampuan, Zabedah
F9/F, Section 9,
40100 Shah Alam,
Design Factory Selangor Darul
Sdn Bhd Malaysia 201001034805 Ehsan, Malaysia Advertising 100
Room 248, Floor
2, Unit 5,
No.11,
Wanghang Road,
New Lingang
Area,
China (Shanghai)
M&C Saatchi Advertising Pilot Free Trade
(Shanghai) Limited China 91310000740556813A Zone, China Advertising 80
Rm 2610, 26/F
Prosperity,
Millennia Plaza,
663 King's Rd,
North Point,
M&C Saatchi (Hong Hong
Kong) Limited Hong Kong 509500 Kong Advertising 80
1(st) Floor,
Catic
Plaza, No.8
Causeway
M&C Saatchi Spencer Road, Causeway
Hong Kong Limited Hong Kong 2661802 Bay, Hong Kong Advertising 70
Flat No.270-D,
Pocket C Mayur
Vihar Phase II,
M&C Saatchi New Delhi,
Communications 110091,
Pvt Limited India U74300DL2005PTC141682 India Advertising 94.8
2(nd) Floor,
Kamani
Chambers 32
Ramjibhai
Kamani Marg,
Ballard
Estate Mumbai,
Scarecrow M&C Saatchi Mumbai City, MH
Limited** India U22190MH2008PLC188548 400038 IN, India Advertising 51
Dea Tower 1
Mezanine
Floor, Jl. Mega
Kuningan
Kav.e4.3
No.1-2, Kuningan
Timur,
Setiabudi,
PT. MCS Saatchi Jakarta Selatan,
Indonesia Indonesia 576/1/IU/PMA/2018 12920, Indonesia Advertising 50.1
No.15b, 2(nd)
Floor,
Jalan Tengku
Ampuan,
Zabedah F9/F,
Section
9, 40100 Shah
Alam,
M&C Saatchi (M) Selangor,
Sdn Bhd Malaysia 606116-D Malaysia Advertising 100
No.15b, 2(nd)
Floor,
Jalan Tengku
Ampuan,
Zabedah F9/F,
Section
9, 40100 Shah
Alam,
M&C Saatchi Source Selangor,
(M) SDN BHD Malaysia 1313653-D Malaysia Advertising 100
No.15b, 2(nd)
Floor,
Jalan Tengku
Ampuan,
Zabedah F9/F,
Section
9, 40100 Shah
Alam,
Watermelon Production Selangor,
Sdn Bhd Malaysia 1083441 -M Malaysia Advertising 100
48m, Block 6,
M&C Saatchi World P.Ec.H.S,
Services Pakistan Karachi,
(Pvt) Ltd Pakistan 0081911 Pakistan Issues 43
59 Mohamed
Sultan
Road, #02-08,
M&C Saatchi (S) Sultan-Link,
Pte Limited Singapore 199504816C Singapore Advertising 100
59 Mohamed
Sultan
Road, #02-08,
Clear Ideas (Singapore) Sultan-Link,
Pte Limited Singapore 201020335R Singapore Consulting 86
6(th) Floor,
Alexandra
House, 18 Chater
Road, Central,
Clear Asia Limited Hong Kong 1289028 Hong Kong Dormant 95
Rm 2610, 26/F
Prosperity,
Millennia Plaza,
663 King's Rd,
North Point,
Hong
Re HK Limited Hong Kong 2699219 Kong Dormant 100
59 Mohamed
Sultan
M&C Saatchi World Road, #02-08,
Services (Singapore) Sultan-Link,
Pte Limited Singapore 202104508W Singapore Issues 85
Rm 2610, 26/F
Prosperity,
Millennia Plaza,
663 King's Rd,
North Point,
M&C Saatchi Asia Hong Local Central
Limited Hong Kong 1959819 Kong Costs 100
1 Coleman
Street,
#05-06a, The
M&C Saatchi Holdings Adelphi, Local Central
Asia Pte Limited Singapore 20172 5519K 179803 Singapore Costs 50.1
141b First
Floor,
Cl House Shahpur
M&C Saatchi Mobile Jat, New Delhi,
India LLP India AAK-8869 110049, India Media 100
59 Mohamed
Sultan
M&C Saatchi Mobile Road, #02-08,
Asia Pacific Pte Sultan-Link,
Limited Singapore 201410399M Singapore Media 100
Australia
99 Macquarie
Street,
Sydney, NSW
1440 Agency Pty 2000,
Limited Australia 100 473 363 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Bellwether Global 2000,
Pty Limited Australia 114 615 226 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Brands In Space 2000,
