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American Express Platinum Cashback Card:
Market Cap
£50.48m
Change Today
0.000p ()
Share Price
83.00p
IFRS Impact Statement
M&C Saatchi PLC
21 September 2007
M&C SAATCHI PLC
21 September 2007
IMPACT OF IFRS ON FINANCIAL STATEMENTS
TWELVE MONTHS TO 31 DECEMBER 2006 AND SIX MONTHS TO 30 JUNE 2006
Reconciliation of 2006 annual and interim statements from UK GAAP to IFRS
following the adoption of IFRS on 1 January 2007.
M&C Saatchi plc today restates its consolidated results for the year ended 31
December 2006 and half year ended 30 June 2006. M&C Saatchi plc formally adopted
IFRS from 1 January 2007 with its date of transition being 1 January 2006.
Future consolidated reporting will be in accordance with IFRS as adopted by the
European Union.
This announcement is unaudited.
Key Adjustments
•IAS 12 deferred tax on employee options, reduces 2006 annual tax charge
by £0.03m (£0.02m for 2006 half year).
•IAS 19 employee benefits (holiday pay) has no effect on 2006 annual
results. It caused 2006 half year statutory and headline profit before tax
to be reduced by £0.4m.
•Under IFRS 3 business combinations, goodwill is not amortised and is
tested annually for impairment. This increased 2006 annual statutory
operating profit by £1.7m (£0.9m for 2006 half year).
•IAS 32 and IAS 39 financial instruments requires us to value put options
held by minority shareholders, and this has reduced statutory profit before
and after tax by £9.0m in the 2006 annual results (£0.4m for 2006 half
year). It has also created a balance sheet liability of £22.3m in the 2006
annual results (£13.6m for 2006 half year).
A reconciliation from statutory profit before tax to headline profit before tax
can be seen on the following page.
IFRS 1 Relevant exemptions taken
•We have not restated our business combinations prior to 1 January 2006
(IFRS 3).
•Cumulative translation differences on all foreign operations as at 1
January 2006 are treated as nil (IAS 21)
For further information please call:
M&C Saatchi plc 020 7544 3693
Andy Blackstone, Company Secretary
NUMIS 020 7260 1000
Lee Aston
RECONCILIATION HEADLINE TO STATUTORY PROFIT BEFORE TAX
31 December 30 June 2006
2006 annual half year
£000 £000
UK GAAP statutory profit before tax 6,037 2,002
Add back amortisation of goodwill 1,735 854
----------- -----------
Headline UK GAAP profit before tax 7,772 2,856
IAS 1 - adjustment to associate presentation (2) -
IAS19 & IAS 34 holiday pay accrual - (436)
----------- -----------
Headline IFRS profit before tax 7,770 2,420
IAS 38 - amortisation of intangible assets (20) -
IAS 32 & IAS 39 - fair value adjustments on
minority shareholders put option liabilities (8,970) (384)
----------- -----------
IFRS statutory (loss) / profit before tax (1,220) 2,036
=========== ===========
Under UK GAAP the difference between headline and statutory profits was that
headline profits excluded amortisation of goodwill. Under IFRS the difference
between headline and statutory profits is that headline profits excludes the
impact of fair value adjustments on minority shareholders put option liabilities
and amortisation of intangible assets.
The financial information included in this report does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985, and is unaudited.
The year ended 31 December 2006 accounts, which were prepared under UK GAAP,
have been reported on by the Company's auditors and delivered to the Registrar
of Companies. The auditor's report on those statutory accounts was unqualified,
did not include references to any matters to which the auditors drew attention
by way of emphasis without qualifying their report, and did not contain a
statement under section 237(2) or (3) of the Companies Act 1985.
