Annual Report and Accounts 2020
M&C Saatchi Group Annual Report 2020
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Contents
Strategic Report
Chairman’s statement
Chief Executive’s review
Financial review
Environmental, Social
and Governance (“ESG”)
Corporate Governance
Chairman’s introduction
Board of Directors
Governance review
Report of the Audit Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’ Responsibilities
Financial Statements
Preparation
Consolidated Income Statement
Consolidated Statement of
Other Comprehensive Income
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6
34
44
Consolidated Balance Sheet
56
60
66
76
86
108
118
Consolidated Statement
of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Financial Statements
Company Balance Sheet
Company Statement
of Changes in Equity
Notes to the Company
Financial Statements
Independent Auditors’ Report
Glossary
126
132
136
138
142
144
148
234
236
237
250
266
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Strategic Report M&C Saatchi Group Annual Report 2020 Chairman's Statement
Chairman’s
statement
In my first statement as Chairman of the
Company, I am pleased to report that 2020
has proved to be a year of resilient business
performance. Whilst the Covid-19 pandemic
disrupted all our lives, both personally and
professionally, we were able to rise to meet
the challenges. Last year we promised that
we would do everything to ensure that the
Company emerges hungrier, leaner and
stronger from the challenges of recent years.
During 2020, we started that process by
beginning to simplify and strengthen our
business through cost-cutting, restructuring
and disposals of loss-making companies.
These activities helped reduce total Headline
operating costs by over £22m.
The Covid-19 pandemic resulted in
unprecedented trading conditions in 2020 with
many clients worldwide reducing or cancelling
their marketing spend. Most of our businesses
saw revenue reductions, but there were some
bright spots. Our Global and Social Issues
Division and creative talent management
agency, M&C Saatchi Merlin, both saw
increases in net revenue and profit before tax.
Overall, there was a 12% reduction in Group
net revenue and a 54% reduction in Headline
profit before tax. The difficult trading
conditions lent added impetus to our pace
of business simplification and business process
improvement, which has continued in earnest
in 2021. Headline earnings per share
decreased by 83% to 1.5p and the Statutory
loss per share reduced to 9.1p from a loss of
13.1p. Given the difficulties of recent years, the
2019 audit process was significantly prolonged,
but I am pleased to report that we have
recovered well and have seen an
improvement in the Company’s share price.
However, there is still much to do.
One of the Company’s biggest priorities was
the management of cash and liquidity. I am
pleased to say that we excelled in this regard,
with year end cash being significantly ahead
of expectations - net cash of nearly £33m,
almost twice the level of the previous year.
The Company received approximately £1m
of furlough payments in the UK which, in 2021,
we have voluntarily returned in full to HMRC.
Details of the Company’s financial performance
can be found on pages 34 to 40.
BOARD CHANGES
After more than twenty-five years in their roles
and having founded the Company, Jeremy
Sinclair and David Kershaw stood down as
Chairman and Chief Executive respectively
at the end of 2020 and Bill Muirhead stepped
down on 31 March 2021 from his Executive
Directorship. On behalf of my fellow Directors,
I would like to record the Board’s thanks to
Jeremy, David and Bill for their great contributions
to the success and development of the Company.
On 1 January 2021, Moray MacLennan was
appointed Chief Executive Officer of the
Company and joined the Board, bringing with
him a great depth of experience of both the
Company and the wider sector alongside the
ambition and ability to deliver the Company’s
vision and strategy going forward.
I was pleased to join the Board as Deputy
Chairman in February 2020 and replaced
Jeremy as Chairman at the end of the year.
We were delighted that Colin Jones, Lisa Gordon
and Louise Jackson all agreed to join the
Board during 2020 as Non-Executive Directors.
In March 2021, Vinodka (Vin) Murria joined as
a Non-Executive Director and Deputy Chair.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chairman's Statement
Given Vin Murria is one of the Company’s
major shareholders, she is not considered to
be an independent Non-Executive Director. All
of the Non-Executive Directors bring a wealth
of experience from their respective careers
and have already enhanced the quality of
discussion and challenge around the Board
table. Details of all five new Non-Executive
Directors can be found on pages 61 to 64.
CORPORATE GOVERNANCE
I am also pleased to report substantial progress
in the governance of the business and in our
efforts to fully comply with the UK Corporate
Governance Code 2018 (the “Code”). Five new
Non-Executive Directors have joined since the
start of 2020 because we believe that good
governance requires strong Non-Executive
Directors to challenge the thinking of the Executive
Directors. The changes in our Board have also
led to a broader mix of skills, backgrounds,
gender and ethnicity. We believe that the
Board should set the standard for more diverse
representation across the Company by providing
pathways to success for women and employees
from ethnic minorities. The new ideas and
perspectives that come from more diversity will
only strengthen our performance and leadership.
Please see pages 45 to 47 for details on the
progress on diversity. To consolidate these
changes in corporate governance, we
commissioned an external review of the
effectiveness of the Board and we will be
implementing the recommendations for
improvement from the review during the course
of 2021. Please see page 65 for the details.
Similarly, the Directors’ Remuneration Policy
was reviewed by external consultants and
now incorporates a number of best practice
measures so that it complies with the Code.
These include clarity, simplicity, disincentives
to take inappropriate risks, proportionality and
alignment to culture. Louise Jackson, one of the
Non-Executive Directors, has been appointed
as the representative of the employees on
the Board to ensure engagement with the
Company’s workforce. The details are set out
on pages 86 to 107.
Please refer to pages 68 and 69 for the
s172 statement which provides details of the
Company’s engagement with its stakeholders.
ENVIRONMENTAL AND SOCIAL CHANGE
The Company’s mission of driving meaningful
change also applies to the areas of environmental,
social and governance (ESG) and sustainability.
Sustainability and supporting communities are
at the heart of much of our client work. Please
see page 51 for some powerful examples of
our current client work in this area. Later this
year we expect to launch a new sustainability
practice which will help businesses build
brand value.
We have also continued to invest in external
partnerships around the world that focus on
the development of diverse talent. We are
particularly proud of our involvement in the
M&C Saatchi Saturday School which was set
up to teach the basics of business to under-
represented groups, and also the Mentor 300
Black Businesses initiative, which has now grown
into a programme mentoring over one thousand
black businesses. Please see page 47 for more
details.
During the Covid-19 pandemic we prepared for
reductions in space in our London, New York,
Singapore and Cape Town offices and work
has started on initiatives to make our London
headquarters more environmentally friendly.
All these measures will reduce our carbon
footprint. Please see page 50 for details on the
Company’s moves to support the environment.
OUTLOOK
The Covid-19 pandemic continues to create
uncertainty, but we believe that our new simpler
business model (refer to pages 13 to 15) and
the restructuring actions taken during 2019 and
2020 mean that the Group is well placed to
take advantage as the world emerges from
lockdown. Our five-year plan sets out a roadmap
for growing revenue and reaching an 18%
Headline operating profit margin by 2025 through
a change in the mix of services we provide
and operational efficiencies. We have a globally
recognised brand, exceptional people and
talent, and a strong and committed client base.
On behalf of the Board, I would like to welcome
colleagues who have joined during the course
of the year and to thank everyone throughout
the Group for their commitment and hard work,
in spite of the difficulties they faced during 2020
especially with remote working. The Board is
confident in the future and the success of the
Company given the skills and diversity of the
business both in terms of geographical
coverage and range of service offerings.
GARETH DAVIS
Chairman
27 August 2021
CONTROLS
New financial systems, controls and personnel
have laid the foundations for a better controlled
and managed Group. We are centralising control
of our business functions in order to move from
a federation of siloed, local operations to a
connected, digital, global organisation. More
still needs to be done, but already during the
Covid-19 pandemic, the Company has operated
in a much more cohesive fashion with increased
standardisation of policies and procedures
and better co-operation and co-ordination
between agencies.
To improve internal controls and financial risk
management the Group’s finance function
has been reorganised, and has moved
towards standardised Group accounting
policies and procedures for all subsidiaries
as well as implementing a cloud-based
accounting and forecasting system to be
deployed across the Group. There have been
significant improvements in a short space
of time as a result of these initiatives, but the
change programme is ongoing, and further
improvements are expected. Governance
improvements have been made, improved
whistleblowing systems have been implemented
and required cultural changes have been
identified. The latter has seen a shift to a more
centralised approach with better collaboration
between the Group’s agencies and also the move
to a more diverse culture. The appointment of
a dedicated General Counsel and Company
Secretary and a Chief People Officer will
continue to strengthen our business processes,
the way in which we develop talent and the
considerable potential that we have in our
worldwide businesses.
Refer to page 40 for details of systems
implementations and pages 127 to 129,
159 to 162 and 237 to 238 for details of
accounting policies.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Chief Executive’s
review
2020 was a watershed year for the Company.
Past issues were tackled and the financial
position strengthened, whilst adapting to the
new Covid-19 environment.
By the close of the year there was a new
Board, new leadership, a new structure and
a new strategy.
OUR 2020 PERFORMANCE
Despite the extraordinary circumstances of
2020 and its impact on the sector as a whole,
we continue to generate Headline profits,
albeit at a reduced level, and we reduced the
Statutory loss.
We acted swiftly to reduce costs, closing or
merging 20 operating entities, driving
operational efficiency and allowing us to focus
on future growth.
The Company’s underlying core strengths
including the breadth of offering, quality of
output, agility, and strong client relationships
helped us navigate this turbulent and
challenging period with minimal client losses.
I would like to thank all 2,450 people who work
for the Group around the world for their
commitment, creativity and hard work. What
you achieved was nothing short of
extraordinary and provides great confidence
for our future.
2020 financial summary
Net revenue declined by 12% to
£225.4m
Headline profit before tax reduced by 54% to
£8.3m
Statutory loss before tax reduced by 1% to
£(8.5)m
Net cash increased by £16.2m to
£32.7m
REPORT BY REGION
UK
Like-for-like net revenue in the UK declined
by 14% (2020: £88.9m 2019: £103.2m) driven
by budget cuts from existing clients. Headline
operating profit was up 12% (2020: £16.4m
2019: £14.7m) with Headline operating costs
decreasing by 18%.
The advertising agency merged with LIDA,
our CRM company, and under new leadership,
delivered a turnaround in profit.
Early in 2020, we simplified and strengthened
the PR businesses by merging two companies
into a single entity, M&C Saatchi Talk.
World Services, our Global & Social Issues
business, and M&C Saatchi Performance had
outstanding results and continued to see strong
demand, despite the Covid-19 pandemic.
M&C Saatchi Sport & Entertainment was hit
hard by the cancellation of events, but had a
near perfect record in terms of client retention
and new business conversion. Critically, it
pivoted from a live event landscape to one
entirely digitally focused.
Our Talent and Social businesses performed
strongly and Clear unified their UK and US
operations to improve efficiencies and set the
direction of travel for 2021.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Notable new business:
First ever digital Census.
The region performed well, especially with
regards to new business.
First post-Covid tourism campaign for Iceland.
The Sport & Entertainment company, Levergy,
was voted Agency of the Year.
New roster clients – include Kia, TikTok, Hello
Fresh, and Care International.
Significant new assignments from existing
clients included Public Health England, Costa,
O2 and Homebase.
Europe
Like-for-like net revenue in Europe declined
by 7% (2020: £28.4m 2019: £30.5m) which was
also caused primarily by existing clients cutting
marketing spend. Headline operating profit
declined by 51% (2020: £1.5m 2019: £3.0m).
Despite being hit early and hard by the Covid-19
pandemic, our Italian agency continued to
perform well, producing outstanding work for
BMW and Sky. Germany and the Nordics
proved resilient, trading profitably.
Losses in Spain and France were reduced through
taking our shareholding to minority status. This
allows us to continue to have a meaningful
presence for international assignments, but
de-risks for the future.
Notable new business:
Tele2 and Fortum from Sweden for the Nordics.
Polaroid in Italy.
Middle East and Africa
The Middle East and Africa region performed
creditably. Like-for-like net revenue was down
by just 6% (2020: £15.6m 2019: £16.6m).
Headline operating profit declined by 55%
(2020: £0.7m 2019: £1.5m) with Headline
operating costs reducing by 1%.
Notable new business:
Standard Bank, one of the largest assignments
on the African continent. South Africa also secured
TikTok, Astron Energy, and new assignments
from Nando’s.
Dubai won the Wizz Air account and extended
their remit with Pizza Hut in the region.
Asia
Like-for-like net revenue declined by 25% (2020:
£10.5m 2019: £13.9m). Headline operating profit
reduced by 286% (2020: -£0.8m 2019: £0.4m)
with Headline operating costs reducing by 16%.
Operations across Asia suffered particularly
badly due to the Covid-19 pandemic. In
Singapore, plans for a fundamental restructure
were drawn up, to be implemented in 2021.
Malaysia and China proved more resilient
maintaining levels of profitability.
The new agency in Hong Kong weathered the
storm and is well set for the future.
Standout performers were the Jakarta agency
which won Campaign’s Creative, Independent
and Digital Agency of the Year 2020 and
Performance Asia who saw significant growth.
Notable new business:
Indonesia Tourism Ministry, BP Castrol,
Tinder, Grab.
Australia
Like-for-like net revenue declined by 6% (2020:
£47.4m 2019: £50.6m). Headline operating profit
reduced by 41% (2020: £3.1m 2019: £5.2m) with
Headline operating costs reducing by 2%.
Under new leadership, our Australian group of
companies continued to go from strength to
strength despite the headwinds of fire, flood
and Covid-19.
Capabilities were extended and relationships
deepened with major clients Woolworths,
CommBank and Optus.
The Australian Tourism campaign successfully
pivoted to reflect new priorities due to the
pandemic.
Melbourne returned to profitability under new
leadership and worked closely with the Victoria
State Government to combat Covid-19.
Re (brand experience) had a particularly
strong year.
Notable new business:
Victoria State Government, World Vision, Domain,
Origin and Maurice Blackburn.
Americas
Like-for-like net revenue declined by 17%
(2020: £34.6m 2019: £41.6m). Clients reacted
cautiously in the face of the pandemic by
cancelling and delaying work. Headline
operating profit reduced by 19% (2020: £2.5m
2019: £3.1m) with Headline operating costs
reducing by 17%.
Following the closure of LA and our US PR
operations, the New York based companies
traded profitably.
SS+K were part of the successful Biden-Harris
campaign and had a strong new business year.
Sport & Entertainment North America’s
performance was particularly noteworthy,
growing despite the cancellation of almost all
sporting and other events.
The customer experience and media companies
performed well and our consulting division
Clear saw strong growth.
Outside of the US, our agencies in Sao Paulo
and Mexico City were hit hard, but again,
a recovery is expected in 2021.
Notable new business:
The Biden-Harris campaign, NFL, Anheuser
Busch, Sonos, Weather Channel, McCain,
Campbell’s and Promote Iceland.
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Strategic Report “2020 was a watershed year for
M&C Saatchi. Past issues were
tackled and the financial position
strengthened, whilst adapting
to the new Covid environment.”
– Moray MacLennan
M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
OUTLOOK
Our focus in 2020 was fixing what needed to be
fixed and giving clarity of direction for our future
– structurally, strategically, and operationally.
We are confident we will find further operational
efficiencies within HR and finance functions
across future periods.
Talent
Our people remain the foundation of our success.
We anticipate the talent war becoming even
more fierce, and we will focus on our employer
value proposition and culture more keenly than
ever, led by our new global Chief People Officer.
Our purpose of navigating, creating and leading
meaningful change was informed by our
colleagues, and will be an important element
in ensuring we retain and attract talent.
AND FINALLY
I helped start M&C Saatchi in 1995.
It was a time of uncertainty but excitement
and optimism.
In my first year as the Chief Executive Officer of
the Company, there are echoes. Our sector is
changing rapidly which produces uncertainty,
but also extraordinary opportunity that our
entrepreneurial culture is well set to take
advantage of.
We have drawn a line under our recent troubles
and I feel that same sense of excitement and
optimism for the coming years as we implement
the new strategy.
In 2021, the focus is on driving growth through
the new strategy – increasing connectivity
whilst continuing to simplify, drive efficiencies
and enhance governance.
Trading
Having been swift to act in 2020, we are
positioned for a return to growth in 2021.
And as the vaccine program progresses and
client and consumer confidence return, so does
ours for the upcoming period.
We expect to see a steady improvement to
trading conditions across the year and our
performance to reflect that.
Structure
We will continue to streamline our operations,
merging companies where appropriate and
ceasing operations where the risk is not justified
by the potential reward.
In particular, we will look to reinforce our central
data and insight capabilities.
We will invest so that we have category leading
expertise in sustainability.
And new platforms will be implemented to fuel
our connected growth.
Efficiency
There will be a continued focus on cost reduction.
Central costs will increase in the short term as we
address past issues and implement new tech
platforms to enhance corporate governance, but
thereafter targets have been set for reductions
in central, property and other operating costs.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Our business model
Strategic review
During the second half of 2020, I worked closely with the Board to develop the new business
strategy and structure:
NEW MISSION
The Group will move from being largely siloed
and local, to a more connected and global
company, fuelled by data and technology.
This will give us the ability to compete for more
significant revenue assignments and to extend
existing clients into more sectors.
A new mission
Connected
A creative company that
connects specialist expertise
through data and technology
to deliver meaningful change
A new proposition
Local
Global
A new structure
Siloed
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
NEW PROPOSITION
Our research shows that the top three
challenges clients will face are:
We navigate complexity with a deeper, more
accurate understanding of people, culture
and society.
Understanding and adapting to changing
consumer needs, responding successfully to
economic uncertainty and disruption, and
investing in online customer experience.
Our strategy is rooted in an analysis of these
needs and the future marketing landscape.
Change over the coming years will be deep
and complex, accelerated by the impact of
new technology, amplified by the shadow of
Covid-19 and multiplied by deep economic
upheaval.
Clients will face accelerated disruption, new
consumer behaviours where consumer
segments shift, priorities change and what was
previously certain no longer will be.
This has informed the new proposition:
To navigate, create and lead
meaningful change.
We create connections with a wider range of
creative and technical capabilities.
We lead value creation by identifying how and
where creativity can unlock new value for clients.
NEW STRUCTURE
We have introduced a new simpler operating
model, stripping out complexity and
underperforming operations.
The Company held a Capital Markets Day
event in January 2021 in which we outlined
a new Group divisional structure. The Group
has been simplified into five specialist divisions,
and new central growth drivers added to fuel
performance – data, sustainability expertise
and new growth platforms.
The divisions meet clear and growing client
needs. They build on existing strengths where
we have world class talent and when connected
make up a differentiated end-to-end offer
to clients.
Connected
creativity
Passion
marketing
Global And
social issues
Brand,
experience
AND
innovation
Performance
media
Growth Platform
Technology
Data Analytics
Digital Innovation
Sustainability
NEW DIVISIONS
Connected Creativity
The application of marketing
science and creativity to solve
complex problems
Our agency network has the capabilities to operate across the
entire communication landscape, from transformative creative
ideas that drive fame and penetrate conversations, to targeted
digital content that drives brand relevance and transactions.
Whether owned, earned or paid for, the output is fuelled by data
and insight, and is increasingly distributed on digital platforms
to targeted, more addressable audiences driving more
measurable outcomes.
Future investment will be in enhancing dynamic content
creation and distribution as well as the centralised data and
insight capabilities.
Passion Marketing
Connecting brands direct
to consumers through
their passions
A world-leading capability in using data led insight to identify
people’s passions and creativity to engage.
Passions include sport (including esports), music, film, and fashion.
New offerings have been developed for the new and emerging
passions that have come out of the Covid-19 era.
Global and
Social Issues
Driving critical global and
social change. Protecting the
planet, transforming lives for
the better
Partnering with governments, civil society, foundations and the
private sector, we deploy behaviour change expertise and strategic
communications to tackle some of the world’s most challenging
problems. These include the climate emergency, national
security, human rights, global health and conflict prevention.
With world class insight, creativity and technology, we lead
transformational change that protects the planet and improves
peoples’ lives.
Brand, Experience
and Innovation
Transformative digital
experience, design,
and innovation
Digitally pioneered upstream growth consulting.
Full stack, fully integrated digital brand and experience design.
Reimagining digital products and services for clients’ future growth.
Performance Media
Connecting brands with
today’s connected consumers
Our media capabilities are performance centric and global,
creating targeted, measurable results, in the hyperconnected
world.
We operate across the digital ecosystem, using proprietary
technology and an agile tech stack, in real time, at scale.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Connected
Creativity
We apply marketing science and creativity
to solve complex problems.
2020 demanded our industry to dig deeper than ever in its quest
to understand customers better, serve clients with more agility,
and deliver work to the highest creative standard. Clients were
facing the toughest communications challenges in a generation.
For all of our teams it was a year spent working with clients to help
them get closer to their customers and make digital connections.
We deepened many of our existing client relationships as a result
with new assignments to help them through the pandemic; from
Costa, Homebase and the Department of Health in the UK, to Nando’s
in South Africa, Pizza Hut in the Gulf countries and Woolworths and
Commonwealth Bank in Australia. During that time teams were
working together globally to win new business; from winning the
Promote Iceland global assignment, to winning clients such as
Standard Bank, TikTok and World Vision through to working on the
highly anticipated Biden-Harris U.S. election campaign.
And the winning did not stop there. Our agency in South Africa
won best client and agency partnership, again. In Australia we
were voted most innovative company by Financial Review and
our agencies in Italy and Indonesia won Agency of the Decade
and Campaign’s Best Creative & Digital Agency respectively.
Needless to say, despite the challenges of the year, our connected
creativity teams all around the world did us proud.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Passion
Marketing
We connect brands direct to consumers
through their passions.
The sport and entertainment industry may have come to
an abrupt halt in 2020 but we did anything but stand still.
Outperforming the market and most of their competitors through
resilience, creativity and a relentless determination to succeed.
The result was an offer with a far more digitally led approach.
When physical events disappeared overnight, we pivoted to
creating world class digital virtual events instead. These
included some of the most talked about events of the year for
Heineken and their Champions League party, a live training
session with Rafa Nadal for Kia and a weekend of music for
McDonald’s headlined by Stormzy.
This and more resulted in the UK being named Large
Sponsorship Agency of the Year in 2020. Our production
studio also produced more digital content than any previous
year. New business performance was strong with other wins
including Dettol, eToro, Sonos and Just Water. This was a major
factor in Sports & Entertainment New York delivering record
numbers in 2020. All of these wins added to our existing roster
of clients including Heineken, adidas, Coca-Cola, Ballantine’s
and Virgin Media.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Global and
Social Issues
We drive critical global and social change.
Protecting the planet, transforming lives
for the better.
2020 was a year of unprecedented change. Change which
heightened our clients’ need to address an evolving set of
global and social issues, in new and challenging circumstances.
Workflow remained consistently high, as we adapted to new
ways of working, delivering across the development, diplomatic,
security and social impact sectors, at a faster pace and greater
scale than ever before. New client briefs included The Global
Fund, COP26 (UK Cabinet Office), NATO, UNICEF, Care International,
The Rockefeller Foundation and ONS UK Census.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Brand, Experience
and Innovation
We create transformative digital
experience, design and innovation.
The Covid-19 pandemic of 2020 had a huge impact on trading
for this division. A well-diversified client base meant the impact
was mixed. Well documented downsides were in the hospitality
space where significant contracts with airlines and restaurant
groups were cancelled overnight.
But on the positive side, the Covid-19 pandemic also accelerated
structural consumer trends that led to an increase in demand
from this division’s services. There was an increased demand to
reposition and re-express brands to better connect with a
changing culture while the division was well placed to respond
to the urgent need to improve digital experience.
The division continued to invest in and develop key capabilities
in digital experience and agile incubation services to better
serve clients’ changing needs.
We received additional assignments from existing clients such
as Optus (Australia) Discover (US) and GSK (UK). There were a
number of notable new business wins from clients such as Weld
North Education, Rent-a-center and TikTok.
Looking forward, with growing client confidence in key client
markets, the outlook is positive.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Performance
Media
We connect brands with today’s
connected consumers.
Last year, digital became a lifeline for many, replacing shops,
meetups, and offices while the world was forced indoors.
Digital adoption was accelerated overnight, and digital media
became the main way for brands to connect with consumers.
Our experience in performance media put us in a strong position
to help our clients continue to connect with core audiences and
build deeper and lasting relationships. As the digital space
becomes more complex with regulation and privacy protection,
our team have been creating innovative strategies to navigate
an increasingly contextual marketplace. In unpredictable times,
our measurable marketing strategies have been a reliable
constant for our clients.
We have built on our long-standing relationships with world-
leading ecommerce brands and delivery services, we’ve also
welcomed new and exciting mobile-first clients dominating the
dating and entertainment app charts. Together we are driving
the digital economy.
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
Principal risks
and uncertainties
The Board has overall responsibility for internal controls and
for reviewing their effectiveness. The Group operates a policy
of continuous identification and review of business risks. This
includes the monitoring of key risks, identification of emerging
risks and consideration of risk mitigations after taking into
account risk appetite and the impact of how those risks may
affect the achievement of business objectives and the future
success of the Group.
The risks and uncertainties that the business faces
evolve over time and the Executive Directors
and the senior management are delegated the
task of implementing and maintaining controls
to ensure that risks are managed appropriately.
The Group’s risk management framework is
designed to identify and manage, rather than
eliminate, the risk of failure to achieve business
objectives and to provide reasonable, but
not absolute, assurance against material
misstatement or loss.
The Board carried out a robust assessment of
the Company’s emerging and principal risks
together with the actions to be taken to
mitigate these risks. The following table details
our principal risks and uncertainties for the
year ahead. These are considered to be the
most significant, but are not an exhaustive list
of all risks identified and monitored through
our risk management process, which includes
the consolidation of the underlying functional
risk registers of the Group’s subsidiaries into
the single risk review reported to the Board.
Future threats that cannot be accurately assessed
at the current time but could have a material
impact on the business in the future are
considered alongside existing risks with a view
to improving our response plans and exploit
potential opportunities. Our view of emerging
risk includes several trends which could form
part of the legacy of the Covid-19 pandemic.
In most cases these trends could heighten our
existing principal risks. For example, the continued
border restrictions in Australia may add to the
challenge of retaining and attracting the talent
needed in that region. The macroeconomic
outlook could also see an increased threat of
further disruption in the coming years, through
social and political instability. Emerging trends
can also present opportunity. We take a proactive
approach to the changing market conditions and
patterns in our sectors to ensure we continue
to meet the expectations of our clients. Climate
change and the transition to a low carbon
economy could present some of our most
significant challenges and opportunities in
the future. Government commitments to
reduce carbon emissions are expected to lead
to further developments and changes in
regulation across the supply chain and
property management. There is significant
opportunity in addressing climate-related
matters to meet client expectations and secure
the reputation of our brands in respect of their
sustainability credentials.
26
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Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
PRINCIPAL RISK
DESCRIPTION
RISK
RESPONSE
RISK MOVEMENT
SINCE 2019
CLIENTS
Loss of clients
Loss of clients and reductions in expected revenue from clients.
We lose clients for a number of reasons including but not limited to:
• Negative global or local economic conditions directly impacting clients’ businesses;
• Clients running out of funding following commission;
• Clients redirecting marketing spend elsewhere;
• Innovation from competitors; and
• Increased competition from a wide variety of sources.
EMPLOYEES
Loss of key employees
Employees remain our greatest asset and high levels of employee turnover are a principal risk.
Inadequate employee skills and welfare
Highly skilled employees are vital to building and maintaining client relationships
and winning new work. Without the continuous development of our employees
they will become demotivated, and the service we offer our clients may suffer.
IT, SYSTEMS, PROCESSES AND CONTROLS
System access and security compromised
As our product range expands and becomes more data and technology dependent,
so too does the risk of cyber-attacks.
Internal controls inadequate or overridden
The risk that our multiple accounting platforms, lack of common financial control policies, reliance
on manual processes, the ability for controls to be overridden without knowledge or review by others,
and cultural and historical habits, do not reflect the Board’s direction.
• Digital Innovation: creation of a new breed of innovation studio in 2021 involving
centralisation of digital production and dynamic content distribution;
• The launch of new service offerings such as the Group’s data consultancy,
M&C Saatchi Fluency, and a new sustainability practice;
• Creation of a new, simpler operating model: simplification of structure down to
five specialist divisions, addition of connective tissue between the specialist divisions,
new growth drivers to fuel performance;
• Diversified client portfolio across the overall Group.
• Supporting our employees physically and mentally during the Covid-19 pandemic
including arranging for remote working, ensuring regular contact with and support
for employees working from home;
• Significant efforts made to engage with and obtain feedback from employees;
• Fostering a culture in which employees influence and have a say in the environment
in which they work;
• Increasing diversity at Board level will set the standard for more diverse representation
across the Company;
• Appointment of a Chief People Officer to drive new employee-related initiatives.
• Best practices from each office shared via our intranet;
• Worldwide meetings and local and global working groups.
• Local businesses focus on their employee development to create
the leaders of tomorrow;
• The changes wrought by the Covid-19 pandemic have improved inter-office
communication, co-operation and collaboration;
• HR initiatives during lockdown to promote employee welfare.
• Continual monitoring, updating and globalisation of computer systems;
• Use of training programmes to improve data protection and awareness
of cyber security risks;
• Employment of staff with relevant expertise;
• Critical areas of our technology infrastructure come under the ISO27001 regime,
and we strive to increase its coverage meaning our security is regularly audited;
• Insurance against cyber risk;
• IT security policies.
• Reorganisation of the Group finance function;
• Roll-out of standardised Group accounting policies and procedures;
• Implementation of a cloud-based accounting and forecasting system across the Group;
• Review of governance including improving whistleblowing systems and identifying
cultural changes needed.
28
29
Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
PRINCIPAL RISK
DESCRIPTION
Inadequate central control
Due to the large number of businesses in the Group and the decentralised management of those businesses
and complexity of the Group structure, the risk exists that significant business decisions that should be
decided and/or approved centrally are made locally without central oversight.
Suppliers
We depend on suppliers for products and services, particularly technology. Without these,
we face disruption or delays in the delivery of work, impacting our contracts and revenue.
LEGAL AND REPUTATIONAL
Reputation
The Group’s brand and name has value and recognition and helps win clients. As our name is well known,
our actions are subject to public scrutiny, disproportionate to our size. Many of the risks identified in this risk
review section have the potential to damage our brand and reputation.
Regulation and legal
Regulatory and legal rule changes can affect our trading, ownership structures or interpretation
of our financial data. We are exposed to multiple regulators in various countries covering
amongst other areas: trading in our shares, health and safety of our employees, data protection, advertising
standards, accounting, financial reporting and tax authorities.
Litigation
As a services business with a wide variety of stakeholders, we face an ongoing risk of litigation.
Association
The risk that suppliers, clients, or employees damage our corporate and brand values, with resulting
damage to our reputation and credibility. This can potentially impact our ability to win new client business,
result in the departure of existing clients, hindering our ability to retain or hire talent or result in fines.
Security
The risk from security challenges such as theft, bribery and corruption, terrorism and political activism
due to our geographic spread. As a creative business, intellectual property theft is a particular concern.
30
RISK
RESPONSE
RISK MOVEMENT
SINCE 2019
Implementation of greater central control in finance, legal, HR and IT etc through:
• Roll-out of standard Group accounting policies and procedures;
• Implementation of a cloud-based accounting and forecasting system across the Group;
• Ongoing Group simplification;
• Strengthening corporate governance;
• Appointment of a new Chief People Officer to reduce employee-related risk.
We strive to work with reputable suppliers and aim to always have a fall-back option:
• Implementation of failover/alternative systems in order to avoid potential downtime;
• Use of “cloud-first” migration strategies to improve reliability;
• Pro-active engagement with vendors to risk-assess them;
• Full implementation of a new cloud-based accounting system allowing future data
NEWLY
REPORTED
mining of suppliers.
Reputational risk management is at the heart of managing all the other risks set out here.
We manage this risk by:
• Strengthening corporate governance;
• Standardising policies and procedures around the world;
• Using a strategic financial and corporate communications advisory firm;
• Using whistleblowing tools allowing employees to report any form of misconduct
in the workplace;
• Appointing a new Chief People Officer to reduce employee related reputational damage.
• Continuous monitoring and planning for proposed and actual regulatory and
legislative changes and interpretations;
• Standardising policies and procedures around the world;
• Where possible, active and positive engagement with regulators;
• Sharing knowledge and best practice across the Group;
• Using whistleblowing tools allowing employees to report any form of misconduct
in the workplace.
• Reviewing and updating quality control processes;
• Employing staff with the necessary knowledge and expertise;
• Seeking legal advice where necessary;
• Insuring against this risk and regularly engaging with our insurer via our broker.
• Implementing policies and training programmes for employees to vet and
monitor clients and suppliers at all levels and taking any relevant action;
• Making use of appropriate advisors;
• Ensuring the Board is regularly informed of new business;
• Taking out insurance to allow us to access experts if such a situation arises.
• Risk assessments carried out as appropriate and dependent on location
to understand business’ exposure and to mitigate accordingly;
• Making use of appropriate advisors;
• Use of specialist security operations teams in high-risk locations;
• Vetting of employees, suppliers or partners (and obtaining security
clearance where appropriate).
NEWLY
REPORTED
31
Strategic Report M&C Saatchi Group Annual Report 2020 Chief Executive’s Review
PRINCIPAL RISK
DESCRIPTION
RISK
RESPONSE
RISK MOVEMENT
SINCE 2019
FINANCIAL
Funding and liquidity
Our ability to secure and service adequate funding is paramount to our success.
The Company could experience a breach of its financial covenants under its revolving
credit facility agreement leading to cash restrictions, loss of shareholder confidence
and less favourable terms when refinancing in the future.
Financial
Changes to exchange rates, interest rates, tax rates and the Company’s share price
can affect profitability, cash flows and future liquidity.
Financial mismanagement and fraud
As well as the risk of misstatement of the financial statements, there is also a risk of financial
mismanagement against clients through incorrect billings and/or overcharging clients.
Employees could commit fraud by false accounting or submitting inflated expense claims.
GEOGRAPHIC
Global footprint
Risks arising from operating in certain geographic regions which potentially endanger
our employees or restrict our ability to trade. Security challenges such as bribery, corruption,
terrorism and political activism are risks due to our size and geographic spread.
Covid-19 pandemic
Despite our success in adapting to remote working, Covid-19 remains a threat to the
business, employees and suppliers. The Group may suffer a decline in revenue from
those clients affected by the pandemic.
• Maximising cash in the Group through significantly improved treasury management
function, evidenced by the substantial increase in cash between December 2019 and
December 2020;
• Close cash monitoring and cash flow forecasting;
• Regular liaison with and transparent relationships with lenders;
• Performing forward covenant testing on a monthly basis, applying sensitivity analysis
and stress modelling;
• Employing a suitably qualified treasury expert;
• Entered into a new revolving credit facility in May 2021.
• Monitoring and modelling likely and actual changes;
• Implementing a cloud-based accounting and forecasting system which will improve
our decision making as well as enabling the better utilisation of locally held cash;
• Maintaining close relationships in the banking sector and the wider capital markets
to enable us to access future liquidity.
Increased visibility and reduced risk as a result of:
• Implementation of new financial systems;
• Improved financial controls;
• Continued co-operation with regulatory bodies, consultants and external
advisors to resolve past accounting issues and prevent future recurrence;
• Roll-out of standardised Group accounting policies and procedures.
NEWLY
REPORTED
• Monitoring our global footprint, insurance and travel plans;
• Investing in technology to allow us to work remotely from these regions;
• Continuing to review and update our business contingency plans. Investment
in technology has been used to maintain our cohesion and client delivery
despite the difficulties imposed as a result of the Covid-19 pandemic.
The operational, principal and emerging risk landscape has been reassessed in light
of the impact of the pandemic on these risks. During the year, detailed reviews have
been undertaken by the Board and senior management on the impact of the pandemic.
These included the following:
• Continual monitoring of government advice for changes to ensure regulatory
and compliance controls;
• Use of remote working collaboration tools;
• Strong focus on cash management and cash preservation;
• Continued investment in business continuity, e.g. ISO 22301 certification drive in London;
• Monitoring employee wellbeing and providing adequate support.
NEWLY
REPORTED
32
33
Strategic Report M&C Saatchi Group Annual Report 2020 Financial Review
Financial
review
Net revenue, down
Staff cost ratio, up
12.1%
4.3%
Headline operating
margin, down from
8.0% to
Statutory operating
loss margin, improving
from -4.3% to
5.3%
-2.2%
FINANCIAL KEY PERFORMANCE INDICATORS
The Group manages its operational
performance through a number of financial
key performance indicators. These are stated
below with the comparative key performance
indicators for 2020.
Headline profit before
tax, down from
£18.3m to
Statutory loss before
tax, improving from
£8.6m to
£8.3m
£8.5m
Statutory loss per
share reduced by
4.0p
per share and still
remains negative
Increase in net cash,
up year on year by
£16.2m
£m
Billings*
Revenue
Net revenue*
Operating profit/(loss)
Profit/(loss) before taxation
Profit/(loss) for the year
Earnings**
Earnings/(loss) per share
2020
454.5
323.3
225.4
12.0
8.3
5.0
1.7
1.5p
Headline
2019 Movement
-19.0%
561.4
381.0
256.4
20.6
18.3
13.0
8.1
9.0p
-15.2%
-12.1%
-41.6%
-54.4%
-61.2%
-80.0%
-83.0%
2020
–
323.3
–
(4.9)
(8.5)
(9.9)
(9.9)
Statutory
2019 Movement
–
–
381.0
-15.2%
–
(11.0)
(8.6)
(11.8)
(11.8)
–
55.0%
0.8%
16.2%
16.1%
30.3%
(9.1p)
(13.1)p
Tax rate
39.6%
29.0%
+10.6pts
-16.6%
-38.0%
+21.4pts
*
Billings and net revenue excluded from Statutory results because these are not IFRS terms.
** Earnings are calculated after deducting share of profits attributable to non-controlling interests.
The items that are excluded from Headline results
are the exceptional items (which include costs
relating to the accounting misstatements identified
in 2019 and restructuring), the amortisation or
impairment of intangible assets (including
goodwill and acquired intangibles, but excluding
software) acquired in business combinations,
changes to deferred and contingent consideration
and other acquisition related charges taken to
the income statement; impairment of investments
in associates and right-of-use assets; gain or
loss on disposal of associates and subsidiaries;
revaluation of investments in SaatchInvest and
their related costs; and the income statement
impact of put option accounting and share-
based payment charges.
HEADLINE RESULTS
To better assist the readers’ understanding of
the underlying performance of the business,
the commentary concentrates on the Headline
measures used by the Board to assess the
underlying profitability of the Group. These
Headline figures are alternative performance
measures that the Board considers provide
an appropriate basis to manage the business,
to monitor its results on a day-to-day basis,
enable comparability with industry peers
and like-for-like year on year on comparisons.
Headline measures exclude all accounting
charges related to acquired equity, put options
and passive investments.
34
35
Strategic Report M&C Saatchi Group Annual Report 2020 Financial Review
The Headline results also make like-for-like
year-on-year comparisons more understandable
and more closely correlate with the cash and
working capital position of the Group.
Refer to the Glossary on page 266 for key
definitions used in this section including Billings,
Revenue, Net Revenue.
NET REVENUE AND OPERATING PROFIT MARGIN
Group net revenue decreased by 12.1%.
Headline operating profit was £12.0m, decreasing
from £20.6m. The Group reported a Statutory
operating loss of £(4.9)m (2019 £(11.0)m).
Group Headline operating profit margin
decreased to 5.3% from 8.0%. Statutory operating
loss margin improved to -2.2% from -4.3%.
The Group experienced a sharp reduction in net
revenue in the first three months of the year,
recording a substantial operating loss in that
initial three month period. By taking action to
reduce our cost base early in the year, the
Group was able to mitigate the impact of the
reduced revenue. The combination of salary
cuts, staff reductions in the form of redundancies,
reduced freelancer numbers and reduced travel
costs, contributed to a 9.5% decline in operating
costs compared to 2019. The Group acted quickly
in securing Covid-19 Government financial
support, where it was available. This took the
form of furlough payments, loan forgiveness
programmes and tax deferment schemes. We
secured £1.0m in the UK through the Coronavirus
Job Retention Scheme, but repaid the full amount
in 2021.
The key movements between Statutory to Headline results
Reconciliation of Headline profit before taxation
to Statutory profit before taxation
Statutory loss before taxation
Exceptional items
Amortisation of acquired intangibles
Impairment of non-current assets
(Gain)/loss on disposal of associates
(Gain)/loss on disposal of subsidiaries
FVTPL investments under IFRS 9
Revaluation of contingent consideration
Dividends paid to IFRS 2 put option holders
Put option accounting - IFRS 9 and IFRS 2
Headline profit before taxation
Year ended
31 December 2020
£000
(8,507)
Year ended
31 December 2019
£000
(8,573)
1,972
1,686
3,920
–
(1,432)
2,095
446
4,728
3,420
8,328
6,166
2,471
11,084
(12,980)
–
717
127
5,841
13,429
18,282
Some of the larger items causing the movement between Statutory and Headline results for 2020
are explained on the following page:
Exceptional items, including restructuring
Exceptional costs of £2.0m (2019: £6.2m) include
one-off restructuring and reorganisation costs
arising from the Group wide commitment to
reduce the overhead cost base, as well as
the furlough money received that was repaid
subsequent to year end, and professional fees
relating to the accounting misstatements
identified in 2019. The restructuring costs were
principally staff redundancy costs, predominantly
involving companies in the UK, US, Australia
and Singapore.
Impairment of non-current assets
During the pandemic, the Group reviewed its
global property portfolio in the wake of the
move to a more flexible working environment.
We determined that approximately 17,000
square feet or 30% of the Group’s real estate in
London, is now surplus to requirements and we
are actively marketing the space. Accordingly,
of the £3.0m total impairment charge, £2.7m
relates to an impairment against the carrying
value of our right of use of property assets. The
significantly higher charge in 2019 was due to
impairment of goodwill (£5.9m) and associate
investments (£5.2m).
Gain/(loss) on disposal of subsidiaries
The Board made a strategic decision at the start
of 2020 to eliminate loss-making businesses
from the Group by the end of the year. As a
result, a total of 20 entities were either closed,
merged or our interest in those entities was
divested. Combined, they contributed £4.0m
of Headline operating losses in 2020. The
Group incurred a further £1.0m of net asset
write downs as a result of these closures and
divestments. The breakdown of the £1.4m gain
on disposals and more detail on these losses
and costs are provided in note 11 of the
financial statements.
Financial assets at fair value through profit
and loss – FVTPL investments under IFRS 9
The Group holds unlisted equity investments
in early stage companies detailed in note 19
of the financial statements. The revaluation of
these companies is excluded from Headline
results. Two of the unlisted investments went
into administration resulting in a write-down
of £2.5m.
Put option accounting
These comprise allocations of profit and
dividends paid to holders of put options, the
charge being excluded from Headline results.
REPORT BY DISCIPLINE
The Chief Executive’s review introduced the
Group’s new specialist divisions. The chart
below highlights 2020 performance vs 2019
by these specialist divisions. Although total net
revenue declined during 2020, net revenue
from the Global and Social Issues Division
grew in both absolute and relative terms and
made up 12.7% (2019: 10.0%) of the Group’s net
revenue. The Connected Creativity Division,
however, declined to a 61.4% (2019: 64.4%)
share of the Group’s net revenue.
2020
2019
61%
13% 8% 8% 10%
64% 10% 7% 8%
11%
Split of 2019 and 2020
Net Revenue
⬤ Connected Creativity
⬤ Global & Social Issues
⬤ Brand, Experience
& Innovation
⬤ Passion Marketing
⬤ Performance Media
36
37
Strategic Report M&C Saatchi Group Annual Report 2020 Financial Review
Financial income and expense
The Group’s finance income and expenses
includes bank interest, lease interest and fair
value adjustments to minority shareholder put
option liabilities (IFRS 9).
Bank interest payable for the year was £1.2m
(2019: £1.3m). As a result of making improvements
to the Group’s cash management processes
and systems, overall borrowings decreased in
2020 compared to the prior year.
Interest on leases increased to £2.5m
(2019: £1.8m).
Fair value adjustment of put option liabilities
created a debit of £(0.1)m (2019: £(2.8)m).
Further details can be found in note 7 of the
financial statements.
Tax
Headline Tax
The Headline tax rate is a function of the Group’s
tax charges globally. In the UK there has been
increased focus on Group governance which
has added cost, whilst in the UK trading entities,
the Covid-19 pandemic also reduced profits.
This has led to the UK Group making tax losses,
which is not tax-efficient in a low-tax market
such as the UK. In addition we did not derive
tax benefits from losses in closed or disposed
of offices. 2019 also included a significant
under-provision for tax. As a result there was
an increase in our Group Headline tax rate to
39.6% in 2020 from 29.0% in 2019.
Statutory Tax
We expect large variations in future Statutory tax
rates due to significant items such as share-based
payments (option charges), put options and
investment in subsidiaries being non-deductible
against corporation tax as a result of these
items being capital in nature. The Statutory tax
rate has reduced from -38.0% in 2019 to -16.6%
in 2020.
38
Looking forward, there is a likelihood that
Governments will raise taxes to recover the costs
of the Covid-19 pandemic. For instance, the UK
Government has substantively enacted in May
2021 increases in corporation tax rates from
19% to 25% from 2023. This will have an impact
on the Statutory effective tax rate in 2021.
Non-controlling interests (minority interests)
On a Headline reporting basis, the share of profits
attributable to non-controlling interests decreased
to £3.4m (2019: £4.9m). This was in line with
the overall decrease in the Group’s profits.
However, for Statutory reporting, certain costs
that were charged to non-controlling interests
in Headline reporting are required (under IFRS 2)
to be accounted for as staff costs, as the share
option charge is accrued and subsidiary
dividend is paid. Most of the minorities’ share
and rewards from local equity have been
redefined as staff costs.