Pty Limited Australia 129 800 639 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Elastic Productions 2000,
Pty Limited Australia 635 737 861 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Go Studios Pty 2000,
Limited Australia 092 941 878 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Greenhouse Australia 2000,
Pty Limited Australia 629 584 121 Australia Advertising 78
99 Macquarie
Street,
Sydney, NSW
Hidden Characters 2000,
Pty Limited Australia 108 886 291 Australia Advertising 85.5
99 Macquarie
Street,
Sydney, NSW
LIDA Australia 2000,
Pty Limited Australia 125 908 009 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
M&C Saatchi Direct 2000,
Pty Limited Australia 072 221 811 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
M&C Saatchi Melbourne 2000,
Pty Limited Australia 004 777 379 Australia Advertising 89.9
99 Macquarie
Street,
Sydney, NSW
M&C Saatchi Sydney 2000,
Pty Limited Australia 637 963 323 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Park Avenue PR 2000,
Pty Limited Australia 604 298 071 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Resolution Design 2000,
Pty Limited Australia 621 985 288 Australia Advertising 90
99 Macquarie
Street,
Sydney, NSW
Saatchi Ventures 2000,
Pty Limited Australia 614 007 957 Australia Advertising 54
99 Macquarie
Street,
Sydney, NSW
The Source Insight 2000,
Australia Pty Limited Australia 618 841 928 Australia Advertising 58.5
99 Macquarie
Street,
Sydney, NSW
This Film Studio 2000,
Pty Limited Australia 624 003 541 Australia Advertising 63
99 Macquarie
Street,
Sydney, NSW
Tricky Jigsaw Pty 2000,
Limited Australia 069 431 054 Australia Advertising 88
99 Macquarie
Street,
Sydney, NSW
Ugly Sydney Pty 2000,
Limited Australia 618 242 710 Australia Advertising 67.5
99 Macquarie
Street,
Sydney, NSW
2000,
Re Team Pty Limited Australia 105 887 321 Australia Consulting 78.8
99 Macquarie
Street,
Sydney, NSW
Yes Agency Pty 2000,
Limited Australia 621 425 143 Australia Consulting 78.8
99 Macquarie
Street,
Sydney, NSW
eMCSaatchi Pty 2000,
Limited Australia 089 856 093 Australia Dormant 90
C/O Walker
Wayland
Services Pty
Ltd,
Suite 11.01,
Leve
11, 60
World Services Castlereagh
(Australia) Pty St, Sydney NSW,
Limited Australia 629 191 420 Australia Issues 85
99 Macquarie
Street,
Sydney, NSW
M&C Saatchi Agency 2000, Local Central
Pty Limited Australia 069 431 054 Australia Costs 90
99 Macquarie
Street,
M&C Saatchi Asia Sydney, NSW
Pac Holdings Pty 2000, Local Central
Limited Australia 097 299 020 Australia Costs 100
99 Macquarie
Street,
Sydney, NSW
Bohemia Group Pty 2000,
Limited Australia 154 100 562 Australia Media 90
99 Macquarie
Street,
M&C Saatchi Sport Sydney, NSW
& Entertainment 2000,
Pty Limited Australia 139 568 102 Australia Passions 81
Americas
Rua Wisard, 305,
Vila Madalena,
3 Andar-Con, Sao
Paolo,
Agência Digital 05434-080,
Zeroacem Ltda Brazil NIRE-3522979148 Brazil Advertising 46
Rua Wisard, 305,
Vila Madalena,
3 Andar-Con, Sao
CSZ Paolo,
Comunicação 05434-080,
Ltda Brazil 03.910.644/0001-05 Brazil Advertising 50.1
Avenida
Brigadeiro
Faria Lima,
1355,
Jardim
Paulistano
16 Andar, Sal,
Lily Sao Paulo,
Participações 01452-919,
Ltda Brazil 21.188.539/0001-96 Brazil Advertising 100
Rua Wisard, 305,
