M&C SAATCHI PLC

Unaudited results for the six months ended 30 June 2024

Strong performance, building foundations for future growth

Financial summary

^[1] Like-for-like (LFL) results adjust Headline results (Statutory results excluding one-offs and exceptionals) to exclude subsidiaries discontinued in 2023 and in H1 2024 and retranslate 2023 figures to 2024 FX rates.

² Refer to Notes for the definition of Net revenue and net cash.

³ Earnings are calculated after deducting tax and the share of profits attributable to non-controlling interests. Please see note 5 for a detailed view on Statutory vs. Headline EPS.

⁴ Within statutory reporting, profitability includes the improved cost management and mix benefits which are also in LFL, and, in addition, the impact of the exit of loss-making businesses over the last twelve months.  The decrease in net cash reflects the short-term impact of the settlement of put option liabilities.

Note: Note 1 of the financial statements reconciles Statutory results to Headline results. In order to provide a better basis for understanding our current and future performance, we provide commentary on LFL figures, where applicable, instead of Headline figures. Headline results are covered in the reports and accounts below and reflect the underlying profitability of the business units, by excluding a number of items that are not part of routine expenses.

Group performance - highlights

·      Strong LFL Net revenue growth of 6%, driven by 7% growth in Non-advertising Specialisms, largely Issues and Media, whilst Advertising grew 6%. Strong regional performances from the UK (+12.9%), Europe (+16.7%) and the Middle East (+47.6%)

·      Significant improvement in profitability driven by the global cost efficiency program, local cost actions, loss making business exits (particularly in Advertising), and improved mix:

o  LFL operating profit grew 40%, primarily due to Advertising

o  Operating margins of 14.2% (+3.4ppts), driven by higher-margin Non-advertising Specialisms at 23.4% margin (+2.2ppts), and Advertising at 11.4% margin (+7.2ppts)

o  LFL profit before tax increased 26%

·      Statutory earnings per share at 6.4p (H1 2023: 5.2p loss) reflects the underlying profitability improvement, assisted by a further reduction in put option liabilities, with minority interests now at 6% of earnings, down from 18% at H1 2023 

·      Cash generation: Net cash of £12.9 million (£-2.5 million movement vs H1 2023), however, net cash improved by £4.6 million vs FY 2023 (£8.3 million) having settled £5.9 million of put options in H1 2024; operating cash conversion rate was high at 98%[1]

·      Global cost efficiency programme remains on track to deliver annualised savings of £10 million by the end of FY 2024, having delivered £4.5 million in H1 2024 on top of £3.9 million achieved in FY 2023

·      Transformation investment continues with key hires to build the team for the future, including high-profile joint Chief Creative Officers, Global Head of Passions & PR, and the internal promotion of the UK Group CEO

·      Repeat business remains strong with c.75% of 2023 clients choosing to spend in H1 2024; new wins across our geographies and Specialisms include McDonalds, Ford, Danone, MTN, IKEA and Sony Pictures, adding to our strong blue-chip client roster

Operational LFL performance - highlights

·      Advertising: the significantly improved revenue growth was driven by momentum in the US, Europe and the Middle East, particularly versus difficult market conditions in H1 2023, while the closures of loss-making businesses and our back-office cost savings drove enhanced profitability:

o  Net revenue was £45.2 million (+6%), contributing 38% to Group Net revenue

o  Operating profit was £5.1 million (+183%)

o  Operating margin was 11.4% (+7.2ppts) 

·      Non-advertising Specialisms[2]: the strong topline performance was driven primarily by Issues reflecting growing demand from the security and government segments (+30%) and some recovery in Media (+3%).  Profitability from the higher-margin Non-advertising Specialisms was also very strong, reflecting our back-office cost savings programme and some exits from loss-making businesses:

o  Net revenue was £74.8 million (+7%), contributing 62% of the Group Net revenue

o  Operating profit was £17.5 million (+18%)

o  Operating margin was 23.4% (+2.2ppts)

Transformation journey reinforcing creativity

·      We are building a more efficient, stronger and scalable platform, with senior regional leadership to drive regional-first go-to-market

