ANNUAL REPORT 2018
STRATEGIC REPORT
Chairman’s review
RESULTS
New businesses & NEW Business
Business model
Chief executive’s review
Finance director’s review
Principal risks
1
2
3
4
6
10
16
GOVERNANCE
18
Governance review
22
The Board
Audit committee report
24
Remuneration committee report 27
31
Directors’ report
36
Directors’ responsibilities
Financial statements
Income statement
Balance sheet
Cash Flow
Headline results and EPS
Company accounts
Auditor’s report
44
46
49
50
104
110
Chairman’s review
2018 was our 10th year of growth. Growth of profit, earnings and dividends. Whilst it might be too early to say we’ve cracked it,
it does seem that the strategy is proving itself.
We are lucky to live in an era where opportunities grow like never before. This must be how it felt to be pioneers
and discoverers of a virgin land. Men and women with ideas, ambition and a vision can strike gold. But the investment isn’t in
plant or even people, but in brain. Production has moved from brawn to brain.
Technology connects us like never before. Take one of our newest companies, Send Me A Sample. Alexa and Google Assistant
users simply request a free sample to be delivered to their homes – and it’s on its way. Coca-Cola is an early client.
So, our task is simple, stick to our strategy of making people rich. We insist that every one of our entrepreneurs has a
meaningful equity stake in their business. The better they do, the better we do, the better they do.
Of course, as we’ve written here before, this makes classic accounting confusing. It measures our liability and not our asset,
making success into a liability and the greater the success, the bigger the liability – owing to the bigger value of the minority.
Meanwhile, some of our competitors are changing their names to become what they are not, the company is too young to have
grown so many barnacles. Our biggest profit sources are just 10 years old and five years old. We keep starting again.
Now, if they rise quicker, there might be a worry that they come down to earth sooner. But tell that to Amazon, Apple and
Facebook. And besides, seeds are cheaper to plant than plants are to buy.
On a momentous note, one of our earliest partners, Tom Dery who led our Australian office to great heights is announcing his
retirement. We owe him a great deal. He started with a credit card and a room in a hotel. Today, our businesses in Australia
rank amongst the best in size, prestige and creativity. We have every confidence in his handpicked successors.
And finally, we must pay tribute to Jamie Hewitt, our outgoing Finance Director. His ability to monetise our strategy has been
an important part of our story. We wish him all the best and welcome Mickey Kalifa our new FD. He has the daunting task of
matching Jamie’s record. (See table)
Jeremy Sinclair
28 May 2019
Net Revenue
ex Walker
PBT
ex Walker
1
2
3
4
5
6
7
8
9
10
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
89,873
110,058
135,998
154,480
162,039
169,373
178,928
225,387
251,481
255,373
4,331
6,945
8,316
11,050
13,937
16,167
19,345
22,453
26,022
29,943
A reconciliation of headline profit before tax (PBT) can
be found in note 1.
1
RESULTS
Net revenue
PROFIT*
Headline
proFIt*
EARNINGS
EPS
+2%
+89%
+17%
+17%
+9%
* Profit Before Tax.
A reconciliation of headline measures can be found in note 1.
Net revenue is calculated by deducting project cost from revenue and is directly comparable to 2017 revenue. See income statement for the calculation.
2
NEW BUSINESSES
NEW BUSINESS
Greenhouse
M&C Saatchi Indonesia
M&C Saatchi Social
Majority
Resolution designs
Scarecrow Communications
Send me a sample
Source Australia
Sports & Entertainment LA
Talk purpose
THAT
The FIlm Studio
Yes Agency
Apprenticeships
BRAC
CafÉ Paul
Carlsberg
CIMB
Commonwealth Bank
Continental Tyres
eBay
EDF
Experian
Fabric
Fuji
GambleAware
Jumeirah International
Level Forward
Nedbank
Nyrvana
OVS
Philips
Reebok
ROKiT
Saras
Sembcorp
Singapore Turf Club
Swisscom
Tabcorp
Tafel Beers
Tikkurila
Tourism Australia
Twinings
UNICEF
WHO
3
Business model
We are a global marketing services company built on a strategy of winning new business by starting new businesses.
The conventional model of network creation is by acquisition. This turns entrepreneurs into employees, diluting
the imperative that drove their initial growth and success.
Our network growth comes from attracting people who do not want to be wage slaves, who feel they are born
to be masters, not servants of their destiny. Our focus is to expand organically, only buying stakes in companies
where strategic mass is the only way to enter a market or accelerate growth.
We then back our winners, by using the network to allow them to expand globally.
At the core of the M&C Saatchi business model is the concept of shared ownership, shared objectives
and shared ambitions.
This is how it works:
We take a majority share in a business start-up, providing them with cash and the benefit of our reach, brains
and reputation. The entrepreneurs have shares in their companies which at some agreed point can be converted
into more tradeable M&C Saatchi plc shares. They can only put all their shares when succession criteria have been
fulfilled. This aligns their business success with the success of the business as a whole. The better the Group does,
the more their shares are worth. Typically, many of our local partners do not exchange their shares at the first
opportunity, instead they enjoy their dividends from each pound of profit they make.
Our deals are structured to maximise shareholder value whilst at the same time recognising the worth of the local
entrepreneurs’ business at acquisition. There is always a risk that some new businesses underperform, but our
revenue, profit and dividends growth is testimony to the overall success of our business model.
The drive and knowledge of our local partners, the teams they attract, together with our global reputation,
helps us win and retain great clients.
4
How our business model impacts our statutory results
The Group’s business model leads to the IFRS accounts having a number of non-cash movements being included
in the income statement, largely as a result of put options awarded and the output of acquisition accounting as
mandated by IFRS 3 (see below). Such non-cash movements reflect future estimated performance and movements
in the Group’s share price. The Board evaluates these non-cash movements based on the potential future share
issues and their potential dilutive / accretive effects.
Excluding these non-cash movements, the Board uses Headline measures to assess the underlying profitability
of the Group; these alternative performance measures are considered by the Board to provide a more appropriate
basis to assess the results and are how the business is managed and monitored on a day-to-day basis. The Group
also uses a constant currency measure to allow comparison of each business between periods.
The Group has a strategy of dividend growth and these Headline measures indicate the annual build-up of both cash
and, in the case of put options, reserves available for distribution.
The accounting treatment of the put options depends upon whether the options are forfeited, or not, on leaving
the Group. If the put options are forfeited on leaving, then the option is deemed remuneration and accounted
for as an equity settled share-based payment such that the fair value of the award is recognised in the income
statement. If the put options are not forfeited on leaving, the put option is accounted for as a minority interest put
option liability and revalued at the end of each accounting period with any movement being charged or credited as
finance income or cost (referred to as ‘minority shareholder put option liabilities’). These awards are remunerated
in Company shares, but at our discretion can be paid in cash. The Group excludes minority put option and share
based payment charges from Headline profit.
Other adjustments made in deriving the Headline profit include: amortisation or impairment of intangible assets
(including goodwill and acquired intangibles, but excluding software); changes to deferred and contingent
consideration and other acquisition related charges taken to the income statement; impairment of investments
in associates; revaluation of investments and their related costs and profit and loss on disposal of associates.
Such exclusions are consistent with our industry peers.
Statutory numbers within the Group’s results are prepared in accordance with EU adopted International Financial
Reporting standards (IFRS).
The key movements between statutory to headline results
£’m
2018 2017 Movement %
Statutory profit before taxation
17.6
9.3
8.0 89%
Conditional share awards
6.1
13.5
Adjustments to put
option liabilities
Impairment charge
Revaluation of investments
Amortisation of
acquired intangibles
Acquisition related
remuneration
0.9
-3.0
2.9
-0.9
5.2
–
4.4
2.0
1.3
0.7
-7.4
3.9
-2.3
-0.9
2.4
0.6
Headline profit before taxation
32.3
27.7
4.3 17%
A reconciliation can be found in note 1, regional split and constant
currencies in note 3, Summary of results can be found on page 10.
5
Chief executive’s review
Summary of results
2018 saw record results in terms of net revenue and earnings. Net revenues grew by 2%, with constant currency
net revenues increasing 4%. Excluding the costs of businesses started in the year, we returned a headline operating
margin of 12%, up from 11% in 2017, with our newer higher margin businesses building momentum. The headline profit
before tax advanced 16% to £32.0m and headline net earnings also rose 16%. Statutory profit before tax was up 89%
from £9.3m to £17.6m.
The key driver of these strong results is our unique differentiated model, which is overwhelmingly organic versus
the M&A fuelled holding companies. We start new businesses in attractive geographies and in new growth channels
with best-in-class entrepreneurs, motivated by significant minority equity holdings. We are not dependent on
pressured global consumer goods clients nor media buying, particularly following our Walker Media divestment.
Vitally even more now, we have creativity at our core and are therefore less susceptible to automation.
UK
Net revenue in the UK was up 2%, with the major growth drivers Sport & Entertainment and Performance
(formerly Mobile) performing particularly positively.
UK new business wins included Apprenticeships, eBay, Experian, GambleAware, Swisscom and Twinings.
World Services, our specialist public sector and social impact division, continues to show strong financial
and market sector growth. World Services uses the best of Saatchi talent and technologies to tackle complex social
and behavioural issues. In 2018 significant new projects were won from a broad range of existing and new clients,
including UNICEF, WHO, the Bill and Melinda Gates Foundation, BRAC, the FCO and USAID.
In June, we invested in a 51% stake in two social influencer agencies, Red Hare and Grey Whippet, who have joined
M&C Saatchi Merlin’s existing social and talent divisions to form M&C Saatchi Talent Group, which is growing well.
We launched Send Me A Sample in September, the world’s first voice-activated product trialling platform, which
allows Alexa and Google Assistant voice users to request free product samples to be delivered directly to their
homes. They are working on several Coca-Cola projects.
The UK headline operating profit margin increased to 17.8%, compared with 16.0% in 2017. These margins exclude
the impact of Group recharges.
NET REVENUE
+2%
Constant currency
Net revenue
+4%
UK Net revenue
+2%
Due to the change to IFRS15, Revenue has increased
by 68%, given the change in accounting standard
net revenue is more appropriate measure to use
for these results.
6
Chief executive’s review
Continued
Europe
European like-for-like net revenue increased 2% year on year. Headline operating profit was up 6%, with a headline
operating margin of 15.8% (2017: 15.3%).
Our Stockholm office won projects from Tikkurila (paint) and Reebok.
Our Berlin office continues to perform well and Clear opened an office in Frankfurt.
Milan had a strong second half winning projects from Carlsberg, OVS (clothing) and Saras (refining).
Paris continued their good new business performance, winning projects from Fuji, Gerlinea (slimming meals)
and Cafés Paul as well as retaining EDF.
Middle East and Africa
Like-for-like net revenue in the Middle East and Africa was up 11% with a good new business performance
across the region.
South Africa won Tafel Beers (to add to Heineken, Strongbow and Windhoek) and Continental Tyres.
Sport & Entertainment added Nedbank’s sponsorship.
Our UAE offices performed strongly, winning Jumeirah International and an anti-obesity project from the Ministry
of Health and Prevention.
We are looking to open in Riyadh this year as a result of client demand.
Tel Aviv maintains its good progress and won Philips.
As we expected, the operating profit in the region was down 25% and the headline operating margin decreased
to 7.4% from 10.7% in 2018 with investment in new business costs. This investment will be returned in 2019 with
enhanced net revenue.
Europe like-for-like
Net revenue
+2%
Middle East and
Africa like-for-like
Net revenue
+11%
7
Chief executive’s review
Continued
Asia and Australia
In Asia and Australia, like-for-like net revenue was up 6% year on year.
Our Australian offices performed well and they started this year with the wins of Tourism Australia and Tabcorp.
Kuala Lumpur won CIMB and retained Axiata, whilst Singapore won Sembcorp (utilities) and the Singapore Turf Club.
We invested in 51% of Scarecrow in Mumbai and opened offices in Jakarta and Hong Kong. We now have
9 offices in Asia.
The headline regional operating margin excluding start-up costs was 10.7% (2017: 11.4%), with the headline operating
profit down 7% on 2017. This was due to exceptional fourth quarter new business pitch costs in Australia. These
secured the 2019 new business wins and consequently we expect an improved margin going forward.
Asia and Australia
like-for-like
Net revenue
+6%
8
Chief executive’s review
Continued
Americas
Like-for-like net revenue was up 3% and headline operating profit was up 75% with a headline operating margin
of 14.3% excluding start-up costs (2017: 9.9%).
In the US, Performance continues to perform well.
Our New York agency, SS+K has rebounded after a challenging 2017 with much improved profitability in 2018 following
the actions taken in 2017. They won communications strategy work from Commonwealth Bank and Level Forward.
In November, we invested in a 30% minority stake in That (Technology, Humans and Taste), a Manhattan creative shop
that will serve as a partner to SS+K.
Our Los Angeles office continues to develop their client portfolio, winning clients including a blockchain company
Fabric, a smart sugar free chocolate Nyrvana and a telecoms brand ROKiT. Our LA Sport & Entertainment office
has won several Coca-Cola projects. We also launched Majority in LA, a production company with an all-women
Director roster, which now has 18 Directors signed up.
Outlook
2018 was another record year for M&C Saatchi in terms of net revenue and earnings. Our unique business model
of starting and growing companies with the best entrepreneurial talent continues to flourish.
This year has begun well, and we are confident that we will continue to make good progress in 2019 and beyond.
Americas
like-for-like
Net revenue
3%
9
Finance director’s review
Key performance indicators
The Group manages its operational performance through a number of key performance indicators:
• net revenue growth, both regionally and within divisions, up 1.6%;
• continual improvement of headline operating margins, up from 10.6% to 11.9%;
• earnings per share increased 6.4p;
• headline earnings per share growth, up 8.5%; and
• reduction of net cash, down £9.8m year on year.
Summary of results
£’m
Billings
Revenue
Net revenue
Operating profit
Profit before taxation
Profit for the year
Earnings
EPS
Operating profit margin
(on net revenue)
Tax rate
Statutory
Headline
2018
609.6
422.4
255.4
16.8
17.6
11.0
8.3
9.8p
6.6%
37.7%
2017
536.0
251.5
251.5
5.3
9.3
4.6
2.7
3.4p
2.1%
Movement
13.7%
1.6%
214.2%
89.2%
140.1%
208.9%
185.2%
+4.5pts
50.9%
-13.2pts
2018
609.6
422.4
255.4
30.3
32.3
25.0
21.1
25.0p
11.9%
22.6%
2017
536.0
251.5
251.5
26.7
27.7
20.8
18.0
23.0p
10.6%
24.7%
Movement
13.7%
1.6%
13.5%
16.8%
20.1%
17.4%
8.5%
+1.3pts
-2.1pts
Effects of accounting standard changes
The introduction of IFRS15 Revenue from Contracts with Customers, whilst adding complexity to the Group’s
accounting, had a very small effect on operating profits. It has required the redefinition of Revenue to include
third party supplies that we pass on to our clients which we either enhance or are responsible for the quality of.
The redefinition of Revenue has resulted in the 2017 Revenue KPI being relabelled net revenue, it excludes all third
party supplies that we pass directly on to our clients. The adoption of IFRS15 requires more rigour to be applied
in our revenue recognition processes. We will continue to improve these processes in 2019.
The Group still reports Billings (i.e. total billed to clients) as this measure drives working capital movements.
In IFRS15 terms, Billings comprises total Revenue plus all third party supplies that we pass on to our clients
irrespective of whether we enhance or have responsibility for the quality of the supplies.
10
Finance director’s review
Continued
IFRS9 Financial Instruments introduction has added a general provision for potential bad debts (expected credit
loss provisions) and caused us to revalue most of our corporate venturing investments to the latest financing round
acquisition values, as a representation of their fair value.
Net revenue and operating profit margin
Group net revenue increased 1.6% (2017: 11.6%). The constant currency net revenue growth was 3.7% (2017: 6.9%)
(the like-for-like basis).
Group operating profit margin increased to 6.4% (2017: 2.1%). A large portion of this increase has been caused
by the £13.6m (2017: £21.4m) accounting adjustments that we exclude from our headline results. These are
described in more detail below.
The Group continues to see a shift in its business from selling time to selling product. This is less labour intensive,
uses an increased amount of technology and has higher operating profit margins. This shift has resulted in a
small growth in net revenue and in a 13% increase in headline operating profit and a 1.2pts increase in headline
operating profit margin.
Headline results
The Group’s “headline” measures are used by the Board to assess the underlying profitability of the Group. This is
done by excluding all accounting charges related to equity and investments. These headline figures are alternative
performance measures that the Board considers provide an appropriate basis to assess the results of each region
and are how the business is managed and monitored on a day-to-day basis. The Group also uses a constant currency
measure to allow comparison of each business unit’s performance between periods.
We have described how our business model impacts our statutory results (page 4), explaining the types of accounting
charges that are excluded from our Headline results.
Operating margin
+4.4Pts
Headline
+1.2pts
11
Finance director’s review
Continued
The key movements between statutory to headline results
The key movements between statutory to headline results
£’m
2018
2017 Movement %
Statutory profit before taxation
Conditional share awards
Adjustments to put
option liabilities
Impairment charge
Revaluation of investments
Amortisation of
acquired intangibles
Acquisition related
remuneration
17.6
6.1
9.3
13.5
0.9
-3.0
2.9
-0.9
4.4
5.2
–
2.0
1.3
0.7
8.0 89%
-7.4
3.9
-2.3
-0.9
2.4
0.6
Headline profit before taxation
32.3
27.7
4.3 17%
Full reconciliation can be found in note 1.
Regional split and constant currencies in note 3.
Conditional share awards are charged to the income statement on a straight-line basis to the earlier
of the expected and actual vesting date. The £7.4m overall reduction in the conditional share awards expense
comprises a £9.8m reduction caused by schemes predominantly completing vesting in 2017 and £2.4m
in charges relating to new schemes which have arisen as a result of us fulfilling our business model of opening
new businesses and revitalising old.
The improvement in fortunes of one of our business units SS+K, which last year saw an impairment
of some of the goodwill recognised when it was acquired (and reduced our expected put option liability
for that business), has resulted in a £2.9m increase in the put option liability relating to the SS+K shareholders
at the end of 2018. This increase has been tempered by a reduction in our share price from 371.5p to 289.0p
at the year end, causing a £1.7m reduction in liability. There were other small movements in the liability,
resulting in an overall increase in the put option liability of £0.9m (2017: reduction £3.0m).
Three of our smaller businesses have been impaired. This is partly to pave the way for mergers between
business units following client losses.
The Group is involved in corporate venturing through SAATCHiNVEST. This is done to enhance our future
cash flows and as a mechanism to gain insight into how technology can disrupt and create opportunities
for us and our clients. The new accounting standard, IFRS9, requires us to measure such investments at fair
value. Following discussions with our advisors, fair value, where no other evidence exists, has been defined
as the price or valuation derived from the investment’s latest financing round. This definition of fair value
is an estimate. The actual future cash flows will be different. Given this is an estimate and not reflective
of future cash flows we will continue to exclude gains and losses relating to SAATCHiNVEST’s investment
values from our headline results. Further discussions of risk with these numbers can be found in note 27.
£1.8m of the increase in amortisation of intangibles is predominantly due to the change in the useful
life of SS+K’s intangible, which was changed in 2017 as part of the entity’s goodwill impairment review.
The remaining increase is due to acquisitions made in 2018 and the full year effects of 2017 acquisitions.
Acquisition related remuneration is mostly due to dividends paid by local companies to conditional
share award holders.
12
Finance director’s review
Continued
Associates
The after-tax return from our associates was a profit of £2.8m (2017: £2.0m). The majority of this profit came
from our UK associate Walker Media (trading as Blue 449) returning £2.4m (2017: £1.6m), and a contribution
from our associate in China, aeiou, of £0.4m (2017: £0.3m). In November we acquired 30% of a New York
agency called Technology Humans and Taste LLC (THAT), which made a small £0.1m contribution in the year.
Leaving aside a small increase from the full year effect of THAT, our future associate income will materially
reduce due to the disposal of our remaining interest in Blue 449 on 31 January 2019.
Financial income and expense
The Group’s net interest payable was £1.1m (2017: £1.3m). Overall borrowings decreased slightly during the
year, this reduction has been offset by higher interest rates. The sale of our investment in Blue 449 for £25m
in January 2019 will reduce debt and net interest paid.
As mentioned above, the charge for the fair value adjustment to minority put option liabilities of £0.9m (2017:
credit £3.0m) arose from an increase in future profitability estimates of one of our business units, SS+K,
together with a reduction in our share price. Further details can be seen in note 24.
Tax
Our entrepreneurs and the Group invest in the equity in the subsidiaries, the related income statement charges
to these investments, in most cases, receive no tax credit i.e. share-based payments; put option revaluations,
revaluations of contingent payments and goodwill impairments. Such charges to the income statement can
create large swings in, and variations to, our effective tax rate.
The Group operates globally, mainly in countries whose tax rates are higher than the UK’s. The reduction in US
federal tax rate from 35% to 21% from 1 January 2018 has helped reduce our overseas tax rate, though the
benefit for the Group’s headline tax rate was offset by increased trade in higher tax jurisdictions.
We anticipate our tax rate increasing modestly in the future, due to the sale of the Group’s associate Blue 449
in January 2019, which in 2018 accounted for 83% of our associate income.
The Group tax rate is different to the UK’s corporate
tax rate:
UK corporation tax rate
Headline adjustments:
Higher overseas tax rates
Associates tax effect
US tax rate change
US tax losses utilised
Under provision prior years
Other
Headline tax rate
Statutory adjustments:
Higher overseas tax
rates and profit mix
US tax rate change
Put option charges
Impairments with no tax credits
Statutory tax rate
Full reconciliation can be found in note 10.
2018
19.0%
4.3%
-1.7%
-
-
-0.3%
1.3%
22.6%
2017
19.3%
6.7%
-1.3%
1.1%
-3.4%
2.2%
0.1%
24.7%
3.1%
-3.0%
-
8.9%
3.1%
37.7%
14.8%
14.4%
–
50.9%
13
Finance director’s review
Continued
Non-controlling interest
The proportion of profits attributable to non-controlling shareholders increased to £2.7m (2017: £1.9m) with headline
share of profits increasing to £3.9m (2017: £2.8m). The increase was caused by improvements in the profitability
of our minority holding subsidiaries and our continued investment in new businesses.
Dividend
As part of a progressive dividend policy, the Board is proposing to pay a final dividend of 8.51p per share (2017:
7.40p), giving a total dividend of 10.96p compared to 9.53p in 2017. The final dividend will be paid, subject to
shareholder approval at the 27 June 2019 AGM, on 5 July 2019 to shareholders on the register at 6 June 2019.
Cash flow and banking arrangements
Cash net of bank borrowings at 31 December 2018 was £(2.5)m (2017: £7.4m). The Group expects to absorb cash
into working capital as it grows. We had exceptionally strong cash receipts in the final quarter of 2017 from working
capital. The payment of suppliers in early 2018 relating to these 2017 cash receipts, helped absorb in 2018 £16.5m
cash into working capital (2017: release £0.9m). Given on average we are billing our clients £47m per month, monthly
fluctuations of £16.5m are not abnormal and are reflective of the cash balances local subsidiaries hold.
The Group uses the cash paid up to its holding companies to make small tactical acquisitions and fund new offices.
The Group spent £1.9m cash and issued £6.5m of equity for acquisitions in the UK, US and India during the year.
To manage these acquisitions and to fund them going forward, the Group has a £38.0m banking facility with RBS
that reduces on 31 December 2019 to £36.0m. This facility matures on the 30 April 2020. In addition, to fund working
capital in the UK, the Group has a £10m overdraft of which £8.6m was drawn down at the year end. Following the
year end, the Group disposed of 24.9% interest in Walker Media (trading as Blue 449) for £25m cash on 31 January
2019, which reduced the use of these facilities.
During 2019 we will perform a strategic review of our banking facility and other banking requirements and will
determine how we can better utilise positive working capital balances in some subsidiaries and currencies against
negative working capital balances elsewhere.
Dividend
+15% per share
14
Balance sheet movements
£'m
Non-current assets
2018
95.4
2017
94.6
Current assets
215.1
170.0
Current liabilities
(173.0)
(148.4)
Net current assets
42.0
21.6
Non-current liabilities
(48.5)
(52.2)
Net assets
88.9
64.0
Movements
0.8
45.1
-24.6
20.4
3.7
24.9
Finance director’s review
Continued
Key balance sheet movements
Non-current assets increased £0.8m to £95.4m (2017: £94.6m). The £6.4m revaluation uplift under IFRS9 of our
corporate venturing investments and £2.9m of associate profit has been offset by £13.1m relating to the Walker
Media investment having been taken to current assets, prior to its disposal in 2019. The balance is made up of
small acquisitions, impairment and amortisation of intangibles.
Net current assets increased by £20.4m to £42.0m (2017: £21.6m) with an increase from £13.1m of Walker
Media investment moved from non-current. A further £4.6m increase from trading and £2.5m from a reduction
in minority shareholder put option liability.
Non-current liabilities reduced by £3.7m to £48.5m (2017: £52.2m). Mostly due to a £4.3m reduction in
the non-current minority shareholder put option liability offset by a £0.7m increase in deferred tax provision
whose major movement was due to IFRS9 corporate venturing revaluation (net of associated costs).
There was a reduction in current minority shareholder put option liabilities of £2.5m and reduction in non-
current minority shareholder put option liabilities of £4.3m. This overall reduction of £6.7m is due to £7.7m
being exercised and £0.9m charged to the income statement. The £0.9m charge to the income statement
is made up of the improvement in SS+K fortunes offset by a lower share price as mentioned above.
The above balance sheet movements enabled net assets to advance to £88.9m (2017: £64.1m).
Capital expenditure
Total capital expenditure (including software acquired) for 2018 increased to £5.7m (2017: £4.2m). The Group
has increased software spend in light of European GDPR legislation, with parts of the Group now compliant
with BS 275001 as well as enhancing its digital security.
Global accounting function
The increasing size and complexity of the Group now necessitates the Group’s accounting systems to be
enhanced and standardised. This process began in 2018 with the introduction of a new accounting software
platform within the UK group of companies. The same platform will be rolled out across the rest of Group
during the course of 2019 and 2020. The new Finance Director will also be performing a comprehensive review
of the Group’s global accounting organisation with the intention of improving and enhancing internal controls
and the quality of financial reporting.
15
Principal Risks
1. Client loss
2. Staff retention
3. Cyber
Risks and uncertainties
Risks and uncertainties
We have an ongoing review process of the Group’s risks, emerging risks and uncertainties, along with implementing
the actions needed to mitigate them. These risks are used to assess the prospects of the Group over a period of up
to five years in combination with liquidity and other key elements of the business as described in the Going Concern
statement (page 31).
Client losses are damaging, although some turnover over time is normal and to be expected. Losses can happen
for a variety of reasons, including the effect of other risks such as economic or political risk resulting in clients’
reduction or cessation of business; running out of funding after work has been commissioned; or redirecting
expenditure elsewhere. To mitigate this, we continue to develop our offerings to reflect clients’ changing marketing
mix and cross selling opportunities (new businesses). Providing we get our offerings right, we continue to convert
new clients on the basis of our creative excellence, our strategic wisdom, the commitment and brilliance of our staff
and our diverse portfolio of services (new business).
Staff remain our greatest asset and losing them is one of our principal risks. Our business model, of empowering
local entrepreneurs, giving them equity in their local businesses and allowing them to develop our offering,
helps us reward and motivate the local entrepreneurs, and in turn motivate them to enhance local staff working
with them and thus create business continuity. Any restrictions in the movement of highly skilled and motivated
staff, can be detrimental to our business, by reducing our ability to export or create new service offerings.
Best practices from each office are shared, via bi-annual worldwide meetings and on an ad hoc basis through local
and global working groups.
As our product range expands and becomes more data and technology dependent, so too does our cyber risk.
The Group continues to monitor this expansion, update its computer systems, introduce training programmes
and employ knowledgeable staff. For critical areas under the ISO27001 regime our security is regularly audited,
and we strive to increase our ISO27001 coverage. Cyber risk is regularly discussed at Board meetings and we learn
from the cyber events of others.
The Board actively reviews potential changes in the risk profile of the business, considering both those risks
which require protocols put in place directly and emerging risks.
16
Risks and uncertainties
Continued
The other risks the Group faces are:
• internal control risk is exacerbated by local minorities’ ability to put their equity at a multiple of profit. This is
mitigated by regular meetings with management, sharing and reviewing financial data, local accounting manuals,
an outsourced internal audit function, and business continuity rules embedded in most put options;
• location risk due to local events where our staff are working globally that endanger our staff or restrict our
ability to trade. We monitor our global footprint, insurances and travel plans;
• regulatory and legal changes can affect our trading, ownership structures or interpretation of our financial data.
This risk is illustrated by the changes to accounting standards (both in the current year and in the future, notes
2 and 34) and the 2017 changes to US tax regulations and their future interpretations both at a federal and state
level, that as we grow, may affect our corporate structure in the US and our exporting to the US. We monitor
and plan for proposed and actual changes and interpretations;
• the risk that our suppliers, clients, or staff transgress or some other event devalues our brand or restricts
our ability to trade. We have policies and training programmes to vet and monitor clients and suppliers
for association risk at all levels and take any relevant action;
• economic and political risks that could restrict our ability to access finance or trade internationally. Such risks
include, as a UK headquartered Group and as a UK exporter, the potential effects of Brexit on our ability to sell
and invest globally or receive dividends and returns from our investments in a tax efficient manner. We monitor
and plan for proposed and actual changes;
• financial risk, caused by changes to exchange rates (which have been exacerbated by the Brexit debate), interest
rates or our forecasts and estimates and the Group’s share price, can affect our profitability and cash flows.
We monitor and model likely and actual changes; and
• investment risk, that businesses we acquire or invest in fail to deliver their anticipated results. We monitor
our businesses’ performance and give assistance where required. Where acquisitions have not performed
as well as expected, we review and apply learnings to future investments.
Strategic report approval
By order of the Board
David Kershaw
Chief Executive
28 May 2019
17
Governance review
The Board encourages a culture of strong governance across the business. To reflect the importance of corporate
governance as a central tenet of M&C Saatchi’s philosophy, as well as a deliberate response to the Group’s
continued organic growth, at our 18 September 2018 Board meeting we formally adopted the principles of the 2018
UK Corporate Governance Code as issued by the FRC in July 2018 (“the Code”). We have adopted this revised
Code over three months earlier than most other users of the Code. Prior to this date the Group followed the spirit
of the QCA code.
The Code is applicable to all companies with a premium listing on the London Stock Exchange, as at 1 January
2019. M&C Saatchi plc is listed on the AIM market of the London Stock Exchange. The Group follows the Principles
of the Code; however due to the Group’s size, history, structure and life cycle stage, some Provisions of the Code
are not relevant and are therefore not followed (these are detailed in this review). As the Group continues to grow
and evolve we will revisit these provisions annually and consider whether there are grounds for their adoption.
Significant matters requiring explanation are detailed below; other areas of non-compliance, considered by
the Board as being of a lower priority, are detailed and explained on the Company website.
Culture of the company
In 2016, the Financial Reporting Council (‘FRC’) issued a report entitled ‘Corporate Culture and the Role of Boards’.
The Company reflects the recommendations of the report in its governance structures and culture, with engagement
of Board members and employees in identifying, documenting and targeting its strategic aims and objectives.
In particular, our entrepreneurs and senior management regularly make presentations to the Board in relation
to the business units and functions they are responsible for. In taking this action the Company is seeking to reflect
the main aims of the FRC report which are to:
• connect purpose and strategy to culture;
• align values and incentives; and
• assess, measure and report on the Company’s culture.
Composition of the Board and alignment to corporate strategy
The Code requires the Board and its committees to have an appropriate balance of skills, experience, independence
and knowledge of the Company to enable them to discharge their duties and responsibilities effectively and in line
with corporate strategy.
18
Governance review
Continued
The Executive Chairman of M&C Saatchi plc is Jeremy Sinclair who has been Chairman since the Company listed
on the AIM market of the London Stock Exchange in 2004. He was re-elected by the Shareholders at the 2017 AGM
with 99.2% of votes cast in favour. The Board has ensured that there are safeguards in place to counter any concerns
regarding his independent status. He is not a member of the Audit or Remuneration Committees.