Vila Madalena,
3 Andar-Con, Sao
M&C Saatchi Brasil Paolo,
Participações 05434-080,
Ltda Brazil 10.570.593/0001-85 Brazil Advertising 100
Darwin 74, Piso
1, Miguel
Hidalgo,
11590 Ciudad de
México,
M&C Saatchi, S.A. CDMX,
DE. C.V Mexico N-2017052183 Mexico Advertising 60
874 Walker Rd
Ste
C, Dover, Kent,
Delaware 19904
Majority LLC USA 5445173 USA Advertising 92.32
Rua Wisard, 305,
Vila Madalena,
3 Andar-Con, Sao
Santa Clara Paolo,
Participações 05434-080,
Ltda Brazil 09.349.720/0001-31 Brazil Advertising 50.1
80 State Street,
Albany,
Shepardson Stern 12207-2543,
+ Kaminsky LLP USA 4656653 New York, USA Advertising 100
138 West 25(th)
Street, Floor 5,
New York, Ny
10001,
Clear USA LLC USA 20-8599548 USA Consulting 95
138 West 25(th)
Street, Floor 5,
New York, NY
10001,
LIDA NY LLP (MCD) USA 4902983 USA Consulting 75.5
2711 Centerville
Road, Suite 400,
Wilmington,
Delaware,
Clear LA LLC USA 6241713 19808, USA Dormant 95
1209 Orange
Street
Wilmington,
Delaware
Clear NY LLP USA 30-0891764 19801, USA Dormant 95
251 Little Falls
Drive,
Wilmington,
New Castle,
19808Delaware,
LIDA USA LLP USA 6333479 USA Dormant 100
874 Walker Rd
Ste
C, Dover, Kent,
M&C Saatchi NY Delaware 19904,
LLP USA 45-4683918 USA Dormant 95
1740 Broadway,
M&C Saatchi PR New York, 10019,
LLP USA 27-1665526 USA Dormant 100
160 Greentree Dr
Ste 101, Dover,
M&C Saatchi Share Kent, Delaware,
Inc. USA 5580330 19904 USA Dormant 80
88 Pine Street,
30(th) Floor
New York NY
World Services 10005
US Inc. USA C2543767 United States Issues 100
304 East 45(th)
Street, New
York,
M&C Saatchi Agency New York, 10017, Local Central
Inc. USA 13-3839670 USA Costs 100
2032 Broadway,
Santa Monica
M&C Saatchi Mobile California,
LLC USA 45-3638296 90404 USA Media 100
874 Walker Rd
Ste
M&C Saatchi Sport C, Dover, Kent,
& Entertainment Delaware 19904
LA LLC USA 6369786 USA Passions 90
160 Greentree Dr
M&C Saatchi Sport Ste 101, Dover,
& Entertainment Kent, Delaware,
NY LLP USA 46-5182795 19904 USA Passions 69.5
Associate Entities
Entities in which the Group holds less than 50% of the share capital and which are accounted for as Associates (Note 15). All subsidiary companies which the Group controls in line with the requirements of IFRS 10 have been included in the consolidated financial statements.
As at 31 December Country Company Number Registered Office Specialism Effective % ownership
2022 Address 2022
571 Rsu Tower,
10(th) Floor, Soi
Sukhumvit 31,
Sukhumvit
Road, Wattana
District,
Love Frankie Limited Thailand 105557000000 Bangkok, Thailand Advertising 21
Quantum Tower,
Charles Malek Avenue,
St Nicolas, Beirut,
M&C Saatchi SAL Lebanon 1010949 Lebanon Advertising 10
32 Rue Notre Dame
M&C Saatchi Little Des Victoires,
Stories SAS France 449386944 75002 Paris, France Advertising 25.77
14 Rue Meslay,
Cometis S.a.r.l France 384769592 75003 Paris, France Advertising 49
1-26-1 Ebisu-Nishi,
Shibuya-Ku, Tokyo
M&C Saatchi Limited Japan 0110-01-060760 150-0021, Japan Advertising 10
141b First Floor,
Cl House Shahpur
February Communications Jat, New Delhi,
Pvt Limited India U74999DL2012PTC233245 110049, India Advertising 20
32. Related party transactions
Key management remuneration
Key management remuneration is disclosed in note 5.