Dividend
The Company did not pay a dividend to its
shareholders in 2020 (2019: £9.8m). The Board
has reviewed the dividend policy as part of the
Group’s recent strategic review and is not
proposing to pay a final dividend for the year
ended 2020 (2019: nil). We concluded that the
Group’s priority is to return the business to
pre-pandemic levels of profitability and earnings
and, thereafter, to grow in line with the targets
set out at the Capital Markets Day held in
January 2021. Assuming a return to normal
trading conditions, we would expect to reinstate
dividends from 2022.
Cash flow and banking arrangements
Total cash as at 31 December 2020 was £76.3m
(2019: £69.0m). Cash net of bank borrowings
was a net surplus of £32.7m compared to a
net surplus of £16.6m in 2019.
The Group’s net cash flow from operating
activities was £33.7m. The improvement in
working capital in 2020 was driven by a
combination of factors including the Group’s
improved treasury and cash collection procedures.
The Group extended its revolving credit facility
(RCF) with National Westminster Bank plc
(NatWest) in May 2020, which was then reduced
from £36.0m to £33.0m from 1 December 2020.
As at 31 December 2020, £27.0m of the RCF was
drawn. In addition to the RCF, the Group had
a £5m overdraft facility with NatWest, which
remained unutilised as at 31 December 2020.
On 31 May 2021, the Company entered into a
revolving multicurrency facility agreement with
National Westminster Bank Plc and Barclays Bank
PLC for up to £47m (the “Facility”). The Facility
includes a £2.5m overdraft and the ability to
draw up to £3m as a bonding facility as required.
The Facility is provided on a three-year term
(with two optional one-year extensions).
The primary purpose of the Facility is to support
the Group’s working capital requirements which
are capable of significant movement within any
given month and from one month to the next.
Capital expenditure
Total capital expenditure in 2020 (including
software acquired) decreased to £3.7m
(2019: £4.1m). Capex includes £0.9m on computer
equipment and £0.5m on software and film rights.
The remaining £2.3m was incurred on leasehold
improvements and furniture and fittings, most
of which was incurred in the refurbishment of
the Group’s London headquarters.
Share-based incentive arrangements
The Group operates a business model through
which senior management have minority
ownership in the subsidiary companies they
operate, through share-based incentive (put
option) arrangements. Accounting for share-
based payments is a complex area, with
different accounting treatments applicable
depending on the nature of the share scheme
in place. To increase clarity in this area we have
indicated the potential dilutive effect in note 25
of the financial statements, providing an estimate
of the total number of shares issuable in each
of the next five years through the various
share-based payments schemes based on
different share prices that might prevail over
that period.
This is summarised in the table below which
shows shares issued and % dilution at different
share prices:
Issued
in
Shares
2021
total
‘000
by year
At 83.6p 7,252
At 100p 6,827
At 135p
6,827
At 150p 6,827
At 200p 6,827
At 250p 6,827
At 300p 6,827
Potentially issuable
2021
‘000
9,807
9,921
9,396
9,187
8,717
8,434
8,246
2022
‘000
8,402
7,560
6,557
6,301
5,724
5,378
5,148
2023
‘000
4,492
4,262
3,935
3,850
3,659
3,545
3,469
2024
‘000
2,826
2,807
2,909
2,988
3,332
3,741
4,183
2025
‘000
674
731
853
906
1,088
1,272
1,457
Total
‘000
33,453
32,108
30,477
30,059
29,347
29,197
29,330
*
Based on the current issued share capital of 122,743,435 shares and taking into consideration all potentially issuable shares.
% Potentially
issuable
share
dilution*
21%
21%
19%
19%
18%
18%
18%
39
Strategic Report Strategic report
The Chairman’s statement (page 2), Chief
Executive’s review (page 6), Our business model
(page 12), Principal risks and uncertainties
(page 26), Financial review (page 34),
Environmental, Social and Governance
(page 44) and s172 statement (page 68)
together form the Strategic report.
The Strategic report is approved by order
of the Board
MORAY MACLENNAN
Chief Executive Officer
27 August 2021
M&C Saatchi Group Annual Report 2020 Financial Review
Using the data on the previous page and a
share price ranging from 135p to 300p, the total
dilution to existing shareholders to 2025 from
the issue of new shares will be between
18%-21%.
This analysis has been calculated using the
Group’s most recent budgets and long term
financial plans to derive valuations for the
share-based schemes. However, valuations may
be different to those used for this analysis, with
the result that the number of shares to be issued
and the dilutive impact may be different to that
stated above. Refer to note 25 for more details
on the assumptions behind these calculations.
Global accounting function, controls
and systems
The historical accounting issues identified in
2019 brought to light fundamental organisational
and control weaknesses within the Group’s
finance and accounting functions. The Group has
historically operated a decentralised accounting
function. The increased size and complexity of
the Group necessitated a move to a standardised
and enhanced accounting, consolidation
and forecasting system. As at 31 May 2021,
approximately 70% of the global Group, as
measured by net revenue, had moved over to
the NetSuite-Workday platform. We have also
deployed a global cash management and
cash forecasting platform, Kyriba, providing
real-time data and access to all bank accounts
across the Group.
The Group worked tirelessly in implementing
changes and improvements in its financial
management, controls and governance. 2020
was an extremely challenging year, but the
improved financial discipline imposed across
the Group was instrumental in supporting our
recovery from the challenges of recent years.
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Strategic Report M&C Saatchi Group Annual Report 2020 Financial Review
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Strategic Report M&C Saatchi Group Annual Report 2020 Environmental, Social and Governance ("ESG")
Environmental,
Social and
Governance
(“ESG”)
Our focus on people
Through our vision, actions, and culture, we celebrate the lived
experiences of individuals from diverse backgrounds and protected
characteristic groups who are underrepresented and potentially
marginalised in the workplace. We champion difference by creating
a culture rooted in equity, where treating people fairly means they
are treated differently, based on individual need.
We believe that we have a moral obligation to
invest in the development of a diverse workforce,
an inclusive culture and the removal of barriers
for underrepresented groups and that diversity,
equity and inclusion creates value and is our
‘way of doing business’.
All employees have a shared responsibility for
removing systemic barriers and reducing bias
and inclusive leaders maximise the collective
intelligence of their teams and unlock each
person’s potential. We also believe that data
and analysis should be the basis of decisions
and data-driven storytelling should act as a
catalyst to action.
These values and beliefs translate into five strategic pillars which will form the basis of
our future strategy:
Workforce
Diversify our talent
base and improve
representation at
all levels.
Culture
Create an inclusive lived
experience where all can
flourish and belong.
Operations
Place diversity, equity
and inclusion at the
heart of how we plan
and operate.
Community
Create coalitions
which give access to
diverse communities
and networks
Marketplace
Use our influence for good
and leverage learning
and development to
drive business outcomes
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Strategic Report M&C Saatchi Group Annual Report 2020 Environmental, Social and Governance ("ESG")
WORKFORCE
As at December 2020, our UK workforce consists
of 55% female employees (up from 49% in 2019),
with our top salary band being 28% female and
the Executive Board being 21% female. The UK
workforce consists of 21% BAME employees (up
from 19% in 2019), 7% disabled (up from 3% in
2019), 12% LGBTQI and 62% of the UK’s employees
are under 35*. We aim to increase diverse
representation at senior levels as a priority
over the next three years and Mickey Kalifa,
the Chief Financial Officer, has been appointed
sponsor of diversity, equity and inclusion at a
Board Level. The Company has also appointed
a full time Head of Diversity, Equity and Inclusion
to drive a roadmap of change initiatives.
It has been the intention of the Board to fulfil the
recommendations set out in Lord Davies’ report
of having at least 33% female representation
on the Board and the recommendations of the
Parker Review of appointing at least one person
from an ethnic minority background on the Board.
As at the date of the Annual Report and Accounts,
43% (three) of the Directors on the Board are
female (up from 13% in 2019) and 29% (two) of
the Board come from an ethnic minority. All
future appointments and re-appointments will
be made with due regard to the benefits of
diversity and the needs of the Board.
INCLUSIVE CULTURE
We operate six employee led networks in our
UK businesses which are the voice of groups
within our workforce and influence our policy
creation and delivery. Each of these networks
has its own strategic plan to drive change,
awareness and engagement through a series
of events, encompassing a host of topics and
themes to coincide with events such as Black
History Month, Pride, International Women’s
Day, National Inclusion Week and World Mental
Health Day.
*
Comparative data provided where possible. All data gathered from employee surveys.
46
Juniors: Representing those starting out on
their career paths.
OPERATIONS
We have completed two internal studies, one
qualitative and one quantitative, to capture the
exact make-up of the business and shine a light
on what it is like to work at the Company. As a
result of those studies, we have committed to a
number of actions in 2021 including an overhaul
of our entire recruitment process to ensure
we diversify our talent base and improve
representation at all levels.
The Group is in the process of transforming its
overall culture due to global influences such as
the Covid-19 pandemic and ongoing employee
feedback about the type of company they
want to work for, and the Board is at the centre
of driving this transformation. Detail on how
this will be monitored and assessed will be
shared with shareholders in due course.
We believe that in order to drive equity across
our business over the long term, compensation
levels across our business at all levels and
between genders must be monitored and
reported. Our voluntary gender pay gap
reporting is conducted annually and is available
on our website at https://mcsaatchi.com.
These networks are:
Heritage: Representing our Black, Asian and
Minority Ethnic communities.
Equals: Representing women and non-
binary people.
Family: Representing parents and carers.
Pride: Representing the LGBTQ+ community.
We recruit, select and promote our people
without discrimination. Candidates are assessed
objectively against the requirements of the job,
taking account of any reasonable adjustments
that may be required for candidates with a
disability. For people who develop a disability
during their employment, we make adjustments
to their working environment or other
employment arrangements wherever possible,
within a reasonable time frame and in
consultation with the relevant employees.
a year over 500 black owned SME businesses
have signed up to the programme accessing
over 1,500 mentors. The scheme is supported
by market leading clients including Google,
Lloyds, Goldman Sachs, Virgin and Budweiser,
who provide mentors and expertise. We further
increased our investment to support a further
5,000 black business people in year one alone.
Together: Supporting those with mental health
and accessibility issues.
COMMUNITY
Open House
In 2020, we opened our doors to 1,500 trainees
from across the world through our free 8-week
online training programme open to anyone and
everyone, created to reach a diverse audience
and to provide access to industry knowledge
and employment opportunities.
Mentor Black Business
In 2020, we established the mentor black
business programme in collaboration with
social business activist Akil Benjamin, as a free
resource to help black businesses thrive in the
UK, giving the community access to the best
industry know-how and experience. In under
M&C Saatchi Saturday School
Saturday School is a global pro bono programme
that we launched with Akil Benjamin, which
supports minority community entrepreneurs and
has a particular focus on Black women, women
of colour and young people aged 16-25. CPD
accredited courses are taught for free covering
subjects such as business planning, digital
marketing, wellbeing at work and business
finance essentials. In 2020, the school taught over
3,500 people and led to 87% of participants
feeling empowered to take the next steps in
their business. We have committed to scaling
up the programme with a target of supporting
a further 2,000 people a year from across the
UK, every year of the framework.
Highlights from M&C Saatchi Saturday School
and Mentor Black Business in 2020 include:
• Partnering with Virgin StartUp to give businesses
access to the start up loan backed by the
British Business Bank;
• Partnering with Google and their Digital Boost
initiative to give businesses access to another
1,000 mentors;
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Strategic Report M&C Saatchi Group Annual Report 2020 Environmental, Social and Governance ("ESG")
• Being appointed as the delivery partner
to run the Black Business Incubator in
partnership with Somerset House and
funded by Morgan Stanley;
• Winning a £123,000 grant to extend the Black
Business Incubator to support more than 50
black businesses from Southwark, Lambeth,
Wandsworth and Lewisham.
Starting in the UK and soon transitioning to the
US market, all programmes are based around
doing more and making change at scale for
minority communities.
MARKETPLACE
Channelling the passion of protests
into action for the US election
With LeBron James’ organisation, More Than a
Vote, and the NAACP Legal Defense Fund, we
wanted to channel the passion of the 2020
protests for social justice into action for the
2020 US election.
We developed a campaign that connected the
struggles of racial equality to the opportunities
that would allow people to get involved in the
political process today by signing up to become
poll workers who had been in short supply
thanks to the Covid-19 pandemic.
And it worked. We helped recruit more than
40,000 poll workers for the 2020 US
presidential election.
The world’s first rent-free, premises-free,
pop-up clothing store for homeless people
In partnership with the Haven Shelter, we
conceptualised the world’s first rent-free,
premises-free, free “pop-up clothing store” for
the homeless, found entirely on the street and
curated by residents. The Street Store is made
up of a series of cardboard posters, doubling
up as clothes hangers which more fortunate
members of society can hang up to help out.
The clothes are then hung up on the simple,
bespoke posters giving homeless people the
chance to “shop” and help themselves to clothes
they actually want and like. Used to rummaging
in bins or begging for clothing, this was the first
real, dignified shopping experience for many.
After its success in South Africa, we wanted this
initiative to help as many people as possible,
so Street Store went open source. To date, over
940 stores have popped up globally, clothing
hundreds of thousands of homeless people
around the world. What started as a local
campaign became a global initiative for good.
In 2020 it was named a finalist in the Best World
Changing Idea EMEA Region and Creativity
categories in Fast Company’s World Changing
Ideas 2020 global awards. It also received an
honourable mention in the Advertising, Spaces,
Places, and Cities, Corporate Social Responsibility,
and General Excellence categories.
Our focus on planet
We believe that our industry has an important role in addressing
the climate emergency. In the way we operate as a responsible
business, and importantly how we use the influence of the work
we do for clients to change behaviour around the world. Our
focus must be on driving long term responsible growth.
FOUR STRATEGIC PILLARS:
1Reducing the operational impact of our
business on the environment.
2Applying socially responsible procurement
policies with anyone we work with or for.
3Advising and supporting our clients in making
meaningful change to enhance their social
and environmental impacts wherever we can.
4Promoting transparency, integrity and ethics in
all areas of our business.
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Strategic Report M&C Saatchi Group Annual Report 2020 Environmental, Social and Governance ("ESG")
We have also signed up to Ad Net Zero, the
industry initiative to tackle climate change led
by the Advertising Association and its members.
The aim is to reduce the carbon impact of
developing, producing and running UK
advertising to real net zero by the end of 2030
and commit to make practical changes in the
way the industry operates.
We are on a mission to connect and scale our
environmental policies and operations across
the group and have appointed a Global ESG
Committee to develop this roadmap. The output
will be new consolidated commitments in the
areas of carbon emissions, procurement, and
further governance.
Refer to the Directors’ report (pages 112 and
113) for the Company’s Streamlined Energy
and Carbon Reporting (“SECR”).
OPERATIONS
Our global headquarters in London is our
largest operation and where we can report
significant progress to date.
We have earned the ISO 14001 Certified
Environmental Management System (EMS)
and are continuously monitoring and improving
our progress through employee engagement
and director commitment.
Our headquarters now run on 100% renewable
energy. We separate waste across five waste
streams including food, which emits methane,
a powerful greenhouse gas, in landfill conditions.
We have achieved verified zero waste to
landfill and a reported 98% recycling rate.
Since the implementation of our EMS, we have
reduced our water consumption by 1.5 million
litres per year through the installation of water-
saving devices in all toilets. We have also
changed from bottled water to reusable bottles
and plumbed-in water dispensers. We have
increased our environmental purchases by 9.3%
and significantly reduced single-use-plastic in our
canteen by reducing packaging and disposables.
Sustainable sourcing is a key consideration for
us. Our confidential shredding and water cups
are recycled into employee notebooks to engage
everyone in the importance of reducing waste
and promoting the circular economy.
WORK FOR CLIENTS
Accelerating demand for solar energy with
the International Solar Alliance
As part of our work with the UK Government, we
worked on the repositioning and rebranding of
the International Solar Alliance (ISA). A coalition
of 73 member countries, ISA was established
at the end of 2015 to accelerate the demand
for and use of safe, sustainable and affordable
solar energy for all. It aims to mobilize over
USD 1 trillion of investment into solar projects
by 2030 through focused advocacy, policy
and regulatory support, capacity building and
by overcoming perceived investment barriers.
Our communications objectives were therefore
to raise awareness of ISA, its programmes and
initiatives, creating a positive and aspirational
communications framework in which to establish
the ISA as the leading institution for solar energy.
With a recently appointed new Director General
and in a year when addressing global climate
change transition commitments will take centre
stage in the run up to COP26, the UN’s Climate
Change Conference in the UK in November 2021,
our work with ISA will continue in 2021.
Using technology to drive conservation
efforts with Cisco
Up until 100 years ago, rhinos were roaming
in their hundreds of thousands across Africa.
Now, three rhinos are killed every day at the
hands of poachers, and their population hovers
below 25,000. If this continues, the animal will be
extinct by 2025 or far more rapidly if government
bans on illegal rhino horn trade are lifted –
it could be a matter of only a couple of years.
We teamed up with former cricketers Kevin
Pietersen and Graeme Smith, outback
wrangler Matt Wright and technology provider
Cisco to create a powerful documentary
charting the struggles, obstacles, and success
in the war against poaching.
Technology is the future of conservation. And
we knew that this was a story we needed to
tell. In its first year of operation, Cisco’s solution
reduced poaching by 96% in the pilot reserve.
But few knew about it. We produced a two-part
documentary series, showing the emotional
journey of orphaned rhino, Arthur, and exploring
the solutions developed by Cisco, to be aired
on National Geographic.
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Strategic Report M&C Saatchi Group Annual Report 2020 Corporate Governance
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53
Corporate governanceCorporate Governance M&C Saatchi Group Annual Report 2020 Corporate Governance
Our New York agency SS+K
played a significant role in
the Biden-Harris presidential
election campaign.
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55
Corporate Governance M&C Saatchi Group Annual Report 2020 Chairman’s Introduction
Chairman’s
introduction
Dear Shareholder,
On behalf of the Board, I am pleased to
present the Corporate Governance Report for
the year ended 31 December 2020. This report
describes the Company’s corporate
governance structures and procedures, as well
as summarising the work of the Board and its
committees to illustrate how the Company has
discharged its responsibilities this year and
progressed on compliance with the
requirements of the 2018 Corporate
Governance Code (the “Code”). As an AIM-
listed company, the Company is not required
to comply with the Code, but the Board
believes that it represents best practice and
has moved significantly towards full
compliance with the Code.
BOARD ROLE AND EFFECTIVENESS
The Board is collectively responsible for how
the Company is directed and controlled. Its
responsibilities include promoting the Company’s
long term success; setting its strategic aims
and values; supporting the leadership to put
such aims and values into effect; supervising
and constructively challenging the leadership
on the operational running of the business;
ensuring a framework of prudent and effective
controls; and reporting to stakeholders on the
Board’s stewardship. As Chairman, I am
responsible for leading and ensuring there is
an effective Board. Accordingly, in February
2021, we commissioned a formal and vigorous
evaluation of the effectiveness of the Board by
an external adviser. The results have been
reviewed and the recommendations are in the
process of being implemented. Please see
details on page 65. The responsibilities of the
Board and its committees and the way in which
they uphold high standards of corporate
governance are set out on pages 66 to 75.
BOARD CHANGES
In addition to myself, four Non-Executive
Directors have joined the Company in the last
18 months, all of whom are assisting with the
required changes in corporate governance,
serving the needs of all stakeholders and
thereby allowing the business to grow. Please
see pages 60 to 64 for details of the current
Board of Directors. In keeping with the theme of
change, our corporate governance framework
has been transformed, and the Company is now
fully compliant with the majority of the provisions
of the Code (see full details on pages 70 to 75).
The Company’s remuneration policy has been
updated to better align incentives and
remuneration with the Company’s strategy and
objectives (see details on pages 86 to 107).
COMMITTEES OF THE BOARD
The Board is supported by the Audit,
Remuneration and Nomination Committees.
The Board appoints the committee members.
The reports of the Audit Committee and the
Remuneration Committee can be found on
pages 76 and 86 respectively whilst the
Nomination Committee will only report from
2021 onwards. Each committee has access to
external advice as it considers appropriate.
The Company Secretary or her nominee acts
as Secretary to the committees. The terms of
reference of each committee are reviewed
regularly, updated as necessary to ensure
ongoing compliance with best practice
guidelines and must be approved by the
Board. Copies of the committees’ terms of
reference are available from the website at
https://www.mcsaatchiplc.com/governance.
DIRECTORS’ CONFLICTS OF INTEREST
Directors have a statutory duty to avoid conflicts
of interest with the Company. The Company’s
Articles of Association allow the Directors to
authorise conflicts of interest and the Board
has adopted a policy for reviewing conflicts
of interest as they arise. The Board is aware
of the other commitments and interests of its
Directors, and changes to these commitments
and interests are reported by the Directors.
A review of Directors’ conflicts of interest is
conducted at least annually.
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Corporate Governance M&C Saatchi Group Annual Report 2020 Chairman’s Introduction
Our employees are our greatest asset. Louise
Jackson, one of our Non-Executive Directors,
has been nominated as the representative of
the employees on the Board. Mark Dickinson-
Keen has joined as Chief People Officer,
responsible for developing the people strategy
and the Group’s capabilities, culture and overall
employee experience for the next phase of the
business. Victoria Clarke joined the business as
the Group’s Head of Legal in 2020 and has
recently been promoted into the role of
General Counsel and Company Secretary.
“The Company’s new leadership
team has placed a strong
emphasis on the importance
of purpose and a positive and
values-led culture.”
Please refer to pages 68 to 69 for details of how
the Company engages with its stakeholders.
– Gareth Davis
SYSTEMS AND POLICIES
The new finance systems and policies introduced
across the Group, as mentioned in the Financial
review on page 40, will allow the management
and the Board to monitor the effectiveness of
internal controls, risk management policies and
ensure compliance with statutory and regulatory
obligations across the Group. Particular focus
has been placed on improving the reporting
into the Group finance function, supported by
the roll-out of a new Group wide accounting
package, a new consolidation system and a
new treasury management system.
I am confident that the Group can maintain
and further develop a strong and effective
governance system to enable the business to
deliver its strategy, generate shareholder value
and safeguard the interests of all stakeholders.
GARETH DAVIS
Chairman
27 August 2021
CULTURE AND INCLUSION
The Company’s new leadership team has
placed a strong emphasis on the importance
of purpose and a positive and values-led
culture. Part of that is a commitment to ensure
inclusive and diverse teams throughout the
business, and the Board needs to set the
standard in that regard. We believe that diversity
is a source of strength for our business, and I
am pleased to report that several key initiatives
have been implemented in this area. As I write
this, the proportion of female Directors has
risen to 43%, exceeding the target set by the
Hampton-Alexander Review (which focussed on
increasing representation of women in senior
positions). This compares to 11% two years ago
and 0% four years ago. The number of Directors
from ethnic minorities has risen to two (29%)
which exceeds the target set by the Parker
Review (which reviewed ethnic diversity on UK
Boards). The Board recognises the need to
create the conditions that foster talent and
encourage all colleagues to achieve their full
career potential in the Group and accordingly
Mickey Kalifa, the Chief Financial Officer, has
been appointed as the representative for
diversity, equity and inclusion at Board level,
with a full time Head of Diversity, Equity and
Inclusion also being appointed. Please see
pages 45 to 47 for details of the Company’s
diversity initiatives.
STAKEHOLDER ENGAGEMENT
We have also changed our approach to our key
stakeholders: our clients, our shareholders and
our employees. The Company’s new mission is to
be “a creative company that connects specialist
expertise through data and technology to
deliver meaningful change” and the Strategic
report sets out the new client initiatives which
will drive this change.
We are reviewing the Group’s put option schemes
with the aim of addressing the historically
dilutive impact of such schemes on shareholders
and have set out a timetable for potentially
restarting the payment of dividends.
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Corporate Governance M&C Saatchi Group Annual Report 2020 Board of Directors
Board of
Directors
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 the corporate
strategy. Members of the Board bring a wealth of
knowledge and experience to the discussions, maintain
memberships of a number of professional bodies and
ensure their skill sets are constantly developed.
The Directors of the Company who were in office during
the year and up to the date of signing the financial
statements were as follows:
Gareth Davis
NON-EXECUTIVE CHAIRMAN
Moray MacLennan*
CHIEF EXECUTIVE OFFICER
KEY STRENGTHS
A highly experienced former CEO and current
chairman. Long-standing plc experience and
shareholder understanding with particular expertise
in the fields of governance, mergers and acquisitions,
building global brands and corporate transformations.
KEY STRENGTHS
Started as a graduate trainee with Saatchi and
Saatchi, and has been with the Company since its
creation so very familiar with all parts of the Group.
Past President of UK and European communications
agencies’ bodies, holds vast industry experience.
M&C SAATCHI ROLE
Chair of the board, which is responsible for group
strategy, performance and governance.
M&C SAATCHI ROLE
Leads the Group and proposes the strategy to be
approved by the Board, accountable for delivery
of strategic and financial objectives.
JOINED M&C SAATCHI BOARD
February 2020.
OTHER COMMITMENTS:
Non-Executive Director of Gresham House Plc.
PREVIOUS EXPERIENCE
Chairman of DS Smith Plc (2012-2021), Non-Executive
Director/Chairman of Ferguson Plc (2003-2019),
Chairman of William Hill Plc (2010-2018),
Chief Executive of Imperial Tobacco Group Plc
(now Imperial Brands plc) (1996-2010).
COMMITTEES
2021 – Nomination Committee.
2020 – Nomination Committee, Remuneration
Committee and Audit Committee.
JOINED M&C SAATCHI BOARD
January 2021.
OTHER COMMITMENTS:
None.
PREVIOUS EXPERIENCE
The Company (1995 onwards: Worldwide CEO
2010-2020) Saatchi and Saatchi (1983-1995).
COMMITTEES
None.
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61
* Joined the Board after year end
Corporate Governance M&C Saatchi Group Annual Report 2020 Board of Directors
Mickey Kalifa
CHIEF FINANCIAL OFFICER
Louise Jackson
NON-EXECUTIVE DIRECTOR
Colin Jones
NON-EXECUTIVE DIRECTOR
Lisa Gordon
NON-EXECUTIVE DIRECTOR
KEY STRENGTHS
Experienced Chief Financial Officer and former
Chief Executive Officer with 30 years of experience
in the media, technology and sports industries.
Has steered the finances of the Group through the
problems of the last two years.
M&C SAATCHI ROLE
Leads the Finance department as well as taking
responsibility for a number of strategic and cross-
functional initiatives.
JOINED M&C SAATCHI BOARD
March 2019.
OTHER COMMITMENTS:
Non-Executive Director of Zoo Digital Group PLC.
PREVIOUS EXPERIENCE
Chief Financial Officer (plus other senior finance roles)
of Sportech PLC (2008-2017), executive roles at
Liberty Global, Sky and Disney.
COMMITTEES
None.
KEY STRENGTHS
Extensive remuneration experience through roles
as Human Resources Director and as an advisor on
people, organisation, change and transformation.
Experience with organisation design, restructuring,
cost reduction, talent and culture change work for
a large number of household names including
many in media.
M&C SAATCHI ROLE
As a Non-Executive Director, provides strategic advice,
monitors management performance and chairs the
Remuneration Committee.
JOINED M&C SAATCHI BOARD
March 2020.
OTHER COMMITMENTS
Director of Leadership and Talent, Selfridges Group.
PREVIOUS EXPERIENCE
Previously founded and ran her own consulting
organisation for ten years before selling it. Roles
with British Airways, Mothercare and Korn Ferry.
COMMITTEES
Nomination Committee, Remuneration Committee
(Chair), Audit Committee.
KEY STRENGTHS
Experienced former FTSE-250 media sector Chief
Financial Officer with particular expertise in financial
reporting, corporate finance, investor relations and
audit/remuneration/risk committees.
M&C SAATCHI ROLE
As a Non-Executive Director, provides strategic advice,
monitors management performance and chairs the
Audit Committee.
JOINED M&C SAATCHI BOARD
February 2020.
OTHER COMMITMENTS
Non-Executive Chair of Centaur Media Plc;
Non-Executive Director and Chair of the Finance &
Commercial Committee of The City Literary Institute.
PREVIOUS EXPERIENCE
Chief Finance Officer of Euromoney Institutional
Investor PLC (1996-2018).
COMMITTEES
Nomination Committee, Remuneration Committee,
Audit Committee (Chair).
KEY STRENGTHS
Digital transformation, strategy, business
development, corporate restructuring, mergers and
acquisitions and investor relations.
M&C SAATCHI ROLE
As the Senior Independent Non-Executive Director,
supports the Chairman in his role, acts as an
intermediary for other Non-Executive Directors and
ensures there is a clear division of responsibility
between the Chairman and the Chief Executive
Officer. Also provides strategic advice and monitors
management performance.
JOINED M&C SAATCHI BOARD
March 2020.
OTHER COMMITMENTS
Chair of Cenkos Securities Plc, Non-Executive Director,
Alpha FX Group Plc; Non-Executive Director, Magic
Light Pictures Limited.
PREVIOUS EXPERIENCE
Non-Executive Chair of Albert Technologies Plc
(2015-2020), founding Director of Local World Plc
(2012-2015), Chief Operating Officer of Yattendon
Group (2007-2013), Corporate Development Director
of Chrysalis Group Plc (1994-2003), Non-Executive
Director of Future Plc (2003-2005).
COMMITTEES
Nomination Committee, Remuneration Committee,
Audit Committee.
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Corporate Governance M&C Saatchi Group Annual Report 2020 Board of Directors
BOARD COMPOSITION
BOARD PERFORMANCE EVALUATION
Gender
⬤ Male: 4
⬤ Female: 3
Ethnicity
⬤ White: 5
⬤ Asian British: 2
Tenure
⬤ Under
3 years: 7
All Directors have the necessary time, skills and
resources to discharge their Board responsibilities.
They have access to the advice and services of
the Company Secretary and are also able to
gain access to external independent professional
advice at the Company’s expense should they
wish to do so in the furtherance of their duties.
In February 2021, a three-year Board
development programme was commissioned
using external consultants. The Directors and
the General Counsel and Company Secretary
were invited to complete a survey followed by
an interview. The Board was assessed on a
wide variety of performance and oversight
metrics. See the next page for a summary of the
key findings:
* Joined the Board after year end
Vinodka (“Vin”) Murria*
NON-EXECUTIVE DIRECTOR
AND DEPUTY CHAIR
KEY STRENGTHS
A highly experienced former Chief Executive Officer.
In-depth knowledge of software, technology and
support services sectors, having executed a number
of highly successful growth strategies. Awarded an
OBE for services to the digital economy.
M&C SAATCHI ROLE
As both a Non-Executive Director and the Deputy Chair,
provides strategic advice and monitors management
performance. The Board does not consider Vin to be
independent given that she is a major shareholder
of the Company.
JOINED M&C SAATCHI BOARD
March 2021.
OTHER COMMITMENTS
Non-Executive Director of Softcat plc, Bunzl plc, SVBUK
Limited and Chair of both MAC1 and Summerway
Capital plc. Acts in a senior advisory capacity at both
NM Rothschild and HG Capital.
PREVIOUS EXPERIENCE
Founder and Chief Executive Officer of Advanced
Computer Software Group plc (2008-2015), Chief
Executive Officer of Computer Software Group
(2002-2007), Non-Executive Director of Sophos Plc
(2017-2020), Non-Executive Director of Zoopla Property
Group plc (2015-2018), Non-Executive Director of
Chime plc (2013-2016), Chief Operating Officer of Kewill
Systems (now known as BluJay Solutions) (1986-2001).
COMMITTEES
Nomination Committee.
64
In 2021, the Company engaged an external
advisor, Lintstock, to facilitate a review and
evaluation of the performance of the Company’s
Board of Directors.
The first stage of the review involved Lintstock
engaging with the key project sponsors to set
the context for the evaluation and to tailor
survey content to the specific circumstances of
the Company. All Directors were then invited to
complete a survey addressing the performance
of the Board and each of its committees, after
which each Director was interviewed by a
Lintstock representative. The anonymity of
the respondents was ensured throughout the
process, in order to promote an open and frank
exchange of views.
The exercise addressed core areas of Board
and committee performance, and incorporated
a particular focus on the following areas:
• The development of the dynamic amongst
Board members, following recent Director
appointments and the holding of Board
meetings remotely due to Covid-19 restrictions.
• The balance of skills, experience and diversity
amongst the members of the Board, taking
into account the transition in Board membership
that has taken place over the past year.
• The key areas of focus for the new Chief
Executive Officer following his recent
appointment, and the top priorities for
ensuring the successful execution of the
Company’s strategy.
• The development of the Company’s strategic
plan, the monitoring of implementation and
the Board’s understanding of the capacity of
the organisation to deliver.
• The level of focus on competition and market
insight, as well as the understanding of digital
opportunities and threats facing the business.
• The oversight of risk management at Board
and committee level, and the monitoring of
developments in the market environment and
any likely impacts on the business.
• The Board’s understanding of, and engagement
with, the Company’s key stakeholders, including
investors, clients and employees, and the
oversight of talent and succession issues.
The Board considered the outcomes of the
exercise at the Board meeting held in May 2021.
As a result of the review, the Board agreed to
focus on a few key action points over the coming
year, including:
i. Monitoring strategic and business
plans, which are a key focus for the
Chief Executive Officer;
ii. Developing the engagement with
management and the wider business
as Covid-19 restrictions ease;
iii. Pursuing continued improvements in
the information flow; and
iv. Continuing to develop the dynamic
and relationship between the Board
and management.
65
Corporate Governance M&C Saatchi Group Annual Report 2020 Governance Review
Governance
review
DIVISION OF RESPONSIBILITIES AND THE COMPANY’S PURPOSE
Board
Chaired by Gareth Davis (appointed Chairman on 31 December 2020)
Responsible for:
• Promoting the Group’s long-term success through
effective governance and prioritising the interests
of stakeholders.
• Overseeing the Group’s governance and internal control.
• The Board currently consists of seven members, the
Chairman, the CEO, the CFO and four Non-Executive
Directors. Details of their careers and strengths can be
found on pages 60 to 64. The Directors’ report can be
found on pages 108 to 117.
Audit
Committee
Chaired by Colin Jones
(appointed 3 February 2020)
Responsible for:
• Monitoring the integrity of
the financial statements.
• Reviewing the Group’s internal
financial controls and risk
management systems.
• The Group’s relationship with
the external auditors.
The Audit Committee consists
of three independent Non-
Executive Directors: Colin Jones,
Lisa Gordon and Louise Jackson,
with the Chief Financial Officer
and the other Directors
attending as required.
The report of the Audit
Committee can be found on
pages 76 to 85.
66
Remuneration
Committee
Chaired by Louise Jackson
(appointed 6 May 2020)
Responsible for:
• Determining the policy for
Executive Director
remuneration.
• The Remuneration Committee
consists of three independent
Non-Executive Directors:
Colin Jones, Lisa Gordon
and Louise Jackson.
The committee engaged the
services of a leading independent
external remuneration advisor,
Korn Ferry, to assist in a
comprehensive review of current
remuneration practices and
to ensure that remuneration,
strategy and culture are fully
aligned.
The Directors’ remuneration
report can be found on pages
86 to 107.
Nomination
Committee
Chaired by Gareth Davis
(appointed 6 May 2020)
Responsible for:
• All Executive and Non-Executive
Director appointments.
• Overseeing the Executive
Committee that reports to the
Chief Executive Officer.
• Making use of independent
search consultancies for all
of its appointments.
The Nomination Committee
consists of the Chairman of
the Board, Gareth Davis, and
the Non-Executive Directors,
Lisa Gordon, Louise Jackson,
Colin Jones and Vin Murria.
During 2020, the Nomination
Committee did not meet on a
formal basis and so a report on
the committee’s activities will only
appear in the 2021 Annual Report
and Accounts.
COMPANY’S PURPOSE
The Company’s purpose is to help clients navigate
complex change and create new opportunities
through creativity and technology. The Board
commissioned several in-house work groups to
review the Company’s purpose and values and
strategy. There have been regular presentations
and updates to the Board and this work was
presented to the Company’s stakeholders at
a Capital Markets Day held in January 2021.
This served to:
• Connect purpose and strategy to culture.
• Align values and incentives.
• Assess, measure and report on the Company’s
culture and how it benefits all stakeholders.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS DURING THE YEAR
Fifteen scheduled meetings of the Board were
held during the year ended 31 December 2020.
The Nomination Committee met on an
unscheduled basis to deal with the matters at
hand, in particular, the appointment of the
new Non-Executive Directors. The attendance
record of the Directors at the meetings of the
Board and of the Board’s committees is shown
in the table below.
Board
meetings
Audit Committee
meetings
Remuneration
Committee
meetings
Chairman
Jeremy Sinclair***
Executive Directors
David Kershaw***
Mickey Kalifa
Bill Muirhead****
Non-Executive Directors
Lisa Gordon**
Louise Jackson**
Gareth Davis*
Colin Jones*
15/15
15/15
15/15
14/15
13/13
12/13
14/14
14/14
x
9/9
9/9
x
7/7
5/7
9/9
9/9
Appointed on 3 February 2020.
Statistics are not included for the Nomination Committee because it only formally met from 2021 onwards.
*
** Appointed on 17 March 2020.
*** Departed Board on 31 December 2020.
**** Departed Board on 31 March 2021.
x
x
x
x
1/1
1/1
1/1
1/1
67
Corporate Governance
M&C Saatchi Group Annual Report 2020 Governance Review
SECTION 172 STATEMENT
The Board considers it has made decisions in
a way that, in good faith, would be most likely
to promote the success of the Company for
the benefit of its members as a whole, having
regard to the factors set out in section 172 of
the Companies Act 2006.
Below we look at each of these factors in turn:
Consequences of any decision in the long term
The Directors are aware of the changing
marketing landscape and the needs of its
different stakeholder groups. Where conflicts
arise between the short term and long term
consequences of a decision, these consequences
are carefully considered. Whilst precedence is
given to long term benefits, the Directors will
consider whether these are outweighed by
short term impacts in reaching their conclusions.
The Board undertakes regular reviews of the
Company’s strategy and is actively involved in
reviewing and approving strategy changes
which ultimately drive the future of the business.
An example is the exercise undertaken to
simplify our operating model and remove
under-performing operations. As a result, our
structure was refined down to five specialist,
strongly performing divisions. Other relevant
decisions during the year include the creation of
a new Chief People Officer role, the approval
of a new strategy on diversity, equity and
inclusion, and the approval of the 2021 budget
and five year plan.
Employees
The Board acknowledges people are essential
to the delivery of our strategy. The Covid-19
pandemic was a difficult time for many, and
the Directors were keen to continue to provide
meaningful support to the Group’s employees.
During 2020, workshops were scheduled to
support physical and mental health as well
as sessions for children and parents in school
holidays. A Non-Executive Director was
68
designated to represent employees on the
Board and a Head of Diversity role was created
to develop a culture where talent can thrive.
A new Chief People Officer was appointed
to maximise employee engagement and
performance. Also in 2020, employee led
networks were formed in the UK to represent
specific groups which cover important issues
including gender, parent and caring
responsibilities, race, LGBTQ+, physical and
mental health and those new to the industry.
Creation of a meritocratic culture has always
been a priority, and the Board continues to
review and act on the results of employee
satisfaction surveys which help drive the
direction of focus.
Business relationships
Customers are the clients that are the end users
of our services. The Board is committed to
ensuring clients receive high quality deliverables
and that they are supported in managing the
new marketing landscape. To this aim, we are
continuously striving to improve client services,
e.g. with the creation of a new sustainability
practice in 2021. Other examples of work for
clients include helping them with the impact of
their operations on community and environment.
See page 51 for examples of this. We believe in
treating our suppliers fairly, for example by
ensuring that we pay our suppliers promptly in
accordance with the agreed terms of business.
Community and environment
The Board supports employees taking up
opportunities in our various offices around the
world, has made infrastructure improvements
to offices to support a reduction in our carbon
footprint and ensures each office has initiatives to
support its local community through volunteering
and pro-bono work. For more information on
this type of work refer to pages 47 to 48. For
more details on the Company’s environmental
impact, refer to pages 50, 112 and 113.
Business conduct
The Board recognises that a commitment to
a high standard of business conduct is critical
to the delivery of the Company’s strategy and
aspires to complete honesty and transparency
in all activity. Creditworthiness of the Company
is factored into relevant decision making whilst
the necessary interaction with our key creditors
(National Westminster Bank Plc and Barclays
Bank PLC) takes place.
Shareholder engagement
The Board recognises that relationships with
our stakeholders are also key to the delivery
of our strategy. The Board is committed to
open engagement with our shareholders and
provides all the necessary information needed
to enable decision making. This is evidenced
through our annual general meetings, investor
roadshows and the recent Capital Markets Day
where shareholders are able to ask questions
of the Company’s management and by the
press releases issued throughout the year. We
maintain an up-to-date website and use an
investor relations advisory practice to facilitate
clear and productive exchanges with
shareholders.
The Board has also taken actions to lower the
Company’s risk profile by improving corporate
governance and by reviewing the Group’s put
option schemes to address the issue of dilution
of shareholder value. Regular meetings are held
with the Company’s institutional shareholders
and the Chief Executive and/or the Chief
Financial Officer and/or the Chairman to
discuss the Company’s results and objectives.
69
Corporate Governance M&C Saatchi Group Annual Report 2020 Governance Review
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE 2018 (“THE CODE”)
As an AIM-listed company, the Company is not required to comply with the Code, but the Board
believes that it represents best practice and has moved significantly towards full compliance with
the Code. The Board continues to work to implement the provisions of the Code and supports the
focus that it places on relationships with employees, shareholders and other stakeholders. Other
than as detailed below, the Company complied with the provisions of the Code for the whole of 2020:
PROVISION OF THE CODE
(INCLUDING CODE REFERENCE NUMBER)
4) Specific communications are set out in the
event that 20 per cent or more of votes have
been cast against a Board resolution.
5) Engagement with workforce using
one of the prescribed methods.
9) The Chairman should be independent
on appointment.
11) At least half the Board, excluding the
Chairman, should be Non-Executive
Directors whom the Board considers
to be independent.
NON-COMPLIANCE
REASON FOR NON-COMPLIANCE
COMPLIANCE OR PROGRESS TOWARDS COMPLIANCE
The Company did not provide the statements
required under provision 4 of the Code in respect of
the significant dissent against the 2019 remuneration
report.
During 2020, the Company did not have a director
appointed from the workforce, a formal workforce
advisory panel, a designated Non-Executive Director
nor appropriately formal alternative arrangements.
During 2020, the then Chairman, Jeremy Sinclair, was
an Executive Director and, therefore, not
independent.
The annual general meeting took place on
31 December 2020 by which time a revised
remuneration policy was already being put in
place for 2021.
Until the appointment of the new Non-Executive
Directors in February/March 2020 there were no
suitable candidates available.
The Board considered the depth of knowledge
that the previous Chairman brought to the Board
to be of significant value for a creative business.
The Company will take this provision of the Code into
account going forward as appropriate.
Louise Jackson, a Non-Executive Director, was
appointed as the designated Non-Executive Director in
March 2021. Since then the Company has complied
with this provision.
The new Chairman, Gareth Davis, was appointed at the
Company’s annual general meeting on 31 December
2020, and was independent at that time. The Company
therefore now complies with this provision.
Until the appointment of the Non-Executive Directors
in early 2020, the Company departed from this
provision.
As reported in the 2019 Annual Report and
Accounts, the Board was in a period of
reconstruction during this time.
Following the appointment of four new independent
Non-Executive Directors by March 2020, the Board
complied with the Code for the rest of the year.
Subsequent to the year end, Vin Murria was appointed
as a Non-Executive Director on 3 March 2021. She is not
considered by the Board to be independent. Therefore,
for a short time in March 2021 while Bill Muirhead was
still a serving director, Board composition once again
did not comply. Bill Muirhead stepped down from the
Board on 31 March 2021, and the Company has complied
with this provision since then.
12) Senior Non-Executive Director to be
appointed who acts as an intermediary
for other Board members and annually
appraises the Chairman’s performance.
Until 3 February 2020, there was no Senior
Non-Executive Director of the Company.
Until the appointment of the new Non-Executive
Directors in February/March 2020 there were no
suitable candidates available.
Gareth Davis became the Senior Independent
Non-Executive Director on 3 February 2020.
Lisa Gordon then took up the role on her
appointment on 17 March 2020.
17) Nomination Committee appointed, with the
majority of members being independent
Non-Executive Directors.
The previous Nomination Committee did not have
a majority of independent Non-Executive Directors.
The previous Nomination Committee was
created on an ad hoc basis.
The Company has complied with this provision since
3 February 2020.
From 6 May 2020, the Nomination Committee was
properly constituted as required under the Code, with
a majority of independent members. The Company
has complied with this provision since then.
70
71
Corporate Governance M&C Saatchi Group Annual Report 2020 Governance Review
PROVISION OF THE CODE
(INCLUDING CODE REFERENCE NUMBER)
18) All Board members are subject to
annual re-election.
NON-COMPLIANCE
REASON FOR NON-COMPLIANCE
COMPLIANCE OR PROGRESS TOWARDS COMPLIANCE
The Company departed from the Code at annual
general meetings up until the one on 31 December
2020 as the Board members were elected on a
three-year rotation.
The election of Board members on a three-year
rotational basis reflected historical precedent.
The Company’s new Articles of Association have
been updated to take account of this matter.
In 2020, in line with the Code, all the Directors offered
themselves for re-election at the Company’s annual
general meeting. The new Articles of Association will
require Directors to retire at the Company’s annual
general meeting on the basis recommended by any
corporate governance code adopted by the Company
and, in any event require that any Director who was
not appointed or re-appointed as a Director at either
of the last two annual general meetings must retire
and (if relevant) stand for re-appointment. The Company
now complies with this provision of the Code.
19) Maximum tenure of Chairman is nine years.
The Company departed from the Code in relation
to this provision for the whole of 2020. Upon the
Company’s listing to the AIM market of the London
Stock Exchange, the previous Chairman, Jeremy
Sinclair, was appointed for an indefinite term subject
to re-election.
The Board considered the depth of knowledge
that the previous Chairman brought to the Board
to be of significant value for a creative business.
