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Share Name Share Symbol Market Type Share ISIN Share Description
M&c Saatchi Plc LSE:SAA London Ordinary Share GB00B01F7T14 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.20 0.22% 91.00 90.00 92.00 95.80 90.00 95.80 15,521 16:35:02
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Media 431.8 17.6 9.8 9.3 105

M&C Saatchi PLC Half-year Report

28/10/2020 7:00am

UK Regulatory (RNS & others)


M&c Saatchi (LSE:SAA)
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TIDMSAA

RNS Number : 4496D

M&C Saatchi PLC

28 October 2020

M&C SAATCHI PLC

INTERIM RESULTS

SIX MONTHSED

30 JUNE 2020

28 October 2020

M&C SAATCHI PLC

Interim results for the six months

ended 30 June 2020

H1 Highlights

-- A resilient, profitable performance, with results ahead of management's expectations at the outset of the Covid-19 pandemic.

-- Strong client retention and new business won across geographies and disciplines, with major new public sector and corporate clients.

   --    H1 net revenue of GBP103.4m, down 13%, with trends improving from Q2. 
   --    Headline profit before tax of GBP2m before exceptional costs, down 59%. 

-- Early actions taken to significantly reduce costs. Total operating costs down 11% (GBP12.8m) vs. H1 2019.

-- Financial position remains strong, with cash at 30 June 2020 of GBP22.4m (GBP16.6m at 31 Dec 2019) and GBP28m at 20 October 2020

   --    No interim dividend (2019: 2.45p). 
 
 
 

See note on page 6 for definition of headline.

2019 Restated. See note 6 for details of the restatement.

Current trading and outlook

-- Positive trends have continued into H2, although there remains considerable uncertainty due to the ongoing Covid-19 pandemic

-- The Group's clients and revenue are heavily weighted towards resilient industry sectors, such as government, e-commerce and financial services

-- Revenues expected to be marginally stronger in H2 than H1 with 2020 full year headline PBT, excluding exceptional items, expected to be at least GBP4m

   --    2020 year end net cash expected to be at least GBP10m 

-- Full year operating costs expected to be approximately GBP30m lower than 2019 as a result of restructuring, the majority of which are expected to be ongoing cost savings

-- The Group is in the process of exiting from companies that are expected to generate combined losses of GBP5m in 2020, with divestment or closure expected to be completed before the year end

-- The Group has set out clearly in this announcement the potential liability from its put option obligations based on a range of future share price outcomes and our plan to manage this in the future

-- On track to present the growth strategy and support structure at a capital markets day in January 2021

Update on 2019 audit process and temporary suspension of share trading

As announced on 1 October 2020, trading in the Company's shares is temporarily suspended until publication of the 2019 audited results. This process is nearing completion and is expected to be complete in early November. No headline adjustments or further restatements of the Group's unaudited results published on 29 September have been identified to date.

David Kershaw, Chief Executive Officer, said:

"We have been hugely encouraged by the resilience of the business, both operationally and financially, in the face of the global Covid-19 pandemic. Our companies have shown great agility in adapting their businesses to these extremely challenging conditions, without compromising on the quality of their work or client service. This is demonstrated by our strong client retention and new business performance during the period. I would like to thank all of our people for their tremendous commitment and hard work.

"We are looking ahead with optimism. We are refocusing our business to ensure it is in the best possible shape to thrive. Additionally, we are now well advanced in our strategic review and it is clear that we have both the strength and the potential to take advantage of the considerable long-term opportunities we see ahead of us."

For further information please call:

   M&C Saatchi                                                      +44 (0)20-7543-4500 

David Kershaw, Mickey Kalifa

   Tulchan Communications                                +44 (0)20-7353-4200 

Tom Murray

   Numis Securities                                               +44 (0)20-7260-1000 

Nick Westlake, Hugo Rubinstein, NOMAD

Charles Farquhar, Corporate Broking

Notes to Editors

Company

M&C Saatchi Plc, a company incorporated in England, listed on the AIM Market of the London Stock Exchange plc.

Group

The Company and its subsidiaries.

Headline results

The Directors believe that the headline results and headline earnings per share provide additional useful information on the underlying performance of the business. The headline results reflect the underlying profitability of the business units by excluding all effects of buying and selling equity by the Group; and the accounting effects of local management holding equity in the businesses they run. This results in accounting charges and credits to the income statement for the Group's fair value liability of its local management equity conversion rights, but does not account for the increase in value of the businesses. In addition, the headline results are used for internal performance management and to calculate minority shareholder put option liabilities. The term 'headline' is not a defined term in IFRS. Note 7 reconciles reported to headline results.

The segmental reporting (note 9) reflects headline results in accordance with IFRS 8.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill and acquired intangibles, but excluding software) acquired in business combinations, changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investments in associates; profit or loss on disposal of associates; revaluation of investments and their related costs; and the income statement impact of put option accounting and share-based payment charges. Note 7 shows a reconciliation between the Group's reported results and the headline results.

Executive management has historically managed its operation using headline results, with net revenue and profit before taxation being key metrics used by executives to assess performance. Revenue is not currently a headline metric or a metric used by the Group to measure performance. However, the Group is reviewing and overhauling its reporting systems and key performance indicators, with the intention of giving greater prominence to non-headline metrics, including revenue.

Like-for-like

The like-for-like revenue comparisons referred to in these statements are stated after excluding the impact of foreign currency movements, corporate acquisitions and disposals.

Operating margin

Operating margin refers to the percentage calculated through dividing operating profit by net revenue.

Net cash

Net cash refers to cash and cash equivalents less external borrowings at the end of the period, exclusive of expected future cash outflows relating to lease agreements.

Periods compared

These statements comment on the unaudited consolidated income statement of M&C Saatchi Plc for the six months to 30 June 2020 compared with the restated unaudited consolidated income statement for the same period in 2019 (see note 6 for details of the restatement).

SUMMARY OF RESULTS

The effects of the extremely challenging economic conditions were felt in this period when net revenue decreased by 13% to GBP103.4m (2019: GBP118.3m). However, costs were tightly controlled, with operating costs decreasing by 11% to GBP99.2m (2019: GBP112m) and the Group's underlying headline PBT (excluding exceptional costs) decreased by GBP2.9m to GBP2.0m. We embarked on a significant global restructuring programme and also benefited from a number of government-backed financial assistance initiatives across the world, including the UK, Australia, the US and Singapore, including furlough schemes, government grants and tax deferral programmes. We have given greater priority to cash preservation and working capital than ever before. The result of this increased focus has been an increase in net cash to GBP22.4m from GBP16.6m at year-end 2019. Net cash continued to grow after the period end and stood at GBP28m at 20 October 2020.

We took action to reduce costs early on in 2020 in anticipation of the economic disruption from the Covid-19 pandemic, with the result that we have remained profitable at headline PBT level from April onwards and for H1 as a whole. Several of our Group companies had a successful first half performance most notably M&C Saatchi World Services, M&C Saatchi Performance, and our Australian and Italian divisions. The Group's relatively high share of government and e-commerce clients has contributed to the resilient performance experienced in the year to date.

The Board has confirmed that no interim dividend will be paid in 2020.

Current Trading and Outlook

Even in the current economic environment, the Group has continued to trade profitably throughout the second half of 2020. We have embarked on a rationalisation programme with the aim of closing or divesting our holdings in a number of loss-making companies across the Group. We closed our LA agency in May 2020 and expect to complete most of the closures before the end of 2020. These businesses will contribute operating losses of GBP5m in 2020.

We expect to report headline PBT for 2020 of at least GBP4m.

The Group has evaluated its property needs globally and, as a consequence, has significantly reduced its office space requirements. Across our largest markets, including the UK, Australia and Singapore, we will be permanently vacating several buildings, reducing our office space by approximately 25%. Whilst we still hold leases for these vacated premises and are obliged to continue to pay rent, we intend to either sub-let the space or terminate leases, and so expect material property related savings in the medium term. We would expect to take an impairment charge against the carrying value of our right-of-use property assets in the full year 2020 accounts.

We have continued to tightly manage our cost base and conserve cash and expect to end the year with net cash of at least GBP10m.

UK

Like for like net revenue in the UK decreased by 16% (2020: GBP36.8million; 2019: GBP44million). Headline operating profit was down 31% (2020: GBP3.4million, 2019, GBP4.9million), with headline operating costs decreasing by 14%. The UK group incorporates a large number of different companies providing an array of different marketing and communications services. Performance across the group was mixed.

M&C Saatchi World Services was the stand-out performer in the Group for the first half of 2020, continuing with and winning new engagements with governments and NGO's globally.

Elsewhere across the UK, trading was more challenging than normal, with a number of client budgets reduced and/or frozen in the wake of the pandemic. Activity often revolved around smaller projects. Our M&C Saatchi Sports and Entertainment division was the hardest hit, due to the severe disruption to the sporting and live events calendar, including the postponement of the 2020 Euros and the Olympics, which were both very significant to the division. However, the extensive restructuring programmes that took place in the UK agency and PR divisions early in the year, resulted in a substantially reduced cost base and both operations have had notable successes with new clients in the second half of the year.

Europe

Like for like net revenue in Europe declined by 9% (2020: GBP12.9 million; 2019: GBP14.2 million). Headline operating profit declined by 36% (2020: GBP0.3million; 2019, GBP0.4million), with headline operating costs reducing by 8%.