Provision 11 of the Code states at least half the Board should be independent Non-Executive Directors. At the end
of the year the Board comprises the Chairman, four Executive Directors and three independent Non-Executive
Directors. During the year Lorna Tilbian replaced the outgoing Jonathan Goldstein as Senior Independent Director.
The Board believes that the diversity of skills and experience which the Executive Directors bring to the Board
is more valuable at this stage of the business’s development than having Non-Executive Directors comprising at least
half the Board. Furthermore, the Board considers its Non-Executive Directors to be sufficiently independent, robust,
and of such calibre and number that their views may be expected to be of sufficient weight such that no individual
or small group can dominate the Board’s decision-making processes.
Engagement with Shareholders
The Directors value the views of the Company’s shareholders and recognise their interest in the Group’s strategy
and performance, Board membership and quality of management. They hold regular meetings with, and give
presentations to, the Company’s institutional shareholders, discussing the Group’s results and objectives.
These meetings are attended by the Chief Executive and the Finance Director. Feedback from these meetings
is shared with the wider Board.
The AGM is used to communicate with all investors and they are encouraged to participate. The Chairman and other
members of the Board attend the AGM and are available to answer questions.
Sundry departures from the Code
The following sundry departures are made from the code: other than walking around and talking to people we have
no formal mechanism for engagement with workforce; Non-executive directors do not have sole responsibility
in terms of executive appointments; and we elect our board on a three year rotation.
19
Governance review
Continued
Other Board activities
The Board is involved in the active monitoring and review of the internal control systems in place at the business.
This process is an ongoing activity to ensure improvements are identified and subsequently actioned as
appropriate over time.
Subsequent to the adoption of the Corporate Governance Code in the latter half of 2018, the Board has put in place
a mechanism for a formal annual evaluation of Board performance. This has been committed to being completed
prior to the end of 2019, the results of which will be reported in the 2019 Annual Report.
Attendance at Board and Committee meetings during the year
Six scheduled meetings of the Board were held during the year ended 31 December 2018. The Nominations
Committee met when needed on an unscheduled basis to deal with the matters at hand, in particular the appointment
of Lorna Tilbian and replacement of the Finance Director. The Remuneration Committee met on 26 March 2019.
The attendance record of the Directors at the scheduled meetings of the Board and of the Board’s Committees
is shown in the table below.
Full
Board
Audit
committee
Remuneration
committee**
Nominations
committee
Chairman
Jeremy Sinclair
Executive directors
David Kershaw
Maurice Saatchi
Bill Muirhead
Jamie Hewitt
Non-Executive Directors
Jonathon Goldstein
Michael Peat
Michael Dobbs
Lorna Tilbian*
6/6
6/6
6/6
5/6
6/6
5/6
6/6
6/6
5/6
–
–
–
–
3/3
2/3
3/3
2/3
1/3
–
–
–
–
–
–
–
–
–
10/10
10/10
–
–
–
–
–
–
–
* Joined the board 30 January 2018, Remuneration Committee and Audit Committee.
** There has been no change in the remuneration of the Board since 2017 and consequently the Remuneration committee has not needed to meet during 2018.
20
Governance review
Continued
Nominations Committee
Meets on an ad hoc basis, when there is a need to appoint new Directors.
During the year the Committee recommended the appointment of Lorna Tilbian, and with the resignation of the
Finance Director Jamie Hewitt, conducted a full search and has recommended Mickey Kalifa to the Board. Both
appointments have been accepted by the Board.
The Committee continues to work with senior management to develop its talent pool and enable potential future
succession (see Employees and Equal opportunities page 33).
Audit Committee
The Audit Committee Chairman is Michael Peat who was a partner at KPMG from 1985 to 1993 before joining the
Royal Household. Positions held in the Household included Director of Finance and Property Services, Keeper of the
Privy Purse and Treasurer to The Queen. As a result, the Board considers that he has recent and relevant financial
experience as required by the Code. The report of the Audit Committee describing the issues considered in the year
under review is on page 24.
Remuneration Committee
The Directors’ Remuneration Report, which describes the work of the Committee and discloses the Company’s
Remuneration Policy and Annual Report on Remuneration, is on page 27. Section 172 of the UK Companies act
In our 2019 Annual report we will be required to report on how the board applies Section 172 of the UK’s Companies
Act. The section requires a director to act in a manner, in good faith, that promotes the success of the company
for the benefit of its shareholders. In doing this, directors must have regard, amongst other matters, to the:
• likely consequence of any decisions in the long term;
• interests of the company’s employees;
• need to foster the company’s business relationships with suppliers, customers and others;
• impact of the company’s operations on the community and environment;
• company’s reputation for high standards of business conduct; and
• need to act fairly as between members of the company.
Section 172 is printed on all our board meeting agendas, so that directors can reflect on it during the meeting.
By Order of the Board
Andy Blackstone
Company Secretary
28 May 2019
21
The board
Jeremy Sinclair
Chairman
DAVID KERSHAW
CHIEF EXECUTIVE
Maurice Saatchi
EXECUTIVE director
Bill Muirhead
EXECUTIVE director
JAMIE HEWITT
FINANCE director**
22
The board
Continued
Lorna Tilbian
Independent non-Executive director*
MICHAEL PEAT
Independent non-Executive director
Michael Dobbs
Independent non-Executive director
* Lorna Tilbian was appointed as a Non-Executive Director on
30 January 2018.
** Jamie Hewitt resigned as a Director on 29 March 2019, at which
point Mickey Kalifa was appointed a Director.
23
Audit committee report
Audit Committee
The Audit Committee’s terms of reference are published at www.mcsaatchiplc.com/#governance. They reflect
the requirements of the 2018 UK Corporate Governance Code with, in addition, responsibility for reviewing
the Group’s internal controls and risk management systems.
The Audit Committee works to a programme aligned to key events in the financial reporting cycle. Agendas
also include focus issues and standing items required by the Committee’s terms of reference.
The Committee met three times in 2018 and four in 2019 to date (to review the 2018 Annual Report and Accounts,
the audit thereof and significant accounting matters and judgements). Meetings are attended by the Group’s Finance
Director and Company Secretary, and also as required by the external auditors (KPMG LLP) and the internal
auditors (BDO LLP).
As the Committee’s chairman, I report to the Board after each meeting. I also have periodic meetings with Adrian
Wilcox, the KPMG partner with responsibility for the external audit.
The principal matters considered by the Committee at its seven meetings since the start of 2018 are
summarised below.
• Internal and external audits
Planning for and reviews of the audits undertaken. We focused on whether the internal auditors’ reviews,
over their three-year cycle, were adequate to provide the level of comfort required. As a result, the number
of internal audit hours was increased. They may be again to reflect the increasing size and complexity of the
Group’s operations. With respect to the external audit, planning and reviews followed the normal course, except
for the change in lead audit partner from John Bennett to Adrian Wilcox. John Bennett provided valedictory
thoughts on the Group’s accounting systems and internal controls. They were useful reference points for the
Committee. They have been considered and are being addressed with accounting system and internal control
enhancements planned for 2019. The external audit was last tendered in 2012.
• Global accounting function
In the context of increasing size and complexity, the Committee considered the capability of the Group’s global
accounting function and made suggestions in this respect to the Board during the year, which are being taken
forward in 2019. The need for action was emphasised by internal control weaknesses and misstatements
identified during the external audit of the 2018 accounts.
• UK Bribery Act
In view of the Group’s global footprint and the work undertaken for national governments, the Committee
paid particular attention to compliance with the UK Bribery Act. Further strengthening in this area has been
implemented in 2019.
24
Audit committee report
Continued
• Working capital management
In line with industry practice, the Group provides significant credit to certain of its clients. The Committee
considered working capital management and made suggestions to the Board in this respect. Work in this area
will continue in 2019.
• Changes of accounting policy and significant accounting judgements and estimates
In discharging its responsibilities for the 2018 Annual Report and Accounts, the Committee considered the following.
• Going concern – As explained on page 31, the financial statements have been prepared on the going concern
basis. In this context the Audit Committee considered the Group’s ability to meet its obligations as they fall
due for the foreseeable future, with particular reference to the significant credit which it extends to some
of its clients. Management prepared a cash flow forecast for a period of 24 months as a basis for the going
concern assessment. The Committee reviewed this forecast and the key assumptions on which it is based
and is satisfied that they are appropriate. This, together with the Group’s strong balance sheet and the sale
of the Group’s interest in Walker Media for cash in January 2019, support the continuing adoption of the going
concern basis of accounting.
• Revenue recognition – Revenue recognition is a key accounting and risk area for the Group. As referred
to above, the Board is taking forward the development of the Group’s accounting systems so that they keep
pace with the increasing size and complexity of its business. The adoption of IFRS 15 added to the complexity
and resulted in significant additional work for management and the external auditors. The Committee has
devoted considerable time to reviewing these matters. It is satisfied that the Group’s revenue is not materially
misstated. The Committee has requested that revenue accounting should be a particular area of focus for
the on-going enhancements to the Group’s accounting systems.
• Put option accounting – as discussed in the Business Model section on page 4, entrepreneurialism
and empowered management (locally and centrally) are key to the Group’s success. As part of this,
business unit managers may have put options over their minority interest shares. These shares may be
exchanged for a variable number of M&C Saatchi plc shares, the value of which reflects the performance
of the particular business unit. In addition, the Company has call options which can be exercised in defined
circumstances. The accounting for these put and call options is complicated. The Committee reviewed the
key judgements made by management in this respect. This included considering whether the put options are
remuneration for the managers concerned, with their fair value determined at inception and subsequently
taken to the income statement on a straight line basis (IFRS 2), or whether they are more akin to shareholder
rights with estimated fair value at inception taken directly to equity and subsequent movements in fair value
taken to the income statement (IFRS 9). The Committee concluded that the presentation and valuation of the
options are appropriate.
25
Audit committee report
Continued
• ‘Headline’ earnings – the Committee paid particular attention to the “alternative performance measures”
included in the Annual Report and Accounts. It reviewed the Group’s policy for the exclusion of certain items
when presenting Headline earnings and confirmed the consistent application of this policy from year to
year. The only change in the 2018 accounts has been to reflect the effect of IFRS 9 on corporate venturing
investments held by the Group (note 19b)
• Goodwill – the Committee assessed management’s determination of the carrying value of goodwill, as well
as their review of impairment triggers and consideration of impairment charges and reversals over the
course of the year. The Committee also reviewed disclosures related to impairment in notes 16 and 17. The
Committee is satisfied with the impairment conclusions reached and the presentation in the accounts.
• Acquisition accounting – There were two corporate acquisitions by the Group during the year: Scarecrow
Communications Limited and Red Hare Limited (along with its sister company Grey Whippet Ltd). Judgements
and estimates were made, in particular, when allocating the purchase consideration to intangible assets
(goodwill, customer relationships and brand name) acquired. These customer relationships and brand names
are written off through the income statement over a three year period, while goodwill remains on the balance
sheet unless impaired. Due to the way the Scarecrow Communications Limited acquisition was structured
the accounting led to an impairment equal to the contingent consideration.
• Auditor independence
The external auditor, KPMG LLP, was first appointed for the financial year ended 31 December 2012.
The Committee is satisfied that the Company has adequate policies and safeguards in place to ensure that KPMG
maintains its objectivity and independence. The fees paid to KPMG in respect of non-audit services are shown
in note 8. This work is not considered to affect the independence or objectivity of the auditor.
Michael Peat
Chairman of the Audit Committee
28 May 2019
26
Remuneration committee report
Remuneration Committee
The Board established a remuneration committee composed of the three Non-Executive Directors and is chaired
by Lorna Tilbian. The Committee meets on an ad hoc basis, when there is a need to review Executive Directors’
pay and rewards. Due to the LTIP in place and the reliance of Executive Directors on Group dividends to reward
performance, the committee met for the first time in March 2019, there were no meetings during the year.
It is the belief of the Committee that the remuneration of the Executive Board by way of salary, LTIP and dividend
flow, aligns the interest of the Executive with that of the shareholders. The Executive Board members’ salaries
are on average 6 (2017: 6) times the average Group salary, which is commensurate with their experience, contacts
and responsibilities.
The Remuneration Committee has the delegated responsibility for determining policy for Executive
Director remuneration.
27
Remuneration committee report
Continued
Policy on Directors’ remuneration
Attracting and retaining high calibre executives is a key Group objective. We seek to reward them in a way that
encourages the creation of value for shareholders, through LTIPs and a share in the Group’s dividends.
Directors’ pension arrangements
The pension contributions, if made, are to the Directors’ money purchase pension schemes.
Directors’ contracts
All Executive Directors listed in the Remuneration Report have service contracts with 12-month notice periods.
All Non-Executive Directors have contracts with a nil to 30-day notice period dependent on the circumstances.
Directors’ options, conditional share awards
In 2016, four participants paid (by way of a combination of payroll taxes and subscription price) £100,727 each
for the award. This amount is not refundable if the vesting conditions are not met. In addition, Jamie Hewitt
participant paid (by way of a combination of subscription price and deferred payment) £51,267 for the award. This
amount is not refundable and will be paid in full if the vesting conditions are not met.
Vesting of the awards is subject to:
• The achievement of certain earnings and total shareholder return (TSR) targets (the ‘Performance Conditions’)
measured over the period from 1 January 2015 to 31 December 2018 (the ‘Performance Period’); and
• The Company’s share price being above £5.00 per share at a point during the period between 1 January 2019
and 31 December 2022 (the ‘Share Price Target’).
20% of the award will be earned if average diluted EPS growth over the Performance Period is above 10%. This 20%
level will increase to 100% of the award on a straight-line basis if diluted EPS growth over the Performance Period
is between 10% and 20% (with 100% of the award being earned if diluted EPS growth of 20% or more is achieved).
If EPS growth is below 10% diluted, no award will be earned.
28
Remuneration committee report
Continued
Earned awards will be adjusted by the TSR condition. If TSR over the Performance Period is above 50% an earned
award will be increased by a half; if TSR over the Performance Period is between 0% and 50% no adjustment will
be made to an earned award; if TSR over the Performance Period is below 0% then earned awards will be reduced
by 25%. The base share price used for TSR is 297p being the share price at the time the award was valued.
Subject to the Share Price Target being achieved, an earned award, representing shares in M&C Saatchi Worldwide,
may be exchanged for M&C Saatchi plc shares. The maximum number of M&C Saatchi plc shares that may be
required to be issued under the LTIP arrangements is 3,383,605.
The award caused an accounting charge of £401k in the year (2017: £401k).
Based on the results in these accounts and providing the Company’s share price is above £5.00 per share at a point
during the period between 1 January 2019 and 31 December 2022, Jeremy Sinclair, David Kershaw, Bill Muirhead
and Maurice Saatchi (four participants) will each receive 160,562 M&C Saatchi plc shares.
In the case of Jamie Hewitt, his equity was acquired from him in March 2019, for an amount equal
to the deferred payment.
The board holds no other options in the Group or shares in subsidiary companies.
Non-Executive Directors
The remuneration of the Non-Executive Directors is determined by the Board. Fees paid to Non-Executive
Directors are reflective of skills and experience and the time required to undertake the role. No element
of pay is performance related.
Other benefits
No Director of the Company has received or become entitled to receive a benefit (other than a fixed salary as
an employee/consultant of the Company, the options indicated in this report, or a benefit included in the aggregate
amount of remuneration shown in the financial statements) by reason of a contract made by the Company or a
related corporation of which the Director is a member or with a company in which the Director has a substantial
financial interest.
By order of the Board
Andy Blackstone
Company Secretary
28 May 2019
29
Remuneration committee report
Continued
2018
Directors
David Kershaw
Bill Muirhead
Maurice Saatchi
Jeremy Sinclair
Jamie Hewitt
Total
Non-Executive Directors
Jonathan Goldstein1
Michael Dobbs
Michael Peat
Lorna Tilbian3
Total
Total Rewards
2017
Directors
David Kershaw
Bill Muirhead
Maurice Saatchi
Jeremy Sinclair
Jamie Hewitt
Total
Non-Executive Directors
Jonathan Goldstein
Michael Dobbs
Michael Peat
Total
Total Rewards
Basic salary
£000
Bonus
£000
Benefits in kind2
£000
Pension
£000
374
374
374
374
250
1,746
40
40
40
39
159
1,905
–
–
–
–
125
125
–
–
–
–
–
125
47
47
42
46
5
187
–
–
–
–
–
187
–
–
–
–
15
15
–
–
–
–
–
15
Basic salary
£000
Bonus1
£000
Benefits in kind2
£000
Pension
£000
374
374
374
374
250
1,746
40
40
40
120
1,866
–
–
–
–
125
125
–
–
–
–
125
46
47
42
45
4
184
–
–
–
–
184
–
–
–
–
15
15
–
–
–
–
15
1 Announced as resigning on 31 December 2018.
2 Benefits in kind include car allowances and permanent health insurance benefit.
3 Served on Board for only part of the year.
Total
£000
421
421
416
420
395
2,073
40
40
40
39
159
2,232
Total
£000
420
421
416
419
394
2,070
40
40
40
120
2,190
30
Directors’ report
The Directors submit their report together with the audited financial statements of the Group and Company
for the year ended 31 December 2018.
Strategic Report
A review of the Company’s business during the year, the principal risks and uncertainties facing the Group and future
prospects and developments are included in Strategic Report on pages 2 to 17 which should be read in conjunction
with this report.
Results and dividends
The consolidated income statement on page 44 shows the results for the year. The Directors approved an interim
dividend of 2.45p totalling £2,116,521 (2017: £1,715,562) and recommend a final dividend of 8.51p totalling £7,566,099
(2017: £6,261,033).
Principal activity, trading review and future developments
The principal activity of the Group during the year was the provision of advertising and marketing services.
The review of trading, future developments and key performance indicators can be found in the Strategic Report.
Going concern
Given the strength of the Group’s balance sheet, its forecast compliance with bank covenants, the risks the Group
faces (note 28 and page 96) and the steps it is taking to address those risks, its January 2019 sale of 24.9%
stake in Walker Media for £25m cash, the expected trading performance and cash flow projections for a period
of two years, the Directors have a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future.
The Directors review the Group’s profit forecasts, and review monthly its balance sheet and cash flow forecasts.
Annually, or earlier if needed, the longer term (two year) cash flow projections of the Group are reviewed,
based on anticipated scenarios and acquisitions. If additional funding is required, it is secured before
expenditure is committed.
Given the risks the Group faces, and the need to continuously change and invest in our client offerings, a two year
time horizon is the maximum length of time the Directors can foresee, however the Directors have a longer term
vision and estimates (5 years), these though are at too high level for detailed financial planning and risk assessment.
Dividend
+15% per share
£9.7m (2017: £8.1m)
31
Directors’ report
Continued
The Directors note that the £36m banking facility expires 30 April 2020, the Directors at the date of signing are
conducting a strategic review of our banking facility and how we can utilise positive working capital balances
in some subsidiaries and currencies against negative working capital balances elsewhere as well as increasing
central control automation and reporting. It is clear from credit approved offers we have received that the banks
have appetite for our debt, and the renewal of the facility does not change the Directors view of going concern,
the accounts do not include any adjustments in the event the going concern assumption is not appropriate.
Based on this, the Groups risks and uncertainties and the description of the Groups financial position in the Finance
Director’s review, the Directors believe the Group will continue as a going concern for the foreseeable future.
Financial instruments
Details of the use of financial instruments by the Group are contained in notes 24 to 26 of the financial statements.
Political contributions
During the year, the Group made no political donations (2017: nil).
Directors
The names of the Directors are given on pages 22 and 23, biographies can be found on our website
(www.mcsaatchiplc.com). Details relating to Board meeting attendance and composition of the ancillary
committees is held in the Governance Review on pages 18 to 21.
Social responsibility
The Group follows the guidance in the International (Social Responsibility) Standard ISO 26000 and is accredited
for BS OHSAS 18001, ISO 14001 and is registered with CIPS Sustainability Index.
On top of this, the Group is involved with many campaigns (including paid, low bono and pro bono) that help create
a socially responsible world.
Anti-bribery and corruption
The Group has well-established anti-bribery and anti-corruption policies (including management of conflicts
of interest) aimed at ensuring adherence to associated legal and regulatory requirements.
Whistle-blowing
Employees are encouraged to report any potential, or apparent, malpractice or misconduct in confidence
in accordance with the Group’s internal whistle-blowing policy.
32
Directors’ report
Continued
Employees and equal opportunities
The Group’s equal opportunities policy is not to discriminate on any grounds other than someone’s ability to work
effectively. To deliver this we will make reasonable adjustments to working arrangements and to the physical aspects
of the workplaces.
Diversity of thought is important to the Group and its clients. The Group is working globally and locally to improve its
future talent pool and to enhance our ability to attract and nurture the best talent regardless of background, ethnicity
or any disabilities. For details of our initiatives please see www.mcsaatchi.com/diversity/.
The Group recognises that its principal asset is its employees and their commitment to the Group’s service,
standards and customers. Decisions are made wherever possible in consultation with local management,
with succession planning performed on a regular basis at all levels. Communication with employees varies
according to need and local business size.
Slavery and human trafficking statement
The Group continually monitors its supply chains and operates a zero-tolerance policy to slavery and human
trafficking as reflected in its Modern Slavery Statement. (www.mcsaatchiplc.com/#governance)
Directors’ conflict of interest
Under the Companies Act 2006 (the ‘Act’), Directors are subject to a statutory duty to avoid a situation where they
have, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the Company.
Directors are required to notify the Company of any conflict or potential conflict of interest under an established
procedure and any conflicts or potential conflicts are noted at each Board meeting.
Directors’ liability Insurance and indemnity
The Company purchases insurance to cover its Directors and Officers against costs they may incur in defending
themselves in legal proceedings instigated against them as a direct result of duties carried out on behalf
of the Company.
33
Directors’ report
Continued
Directors & Substantial shareholdings
As at 22 May 2019, the Company has been notified by shareholders representing 3% or more of issued share capital
of the following interests:
Octopus Investments
Paradice Investment Management
Aviva plc and its subsidiaries
Oppenheimer Funds
Herald Investment Trust
David Kershaw*
Bill Muirhead*
Maurice Saatchi*
Jeremy Sinclair*
Investec Wealth & Investment
Invesco Perpetual
Polar Capital
Canaccord Genuity
Close Brothers Asset Management
Shares held
12,208,224
9,465,470
4,692,384
4,635,004
4,136,433
4,127,060
4,127,060
4,127,060
4,127,060
4,002,248
3,892,004
3,870,416
3,550,000
3,031,212
%
11.9%
11.3%
5.3%
5.2%
4.7%
4.6%
4.6%
4.6%
4.6%
4.5%
4.4%
4.4%
4.0%
3.4%
* The above directors’ shares have not changed during the year. Jamie Hewitt held 54,451 shares till all were sold on 25 September 2018
Regularly updated details of the Directors and substantial shareholding can be found on the corporate website
www.mcsaatchiplc.com.
Events since the end of the financial year
On the 31 January 2019 the Group sold its 24.9% associate Walker Media (trading as Blue 449) to the Publicis Group
for £25m cash. Walker Media comprised 83% of the Group’s associate income, so its sale will reduce the Group’s
future associate income by £2.4m, reduce the Group’s interest payments and increase our effective tax rate by 1.3%.
Prior to the year end the Group agreed to the terms to extend the lease on its head office, at 36 Golden
Square, London, W1F 9EE, by 15 years. The lease extension will be entered into following the signing of these
accounts and will have the effect of delaying the benefit on transition to IFRS16 from this material tail end lease
for some years.
The Directors are not aware of any other events since the end of the financial year that have had, or may have,
a significant impact on the Group’s operations, the results of those operations, or the state of affairs of the Group
in future years.
More than 20%
Shares held by less
than 3% holders
34
Directors’ report
Continued
Treasury shares
At the Annual General Meeting (AGM) in 2018, the Directors were given the authority to purchase up to 8,270,000
of its ordinary shares. The Directors will seek to renew this authority at the next AGM. During the year, the Company
held 700,000 of its ordinary shares (‘treasury shares’). The Directors will use them to fulfil option obligations.
Directors’ power to issue shares
At the AGM in 2018, the Directors were given the authority to issue up to 55,000,000 of its ordinary shares of which
8,270,000 were approved to be issued for cash. During the year, the Company issued 6,270,751 shares to fulfil options
and to acquire equity (note 25). The Company did not issue any shares for cash.
Shares issued
in year 6.3M
Change of control
Depending on the circumstance, some of our put option agreements vest on change of control.
Auditor
The current Directors have taken all the steps that they ought to have taken to make themselves aware of any
information needed by the Company’s Auditor for the purposes of their audit and to establish that the Auditor
is aware of that information. The Directors are not aware of any relevant audit information of which the
Auditor is unaware.
KPMG LLP will be seeking re-appointment as Auditor of the Company and a resolution proposing this will be put
to the 2018 AGM.
35
Statement of directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial
year. As required by the AIM Rules of the London Stock Exchange (and UK Law), they are required to prepare
the Group financial statements in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent
Company financial statements in accordance with UK accounting standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework. For a full Group accounting year
following BREXIT, IFRSs as adopted by the EU will be replaced by UK adopted IFRS. The first such accounting period
that could be affected by this change is the year ended 31 December 2020.
Under company law the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that
period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant, reliable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRSs
as adopted by the EU;
• for the Parent Company financial statements, state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and explained in the financial statements;
• assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
36
Statement of directors’ responsibilities
Continued
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of
the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006.
They are responsible for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report
and a Directors’ Report that comply with that law and those regulations.
In accordance with the principles of the UK Corporate Governance Code, the Board has established arrangements
to evaluate whether the information presented in the Annual Report is fair, balanced and understandable.
The Board considers the Annual Report and financial statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareowners to assess the Company’s position,
performance, business model and strategy.
Website publication
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website (www.mcsaatchiplc.com). Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the Board
Andy Blackstone
Company Secretary
24 May 2019
Regular updates
www.mcsaatchiplc.com
37
38
Preparation
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statements and
analysis of net debt
1. Headline results and earnings per share
2. Changes in accounting policies
3. Segmental information
4. Revenue from contracts with customers
5. Group companies
6. Operating costs
7. Staff costs
8. Auditors' remuneration
9. Net finance income / (costs)
10. Taxation
11. Deferred taxation
12. Dividends
13. Acquisitions
14. Cash consumed by acquisitions
15. Deferred and contingent consideration
40
44
45
46
48
49
50
54
58
64
67
72
73
73
74
74
76
77
78
79
79
16. Intangible assets
17. Investments in associates and joint ventures
18. Plant and equipment
19. Other non-current assets
20. Trade and other receivables
21. Trade and other payables
22. Borrowings
23. Other non-current liabilities
24. Minority shareholder put option liabilities
25. Share capital
26. Share based payments
27. Fair value measurement
28. Financial risk management
29. Related party transactions
30. Commitments
31. Assets held for sale
32. Post balance sheet events
33. Other accounting policies
34. New and revised standards issued but
not yet effective
Company accounts
Independent Auditors Report
Additional information
80
82
84
85
86
87
87
88
89
91
92
96
98
101
101
101
102
102
103
104
110
120
39
Preparation
Preparation
Basis of preparation
Critical accounting policies
The Group’s consolidated financial statements have been prepared on a going concern basis,
as discussed in the Director’s report on page 31, and in accordance with EU-endorsed International
Financial Reporting Standards (IFRS) and the Companies Act 2006 applicable to companies
reporting under IFRS.
Certain of the Group’s significant accounting policies are considered by the Directors to be critical
due to the level of complexity, judgement, or estimation involved in their application and potential
impact on the consolidated financial statements. The critical accounting policies are listed below
and explained in more detail in the relevant notes to the Group financial statements.
The consolidated financial statements are presented in pounds sterling and, unless stated otherwise,
rounded to the nearest thousand. They have been prepared under the historical cost convention,
except for the revaluation of certain financial instruments.
Transactions in foreign currencies are translated at the exchange rate ruling at the dates
of the transactions. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the exchange rates ruling at the balance sheet date, with the resulting
exchange differences recognised in the income statement.
Consolidation
The financial statements of the Group consolidates the results of the Company and its subsidiary
entities, and includes its share of its joint ventures’ and associates’ results accounted for under
the equity method.
A subsidiary is an entity controlled by the Group. The Group controls a subsidiary when it is exposed,
or has the rights, to variable returns from its involvement with the subsidiary and has the ability
to affect those returns through its power over the subsidiary.
The results of subsidiaries are included from the date of acquisition. Where necessary, adjustments
are made to the financial statements of subsidiaries to bring their accounting policies into line
with those of the Group. Intra Group transactions, balances, income and expenses are eliminated
on consolidation.
Where a consolidated company is less than 100% owned by the Group, the non-controlling interest
share of the results and net assets is recognised at each reporting date in equity separately from
the equity attributable to the shareholders of the company.
The assets and liabilities of overseas subsidiaries (which comprise the Group’s net investment
in foreign operations) are translated at the exchange rate ruling at the balance sheet date.
The resulting exchange differences are recognised in other comprehensive income and accumulated
in equity within the foreign exchange reserve.
Significant accounting policies
The significant accounting policies applied in the preparation of these consolidated financial
statements are set out in the relevant notes. These policies have been applied consistently
to all the years presented, unless otherwise stated.
Revenue recognition
The Group applied IFRS 15 Revenue from customers at the start of the year. The nature
and effect of the changes in terms of how the Group recognised revenue as a result of adoption
is described in note 2.
The Group is in the business of the provision of advertising and marketing services. Revenue
comprises commission and fees earned and is stated exclusive of VAT. Revenue from contracts
with customers is recognised as, or when, the performance obligations present within the
contractual agreements are satisfied. The type of fees arising from the contractual agreements
entered into with clients include:
– project fees
– retainer fees
– commission on media spend and other activities where we act as agent arranging for a third
party (such as Talent) to provide services to a client.
See note 4 for full Revenue accounting policy.
Accounting for subsidiary acquisitions
The acquisition of subsidiary enterprises is accounted for as a business combination by application
of the acquisition method. Under the acquisition method the fair value of the consideration provided
is compared to the identifiable assets acquired and liabilities subsumed. Such identification may
result in the identification of intangible assets which would otherwise not be recognised, such as
customer lists. The difference between the fair value of consideration provided and the fair value
of the net assets acquired is recognised as either goodwill or a gain from a bargain purchase.
Goodwill and other intangible assets
Intangible assets comprise goodwill, certain intangible assets arising as a result of a business
combination (such as brand names or customer relationships) and capitalised computer software.
Other than Goodwill, no intangible assets held by the Group are considered to have an indefinite life
and are amortised over their useful life. Goodwill is not amortised and held at cost less accumulated
impairment losses. Impairment reviews are undertaken annually in the absence of any indication
of impairment. If goodwill, or any other intangible asset, has an indication of impairment then reviews
for potential impairment are performed as required.
40
Preparation
Continued
Put option accounting (IFRS 2 and IFRS 9)
Significant accounting judgements
It is common for equity partners in the Group’s subsidiaries (‘minority interests’, ‘MI’) to hold put
options over their equity such that they can require the Group to purchase their non-controlling
interest for either a variable number of shares or cash. Dependent on the terms of the underlying
agreement these options are either recognised as a liability under IFRS 9 (note 24) or as a
conditional share awards in the scope of IFRS 2 (note 26).
Under IFRS 9 the associated liability is recognised at fair value at inception of the agreement
and then remeasured at the end of each reporting period, with the change in the fair value
of the instruments being recognised in the income statement as profit or loss.
Typically, the terms of instruments accounted for under IFRS 2 are such that they have the cost
of the transaction measured at fair value on the grant date. This cost is then recognised over
the life of the award and accumulated within equity.
Headline results
As reflected in our business model (page 4) the Directors believe that the headline results and
headline earnings per share (see note 1) provide additional useful information on the underlying
performance of the business. The headline results reflect the underlying profitability of the business
units by excluding all effects of buying and selling equity by the Group; and the accounting effects
of the entrepreneurs 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 entrepreneurs’
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 1 reconciles reported to headline results.
Our segmental reporting (note 3) reflects our 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 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. Note 1 shows
a reconciliation between the Group’s statutory results and the headline results.
Significant accounting judgements and key sources of estimation uncertainty
In the course of preparing financial statements, management necessarily makes judgements
and estimates that can have a significant impact on the financial statements. Estimates and
judgements made are continually evaluated based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
The estimates and judgements that have a significant risk of causing a material adjustment to the
financial statements in future periods are outlined below.