YEAR ENDED 31 DECEMBER 2006 - IFRS RECONCILIATION
UNAUDITED CONSOLIDATED INCOME STATEMENT
UK GAAP IFRS 3 IAS 38 IAS 1 IAS 12 IAS 32 & IAS 39 IFRS
Year ended 31 Business Intangible Presentation of Deferred tax Put options Year ended
December 2006 Combinations assets financial on options 31 December
statements - 2006
Associates
Notes (1) (2) (3) (8) (9)
£000 £000 £000 £000 £000 £000 £000
Turnover
(billings) 369,490 369,490
======= ======== ======= ======== ======= ======= =========
Revenue 75,877 75,877
Operating
profit before
goodwill
amortisation 6,258 6,258
Goodwill
amortisation
and impairment (1,735) 1,735 (20) - - - (20)
------- -------- ------- -------- ------- ------- --------
Operating
profit 4,523 1,735 (20) - - - 6,238
Share of
results of
associate 15 - - (10) - - 5
Financial
income 1,540 1,540
Financial costs (41) - - 8 - (8,970) (9,003)
------- -------- ------- -------- ------- ------- ---------
Profit /
(loss) before
taxation 6,037 1,735 (20) (2) - (8,970) (1,220)
Taxation on
profits (2,886) - - 2 32 - (2,852)
------- -------- ------- -------- ------- ------- ---------
Profit /
(loss) for the
financial
period 3,151 1,735 (20) - 32 (8,970) (4,072)
======= ======== ======= ======== ======= ======= =========
Attributable to:
Equity holders
of the Group 2,003 1,735 (20) - 32 (8,970) (5,220)
Minority
interests 1,148 1,148
------- -------- ------- -------- ------- ------- ---------
3,151 1,735 (20) - 32 (8,970) (4,072)
======= ======== ======= ======== ======= ======= =========
Earnings /
(loss) per share
- Basic 3.73p 3.23p (0.04)p - 0.06p (16.71)p (9.73)p
- Diluted 3.69p 3.19p (0.04)p - 0.06p (16.51)p (9.73)p
Average number
of shares -
Basic 53,677,484 53,677,484 53,677,484 53,677,484 53,677,484 53,677,484 53,677,484
Average number
of shares -
Diluted 54,347,216 54,347,216 54,347,216 54,347,216 54,347,216 54,347,216 53,677,484
Under IAS 33, earnings per share can be diluted by the LTIP and put options. In
2006 this effect is nil, see notes (7a) and (7b) for details. IAS 33 does not
allow the diluted EPS to be more than basic EPS due to more shares sharing a
loss thus diluted EPS is (9.73)p rather than (9.61)p had our issued options been
taken account of.
The numbers in the titles in brackets relate to the explanations in the notes to
these reconciliations. These explanations deal with the effects to all the
statements.
YEAR ENDED 31 DECEMBER 2006 - IFRS RECONCILIATION
UNAUDITED CONSOLIDATED BALANCE SHEET
UK GAAP IFRS 3 IFRS 3 IAS 1 & IAS 12 IAS 32 & IFRS
IAS 39 IAS 39
Year ended 31 Business Business Presentation of Deferred Tax on Put options Year ended 31
December 2006 Combinations Combinations - financial Options December 2006
- Goodwill Intangible statements
amortisation assets
Notes (1) (2) (4), (5) & (6) (8) (9)
£000 £000 £000 £000 £000 £000 £000
Non current assets
Goodwill 13,555 1,735 (20) - - - 15,270
Intangible
assets - - - 87 - - 87
Plant and
equipment 3,618 - - (87) - - 3,531
Deferred tax
assets 693 - - - 29 - 722
Investments 93 - - (93) - - -
Other non
current 448 - - 12 - - 460
assets -------- --------- --------- -------- -------- -------- --------
18,407 1,735 (20) (81) 29 20,070
-------- --------- --------- -------- -------- -------- --------
Current assets
Work in
progress 2,416 2,416
Trade and
other
receivables 45,987 - - 5 - - 45,992
Cash and cash
equivalents 31,284 31,284
-------- --------- --------- -------- -------- -------- --------
79,687 - - 5 - 79,692
-------- --------- --------- -------- -------- -------- --------
Current liabilities
Trade and
other (63,430) (63,430)
payables
Current tax
liabilities (1,036) (1,036)
Provision for
