M&C Saatchi Regulatory News (SAA)

M&C SAATCHI PLC

INTERIM RESULTS

SIX MONTHS ENDED

30 JUNE 2022

7 September 2022

M&C SAATCHI PLC

(the "Company")

Interim results for the six months

ended 30 June 2022

A strong first half performance, with Headline PBT over 50% ahead of H1 2021

H1 Highlights

Financial

Operational

Current trading and outlook

Unaudited Headline1  Results

Unaudited Statutory Results

1 Refer to page 11 for the definition of Headline, net revenue and net cash.2 Like-for-like growth excluding effect of acquisitions that occurred in 2021 (associates in China, Brazil and Pakistan that became subsidiaries during 2021).3 Earnings is calculated after deducting tax and the share of profits attributable to non-controlling interests.4 EBITDA is calculated excluding the income statement charges relating to IFRS 16.

Moray MacLennan, Chief Executive Officer, said:

"Results to be proud of under any circumstances, but particularly with the distraction of a hostile takeover.

Looking forward, the counter-cyclical nature of key growth businesses, together with a global efficiency programme, gives confidence in our strong standalone future and the outlook for the remainder of 2022 and into 2023.

The plan is clear. Delivery is accelerating. Resilience proven."

Gareth Davis, Chairman, said:

"Delivery of a 52.4% increase in Headline PBT is an outstanding achievement by our management team.

Despite considerable challenges created by a prolonged hostile takeover process, and strengthening economic headwinds, focus has been maintained on client services and growing the business.

This continued performance, building on record profits in 2021, reinforces the Board's belief in a strong independent future for M&C Saatchi.

The Board laid out its concerns over the low value and high risks involved in ADV's hostile bid. These concerns have been significantly increased due to ADV's continual refusal to seek US government regulatory approval (CFIUS). It is our belief that this could lead to the termination of key client contracts.

I would respectfully request that shareholders support us in retaining our independence and therefore take no action at this time."

SUMMARY OF RESULTS

Performance in the first half of 2022 has been strong, well ahead of the first half of 2021.

The revenue growth has been led by strong performance across our high margin, High Growth Specialisms, notably Global & Social Issues (29.7% growth) and Sponsorship & Talent (20.2% growth).

Costs continued to be tightly controlled. Headline operating costs increased by 5.3% to £111.3million (2021: £105.7million), significantly below the rate of revenue growth. We continue to see the benefits of the Group's operating leverage flow through to operating profit margin, which at Headline level has increased by 3.5pts to 14.0% (2021:10.5%).

Headline profit before tax increased by 52.4% to £16.0million (2021: £10.5million). Statutory profit before tax decreased to £0.3million (2021: £4.8million) due to the significant costs associated with the ongoing takeover approaches (£9.5million) (see Note 5).

Our focus on cash management continues, resulting in an increase in net cash to £39.7million (from £34.4million at 31 December 2021). Use of the revolving credit facility has further reduced to £10.0million at 30 June 2022 (from £20.0million at 31 December 2021). This provides the balance sheet flexibility to settle put option liabilities in cash as they fall due. The Board believes the immediate priorities for the business are to continue reinvesting in supporting the growth strategy and to reduce debt as interest rates continue to rise. Our intention remains to reinstate dividends for 2022.

Market Dynamics

After a strong recovery in the industry in 2021, market growth has slowed to an expectation of 8.6% for 2022, and 6.4% for 2023.

Key trends in the industry include:

· Increased talent costs and churn, as inflation rises and the employment market tightens,

· Increased focus on efficiencies within our competitor set,

· Clients looking to simplify their marketing ecosystems with a focus on efficiencies,

· Digital, data and technology remaining a key focus as a driver of performance,

· A heightened focus on creativity,

· Climate change becoming top of mind for clients.

We are well positioned to withstand these pressures, as a result of our broad diversified client base, geographic breadth, and specialist capabilities in resilient segments: public sector, issue-based marketing, performance media, and sponsorship and talent. These include material counter-cyclical businesses.

Strategy Update

Simplification

We have invested in, and continue to drive efficiencies from, technology platforms that automate and standardise working together across the Group including people, finance and business analytics systems.

Since the end of H1 2022, we have initiated a global efficiency programme. This will identify savings during H2 2022 to be introduced in 2023 and beyond. Although this is later than planned, tactical local and central cost reduction initiatives have been undertaken during H1 to offset this delay.