Since Gareth Davis’ appointment as Chairman at
the annual general meeting in December 2020, the
Company has complied with this provision of the Code.
21) Formal rigorous annual evaluation
No annual Board evaluation occurred during 2020.
of Board performance.
The Board evaluation was postponed to 2021 due
to the departure of half of the previous Board.
22) Results of annual evaluation of Board
performance should be acted on.
No annual Board evaluation occurred during 2020.
The Board evaluation was postponed to 2021 due
to the departure of half of the previous Board.
23) The annual report should describe the work
of the Nomination Committee, including:
• The policy on diversity and inclusion,
its objectives and linkage to company
strategy, how it has been implemented
and progress on achieving its objectives.
• How the process used in relation to
appointments and the approach to
succession planning support developing
a diverse pipeline.
26) The audit committee should provide an
explanation of how it has assessed the
effectiveness of internal audit and satisfied
itself that the quality, experience and
expertise of the function is appropriate for
the business
No discussion of the diversity and inclusion policy or
succession planning has taken place at the
Nomination Committee.
The previous Nomination Committee was
created on an ad hoc basis to discuss
appointments, these matters were instead
routinely discussed at the Board.
The Group’s internal audit function, which was
provided as an outsourced service, did not operate
during 2020.
The internal audit function was suspended when
the accounting misstatements were identified in
August 2019.
A Board evaluation was carried out in early 2021.
The results have now been received and are set out
on page 65 of this report. The Company now complies
with this provision of the Code.
The Board evaluation was carried out in early 2021 and
the Board are implementing the recommendations
for improvement from the review. The Company has
complied with this provision of the Code through 2021
and will continue to do so.
From 6 May 2020, the Nomination Committee was
properly constituted as required under the Code.
The 2021 Annual Report and Accounts will include
a complete Nomination Committee report detailing
the work of the committee.
The Audit Committee strongly believes that an internal
audit function should be a key element of the Group’s
control framework, particularly, given the complex
structure of the Group, the significant number of
small, de-centralised operations, and an incentive-
based culture. The Chief Financial Officer has been
asked to present a plan for a new internal audit
function for implementation before the end of 2021.
72
73
Corporate Governance NON-COMPLIANCE
REASON FOR NON-COMPLIANCE
COMPLIANCE OR PROGRESS TOWARDS COMPLIANCE
M&C Saatchi Group Annual Report 2020 Governance Review
PROVISION OF THE CODE
(INCLUDING CODE REFERENCE NUMBER)
32) Remuneration Committee should be
properly formed with a Chairman who,
prior to appointment, has served on
a Remuneration Committee for at least
12 months.
36) Share schemes should give awards on
a phased basis and have a holding period
of five years or more. The Remuneration
Committee should develop a formal
policy for post-employment
shareholding requirements.
38) Pension contribution rates for executive
directors should be aligned with those
available to the workforce.
The Board did not consider this provision in the
formation of the previous Remuneration Committee.
The formation of the reconstituted Remuneration
Committee was delayed until the arrival of the
new Non-Executive Directors.
The Board did not consider this provision in the
previous remuneration policy.
The Board did not consider this provision in the
previous remuneration policy.
The Board did not consider this provision in the
previous remuneration policy.
The Board did not consider this provision in the
previous remuneration policy.
40) and 41) Remuneration policy and
disclosures aligned with the Code
The Board did not consider this provision in the
previous remuneration policy.
The Board did not consider this provision in the
previous remuneration policy.
As of 6 May 2020, the Remuneration Committee was
properly constituted as required under the Code and
chaired by an individual with the requisite skill and who,
prior to appointment, had served on a remuneration
committee for at least 12 months.
The Company now complies with this provision of
the Code.
The revised remuneration policy which will be put to
shareholders at the 2021 annual general meeting will
take account of a number of these matters from that
date forward. Refer to the Directors’ remuneration
report on page 86 for more information.
Under the revised remuneration policy which will be
put to shareholders at the 2021 annual general meeting,
Executive Director pension contribution rates will be
fully aligned with the workforce by the end of 2021.
The Company will comply with this provision from
that date forward.
The revised remuneration policy which will be put to
shareholders at the 2021 annual general meeting will
take account of a number of the matters in provisions
40 and 41 of the Code from that date forward. Refer
to the Directors’ remuneration report on page 86 for
more information. The Company has not yet made
plans to engage with the workforce to explain how
executive pay aligns with wider company pay policy
but will continue to consider this going forward.
74
75
Corporate Governance M&C Saatchi Group Annual Report 2020 Report of the Audit Committee
Report of the
Audit Committee
Officer, other directors, the Company Secretary,
key members of the Group’s UK-based central
finance team, and by the external auditors, all
as required. The committee meets at least
annually with the external auditors without the
Executive Directors present.
PRINCIPAL RESPONSIBILITIES
The principal responsibilities of the Audit
Committee are:
External audit: To assess the effectiveness
of the external audit process, to review and
monitor the external auditors’ independence
and objectivity, to develop and implement
a policy for the provision of non-audit services
by the external auditors and to make
recommendations to the Board about the
appointment, reappointment and removal
of the external auditors and its remuneration
and terms of engagement.
Financial reporting: To monitor the integrity
of the Company and the Group’s financial
statements and any formal announcement
relating to the Group’s financial performance,
to review significant financial reporting
judgements, issues and estimates, and to
confirm whether, taken as a whole, the Annual
Report and Accounts are fair, balanced and
understandable.
Internal audit: To monitor and review the
effectiveness of the internal audit function and
the annual internal audit plan (where applicable).
The committee’s full terms of reference, which
are reviewed annually, are available at:
www.mcsaatchiplc.com/governance and
reflect the requirements of the UK Corporate
Governance Code 2018 (“the Code”).
Risk management and internal controls:
On behalf of the Board, to review and monitor
the effectiveness of the Group’s internal
financial controls and risk management
systems and procedures.
The Audit Committee works to a programme
aligned to key events in the financial reporting
cycle. Agendas include key audit, accounting
and reporting issues as well as standing items
required by the committee’s terms of reference.
The current Audit Committee was formed
on 3 February 2020 when Gareth Davis and I
were appointed to the Board as independent
Non-Executive Directors. Lisa Gordon and
Louise Jackson were appointed as
independent Non-Executive Directors on
17 March 2020 and joined the Audit Committee
on 6 May 2020. Gareth stepped down from
the committee following his appointment as
the Chairman of the Company in January 2021.
The Board asked me to chair the Audit
Committee on the basis of my recent and
relevant financial experience.
Throughout 2020 the principal activity of the
committee was the oversight of the 2019 audit,
which was conducted following the discovery
in 2019 of significant accounting misstatements
relating to 2018 and previous years. This audit
was not completed until December 2020. As
a result, there was only a short break before
planning for the 2020 audit could commence
and the timetable for completion of this audit
has been challenging.
The Audit Committee’s mandate is to provide
effective governance over the appropriateness
of the Group’s financial reporting and the
performance of both the internal and external
audit functions. The Audit Committee also
reviews and monitors the Group’s internal
financial control, risk management processes
and related compliance activities. Committee
meetings are attended by the Chief Financial
76
77
Corporate Governance M&C Saatchi Group Annual Report 2020 Report of the Audit Committee
ACTIVITIES OF THE AUDIT COMMITTEE
The Audit Committee held nine meetings in 2020 in connection with the 2019 audit, and a further
six meetings in 2021 for the 2020 audit. The activities of the committee in respect of the 2019 audit
are set out in the 2019 Annual Report and Accounts. The areas of focus for the committee since
the 2019 audit was completed in December 2020 have been as follows:
AREA OF FOCUS
MATTERS CONSIDERED
Financial reporting
• Significant accounting judgements, estimates and assumptions including: going
concern, revenue recognition, put option accounting, assessment of goodwill,
valuation of investments in associates and unlisted equity investments, disposals
of subsidiaries, lease accounting, exceptional items and alternative performance
measures (see details below under “Significant accounting issues and judgements”)
• Review of the Annual Report and Accounts and confirmation to the Board that it is
fair, balanced and reasonable.
External audit
• Review and approval of audit plan including key audit matters
• Monitoring implementation of the external auditors’ recommendations for
improving the efficiency of the year-end closing and audit process;
• Regular updates on audit progress;
• Review of external auditors’ report to the committee.
Internal controls
• Confirming requirement for an internal audit function to be reintroduced;
• Making recommendations for improvements in quality of resources and
structure of the Group’s accounting function;
• Monitoring roll-out of new standard Group systems and accounting policies
to local subsidiaries;
• Annual assessment of the effectiveness of the Group’s internal financial controls.
Risk management
• Reviewing management’s risk management processes and the Group risk register;
• Annual assessment of the Group’s emerging and principal risks including
disclosures in the Annual Report and Accounts.
Corporate governance
• Confirming compliance with the Code.
Other matters
• Monitoring progress of FCA investigation;
• Review of Audit Committee’s Terms of Reference.
The most significant accounting issues and judgements considered by the Audit Committee,
and discussed with the external auditors, are set out below.
SIGNIFICANT ACCOUNTING ISSUES
AND JUDGEMENTS
Going concern and viability statements
As explained on page 126, the financial
statements have been prepared on the going
concern basis. In this context, the Board and
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 economic downturn caused by the
Covid-19 pandemic, the potential for recovery
as Covid-19 restrictions are eased in 2021, the
impact of strategic initiatives to simplify the
business and improve profitability, and the
support of the Group’s lenders. Management
prepared a set of cash flow forecasts, assessing
78
different scenarios, covering the period to the
end of 2022. The Board and Audit Committee
reviewed these forecasts under each scenario,
including a severe but plausible downside
outcome, and the key assumptions on which
they are based, and are satisfied that they
are appropriate. Further details of these
forecasts and assumptions are set out in the
Directors’ Report.
In the preparation of the 2019 financial
statements the Board recognised that, under its
modelling of possible future financial outcomes,
there was a material uncertainty which may
cast doubt over the Group’s ability to continue
as a going concern without mitigating actions.
This material uncertainty arose from a potential
breach of the Group’s banking covenants under
a severe but plausible downside scenario.
As highlighted in the Financial Review on
page 39, the Group has entered into a new
three-year revolving credit facility of £47m
(£38m under the previous facility) which
terminates on 31 May 2024 and which has
two one-year extension options. With this new
facility in place, the Board has concluded that,
under all scenarios modelled by management,
the Group will have sufficient liquidity to operate
and will not breach its financial covenants under
the facility.
Based on these forecasts and assumptions,
the Board and the Audit Committee believe
that it remains appropriate to prepare the
financial statements on a going concern basis.
The Board and the Audit Committee have also
assessed the statement in the Directors’ Report
in relation to the longer-term viability of the
Group including reviewing the forecasts used
in the going concern models extended for a
further year to the end of 2023, considering the
appropriateness of this viability period, and
challenging the factors, assumptions and risks
which are critical to the Group’s viability over
this period. The Board and the Audit Committee
have concluded that the statement made
by the Directors in relation to the longer-term
viability of the Group is appropriate.
Revenue recognition
Revenue recognition is a critical accounting
policy and risk area for the Group. The Group
adopted IFRS 15 from 1 January 2018, but only
at a group level. Local subsidiaries did not
apply IFRS 15 until 2019, and even then not
on a consistent basis, which then required a
number of adjustments to be booked as part
of the consolidation process. It remained the
case during 2020 that many subsidiaries only
applied IFRS 15 as part of their year end close
process. During 2020 and 2021, a significant
amount of management time has therefore
been spent ensuring that subsidiaries within
the Group are accounting correctly under
IFRS 15.
The Audit Committee has devoted considerable
time to reviewing the many different aspects of
revenue accounting (see note 4 of the financial
statements). It is satisfied that the Group’s
accounting policies have been consistently
applied and that revenue is not materially
misstated. The committee continues to encourage
management to reinforce the correct application
of IFRS 15 at an entity level throughout the year
and this will also be a priority for the internal
audit function. The committee also confirmed
that the significant judgements disclosed in this
area in the 2019 financial statements are no
longer considered significant.
Share-based payments and
put option accounting
The Company’s strategy has been to grow
organically rather than by acquisition. This
has traditionally been achieved by launching
new businesses in partnership with a local
management team. The local management
team receives an equity interest in the start-up
company at launch and has the option to sell
such equity to the Company at a future date
based on certain performance and valuation
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Corporate Governance M&C Saatchi Group Annual Report 2020 Report of the Audit Committee
criteria of the start-up company as set out in
its governing documents.
The accounting for these put option schemes
is a critical accounting policy. It is a complex
area, requiring a number of judgements and
depends on the substance and detailed terms
of the underlying arrangement. There were
approximately 60 of these schemes in place
during 2020. For the 2019 audit a comprehensive
exercise was undertaken by management to
assess each put option scheme and determine
whether it should be accounted for under
IFRS 2 (equity or cash settled) or IFRS 9, which
led to a number of prior year adjustments.
Many of the put option schemes are satisfied
using Company shares and the final number
of shares is determined by the Company’s
share price at the date of exercise. Fluctuations
in the share price have an impact on the
dilutive effect of these schemes on the
Company’s shareholders as they are exercised.
Where possible, management have been
renegotiating these arrangements to reduce
or defer the dilution. The disclosures made
in notes 25 to 27 of the financial statements
have been included to enable readers to
understand the potential future dilution from
these put option schemes at different share
prices of the Company.
The Audit Committee has considered the
key judgements and estimates made by
management in respect of these put option
schemes, in particular, the justification for
classification under IFRS 2 or IFRS 9 (and,
if IFRS 2, whether cash or equity settled),
the assessment of non-market performance
conditions, and the appropriateness of forecasts
used for valuation purposes. During the year
it was agreed to pay two put option schemes
which had previously been reported as equity
settled schemes in cash. The reclassification
had no P&L impact, but reduced equity by £1.1m
and increased trade and other payables by
80
£1.1m at the start of the year. The committee has
concluded that the judgements and estimates
applied by management to the accounting for
these put option arrangements are reasonable,
and that the related disclosures in the notes to
the financial statements are appropriate.
Goodwill carrying value and impairment
The carrying value of goodwill as at
31 December 2020 was £33.5m (2019: £33.6m),
full details of which are set out in note 14 of the
financial statements. The recoverable amount
of goodwill is determined by management by
reference to a value-in-use calculation for each
cash generating unit (CGU), based on the
Board approved 2021 budget and 5-year
approved plans and based on a residual
growth rate of 1.5%. These forecasts were
prepared as recently as January 2021 and
have been updated for any significant
variations from current year performance
against budget. Management also prepares
sensitivity analyses for each CGU, for which the
key variables are the forecast profits for 2021,
the expected future growth rates, and the
discount rate used to measure the present
value of the forecast cash flows.
The Audit Committee has reviewed
management’s assessment of the recoverability
of this goodwill and the potential for any
impairment, taking into account the key
judgements and sensitivity analyses, particularly
in view of the uncertainty over net revenue and
cash flow forecasts arising from the Covid-19
pandemic. The committee has also reviewed
the disclosures relating to goodwill carrying
values and impairment in note 14 of the
financial statements. The committee is satisfied
with the conclusion that no impairment is
required and with the presentation of the
goodwill in the financial statements.
Unlisted equity investments (financial assets
at fair value through profit and loss)
The Group has historically invested in early
stage, unlisted businesses for the purposes
of gaining access to new technologies and
digital media trends. The portfolio consists
of 29 investments of which 22 are managed
independently by UK-based experienced
investment managers who are remunerated
based on the performance of the investments.
During the year the Group invested a further
£0.7m in new and existing businesses and sold
half of its investment in another asset for a
significant gain on its original investment. The
net revaluation adjustment was a decrease of
£3.3m, largely arising from the write-off of two
investments in UK companies that went into
administration at the end of the year and the
write-off of three investments in Australia. The
portfolio has a carrying value at the balance
sheet date of £11.4m (see note 19 of the
financial statements).
Because most of the holdings are small both
in absolute terms and as a proportion of the
issued equity of each investment, and are in
early-stage ventures, the valuations are inherently
judgemental other than when there have been
recent funding rounds.
The Board receives regular investment proposals
and portfolio valuations from the investment
managers. The Audit Committee has reviewed
the year end valuation of the portfolio. No single
investment provides a material risk and the
Audit Committee is satisfied that the judgements
made in valuing the portfolio at 31 December
2020 are reasonable.
Leases
The Group adopted IFRS 16 in 2019 which
resulted in a significant grossing up of the
balance sheet to reflect the right-of-use assets
and corresponding lease liabilities for the many
offices it occupies around the world. The strategic
restructuring undertaken in 2020, combined with
a permanent move to a more flexible working
environment, means a number of these offices,
predominantly in London, are now surplus to
requirements. An impairment charge has
therefore been taken against the right-of-use
asset associated with these leases (see note 17
of the financial statements).
In determining this impairment charge,
management has had to make a number of
judgements regarding the potential for subletting
these offices, taking into account the challenges
of an uncertain economic outlook and reduced
demand for prime location space in a post
Covid-19 world. External professional advice
was also taken.
The Audit Committee has reviewed the
judgements made by management in
determining the impairment charge and
concluded that these are reasonable in the
context of the significant uncertainties facing
the commercial office market in London.
Alternative performance measures and
exceptional items
The Audit Committee has paid particular
attention to the alternative performance
measures included in the Annual Report and
Accounts. The Group uses “Headline” numbers
to report its underlying results as well as for
internal reporting purposes. The Headline
numbers strip out the accounting impact of
equity transactions, including put options and
investments. They also exclude the impact of
exceptional items. During 2020, the Group
incurred significant one-off costs in respect of
its strategic restructuring and these have been
treated as an exceptional item (see note 2 of
the financial statements).
The committee has reviewed the Group’s policy
for the exclusion of certain items when presenting
Headline earnings and confirmed the consistent
application and appropriateness of this policy
from year to year. It has also confirmed that the
costs treated as exceptional are in accordance
with the Group’s accounting policy.
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INTERNAL AUDIT
The Group’s internal audit function, which
was provided as an outsourced service, was
suspended when the accounting misstatements
were identified in August 2019. No internal
audit has been undertaken since then.
The Audit Committee believes strongly that
an internal audit function should be a key
element of the Group’s internal control
framework, particularly given the complex
structure of the Group, the significant number
of small, de-centralised operations, and an
incentive-based culture. The Chief Financial
Officer has been asked to present a plan for a
new internal audit function for implementation
before the end of 2021.
EXTERNAL AUDITOR AND
AUDIT EFFECTIVENESS
PricewaterhouseCoopers LLP were first
appointed as the external auditors of the
Group and the Company in September 2019,
and were reappointed at the annual general
meeting held in December 2020. The
PricewaterhouseCoopers LLP partner
responsible for the audit is Nigel Reynolds
(Senior Statutory Auditor).
The Audit Committee is responsible for monitoring
the external audit process to ensure high
standards of quality and effectiveness. The
committee has satisfied this objective through
a number of measures and interactions taken
throughout the period, including:
• Reviewing the audit plan, scope, materiality
and resources – continuity of the audit team
has been an important factor after the
challenges of the 2019 audit.
• Monitoring the independence and
transparency of the auditors (see below).
• Frequent meetings between the Audit
Committee chair and the audit partner
• Meetings of the audit partner with the Audit
Committee, and with the Company Chairman,
both without the Executive Directors present.
• Obtaining feedback from the Chief Financial
Officer and his team on the quality of the
audit team, their understanding of the
business and its risks, and the quality of their
judgements and communications.
• The Lintstock independent board review
specifically considered the effectiveness
of the Audit Committee in reviewing and
assessing the work of the external auditors,
and this was rated highly.
These steps have enabled the committee
to be satisfied with the effectiveness of the
external audit.
The external auditors’ report to the Directors
and to the Audit Committee has confirmed
that they remained independent throughout
the 2020 audit, and the committee concurs
with this view.
To help safeguard the external auditors’
objectivity and independence, it is excluded
from providing any non-audit services that
individually, or in aggregate, could impair its
independence. Prior approval from the Audit
Committee is required for any provision of
audit-related or other services taking into
account the relevant professional and
regulatory requirements. The fees paid to
PricewaterhouseCoopers LLP in respect of
non-audit services are shown in note 6 of the
financial statements.
The fee for the 2020 audit of the Group and
its subsidiaries is £2.6m (2019: £3.2m). The
decrease in the fee from the previous year
reflects the smoother 2020 audit as a result of
improvements in financial controls, processes
and reporting.
Since their appointment as external auditors,
PricewaterhouseCoopers LLP have worked
constructively with the Group to address the
issues raised by the accounting misstatements
identified in early 2019, which related to the
financial statements for 2018 and earlier.
During this period, the auditors, as part of their
audit work, have identified many areas for
improvement in the Group’s internal financial
controls and financial reporting processes, and
the Group continues to respond positively by
implementing the auditors’ recommendations.
After two challenging audits, both parties
have now agreed that it makes sense for
new external auditors to be appointed.
PricewaterhouseCoopers LLP will therefore
not be seeking reappointment as the Group’s
external auditors at the Company’s forthcoming
annual general meeting. The Company is in the
process of appointing new external auditors
for its 2021 financial year end and a resolution
to appoint the new external auditors shall be
set out in the Company’s notice of annual
general meeting.
EFFECTIVENESS OF THE GROUP’S SYSTEM
OF INTERNAL CONTROLS AND RISKS
The Audit Committee is responsible for
reviewing the adequacy and effectiveness of
the Group’s internal financial controls and
internal control and risk management systems.
The accounting misstatements identified in
2019 highlighted a number of weaknesses in
the Group’s internal financial controls.
Steps were taken during 2020 to address these
financial control weaknesses including the
continued roll-out of new, standardised finance
systems across all Group entities, the push down
of Group accounting policies to local entities,
investment in resources and skills within the
Group finance function, and a shift from a
de-centralised operating culture to one with
more robust central control, oversight and
accountability. These improvements have all
been monitored and reviewed by the Audit
Committee for effectiveness.
Nevertheless, the 2020 audit again identified a
significant number of errors in the draft numbers
and continuing control weaknesses, and it is
clear that the Group’s internal financial controls
have not been fully effective during the year.
The quality of financial reporting from the
subsidiary entities is a particular area of
concern to the committee. To compensate
for this weak control environment, the central
finance team have had to undertake significant
additional reviews and reworks of the
subsidiary reporting packs in order to obtain
the appropriate assurance around the accuracy
of subsidiary financial reporting. A priority for
the central finance team is to ensure robust
and consistent balance sheet disciplines are
embedded in the monthly reporting from all
subsidiaries, rather than being left until after
the year end for review and adjustment.
The discovery of the accounting misstatements
in 2019 was also a significant factor in the
delayed 2019 audit. Following completion of
this audit in December 2020, the external
auditors wrote to the Board setting out their
recommendations for improvements to the
Group’s financial reporting systems and
processes, in particular around the Group’s
year end reporting and preparation for audit.
The Audit Committee has monitored the
implementation of these recommendations
and while the 2020 audit has certainly been
smoother than last year, there have again
been significant delays in completing the audit
and there are still a number of areas where
improvements are required.
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Corporate Governance M&C Saatchi Group Annual Report 2020 Report of the Audit Committee
During 2021, the Audit Committee will continue
to work with management and the external
auditors to implement recommendations for
improvements in the effectiveness of the
Group’s internal financial controls and systems,
including the development of a minimum
control framework, establishing a process for
monitoring the effectiveness of these controls,
developing a more robust accountability
culture for reporting and addressing control
weaknesses, and integrating a new internal
audit function into the overall control framework.
The Audit Committee also continues to review
and update the Group’s principal risks schedule.
AUDIT COMMITTEE EFFECTIVENESS
As set out in the Board Review on page 65,
an independent evaluation of the effectiveness
of the Board and its committees was undertaken
earlier this year by the board advisory firm,
Lintstock. As far as the Audit Committee’s
effectiveness is concerned, the overall evaluation
was positive which is particularly pleasing in the
context of the previous accounting misstatements
and delays in completing the 2019 audit. The
main area identified for improvement was
the quality and timeliness of papers prepared
for the committee, and this will be addressed
in 2021.
COLIN JONES
Chair of the Audit Committee
27 August 2021
“Significant improvements have
been made in many areas
during 2020 and the new finance
systems, policies and changes in
personnel introduced across the
Group have been monitored and
reviewed by the Audit Committee
for effectiveness.”
– Colin Jones
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Corporate Governance M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
Directors’
remuneration
report
Dear Shareholder
I was pleased to be appointed Chair of the
Remuneration Committee in April 2020 as the
Company established a formal Remuneration
Committee. A committee had not existed for
a number of months, and as an AIM listed
Company, had only operated informally prior
to that. The new committee now consists of my
fellow independent Non-Executive Directors,
Lisa Gordon and Colin Jones, and by standing
invitation, Gareth Davis and Vin Murria attend
our meetings. We are independently advised
by Korn Ferry, who are members of the
Remuneration Consultants Group and advise
in accordance with their Code of Conduct.
I would like to take this opportunity to thank
our senior leaders and their teams for their
commitment to our clients and the business,
their focus on delivering excellence and their
resilience during what has been the most
challenging of years. A year during which we
set out on a journey of strategic change and
development. We believe our remuneration
framework is very much aligned with that new
vision and strategy and puts shareholder
interests at its heart.
The work of the committee over the past year
has focused on establishing good governance,
process and policy in support of the shift across
the whole business to a more robust governance
framework. It, with support from Korn Ferry, has
also completed a thorough review of all incentive
arrangements of the Executive Directors. Based
on Korn Ferry’s recommendations, the Company
has formulated a new policy for the remuneration
of the Executive Directors.
Although, as an AIM listed Company we are not
obliged to, we seek to implement the provisions
of the Code and ensure our remuneration
arrangements align with best practice. This starts
with resolutions to approve a new Directors’
Remuneration Policy and the Directors’
Remuneration Report at the forthcoming
annual general meeting.
ALIGNMENT WITH VISION AND STRATEGY
Our vision is to navigate, create and lead
meaningful change for our clients and the
world. We will achieve this by being a creative
company that connects specialist expertise
through data and technology. This requires us
to operate in an increasingly more connected
and global way, through five specialist divisions,
fuelled by our growth platform. We have
developed a Remuneration Policy and
framework that supports this vision and strategy
directly. Key targets set out during the Capital
Markets Day included;
• Net revenue growth of 6% CAGR
(FY 2020 to 2025).
• Operating profit growth of >25% CAGR
(FY 2020 to 2025).
• Strong operational leverage and tight
cost control.
• A Group operating margin of 18% by 2025.
I will describe later how our LTIP arrangement
and the bonus speak directly to these measures.
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
THE EXECUTIVE TEAM
We have now seen the retirement of the three
original founders of the Company Bill Muirhead,
David Kershaw and Jeremy Sinclair and the
appointment of our new Chief Executive Officer,
Moray MacLennan. No exit payments were
made to the three founders in relation to their
departures, but a contribution to enable their
individual private health insurance arrangements
to continue was agreed with each. These
amounts are disclosed in this report. They each
remain shareholders of the Company.
Having served with the business for over 20 years,
Moray MacLennan provides much needed
continuity and stability during a time of incredible
change. He has also been the lead architect of
a new vision, strategy and change roadmap
for the business. A new central executive team
has been formed, that will drive performance
and delivery against this strategy. A new Global
Chief People Officer role has been created, and
we are delighted to welcome Mark Dickinson-
Keen in that role. Through 2021 and beyond,
Mark will continue the full review of remuneration
and reward throughout the Group, ensuring
market benchmarks are fully considered in
any proposed changes. He will work alongside
Mickey Kalifa, Chief Financial Officer, Tim Duffy,
Director of Strategy, Wendy Dixon, Chief Growth
Officer and Victoria Clarke, General Counsel
and Company Secretary. The Remuneration
Committee is responsible for both Board
Directors’ remuneration as well as the
remuneration of Executives who form the
membership of the Group’s Executive Committee.
On appointment to the Board and as Chief
Executive Officer from 1 January 2021, Moray’s
salary was changed from £600,000 to £650,000
per annum. His pension contribution is fully
aligned with that available to the wider
workforce at 6%.
Mickey Kalifa was recruited during 2019 at a
time of great uncertainty for the business. This
included an entitlement to 200% of salary in
cash as an LTIP each year for four years,
the first two of which (2019 and 2020) had
no performance criteria attached. The final
two (2021 and 2022) were to have only one-
year performance periods. The Remuneration
Committee has worked with Mickey to adjust
these previously agreed contractual entitlements
to better align them with shareholder interests.
We are grateful to Mickey for agreeing to make
significant changes to his contractual position.
It has therefore been agreed that the cash
LTIPs already granted (2019 and 2020) will
convert into restricted shares, with vesting
dates and standard holding periods applied,
as Mickey is an Executive Director. Moving
forward, Mickey’s LTIP opportunity will reduce
over time, be performance tested over three
years (not one year) along with other
Executives, and have two-year holding periods.
LTIP opportunity:
• 2021: 200% of salary
• 2022: 150% of salary
• 2023: 100% of salary
In addition, Mickey received a 25% salary
increase at the end of February 2020, again
as part of a historical agreement made by the
three founders. This increased Mickey’s salary
from £300,000 to £375,000 per annum.
He also received a maximum bonus (of 75% of
base pay) for 2019 performance, a decision
taken prior to the formation of this committee.
The committee has agreed that there will be
no further salary increases for either Executive
Director in 2021. Although both Moray and
Mickey worked incredibly hard and achieved a
tremendous amount in the year, the committee
did not feel that it would be appropriate to award
a bonus to them in respect of 2020. Many of our
stakeholders’ experiences were not what we
would want them to have been during the year
and to their credit, both Executive Directors
fully accepted the committee’s decision. We are
grateful to them both for the leadership and
great example they have shown in these
challenging times.
COVID-19 IMPACT ON REMUNERATION
AND ENGAGEMENT
It should be noted that many of our employees,
including our senior leaders, the Executive Team
and the Non-Executive Directors, undertook
a voluntary salary sacrifice of 20% for a period
of three months. This saved the organisation
approximately £1m and helped to preserve
jobs. A further factor in the preservation of
jobs was the decision to claim under the UK
Government Job Retention Scheme at the
height of the crisis. With the business in good
health, this money has been fully repaid.
The business did an outstanding job at
maintaining employee engagement and
ensuring professional, social and wellbeing
support during the Covid-19 pandemic. Given
the federated nature of the business, both in
terms of specialism and geography, examples
of this support vary across the Group. However,
they include the introduction of a real-time
‘happiness index’, virtual wellbeing events
including meditation and exercise classes and
the provision of online wellbeing advice and
counselling services.
Formal monitoring of engagement to date has
been a localised activity. Moving forwards we
will be reviewing whether a company-wide
approach to this may bring benefits.
In addition, I have been named as Non-Executive
Director with responsibility for workforce
engagement and through 2021 will be working
with the Chief People Officer to establish
mechanisms for me to engage directly with
employees across the business.
We have also appointed a Head of Diversity,
Equity and Inclusion who is currently launching
a formal strategy within the UK businesses that
places diversity, equity and inclusion at the heart
of how we think and operate. This strategy will be
globalised in future. The UK Group companies
also have six employee led networks who work
closely with colleagues and business leaders to
foster an inclusive culture. They cover important
issues including gender, parent and caring
responsibilities, race, LGBTQ+, physical and
mental health and those new to the industry.
The Group is intending to extend a number of
these employee led networks internationally.
SHAREHOLDER ENGAGEMENT
We are very conscious of the benefits from and
need to fully engage with our shareholders on
all key matters moving forward and are
committed to doing so. The voting result on the
2020 remuneration report is set out below. We
spoke with a number of shareholders to explain
the Company’s position and have received
extensive feedback and insight on areas to
consider in the design of a new framework.
We believe we have reflected those views.
We anticipate that this will be a year of executing
a new remuneration policy and framework and
will consult internally and with our shareholders
on its effectiveness in 2022, allowing a full year
of implementation.
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
REMUNERATION POLICY 2021
This is set out in a standard format in the
report and contains the normal elements of
fixed and variable pay. The bonus and long
term incentives are capped by reference to
salary, and directors have shareholding
guidelines. Pay in 2021 is therefore more
closely aligned to shareholders’ interests.
The bonus will be a key driver in incentivising
in-year performance in line with financial
goals shared externally, with targets being set
for Headline profit before tax (50%), revenue
(25%) and the achievement of critical personal
objectives (25%).
The LTIP will focus on driving longer term
performance aligned to the financial goals
shared externally, with targets being set for total
shareholder return (70%) and Headline profit
before tax (30%). The committee understands the
importance of simplifying the series of complex
remuneration and ownership structures that
exist across the Group and thereby reducing the
level of minority interests. When this is sufficiently
underway, the committee will be in a position
to use Headline earnings per share as a
performance measure, rather than Headline
profit before tax, in long term incentives.
The policy provides structure and transparency
over the way that our Directors’ incentives are
determined and reported.
LOUISE JACKSON
Chair of the Remuneration Committee
27 August 2021
COMMITTEE COMPOSITION
This section details the Remuneration
Committee’s composition and activities
undertaken over the past year.
Committee members
The current committee members and the
dates they joined the committee are:
• Louise Jackson (Chair) 17 March 2020
• Lisa Gordon 17 March 2020
• Colin Jones 17 March 2020
• Gareth Davis 17 March 2020 until he was
appointed Chair of the Board
No directors are involved in determining their
own remuneration. The committee may invite
other individuals to attend all or part of any
committee meeting, as and when appropriate
and necessary, including the Chief Executive
Officer and external advisors.
Role
The Remuneration Committee is a committee
of the Board. The committee has responsibility
for determining the remuneration of the
Company’s Executive Directors, the Chair and
selected senior executives, taking into account
the need to ensure Executives are properly
incentivised to perform in the interests of the
Company, its people and its shareholders.
The Remuneration Committee’s key
responsibilities are:
• Shaping and agreeing with the Board the
policy framework for the remuneration of
Executive Directors and certain aspects of
the remuneration of senior management.
• Determining the total individual remuneration
package of each Executive Director with due
regard to the performance of the individual,
in line with the agreed remuneration policy.
• Agreeing Executive Directors’ contractual terms.
• Acting on behalf of the Board in connection
with the establishment and administration of
the Company’s current and/or future share
plans, including the selection of participants,
determining the structure of awards and the
setting of performance targets.
• Drafting and approving any remuneration
related resolutions to be put to the shareholders
at the Company’s annual general meeting.
The committee formally met once during
2020. The main purpose of the meeting was to
agree the remuneration of the Chief Executive
Officer on his appointment and to consider the
structure of incentive arrangements for 2021.
The committee has met on numerous occasions
in 2021 which will be referred to in detail in the
2021 Annual Report and Accounts.
Advisors
The committee has appointed Korn Ferry to
provide independent remuneration consultancy
services to the Group and Addleshaw Goddard
to advise on employment law and share
incentives. Korn Ferry is a member of the
Remuneration Consultants’ Group and, as such,
voluntarily operates under the code of conduct
in relation to executive remuneration consulting
in the UK. The code of conduct can be found at
www.remunerationconsultantsgroup.com.
The total fee for advice provided to the committee
during the year was £56,137 (2019: £29,000).
The committee is satisfied that the advice it has
received has been objective and independent.
90
91
Corporate governance • Proportionality – there is a clear link between
individual awards, delivery of strategy and
long term performance. In addition, the
significant role played by incentive/’at-risk’
pay, together with the structure of the
Executive Directors’ service contracts, ensures
that poor performance is not rewarded;
• Alignment to culture – the executive pay policies
are fully aligned to the Company’s culture.
M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
Shareholder considerations
The Company is committed to ongoing shareholder dialogue and takes an active interest in feedback
it receives from its shareholders and voting outcomes. The voting results from the annual general
meeting held in 2020 on the resolution to approve the Remuneration Report are set out below.
Voting results from the annual general meeting held in 2020
For
Against
Withheld
Total votes as
% of issued
share capital
Approval of the 2019
Remuneration report
(2020 annual general meeting)
77.1%
(62,843,120)
22.9%
(18,652,232)
8,384,561
77.6%
A vote withheld is not a vote in law and is not counted in the calculation of the votes for or against a resolution.
DIRECTORS’ REMUNERATION POLICY
This section sets out the Company’s Directors’
Remuneration Policy (the “Remuneration Policy”).
The Remuneration Policy has been developed
taking into account the regulations applicable to
main market listed companies*, the principles
of the 2018 UK Corporate Governance Code
and relevant UK institutional investor guidance.
Whilst the Company is listed on AIM and is
therefore not required to comply with the
requirements for Main Market listed companies,
the Board and committee have chosen to
follow these requirements insofar as is possible
and practicable for the Company.
The Remuneration Policy will be subject to an
advisory shareholder vote at the Company’s
annual general meeting to be held in 2021,
and if approved will be applicable for (and
including), the financial year ending 31 December
2021 onwards.
Key principles of the Remuneration Policy
The Company is committed to ensuring that its
remuneration practices enable the Company to
appropriately compensate employees for the
services they provide to the Company, attract
and retain employees with skills required to
effectively manage the operations and growth
of the business and motivate employees to
perform in the best interests of the Company.
The Company’s remuneration principles
ensure that:
• The Company offers a suitable package to
attract, retain and motivate people with the
skills and attributes needed to deliver the
Company’s business goals;
• The Company’s policy and practices aim to
drive behaviours that support the Company
strategy and business objectives; and
• The Company’s incentive plans are linked to
Company and individual performance to
encourage high performance from employees
both at an individual and collective level.
These policy objectives will be achieved by
ensuring remuneration is reflective of applicable
market conditions, Statutory obligations and
the level of accountability (responsibility,
objectives, goals) assigned to the provision of
incentives to deliver outstanding performance,
whilst providing organisational flexibility and
operational efficiency.
In addition, the Remuneration Policy is designed
taking into account the following principles of
the Code:
• Clarity – the Remuneration Policy is well
understood by the management team and is
clearly articulated to shareholders;
• Simplicity – the committee is mindful of the
need to avoid overly complex remuneration
structures which can be misunderstood and
deliver unintended outcomes. Therefore, one of
the committee’s objectives is to ensure that the
executive remuneration policies and practices
are as simple to communicate and operate
as possible, while also supporting strategy;
• Risk – the Remuneration Policy is designed
to ensure that inappropriate risk-taking is not
encouraged and will not be rewarded. This is
done via (i) the balanced use of both short
and long term incentive plans which employ
a blend of financial, non-financial and
shareholder return targets, (ii) the significant
role played by equity in the incentive plans
(together with shareholding guidelines) and
(iii) recovery provisions;
• Predictability – the incentive plans have
clearly defined performance conditions
setting out the metrics and targets required
to be met to achieve defined levels of pay;
*
Large and Medium-size Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, as amended.
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REMUNERATION POLICIES
PURPOSE
Base Salary
Provide a base level of
remuneration to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
Benefits
Provide a market competitive
level of benefits to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
Pensions
Provide appropriate levels of
pension benefits to support
recruitment and retention of
Executive Directors with the
necessary experience and
expertise to deliver the
Company’s strategy.
OPERATION
OPPORTUNITY
PERFORMANCE MEASURES
Salaries are normally reviewed annually with any changes typically
effective from the beginning of the financial year.
When determining an appropriate level of salary, the committee considers:
• remuneration practices within the Company;
• the performance of the individual Executive Director;
• the experience and responsibilities of the Executive Director;
• the general performance of the Company;
• salary level prior to appointment;
• salaries paid by comparable companies; and
• the economic environment.
The Executive Directors may receive benefits which include, but are not
limited to, car allowance and related benefits, family private health
cover, critical illness cover, life assurance cover, income protection and
accident/sickness/business travel insurance (including tax payable if any).
Other benefits such as relocation allowances may be offered if
considered appropriate and reasonable by the committee.
Any reasonable business-related expenses can be reimbursed in
accordance with the Company’s expenses policy, including the tax
thereon if determined to be a taxable benefit.
The Executive Directors may participate in any all-employee share plans
operated by the Company, on the same terms as other employees.
The Company may provide pension contributions in the form of a
salary supplement and/or as an employer contribution to a defined
contribution pension plan.
Increases will normally be in line with average increases made
to the wider employee workforce, although in exceptional
circumstances larger increases may be provided, for example,
to reflect a change in role/responsibilities.
None, although individual and
corporate performance is taken
into account during any annual
salary review.
Individuals who are recruited or promoted to the Board may,
on occasion, have their salaries set at a lower level with larger
increases provided as they gain experience.
The maximum will be set at the cost of providing the benefits described. None
For the Chief Executive Officer and any new Executive Directors, the
maximum pension contribution as a percentage of basic salary will
be in line with the contribution level provided to the majority of the
workforce (currently 6% of salary).
None
The Chief Financial Officer’s maximum pension contribution is 8% of
salary, which is the rate he receives for 2021. His pension contribution
will be aligned with the workforce rate by the end of 2021.
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PURPOSE
OPERATION
OPPORTUNITY
PERFORMANCE MEASURES
Group annual bonus
The Group annual bonus plan
provides an incentive to the
Executive Directors linked to
achievement in delivering
goals in a sustainable manner
that are closely aligned with
the Company’s strategy
and the creation of value
for shareholders.
Performance measures, weightings and targets are reviewed and
set annually by the committee, in line with the Company’s strategic
objectives at that time.
Levels of award determined by the committee after the year end will be
based on performance against the targets set, based on audited results,
unless otherwise noted. The committee retains overriding discretion to
adjust the outcome upwards or downwards, where the formulaic
outcome is, in the view of the committee, not a fair and accurate
reflection of business performance.
The bonus may be paid wholly in cash, or the committee may determine
that a portion of the bonus should be delivered in deferred shares.
Malus and clawback provisions apply such that in certain circumstances
the committee may withhold or recover bonus payments.
The maximum bonus opportunity is 100% of salary.
For 2021, the Chief Executive Officer’s annual bonus opportunity is
100% of salary and the Chief Financial Officer’s bonus opportunity
is 75% of salary.
No more than 25% of the relevant portion of the bonus is payable for
delivering a threshold level of performance rising to full payout of the
relevant portion for delivering in line with the maximum target. No more
than 50% of the relevant portion is payable for delivering a target level
of performance.
Long Term Incentive Plan (LTIP)
Awards are designed to
incentivise the Executive
Directors to maximise returns
to shareholders by successfully
delivering the Company’s
objectives over the long term
in a sustainable manner.
Awards may be granted annually to Executive Directors under the LTIP.
For 2021 onwards, the maximum annual grant level is 200% of salary.
The awards normally vest no earlier than the third anniversary of grant
and only to the extent the performance conditions have been satisfied.
The Chief Executive Officer will be granted an award over shares to
the value of 150% of salary in 2021.
The committee retains overriding discretion to adjust the outcome
upwards or downwards, where the formulaic outcome is, in the view of
the committee, not a fair and accurate reflection of business performance.
The Chief Financial Officer will be granted an award over shares to
the value of 200% of salary in 2021 and 150% of salary in 2022 under
the LTIP.
A two-year holding period will normally apply to the vested shares
such that the shares may not be sold by the Director during this period
other than to settle tax liabilities in relation to those shares.
No more than 25% of the relevant portion of an award will vest for
delivering a threshold level of performance rising to full payout of
the relevant portion for delivering in line with the maximum target.
Malus and clawback provisions apply such that in certain circumstances
the committee may withhold or recover LTIP payments.
Performance measures will be
set to support the strategy based
on a range of key financial and
personal/strategic objectives.
For 2021, at least 50% of the
bonus will be based on Group
financial metrics and no more
than 25% will be based on
personal objectives.
For 2021, the bonus will be
based on Group Headline
profit before tax targets
(50% weighting), revenue targets
(25% weighting) and personal
objectives (25% weighting).
The targets and performance
against them will be disclosed
in the relevant annual report and
accounts following the end of the
performance period.
Performance measures are set
by the committee over a three-
year period prior to the grant
being made.
At least 50% of the LTIP will
be based on Group financial
and/or total shareholder return
(“TSR”) metrics.
2021 awards will be assessed
against TSR performance versus
the FTSE SmallCap Index (70%
weighting) and Headline profit
before tax (30% weighting).
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PURPOSE
OPERATION
CFO Recruitment Long Term Incentive Plan (CFO LTIP)
The award was designed to
recruit and retain the CFO.
To meet best practice this
has been revised with the
CFO’s consent.
Shareholding requirement
To support long term
commitment to the Company
and the alignment of Executive
Director interests with those
of shareholders.
Chair and Non-Executive Directors
To provide a competitive fee
for undertaking the role which
is sufficient to attract high
calibre individuals to the role.
Cash awards were made on recruitment covering 2019 and 2020 and
will be converted into restricted share awards over the Company’s
shares using the average closing price of a Company share for the
45 days prior to 20 August 2021.
The restricted share awards normally vest in early 2023 and 2024 in
the amounts of shares to the value of £817,000 and £508,000 subject
to continued employment.
The committee has adopted shareholding guidelines that encourage
the Executive Directors to build up and then subsequently hold a
shareholding equivalent to a multiple of their base salary.
The requirement for an Executive Director to maintain a holding of
100% of salary for a year after leaving excludes any shares purchased
by the director.
The committee retains discretion with respect to the operation of the
shareholding requirement.
Fees are structured as follows:
• The Chairman is paid an all-inclusive fee for all Board
responsibilities.
• Non-Executive Directors are paid a basic fee, plus additional fees for
additional responsibilities such as chairing Board Committees
The Chairman’s fee is determined by the committee with the
Non-Executive Directors’ fees being determined by the Board.
Additional fees may also be paid to the Chairman and/or
Non-Executive Directors on a per diem (or other) basis to reflect
increased time commitment in certain limited circumstances.
Fees are normally paid in cash.
Any reasonable business-related expenses can be reimbursed,
including the tax thereon if deemed to be a taxable benefit.
Non-Executive Directors are encouraged to build a shareholding equal
to at least 1 x their annual fees. Whilst there is no time limit for this, it is
hoped that this will occur by the end of their second three-year term.
OPPORTUNITY
PERFORMANCE MEASURES
The cash awards made in relation to 2019 and 2020 equal £600,000
and £725,000 respectively, which will be converted into restricted
share awards. No further awards will be made under this plan.