In the process of applying the Group’s accounting policies, management has made the following
judgements, which have the most significant effect in terms of the amounts recognised, and their
presentation, in the consolidated financial statements.
With the adoption of IFRS 15 the Group has recognised three categories of critical judgements
in terms of revenue which relate to (i) agent versus principal considerations (ii) the impact on
the number of performance obligations in a contract which has integrated services and (iii) media
volume income recognition as revenue from contracts with customers.
Agent versus principal considerations
The Group enters into contracts with customers which include arrangements where it purchases
services or goods from third parties on behalf of the client. In these instances, the Group considers
the substance of the overall contract in order to assess whether such arrangements constitute the
Group acting as either an Agent or as Principal. The adoption of ‘IFRS 15 Revenue from contracts
with customers’ has significantly changed this assessment (compared to legacy IFRS) and, as
disclosed in note 2, led to an increase in revenue recognised as Principal and an identical reduction
in revenue which would otherwise have been recognised as Agency .This change is the most
significant effect of the adoption of ‘IFRS 15 Revenue from contracts with customers’.
The key judgement the Group make when assessing whether they are acting as an Agent
in a contractual relationship relates to whether they control either the good or the service
prior to transfer to the customer. This assessment includes consideration of the following
indicators of control:
•
Is the Group responsible for fulfilling the promise to provide the goods or services in
an acceptable format or to a satisfactory quality to meet the customer requirements?
• Does the Group direct the activity of the other party performing the service?
• Does the Group provide a service of integrating or combining the third-party goods or services
with other goods or services?
In addition, certain of the Group’s contractual arrangements where the Group is acting as Agent
(specifically for Talent – see Note 4d) have a significant time lag between the Group’s involvement
in arranging for services to be provided by a third party to a client, and the actual point at which
these services are provided by the third party. In these instances, it has been concluded that
the performance obligation related to arranging the services to be provided is completed once
the services have been performed (as opposed to when they have been arranged to perform).
41
Preparation
Continued
Multiple contractual terms
We build our services around our client’s needs, and often use client’s standard terms with
negotiated modification, this results in many different contractual arrangements.
Judgment is needed to interpretation of contractual terms under IFRS15 to work out when revenue
is recognised. Small changes in the contractual terms and implied contractual terms can change
the period in which revenue is recognised.
Identification of performance obligations for integrated services and their
recognition as revenue
The Group often enters into contracts with customers which include the provision of an array
of services which are judged as representing a single performance obligation. Such instances arise
where the over-arching objective of the contract is comprised of a number of discrete activities
which are integrated into the provision of a wider overall service. An example would be where
the Group has been engaged to produce a client’s media strategy. The formulation and delivery
of this strategy is comprised of a number of individual services, but the delivery of the strategy
is assessed as being the only performance obligation resident in the contract as the discrete
services being supplied are not distinct in the context of the contract as a whole.
Management consider the following features of contractual arrangements entered into with
customers when assessing whether a contract has a number of services which are not distinct
and is thus comprised of a combined performance obligation:
• Can the client benefit from the individual goods or services promised in the contract on their
own (or in combination with resources readily available to the client).
• Can a single method of measuring progress of satisfaction of the combined performance
obligation be applied which faithfully depicts the economics of the arrangement.
•
Is there a single payment mechanism for the combined performance obligation.
• Does the Group perform a significant service of integrating the services provided and are these
promised services highly interdependent.
Certain of the Group’s contractual relationships which are represented by a combined performance
obligation are solely remunerated in terms of commissions earned on media purchases made
on behalf of the client. In the majority of instances media buying represents an agency relationship.
The combined performance obligation however may include elements of services which, if they
comprised a performance obligation in their own right, would be principal in nature. In these
instances, as the aggregate of services provided are not separable, management have concluded
that fees should be recognised entirely as agent or entirely as principal in nature. The most
appropriate basis as to whether the revenue recognised by these types of arrangements should
be as agent or as principal has been concluded as being that represented by the manner in which
the fees are calculated.
Media volume income
As disclosed in note 4, the Group receives volume rebates from certain suppliers for transactions
entered into on behalf of clients, which the clients have agreed we can retain. Based on the
contractual terms of the agreements entered into being such that the Group acts as Agent in these
instances, such rebates are, in the judgement of management, recognised as revenue from contracts
with customers where terms are such that the rebates are retained by the Group.
Certain of the Group’s clients, however, have contractual terms such that the pricing of their
contracts are structured with the volume rebate being passed through to them. As such, the timing
of recognition and valuation of media volume income is subject to judgement in terms of the amounts
which are to be retained by the Group and amounts which are to be provided for in lieu of their pass
through to clients.
Minority interest put option accounting – IFRS 2 or IFRS 9
As noted on page 42 accounting for Minority Interest (MI) put options comprises 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 are in scope of IFRS 2 (which does not result
in liabilities) is a key management judgement.
The key feature of the awards made to MI (who hold an equity share in subsidiary enterprises)
is whether the awards are linked to their employment by the Group. Where the terms of the awards
are such that the holders are able to redeem the option in exchange for a variable number of shares
in the parent of the Group conditional on their employment then the awards are accounted for
as an equity-settled share-based payment in exchange for employment services. Where the holder
is entitled to exchange the option in the future for a variable number of shares in the parent of the
Group with no requirement to be an employee, or other associated indicators of employment, then
the award is recognised as a liability.
The valuation of these awards represent sources of estimation uncertainty which are
discussed below.
Impairment – assessment of CGUs and assessment of indicators of impairment
Where possible, impairment is assessed at the level of individual assets. When, however, this is not
possible, then the Cash Generating Unit (‘CGU’) level is used. A CGU is the smallest identifiable
asset or group of assets that generates independent cash flows. Judgement is applied to identify
the Group’s CGUs; however, they are typically comprised of the underlying entities (both trading
subsidiaries and associates) which comprise the Group. This is on the basis that each of these
entities represents a stand-alone operating business, none of which holds a cluster of assets
which could constitute a CGU in their own right. Goodwill is always allocated to a CGU and never
considered in isolation.
External and internal factors are monitored for indicators of impairment. In terms of such indicators,
management typically consider adverse changes in the economy or political situation of the
geographic locale in which the underlying entity operates in addition to risk of client loss or gain
and internal reporting being indicative that an entity’s future economic performance is better
or worse than expected.
42
Preparation
Continued
Where management have concluded that such an indication of impairment exists then
the recoverable amount of the asset is assessed (see significant estimates).
Estimates and assumptions
Those areas of the Group’s financial statements subject to key assumptions and other significant
sources of estimation uncertainty at the reporting date that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year
are described below. The Group has based its assumptions and estimates on parameters available
when the financial statements were prepared.
Impairment
Management’s approach for determining the recoverable amount of an individual asset or CGU
is based on their value in use. Generally, discounted cash flow models are used to determine
the recoverable amount of CGUs. The appropriate estimates and assumptions used require
judgement and there is significant estimation uncertainty. The results of impairment reviews
conducted at the end of the year are held in note 16. The key variables used in the assessment
of the recoverable amount include:
• Five-year forecasts of CGU performance.
• Discount rate used to calculate present value of future cashflows.
In the year there have been total impairments relating to goodwill of £2,121k (2017: £5,214k)
and the value of goodwill held at year end was £42,957k (2017: 40,803k).
Acquired intangibles
On acquisition specific intangible assets are identified, recognised separately from goodwill,
measured at fair value and amortised over their estimated useful lives. Typically, these include items
such as brand names and customer lists. The valuation at which these assets are recognised are
calculated using an appropriate valuation model. Valuation models used by management include
royalty relief method and direct cash flow approaches.
Details surrounding the intangible assets recognised in the year are held at note 16. The
value of intangible assets acquired as part of a business combination, excluding goodwill,
at 31 December 2018 is £2,859k (2017, £2,591k).
Fair value measurement of financial instruments
The Group holds certain financial instruments which are recorded on the balance sheet at fair
value. At the year-end these relate to (i) Equity investments at FVTPL in non-listed limited companies
(note 19) and (ii) Put option liabilities (note 24). No active market exists for either of these financial
instruments and their fair value is measured by the most appropriate valuation techniques available,
which vary based on the nature of the instruments. The inputs to the valuation models are taken from
observable markets where possible, but where this is not feasible, a degree of judgement is required
in establishing fair values.
The basis of calculation of the estimated fair value of these financial instruments in addition
to sensitivity analyses on the estimates salient inputs are detailed in note 27.
Share based incentive arrangements
Share based incentive arrangements are (and have been in the year) provided to certain employees.
These are valued at the date of the grant using stochastic Monte Carlo pricing models with non-
market vesting conditions. Typically, the value of these awards is directly related to performance
of a particular entity of the Group in which the employee holds a minority interest of the equity.
The key inputs to the pricing model therefore involve management judgement, being in terms of
interest rates, share price volatility and expected future performance of the entity to which the
award relates. Management used various sources of information, including the Group’s own share
price information, historical experience of past performance and published data on risk-free interest
rates (government gilts).
Details of awards made in the year are held at note 26. The charge recognised in the current year
in respect of these arrangements is £6,104k (2017: £13,501k).
43
Consolidated Income statement
Year ended 31 December
Billings
Revenue
Project cost
House cost
Operating costs
Staff cost
Other gains
Operating profit
Share of results of associates and joint ventures
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity shareholders of the Group
Non-controlling interests
Profit for the year
Earnings per share
Basic (pence)
Diluted (pence)
Headline results*
Operating profit
Profit before tax
Profit after tax attributable to equity shareholders of the Group
Basic earnings per share (pence)
Diluted earnings per share (pence)
Revenue
Project cost
Net revenue
* The reconciliation of headline to statutory results above can be found in note 1.
The notes on pages 40 to 43 and 50 to 103 form part of these consolidated financial statements.
2017
£000
-
(58,827)
(58,827)
2018
£000
(167,031)
(57,653)
(224,684)
Note
1
1
6
7
19b
1
17
9
9
1
10
1
1
1
1
1
2018
£000
609,610
422,404
(224,684)
(182,536)
1,584
16,768
2,825
273
(2,268)
17,598
(6,635)
10,963
8,255
2,708
10,963
9.79p
9.15p
30,327
32,297
21,096
25.01p
23.38p
422,404
(167,031)
255,373
2017
£000
535,964
251,481
(187,319)
-
5,335
1,987
3,326
(1,346)
9,302
(4,736)
4,566
2,672
1,894
4,566
3.43p
3.16p
26,725
27,655
17,971
23.04p
21.22p
251,481
-
251,481
44
Consolidated STATEMENT OF OTHER COMPREHENSIVE INCOME
Year ended 31 December
Profit for the year
Other comprehensive income*
Exchange differences on translating foreign operations before tax
Other comprehensive income for the year net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity shareholders of the Group
Non-controlling interests
Total comprehensive income for the year
* All items in the consolidated statement of comprehensive income will be reclassified to the income statement
The notes on pages 40 to 43 and 50 to 103 form part of these consolidated financial statements.
2018
£000
10,963
1,000
1,000
2017
£000
4,566
(1,177)
(1,177)
11,963
3,389
9,255
2,708
11,963
1,495
1,894
3,389
45
Consolidated BALANCE SHEET
At 31 December
Non-current assets
Intangible assets
Investments in associates and JV
Plant and equipment
Other non-current assets
Deferred tax assets
Financial assets at fair value through profit or loss
Current assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Non-current assets classified as Held-for-sale
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Deferred and contingent consideration
Minority shareholder put option liabilities
Net current assets
Total assets less current liabilities
Non-current liabilities
Deferred tax liabilities
Borrowings
Contingent consideration
Minority shareholder put option liabilities
Other non-current liabilities
Total net assets
Note
16
17
18
19
11
19b
20
31
21
22
15
24
11
22
15
24
23
2018
£000
49,780
9,483
13,274
4,248
5,687
12,958
95,430
150,941
968
50,065
13,106
215,080
(142,627)
(3,318)
(14,060)
(752)
(12,327)
(173,084)
41,996
137,426
(1,444)
(38,541)
(514)
(6,063)
(1,944)
(48,506)
88,920
2017
£000
48,515
19,725
12,269
9,325
4,797
-
94,631
120,096
945
48,957
-
169,998
(128,256)
(1,221)
(3,731)
(377)
(14,813)
(148,398)
21,600
116,231
(761)
(37,764)
(833)
(10,316)
(2,487)
(52,161)
64,070
The notes on pages 40 to 43 and 50 to 103 form part of these consolidated financial statements.
46
Consolidated BALANCE SHEET
Continued
At 31 December
Equity
Share capital
Share premium
Merger reserve
Treasury reserve
Minority interest put option reserve
Non-controlling interest acquired
Foreign exchange reserve
Retained earnings
Equity attributable to shareholders of the Group
Non-controlling interest
Total equity
Note
29
2018
£000
876
46,667
31,592
(792)
(12,954)
(22,464)
4,593
34,195
81,713
7,207
88,920
2017
£000
813
32,095
31,592
(792)
(13,958)
(21,040)
3,593
25,235
57,538
6,532
64,070
These consolidated financial statements were approved and authorised for issue by the Board on 24 May 2019 and signed on its behalf by:
David Kershaw
Chief Executive
M&C Saatchi plc
Company Number 05114893
The notes on pages 40 to 43 and 50 to 103 form part of these consolidated financial statements.
47
Consolidated Statement of changes in equity
At 1 January 2017
Acquisitions
Acquisitions of minority interest
Exercise of put options
Exchange rate movements
Share option charge
Dividends
Total transactions with owners
Total comprehensive
income for the year
At 31 December 2017
Adjustment on initial
application of IFRS 15
Adjustment on initial
application of IFRS 9
Adjusted balance at 1 January 2018
Acquisitions
Acquisitions of minority interest
Exercise of put options
Exchange rate movements
Deferred consideration
Issue of shares to minorities
Share option charge
Dividends
Total transactions with owners
Total comprehensive
income for the year
At 31 December 2018
26
12
13
14
15
26
12
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Treasury
reserve
£000
Note
MI put
option
reserve
£000
Non-
controlling
interest
acquired
£000
Foreign
exchange
reserves
£000
Retained
earnings
£000
Subtotal
£000
Non-
controlling
interest
in equity
£000
749
24,099
31,592
(792)
(20,598)
(13,122)
4,770
15,871
42,569
6,828
4
5
55
–
–
–
64
–
1,498
1,587
4,911
–
–
–
7,996
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,640
–
–
–
–
(1,390)
(6,640)
112
–
–
6,640
(7,918)
–
–
–
–
–
–
–
–
–
(61)
–
13,501
(6,748)
6,692
1,502
202
4,905
112
13,501
(6,748)
13,474
–
–
(1,177)
2,672
1,495
813
32,095
31,592
(792)
(13,958)
(21,040)
3,593
25,235
57,538
–
–
813
18
–
44
–
1
–
–
–
63
–
–
–
32,095
6,484
–
7,630
–
458
–
–
–
14,572
–
–
–
–
–
–
–
–
–
–
–
28
28
2,971
2,971
31,592
(792)
(13,958)
(21,040)
3,593
28,234
60,537
6,532
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
973
31
–
–
–
–
–
(319)
(973)
(132)
–
–
–
–
1,004
(1,424)
–
–
–
–
–
–
–
–
–
–
–
(20)
–
–
–
6,104
(8,378)
(2,294)
6,502
(319)
7,654
(101)
459
–
6,104
(8,378)
11,921
876
46,667
31,592
(792)
(12,954)
(22,464)
4,593
34,195
81,713
7,207
88,920
–
–
1,000
8,255
9,255
2,708
11,963
Total
£000
49,397
1,737
512
4,905
(140)
13,501
(9,231)
11,284
3,389
64,070
28
2,971
67,069
6,502
(319)
7,654
(77)
459
551
6,104
235
310
–
(252)
–
(2,483)
(2,190)
1,894
6,532
–
–
–
–
–
24
–
551
–
(2,608)
(10,986)
(2,033)
9,888
The definitions of the reserves reported above can be found in note 33.
The notes on pages 40 to 43 and 50 to 103 form part of these financial statements.
48
Consolidated cash flow statement and analysis of net debt
Note
6
7
2018
£000
255,373
(57,653)
2017
£000
251,481
(58,827)
Year ended 31 December
Note
Net cash from operating and investing activities
Financing activities
(182,536)
(187,319)
Dividends paid to equity holders of the Company
12
Year ended 31 December
Net revenue
House cost
Staff cost
Other gains
Operating profit
Adjustments for:
Depreciation of plant and equipment
Loss on sale of plant and equipment
Loss on sale of software intangibles
Increase in financial assets at FVTPL
Impairment and amortisation of acquired intangible assets
Impairment of associate and investments
Impairment of goodwill and other intangibles
Amortisation of capitalised software intangible assets
Equity settled share-based payment expenses
Operating cash before movements in working capital
Increase in trade and other receivables
Increase in contract assets
Increase in trade and other payables
Increase in contract liabilities
Cash generated from operations
Tax paid
Net cash from operating activities
Investing activities
Acquisitions of subsidiaries net of cash acquired
Acquisitions of associates
Acquisitions of unlisted investments
Proceeds from sale of plant and equipment
Purchase of plant and equipment
Purchase of capitalised software
Dividends received from associates
Interest received
Net cash consumed investing activities
Net cash from operating and investing activities
1,584
16,768
–
5,335
18
3,558
3,079
75
9
19b
(1,584)
16
17
16
16
26
19b
14
19
18
17
4,427
674
2,195
303
6,104
32,529
(25,231)
(679)
153
8,240
15,012
(6,018)
8,994
441
(904)
(780)
77
(4,597)
(1,046)
428
273
(6,108)
2,886
57
4
–
2,021
–
5,214
211
13,501
29,422
(10,806)
–
11,665
–
30,281
(6,727)
23,554
(951)
–
(2,024)
77
(3,451)
(385)
1,806
288
(4,640)
18,914
Dividends paid to non-controlling interest
Proceeds from issue of shares to non-
controlling interests
Repayment of finance leases
Repayment of invoice discounting
Proceeds from bank loans
Repayment of bank loans
Interest paid
Net cash consumed by financing activities
Net (decrease) / increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the beginning of the year
Total cash and cash equivalents at the end of the year
Cash and cash equivalents
Bank Overdrafts*
Total cash and cash equivalents at the end of the year
Bank loans and borrowings*
Net cash
22
22
2018
£000
2,886
2017
£000
18,914
(8,378)
(2,608)
85
(45)
(914)
9,100
(9,462)
(1,355)
(13,577)
(10,691)
45
48,957
38,311
50,065
(11,754)
38,311
(6,748)
(2,484)
–
(28)
(730)
10,240
(359)
(1,275)
(1,384)
17,530
(795)
32,222
48,957
48,957
–
48,957
(40,818)
(2,507)
(41,590)
7,367
* These overdrafts are legally offsettable against balances in held in the UK, however they have not been netted off
in accordance with the requirements of IAS32.42.
The notes on pages 40 to 43 and 50 to 103 form part of these consolidated financial statements.
49
Notes
1. Headline results and earnings per share
The analysis below provides a reconciliation between the Group’s statutory results and the headline results. This is described further in our basis of preparation note on page 41.
Amortisation
of acquired
intangibles
(note 16)
£000
Impairment
of acquired
intangibles
(note 16)
£000
Impairment
of
associates
(note 17)
£000
FVTPL
investments
under
IFRS 9
£000
Revaluation of
contingent
consideration
(note 15)
£000
Capital gain
tax on
issue of put
options ****
£000
Acquisition
related
remuneration*
£000
Put option
accounting
(note 24
and 26)**
£000
Year ended 31 December 2018
Note
Billings
Revenue
Net revenue
Operating profit
Share of results of associates and JV
Finance income
Finance cost
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to equity
holders of the Group***
2018
£000
609,610
422,404
255,373
16,768
2,825
273
(2,268)
17,598
17
9
9
10
(6,635)
10,963
(2,708)
8,255
–
–
–
–
–
–
–
–
–
–
–
–
4,427
2,195
674
(1,177)
–
–
–
4,427
(1,021)
3,406
(937)
2,469
–
–
–
2,195
–
2,195
–
2,195
–
–
–
674
–
674
–
674
–
–
229
(948)
179
(769)
–
(769)
–
–
–
37
–
–
–
37
–
37
–
37
–
–
–
–
–
–
–
–
517
517
149
666
Headline
results
£000
609,610
422,404
255,373
–
–
–
–
–
–
1,299
6,104
30,327
–
–
–
1,299
–
1,299
(403)
896
–
–
2,825
273
911
(1,128)
7,015
(342)
6,673
32,297
(7,302)
24,995
–
(3,899)
6,673
21,096
*
**
***
Details of this breakdown can be found in note 7. The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a conditional share award.
These values represent put options accounted for as conditional share awards (£6,104k) (note 26) and fair value adjustments to minority put option liabilities (£911k) (note 24).
Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above. The increase is calculated as the difference between 2017 and 2018 measures. Headline operating margin is
calculated as: Headline operating profit divided by net revenue.
****
As part of setting up equity schemes in Australia, subsidiary equity was disposed of which created a local profit on disposal. On consolidation the profit on disposal has been eliminated (IFRS10.23), however, the capital gains tax and non-
controlling interest effect has not been so removed.
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.
50
Notes
Continued
1. Headline results and earnings per share continued
The analysis below provides a reconciliation between the Group’s statutory results and the headline results.
Amortisation
of acquired
intangibles
(note 16)
£000
Impairment
of acquired
intangibles
(note 16)
£000
Deferred tax on
acquired intangible
US tax rate
change (note 11)
£000
Deferred tax on
put options US
tax rate change
(note 11)
£000
Revaluation
of contingent
consideration
(note 15)
£000
Acquisition
related
remuneration
(note 7)*
£000
Put option
accounting
(note 24
and 25)**
£000
Year ended 31 December 2017
Note
Billings
Revenue
Net revenue
Operating profit
Share of results of
associates and JV
Finance income
Finance cost
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to equity
holders of the Group***
2017
£000
535,964
251,481
251,481
5,335
1,987
3,326
(1,346)
9,302
6
17
9
9
10
(4,736)
4,566
(1,894)
2,672
–
–
–
–
–
–
2,021
5,214
–
–
–
2,021
(671)
1,350
(365)
985
–
–
–
5,214
(1,804)
3,410
–
3,410
–
–
–
–
–
–
–
–
981
981
–
981
–
–
–
–
–
–
–
–
392
392
–
392
–
–
–
40
–
–
–
40
–
40
–
40
* Details of this breakdown can be found in note 7. The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a conditional share award.
** These values represent put options accounted for as conditional share awards (£13,501k) (note 26) and fair value adjustments to minority put option liabilities (£3,037k) (note 24).
Headline
results
£000
535,964
251,481
251,481
26,725
–
–
–
–
–
–
614
13,501
–
–
–
614
–
614
(591)
23
–
1,987
(3,037)
–
10,464
(996)
9,468
–
289
(1,346)
27,655
(6,834)
20,821
(2,850)
9,468
17,971
51
51
Notes
Continued
1. Headline results and earnings per share continued
Policy
Basic and diluted 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 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. Anti-dilutive potential
ordinary shares are excluded. The dilutive effect of unvested outstanding options is calculated based on the number that would vest had the balance sheet date been the vesting date.
Year ended 31 December 2018
Profit attributable to equity shareholders of the Group
Basic earnings per share
Weighted average number of shares (thousands)
Basic EPS
Diluted earnings per share*
Weighted average number of shares (thousands) as above
Add
– Conditional shares without dividend rights
– Conditional shares with dividend rights**
– Contingent consideration
Total
Diluted earnings per share
* All the put options detailed in note 24 are non-dilutive as the exercise price approximates fair value of the underlying non-controlling interest.
** Conditional shares with dividend rights are excluded from any calculation of conditional share awards that uses diluted EPS growth as a measure.
2018
£000
8,255
84,360
9.79p
Headline
2018
£000
21,096
84,360
25.01p
84,360
84,360
4,038
1,500
350
90,248
9.15p
4,038
1,500
350
90,248
23.38p
52
Notes
Continued
1. Headline results and earnings per share continued
Year ended 31 December 2017
Profit attributable to equity shareholders of the Group
Basic earnings per share
Weighted average number of shares (thousands)
Basic EPS
Diluted earnings per share*
Weighted average number of shares (thousands) as above
Add
– Conditional shares without dividend rights
– Conditional shares with dividend rights**
– Contingent consideration
Total
Diluted earnings per share***
* All the put options detailed in note 24 are non-dilutive as the exercise price approximates fair value of the underlying non-controlling interest.
** Conditional shares with dividend rights are excluded from any calculation of conditional share awards that uses diluted EPS growth as a measure.
*** Excludes put options attached to loss making entities in note 26 and all entities note 24, as items are anti-dilutive for the purposes of this calculation in line with IAS33.
2017
£000
2,672
77,999
3.43p
Headline
2017
£000
17,971
77,999
23.04p
77,999
77,999
2,763
3,829
108
84,699
3.16p
2,763
3,829
108
84,699
21.22p
53
Notes
Continued
2. Changes in accounting policies and disclosures
The effect of adopting IFRS 15 as at 1 January 2018 is shown below.
New and amended standards and interpretations
The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as a result
of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018, but do not have an
impact on the consolidated financial statements of the Group. The Group has not early adopted any
standards, interpretations or amendments that have been issued, but are not yet effective.
New standards and interpretations not yet adopted, including a preliminary assessment of the impact
of the new leasing standard (IFRS 16) are detailed in note 34.
IFRS 15 Revenue from contracts with customers
IFRS 15 supersedes IAS 11 Construction contracts, IAS 18 Revenue and related interpretations
(Legacy IFRS). It applies to all revenue arising from contracts with customers. IFRS 15 establishes
a comprehensive framework for determining whether, how much and when revenue and the related
cash flows is to be recognised. A five-step model is used whereby consideration received or expected
to be received is recognised as revenue when contractual performance obligations are satisfied by the
transfer of control and of the relevant goods or services to the customer.
IFRS 15 requires entities to exercise judgement (see pages 41 and 42 for significant judgements relating
to the recognition of revenue), taking into consideration all of the relevant facts and circumstances
when applying each step of the model to contracts with their customers. The standard specifies how
variation in revenue should be accounted for, amends the criteria to establish whether a business is
acting as principal or agent in addition to requiring extensive disclosure.
The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial
application being 1 January 2018. Under this method, the standard can be applied to all contracts at
the date of initial application or only to contracts that are not completed at this date (i.e. ongoing as
at the end of the previous year). The Group elected to apply the standard to contracts ongoing as
at 1 January 2018.
The cumulative effect of initially applying IFRS 15 is recognised at the date of initial application as an
adjustment to the opening balance of retained earnings. Therefore, the comparative information has
not been restated and continues to be as reported under Legacy IFRS.
As at 1 January 2018
Assets
Contract assets
Other receivables
Accrued income
Trade receivables
Total assets
Liabilities
Current tax
Contract Liabilities (current)
Deferred income
Total liabilities
Equity
Retained earnings
Increase / (decrease)
£000
10,820
4,725
(15,545)
37
37
9
20,694
(20,694)
9
28
28
54
Notes
Continued
2. Changes in accounting policies and disclosures continued
Consolidated Income Statement for the year ended 31 December 2018
Adopting IFRS 15 has not had a significant impact on the timing of the Group’s recognition of revenue;
on OCI; on the Group’s operating, investing and financing cash flows; or on the Group’s equity. The
key drivers of the changes noted in the tables accompanying this note are as described below.
The income statement has been affected significantly in two ways.
1) Agency vs principal relationships
Certain of the activities undertaken by the Group involve the entity acting as agent for their
customer. In these instances, third party costs are excluded from revenue (note 4). IFRS 15 has
altered the criteria used for the principal versus agent evaluation (see page 41 within the significant
judgements). As a consequent result of the adoption of IFRS 15 there has been an increase in third
party costs included in revenue and cost of sales during the year of £167.0m due to a reduction
in the number of Agency relationships identified (and a corresponding increase in the number of
transactions where the Group is acting as Principal).
2) Different timings of revenue recognition
Small timing differences caused by adoption of IFRS 15 caused a 1 January 2018 adjustment and
a reduction in 2018 revenue of £37k.
Billings
Revenue
Project cost
Net revenue
Legacy
IFRS
£000
609,647
255,410
–
255,410
Third party
cost
£000
Timing
adjustments
£000
–
167,031
(167,031)
–
(37)
(37)
–
(37)
IFRS 15
£000
609,610
422,404
(167,031)
255,373
Billings
Revenue
Project costs
Net revenue
Staff and House costs
Operating profit
Share of results of associates and JVs
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
IFRS 15
£000
609,610
422,404
(167,031)
255,373
(238,605)
Legacy IFRS
£000
609,647
255,410
–
255,410
(238,605)
16,768
2,825
273
(2,268)
17,598
(6,530)
11,068
8,255
2,708
10,963
16,805
2,825
273
(2,268)
17,635
(6,539)
11,096
8,283
2,708
10,991
Increase /
(decrease)
£000
(37)
166,994
167,031
(37)
–
(37)
–
–
–
(37)
(9)
(28)
(28)
–
(28)
The balance sheet has been affected as follows.
Prepaid customer expenses
Under certain contractual relationships the Group makes payments to suppliers on behalf of
customers prior to billing. As these amounts do not relate to services provided by the Group under
IFRS 15 these are recognised separately to trade receivables and contract assets. An amount
totalling £5.5m has therefore been recognised as at 31 December 2018 as an ‘other receivable’ and
is included within the consolidated balance sheet position of Trade and other receivables of £154.8m.
This amount was included within accrued income under Legacy IFRS.
55
Notes
Continued
2. Changes in accounting policies and disclosures continued
IFRS 9 Financial instruments
Increase /
(decrease)
£000
IFRS 9 Financial instruments replaces IAS 39 Financial instruments: Recognition and measurement
for annual periods beginning on or after 1 January 2018. The Group has applied IFRS 9 prospectively,
with an initial application date of 1 January 2018. The Group has not restated the comparative
information, which continues to be as reported under IAS 39. Differences arising from the adoption
of IFRS 9 have been recognised directly in retained earnings and other components of equity.
Consolidated Balance Sheet as at 31 December 2018
Assets
Total non-current assets
Contract assets
Other receivables
Prepayments and accrued income*
Trade receivables
Other current assets
Total current assets
Total assets
Liabilities
Current tax
Contract liabilities
Deferred revenue
Other current liabilities
Total current liabilities
Total non-current liabilities
IFRS 15
£000
95,430
10,943
15,381
7,332
114,641
66,783
215,080
Legacy
IFRS
£000
95,430
–
9,875
23,781
114,678
66,783
215,117
310,510
310,510
(3,318)
(32,865)
–
(136,901)
(173,084)
(48,506)
(3,327)
–
(32,865)
(136,901)
(173,093
(48,506)
Total liabilities
(221,590)
(221,599)
Equity
Retained earnings
Non-controlling interest
Other equity accounts
Total equity
(34,195)
(7,207)
(47,518)
(34,231)
(7,207)
(47,507)
(88,920)
(88,948)
Total equity and liabilities
(310,510)
(310,547)
–
10,943
5,506
(16,449)
(37)
–
(37)
(37)
(9)
32,865
(32,865)
–
(9)
–
(9)
(28)
–
–
(28)
(37)
* Under Legacy IFRS this category included amounts relating to prepayments and accrued income. Under IFRS 15
this category is exclusively comprised of prepayments.
The effect of adopting IFRS 9 as at 1 January 2018 was as follows:
Assets
Equity investments at FVTPL
Equity investments at cost
Trade receivables
Total assets
Liabilities
Accrued transaction fees*
Deferred tax
Total liabilities
Total adjustment to equity:
Retained earnings
Ref
19b
20
Increase /
(decrease)
£000
10,596
(5,760)
(276)
4,560
898
691
1,589
2,971
2,971
* Costs which will be incurred in the future with regards the equity investments at FVTPL. When these instruments
are disposed the advisers who arranged the purchases are due to a percentage of the profit on disposal.
The nature of these adjustments is described below.
(a) Classification and measurement
Under IFRS 9 financial assets are classified as subsequently measured at amortised cost, fair
value through other comprehensive income or fair value through profit or loss. The classification
is based on two criteria: (i) the Group’s business model for managing the assets and (ii) whether
the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the
principal amount outstanding.