Despite being one of the countries hit hardest by Covid-19, our Italian division performed extremely well and at similar levels to 2019. Germany and Sweden also performed well. Our operations in France, however, with a heavy concentration of retail clients has been severely impacted by the continuation of the pandemic and is expected to report losses for the full year.

Middle East and Africa

Like for like net revenue in the Middle East and Africa increased by 7% (2020: GBP8million; 2019: GBP7.5million). Headline operating profit increased by 81% (2020: GBP0.16million; 2019: GBP0.1million), with headline operating costs increasing by 6%.

The South African business won Standard Bank as a client midway through 2019 and will see the benefits of a full year of revenues from the client in 2020. It is the South African office's largest client and has gone some way to mitigate the impact of losing Heineken as a client.

Dubai was similarly strengthened through regional new business assignments.

Asia and Australia

In Asia and Australia, like for like net revenues declined by 18% (2020: GBP26.9million; 2019: GBP32.8million). Headline operating profit declined by 56% (2020: GBP1 million; 2019: GBP2.3million), with headline operating costs decreasing by 15%.

The headwinds in Australia were substantial in the first half following not just Covid-19, but the devastating fires which particularly impacted the Tourism Australia win. However, the client base, including Commonwealth Bank, Woolworths and Optus has provided resilience and a stable base for trading in the second half.

In Asia, the Jakarta Agency has performed strongly and has grown rapidly from its start-up base. Our Shanghai associate and KL operations have proved resilient. However, Singapore has faced significant challenges as the lockdown had a severe impact on the business compared to other countries and we expect to report substantial full year losses from this market.

Americas

Like for like net revenues declined by 6% (2020: GBP18.8million; 2019: GBP19.9million). Headline operating profit increased by 62% (2020: GBP2.1million; 2019: GBP1.3million), with headline operating costs reducing by 11%.

The New York group of companies have performed relatively well given the extraordinary circumstances. MCD, SS+K and the US division of Performance all had noticeable successes. Clear and Sport & Entertainment had good new business wins.

Elsewhere in the Americas the results were less positive. Material losses were incurred in Brazil, Mexico and in LA where the Advertising agency was closed in the second quarter.

Balance sheet and cash

Cash net of bank borrowings at 30 June 2020 was GBP22.4m , compared to GBP16.6m of net cash at 31 December 2019 and GBP9.5m net cash at 30 June 2019. The GBP5.8m increase in net cash in the first half of 2020 is driven by improvements in working capital.

The Group has made great strides in overhauling its treasury function and will continue to see the benefits of its increased focus on cash management into 2021. The current net cash position as at 20 October was GBP28m. The increase in net cash since the period end is driven by short term positive working capital movements largely attributable to media buying, and delayed payment of distributions to minority shareholders.

The Group extended its committed revolving credit facility (RCF) with National Westminster Bank plc (NatWest) in April 2020. The RCF is a revolving credit facility of GBP36.0m that reduces to GBP33.0m from 1 December 2020 and matures on 30 June 2021. As at 30 June 2020, the full amount of the RCF was drawn.

In addition to the RCF, the Group has a GBP5m overdraft facility with NatWest, which remained undrawn as at 30 June 2020.

Furthermore, the Company recently received approval for GBP7m of funding through the UK Government's Coronavirus Large Business Interruption Loan Scheme (CLBILS). Given the current cash balance and existing headroom, securing this additional funding is an entirely precautionary measure aimed at ensuring the Company has sufficient cash balances to continue to operate under any plausible trading scenario. The additional headroom from the CLBILS facility is not expected to be drawn.

Unaudited Consolidated income statement

 
 
 
                                                Six months ended       Six months     Year ended 
                                                    30 June 2020    ended 30 June    31 December 
                                                                            2019#           2019 
                                                          GBP000           GBP000         GBP000 
-----------------------------------------      -----------------  ---------------  ------------- 
 Billings                                                229,894          280,667        570,886 
-----------------------------------------      -----------------  ---------------  ------------- 
 Revenue                                                 149,322          214,636        396,005 
-----------------------------------------      -----------------  ---------------  ------------- 
 Project cost / direct cost                             (45,920)         (96,305)      (139,570) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Net revenue                                             103,402          118,331        256,435 
-----------------------------------------      -----------------  ---------------  ------------- 
 Staff costs                                            (80,003)         (92,760)      (193,994) 
 Depreciation                                            (6,025)          (6,354)       (12,449) 
 Amortisation                                            (1,107)          (1,519)        (2,865) 
 Impairment charges                                            -                -        (5,874) 
 Other operating charges                                (17,826)         (18,191)       (52,110) 
 Other gains                                                   -              371           (96) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Operating profit                                        (1,559)            (122)       (10,953) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Share of results of associates and 
  joint ventures                                           (260)           11,502          8,000 
 Gain on disposal of associate                                 -                -              - 
 Finance income                                              216              200            613 
 Finance costs                                           (3,972)          (1,910)        (6,233) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Profit before taxation                                  (5,575)            9,670        (8,573) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Taxation                                                  (139)            (366)        (3,256) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Profit for the period                                   (5,714)            9,304       (11,829) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Attributable to: 
 Equity shareholders of the Group                        (5,692)            8,817       (11,796) 
 Non-controlling interests                                  (22)              487           (33) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Profit for the period                                   (5,714)            9,304       (11,829) 
-----------------------------------------      -----------------  ---------------  ------------- 
 Earnings per share 
 Basic (pence)                              7            (5.58)p            9.94p       (13.07)p 
 Diluted (pence)                            7            (5.58)p            9.46p       (13.07)p 
-----------------------------------------      -----------------  ---------------  ------------- 
 
 Headline results 
-----------------------------------------      -----------------  ---------------  ------------- 
 Net revenue                                             103,402          118,331        256,435 
 Operating profit                           7              4,242            6,340         20,752 
 Profit before tax                          7              2,018            4,940         18,282 
 Profit after tax attributable to equity 
  shareholders of the Group                 7              1,275            3,636         12,980 
-----------------------------------------      -----------------  ---------------  ------------- 
 

Unaudited Consolidated statement of comprehensive income

 
                                               Six months   Six months     Year ended 
                                                    ended        ended    31 December 
                                                  30 June      30 June           2019 
                                                     2020        2019# 
                                                   GBP000       GBP000         GBP000 
-----------------------------------------     -----------  -----------  ------------- 
 Profit for the period                            (5,714)        9,304       (11,829) 
--------------------------------------------  -----------  -----------  ------------- 
 Other comprehensive income* 
 Exchange differences on translating 
  foreign operations before tax                     3,601      (3,754)        (3,441) 
--------------------------------------------  -----------  -----------  ------------- 
 Other comprehensive income for 
  the period net of tax                             3,601      (3,754)        (3,441) 
 
 Total comprehensive income for 
  the period                                      (2,112)        5,550       (15,270) 
--------------------------------------------  -----------  -----------  ------------- 
 Total comprehensive income attributable 
  to: 
 Equity shareholders of the Group                 (2,090)        5,063       (15,237) 
 Non-controlling interests                           (22)          487           (33) 
--------------------------------------------  -----------  -----------  ------------- 
 Total comprehensive income for 
  the period                                      (2,112)        5,550       (15,270) 
--------------------------------------------  -----------  -----------  ------------- 
 

(#) restated (note 6)

*All items in the consolidated statement of comprehensive income will be reclassified to the income statement.

Unaudited Consolidated balance sheet

 
 
                                                  Six months    Six months     Year ended 
                                                    ended 30      ended 30    31 December 
                                                   June 2020    June 2019#           2019 
                                                      GBP000        GBP000         GBP000 
---------------------------------------     ----------------  ------------  ------------- 
 Non-current assets 
 Intangible assets                                    38,674        47,093         38,207 
 Investments in associates and 
  JV                                                   4,086         7,940          3,780 
 Plant and equipment                                   8,843         8,157          9,455 
 Right-of-use assets                                  41,902        29,359         46,542 
 Other non-current assets                              4,516         6,749          3,923 
 Deferred tax assets                                   5,753         7,507          5,455 
 Financial assets at fair value 
  through profit or loss                              15,735        13,469         14,851 
                                                 -----------  ------------  ------------- 
                                                     119,509       120,274        122,213 
   ----                                          -----------  ------------  ------------- 
 Current assets 
 Trade and other receivables                         107,871       119,172        116,153 
 Current tax assets                                    8,336         4,718          6,316 
 Cash and cash equivalents                            76,214        50,438         67,221 
 Non-current assets classified                             -             -              - 
  as Held-for-sale 
                                                 -----------  ------------ 
                                                     192,421       174,328        189,690 
   ----                                          -----------  ------------  ------------- 
 Current liabilities 
 Trade and other payables                          (138,581)     (121,451)      (140,415) 
 Provisions                                          (1,206)             -        (2,809) 
 Current tax liabilities                             (4,108)         (746)        (1,374) 
 Borrowings                                         (53,059)      (17,478)       (50,452) 
 Lease liabilities                                   (7,924)      (10,658)       (10,770) 
 Deferred and contingent consideration                 (445)         (675)          (445) 
 Minority shareholder put option 
  liabilities                                          (144)      (23,335)        (3,183) 
-----------------------------------------------  -----------  ------------  ------------- 
                                                   (205,467)     (174,343)      (209,448) 
   ----                                          -----------  ------------  ------------- 
 Net current liabilities                            (13,046)          (15)       (19,758) 
-----------------------------------------------  -----------  ------------  ------------- 
 Total assets less current liabilities               106,463       120,259        102,455 
-----------------------------------------------  -----------  ------------  ------------- 
 Non-current liabilities 
 Deferred tax liabilities                              (285)       (1,560)          (541) 
 Borrowings                                            (771)      (23,291)          (162) 
 Lease liabilities                                  (42,900)      (27,825)       (44,000) 
 Contingent consideration                              (313)         (411)          (313) 
 Minority shareholder put option 
  liabilities                                        (3,724)       (3,773)        (3,918) 
 Other non-current liabilities                       (1,406)       (1,784)        (1,130) 
-----------------------------------------------  -----------  ------------  ------------- 
                                                    (49,399)      (58,644)       (50,064) 
   ----                                          -----------  ------------  ------------- 
 Total net assets                                     57,064        61,615         52,391 
-----------------------------------------------  -----------  ------------  ------------- 
 