put options - - - - - (11,077) (11,077)
-------- --------- --------- -------- -------- -------- --------
(64,466) - - - - (11,077) (75,543)
-------- --------- --------- -------- -------- -------- --------
Net current
assets 15,221 - - 5 - (11,077) 4,149
Total assets
less current
liabilities 33,628 1,735 (20) (76) 29 (11,077) 24,219
Non Current
liabilities
Other non
current
liabilities (746) - - 76 - - (670)
Deferred tax
liabilities (141) (141)
Employment
benefits (221) (221)
Provision for
put options - - - - - (11,211) (11,211)
-------- --------- --------- -------- -------- -------- --------
Net assets 32,520 1,735 (20) - 29 (22,288) 11,976
======== ========= ========= ======== ======== ======== ========
Capital and reserves
Share capital 542 542
Share premium
account 9,618 9,618
Merger 13,553 1,203 - - - - 14,756
reserve
Treasury
reserve (792) (792)
Put option
reserve - - - - - (13,318) (13,318)
Share option
reserve 812 - - - 33 - 845
Foreign
currency
translation
reserve - - - (371) - - (371)
Retained
earnings 7,625 532 (20) 371 (4) (8,970) (466)
-------- --------- --------- -------- -------- -------- --------
Total
shareholders'
equity 31,358 1,735 (20) - 29 (22,288) 10,814
Minority
interest in
equity 1,162 1,162
-------- --------- --------- -------- -------- -------- --------
Total equity 32,520 1,735 (20) - 29 (22,288) 11,976
======== ========= ========= ======== ======== ======== ========
The numbers in the titles in brackets relate to the explanations in the notes to
these reconciliations. These explanations deal with the effects to all the
statements.
HALF YEAR ENDED 30 JUNE 2006 - IFRS RECONCILIATION
UNAUDITED CONSOLIDATED INCOME STATEMENT
UK GAAP IFRS 3 IAS 19 IAS 1 IAS 12 IAS 32 & IAS 39 IFRS
Half year ended Business Holiday Presentation of Deferred tax on Put options Half year
30 June 2006 Combinations Pay financial options ended 30
accrual statements - June 2006
Associates
Notes (1) (10) (3) (8) (9)
£000 £000 £000 £000 £000 £000 £000
Turnover
(billings) 150,256 150,256
======= ======== ======= ======== ======= ======= =======
Revenue 34,655 34,655
Operating
profit before
goodwill
amortisation 2,192 - (436) - - - 1,756
Goodwill
amortisation
and impairment (854) 854 - - - - -
------- -------- ------- -------- ------- ------- -------
Operating
profit 1,338 854 (436) - - - 1,756
Share of
results of
associate 3 - - (1) - - 2
Financial
income 675 675
Financial costs (14) - - 1 - (384) (397)
------- -------- ------- -------- ------- ------- -------
Profit on
ordinary
activities
before
taxation 2,002 854 (436) - - (384) 2,036
Taxation on
profits from
ordinary
activities (1,293) - 133 - 18 - (1,142)
------- -------- ------- -------- ------- ------- -------
Profit on
ordinary
activities
after taxation
for financial
period 709 854 (303) - 18 (384) 894
======= ======== ======= ======== ======= ======= =======
Attributable to
Equity holders
of the Group 264 854 (291) - 18 (384) 461
Minority
interests 445 - (12) - - - 433
------- -------- ------- -------- ------- ------- -------
Profit for the
financial
period 709 854 (303) - 18 (384) 894
======= ======== ======= ======== ======= ======= =======
Earnings per
share
- Basic 0.49p 1.58p (0.54)p - 0.03p (0.71)p 0.85p
- Diluted 0.48p 1.56p (0.53)p - 0.03p (0.70)p 0.84p
Average number
of shares -
Basic 54,206,799 54,206,799 54,206,799 54,206,799 54,206,799 54,206,799 54,206,799
Average number
of shares -
Diluted 54,644,954 54,644,954 54,644,954 54,644,954 54,644,954 54,644,954 54,644,954
Under IAS 33, earnings per share can be diluted by the LTIP and put options. In
2006 this effect is nil, see notes (7a) and (7b) for details.
