M&C Saatchi Regulatory News (SAA)

11 Apr 2005 07:00

M&C Saatchi PLC11 April 2005 M&C Saatchi Preliminary Results for Year Ended 31 December 2004 M&C Saatchi plc, the international advertising agency with offices in 13locations including London, New York and across the Asia Pacific Regionsannounces its preliminary results for the year ended 31st December 2004. Financial Highlights: •Revenues (Gross Profit) up 4.8% to £62.2 million (2003: £59.3 million) •Operating profit up 5.3% to £7.2 million (2003: £6.9 million) •Underlying operating margins (excluding plc and one-off float costs of £501k) improved to 12.4% •Profit before taxation up 8.5% to £8.1 million (2003: £7.5 million) •Earnings per share up 6.8% to 9.28 pence (2003: 8.69 pence) •Final dividend of 1.16 pence Operational Highlights: •Successful admission to AIM in July 2004 •Strong new business performance in the UK, with wins including Privilege Insurance (part of the Royal Bank of Scotland group), US Department of Commerce (Tourism), Krug and Halfords. •Strong growth in Asia Pacific •America returned to profit •Ongoing international expansion, with a new office established in Thailand during the year and currently in negotiations with partners of choice in France Commenting on the results, Chief Executive David Kershaw said: "This is the 10th successive year of organic revenue growth for the Group. Wehave had a successful maiden year as a listed company with profit before tax upover 8%. We continue to see good opportunities for organic growth and furtherinternational expansion and are encouraged by the new business performance inthe current year." Except where otherwise stated, this report refers to the unaudited pro formaprofit and loss account for M&C Saatchi plc (The "Group"). This has beenprepared to show, for illustrative purposes only, the Group's results as if thereorganisation which occurred immediately prior its admission to trading on AIMon 14 July 2004, has occurred on 1st January 2003. The unaudited pro formaprofit and loss account excludes the write off of the goodwill & exceptionalcharges that was created as a result of the reorganisation. Performance Overview Financial Review Revenues increased 4.8% to £62.2 million (2003: £59.3 million). This representsthe 10th successive year of organic revenue growth, driven by revenue from newclients and securing new assignments from existing clients. Operating profits increased by 5.3% to £7.2 million. This was driven by improvedcontributions from our Asia Pacific business, which grew operating profits by39% and our American business, which returned to profit. Profit before taxation and goodwill amortisation increased by 8.5% to £8.1million (2003: £7.5 million). Administrative expenses increased to £54.9 million (2003: £52.4 million). Asindicated at the interim results, in the 2nd half of 2004 we incurred someone-off IPO-related costs totalling £138k. There was also a slight increase inunderlying costs relating to our plc status, totalling £293k. Additionally,during the 2nd half of 2004 we incurred some incremental costs relating toexploratory work in Europe amounting to £70k. During 2004 these costs werecharged to the UK business. As a result of the restructuring associated with ourIPO, in 2005, the costs associated with running the holding company will bereclassified as a group cost and then recharged to the regional businesses(including the additional plc related costs). This will have a positive effecton the UK margin and negative effect on the Asia Pacific and American margins.The reallocation will not have any impact on Group profits in 2005. In 2005, thecosts associated with expansion into Europe will be classified within theoperating analysis for that region. Our underlying operating margin grew to 12.4%. However, the impact of additionalcosts mentioned above kept the operating margin flat at 11.6%. Group net interest receivable increased to £901k (2003: £630k), principallyresulting from interest earned on the cash raised at the IPO. The Group's tax rate increased slightly to 32.8% (2003: 31.6%) due to the effectof profits taken straight to reserves. Minority interest increased by 4.0% to £441k (2003: £424k) but as a percentageof profit reduced from 8.3% to 