 

(#) restated (note 6)

 
                                           Six months       Six months     Year ended 
                                             ended 30    ended 30 June    31 December 
                                            June 2020            2019#           2019 
                                               GBP000           GBP000         GBP000 
--------------------------------------    -----------  ---------------  ------------- 
 Equity 
 Share capital                                  1,160              906            936 
 Share premium                                 49,540           46,667         49,540 
 Merger reserve                                33,400           31,592         33,400 
 Treasury reserve                               (550)            (560)          (550) 
 Minority interest put option reserve         (4,987)         (19,240)        (4,953) 
 Non-controlling interest acquired           (32,437)         (22,463)       (32,210) 
 Foreign exchange reserve                       4,753            3,752          1,152 
 Retained earnings                              5,886           15,117          4,711 
----------------------------------------  -----------  ---------------  ------------- 
 Equity attributable to shareholders 
  of the Group                                 56,764           55,771         52,026 
----------------------------------------  -----------  ---------------  ------------- 
 Non-controlling interest                         300            5,844            365 
----------------------------------------  -----------  ---------------  ------------- 
 Total equity                                  57,064           61,615         52,391 
----------------------------------------  -----------  ---------------  ------------- 
 

(#) restated (note 6)

Unaudited Consolidated statement of changes in equity

 
                                                             MI put   Non-controlling    Foreign                         Non-controlling 
                     Share     Share    Merger   Treasury    option          interest   exchange   Retained                     interest 
                   capital   premium   reserve    reserve   reserve          acquired   reserves   earnings   Subtotal         in equity     Total 
                    GBP000    GBP000    GBP000     GBP000    GBP000            GBP000     GBP000     GBP000     GBP000            GBP000    GBP000 
---------------   --------  --------  --------  ---------  --------  ----------------  ---------  ---------  ---------  ----------------  -------- 
 At 31 December 
  2019                 936    49,540    33,400      (550)   (4,953)          (32,210)      1,152      4,711     52,026               365    52,391 
----------------  --------  --------  --------  ---------  --------  ----------------  ---------  ---------  ---------  ----------------  -------- 
 Acquisitions            -         -         -          -         -                 -          -          -          -                 -         - 
 Acquisitions of 
  minority 
  interest              84         -     4,154          -         -                 -          -          -      4,238                 -     4,238 
 Exercise of put 
  options              140         -         -          -         -                 -          -      (140)          -                 -         - 
 Exchange rate 
  movements              -         -         -          -      (34)             (227)          -       (61)      (323)              (43)     (366) 
 Deferred                -         -         -          -         -                 -          -          -          -                 -         - 
 consideration 
 Issue of                -         -         -          -         -                 -          -          -          -                 -         - 
 shares 
 to minorities 
 Minority 
  interest 
  charged to 
  income 
  statement              -         -   (4,154)          -         -                 -          -      4,154          -                 -         - 
 Share option 
  charge                 -         -         -          -         -                 -          -      2,913      2,913                 -     2,913 
 Dividends               -         -         -          -         -                 -          -          -          -                 -         - 
---------------   --------  --------  --------  ---------  --------  ----------------  ---------  ---------  ---------  ----------------  -------- 
 Total 
  transactions 
  with owners          224         -         -          -      (34)             (227)          -      6,866      6,828              (43)     6,785 
 Total 
  comprehensive 
  income for the 
  period                 -         -         -          -         -                 -      3,601    (5,691)    (2,090)              (22)   (2,112) 
----------------  --------  --------  --------  ---------  --------  ----------------  ---------  ---------  ---------  ----------------  -------- 
 At 30 June 2020     1,160    49,540    33,400      (550)   (4,987)          (32,437)      4,753      5,886     56,764               300    57,064 
----------------  --------  --------  --------  ---------  --------  ----------------  ---------  ---------  ---------  ----------------  -------- 
 

Unaudited Consolidated statement of changes in equity (continued)

 
                                                              MI put   Non-controlling    Foreign                         Non-controlling 
                     Share     Share    Merger   Treasury     option          interest   exchange   Retained                     interest 
                   capital   premium   reserve    reserve    reserve          acquired   reserves   earnings   Subtotal         in equity      Total 
                    GBP000    GBP000    GBP000     GBP000     GBP000            GBP000     GBP000     GBP000     GBP000            GBP000     GBP000 
---------------   --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 31 December 
  2018                 876    46,667    31,592      (792)   (12,954)          (22,464)      4,593     29,068     76,586             7,207     83,793 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Restated                -         -   (1,442)          -    (2,128)               252          -    (1,827)    (5,145)           (5,744)   (10,889) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 31 December 
  2018 after 
  restatement          876    46,667    30,150      (792)   (15,082)          (22,212)      4,593     27,241     71,444             1,463     72,904 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Adjustment on 
  initial 
  application 
  of IFRS 16             -         -         -          -          -                 -          -    (6,030)    (6,030)             (531)    (6,561) 
 Adjusted 
  balance 
  at 1 January 
  2019                 876    46,667    30,150      (792)   (15,082)          (22,212)      4,593     21,211     65,411               932     66,343 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Acquisitions            -         -         -          -          -                 -          -          -          -                 -          - 
 Acquisitions 
  of minority 
  interest               -         -         -          -    (6,288)                 -          -          -    (6,288)                 -    (6,288) 
 Exercise of 
  Minority 
  Interest 
  put options           30         -     1,442        232      2,128             (252)          -          -      3,580             5,744      9,324 
 Exercise of 
  Share-based 
  payment 
  schemes                -         -         -          -          -                 -          -    (3,162)    (3,162)                -`    (3,162) 
 Exchange rate 
  movements              -         -         -          -          2                 1          -          -          3                 5          8 
 Deferred                -         -         -          -          -                 -          -          -          -                 -          - 
 consideration 
 Issue of shares 
  to minorities          -         -         -          -          -                 -          -          -          -              (66)       (66) 
 Share option 
  charge                 -         -         -          -          -                 -          -      2,795      2,795                 -      2,795 
 Dividends               -         -         -          -          -                 -          -          -          -           (1,789)    (1,789) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Total 
  transactions 
  with owners           30         -     1,442        232    (4,158)             (251)          -      (367)    (3,072)             3,894        822 
 Total 
  comprehensive 
  income for the 
  period                 -         -         -          -          -                 -      (841)    (5,727)    (6,568)             1,018    (5,550) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 30 June 
  2019#                906    46,667    31,592      (560)   (19,240)          (22,463)      3,752     15,117     55,771             5,844     61,615 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 

(#) restated (note 6)

Unaudited Consolidated statement of changes in equity (continued)

 
                                                              MI put   Non-controlling    Foreign                         Non-controlling 
                     Share     Share    Merger   Treasury     option          interest   exchange   Retained                     interest 
                   capital   premium   reserve    reserve    reserve          acquired   reserves   earnings   Subtotal         in equity      Total 
                    GBP000    GBP000    GBP000     GBP000     GBP000            GBP000     GBP000     GBP000     GBP000            GBP000     GBP000 
---------------   --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 31 December 
  2018                 876    46,667    31,592      (792)   (12,954)          (22,464)      4,593     34,195     81,713             7,207     88,920 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Restatement             -         -   (1,442)          -    (2,128)               252          -    (7,620)   (10,938)           (6,275)   (17,213) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 31 December 
  2018 restated        876    46,667    30,150      (792)   (15,082)          (22,212)      4,593     26,575     70,775               932     71,707 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Adjustment on 
  initial 
  application 
  of IFRS 16             -         -         -          -          -                 -          -    (5,364)    (5,364)                 -    (5,364) 
 Adjusted 
  balance 
  at 1 January 
  2019                 876    46,667    30,150      (792)   (15,082)          (22,212)      4,593     21,211     65,411               932     66,343 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Acquisitions 
  of minority 
  interest               -         -         -          -          -              (44)          -      (102)      (146)                 -      (146) 
 Exercise of 
  Minority 
  Interest put 
  options               26     2,873     3,766          -     10,114          (10,114)          -          0      6,665                 -      6,665 
 Exercise of 
  Share-based 
  payment 
  schemes               34         -         -        242          -                 -          -    (5,779)    (5,503)                 -    (5,503) 
 Exchange rate 
  movements              -         -         -          -         15               160          -          -        175               (5)        170 
 Issue of shares 
  to minorities          -         -         -          -          -                 -          -          -          -               309        309 
 Tax credit on 
  fully charged 
  options                -         -         -          -          -                 -          -        208        208                 -        208 
 Impairment              -         -     (516)          -          -                 -          -        516          -                 -          - 
 Share option 
  charge                 -         -         -          -          -                 -          -     10,266     10,266                 -     10,266 
 Dividends               -         -         -          -          -                 -          -    (9,813)    (9,813)             (838)   (10,651) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 Total 
  transactions 
  with owners           60     2,873     3,250        242     10,129           (9,998)          -    (4,704)      1,852             (534)      1,318 
 Total 
  comprehensive 
  loss for the 
  year                   -         -         -          -          -                 -    (3,441)   (11,796)   (15,237)              (33)   (15,270) 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 At 31 December 
  2019                 936    49,540    33,400      (550)    (4,953)          (32,210)      1,152      4,711     52,026               365     52,391 
----------------  --------  --------  --------  ---------  ---------  ----------------  ---------  ---------  ---------  ----------------  --------- 
 