56
Notes
Continued
The assessment of the Group’s business model was made as of the date of initial application,
1 January 2018. The assessment of whether contractual cash flows on debt instruments are solely
comprised of principal and interest was made based on the facts and circumstances as at the initial
recognition of the assets.
The only significant impact to the Group in terms of the classification and measurement
requirements of IFRS 9 relates to certain equity investments previously held at cost less any
provision for impairment. Refer to 2(c) for a summary of the measurement categories of the
financial assets held by the Group under Legacy IFRS and IFRS 15.
(i) Equity investments at FVTPLThe Group holds equity investments in non-listed companies. These
investments were previously measured at cost less any provision for impairment. Under IFRS 9, as
at the date of initial application the Group intends to hold these investments for the foreseeable
future. In line with the requirements of IFRS 9 these unlisted equity investments are accounted for
as Financial assets at FVTPL. As at 1 January 2018 these instruments had a combined fair value of
£10.6m compared to their cost of £5.8m.
(b) Impairment
The adoption of IFRS 9 has changed the Group’s accounting for impairment losses for financial
assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss
(ECL) approach. IFRS 9 requires the Group to recognise an allowance for ECLs for all receivables
not held at fair value through profit or loss.
Upon adoption of IFRS 9 the Group recognised an additional impairment of Trade receivables
of £276k, which resulted in a decrease in retained earnings of an equivalent amount as at
1 January 2018, less any deferred tax effect. The movement in the year subsequent to adoption
is disclosed in note 20.
(c) Classification of financial assets on adoption of IFRS 9
On the date of initial application, 1 January 2018, the financial instruments of the Group were as
follows, with any reclassifications noted:
Non-current financial assets
Non-listed equity investments
Other receivables
Current financial assets
Trade and other receivables
Other receivables
Cash and cash equivalents
Financial liabilities
MI put option liabilities
Finance lease liabilities
Secured bank loans
Invoice discounting facility
Trade payables
Contingent consideration
Non-current financial assets
Non-listed equity investments
Other receivables
Current financial assets
Trade and other receivables
Cash and cash equivalents
Financial liabilities
MI put option liabilities
Finance lease liabilities
Secured bank loans
Invoice discounting facility
Trade payables
Contingent consideration
Measurement category
IAS 39
Amortised cost
IFRS 9
FVTPL
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
FVTPL
FVTPL
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
Amortised cost Amortised cost
FVTPL
FVTPL
Carrying amount (£000s)
Legacy
5,760
3,511
92,356
48,957
25,129
133
38,675
2,915
51,893
1,210
New
10,596
3,511
92,080
48,957
25,129
133
38,675
2,915
51,893
1,210
Difference
4,836
–
(276)
–
–
–
–
–
–
–
57
NOTES
Continued
3. Segmental information
Segmental and headline income statement
The Group’s segments are aligned to those business units that are evaluated regularly by the chief operating decision maker (the Board) in deciding how to allocate resources and in assessing performance.
The financial information provided to the Board as management accounts is compiled on geographical regions with trading operations in each country aggregated into that region, only on a headline basis.
This is on the basis that each country included in that region has similar economic and operating characteristics and that the products and services provided by entities in a geographic region are all related to
marketing communication services.
Segmental results are reconciled to the income statement in note 1.
Year ended 31 December 2018
Billings*
Revenue*
Net revenue
Operating profit excluding Group costs
Group costs
Operating profit
Share of results of associates and JV
Financial income and cost
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to equity shareholders of the Group
Headline basic EPS
Office locations
* These items were not regularly reviewed by the chief operating decision make in the year.
UK
£000
213,669
169,279
95,826
17,388
(5,618)
11,770
2,354
(486)
13,638
(2,107)
11,531
(1,331)
10,200
London
Europe
£000
60,190
60,190
34,165
5,497
(71)
5,426
(13)
(31)
5,382
(1,879)
3,503
(452)
3,051
Middle East
and Africa
£000
38,876
31,567
15,790
1,167
-
1,167
-
83
1,250
(260)
990
(389)
601
Paris
Milan
Berlin
Madrid
Geneva
Stockholm
Istanbul
Johannesburg
Cape Town
Abu Dhabi
Dubai
Beirut
Tel Aviv
Asia and
Australia
£000
170,460
Americas
£000
126,415
63,311
44,180
5,924
(89)
5,835
51
(511)
5,375
(1,132)
4,243
(538)
3,705
New York
Chicago
Los Angeles
San Francisco
Mexico City
São Paulo
98,057
65,412
6,462
(333)
6,129
433
90
6,652
(1,924)
4,728
(1,189)
3,539
Sydney
Melbourne
New Delhi
Bangalore
Islamabad
Hong Kong
Shanghai
Tokyo
Bangkok
Singapore
Jakarta
Total
£000
609,610
422,404
255,373
36,438
(6,111)
30,327
2,825
(855)
32,297
(7,302)
24,995
(3,899)
21,096
25.01p
58
NOTES
Continued
Year ended 31 December 2017
Billings*
Revenue*
Net Revenue
Operating profit excluding Group costs
Group costs
Operating profit
Share of results of associates and JV
Financial income and cost
Profit before taxation
Taxation
Profit for the year
Non-controlling interests
Profit attributable to equity shareholders of the Group
Headline basic EPS
Office locations
* These items were not regularly reviewed by the chief operating decision make in the year.
UK
£000
169,299
94,013
94,013
15,149
(5,821)
9,328
1,633
(437)
10,524
(1,478)
9,046
(813)
8,233
London
Middle East
and Africa
£000
27,207
14,650
14,650
1,568
–
1,568
–
11
1,579
(421)
1,158
(534)
624
Johannesburg
Cape Town
Abu Dhabi
Dubai
Beirut
Tel Aviv
Europe
£000
59,037
33,492
33,492
5,187
(71)
5,116
3
(69)
5,050
(1,604)
3,446
(721)
2,725
Paris
Milan
Berlin
Madrid
Geneva
Stockholm
Moscow
Istanbul
Americas
£000
148,414
44,623
44,623
3,385
(66)
3,319
–
(610)
2,709
(1,221)
1,488
407
1,895
New York
Chicago
Los Angeles
San Francisco
Mexico City
São Paulo
Asia and
Australia
£000
132,007
64,703
64,703
7,733
(339)
7,394
351
48
7,793
(2,110)
5,683
(1,189)
4,494
Sydney
Melbourne
New Delhi
Bangalore
Islamabad
Hong Kong
Shanghai
Tokyo
Kuala Lumpur
Bangkok
Singapore
Total
£000
535,964
251,481
251,481
33,022
(6,297)
26,725
1,987
(1,057)
27,655
(6,834)
20,821
(2,850)
17,971
23.04p
59
NOTES
Continued
Segmental balance sheet
This note includes balance sheet information required by IFRS 8 and other information required by IFRS 12. These items were not regularly reviewed on a segmented basis by the chief operating decision
make in the year.
Year ended 31 December 2018
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Non-controlling interest in equity at year end
Dividends paid to non-controlling interests during year
Non-headline amortisation
Non-headline impairment
Capital expenditure
Depreciation
UK
£000
52,862
93,316
146,178
(8,123)
(775)
(8,898)
2,613
(674)
316
1,526
2,680
1,686
Europe
£000
6,450
25,937
32,387
(28,095)
(470)
(28,565)
47
(110)
–
–
291
314
Middle East
and Africa
£000
Asia and
Australia
£000
765
13,257
14,022
(11,014)
–
(11,014)
681
(27)
570
228
231
318
7,927
48,322
56,249
(44,920)
(716)
(45,636)
1,569
(1,763)
718
367
1,239
770
Americas
£000
21,739
33,280
55,019
Total
£000
89,743
214,112
303,855
(51,228)
(143,380)
(945)
(2,906)
(52,173)
(146,286)
2,297
7,207
(34)
(2,608)
2,823
–
196
470
4,427
2,121
4,637
3,558
60
NOTES
Continued
Year ended 31 December 2017
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Non-controlling interest in equity at year end
Dividends paid to non-controlling interests during year
Non-headline amortisation
Non-headline impairment
Capital expenditure
Depreciation
Reportable segment assets are reconciled to total assets as follows:
Segment assets
Current tax asset
Deferred tax asset
Total assets per balance sheet
UK
£000
53,307
70,426
123,733
(13,383)
(1,262)
(14,645)
2,148
(474)
81
–
2,339
1,386
Europe
£000
4,656
25,648
30,304
(27,702)
(425)
(28,127)
115
(228)
–
–
423
357
Middle East
and Africa
£000
Asia and
Australia
£000
1,389
12,465
13,854
(10,714)
(5)
(10,719)
635
(427)
354
–
439
371
7,983
36,409
44,392
(33,035)
(694)
(33,729)
1,696
(1,113)
420
631
513
576
Americas
£000
22,499
24,105
46,604
Total
£000
89,834
169,053
258,887
(43,797)
(128,631)
(934)
(3,320)
(44,731)
(131,951)
1,938
(241)
1,166
4,583
117
389
6,532
(2,483)
2,021
5,214
3,831
3,079
2018
£000
2017
£000
303,855
258,887
968
5,687
945
4,797
310,510
264,629
61
NOTES
Continued
Reportable segment liabilities are reconciled to total liabilities as follows:
Segment liabilities
Deferred tax liabilities
Current tax liabilities
Short term borrowings
Long term borrowings
Minority shareholder put option liabilities
Total liabilities per balance sheet
Additional regional splits required for IFRS 8 by origin
Year ended 31 December 2018
Revenue
Net revenue
Non-current assets
Year ended 31 December 2017
Revenue
Net revenue
Non-current assets
2018
£000
2017
£000
(146,286)
(131,951)
(1,444)
(3,318)
(14,060)
(38,092)
(18,390)
(761)
(1,221)
(3,743)
(37,764)
(25,129)
(221,590)
(200,569)
UK
£000
169,279
95,826
52,862
UK
£000
94,013
94,013
53,305
Europe
£000
60,190
34,165
6,450
Europe
£000
33,492
33,492
4,656
Middle East
and Africa
£000
31,567
15,790
765
Middle East
and Africa
£000
14,650
14,650
1,389
Australia
£000
75,232
50,798
6,350
Australia
£000
56,052
56,052
2,325
Asia
£000
22,825
14,614
1,577
Asia
£000
8,651
8,651
5,660
Americas
£000
63,311
44,180
21,739
Total
£000
422,404
255,373
89,743
Americas
£000
44,623
44,623
22,499
Total
£000
251,481
251,481
89,834
62
NOTES
Continued
2018 Segmental Income Statement translated at 2017 average exchange rates
It is normal practice in our industry to provide constant currency results.
Had our 2018 results been translated at 2017 average exchange rates then our constant currency results would have been:
Year ended 31 December 2018
Billings
Revenue
Net revenue
Operating profit excluding Group costs
Group costs
Operating profit
Share of results of associates and JV
Financial income and cost
Profit before taxation
Taxation
Profit for the year
Increase/(decrease) in 2018 results
caused by translation differences
The key currencies that affect the Group and the average exchange rates used were:
US dollar
Malaysian ringgit
Australian dollar
South African rand
Brazilian real
Euro
UK
£000
213,669
169,279
95,826
17,388
(5,618)
11,770
2,354
(487)
13,586
(1,995)
11,486
45
Europe
£000
59,898
59,898
34,055
5,433
(70)
5,363
(18)
(31)
5,314
(1,862)
3,452
51
Middle East
and Africa
£000
40,058
32,525
16,273
1,203
-
1,203
-
86
1,289
(267)
1,022
(32)
Asia and
Australia
£000
178,282
102,677
68,569
6,674
(351)
6,323
438
90
6,851
(1,995)
4,856
(128)
Americas
£000
Total
£000
130,728
622,635
65,762
46,012
6,027
(89)
5,938
53
(530)
5,461
(1,154)
4,307
430,141
260,735
36,725
(6,128)
30,597
2,827
(872)
32,501
(7,273)
25,123
(64)
(128)
2018
1.3359
5.3840
1.7860
17.6326
4.8669
1.1305
2017
1.2884
5.5370
1.6808
17.1503
4.1129
1.1417
To get a sensible comparative when reviewing regional headline operating margin, we exclude start-up costs of our organically launched business. In the year Asia and Australia had net revenue of £664k
and operating loss of £448k; and Americas had net revenue of £109k and operating loss of £363k from such organically launched business.
63
Notes
Continued
4. Revenue from contracts with customers
Principal vs agent
Policy
4(a) Revenue recognition policies
Billings comprise the gross amounts billed, or billable to clients in respect of commission-
based and fee-based income, 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 and
is stated exclusive of VAT and sales taxes. Billings is a non GAAP measure and is included within
revenue for understanding
Revenue comprises commission and fees earned and is stated exclusive of VAT and sales taxes.
Performance obligations
At the inception of a new contractual arrangement with a customer the Group identifies the
performance obligations inherent in the agreement. Typically, the terms of the contracts are such
that the services to be rendered are considered to be either integrated (see significant judgement
on page 42) or to represent a series of services that are substantially the same with the same
pattern of transfer to the customer. Accordingly, this amalgam of services is accounted for as
a single performance obligation.
Where there are contracts with services capable of being distinct and are distinct within the
context of the contract then they are accounted for as separate obligations. In these instances,
the consideration due to be earned from the contract is allocated to each of the performance
obligations in proportion to their stand-alone selling price.
Further discussion of performance obligations arising in terms of the main types of services
provided by the group in addition to their typical pattern of satisfaction is provided in note 4(d).
Measurement of revenue
Based on the terms of the contractual arrangements entered into with customers, revenue is
typically recognised over time. This is based on either the fact that (i) the assets generated under
the terms of the contracts have no alternative use to the Group and there being an enforceable
right to payment or (ii) that the client exerts editorial oversight during the course of the
assignment such that they control the service as it is provided.
We build our services around our client’s needs, and often use client’s standard terms with
negotiated modification, this results in many different contractual arrangements. Revenue is
recognised monthly based on the underlying systems and processes in each business unit. Given
the many different contractual arrangements, and judgements on agency vs principal relationships,
each business unit, on a periodic basis, reviews contracts and separate obligations to make sure
revenue is recognised in the correct accounting period, posting adjustments to the monthly revenue
recognised if necessary.
When a third-party supplier is involved in fulfilling the terms of a contract then, for each
performance obligation identified, the Group assesses whether they are acting as principal or
agent. Where the Group is judged to control the specified services prior to the transfer of those
services to the customer then the Group is concluded as acting as principal. Details surrounding
this significant judgement can be found on page 41.
When we act as an agent, the revenue recorded is the net amount retained. Costs incurred with
external suppliers are excluded from revenue and recorded as other receivables payable by the
customer. When the Group acts as principal the revenue recorded is the gross amount billed.
When allowable by the terms of the contract out-of-pocket costs, a such as travel, are also
recognised as the gross amount billed with a corresponding amount recorded as an expense.
Treatment of costs
Costs incurred in relation to the fulfilment of a contract are either recognised as an asset or treated
as an expense. Costs are capitalised when they represent incremental costs of winning a contract
and are recognised over the life of the contract arising.
Supplier rebates
The Group receives volume rebates from certain suppliers for transactions entered into on behalf of
clients. As noted on page 42 management judgement is involved in how these rebates are accounted
for. Based on the terms of the relevant contracts and local law, these rebates are either remitted to
clients or retained by the Group.
Further detail in terms of the revenue recognition policies applied by the Group in terms of the
different categories of contractual arrangements entered into with clients can be found at note 4d.
4(b) Disaggregation of revenue
The Group derives revenue from the transfer of goods and services from both long (>1 year)
and short term (<1 year) contractual arrangements with customers in the following
geographical regions:
Contractual
term
Long term
Short term
Total
UK
£000
4,898
164,340
169,238
Europe
£000
–
60,190
60,190
Middle
East and
Africa
£000
910
30,657
31,567
Asia and
Australia
£000
–
98,057
98,057
Americas
£000
6,905
Total
£000
12,713
56,406
409,650
63,311
422,363
64
Notes
Continued
4(c) Assets and liabilities related to contracts with customers
Contract assets and liabilities arise when there is a difference (generally due to timing) in the
amount of revenue which can be recognised and the amount which can be invoiced under the
terms of the contractual arrangement or has been remitted (prepaid) by the customer.
Where revenue earned from customers is recognised over time, many of the Group’s contractual
arrangements have terms which permit the Group to remit invoices for the amount of work
performed to date on a specific contract (described in our accounting policies as ‘Right-to-invoice’).
Where the terms of a contractual arrangement do not carry such right to invoice then a contract
asset is recognised over time as work is performed until such point that an invoice is allowable to
be remitted. Generally, invoices are able to be raised monthly for arrangements where revenue is
recognised over time.
Where revenue earned from customers is recognised at a point in time then this will be dependent
on satisfaction of a specific performance obligation. At such point it is usual that there are no
other conditions required to be met for receipt of consideration and as such a trade receivable
is recognised at this point.
Contract liabilities comprise instances where a customer has made payments relating to services
due to be provided prior to their provision. Where payments are received in advance IFRS 15
requires assessment of whether these cash transfers contain any financing component. Under
the terms of the contractual arrangements entered into by the Group there are no instances
where such financing elements arise. This is the case even for those arrangements where the
Group receive monies more than a year in advance by virtue of the terms of the contractual
agreement so entered into.
The acquisition of Scarecrow Communications Limited and M&C Social Limited (note 13) resulted
in an increase in trade receivables of £911k in 2018 and contract assets of £200k.
In 2018 £204k was recognised as a provision for expected losses on trade receivables in line with
the requirements of IFRS 9 (notes 2 and 20).
Set out below is the amount of revenue recognised from:
Amounts included in contract liabilities at the beginning of the year*
Performance obligations partially satisfied in previous years
* As at the start of the year a total amount of £20,694k contract liabilities were recognised at the point
of transition to IFRS 9
2018
£000
16,585
–
4(d) Revenue recognition policies and performance obligation satisfaction
by category of services performed
Further details regarding revenue recognition and performance obligations of the Group’s main
service offerings are summarised below.
Commission based income in relation to talent performance
Revenue in relation to talent performance involves the Group acting as agent. Typically, such
arrangements have a single, or a sequence, of specific performance obligations relating to
the talent (or other third party) providing services. The performance obligations are generally
satisfied at a point in time once the service has been provided. In these instances, revenue is
recognised at the point in time which the performance obligation is satisfied. A trade receivable
is recognised at this point as the right to payment is now unconditional other than the passage
of time. The consideration for the services is normally for a fixed amount (as a percentage of
the Talent’s fee) with no degree of variability.
Certain of our contractual arrangements in terms of talent performance relate to a longer-term
arrangement (several months or longer) whereby the talent is engaged to provide a sequence of
services that are substantially the same – and thereby represent a single performance obligation.
An example would be arranging for talent to write weekly columns for a website. In such instances
as the third party is responsible for control of the asset(s) created (by means of editorial
oversight) the revenue in relation to the single performance obligation is recognised over time.
These contractual arrangements generally have payment terms such that a fixed fee (with no
degree of variability) is remunerated each month over the life of the agreement.
In the event that services to be rendered by talent are cancelled then the treatment of such
cancellation depends on the root cause of the trigger for the cancellation and the terms of
the contractual agreement.
Retainer fees
Retainer fees relate to arrangements whereby the nature of the Group’s contractual promise
is to agree to ‘stand-ready’ to deliver services to the customer for a period of time rather than
to deliver the goods or services underlying that promise. Revenue relating to retainer fees is
recognised over the period of the relevant assignments or arrangements, typically in line with the
‘stand-ready’ incurred costs. The primary input of all work performed under these arrangements
is labour. As a result of the direct relationship between labour and cost there is normally a direct
correlation between costs incurred and the proportion of the contract performed to date.
As retainer fees relate to ‘stand-ready’ obligations for a period of time synchronous with the time
period at the end of which an invoice is raised the Group consider there is a single performance
obligation for each time period. The revenue relating to each performance obligation is recognised
over time as a contract asset and a trade receivable recognised at the end of each time period.
Consideration relating to retainer fees is fixed with no degree of variability
65
Notes
Continued
From time to time there may be changes in the client service requirements during the term of
the contract and the changes could be significant. These changes are typically negotiated as new
contracts covering the additional requirements and the associated costs, as well as additional
fees for the incremental work to be performed.
Project fees and production income
Project fees typically meet the criteria identified on page 64 of note 4a which IFRS 15 states as
permissible to recognise revenue over time. The quantum of revenue to be recognised over the
period of the assignments is either based on the ‘right-to-invoice’ expedient or by means of a stage
of completion model. The primary input of all work performed under these arrangements is labour.
As a result of the direct relationship between labour and cost there is normally a direct correlation
between costs incurred and the proportion of the contract performed to date. Where projects are
carried out under contracts, the terms of which entitle the Group to payment for its performance
only when control passes at a delivery date or a milestone, then fees are recognised at the time
that payment entitlement occurs.
Project fees and production income relate to the provision of services which can encompass
a range of media deliverables in addition to development and deployment of a media strategy.
Regular assessment of the effectiveness of the project with regards to the objective of the
contractual arrangement may also be included. Often the range of services provided within
these arrangements are considered to be integrated to an extent that no separable performance
obligations can be identified other than a single over-arching combined performance obligation
relating to the delivery of the project – this involves management judgement as detailed on page
42. In these instances, revenue is recognised over time as the combined performance obligation
is being satisfied.
When services provided are considered separable, and not integrated, then multiple performance
obligations are recognised. It is typical that the terms of the customer agreements in these instances
again permit revenue to be recognised over time as each performance obligation is being satisfied.
Whilst it is uncommon for projects to be such that revenue is not allowable to be recognised over
time, examples can occur. In these instances, the element of the transaction price assigned to each
performance obligation (in proportion to stand-alone selling prices) is recognised as revenue once
an obligation has been fully satisfied.
Projects typically allow monthly invoices to be raised on standard payment terms ensuring
consideration is paid to the agency as performance obligations are being satisfied regardless
of whether revenue can be recognised over, or at a point in, time.
Where fees are remunerated to the agency in excess of the services rendered then a contract
liability is recognised. Conversely where the services rendered are in excess of the actual fees
paid then a contract asset is recognised.
Certain of these arrangements have contractual terms relating to the agency meeting specific
customer identified KPIs. Such KPIs can relate to qualitative factors (such as the client’s
perception of delivery and relationship performance) or to quantitative KPIs
(examples include overall increase in website traffic or conversion rate of website visits).
The overall level of consideration can vary by increasing or decreasing as a result of
performance against these metrics. To reflect this variability in the overall level of consideration,
management estimate the most likely outcome and then reflect that outcome in the revenue
recognised as the performance obligation(s) of the contract are satisfied. The estimated portion
of the variable element is recalculated at the earlier of the completion of the contract or the next
reporting period and revenue is adjusted accordingly. These estimates are based on historical
award experience, anticipated performance and best judgement at the time.
Commission based income in relation to media spend
The Group arranges for a third party to provide the related goods and services in the capacity
of an agent. Revenue is recognised in relation to the amount of commission the Group is entitled
to. Often additional integrated services are provided at the same time with regards to the
development and deployment of an overarching media strategy. Due to the integration of the
services provided under the terms of the contract, management judgement (as explained on
page 42) is applied to assess whether there is a single combined performance obligation.
Although there may be variability in the total quantum of media spend (on which the Group earns
commission) as the Group is entitled to invoice as spend is made, and as this drives the recognition
of revenue arising from the contract, there is no need to estimate the amount of variable revenue
due to be earned over the life of the contract. Often the commission earned is reflective of
the value to the customer and in those instances therefore the Group measures revenue to be
recognised as the amount to which they hold the ‘right-to-invoice’. As further explained on page 42,
although there may be a blend of services provided, some of which are akin to the Group acting as
principal, as there is a single combined performance obligation with a single payment mechanism,
all such revenue is recognised net of costs incurred in line with the Group acting as an agent.
The performance obligation for media buys are considered to have been satisfied when the
associated advert has appeared in the public domain. Where a contract is comprised of a large
number of separate media purchases then, as the contract is for the provision of a number
of services which are substantially the same, fewer performance obligations are recognised.
Dependent on the precise terms of the contract as noted above, this can result in a single
combined performance obligation being identified.
In the majority of instances where the Group purchases media for clients, the transactions are
considered tripartite with the Group acting as agent. One business unit of the Group speculatively
purchases media slots and then processes this media into categories of ‘quality’. Subsequent
to the processing this Media is then sold on to clients – with the higher ‘quality’ media yielding
a higher price. In this instance the Group is considered to be acting as principal.
Projects are invoiced in line with the terms of the contracts entered into, this is normally monthly
but can be more or less often.
66
NOTES
Continued
5. Group companies
As at 31 December 2018
UK
Alive & Kicking Global Ltd Alive & Kicking Global Ltd**
Audience Communications Ltd**
Clear Ideas Consultancy LLP**
Clear Ideas Ltd**
FYND Media Ltd**
Grey Whippet Ltd**
Horizon PR Ltd**
Human Digital Ltd**
Influence Communications Ltd**
Lean Mean Fighting Machine Ltd**
LIDA (UK) LLP**
LIDA Ltd** & ***
M&C Saatchi (UK) Ltd** & ***
M&C Saatchi Accelerator Ltd**
M&C Saatchi European Holdings Ltd**
M&C Saatchi Export Ltd** & ***
M&C Saatchi German Holdings Ltd**
M&C Saatchi Global Advisory Services Ltd**
M&C Saatchi International Ltd**
M&C Saatchi Marketing Arts Ltd**
M&C Saatchi Merlin Ltd**
M&C Saatchi Middle East Holdco Ltd**
M&C Saatchi Mobile Ltd**
Country
Effective % ownership
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100
100
80
80
100
51
80
60
95
100
99
100
100
80
96
100
100
100
100
50
75
80
90
Activities
Marketing
Marketing
Marketing
Marketing
Media Buying
Dormant
PR Agency
Research
Dormant
Advertising
Direct Marketing
Direct Marketing
Advertising
Advertising
Holding Company
Advertising
Holding Company
Advertising
Holding Company
Advertising
Talent Management
Holding Company
Mobile Marketing
67
Notes
Continued
As at 31 December 2018
UK continued
M&C Saatchi Network Ltd** & ***
M&C Saatchi PR International Ltd**
M&C Saatchi PR Ltd**
M&C Saatchi PR UK LLP**
M&C Saatchi Social Ltd** & ***
M&C Saatchi Shop Ltd**
M&C Saatchi Sport & Entertainment Ltd** & ***
M&C Saatchi WMH Ltd**
M&C Saatchi World Services LLP**
M&C Saatchi Worldwide Ltd** & ***
M&C Saatchi WS .ORG Ltd**
Re Worldwide Ltd**
SaatchInvest Ltd**
Send Me A Sample Ltd**
SGA London Ltd**
Talk PR Ltd** & ***
Talk Purpose Ltd **
The Source (London) Ltd**
The Source (W1) LLP**
Tricycle Communications Ltd**
Country
Effective % ownership
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100
60
100
99
51
93
70
100
80
100
80
100
100
60
100
51
41
88
76
80
Activities
Holding Company
PR Agency
PR Agency
PR Agency
Marketing
Marketing
Sport Sponsorship & Entertainment PR Agency
Holding Company
Marketing
Holding Company
Not for profit marketing
Branding
Holding Company
Marketing
Marketing
PR Agency
PR Agency
Research Agency
Research Agency
Holding Company
68
Notes
Continued
As at 31 December 2018
Europe
Cometis
FCINQ SAS
M&C Saatchi Gad SAS
M&C Saatchi Little Stories SAS
M&C Saatchi One SARL
Paris Gad Holding SAS
Tataprod
M&C Saatchi Advertising GmbH
M&C Saatchi Sports & Entertainment GmbH
M&C Saatchi Digital GmbH
M&C Saatchi PR Unternehmergesellschaft
M&C Saatchi SpA
M&C Saatchi PR srl
M&C Saatchi International Holdings BV
Clear Netherlands BV
M&C Saatchi Madrid SL
M&C Saatchi Sponsorship S.L.
M&C Saatchi AB
M&C Saatchi Go! AB
M&C Saatchi PR AB
M&C Saatchi (Switzerland) SA
Middle East and Africa
M&C Saatchi Bahrain WLL
M&C Saatchi Tel Aviv Ltd
M&C Saatchi SAL
Creative Spark Interactive (Pty) Ltd***
Dalmation Communications (Pty) Ltd***
M&C Saatchi Abel (Pty) Ltd
M&C Saatchi Africa (Pty) Ltd***
M&C Saatchi Connect (Pty) Ltd***
Levergy Marketing Agency (PTY) Ltd***
M&C Saatchi Istanbul
M&C Saatchi Middle East Fz LLC
M&C Saatchi Fz LLC
Country
France
France
France
France
France
France
France
Germany
Germany
Germany
Germany
Italy
Italy
Netherlands
Netherlands
Spain
Spain
Sweden
Sweden
Sweden
Switzerland
Bahrain
Israel
Lebanon
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Turkey
United Arab Emirates
United Arab Emirates
Effective % ownership
Activities
51
88
100
79
100
60
30
83
67
75
100
80
80
100
100
51
51
60
100
100
88
100
80
10
50
50
50
50
50
50
25
80
100
Advertising
Website Construction
Advertising
PR Agency
Digital Marketing
Holding Company
Production and publishing
Advertising
Sport Sponsorship & Entertainment PR Agency
Marketing
Dormant
Advertising
PR Agency
Holding Company
Dormant
Advertising
Advertising
Advertising and Marketing
Advertising
Dormant
Advertising
Dormant
Advertising
Advertising (Associate)
Advertising
Advertising
Advertising
Advertising
Advertising
Sport Sponsorship & Entertainment PR Agency
Advertising (Associate)
Advertising
Advertising
69
Notes
Continued
As at 31 December 2018
Asia and Australia
Bellwether Global Pty Ltd
Bohemia Group Pty Ltd
Brands in Space Pty Ltd
Go Studios Pty Ltd
Greenhouse Australia Pty Ltd
Hidden Characters Pty Ltd
LIDA Australia Pty Ltd
M&C Saatchi Agency Pty Ltd
M&C Saatchi Asia Pac Holdings Pty Ltd
M&C Saatchi Direct Pty Ltd
M&C Saatchi Sport & Entertainment Pty Ltd
M&C Saatchi Melbourne Pty Ltd
Park Avenue PR Pty Ltd
Re Team Pty Ltd
Resolution Design Pty Ltd
Saatchi Ventures Pty Ltd
The Source Insight Australia Pty Ltd
Tricky Jigsaw Pty Ltd
This Film Studio Pty Ltd
UGLY Sydney Pty Ltd
Yes Agency Pty Lty
EMC Saatchi Pty Ltd
1440 Pty Ltd
M&C Saatchi Advertising (Shanghai) Ltd
Clear Asia Ltd
M&C Saatchi Asia Ltd
M&C Saatchi (HK) Ltd
M&C Saatchi Asia Hong Kong Ltd
February Communications Pvt Ltd
M&C Saatchi Communications Pvt Ltd
M&C Saatchi Mobile LLP
Scarecrow Communications Limited
M&C Saatchi Ltd
M&C Saatchi (M) Sdn Bhd
Design Factory Sdn Bhd
Country
Effective % ownership
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
India
India
India
India
Japan
Malaysia
Malaysia
80
46
80
80
64
76
80
80
100
80
48
48
80
76
68
48
80
68
56
60
80
80
80
40
80
100
40
70
20
95
100
51
10
49
49
Activities
PR Agency
Media Agency
Design
Finished Art & Production Management Studio
Advertising
Branding and Digital Marketing
Digital Marketing
Advertising
Holding Company
Direct Marketing
Sport Sponsorship & Entertainment PR Agency
Advertising
PR & Marketing
Marketing
Dormant
Holding Company
Dormant
Marketing
Production
Dormant
Dormant
Dormant
Dormant
Consultancy (Associate)
Dormant
Advertising
Advertising (Associate)
Advertising
Advertising (Associate)
Advertising
Marketing
Advertising
Advertising (Associate)
Advertising
Advertising
70
Notes
Continued
As at 31 December 2018
Asia and Australia continued
Intelligence Factory Sdn Bhd
M&C Saatchi World Services Pakistan (Pvt) Ltd
Clear Ideas (Singapore) Pte Ltd
M&C Saatchi Holdings Asia Pte Ltd
M&C Saatchi (S) Pte Ltd
M&C Saatchi Mobile Asia Pacific Pte Ltd
Love Frankie Ltd
Americas
Lily Participacoes Ltda
M&C Saatchi Brasil Comunicação Ltda
M&C Saatchi Brasil Participacoes Ltda
Santa Clara Participacoes Ltda*
M&C Saatchi/Insight Pesquisa & Planejamento Ltda
M&C Saatchi, S.A. DE. C.V
Clear USA LLC
Clear NY LLP
LIDA NY LLP (MCD)
LIDA USA LLP
M&C Saatchi Agency Inc.