Connection

Our strategy of connecting multi-disciplinary capabilities is achieving results, as client demand for connection and consolidation in their marketing ecosystems increases. This has been further enhanced by the launch of M&C Saatchi LIFE, a dedicated sustainability consultancy.

Our dedicated global growth team has enabled us to win more cross-discipline and cross-market clients including Sky Showtime, Barclays and Samsung.

Digitisation

We continue to scale our data analytics businesses Fluency and Precision. During H1 this included developing and launching Brand Desire, our proprietary AI-powered brand intelligence platform. We have also hired a Chief Data and Technology Officer to accelerate growth from H2.

We have also continued to invest in central capabilities that fuel growth: innovation studio Thread and a proprietary SME marketing SaaS start-up (Grow Technology).

Technology platforms, including Hubspot (CRM), CoreBook (brand guidelines) and our global intranet platform, are being deployed to fuel new connected business growth.

Headline Segmental Information (Like-for-Like)[1]

Specialisms

[1] Like-for-like excludes the effect of acquisitions in 2021.

Advertising and CRM comprised £58.6million (46.3%) of the Group's net revenue (H1 2021: £59.1million, 51.2%) and £3.2million (17.6%) of the Group's Headline operating profit (H1 2021: £5.3million, 41.9%). Net revenue decreased by £0.5million (0.9%) compared to H1 2021. Operating profit margins decreased by 3.4pts to 5.5% from 8.9% in H1 2021.

The High Growth Specialisms comprised £68.0million (53.7%) of the Group's net revenue (H1 2021: £56.4million, 48.8%), and £20.1million (109.1%) of the Group's Headline operating profit (H1 2021: £13.3million, 105.9%). Net revenue increased by £11.6million (20.6%) compared to H1 2021. Headline operating profit margins increased by 5.8pts to 29.5% from 23.7% in H1 2021.

· Advertising & CRM - Blending marketing science with creativity through earned, owned and paid-for content

The net revenue decrease of £0.5million to £58.6million (0.9%) was driven by the UK Agency (predominantly due to a reduction in Home Office revenues and in particular the Census work that was carried out in 2021), Australia (a reduction in spend from Tourism Australia compared to 2021) and China (due to the lockdowns experienced in 2022).

These decreases have been partially offset by revenue growth in South Africa (driven by an increase in retainer fees across a number of existing clients and new client wins) and in Indonesia (where clients, including TikTok, have engaged in new campaigns).

Operating profit margin is expected to improve in H2, as it does most years due to the seasonal increases in client spending. The global efficiency programme will especially drive further margin improvements in this segment, given the large number of small entities in this segment that will benefit from deduplication and centralisation.

· High Growth Specialisms

o  Performance Media - connecting brands with today's connected customers

The net revenue increase of £2.4million to £17.4million (15.9%) was driven by revenue growth across Asia, Americas and the UK, both from new and existing clients.

o Global & Social Issues - driving critical global and social change, protecting the planet, transforming lives for the better

The net revenue increase of £4.4million to £19.0million (29.7%) was driven by World Services, due to a much stronger start to 2022 for the Security & Defence business.

o Brand & Experience - transforming businesses by unlocking existing and new growth opportunities

The net revenue increase of £1.8million to £17.0million (11.6%) was primarily due to strong revenue growth in MCD Partners (CX), due to additional projects from existing clients as well as new client wins. There has also been strong revenue growth in the Re Agency in the UK (brand design) and the Clear Group (consulting).

o Sponsorship & Talent - connecting brands direct to consumers through passions and personalities

The net revenue increase of £3.1million to £14.7million (20.2%) was driven by Sport & Entertainment in the UK and US, due to the post-Covid-19 recovery in sporting events.

· Group Central Costs

Central costs have reduced by £1.1million to £4.9million (18.2%). This is driven primarily by the recognition of £0.9million of staff costs as Non-Headline in relation to the takeover approaches (refer to Note 5 for further detail). In addition, there were savings as a result of replacing freelancers with permanent employees, along with lower executive bonus costs in 2022 versus the prior year.

Geographical

Income Statement

· Headline Profit Before Tax

The net revenue increase of 9.6% has been explained above in the segmental review. Headline operating costs have increased 5.2%, which is predominately due to an increase in staff costs to service the increased revenues. There continues to be a strong focus on cost control, with costs increasing at a much lower rate than revenues, in turn leading to a significant increase in Headline operating margins to 14.0% in H1 2022 (H1 2021: 10.5%).