Unaudited Consolidated cash flow statement

 
 
                                                      Six months    Six months     Year ended 
                                                        ended 30      ended 30    31 December 
                                                       June 2020    June 2019#           2019 
                                                          GBP000        GBP000         GBP000 
--------------------------------------------------   -----------  ------------  ------------- 
 Operating profit                                        (1,559)         (122)       (10,953) 
---------------------------------------------------  -----------  ------------  ------------- 
 Adjustments for: 
 Depreciation of plant and equipment                       1,425         6,354          3,390 
 Depreciation of right-of-use assets                       4,600             -          9,059 
 Loss on sale of plant and equipment                          37            11             99 
 Loss on sale of software intangibles                         39            49            266 
 Decrease / (Increase) in financial assets 
  at FVTPL                                                     -         (371)            346 
 Impairment and amortisation of acquired 
  intangible assets                                          846         1,350          2,471 
 Impairment of goodwill and other intangibles                  -             -          5,874 
 Amortisation of capitalised software intangible 
  assets                                                     258           168            394 
 Equity settled share-based payment expenses               2,913         2,012         10,266 
---------------------------------------------------  -----------  ------------  ------------- 
 Operating cash before movements in working 
  capital                                                  8,559         9,451         21,210 
---------------------------------------------------  -----------  ------------  ------------- 
 Decrease / (Increase) in trade and other 
  receivables                                              9,038         7,431         38,669 
 Increase / (Decrease) in trade and other 
  payables                                               (7,479)      (10,756)       (18,514) 
 Cash generated from operations                           10,118         6,126         41,365 
 Tax paid                                                  1,636       (4,017)        (7,767) 
---------------------------------------------------  -----------  ------------  ------------- 
 Net cash from operating activities                       11,754         2,109         33,598 
---------------------------------------------------  -----------  ------------  ------------- 
 Investing activities 
 Acquisitions of subsidiaries equity net 
  of cash acquired                                             -       (2,978)        (9,509) 
 Net proceeds from sale of associates                          -        23,284         23,264 
 Acquisitions of unlisted investments                      (670)         (714)          (964) 
 Proceeds from sale of plant and equipment                    32            32             30 
 Purchase of plant and equipment                         (1,034)       (1,302)        (4,091) 
 Purchase of capitalised software                          (122)          (23)        (1,710) 
 Dividends received from associates                         (18)          (49)          2,928 
 Interest received                                           215           194            632 
---------------------------------------------------  -----------  ------------  ------------- 
 Net cash consumed investing activities                  (1,597)        18,444         10,580 
---------------------------------------------------  -----------  ------------  ------------- 
 Net cash from operating and investing activities         10,157        20,553         44,178 
---------------------------------------------------  -----------  ------------  ------------- 
 
 
                                                      Six months    Six months     Year ended 
                                                        ended 30      ended 30    31 December 
                                                       June 2020    June 2019#           2019 
                                                          GBP000        GBP000         GBP000 
--------------------------------------------------   -----------  ------------  ------------- 
 Net cash from operating and investing activities         10,157        20,553         44,178 
---------------------------------------------------  -----------  ------------  ------------- 
 Financing activities 
 Dividends paid to equity holders of the Company               -             -        (9,813) 
 Dividends paid to non-controlling interest                    -       (1,789)          (838) 
 Proceeds from issue of shares to non-controlling 
  interests                                                    -         (110)              9 
 Payment of lease liabilities                            (3,445)       (5,051)       (10,638) 
 Proceeds / (Repayment) of invoice discounting                 -       (2,001)        (2,001) 
 Proceeds from bank loans                                  3,265           734         16,630 
 Repayment of bank loans                                   (490)      (15,734)       (18,818) 
 Interest paid                                             (710)         (577)        (1,577) 
 Interest paid on leases                                 (1,453)         (897)        (1,837) 
---------------------------------------------------  -----------  ------------  ------------- 
 Net cash consumed by financing activities               (2,833)      (25,425)       (28,883) 
---------------------------------------------------  -----------  ------------  ------------- 
 Net (decrease)/increase in cash and cash 
  equivalents                                              7,324       (4,872)         15,295 
---------------------------------------------------  -----------  ------------  ------------- 
 Effect of exchange rate fluctuations on cash 
  held                                                     1,021          (84)          (857) 
 Cash and cash equivalents at the beginning 
  of the year                                             52,749        38,311         38,311 
---------------------------------------------------  -----------  ------------  ------------- 
 Total cash and cash equivalents at the end 
  of period                                               61,094        33,356         52,749 
---------------------------------------------------  -----------  ------------  ------------- 
 
 Cash and cash equivalents                                76,214        50,438         67,221 
 Bank Overdrafts                                        (15,120)      (17,082)       (14,472) 
---------------------------------------------------  -----------  ------------  ------------- 
 Total cash and cash equivalents at the end 
  of period                                               61,094        33,356         52,749 
---------------------------------------------------  -----------  ------------  ------------- 
 
 Bank loans and borrowings                              (38,710)      (23,845)       (36,179) 
---------------------------------------------------  -----------  ------------  ------------- 
 Net cash                                                 22,384         9,511         16,570 
---------------------------------------------------  -----------  ------------  ------------- 
 

(#) restated (note 6)

Notes to the unaudited consolidated interim financial statements

1. General information

The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is 36 Golden Square, London W1F 9EE.

The Company has its primary listing on the AIM market of the London Stock Exchange.

This consolidated half-yearly financial information was approved for issue on 27 October 2020.

These results do not constitute the Group's statutory accounts. The information presented in relation to 31 December 2019 is extracted from the preliminary unaudited non-statutory financial statements for the year then ended.

2. Basis of preparation

This consolidated half-yearly financial information for the six months ended 30 June 2020 has been prepared in accordance with the AIM Rules for companies.

3. Use of judgements and estimates

In the course of preparing the interim unaudited consolidated half-yearly financial information, management necessarily makes judgements and estimates that can have a significant impact on the interim financial statements. These estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Significant accounting estimates and judgements

Management has considered the following judgements, which have the most significant effect in terms of the amounts recognised, and their presentation, in the consolidated financial statements.

a. Minority interest put option accounting - IFRS 2 or IFRS 9 accounting for Minority Interest (MI) put options is a critical accounting policy. Ascertaining whether such put options should be accounted for under IFRS 9 (which results in the recognition of liabilities) or whether the awards fall within the scope of IFRS 2 (which does not result in liabilities) is a key management judgement. We have revised our judgements in 2019 compared to prior years and per note 6 we have restated our historic accounts in accordance with the new judgement.

b. 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. All recoverable amounts are from future trading and not from the sale of unrecognised assets or other intangibles (i.e. their value in use).

c. Revenue recognition judgements. The Group recognises four categories of critical judgements in terms of revenue which relate to (i) agent versus principal considerations; (ii) range of contractual terms agreed with customers; (iii) the impact on the number of performance obligations in a contract which has integrated services; and (iv) media volume income recognition as revenue from contracts with customers.

d. Financial assets at fair value through profit and loss - 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.

Notes to the unaudited consolidated interim financial statements (continued)

Significant accounting estimates that will be considered only in the year-end financial statements are:

   -      Fair value assessment of assets at FVTPL 
   -      Minority interest put option accounting in line with IFRS 2 and IFRS 9 
   -      Full impairment review of Goodwill, ROU and other assets in line with IFRS 16 

Please see note 5 for further explanation.

4. Change in presentation of the unaudited consolidated income statement

The income statement presented in the 2019 preliminary unaudited non-statutory financial statements has been amended to more appropriately reflect the manner in which the business operates. This revised format has been applied to both the 2020 interim financial statements result and the comparatives for 2019. This new format does not change the Group's result for either the current or prior year when compared to the previous form of presentation.

5. Covid-19

The economic downturn caused by the Covid-19 pandemic has affected the revenue of most Group companies in 2020. However, the Group's business continuation plans have worked well, enabling us to continue to service clients, win new clients and new business and generate a headline profit before tax in the first half of 2020. The Group has cut costs to mitigate the revenue decline caused by the pandemic. However, the effects of the Covid-19 pandemic on the Group's associates and cash generating units (CGUs) may result in the carrying values of Investments and goodwill potentially being different at 2020 year-end than at 2019. If the economic effects of the pandemic continue into the long term, many of our CGUs which carry goodwill (in particular Bohemia Group Pty Ltd, M&C Saatchi Sport & Entertainment Ltd and Talk PR Ltd), or Investments (in particular M&C Saatchi (Hong Kong) Limited and That) may be at risk of impairment.