The 2019 and 2020 awards are not
subject to performance conditions.
Executive Directors are required to build up and hold a shareholding
equivalent to 200% of salary and then retain a holding of 100% of
salary for the year after leaving.
None
Overall fees will not exceed the maximum in the Company’s Articles
of Association.
None. The Non-Executive
Directors are not entitled to
receive any remuneration
which is performance related.
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REMUNERATION COMMITTEE DISCRETION
The committee retains discretion to make any
payments, notwithstanding that they are not
in line with the policy set out above, where the
terms of the payment were agreed (i) before the
policy came into effect, or (ii) at a time when
the relevant individual was not a director of the
Company and, in the opinion of the committee,
the payment was not in consideration of the
individual becoming a director of the Company.
The committee will operate the variable pay
plans (i.e. Group annual bonus plan, Long Term
Incentive Plan and CFO LTIP) according to their
respective rules. The committee retains certain
discretion in respect of the operation and
administration of these arrangements which
include, but are not limited to, the following:
• the participants;
• the timing of the grant of an award or payment;
• the size of an award;
• the determination of the extent to which
performance measures have been met and
the corresponding vesting or payment levels;
• discretion required when dealing with a
change of control or restructuring of the Group;
• determination of the treatment of leavers based
on the rules of the respective arrangement and
the appropriate treatment chosen, including
the pro rating of awards;
• adjustments required in certain circumstances
(e.g. rights issues, corporate restructuring events
and special dividends);
• the annual review of performance measures,
weighting and targets from year to year; and
• whether an award is over cash or shares and
if shares, the manner in which share awards
can be satisfied (i.e. through the use of new
issue, market purchased or treasury shares or
by way of a cash payment).
In addition, the committee retains the ability to
adjust the targets and/or set different measures
if events occur (e.g. a material acquisition and/
or divestment of a Group business) which cause
it to determine that the conditions are no longer
appropriate and the amendment is required so
that the conditions achieve their original purpose
and are not materially less difficult to satisfy.
MALUS AND CLAWBACK PROVISIONS
Both the bonus and LTIP contain malus and
clawback provisions under which the committee
may determine the relevant claw back amount
two years after the date of vesting in respect of
the LTIP and two years after the date of payment
in respect of the bonus. Circumstances that give
rise to malus and clawback provisions include
misstatements of results, gross misconduct,
vesting calculations based on error, significant
reputational damage and corporate failure.
RECRUITMENT POLICY
The remuneration arrangements for a new
Executive Director would normally be in line
with the terms of the Remuneration Policy and
would be set taking into account the specific
circumstances of the individual. In addition, the
committee may offer additional remuneration
to replace remuneration forfeited on leaving
a previous employer.
Where a position is filled internally, the
committee may honour any pre-existing
remuneration obligations or outstanding
variable pay arrangements in relation to
the individual’s previous role such that these
shall be allowed to continue according to the
original terms (adjusted as relevant to take
account of the Board appointment).
For internal and external appointments, the
Committee may agree that the Company will
meet certain relocation and/or incidental
expenses as appropriate.
Service contracts and cessation
of employment
Service contracts may be terminated by either
the Company or an Executive Director with
no more than 12 months’ notice. The Company
may determine to make a payment in lieu of
notice in respect of salary and contractual
benefits only.
The treatment of outstanding variable pay
schemes shall be determined by the
committee taking into account the time
employed during the respective performance
periods and the circumstances of departure. In
doing so the committee will fulfil its duty to
seek to ensure that there is no reward for
failure and in doing so not paying more than is
necessary whilst acting fairly and reasonably
to all parties.
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
Annual remuneration report
This section summarises remuneration paid out
to Directors for the 2020 financial year, and details
of how the Remuneration Policy will be implemented
in the 2021 financial year.
DIRECTORS’ REMUNERATION FOR THE 2020 FINANCIAL YEAR (AUDITED)
Director
Mickey Kalifa
David Kershaw
Jeremy Sinclair
Bill Muirhead
Gareth Davis*
Colin Jones**
Lisa Gordon
Louise Jackson
TOTAL
Base Salary/Fees
£000
2019
225
2020
344
Benefits
£000
2019
4
2020
5
Pension
£000
2019
18
2020
24
309
309
309
135
66
59
54
325
325
325
–
–
–
–
48
48
51
–
–
–
–
46
47
48
–
–
–
–
49
49
49
–
–
–
–
49
49
49
–
–
–
–
1,585
1,200
152
145
171
165
* Gareth Davis was appointed on 3 February 2020 and was paid £150,000 per annum as Deputy Chair. On his appointment as Chair on 1 January 2021 his fee
increased to £250,000 in accordance with the table below showing the fee structure for the Non-Executive Directors.
** Colin Jones was appointed on 3 February 2020. Lisa Gordon and Louise Jackson were appointed on 17 March 2020.
All Directors voluntarily accepted a pay cut to protect the business during the initial impact of the
Covid-19 pandemic. The pay cut equated to 20% of base pay for the three months of April 2020 to
June 2020 inclusive. The four Non-Executive Directors took a cut in their fees of £10,000 per annum,
pro-rated for the same period.
Annual bonus
£000
2019
225
2020
–
Long term
Incentives
£000
2019
400
2020
485
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
2019
872
420
421
422
–
–
–
–
2020
858
406
406
409
135
66
59
54
Total fixed
remuneration
£000
2019
247
2020
373
Total variable
remuneration
£000
2019
625
2020
485
406
406
409
135
66
59
54
420
421
422
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
225
485
400
2,393
2,135
1,908
1,510
485
625
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Remuneration Report
DEPARTING EXECUTIVE
DIRECTORS (UNAUDITED)
No Executive Directors departed during the year
but Jeremy Sinclair and David Kershaw left
the company on 31 December 2020 and Bill
Muirhead left the company on 31 March 2021.
As part of the negotiations around their departure,
the Company contributed towards their private
healthcare insurance costs for the next three
years. This involved an ex-gratia payment to
Jeremy Sinclair of £45,073, David Kershaw of
£36,324 and Bill Muirhead of £39,390. No other
termination payments nor payments in lieu of
notice were made.
DIRECTORS’ REMUNERATION FOR THE 2020
AND 2021 FINANCIAL YEARS (AUDITED)
Base salary
Moray MacLennan was appointed Chief
Executive Officer with effect from 1 January 2021
on a salary of £650,000. Given the position of the
Company and the wider economic environment,
the committee determined that the salary for
the Chief Financial Officer, Mickey Kalifa, will
remain at £375,000 for 2021. His salary was
increased from £300,000 on 1 March 2020 by the
Executive Directors on the Board at that time in
the absence of a Remuneration Committee.
Pension and benefits
On appointment as Chief Executive Officer,
Moray MacLennan’s pension allowance was set
at 6% of salary which is in line with the workforce
rate. Mickey Kalifa’s pension is currently at 8%
and will be aligned with the workforce rate at
the end of 2021. Benefits consist principally
of private healthcare and permanent health
insurance. Moray MacLennan also receives
a car allowance of £20,000 and fuel benefit.
The fuel benefit will cease at the end of 2021.
GROUP ANNUAL BONUS PLAN
The Executive Directors are eligible for a
performance-related bonus that is paid in
cash following the year end.
2020 Group annual bonus (audited)
The Chief Financial Officer was the only eligible
Director participating in the 2020 Group annual
bonus. No bonus payment was awarded in light
of the overall financial performance of the Group
and the committee’s desire to align executive
reward with the shareholder experience.
2021 Group annual bonus (audited)
For 2021, the Group annual bonus will be
structured in line with the Remuneration Policy.
The maximum opportunity for the Chief Executive
Officer is 100% of salary and 75% of salary for
the Chief Financial Officer. The performance
metrics and weightings are set out in the table
below. As the targets are forward-looking
these are considered commercially sensitive
by the Board and will be disclosed next year.
Measure
Headline profit before tax
Revenue
Personal objectives
Weighting
(% of bonus)
50%
25%
25%
LONG TERM INCENTIVE PLAN
The Chief Executive Officer and Chief Financial
Officer will participate in the LTIP in 2021 and
receive shares, following the end of the three-
year performance period only to the extent
that the performance targets are met and
normally that they remain employed at the
time. They are required to hold shares that vest
for an additional two-year period following
the end of the performance period.
The maximum LTIP percentage for 2021 will
be 150% of base salary for the Chief Executive
Officer and 200% of salary for the Chief
Financial Officer.
2021 LTIP AWARDS
The awards will vest to the extent performance
targets are met over the period to 31 December
2023. The performance metrics and weightings
are as summarised in the table below.
Performance measure
Headline profit before tax for 2023
Weighting
30%
Relative TSR vs. FTSE Small Cap index
70%
The targets attached to the TSR element require
performance to match the Index TSR for vesting
to start to occur rising from 0% on a straight-line
basis to full vesting for 10% per annum
outperformance of the Index. TSR is the share
price movement over the period of three years
and the value of dividends for the Company’s
shareholders. The FTSE Small Cap Index TSR
will be calculated by a financial information
provider. The same vesting scale applies to the
Headline profit before tax targets. However, as
the Headline profit before tax targets are felt
to be commercially sensitive at the current
time, these will be disclosed in a future
Directors’ Remuneration Report.
The LTIP contains malus and clawback provisions
under which the committee may determine
the relevant claw back amount two years after
the date of vesting in certain circumstances
referred to in the specific paragraph dealing
with malus and clawback.
CFO LTIP AWARDS
As part of his remuneration arrangements on
recruitment in 2019, Mickey Kalifa, the Chief
Financial Officer, was granted a long term
incentive providing annual long term incentive
grants in each of 2019, 2020, 2021 and 2022.
i. 2019 award of £600,000 (200% of salary);
ii. 2020 award of £725,000 (200% of salary);
iii. 2021 award of up to £750,000 dependent upon
the meeting of corporate performance targets
for 2021 to be set by the committee: and
iv. 2022 award of up to 200% of his 2022 salary
dependent upon the meeting of corporate
performance targets for 2022 to be set by
the committee.
The above tranches would become payable in
cash in equal thirds in early 2023, 2024 and
2025 subject to continued employment and, in
the case of the 2021 and 2022 awards subject
to the meeting of the performance conditions.
The awards were to vest in full on a change of
control, subject to the 2021 and 2022 awards
meeting their performance targets.
With his consent, the above awards were varied
to create greater alignment with shareholders
and introduce three-year performance targets
in place of the one-year targets for 2021 and
2022. The revised plan converts the 2019 and
2020 cash payments into restricted share awards
using the average closing price of a Company
share for the 45 days prior to 20 August 2021.
The restricted share awards then vest 62% in
early 2023 and 38% in early 2024. The vesting
has been calculated to replicate the anticipated
amounts and timing of the payments under
the scheme, had it not been voluntarily varied.
The 2021 award will be replaced by a grant of
200% of salary under the LTIP which will vest in
early 2024 subject to meeting the three-year
performance targets and the 2022 award will
be replaced by a grant of 150% of salary under
the LTIP which will vest in early 2025 subject to
meeting the three-year performance targets.
LTIP awards have a two-year holding period
requirement post vesting.
The committee’s view was that the changes
of introducing three-year performance in
replacement of one-year performance,
converting all awards into equity and
introducing the holding requirements and
shareholding periods were in aggregate
beneficial to the company and shareholders.
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COMPANY CHAIR AND NON-EXECUTIVE DIRECTORS’ REMUNERATION (UNAUDITED)
The fee structure for the Non-Executive Directors in respect of 2020 is set out in the table below.
Fees will remain unchanged for 2021.
Fee as at
31 December 2020
% Increase
Base fee
Chair*
Deputy Chair
Non-Executive Directors
Additional fees
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
£250,000
£150,000
£50,000
£25,000
£25,000
£25,000
n/a
n/a
n/a
n/a
n/a
n/a
* Gareth Davis was only appointed Chairman on 1 January 2021 so this fee did not apply during 2020 as he was Deputy Chair and paid £150,000.
SHAREHOLDINGS AND SHARE INTERESTS (UNAUDITED)
From 2021 Executive Directors are required to build and maintain a shareholding equivalent to
200% of their base salary.
The table below summarises the Executive Directors’ shareholdings at 31 December 2020, including
shares subject to deferral or holding period and performance conditions.
Director
Mickey Kalifa
David Kershaw
Jeremy Sinclair
Bill Muirhead
Beneficially owned
shares on 31 Dec 2020
27,985
Vested shares subject to
deferral/holding period
–
Unvested shares subject
to performance conditions
–
4,579,697
4,579,697
4,579,697
–
–
–
–
–
–
David Kershaw, Jeremy Sinclair and Bill Muirhead departed before the remuneration policy was
implemented and therefore shareholding requirements are not applicable.
None of the current Non-Executive Directors held shares in the Company in 2020, save for Vin Murria
who was not appointed to the Board until 2021. Since the end of the year, Gareth Davis, Lisa Gordon
and Colin Jones have purchased shares in the Company and own 102,720, 50,000 and 31,175
shares respectively.
Moray MacLennan owned 351 shares at 31 December 2020, the day before his appointment as the
Chief Executive Officer and an Executive Director. He subsequently purchased a further 561,798
shares on 3 February 2021.
POLICY ON EXTERNAL APPOINTMENTS (UNAUDITED)
The committee believes that the Group can benefit from Executive Directors holding approved
non-executive directorships in other companies, offering executive directors the opportunity to
broaden their experience and knowledge. Our policy is to allow Executive Directors to retain
fees paid from one external appointment. Mickey Kalifa holds a non-executive directorship at Zoo
Digital plc which is listed on the AIM market of the London Stock Exchange.
ENGAGEMENT WITH THE WORKFORCE (UNAUDITED)
The Company is committed to regularly engaging with its workforce and realises the value in
listening to and acting on employee views across the organisation.
Multiple mechanisms exist across both the Group and its individual companies in order to
facilitate this, including participative ‘all hands’ style meetings and various newsletters.
Louise Jackson has been appointed as the Board member responsible for engagement with the
workforce and will work with the Chief People Officer to ensure the Board are furnished with
qualitative and quantitative data.
At the end of 2020, all employees were asked to share their views on how they would like the
Company to be described in the future. This data has been analysed to identify key themes and
will be used to shape the Group people strategy.
PERFORMANCE GRAPH (UNAUDITED)
The chart below illustrates the Company’s total shareholder return performance compared with
the performance of the FTSE Small Cap Index, over the last ten years. The FTSE Small Cap Index
has been selected as an appropriate benchmark, as this index is being used in the targets for
long term incentives.
£
350
300
250
200
150
100
50
0
31 Dec
2010
M&C Saatchi
FTSE AIM All-Share
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
LOUISE JACKSON
Chair of the Remuneration Committee
27 August 2021
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Report
Directors’
report
The Directors present their report together
with the audited financial statements of the
Group and Company for the year ended
31 December 2020.
STRATEGIC REPORT
The Group’s Strategic report is set out on pages
2 to 51 together with the s172 statement on
pages 68 and 69. The Strategic report contains
an indication of likely future developments in
the business of the Company and the Group.
RESULTS AND DIVIDENDS
The consolidated income statement on page 132
shows the results for the year. In view of the
economic effects of the Covid-19 pandemic and
a desire to preserve cash, the Directors do not
recommend the payment of a 2020 dividend
(2019: 2.45p: £2,246,973). The Directors have
concluded that the Group’s priority, ahead of
any distribution, is to return the business to
pre-pandemic levels of profitability and earnings
and, thereafter, to grow in line with the targets
set out at the Company’s Capital Markets Day
held in January 2021. Assuming a return to
normal trading conditions, the Directors expect
to reinstate dividends from 2022.
PRINCIPAL ACTIVITY, TRADING REVIEW
AND FUTURE DEVELOPMENTS
The principal activity of the Group during the
year was the provision of marketing services.
The review of trading, future developments
and key performance indicators can be found
in the Strategic report.
GOING CONCERN
The financial information has been prepared
on the going concern basis which assumes
that the Group will continue to be able to meet
its liabilities as they fall due for the foreseeable
future, being a period of at least 18 months from
the date of signing these financial statements.
The Directors have formed their opinion after
evaluating three different forecast scenarios
extending to 31 December 2022, comprising:
1. The base case;
2. The severe but plausible downside (“SBP”)
case; and
3. The reverse stress test case.
As at 31 December 2020, the Group held net
cash of £32.7m. As at 30 June 2021, the Group
held net cash of £32.8m.
On 31 May 2021, the Company entered into a
revolving multicurrency facility agreement with
National Westminster Bank Plc and Barclays
Bank PLC for up to £47m (the “Facility”). The
Facility includes a £2.5m overdraft and the
ability to draw up to £3m as a bonding facility,
as required. The Facility is provided on a three-
year term (with two optional one-year extensions).
In all models and scenarios considered by
management, the Facility is not expected to
be fully drawn and indeed the amount drawn
from the Facility is expected to reduce over
the term.
The SBP case factors in a decline in profit before
tax of £10.1m compared to the base case plan
for the cumulative two-year period ending
31 December 2022: a £4.0m decline in profit
before tax in 2021 and £6.1m profit before tax
decline in 2022. This decline arises from the
continued uncertainty surrounding the impact
of the Covid-19 pandemic and other factors
more specific to the Group. The assumptions
in the SBP scenario are based on specific
downsides in the Group’s two largest divisions
at the same time as a general downturn
impacting revenues across the entire Group.
We have performed a reverse stress test exercise
to see how extreme conditions would need to
be for the Group to break its financial covenants
within the going concern review period. The
conditions go significantly further than the SBP
scenario and reflect a scenario that the Directors
consider to be highly unlikely. In any event, we
would undertake numerous further actions to
mitigate the impact, beyond those in the SBP
case, should such a scenario materialise.
The actions the Company would take to mitigate
the downside scenarios include:
• reducing staff and other operating expenses
to levels that align to the revenue reduction,
as demonstrated by our actions in 2020;
• placings/equity fundraising given the demand
for our shares (evidenced by the demand for
shares in the share issue in February 2021);
• continuing to take action to close loss-making
entities within the Group;
• taking advantage of government assistance,
loans and furlough monies if available and
only as required;
108
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Report
• exploiting the diversity of our business both in
terms of functional disciplines and geographic
spread which provides a hedge against the
severest of downturns. The mix of different
businesses within the Group means that we
are much less likely to face the headwinds
experienced by pureplay advertising and
marketing groups. The vast majority of the
Group’s operating profit falls outside of the
core advertising business.
• selling unlisted investments, either as a group or
individually. These are currently valued at £11.4m.
The Directors are therefore satisfied that the
Group’s forecasts, which take into account
reasonably possible changes in trading
performance, show that there are no material
uncertainties over going concern, and that under
all scenarios the Group will continue to have
sufficient liquidity and headroom to operate
within the terms of its financial covenants under
its financing arrangements. The Directors
therefore concluded the going concern basis
of preparation continues to be appropriate.
VIABILITY
The Directors assess the prospects of the Group
and appropriateness of the period used for
the assessment by taking into account various
factors, including the Group’s current position,
the nature of its business, risks to the future
success of the Group’s business model and
strategy, its principal risks, its liquidity and its
expected performance all of which have been
considered in the going concern review.
TIME HORIZON
The Directors have reviewed the period used for
the assessment and determined that a three-
year time horizon (from 31 December 2020) is
the maximum length of time the Directors can
reasonably be expected to assess the Group’s
viability at the present time. The Directors’
assessment of the Group’s viability for the next
three years has been made after evaluating
the following:
• the impact on the Group of the Covid-19
pandemic, including restrictions on businesses,
social activities and travel and the potential
impact on the markets, economies and clients
in which the Group operates;
• the relatively short-term nature of client
projects and assignments;
• the need for continuous change and
investment in our client offerings; and
• the Group’s new strategy.
This period has been chosen as it reflects the
Directors’ best estimate of the future viability
of the Company. Whilst we have built a five-
year plan, levels of uncertainty increase as
the planning horizon extends. The Group’s
planning, therefore, concentrates more closely
on the next three years. The Board, therefore,
considers a period of three years to be an
appropriate period over which to assess the
long term viability of the Company.
STRESS TEST
In testing the viability of the Company, we have
undertaken a robust scenario assessment of the
principal risks which could threaten the viability
or existence of the Company. As per the going
concern statement set out on page 108 to 110,
we scenario planned several outturns,
including a SBP case and the impact lasts the
whole of 2021 and into 2022. We also built a
reverse stress test model which involves
building further downside on top of the
downsides built into the SBP model. The
reverse stress test case showed profit before
tax declining against the SBP case by £6.8m in
2021 and by £8.0m in 2022.
110
STATEMENT
Based on the assessment explained above, the
Directors confirm that they have a reasonable
expectation that the Group will continue to
operate and meet its liabilities, as they fall due,
until at least 31 December 2023.
excluded because the Board considers them
not to be material to the Group as a whole.
Additionally, there may be risks and uncertainties
not presently known to the Directors, or which
the Directors currently deem immaterial that may
also have an adverse effect upon the Group.
However, the impacts of a series of additional
unforeseen risks such as policies on data
handling or employee welfare not being
followed or a banking crisis could result in
additional financial burdens on the Group and
may change the Board’s expectation of the
Group’s viability.
PRINCIPAL RISKS AND UNCERTAINTIES
On pages 26 to 33 we describe the Group’s
principal risks and uncertainties. We provide
information on the nature of the risk, actions to
mitigate risk exposure, the change in exposure
compared to last year and an indication of
the significance of the risk by reference to its
potential impact on the Group’s business and
financial condition. Not all potential risks are
listed on pages 26 to 33. Some risks are
FINANCIAL INSTRUMENTS
Details of the use of financial instruments by
the Group and their risks are contained in
financial risk management, note 30 of the
financial statements.
POLITICAL CONTRIBUTIONS
During the year, the Group made no political
donations (2019: nil).
DIRECTORS
The names of the Directors and details of their
careers and skills are set out on pages 60 to 64.
Details relating to Board meeting attendance
and the composition of the committees of the
Board are shown in the Governance Review
on pages 66 and 67.
The Directors of the Company who were in office during 2020 and up to the date of signing the
financial statements are detailed in the table below:
Executive Directors
David Kershaw
Mickey Kalifa
Jeremy Sinclair
Moray MacLennan*
Bill Muirhead
Non-Executive Directors
Gareth Davis
Colin Jones
Lisa Gordon
Louise Jackson
Vinodka (Vin) Murria, OBE*
* Directors who were appointed to the Board after year end.
Joined Board
Departed Board
–
31 December 2020
29 March 2019
–
–
31 December 2020
1 January 2021
–
–
31 March 2021
3 February 2020
3 February 2020
17 March 2020
17 March 2020
3 March 2021
–
–
–
–
–
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Report
The current Articles of Association of the Company
require one third of the Directors previously
appointed by shareholders in a general meeting
to retire annually at the Company’s annual
general meeting. Any Directors so retiring may
stand for re-election. The Code recommends
that all directors of listed companies should be
subject to annual re-election by shareholders.
The Directors decided to endorse this
recommendation of the Code and therefore
all the Directors retired at the annual general
meeting held in 2020 (save for those that were
departing the Company) and offered themselves
for re-election at the Company’s annual general
meeting held in 2020. The Company is amending
its Articles of Association, a resolution will be
presented to the Company’s shareholders for
approval at the Company’s upcoming annual
general meeting to be held in 2021 and those
amended Articles of Association will require
Directors to retire at the Company’s annual
general meeting on the basis recommended
by any corporate governance code adopted
by the Company and, in any event require
that any Director who was not appointed or
re-appointed as a Director at either of the last
two annual general meetings must retire and
(if relevant) stand for re-appointment.
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. Please see the section on
“Our Focus on Planet” on page 49.
In addition, the Group is involved with many
campaigns (including paid, low bono and pro
bono) that help create a socially responsible
world. Please see details on pages 47 and 48.
STREAMLINED ENERGY AND
CARBON REPORTING (“SECR”)
The UK Government’s SECR policy was
implemented on 1 April 2019. This is the first
time the Group has adopted disclosures on
energy and carbon. The table below represents
the Group’s energy use and associated
greenhouse gas (GHG) emissions from electricity
and fuel for its UK based companies for the
year ended 31 December 2020.
Scope 1
Natural gas utilised
Vehicle operations (below materiality threshold)
Fugitive emissions (HVAC refrigeration gas top up) (none declared for 2020)
Scope 2
Electricity (supplied from National Grid with REGO certs)
Electricity (supplied from National Grid without REGO certs)
Total electricity (supplied from National Grid)
Total district heat
398,862 kWh
– km
0 kg
793,057 kWh
126,562 kWh
919,619 kWh
– kWh
Corresponding emissions from activities for which the Company is responsible:
Scope 1
Natural gas utilised
Vehicle operations
Fugitive emissions (HVAC refrigeration gas top up)
Total Scope 1 emissions
Scope 2 (Dual Reporting)
Market-based emissions
Electricity (supplied from National Grid with REGO certs)
Electricity (supplied from National Grid without REGO certs)
Total electricity (Market based emissions determination)
Location-based emissions
Total electricity (supplied from National Grid, UK Grid mix factors)
Total district heat
Total gross Scope 1 & Scope 2 emissions (Market based included)
Total gross Scope 1 & Scope 2 emissions (All locational based included)
73.43 tCO2e
– tCO2e
– tCO2e
73.43 tCO2e
– tCO2e
31.41 tCO2e
31.41 tCO2e
226.35 tCO2e
– tCO2e
104.84 tCO2e
299.78 tCO2e
Energy intensity ratio
The energy intensity ratio used has been based upon the standard measure of tCO2e (gross
Scope 1 + 2) per £100,000 revenue. Based upon the 2020 turnover of £134,357,000 of the Group’s
UK companies, this amounts to:
Market based intensity ratio: tCO2e (Gross Scope 1 + 2)/£100,000 revenue
0.078 tCO2e/£100,000
Location based intensity ratio: tCO2e (Gross Scope 1 + 2)/£100,000 revenue
0.223 tCO2e/£100,000
Energy efficiency action taken in financial year
No reportable actions were taken in the reporting year. This has primarily been due to the changes
in working practices that have had to be enacted associated with the Covid-19 pandemic.
There are no previous year’s figures for energy use and GHG emissions as this is a first year report.
112
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Corporate governance M&C Saatchi Group Annual Report 2020 Directors’ Report
BUSINESS RELATIONSHIPS
The Group recognises the need to foster
business relationships with suppliers, customers
and others. Details on the actions taken to
strengthen these relationships and how the
Board considered these relationships when
making decisions can be found in our section
172 statement on page 68.
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.
WHISTLEBLOWING
Employees are encouraged to report any
potential, or apparent, malpractice or misconduct
in confidence, in accordance with the Group’s
internal whistleblowing policy. We continue to
look at innovative ways to allow our employees
to report any potential, or apparent, malpractice
or misconduct in confidence. The Group’s mobile
app, Vault, gives employees a safe space to
report any form of misconduct in the workplace,
including but not limited to harassment, bullying,
discrimination, and racism, through to fraud and
corruption. Since the end of the year, the Board
has approved a new Group wide whistleblowing
policy. This will be routinely reviewed for efficacy.
ENGAGEMENT WITH EMPLOYEES AND
OTHER STAKEHOLDER ENGAGEMENT
Ensuring that we create close collaborative
and mutually beneficial relationships with
suppliers who adopt standards consistent with
our own helps us to streamline processes,
increase savings and protect our reputation.
Information about the Company’s
engagement with employees and other
stakeholders can be found at page 68.
GOVERNANCE
Companies listed on AIM are required to adopt
a recognised corporate governance code. The
Board has selected the UK Corporate Governance
Code 2018, which can be found at https://www.
frc.org.uk/directors/corporate-governance-and-
stewardship/uk-corporate-governance-code.
We believe that it demonstrates our commitment
to enhancing the Group’s governance
arrangements as it contains principles that are
appropriate for our needs and circumstances
and it aligns with our values as a company.
We are in compliance with the majority of the
requirements of the code and the table on
pages 70 to 75 provides explanations for
where we differ.
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 UK Companies Act 2006, 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. The third party indemnity was in
force during the financial year and also at the
date of approval of the financial statements.
114
CHANGE OF CONTROL
Depending on the circumstance, some of
the put options in the Company’s subsidiary
companies are exercisable upon a change
of control of the Company.
DIRECTORS AND
SUBSTANTIAL SHAREHOLDINGS
Shareholders holding 3% or more of the
Company’s issued share capital (excluding
treasury shares) as at 18 August 2021:
Shareholders
Vinodka Murria and family
Octopus Investments Nominees Limited
Invesco Perpetual
Paradice Investment Management
Fidelity International
Herald Investment Management
Aviva Investors
David Kershaw
Jeremy Sinclair
William Muirhead
Lord Maurice Saatchi
Stonehage Fleming
Number of
ordinary shares
15,237,985
Percentage of the
Company’s issued
share capital
12.46%
12,373,380
11,110,383
10,731,511
8,831,791
5,336,433
4,864,892
4,579,697
4,579,697
4,579,697
4,124,882
4,112,465
10.12%
9.09%
8.78%
7.22%
4.36%
3.98%
3.75%
3.75%
3.75%
3.37%
3.36%
Regularly updated details of the Directors’ shareholdings and substantial shareholdings can be
found on the Company’s corporate website www.mcsaatchiplc.com.
EVENTS SINCE THE END OF THE
FINANCIAL YEAR
On 31 May 2021, the Company entered into a
revolving multicurrency facility agreement with
National Westminster Bank Plc and Barclays Bank
PLC for up to £47m (the “Facility”). The Facility
includes a £2.5m overdraft and the ability to
draw up to £3m as a bonding facility as required.
The Facility is provided on a three-year term
(with two optional one-year extensions). The
Facility replaces the Company’s £33m revolving
credit facility and £5m overdraft which were
due to terminate on 30 June 2021.
During 2020, four US Group companies
received proceeds of £2.3m under the
Paycheck Protection Program (PPP) loan
scheme. At the date of preparation of the
financial statements, three out of four of those
companies have had their loans forgiven, with
the fourth company still awaiting a decision on
its loan of £0.5m.
Following the year end, the Board appointed a
Non-Executive Director and Deputy Chair who
the Board did not consider to be independent
upon appointment. Vinodka (Vin) Murria was
appointed to the Board on 3 March 2021.
On 1 January 2021, the Board appointed Moray
MacLennan as Chief Executive Officer.
The Company issued 6,499,606 ordinary shares
on 10 February 2021 (of which part included the
acquisition of a controlling interest in its Hong
Kong associate, M&C Saatchi (Hong Kong) Ltd
and its Brazil associate, Santa Clara Participacoes
Ltda) and a further 327,239 ordinary shares on
1 April 2021 in settlement of put option obligations.
115
Corporate governance “The Group is involved with
many campaigns, including
paid, low bono and pro bono,
that help create a socially
responsible world.”
– Louise Jackson
M&C Saatchi Group Annual Report 2020 Directors’ Report
On 12 March 2021, the Group acquired a 10%
shareholding in Australie SAS, France.
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.
TREASURY SHARES
At the Company’s annual general meeting
held in 2020, the Directors were given the
authority to purchase up to 11,543,062 of the
Company’s ordinary shares. At the year end,
the Company held 485,970 of its ordinary shares
as treasury shares.
DIRECTORS’ POWER TO ISSUE SHARES
At the Company’s annual general meeting held
in 2020, the Directors were given the authority
to issue shares in the capital of the Company
up to a maximum nominal amount of £384,768
which was equivalent to approximately one third
of the total issued ordinary share capital of the
Company of which up to a maximum nominal
amount of £115,430 (which is equivalent to 10%
of the total issued ordinary share capital of the
Company), was approved to be issued for
cash on a non pre-emptive basis. During the
year, the Company issued 22,319,830 shares
to fulfil options and to acquire equity in the
Company’s subsidiary companies (see note 28
of the financial statements). The Company did
not issue any shares for cash.
SHARE CAPITAL
As at the date of the Annual Report and
Accounts, the Company had 122,743,435 (£0.01)
ordinary shares in issue. Of this total, 485,970
ordinary shares are held in treasury. Therefore,
the total number of ordinary shares in issue
with voting rights is 122,257,465.
The Company has not purchased any of its
own shares during the year.
AUDITORS
Since their appointment as external auditors,
PricewaterhouseCoopers LLP have worked
constructively with the Group to address the
issues raised by the accounting misstatements
identified in early 2019, which related to the
financial statements for 2018 and earlier.
During this period, the auditors, as part of their
audit work, have identified many areas for
improvement in the Group’s internal financial
controls and financial reporting processes,
and the Group continues to respond positively
by implementing the auditors’ recommendations.
After two challenging audits, both parties
have now agreed that it makes sense for
new external auditors to be appointed.
PricewaterhouseCoopers LLP will therefore
not be seeking reappointment as the Group’s
external auditors at the Company’s forthcoming
annual general meeting. The Company is in
the process of appointing new external auditors
for its 2021 financial year end and a resolution
to appoint the new external auditors shall be
set out in the Company’s notice of annual
general meeting.
DISCLAIMER
The purpose of the Annual Report and Accounts
is to provide information to shareholders of the
Company, and it has been prepared for, and
only for, the shareholders of the Company as a
body, and no other persons. The Company, its
Directors and employees, agents and advisors
do not accept or assume responsibility to any
other person to whom this document is shown
or into whose hands it may come, and any
such responsibility or liability is expressly
disclaimed.
The Directors’ Report has been signed by
order of the Board by:
VICTORIA CLARKE
Company Secretary
M&C Saatchi plc
Company Number 05114893
27 August 2021
116
117
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Corporate governanceCorporate governance M&C Saatchi Group Annual Report 2020 Statement of Directors’ Responsibilities
Statement
of Directors’
Responsibilities
IN RESPECT OF THE FINANCIAL STATEMENTS:
The Directors are responsible for preparing the
Annual Report and Accounts in accordance with
applicable law and regulation.
Company law requires the directors to prepare
financial statements for each financial year.
Under that law the directors have prepared the
group financial statements in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 and the company
financial statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced
Disclosure Framework”, and applicable law).
Under company law, 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
Company and of the profit or loss of the Group
for that period. In preparing the financial
statements, the Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• state whether applicable international
accounting standards in conformity with the
requirements of the Companies Act 2006
have been followed for the group financial
statements and United Kingdom Accounting
Standards, comprising FRS 101 have been
followed for the company financial
statements, subject to any material
departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates
that are reasonable and prudent; and
• prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Group and Company will
continue in business.
The Directors are also responsible for
safeguarding the assets of the Group and
Company and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s and
Company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Group and Company and
enable them to ensure that the financial
statements and the Directors’ remuneration
report comply with the Companies Act 2006.
WEBSITE PUBLICATION
The Directors are responsible for the maintenance
and integrity of the Company’s website (www.
mcsaatchiplc.com). Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
DIRECTORS’ CONFIRMATIONS
In the case of each Director in office at the
date the Directors’ report is approved:
• so far as the Director is aware, there is no
relevant audit information of which the Group’s
and Company’s auditors are unaware; and
• they have taken all the steps that they ought
to have taken as a director in order to make
themselves aware of any relevant audit
information and to establish that the Group’s
and Company’s auditors are aware of
that information.
The Statement of Directors’ responsibilities in
respect of the financial statements has been
signed by order of the Board by:
MORAY MACLENNAN MICKEY KALIFA
Chief Executive Officer Chief Financial Officer
27 August 2021
27 August 2021
118
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Corporate governance M&C Saatchi Group Annual Report 2020 Financial Statements
Financial Statements
120
121
M&C Saatchi Group Annual Report 2020 Financial Statements
122
123
Financial StatementsFinancial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
Financial
Statements
Preparation
126
Notes to the Financial Statements
148
Consolidated Income Statement
132
1. Headline results and earnings per share 148
Consolidated Statement of
Other Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement
of Changes in Equity
Consolidated Cash Flow Statement
136
138
142
144
2. Exceptional items
3. Segmental information
153
154
4. Revenue from contracts with customers
158
5. Staff costs
6. Auditors’ remuneration
7. Net finance income/(expense)
8. Taxation
9. Deferred taxation
10. Dividends
11. Disposals
12. Cash consumed by acquisitions
163
164
165
165
169
172
173
176
13. Deferred and contingent consideration
177
14. Intangible assets
15. Investments in associates
and joint ventures
16. Plant and equipment
17. Leases
18. Other non-current assets
178
182
184
186
191
124
19. Financial assets at fair value
through profit and loss (FVTPL)
20. Trade and other receivables
21. Trade and other payables
22. Provisions
23. Borrowings
24. Other non-current liabilities
25. Potentially issuable shares
26. Minority shareholder
put option liabilities
27. Share-based payments
28. Issued share capital
29. Fair value measurement
30. Financial risk management
31. Group companies
32. Related party transactions
33. Commitments
34. Post balance sheet events
35. Other accounting policies
36. New and revised standards issued
but not yet effective
Company Balance Sheet
Company Statement
of Changes in Equity
Notes to the Company
Financial Statements
37. General information
and Accounting policies
38. Investments
39. Other non-current assets
40. Trade and other receivables
41. Trade and other payables
42. Amounts due from
subsidiary undertakings
43. Staff cost
44. Related parties
45. List of registered addresses
46. Post-balance sheet events
47. Share capital
Independent Auditor’s Report
Glossary
192
192
194
194
195
197
198
199
201
210
211
213
219
230
231
231
232
233
234
236
237
237
239
239
239
240
240
240
241
242
248
248
250
266
125
Financial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
Preparation
BASIS OF PREPARATION
The financial statements have been prepared
in accordance with international accounting
standards in conformity with the requirements
of the Companies Act 2006.
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.
We have previously announced the Unaudited
Non-statutory Financial Statements for the
year ended 31 December 2020 on 30th June
2021. There is no change to the Group’s 2020
previously announced profit. A £1.1m prior
period adjustment to headline (not statutory)
profit reported in the unaudited financial
statements published on 30 June 2020 is now
not considered to be necessary, with the result
that 2019 headline profit is now the same as
the audited financial statements for the year
ended 31 December 2019. This adjustment is
no longer required as the events that changed
the accounting occurred in 2020 rather than in
the prior year. There has been a
reclassification in the 2020 balance sheet to
make corrections for two misclassifications.
Current year trade and other receivables has
increased by £1m, trade and other payables
has increased by £0.2m, resulting in an
increase in net assets by £0.8m. Accumulated
losses reduced by £0.8m. Operating cash
flows before working capital have increased
by £1.9m and movement in working capital
reduced by £1.9m, with a £1m increase in the
movement of trade and other receivables and
£0.9m decrease in trade and other payables.
GOING CONCERN
These financial statements have been prepared
on the going concern basis, as discussed in the
Directors’ Report on page 108 and the Report
of the Audit Committee (page 78).
126
The Board have concluded that under the most
likely going concern scenarios which have
been modelled and they have reviewed, the
Group will have sufficient liquidity and
headroom on bank covenants to continue to
operate for a period of not less than a year
from approving the financial statements.
The Board have formed their opinion after
evaluating three different forecast scenarios
extending to 31 December 2022, comprising:
1. The base case;
2. A severe but plausible downside case; and
3. A reverse stress test case
The severe but plausible case factors in a decline
in Profit before Tax of £10.1m compared to the
base case plan for the cumulative two year
period ending 31 December 2022: a £4m decline
in Profit before Tax in 2021 and £6.1m Profit
before Tax decline in 2022. This decline arises
from the continued uncertainty surrounding the
impact of the Covid-19 pandemic and other
factors more specific to the Group.
The reverse stress test case evaluates how
extreme conditions would need to be for the
Group to break its covenants within the going
concern review period. The conditions go
significantly further than the severe but
plausible scenario and reflect a scenario that
the Directors consider to be highly unlikely.
The Directors have also considered the impact
of climate change on going concern, taking
into account the Company’s support for Ad Net
Zero (the industry initiative to tackle climate
change led by the Advertising Association and
its members), and do not believe that there is
a significant financial impact.
The Board is satisfied that the Group’s
forecasts, which take into account reasonably
possible changes in trading performance,
show that there are no material uncertainties
over going concern, and that even under the
severe but plausible scenario the Group will
continue to have sufficient liquidity and
headroom to operate within the terms of its
banking covenants. The Board, therefore,
concluded the going concern basis of
preparation continues to be appropriate.
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.
FOREIGN EXCHANGE
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.
The accounts of each subsidiary are prepared
using the functional currency of that subsidiary.
The income statements of foreign subsidiary
undertakings are translated into pounds sterling
at average exchange rates on consolidation.
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.
CONSOLIDATION
The financial statements of the Group consolidate
the results of the Company and its subsidiary
entities, and include the 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.
Where a consolidated company is less than
100% owned by the Group, the treatment of
the non-controlling interest share of the results
and net assets is dependent on how the
non-controlling interests’ equity award is
accounted for. Where the equity is accounted
for as a share-based payment award under
IFRS 2, all dividend outflow is taken to staff
cost, and there is no non-controlling interest.
In all other cases, 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.
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.
CRITICAL ACCOUNTING POLICIES
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.
Revenue recognition
The Group applied IFRS 15 Revenue on contracts
with customers from the start of 2018.
The Group’s revenue is earned from the
provision of advertising and marketing
127
Financial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
Preparation continued
services, commission based income in relation
to media spend and commission based
income in relation to talent performance.
Revenue from contracts with customers is
recognised as, or when, the performance
obligations present within the contractual
agreements are satisfied. Depending on the
arrangement with the client, the Group may
act as principal or as agent in the provision of
these services.
See note 4 for a full listing of the Group’s
revenue accounting policies.
Put option accounting (IFRS 2 and IFRS 9)
It is common for equity partners in the Group’s
subsidiaries 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 M&C Saatchi plc
shares or cash. Dependent on the terms and
substance of the underlying agreement, these
options are either recognised as a put option
liability under IFRS 9 (note 26) or as a conditional
share award under IFRS 2 (note 27).
Under the IFRS 9 approach, a put option liability
is recognised in terms of the expected future
issue of a variable number of shares. This liability
is held at amortised cost at inception of the
agreement and remeasured at the end of each
reporting period. Both the amortisation of these
instruments and any change in the underlying
valuation of the amortised cost (driven by changes
in either the Company’s quoted share price or
underlying business performance) are recognised
in the income statement as profit or loss.
The majority of instruments accounted for
under IFRS 2 are equity settled with the cost of
the transaction measured at fair value on the
grant date. The majority of these instruments
also have non-market conditions and have the
fair value of the award re-measured annually.
The fair value is recognised over the vesting
period of the award and accumulated within
equity. Where the instruments are considered to
128
be cash settled then the fair value is recalculated
in full at each balance sheet date.
Headline results
As stated in the Financial Review (pages 34 to
40), 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
management equity holdings in the subsidiaries
they run. This results in accounting charges and
credits to the income statement for the Group’s
fair value liability of its local management’s
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 Statutory results
to Headline results.
The segmental reporting (note 3) reflects
Headline results in accordance with IFRS 8.
The items that are excluded from Headline
results are the exceptional items (which include
costs relating to the accounting misstatements
identified in 2019 and restructuring), the
amortisation or impairment of intangible assets
(including goodwill and acquired intangibles,
but excluding software) acquired in business
combinations, changes to deferred and
contingent consideration and other acquisition
related charges taken to the income statement;
impairment of investments in associates and
right-of-use assets; gain or loss on disposal
of associates and subsidiaries; revaluation of
investments in SaatchInvest and their related
costs; and the income statement impact of
put option accounting and share-based
payment charges.
Unlisted investments
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.
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. The estimates and
judgements that are 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 within the next financial year are
outlined below:
SIGNIFICANT ACCOUNTING JUDGEMENTS
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.
Minority interest put option accounting –
IFRS 2 or IFRS 9
As noted on page 128, accounting for Minority
Interest (MI) put options is a critical accounting
policy. Ascertaining whether such put options
should be accounted for under IFRS 9 or
whether the awards fall within the scope of
IFRS 2 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 given beneficially
as a result of employment. Where there is an
explicit service condition, if the award is given
to an existing employee, or, if the employee is
being paid below market value or there are
other indicators that the award is a reward for
employment, then the awards are accounted
for as share-based payment in exchange for
employment services under IFRS 2. If the scheme
is intended to be settled in equity, then the award
is accounted for as an equity settled share-based
payment and the value is recognised as an
expense in the income statement over the
shorter of the vesting period or the period of
required employment. If the scheme is intended
to be settled in cash, then the award is accounted
for as a cash-settled share-based payment
and a liability is recognised to reflect the future
cash outgoings from the business. Otherwise,
where the holder held shares prior to the Group
acquiring the subsidiary or gained the equity to
start a subsidiary using their unique skills, and
there are no indicators it should be accounted
for under IFRS 2, then the award is recognised as
a liability held at amortised cost under IFRS 9.
The valuation of these awards represents a
source of estimation uncertainty which is
discussed below.
Impairment – assessment of CGUs and
assessment of indicators of impairment
Goodwill impairment reviews are undertaken
annually or more frequently if events or
changes in circumstances indicate a potential
impairment. Finite lived assets are reviewed
for indicators of impairment (an impairment
“trigger”) and judgement is applied in
determining whether such a trigger has
occurred.
External and internal factors are monitored for
indicators of impairment: 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 chance of client gain and
internal reporting suggesting that an entity’s
future economic performance is better or worse
than previously expected.
129
Financial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
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 and assumptions”).
SIGNIFICANT ESTIMATES AND ASSUMPTIONS
The 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.
Deferred tax assets
The Group assesses the future availability of
carried forward losses and other tax attributes
by reference to jurisdiction-specific rules
around carry forward and utilisation and it
assesses whether it is probable that future
taxable profits will be available against which
the attribute can be utilised. Current forecasts
show recovery of substantially all recognised
losses within 5 years but there is estimation
uncertainty around this assessment, and its
impact is material as the Deferred Tax Asset on
losses increased by £7m during 2020.