8.1%. The earnings growth of the group's 100%owned subsidiaries have grown at a faster rate than those with a substantialminority, principally Walker Media. Group earnings per share increased by 6.8% to 9.28 pence (2003: 8.69 pence). TheBoard is recommending a final ordinary dividend of 1.16p payable on 10 June 2005to shareholders on the register as at 11 May 2005. The dividend is being paid onthe basis that the company was listed for half the year. Segmental Analysis UK The UK saw a strong new business performance over the year. Revenues werebroadly flat on the prior year at £36.5 million, with a strong new businessperformance off-setting the lost revenue resulting from Matalan and Rover takingtheir accounts in-house in mid-2003. Operating profits fell to £4.3 million from £5.2 million as a result of anincrease in costs associated with the IPO, our plc status and investment inEurope totalling £501k, and the release of a rent accrual in 2003. Stripping outthese effects, underlying operating profits increased 3.1%. New client wins in the agency included Privilege Insurance, Halfords, USDepartment of Commerce (Tourism), Thames Water, and Krug.Amongst our subsidiaries, Walker Media had a good year and notably won KFC andHalfords. Walker Media extended their service offering through the formation ofa new media strategy company 'Spark'. LIDA, our direct and digital marketingsubsidiary won new projects from British Airways and Nat West. Talk PR had astrong year with new clients including American Express and Dixons. M&C SaatchiSponsorship won business from Orange, Coca Cola, Reebok and London 2012 and wonthe 2004 Sponsorship Agency of the Year from Marketing Magazine. As part of our strategy of continuing to expand our service offering in the UK,we formed Play, an interactive marketing agency. Since its launch in December2004 it has already won its first two clients. Asia Pacific The business in Asia Pacific performed well. Revenues increased 11.2% to £23.1million and operating profit increased by 38.9% to £2.7 million, as the businessbenefited from the first full year contribution from the Optus and Medibankaccounts (won in 2003). The operating margin increased to 11.6% from 9.3% as aresult of the elimination of one-off new business costs incurred in 2003. The Group has successfully expanded in the region and the established network of10 offices now has sufficient scale to start attracting pan-regional revenue. Wewill continue to look for opportunities for additional new offices in theregions high growth markets. During the year we established an office inThailand and are in advanced negotiations for a further opening in Indonesia.Other markets where we see potential include India, Korea, the Philippines andfurther offices in Greater China. America America returned to profit in 2004. Revenues increased by 40.6% to £2.5 million,and the region is now making a positive contribution to the Group, withoperating profit growing to £200k from a loss of £251k in 2003. In addition to new assignments from foundation clients Ketel One Vodka andCrystal Cruises, our LA office won some new accounts including San Diego Zoo andour New York office undertook a high profile assignment for the NationalFootball League's season opening. Our US business while a small part of the Group, is strategically important. Weare encouraged by the early success of our office in Los Angeles and investmentin additional creative resource in New York has helped deliver an improvedperformance in that office. The region has recently undergone a reorganisationand both offices are now being run as a single region, reporting into Tom Dery(Chairman of Asia Pacific). Our strategy is to grow our presence in America andwe now have a good platform on which to build. Europe Europe remains a key growth area for the Group and we have made encouragingprogress with our exploratory work in our target markets, particularly Franceand Spain. It is critical that the local management team are 'best in class' in the marketand accordingly our key priority is to find the right people to spearhead theestablishment of our business in each market. In France, we have conducted avery thorough process and are now in detailed discussions with