We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register to chat with like-minded investors on our interactive forums.
| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 187.00 | 184.00 | 186.50 | 183.50 | 183.50 | 183.50 | 32,001 | 16:35:10 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Advertising Agencies | 462.53M | 90k | 0.0007 | 2,621.43 | 224.34M |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
END
IR UWRNRRKURURA
(END) Dow Jones Newswires
October 28, 2020 03:00 ET (07:00 GMT)
1 Year M&c Saatchi Chart |
1 Month M&c Saatchi Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