Impairment
Management’s approach to determining the
recoverable amount of an individual asset or
CGU is based on their value in use. Value in use
calculations are compared with the carrying
value of the CGU assets. The carrying value of
the CGUs also include the Right of Use Assets
under IFRS 16. Generally, discounted cash flow
models, based on the Group’s 2021 budget,
the 5 year financial plan (presented at the
Capital Markets day in January 2021) and a
long term growth rate are used to determine
the recoverable amount for the CGUs. The
appropriate estimates and assumptions used
require judgement and there is significant
130
estimation uncertainty. The results of impairment
reviews conducted at the end of the year are
reported in note 14 for those relating to Goodwill
and note 15 for those relating to Associates.
The variables used in the assessment of the
recoverable amount include:
• Budgets, 5 year financial plans and estimated
growth rate;
• discount rate used to calculate present value
of future cash flows.
In addition, impairments have been recorded
for the right of use assets in note 17 and property,
plant, and equipment in note 16.
Fair value measurement of financial instruments
The Group holds certain financial instruments
which are recorded on the balance sheet at fair
value at the point of recognition and remeasured
at the end of each reporting period. At the year
end these relate to:
i. Equity investments at FVTPL in non-listed
limited companies (note 19); and
ii. and certain contingent consideration (note 13).
The equity investments comprise early-stage
companies and small equity holdings in a client
received in exchange for services rendered in
lieu of monetary based remuneration. No formal
market exists to trade these financial instruments
and, therefore, 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, judgement
is required to establish 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) is detailed in note 29.
Anticipated length of lease term
IFRS 16 defines the lease term as the non-
cancellable period of a lease together with
the options to extend or terminate a lease,
if the lessee is reasonably certain to exercise
that option. Where a lease includes the option
for the Group to extend the lease term, the
Group takes a view at inception as to whether
it is reasonably certain that the option will be
exercised. This will take into account the
length of time remaining before the option is
exercisable, current trading, future trading
forecasts and the level and type of any planned
capital investment. The assessment of whether
the option will be exercised is reassessed in
each reporting period if there is a significant
event or change in circumstances within the
Group’s control that affects whether the Group
is reasonably certain to exercise the option.
A reassessment of the remaining life of the
lease could result in a recalculation of the lease
liability and a material adjustment to the
associated balances.
Share-based incentive arrangements
Share-based incentives 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 the performance of a particular
entity of the Group in which the employee
holds a minority interest. The key inputs to the
pricing model are interest rates, share price
volatility and expected future performance
of the entity to which the award relates.
Management apply judgement to these
inputs, using various sources of information,
including the Group’s share price, experience
of past performance and published data on
risk-free interest rates (government gilts).
Details of awards made in the year are shown
in note 27.
OTHER ESTIMATES AND ASSUMPTIONS
Leasing estimates
Within IFRS 16 there are two estimates and such
items continue to be relevant this year for
the recognition of new leases, along with
amendments made to existing leases. These
relate to (i) determining the interest rate used
for discounting of future cash flows, and
(ii) the length of the lease term.
Derivation of the interest rate used for
discounting future cash flows
The discount rate used in the calculation of the
lease liability involves estimation. Discount rates
are calculated on a lease-by-lease basis. This
involves an estimate of incremental borrowing
costs. These will depend on the territory of the
relevant lease and hence territory risk (which
comprises both the currency used and the
risk-free rates of that country), the date of
lease inception and the lease term. The spread
of interest rates used to derive the appropriate
quantum of asset and liability to be recognised
at the inception of each lease reflects the
diversity of the Group’s lease portfolio.
131
Financial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Income
Statement
Year ended 31 December
Billings (unaudited)
Revenue
Project cost/direct cost
Net revenue
Staff costs
Depreciation
Amortisation
Impairment charges
Other operating charges
Other gains/losses
Operating loss
Share of result of and gain on disposal of associates and joint ventures
Gain on disposal of subsidiaries
Impairment of associate investment
Finance income
Finance expense
Loss before taxation
Taxation
Loss for the year
Attributable to:
Equity shareholders of the Group
Non-controlling interests
Loss for the year
Loss per share
Basic (pence)
Diluted (pence)
132
Note
1
1
5
16,17
14
14,16,17
19
1
15
11
15
7
7
1
8
1
1
1
1
1
Before
exceptional
items
£000
454,504
323,250
(97,861)
225,389
(170,056)
(11,659)
(2,275)
(3,217)
(38,324)
(2,818)
(2,960)
(113)
1,432
(895)
364
(4,363)
(6,535)
(1,893)
(8,428)
(8,407)
(21)
(8,428)
(7.73)p
(7.73)p
Year ended 31 December 2020
Exceptional
items
(note 2)
£000
–
Total
£000
454,504
–
–
–
(1,661)
–
–
–
(311)
–
(1,972)
–
–
–
–
–
(1,972)
482
(1,490)
(1,490)
–
(1,490)
323,250
(97,861)
225,389
(171,717)
(11,659)
(2,275)
(3,217)
(38,635)
(2,818)
(4,932)
(113)
1,432
(895)
364
(4,363)
(8,507)
(1,411)
(9,918)
(9,897)
(21)
(9,918)
(9.10)p
(9.10)p
Before
exceptional
items
£000
561,426
381,025
(124,590)
256,435
(189,783)
(12,449)
(2,865)
(5,874)
(50,155)
(96)
(4,787)
13,210
–
(5,210)
613
(6,233)
(2,407)
(4,268)
(6,675)
(6,642)
(33)
(6,675)
(7.36)p
(7.36)p
Year ended 31 December 2019
Exceptional
items
(note 2)
£000
–
Total
£000
561,426
–
–
(4,211)
–
–
–
(1,955)
–
381,025
(124,590)
256,435
(193,994)
(12,449)
(2,865)
(5,874)
(52,110)
(96)
(6,166)
(10,953)
–
–
–
–
–
(6,166)
1,012
(5,154)
(5,154)
–
(5,154)
13,210
–
(5,210)
613
(6,233)
(8,573)
(3,256)
(11,829)
(11,796)
(33)
(11,829)
(13.06)p
(13.06)p
133
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Income Statement Continued
Year ended 31 December
Headline results
Operating profit
Profit before taxation
Profit after tax attributable to equity shareholders of the Group
Basic earnings per share (pence)
Diluted earnings per share (pence)
Note
1
1
1
1
1
The notes on pages 126 to 131 and 148 to 233 form part of these consolidated financial statements.
Before
exceptional
items
£000
Year ended 31 December 2020
Exceptional
items
(note 2)
£000
Total
£000
Before
exceptional
items
£000
Year ended 31 December 2019
Exceptional
items
(note 2)
£000
Total
£000
11,970
8,328
1,650
1.52p
1.31p
20,572
18,282
8,073
8.95p
8.37p
134
135
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Statement of
Other Comprehensive Income
Year ended 31 December
Loss for the year
Other comprehensive loss*
Exchange differences on translating foreign operations
Other comprehensive loss for the year net of tax
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Equity shareholders of the Group
Non-controlling interests
Total comprehensive loss for the year
All items in the consolidated statement of comprehensive loss will be reclassified to the income statement.
*
The notes on pages 126 to 131 and 148 to 233 form part of these consolidated financial statements.
2020
£000
(9,918)
(289)
(289)
(10,207)
(10,186)
(21)
(10,207)
2019
£000
(11,829)
(3,281)
(3,281)
(15,110)
(15,077)
(33)
(15,110)
136
137
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Balance Sheet
At 31 December
Non-current assets
Intangible assets
Investments in associates and JV
Plant and equipment
Right-of-use assets
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
Current liabilities
Trade and other payables*
Provisions
Current tax liabilities
Borrowings
Lease liabilities
Deferred and contingent consideration
Minority shareholder put option liabilities
Net current liabilities
Total assets less current liabilities
Note
14
15
16
17
18
9
19
20
21
22
23
17
13
26
2020
£000
36,523
2,829
7,157
34,006
3,494
8,301
11,410
103,720
89,262
2,621
76,295
168,178
(124,740)
(666)
(2,019)
(41,083)
(6,250)
(1,679)
(978)
(177,415)
(9,237)
94,483
2019
re-stated*
£000
38,207
3,780
9,455
46,542
3,923
5,285
14,851
122,043
107,849
5,956
68,981
182,786
(134,721)
(2,989)
(1,014)
(52,212)
(10,770)
(445)
(3,183)
(205,334)
(22,548)
99,495
138
139
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Balance Sheet Continued
At 31 December
Non-current liabilities
Deferred tax liabilities
Borrowings
Lease liabilities
Contingent consideration
Minority shareholder put option liabilities
Other non-current liabilities
Total net assets
Equity
Share capital
Share premium
Merger reserve
Treasury reserve
Minority interest put option reserve
Non-controlling interest acquired
Foreign exchange reserve
(Accumulated losses)/retained earnings
Equity attributable to shareholders of the Group
Non-controlling interest
Total equity
*
Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables of
£5.3million; therefore, we have reclassified for comparative purposes, refer to notes 20 and 21.
Reserves are defined in note 35.
These consolidated financial statements pages 126 to 233 were approved and authorised for
issue by the Board of Directors on 27 August 2021 and signed on its behalf by:
MICKEY KALIFA
Chief Financial Officer
M&C Saatchi plc
Company Number 05114893
The notes on pages 126 to 131 and 148 to 233 form part of these consolidated financial statements.
Note
9
23
17
13
26
24
28
2020
£000
(405)
(2,199)
(40,171)
–
(1,804)
(4,773)
(49,352)
45,131
1,159
44,607
37,554
(550)
(4,953)
(29,190)
1,210
(4,939)
44,898
233
45,131
2019
re-stated*
£000
(371)
(162)
(44,000)
(313)
(3,918)
(1,130)
(49,894)
49,601
936
44,607
33,400
(550)
(4,953)
(32,239)
1,181
6,854
49,236
365
49,601
140
141
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Statement
of Changes in Equity
At 31 December 2018
Adjustment on initial application of IFRS 16
Adjusted balance at 1 January 2019
Acquisitions of minority interest
Exercise of minority interest put options
Exercise of share-based payment schemes
Exchange rate movements
Issue of shares to minorities
Tax credit on fully charged options
Reserve transfer following impairment of goodwill
Share option charge
Dividends
Total transactions with owners
Total comprehensive loss for the year
At 31 December 2019
Exercise of Minority Interest put options
Exercise of Share-based payment schemes
Disposal of subsidiaries
Share option charge
Reclassification of equity settled share-based
payments to cash settled
Dividends
Total transactions with owners
Total loss for the year
Total other comprehensive loss for the year
At 31 December 2020
Note
Share
capital
£000
876
Share
premium
£000
41,734
–
Merger
reserve
£000
30,150
–
41,734
30,150
–
–
2,873
3,766
–
–
–
–
–
–
–
–
–
–
–
(516)
–
–
2,873
3,250
–
–
–
876
–
26
34
–
–
–
–
–
–
60
–
936
44,607
33,400
82
141
–
–
–
–
223
–
–
–
–
–
–
–
–
–
–
–
4,154
–
–
–
–
–
4,154
–
–
26
27
27
10
26
27
27
27
10
The notes on pages 126 to 131 and 148 to 233 form part of these consolidated financial statements.
142
1,159
44,607
37,554
(550)
(4,953)
(29,190)
MI put
option
reserve
£000
(15,082)
Non-
controlling
interest
acquired
£000
(22,081)
Foreign
exchange
reserves
£000
4,462
Retained
earnings/
(accumulated
losses)
£000
28,718
Non-
controlling
interest in
equity
£000
932
Subtotal
£000
67,985
Treasury
reserve
£000
(792)
–
–
–
–
(5,364)
(5,364)
(792)
(15,082)
(22,081)
4,462
23,354
62,621
–
–
242
–
–
–
–
–
–
–
(44)
10,114
(10,114)
–
15
–
–
–
–
–
–
–
–
–
–
–
–
242
–
10,129
(10,158)
–
–
(550)
(4,953)
(32,239)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,049
–
–
–
3,049
–
–
–
–
–
–
–
–
–
–
–
–
(3,281)
1,181
–
–
318
–
–
–
318
–
(289)
1,210
–
–
(44)
6,665
(5,881)
(5,605)
–
–
208
516
15
–
208
–
10,266
(9,813)
(4,704)
10,266
(9,813)
1,692
(11,796)
(15,077)
6,854
49,236
–
(683)
(3,367)
3,275
4,236
(542)
–
3,275
(1,121)
(1,121)
–
(1,896)
(9,897)
–
–
5,848
(9,897)
(289)
(4,939)
44,898
–
932
–
–
–
(5)
309
–
–
–
(838)
(534)
(33)
365
–
–
40
–
–
(151)
(111)
(21)
–
233
Total
£000
68,917
(5,364)
63,553
(44)
6,665
(5,605)
10
309
208
–
10,266
(10,651)
1,158
(15,110)
49,601
4,236
(542)
40
3,275
(1,121)
(151)
5,737
(9,918)
(289)
45,131
143
Financial Statements
M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated Cash Flow
Statement
Year ended 31 December
Operating loss
Adjustments for:
Depreciation of plant and equipment
Depreciation of right-of-use assets
Impairment of right-of-use asset
Loss on sale of plant and equipment
Impairment of plant and equipment
Loss on sale of software intangibles
Revaluation of financial assets at FVTPL
Gain on disposal of financial assets at FVTPL
Revaluation of contingent consideration
Amortisation of acquired intangible assets
Impairment of goodwill and other intangibles
Impairment and amortisation of capitalised software intangible assets
Exercise of share-based payment schemes with cash
Equity settled share-based payment expenses
Operating cash before movements in working capital
Decrease in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
Cash generated from operations
Tax paid
Net cash from operating activities
Investing activities
Acquisitions of subsidiaries net of cash acquired
Disposal of associate or subsidiary (net of cash disposed of)
Acquisition of associates
Acquisitions of unlisted investments
Proceeds from sale of unlisted investments
144
Note
16
17
17
16
19
19
13
14
14
14
27
11
15
19
2020
£000
(4,932)
2,555
9,104
2,651
640
374
433
3,315
(497)
446
1,686
–
781
(683)
3,275
19,148
9,052
9,425
(2,323)
35,302
(1,645)
33,657
–
(4,114)
(1)
(713)
1,233
2019
re-stated*
£000
(10,953)
3,390
9,059
–
122
–
266
346
–
–
2,471
5,874
394
(5,605)
10,266
15,630
39,874
(22,733)
2,989
35,760
(7,767)
27,993
(635)
23,264
–
(964)
–
145
Financial Statements M&C Saatchi Group Annual Report 2020 Financial Statements
Consolidated cash flow statement Continued
Year ended 31 December
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 by)/generated from investing activities
Net cash from operating and investing activities
Financing activities
Dividends paid to equity holders of the Company
Dividends paid to non-controlling interest
Proceeds from issue of shares to non-controlling interests
Cash consideration for non-controlling interest acquired
Payment of lease liabilities
Repayment of invoice discounting (net)
Proceeds from bank loans
Repayment of bank loans
Borrowing costs
Interest paid
Interest paid on leases
Net cash consumed by financing activities
Net 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
Note
16
14
15
10
12
17
23
23
7
17
23
23
2020
£000
387
(3,184)
(502)
–
364
(6,530)
27,127
–
(151)
–
(204)
(7,224)
–
3,472
(8,900)
(518)
(1,751)
(2,471)
(17,747)
9,380
246
52,749
62,375
76,295
(13,920)
62,375
(29,628)
32,747
2019
re-stated*
£000
30
(4,091)
(1,710)
2,928
632
19,454
47,447
(9,813)
(838)
9
(3,269)
(10,638)
(2,001)
15,038
(17,318)
–
(1,485)
(1,837)
(32,152)
15,295
(857)
38,311
52,749
68,981
(16,232)
52,749
(36,179)
16,570
* Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables of £5.3m;
therefore, we have reclassified for comparative purposes, refer to notes 20 and 21.
** These overdrafts are legally offset against balances held in the UK; however, they have not been netted off in accordance with the requirements of IAS32.42.
*** Cash and cash equivalents of £644k (2019: £1,657k) are held in a country with restrictions on remittances, but where the balances could be used to repay
subsidiaries’ expected future third party liabilities.
**** Bank loans and borrowings are defined in note 23; they exclude our lease liability of £46,421k (2019 £54,770k) (note 17).
The notes on pages 126 to 131 and 148 to 233 form part of these consolidated financial statements.
146
147
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the
Financial Statements
1. HEADLINE RESULTS AND EARNINGS PER SHARE
The analysis below provides a reconciliation between the Group’s Statutory results and the
Headline results.
Year ended 31 December 2020
Billings (unaudited)
Revenue
Net revenue
Staff costs
Depreciation
Amortisation
Impairments
Other operating charges
Other (losses)/gains
Operating (loss)/profit
Share of results of associates and JV
Gain on disposal of subsidiaries
Impairment of associate investment
Finance income
Finance expense
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year
Non-controlling interests
(Loss)/profit attributable
to equity holders of the Group***
Note
5
16, 17
14
16, 17
19
15
11
15
7
7
8
8
Statutory
2020
£000
454,504
323,250
225,389
(171,717)
(11,659)
(2,275)
(3,217)
(38,635)
(2,818)
(4,932)
(113)
1,432
(895)
364
(4,363)
(8,507)
(1,411)
(9,918)
21
Exceptional
items
(note 2)
£000
–
Amortisation
of acquired
intangibles
(note 14)
£000
–
–
–
1,661
–
–
–
311
–
–
–
–
–
1,686
–
–
–
1,972
1,686
–
–
–
–
–
1,972
(482)
1,490
–
–
–
–
–
–
1,686
(405)
1,281
–
Impairment of
non-current
assets
(note 16 and 17)
£000
–
Gain on
disposal of
subsidiaries
and associates
(note 11)
£000
–
FVTPL
investments
under
IFRS 9
(note 19)*
£000
–
Revaluation of
contingent
consideration
(note 13)
£000
–
–
–
–
–
–
3,025
–
–
3,025
–
–
895
–
–
3,920
(575)
3,345
–
–
–
–
–
–
–
–
–
–
–
(1,432)
–
–
–
–
–
–
–
–
–
(232)
1,977
1,745
–
–
–
–
350
(1,432)
2,095
–
(1,432)
–
(398)
1,697
–
Dividends paid
to IFRS2
put holders
(note 5)**
£000
–
–
–
Put option
accounting
(note 26
and 27)
£000
–
–
–
Headline
results
£000
454,504
323,250
225,389
4,728
3,300
(162,028)
–
–
–
–
–
–
–
–
–
–
(11,659)
(589)
(192)
(38,110)
(841)
4,728
3,300
11,970
–
–
–
–
–
4,728
–
4,728
(3,404)
–
–
–
–
120
3,420
(113)
–
–
364
(3,893)
8,328
(24)
(3,295)
3,396
–
5,033
(3,383)
1,324
3,396
1,650
–
–
–
–
–
–
446
–
446
–
–
–
–
–
446
–
446
–
446
(9,897)
1,490
1,281
3,345
(1,432)
1,697
*
From the total revaluations in note 19, £2,474k relates to the unlisted investments held by SaatchInvest Ltd. This revaluation is offset by the gain on investment
disposal of £497k.
** The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a conditional share award.
*** Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above. Headline operating margin is
calculated as: Headline operating profit divided by net revenue.
148
149
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements 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.
Year ended 31 December 2019
Billings (unaudited)
Revenue
Net revenue
Staff costs
Depreciation
Amortisation
Impairments
Other operating charges
Other (losses)/gains
Operating (loss)/profit
Share of results of associates and JV
Impairment of associate investment
Finance income
Finance expense
(Loss)/profit before taxation
Taxation
(Loss)/profit for the year
Non-controlling interests
(Loss)/profit attributable
to equity holders of the Group**
Note
Statutory
2019
£000
561,426
381,025
256,435
Exceptional
items
(note 2)
£000
–
–
–
5
(193,994)
4,211
16,17
(12,449)
14
16,17
(2,865)
(5,874)
(52,110)
(96)
–
–
–
1,955
–
Amortisation
of acquired
intangibles
(note 14)
£000
–
–
–
–
–
2,471
–
–
–
(10,953)
6,166
2,471
15
15
7
7
8
13,210
(5,210)
613
(6,233)
(8,573)
(3,256)
(11,829)
33
–
–
–
–
6,166
(1,012)
5,154
–
–
–
–
–
2,471
(620)
1,851
(247)
Impairment of
non-current
assets
(note 16 and 17)
£000
–
Loss on
disposal of
subsidiaries
and associates
£000
–
FVTPL
investments
under
IFRS 9
(note 19)
£000
–
Revaluation of
contingent
consideration
(note 13)
£000
–
Dividends paid
to IFRS2
put holders
(note 5)*
£000
–
Put option
accounting
(note 26
and 27)
£000
–
–
–
–
–
–
5,874
–
–
5,874
–
5,210
–
–
11,084
–
11,084
–
–
–
–
–
–
–
–
–
–
(12,980)
–
–
–
(12,980)
(281)
(13,261)
–
–
–
–
–
–
–
92
346
438
–
–
–
279
717
(139)
578
–
Headline
results
£000
561,426
381,025
256,435
–
–
–
–
5,841
10,608
(173,334)
–
–
–
–
–
–
–
–
–
–
(12,449)
(394)
–
(49,936)
250
5,841
10,608
20,572
–
–
–
–
–
–
–
230
–
613
2,821
(3,133)
5,841
13,429
18,282
–
6
(5,302)
5,841
13,435
12,980
(4,693)
–
(4,907)
1,148
13,435
8,073
–
–
–
–
–
–
127
–
127
–
–
–
–
127
–
127
–
127
(11,796)
5,154
1,604
11,084
(13,261)
578
The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a conditional share award.
*
** Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above. Headline operating margin is
calculated as: Headline operating profit divided by net revenue.
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.
150
151
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
1. HEADLINE RESULTS AND EARNINGS PER SHARES CONTINUED
Year ended 31 December 2020
(Loss)/profit attributable to equity shareholders
of the Group (£000)
Basic earnings per share
Before
exceptionals
2020
2020
Headline
2020
(8,407)
(9,897)
1,650
Weighted average number of shares (thousands)
108,783
108,783
108,783
2. EXCEPTIONAL ITEMS
Policy
Exceptional items relate to restructuring and costs relating to the accounting misstatements
identified in 2019. This process started in 2019 and has continued in 2020. In addition, within
exceptional items for 2020 we have recognised the furlough money received that was repaid
subsequent to year end. Exceptional items are shown separately and are excluded from
Headline profit to provide a better understanding of the underlying results of the Group.
(7.73)p
(9.10)p
1.52p
Exceptional items for the year ended 31 December 2020 comprise the following:
Basic EPS
Diluted earnings per share
Weighted average number of shares (thousands) as above
108,783
108,783
108,783
Add
– Conditional shares
– Put option
– Deferred and contingent consideration
Total
Diluted earnings per share
Year ended 31 December 2019
Loss attributable to equity shareholders of the Group (£000)
Basic earnings per share
Weighted average number of shares (thousands)
Basic EPS
Diluted earnings per share
–
–
–
–
–
–
–
–
11,963
3,356
1,757
17,076
108,783
108,783
125,859
(7.73)p
(9.10)p
1.31p
Before
exceptionals
2019
(6,642)
2019
(11,796)
Headline
2019
8,073
90,253
90,253
90,253
(7.36)p
(13.06)p
8.95p
Weighted average number of shares (thousands) as above
90,253
90,253
90,253
Add
– Conditional shares
– Put option
– Contingent consideration
Total
Diluted earnings per share
–
–
–
–
–
–
–
–
3,650
2,316
281
6,247
90,253
90,253
96,500
(7.36)p
(13.06)p
8.37p
Restructuring
Legal fees
Furlough salary expense
Total exceptional items
Operating
costs
£000
–
311
–
311
Staff
costs
£000
2,637
–
(976)
1,661
Taxation
£000
(608)
(59)
185
After tax
total
£000
2,029
252
(791)
(482)
1,490
Exceptional items for the year ended 31 December 2019 comprise the following:
Strategic review and restructuring
PwC forensic fees
Legal fees
Professional fees
Other costs relating to misstatements
Operating
costs
£000
–
Staff
costs
£000
4,211
Taxation
£000
(783)
After tax
total
£000
3,428
710
147
798
300
–
–
–
–
(135)
–
(94)
–
575
147
704
300
Total exceptional items
1,955
4,211
(1,012)
5,154
Strategic review and restructuring
As explained in last year’s annual report, the Board commenced a strategic review of the Group
in 2019 to improve the long-term profitability of the business. The restructuring of operations
continued into 2020 and was extended due to the effects of the Covid-19 pandemic with the
principal cost being staff redundancy.
Legal fees and other costs relating to misstatements
The Group continued to incur fees for legal and regulatory advice relating to the consequences
of the accounting misstatements identified in 2019.
152
153
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
3. SEGMENTAL INFORMATION
Headline segmental income statement
Segmental results are reconciled to the income statement in note 1. The Board reviews Headline results.
The Group’s operating segments are aligned to those business units that are evaluated regularly
by the chief operating decision maker (“CODM”), namely, the Board, in making strategic decisions,
assessing performance and allocating resources. The operating segments comprise individual
country entities, the financial information of which is provided to the CODM and is aggregated
into specific geographic regions on a Headline basis, with each geographic region considered
a reportable segment. Each country included in that region has similar economic and operating
characteristics. The products and services provided by entities in a geographic region are all
related to marketing communications services and generally offer complementary products and
services to their customers.
Year ended 31 December 2020
Billings (unaudited)*
Revenue*
Net revenue
Staff costs
Depreciation
Amortisation
Impairment charges
Other operating charges
Other (losses)/gains
Operating profit/(loss)
Share of results of associates and JV
Financial income
Financial expense
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Non-controlling interests
Profit/(loss) attributable to equity shareholders of the Group
Headline basic EPS
*
These items were not regularly reviewed by the chief operating decision maker in the year.
From 2021, as part of the Group’s ongoing strategic review, we are evaluating alternative
ways of analysing and presenting financial information to the CODM in addition to the
geographic segmentation.
No revenues were derived from an individual customer with a net revenue contribution of
greater than 10% of the total net revenue during either 2020 or 2019.
UK
£000
245,227
134,357
88,931
Europe
£000
53,336
40,158
28,414
Middle East
and Africa
£000
25,896
25,781
15,578
Asia and
Australia
£000
89,299
81,500
57,896
Americas
£000
40,746
41,454
34,570
Head
office and
consolidation
adjustments
£000
–
–
–
Total
£000
454,504
323,250
225,389
(54,520)
(21,877)
(11,866)
(41,492)
(25,487)
(6,786)
(162,028)
(4,159)
(388)
–
(1,503)
–
–
(835)
(43)
–
(3,367)
(1,795)
(158)
(192)
–
–
–
–
–
(11,659)
(589)
(192)
(13,350)
(3,551)
(2,162)
(9,722)
(4,782)
(4,543)
(38,110)
(114)
–
16,400
1,483
–
788
(1,849)
15,339
(3,072)
12,267
(2,703)
9,564
–
–
(148)
1,335
(719)
616
(212)
404
–
672
–
32
(390)
314
(307)
7
79
86
(727)
2,238
(33)
141
(515)
1,831
(1,079)
752
(162)
590
–
2,506
(80)
106
(989)
1,543
(380)
1,163
(385)
778
–
(841)
(11,329)
11,970
–
(703)
(113)
364
(2)
(3,893)
(12,034)
2,262
(9,772)
–
(9,772)
8,328
(3,295)
5,033
(3,383)
1,650
1.52p
154
155
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
3. SEGMENTAL INFORMATION CONTINUED
Headline segmental income statement continued
Year ended 31 December 2019
Billings (unaudited)*
Revenue*
Net revenue
Staff costs
Depreciation – non lease**
Depreciation – lease**
Amortisation
Other operating charges
Other gains/(losses)
Operating profit/(loss)
Share of results of associates and JV
Financial income
Financial expense
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Non-controlling interests
Profit/(loss) attributable to equity shareholders of the Group
Headline basic EPS
These items were not regularly reviewed by the chief operating decision maker in the year.
*
** The adoption of IFRS 16 in 2019, led to the recognition of depreciation and finance charges in 2019 which had no 2018 comparative, therefore these were
shown separately. In the current year Annual Report these amounts have consequently been shown combined.
UK
£000
266,488
158,786
103,221
Europe
£000
52,714
45,924
30,510
Middle East
and Africa
£000
36,126
33,906
16,563
Asia and
Australia
£000
144,980
90,160
64,533
Americas
£000
61,118
52,249
41,608
Head
office and
consolidation
adjustments
£000
–
–
–
Total
£000
561,426
381,025
256,435
(61,376)
(22,273)
(11,337)
(45,093)
(28,752)
(4,503)
(173,334)
(1,357)
(2,705)
(201)
(334)
(1,087)
(22)
(349)
(601)
(52)
(811)
(539)
(2,606)
(2,060)
(119)
–
–
–
–
(3,390)
(9,059)
(394)
(22,928)
(3,776)
(2,718)
(10,244)
(7,402)
(2,868)
(49,936)
–
–
–
–
14,654
3,018
1,506
5,660
–
226
(910)
13,970
(2,576)
11,394
(2,821)
8,573
(3)
15
(233)
2,797
(1,135)
1,662
(259)
1,403
–
52
(494)
1,064
(219)
845
(338)
507
(124)
210
(407)
5,339
(1,655)
3,684
(1,284)
2,400
250
3,105
357
122
(980)
2,604
(1,099)
1,505
(205)
1,300
–
250
(7,371)
20,572
–
(12)
230
613
(109)
(3,133)
(7,492)
18,282
1,382
(5,302)
(6,110)
12,980
–
(4,907)
(6,110)
8,073
8.95p
156
157
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
3. SEGMENTAL INFORMATION CONTINUED
Headline segmental income statement continued
Non-current assets other than excluded items:
As at 31 December
United Kingdom
Europe (excluding UK)
Middle East and Africa
Asia and Australia
Americas
Total non-current assets other than excluded items
Non-current assets excluded from analysis above:
Deferred tax assets
Other financial assets
Total non-current assets per balance sheet
2020
£000
45,626
2,364
5,575
12,163
14,788
80,516
2019
£000
51,542
6,446
1,911
15,003
23,082
97,984
8,301
14,903
5,285
18,774
103,720
122,043
Allocation of non-current assets by country is based on the location of the business units. Items
included comprise fixed assets, intangible assets, IFRS 16 assets and equity accounted investments.
Capital expenditure
UK
Europe
Middle East and Africa
Asia and Australia
Americas
2020
£000
2,114
450
229
282
611
2019
£000
2,462
360
513
516
240
3,686
4,091
4. REVENUE FROM CONTRACTS WITH CUSTOMERS
Billings comprise all gross amounts billed, or billable to clients and is stated exclusive of VAT and
sales taxes. Billings is a non-GAAP measure and is included as it influences the quantum of trade
and other receivables recognised at a given date. The difference between Billings and Revenue is
represented by costs incurred on behalf of clients with whom we operate as an agent, and timing
differences where invoicing occurs in advance or in arrears of the related revenue being recognised.
Net revenue is a non-GAAP measure and is reviewed by the CODM and other stakeholders as a
key metric of business performance (note 3).
158
Policy
4(a) Revenue recognition policies
Revenue is stated exclusive of VAT and sales taxes. Net revenue is exclusive of third-party costs
recharged to our clients where we are acting as principal.
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 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 which are distinct within 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 is an enforceable right to payment
or (ii) the client exerts editorial oversight during the course of the assignment such that they control
the service as it is provided.
Principal vs agent
When a third-party supplier is involved in fulfilling the terms of a contract then, for each performance
obligation identified, the Group assesses whether the Group is acting as principal or agent. The
primary indicator used in this assessment is whether the Group is judged to control the specified
services prior to the transfer of those services to the customer. In this instance it is typically concluded
the Group is acting as principal.
When we act as an agent, the revenue recorded is the net amount retained. Costs incurred with
external suppliers are excluded from revenue. When the Group acts as principal the revenue recorded
is the gross amount billed and when allowable by the terms of the contract, out-of-pocket costs, 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 generally expensed as incurred if
revenue is recognised over time or held in contract assets if it is recognised at a point in time.
4(b) Disaggregation of revenue
The Group monitors the composition of revenue earned by the Group on a geographic basis.
The disaggregation of this revenue is shown within note 3. In 2021 the Group outlined a new
divisional structure comprising five specialist divisions as noted on page 15.
159
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
4. REVENUE FROM CONTRACTS WITH CUSTOMERS 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.
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 can be remitted.
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 upon raising of invoice, otherwise it is recognised as a contract asset.
Contract liabilities comprise instances where a customer has made payments relating to services
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 receives monies more than
a year in advance by virtue of the terms of the contractual agreement so entered into.
Set out below is the amount of revenue recognised from:
Amounts included in contract liabilities at the beginning of the year*
Performance obligations satisfied in previous years
2020
£000
20,491
–
2019
re-stated*
£000
25,129
–
* Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables and
within trade and other payables.
• Advance billing of £5.3million was grossed up in the balance sheet in 2019 between trade receivables and contract liabilities.
• Contract liabilities of £4.8million and other payables of £1.5million were incorrectly included in accruals in 2019.
These items were correctly accounted for in 2020 and reclassified in 2019 for comparative purposes. We have not included a third balance sheet where
we have made prior year balance sheet reclassifications as we believe that this would not be helpful to users of the accounts and could be misleading
as a result of the issues identified in the 2019 audit.
All contract assets recognised at 31 December 2019 related to invoices in the year.
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.
Provision of advertising and marketing services
Our provision of advertising and marketing services to our clients typically meets the criteria identified
in note 4(a) on page 159 for revenue to be recognised over time. The quantum of revenue to be
recognised over the period of the assignments is either based on the ‘right-to-invoice’ expedient
160
or as the services are provided, depending on the contractual terms. In measuring the progress
of services provided in an assignment, the Group uses an appropriate measure depending on the
circumstances, which may include inputs (such as internal labour costs incurred) or outputs (such
as media posts). Where projects are carried out under contracts, the terms of which entitle the
Group to payment for its performance only when a discrete point is reached (such as an event has
occurred or a milestone has been reached), then revenue is recognised at the time that payment
entitlement occurs, i.e. at a point in time.
The provision of advertising and marketing services can encompass provision of 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 is 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.
In these instances, revenue is recognised over time as the performance obligation is being satisfied
depending on the circumstances, which may include inputs (such as internal labour costs incurred)
or outputs (such as media posts).
When services provided are considered separable, and not integrated, then multiple performance
obligations are recognised.
Multiple performance obligations are most common in projects where there are clearly separable
conceptual preparatory obligations culminating in a customer deliverable, such as an event.
In these scenarios the conceptual preparation element and the deliverable are concluded as
forming separate performance obligations with the revenue and corresponding cost of sales
(typically third party pass through costs) assigned to the obligation to which they relate.
Whilst it is uncommon for projects to be such that revenue is not able 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, for example an event has occurred or a milestone
has been reached.
The Group enters into Retainer fees that 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.
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 when there is a right to consideration.
Certain of these arrangements have contractual terms relating to the agency meeting specific
customer identified KPIs. As a result, the overall level of consideration can vary by increasing or
decreasing as a result of performance against these KPI metrics. To reflect this variability in the
overall level of consideration, management estimate the most likely outcome and then reflect
161
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
4. REVENUE FROM CONTRACTS WITH CUSTOMERS CONTINUED
Policy continued
4(d) Revenue recognition policies and performance obligation satisfaction by category of
services performed continued
Provision of advertising and marketing services continued
that outcome in the revenue recognised as the performance obligation(s) of the contract are
satisfied. When determining the likely outturn position the estimated consideration is such that it
is highly probable there will not be significant reversal of the revenue in the future. 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 third parties to provide the related goods and services to its customers 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 is applied to assess
whether there is a single combined performance obligation.
The performance obligation for media purchases is considered to have been satisfied when the
associated advertisement has been purchased.
In the majority of instances where the Group purchases media for clients, the Group is acting as agent.
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, at which point, revenue is recognised. The
consideration for the services is normally for a fixed amount (as a percentage of the talent’s fee)
with no degree of variability.
Recognition of supplier discounts and rebates as revenue from contracts with customers
The Group receives discounts and rebates from certain suppliers for transactions entered into on
behalf of clients, which the clients have agreed we can retain. When the contractual terms of the
agreements entered into are such that the Group acts as Agent in these instances, then such rebates
are recognised as revenue from contracts with customers. By contrast, when the contractual terms
of the agreements are such that the Group is acting as principal then such rebates are recognised
as a reduction in direct costs. Certain of the Group’s clients, however, have contractual terms such
that the pricing of their contracts is structured with the rebate being passed through to them.
5. STAFF COSTS
Policy
Pensions
Contributions to personal pension plans are charged to the income statement in the period in
which they are due.
Bonuses
Bonuses are given on an ad hoc basis or as otherwise agreed and are accrued in the year to
which the services performed relate (when there is an expectation these will be awarded).
Staff costs (including Directors) comprise:
Year ended 31 December
Wages and salaries
Social security costs
Other pension costs
Other staff costs*
Total
Plus: dividends paid to holders of IFRS 2 put options
Allocations and dividends paid to conditional share award holders
Share based incentive plans:
Cash settled
Equity settled
Total share based incentive plans
Total staff costs
* Other staff costs include redundancy costs, insurance and other staff benefits.
Staff numbers
UK
Europe
Middle East and Africa
Asia and Australia
America
Note
1
27
27
2020
£000
137,235
16,360
2,617
6,555
2019
£000
152,608
18,216
2,217
4,504
162,767
177,545
4,728
5,841
947
3,275
4,222
342
10,266
10,608
171,717
193,994
687
357
373
778
255
702
335
346
807
302
2,450
2,492
These staff numbers are based on the average number of monthly staff.
162
163
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
5. STAFF COSTS CONTINUED
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 £2,617k (2019: £2,217k) were made in the year and charged to the income statement
in the period they relate to.
Compensation for key management personnel and directors
Key management remuneration
Short term employee benefit
Post-employment benefit
Share based payments
Total
2020
£000
2,325
249
485
3,059
2019
£000
3,399
4
384
3,787
Key management personnel include the Directors and employees responsible for planning,
directing and controlling the activities of the Group. Refer to pages 102 to 103 of the Directors’
remuneration report for detail of the Directors’ remuneration, including the highest paid Director.
6. AUDITORS’ REMUNERATION
The Group paid the following amounts to its auditors in respect of the audit of the financial
statements and for other services provided to the Group:
2020
£000
2,337
255
2,592
–
–
–
–
2019
£000
2,978
181
3,159
32
29
710
771
2,592
3,930
Year ended 31 December
Audit services
Audit of the Company and its consolidated financial statements
Audit of the Company’s subsidiaries pursuant to legislation
Other services provided by the Auditors:
Taxation compliance services
Remuneration report services
Forensic services
Total
164
7. NET FINANCE INCOME/(EXPENSE)
Policy
Financial income and borrowing costs
Interest income and borrowing costs are recognised in the income statement in the period in
which they are incurred.
Year ended 31 December
Bank interest receivable
Other interest receivable
Sublease finance income
Financial income
Bank interest payable
Amortisation of loan costs
Other interest payable
Interest on lease liabilities
Amortisation adjustment to minority shareholder
put option liabilities (Note 26)
Financial expense
Net finance expense
2020
£000
215
78
71
364
2019
£000
285
237
91
613
(1,240)
(1,287)
(228)
(304)
(38)
(250)
(2,471)
(1,837)
(120)
(4,363)
(3,999)
(2,821)
(6,233)
(5,620)
8. TAXATION
Policy
Current tax
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
Taxation in the year
– UK
– Overseas
Withholding taxes payable
Adjustment for over provision in prior periods
Total
Deferred taxation
Origination and reversal of temporary differences
Adjustment for under provision prior periods
Effect of changes in tax rates
Total
Total taxation
2020
£000
2019
£000
(8)
3,765
7
1,312
5,076
(3,100)
(565)
–
(3,665)
(330)
3,280
38
(538)
2,450
431
370
5
806
1,411
3,256
165
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
8. TAXATION CONTINUED
Current tax continued
We expect large variations in future tax rates of our statutory accounts due to significant items
such as share-based payments (option charges), put options and investment in subsidiaries
being non-deductible against corporation tax as a result of these items being capital in nature.
The differences between the actual tax and the standard rate of corporation tax in the UK applied
to Statutory losses for the year are as follows:
The key differences between actual and standard tax rates are as follows:
Year ended 31 December
Loss before taxation
Taxation at UK corporation tax rate of 19.00%
(2019: 19.00%)
Tax effect of associates
Expenses not deductible for tax
2020
£000
(8,507)
(1,616)
21
127
2020
%
19.0%
-0.3%
-1.5%
Option charges not deductible for tax
1,280
-15.0%
Different tax rates applicable in
overseas jurisdictions
Effect of changes in tax rates on deferred tax
Withholding taxes payable
Adjustment for current tax under/
(over) provision in prior periods
Adjustment for deferred tax (over)/
under provision in prior periods
Tax losses for which no deferred
tax asset was recognised
Fair value adjustments on minority
shareholder put options
Disposal of subsidiaries on which
no tax is charged
Nil tax on disposal of associates
Impairment with no tax credit
Total taxation
Effective tax rate
2019
£000
(8,573)
(1,629)
(1)
442
2,752
1,469
5
39
2019
%
19.0%
0.0%
-5.2%
-32.0%
-17.1%
-0.1%
-0.5%
213
–
7
-2.5%
0.0%
-0.1%
1,312
-15.4%
(538)
6.3%
(565)
6.6%
370
-4.3%
711
23
(272)
–
170
1,411
-16.6%
-8.3%
451
-5.3%
-0.3%
536
-6.3%
3.2%
0.0%
-2.0%
-16.6%
–
(2,749)
2,109
3,256
-38.0%
–
32.1%
-24.6%
-38.0%
• Option charges incudes dividend paid to option holders that are not deductible for tax: our
share-based payment schemes mostly relate to equity held in subsidiary companies. The Group
generally receives no tax benefit on the exercise of these put options or payment of the dividends.
• Different tax rates applicable in overseas jurisdictions. The Group operates in multiple locations
round the world where tax rates are higher than the UK, e.g. Australia (30%) and USA (between
21% to 28%).
• The net effect of the adjustment for current and deferred tax in prior periods is £747k, (8.8)%
(2019: £(168)k, 2.0%) of total tax charge. This mostly relates to companies in the UK. The adjustment
is spread over our 47 reporting entities in the UK and is caused by many small adjustments
between our 2018 and 2019 tax estimates and actual values in our tax returns (all were filed
under a Covid-19 concession following the year end). At the same time due to temporary tax
losses in the UK during 2020 in part due to the Covid-19 pandemic, there has been a reassessment
resulting in our historic current tax asset being redefined as a deferred tax asset.
• Tax losses were made during the year by companies that we disposed of. The Group will receive
no future tax benefits from those losses.
• There was a gain on disposal of subsidiaries in the consolidated accounts which was not taxable
under local tax legislation.
• Nil tax on disposal of associates. In the 2019 we disposed of our remaining 24.9% interest in
Walker Media and we expect to receive substantial shareholding exemption on this disposal.
• Impairment with no tax credit. On most of our acquisitions we received no tax benefit from the
acquisition of Goodwill. During the periods some of our Goodwill was impaired with no future
tax benefit of such impairments.
Looking forward, there is a likelihood that Governments will raise taxes to recover the costs of the
Covid-19 pandemic. For instance, the UK Government has stated that corporation tax rates will
increase from 19% to 25% from 2023.
166
167
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
8. TAXATION CONTINUED
Tax on Headline profits
As can be seen in our Headline tax reconciliation, the largest drivers of Headline tax charge are
our local entities’ profitability with central costs being incurred in the UK, a lower tax market, and
profits being made in higher tax countries such as Australia and USA.
Our Headline tax rate has increased from 29.0% to 39.6%. The tax rate increase reflects losses made
by disposed of subsidiaries from which we expect no future tax benefit as well as higher non-
deductible costs due to the loss-making nature of some of our subsidiaries. It is likely that companies
based in the UK will in total continue to be loss making in the short-term. With the UK tax rate increases
to 25% in 2023, it should be possible to offset these losses at the higher rate. This is likely to create
swings in our effective tax rate in 2021 and 2022.
Year ended 31 December
Headline profit before taxation (note 1)
Taxation at UK corporation tax rate of 19.00%
(2019: 19.00%)
Tax effect of associates
Non-controlling interest share of partnership
income
Expenses not deductible for tax
Different tax rates applicable in
overseas jurisdictions
Effect of changes in tax rates on deferred tax
Withholding taxes payable
Adjustment for current tax under/(over) provision
in prior periods
Adjustment for deferred tax (over)/under provision
in prior periods
Tax losses for which no deferred tax asset
was recognised
Headline taxation (note 1)
Headline effective tax rate
2020
£000
8,328
1,582
21
(309)
127
406
–
7
2020
%
19.0%
0.3%
-3.7%
1.5%
4.8%
–
0.1%
2019
£000
18,282
2019
%
3,474
19.0%
(1)
–
(377)
424
1,455
5
39
-2.2%
2.3%
8.5%
–
0.2%
1,312
15.8%
(538)
-3.1%
(561)
-6.7%
370
2.2%
710
3,295
39.6%
8.5%
39.6%
451
5,302
29.0%
2.6%
29.5%
9. 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) 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.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also
recognised in other comprehensive income or directly in equity, respectively.
At 31 December
Deferred tax assets
Deferred tax liabilities
Net deferred tax
2020
£000
8,301
(405)
7,896
2019
£000
5,285
(371)
4,914
168
169
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
9. DEFERRED TAXATION CONTINUED
The Deferred tax asset is recoverable against future profits, and future corporation tax liabilities.
The following table shows the deferred tax asset/(liability) recognised by Group and movements
in 2020 and 2019.