·      Our new structure with centralised services frees up creativity, and we are developing a culture which preserves our entrepreneurial spirit. Employee engagement metrics are steady, with the response rate well above the benchmark level

·      Our newly appointed high-profile, experienced leaders have already boosted our talent and, critically, strengthened the foundations for the next phase of our growth (with further new joiners in H2) 

·      We are democratising our data stack and technology, bringing several new products to market and for internal use, including those powered by AI

Outlook in line with market expectations

Our strong first half performance and solid Q3 trading to-date underpin our confidence in delivering in line with FY 2024 market expectations, despite continued market volatility, tougher H2 comparators and further investment in talent expected in the second half. 

Looking forward, we expect the increasing strength and diversity of our portfolio, the progress in the execution of our cost efficiency programme, and a more integrated and regional-first agile operating model, to provide sustainable organic growth, as well as resilience in the continuing volatile macro environment. Our transformation strategy continues, building foundations for long-term sustainable growth and returns for shareholders.

Zaid Al-Qassab, Chief Executive Officer, said:

"I am delighted to present this strong set of results, my first as CEO, which demonstrate the benefits of our ongoing transformation and diversity of our specialisms. Whilst preserving creativity at the heart of all we do, and leveraging the power of our global brand, we are creating a more agile, integrated, regional-first operating model which focuses on growth.

"My first impressions of the Group are incredibly positive: from the diversity of the businesses, operating from twenty-three geographies, the breadth of our capabilities, and the fantastic global brand of M&C Saatchi, to the creative and talented minds delivering inspiring work and outstanding service to our clients.

"We continue to make great progress in building a strong platform to deliver sustainable organic growth through our self-help initiatives and wider transformation. Our increasingly diversified revenue provides greater resilience against macro volatility, and our higher-margin businesses continue to be our highest growth contributors. Whilst there is always more to do, we are excited about the further potential we can unleash.

"Looking forward, despite continued volatility within our markets, we are confident that we are on track to deliver against market expectations for FY 2024, whilst noting the tougher second half comparators. We will continue to deliver on our cost saving programme whilst also making strategic investments in the second half of the year to underpin our ambition of long-term sustainable growth and delivering strong returns for shareholders."

M&C Saatchi 2024 Interim Results presentation

Zaid Al-Qassab, Chief Executive Officer, and Simon Fuller, Chief Financial Officer, will host an in-person presentation for analysts and investors at 9.00am BST on 18 September 2024 at 36 Golden Square, London W1F 9EE. To register your interest, please contact Headland Consultancy at MCSaatchi@headlandconsultancy.com.

A replay will be also available on the Company's website following the event at https://mcsaatchiplc.com/

Investor Meet Company presentation

In addition, M&C Saatchi will be hosting a separate live presentation hosted by Zaid Al-Qassab and Simon Fuller for retail investors via the Investor Meet Company platform on the same day at 12.30pm BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event up until 9.00am BST the day before via the Investor Meet Company dashboard or at any time during the live presentation.

Those wishing to sign up and join the meeting online, can do so here:

https://www.investormeetcompany.com/mc-saatchi-plc/register-investor 

Investors who already follow M&C Saatchi on the Investor Meet Company platform will automatically be invited.

FURTHER INFORMATION

PERFORMANCE REVIEW

Financial performance highlights

^[1] Like-for-like (LFL) applies constant foreign exchange rates and removes entities discontinued during 2023 and H1 2024 from Headline results. 

² Headline results reflect the underlying profitability of the business units, by excluding a number of items that are not part of routine expenses. Note 1 of the financial statements reconciles Statutory results to Headline results.

³ Refer to Notes for the definition of Net revenue, and net cash.

⁴ EBITDA is calculated excluding the income statement charges relating to IFRS 16.

⁵ Earnings are calculated after deducting tax and the share of profits attributable to non-controlling interests. Please see note 5 for detailed view on Statutory vs. Headline EPS.

This is a strong set of results which demonstrate both the fundamental strengths of our business and the benefits of our ongoing transformation.  This includes the impact of our cost efficiency programme, Project Forward, and the exit from loss-making businesses.  As the financial benefit of the latter is, by definition, excluded in the LFL measurement, the LFL results provide a meaningful base for future performance. 