Other related parties
During the year, the Group made purchases of GBP84k (2021: GBP418k) from its associates. At 31 December 2022, there was GBP31k due to associates in respect of these transactions (2021: GBP35k).
During the year, GBP127k (2021: GBP420k) of fees were charged by Group companies to associates. At 31 December 2022, associates owed Group companies GBP38k (2021: GBP123k).
33. Commitments
With the introduction of IFRS 16 Leases in 2019, all of the Group's commitments are shown on the balance sheet except for those below:
Capital commitments
At the year-end the Group had GBP 56k committed costs (2021: GBPNil) to acquire property plant and equipment.
Other commitments
Other than the normal contractual commitments to staff and the commitment to complete profitable projects for clients, the Group does not have any other material commitments which are not reflected on the balance sheet.
34. Post-balance sheet events
As part of our simplification strategy, the Group continued to close down small entities including Clear Deutschland GmbH, M&C Saatchi Share Inc and Black & White Strategy Limited.
The Directors are not aware of any other events since the end of the financial year that have had, or may have, a significant impact on the Group's operations, the results of those operations, or the state of affairs of the Group in future years.
35. Other accounting policies
Reserves
Equity comprises the following:
Share capital
Represents the nominal value of equity shares in issue.
Share premium
Represents the excess over nominal value of the fair value of consideration received for equity shares, net of issuance costs.
Other reserves
Merger reserve
Represents the premium paid for shares above the nominal value of share capital, caused by the acquisition of more than 90% of a subsidiaries' shares. The merger reserve is released to retained earnings when there is a disposal, impairment charge or amortisation charge posted in respect of the investment that created it.
Treasury reserve
Represents the amount paid to acquire the Company's own shares for future use.
Minority interest put option reserve
Represents the initial fair value of the IFRS 9 put option liabilities at creation. When the put option is exercised, the related amount in this reserve is taken to the non-controlling interest acquired reserve.
Non-controlling interest acquired reserve
From 1 January 2010, a non-controlling interest acquired reserve has been used when the Group acquires an increased stake in a subsidiary. It represents the either a) the minority interest put option reserve transferred less the book value of the minority interest acquired (where the acquisition is due to an IFRS 9 put option), or b) the consideration paid less the book value of the minority interest acquired. If the equity stake in the subsidiary is subsequently sold, impaired or disposed of, then the related balance from this reserve will be transferred to retained earnings.
Foreign exchange reserve
For overseas operations, income statement results are translated at the annual average rate of exchange and balance sheets are translated at the closing rate of exchange. The annual average rate of exchange approximates to the rate on the date that the transactions occurred. Exchange differences arising from the translation of foreign subsidiaries are taken to this reserve. Such translation differences will be recognised as income or expense in the period in which the operation is disposed of.
Retained earnings
Represents the cumulative gains and losses recognised in the income statement.
36. New and revised standards issued but not yet effective
In the current year, the following Standards and Interpretations became effective:
-- Amendments to IAS 37 - Onerous Contracts: Cost of Fulfilling a Contract
-- Amendments to IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use
-- AIP (2018-2020 cycle): IFRS 9 Financial Instruments - Fees in the '10 per cent' Test for Derecognition
of Financial Liabilities
-- Amendments to IFRS 3 - Reference to the Conceptual Framework
The above amendments do not have a material difference on the Group's accounts.
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture
Applying IFRS 9 "Financial Instruments" IFRS Insurance
with IFRS 4 'Insurance Contracts' (Amendments
to IFRS 4)
Amendments to IFRS 17 Changes to international insurance
accounting
Classification of Liabilities as Current Application of consistency
or Non-Current (Amendments to IAS 1)
Definition of Accounting Estimate (Amendments Distinguishing between accounting
to IAS 8) policies and estimates
Disclosure of Accounting Policies (Amendments Application of Materiality
to IAS 1 and IFRS Practise Statement
2)
Deferred Tax - Amendments to IAS 12 Recognising deferred tax on
Income Taxes leases
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.
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END
FR KDLFFXZLZBBD
(END) Dow Jones Newswires
April 18, 2023 02:00 ET (06:00 GMT)
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