At 1 January 2019
1 January 2019 – IFRS 16 adjustment
Exchange differences
Income statement (charge)/credit
At 31 December 2019
Exchange differences
Income statement (charge)/credit
Disposals (note 11)
At 31 December 2020
Intangibles
£000
1,413
Capital
allowances
£000
83
Tax losses
£000
1,662
Working
capital
differences
£000
1,266
–
1,413
(56)
(1,059)
298
(4)
(58)
–
236
–
83
(1)
(33)
49
(1)
1,278
–
–
1,662
(70)
(69)
1,523
(143)
7,136
(13)
1,326
8,503
1,495
2,761
(72)
355
3,044
(54)
(4,691)
(468)
(2,169)
Total
£000
4,424
1,495
5,919
(199)
(806)
4,914
(202)
3,665
(481)
7,896
Based on the 2021 Board approved budget and 5-year plans (presented at the Capital Markets
day in January 2021), the Group has reviewed the deferred tax asset created by tax losses for
their recoverability. Where the Group believes such losses are not recoverable they have not been
recognised on the balance sheet and have been included in unrecognised deferred tax assets.
Substantially all territories for which deferred tax assets in respect of losses are recognised, made
an accounting loss in the current year. In particular the UK, US and Australia. The Group assesses
the future availability of carried forward losses and other tax attributes by reference to the
jurisdiction-specific rules around carry forward and utilisation; and it assesses whether it is
probable that future taxable profits will be available against which the attribute can be utilised.
The reversal of deferred tax liabilities may provide a source of probable future taxable profits
but, where these are insufficient, the Group considers the forecast profits of the company or
jurisdiction in question as set out in the Group’s five-year plan, and would extrapolate these as
necessary over what is deemed to be a commercially reasonable look-out period. However,
current forecasts show recovery of substantially all recognised losses within 5 years. Profit
forecasts used for deferred tax asset recognition are consistent with those used for goodwill
impairment testing.
Within the local entities £5,733k (2019: £2,382k) of deferred tax has been naturally offset. Disregarding
this offset, the split of deferred tax is as follows:
At 31 December 2019
Deferred tax assets
Deferred tax liabilities
Net deferred tax
At 31 December 2020
Deferred tax assets
Deferred tax liabilities
Net deferred tax
Intangibles
£000
Capital
allowances
£000
Tax losses
£000
Working
capital
differences
£000
2,091
(1,793)
298
290
(54)
236
68
(19)
49
1,539
(16)
1,523
1,328
8,503
(2)
–
1,326
8,503
4,139
(1,095)
3,044
3,953
(6,122)
(2,169)
Total
£000
7,837
(2,923)
4,914
14,074
(6,178)
7,896
The working capital differences mostly relate to the tax effects of working capital in Australia which
calculates tax on a cash basis rather than the accruals basis used in other countries; along with
the continuing tax effects of the adoption of IFRS16 (Leases); and tax provision on any long term
deferred bonuses.
UK tax legislation was substantively enacted after the year end on 24 May 2021 which increases
the UK corporation tax from 19% to 25% with effect from 1 April 2023. Since the proposal to increase
the rate to 25% had not been substantively enacted at the balance sheet date, its effects are not
included in these financial statements. The effect on the 2021 revaluation of the deferred tax balance
of this change is reliant on projections of 2021, 2022 and, in part, 2023 profits, so is an estimate.
At the present time our estimate on the 2021 revaluation of deferred tax balance is £161k increase
in the deferred tax asset due to the UK corporation tax change.
An unrecognised deferred tax asset in respect of carried forward tax losses is shown below:
At 1 January 2020
Exchange differences
Disposal of subsidiaries
Losses in year
At 31 December 2020
Losses
£000
4,159
(81)
(1,961)
2,655
4,772
Deferred
tax impact
£000
882
(21)
(597)
711
975
170
171
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
9. DEFERRED TAXATION CONTINUED
Expiry date of losses:
One to five years
Five to ten years
Ten years or more
Total
2020
£000
–
439
536
975
2019
£000
191
98
593
882
The unrecognised deferred tax assets in respect of certain losses in overseas territories, referred
to in the tables above, have not been recognised as there is insufficient certainty of future taxable
profits against which these would reverse.
10. 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
No 2019 Final dividend paid (2018 final dividend, paid 2019: 8.51p)
No 2020 Interim dividend paid (2019 interim dividend, paid 2019: 2.45p)
2020
£000
–
–
–
2019
£000
7,566
2,247
9,813
The dividend policy was reviewed as part of the Group’s recent strategic review. We concluded
that the Group’s priority is to return the business to pre-pandemic levels of profitability and
earnings and, thereafter, to grow in line with the targets set out at the Capital Markets Day held
in January 2021. Assuming a return to normal trading conditions, we would expect to reinstate
dividends from 2022.
Year ended 31 December
No 2020 Interim dividend paid (2019: 2.45p)
No 2020 Final dividend payable (2019: nil)
Statutory dividend cover
Headline dividend cover
2020
£000
–
–
–
–
–
2019
£000
2,247
–
2,247
loss
3.6
Dividend cover is calculated by taking profit after tax attributable to equity shareholders and dividing
it by the total dividend that relates to that year’s profits. The Group has historically aimed 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.
11. DISPOSALS
Policy
We account for disposals of entities in the Group in accordance with IFRS 10:25. When the parent’s
ownership of a subsidiary company changes and results in the parent’s loss of control of a subsidiary
within the Group, the parent:
• Derecognises the assets and liabilities attributable to the former subsidiary from the consolidated
statement of financial position;
• Recognises any investment retained in the former subsidiary when control is lost and subsequently
accounts for it and for any amounts owed by or to the former subsidiary in accordance with
relevant IFRSs;
• Recognises the gain or loss associated with the loss of control attributable to the former
controlling interest.
The Group embarked on a Board approved process of eliminating loss-making businesses as a
one-off programme, as part of a broad strategic review of the Group which was communicated
to the market and to the shareholders. As a result, a total of 20 entities were either closed, merged
or our interest in those entities was divested.
As part of this process, the Group sold/reduced its majority stakes in 15 subsidiaries on or before
31 December 2020. The Group classifies non-current assets 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. The
entities that were not disposed of before year end will be closing down in 2021. The carrying
amount for these entities will not be recovered through the disposal; therefore they are not
classified as non-current assets held for sale.
The legal entities that we sold or our interest was divested are M&C Saatchi Tel Aviv Ltd, M&C
Saatchi Brasil Comunicação Ltda, M&C Saatchi Gad SAS, FCINQ SAS, Cometis SARL, M&C Saatchi
Little Stories SAS, M&C Saatchi the Loop SARL, Moonlike M&C Saatchi SARL, Paris Gad Holding SAS,
Tataprod SARL, M&C SAATCHI ONE SAS, M&C Saatchi Madrid SL, M&C Saatchi Sponsorship SL,
Media By Design Spain S.A. and Send Me A Sample Ltd. Of these entities, we retained 6% of
M&C Saatchi Little Stories SAS (note 15) and 10% of M&C Saatchi Madrid SL (note 19). The fair value
of these retained stakes was determined by the group to be nil at the date of disposal. Following
its merger with M&C Saatchi Gad SAS, we have been promised as deferred consideration 10% of
the entire and fully diluted shares in Australie SAS (refer to the bottom of this note for details).
In addition to the entities sold/divested, the Group closed or merged a further 5 legal entities.
These were M&C Saatchi LA Inc, The Source LA, LIDA Australia PTY LTD, LIDA US LLP and Clear KL.
The legal entities that were closed or will be closed post year end comprise Creative Spark (Pty)
Ltd, M&C Saatchi PR LLP, M&C Saatchi Marketing Arts Ltd and Create Collective PTE.
172
173
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
11. DISPOSALS CONTINUED
Policy continued
These entities listed above had contributed £4m of losses to the 2020 results. The Headline results
of the entities disposed of and closed or which are to be closed and which have been included
in the results for the year, were as follows:
Year ended 31 December 2020
Revenue
Project cost/direct cost
Net revenue
Staff costs
Depreciation
Amortisation
Other operating charges
Operating loss
Finance income
Finance expense
Loss before taxation
Year ended 31 December 2019
Revenue
Project cost/direct cost
Net revenue
Staff costs
Depreciation
Other operating charges
UK
£000
155
–
155
(664)
(2)
(79)
(197)
(787)
–
–
(787)
UK
£000
289
–
289
Europe
£000
23,170
(11,345)
11,825
(9,788)
(833)
–
(1,518)
(314)
–
(110)
(424)
Europe
£000
25,495
(12,239)
13,256
(107)
(545)
(781)
(1,608)
Middle East
and Africa
£000
897
Asia and
Australia
£000
1,209
(178)
719
(962)
(17)
(4)
(94)
(358)
(1)
15
(7)
1,202
(945)
(2)
(291)
(355)
(391)
–
–
Americas
£000
3,375
(604)
2,771
Total
£000
28,806
(12,134)
16,672
(3,631)
(15,990)
(327)
–
(880)
(2,067)
2
(32)
(1,181)
(374)
(3,044)
(3,917)
1
(127)
(344)
(391)
(2,097)
(4,043)
Middle East
and Africa
£000
1,736
Asia and
Australia
£000
5,079
Americas
£000
12,411
Total
£000
45,010
(3,915)
(16,956)
8,496
28,054
(8,739)
(25,462)
(457)
4,622
(3,617)
(30)
(1,565)
(2,635)
(419)
(1,364)
(6,616)
(590)
(3,297)
(5,388)
–
–
14
(59)
25
(176)
(345)
1,391
(27)
(263)
(52)
–
(8)
(60)
(590)
(3,342)
(5,539)
(1,144)
(10,809)
(1,153)
Operating profit/(loss)
(1,507)
Finance income
Finance expense
–
–
Loss before taxation
(1,507)
58
11
(109)
(40)
The Group sold/reduced its majority stakes in 15 subsidiaries on or before 31 December 2020. Cash
held by those subsidiaries at the date of disposal was £5,093,697.
The gain on disposal of subsidiaries as of 31 December 2020 is calculated as follows:
Consideration received in cash and cash equivalents*
Share consideration receivable*
Deferred consideration payable**
Total consideration
Plant and equipment
Right-of-use assets
Other non-current assets
Deferred tax assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Trade and other payables
Borrowings
Lease liabilities
Add net liabilities
Gain on disposal of subsidiaries
£000
979
444
(536)
887
562
2,661
63
481
11,708
583
5,094
(17,425)
(1,462)
(2,810)
(545)
1,432
* M&C Saatchi International Holdings B.V. sold its stake in M&C Saatchi GAD SAS to Australie SAS for a total cash consideration of €1,100,000 and for 1,707
shares of Australie’s share capital, i.e. 10% of the entire and fully diluted Australie’s share capital. The Group recognised a deferred consideration receivable in
the amount of €500k, representing 1,707 ordinary shares of Australie SAS. We have valued the investment using our best estimate and all information
presently available. However, as an unlisted, illiquid asset in which we hold only a minority stake, our estimate of the valuation is subject to uncertainty and
risk. The deferred consideration receivable amount is included within other non-current assets. On receipt of the shares, this asset will be reclassified as an
unlisted equity investment.
** £536k paid to M&C Saatchi F&Q Brasil Comunicacao LTDA in April 2021.
174
175
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
12. CASH CONSUMED BY ACQUISITIONS
During the year the Group has spent the following amounts of cash to acquire equity in subsidiary
companies and associates:
Exercise of share-based payment schemes with cash
– M&C Saatchi Network Ltd
– M&C Saatchi GAD Holdings SAS
– Small purchases of non-controlling interest’s equity
Total exercise of share-based payment schemes with cash
Cash consideration for non-controlling interest acquired
– SS+K LLP
– M&C Saatchi Berlin GmbH
– Small purchases of non-controlling interest’s equity
Total paid to acquire additional shares in subsidiaries
Acquisitions of subsidiaries net of cash acquired
– Deferred and contingent consideration paid (note 13)
Acquisitions of subsidiaries net of cash acquired
2020
£000
2019
£000
–
–
–
–
(3,475)
(1,989)
(141)
(5,605)
(204)
(3,066)
–
–
(199)
(4)
(204)
(3,269)
–
–
(635)
(635)
13. 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 29).
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.
Current
Deferred consideration*
Contingent consideration
Total current
Non-current
Contingent consideration
Total current and non-current
2020
£000
2019
£000
(1,227)
(452)
(1,679)
–
(1,679)
–
(445)
(445)
(313)
(758)
* Made up of £536k paid to M&C SAATCHI F&Q Brasil Comunicacao LTDA) in April 2021 and £691k paid to Levergy Marketing Agency (Pty) in January and
February 2021.
At 1 January
Exchange differences
Deferred consideration due on disposals**
Charged to the income statement***
Conditional consideration paid in cash
Total
2020
£000
(758)
61
(536)
(446)
–
(1,679)
2019
£000
(1,266)
–
–
(127)
635
(758)
** Made up of £536k paid to M&C SAATCHI F&Q Brasil Comunicacao LTDA in April 2021.
*** Made up of £374k revaluation of Scarecrow Communications Ltd contingent consideration and £72k revaluation of Levergy Marketing Agency (Pty)
deferred consideration.
£536k of deferred consideration is payable to M&C Saatchi Brasil Participacoes Ltda from the
holding company M&C Saatchi International Holdings BV whilst the remaining £1,144k of deferred
and contingent consideration is payable from the parent company and held as a liability in the
company’s own balance sheet.
Detail surrounding the fair value measurement of the contingent consideration recognised at year
end is provided in note 29.
176
177
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
14. INTANGIBLE ASSETS
Policy
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 can be reliably measured.
Software & film
Purchased software, internally created software and film rights are recorded at cost. In case of
internally created software and film rights these are created so that they can be directly used to
generate future client income.
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 and film rights – three years
Customer relationships – one to five years
Brand name
– one to three years
The Group has no indefinite life intangibles other than goodwill.
Impairment
Goodwill impairment reviews are performed annually or more frequently if events or changes in
circumstances indicate a potential impairment. Finite lived assets are reviewed for indicators of
impairment, and if an indicator is noted then an impairment review is performed. 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 entirely relate to impairments; brand
name and customer relationships and software relate to amortisation and impairments.
At 31 December 2020
54,308
7,348
Accumulated amortisation
and impairment
Cost
At 1 January 2019
Exchange differences
Acquired
Disposal
At 31 December 2019
Exchange differences
Acquired
Disposals
Reclassification*
At 1 January 2019
Exchange differences
Amortisation charge
Impairment
Disposal
At 31 December 2019
Exchange differences
Amortisation charge
Impairment
Disposal
At 31 December 2020
Net book value
At 31 December 2018
At 31 December 2019
At 31 December 2020
Goodwill
£000
Brand
name
£000
Customer
relationships
£000
Software and
film rights**
£000
Total
£000
58,448
8,946
(1,343)
(177)
–
–
–
–
14,371
(281)
–
–
2,225
83,990
(51)
1,710
(286)
(1,852)
1,710
(286)
57,105
8,769
14,090
3,598
83,562
12
–
(17)
–
(2,809)
(1,404)
–
–
18,146
7,293
(481)
–
5,874
–
(126)
924
–
–
(173)
–
(2,766)
–
11,151
11,003
(242)
1,547
–
–
185
502
(776)
850
7
502
(7,755)
850
4,359
77,166
1,076
37,518
(33)
394
–
(20)
(882)
2,865
5,874
(20)
23,539
8,091
12,308
1,417
45,355
125
–
–
5
335
–
(2,809)
20,855
(1,404)
7,027
40,302
33,566
33,453
1,653
678
321
(162)
1,351
–
(2,766)
10,731
3,368
1,782
420
175
589
192
143
2,275
192
(343)
(7,322)
2,030
40,643
1,149
2,181
2,329
46,472
38,207
36,523
*
Reclassifications are between property, plant and equipment, and intangible assets. Relates to software previously classified within computer equipment.
** Software and film assets include an amount of NBV £910k (2019: £955k) relating to a film asset, Leandre, in the Group’s Australian entity, This Film Studio.
The film is expected to be released in cinemas in Australia in the second half of 2021 and in the rest of the world following that. We consider the NBV to
be recoverable.
178
179
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
14. INTANGIBLE ASSETS CONTINUED
Cash generating units (CGUs)
M&C Saatchi Sport & Entertainment Ltd
M&C Saatchi Mobile Ltd
M&C Saatchi Merlin Ltd
Talk PR Ltd
M&C Saatchi Social Ltd
Clear Ideas Ltd
M&C Saatchi Advertising GmbH
M&C Saatchi Middle East Fz LLC (Dubai)
Levergy Marketing Agency (PTY) Ltd
(South Africa)*
M&C Saatchi Agency Pty Ltd (Australia)
Bohemia Group Pty Ltd (Australia)
Shepardson Stern + Kaminsky LLP
LIDA NY LLP (MCD)
Scarecrow Communications Ltd
M&C Saatchi (M) SDN BHD
Goodwill
31 December
2020
£000
1,184
Goodwill
31 December
2019
£000
1,184
4,283
765
625
2,612
5,031
1,392
677
882
2,860
1,907
5,321
5,145
663
106
4,283
765
625
2,612
5,008
1,317
699
956
2,740
1,792
5,491
5,309
700
85
Segment
UK
UK
UK
UK
UK
Europe
Europe
Middle East
and Africa
Middle East
and Africa
Asia and Australia
Asia and Australia
Americas
Americas
Asia and Australia
Asia and Australia
Total
33,453
33,566
All movements in the table above are due to foreign exchange differences.
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 2020 review of Goodwill was undertaken as at 31/12/2020 with no impairment identified for FY20.
The Group has recognised a total impairment charge of £4,112k in the year (2019: £5,874k).
£895k relates to associate investments (2019: £nil), £192k relates to Intangibles (2019: £5,874k).
£3,025k is attributable to Tangible assets (2019: £5,874k), of which £2,651k relates to the Right of
Use Assets (2019: £nil) and £374k relates to plant and equipment (2019: £nil).
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 the forecast profitability of each CGU based on the 2021 Board approved budget and
5-year plans (presented at the Capital Markets day in January 2021), with a residual growth rate
of 1.5% p.a. applied thereafter. This forecast data is based on past performance and current
business and economic prospects. This data is then applied within a discounted future cash flow
forecast (DCF) for each CGU, which forms the basis for determining the recoverable amount of
each CGU.
If the DCF of a CGU is not in excess of its carrying amount (that includes the value of its fixed
assets (note 16) and ROU Assets (note 17)), then an impairment loss would be recognised.
In conducting the review, a residual growth rate of 1.5% has been used for all countries. Market
betas of 1.059 for UK, 1.000 for Europe, 1.059 for Americas and 1.2 for rest of the world have been
utilised.
Pre-tax discount rates are based on the Group’s nominal 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
2020
%
1.5
Residual
growth rates
2019
%
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
Pre-tax
discount rates
2020
%
12-13
13-14
12
18
24
11
12-13
Pre-tax
discount rates
2019
%
12–15
14–17
12
17
23–24
11–13
12–13
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 2020, showing the impairment required at the reduced profit
level/increased discount rate are presented below:
Discount rates increased by
0%
1%
3%
5%
0%
–
–
137
485
Annual profit forecast reduced by
30%
173
20%
78
10%
–
43
348
705
157
583
973
417
895
1,241
CGUs showing in the above sensitivity, due to theoretical significant long term client losses, are
Levergy Marketing Agency (PTY) Ltd, M&C Saatchi Advertising GmbH and Scarecrow
Communications Ltd. These entities remain at risk of impairment.
180
181
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
15. 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.
December 31
Investments intended to be held in the long term
Investments categorised as held-for-sale
Total equity accounted investments
2020
£000
2,829
–
2019
£000
3,780
–
2,829
3,780
Region & Name
Europe
Nature of
business
Country of
incorporation
or registration
Investment
in associate
2019
£000
2020
£000
%Proportion of
voting rights
2019
%
2020
%
M&C Saatchi Istanbul
Advertising Turkey
–
14
25%
25%
Asia and Australia
M&C Saatchi (Hong Kong) Ltd* Advertising China
2,365
2,258
40%
40%
The Group also holds a 10% equity stake in a Lebanese associate, M&C Saatchi SAL along with 50%
equity in a Pakistan joint venture. As at the end of the year the carrying value of both entities was
£NIL (2019: £NIL). The above associates have the following subsidiaries: CSZ Comunicação Ltda,
M&C Mena Ltd, Al Dallah For Creativity & Design LLC & M&C Saatchi Advertising (Shanghai) Ltd.
In addition, on 31 December 2020, following the disposal of the Group’s French subsidiary, our
effective holding in M&C Saatchi Little Stories SAS reduced to 6%. At the end of 2020 the minority
shareholders in M&C Saatchi Little Stories SAS exercised their right to put their shares on the
Group, this was completed in February 2021 increasing our interest to 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 protect
it from damage.
Split of income statement
Profit net of cost of disposal
Share of (loss) / profit after taxation
At 31 December
Movements in the balance sheet
At 1 January
Exchange movements
Acquisition of associates
Impairment of associate*
Dividends
Disposal
Share of profit after taxation
At 31 December
2020
£000
–
(113)
(113)
2019
£000
12,980
230
13,210
3,780
22,589
56
1
(895)
–
–
(113)
2,829
(617)
–
(5,210)
(2,928)
(10,284)
230
3,780
*
£880k of the carrying value of Technology, Humans and Taste LLC impaired in 2020.
The results and net assets of the Associate entities are set out below along with our share of these
results and net assets:
Asia and
Australia* Americas
£000
£000
Total
2020
£000
Total
2019
£000
8,953
3,822
12,775
16,918
(367)
(343)
(325)
(32)
12
(151)
(251)
(81)
(355)
(494)
(576)
(113)
2,010
1,744
1,626
230
February Communications
Private Ltd
M&C Saatchi Ltd
Love Frankie Ltd
Americas
Technology, Humans
and Taste LLC
Advertising India
Advertising Japan
Advertising Thailand
18
2
185
24
24
157
Santa Clara Participacoes Ltda* Advertising Brazil
Total
Advertising USA
3
256
2,829
1,089
214
3,780
20%
10%
25%
30%
25%
20%
10%
25%
30%
25%
Income statement
Revenue
Operating (loss)/profit
(Loss)/profit before taxation
(Loss)/profit after taxation
Group’s share
*
In February 2021 the Group took a controlling stake in both these entities. We had committed to these acquisitions at the year end but their execution was delayed.
*
Consists principally of a single associate, M&C Saatchi (Hong Kong) Ltd (trading in China as AEIOU).
182
183
Dividends received
–
–
–
(2,928)
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
15. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES CONTINUED
The Group holds neither associates nor joint ventures in the Middle East & Africa, or the UK.
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.
Balance sheet
Total assets
Total liabilities
Net assets/(liabilities)
Our share
Losses not recognised
Goodwill
Total investments
Asia and
Australia
£000
6,768
(3,950)
2,818
1,172
178
1,219
2,569
Americas
£000
2020
£000
2019
£000
3,451
(4,909)
(1,458)
(365)
365
260
260
10,219
(8,859)
1,360
807
543
1,479
2,829
11,276
(8,150)
3,126
1,254
235
2,291
3,780
Additional disclosure relating to the single material associate held by the Group M&C Saatchi
(Hong Kong) Ltd (trading in China as AEIOU) is as follows:
Summarised balance sheet
Current assets
Current liabilities
Current net assets
Non-current assets
Non-current liabilities
Non-current net assets
Total net assets
Our share
2020
£000
4,239
(1,669)
2,570
737
–
737
3,307
1,323
2019
£000
5,175
(2,523)
2,652
388
(62)
326
2,978
1,191
16. 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
Assets under construction are recognised at cost and only commence depreciation once the
assets are completed and ready for use.
Leasehold
improvements
£000
Furniture,
fittings
and other
equipment
£000
Computer
equipment
£000
Motor
vehicles
£000
Cost
At 1 January 2019
Exchange differences
Additions
Disposals
At 31 December 2019
Exchange differences
Additions
Reclassifications*
Disposals
At 31 December 2020
Depreciation
At 31 December 2018
Exchange differences
Depreciation charge
Disposals
At 31 December 2019
Exchange differences
Depreciation charge
Impairment*
Reclassifications**
Disposals
At 31 December 2020
Net book value
At 31 December 2018
At 31 December 2019
At 31 December 2020
8,822
(215)
2,166
(474)
10,299
(1,080)
1,442
–
(2,171)
8,490
4,282
(119)
1,265
(598)
4,830
(856)
1,046
374
–
(1,310)
4,084
4,540
5,469
4,406
5,527
(170)
409
(379)
5,387
551
826
–
5,621
(149)
1,489
(852)
6,109
136
916
(88)
(2,743)
4,021
(2,228)
4,845
3,501
(133)
850
(241)
3,217
(127)
1,245
(739)
3,977
3,596
381
551
–
–
201
941
–
762
108
(4)
27
(65)
66
11
–
–
(60)
17
14
(1)
30
(40)
3
6
17
–
–
Total
£000
20,078
(538)
4,091
(1,770)
21,861
(382)
3,184
(88)
(7,202)
17,373
11,014
(380)
3,390
(1,618)
12,406
(268)
2,555
374
762
(2,264)
2,645
(2,015)
3,485
(24)
2
(5,613)
10,216
2,026
1,410
1,376
2,404
2,513
1,360
94
63
15
9,064
9,455
7,157
Leasehold improvement impairment relates to the impairment of the right of use assets, refer to Note 17 for further detail.
*
** Reclassifications are between property, plant and equipment, and intangible assets of £850k (£1,210k cost and £360k depreciation), which relates to
software previously classified within computer equipment. There was an additional reclassification between cost and depreciation within computer
equipment of £1,122k.
184
185
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
16. PLANT AND EQUIPMENT CONTINUED
Depreciation is broken down as follows:
From plant and equipment
From right-of-use assets
Note
17
2020
£000
2,555
9,104
2019
£000
3,390
9,059
11,659
12,449
17. LEASES
The Group leases various assets, comprising properties, equipment, and motor vehicles.
The determination whether an arrangement is, or contains, a lease is based on whether the
contract conveys a right to control the use of an identified asset for a period of time in exchange
for consideration.
Policy
The following sets out the Group’s lease accounting policy for all leases with the exception of
leases with a term of 12 months or less and those of low value assets. In both these instances the
Group applies the exemptions permissible by IFRS 16 Leases. These are typically expensed to the
income statement as incurred.
Right-of-use assets and lease liabilities
At the inception of a lease, the Group recognises a right-of-use asset and a lease liability. The value
of the lease liability is determined by reference to the present value of the future lease payments
as determined at the inception of the lease. A corresponding right-of-use fixed asset is also
recognised at an equivalent amount adjusted for any initial direct costs, payments made before
the commencement date (net of lease incentives) and the estimated cost for any restoration costs
the Group is obligated to at lease inception. Right-of-use assets are subsequently depreciated
on a straight-line basis over the shorter of the lease term or the assets’ estimated life.
Under IFRS 16 right-of-use assets are tested for impairment in accordance with IAS 36 ‘Impairment
of Assets’ when there is an indication of impairment.
Lease liabilities are disclosed separately on the Balance Sheet. These are measured at amortised
cost using the effective interest rate method. Lease payments are apportioned between a finance
charge and a reduction of the lease liability based on a constant interest rate applied to the
remaining balance of the liability. Interest expense is included within the line item net finance
costs in the consolidated income statement.
The interest rate applied to a lease is typically the incremental borrowing rate of the entity entering
into the lease. This is as a result of the interest rates implicit in our leases not being readily
determined. The incremental borrowing rate applied by each relevant entity is determined based
on the interest rate adjudged to be required to be paid by that entity to borrow a similar amount
over a similar term for a similar asset in a similar economic environment.
Lease term
The lease term determined comprises the non-cancellable period of the lease contract. Periods
covered by an option to extend the lease are included if the Group has reasonable certainty that
the option will be exercised, and periods covered by the option to terminate are included if it is
reasonably certain that this will not be exercised.
Lease payments
Lease payments comprise fixed payments and variable lease payments that depend on an index
or a rate, initially measured using the minimum index or rate at inception date. Payments include
any lease incentives and any penalty payments for terminating the lease, if the lease term reflects
the lessee exercising that option. The lease liability is subsequently remeasured (with a corresponding
adjustment to the related right-of-use asset) when there is a change in future lease payments
due to a renegotiation or market rent review, a change of an index or rate or a reassessment of
the lease term.
Lease modifications
Where there are significant changes in the scope of the lease then the arrangement is reassessed
to determine whether a lease modification has occurred and, if there is such a modification, what
form it takes. This may result in a modification of the original lease or, alternatively, recognition of
a separate new lease.
Covid lease modifications
In May 2020, the IASB published an amendment to IFRS 16 that provided a practical expedient,
whereby a lessee may elect not to assess whether a rent concession that meets the conditions
below is a lease modification. A lessee that makes this election shall account for any change in
lease payments resulting from the rent concession the same way it would account for the change
applying this Standard if the change were not a lease modification. The practical expedient applies
only to rent concessions occurring as a direct consequence of the Covid-19 pandemic and only if
all of the following conditions are met:
a) the change in lease payments results in revised consideration for the lease that is substantially
the same as, or less than, the consideration for the lease immediately preceding the change;
b) any reduction in lease payments affects only payments originally due on or before 30 June 2022
(for example, a rent concession would meet this condition if it results in reduced lease payments
on or before 30 June 2022 and increased lease payments that extend beyond 30 June 2022); and
c) there is no substantive change to other terms and conditions of the lease.
It was elected to apply this practical expedient to all rent concessions that meet the conditions
above. The amount recognised in profit or loss for the reporting period to reflect changes in
lease payments that arise from rent concessions is a profit of £659k.
186
187
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
17. LEASES CONTINUED
Subleases
At times entities of the Group will sublet certain of their properties when underlying business
requirements change. Under IFRS 16, the Group assesses the classification of these subleases with
reference to the right-of-use asset, not the underlying asset.
When the Group acts as an intermediate lessor it accounts for its interests in the head lease and
the sublease separately. At lease commencement a determination is made whether the lease is a
finance lease or an operating lease. To classify each lease, the Group makes an overall assessment
of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership
in relation to the underlying asset. If this is the case, then the lease is a finance lease; if not, then it
is an operating lease. The Group recognises lessor payments under operating leases as income
on a straight-line basis over the lease term. The Group accounts for finance leases as finance
lease receivables, using the effective interest rate method. It is typically the case that subleases
into which the Group enters are determined to be finance leases in nature.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to those leases that have a lease
term of 12 months or less from the commencement date and do not contain a purchase option.
It also applies the lease of low-value assets recognition exemption to leases of office equipment
that are considered of low value (defined by the Group as being below £3,000). Lease payments
on short-term leases and leases of low-value assets are recognised as an expense on a straight-line
basis over the lease term.
Estimates relating to leases
The Group has made estimates in adopting IFRS 16, additions subsequent to adoption, along
with the ongoing recognition of amendments and modifications, which are considered to be:
determining the interest rate used for discounting of future cash flows, and the lease term.
Details relating to these estimates can be found on page 131.
Impairment of non-current assets – right-of-use property assets
During the pandemic, the Group reviewed its global property portfolio in the wake of the move
to a more flexible working environment. We determined that approximately 17,000 square feet
or 30% of the Group’s real estate in London is now surplus to requirements and we are actively
marketing the space. The key assumptions used for the calculation in relation to the current
rental market are the length of the period where the properties are expected to be empty and
the rent achievable if a sublease is agreed. Accordingly, we have taken an impairment of £2.7m
as at 31 December 2020 against the carrying value of our right-of-use property assets.
188
Set out below are the carrying amounts of right-of-use assets and lease liabilities recognised
and the movements during the year:
Right-of-use assets
At 1 January 2019
Additions
Sublease
Depreciation
Foreign exchange
At 1 January 2020
Additions
Modifications
Sublease
Disposals
Depreciation
Impairment
Subsidiary disposals
Foreign exchange
At 31 December 2020
Lease liabilities
At 1 January 2019
Additions
Accretion of interest
Payments
Foreign exchange
At 1 January 2020
Additions
Modifications
Covid modifications
Disposals
Accretion of interest
Payments
Dilapidations
Subsidiary Disposals
Foreign exchange
At 31 December 2020
Land &
Buildings
£000
33,121
Computer
equipment
£000
831
Motor
vehicles
£000
–
22,234
(165)
(8,721)
(630)
45,839
1,097
640
(259)
(30)
(8,705)
(2,651)
(2,661)
(62)
118
–
(315)
(27)
607
426
–
–
–
122
–
(23)
(3)
96
51
–
–
–
(328)
(71)
–
–
11
–
–
6
Total
£000
33,952
22,474
(165)
(9,059)
(660)
46,542
1,574
640
(259)
(30)
(9,104)
(2,651)
(2,661)
(45)
33,208
716
82
34,006
Land &
Buildings
£000
42,752
Computer
equipment
£000
987
Motor
vehicles
£000
–
22,234
1,798
(11,996)
(774)
54,014
1,097
640
(600)
(30)
2,428
(9,328)
211
(2,810)
(49)
45,573
Total
£000
43,739
22,474
1,837
(12,475)
(805)
54,770
1,574
640
(659)
(30)
2,471
118
37
(455)
(28)
659
426
–
(59)
–
38
122
2
(24)
(3)
97
51
–
–
–
5
(289)
(78)
(9,695)
–
–
(8)
767
–
–
6
211
(2,810)
(51)
81
46,421
189
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
17. LEASES CONTINUED
Of lease payments made in the year of £9,695k (2019: £12,475k), £7,224k (2019: £10,638k) related
to payment of principal on the corresponding lease liabilities and the balance to payment of
interest £2,471k (2019: £1,837k) due on the lease liabilities.
The Group does not face a significant liquidity risk with regard to its lease liabilities and manages
them in line with its approach to other month-to-month liquidity matters, as described in note
30. The cash payment maturity of the lease liabilities held as at 31 December 2020 net of
sublease receipts is as follows:
Lease liabilities
At 31 December 2020
Amounts due within one year
Amounts due after one year
At 31 December 2020
Lease liabilities
At 31 December 2019
Amounts due within one year
Amounts due after one year
At 31 December 2019
£000
Depreciation of right of use assets
Short-term lease expense
Low-value lease expense
Short-term sublease income
Charge to operating profit
Sublease finance income
Lease liability interest expense
Lease charge to profit before tax
Land &
Buildings
£000
5,859
Computer
equipment
£000
335
Motor
vehicles
£000
56
39,714
45,573
432
767
25
81
Land &
Buildings
£000
10,466
Computer
equipment
£000
259
Motor
vehicles
£000
45
43,548
54,014
400
659
52
97
2020
(9,104)
(337)
(220)
94
Total
£000
6,250
40,171
46,421
Total
£000
10,770
44,000
54,770
2019
(9,059)
(134)
(537)
70
(9,567)
(9,660)
71
91
(2,471)
(1,837)
(11,967)
(11,406)
£000
Period ending 31 December:
2021
2022
2023
2024
2025
Later years
Gross future liability before discounting
2020
2019
9,909
8,974
8,223
5,448
5,062
30,745
68,361
10,770
7,971
6,090
6,181
5,054
33,997
70,063
Of future lease payments post 2025 £28m relates to a single office lease which expires in 2034.
This lease agreement was entered into in December 2019.
18. OTHER NON-CURRENT ASSETS
Policy
Loans to employees
Represent financial assets at amortised cost and subsequently measured using the effective
interest rate method.
At 31 December
Other debtors including rent deposits
Loans to employees*
Total other non-current assets
2020
£000
1,244
2,250
3,494
2019
£000
1,422
2,501
3,923
*
Relates to Australian and South African loans held at amortised cost. The Australian loans relate to AUD3.4m (2019: AUD3.3m) loans (£1,967k, 2019: £1,788k) 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 values of the loans are not materially different to the fair value. The South African loans relate to £283k (2019: £713k) of loans that the Group lent to a
black equity trust to enable it to acquire equity in one of the South African Group businesses. The loan is unsecured and charged interest at LIBOR.The carrying
value of the loan is not materially different to the fair value.
190
191
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
19. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS (FVTPL)
Policy
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.
The unlisted equity investments held by the Group principally relate to 26 (2019: 22) early-stage
companies. In addition, investments are held by two of the overseas businesses. These latter
investments relate to client equity stakes provided as consideration for services rendered to
those clients.
With regards to the early-stage non-client investments, the most we have invested in any one
company over time is £0.7m and the least £0.1m. The Group invests in these companies for long
term return and to gain knowledge and insight into developing sectors and trends.
The activity in the year relating to our equity investments held at FVTPL is presented below:
1 January total
Additions
Disposals
Revaluations
Foreign exchange
At 31 December
2020
£000
14,851
713
(736)
(3,315)
(103)
2019
£000
14,041
1,160
–
(346)
(4)
11,410
14,851
Additions of £713k were paid for in cash. Of the 2019 additions, £964k were paid for in cash, with
the residual as consideration for services provided to early-stage companies. Refer to note 30
and the significant estimate in relation to financial instruments, described on page 130. From the
total revaluations, £2,474k relates to the unlisted investments held by SaatchInvest Ltd. The cash
consideration received for the disposals was £1,233k which resulted a gain on disposal of £497k.
The Group disposed of the majority of its investment in M&C Saatchi Madrid SL, but has retained
a 10% shareholding. This is an unlisted investment valued at nil. The Group also holds an unlisted
investment in Send Me A Sample Ltd., which is also valued at nil.
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.
192
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
2020
£000
58,534
2019
re-stated*
£000
72,716
(677)
(1,621)
57,857
3,504
837
304
1,370
71,095
4,396
740
1,900
1,624
25,390
28,094
89,262
107,849
* Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables and within
trade and other receivables.
• Advance billing of £5.3million was grossed up in the balance sheet in 2019 between trade receivables and contract liabilities.
• In 2019 our contract assets included accrued income of £8.5million relating to goods and services already transferred to the customers for which right to
payment was conditional on the passage of time only. These assets have been reclassified to other receivables.
These items were correctly accounted for in 2020 and reclassified in 2019 for comparative purposes. We have not included a third balance sheet where we have
made prior year balance sheet reclassifications as we believe that this would not be helpful to users of the accounts and could be misleading as a result of
the issues identified in the 2019 audit.
Included within Other receivables are transactions relating to goods and services already transferred to the customers for which right to payment was conditional
on the passage of time only.
**
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
Release for expected credit losses during the year
Movement in forward looking provision for specific bad debts:
– Charge during the year
– Released during the year
– Utilisation of provision
Foreign exchange movement
Year end provision
The information about credit exposures is disclosed in note 30.
2020
£000
(1,621)
32
(555)
756
711
–
2019
£000
(873)
98
(1,444)
632
30
(64)
(677)
(1,621)
193
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements 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
Accruals*
Other payables
2020
£000
39,490
22,022
6,803
42,267
14,158
2019
re-stated*
£000
51,198
20,491
6,648
45,734
10,650
124,740
134,721
* Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables and within
trade and other payables.
• Advance billing of £5.3 million was grossed up in the balance sheet in 2019 between trade receivables and contract liabilities.
• Contract liabilities of £4.8 million and other payables of £1.5 million were incorrectly included in accruals in 2019.
These items were correctly accounted for in 2020 and reclassified in 2019 for comparative purposes. We have not included a third balance sheet where we have
made prior year balance sheet reclassifications as we believe that this would not be helpful to users of the accounts and could be misleading as a result of the
issues identified in the 2019 audit.
Settlement of trade and other payables is in accordance with the terms of trade established with
the Group’s local suppliers.
Contract liability balance at the beginning of the period was recognised as revenue in the reporting
period. Contract liabilities have increased significantly. Due to the pandemic, many of the clients
did not spend all their 2020 budgets and some agencies saw a surge of prebill requests in the
last quarter of 2020, particularly in November and December.
Interest payable related to borrowings of £nil (2019: £106k) is included within accruals.
22. PROVISIONS
Policy
Provisions are recognised when the Group has a present legal or constructive obligation arising as
a result of past events and where it is more likely than not an outflow of resources will be required
to settle the obligation and the amount can be reliably estimated. Provisions are measured at
management’s best estimate of the expenditure required to settle the obligation at the balance
sheet date.
Provisions charged to the income statement in 2020 comprise the continued costs of the Group
restructuring programme initiated in 2019, the principal cost being staff redundancy. Additional
provisions in 2020 relate to overseas sales and payroll tax provisions in India and Kenya, along with
an income protection provision in the UK.
The year end provision of £0.7m comprises of costs relating to tax liabilities and income protection
schemes of £0.4m, along with £0.3m relating to costs for the accounting misstatements (which
required the Group’s result for the year ended 31 December 2018 to be restated).
At 1 January
Charged to the income statement:
– Restructuring costs
– Costs associated with accounting misstatements
- Overseas sales taxation and social security liabilities
- Income protection provision
Utilised in the year
– Restructuring costs
– Costs associated with accounting misstatements
At 31 December
2020
£000
(2,989)
(2,688)
(260)
(220)
(145)
2019
£000
–
(4,211)
(1,955)
–
–
5,376
260
1,522
1,655
(666)
(2,989)
As at the end of 2020 all amounts recognised as provisions were expected to be utilised within
12 months and are held as current liabilities. The Directors do not anticipate that any of the above
will have a material adverse effect on the Group’s financial position or on the results of its operations.
23. 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 a corresponding 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.
From 1 January 2020 leases are shown separately on the balance sheet and in notes and hence not
within this note. Details of our lease liability and its movements can be found in note 17.
In response to the Covid-19 pandemic, the US Government established the Paycheck Protection
Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),
administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility
requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports
payroll, rent and utility expenses (“qualified expenses”). If the loan proceeds are fully utilised to
pay qualified expenses over the covered period, as further defined by the PPP, the full principal
amount of the PPP loan may qualify for loan forgiveness, subject to potential reduction based on
the level of full-time employees maintained by the organisation during the covered period as
compared to a baseline period.
194
195
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
23. BORROWINGS CONTINUED
Policy continued
During 2020, the Company received proceeds of £2.3m under the PPP loan scheme. These are
reported within local bank loans.
Amounts due within one year
At 31 December
Overdrafts*
Local bank loans
Secured bank loans**
2020
£000
(13,920)
(158)
2019
£000
(16,232)
(340)
(27,005)
(35,640)
(41,083)
(52,212)
These overdrafts are legally offsetable with a net balance of £NIL (2019: £Nil). However, they have not been netted off in accordance with IAS32.42.
*
** £21.4million relates to the parent company.
Amounts due after one year
At 31 December
Local bank loans*
2020
£000
(2,199)
(2,199)
2019
£000
(162)
(162)
*
The local bank loans for FY20 consist of the PPP loans as described above. Movement from £2.3m is due to FX.
Secured bank loans
At the year end, the Group had up to £33m (2019: £36m) of funds available under its Revolving
Credit Facility (RCF), plus a £5m (2019: £5.0m) overdraft facility. The RCF had 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 facilities were set to mature on 30 April 2020;
they were subsequently extended as at 30 June 2020, to 30 June 2021, with the interest margins
increasing to 3.00% above LIBOR for the banking facility and the overdraft interest margin set at
3.25% above the Bank of England base rate. In return for the facility the Group gave the bank
guarantees over key UK, US, Dutch and Australian companies.
On 31 May 2021, the Company entered into a revolving multicurrency facility agreement with
National Westminster Bank Plc and Barclays Bank PLC for up to £47m (the “Facility”). The Facility
includes a £2.5m overdraft and the ability to draw up to £3m as a bonding facility, as required.
The Facility is provided on a three-year term (with two optional one-year extensions). The Facility
replaced the Company’s existing £33m RCF and £5m overdraft which were due to terminate on
30 June 2021.
As part of the Facility, the Company must comply with two key financial covenants, interest cover
and leverage, which are measured quarterly. The interest covenant is currently set at 3.50:1 and
decreases over the period of the loan to 2.50:1 for the quarter ended 30 June 2022, and to 2.00:1
from 31 March 2023 until the end of the term of the Facility. The leverage covenant is currently set
at 4.00:1 and increases to 5.00:1 from 30 June 2022.
196
At 31 December
Gross secured bank loans
Capitalised finance costs
Net secured bank loans
2020
£000
(27,271)
266
2019
£000
(35,677)
37
(27,005)
(35,640)
Future interest payable on secured bank loans at balance sheet date
(425)
(267)
Total secured bank loans and future interest
(27,430)
(35,907)
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
2020
£000
(27,430)
2019
£000
(35,907)
–
–
(27,430)
(35,907)
Total bank loans and borrowings used to calculate net cash are as follows, IFRS 16 Leases is
excluded from the calculation of net cash in accordance with our bank covenants:
At 1 January 2019
Cash movements
Non-cash movements
– Foreign exchange
– Lease
At 31 December 2019
Cash movements
Disposals
Non-cash movements
– Leases
Gross
secured
bank loans
£000
(38,502)
2,501
324
–
(35,677)
8,900
–
–
– Foreign exchange
(494)
Local
bank
loans
£000
(316)
(313)
127
–
(502)
(3,472)
1,462
–
155
At 31 December 2020
(27,271)
(2,357)
The borrowing used to calculate net cash.
*
** Refer to Note 17 for movements on the lease liability
24. OTHER NON-CURRENT LIABILITIES
31 December
Employment benefit provisions*
Long term bonus provision
Other**
Invoice
discounting
£000
(2,001)
Total
bank
loans*
£000
(40,819)
Lease
liabilities**
£000
(43,739)
Total
£000
(84,558)
2,001
4,189
10,638
14,827
–
–
–
–
–
–
–
–
451
–
805
1,256
(22,474)
(22,474)
(36,179)
(54,770)
(90,949)
5,428
1,462
9,695
–
15,123
1,462
–
(1,397)
(339)
51
(1,397)
(288)
(29,628)
(46,421)
(76,049)
2020
£000
1,416
1,765
1,592
4,773
2019
£000
821
–
309
1,130
This relates to long term service leave in some locations, deferred contributions to pension schemes, employers’ tax on Put option and long term bonus plans.
*
** The main items include a Termination Indemnity Plan in Italy of £576k (2019: £309k), this liability is for the 13th month salary accrual for all Italian employees
to be paid to them when they leave the company. The other main items include amounts due to investors relating to financing a specific film project within
This Film in Australia of £454k (2019: £0k).
197
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
25. POTENTIALLY ISSUABLE SHARES
This disclosure note summarises information relating to all share schemes disclosed in notes 26
and 27 and is not a Statutory requirement.
Put option holders are not required to exercise their options at the first opportunity. Many do not
and prefer to remain shareholders in the subsidiary companies they manage. As a result, some put
option holders may not exercise their options on the dates we have estimated in the tables above.