M&C Saatchi LA Inc.
M&C Saatchi Mobile LLP
M&C Saatchi PR LLP
M&C Saatchi Share Inc.
M&C Saatchi Sports + Entertainment NY LLP
M&C Saatchi Sports + Entertainment LA LLC
M&C Saatchi NY LLP
Majority LLC
Shepardson Stern + Kaminsky LLP
Technology Humans and Taste LLC
World Services US Inc.
Country
Malaysia
Pakistan
Singapore
Singapore
Singapore
Singapore
Thailand
Brazil
Brazil
Brazil
Brazil
Brazil
Mexico
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Effective % ownership
49
41
95
100
80
95
20
100
60
100
25
100
59
100
100
75
100
100
90
99
100
75
85
50
100
100
66
30
80
Activities
Advertising
Marketing (joint venture)
Marketing
Holding Company
Advertising
Mobile Marketing
Marketing (associate)
Holding Company
Advertising
Holding Company
Advertising (associate)
Dormant
Advertising
Marketing
Holding Company
Direct Marketing
Marketing
Holding Company
Advertising
Mobile Marketing
PR
Marketing
Sport Sponsorship & Entertainment PR Agency
Sport Sponsorship & Entertainment PR Agency
Dormant
Production
Marketing Consultant
Marketing (associate)
Dormant
All subsidiary companies which the Group control in line with the requirements of IFRS 10 have been included in the consolidated accounts.
** This subsidiary undertaking is exempt from Companies Act 2006 requirement relating to audit of their individual accounts by virtue of Section 479A of the Act as M&C Saatchi plc has guaranteed the subsidiary company under Section
479C of the Act.
*** With the exception of M&C Saatchi Network Ltd, our South African subsidiaries, Scarecrow Communication Ltd, M&C Saatchi Social Ltd where all our equity is directly held by M&C Saatchi plc, all other subsidiary companies’ equity is
either in part or wholly held via subsidiaries of M&C Saatchi plc.
71
* Project costs relate to third-party costs incurred during the provision of services to customers which are
passed back to the Group under the terms of the contract by the customer. These costs are recognised in
2018, but not in 2017, as a result of the transition to IFRS 15. As discussed in Note 2 this is due to the Group
being considered as acting as principal for the majority of transactions where third party costs are incurred to
satisfy our obligations to customers. Under Legacy IFRS the Group was considered to be acting as Agent (as
opposed to Principal).
Notes
Continued
6. Operating costs
Policy
Leases
Lease payments under operating leases, including any incentives granted, are recognised in the
income statement on a straight-line basis over the lease term.
Where operating lease agreements include a fixed uplift for rental payments, the expense is
straight-lined, except in cases where another systematic basis better represents the benefit.
Reverse premiums and similar incentives to enter into operating lease agreements are
initially recorded as deferred income and released to profit and loss on a straight-line basis
over the lease term.
Year ended 31 December
Note
Project cost
House cost
Operating costs
Other costs include:
Loss/(Profit) on exchange
Amortisation of intangibles
– Acquired intangibles
– Capitalised software
Impairment of Goodwill and other intangibles
Depreciation of plant and equipment
Loss on disposal of fixed assets
Year ended 31 December
Operating lease rentals
Plant
Property
Property sublease receipts
Year ended 31 December
Total commitments
Plant and equipment
Commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
– Within one year
– Between two and five years
Property
2018
£000
167,031
57,653
224,684
2017
£000
–*
58,827
58,827
(637)
590
Commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
– Within one year
– Between one and five years
– Greater than five years
Sublease receipts
Commitments for future minimum lease receipts under
non-cancellable operating leases, which fall due as follows:
– Within one year
– Between one and five years
– Greater than five years
16
16
16
18
4,427
303
2,195
3,558
75
2018
£000
945
10,401
11,346
(176)
11,170
2,021
211
5,214
3,079
28
2017
£000
718
8,390
9,108
(199)
8,909
2018
£000
2017
£000
906
362
1,268
11,328
26,217
3,193
40,738
65
338
-
403
1,026
906
1,932
9,754
28,909
3,954
42,617
539
2,237
592
3368
72
Notes
Continued
7. Staff costs
Policy
Pensions
Contributions to personal pension plans are charged to the income statement in the period in
which they are due.
Staff costs (including Directors) comprise:
Year ended 31 December
Wages and salaries
Social security costs
Defined contribution pension scheme costs
Other staff benefits
Acquisition related remuneration
Allocations and dividends paid to conditional share award holders
Contingent acquisition cost with leaver provision
Share based incentive plans
Cash settled
Equity settled
Total staff costs
Staff numbers
UK
Europe
Middle East and Africa
Asia and Australia
America
Pensions
The Group does not operate any defined benefit pension schemes. The Group makes payments, on
behalf of certain individuals, to personal pension schemes.
Payments of £2,371k (2017: £1,902k) were made in the year and charged to the income statement
in the period they relate to. At the year-end there were unpaid amounts included within accruals
totalling £17k (2017: £266k).
2018
£000
150,659
17,744
2,088
4,641
2017
£000
148,546
17,498
2,011
5,149
Key management remuneration
Year ended 31 December
Short term employee benefit
Post-employment benefit
Share based payments
175,132
173,204
Total
2018
£000
2,878
17
1,055
3,950
2017
£000
3,077
17
1,192
4,286
8. Auditors’ remuneration
The Group paid the following amounts to its auditor(s) in respect of the audit of the financial
statements and for other services provided to the Group:
1,219
–
1,219
81
6,104
182,536
837
364
289
834
273
389
225
614
–
13,501
187,319
783
368
314
708
310
2,597
2,483
Total
Group auditor’s remuneration
Year ended 31 December
Audit services
Audit of the Company and its consolidated accounts
Audit of the Company’s subsidiaries pursuant to legislation
Other services provided by the Auditors
Taxation compliance services
Corporate finance services
Other services
2018
£000
2017
£000
478
290
768
29
38
3
70
838
268
281
549
26
94
3
123
672
73
Notes
Continued
9. Net finance income / (costs)
Policy
Financial income and borrowing costs
10. Taxation
Policy
Current tax
Interest income and borrowing costs are recognised in the income statement in the period in which
they are incurred.
Current tax, including UK and foreign tax, is provided for using the tax rates and laws that have been
substantively enacted at the balance sheet date.
Year ended 31 December
Bank interest receivable
Other interest receivable
Fair value adjustment to minority shareholder put
option liabilities (Note 24)
Financial income
Bank interest payable
Other interest payable
Fair value adjustment to minority shareholder put
option liabilities (Note 24)
Financial expense
Net finance (costs) / income
2018
£000
272
1
–
273
(1,175)
(182)
(911)
(2,268)
(1,995)
2017
£000
200
89
3,037
3,326
(1,344)
(2)
–
(1,346)
1,980
Year ended 31 December
Taxation in the year
– UK
– Overseas
Withholding taxes payable
Utilisation of previously unrecognised tax losses*
Adjustment for under / (over) provision in prior periods*
Total
Deferred taxation
Origination and reversal of temporary differences
Recognition of previously unrecognised tax losses**
Effect of changes in tax rates
Total
Total taxation
* In 2017 mostly this related to our US offices.
** Recognised to reflect the probable future corporation tax that we can reclaim.
Note
2018
£000
2017
£000
2,150
6,475
–
(25)
(482)
8,118
1,689
5,286
21
(817)
625
6,804
11
11
11
(1,483)
(3,612)
–
–
(121)
1,665
(1,483)
(2,068)
6,635
4,736
74
Notes
Continued
The differences between the actual tax and the standard rate of corporation tax in the UK applied to
profits for the year are as follows:
Year ended 31 December
Expenses not deductible for tax
(446)
2.5%
(287)
Option charges not deductible for tax
(1,400)
8.0%
(1,920)
20.6%
Year ended 31 December
Profit before taxation
Taxation at UK corporation tax rate of
19.00% (2017: 19.25%)
Tax effect of associates
Non-controlling interest share of
partnership income
Different tax rates applicable in
overseas jurisdictions
Effect of changes in tax rates on deferred tax
Withholding taxes payable
Utilisation of previously unrecognised tax losses
Recognition of previously
unrecognised tax losses
Adjustment for current tax over provision
in prior periods
Adjustment for deferred tax (under) provision
in prior periods
Tax losses for which no deferred tax
asset was recognised
Fair value adjustments on minority
shareholder put options
Impairment with no tax credit
Total taxation
Statutory tax rate
2018
£000
17,598
2018
%
2017
£000
9,302
2017
£000
(3,344)
19.0%
(1,791)
19.3%
537
284
-3.1%
-1.6%
373
327
-4.0%
-3.5%
3.1%
(1,408)
8.0%
(606)
6.5%
–
–
25
–
–
–
-0.1%
–
(1,665)
(21)
817
121
17.9%
0.2%
-8.8%
-1.3%
447
-2.5%
(625)
6.7%
(214)
1.2%
(43)
0.5%
(173)
1.0%
(544)
(6,635)
37.7%
3.0%
37.7%
584
–
(4,736)
50.9%
-6.3%
–
50.9%
We expect large variation in future statutory tax rates due to share based payments (option
charges), put options and investment in subsidiaries being capital in nature and non-deductible for
corporation tax. Over the last five years the statutory tax rate has been in between 27% and 69%.
Expenses not deductible for tax
(446)
1.4%
(287)
Headline profit before taxation (note 1)
Taxation at UK corporation tax rate of
19.00% (2017: 19.25%)
Tax effect of associates
Non-controlling interest share of
partnership income
Different tax rates applicable in
overseas jurisdictions
Effect of changes in tax rates on deferred tax
Withholding taxes payable
Utilisation of previously
unrecognised tax losses
Recognition of previously
unrecognised tax losses
Adjustment for current tax under provision
in prior periods
Adjustment for deferred tax (under)
provision in prior periods
Tax losses for which no deferred tax
asset was recognised
2018
£000
32,297
2018
%
2017
£000
27,655
2017
%
(6,136)
19.0%
(5,324)
19.3%
537
284
-1.7%
-0.9%
373
327
(1,400)
4.3%
(1,880)
–
–
25
–
–
–
-0.1%
–
(292)
(21)
817
121
447
-1.4%
(625)
2.3%
(399)
1.3%
–
–
(214)
0.7%
(43)
(7,302)
22.6%
22.6%
(6,834)
24.7%
0.2%
24.7%
-1.4%
-1.2%
1.0%
6.7%
1.1%
0.1%
-3.0%
-0.4%
As can be seen above, the largest drivers of headline tax charge are our local entities profitability,
local tax rates, and recognition of previously unrecognised tax losses.
Our 2017 result was heavily affected by the passing in December 2017 US tax legislation that
reduced US federal tax rate from 35% to 21% from 1 January 2018. This resulted in a revaluation
of all deferred tax at the 2017 year end causing a short-term increase in the tax charge in 2017 of
£292k, and by a further £1,373k due to the remeasurement of deferred tax on intangibles and shares
awards. In 2018 this tax rate change has helped reduce our tax charge.
There remains some uncertainty over how Brexit may impact tax legislation, along with the likelihood
that future reductions in the UK Corporation tax rates occur. Ignoring these factors, we anticipate
our tax rate to increase slightly in the future, due to the sale of the Group’s associate Blue 449 in
January 2019, which in 2018 accounted for 83% of our associate income.
75
(399)
2.3%
–
–
Headline taxation (note 1)
Headline effective tax rate
Notes
Continued
11. Deferred taxation
Policy
Deferred tax is provided in full, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements. Deferred tax is not, however, provided for temporary differences that arise from: (i)
initial recognition of an asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profits or loss, (ii) on the initial
recognition of Goodwill.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related deferred tax asset is
realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable future taxable profit will be
available against which the temporary differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries and
associates, except where the timing of the reversal of the temporary difference is controlled by the
Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and the Group intends to settle its current tax
assets and current tax liabilities on a net basis.
At 31 December
Deferred tax assets
Deferred tax liabilities
Net deferred tax
2018
£000
5,687
(1,444)
4,243
2017
£000
4,797
(761)
4,036
The following is the deferred tax asset (liability) recognised by Group and movements
in 2018 and 2017:
Intangibles
£000
Capital
allowances
£000
Tax
losses
£000
At 31 December 2016
Exchange differences
Income statement
credit / (charge)
Acquisitions
At 31 December 2017
1 January 2018
- IFRS 9 adjustment
Exchange differences
Income statement
credit / (charge)
Acquisitions*
309
(35)
1,438
977
–
132
996
At 31 December 2018
1,413
* Acquisitions are included in deferred tax liabilities.
44
2
15
(735)
61
–
–
22
(692)
83
927
(39)
575
–
1,463
–
22
177
–
1,662
Working
capital
differences
000
1,452
43
40
–
1,535
(691)
(47)
Total
£000
2,732
(29)
2,068
(735)
4,036
(691)
107
288
1,483
–
1,085
(692)
4,243
Within the local entities £723k (2017: £186k) of deferred tax has been naturally offset, ignoring such
an offset the split of deferred tax is as follows:
Intangibles
£000
Capital
allowances
£000
1,679
(702)
977
2,353
(940)
1,413
98
(37)
61
117
(34)
83
At 31 December 2017
Deferred tax assets
Deferred tax liabilities
Net deferred tax
At 31 December 2018
Deferred tax assets
Deferred tax liabilities
Net deferred tax
Tax
losses
£000
Working
capital
differences
£000
1,463
-
1,463
1,742
(207)
1,535
Total
£000
4,982
(946)
4,036
1,662
2,278
6,410
(1,193)
(2,167)
1,662
1,085
4,243
76
Notes
Continued
Unrecognised deferred tax asset in respect of carried forward tax losses:
At 31 December 2017
Exchange differences
Expired losses in year
Losses utilised in year
Losses in year
At 31 December 2018
Expiry date of losses:
One to five years
Five to ten years
Ten years or more
Total
Loss
£000
2,325
26
(292)
(74)
–
1,985
2018
£000
253
–
196
449
Deferred
tax impact
£000
574
(1)
(99)
(25)
–
449
2017
£000
387
–
187
574
A deferred tax asset in respect of certain losses in overseas territories has not been recognised as
there is insufficient certainty of future taxable profits against which these would reverse.
12. Dividends
Policy
Equity dividends
Equity dividends on ordinary share capital are recognised as a liability in the period in which
they are declared. The interim dividend is recognised when it has been approved by the Board
and the final dividend is recognised when it has been approved by the shareholders at the
Annual General Meeting.
Year ended 31 December
2017 final dividend paid 7.40p on 6 July 2018 (2016: 6.44p)
2018 interim dividend paid 2.45p on 9 November 2018 (2017: 2.13p)
2018
£000
6,261
2,117
8,378
2017
£000
5,032
1,716
6,748
The 2017 dividend has been restated to reflect the number of shares in issue when the dividend was
paid, as opposed to the number of shares in existence at 31 December 2017.
The 2018 proposed final dividend of 8.51p, totalling £7,566,099 The dividends relate to the profit of
the following years:
Year ended 31 December
Interim dividend paid 2.13p on 9 November 2018 (2017: 2.13p)
Final dividend payable 8.51p on 5 July 2019 (2017: 7.40p)
Headline dividend cover
2018
£000
2,117
7,566
9,683
2.2
2017
£000
1,716
6,261
7,977
2.3
Headline dividend cover is calculated by taking headline profit after tax attributable to equity
shareholders and dividing it by the total dividend that relates to that year’s profits. The Group seeks
to maintain a long-term headline dividend cover of between 2 and 3. Retained profits are used to
reinvest in the long-term growth of the Group through funding working capital and investing activities;
and to repay bank debt.
77
Notes
Continued
13. Acquisitions
Policy – See below but also the basis of preparation note on page 40
Subsidiary acquisitions
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of acquisition
is measured at the aggregate of the fair values of the assets given, liabilities incurred, or subsumed,
contingent consideration and equity instruments issued by the Group in exchange for control. The
identifiable assets and liabilities (including contingent liabilities) acquired which meet the conditions
for recognition under IFRS 3 are recognised at their fair values at the date of acquisition.
The interest of minority shareholders in the acquire is initially measured at the minority’s proportion
of the net fair value of the assets, liabilities and contingent liabilities recognised.
All acquisition costs are expensed to the income statement in the period that they occur.
During the year, the Group made acquisitions in India (Scarecrow Communications Limited, ‘SCL’)
and the United Kingdom (Red Hare Limited, renamed to M&C Saatchi Social Limited) to enhance
its service offering. There have been no adjustments recognised in the current period in terms of
the 2017 acquisitions comprised of Bohemia Group Pty Ltd, M&C Saatchi Madrid Srl and Levergy
Marketing Agency (PTY) Ltd.
As detailed in note 16, the terms of the SCL acquisition are such that a balance of £367k is included
when calculating goodwill arising as contingent consideration under IFRS 3. The goodwill so
recognised was impaired at year end subsequent to the Group’s Goodwill impairment reviews.
Goodwill relates to the value of the acquired entities staff and synergies with the Group’s combined
client portfolios. There are no local tax deductions for goodwill.
The contribution of the financial performance of the acquisitions made to the Group’s result for the
year is as follows:
2018
Date of acquisition
% Voting interest acquired
Revenue in consolidation
Profit before tax in consolidation
Full year revenue
Full year profit before tax
Scarecrow
Communications
Limited
05-Apr
51.0%
995
244
1,159
225
Red
Hare
Limited*
29-Jun
53.7%
3,350
472
4,776
1,184
4,345
716
5,935
1,409
* This acquisition included a company called Grey Whippet Ltd, both companies had common control, and the trade
and assets were merged as part of the acquisition so have been treated as one CGU. Subsequent to acquisition
the trading entity has been renamed M&C Saatchi Social Limited.
Policy
Goodwill
Goodwill arising on the acquisition of a subsidiary is recognised as an asset, being the excess of the
cost of consideration over the interest in the fair value of the identifiable net assets acquired.
Following initial recognition, goodwill is carried at cost less any accumulated impairment
losses (see note 16).
Goodwill at date of acquisition
2018
Consideration, satisfied by:
Cash
Equity***
Deferred consideration
Total consideration
Note
14
15
Less – Fair value of net assets made up of:
Brand name intangible
Customer relationship intangible
Software
Plant and equipment
Trade and other receivables
Cash
Current (liabilities)
Deferred tax liability
Scarecrow
Communications
Limited
£000
Red
Hare
Limited*
£000
193
1,758
367
2,318
552
438
28
135
431
221
(258)
(336)
–
1,211
1,107
422
4,744
112
5,278
–
1,869
–
–
480
1,154
(476)
(360)
–
2,667
2,611
Total
£000
615
6,502
479
7,596
552
2,307
28
135
911
1,375
(734)
(696)
–
3,878
3,718
* 53.7% of the share capital was acquired. Due to the terms of certain equity settled share based payment awards
provided to the prior owners of the business who have been retained as employees, under IFRS 3
there is no non-controlling interest to recognise as the Group are considered to have acquired 100% of the
equity at acquisition.
** 51.0% of the share capital was acquired. As with the Red Hare transaction, due to the terms of certain equity
settled share-based payment awards, under IFRS 3 the Group are considered to have acquired 100% of the
equity such that there is no non-controlling interest to be recognised.
*** The numbers of shares issued can be found in note 25.
78
Total
Non-controlling interests share
–Total fair value of net assets
Goodwill arising
16
Notes
Continued
14. Cash consumed by acquisitions
During the period the Group has spent cash in terms of the following acquisitions:
Amounts falling due within one year
Note
2018
£000
2017
£000
– Contingent**
– Contingent***
Subsidiary cash consideration
– Bohemia Group Pty Ltd
– Levergy Marketing Agency (PTY) Ltd
– Shepardson Stern + Kaminsky LLP
– M&C Saatchi Madrid S.L.
– Scarecrow Communications Limited
– M&C Saatchi Social Limited
– Small purchases of non-controlling interest’s equity
– Clear Ideas USA LLC
Associate cash consideration
– Technology Humans and Taste LLC
Less cash and cash equivalents acquired
–
–
–
–
(193)
(422)
(120)
(199)
(934)
(904)
1,375
(463)
(1,285)
(993)
(170)
(2)
–
(29)
–
(2,479)
–
1,528
(951)
13
13
17
13
– Deferred consideration*
Amounts falling due more than one year but not more than five years
– Contingent**
At 1 January
Exchange difference**
Acquisition
Charged to income statement**
Consideration paid in equity**
At 31 December
2017
£000
(273)
(367)
(112)
(514)
(1,266)
2018
£000
(1,210)
1
(479)
(37)
459
(1,266)
2018
£000
(377)
–
–
(833)
(1,210)
2017
£000
–
(114)
(1,056)
(40)
–
(1,210)
15. Deferred and contingent consideration
Policy
Certain acquisitions made by the Group include contingent consideration, the quantum of which
is dependent on the future performance of the acquired entity. Such contingent consideration is
recognised as a liability and recorded at fair value in line with IFRS 13 (note 27).
The liability arising is remeasured at the earlier of the end of each reporting period or crystallisation
of the consideration payment. The movements in the fair value are recognised in profit or loss.
* This relates to a net asset true up payment on M&C Saatchi Social Limited which will be paid once the 2018
audit is complete.
** This relates to contingent consideration for Levergy Marketing Agency (PTY) Ltd, which will be paid in M&C
Saatchi plc shares. The contingent consideration is payable over the next four years, and is dependent on
profitability and profitability growth rates of Levergy Marketing Agency (PTY) Ltd. The amount payable is
uncapped. The fair value of contingent consideration is measured in line with IFRS 13 (see note 27).
*** Relates to acquisition of Scarecrow Communications Limited (note 13).
Detail surrounding the fair value measurement of the contingent consideration recognised at year
end is provided in note 27.
79
Notes
Continued
16. Intangible assets
Policy – See below but also basis of preparation note on page 40
Intangible assets are carried at cost less accumulated amortisation and impairment losses.
Cost
Goodwill
Under the acquisition method of accounting for business combinations, goodwill is the fair value of
consideration transferred, less the net of the fair values of the identifiable assets acquired and the
liabilities subsumed.
Other intangibles acquired as part of a business combination
Intangible assets acquired as part of a business combination (which includes brand names and
customer relationships) are capitalised at fair value if they are either separable or arise from
contractual or other legal rights and their fair value is able to be reliably measured.
Software
Purchased software is recorded at cost.
Amortisation
Goodwill is not amortised. Amortisation of other classes of intangible assets is charged to the
income statement on a straight-line basis over their estimated useful lives as follows:
Software
Customer relationships
Brand name
- three years
- one to five years
- one to three years
The Group has no indefinite-life intangibles other than goodwill.
Impairment
Impairment reviews are performed as needed and as detailed on page 43. Impairment losses arise
when the carrying amount of an asset or CGU is in excess of the recoverable amount and are
recognised in the income statement.
Goodwill’s accumulated amortisation and impairment all relate to impairments, brand name
and customer relationships relate to amortisation and impairments, and software relates
to amortisations.
Intangible assets relating to Brand name and Customer relationships recognised in relation to the
acquisition of Shepardson, Stern + Kaminsky LLP in 2016 had their expected lives reduced from
5 years to 3 years from 1 January 2018. At the end of 2018 the remaining net book value of these
assets was £200k.
Goodwill
£000
Brand
name
£000
Customer
relationships
£000
Software
£000
Total
£000
Cost
At 31 December 2016
Exchange differences
Acquired
Acquired through
business combination
Disposal
51,967
(1,502)
–
3,451
–
6,646
(241)
–
1,990
–
At 31 December 2017
53,916
8,395
Exchange differences
Acquired
Acquired through
business combination
Disposal
814
–
3,718
–
–
–
552
–
11,641
(367)
–
601
–
11,875
189
–
2,307
1,720
(20)
382
474
(693)
1,863
(37)
1,046
71,974
(2,130)
382
6,516
(693)
76,049
966
1,046
28
6,605
–
(23)
(23)
At 31 December 2018
58,448
8,947
14,371
2,877
84,643
Accumulated amortisation and impairment
At 31 December 2016
Exchange differences
Amortisation charge
Impairment
Disposal
At 31 December 2017
Exchange differences
Amortisation charge
Impairment
Disposal
8,041
(142)
–
5,214
–
13,113
257
–
2,121
–
4,410
(12)
819
–
–
5,217
19
2,057
–
–
7,323
(45)
1,202
–
–
8,480
153
2,370
–
–
1,196
20,970
6
211
–
(689)
724
(11)
303
74
(14)
(193)
2,232
5,214
(689)
27,534
418
4,730
2,195
(14)
At 31 December 2018
15,491
7,293
11,003
1,076
34,863
Net book value
At 31 December 2016
At 31 December 2017
At 31 December 2018
43,926
40,803
42,957
2,236
3,178
1,654
4,318
3,395
3,368
524
1,139
1,801
51,004
48,515
49,780
80
Notes
Continued
Goodwill is allocated to the Group’s cash generating units (CGU). Goodwill is made up of:
Goodwill 31
December
2018
Goodwill 31
December
2017
Cash generating units (CGUs)
M&C Saatchi UK Group
LIDA Ltd*
M&C Saatchi Sport & Entertainment Ltd
M&C Saatchi Export Ltd*
M&C Saatchi Mobile Ltd
M&C Saatchi Merlin Ltd
Clear Ideas Ltd
M&C Saatchi Advertising GmbH
M&C Saatchi Madrid S.L.
M&C Saatchi Middle East Fz LLC (Dubai)
Creative Spark Interactive (PTY) Ltd
(South Africa)*
Levergy Marketing Agency (PTY) Ltd
(South Africa)
M&C Saatchi Agency Pty Ltd (Australia)
Bang Pty Ltd (Australia)
Bohemia Group Pty Ltd (Australia)
Shepardson Stern + Kaminsky LLP
LIDA NY LLP (MCD)
Scarecrow Communications Ltd***
M&C Saatchi Social Limited**,***
Total of the four CGUs with
goodwill less than £0.5m
Total
5,977
540
690
–
1,814
539
9,508
1,395
444
727
–
966
2,902
–
1,867
5,711
5,522
744
2,612
999
5,977
1,462
690
600
1,814
539
9,508
1,379
439
Segment
UK
UK
UK
UK
UK
UK
UK
Europe
Europe
685 Middle East and Africa
250 Middle East and Africa
1,057 Middle East and Africa
2,870
Asia and Australia
–
Asia and Australia
1,953
5,376
5,199
–
–
1,005
Asia and Australia
Americas
Americas
Asia and Australia
UK
Various
42,957
40,803
* Apart from these CGUs, whose movements are described in this note, all other movements are
due to exchange.
** Named change post-acquisition, previously called Red Hare Ltd.
*** New acquisitions in the year, see note 13
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).
The 2018 review was undertaken in the last quarter of the year in conjunction with our annual
business planning process; due to client losses resulting in management changes and reorganisations
it was decided to fully impair M&C Saatchi Export Limited and Creative Spark Interactive (PTY)
Ltd. In addition, Goodwill and some internally generated software relating to the UK based LIDA
operations (LIDA Ltd) have been partially impaired by £1.0million. Finally, during the year the
acquisition of Scarecrow Communications Limited was accounted for such that a total Goodwill of
£1.1million was recognised on the date of purchase. Subsequent to this acquisition the Goodwill has
been impaired by £367k with a residual position of £744k held at the year end. Cumulatively this has
resulted in total goodwill impairments during the year of £2,121k (2017: £5,214k).
With the exception of those entities for which a partial impairment of Goodwill has been recognised
and LIDA NY LLP (discussed below) management are satisfied that no possible changes in key
assumptions (other than a significant loss of clients by a CGU), would cause the recoverable
amount of a CGU to be below their carrying amount. With regards to LIDA NY LLP, although the
carrying amount of the net assets of that CGU is below the recoverable amount identified during
the impairment review, management note that the headroom for this CGU to avoid impairment is
limited. The exposure will, however, significantly reduce over the following two financial years (i.e.
to 31 December 2020) as a result of the residual carrying amount of intangible assets attached to
the business (as a result of acquisition accounting) being fully amortised by that point (at the end of
2018 the net book value of these intangible assets totalled £1.4million). As a result of the recoverable
amount being in excess of the carrying amount in combination with the reduction in net assets in
the short term due to the amortisation of the significant intangible assets held by LIDA NY LLP,
management have therefore concluded that as at 31 December 2018 there is no requirement for the
Goodwill to be impaired. Management intend to closely monitor the performance of this CGU moving
forwards. This matter is highlighted below in the sensitivity analyses presented.
All CGU impairment reviews have been performed such that the recoverable amounts have been
calculated based on value in use calculations. The Value in use calculations have been based on
future forecast profitability of each CGU for a period of five years, with residual growth rates applied
thereafter to form the basis of discounted future cash flows (DCFs). Where the DCF of a CGU is in
excess of its carrying amount then an impairment loss is recognised. It should be highlighted that
the CGUs represented by the M&C Saatchi UK Group and the M&C Saatchi Agency Pty Ltd Group
are comprised of a number of distinct trading operations. These Groups include an amalgam of
entities acquired before 2011. As this was prior to the adoption of IFRS as the Group’s accounting
framework, there is no requirement to disclose the historic reallocations of Goodwill which would
have been required if IFRS had been applied at the point they occurred.
Management have approved the forecasts for 2019 and have prepared additional projections based
on the 2019 numbers for the next four years using a 3% expected growth rate. These were used as
the basis for determining the recoverable amount of each CGU. In making the forecasts, management
have reflected on past performance and present business and economic prospects.
In conducting the review, a year five onward residual growth rate of 3% has been used for all
countries with the exception of South Africa where, due to inflation, we have used 10%. Market betas
of 1.0 for UK, 1.09 for Europe, 1.0 for Americas and 1.2 for rest of the world have been utilised.
81
Notes
Continued
Pre-tax discount rates are based on the Group’s weighted average cost of capital adjusted for the
specific risks relating to the country and market in which the CGU operates.
Key assumptions
UK
Asia and Australia
Middle East
India
South Africa
Europe
Americas
Residual
growth rates
2017 and 2018
%
Pre-tax
discount
rates 2018
%
Pre-tax
discount
rates 2017
%
3
3
3
3
3
3
3
11–12
13–17
10–13
20
23-24
12–16
12–13
11–13
13–16
10–13
–
24
12–16
12–14
The key inputs to the Goodwill impairment reviews are the annual profit forecasts and the discount
rates applied to measure the present value of the future forecast cash flows. The sensitivity of the
CGUs held as at 31 December 2018 subsequent to the impairments described above are presented
below. As noted previously, one CGU, LIDA NY LLP, has a recoverable amount with a limited headroom
when compared to the CGUs’ carrying amount. In order to present the impact this particular CGU
has on the sensitivity analyses two tables are presented – the first including the LIDA NY LLP CGU
and the second excluding this CGU:
Sensitivity analysis including all CGUs of the Group which have not been impaired in 2018
Discount rates increased by
0%
1%
3%
5%
Annual profit forecast reduced by
0%
–
(593)
(1,429)
(2,009)
5%
(253)
(814)
(1,606)
(2,211)
10%
(505)
(1,036)
(1,784)
(2,473)
20%
(1,010)
(1,479)
(2,311)
(3,885)
Sensitivity analysis including all CGUs of the Group which not been impaired in 2018 but excluding LIDA NY LLP
Annual profit forecast reduced by
Discount rates increased by
0%
5%
10%
0%
1%
3%
5%
–
–
–
–
–
–
–
(74)
–
–
–
(187)
20%
–
(7)
(171)
(1,302)
17. Investments in associates and joint ventures
Policy
An associate is an entity over which the Group has significant influence. Significant influence is the
power to participate in the financial and operating policy decisions of the investee but has neither
control nor joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually
agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control.
Carrying value
The carrying value of an equity accounted investment comprises the Group’s share of net assets
and purchased goodwill and is assessed for impairment as a single asset. The carrying amounts of
the Group’s equity accounted investments are reviewed at each balance sheet date to determine
whether there is any indication of impairment.