Due to the disruption of working practices caused by the Covid-19 pandemic, and exacerbated by delays arising from the completion of the 2019 audit, the Group has been unable to make a full assessment of the impact of the pandemic on the potential impairment of certain non-current asset classes held by the Group. The most significant of these classes relate to goodwill and leased assets (arising since the application of IFRS 16). Whilst preliminary assessments indicate no impairment of these asset classes as of 30 June 2020, the Directors highlight that it has been impracticable for such reviews to be conducted to the level which they would normally have been done. The Directors also note that in evaluating and adjusting the impact of the historic accounting misstatements, management has very recently conducted a rigorous and robust assessment of the carrying value of historic acquisitions which gave rise to goodwill, such that exposure to sudden impairments is reduced. We will perform a full reassessment at the 2020 year end.

6. Prior year restatements

Based on all the available evidence and accounting records, the Group restated its 2018 income statement, opening balance sheet and closing balance sheet to reflect the accounting misstatements reported in August 2019. The 2019 half year accounts published last year had not been adjusted for these items. These prior year restatements have now been assessed and the accounts for the six months ended 30 June 2019 restated to reflect these adjustments. These restatements are within those disclosed in the 2019 preliminary unaudited non-statutory financial statements. It is important to note that the combination of relatively poor accounting records, coupled with the departure of senior finance personnel has made this restatement exercise difficult and time consuming, and has, therefore, involves an element of judgement by management.

The adjustments that have now been made to the 2019 half year accounts comprise only those items that can be clearly and specifically identified as belonging to in the first half of the year. In identifying the prior year restatements, the aim and priority was to ensure the closing year-end balance sheet reflected all prior year adjustments. A similarly comprehensive exercise was not carried out on the half year balance sheet,

The half year restatements are analysed below.

6(a) Impact of misstatements on consolidated income statement as at 30 June 2019

 
                                         Six months   Restatement       Six months 
                                      ended 30 June       impacts    ended 30 June 
                                               2019                           2019 
                                      As previously                    As restated 
                                           reported 
                                             GBP000        GBP000           GBP000 
--------------------------------    ---------------  ------------  --------------- 
 Billings                                   280,667             -          280,667 
----------------------------------  ---------------  ------------  --------------- 
 Revenue                                    214,221           415          214,636 
----------------------------------  ---------------  ------------  --------------- 
 Project cost / direct cost                (96,305)             -         (96,305) 
----------------------------------  ---------------  ------------  --------------- 
 Net revenue                                117,916           415          118,331 
----------------------------------  ---------------  ------------  --------------- 
 Staff costs                               (90,959)       (1,801)         (92,760) 
 Depreciation                               (6,609)           255          (6,354) 
 Amortisation                               (1,519)             -          (1,519) 
 Impairment charges                               -             -                - 
 Other operating charges                   (18,860)           669         (18,191) 
 Other gains                                    371             -              371 
----------------------------------  ---------------  ------------  --------------- 
 Operating profit                               341         (462)            (122) 
----------------------------------  ---------------  ------------  --------------- 
 Share of results of associates 
  and joint ventures                          (115)             -            (115) 
 Gain on disposal of associate               11,617             -           11,617 
 Finance income                                 200             -              200 
 Finance costs                              (2,693)           783          (1,910) 
----------------------------------  ---------------  ------------  --------------- 
 Profit before taxation                       9,350           321            9,670 
----------------------------------  ---------------  ------------  --------------- 
 Taxation                                     (354)          (12)            (366) 
----------------------------------  ---------------  ------------  --------------- 
 Profit for the period                        8,996           309            9,304 
----------------------------------  ---------------  ------------  --------------- 
 

6(b) Impact of misstatements on consolidated balance sheet as at 30 June 2019

 
 
                                                     Six months   Restatement     Six months 
                                                       ended 30       impacts       ended 30 
                                                      June 2019                    June 2019 
                                                  As previously                  As restated 
                                                       reported 
                                                         GBP000        GBP000         GBP000 
---------------------------------------    --------------------  ------------  ------------- 
 Non-current assets 
 Intangible assets                                       47,867         (774)         47,093 
 Investments in associates and 
  JV                                                      7,940             -          7,940 
 Plant and equipment                                     12,470       (4,313)          8,157 
 Right-of-use assets                                     30,614       (1,255)         29,359 
 Other non-current assets                                 6,749             -          6,749 
 Deferred tax assets                                      7,830         (323)          7,507 
 Financial assets at fair value 
  through profit or loss                                 13,469             -         13,469 
                                                ---------------  ------------  ------------- 
                                                        126,939       (6,664)        120,275 
  ----                                          ---------------  ------------  ------------- 
 Current assets 
 Trade and other receivables                            132,892       (9,002)        123,890 
 Cash and cash equivalents                               50,438             -         50,438 
                                                ---------------  ------------  ------------- 
                                                        183,330       (9,002)        174,328 
  ----                                          ---------------  ------------  ------------- 
 Current liabilities 
 Trade and other payables                             (132,888)         (642)      (133,530) 
 Borrowings                                            (17,636)           158       (17,478) 
 Minority shareholder put option 
  liabilities                                          (22,120)       (1,215)       (23,335) 
----------------------------------------------  ---------------  ------------  ------------- 
                                                      (172,644)       (1,699)      (174,343) 
  ----                                          ---------------  ------------  ------------- 
 Net current assets                                      10,686      (10,701)           (15) 
----------------------------------------------  ---------------  ------------  ------------- 
 Total assets less current liabilities                  137,625      (17,365)        120,259 
----------------------------------------------  ---------------  ------------  ------------- 
 Non-current liabilities 
 Borrowings                                            (23,291)             -       (23,291) 
 Lease liabilities                                     (30,271)         2,446       (27,825) 
 Other non-current liabilities                          (7,528)             -        (7,528) 
----------------------------------------------  ---------------  ------------  ------------- 
                                                       (61,090)         2,446       (58,644) 
  ----                                          ---------------  ------------  ------------- 
 Total net assets                                        76,535      (14,919)         61,615 
----------------------------------------------  ---------------  ------------  ------------- 
 
 Total adjustment to equity 
 Other reserves                                          40,654             -         40,654 
 Retained earnings                                       30,568      (15,451)         15,117 
----------------------------------------------  ---------------  ------------  ------------- 
 Equity attributable to shareholders 
  of the Group                                           71,222      (15,451)         55,771 
----------------------------------------------  ---------------  ------------  ------------- 
 Non-controlling interest                                 5,313           531          5,844 
----------------------------------------------  ---------------  ------------  ------------- 
 Total equity                                            76,535      (14,920)         61,615 
----------------------------------------------  ---------------  ------------  ------------- 
 
 

Notes to the unaudited consolidated interim financial statements (continued)

7. Headline results and earnings per share - 30 June 2020

 
 
                                                                                                                      Capital 
                                                                                                                         gain 
                                                                                              FVTPL                       tax 
                                                                                        investments                        on 
                                              Amortisation    Impairment     Disposal         under     Revaluation     issue    Acquisition 
                     Reported   Exceptional    of acquired   of acquired           of          IFRS   of contingent    of put        related   Put option   Headline 
                      results         items    intangibles   intangibles   associates             9   consideration   options   remuneration   accounting    results 
 Period ended 30                     GBP000 
  June 2020            GBP000                       GBP000        GBP000       GBP000        GBP000          GBP000    GBP000         GBP000       GBP000     GBP000 
-----------------   ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Net revenue          103,402             -              -             -            -             -               -         -              -            -    103,402 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Staff costs         (80,003)         1,205              -             -            -             -               -         -            514        2,913   (75,371) 
 Depreciation - 
  non lease           (1,425)             -              -             -            -             -               -         -              -            -    (1,425) 
 Depreciation - 
  lease               (4,600)             -              -             -            -             -               -         -              -            -    (4,600) 
 Amortisation         (1,107)             -            849             -            -             -               -         -              -            -      (258) 
 Impairments                -             -              -             -            -             -               -         -              -            -          - 
 Other operating 
  charges            (17,826)           320              -             -            -             -               -         -              -            -   (17,506) 
 Other losses /             -             -              -             -            -             -               -         -              -            -          - 
  (gains) 
-----------------   ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Operating profit     (1,559)         1,525            849             -            -             -               -         -            514        2,913      4,242 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Share of results 
  of associates 
  and 
  JV                    (260)             -              -             -            -             -               -         -              -            -      (260) 
 Finance income 
  - non lease             125             -              -             -            -             -               -         -              -            -        125 
 Finance income 
  - lease                  91             -              -             -            -             -               -         -              -            -         91 
 Finance expense 
  - non lease         (2,519)             -              -             -            -             -               -         -              -        1,792      (727) 
 Finance expense 
  - lease             (1,453)             -              -             -            -             -               -         -              -            -    (1,453) 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  ----------- 
 (Loss) / profit 
  before taxation     (5,575)         1,525            849             -            -             -               -         -            514        2,913      2,018 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Taxation               (139)         (400)          (205)             -            -             -               -         -              -            -      (744) 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 (Loss) / profit 
  for the year        (5,714)         1,125            644             -            -             -               -         -            514        4,705      1,275 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Non-controlling 
  interests              (22)             -           (22)             -            -             -               -         -          (617)            -      (617) 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 (Loss) / profit 
  attributable to 
  equity holders 
  of the Group        (5,692)         1,125            622             -            -             -               -         -          (103)        4,705        658 
------------------  ---------  ------------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 

The Directors believe that the headline results and headline earnings per share provide additional useful information on the underlying performance. The headline result is used for internal performance management, calculating the value of subsidiary convertible shares and minority interest put options. The term headline is not a defined term in IFRS.