In the table below we present the total number of shares expected to be issued in the future for
put option schemes based on the 2020 year end share price of 83.6p and the estimated future
business performance for each business unit through to the point at which the put option schemes
first become exercisable. These forecasts are based on the Group’s five-year plans developed as
part of the strategic review exercise and presented at the Capital Markets day in January 2021.
Share issued to signing date in 2021
Since 1 January 2021, a total of 6,827k shares have been issued to fulfil Deferred Consideration,
Associate, IFRS 2 and IFRS 9 put option schemes (put options). These shares were issued at an
average share price of 90.8p. Had these put options been issued at the year end share price of
83.6p, 7,252k shares would have been issued.
Total future expected share issues as at 31 December 2020
At 83.6p
IFRS2 Schemes
IFRS9 Schemes
Committed
associate acquisitions
Other share issue
Deferred and
contingent consideration
Share price change
to issue date
Issued shares
Issued in
2021
’000
363
476
5,443
310
660
7,252
(425)
6,827
2021
’000
8,371
728
–
–
708
2022
’000
6,418
1,984
2023
’000
4,353
139
–
–
–
–
–
–
Potentially issuable
2025
’000
674
2024
’000
2,826
–
–
–
–
–
–
–
–
Total
’000
23,005
3,327
5,443
310
1,368
9,807
8,402
4,492
2,826
674
33,453
The same data from the table above is presented in the table below, but in this analysis the expected
total number of shares to be issued in the future for put option schemes is based on a range of
different potential future share prices.
Effect of a change in share price
Shares total by year
At 83.6p
At 100p
At 135p
At 150p
At 200p
At 250p
At 300p
Issued in
2021
’000
7,252
6,827
6,827
6,827
6,827
6,827
6,827
Potentially issuable
2021
’000
9,807
9,921
9,396
9,187
8,717
8,434
8,246
2022
’000
8,402
7,560
6,557
6,301
5,724
5,378
5,148
2023
’000
4,492
4,262
3,935
3,850
3,659
3,545
3,469
2024
’000
2,826
2,807
2,909
2,988
3,332
3,741
4,183
2025
’000
674
731
853
906
Total
’000
33,453
32,108
30,477
30,059
1,088
29,347
1,272
1,457
29,197
29,330
% Potentially
issuable
share
dilution*
21%
21%
19%
19%
18%
18%
18%
*
Based on the current issued share capital of 122,743,435 shares and taking into consideration all potentially issuable shares.
26. MINORITY SHAREHOLDER PUT OPTION LIABILITIES
Policy
See below but also Basis of Preparation note on page 128.
Put option liabilities provide a variable return of equity or cash to an awardee at a point in time
in the future. These instruments are recognised at amortised cost of the underlying award on the
date of inception. Both a liability on the balance sheet and a corresponding amount within the
minority interest put option reserve are recognised. Subsequent movements in the amortised cost
are accounted for as amortisation charges within finance gains/expense.
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 management (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).
The critical judgement as to when a share award scheme is accounted for as a put option liability
is provided in detail on page 128. Such schemes should be considered as rewards for future business
performance which are not conditional on the holder being an employee of the business. All
schemes are payable in equity, the number of future shares to issue is variable and will depend
on the share price and future performance of the business. These are accounted for as a liability
under IFRS 9 and held on the balance sheet at amortised cost.
As at 31 December
Amounts falling due within one year
Amounts falling due after one year, but less than three years
2020
£000
(978)
(1,804)
(2,782)
2019
£000
(3,183)
(3,918)
(7,101)
198
199
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
26. MINORITY SHAREHOLDER PUT OPTION LIABILITIES CONTINUED
Put options are exercisable from year ended 31 December:
At 1 January
Exchange difference
Exercises
Income statement charge due to:
– Change in profit estimates
– Change in share price
– Amortisation of discount
Total income statement charge
At 31 December
2020
£000
(7,101)
(1)
4,440
1,671
(1,732)
(59)
(120)
(2,782)
2019
£000
(13,764)
(188)
9,672
(2,512)
(237)
(72)
(2,821)
(7,101)
The estimated number of M&C Saatchi plc shares that will be issued to fulfil these options at
83.6p is 3,327,751 shares (2019: 124.0p is 5,726,613 shares).
Put options exercised in year
Paid in equity
Paid in cash
Exchange difference
Total
2020
£000
4,236
204
–
4,440
2019
£000
6,665
3,265
(258)
9,672
At each period end, the amortised cost of the put option liability is calculated in accordance with
the put option agreement to determine a best estimate of the future value of the expected award.
Resultant movements in the amortised cost of these instruments is 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 (2020: 83.6p;
2019: 124.0p).
The put option liability will vary with both our share price and the subsidiary enterprises’ performance.
Current liabilities are determined by our year end share price and the 2020 results of the companies
who can exercise in 2021. Non-current liabilities are determined by our year end share price and
the projected results of the companies who can exercise after 2021. The projected results use
management’s best estimate of the growth rates and margin of the companies who can exercise
after 2021.
200
Subsidiary
M&C Saatchi Little Stories SAS*
M&C Saatchi (Switzerland) SA
M&C Saatchi Merlin Ltd
Resolution Design Pty Ltd
Bohemia Group Pty Ltd
This Film Studio Pty Ltd
Year
2020
2020
2020
2020
2021
2022
% of subsidiaries
shares exercisable
19.9
20.0
15.0
15.0
25.9
30.0
* Option exercised in 2020, M&C Saatchi plc shares issued 10 February 2021.
27. SHARE-BASED PAYMENTS
Policy
Local management in some of the Group’s subsidiaries’ (who are Minority Interests of the Group) have
the right to a put option over the equity they hold in the relevant subsidiary or a cash settlement
feature. This put option is dependent upon the holders’ continued employment by the group or that
the holder received the option as a result of employment and is redeemable either in shares of
M&C Saatchi plc or by means of a cash payment to the holder. As such these schemes are accounted
for under IFRS 2 as equity-settled share-based payments to employees or as cash-settled
share-based payment schemes.
The critical judgement as to when a share award scheme is accounted for as an IFRS 2 Share-based
payment is provided in detail on page 128. Such schemes should be considered as rewards for
future business performance which are conditional on the holder being an employee of the business.
Equity-settled share-based payment schemes
Where an award is intended to be settled in equity then the scheme is accounted for as an equity
settled share-based payment scheme.
The fair value of the awards is calculated at the grant date of each scheme based on the present
Group’s share price and its relevant multiple. The Group estimates the shares that will ultimately vest,
using 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 shorter of the vesting
period or the period of required employment on a straight-line basis with a corresponding increase
in equity. In the event of a Business Continuation clause on departure, that element of the award
at issue is treated as vested and charged to the income statement at the grant date valuation,
and no credit to the income statement is taken for it in the future. All the remaining award is
revalued annually for the non-market condition (profitability of the subsidiary) and allocated to
the income statement on a straight-line basis.
The fair value of the awards is calculated by means of a Monte Carlo model with inputs made in
terms of 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 to retained income.
201
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
27. SHARE-BASED PAYMENTS CONTINUED
Cash-settled share-based payment schemes
When a share-based payment scheme is intended to be a cash award then the scheme is accounted
for as a cash settled share-based payment scheme. A liability is recognised at inception of the
award and each end of each reporting period. The liabilities are held at fair value of the future
expected award.
The inputs to Monte Carlo models used to calculate the fair value of share awards granted during
the year are as follows:
Share price at grant
Expected volatility
Risk free rate
Dividend yield
Fair value of award per share
2020
2019
£1.12 £0.90 – £1.92
47%
53% – 87%
0.53% 0.52% – 0.70%
5%
0% – 3.33%
£1.45 £0.90 – £1.92
The total fair value of each award, expense recognised in the year plus grant and vesting dates
can be seen on pages 205 to 207. The weighted average share price of options exercised during
the period was £0.33 (2019: £3.05).
Share option activity exclude LTIP awards made to the Directors of the Group as they have been
accounted for as a bonus. These are discussed in the Directors’ Remuneration Report (pages 86 to
107).
During the year it was agreed to pay two put option schemes which had previously been reported
as equity settled schemes in cash. The reclassification had no P&L impact, but reduced equity by
£1.1m and increased trade and other payables by £1.1m at the start of the year. Due to this change
we have removed from these schemes items that we exclude from our Headline Profits. If such
items are removed in all years the equity expense recognised in the year is as follows:
Equity settled
Cash settled over equity in SA*
Total not affecting headline results (Note 1)
Cash based and settled awards – charge in year**
Total
2020
£000
3,275
25
3,300
922
2019
£000
10,266
342
10,608
–
4,222
10,608
Cash settled share-based payments
The movement in the liability required to be recognised at the end of each reporting period is as
detailed below.
1 January total
Equity settled transferred to cash based and settled awards
Revaluations
Settled
Foreign exchange
At 31 December
2020
£000
(571)
(1,121)
(947)
–
51
(2,588)
2019
£000
(1,086)
–
(342)
864
(7)
(571)
The balance as at 31 December 2020 is included within other payables in the balance sheet.
All the amounts related to South Africa is fully vested £545k (2019: £571k) and of the remaining balance £497k (2019: Nil) is fully vested.
Fully vested with no accounting charge in the period
M&C Saatchi AB
M&C Saatchi Accelerator Ltd
M&C Saatchi Marketing Arts Ltd
M&C Saatchi (M) SDN BHD
M&C Saatchi (S) Pty Ltd
M&C Saatchi Sport & Entertainment NY LLP
M&C Saatchi Sport & Entertainment Pty LTD
M&C Saatchi Talk Ltd
M&C Saatchi European Holdings Ltd
M&C Saatchi PR UK LLP
M&C Saatchi Agency Pty Ltd
FCINQ SAS
Cometis SARL
The Source (W1) LLP
Influence Communications Ltd
LIDA NY LLP (MCD)
RE Team Pty Ltd
*
Some of our South African subsidiaries have unwritten cash-based awards that acquire the employee’s local equity are paid out on an employee’s departure.
** Cash based and settled awards relate to the schemes that in 2019 we had agreed to equity settle but which are now determined to be cash settled schemes.
Under the Companies Act rules these specific schemes cannot be settled using equity without the shareholder paying the nominal value and so
management agreed to settle these in cash and they have now been reclassified as cash settled. As these are no longer equity settled, are based on
achieving profit targets and are to be settled in cash, they are more akin to a conventional bonus and as such are accounted for as a Headline charge for
2020.
Fully vested – annulled schemes
Due to the sale to management of our equity in M&C Saatchi Brasil Comunicação Ltda, Send Me
A Sample Ltd and M&C Saatchi Tel Aviv Ltd, the put option was annulled.
With management’s departure, equity was bought back at nominal value from M&C Saatchi LA Inc.
202
203
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
27. SHARE-BASED PAYMENTS CONTINUED
Share option schemes (conditional shares) outstanding at the end of the year are shown as follows:
Clear Ideas (Singapore) Pte Ltd
Clear Ideas Ltd – B1 shares
Clear Ideas Ltd – B2 shares
Clear Deutschland GmbH
Clear Deutschland GmbH
Clear LA LLC
Greenhouse Australia Pty Ltd
Greenhouse Australia Pty Ltd
Greenhouse Australia Pty Ltd
Human Digital Ltd
Human Digital Ltd
Human Digital Ltd
Levergy Marketing Agency (Pty) Ltd
M&C Saatchi Advertising GmbH
M&C Saatchi Advertising GmbH
M&C Saatchi Advertising GmbH
M&C Saatchi Asia Hong Kong Ltd
M&C Saatchi Digital GmbH
M&C Saatchi Gad SAS
M&C Saatchi Holdings Asia Pte Ltd (Indonesia)
M&C Saatchi Holdings Asia Pte Ltd (Indonesia)
M&C Saatchi Merlin Ltd
M&C Saatchi Middle East Holdco Ltd
M&C Saatchi Mobile Ltd
M&C Saatchi Mobile Asia Pacific Pte Ltd
M&C Saatchi Mobile LLC
M&C Saatchi Network Ltd
M&C Saatchi PR International Ltd
M&C Saatchi PR International Ltd
M&C Saatchi PR International Ltd
M&C Saatchi (S) Pte Ltd
M&C Saatchi Social Ltd
204
Grant date
01/01/2018
03/03/2017
03/03/2017
31/08/2018
31/08/2018
28/03/2017
01/01/2018
01/01/2018
01/01/2018
12/04/2017
12/04/2017
12/04/2017
15/11/2017
12/07/2018
01/10/2018
14/12/2016
23/11/2018
14/02/2017
24/02/2016
20/03/2018
20/03/2018
10/01/2020
23/03/2016
23/08/2016
24/06/2015
28/10/2016
05/05/2015
29/11/2017
29/11/2017
29/11/2017
01/09/2013
29/06/2018
Vesting date
15/04/2023
15/04/2022
15/04/2022
15/05/2024
15/05/2026
15/04/2022
15/01/2022
15/01/2023
15/01/2024
15/04/2021
15/04/2022
15/04/2023
15/04/2021
15/04/2023
15/04/2023
15/04/2021
15/04/2024
15/04/2022
01/05/2019
07/09/2022
07/09/2024
15/05/2023
15/04/2019
15/04/2020
15/04/2020
15/04/2020
15/04/2019
15/04/2022
15/04/2023
15/04/2024
15/04/2019
26/06/2020
MI shareholding
2019
10.00%
Total charge
over vesting period
£000
32
Charge for
2020
£000
2
Charge for
2019
£000
7
5.00%
10.00%
20.00%
20.00%
5.00%
11.00%
1.80%
7.20%
11.50%
11.50%
17.00%
11.90%
4.10%
10.00%
7.90%
30.00%
5.00%
40.00%
27.40%
22.50%
15.00%
20.00%
10.00%
5.00%
0.01%
5.00%
11.30%
11.30%
11.30%
20.00%
22.00%
228
457
135
121
13
404
81
381
72
53
76
118
–
–
–
381
285
2,687
242
394
127
22
12,000
68
4,611
5,275
63
56
49
–
1,339
16
(23)
121
96
(13)
140
27
119
(35)
(25)
(17)
(176)
–
–
–
82
128
–
107
131
123
–
956
4
386
–
–
–
–
–
–
(3)
(8)
–
–
7
160
21
68
7
5
5
191
(2)
–
–
63
30
640
33
32
–
22
3,291
(24)
1,330
384
(7)
(6)
(5)
(237)
–
205
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
27. SHARE-BASED PAYMENTS CONTINUED
M&C Saatchi Social Ltd
M&C Saatchi Social Ltd
M&C Saatchi SpA
M&C Saatchi Sport & Entertainment Ltd
M&C Saatchi Sport & Entertainment LA LLC
M&C Saatchi Sport & Entertainment NY LLP
M&C Saatchi Sport & Entertainment NY LLP
M&C Saatchi Sport & Entertainment NY LLP
M&C Saatchi (UK) Ltd
M&C Saatchi World Services LLP
M&C Saatchi World Services LLP
M&C Saatchi World Services LLP
M&C Saatchi, S.A. DE. C.V
Majority LLC
RE Worldwide UK Ltd
Scarecrow M&C Saatchi Ltd
Scarecrow M&C Saatchi Ltd
M&C Saatchi Talk Ltd
Talk.Purpose Ltd
Talk.Purpose Ltd
Talk.Purpose Ltd
The Source Insight Australia Pty Ltd
The Source Insight Australia Pty Ltd
Disposed of Companies
Schemes moved from equity to cash settled
M&C Saatchi Mobile Ltd*
M&C Saatchi Mobile Ltd*
TOTALS
Grant date
29/06/2018
29/06/2018
09/12/2015
31/10/2017
01/01/2018
01/11/2018
01/11/2018
01/11/2019
06/07/2018
05/12/2019
05/12/2019
05/12/2019
01/07/2017
07/11/2018
01/01/2018
01/05/2018
01/05/2018
23/11/2018
07/12/2018
07/12/2018
07/12/2018
15/02/2018
15/02/2018
Vesting date
30/06/2021
30/06/2023
15/04/2019
15/04/2021
24/04/2022
15/04/2019
15/04/2024
15/05/2025
15/04/2023
15/05/2020
15/05/2021
15/05/2022
15/04/2023
15/04/2024
31/12/2022
20/01/2020
20/01/2022
15/04/2023
15/04/2024
15/04/2025
15/04/2026
15/01/2022
15/01/2025
01/06/2018
10/08/2018
15/05/2024
per annum
MI shareholding
2019
13.50%
Total charge
over vesting period
£000
905
Charge for
2020
£000
–
Charge for
2019
£000
–
13.50%
10.00%
25.00%
35.00%
3.00%
12.50%
5.00%
12.00%
8.00%
6.00%
6.00%
41.00%
50.00%
49.90%
24.50%
24.50%
10.00%
6.00%
6.00%
8.00%
14.00%
21.00%
0.00%
0.00%
739
2,590
357
464
62
447
175
159
1,117
1,452
1,264
262
–
570
227
55
192
–
–
–
98
182
–
–
–
–
–
–
(73)
–
135
37
–
375
495
287
61
(37)
(146)
7
(98)
7
–
–
–
31
45
–
–
222
(121)
303
37
38
–
(27)
742
779
787
17
34
78
89
74
85
(1)
(1)
(1)
16
12
(21)
3,275
9,145
–
–
–
624
497
1,121
3,275
10,266
* During the year, two put option schemes which had previously been reported as equity settled schemes were reclassified as cash settled. The reclassification
had no P&L impact, but reduced equity by £1.1m and increased trade and other payables by £1.1m at the start of the year.
206
207
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
27. SHARE-BASED PAYMENTS CONTINUED
The large change in the charge between 2019 and 2020 is caused by the following reasons:
• Full vesting of M&C Saatchi Mobile Ltd & M&C Saatchi Mobile LLP equity schemes part way
through 2020, with only 1/4 year charge in 2020 – causing a £3.3m reduction;
• Reclassification of IFRS2 charges for two M&C Saatchi Mobile Ltd schemes for which the Group
had a choice of settlement in either shares or cash. It is now expected to be settled in cash so
the scheme has been reclassified in 2020 and a charge in 2020 of £0.9m (2019: £1.1m) is now
included within cash settled charges instead of equity settled charges (marked * above);
• Schemes that fully vested in 2019 causing a £1.0m reduction in the charge;
• M&C Saatchi World Services scheme that started 5 Dec 2019. However, 60% of the charge is taken
on day one as the scheme had a business continuity clause thus did not require a performance
obligation. The net reduction in the charge is £1.1m; and
• Deterioration in non-market forecasts (profits) – reduction of £0.5m.
Conditional shares issuable
Currently all our equity-settled share-based payment schemes are conditional shares. The
shareholder holds equity in a subsidiary company and has a right, after a period of time, to
convert it to shares in M&C Saatchi PLC. Changes to our share price, local subsidiary profitability
or group profitability affect the number of shares we are committed to pay in exchange for these
conditional shares. The below table shows the number of shares that we will issue at the 2020
year end share price of 83.6p (2019: 124.0p) assuming:
1) the put option was exercised at the first available opportunity, even if that gives no reward, and:
2) we do not exercise our right under business continuity clauses to block the exercise (and
assuming no revenue declines in the year after the put).
Our management forecast of potentially issuable shares (Note 25) reflects the earliest estimated
time that management believes such option will be exercised. The difference to timing of
exercises explains the difference in number of share exercisable between Note 25 and the
following table.
208
At 1 January 2020
Reclassification to cash settled scheme
Granted or amended
Exercised
– Shares issued (average 32.8p)
– Share price effect of exercise
Changes in estimate
– Changes to profitability
– Changes to share price (2020:83.6p. 2019:124.0p)
At 31 December 2020
Explanation of the changes in estimate:
Number of
shares
‘000
27,359
(6,863)
20,496
378
(14,025)
10,099
5,131
432
22,511
• Changes to profitability: The majority of the change to profitability increasing the number of shares
was caused by one subsidiary, which, due to its counter cyclical nature has had a good year in
2020. Other key increases are from small subsidiaries in large markets who have used the past
crisis to get market fit and are now expected to expand at a faster rate. Many conditional share
subsidiaries have not had a reduction in profitability as great of the Group, thus their share of
the group has increased, along with the number of shares they are likely to receive.
• Changes to share price: During the year there were large changes in our share price, with our
share price reducing from 124.0p at the start of year, down to 32.8p when we fulfilled a put with a
fixed monetary valuation, and back to 83.6p by year end. The revaluation at year end of remaining
schemes only increases the number of shares we needed to issue by 432k shares. The movement
is the balance between the debt ladened scheme with a variable multiple, where the number of
shares reduces with a reduction in share price, versus the fixed value schemes, where the number
of share increases with a reduction in share price.
As many of our scheme’s period of required employment has been fulfilled, changes to profitability
(the non market variable) have no effect on the accounting charge, however, the number of
shares we need to fulfil the option continues to change.
Conditional shares issuable used in these accounts
Per EPS calculation
Share based payments
Potentially issuable shares
2020
Number
of shares
‘000
11,963
22,511
23,005
Note
1
27
25
2020
Share
price
used
65.1p
83.6p
83.6p
2019
Number
of shares
‘000
3,650
27,359
25,936
2019
Share
price
used
269.1p
124.0p
124.0p
209
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
27. SHARE-BASED PAYMENTS CONTINUED
As explained on the previous page, share based payments (Note 27) calculates the number of
shares that could be issued at the first vesting date after the year end and potentially issuable
shares (Note 25) calculates the number of shares that could be issued at the earliest estimated time
that management believes such option will be exercised. Both use the year end share price in the
calculation.
The EPS calculation (note 1) for conditional shares uses the average share price for the year,
calculating the number of shares to be issued using its formula value had it been possible to
exercise on the year end date, and takes a deduction for any remaining uncharged share option
charge at start of year and the share of profits the is allocatable to the equity during the year.
The EPS calculation is thus attempting to show the dilutive effect rather than the likely shares we
will issue. For EPS calculation (note 1) for other items apart from conditional shares we use the
average share price for the year, and only if the calculation creates a dilutive effect, based on
year end and prior year results are the potentially issuable shares counted in the EPS calculation.
28. 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.
Number
of shares
87,603,553
1p Ordinary
shares
£000
876
At 31 December 2018
Exercise of M&C Saatchi Mobile share options
Acquisition of 10% of M&C Saatchi SPA
Acquisition of 10% of M&C Saatchi Merlin Ltd
Acquisition of 33% of Shepardson Stern & Kaminsky LLP*
Acquisition of 10% M&C Saatchi (M) SDN. BHD
Acquisition of 17% of Bohemia Group Pty Ltd
Acquisition of M&C Saatchi Sports & Entertainment smaller shareholders
At 31 December 2019
Exercise of M&C Saatchi Mobile share options
1,785,527
825,755
131,501
1,048,747
408,115
1,397,613
395,949
93,596,760
13,671,602
Final payment for acquisition of 33% of Shepardson Stern & Kaminsky LLP*
8,295,033
Acquisition of 22% M&C Saatchi Social Ltd
353,195
18
8
1
11
4
14
4
936
137
82
4
At 31 December 2020
115,916,590
1,159
*
Shares were issued by M&C Saatchi plc to enable the acquisition by M&C Saatchi Agency Inc. of this equity.
210
The Group holds 485,970 (2019: 485,970) of the above M&C Saatchi plc shares in treasury.
29. FAIR VALUE MEASUREMENT
Policy
See also basis of preparation on page 130.
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;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the 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
£Nil (2019: £Nil).
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 14.
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 2020 and 31 December 2019:
At 31 December 2020
Financial assets
Equity investments at FVTPL
Financial liabilities
Contingent consideration
Level 1
£000
Level 2
£000
Level 3
£000
–
–
–
–
11,410
(452)
211
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
29. FAIR VALUE MEASUREMENT CONTINUED
At 31 December 2019
Financial assets
Equity investments at FVTPL
Financial liabilities
Contingent consideration
Level 1
£000
Level 2
£000
Level 3
£000
–
–
–
–
14,851
(758)
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.
The movements in the fair value of the level 3 recurring financial assets and liabilities are shown
as follows:
At 1 January 2020
Net loss in the income statement
Additions
Disposal
Redefined as deferred consideration
Currency movements
At 31 December 2020
Equity instruments
at FVTPL
£000
14,851
Contingent
consideration
£000
(758)
(3,315)
713
(736)
–
(103)
11,410
(374)
–
–
691
(11)
(452)
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 19. 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:
Adjusted purchase price
+10%
-10%
Increase/(decrease) in
fair value of asset
2020
£000
1,141
Increase/(decrease) in
fair value of asset
2019
£000
1,485
(1,141)
(1,485)
In addition, management considers 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**
Value after discounts
Decrease in fair
value of asset
2020
£000
(3,423)
(958)
7,029
Decrease in fair
value of asset
2019
£000
(4,455)
(1,247)
9,149
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 the 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 the 2018 acquisition of
Scarecrow Communications Ltd
The Scarecrow Communication Ltd 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.
30. FINANCIAL RISK MANAGEMENT
Principal financial instruments
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 29.
212
213
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
30. FINANCIAL RISK MANAGEMENT CONTINUED
Group
Financial assets
Equity investments at FVTPL
Financial liabilities
Contingent consideration
2020
£000
2019
£000
11,410
14,851
(452)
(758)
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 +/- 10% movement in the exchange
rate of the Group’s significant currencies is as follows:
Company
The Company does not directly hold any financial instruments recognised at fair value.
30.1 – General objective, policies and processes
The Board 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.
30.2 – 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 cash flows 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.
30.3 – Foreign exchange 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).
214
Exchange rate
USD +10%
USD -10%
AUD +10%
AUD -10%
Increase/
(decrease)
in profit
before tax
2020
£000
764
(695)
268
(244)
Increase/
(decrease)
in profit
after tax
2020
£000
625
(568)
172
(156)
Increase/
(decrease)
in profit
before tax
2019
£000
173
(142)
598
(489)
Increase/
(decrease)
in profit
after tax
2019
£000
108
(88)
413
(338)
The year end and average exchange rates to GBP for the significant currencies are as follows:
Currency
USD
AUD
Year End Rate
2019
1.32
2020
1.37
Average Rate
2019
1.28
2020
1.29
1.77
1.88
1.87
1.84
The Group assumes that currencies will either be freely convertible, or the currency can be used in
the local market to pay for goods and services, which we can sell to clients in a freely convertible
currency. Within our 2020 year end cash balances we hold £506k in Indian Rupees; £498k in Libyan
Dinars; and £2,513k in South African Rands.
30.4 – Interest rate risk
The Group is exposed to interest rate risk because it holds a banking facility of up to £33m and an
overdraft facility of up to £5m, 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 reasonably 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 2020 would (decrease)/increase by £(138)k/£138k
(2019: £(192)k/£192k). This is principally attributable to the Group’s exposure to interest rates on its
floating rate loan.
215
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
30. FINANCIAL RISK MANAGEMENT CONTINUED
30.5 – Liquidity risk
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 + 3.0%.
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 year, these projections indicated that the Group
had sufficient liquid resources to meet its obligations under all reasonably expected
circumstances.
The following table sets out the contractual maturities (representing undiscounted contractual
cash flows) of financial liabilities:
Group
At 31 December 2020
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*
(65,915)
(30,000)
–
Loans and borrowings
Overdrafts
Total
–
(27,163)
(2,199)
(13,920)
–
–
(79,835)
(57,163)
(2,199)
–
–
–
–
–
–
–
–
*
Excludes taxes as these are not considered financial instruments and contract liabilities as these are not financial liabilities.
Company
At 31 December 2020
Trade and other payables
Loans and borrowings
Total
216
Up to
3 months
£000
3 to
12 months
£000
1 to
2 years
£000
2 to
5 years
£000
over
5 years
£000
(2,887)
(45,355)
–
(21,600)
(2,887)
(66,955)
–
–
–
–
–
–
–
–
–
The maturity profile for leases accounted for under IFRS 16 (representing undiscounted contractual
cashflows) of lease liabilities:
£000
Period ending 31 December:
2021
2022
2023
2024
2025
Later years
Gross future liability before discounting
The Group breached no banking covenants during the year.
2020
2019
9,909
8,974
8,223
5,448
5,062
30,745
68,361
10,770
7,971
6,090
6,181
5,054
33,997
70,063
30.6 – Credit risk
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 levels of accrued and deferred income are 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, the risk
of default is considered low.
Impairment
The group has one principal class of assets in scope for expected credit loss test:
• Trade receivables
The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses
a lifetime expected loss allowance for all trade receivables.
217
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
The expected loss rates for each business are based on the payment profiles of sales at least
over a period of 24 months before 31 December 2020 or 31 December 2019 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 expected credit loss allowance as at 31 December 2020 and 31 December 2019 was determined
as follows for trade receivables.
31 December 2020
Expected loss rate (%)
Trade receivables
Loss allowance
31 December 2019
Expected loss rate (%)
Trade receivables
Loss allowance
Not
past due
0.02%
0-30 days
past due
0.01%
31-90 days
past due
0.02%
38,417
13,312
4,501
8
1
1
Not
past due*
0.02%
0-30 days
past due
0.01%
31-90 days
past due
0.02%
47,557
16,600
5,309
11
2
1
Trade receivables
> 120 days
past due
3.55%
91-120 days
past due
0.51%
966
5
1,338
47
Trade receivables
> 120 days
past due
3.55%
91-120 days
past due
0.51%
674
3
2,576
91
* Within the 2019 figures we identified amounts that needed to be presented net between trade and other receivables and trade and other payables and
within trade and other receivables. Advance billing of £5.3million was grossed up in the balance sheet in 2019 between trade receivables and contract
liabilities. These items were correctly accounted for in 2020 and reclassified in 2019 for comparative purposes. We have not included a third balance sheet
where we have made prior year balance sheet reclassifications as we believe that this would not be helpful to users of the accounts and could be
misleading as a result of the issues identified in the 2019 audit.
Under IFRS 9 Financial Instruments, the expected credit loss is the difference between asset’s
gross carrying amount and the present value of the estimated future cashflows discounted at
the asset’s original effective interest rate.
Contract assets relate to work-in-progress, and as we have no experience of material write offs
in relation to these financial assets, no expected credit loss allowance is recognised.
30.7 – Share price risk
As detailed on page 128 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.
30.8 – 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 Board 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 29.
30.9 – Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a
going concern 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 does 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 23, cash and cash equivalents as disclosed in the cash flow statement and equity
attributable to equity holders of the parent as disclosed in the Statement of Changes in Equity.
31. GROUP COMPANIES
Key
* All those entities included in the below list in which the Group holds less than 50% of the share
capital are accounted for as Associates (note 15). All subsidiary companies which the Group
controls in line with the requirements of IFRS 10 have been included in the consolidated
financial statements.
** 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 will guarantee
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.
218
219
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
31. GROUP COMPANIES CONTINUED
As at 31 December
UK
Alive & Kicking Global Ltd**
Audience Communications Ltd**
Black & White Strategy Ltd
Clear Ideas Consultancy LLP**
Clear Ideas Ltd**
FYND Media Ltd**
H2R Research 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 Fluency Ltd**
M&C Saatchi German Holdings 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**
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** & ***
220
Country
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
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Effective % ownership
2020
Effective % ownership
2019 Activities
100
–
100
85
85
100
80
60
95
88
88
88
88
81
96
91
100
100
100
50
67
80
100
100
84
100
100
73
100
75
100
80
100
100 Dormant
100 Marketing
100 Dormant
85 Marketing
85 Marketing
100 Media Buying
80 Research
60 Research
95 Dormant
70 Dormant
100 Direct Marketing
100 Direct Marketing
70 Advertising
56 Advertising
96 Holding Company
70 Advertising
– Advertising
100 Holding Company
100 Holding Company
50 Advertising
85 Talent Management
80 Holding Company
89 Mobile Marketing
100 Holding Company
66 Dormant
100 PR Agency
100 PR Agency
51 Marketing
100 Marketing
75 Sport Sponsorship & Entertainment PR Agency
100 Holding Company
80 Marketing
100 Holding Company
221
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
31. GROUP COMPANIES CONTINUED
As at 31 December
M&C Saatchi WS .ORG Ltd**
Re Worldwide Ltd**
SaatchInvest Ltd**
Send Me A Sample Ltd**
M&C Saatchi Talk Ltd** & ***
Talk.Purpose Ltd** & ***
The Source (London) Ltd**
The Source (W1) LLP**
This Is Noticed Ltd**
Tricycle Communications Ltd**
Europe
Cometis SARL
FCINQ SAS
M&C Saatchi Gad SAS
M&C Saatchi Little Stories SAS*
M&C Saatchi the Loop SARL
Moonlike M&C Saatchi SARL
M&C Saatchi One SAS
Paris Gad Holding SAS
Tataprod SARL
Clear Deutschland GmbH
M&C Saatchi Advertising GmbH
M&C Saatchi Sports & Entertainment GmbH
M&C Saatchi Digital GmbH
M&C Saatchi PR UG (haftungsbeschränkt)
M&C Saatchi SpA
M&C Saatchi PR srl
Clear Netherlands BV
M&C Saatchi B.V.
M&C Saatchi International Holdings BV
M&C Saatchi Sport & Entertainment Benelux BV
M&C Saatchi Madrid SL
M&C Saatchi Sponsorship SL
M&C Saatchi Digital SL
222
Country
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
France
France
France
France
France
France
France
France
France
Germany
Germany
Germany
Germany
Germany
Italy
Italy
Netherlands
Netherlands
Netherlands
Netherlands
Spain
Spain
Spain
Effective % ownership
2020
80
50
100
10
61
49
100
90
69
80
–
–
–
6
–
–
–
–
–
51
78
86
95
78
90
90
85
50
100
100
10
49
24
Effective % ownership
2019 Activities
80 Not for profit marketing
50 Branding
100 Holding Company
60 Marketing
61 PR Agency
49 PR Agency
100 Research Agency
90 Research Agency
69 Internet Retailer
80 Holding Company
51 Advertising
88 Website Construction
100 Advertising
80 PR Agency
80 Advertising
70 Advertising
100 Advertising
98 Holding Company
98 Production and publishing
51 Marketing
78 Advertising
86 Sport Sponsorship & Entertainment PR Agency
95 Marketing
80 Dormant
90 Advertising
90 Dormant
85 Dormant
50 Advertising
100 Holding Company
100 Sport Sponsorship & Entertainment PR Agency
51 Advertising
49 Dormant
24 Dormant
223
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
31. GROUP COMPANIES CONTINUED
As at 31 December
Media By Design Spain S.A.
M&C Saatchi PR SRL
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***
Razor Media (Pty) Ltd
M&C Saatchi Istanbul*
M&C Saatchi Middle East FZ LLC
M&C Saatchi FZ LLC
Asia and Australia
1440 Agency Pty Ltd
Elastic Productions Pty Ltd
Bellwether Global Pty Ltd
Bohemia Group Pty Ltd
Brands In Space Pty Ltd
Clear Australia 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
224
Country
Spain
Spain
Sweden
Sweden
Sweden
Switzerland
Bahrain
Israel
Lebanon
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Turkey
United Arab Emirates
United Arab Emirates
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Effective % ownership
2020
24
84
70
70
70
76
89
–
10
56
50
50
50
50
62
50
25
80
80
80
80
80
59
80
85
80
64
76
80
80
100
80
Effective % ownership
2019 Activities
24 Dormant
66 Dormant
70 Advertising and Marketing
70 Advertising
70 Dormant
76 Advertising
100 Dormant
80 Advertising
10 Advertising (Associate)
56 Advertising
50 Advertising
51 Advertising
50 Advertising
50 Advertising
50 Sport Sponsorship & Entertainment PR Agency
50 Dormant
25 Advertising (Associate)
80 Advertising
80 Advertising
80 Dormant
80 Production
80 Dormant
59 Advertising
80 Design
85 Dormant
80 Finished Art & Production Management Studio
64 Advertising
76 Branding and Digital Marketing
80 Digital Marketing
80 Advertising
100 Holding Company
80 Direct Marketing
225
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
31. GROUP COMPANIES CONTINUED
As at 31 December
M&C Saatchi Sport & Entertainment Pty Ltd
M&C Saatchi Sydney 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
Tricky Jigsaw Pty Ltd
This Film Studio Pty Ltd
Yes Agency Pty Ltd
Ugly Sydney Pty Ltd
World Services (Australia) Pty Ltd
eMCSaatchi Pty Ltd
The Source Insight Australia Pty Ltd
M&C Saatchi Advertising (Shanghai) Ltd*
Clear Asia Ltd
M&C Saatchi Asia Ltd
M&C Saatchi (Hong Kong) Ltd*
M&C Saatchi Spencer Hong Kong Ltd
Re HK Ltd
February Communications Pvt Ltd*
M&C Saatchi Communications Pvt Ltd
M&C Saatchi Mobile India LLP
Scarecrow M&C Saatchi Ltd
PT. MCS Saatchi Indonesia
M&C Saatchi Ltd*
M&C Saatchi World Services Pakistan (Pvt) Ltd
M&C Saatchi (M) Sdn Bhd
Design Factory Sdn Bhd
Watermelon Productions Sdn Bhd
M&C Saatchi Source (M) SDN BHD
Clear KL (MYR)
Clear Ideas (Singapore) Pte Ltd
Create Collective Ltd
226
Country
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
China
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
India
India
India
India
Indonesia
Japan
Pakistan
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Singapore
Singapore
Effective % ownership
2020
72
Effective % ownership
2019 Activities
72 Sport Sponsorship & Entertainment PR Agency
80
80
80
70
68
48
68
56
70
60
80
80
52
40
79
100
40
70
100
20
95
99
51
50
10
40
49
49
49
49
100
77
100
80 Advertising
80 Advertising
80 PR & Marketing
70 Marketing
68 Design
48 Holding Company
68 Marketing
56 Production
70 Marketing
60 Dormant
80 Marketing
80 Dormant
52 Research Agency
40 Consultancy (Associate)
79 Dormant
100 Advertising
40 Advertising (Associate)
70 Advertising
100 Branding
20 Advertising (Associate)
95 Dormant
88 Marketing
51 Advertising
50 Advertising
10 Advertising (Associate)
40 Marketing (Joint Venture)
49 Advertising
49 Advertising
49 Advertising
49 Research Agency
100 Marketing
77 Marketing
100 Networking
227
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
31. GROUP COMPANIES CONTINUED
As at 31 December
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
CSZ Comunicação Ltda*
Lily Participacoes Ltda
M&C Saatchi Brasil Comunicação Ltda
M&C Saatchi Brasil Participacoes Ltda
M&C Saatchi/Insight Pesquisa & Planejamento Ltda
Santa Clara Participacoes Ltda*
M&C Saatchi, S.A. DE. C.V
Clear LA LLC
Clear USA LLC
Clear NY LLP
LIDA NY LLP (MCD)
LIDA USA LLP
M&C Saatchi Agency Inc.
World Services US Inc. (California)
M&C Saatchi Mobile LLC
M&C Saatchi PR LLP
M&C Saatchi Share Inc.
M&C Saatchi Sport & Entertainment NY LLP
M&C Saatchi Sport & Entertainment LA LLC
M&C Saatchi NY LLP
Majority LLC
Shepardson Stern + Kaminsky LLP
Technology, Humans and Taste LLC*
World Services US Inc. (New York)
Country
Singapore
Singapore
Singapore
Thailand
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Mexico
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Effective % ownership
2020
50
80
95
20
25
100
60
100
100
25
59
95
85
85
76
100
100
100
100
100
80
80
65
90
69
100
30
80
Effective % ownership
2019 Activities
50 Holding Company
80 Advertising
88 Mobile Marketing
20 Marketing (associate)
25 Advertising
100 Holding Company
60 Advertising
100 Holding Company
100 Dormant
25 Advertising (associate)
59 Advertising
95 Marketing
85 Marketing
85 Holding Company
76 Direct Marketing
100 Marketing
100 Holding Company
53 Advertising
100 Mobile Marketing
100 PR
53 Dormant
80 Sport Sponsorship & Entertainment PR Agency
65 Sport Sponsorship & Entertainment PR Agency
90 Dormant
50 Production
100 Marketing Consultant
30 Marketing (associate)
80 Dormant
Within the above list the following companies are associates, Technology, Humans and Taste LLC;
Santa Clara Participacoes Ltda; CSZ Comunicação Ltda; Love Frankie Ltd; M&C Saatchi Ltd,
M&C Saatchi (Hong Kong) Ltd; M&C Saatchi Advertising (Shanghai) Ltd; M&C Saatchi Istanbul;
and M&C Saatchi SAL. Refer to note 45 for the list of registered addresses.
228
229
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
32. RELATED PARTY TRANSACTIONS
Key management remuneration
Key management remuneration is disclosed in note 5.
Audited detail on Directors’ remuneration is disclosed in the Directors’ Remuneration Report on
page 102 to 103.
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 £322k (2019: £825k), of which nil (2019: 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 AUD3.4m (2019: AUD3.3m) (see
note 18 for further details). Other directors of Australian subsidiaries had shareholder loans to
acquire equity in the subsidiaries AUD0.7k (2019: AUD0.8k), a further AUD2.0m (2019: AUD2.4m) has
been advanced in shareholder loans but is not accounted for as an asset in these accounts due to
its accounting as a conditional share award under IFRS 2.
4 subsidiary company directors had advances of over £10k that are outstanding at the year end,
the total amount of these advances being £160k (2019: £160k).
The Directors of our subsidiary M&C Saatchi S.P.A have interests in Utopia S.r.l. During the year
M&C Saatchi S.P.A invoiced £888k (2019: £790k) to this company of which nil (2019: £452k) was
outstanding at the year end, and bought £2,691k (2019: £3,103k) of services from these companies
of which nil (2019: £410k) was outstanding at the year end.
The Members of management of our subsidiary Shepardson Stern + Kaminsky LLP have interests
in Wingo Ltd. During the year Shepardson Stern + Kaminsky LLP invoiced $90k (2019: $186k) to this
company of which $90k (2019: $12k) was outstanding at the year end.
On 9 October 2020 as part of a reorganisation prior to disposal, Moray MacLennan’s 5% interest
in Send Me A Sample Ltd was cancelled with his agreement.
During the year, the Group made purchases of £1,534k (2019: £295k) from its associates. At
31 December 2020, there was £118k due to associates in respect of these transactions (2019: nil).
During the year, £574k (2019: £515k) of fees were charged by Group companies to associates.
At 31 December 2020, associates owed Group companies £837k (2019: £1,301k).
230
33. COMMITMENTS
With the introduction of IFRS 16 Leases in 2019, most of the Group’s commitments are now shown
on the balance sheet. There has been one lease entered into post balance sheet. The lease is in
Sydney, Australia, at 99 Macquarie Street, and commenced on 01/06/2021 for 10 years, terminating
on 31/05/2031. The annual cash payments for this space are AUD2.7m.
Capital commitments
At the year end we had £677k committed costs (2019, £550k) to acquire property plant and equipment.
Other commitments
Other than our normal contractual commitments to staff and the commitment to complete
profitable projects for our clients, the Group does not have any other material commitments
which are not reflected on the balance sheet.
34. POST BALANCE SHEET EVENTS
On 31 May 2021, the Group agreed a new 3 year joint banking arrangement with Barclays and
NatWest. The new revolving credit facility for £47m (the “Facility”), includes two sub-limits for
ancillary facilities, both provided by NatWest: a £2.5m overdraft and a £3m performance bond
line. The Facility, between M&C Saatchi Plc and M&C Saatchi International Holdings BV, matures
in May 2024 and is available for drawdowns in Sterling, US Dollar and Euro at an interest margin
of 3.0% p.a. The Facility replaces the Group’s existing £33m revolving credit facility and £5m
overdraft which were due to terminate on 30 June 2021.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax
rate will increase to 25%. Since the proposal to increase the rate to 25% had not been
substantively enacted at the balance sheet date, its effects are not included in these financial
statements. However, it is likely that the overall effect of the change, had it been substantively
enacted by the balance sheet date, would be to reduce the tax expense for the period by £60k,
to increase the deferred tax asset by £60k.
During 2020, the four of the Group’s US companies received proceeds of £2.3m under the
Paycheck Protection Program (PPP) loan scheme. At the date of preparation of the financial
statements, three out of the four companies have had their loans forgiven, with the fourth
company still awaiting a decision on their loan of £0.5m.
On 1 January 2021, the Board appointed Moray MacLennan as Chief Executive Officer. On 3
March 2021, the Board appointed Vinodka (Vin) Murria as a Non-Executive Director.
On 10 February 2021, the Group acquired a controlling interest in its Hong Kong associate, M&C
Saatchi (Hong Kong) Ltd and its Brazilian associate, Santa Clara Participacoes Ltda. On 12
March 2021, the Group acquired a 10% shareholding in Australie SAS, France. The initial
accounting for these transactions is incomplete at the time the financial statements are
authorised for issue, therefore the IFRS 3 disclosure is not presented in the Annual Report.
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.
231
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Notes to the Financial Statements Continued
35. OTHER ACCOUNTING POLICIES
Reserves
Equity comprises the following:
Share capital
Represents the nominal value of equity shares in issue.
Foreign exchange reserve
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 premium
Represents the excess over nominal value of the fair value of consideration received for equity
shares, net of issuance costs.
Retained earnings
Cumulative gains and losses recognised.
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 has been used when the Group
acquires an increased stake in a subsidiary. The purpose of the non-controlling interest reserve
is to reflect the unrealised losses relating to underlying investments held by subsidiary
companies. This loss is realised on disposal or impairment of the underlying asset. It works as
follows: 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. In the event that the underlying investment held by a subsidiary company is
impaired or disposed of, then the related value in the non-controlling interest reserve is taken to
retained earnings. If, however, a corresponding merger reserve was created at inception, and its
related value in non-controlling interest acquired reserve is taken to retained earnings, then the
related merger reserve is released to retained earnings.
36. NEW AND REVISED STANDARDS ISSUED BUT NOT YET EFFECTIVE
In the current year, the following Standards and Interpretations became effective:
• Interest Rate Benchmark Reform– Phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7);
• Impact of Covid-19 Related Rent Concessions (Amendment to IFRS 16);
• Definition of material (Amendments to IAS 1 and IAS 8).