· Statutory Profit Before Tax

Statutory operating costs have increased 14.1%, in addition to the increase in staff costs noted above. This is predominately due to the takeover transaction costs that have been incurred as a result of the response required to the two offers for the Company. These have been treated as Non-Headline costs (refer to Note 5 for further detail).

· Taxation

In relation to the transaction costs identified above, we have treated the majority of these costs as non-deductible for corporation tax provision purposes, pending further detailed analysis of the external fees, which will be clarified in H2 2022.

Balance sheet and cashflow

· Cash and Borrowings

Cash net of bank borrowings at 30 June 2022 is £39.7million, compared to £34.4million of net cash at 31 December 2021 and £31.8million net cash at 30 June 2021. The Group has made good progress in managing its cash, including focusing on centralising cash to reduce the interest cost of borrowings. As a result, £10.0million of the revolving credit facility was drawn at 30 June 2022, compared with £20.0million at 31 December 2021.

Net cash from operating activities was £12.6million (£4.7million in H1 2021).

· Working Capital Movement

Trade and other receivables increased by £13.1million (9.8%) between 31 December 2021 and 30 June 2022. This reflects the strong revenue performance in H1 2022.

Trade and other payables increased by £19.9million (12.9%) between 31 December 2021 and 30 June 2022. Within this movement, £8.4million of the increase is driven by the takeover transaction costs accrued during H1 2022, in addition to £2.7million of dividends paid to minority shareholders in July 2022.

· Other Balance Sheet Movements

The other movements include the revaluation of unlisted equity investments held in early-stage companies. The revaluation of these companies is excluded from Headline results. Overall, the portfolio continues to strengthen, as several companies bounced back following the Covid-19 pandemic. However, this is partially offset by one specific investment that has been written down by £3.3million to nil in the period. This has resulted in a net upwards revaluation of £0.5m.

Notes to Editors

Company

M&C Saatchi plc, a company incorporated and domiciled in England and Wales with company number 05114893, listed on the AIM Market of the London Stock Exchange plc.

Group

The Company and its subsidiaries.

Headline results

A self-defined alternative measure of profit that provides a different perspective to the Statutory results. The Directors believe it provides a better view of the underlying performance of the Company, because it excludes a number of items that are not part of routine business income and expenses. These Headline figures are a better

way to measure and manage the business and are used for internal performance management and reward. "Headline results" is not a defined term in IFRS.

Headline results represent the underlying trading profitability of the Group and excludes:

• Separately disclosed items that are one-off in nature and are not part of running the business.

• Acquisition-related costs.

• Gains or losses generated by disposals of subsidiaries and associates.

• Fair value adjustments to unlisted equity investments, acquisition related contingent consideration and put options.

• Dividends paid to IFRS 2 put option holders.

A reconciliation of Statutory to Headline results is presented in Note 4.

Operating profit margin

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

Net cash

Net cash refers to cash and cash equivalents, less borrowings of the Group, derived from the accounts in the balance sheet, excluding lease liabilities.

Net revenue

Net revenue is equal to revenue less project cost / direct cost. It is not an IFRS defined term. It is, however, used as a key performance indicator by the Group.

Revenue

Revenue comprises the total of all gross amounts billed, or billable to clients in respect of commission-based, fee-based and any other income where we act as principal and our share of income where we act as an agent. The difference between Billings and Revenue is represented by costs incurred on behalf of clients with whom we operate as an agent, and timing differences where invoicing occurs in advance or in arrears of the related revenue being recognised.

EBITDA

EBITDA is earnings before depreciation, amortisation, finance expense and taxation, and excludes any charges relating to IFRS 16. It is not an IFRS defined term. It is, however, used as a key performance indicator by the Group.

Billings

Billings comprise all gross amounts billed, or billable to clients in respect of commission-based and fee-based income, whether acting as agent or principal, together with the total of other fees earned, in addition to those instances where the Group has made payments on behalf of customers to third parties. It is stated exclusive of VAT and sales taxes.

Minority interests and non-controlling interests

Within the Group, there are a number of subsidiary companies and partnerships in which employees hold a direct interest in the equity of those companies. These employees are referred to as minority shareholders. Of these subsidiary companies and partnerships, most account for the shareholding of their minority shareholders as a management incentive (through the award of conditional shares) and are 100% consolidated in the Group's financial statements. The remaining seven subsidiary companies (including one without a put option) account for their minority shareholders as non-controlling interests, a defined IFRS term, with their share of the Group's profits being shown separately on the Income Statement.

Unaudited Consolidated Income Statement

Unaudited Consolidated Cashflow Statement and Analysis of Net Cash