The items that are excluded from headline results are the amortisation or impairment of intangible assets (including goodwill and acquired intangibles, but excluding software) acquired in business combinations, changes to deferred and contingent consideration and other acquisition related charges taken to the income statement; impairment of investment in associates; profit or loss on disposal of associates; revaluation of investments and their related costs; and the income statement impact of put option accounting and share based payment charges.

7. Headline results and earnings per share (continued) - 30 June 2020

Policy

Basic and diluted (loss) / earnings per share are calculated by dividing appropriate earnings metrics of the Group by the weighted average number of shares in issue during the year.

Diluted (loss) / earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. 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.

 
 
                                                  Reported   Headline 
                                                      2020       2020 
 Period ended 30 June                               GBP000     GBP000 
  2020 
----------------------------------------         ---------  --------- 
 (Loss) / profit attributable to equity 
  shareholders of the Group                        (5,713)        658 
--------------------------------------------     ---------  --------- 
 Basic earnings per 
  share 
----------------------------------------         ---------  --------- 
 Weighted average number of 
  shares (thousands)                               102,024    102,024 
------------------------------------------       ---------  --------- 
 Basic EPS                                         (5.58)p      0.64p 
-----------------------------------------------  ---------  --------- 
 Diluted earnings per 
  share 
----------------------------------------         ---------  --------- 
 Weighted average number of shares 
  (thousands) as above                             102,024    102,024 
 Add 
 - Conditional shares                                    -      5,654 
 - Dilutive put options                                  -        926 
 - Contingent consideration                              -        282 
 Total                                             102,024    108,886 
-----------------------------------------------  ---------  --------- 
 Diluted (loss) / earnings 
  per share                                        (5.58)p      0.60p 
-----------------------------------------------  ---------  --------- 
 

Notes to the unaudited consolidated interim financial statements (continued)

7. Headline results and earnings per share (continued) - 30 June 2019#

 
 
                                                                                                        Capital 
                                                                                                           gain 
                                                                                                            tax 
                                                                                FVTPL                        on 
                                                                          investments                     issue 
                                Amortisation    Impairment     Disposal         under     Revaluation        of    Acquisition 
                     Reported    of acquired   of acquired           of          IFRS   of contingent       put        related   Put option   Headline 
                     results#    intangibles   intangibles   associates             9   consideration   options   remuneration   accounting   results# 
 Period ended 30 
 June 
 2019#                 GBP000         GBP000        GBP000       GBP000        GBP000          GBP000    GBP000         GBP000       GBP000     GBP000 
-----------------   ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Net revenue          118,331              -             -            -             -               -         -              -            -    118,331 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Staff costs         (92,760)              -             -            -             -               -         -          1,375        4,010   (87,375) 
 Depreciation - 
  non 
  lease               (1,664)              -             -            -             -               -         -              -            -    (1,664) 
 Depreciation - 
  lease               (4,690)              -             -            -             -               -         -              -            -    (4,690) 
 Amortisation         (1,519)          1,350             -            -             -               -         -              -            -      (169) 
 Impairments                -              -             -            -             -               -         -              -            -          - 
 Other operating 
  charges            (18,191)              -             -            -            98               -         -              -            -   (18,093) 
 Other losses / 
  (gains)                 371              -             -            -         (371)               -         -              -            -          - 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Operating profit       (122)          1,350             -            -         (273)               -         -          1,375        4,010      6,340 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Share of results 
  of associates 
  and 
  JV*                  11,502              -             -     (11,617)             -               -         -              -            -      (115) 
 Finance income - 
  non lease               200              -             -            -             -               -         -              -            -        200 
 Finance income -           -              -             -            -             -               -         -              -                       - 
  lease                                                                                                                                   - 
 Finance expense - 
  non lease             (897)              -             -            -             -               -         -              -            -      (897) 
 Finance expense - 
  lease               (1,013)              -             -            -             -               -         -          (783)        1,208      (588) 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  ----------- 
 Profit before 
  taxation              9,670          1,350             -     (11,617)         (273)               -         -            592        5,218      4,940 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Taxation               (366)          (343)             -        (281)            79               -         -          (393)            -    (1,304) 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Profit for the 
  period                9,304          1,007             -     (11,898)         (194)               -         -            199        5,218      3,636 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Non-controlling 
  interests             (487)          (194)             -            -             -               -                    (708)            -    (1,389) 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 Profit 
  attributable 
  to equity 
  holders 
  of the Group          8,817            813             -     (11,898)         (194)               -         -          (509)        5,218      2,247 
------------------  ---------  -------------  ------------  -----------  ------------  --------------  --------  -------------  -----------  --------- 
 

(#) restated (note 6)

 
 
                                                      Reported   Headline 
 
 
                                                         2019#      2019# 
 Period ended 30 June                                   GBP000     GBP000 
  2019 
--------------------------------------------         ---------  --------- 
 Profit attributable to equity shareholders 
  of the Group                                           8,817      2,247 
------------------------------------------------     ---------  --------- 
 Basic earnings per 
  share 
--------------------------------------------         ---------  --------- 
 Weighted average number of 
  shares (thousands)                                    88,707     88,707 
----------------------------------------------       ---------  --------- 
 Basic EPS                                               9.94p      2.53p 
---------------------------------------------------  ---------  --------- 
 Diluted earnings per 
  share 
--------------------------------------------         ---------  --------- 
 Weighted average number of shares 
  (thousands) as above                                  88,707     88,707 
 Add 
 - Conditional shares                                    2,240      2,240 
 - Dilutive put options                                  1,933      1,933 
 - Contingent consideration                                309        309 
 Total                                                  93,189     93,189 
---------------------------------------------------  ---------  --------- 
 Diluted earnings per 
  share                                                  9.46p      2.41p 
---------------------------------------------------  ---------  --------- 
 

(#) restated (note 6)

Notes to the unaudited consolidated interim financial statements (continued)

7. Headline results and earnings per share (continued) - 31 December 2019

 
                                                                                   Gain 
                                                                Impairment           on         FVTPL 
                       Reported                 Amortisation            of     disposal   investments     Revaluation    Acquisition 
                        results   Exceptional    of acquired   non-current           of         under   of contingent        related   Put option    Headline 
                           2019         items    intangibles        assets   associates        IFRS 9   consideration   remuneration   accounting     results 
 Year ended 31 
 December 
 2019                    GBP000        GBP000         GBP000        GBP000       GBP000        GBP000          GBP000         GBP000       GBP000      GBP000 
 Net revenue            256,435             -              -             -            -             -               -              -            -     256,435 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 Staff costs          (193,994)         4,211              -             -            -             -               -          5,841       10,608   (173,334) 
 Depreciation - non 
  lease                 (3,390)             -              -             -            -             -               -              -            -     (3,390) 
 Depreciation - 
  lease                 (9,059)             -              -             -            -             -               -              -            -     (9,059) 
 Amortisation           (2,865)             -          2,471             -            -             -               -              -            -       (394) 
 Impairments            (5,874)             -              -         5,874            -             -               -              -            -           - 
 Other operating 
  charges              (52,110)         1,955              -             -            -            91             127              -            -    (49,937) 
 Other losses / 
  (gains)                  (96)             -              -             -            -           347               -              -            -         251 
 
 Operating (loss) / 
  profit               (10,953)         6,166          2,471         5,874            -           438             127          5,841       10,608      20,572 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 Share of results 
  of 
  associates and JV       8,000             -              -         5,210     (12,980)             -               -              -            -         230 
 Finance income - 
  non 
  lease                     522             -              -             -            -             -               -              -            -         522 
 Finance income - 
  lease                      91             -              -             -            -             -               -              -            -          91 
 Finance expense - 
  non lease             (4,396)             -              -             -            -           279               -              -        2,821     (1,296) 
 Finance expense - 
  lease                 (1,837)             -              -             -            -             -               -              -            -     (1,837) 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  ----------- 
 (Loss) / profit 
  before 
  taxation              (8,573)         6,166          2,471        11,084     (12,980)           717             127          5,841       13,429      18,282 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 Taxation               (3,256)       (1,012)          (620)             -        (281)         (139)               -              -            6     (5,302) 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 (Loss) / profit 
  for 
  the year             (11,829)         5,154          1,851        11,084     (13,261)           578             127          5,841       13,435      12,980 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 Non-controlling 
  interests                  33             -          (247)             -            -             -               -        (4,693)            -     (4,907) 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 (Loss) / profit 
  attributable 
  to equity holders 
  of the Group         (11,796)         5,154          1,604        11,084     (13,261)           578             127          1,148       13,435       8,073 
-------------------  ----------  ------------  -------------  ------------  -----------  ------------  --------------  -------------  -----------  ---------- 
 

7. Headline results and earnings per share (continued) - 31 December 2019

 
 
                                                  Reported   Headline 
 
 
                                                      2019       2019 
 Year ended 31 December                             GBP000     GBP000 
  2019 
----------------------------------------         ---------  --------- 
 (Loss) / profit attributable to equity 
  shareholders of the Group                       (11,796)      8,073 
--------------------------------------------     ---------  --------- 
 Basic earnings per 
  share 
----------------------------------------         ---------  --------- 
 Weighted average number of 
  shares (thousands)                                90,253     90,253 
------------------------------------------       ---------  --------- 
 Basic EPS                                        (13.07)p      8.95p 
-----------------------------------------------  ---------  --------- 
 Diluted earnings per 
  share 
----------------------------------------         ---------  --------- 
 Weighted average number of shares 
  (thousands) as above                              90,253     90,253 
 Add 
 - Conditional shares                                    -      5,686 
 - Dilutive put options                                  -      2,316 
 - Contingent consideration                              -        281 
 Total                                              90,253     98,536 
-----------------------------------------------  ---------  --------- 
 Diluted (loss) / earnings 
  per share                                       (13.07)p      8.20p 
-----------------------------------------------  ---------  --------- 
 

Notes to the unaudited consolidated interim financial statements (continued)

8. Exceptional items

Management has identified a number of transactions which have arisen directly as a result of the accounting misstatements first reported in 2019. These are considered to be outside of the Group's normal underlying trading activities. These items have been separately disclosed as exceptional items in the disclosure of non-GAAP performance measures in these financial statements.