For the detail on the impact on the financial statements, refer to note 17 for Covid-19 rent concessions.
We do not believe that the Interest Rate Benchmark Reform has a material difference on the
group accounts given the low level of inter bank rates at present.
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:
IFRS 17
Insurance contracts
Amendments to IAS 1
Classification of liabilities as current or non-current
Amendments to IAS 1 and
IFRS Practice Statement 2
Amendments to IAS 28
and IFRS 10
Disclosure of Accounting Policy
Definition of Accounting Estimate
Interest Rate Benchmark Reform—Phase 2 Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
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.
232
233
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Company Balance Sheet
At 31 December
Non-current assets
Investments
Deferred tax
Amounts due from subsidiary undertakings
Other non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Provisions
Deferred and Contingent consideration
Borrowings
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Deferred and Contingent consideration
Employment benefit provision
Bank loans
Total net assets
Note
2020
£000
2019
£000
38
129,874
127,994
42
39
40
41
13
13
192
87,831
2,250
87
89,832
2,071
220,147
219,984
4,930
8,256
13,186
2,946
10,679
13,625
(48,242)
(43,771)
(300)
(1,144)
(1,225)
(444)
(21,372)
(27,562)
(71,058)
(73,002)
(57,872)
(59,377)
162,275
160,607
–
(1,011)
–
(313)
(459)
–
(1,011)
(772)
161,264
159,835
At 31 December
Capital and reserves
Share capital
Share premium
Merger reserve
Treasury reserve
Share based payment reserve
Profit and loss account
Shareholders’ funds
Note
2020
£000
2019
£000
1,159
44,607
71,116
(550)
38,792
6,140
936
44,607
66,962
(550)
36,912
10,968
161,264
159,835
These financial statements on pages 234 to 249 were approved and authorised for issue by the
Board on 27 August 2021 and signed on its behalf by:
MICKEY KALIFA
Chief Financial Officer
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 2020 is a loss after tax of £(4,419)k (2019: profit of £3,431k).
The notes on pages 237 to 249 form part of these financial statements.
234
235
Financial Statements
Notes to the Company
Financial Statements
Share
based
payment
reserve
£000
33,343
–
10,266
Profit
and loss
account
£000
10,653
–
–
(6,697)
6,697
Total
£000
149,011
6,940
10,266
–
–
(9,813)
(9,813)
37. GENERAL INFORMATION AND ACCOUNTING POLICIES
M&C Saatchi plc acts as the holding company for of the M&C Saatchi plc group. The Company
is quoted on London’s AIM stock exchange and is domiciled and incorporated in England and
Wales (registered number 05114893). The address of its registered office is 36 Golden Square,
London, W1F 9EE.
The financial statements have been prepared in accordance with the requirements of the
Companies Act 2006 under the historical cost convention in accordance with the reduced
disclosure framework of FRS101. They have been prepared on a going concern basis, further
details of which are in the Directors’ report on page 108.
936
44,607
66,962
(550)
36,912
7,537
156,404
In adopting the reduced disclosure framework of FRS101, the Company has taken advantage of
the following exemptions from disclosure:
M&C Saatchi Group Annual Report 2020 Notes to the Financial Statements
Company Statement
of Changes in Equity
At 31 December 2018
Share
capital
£000
876
Share
premium
£000
£000
41,734
Merger
reserve
£000
63,197
Treasury
reserve
£000
(792)
Exercise of put options
60
2,873
3,765
242
–
–
–
–
–
–
–
–
–
–
–
–
Share option charge
Realisation of reserve
Dividends paid
Total transactions
with owners
Total comprehensive
profit for the year
At 31 December 2019
Exercise of put options
Recharge of share option
Share option charge
Reclassification of equity
settled share-based
payments to cash settled
Realisation of reserve
Total transactions
with owners
Total comprehensive
loss for the year
–
936
223
–
–
–
–
223
–
–
–
–
–
3,431
3,431
44,607
66,962
(550)
36,912
10,968 159,835
–
–
–
–
–
–
–
4,154
–
–
–
–
4,154
–
–
–
–
–
–
–
–
–
(683)
3,275
(1,121)
409
–
–
–
–
(409)
4,377
(683)
3,275
(1,121)
–
1,880
(409)
5,848
–
(4,419)
(4,419)
At 31 December 2020
1,159
44,607
71,116
(550)
38,792
6,140 161,264
The notes on pages 237 to 249 form part of these financial statements.
• 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 consistently and there were no
new policies adopted within the year:
a) Valuation of investments
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.
c) Group policies (preparation page 126, and the following policies)
For current tax (note 8), deferred tax (note 9), share-based payments (note 27) and borrowings
(note 23).
d) Share-based payments in Company
The cost of awards to employees of subsidiary entities classified as conditional share awards is
accounted for as an additional investment in the employing subsidiary. When such awards are
recharged to employing or acquiring entities, the investment in the Company’s books is reduced
by the value of equity awarded. In the event that the investment in the subsidiary created from
conditional share awards is impaired then there is an equal and opposite release from share-
based payment reserve.
236
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Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
Notes to the Company Financial Statements Continued
37. GENERAL INFORMATION AND ACCOUNTING POLICIES CONTINUED
Accounting policies applied continued
e) Dividends
Interim dividends are recorded when they are paid and the final dividends are recorded when
they become legally payable. Disclosure of dividend activity can be found at note 10.
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.
g) Expected credit losses
Amounts owed by subsidiaries are recorded at amortised cost and are reduced by expected
credit losses. Under IFRS 9 Financial Instruments, the expected credit losses are measured as the
difference between the asset’s gross carrying amount and the present value of estimated future
cash flows discounted at the financial asset’s original effective interest rate.
Key judgements & estimates
Judgements made on debt with other group companies:
a) A judgement to assess whether debt due from other group companies is a quasi-investment
under IAS 27 or an intercompany receivable under IFRS 9. We have assessed most of this debt
balance as an intercompany receivable under IFRS 9.
b) In the event that debt with other group companies is accounted for under IFRS9 a judgment
to assess whether such balances are repayable on demand or if they are payable over one
year.
The following estimates on the value are made:
a) Recoverability of intercompany debtors
Estimates on the future recoverability of debt and provisions are made where necessary. Such
estimates are based on the substance of the underlying agreements which typically rely on
subsequent asset sales by the debtor being used to clear amounts due to the parent.
b) Valuation of investments
Estimates are made on the future value of investments based on the lower of value in use and
net realisable value. This assessment is performed after any debt from entities has been
recovered. Impairments are made where necessary.
Reserves
Share-based payment reserve
Represents equity-settled share-based employee remuneration until such share options
are exercised.
238
38. INVESTMENTS
At 1 January
Acquisition of subsidiaries
Disposal of shares in subsidiary
Provision against acquired subsidiary
Conditional share award paid by subsidiary
Release of provision/(provision) against conditional share awards
Transfer of equity settled to cash settled awards
Conditional share awards*
At 31 December
*
Conditional share awards (note 27).
2020
£000
127,994
2019
£000
123,959
–
–
–
(683)
409
(1,121)
3,524
(309)
(2,749)
–
(6,697)
–
3,275
10,266
129,874
127,994
The value in use calculations have been based on the forecast profitability based on the 2021
Board approved budget and 5-year plans (presented at the Capital Markets day in January 2021),
with a residual growth rate of 1.5% p.a. applied thereafter. This forecast data is based on past
performance and current business and economic prospects. This data is then applied within a
discounted future cash flow forecast (DCF), which forms the basis for determining the recoverable
amount of each Investment.
The direct and indirect subsidiary undertakings are listed in note 31 to the consolidated
financial statements.
39. OTHER NON-CURRENT ASSETS
Loans to subsidiary employees*
Loans to assist equity purchase**
Total
2020
£000
1,967
283
2,250
2019
£000
1,788
283
2,071
*
This related to the AUD3.3m (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 the date the loan was
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.
40. TRADE AND OTHER RECEIVABLES
Amounts due less than one year
Prepayments
Corporation tax receivable
Other receivables
Total
2020
£000
270
4,249
411
4,930
2019
£000
126
2,464
356
2,946
239
Financial Statements
M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
Notes to the Company Financial Statements Continued
41. TRADE AND OTHER PAYABLES
Staff numbers are based on monthly average staff and exclude Non-Executive Directors.
Trade creditors
Amounts due to subsidiaries*
Accruals
Total
*
Repayable on demand.
2020
£000
(847)
2019
£000
(229)
(44,131)
(40,518)
(3,264)
(3,024)
(48,242)
(43,771)
42. AMOUNTS DUE FROM SUBSIDIARY UNDERTAKINGS
Amounts due from subsidiary undertakings are repayable on demand. However, agreements are
in place between subsidiary companies that state that such repayments will not be due until the
underlying investments of the subsidiary company are sold or realised. Due to these agreements
the amounts due from subsidiary undertakings have been defined as long term.
The Amounts receivable from subsidiary undertakings include receivables relating to exercised put
options. As detailed in notes 1 and 26, 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.
Amounts due from subsidiary undertakings
2020
£000
87,831
2019
£000
89,832
The amounts due from subsidiary undertakings are net of the expected credit losses of £9,899k
(2019: £13,539k) that have been provided against these balances. Our annual review of the
expected credit loss provision took into account trading performance, the reorganisations taking
place and likely future performance. As a result of this review the expected credit loss decreased
by £3,640k (2019: increased by £6,513k).
43. STAFF COST
Staff costs (including Directors) comprise:
Year ended 31 December
Wages and salaries
Social security costs
Other pension costs
Other staff benefits
Staff numbers
240
2020
£000
3,711
426
40
194
2019
£000
3,526
469
33
54
4,371
4,082
18
14
Directors’ remuneration
Directors’ salaries and benefits
Bonuses
Contributions to money purchase pension schemes
Total remuneration before accounting charges
Gain on exercise of share options
Total
The highest paid Director earned:
Director’s salary and benefits
Bonuses
Contribution to money purchase pension scheme
Total remuneration before accounting charges
Long term incentives
Total
2020
£000
1,908
–
–
2019
£000
2,111
225
4
1,908
2,340
–
–
1,908
2,340
2020
£000
373
–
–
373
485
858
2019
£000
247
225
–
472
–
472
The number of Directors with a money purchase pension scheme during the year was 5 (2019: 5).
The Directors are the key management personnel of the Company.
Additional details with regards to Directors’ remuneration, as required by Rule 19 of the AIM rules,
can be found in the Directors’ Remuneration Report on page 102 to 103. There has been neither
grant to, nor exercise by the Directors with regards to share options during either 2020 or 2019.
44. RELATED PARTIES
During the year, the Company charged a management recharge to subsidiaries totalling £773k
(2019: £4,818k). The amount due from subsidiary undertakings payable in cash of £87,831k
(2019: £89,832k) is net of £9,899k (2019: £13,539k) provisions for doubtful accounts.
Further details of related parties of the Company are provided in note 31.
241
Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
Notes to the Company Financial Statements Continued
45. LIST OF REGISTERED ADDRESSES
Country
Australia
Bahrain
Brazil
Entity
Bohemia Group Pty Ltd
Greenhouse Australia Pty Ltd
M&C Saatchi Sport & Entertainment Pty Ltd
Park Avenue PR Pty Ltd
Saatchi Ventures Pty Ltd
Tricky Jigsaw Pty Ltd
Resolution Design Pty Ltd
This Film Studio Pty Ltd
Ugly Sydney Pty Ltd
Bellwether Global Pty Ltd
Brands in Space Pty Ltd
Lida Australia Pty Ltd
1440 Agency Pty Ltd
Go Studios Pty Ltd
M&C Saatchi Direct Pty Ltd
eMCSaatchi Pty Ltd
M&C Saatchi Agency Pty Ltd
Re Team Pty Ltd
Registered Address
99 Macquarie Street, Sydney NSW 2000
Level 12, 131 Macquarie Street, Sydney NSW 2000
Level 6 131 Macquarie Street, Sydney NSW 2000
Level 19, 2 Market Street, Sydney NSW 2000
M&C Saatchi Asia Pac Holdings Pty Ltd
Level 12, 131 Lucouarel Street, Sydney NSW 2000
Hidden Characters Pty Ltd
M&C Saatchi Melbourne Pty Ltd
World Services (Australia) Pty Ltd
Yes Agency Pty Ltd
M&C Saatchi Bahrain WLL
Lily Participacoes Ltda
M&C Saatchi Brasil Comunicação Ltda
M&C Saatchi Brasil Participacoes Ltda
M&C Saatchi/Insight Pesquisa & Planejamento Ltda
Unit 19, 285A Crown Street, Surry Hills NSW 2010
Level 1, 129 York Street, South Melbourne VIC 3205
Suite 11.01, Level 11, 60 Castlereagh Street, Sydney NSW 2000
Level 17, 383 Kent Street, Sydney NSW 2000
51,122,1605,316 Manama Center
Avenida Brigadeiro Faria Lima, 1355 Jardim Paulistano 16 Andar, Sal São Paulo 01452-919
Rua Girassol, 925/927, 1st Floor, Vila Madalena, 05433-002
China
M&C Saatchi Advertising (Shanghai) Ltd
376 Wukang Rd, Xuhui Qu, Shanghai, 200331
Santa Clara Participacoes Ltda
Rua Wisard, 305, Vila Madalena, 3 Andar-Con, São Paolo
242
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Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
Notes to the Company Financial Statements Continued
45. LIST OF REGISTERED ADDRESSES CONTINUED
Country
Entity
France
Germany
Hong Kong
FCINQ SAS
M&C Saatchi Gad SAS
M&C Saatchi Little Stories SAS
M&C Saatchi One SAS
M&C Saatchi The Loop SARL
Moonlike M&C Saatchi SARL
Paris Gad Holding SAS
Cometis SARL
Tataprod SARL
Clear Deutschland GmbH
M&C Saatchi Advertising GmbH
M&C Saatchi Digital GmbH
M&C Saatchi PR UG (haftungsbeschränkt)
M&C Saatchi Sports & Entertainment GmbH
Clear Asia Ltd
M&C Saatchi (Hong Kong) Ltd
Re HK Ltd
M&C Saatchi Asia Ltd
India
M&C Saatchi Communications Pvt Ltd
February Communications Pvt Ltd
M&C Saatchi Mobile India LLP
Scarecrow M&C Saatchi Ltd
Registered Address
32 Rue Notre Dame des Victoires, 75002, Paris
14 Rue Meslay, 75003, Paris
Taunusanlage 8, Frankfurt am Main, 60329
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
141B Shahpur Jat New Delhi
32 Ramjibhai Kamani Marg, Mumbai
Indonesia
PT. MCS Saatchi Indonesia
E.V. Hive, Plaza Kungan, Lantai 11, Jakarta Selatan 12920
Israel
Italy
Japan
Lebanon
Malaysia
M&C Saatchi Tel Aviv Ltd
M&C Saatchi PR srl
M&C Saatchi SpA
M&C Saatchi Ltd
M&C Saatchi SAL
M&C Saatchi (M) Sdn Bhd
Design Factory Sdn Bhd
Watermelon Production Sdn Bhd
M&C Saatchi Source (M) Sdn Bhd
1 Abba Even, Boulevard, Herzliya 4672519
Viale Monte Nero, 27 20135, Milan
26-1 Ebisy-Nishi 1-Chome, Shibuya- Ku, Tokyo
Quantum Tower, Charles Malek Avenue, St Nicolas, Beirut
Unit 10-2, 10th Floor, Bangunan Malaysia RE, 17 Jalan Dungun, Damansara Heights,
50490 Kuala Lumpur
15B, Jalan Tengku Ampuan Zabedah F9/F, Section 9, Shah Alam, Selangor Darul Ehsan 40100
Mexico
M&C Saatchi, S.A. DE. C.V
Darwin 74, Piso 1, Miguel Hidalgo, 11590 Ciudad de México, CDMX, Mexico
244
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Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
Notes to the Company Financial Statements Continued
45. LIST OF REGISTERED ADDRESSES CONTINUED
Country
Entity
Registered Address
Netherlands
M&C Saatchi International Holdings BV
36 Golden Square, London W1F 9EE, UK
Pakistan
Singapore
South Africa
Spain
Sweden
Clear Netherlands BV
M&C Saatchi B.V.
Keizersgracht 203 Amsterdam
Overschiestraat 61 F, 1062XD Amsterdam
M&C Saatchi Sport & Entertainment Benelux BV
Tuinstraat 157 B, 1015PB Amsterdam
M&C Saatchi World Services Pakistan (Pvt) Ltd
48M, Block 6 P.EC.H.S, Karachi
M&C Saatchi Holdings Asia Pte Ltd
Clear Ideas (Singapore) Pte Ltd
M&C Saatchi (S) Pte Ltd
M&C Saatchi Mobile Asia Pacific Pte Ltd
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
Razor Media (Pty) Ltd
M&C Saatchi Madrid SL
M&C Saatchi Digital SL
Media By Design Spain S.A.
M&C Saatchi Sponsorship SL
M&C Saatchi AB
M&C Saatchi Go! AB
M&C Saatchi PR AB
1 Coleman Street, #05-06A, The Adelphi, Singapore 179803
59 Mohamed Sultan Road #02-08, Sultan Link, Singapore 238999
Media Quarter, 5th Floor, Corner Somerset and De Smit Street, Ded, Waterkant, Cape Town
9 8th Street, Houghton, Johannesburg, Gauteng 2198
Calle Gran Via, 27, 28013, Madrid
Skeppsbron 16, 11130, Stockholm
Switzerland
M&C Saatchi (Switzerland) SA
Boulevard Carl-Vogt 83, 1205, Geneve
Thailand
Turkey
Love Frankie Ltd
M&C Saatchi Istanbul
571 RSU Tower, 10th Floor, Soi Sukhumvit 31, Sukhumvit Road, Wattana District, Bangkok
Acarkent Mah. 1 Cadde No 132B Beykoz, Istanbul
United Arab Emirates
M&C Saatchi Middle East Fz LLC
Al Thuraya Tower 1, Floor 14, Office 1404, Dubai Media City, Dubai, 62614
United Kingdom
All UK entities (except for the following):
M&C Saatchi Fz LLC
Clear Ideas Ltd
Clear Ideas Consultancy LLP
M&C Saatchi Talk Ltd
PO Box: 77932, Abu Dhabi
36 Golden Square, London, W1F 9EE
2 Golden Square, London, W1F 9HR
3-5 Rathbone Place, London, W1T 1HJ
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Financial Statements M&C Saatchi Group Annual Report 2020 Notes to the Company Financial Statements
45. LIST OF REGISTERED ADDRESSES CONTINUED
Country
Entity
USA
LIDA USA LLP
Shepardson Stern + Kaminsky LLP
M&C Saatchi Agency Inc.
LIDA NY LLP
Clear NY LLP
M&C Saatchi Mobile LLC
Majority LLC
World Services US Inc
Registered Address
88 Pine Street, 30th Floor, New York, NY 10005
138 W 25th Street, 5th Floor, New York, NY 10001
Mailing Address: 8033 Sunset Blvd. #1075 Los Angeles, CA 90046
Physical Address: 1801 N. Vista Street Los Angeles, CA 90046
M&C Saatchi Sports & Entertainment NY LLP
466 Broome Street, New York, NY 10013
46. POST-BALANCE SHEET EVENTS
On 31 May 2021, the Group agreed a new 3 year joint banking arrangement with Barclays and
NatWest. The new revolving credit facility for £47m (the “Facility”), includes two sub-limits for
ancillary facilities, both provided by NatWest: a £2.5m overdraft and a £3m performance bond
line. The Facility, between M&C Saatchi Plc and M&C Saatchi International Holdings BV, matures
in May 2024 and is available for drawdowns in Sterling, US Dollar and Euro at an interest margin
of 3.0% p.a. The Facility replaces the Group’s existing £33m revolving credit facility and £5m
overdraft which were due to terminate on 30 June 2021.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax
rate will increase to 25%. Since the proposal to increase the rate to 25% had not been substantively
enacted at the balance sheet date, its effects are not included in these financial statements.
However, it is likely that the overall effect of the change, had it been substantively enacted by the
balance sheet date, would be to reduce the tax expense for the period by £60k, to increase the
deferred tax asset by £60k.
On 1 January 2021, the Board appointed Moray MacLennan as Chief Executive Officer. On 3 March
2021, the Board appointed Vinodka (Vin) Murria as a Non-Executive Director.
Subsequent to the year end there have been no other material events specific to the Company
requiring disclosure. Those items relevant to the Group are disclosed in note 34.
47. SHARE CAPITAL
Movements in the Company’s Share capital can be found at note 28.
248
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Financial Statements M&C Saatchi Group Annual Report 2020 Independent Auditors' Report
Independent
Auditors’ Report
to the members
of M&C Saatchi
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Qualified opinion (in respect of the comparability of the M&C
Saatchi plc’s Group loss and cash flows with the 2019 year-end)
In our opinion, except for the possible effects of the matter described in the Basis for qualified
opinion paragraph below:
• M&C Saatchi plc’s Group financial statements and Company financial statements (the
“financial statements”) give a true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 December 2020 and of the Group’s loss and cash flows for the year
then ended;
• the Group financial statements have been properly prepared in accordance with international
accounting standards in conformity with the requirements of the Companies Act 2006;
• the Company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise:
the Consolidated and Company Balance Sheets as at 31 December 2020; the Consolidated
Income Statement and Consolidated Statement of Other Comprehensive Income, the
Consolidated Cash Flow Statement and Analysis of Net Debt, and the Consolidated and
Company Statements of Changes in Equity for the year then ended; the Preparation section and
the notes to the financial statements, which include a description of the significant accounting
policies.
Basis for qualified opinion
Prior year restatements were identified by the directors during the year ended 31 December
2019. During the prior year audit, it was not possible for us to obtain sufficient appropriate audit
evidence in a reasonable timeframe regarding the amounts, including the restated amounts in
the statement of financial position as at 31 December 2018, forming the opening balances for the
prior year as at 1 January 2019, because of an absence of underlying documentation and an
inability to obtain explanations from the Group finance team members who are no longer
employed by the Group. This impacted the Consolidated income statement for the year ended
31 December 2019 and individual line items reported in cash generated from operations in the
Consolidated cash flow statement and the Consolidated statement of changes in equity for the
year ended 31 December 2019. Due to us not being able to obtain sufficient appropriate audit
evidence over the Group’s loss and cash flows for the year ended 31 December 2019, our opinion is
qualified, only in respect of the possible effect of this matter on the comparability between the
Group’s loss and cash flows for the year ended 31 December 2020 and the Group’s loss and cash
flows for the year ended 31 December 2019.
This matter only impacted the Company’s subsidiaries, and therefore our opinion on the
Company financial statements is unqualified.
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
qualified opinion on the Group financial statements and our unqualified opinion on the
Company financial statements.
Independence
We remained independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Our audit approach
Overview
• Full scope audits across 21 reporting units.
• Specified procedures over large or higher risk balances at certain out of scope components to
give appropriate coverage of all material or higher risk balances at the Group level.
• Central procedures performed over financial assets at fair value through profit or loss, IFRS 2:
Share-based Payments, minority shareholder put option liabilities, IFRS 16: Leases, goodwill
and other intangibles, taxation and going concern.
Key audit matters
• Revenue recognition (Group)
• Valuation of financial assets at fair value through profit or loss (Group)
250
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Financial Statements M&C Saatchi Group Annual Report 2020 Independent Auditors' Report
Independent auditors’ report Continued
• Recoverability of investments in subsidiaries and intercompany receivables (Company)
Otherwise, the key audit matters below are consistent with those in the prior year.
• Consideration of the impact of the Covid-19 pandemic (Group and Company)
Key audit matter
How our audit addressed the key audit matter
• Potential lack of comparability of the Group’s loss and cash flows with the 2019 year-end
Revenue recognition (Group)
(Group) – see Basis for qualified opinion section above
Materiality
• Overall Group materiality: £1,000,000 (2019: £1,100,000) based on professional judgement
having applied ‘rule of thumb’ percentages to a number of potential benchmarks and
considering the overall scale of the business.
• Overall Company materiality: £1,600,000 (2019: £1,600,000) based on 1% of net assets.
• Performance materiality: £500,000 (Group) and £800,000 (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most
significance in the audit of the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, 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. These
matters, and any comments we make on the results of our procedures thereon, were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Other than the matter described in the Basis for qualified opinion paragraph above, we
determined the matters described below to be the key audit matters to be communicated in our
report. This is not a complete list of all risks identified by our audit.
“Potential lack of comparability of the Group’s loss and cash flows with the 2019 year-end
(Group)” and “Revenue recognition (Group)” are new key audit matters this year resulting from
and replacing the previous year’s key audit matter “Prior period restatements/Revenue
recognition (Group)” as a result of the disclaimer of opinion/qualified opinion in the prior year.
“Going concern (Group and Company)” was a key audit matter last year due to the material
uncertainty related to going concern but the going concern consideration this year is included
within the “Consideration of the impact of the Covid-19 pandemic (Group and Company)” key
audit matter. “Carrying value of goodwill and investments in associates and joint ventures
(Group)” and “Accounting for management incentive schemes and non-controlling interests in
subsidiaries (Group and Company)”, which were key audit matters last year, are not included this
year because the audit risk relating to the areas reduced as a result of improved trading
performance and there being only minimal new put option schemes this year, respectively.
Refer to the accounting policies and Note 4
of the financial statements.
As there is a possibility that management
may be put under pressure to achieve
revenue forecasts, this was identified as an
area where fraud could occur.
We considered this would most likely occur
through posting a manual journal (including
a topside entry at a Group level) or through
accrued income balances which remained
on the balance sheet at year end. This risk
was identified in relation to the following
revenue streams:
• Provision of advertising and
marketing services;
• Commission based income in relation
to media spend; and
• Commission based income in relation
to talent performance.
In addition, we identified a risk of error in
relation to the misapplication of IFRS 15
Revenue from Contracts with Customers
(“IFRS 15”) given the extensive Group
structure and varying levels of understanding
of this standard by management across the
Group. This risk was identified in relation to
the following revenue stream:
• Provision of advertising and
marketing services.
We performed walkthroughs of the revenue process to
understand the revenue recognition for each of the full
scope reporting units.
For a sample of contracts within each in-scope reporting unit,
we performed the following procedures to ensure revenue
transactions existed and were accurately recorded:
• Obtained and read the underlying contracts to understand
the nature of the project/revenue, including understanding
the number of performance obligations in line with IFRS 15
and whether these were to be recognised over time or at a
point in time;
• Examined management’s assessment of agent versus
principal based on the underlying contracts and challenged
management to provide additional support for those contracts
that were considered to be the most judgemental; and
• Detailed testing from contract, through to invoice, evidence
supporting the level of work performed (where multiple
performance obligations exist, or percentage of completion
is applied) and cash received.
We tested debit balance sheet line items (e.g. accrued income
within contract assets and other receivables) to underlying
documentation including contracts, invoices and post year
end cash receipts to obtain a ‘high’ degree of assurance. This
was performed through targeted and non-statistical sample
testing to gain audit evidence over the existence and cut-off
of revenue transactions.
In addition to the work performed over full scope components
as detailed above, we also performed a detailed assessment of
a number of out of scope components with significant revenue
balances including obtaining supporting documentation
(e.g. contracts) for significant contracts and assessing contract
related balance sheet items to ensure these were supportable,
as well as considering the judgemental areas as set out above.
We also performed testing of unusual journals impacting
revenue, firstly through the use of data analytics to identify
unusual account combinations, and then obtaining supporting
documentation for any identified journals to ensure these
were appropriate entries. All material topside consolidation
journals were also subject to detailed testing.
Our work identified a number of errors in relation to revenue
recognition under IFRS 15 but did not indicate any fraudulent
matters. Following adjustments made by management, we
noted no remaining material issues arising from our work.
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Financial Statements M&C Saatchi Group Annual Report 2020 Independent Auditors' Report
Independent auditors’ report Continued
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Valuation of financial assets at fair value through profit or loss (Group)
Recoverability of investments in subsidiaries and intercompany receivables (Company)
This key audit matter was referred to as
“Valuation of unlisted investments (Group)”
in the prior year audit report.
Refer to the accounting policies and
Note 19 of the financial statements.
The Group holds shares in unlisted
investments, which are held at fair value,
with fair value gains and losses recognised
in the income statement. At the balance
sheet date, these were valued at £11.4m
(2019: £14.9m)
The investments are in unlisted early stage
businesses, of which the Group holds a
small percentage of the equity. There is
judgement applied in the consideration of
the valuation of the equity, with most being
based on a recent funding round or sale of
shares, however, some valuations are made
based on the fund manager’s expertise
with less supporting evidence presented
by management. As such, we included this
as a key audit matter due to the high level
of judgement and subjectivity applied.
Our audit procedures included:
• obtaining a full list of investments from management and
testing this for completeness based on review of
documentation including board minutes and discussions
with management.
• agreeing the initial cost and opening balances of
investments back to the previous year’s audited balances
• obtaining management’s valuations for investments, except
for those that were both individually and in aggregate
below performance materiality of £0.5m, and
- holding discussions with the relevant fund managers to
assess their suitability and reliability (e.g. proximity to
latest funding round, class of share issued and whether
the issue included third parties) for inclusion in the
valuation model;
- agreeing the inputs into these valuations to external
sources where available, e.g. information on funding
rounds, investor calls and other available information
(from the Company or other publicly available
information);
- searching for ancillary evidence at Companies House, on
the internet and from other sources to corroborate or
contradict management’s estimates;
- considering the impact on valuations of different share
classes of the investment held compared to any funding
round, considering whether there were any
circumstances or events that had arisen since the dates
of the valuation inputs that would impact on the
valuations; and
• for those that were considered to be highly judgemental,
we engaged our valuations specialists to assist with the
assessment of the valuations.
Our work identified a number of adjustments which have
been reflected by management in the financial statements.
Refer to the accounting policies in
Notes 37 and 42 (Company) of the
financial statements.
To address the risk over recoverability of investments in
subsidiaries and intercompany receivables, we performed
the following procedures:
The Company balance sheet includes
£129.9m (2019; £128.0m) investment in
subsidiaries and £87.8m (2019: £89.8m)
intercompany receivables.
• Obtained and evaluated management’s assessment of the
classification of intercompany loans within the scope of IFRS
9 Financial instruments (“IFRS 9”) or IAS 27 Consolidated
and separate financial statements;
The testing of these balances for impairment
is inherently judgemental as it relies on a
number of estimates including profit and
cash flow forecasts, discount rates and
long term growth rates. These items are all
subjective and susceptible to management
bias and calculation risk, and any resulting
impairment charges could be material.
• Assessed management’s calculation of the expected credit
losses under IFRS 9 in relation to the intercompany loans;
• Tested the recoverable values of investments by testing the
discounted cash flow model utilising valuation specialists to
assess the discount rates and long term growth rates
applied to management’s forecasts;
• Evaluated the difference between the total investment
carrying value and the Group’s market capitalisation; and
• Evaluated whether the classification of these loans is
appropriate in the Company balance sheet.
Based on the procedures performed and following
adjustments made by management, we noted no material
issues arising from our work over the recoverability of
investments in subsidiaries and intercompany receivables.
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Independent auditors’ report Continued
Key audit matter
How our audit addressed the key audit matter
Consideration of the impact of the Covid-19 pandemic (Group and Company)
Refer to Going concern, significant
accounting judgements and, significant
estimates and assumptions in the Preparation
section of the financial statements.
The Covid-19 pandemic has had a
significant impact on economies globally
with consequences for the judgements and
estimates made by the Group and
Company. The extent of the negative
impact of the pandemic on future trading
performance is unclear and measurement
of this, as it relates to the financial
statements, involves a degree of
estimation uncertainty.
Management has had particular focus
on the Group’s and Company’s ability
to continue as a going concern.
Management considered its forecasts as
part of the Group’s and Company’s going
concern statements and the Group’s
viability assessment, including the impact
of reduced revenues and adjusted
operating margins due to the impact of
the Covid-19 pandemic. This includes
applying stress tests to reflect the potential
for heightened financial risk stemming
from the ongoing effects of the pandemic
by modelling possible downside scenarios
to its base case model. Having considered
the impact of these possible downside
scenarios, together with an assessment of
planned and possible mitigating actions,
management has concluded that the
Group and Company are going concerns,
and that there is no material uncertainty in
respect of these conclusions.
We evaluated management’s assessment of accounting
estimates within the financial statements which could be
impacted by the challenging economic environment resulting
from the Covid-19 pandemic. This includes management’s
assessment of expected credit losses for current assets in the
Group and Company and intercompany receivables in the
Company. In addition, we audited management’s goodwill
impairment assessment which is based on management’s 5
year plan. We did not identify any issues with management’s
measurement of these estimates. We also considered the
appropriateness of management’s disclosures in the Annual
Report of the impact of the current environment and the
increased uncertainty on its accounting estimates and found
these to be adequate.
With respect to management’s going concern statements
and viability assessment, we evaluated management’s base
case and downside scenarios, challenging key assumptions
together with assessing the Group’s available facilities.
The procedures performed and our conclusions in respect
of going concern are set out in the “Conclusions relating to
going concern” section below. Our consideration of the
directors’ assessment of the prospects of the Group and of
the principal risks that would threaten the solvency or liquidity
of the Group, is set out in the “Corporate Governance
Statement” section below.
We considered whether changes to the Group and Company’s
working practices brought about by the impact of the
Covid-19 pandemic had had an adverse impact on the
effectiveness of management’s business process and IT
controls. We did not identify any evidence of significant
deterioration in the control environment.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give
an opinion on the financial statements as a whole, taking into account the structure of the Group
and the Company, the accounting processes and controls, and the industry in which they
operate.
The Group’s consolidation comprises 117 reporting units including trading entities, holding companies
and dormant entities. The Group’s trading entities vary significantly in size and we identified 21
reporting units that, in our view, required an audit of their complete financial information, due to
their size or risk characteristics.
Specific audit procedures over revenue transactions were performed at an additional reporting
unit, to give appropriate coverage over the balance at the Group level. Further, specific audit
procedures over central functions and areas of significant judgement, including financial assets
at fair value through profit or loss, IFRS 2 Share-based Payment, minority shareholder put option
liabilities, IFRS 16 Leases, goodwill and other intangibles, taxation and going concern were
performed by the Group audit team centrally. Together, the reporting units subject to audit
procedures and centralised testing accounted for 85% of Group revenues and 78% of absolute
Group profit before tax. For all reporting units that were not considered to be in scope for audit
procedures, the Group audit team performed desktop review procedures on a reporting unit basis.
Where the work was performed by an overseas reporting unit audit team, we determined the
level of involvement we needed to have in their audit work to be able to conclude whether
sufficient audit evidence had been obtained as a basis for our opinion on the consolidated
financial statements as a whole. As a part of our year end procedures, we held numerous
discussions with the overseas reporting unit teams to evaluate and review the work performed,
update calls on the progress of their fieldwork, discussion of issues arising and judgements
taken, and involvement in key meetings with local management.
Our scoping of the Company was based on the materiality of the Company, and covered all
material financial statement line items and related disclosure notes. All work was performed by
the Group audit team.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
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Independent auditors’ report Continued
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Financial statements – Group
Financial statements –
Company
Overall materiality
£1,000,000 (2019: £1,100,000).
£1,600,000 (2019: £1,600,000).
How we determined it
Professional judgement having applied
‘rule of thumb’ percentages to a number of
potential benchmarks and considering the
overall scale of the business
1% of net assets
As a non-trading entity, net
assets is the key measure used
by members in assessing the
performance of the Company
for the year.
Rationale for benchmark
applied
We considered calculating materiality in
several ways, including:
(a) Application of a 5% statutory loss before
tax, resulting in an indicative overall
materiality of £0.4 million; and
(b) Application of a 1% revenue, resulting in
an indicative overall materiality of £3.2
million.
In our professional judgement,
we concluded that materiality at the higher
end of the range (£3.2 million) would
encompass amounts which, if impacting
reported profits, could influence decisions
made by the Group’s members as a body,
and which therefore would be considered
material. We also concluded, in our
professional judgement, that amounts at the
lower end of the range (£0.4 million) would
not influence such decisions, given the
scale of the Group’s operations. We
therefore determined that an appropriate
level of materiality for performing the 2020
audit would be within this range, whilst at
neither the upper nor the lower end. Based
on our professional judgement, we
selected an overall materiality of £1.0
million.
For each component in scope of our Group audit, we allocated a materiality that is less than our
overall Group materiality. The range of materiality allocated across components was £60,000 to
£765,000. Certain components were audited to a local statutory audit materiality that was also
less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining the scope of our audit and the
nature and extent of our testing of account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance materiality was 50% of overall
materiality, amounting to £500,000 for the Group financial statements and £800,000 for the
Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of
misstatements, risk assessment and aggregation risk, and the effectiveness of controls – and
concluded that an amount at the lower end of our normal range was appropriate.
We agreed with those charged with governance that we would report to them misstatements
identified during our audit above £30,000 (Group audit) (2019: £55,000) and £30,000 (Company
audit) (2019: £55,000) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue
to adopt the going concern basis of accounting included:
• obtaining the directors’ financial forecast used in their going concern assessment and their
downside sensitivities and conclusions;
• testing the mathematical accuracy of the directors’ financial forecasts and the calculations for
financial covenant compliance;
• discussing and challenging management and the directors on the key assumptions made in
their going concern assessment;
• obtaining evidence supporting the reasonableness of the significant assumptions, including
internal documentation and, where possible, external evidence;
• considering the potential impact of the Covid-19 pandemic on the performance of the Group
globally and how this might impact forecasts;
• agreeing cash positions across the Group to bank statements at 31 July 2021;
• assessing the likelihood of the different scenarios and sensitivities considered by the directors
and performed our own independent assessment of other potential downside scenarios;
• examining banking agreements in respect of the Group’s new revolving credit and overdraft
facility entered into in May 2021 and the related covenants. We assessed the covenant
compliance of each forecast model; and
• considering the appropriateness of the disclosures made in respect of the going concern basis
of preparation.
Based on the work we have performed, we have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt on the
Group’s and the Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
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Independent auditors’ report Continued
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a
guarantee as to the Group’s and the Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance
Code, we have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the
financial statements and our auditors’ report thereon. The directors are responsible for the other
information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of
the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us
also to report certain opinions and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in
the Strategic report and Directors’ report for the year ended 31 December 2020 is consistent with
the financial statements and has been prepared in accordance with applicable
legal requirements.
Corporate governance statement
ISAs (UK) require us to review the directors’ statements in relation to going concern, longer-term
viability and that part of the corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance Code, which the Listing Rules of
the Financial Conduct Authority specify for review by auditors of premium listed companies. Our
additional responsibilities with respect to the corporate governance statement as other information
are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the
following elements of the corporate governance statement, included within the Governance
Review is materially consistent with the financial statements and our knowledge obtained during
the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging
and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in
place to identify emerging risks and an explanation of how these are being managed or
mitigated;
• The directors’ statement in the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the Group’s and Company’s ability to continue to
do so over a period of at least twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the
period this assessment covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was
substantially less in scope than an audit and only consisted of making inquiries and considering
the directors’ process supporting their statement; checking that the statement is in alignment with
the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of
the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of
the following elements of the corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the audit:
In light of the knowledge and understanding of the Group and Company and their environment
obtained in the course of the audit, we did not identify any material misstatements in the
Strategic report and Directors’ report.
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair,
balanced and understandable, and provides the information necessary for the members to
assess the Group’s and Company’s position, performance, business model and strategy;
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Independent auditors’ report Continued
• The section of the Annual Report that describes the review of effectiveness of risk management
and internal control systems; and
• The section of the Annual Report describing the work of the audit committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement
relating to the Company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in respect of the financial
statements, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair
view. The directors are also 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.
In preparing the financial statements, the directors are responsible for assessing the Group’s
and the 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 the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
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 an
auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a 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 the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our procedures are
capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks
of non-compliance with laws and regulations related to tax regulations, anti-bribery and
corruption legislation, health and safety regulation and equivalent local laws and regulations
applicable to reporting components, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the financial statements such as the Companies Act
2006 and AIM Rules for Companies. We evaluated management’s incentives and opportunities
for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries,
management bias in accounting estimates and the potential impact of management incentive
schemes held in subsidiaries. The Group engagement team shared this risk assessment with the
component auditors so that they could include appropriate audit procedures in response to such
risks in their work. Audit procedures performed by the Group engagement team and/or
component auditors included:
• Discussions with management, Group legal counsel and the Audit Committee including
consideration of known or suspected instances of non-compliance with laws and regulations
and frauds;
• Reading minutes of board meetings and details of cases identified through whistleblowing
systems;
• Agreeing financial statement disclosures to supporting documentation to assess compliance with
applicable laws and regulations;
• Challenging management’s significant judgements and estimates in particular those relating to
fair value measurement of financial instruments, valuation of management incentive schemes,
carrying value of goodwill, other intangibles and other assets, deferred tax assets and
provisions;
• Considering the entities with management incentives schemes and how these might influence
local management’s incentive to manipulate results and performing procedures aimed to
identify this; and
• Identifying and testing journal entries, in particular any journal entries posted with unusual
account combinations, and testing all material consolidation journals.
There are inherent limitations in the audit procedures described above. We are less likely to
become aware of instances of non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances,
possibly using data auditing techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations. We will often seek to target
particular items for testing based on their size or risk characteristics. In other cases, we will use
audit sampling to enable us to draw a conclusion about the population from which the sample
is selected.
A further description of our responsibilities for the audit of the financial statements is located on
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditors’ report.
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Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members
as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
In respect solely of the limitation on our work in respect of the comparability of the Group’s loss
and cash flows with the 2019 year-end, described in the Basis for qualified opinion paragraph
above:
• we have not obtained all the information and explanations that we considered necessary for
the purpose of our audit; and
• we were unable to determine whether adequate accounting records have been kept by the
Company.
Under the Companies Act 2006 we are also required to report to you if, in our opinion:
• returns adequate for our audit have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements are not in agreement with the accounting records and
returns.
We have no exceptions to report arising from this responsibility.
OTHER VOLUNTARY REPORTING
Directors’ remuneration
The Company voluntarily prepares a Directors’ remuneration report in accordance with the
provisions of the Companies Act 2006. The directors requested that we audit the part of the
Directors’ remuneration report specified by the Companies Act 2006 to be audited as if the
Company were a quoted Company.
In our opinion, the part of the Directors’ remuneration report to be audited has been properly
prepared in accordance with the Companies Act 2006.
NIGEL REYNOLDS
(Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 August 2021
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Financial Statements M&C Saatchi Group Annual Report 2020 Additional Information
Glossary
Billings
Headline
Billings comprise all gross amounts billed, or billable to clients in
respect of commission-based and fee-based income, whether
acting as agent or principal, together with the total of other fees
earned, in addition to those instances where the Group has made
payments on behalf of customers to third parties. It is stated
exclusive of VAT and sales taxes. This is a non-Statutory number
and is unaudited.
The Directors believe that the Headline results and headline
earnings per share measures 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.
Headline results represent the underlying trading profitability of
the Group, excluding all accounting charges related to equity and
investments. The items that are excluded from Headline results
are the exceptional items; the amortisation or impairment of
intangible assets (including goodwill and acquired intangibles, but
excluding software) acquired in business combinations, changes
to deferred and contingent consideration and other acquisition
related charges taken to the income statement; impairment of
investments in associates and right-of-use assets; gain or loss on
disposal of associates and subsidiaries; revaluation of investments
in Saatchinvest and their related costs; and the income statement
impact of put option accounting and share-based payment
charges. Exceptional items include restructuring and costs relating
to the accounting misstatements identified in 2019.
Company
Group
Net debt
Net revenue
Minority interests and
non-controlling interest
Revenue
M&C Saatchi Plc, a company incorporated and domiciled in
England and Wales, listed on the AIM Market of the London Stock
Exchange plc.
The Company and its subsidiaries.
Net debt at a period end is calculated as the sum of the net
borrowings of the Group, derived from the cash ledgers and
accounts in the balance sheet. Net debt excludes lease liabilities.
Net revenue is equal to revenue less project cost/direct cost.
It is not an IFRS defined term. It is, however, used as a key
performance indicator by the Group.
Within the Group, there are a number of subsidiary companies
and partnerships in which employees hold a direct interest in
the equity of those companies. These employees are referred to
as minority shareholders. Of these subsidiary companies and
partnerships, the majority account for the shareholding of their
minority shareholders as a management incentive (through the
award of conditional shares) and are 100% consolidated in the
Group’s financial statements. The remaining seven subsidiary
companies (including one without a put option) account for their
minority shareholders as non-controlling interests, a defined IFRS
term, with their share of the Group’s profits being shown
separately on the Income Statement.
Revenue comprises the total of all gross amounts billed, or billable
to clients in respect of commission-based, fee-based and any
other income where we act as principal and our share of income
where we act as an agent. The difference between Billings and
Revenue is represented by costs incurred on behalf of clients with
whom we operate as an agent, and timing differences where
invoicing occurs in advance or in arrears of the related revenue
being recognised.
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ADVISORS
NOMINATED ADVISOR AND BROKER
Numis Securities Ltd
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
www.numiscorp.com
BROKER
Liberum Capital Limited
25 Ropemaker Street
London EC2Y 9LY
www.liberum.com
SOLICITORS
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London EC4N 6AF
www.cms.law
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1 Embankment Place,
London, WC2N 6RH
www.pwc.co.uk
BANKERS
National Westminster Bank Plc
1 Princes Street
London EC2R 8BP
www.natwest.com
SECRETARY AND REGISTERED OFFICE
Victoria Clarke
M&C Saatchi plc
36 Golden Square
London W1F 9EE
www.mcsaatchiplc.com
COUNTRY OF REGISTRATION
AND INCORPORATION
England and Wales
Company number 05114893
Public limited company limited by shares
INVESTOR RELATIONS WEBSITE
www.mcsaatchiplc.com
REGISTRARS
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
www.computershare.com
PRELIMINARY ANNOUNCEMENT
OF 2021 RESULTS
Late May 2022
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Financial Statements Annual Report and Accounts 2020