partners ofchoice. We remain on track to open two European offices by the end of the year. Outlook We continue to make progress with our strategy of growing our underlyingbusiness and expanding our international footprint. As stated at the time of theIPO, while the expansion in Europe will have an impact on profits during theinvestment period, it will provide us with significant local, regional andglobal revenue opportunities in the future. We are pleased to report that ourunderlying business has started the year well with new assignments in the Groupfrom British Airways, Dyson, ITV, Mini, Royal Bank of Scotland, Twinings, andmost recently Ribena (GSK). M&C Saatchi plcUnaudited Pro Forma Consolidated Profit and Loss AccountYear Ended 31 December 2004 It is management's view that, given the complexity of the accounting entriesrequired as a result of the reorganisation and flotation on the 14 July 2004,the best way to show the underlying performance of the business this year is torestate our results. The results are restated by showing the business as if thereorganisation occurred on the 1 January 2003, excluding exceptional costs andthe amortisation of goodwill. 2004 2003 £000 £000 Turnover - continuing operations 106,884 101,219 - acquisitions 180,864 152,728 _______ _______ Turnover 287,748 253,947 Cost of sales (225,570) (194,629) _______ _______ Gross profit 62,178 59,318 Administrative expenses - ordinary (54,944) (52,448) - exceptional - - - amortisation of goodwill - - _______ _______ Operating profit - continuing operations 5,829 5,452 - acquisitions 1,405 1,418 _______ _______ Operating profit 7,234 6,870 Share of operating profit of associates - -Interest receivable 931 686Interest payable (30) (56) _______ _______ Profit on ordinary activities before 8,135 7,500taxation Taxation on profits on ordinary activities (2,666) (2,368) _______ _______ Profit on ordinary activities after 5,469 5,132taxation Minority interests (441) (424) _______ _______ Profit for the financial year 5,028 4,708 _______ _______ Earnings Per Share- Basic 9.28p 8.69p- Diluted 9.24p 8.65p M&C Saatchi plcUnaudited Pro Forma Consolidated Profit and Loss Account (continued)Year Ended 31 December 2004 2004 2003Gross profit £000 £000Gross profit arises from the principal activityof the Group. By originUK 36,518 36,711Asia Pacific 23,126 20,805America 2,534 1,802 ______ ______ 62,178 59,318 ______ ______ Operating profit / (loss) before exceptionalitems and amortisation of goodwill By originUK(1) 4,348 5,187Asia Pacific 2,686 1,934America 200 (251) ______ ______ 7,234 6,870 ______ ______ Profit / (loss) before taxation, exceptionalitems and amortisation of goodwill By originUK(1) 5,200 5,794Asia Pacific 2,736 1,958America 199 (252) ______ ______ 8,135 7,500 ______ ______ (1) The 2004 UK results include costs associated with one-off non exceptional IPO expenses £138k, additional costs related to our plc status £293k, and the exploratory work in European amounting to £70k. This Totals £501k. M&C Saatchi plcPreliminary Consolidated Profit and Loss AccountYear Ended 31 December 2004 Note Unaudited Audited 2004 2003 £000 £000 Turnover - continuing operations 106,884 101,219 - acquisitions 108,300 - _______ ________ Turnover 2 215,184 101,219 Cost of sales 3 (155,807) (47,608) _______ ________ Gross profit 59,377 53,611 Administrative expenses - ordinary (52,907) (48,159) - exceptional 4 (2,795) - - amortisation (777) - of goodwill _______ ________ Administrative expenses 3 (56,479) (48,159) _______ ________ Operating profit - continuing operations 2,257 5,452 - acquisitions 641 - _______ ________ Operating profit 2,898 5,452 Share of operating profit of 352 652associatesInterest receivable 5 800 457Interest payable 6 (30) (55) _______ ________ Profit on ordinary activities before 4,020 6,506taxation Taxation on profits on ordinary 7 (2,033) (2,117)activities _______ ________ Profit on ordinary activities after 1,987 4,389taxation Minority interests (531) (944) _______ ________ Profit for the financial year 1,456 3,445 Dividends 8 (2,942) (4,641) _______ ________ Retained loss for the year 10 (1,486) (1,196) _______ ________ Earnings Per Share 9- Basic 3.42p 10.61p- Diluted 3.41p 10.61p All amounts relate to