Exceptional items for the period ended 30 June 2020 comprise the following:

 
                           Operating                Staff cost                Taxation                    Total 
                             costs 
---------------  ----------------------------  --------------------  -------------------------  ------------------------- 
 Strategic 
  review and 
  restructuring                             -                 1,205                     (316)                         889 
 Legal and 
  other fees                              320                     -                       (84)                        236 
 Total 
  exceptional 
  items                                   320                 1,205                     (400)                      1,125 
---------------  ----------------------------  --------------------  -------------------------  ------------------------- 
 

Restructuring costs

The Group is undertaking a global restructuring programme approved by the Directors of the Company. These initiatives were brought about through a strategic review following the accounting misstatements identified in 2019. The restructuring costs comprise staff redundancy and termination costs across a number of markets, including the closure costs of the LA agency, and other costs in Australia, the UK and New York.

Legal and other fees

The Group incurred an additional GBP320k of costs, including legal and other advisory costs and recruitment fees that can be attributed to the issues brought about by the accounting misstatements.

No exceptional costs were included within the results for the period ended 30 June 2019.

9. Segmental information - 30 June 2020

The segmental information is reconciled to the statutory results in Note 7.

 
                                                           Middle 
                                                         East and       Asia and                            Head 
                                UK         Europe          Africa      Australia       Americas           office      Total 
 Period ended 30            GBP000         GBP000          GBP000         GBP000         GBP000           GBP000     GBP000 
 June 2020 
-----------------    -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Billings*                 105,982         25,094          15,066         56,953         26,799                -    229,894 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Revenue*                   54,404         21,171          14,486         33,222         26,040                -    149,322 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Net revenue                36,812         12,941           7,732         26,404         19,514                -    103,402 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Staff costs              (24,189)       (10,198)         (5,868)       (20,036)       (13,047)          (2,033)   (75,371) 
 Depreciation - non 
  lease                      (571)          (177)           (149)          (366)          (162)                -    (1,425) 
 Depreciation - 
  lease                    (1,604)          (557)           (263)        (1,304)          (872)                -    (4,600) 
 Amortisation                (143)            (0)            (25)           (90)              -                -      (258) 
 Other operating 
  charges                  (6,934)        (1,682)         (1,265)        (3,649)        (3,289)            (687)   (17,506) 
 Other                           -              -               -              -              -                -          - 
 gains/losses 
-----------------    -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Operating profit / 
  (loss)                     3,371            327             162            959          2,144          (2,720)      4,242 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Share of results 
  of associates 
  and JV                         -              -               -           (66)          (194)                -      (260) 
 Financial income 
  and cost 
  (excluding 
  leases)                       40           (38)              16             71          (483)            (207)      (601) 
 Financial income 
  and cost 
  (relating 
  to leases)               (1,024)           (59)           (185)          (128)             33                -    (1,363) 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Profit / (loss) 
  before taxation            2,387            230             (7)            836          1,500          (2,927)      2,018 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Taxation                    (533)           (83)               0          (240)          (392)              504      (744) 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Profit / (loss) 
  for the year               1,854            147             (7)            596          1,108          (2,423)      1,275 
 Non-controlling 
  interests                  (233)             11            (19)          (492)            116                0      (617) 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Profit / (loss) 
  attributable 
  to equity 
  shareholders of 
  the 
  Group                      1,621            158            (26)            104          1,224          (2,423)        658 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 Headline basic EPS                                                                                                   0.64p 
-------------------  -------------  -------------  --------------  -------------  -------------  ---------------  --------- 
 

* These items were not regularly reviewed by the chief operating decision maker in the year.

Notes to the unaudited consolidated interim financial statements (continued)

9. Segmental information (continued) - 30 June 2019(#)

 
 
                                                           Middle 
                                                         East and     Asia and                 Head 
                                        UK     Europe      Africa    Australia   Americas    office      Total 
 Period ended 30                    GBP000     GBP000      GBP000       GBP000     GBP000    GBP000     GBP000 
 June 2019 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Billings*                         100,320     22,600      19,508       79,348     58,891         -    280,667 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Revenue*                           80,125     22,005      18,152       45,371     48,984         -    214,636 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Net revenue                        43,999     14,229       7,236       32,195     20,673         -    118,332 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Staff costs                      (31,396)   (11,116)     (5,363)     (23,082)   (14,452)   (1,966)   (87,375) 
 Depreciation - non 
  lease                              (946)      (165)       (169)        (402)      (238)         -    (1,919) 
 Depreciation - 
  lease                            (1,282)      (553)       (289)      (1,509)      (802)         -    (4,435) 
 Amortisation                         (84)       (11)        (26)         (46)          -         -      (169) 
 Other operating 
  charges                          (5,416)    (1,972)     (1,299)      (4,886)    (3,854)     (666)   (18,094) 
 Other gains/losses                      -          -           -            -          -         -          - 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Operating profit / 
  (loss)                             4,875        411          89        2,269      1,328   (2,632)      6,340 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Share of results 
  of associates 
  and JV                                 -        (3)           -         (87)       (25)         -      (115) 
 Financial income 
  and cost 
  (excluding 
  leases)                               55        (9)           8          102      (290)                (134) 
 Financial income 
  and cost 
  (relating 
  to leases)                         (524)       (71)       (229)        (209)      (118)              (1,151) 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Profit / (loss) 
  before taxation                    4,406        328       (131)        2,075        895   (2,632)      4,940 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Taxation                            (452)      (105)          36        (568)      (215)              (1,304) 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Profit / (loss) 
  for the year                       3,954        223        (95)        1,507        680   (2,632)      3,636 
 Non-controlling 
  interests                        (1,448)        285          94        (368)         48         -    (1,389) 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Profit / (loss) 
  attributable 
  to equity 
  shareholders of 
  the 
  Group                              2,506        508         (1)        1,139        728   (2,632)      2,247 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 Headline basic EPS                                                                                      2.53p 
-------------------   -----  -------------  ---------  ----------  -----------  ---------  --------  --------- 
 
 
 

(#) restated (note 6)

* These items were not regularly reviewed by the chief operating decision maker in the year.

9. Segmental information (continued) - 31 December 2019

 
                                                              Middle 
                                                            East and     Asia and                 Head 
                                           UK     Europe      Africa    Australia   Americas    office       Total 
 Year ended 31 December 2019           GBP000     GBP000      GBP000       GBP000     GBP000    GBP000      GBP000 
--------------------------------    ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Billings*                            267,468     52,794      38,506      147,290     64,828         -     570,886 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Revenue*                             159,766     46,004      36,286       97,990     55,959         -     396,005 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Net revenue                          103,221     30,510      16,563       64,533     41,608         -     256,435 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Staff costs                         (61,376)   (22,273)    (11,337)     (45,093)   (28,752)   (4,503)   (173,334) 
 Depreciation - non lease             (1,357)      (334)       (349)        (811)      (539)         -     (3,390) 
 Depreciation - lease                 (2,705)    (1,087)       (601)      (2,606)    (2,060)         -     (9,059) 
 Amortisation                           (201)       (22)        (52)        (119)          -         -       (394) 
 Other operating charges             (22,928)    (3,776)     (2,718)     (10,245)    (7,402)   (2,868)    (49,937) 
 Other gains/losses                         -          -           -            1        250         -         251 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Operating profit / (loss)             14,654      3,018       1,506        5,660      3,105   (7,371)      20,572 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Share of results of associates 
  and JV                                    -        (3)           -        (124)        357         -         230 
 Financial income and cost 
  (excluding 
  leases)                                (89)       (72)          17          186      (695)     (121)       (774) 
 Financial income and cost 
  (relating 
  to leases)                            (595)      (146)       (459)        (383)      (163)         -     (1,746) 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Profit / (loss) before taxation       13,970      2,797       1,064        5,339      2,604   (7,492)      18,282 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Taxation                             (2,576)    (1,135)       (219)      (1,655)    (1,099)     1,382     (5,302) 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Profit / (loss) for the year          11,394      1,662         845        3,684      1,505   (6,110)      12,980 
 Non-controlling interests            (2,821)      (259)       (338)      (1,284)      (205)         -     (4,907) 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Profit / (loss) attributable 
  to equity shareholders of the 
  Group                                 8,573      1,403         507        2,400      1,300   (6,110)       8,073 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 Headline basic EPS                                                                                          8.95p 
----------------------------------  ---------  ---------  ----------  -----------  ---------  --------  ---------- 
 

* These items were not regularly reviewed by the chief operating decision maker in the year.