The Group invests in associates and joint ventures, either to deliver its services to a strategic
marketplace or to gain strategic mass by being part of a larger local or functional entity.
As described in note 31, towards the end of the year the Board of Directors finalised plans
to dispose of Blue 449. This investment was sold at the start of 2019 and is therefore held as
a current asset.
At 31 December
Investments intended to be held in the long term
Investments categorised as held-for-sale
Total equity accounted investments
2018
£000
9,483
13,106
22,589
2017
£000
19,725
–
19,725
82
Notes
Continued
The following equity accounted investments are included in the consolidated financial statements:
Investment in
associate
Proportion
of voting rights
Nature of
business
Country of
incorporation
or registration
2018
£000
2017
£000
2018
%
2017
%
Media buying
UK
13,106
10,748
25%
25%
Region & Name
UK
Walker Media
Limited
Europe
M&C Saatchi
Istanbul
M&C Saatchi
(Hong Kong)
Limited
February
Communications
Private Limited
M&C Saatchi Ltd
M&C Saatchi
World Services
Pakistan (PVT) Ltd
Americas
Technology
Humans and
Taste LLC
Santa Clara
Participacoes
Ltda
Total
Advertising
Turkey
Middle East and Africa
M&C Saatchi SAL**
Advertising
Lebanon
Asia and Australia
3
–
449
25%
25%
–
10%
10%
Advertising
China
8,234
8,118
40%
40%
Advertising
Advertising
Advertising
and Media buying
India
Japan
Pakistan
Thailand
32
23
–
138
Love Frankie Ltd
Advertising
Advertising
USA
1,053
Advertising
Brazil
–
280
15
–
115
–
–
20%
10%
50%
25%
20%
10%
50%
25%
30%
–
25%
25%
All shares in associates are held by subsidiary companies and have no special rights. Where an
associate has the right to use our brand name we hold the right to withdraw such use to prevent it
being lost and protect it from damage.
At 1 January
Exchange movements
Acquisition of associates
Impairment of associates
Dividends
Share of profit after taxation
At 31 December
2018
£000
19,725
237
904
(674)
(428)
2,825
22,589
2017
£000
19,277
267
–
–
(1,806)
1,987
19,725
Summarised financial information
Middle
East
and
Africa
£000
Asia and
Australia
£000
UK
£000
Europe
£000
Americas
£000
2018
£000
2017
£000
Income statement
Net revenue
Operating profit
31,590
11,688
Profit before taxation
11,709
Profit after taxation
Group’s share
9,455
2,354
434
(83)
(69)
(54)
(13)
Dividends received
–
–
2,772
(612)
(870)
(913)
–
–
8,303
1,596
1,412
1,031
433
4,713
47,812
38,168
197
(33)
(127)
51
12,786
12,149
9,392
2,825
9,087
8,736
6,447
1,987
(428)
–
(428)
1,806
22,589
19,725
83
Middle
East
and
Africa
£000
Asia and
Australia
£000
UK
£000
Europe
£000
Americas
£000
2018
£000
2017
£000
Leasehold
improvements
£000
Furniture,
fittings
and other
equipment
£000
Computer
equipment*
£000
Motor
vehicles
£000
Total
£000
Notes
Continued
Balance
sheet
Total
assets
Total
liabilities
Net current
assets /
(liabilities)
Our share
Losses not
recognised
Goodwill
Total
investments
108,938
261
1,748
10,352
3,612
124,911
99,988
(91,798)
(206)
(9,779)
(6,403)
(5,562)
(113,748)
(94,399)
17,140
55
(8,031)
3,949
(1,950)
11,163
5,589
4,268
–
14
–
8,838
(10)
13,106
4
(803)
1,468
(487)
4,460
2,925
803
180
487
1,470
985
–
–
6,778
1,053
16,659
15,815
8,426
1,053
22,589
19,725
The UK is represented by Blue 449 (Walker Media Limited), which contributed all the profit during
the period. As such, the summary financial information has not been further disaggregated as, in the
view of the Directors, this would produce a note of disproportionate length given the materiality of
the investments held.
18. Plant and equipment
Policy
Tangible fixed assets are stated at historical cost less accumulated depreciation.
Depreciation is provided to write off the cost of all fixed assets, less estimated residual values,
evenly over their expected useful lives.
Depreciation is calculated at the following annual rates:
Leasehold improvements
Furniture and fittings
Computer equipment
Other equipment
Motor vehicles
- Lower of useful life and over the period of the lease
- 10% straight line basis
- 33% straight line basis
- 25% straight line basis
- 25% straight line basis
The need for any fixed asset impairment write down is assessed by comparison of the carrying value
of the asset against the higher of fair value less costs to sell and the value in use.
Cost
At 31 December 2016
Exchange differences
Additions
Reclassifications
Acquisition
of subsidiaries
Disposals
At 31 December 2017
Exchange differences
Additions
Acquisition
of subsidiaries
Disposals
At 31 December 2018
Depreciation
At 31 December 2016
Exchange differences
Depreciation charge
Reclassifications
Disposals
At 31 December 2017
Exchange differences
Depreciation charge
Reclassifications
Disposals
At 31 December 2018
Net book value
At 31 December 2016
At 31 December 2017
At 31 December 2018
9,944
(155)
1,713
–
821
(58)
12,265
(14)
1,556
50
(253)
13,604
4,258
(40)
1,347
–
(8)
5,557
10
1,329
–
(187)
6,709
5,686
6,708
6,895
8,575
(50)
398
(1,060)
170
(85)
7,948
22
853
77
(62)
8,838
4,411
(34)
1,039
(310)
(72)
5,034
38
845
–
(18)
5,899
4,164
2,914
2,939
5,871
(76)
1,717
1,060
78
(405)
8,245
50
2,155
8
156
24,546
1
3
–
(280)
3,831
–
75
1,144
(37)
198
(11)
73
(585)
28,656
47
4,637
–
135
(232)
10,226
(152)
(699)
108
32,776
5,194
(56)
654
310
(404)
5,698
43
1,353
–
(210)
6,884
677
2,547
3,342
64
1
39
–
(6)
98
(5)
31
–
13,927
(129)
3,079
–
(490)
16,387
86
3,558
–
(114)
(529)
10
19,502
92
100
98
10,619
12,269
13,274
84
Notes
Continued
Finance leases
Policy
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance lease agreements are treated as if they had been purchased outright. The
amount capitalised is the present value of the minimum future lease payments payable over the term
of the lease. The corresponding leasing commitments are shown as amounts payable to the lessor
(note 22). Lease payments are apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
** Relates to Australian and South African loans held at amortised cost. The Australian loans relate to AUD3.3m
(2017: AUD3.3m) loans that the Group lent local management of M&C Saatchi Agency Pty Ltd in 2015 to enable
them to acquire 20% of that business. The full recourse loan is repayable in full if the purchasers no longer have
a beneficial interest in the shares of the Australian Group, or are no longer employed (though the equity can
be held when not employed). The loan is unsecured and charged interest at 0.1% above the five-year Australian
interbank rate at the date the loan was advanced. The carrying value of the loan approximately equates fair
value. The South African loan relate to £435k (2017: £435k) loans that the Group lent local management of
its South African companies to enable them to acquire equity in the South African Group business. The full
recourse loans are repayable in full if the purchasers no longer have a beneficial interest in the shares of the
South African Group, or are no longer employed. The loan is unsecured and charged interest at 2% above
LIBOR. The carrying value of the loans approximately equate to fair value.
19b. Financial assets at fair value through profit and loss (FVTPL)
The net book value of assets held under finance lease are as follows:
Policy
Leasehold
improvements
£000
–
–
–
Furniture,
fittings
and other
equipment
£000
5
–
–
Computer
equipment*
£000
Motor
vehicles
£000
89
47
92
95
112
71
Total
£000
189
159
163
At 31 December 2016
At 31 December 2017
At 31 December 2018
19. Other non-current assets
Policy
Loans to employees
Represent financial assets at amortised cost and subsequently measured using the effective
interest rate method.
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.
At 31 December
1 January adoption IFRS9:
Transferred from other non-current assets
Revaluation
1 January 2018 total
Additions
Revaluation
Corporate venturing investments
2018
£000
5,759
4,835
10,594
780
1,584
12,958
2017
£000
–
–
–
–
–
–
At 31 December
Other debtors including rent deposits
Corporate venturing investments*
Loans to employees**
Call option provision
Total other non-current assets
2018
£000
1,956
–
2,238
54
4,248
2017
£000
1,223
5,760
2,288
54
9,325
As at 31 December 2017 these financial assets were previously held at cost less any impairment.
Subsequent to the adoption of IFRS 9 these assets are now held at fair value. Due to the Group
having adopted IFRS 9 prospectively there has been no restatement of the comparatives. At 31
December 2017 the investments in question were included in the financial statements as ‘Other non-
current assets’ as shown above. During the year there was an increase in the fair value of £1,584k
which has been taken to other gains in the income statement.
For detail regarding the adoption of IFRS 9 see note 2 and disclosure surrounding the basis of the
estimation of the value of the unlisted equity investments is held at note 27.
* Due to the Adoption of IFRS 9 (note 2) these financial assets are recognised separately. See note 19b below.
85
Notes
Continued
The unlisted equity investments are in 20 (2017: 19) early stage companies. The most we have
invested in any one company over time is £0.6m and the least £0.1m. The Group invests in these
entrepreneurs for long term return and to gain knowledge and insight. We are not sector specific
however we will only invest in offerings that we can understand.
20. Trade and other receivables
Policy
Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the
ordinary course of business. These financial assets give rise to cash flows that are ‘solely payments
of principal and interest’ on the principal amount outstanding. They are generally due for settlement
within 30 - 90 days and therefore are all classified as current. Trade receivables are recognised
initially at the amount of consideration that is unconditional. The Group holds trade receivables with
the objective to collect the contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method.
Impairment – Expected credit losses
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a
lifetime expected loss allowance (‘ECL’) for all trade receivables and contract assets. To calculate the
lifetime ECL the Group has established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and economic environments
in which the Group operates.
Trade receivables
Loss allowance
Net trade receivables
Prepayments*
Amounts due from associates
VAT and sales tax recoverable
Contract assets**
Other receivables***
Total trade and other receivables
2018
£000
115,200
(873)
114,327
7,646
579
2,065
10,943
15,381
150,941
2017
£000
86,280
(2,741)
83,539
23,997
1,717
2,026
-
8,817
120,096
* In 2017 this balance related to prepayments and accrued income, with accrued income totalling £10,820k.
** The movement in the contract asset position from 1 January 2018 (at adoption of IFRS 15) to 31 December
2018 solely relates to changes in the recognition of accrued income at the start and end of the period.
*** Included within the 2018 Other receivables balance is an amount of £5,387k relating to outlays incurred on
behalf of clients not yet charged. In 2017 this amount was included within the prepayment balance of £24.0million
as accrued income.
Set out below is the movement in the loss allowance (which includes provision for expected credit
losses) of trade receivables and contract assets.
As at 1 January
Adoption of IFRS 9 (expected credit loss)*
Provision for expected credit
losses during the year
Forward looking provision for
specific bad debts**
- Charge during the year
- Released during the year
- Utilisation of provision
Foreign exchange movement
Total loss allowance
2018
£000
(2,741)
(276)
72
(509)
2,492
91
(2)
(873)
2017
£000
(2,107)
-
-
(859)
-
214
11
(2,741)
* Upon transition to IFRS 9 the Group has recognised a loss allowance under the forward-looking ECL
approach. The Group has elected to apply IFRS 9 prospectively, and as such has not restated the prior year
comparatives (Note 2).
** Included within the specific bad debt loss allowance at the end of the prior year was one item relating to a
specific debt with one customer totalling £1,890k. This amount has been subsequently paid and as such has been
released from the specific bad debt provision after the year end.
The information about credit exposures are disclosed in note 28.
86
Notes
Continued
21. Trade and other payables
Policy
Trade and other liabilities are non-interest bearing and are stated at their amortised cost subsequent
to initial recognition at their fair value, which is considered to be equivalent to their carrying amount
due to their short-term nature.
Trade creditors
Contract liabilities*
Sales taxation and social security payables
Employment benefit accruals
Accruals
Deferred income*
Other payables
2018
£000
(71,076)
(32,865)
(9,247)
(1,550)
(23,940)
–
(3,949)
2017
£000
(51,893)
–
(8,602)
(1,798)
(39,250)
(20,694)
(6,019)
(142,627)
(128,256)
* Under IFRS15 Deferred income is now termed contract liabilities and is shown separately on the Balance Sheet.
Settlement of trade and other payables is in accordance with the terms of trade established with the
Group’s local suppliers.
Interest payable related to borrowings of £147k (2017: £148k) is included within Accruals.
The movement in the contract liability position from 1 January 2018 (at adoption of IFRS 15) to 31
December 2018 solely relates to changes in the recognition of deferred income at the start and
end of the period.
22. Borrowings
Policy
Loans and overdrafts are recognised initially at fair value, less attributable transaction costs.
Subsequently loans and overdrafts are recorded at amortised cost with interest charged to the
income statement under the Effective Interest Rate (EIR) method. Where there is a significant
change to the future cash flows the EIR is reassessed with an according change in the carrying
amount of the amortised cost. The change in the carrying amount is recognised in profit or loss as
income or expense.
Interest payable is included within accruals as a current liability.
The Group uses an invoice discounting facility secured against pledged trade receivables. As the
Group retains the risk and rewards of the trade receivables pledged in terms of the business model
of ‘hold to collect’ the Group continues to recognise these trade receivables with amounts drawn on
the facility treated as a current liability at amortised cost.
Amounts due within one year
At 31 December
Obligations under finance leases
Overdrafts*
Local bank loans
Invoice discounting*
2018
£000
(7)
(11,754)
(298)
(2,001)
(14,060)
2017
£000
(27)
–
(789)
(2,915)
(3,731)
* These overdrafts are offsetable, however they have not been netted off in accordance with IAS32.42.
** The amounts borrowed under the invoice discounting facility represent 60% of the receivables balance pledged.
As at the balance sheet date, £3.0m (2017, £1.9m) was not drawn under this facility. Interest is charged at 1.75%
per annum on amounts drawn.
Amounts due after one year
At 31 December
Obligations under finance leases
Local bank loans
Secured bank loans
2018
£000
2017
£000
(151)
(18)
(38,372)
(38,541)
(106)
(228)
(37,430)
(37,764)
87
Notes
Continued
Secured bank loans
Total bank loans and borrowings used to calculate net cash are as follows:
At the year end, the Group had a banking facility of up to £38m (2017, £40m) plus a one year £10.0m
(2017: £0.3m) overdraft facility. On 29 November 2017 it was agreed that this facility would reduce
to £36m on 31 December 2019. The facility has a floating rate of interest set at 1.75% above LIBOR
and the overdraft has floating rates of interest set at 1.75% above the Bank of England base rate. The
banking facility is set to mature on 30 April 2020. In return for the facility the Group gives the bank
guarantee over key UK, Dutch and Australian companies.
At 31 December
Gross secured bank loans
Capitalised finance costs
Net secured bank loans
2018
£000
2017
£000
(38,502)
(37,658)
130
228
At 1 January 2017
Cash movements
Non-cash movements
– Foreign exchange
changes
(38,372)
(37,430)
– Fixed asset additions
Future interest payable on secured bank loans at balance sheet date
(1,588)
(2,215)
– Acquisitions
Gross
secured
bank loans
£000
Local
bank
loans
£000
Invoice
discounting
£000
Obligations
under
finance
lease
£000
Total
secured
loans*
£000
Total
£000
(28,582)
(10,097)
–
216
(3,645)
(32,227)
(43)
(32,270)
730
(9,151)
28
(9,123)
1,021
(33)
–
–
–
(1,200)
–
–
–
988
–
(8)
980
(110)
(110)
(1,200)
–
(1,200)
Total secured bank loans and future interest
(39,960)
(39,645)
At 31 December 2017
(37,658)
(1,017)
(2,915)
(41,590)
(133)
(41,723)
Total secured bank loans and future interest are due as follows:
At 31 December
In one year or less, or on demand
In more than one year but not more than five years
2018
£000
(1,185)
2017
£000
(950)
(38,775)
(38,695)
(39,960)
(39,645)
Cash movements
(329)
690
914**
1,275
45
1,320
Non-cash movements
– Foreign exchange
changes
– Fixed asset additions
– Acquisitions
(515)
–
–
11
–
–
–
–
–
(503)
(5)
(509)
–
–
(65)
–
(65)
–
At 31 December 2018
(38,502)
(316)
(2,001)
(40,818)
(158)
(40,977)
Obligations under finance leases and hire purchase contracts are due as follows: At
* The borrowing used to calculate net cash.
At 31 December
In one year or less, or on demand
In more than one year but not more than two years
2018
£000
(7)
(151)
(158)
2017
£000
(27)
(106)
(133)
** The net movement of £914k (2017: £730k) is inclusive of total drawdowns during the year of £44.4m
(2017: £58.1m) and repayments of £45.3m (2017: £57.4m).
23. Other non-current liabilities
31 December
Employment benefit provisions*
Other
2018
£000
(546)
(1,398)
(1,944)
* This relates to long term service leave in some locations.
2017
£000
(499)
(1,988)
(2,487)
88
Notes
Continued
24. Minority shareholder put option liabilities
Policy – See below but also Basis of Preparation note on page 42
Put option liabilities are recognised at the fair value of the underlying award on the date of inception
both as a liability on the balance sheet and a corresponding amount being recognised in the minority
interest put option reserve. Subsequently, at each reporting date, the fair value of the liability is
reassessed with the gain or loss being recognised in the income statement.
Upon exercise of an award by a holder the liability is extinguished and the associated minority
interest put option reserve is transferred to the non-controlling interest acquired reserve.
Some of our subsidiaries’ local entrepreneurs (minorities) have the right to a put option. The put
options give the minorities a right to exchange their minority holdings in the subsidiary into shares in
M&C Saatchi plc or cash (as per the agreement).
At 1 January
Exchange difference
Exercises
Income statement gain /(charge) due to:
– Change in estimates
– Change in share price
– Time
Total income statement charge
At 31 December
2018
£000
2017
£000
(25,129)
(33,166)
(13)
7,663
(2,664)
1,742
11
75
4,925
2,613
401
23
(911)
(18,390)
3,037
(25,129)
As at 31 December
Amounts falling due within one year
– Cash
– Equity
Amounts falling due after one year, but less than three years
– Cash
– Equity
2018
£000
2017
£000
–
(12,327)
(12,327)
(1,713)
(4,350)
(6,063)
(1,319)
(13,494)
(14,813)
(2,014)
(8,302)
(10,316)
(18,390)
(25,129)
The movements in the year relating to the minority interest put options that are payable in cash or
equity are as follows:
Cash based
At 1 January
Exchange difference
Reclassified to equity based
Income statement gain / (charge) due to:
– Change in estimates
– Change in share price
– Time
At 31 December
2018
£000
(3,333)
(11)
1,446
141
44
–
2017
£000
(3,299)
75
23
(175)
33
10
(1,713)
(3,333)
89
Notes
Continued
Equity based
At 1 January
Exercises
Reclassified (from)/to cash based
Income statement charge due to
– Change in estimates
– Change in share price
– Time
At 31 December
2018
shares*
‘000
(5,867)
2,014
(500)
(2,008)
587
4
(5,770)
2018
£000
(21,796)
7,663
(1,446)
(2,806)
1,697
11
(16,677)
* The estimated number of M&C Saatchi plc shares that will be issued to fulfil at 289.0p (2017: 371.5p).
At each period end, the fair value of the put option liability is calculated in accordance with
the shareholders’ agreement, and any movements charged to the income statement. Where
the agreement gives a right to convert to a variable number of shares (rather than a value),
the number of shares is converted to a value by using the period end share price (2018:
289.0p; 2017: 371.5p).
The liability value will vary with both our share price and the subsidiary enterprises’ performance.
Current liabilities are determined by our year end share price and the 2018 results of the
companies who can exercise in 2019. Non-current liabilities are determined by our year end
share price and the projected results of the companies who can exercise after 2019. The
projected results show management’s best estimate of the growth rates and margin of the
companies who can exercise after 2018. Given that these companies are small, single account
wins / losses can have a significant effect on their margins. Such accounts changes are far more
significant than changes to exchange rates and underlying economic growth rates.
The Group’s approach relating to the valuation of the minority interest put options is
detailed in note 27.
2017
£000
(29,867)
4,925
(23)
2,788
368
13
Put options are exercisable from:
Subsidiary
M&C Saatchi Marketing Arts Ltd
M&C Saatchi (M) SDN BHD
Influence Communications Ltd
M&C Saatchi Europe Holdings Ltd
M&C Saatchi Communications Pty Ltd
(21,796)
FCINQ SAS
M&C Saatchi Sport & Entertainment LLP (US)
M&C Saatchi Sport & Entertainment Pvt Ltd
Talk PR Ltd
M&C Saatchi UK PR LLP
M&C Saatchi Corporate SAS
M&C Saatchi (Switzerland) SA
M&C Saatchi Merlin Ltd
The Source (London) Ltd
M&C Saatchi Brazil Comunicação LTDA
Shepardson Stern + Kaminsky LLP
M&C Saatchi Agency Pty Ltd
Creative Spark Interactive (PTY) Ltd
Year
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2020
2020
% of
subsidiaries
shares
exchangeable
50.0
20.0
5.0
4.0
13.0
18.0
23.0
34.0
39.0
0.3
29.8
20.0
25.0
10.0
40.0
33.3
20.0
10.0
90
Notes
Continued
25. Issued share capital
Allotted, called up and fully paid
Policy
Ordinary shares are classified as equity. Incremental costs attributable to the issuance of new
shares are shown in equity as a deduction, net of tax, from proceeds.
Where the Group reacquires its own equity instruments (treasury shares), the consideration
paid is deducted from equity attributable to owners of the Group and recognised within the
treasury reserve.
At 31 December 2016
Acquisition 16.566% of Shepardson Stern + Kaminsky LLP
Acquisition 10% Talk PR Ltd
Acquisition 10% M&C Saatchi Mobile Ltd
Acquisition 24.5% LIDA NY LLP
Acquisition 0.1% of M&C Saatchi Network Ltd
Acquisition 32.9% of Bohemia Group Pty Ltd
Exercise of Mobile USA share options
Acquisition of small percentages of UK and Australian subsidiaries
At 31 December 2017
Exercise of Mobile USA share options
Acquisition of 51% of Scarecrow Communications Ltd
Acquisition of 20% M&C Saatchi Merlin Ltd
Acquisition of 40.3% M&C Saatchi PR UK LLP
Acquisition 53% of Red Hare Ltd
Contingent consideration Levergy Marketing Agency Pty Ltd-
Acquisition 24.5% LIDA NY LLP
Acquisition 10% M&C Saatchi Advertising GmbH
Acquisition of small percentages of US and Swedish subsidiaries
Number of
shares
74,950,196
687,280
132,572
2,476,017
390,271
300,000
524,775
945,801
925,890
81,332,802
1,979,782
450,639
250,760
1,221,979
1,320,324
117,733
315,681
514,947
98,906
1p Ordinary
shares
£000
749
7
1
25
4
3
5
10
9
813
20
5
3
12
13
1
3
5
1
At 31 December 2018
87,603,553
876
The Group holds 700,000 of the above M&C Saatchi plc shares in treasury.
91
Notes
Continued
26. Share based payments
Policy
Expense recognised in the year:
Certain of the Group’s subsidiaries’ local entrepreneurs (who are Minority Interests of the Group)
have the right to a put option over the equity they hold in the relevant subsidiary. This put option is
dependent upon the holders continued employment by the group and is only redeemable in shares
of M&C Saatchi plc. As such these schemes are accounted for under IFRS 2 as equity-settled share-
based payments to employees.
Equity settled
Cash settled
Total
The fair value of the awards are calculated at the grant date of each scheme based on the Group’s
estimate of shares that will ultimately vest, which includes assumptions over conditions such as
profitability of the subsidiary to which the awards relate. This value is recognised as an expense
in the income statement over the vesting period of the award on a straight-line basis with a
corresponding increase in equity.
The fair value of the awards is calculated by means of a Monte Carlo model with inputs made in
terms the plc share price at date of grant, risk free rate, historic volatility of share price, dividend
yield and time to vest.
Upon exercise of the awards the nominal value of the shares issued is credited to share capital with
the balance of the fair value award credited to share premium. The minority interest to which the
awards was attached is concomitantly extinguished.
Vested and exercised award activity
At 1 January 2017
Vested
Exercised*
At 31 December 2017
Vested
Exercised*
At 31 December 2018
2018
£000
6,104
–
6,104
2017
£000
13,501
–
13,501
Conditional
share awards
2,107,224
3,197,220
Total
number
2,107,224
3,197,220
(4,112,089)
(4,112,089)
1,192,355
1,192,355
2,901,331
2,644,544
(2,368,053)
(2,052,372)
1,725,633
1,784,527
* The average price when these options were exercised was 393.18p (2017: 328.75p).
Inputs to Monte Carlos used to calculate the fair value of share awards made during the
year are as follows:
The conditional share awards are conditional that the employee remains employed by the Group
on the day of exercise. Vesting relates to those shares that can be exercised at the year end.
Share price at grant
Expected volatility
Risk free rate
Dividend yield
Fair value of award per share
2018
2017
£2.88 - £3.90
£3.30 - £3.55
29% - 34%
29% - 32%
0.72% - 1.11%
0.28% - 1.05%
2.44% - 3.31%
2.33% - 2.60%
£1.54 - £3.73
£1.96 - £3.14
The total fair value of each award, expense recognised in the year plus grant and vesting dates can
be seen on pages 93 to 95.
Share option activity included LTIP awards made to the Directors of the Group are discussed in
terms of the work of the remuneration committee (see page 27).
92
Notes
Continued
26. Share based payments continued
Share option schemes outstanding at the end of the year are shown as follows:
M&C Saatchi Network Ltd** & ***
M&C Saatchi Network Ltd
M&C Saatchi LA Inc
M&C Saatchi LA Inc
M&C Saatchi Shop Ltd
M&C Saatchi Shop Ltd
M&C Saatchi Shop Ltd
M&C Saatchi Accelerator Ltd
M&C Saatchi Accelerator Ltd
M&C Saatchi Accelerator Ltd
M&C Saatchi Mobile Singapore
M&C Saatchi (S) Pte Ltd
M&C Saatchi Tel Aviv Ltd
LIDA NY LLP
M&C Saatchi SpA
Paris GAD Holding SAS
M&C Saatchi Share Inc
M&C Saatchi AB
M&C Saatchi Middle East Holdco Ltd
M&C Saatchi Worldwide Ltd
M&C Saatchi Worldwide Ltd
M&C Saatchi Mobile Ltd***
M&C Saatchi Mobile Ltd***
M&C Saatchi Mobile Ltd***
M&C Saatchi Mobile Ltd
M&C Saatchi Mobile USA** & ***
M&C Saatchi Mobile USA** & ***
M&C Saatchi Mobile USA**
M&C Saatchi Berlin GMBH
Grant date
05/05/2015
05/05/2015
16/12/2004
15/01/2015
03/12/2015
03/12/2015
03/12/2015
26/11/2015
26/11/2015
26/11/2015
24/06/2015
01/09/2013
21/04/2015
15/03/2016
09/12/2015
24/02/2016
12/06/2015
11/02/2014
23/03/2016
01/06/2016
18/07/2016
23/08/2016
23/08/2016
23/08/2016
15/04/2018
28/10/2016
28/10/2016
28/10/2016
14/12/2016
MI
shareholding
by voting
right
Total charge to
vesting
£000
Vesting
date***
Charge for
2018
£000
Charge for
2017
£000
0.00%
5.00%
6.00%
4.00%
2.50%
2.50%
2.50%
6.70%
6.70%
6.70%
5.00%
20.00%
20.00%
24.50%
20.00%
40.00%
20.00%
40.00%
20.00%
0.00%
0.00%
5.00%
5.00%
10.00%
10.00%
0.00%
0.00%
0.00%
13.30%
£931
£2,581
£184
£350
£23
£21
£20
£141
£158
£145
£101
£347
£104
£1,911
£1,332
–
–
£787
£22
£977
£57
£3,000
£1,000
£4,000
£2,106
£1,537
£1,537
£806
£497
15/04/2017
15/04/2019
15/04/2020
15/04/2020
15/04/2020
15/04/2021
15/04/2022
15/04/2020
15/04/2021
15/04/2022
15/04/2020
15/04/2019
15/04/2020
30/11/2018
15/04/2019
01/05/2020
15/04/2020
01/12/2017
15/04/2019
01/01/2019
01/01/2019
02/05/2017
27/08/2017
09/08/2017
15/04/2018
27/08/2017
14/10/2018
15/04/2020
15/04/2021
–
£654
£12
£67
£5
£4
£3
£32
£29
£23
£21
£62
£21
£645
£397
–
–
–
£7
£378
£23
–
–
–
£369
–
–
£233
£115
£137
£654
£12
£67
£(10)
£(8)
£(6)
£32
£29
£23
£21
£62
£21
£705
£397
–
–
£190
£7
£378
£23
£1,943
£648
£3,335
£1,532
£1,212
£1,400
£233
£172
93
MI
shareholding
by voting
right
Total charge to
vesting
£000
Notes
Continued
M&C Saatchi Digital GmbH
Clear Ideas Ltd – B shares (Group)
Clear Ideas Ltd – C shares (UK)
Clear LA LLC
Human Digital Ltd
Human Digital Ltd
Human Digital Ltd
M&C Saatchi, S.A. DE. C.V
M&C Saatchi Sports & Entertainment Ltd
Levergy Marketing Agency Pty Ltd
M&C Saatchi PR International Ltd
M&C Saatchi PR International Ltd
M&C Saatchi PR International Ltd
Re Worldwide Ltd – B shares
Re Worldwide Ltd – C shares
M&C Saatchi Sports & Entertainment
LA LLC – B units
M&C Saatchi Sports & Entertainment
LA LLC – C units
Greenhouse Pty Ltd – 4 year
Greenhouse Pty Ltd – 5 year
Greenhouse Pty Ltd – 6 year
The Source Insight Australia Pty Ltd – First tranche
The Source Insight Australia Pty Ltd
– Second tranche
M&C Saatchi Holdings Asia Pte Ltd – tranche 1
M&C Saatchi Holdings Asia Pte Ltd – tranche 2
Scarecrow Communications Ltd – First option
Scarecrow Communications Ltd – Second option
M&C Saatchi Social Ltd – First tranche
M&C Saatchi Social Ltd – Second tranche
M&C Saatchi Sponsorship SL
Grant date
14/02/2017
03/03/2017
03/03/2017
28/03/2017
12/04/2017
12/04/2017
12/04/2017
01/07/2017
31/10/2017
15/11/2017
29/11/2017
29/11/2017
29/11/2017
01/01/2018
01/01/2018
01/01/2018
01/01/2018
01/01/2018
01/01/2018
01/01/2018
15/02/2018
15/02/2018
20/03/2018
20/03/2018
01/05/2018
01/05/2018
29/06/2018
29/06/2018
01/02/2018
25.00%
5.00%
15.00%
12.00%
11.50%
11.50%
17.00%
41.00%
30.00%
11.90%
13.30%
13.30%
13.30%
27.50%
22.40%
25.00%
25.00%
11.00%
1.80%
7.20%
14.00%
21.00%
27.40%
22.50%
24.50%
24.50%
24.50%
24.50%
49.00%
Vesting
date***
15/04/2022
15/04/2022
15/04/2022
15/04/2022
15/04/2021
15/04/2022
15/04/2023
15/04/2023
15/04/2022
15/04/2021
15/04/2022
15/04/2023
15/04/2024
31/12/2022
31/12/2022
24/04/2022
£154
£282
£617
£78
£120
£89
£99
£309
£596
£238
£105
£93
£82
£513
£418
£202
£202
24/04/2022
£0
£0
£10
£123
£158
£58
£57
£339
£359
£1,642
£1,341
–
15/01/2022
15/01/2023
15/01/2024
15/01/2022
25/01/2025
02/09/2024
07/09/2024
20/01/2020
20/01/2022
30/06/2021
30/06/2023
01/02/2023
Charge for
2018
£000
Charge for
2017
£000
£30
£55
£121
£16
£30
£18
£16
£53
£134
£70
£24
£17
£13
£102
£83
£47
£47
–
–
–
£28
£20
£10
£7
£132
£64
£277
£136
–
£26
£46
£98
£12
£22
£13
£12
£27
£22
£9
£2
£2
£1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
94
Notes
Continued
M&C Saatchi Send Me A
Sample Ltd – B1 shares
M&C Saatchi Send Me A
Sample Ltd – B2 shares
M&C Saatchi Send Me A
Sample Ltd – B3 shares
M&C Saatchi UK Ltd
M&C Saatchi Advertising GmbH
M&C Saatchi Mobile Ltd*
M&C Saatchi Advertising GmbH
M&C Saatchi Sports &
Entertainment NY LLP
M&C Saatchi Asia Hong Kong Ltd – B shares
Talk PR Ltd
Majority LLC
Talk Purpose Ltd – B1 shares
Talk Purpose Ltd – B2 shares
Talk Purpose Ltd – B3 shares
Total
Grant date
02/07/2018
02/07/2018
02/07/2018
06/07/2018
12/07/2018
10/08/2018
01/10/2018
01/11/2018
23/11/2018
23/11/2018
30/11/2018
07/12/2018
07/12/2018
07/12/2018
MI shareholding
by voting right
Total charge
to vesting,
£000
Vesting
date***
Charge for
2018
£000
Charge for
2017
£000
10.00%
10.00%
10.00%
30.00%
4.10%
n/a
10.00%
15.50%
30.00%
10.00%
50.00%
6.00%
6.00%
8.00%
£148
£190
£197
£662
£16
£1,340
£5
–
£211
–
£104
£62
£56
£68
15/04/2023
15/04/2024
15/04/2025
15/04/2023
15/04/2023
per annum*
15/04/2024
15/04/2024
15/04/2024
15/04/2023
15/04/2024
15/05/2024
15/04/2025
15/04/2026
£15
£16
£14
£68
£2
£1,330
£0
–
£4
–
£2
£1
£1
£1
–
–
–
–
–
–
–
–
–
–
–
–
–
£6,104
£13,501
* Award relates to a scheme provided to one employee of the Company. Scheme is remunerated exclusively in shares of the Group in reward dependent on future employment status of the employee. The terms of the award are such that it
is in place for perpetuity as long the individual remains an employee with rewards remunerated on a per annum basis dependent on the performance of the business to which it is attached on a calendar year basis. As the value of the
award is solely dependent on the future performance of the subsidiary enterprise with no inputs related to the overall performance of the Group in terms of market capitalisation or profitability, there is no requirement for an option
pricing model to be used when determining future fair value of this equity settled share-based payment award.