continuing activities.The reconciliation of movements in shareholders' funds is shown in note 11 tothe unaudited preliminary financial statements. M&C Saatchi plcPreliminary Consolidated Statement of Total Recognised Gains and LossesYear Ended 31 December 2004 Unaudited Audited 2004 2003 £000 £000Profit for the financial year- Group 1,140 2,812- Associates 316 633 ______ ______ 1,456 3,445 Exchange differences on retranslationof opening reserves 260 526 ______ ______ Total recognised gains and losses 1,716 3,971for the financial year ______ ______ M&C Saatchi plcPreliminary Consolidated Balance SheetAt 31 December 2004 Note Unaudited Unaudited Audited Audited 2004 2004 2003 2003 £000 £000 £000 £000 Fixed assetsIntangible assets 16,158 -Tangible assets 3,047 3,453Investments 15 985 ______ _______ 19,220 4,438Current assetsWork in progress 3,368 1,334 Debtors - due within one year 46,374 16,028 - due after more than one year 731 1,061 ______ ______ 47,105 17,089 Cash at bank and in hand 17,323 5,047 ______ ______ 67,796 23,470 Creditors - amounts falling due within one year 55,980 21,367 ______ ______ Net current assets 11,816 2,103 ______ _______ Total assets less currentliabilities 31,036 6,541 Creditors - amounts falling due after more than one year 774 950 Provisions for liabilities and charges 218 208 ______ _______ 30,044 5,383 ______ _______ Capital and reservesShare capital 10 542 12Share premium 10 9,618 -accountMerger reserve 10 15,959 -Share option 10 514 -reserveProfit and loss 10 2,948 3,961account ______ _______Shareholders'funds - equity 10 29,581 3,973 Minorityinterests - equity 463 1,410 ______ _______ 30,044 5,383 ______ _______ M&C Saatchi plcPreliminary Consolidated Cash Flow StatementYear Ended 31 December 2004 Note Unaudited Unaudited Audited Audited 2004 2004 2003 2003 £000 £000 £000 £000 Cash inflowfrom operatingactivities 12 4,953 139 Dividend receivedfrom associates 728 810 Returns on investmentsand servicing of financeInterest received 687 261 Interest paid (3) (7) Interest elementof financelease rentalpayments (27) (45) Minority interestdividend paid (1,296) (743) _______ _______Net cashoutflow fromreturns oninvestment andservicing offinance (639) (534) TaxationUK taxation paid (1,136) (1,269) Overseas taxationpaid (664) (470) _______ _______ (1,800) (1,739)Capital expenditure andfinancial investmentPurchase oftangiblefixed assets (922) (1,591) Sale oftangible fixed assets 417 133 Sale of a part shareof a subsidiary undertaking 527 - _______ _______ Net cash inflow/(outflow) from capital expenditureand financialinvestment 22 (1,458) Acquisitionsand disposalsInvestment in subsidiary (382) - Cash acquiredwith subsidiary undertakings 2,243 - Investment in associate - 1 _______ _______ 1,861 1 Equity dividends paid (2,313) (4,641) _______ _______Net cashinflow/(outflow)before financing 2,812 (7,422) FinancingShare placement 10,537 - Share placementcosts (835) - Shares issued to minorities 107 6 Repayment of bank loans (21) (34) Capitalelement offinance lease rental payments (225) (165) _______ _______ Net cash inflow/(outflow)fromfinancing 9,563 (193) _______ _______Increase/(decrease)in cash inthe year 14 12,375 (7,615) _______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 1. Statutory Information The financial information contained in this announcement, for the years ended 31 December 2004 or 2003, does not constitute statutory financial statements within the meaning of section 240 of the Companies act 1985. The financial information for the year ended 31 December 2003 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts was unqualified. The statutory accounts for the year ended 31 December 2004 will be finalised on the basis of the financial information presented by the directors in this unaudited preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. The audit report for the year ended 31 December 2004 has yet to be signed. The preliminary announcement was approved by the board of directors on 7 April 2005. M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 2. Turnover, profit and net assets Turnover and profit before taxation are attributable to the provision of advertising and marketing services. Unaudited Audited 2004 2003 £000 £000 