Our improved LFL Net revenue growth of 6% has been underpinned by M&C Saatchi's powerful, global brand, creativity, and our iconic and loyal client base.  We won repeat business from c.75% of 2023 clients in H1 2024 and achieved significant new business wins. 

Our profitability improvement is significantly driven by our transformation initiatives. Cost savings achieved in H1 amounted to £4.5 million on an annualised basis, on top of the £3.9 million annualised savings achieved in FY 2023 and we are on track to deliver annualised savings of £10 million by the end of 2024, as previously announced.  Due to these cost saving initiatives operating profit rose 40% and operating margin was 14.2% (+3.4ppts).  Headline EBITDA grew 48% to £21.5 million (H1 2023:  £14.5 million).  LFL PBT rose 26% while Headline PBT rose 66%.

Headline Diluted EPS at 7.9p (H1 2023: 4.5p), is largely a result of improved profitability as well as the significant reduction in minorities to 6% of earnings from 18% as a result of the continued reduction in put option liabilities. We are well on track for minorities to be less than 5% of earnings in H2, at the lower end of market expectations.

The settlement of put options absorbed £5.9 million of cash in H1 and net cash stood at £12.9 million, down 16% or £(2.5) million vs. H1 2023 but up 55% or £4.6 million vs FY 2023. During H2 2024 we expect to settle a further £2.9 million of put options, leaving us with a residual liability of c.£5.6 million at a 195p share price (the share price as at 30 June 2024). The operating cash conversion rate was high at 98% and compares favorably to our longer-term target of 80% cash conversion, allowing for some degree of variability through the cycle.

The Group is exposed to movements in foreign currency exchange rates on the translation of the results of its overseas businesses. The LFL basis applies the constant foreign exchange applicable for the current period to the comparative period in order to present the results on a comparable basis.  Key Group currency movements reflected weakness in the Australian Dollar and Euro versus Sterling while the US Dollar was broadly flat.

OPERATIONAL REVIEW

Like-for-like reconciled to Headline summary

Non-advertising Specialisms delivered LFL Net revenue of £74.8 million (+7%), contributing 64% of Group Net revenue, while Advertising delivered £45.2 million, (+6%), contributing to the balance.

Non-advertising Specialisms performance was fuelled by 30% growth in Issues, highlighting our leading market position and the specific expertise that we have developed in this field. Media showed some recovery (+3%) against the more difficult year in 2023.  Advertising grew 6%, thanks to good momentum in the US, the Middle East and Europe.

Our higher-margin Non-advertising Specialisms delivered a significant increase in operating profit, up 18%, with operating margin of 23.4% (+2.2ppts), with good revenue growth, mix improvements and management of the cost base.  Advertising's 183% growth in operating profit, with operating margin at 11.4% (+7.2ppts) was largely driven by strong management of the cost base as well as the exit from loss-making businesses. 

Group costs increased largely due to bonus accrual in H1 2024, after the more challenging 2023 performance.

Individual Specialisms LFL performance

Advertising

38% of LFL Group Net revenue, in-line with in H1 2023

·      LFL Net revenue of £45.2 million (+6%) (H1 2023: £42.8 million)

·      Headline Net revenue of £45.2 million (+2%) (H1 2023: £44.3 million)

The first half of the year has shown an overall improvement in momentum across multiple markets, albeit against a weaker H1 2023, with good revenue growth in the US, Europe and the Middle East. This was driven by a combination of new client wins as well as retained client work from 2023. Market conditions in Australia and the UK remain challenging, largely due to subdued consumer sentiment and macro challenges.

Issues

22% of LFL Group Net revenue, up from 19% in H1 2023

·      LFL Net revenue of £27.0 million (+30%) (H1 2023: £20.7 million)

·      Headline Net revenue of £27.0 million (+28%) (H1 2023: £21.0 million)

Strong growth continued in the first half, driven by a combination of continued client work and new wins with multi-year engagements. We continue to develop our expertise in this unique and deeply specialised field of work, and see good momentum with a positive outlook for 2024.