** Entities which have provided put option awards to employees attached to classes of share which are capital in nature but have neither voting rights nor rights to distribution.
*** Fully exercised.
95
Notes
Continued
27. Fair value measurement
Policy – See basis of preparation note on page 43
Certain of the Group’s financial assets and liabilities, in addition to certain non-financial assets
and liabilities are held at fair value.
The fair value of an asset or liability is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the balance sheet date.
Financial and non-financial assets and liabilities measured at fair value in the Balance Sheet are
grouped into three levels of a fair value hierarchy. The three levels are defined based on the
observability of significant inputs to the measurement, as follows:
– Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
At 31 December 2018
Financial assets
Equity investments at FVTPL*
Financial liabilities
Contingent consideration
MI put option liabilities
– Level 2: inputs other than quoted prices included within Level 1 that are observable for the
At 31 December 2017
asset or liability, either directly or indirectly; and
– Level 3: unobservable inputs for the asset or liability.
The Group holds both assets and liabilities which are measured at fair value on a recurring
basis and those which are measured at fair value on a non-recurring basis. Items measured at
fair value on a non-recurring basis typically relate to non-financial assets arising as a result of
business combinations as accounted for under the acquisition method. In this regard, during the
year the Group has recognised additions to intangible assets (brand names and customer lists)
totalling £2,859k (2017: £2,591k). These assets fall within Level 3 of the IFRS 13 hierarchy and are
described in note 16.
In addition, the Group also calculates the fair value of certain non-financial assets when there is
the need to conduct an impairment review. These calculations also fall within Level 3 of the IFRS 13
hierarchy and where applicable are described in note 16.
Assets and liabilities measured at fair value on a recurring basis
The following table shows the levels within the hierarchy of financial assets and liabilities measured
at fair value on a recurring basis at 31 December 2018 and 31 December 2017
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
12,958
(1,154)
(18,390)
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
10,596
(1,210)
(25,129)
Financial assets
Equity investments at FVTPL*
Contingent consideration
MI put option liabilities
* Prior to the adoption of IFRS 9 these items were held at cost. As part of transition to IFRS 9 the fair value of these
items as at 1 January 2018 has been calculated.
The level within which the financial asset or liability is classified is determined based on the
lowest level of significant input to the fair value measurement.
96
Notes
Continued
The movements in the fair value of the level 3 recurring financial assets and liabilities are
shown as follows:
At 1 January
Net (loss) / gain in the income statement
Net profit / (loss) in other
comprehensive income
Additions
Settlement
Currency movements
At 31 December
Equity
instruments
at FVTPL
£000
Contingent
consideration
£000
Put option
liabilities
£000
10,596
1,584
–
780
–
(2)
(1,210)
(37)
–
(367)
459
1
(25,129)
(911)
–
–
7,663
(13)
12,958
(1,154)
(18,390)
Total
Adjusted purchase price
+10%
-10%
Increase / (decrease) in
fair value of asset
£000
1,296
(1,296)
In addition, management consider there to be a risk that the most recent purchase prices are
sensitive to a decision to sell the investments to an unwilling market. If such a market existed,
then discounting the investments to reflect such risk could impact the value as shown below:
Risk adjusted sales price
-30% sales discount due to illiquid nature
-12% risk discount for unwilling market place
Increase / (decrease)
in fair value of asset
£000
(3,877)
(1,555)
(5,432)
Movements in the contingent consideration and put option liabilities are recognised as finance
(costs) / gains whilst the Equity instruments at FVTPL are recognised as other income and
comprise part of operating profit.
Valuation and sensitivity to valuation
The Group’s finance team performs valuations of financial items for financial reporting purposes,
including Level 3 fair values. Where appropriate such valuations are performed in consultation
with third-party valuation specialists for complex calculations.
The valuation approaches adopted for each category of financial instrument held at fair value
detailed above, in addition to the calculation’s sensitivity to salient inputs, are as detailed below.
(i) Equity instruments at FVTPL – These assets relate to corporate venturing unlisted equity
investments as detailed in note 19b. Management use the most recent market prices as the basis
for establishing the fair value of the equity investments as at year end. Fluctuations in these
purchase prices would therefore change the fair value of the investments recognised at year end,
as follows assuming a 10% uplift or downwards movement in the price:
* If these illiquid securities were to be sold then such a sale is expected to yield between a 10% and
50% discount, so sensitivity based on 30%.
** Risk that if cash supply dries up some of the investments with future growth prospects will run out
of cash requiring a fire sale, reflected by additional risk discount of 12%.
(ii) Contingent consideration – Contingent consideration relates to one acquisition made in
2017 (Levergy) and the 2018 acquisition of Scarecrow Communications Limited.
The Levergy consideration is payable in a variable number of M&C Saatchi plc shares which is
dependent on the future profitability and growth of profit of the acquired entity. The fair value
of the contingent consideration outstanding at year end is calculated based on forward looking
forecasts of the business applied to the terms of the acquisition (which defines the number of plc
shares to be earned into). The resultant cash equivalent amount of the shares which would have
been issued is discounted to present value using a discount rate based on a country specific WACC.
97
NOTES
Continued
The key inputs for calculation of the fair value of the deferred consideration at year end relate to
(i) the risk adjusted discount rates used, and (ii) the future forecast profitability of the acquired
business over the period of the deferred consideration. Differences in either of these inputs would
change the fair value of the liability:
With regards the sensitivity of the put liabilities in terms of the M&C Saatchi plc share price, the
year-end share price was 289.0p (2017: 371.5p). The 2018 charges (and thus year end liability
recognised) would have changed as follows had the share price been:
Forecast PBT
10%
-10%
Adjusted WACC
+5%
-5%
Increase / (decrease)
in fair value of liability
£000
113
(113)
Increase / (decrease)
in fair value of liability
£000
(37)
42
Share price
Movement
231.0p
260.0p
289.0p
318.0p
347.0p
-20.0%
-10.0%
0.0%
10.0%
20.0%
28. Financial risk management
Principal financial instruments
Increase / (decrease)
in fair value of liability
£000
(2,310)
(1,155)
–
613
1,639
The Scarecrow Communication Limited contingent consideration is payable in a variable number of
plc shares. The formula used to derive the number of plc shares is based on historic results of the
company. As such the calculation does not involve any estimates and no disclosures regarding the
sensitivity of the inputs made are relevant.
(iii) MI put option liabilities – As explained in the significant judgement section and note 24 the
Group has issued put option agreements to certain minority interests (MI) of the Group which are
accounted for as liabilities. The liability arising in each instance is based on future profitability of
the entity in which the MI holds equity. The fair value of each put liability is calculated based on
management’s best estimate of forecast growth rates and margin of the companies applied to the
terms of the shareholders agreement.
The key inputs to the fair value calculation for the put option liabilities, the forecast future
profitability of the entities to which the put options are attached and the prevailing plc share price
(which drives the profit multiple to be applied). Differences between the actual and the projected
results of the entities could therefore have an impact on the fair value as follows:
Forecast PBT
+10%
-10%
Increase / (decrease)
in fair value of liability
£000
1,307
(1,394)
Forecasts of future profitability create significant estimation uncertainty to valuation of the minority
put option liabilities.
The principal financial instruments held by the Group, from which financial instrument risk arises,
include contract assets, trade and other receivables, cash and cash equivalents, contract liabilities,
trade and other payables, loans and borrowings, MI put options accounted under IFRS 9 as liabilities
and equity instruments representing long term investments in non-listed entities.
The Group does not typically use derivative financial instruments to hedge its exposure to foreign
exchange or interest rate risks arising from operational, financing and investment activities.
The following financial instruments are measured at fair value and details regarding the valuations
undertaken are disclosed in note 27.
Group
Financial assets
Equity investments at FVTPL
Financial liabilities
MI put option liabilities
Contingent consideration
Company
2018
£000
12,958
2018
(18,390)
(1,154)
2017
£000
10,596
2017
(25,129)
(1,210)
M&C Saatchi plc company does not directly hold any financial instruments recognised at fair value.
98
Notes
Continued
28.1 General objective, policies and processes
The Board of Directors has overall responsibility for the determination of the Group’s and
Company’s risk management objectives and policies. Whilst retaining ultimate responsibility for
them, the Board has delegated the authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the Group’s senior management of each
core business unit. The Board receives monthly reports from management through which it reviews
the effectiveness of the processes put in place and the appropriateness of the objectives and
policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility of the global businesses of which it is
comprised. Further details regarding these policies are set out below.
28.2 Market risk
Market risk arises from the Group’s use of interest bearing financial instruments and foreign
currency cash holdings. It is the risk that the fair value of future cashflows on its debt finance and
cash investments will fluctuate because of changes in interest rates (interest rate risk), foreign
exchange rates (currency risk) and other price risk such as equity price risk and share price risk.
Financial instruments affected by market risk include loans and borrowings, deposits, debt, equity
investments and minority interest (MI) put options.
Exposure to market risk arises in the normal course of the Group’s business.
Exchange rate
10%
-10%
28.4 Interest rate risk
Increase / (decrease)
in profit before tax
£000
Increase / (decrease)
in profit after tax
£000
(1,369)
1,560
(967)
1,085
The Group is exposed to interest rate risk because it holds a banking facility of up to £38m and
an overdraft facility of up to £10million, both based on floating interest risks. The Group does not
consider this risk to be significant.
The sensitivity analysis below has been determined based on the exposure to interest rates for
financial instruments held at the balance sheet date. The analysis is prepared assuming the amount
of borrowings outstanding at the balance sheet date were outstanding for the whole year. A 50-basis
point increase or decrease is used when reporting interest rate risk internally to key management
personnel and represents management’s assessment of the reasonable possible changes
in interest rates.
If interest rates had been 50 basis points higher / lower and all other variables were held constant,
the Group’s profit for the year ended 31 December 2018 would (decrease) / increase by £(204)k
/ £204k (2017: £(207)k / £207k). This is principally attributable to the Group’s exposure to interest
rates on its floating rate loan.
28.3 Foreign exchange risk
28.5 Liquidity risk
Foreign exchange risk arises from transactions and recognised assets and liabilities and net
investments in foreign operations. The Group’s general operating policy historically has been
to conduct business in the currency of the local area in which businesses of the Group are
geographically located, thereby naturally hedging the consideration resulting from client work.
Businesses of the Group maintain bank accounts in the currency of these transactions solely
for working capital purposes. As the Group has grown there has been an increase in services
rendered being exported from the UK businesses to clients who transact in non-GBP currencies.
The transactional risk arising from such exports is mitigated in terms of the structuring of the billing
arrangements and agreement to regular invoices being remitted and promptly paid (<30 days).
The Group is exposed to movements in foreign currency exchange rates in respect of the translation
of net assets and income statements of foreign subsidiaries and equity accounted investments. The
Group does not hedge the translation effect of exchange rate movements on the income statements
or balance sheets of foreign subsidiaries and equity accounted investments as it regards these as
long-term investments.
The estimated impact on foreign exchange gains and losses of a +/- ten percent movement in the
closing GBP sterling exchange rate on the retranslation of non-GBP-denominated currencies held by
businesses of the Group is as follows:
Liquidity risk arises from the Group’s management of working capital and the finance charges and,
when appropriate, principal repayments on its debt instruments. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as and when they fall due. The Group’s debt
instruments carry interest at LIBOR + 1.75%.
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities
when they come due. To achieve this aim, the Group has a planning and budgeting process in place
to determine the funds required to meet its normal operating requirements on an ongoing basis.
The Group and Company ensures that there are sufficient funds to meet its short-term business
requirements, taking into account its anticipated cash flows from operations, its holdings of cash
and cash equivalent and proposed strategic investments.
The Board receives rolling 12-month cash flow projections on a monthly basis as well as
information regarding cash balances. At the end of the financial period, these projections indicated
that the Group had sufficient liquid resources to meet its obligations under all reasonably
expected circumstances.
99
Notes
Continued
The following table sets out the contractual maturities (representing undiscounted contractual cash
flows) of financial liabilities:
Group
At 31 December 2018
Up to 3
months
£000
3 to 12
months
£000
1 to 2
years
£000
2 to 5
years
£000
Over 5
years
£000
Trade and other payables
(118,687)
(23,941)
Loans and borrowings
Overdrafts
Total
Company
At 31 December 2018
Trade and other payables
Loans and borrowings
Total
28.6 Credit risk
(2,008)
(11,754)
(132,449)
Up to 3
months
£000
(324)
-
(324)
(298)
–
(24,239)
3 to 12
months
£000
(22,000)
(29,970)
(51,970)
(2,392)
(38,092)
–
(40,484)
1 to 2
years
£000
–
–
–
–
–
–
–
–
2 to 5
years
Over 5
years
£000
£000
–
–
–
–
–
–
–
–
–
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations.
The Group monitors credit risk at both a local and Group level. Credit terms are set and monitored
at a local level according to local business practices and commercial trading conditions. The
age of debt, and the level of accrued and deferred income is reported regularly. Age profiling is
monitored, both at local customer level and at consolidated entity level. There is only local exposure
to debt from our significant global clients. The Group continues to review its debt exposure to
foreign currency movements and will review efficient strategies to mitigate risk as the Group’s
overseas debt increases.
Management determines concentrations of credit risk by reviewing amounts due from customers
monthly. The only significant concentrations of credit risk which are accepted are with multinational
blue chip (or their equivalent) organisations where credit risk is not considered an issue.
Impairment
The group has two types of financial asset that are subject to the expected credit loss model:
– Trade receivables
– Contract assets
The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a
lifetime expected loss allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables and contract assets have been
grouped based on shared credit risk characteristics and the days past due. The contract assets
relate to unbilled work in progress and have substantially the same risk characteristics as the
trade receivables for the same types of contracts. The group has therefore concluded that the
expected loss rates for trade receivables are a reasonable approximation of the loss rates for the
contract assets.
The expected loss rates for each business, is based on the payment profiles of sales at least over a
period of 24 months before 31 December 2018 or 1 January 2018 respectively and the corresponding
historical credit losses experienced within this period. The historical loss rates are adjusted to
reflect current and forward-looking information on macroeconomic factors affecting the ability of the
customers to settle the receivables.
The loss allowance as at 31 December 2018 and 1 January 2018 (on adoption of IFRS 9) was
determined as follows for both trade receivables and contract assets.
31 December 2018
Expected loss rate (%)
Trade receivables (£000)
Loss allowance
1 January 2018
Expected loss rate (%)
Trade receivables (£000)
Loss allowance
Trade receivables
Not past
due
1 - 120 days
past due
121 - 270 days
past due
> 270 days
past due*
0.01%
107,708
12
0.44%
4,312
19
50.21%
343
173
0.00%
1,964
0
Trade receivables
Not past
due
1 - 120 days
past due
121 - 270 days
past due
> 270 days
past due*
0.01%
83,250
7
1.74%
2,569
45
56.87%
395
224
0.00%
66
0
* Trade debtors > 270 days past due relates solely to one business unit which has not, to date, had to impair trade
debtor positions held.
** An immaterial loss was calculated for contract assets and has not been included in the annual report.
Trade receivables and contract assets are written off when there is no reasonable expectation
of recovery. Indicators that there is no reasonable expectation of recovery include, amongst
others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make
contractual payments for a period greater than 90 days past due.
Impairment losses on trade receivables and contract assets are presented as net impairment losses
within operating profit (note 20). Subsequent recoveries of amounts previously written off are
credited against the same line item.
100
Notes
Continued
28.7 Share price risk
As detailed on page 4 the Group uses put option awards to incentivise certain local key management
(who are NCI). The value of these awards is in part dependent upon the Group’s share price. The
fair valuation of these schemes and the potential impact of movements in the share price are
discussed in note 27.
28.8 Equity price risk
The Group’s non-listed equity investments are susceptible to market price risk arising from
uncertainties about future values of the investment securities. The Group manages equity price
risk through diversification and by placing limits on individual and total equity investment securities.
Reports on the equity portfolio are submitted to the Group’s senior management on a regular
basis. The Group’s Board of Directors reviews and approves all equity investment decisions. The
basis of the fair value calculations and the sensitivity of these calculations to the key inputs is
detailed in note 27.
28.9 Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximising the return to shareholders through the optimisation of the debt and
equity balance. Strong financial capital management is an integral element of the Directors’ strategy
to achieve the Group’s stated objectives. The Directors review financial capital reports on a regular
basis and the Group finance function do so on a daily basis ensuring that the Group has adequate
liquidity. The Directors’ consideration of going concern is detailed in the Directors Report.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note
22, cash and cash equivalents and equity attributable to equity holders of the parent as disclosed in
the Statement of Changes in Equity.
29. Related party transactions
Key management remuneration
Key management remuneration is disclosed in note 8.
Unaudited detail on Directors’ remuneration is disclosed in the Remuneration Report on page 30.
Other related parties
During the year, the Group entered into the following transactions with related parties:
Lara Hussein has an equity interest in Brand Energy. During the year, the Group was charged, on
an arm’s-length basis, by Brand Energy £756k (2017: £577k), of which nil (2017: nil) was unpaid
at the year end.
To assist the local directors to acquire 20% of M&C Saatchi Agency Pty Ltd in 2015, loans of AUD3.6m
were issued. At the year end, the balance of the loan was AUD3.2m (2016: AUD3.2m) (see note 19 for
further details).
In 2015 the Group lent Antoine Barthuel, an arm’s-length interest-bearing Euro 150k loan, a further
an arm’s-length interest-bearing Euro 150k loan was issued in 2017, the balance of the loan was Euro
300k (2017: Euro 300k) at the year end.
During the year, the Group made purchases of £3,193k (2017: £2,356k) from its associates. At 31
December 2018, there was nil due to associates in respect of these transactions (2017: nil), a further
nil (2017: £1,367k) was paid in advance and owed to the Group for these transactions. During the
year, £164k (2017: £160k) of fees were charged by Group companies to associates. At 31 December
2018, associates owed Group companies £831k (2016: £254k).
During the year, the Company recharged its subsidiaries and indirect subsidiaries with £818k
(2017: £818k) of its costs, £316k (2017: £268k) of interest. The balance outstanding can be seen in
notes 38 and 39.
30. Commitments
The only substantive commitment the Group had at year end, was to extend the lease on its head
office by 15 years. The lease extension will be entered into following the signing of these accounts
and will have the effect of delaying the benefit on transition to IFRS16 from this material tail end
lease for some years.
31. Assets held for sale
Policy
Assets that meet the criteria to be classified as held for sale are measured at the lower of their
carrying value and fair value less costs to sell. Any reduction in the value of the asset is recognised
as an impairment. Assets meeting the criteria are presented separately as current assets on
the balance sheet.
The Group classifies non-current assets as held for sale when the carrying amount will be principally
recovered through its disposal as opposed to continued use. For this to be the case the asset must
be available for immediate sale and the sale must be highly probable.
An asset classified as held for sale will have its contribution to the income statement shown
separately where such an asset meets the definition of a discontinued operation.
Cost
As at 1 January
Non-current assets classified as held for sale
At 31 December
2018
£000
-
13,106
13,106
2017
£000
-
-
-
101
Notes
Continued
During the course of the year the Group decided to commence a plan for the disposal of the 24.9%
equity investment held in Walker Media Limited.
On 1 February 2019 the Company announced that it had agreed terms for Publicis Groupe to acquire
the equity investment held in Walker Media Limited (trading as Blue 449) for £25m. The consideration
was payable in cash on 31 January 2019.
As the equity investment represented neither a separate major line of business, nor a subsidiary
acquired with a view to resale the contribution of the investment to the Group’s result for the year
(note 17) has not been presented as a discontinued operation.
32. Post balance sheet events
As detailed in note 31, on 31January 2019 the Group sold its remaining 25% stake held in Blue 449 for
total proceeds of £25m.
Prior to the year end the Group agreed to the terms to extend the lease on its head office by
11 years. The lease extension will be entered into following the signing of these accounts and will
have the effect of delaying the benefit on transition to IFRS16 from this material tail end lease
for some years.
33. Other accounting policies
Reserves
Equity comprises the following:
Share capital
Other reserves
Merger reserve
Premium paid for shares above the nominal value of share capital, caused by the acquisition of
more than 90% of subsidiaries’ shares. The merger reserve is released to retained earnings when
there is a disposal, impairment charge or amortisation charge posted in respect of the investment
that created it.
Treasury reserve
Amount paid for own shares acquired.
Minority interest put option reserve
Corresponds to the initial fair value of the liability in respect of the put options at creation. When the
put option is exercised, the related amount in this reserve is taken to the non-controlling interest
acquired reserve. All revaluations of put options are expensed through the income statement to the
profit and loss reserve.
Non-controlling interest acquired reserve
From 1 January 2010, a non-controlling interest acquired reserve is used when the Group acquires
an increased stake in a subsidiary. If the stepped acquisition is due to a put option, then the
non-controlling interest acquired reserve is equal to the minority interest put option reserve
transferred less the book value of the minority interest acquired. Otherwise the non-controlling
interest acquired reserve is equal to the consideration paid less the book value of the minority
interest acquired. If the equity stake in the subsidiary is subsequently sold, then balances from this
reserve will be transferred to retained earnings.
Represents the nominal value of equity shares in issue.
Foreign exchange reserve
Share premium
Represents the excess over nominal value of the fair value of consideration received for equity
shares, net of issuance costs.
For overseas operations, results are translated at the annual average rate of exchange and
balance sheets are translated at the closing rate of exchange. The annual average rate of exchange
approximates to the rate on the date that the transactions occurred. Exchange differences
arising from the translation of foreign subsidiaries are taken to a separate component of equity.
Such translation differences will be recognised as income or expense in the period in which the
operation is disposed of.
Share based payment reserve
Represents equity-settled share-based employee remuneration until such share
options are exercised.
Retained earnings
Cumulative gains and losses recognised.
102
Notes
Continued
34. New and revised standards issued but not yet effective
At the date of authorisation of these financial statements, The Group has not applied the following
new and revised IFRS Standards that have been issued but are not yet effective and, in some cases,
had not yet been adopted by the EU:
The Group will apply the definition of a lease and related guidance set out in IFRS 16 to all lease
contracts entered into or modified on or after 1 January 2019 (whether it is a lessor or a lessee in
the lease contract). In preparation for the first-time application of IFRS 16, the Group has carried out
an implementation project. The project has shown that the new definition in IFRS 16 will not change
significantly the scope of contracts that meet the definition of a lease for the Group.
IFRS 16
IFRS 17
Amendments to IFRS 9
Amendments to IAS 28
Annual Improvements to IFRS
Standards 2015 - 2017 Cycle
Amendments to IAS 19
Employee Benefits
IFRS 10 Consolidated Financial
Statements and IAS 28
(amendments)
Leases
Insurance Contracts
Prepayment Features with Negative Compensation
Long term Interests in Associates and Joint Ventures
Amendments to IFRS 3 Business Combinations, IFRS
11 Joint Arrangements, IAS 12 Income taxes and IAS
23 Borrowing costs
Plan Amendment, Curtailment or Settlement
Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
IFRIC 23
Uncertainty over Income Tax Treatments
The Directors do not expect that the adoption of the Standards listed above will have a material
impact on the financial statements of the Group in future periods, except as noted below.
IFRS 16 Leases
General impact of application of IFRS 16 Leases
IFRS 16 provides a comprehensive model for the identification of lease arrangements and their
treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the
current lease guidance including IAS 17 Leases and the related interpretations when it becomes
effective for accounting periods beginning on or after 1 January 2019. The date of initial application
of IFRS 16 for the Group will be 1 January 2019.
Impact of the new definition of a lease
The Group will make use of the practical expedient available on transition to IFRS 16 not to reassess
whether a contract is, or contains, a lease. Accordingly, the definition of a lease in accordance
with IAS 17 and IFRIC 4 will continue to apply to those leases entered into, or modified, prior
to 1 January 2019.
The change in definition of a lease mainly related to the concept of control. IFRS 16 distinguishes
between leases and service contracts on the basis of whether the use of an identified assets is
controlled by the customer. Control is considered to exist of the customer has:
– The right to obtain substantially all of the economic benefits from the use of an
identified asset; and
– The right to direct the use of that asset.
Accounting impact for M&C Saatchi plc
IFRS 16 changes how the Group will account for leases previously classified as operating
leases under Legacy IFRS, which were off-balance sheet.
On initial application of IFRS 16, for all leases (except as noted below), the Group will:
– Recognise ‘Right-of-Use’ assets and lease liabilities in the consolidated Balance sheet, initially
measured at the present value of the future lease payments;
– Recognise depreciation of ‘Right-of-Use’ assets and interest on lease liabilities in the
consolidated Income statement; and
– Separate the total amount of cash paid into a principal portion (presented within financing
activities) and interest (presented within operating activities) in the consolidated
Cash flow statement.
Lease incentives will be recognised as part of the measurement of the ‘Right-of-Use’ assets and
lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive,
amortised as a reduction of rental expenses on a straight-line basis.
Under IFRS 16, ‘Right-of-Use’ assets will be tested for impairment in accordance with IAS 36
Impairment of assets. This will replace the previous requirement to recognise a provision for
onerous lease contracts. For short-term leases (lease term of 12 months or less) and leases of
low-value assets (such as personal computers and office furniture), the Group will opt to recognise a
lease expense on a straight-line basis as permitted by IFRS 16.
As at 31 December 2018 the Group has expected non-cancellable operating lease commitments
of £78,318k (differs to commitments disclosed in note 6 due to main lease for UK offices
being renegotiated).
A preliminary assessment indicates that majority of these arrangements relate to leases other
than short-term and low value leases. The NPV of the remaining lease payments (discounted
at incremental borrowing rate of the holder) will be recognised as ‘Right-of-Use’ assets and a
corresponding lease liability as at the date of transition. The impact on profit or loss for the year
ending 31 December 2019 is estimated to be a decrease in Other expenses, increase Depreciation
and to increase Interest expense. Our analysis of the impact is ongoing at 31 December 2018.
Two subleases entered into by an American operation will be reclassified to finance leases. At the
date of transition, a finance lease receivable of £373k is expected to be recognised.
103
Company balance sheet
Continued
At 31 December
Non-current assets
Investments
Intangible assets
Other non-current assets
Current assets
Trade and other receivables
Cash at bank
Current liabilities
Trade and other payables
Contingent consideration
Net current assets
Total assets less current liabilities
Non-current Liabilities
Contingent consideration
Other financial liabilities
40
Total net assets
Capital and reserves
Share capital
Share premium
Merger reserve
Treasury reserve
Share based payment reserve
Profit and loss account
Shareholders’ funds
2018
£000
2017
£000
These financial statements were approved and authorised for issue by the Board on 27 May 2019 and
signed on its behalf by:
36
37
38
111,599
101,914
–
2,238
113,837
78,869
2,438
81,307
10
2,288
104,212
73,814
1,683
75,497
39
(22,324)
(24,498)
David Kershaw
Chief Executive
M&C Saatchi plc
Company Number 05114893
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own
profit and loss account. Included within the consolidated income statement for the year ended 31
December 2018 is a profit after tax of £2,913k (2016: £8,641k).
The notes on pages 106 to 109 form part of these financial statements.
(752)
(23,076)
58,231
172,068
(514)
(29,970)
(30,484)
141,584
876
46,667
63,197
(792)
20,983
10,653
(376)
(24,874)
50,623
154,835
(833)
(27,672)
(28,505)
126,330
813
32,095
63,197
(792)
17,531
13,486
141,584
126,330
104
Notes
Continued
At 31 December 2016
Acquisitions
Acquisitions of minority interest
Exercise of put options
Share option charge
Recharged share option charges
Dividends paid
Profit for the year
At 31 December 2017
Acquisitions
Deferred consideration
Exercise of put options
Share option charge
Realisation of reserve
Dividends paid
Profit for the year
At 31 December 2018
The notes on pages106 to 109 form part of these financial statements.
Share
capital
£000
Share
premium
£000
749
4
5
55
–
–
–
–
813
18
1
44
–
–
–
24,099
1,498
1,587
4,911
–
–
–
–
32,095
6,484
458
7,630
–
–
–
Merger
reserve
£000
63,197
Treasury
reserve
£000
(792)
Share based
payment
reserve
£000
8,891
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,100
(4,460)
–
–
63,197
(792)
17,531
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,703
(2,251)
–
–
876
46,667
63,197
(792)
20,983
Profit and
loss account
£000
6,783
–
–
(51)
401
4,460
(6,748)
8,641
13,486
–
–
(20)
401
2,251
(8,378)
2,913
10,653
Total
£000
102,927
1,502
1,592
4,915
13,501
–
(6,748)
8,641
126,330
6,502
459
7,654
6,104
–
(8,378)
2,913
141,584
105
Investments held as fixed assets are stated at cost, less any provision for impairment.
b) Pensions
Contributions to personal pension plans are charged to the profit and loss account in the period in
which they are due.
Subsidiary investments
Conditional share awards
Total
2018
£000
90,616
20,983
111,599
Company notes
Continued
35. Accounting policies
The financial statements have been prepared on a going concern basis under the historical cost
convention in accordance with the reduced disclosure framework of FRS101.
In adopting the reduced disclosure framework of FRS101, the Company has made the following
exemptions from disclosure:
•
the cash flow statement and related notes;
• disclosures in respect of transactions with wholly owned subsidiaries;
• disclosures in respect of capital management; and
•
the effects of new but not yet effective IFRSs.
Accounting policies applied
The following principal accounting policies have been applied:
a) Valuation of investments
c) Group policies (preparation page 40, and the following policies)
For current tax (note 10), deferred tax (note 11), share based payments (note 26) and
borrowings (note 22).
d) Share based payments in Company
The cost of awards to employees of subsidiary undertakings classified as conditional shares awards
is accounted for as an additional investment in the employing subsidiary. When such awards are
recharged to employing or acquiring entity the investment in the Company’s books is reduced by the
value of equity awarded.
e) Dividends
Interim dividends are recorded when they are paid and the final dividends are recorded when they
become legally payable.
f) Treasury shares
When the Company reacquires its own equity instruments, those instruments (treasury shares) are
deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue
or cancellation of the Company’s treasury shares. Such treasury shares may be acquired and held
by the Company or by other members of the Group. Consideration paid or received is recognised
directly in equity.