Turnover Analysis by geographical market: By origin UK 168,809 56,716 Asia Pacific 41,736 41,928 America 4,639 2,575 _______ _______ 215,184 101,219 _______ _______ Gross profit Analysis by geographical market: By origin UK 33,717 31,004 Asia Pacific 23,126 20,805 America 2,534 1,802 _______ _______ 59,377 53,611 _______ _______ Operating profit / (loss) Analysis by geographical market: By origin UK 12 3,769 Asia Pacific 2,686 1,934 America 200 (251) _______ _______ 2,898 5,452 _______ _______ Profit / (loss) before taxation Analysis by geographical market: By origin UK 1,085 4,802 Asia Pacific 2,736 1,956 America 199 (252) _______ _______ 4,020 6,506 _______ _______ M&C Saatchi plc Notes forming part of the Preliminary Financial Statements Year Ended 31 December 2004 (Continued) 2. Turnover, profit and net assets (Continued) Unaudited Audited 2004 2003 £000 £000 Net assets Analysis by geographical market: By origin UK 30,574 6,055 Asia Pacific 2,466 1,957 America (2,367) (2,629) _______ _______ 30,673 5,383 _______ _______ 3. Cost of sales and administrative expenses Unaudited Audited 2004 2003 £000 £000 Cost of sales Continuing operations 50,554 47,608 Acquisitions 105,253 - _______ _______ 155,807 47,608 _______ _______ Administrative expenses Continuing operations 54,073 48,159 Acquisitions 2,406 - _______ _______ 56,479 48,159 _______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 4. Exceptional items During the year the Group reorganised and floated on London's AIM market. The resulting cost incurred totalled £3,998k. Of which £2,795k was charged directly to the profit and loss account, £368k included in cost of investments and £835k was charged against share premium. 5. Interest receivable Unaudited Audited 2004 2003 £000 £000 Group 687 261 Associates 113 196 _______ _______ 800 457 _______ _______ 6. Interest payable Unaudited Audited 2004 2003 £000 £000 Bank overdrafts 1 7 Interest on 27 45 finance leases Associates - 1 Other 2 2 _______ _______ 30 55 _______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 7. Taxation on profits from ordinary activities Unaudited Unaudited Audited Audited 2004 2004 2003 2003 £000 £000 £000 £000 Current tax UK corporation tax on profits 1,204 1,333 for the year Overseas tax 1,024 611 payable Adjustment in respect of 15 (34) previous years Associates 148 214 _______ _______ Total current tax 2,391 2,124 Deferred tax Origination and reversal of (358) (7) timing differences _______ _______ Movement in deferred tax (358) (7) provision ______ _______ Taxation on profit on ordinary 2,033 2,117 activities ______ _______ The tax charged for the year differs from that obtained by using the standard rate of corporation tax in the UK (30%). The differences are explained below: Unaudited Audited 2004 2003 £000 £000 Profit on ordinary 4,020 6,506 activities before tax ______ _______ Profit on ordinary activities at the standard rate of 1,206 1,952 corporation tax in the UK of 30% (2003 - 30%) Effects of: Expenses not 150 242 deductible for tax Exceptional expenses not deductible for 379 - tax Goodwill amortisation 233 - Exchange adjustment taken to reserves 81 - subject to tax Utilisation of tax 31 32 losses Differences between capital allowances (25) 5 and depreciation Short term timing 175 - differences Short term timing differences due to provision on options 214 - & phantom bonus accruals Adjustment to tax charge in respect of 15 (34) previous years Tax rate differences (68) (73) ______ _______ Current tax charge 2,391 2,124 for year ______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 8. Dividends Unaudited Audited 2004 2003 £000 £000 Paid prior to reorganisation and flotation on AIM(1) Ordinary shares of £1 - £144 per share 1,800 4,560 (2003 - £365) Ordinary shares of £1 - 338 - £135 per share(2) 'B' shares of £1- £41,100 per share (2003 164 74 - £18,400) 'C' shares of £1 - £10,924 per share (2003 11 7 - £6,900) ______ _______ 2,313 4,641 Proposed final dividend of M&C Saatchi plc 629 - - 1.16p per share ______ _______ 2,942 4,641 ______ _______ (1)These dividends were paid by M&C Saatchi Worldwide Limited (the previous ultimate holding company of the M&C Saatchi Group). Its share capital, before reorganisation, consisted of 12,500 ordinary shares of £1, 4 'B' shares of £1 and 1 'C' share of £1. (2)Dividend waived by all the Ordinary £1 shareholders, with the exception of Charles Saatchi who held 2,500 shares. 