Notes to the unaudited consolidated interim financial statements (continued)

10. Net finance income / (costs)

 
 
                                                   Six 
                                 Six months     months           Year 
                                      ended      ended          ended 
                                    30 June    30 June    31 December 
                                       2020      2019#           2019 
                                     GBP000     GBP000         GBP000 
-----------------------------   -----------  ---------  ------------- 
 Bank interest 
  receivable                             77        172            285 
 Other interest receivable              139         28            237 
 Sublease finance income                  -          -             91 
 Financial income                       216        200            613 
----------------------------    -----------  ---------  ------------- 
 Bank interest 
  payable                             (641)      (571)        (1,325) 
 Other interest 
  payable                              (86)       (17)          (250) 
 Interest on lease 
  liabilities                       (1,453)      (897)        (1,837) 
 Adjustment to minority 
  shareholder put option 
  liabilities                       (1,792)      (425)        (2,821) 
 Financial expense                    3,972    (1,910)        (6,233) 
----------------------------    -----------  ---------  ------------- 
 Net finance income 
  /(costs)                          (3,756)    (1,710)        (5,620) 
-----------------------------   -----------  ---------  ------------- 
 

11. Taxation

Income tax expenses are recognised based on management's estimate of the average annual headline income tax expected for the full financial year.

The estimated headline effective annual tax rate used for the period to 30 June 2020 is 36.9% (30 June 2019: 26.4%). The increase in tax rate is due to being unable to benefit from tax credits on loss making offices we are in the process of closing or where do not have an to be able to reclaim.

12. Dividends

 
                                Six months    Six months     Year ended 
                                  ended 30      ended 30    31 December 
                                 June 2020     June 2019           2019 
                                    GBP000        GBP000         GBP000 
 ---------------------------  ------------  ------------  ------------- 
 2019                                    -             -          7,566 
 2019 interim dividend 
 paid 2.45p on 8 November 
 2019                                    -             -          2,247 
----------------------------                              ------------- 
             -                                         -          9,813 
  ------------  ----------------------------------------  ------------- 
 

The directors do not propose an interim dividend (2019: 2.45p).

13. Share-based payments

We presented a table in the 2019 preliminary unaudited non-statutory financial statements reporting the potential dilutive effect of the Group's share option schemes. The table estimated the total number of shares issuable in each of the next five years from the Group's multiple share-based payments schemes based on different share prices that may prevail at the time the shares are issued.

We have updated that table to reflect: (i) recent discussions and negotiations with share-option holders, (ii) the conversion of those share schemes which are purely profit-based bonus schemes to cash based bonuses rather than equity paid and (iii) the latest internal (non-published) long term profit forecasts of both the Group and the individual subsidiary companies (the combination of which typically determines the value of any option payment). Based on these three assumptions, the tables below illustrate the number of shares to be issued and the dilutive impact from issuing the shares to settle the Group's put option liability. The dilution is based on the 115,430,620 shares in issue (excluding treasury shares) at 30 June 2020.

The Company has experienced a significant decline in its share price since 2019, from a peak of 394p per share in March 2019. In many of the share schemes, the consideration is calculated at a fixed multiple of the relevant subsidiary Company's profits - this is effectively a deferred consideration model used by the Company for acquisitions. The consideration is typically paid in shares of the Company, with the result that as the Company's share price has fallen a greater number of shares are needed to be issued as consideration under the schemes. This has a very significant dilutive effect. It is important to note that no transactions have been structured in this manner for several years and no transactions will be structured in this way in future.

Modelling the dilution from the share option liability

We have identified three scenarios/models using the latest budgets, long term forecasts and valuations. The updated models take into account the impact of the Covid-19 pandemic on valuations. These more conservative models have the impact of reducing the put option liability for those schemes due immediately (e.g. in 2020). Actual valuations may, of course, vary from the forecast, with the result that the number of shares to be issued and the dilutive impact may also be different to those modelled below. NB put option holders have the right to defer the exercise date indefinitely.

Table 1 - The Base model

Reflects current put option liability following renegotiation of terms with certain put option holders due to exercise in 2020 and the latest internal forecasts

 
 
 Shares total by              2020    2021     2022    2023    2024    2025    total 
  year 
                              '000    '000     '000    '000    '000    '001 
-------------------------  -------  ------  -------  ------  ------  ------ 
 At 57p                     14,935   3,725   16,769   6,562   8,881   6,625   57,497 
 At 100p                    14,935   3,358   13,331   4,349   5,639   3,987   45,599 
 At 150p                    14,935   3,046   11,855   3,409   4,355   2,832   40,432 
 At 200p                    14,935   2,897   11,158   3,013   3,835   2,324   38,162 
-------------------------  -------  ------  -------  ------  ------  ------ 
 
 Dilution of 30               2020    2021     2022    2023    2024    2025    Total 
  June 2020 shareholders 
-------------------------  -------  ------  -------  ------  ------  ------ 
 At 57p                        13%      3%      15%      6%      8%      6%      50% 
 At 100p                       13%      3%      12%      4%      5%      3%      40% 
 At 150p                       13%      3%      10%      3%      4%      2%      35% 
 At 200p                       13%      3%      10%      3%      3%      2%      33% 
-------------------------  -------  ------  -------  ------  ------  ------ 
 

Table 2 - Model 2

This builds on the Base model, but with several of the schemes due to be put in 2020 now being deferred to 2021

and assumes the conversion of certain profit-based schemes to cash paid bonuses rather than equity paid

 
 Shares total           2020     2021     2022    2023    2024    2025    total 
  by year 
-------------------- 
                        '000     '000     '000    '000    '000    '001 
--------------------  ------  -------  -------  ------  ------  ------ 
 At 57p                9,422   12,841   17,788   1,732   2,316   4,834   48,933 
 At 100p               9,422   14,035   14,108   1,651   1,931   2,980   44,127 
 At 150p               9,422   13,852   12,495   1,650   1,905   2,175   41,499 
 At 200p               9,422   13,722   11,708   1,710   2,015   1,838   40,415 
--------------------  ------  -------  -------  ------  ------  ------ 
 
 Dilution               2020     2021     2022    2023    2024    2025    Total 
  of 30 June 
  2020 shareholders 
--------------------  ------  -------  -------  ------  ------  ------ 
 At 57p                   8%      11%      15%      2%      2%      4%      42% 
 At 100p                  8%      12%      12%      1%      2%      3%      38% 
 At 150p                  8%      12%      11%      1%      2%      2%      36% 
 At 200p                  8%      12%      10%      1%      2%      2%      35% 
--------------------  ------  -------  -------  ------  ------  ------ 
 

The current 57p share price of the Company is low relative to historical share price performance levels. The Directors believe there is some correlation between the trading performance of the Group and the level of the Company's share price and therefore, whilst an improved trading performance at a subsidiary may result in the pay-out (and therefore the value of option) being greater, to the extent this is also reflected in an improved share price performance, the number of shares to be issued will reduce and with it, therefore, the dilution.

Re-negotiation of existing share-based schemes to reduce their dilutive impact

A number of share schemes which are due to pay out immediately (i.e. following the 2020 AGM) have been and are being renegotiated, with the intention of reducing the number of shares to be issued during 2020. The movement between Table 1 and 2, shows a deferral of 5.5 million shares from 2020 to 2021 (based on a 57p share price) as well as the impact of a reduced number of shares to be issued by converting those shares schemes which are purely profit-based bonus schemes to "cash bonuses" paid out of the subsidiary company profits rather than the Company shares.

We consider the deferral of the exercise of put options to later periods to be advantageous to shareholders for the following reasons:

-- We want to encourage local management to continue to be vested in the success of the subsidiary companies they manage. Their continued dividend income from equity ownership of their subsidiary companies encourages and motivates management to maximise profits and growth in their companies; and

-- Given the historically low current share price of the Company and an assumption that the Company share price may rise in the future, the current shareholders of the Company will face less dilution if the share options were exercised (and the Company shares were issued) to put option holders at higher than the current share price in the future

Based on Table 2 above, total dilution between now and the end of 2025, based on the current level of shares in issue, ranges from 35% (based on the current 57p share price remaining in place for the entire 5 year period) to 42% (assuming a constant share price of 200p for 2021 and beyond). This equates to a dilution of between 6.4% - 7.6% p.a. over the 5 year period.

By taking the actions noted above, through a combination of deferring the exercise of put options to later periods and by converting a significant proportion of share-based payments to cash payments, we can reduce dilution significantly. Furthermore, and importantly by taking this action we can provide shareholders more clarity and a greater degree of certainty on the potential dilution from issuing shares to settle the put option liability.

The Company could reduce the dilution arising from the issuance of these shares still further by buying out the put option holders in cash rather than Company shares. This would reduce the dilution risk, but would use the Company's cash reserves. This is an option to be considered for any put option liabilities which arise after 2020.

14. Events after the balance sheet date

As part of the Group's wider strategic review, it is in the process of divesting itself of businesses which it considers to be non-core and which it considers are unlikely to return to profitability in the near term. This process commenced with the closure of the Group's LA agency in May 2020 and is likely to continue for the remainder of 2020. The Group is expected to incur substantial restructuring and transformation costs, including severance costs arising from the structural review of parts of the Group's operations.

The Group is reviewing its office space requirements. It is likely that this review will result in a significant reduction in the number of offices the Group occupies around the world.

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END

IR UWRNRRKURURA

(END) Dow Jones Newswires

October 28, 2020 03:00 ET (07:00 GMT)

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