2017
£000
91,225
993
1,056
(4,460)
–
13,100
101,914
2017
£000
84,383
17,531
101,914
2017
£000
1,853
435
2,288
36. Investments in subsidiary undertakings
At 1 January
Acquisition of a subsidiaries
Provision against acquired subsidiary
Conditional consideration
Conditional share awards recharge of brought forward balance*
Provision against conditional share awards
Conditional share awards*
At 31 December
2018
£000
101,914
6,600
(367)
–
(1,228)
(1,023)
5,703
111,599
* Conditional share awards (Minority interest put options with leaver provisions) (note 26).
The direct and indirect subsidiary undertakings are listed in note 3 to the consolidated
financial statements.
37. Other non-current assets
Loans to subsidiary employees*
Loan to assist equity purchase**
Total
2018
£000
1,803
435
2,238
* This related to the AUD3.6m (current balance AUD3.3m) loans that the Group lent local management of M&C
Saatchi Agency Pty Ltd, in 2015, to enable them to acquire 20% of that business. The full recourse loan is
repayable in full if the purchasers no longer have a beneficial interest in the shares of the Australian Group
or are no longer employed. The loan is unsecured and charged interest at 0.1% above the five-year Australian
interbank rate at date loan advanced. The carrying value of the loan approximated to fair value.
** Loan to South African indigenous equity holders to enable them to acquire equity in South African subsidiaries in
accordance with local laws.
106
Company notes
Continued
38. Trade and other receivables
41. Directors’ remuneration
Amounts due less than one year
Amounts from subsidiary undertakings*
Prepayments and accrued income
Corporation tax debtor
Other receivables
Total trade and other receivables
2018
£000
75,467
90
2,970
342
78,869
2017
£000
71,403
22
2,067
322
73,814
* Repayable on demand. Amounts receivable from subsidiary undertakings include receivables relating
to exercised put options. As detailed in notes 1 and 24, the Group has a number of put option arrangements
in place. On exercise of these put options, the Company is required to issue shares in exchange for the shares
of the minority interests. Where the Company’s shareholding of the acquired subsidiary becomes equal to
or higher than 90% as a result, amounts are credited to the Merger Reserve on exercise.
The acquired shares are then immediately sold to subsidiaries of the Company, thereby creating an intercompany
receivable and eliminating the Company’s increase in investments.
During the year, put option liabilities of £2.8m were exercised in relation to The Source (London) Ltd, M&C Saatchi
PR UK LLP and three smaller international subsidiaries (note 24). These liabilities are not recorded in the books of
the Company as these are treated as derivative instruments with a negligible fair value.
39. Creditors falling due within one year
2018
£000
(324)
2017
£000
(182)
(21,573)
(23,891)
(427)
(425)
(22,324)
(24,498)
Trade creditors
Amounts due to subsidiaries*
Accruals and deferred income
* Repayable on demand.
40. Creditors falling due after more than one year
Bank loans
See note 22 for more details.
Total for nine Directors:
Directors’ salaries and benefits
Bonuses*
Contribution to money purchase pension schemes
Total remuneration before accounting charges
Share option charges
Highest paid Director:
Directors’ salaries and benefits
Bonus
Contribution to money purchase pension schemes
Total remuneration before accounting charges
Share option charges
2018
£000
2,092
125
15
2,232
401
2,633
2018
£000
421
–
–
421
94
515
2017
£000
2,050
125
15
2,190
401
2,591
2017
£000
421
–
–
421
100
521
During the year, no (2017: nil) M&C Saatchi plc shares were issued to Executive Directors, in return
for Directors’ interest in M&C Saatchi Worldwide Ltd B ordinary shares.
The number of Directors with a money purchase pension scheme was 5 (2017: 5).
The Directors are the key management personnel of the Company.
2018
£000
2017
£000
(29,970)
(27,672)
Additional details with regards Directors’ remuneration as required by Rule 19 of the AiM rules can
be found in the remuneration report on pages 27 to 30. There has been neither grant to, nor exercise
by, the Directors with regards share options during either 2017 or 2018.
107
Company notes
Continued
42. Related parties
Country
Entity
During the year, the Company charged a management recharge to subsidiaries totalling £818k
(2017: £818k). £746k (2016: £325k) was due in relation to this management recharge from
subsidiaries as at the balance sheet date. Including these amounts the Company also provides short
term working capital loans to and borrows funds from certain subsidiaries, disclosed in notes 38 and
39. The amounts due from subsidiary undertakings payable in cash of £75,467k (2017: £71,403k) is net
of £7,118k (2017: £5,881k) provisions for doubtful accounts.
China
France
Further details of related parties of the Company are provided in note 29.
43. List of registered addresses
Country
Entity
Australia
M&C Saatchi Sport & Entertainment Pty Ltd
Park Avenue PR Pty Ltd
Saatchi Ventures Pty Ltd
Tricky Jigsaw Pty Ltd
Bellwether Global Pty Ltd
Brands in Space Pty Ltd
Lida Australia Pty Ltd
Bright Red Oranges Pty Ltd
Go Studios Pty Ltd
M&C Saatchi Direct Pty Ltd
M&C Saatchi Agency Pty Ltd
Re Team Pty Ltd
EMC Saatchi Pty Ltd
M&C Saatchi Asia Pac Holdings Pty Ltd
Bang Pty Ltd
Clear Australia Pty Ltd
M&C Saatchi Melbourne Pty Ltd
Bahrain
M&C Saatchi Bahrain WLL
Lily Participacoes Ltda
Registered Address
99 Macquarie Street,
Sydney NSW 2000
Level 12, 131 Macquarie
Street, Sydney NSW 2000
Level 6 131 Macquarie
Street, Sydney
NSW 2000
Unit 6 223-227 O’Sullivan
Road, Bellevue Hill NSW 2023
Level 12, 131 Lucouarel Street,
Sydney NSW 2000
Unit 19, 285A Crown Street,
Surry Hills, NSW 2010
Level 1, 437 St Kilda Road,
Melbourne, VIC 3004
51,122,1605,316 Manama Center
Avenida Brigadeiro Faria Lima,
1355 Jardim Paulistano 16
Andar, Sal São Paulo
01452-919
Brazil
M&C Saatchi Brasil Comunicação Ltda
M&C Saatchi Brasil Participacoes Ltda
M+C Saatchi/Insight Pesquisa & Planejamento Ltda
Rua Girassol, 925/927,
1st Floor, Vila Madalena,
05433-002
Santa Clara Participacoes Ltda
Rua Wisard,
305, Vila Madalena,
3 Andar-Con, São Paolo
M&C Saatchi Advertising (Shanghai) Ltd
FCINQ SAS
M&C Saatchi Gad SAS
M&C Saatchi Little Stories SAS
M&C Saatchi One SARL
Paris Gad Holding SAS
Cometis
Tataprod
Germany
Hong Kong
M&C Saatchi Advertising GmbH
M&C Saatchi Sports & Entertainment GmbH
M&C Saatchi Sun GmbH
M&C Saatchi PR Unternehmergesellschaft
Clear Asia Ltd
M&C Saatchi (HK) Ltd
M&C Saatchi Asia Ltd
M&C Saatchi Communications Pvt Ltd
Registered Address
Room 227, Guichang
Road, Pudong, Shanghai
32 Rue Notre Dame des
Victoires, 75002, Paris
14 Rue Meslay, 75003,
Paris
Munzstrasse 21-23,
10178, Berlin
29/F Cambridge House,
Taikoo Place 979 King’s
Road, Quarry Bay
6/F Alexandra House, 18
Chater Road, Central
2 Palam Mang, Vasant
Vihar New Delhi, 110057
India
February Communications Pvt Ltd
141B Shahpur Jat New Delhi
M&C Saatchi Scarecrow Ltd
M&C Saatchi SpA
M&C Saatchi PR srl
M&C Saatchi Tel Aviv Ltd
M&C Saatchi Ltd
M&C Saatchi (M) Sdn Bhd
Design Factory Sdn Bhd
Intelligence Factory Sdn Bhd
Italy
Israel
Japan
Malaysia
M&C Saatchi International Holdings BV
Netherlands
Clear Netherlands BV
32 Ramjibhai Kamani
Marg, Mumbai
Viale Monte Nero,
27 20135, Milan
1 Abba Even, Boulevard,
Herzlia 4672519
26-1 Ebisy-Nishi 1-Chome,
Shibuya- Ku, Tokyo
Unit 10-2, 10th Floor,
Bangunan Malaysia RE, 17
Jalan Dungun, Damansara
Heights, 50490 Kuala Lumpur
36 Golden Square, London
W1F 9EE, UK
Keizersgracht 203 Amsterdam
Pakistan
M&C Saatchi World Services Pakistan (Pvt) Ltd
48M, Block 6 P.EC.H.S, Karachi
108
Company notes
Continued
43. List of registered addresses continued
44. Post-balance sheet events
Subsequent to the year end there have been no material events specific to the Company requiring
disclosure. Those items relevant to the Group are disclosed in Note 32.
Country
Entity
Singapore
Clear Ideas (Singapore) Pte Ltd
M&C Saatchi Mobile Asia Pacific Pte Ltd
M&C Saatchi (S) Pte Ltd
M&C Saatchi Holdings Asia Pte Ltd
South Africa
Creative Spark Interactive (Pty) Ltd
M&C Saatchi Sports & Entertainment
South Africa Pty Ltd
Dalmation Communications (Pty) Ltd
M&C Saatchi Abel (Pty) Ltd
M&C Saatchi Africa (Pty) Ltd
M&C Saatchi Connect (Pty) Ltd
Spain
Sweden
M&C Saatchi Madrid SRL
M&C Saatchi Digital SL
Media By Design Spain SA
M&C Saatchi Sponsorship S.L
M&C Saatchi AB
M&C Saatchi Go! AB
M&C Saatchi PR AB
Switzerland
M&C Saatchi (Switzerland) SA
Love Frankie Ltd
Thailand
Registered Address
21 Media Circle
#05-09/10,
Infinite Studios, 138562
80 Robinson
Road, #02-00, 068898
152 Ann Crescent,
Sandton,
Johannesburg, 2196
Media Quarter,
5th Floor, Corner
Somerset and De
Smit Street, Ded,
Waterkant, Cape Town
Calle Gran Via,
27, 28013, Madrid
Skeppsbron 16,
11130, Stockholm
Boulevard Carl-Vogt
83, 1205, Geneve
571 RSU Tower, 10th
Floor, Soi Sukhumvit
31, Sukhumvit
Road, Wattana
District, Bangkok
109
INDEPENDENT AUDITOR’S REPORT
1) Our opinion is unmodified
We have audited the financial statements of M&C Saatchi plc (“the Company”) for the year ended 31 December 2018 which comprise the consolidated income statement, the consolidated statement of other
comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, the consolidated cash flow statement, the parent Company balance sheet, the parent Company statement
changes in equity, and the related notes.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2018 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under,
and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
Overview
Materiality:
Group financial statements as a whole
Coverage
Key audit matters
Event driven
Recurring risks
£0.9m (2017: £0.9m)
4.4% of normalised profit before tax (2017: 4.2% of normalised profit before tax)
80% (2017: 84%) of Group revenue; 78% (2017: 73%) profit before tax
The impact of uncertainties due to the UK exiting
the European Union on our audit
Going concern assumption
Revenue recognition
Recoverability of goodwill
Employee incentive schemes
Parent Company risks
Recoverability of parent Company’s investment
in subsidiaries and intercompany receivables
Risk vs 2017
New 2018 risk
▲
▲
◄►
▲
◄►
110
Independent auditor’s report
Continued
2) Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. We summarise below, the key audit matters, in arriving at our audit opinion above together with our key audit procedures to address those matters and our findings from those procedures in order that
the Company’s members as a body may better understand the process by which we arrived at our audit opinion. These matters were addressed, and our findings are based on procedures undertaken, in the
context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
The impact of
uncertainties due
to the UK exiting
the European
Union on our audit
Refer to page 17
(principal risks).
The risk
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness of estimates, in particular
as described in “Recoverability of goodwill” below, and related disclosures and
the appropriateness of the going concern basis of preparation of the financial
statements (see below). All of these depend on assessments of the future
economic environment and the Group’s future prospects and performance.
In addition, we are required to consider the other information presented in
the Annual Report including the principal risks disclosure and to consider the
Directors’ statement that the annual report and financial statements taken
as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance,
business model and strategy.
Brexit is one of the most significant economic events for the UK and at
the date of this report its effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of possible effects unknown.
Our response
We developed a standardised firm-wide approach to the consideration of the uncertainties arising from
Brexit in planning and performing our audits. Our procedures included:
• Our Brexit knowledge – We considered the Directors’ assessment of Brexit-related sources of
risk for the Group’s business and financial resources compared with our own understanding of
the risks. We considered the Directors’ plans to take action to mitigate the risks.
• Sensitivity analysis – When addressing “Going concern assumption”, we compared the
Directors’ analysis to our assessment of the reasonably possible scenarios resulting from
Brexit uncertainty.
• Assessing transparency – As well as assessing individual disclosures as part of our
procedures on Going concern assumption we considered all of the Brexit related disclosures
together, including those in the strategic report, comparing the overall picture against our
understanding of the risks.
Our findings
As reported under “Going concern assumption”, we found the resulting estimates and related
disclosures and disclosures in relation to going concern to be light.
However, no audit should be expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in relation to Brexit.
Going concern
assumption
The risk
Disclosure quality
Refer to page 25
(Audit Committee Report),
page 31 (Directors’
report), Basis of
preparation page 40.
The financial statements explain how the Board has formed a judgement that it
is appropriate to adopt the going concern basis of preparation for the Group
and the parent Company.
That judgement is based on an evaluation of the inherent risks to the Group’s
and the parent Company’s business model and how those risks might affect
the Group’s and the parent Company’s financial resources or ability to
continue operations over a period of at least a year from the date of approval
of the financial statements.
Our response
Our procedures included:
Funding assessment:
• Assessed the terms of the Group financing agreements;
• Discussed with lender representatives of the facility extension beyond the existing termination date
in order to ascertain the attitude of the lender to any required refinancing; and
• Assessed the related covenant requirements and the risk of potential covenant breaches.
Historical comparisons:
• Evaluated historical forecasting accuracy of key inputs including financing and operating
cash forecasts.
111
INDEPENDENT AUDITOR’S REPORT
Continued
The current facilities expire in April 2020 and the Group is in discussions
with its current lender and other potential lenders to renew or refinance
their facilities.
The risks most likely to adversely affect the Group’s and the parent
Company’s available financial resources over this period were:
Key dependency assessment:
As the ability and expectation of extending the finance would be based in part on the expected cash
flow forecasts we also:
• Assessed the Group’s cash flow model to identify key inputs for further enquiry. The key
inputs included: forecast profit before tax, forecast capital expenditure, working capital
requirements, dividend flows and forecast financing requirements.
• Ability to improve its cash position and support the pattern of increased
dividend payments; and
• Ability to extend or replace debt and loan financing arrangements.
• Challenged the underlying assumptions with the Directors on the resultant cash flow projection
as an indication of whether the Group would have sufficient resources to continue to operate
and repay the required cash amount to settle the financing arrangements.
There are also less predictable but realistic second order impacts, such
as the impact of Brexit, loss of a key client, and the erosion of customer
or supplier confidence, which could result in a rapid reduction of available
financial resources.
The risk for our audit was whether or not those risks were such that they
amounted to a material uncertainty that may have cast significant doubt
about the ability to continue as a going concern. Had they been such, then
that fact would have been required to have been disclosed.
Sensitivity analysis:
• We considered sensitivities over the level of available financial resources indicated by the
Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse
effects that could arise from these risks individually and collectively; and
• Performed the sensitivity analysis of the forecasts to a number of variable factors, including
PBT growth, to identify whether reasonably plausible adverse scenarios could have an
impact on liquidity.
Benchmarking assumptions:
• Compared the Group’s assumptions against externally derived data in relation to key inputs
such as industry growth expectations and economic forecasts.
Evaluating Directors’ intent:
As the Group’s financial position is reliant on maintaining sufficient liquidity and extending and
replacing the existing funding arrangements, we have also:
• Evaluated the achievability of the actions the Directors consider they would take to improve the
position should the risks materialise; and
• Evaluated the timeframe of achieving in relation the needs and requirements of the business.
Assessing transparency:
• Assessed the completeness and accuracy of the matters covered in the going
concern disclosure.
Our findings
We found the going concern disclosure without any material uncertainty to be proportionate (2017:
proportionate) and the disclosures of the management’s actions to manage the funding risk in the
Group to be light (2017 light).
Revenue recognition
The risk
The specific nature of the risk of material misstatement in revenue
recognition varies across the Group’s businesses.
Our response
Our procedures included:
112
INDEPENDENT AUDITOR’S REPORT
Continued
(£422.4 million; 2017:
£251.5 million)
Refer to page 25
(Audit Committee Report),
page 40 (significant
accounting policies), note
4 on page 64 (accounting
policy), note 2 on page 54
(changes in accounting
policies and disclosures)
and note 3 on page 58
(financial disclosures).
Data capture and processing
Accounting for Media Income:
Rebates are earned from suppliers based on the level of spend and
contractual terms with the media owner.
Assessing the timing of recognition and accuracy of rebate income
earned is an area of complexity and judgement is required in determining
the value of media rebates recognised. The Group’s processes for
capturing and processing data to calculate rebate income is reliant upon
complex spreadsheet models which are potentially prone to processing
and formula error.
Assessing the accuracy of rebate income is also an area of complexity with
regards to whether such income earned is required to be shared with the
customer and on what basis to calculate such passback.
• Assessment of control environment: we documented the systems and controls in operation. Our
testing identified weaknesses in the design and operation of controls. As a result we expanded
the extent of our detailed testing over and above that originally planned.
• Tests of detail: On a sample basis we assessed the Directors’ interpretation of contractual
terms with media owners and clients to determine whether the amount of rebate income to be
recognised during the year was appropriate.
• For a sample of rebate income recognised during the year we obtained evidence of invoices,
payments and contracts to determine whether such income was recognised at the appropriate
time, in line with the contractual terms agreed with the media owner and applicable
accounting standards.
• Methodology implementation: assistance of KPMG modelling specialists to assess the integrity
of the rebates model.
2018 Revenue recognition
• We obtained the Directors’ calculation of the year end accrued rebate income balance and
When assessing revenue recognition for individual projects, judgement is
required in identifying the performance obligations, identifying whether the
income should be recognised over time or at a point in time.
Given the complexity in estimation and judgement involved, timing
of recognition and accuracy of project revenue is considered to be
a key audit risk.
IFRS 15: Accounting application
The adoption of IFRS 15 has changed how the Group is required to
recognise revenue which has resulted in new accounting policies for
the Group and new judgements and estimates which are required to be
made by the Directors which could lead to a material misstatement in the
financial statements. During the year, revenue is recognised monthly based
on the underlying systems and processes in each business unit however
given the many different contractual arrangements, a full analysis of the
judgements in respect of agency vs principal relationships, identification of
performance obligations and in which period revenue should be recognised
was not performed until after the year end. By only performing this analysis
once a year rather than embedding the analysis within their underlying
processes, this increases the risk of error in the application of IFRS 15.
The effect of these matters is that, as part of our risk assessment, we
determined that revenue recognition has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes greater than
our materiality for the financial statements as a whole, and possibly many
times that amount.
recalculated the year-end balance.
• We also performed substantive sampling of the year end accrued rebate income balance,
agreeing accrued balances to supplier confirmations received post year end. Where such
confirmations were not received by the client, we checked the calculation of the accrued
balance by agreeing supplier expenditure to purchase invoices and checking the contractual
terms to underlying contracts.
Project revenue:
• Assessment of control environment: we documented the systems and controls in operation in
the year. Our testing identified weaknesses and as a result we significantly expanded the extent
of our detailed testing over and above that originally planned for entities in the group which
were a first time adopter of IFRS 15.
• Accounting analysis: We evaluated the revenue recognition policy of the Group and on a sample
basis we assessed whether the related revenue had been recognised in conformity with Group’s
policy and applicable accounting standards.
• Tests of detail: For a sample of revenue recognised near the year end, which included
both revenue and amounts accrued or deferred at period end, we assessed whether
the transactions were recognised in the appropriate accounting period by checking the
transactions to supporting documentation such as: underlying contracts or customer purchase
orders or agreed project estimates and, in certain instances, corroborating amounts
recognised with project managers.
IFRS 15:
• Accounting analysis: We evaluated the appropriateness of the accounting policies based on the
requirements of the new standard, our business understanding and industry practice.
• Testing application: We have obtained the Group’s analysis of the full year impact of IFRS 15 and
assessed the judgements made regarding agency vs principal relationships, the identification of
113
INDEPENDENT AUDITOR’S REPORT
Continued
performance obligations to identify in which period the revenue should be recognised and also
whether revenue should be recognised at a point in time or over time. For a sample of revenue
contracts on which this analysis was performed, we obtained the contract and determined whether
the Group had appropriately recognised revenue in accordance with the Group accounting
policies and IFRS 15.
• Assessing transparency: We assessed the completeness, accuracy and relevance of the
transition disclosures.
Our findings
We found that the Group’s judgement in respect of and application of IFRS 15 to be slightly
optimistic and significant errors which were corrected. We also found that the Group’s estimate
of the Project and Media income revenue amount in the financial year to be optimistic (2017:
proportionate) and significant errors which were corrected and also significant uncorrected errors
approaching materiality, for which we have reported an audit difference (2017: corrected and
uncorrected errors).
Recoverability
of goodwill.
(£43.0 million;
2017: £40.8 million)
Refer to page 26 (Audit
Committee Report), page
42 (accounting policy) and
note 16 on pages 80-82
(financial disclosures).
The risk
Forecast based valuation
Our response
Our procedures included:
Market conditions remain challenging and performance has varied
compared to the Directors’ expectation, particularly in the MCD business
in the US, Creative Spark in South Africa, Lida and M&C Saatchi Export
businesses in the UK.
• Assessing forecasts: Challenged the assumptions included the value in use models used for
goodwill, impairment testing including operating cash flow projections and long term growth
rates. We assessed the historical accuracy of Directors’ forecasts by comparing past forecasts
to actual results achieved.
Determining whether the carrying value of goodwill is recoverable requires
the Directors to make significant estimates concerning the future cash
flows, which are inherently uncertain due to the lack of contractually
committed revenues, associated discount rates and growth rates based
on their view of future business prospects. Given the relative sensitivity to
certain inputs to the impairment models, the calculation of the recoverable
amount of goodwill is considered a key audit risk.
• Our sector experience: Assessed the methodology used in preparing the impairment testing
models including checking the mathematical accuracy of the impairment model and, with
the assistance of our valuation specialists, we formed an independent assessment of the
discount rates used.
• Sensitivity analysis: Performed sensitivity analysis over changes in the key assumptions.
• Assessing transparency: Considered the adequacy of the Group’s disclosures in respect of its
goodwill impairment testing and whether disclosures about the sensitivity of the outcome of the
impairment assessment to reasonably possible changes in key assumptions appropriately reflect
the risks inherent in such assumption.
Our results
We found that the Group’s estimate of the recoverable amount of Goodwill to be mildly optimistic
(2017: mildly optimistic).
Employee
incentive schemes
Share based
payment charge:
The risk
The Group has entered into 19 new share award schemes with minority
shareholders, of which some include a financing element. The total number
of schemes in place is 58 (2017: 42). This has increased the complexity and
the risk of error.
Our response
Our procedures included:
• Assessment of control environment. Our testing identified weaknesses in design and
implementation of controls and as a result we have expanded the extent of our detailed testing
over and above that originally planned.
114
Minority shareholder put
option liabilities:
(£18.4m; 2017: £25.1m)
Refer to page 25
(Audit Committee Report),
pages 42-43 (accounting
policy) and note 24 on page
89 and note 26 on page 92
(financial disclosures).
Recoverability of
parent Company’s
investment in
subsidiaries and
intercompany
receivables
(£187.0 million;
2017: £173.3m)
Refer to page 106
(accounting policy)
and note 36 on page 106
and note 38 on page 107
(financial disclosures).
INDEPENDENT AUDITOR’S REPORT
Continued
(£6.1million; 2017: £13.5m)
Fair value loss (2017: gain)
on minority shareholder
put option liabilities
(£0.9m; 2017: £3.0m)
The accounting for share-based payments is complex and the preparation
of the estimate of the share-based payment expense and the related
disclosures involve subjective judgements or uncertainties, which requires
special audit consideration because of the likelihood and potential
magnitude of misstatements of the share-based payment expense and
related disclosures.
The effect of these matters is that, as part of our risk assessment, we
determined that the fair value of both new and existing incentive schemes
has a high degree of estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality for the financial
statements as a whole. The financial statements (note 26) disclose the
sensitivity estimated by the Group.
•
Inspection of supporting documentation to understand the key terms of share awards, including
the related loan and option features.
• Challenge of the key assumptions underpinning the fair value calculations, including performance
forecasts, by comparing to our own expectations based on our knowledge of the entity and
entity’s historical performance.
• Agreeing the terms and conditions of new awards to supporting documentation.
• Re-performance of the calculation of the fair value of the employee incentive schemes.
• Our sector experience: With the assistance of our valuation specialists we formed an
independent assessment of the methodology used in preparing the valuation of schemes using
Monte Carlo valuation model.
• Assessing transparency: evaluating the Group’s disclosures about the sensitivity of the
outcome to the changes in key assumptions.
Our findings
We found significant errors, which were corrected in the Group’s estimate of the fair value estimate
of the awards value (2017: some errors which were corrected) and the disclosures relating to share
awards to be proportionate (2017: proportionate).
The risk
Low risk, high value
Our response
Our procedures included:
The parent Company has a significant investment in subsidiary companies
in the Group. In addition the parent company has significant intercompany
receivables due from these subsidiaries.
The carrying amount of the parent Company’s investments in subsidiaries
and intercompany receivables represent 96% (2017: 96%) of the parent
Company’s total assets. Their recoverability is not at a high risk of
significant misstatement or subject to significant judgement. However,
due to their materiality in the context of the parent Company financial
statements, this is considered to be the area that had the greatest effect on
our overall parent Company audit.
• Test of detail: We compared the carrying amount of a sample of the highest value investments
and intercompany receivables, with the relevant subsidiaries’ draft balance sheets to identify
whether their net assets, being an approximation of their minimum recoverable amount, were
in excess of their carrying amount and assessing whether those subsidiaries have historically
been profit-making.
• Assessing subsidiary audits: Assessed the work performed by the subsidiary audit team on that
sample of those subsidiaries and considering the results of that work, on those subsidiaries’
profits and net assets.
Our findings
We found some errors in the Group’s estimate of the recoverable amount of shares in subsidiary
companies and intercompany receivables (2017: no errors) and the disclosures related to be
proportionate (2017: proportionate).
115
Independent auditor’s report
Continued
In reaching our audit opinion on the financial statements we took into account the findings that we describe above and those for other, lower risk areas. Overall the findings from across the whole audit are that
the financial statements use some mildly optimistic estimates, slightly favour current year revenue recognition and are light on disclosure. However, compared with materiality and considering the qualitative
aspects of the financial statements as a whole we have not modified our opinion on the financial statements.
3) Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £0.9m, determined with reference to a benchmark of normalised profit before tax from continuing operations of £20.5 million (of which it
represents 4.4%), normalised to exclude this year’s impairment of goodwill and associates. The materiality for 2017 of £0.9m was determined with reference to a benchmark of profit before tax normalised
to exclude that year’s impairment of goodwill, fair value movements on put option liabilities and specific share based payment charges of £21.6m (of which it represented 4.2%).
Materiality for the parent Company financial statements as a whole was set at £0.85m (2017: £0.9m), determined with reference to a benchmark of parent Company total assets of £195.1m (2017: £179.7m),
(of which it represents 0.4% (2017: 0.5%)).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £45,000 (2017: £45,000), in addition to other identified misstatements that warranted reporting
on qualitative grounds.
Of the Group’s 66 (2017: 77) reporting components, we subjected 17 (2017: 15) to full scope audits for group purposes and 2 (2017: 2) to audits of account balances and specified risk-focused audit procedures
over Revenue and related accounts. The latter were not individually financially significant enough to require a full scope audit for group purposes, but did present specific individual risks that needed
to be addressed.
The components within the scope of our work accounted for the following percentages of the Group’s results:
Number of
components
Group
revenue
Group profits
and losses
before tax
Group
total assets
Audits for group reporting purposes
Audits and Specified risk-focused audit procedures over Revenue and related accounts
Total (2018)
Audits for group reporting purposes
Audits and Specified risk-focused audit procedures over Revenue and related accounts
Total (2017)
17
2
19
15
2
17
75%
5%
80%
78%
6%
84%
75%
5%
80%
65%
8%
73%
79%
3%
83%
78%
4%
82%
116
Independent auditor’s report
Continued
The remaining 20% (2017: 16%) of total group revenue, 20% (2017: 27%) of Group profits and losses that made up Group profit before tax and 17% (2017: 18%) of total Group assets is represented by 49
(2017: 60) of reporting components, none of which individually represented more than 3% (2017: 4%) of any of total Group revenue, Group profits and losses before tax or total Group assets. For these residual
components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the
component materialities, which ranged from £0.1m to £0.85m (2017: £0.1m to £0.9m), having regard to the mix of size and risk profile of the Group across the components.
The Group team visited 3 (2017: 2) component locations in US, Australia and South Africa (2017: US, Australia), to assess the audit risk and strategy. Telephone conference meetings were also held with these
component auditors and the others that were not physically visited. At these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the
Group team was then performed by the component auditor.
The work on 8 of the 19 components (2017: 7 of the 17 components) was performed by component auditors and the rest, including the audit of the parent Company, was performed by the Group team. Our
audit of the parent Company was undertaken to the materiality level specified above and was all performed at the parent Company’s head office in the UK. The Group team performed procedures on the items
excluded from normalised Group profit before tax in both 2018 and 2017.
4) We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the parent Company or the Group or to cease their operations, and as they have concluded that
the parent Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However,
as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of
reference to a material uncertainty in this auditor’s report is not a guarantee that the Group and the parent Company will continue in operation.
We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit matter, we are required to report to you if we have anything
material to add or draw attention to in relation to the Directors’ statement in Preparation to the financial statements on page 40 on the use of the going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and the parent Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements.
We have nothing to report in these respects.
5) We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and the Directors’ report;
•
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
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Independent auditor’s report
Continued
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
•
•
•
the Directors’ confirmation within the Strategic report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future
performance, solvency and liquidity;
the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and
the Directors’ explanation in the Risks and uncertainties section of the Strategic report on pages 16 and 17 of how they have assessed the prospects of the Group, over what period they have done so and
why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the
Group’s and the parent Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the Directors’ statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model
and strategy; or
•
the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.
We have nothing to report in these respects.
6) We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
•
the parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7) Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on pages 36 and 37, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view;
such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or
the parent Company or to cease operations, or have no realistic alternative but to do so.
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Independent auditor’s report
Continued
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8) The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and the terms of our engagement by the Company. Our audit work has been
undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report, and the further matters we are required to state to them in accordance
with the terms agreed with the Company, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions we have formed.
Adrian Wilcox (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
United Kingdom
28 May 2019
119
Additional information
Advisors
Nominated advisor and broker
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
www.numiscorp.com
Solicitors
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London EC4N 6AF
www.cms.law
Auditor
KPMG LLP
15 Canada Square
Canary Wharf
London E14 5GL
www.kpmg.co.uk
Bankers
National Westminster Bank Plc
1 Princes Street
London EC2R 8BP
www.natwest.com
Registrars
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
www.computershare.com
Secretary and registered office
Andy Blackstone
M&C Saatchi plc
36 Golden Square
London W1F 9EE
www.mcsaatchiplc.com
Country of registration
England and Wales
Company number
05114893
Investor relations website
www.mcsaatchiplc.com
Corporate events
AGM
27 June 2019
Final 2018 dividend paid
5 July 2019
To those on the register on
7 June 2019
Interim 2019 statement
24 September 2019
Interim 2019 dividend paid
8 November 2019
To those on the register on
25 October 2019
Preliminary announcement of 2019 result
Late March 2020
120