9. Earnings per share The calculation of basic and diluted earnings per share is based on the profit after tax and minority interest, divided by the number of shares in issue during the year. The number of shares stated for 2003 and brought forward into 2004 is the number of shares that M&C Saatchi plc would have issued had the acquisition of additional of M&C Saatchi Worldwide Limited occurred at the beginning of 2003. (The actual number of shares that exist on 31 December was 12,500.) Earnings per share is calculated as follows: Unaudited Audited 2004 2003 Basic Profit for £1,456k £3,445k the year Weighted average number of 42,542k 32,484k ordinary shares Basic earnings per 3.42p 10.61p share Diluted Profit for the year £1,456k £3,445k Weighted average number of 42,732k 32,484k ordinary shares Basic earnings per 3.41p 10.61p share The outstanding options at 31 December 2004 was 411,050 (2003 nil), and their weighted average for the year was 190,322. M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 10. Reserves Ordinary Share Share premium Merger reserve Share(1) option Profit and loss Total Capital account reserve account Group £000 £000 £000 £000 £000 £000 At 1 January 2004 12 - - - 3,961 3,973 (audited) Exchange differences - - - - 260 260 Scrip 312 - - - (312) - issue Ordinary shares issued in respect 134 - 16,484 - - 16,618 of acquisitions Issue of options - - - 514 - 514 Share placement 84 10,453 - - - 10,537 Share issue costs - (835) - - - (835) Redemption of redeemable preference shares by - - 50 - (50) - subsidiary Merger reserve release on Goodwill - - (575) - 575 - amortisation Retained Profit for the - - - - (1,486) (1,486) year _______ _______ _______ ______ _______ _______ At 31 December 2004 542 9,618 15,959 514 2,948 29,581 (unaudited) _______ _______ _______ ______ _______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 11. Reconciliation of movement in shareholders' funds Unaudited Audited 2004 2003 Group Group £000 £000 Profit for the financial year - Group 1,140 2,812 - Associates 316 633 Dividend (2,942) (4,641) _______ _______ (1,486) (1,196) Exchange differences 260 526 Issue of shares 27,155 - Share issue cost (835) - Issue of options 514 - _______ _______ Net addition/ (reduction) to 25,608 (670) shareholders' funds Opening shareholders' 3,973 4,643 funds _______ _______ Closing shareholders' 29,581 3,973 funds _______ _______ 12. Net cash inflow from operating activities Unaudited Audited 2004 2003 £000 £000 Operating profit 2,898 5,452 Amortisation of intangible 777 - fixed assets Non cash flow expenses associated with 460 - reorganisation Depreciation 1,167 1,141 Profit on sale of tangible (34) (1) fixed assets (Increase)/Decrease in work (2,062) 463 in progress Increase in debtors (16,233) (2,998) Increase/(Decrease) 17,902 (4,183) in creditors Exchange differences 78 265 _______ _______ 4,953 139 _______ _______ M&C Saatchi plcNotes forming part of the Preliminary Financial StatementsYear Ended 31 December 2004 (Continued) 13. Analysis of changes in net funds Balance at 1 Cash Finance Exchange Balance at 31 January 2004 inflow leases movements December 2004 (Audited) (Unaudited) £000 £000 £000 £000 £000 Cash at bank 5,047 12,375 - (99) 17,323 and in hand Debt due within (21) 21 - - - one year Finance (450) 225 (31) 12 (244) leases _______ _______ _______ _______ _______ Total 4,576 12,621 (31) (87) 17,079 _______ ______ _______ _______ _______ 14. Reconciliation of net cash flow to movement in net funds Unaudited Unaudited Audited Audited 2004 2004 2003 2003 £000 £000 £000 £000 Increase in 12,375 (7,615) cash in the year Cash outflow from decrease 225 165 in lease financing Inception of (31) (96) finance leases Exchange (87) 228 differences Cash outflow from repayment 21 34 of bank loan _______ ______ Movement in net funds in 12,503 (7,284) the year Net funds at 4,576 11,860 start of year _______ _______ Net funds at 17,079 4,576 end of year _______ _______ This information is provided by RNS The company news service from the London Stock Exchange