The numbers in the titles in brackets relate to the explanations in the notes to
these reconciliations. These explanations deal with the effects to all the
statements.
HALF YEAR ENDED 30 JUNE 2006 - IFRS RECONCILIATION
UNAUDITED CONSOLIDATED BALANCE SHEET
UK GAAP IFRS 3 IAS 19 IAS 1 & IAS 12 IAS 32 & IFRS
IAS 39 IAS 39
Half year ended Business Holiday Presentation of Deferred Tax on Put options Half year ended
30 June 2006 Combinations Pay financial Options 30 June 2006
- Goodwill accrual statements
amortisation
Notes (1) (10) (4), (5) & (6) (8) (9)
£000 £000 £000 £000 £000 £000 £000
Non current assets
Goodwill 13,773 854 - - - - 14,627
Intangible
assets - - - 88 - - 88
Plant and
equipment 3,363 - - (88) - - 3,275
Deferred tax
assets 426 - - - (18) - 408
Investments 93 - - (93) - - -
Other non
current 356 - - 12 - - 368
assets -------- --------- --------- -------- -------- -------- --------
18,011 854 - (81) (18) - 18,766
-------- --------- --------- -------- -------- -------- --------
Current assets
Work in
progress 1,759 1,759
Trade and
other
receivables 40,653 40,653
Cash and cash
equivalents 23,742 23,742
-------- --------- --------- -------- -------- -------- --------
66,154 - - - - - 66,154
-------- --------- --------- -------- -------- -------- --------
Current liabilities
Trade and
other (50,379) - (436) - - - (50,815)
payables
Current tax
liabilities (948) - 133 - - - (815)
Provision for
put options - - - - - (6,821) (6,821)
-------- --------- --------- -------- -------- -------- --------
(51,327) - (303) - - (6,821) (58,451)
-------- --------- --------- -------- -------- -------- --------
Net current
assets 14,827 - (303) - - (6,821) 7,703
Total assets
less current
liabilities 32,838 854 (303) (81) (18) (6,821) 26,469
Non Current liabilities
Other non
current
liabilities (668) - - 81 - - (587)
Deferred tax
liabilities (182) (182)
Employment
benefits (274) (274)
Provision for
put options - - - - - (6,782) (6,782)
-------- --------- --------- -------- -------- -------- --------
Net assets 31,714 854 (303) - (18) (13,603) 18,644
======== ========= ========= ======== ======== ======== ========
Capital and reserves
Share capital 542 542
Share premium
account 9,618 9,618
Merger 14,144 612 - - - - 14,756
reserve
Put option
reserve - - - - - (13,219) (13,219)
Share option
reserve 718 718
Foreign
currency
translation
reserve - - - (264) - - (264)
Retained
earnings 5,740 242 (291) 264 (18) (384) 5,553
-------- --------- --------- -------- -------- -------- --------
Total
shareholders'
equity 30,762 854 (291) - (18) (13,603) 17,704
Minority
interest in
equity 952 (12) 940
-------- --------- --------- -------- -------- -------- --------
Total equity 31,714 854 (303) - (18) (13,603) 18,644
======== ========= ========= ======== ======== ======== ========
The numbers in the titles in brackets relate to the explanations in the notes to
these reconciliations. These explanations deal with the effects to all the
statements.
1 JANUARY 2006 - IFRS RECONCILIATION
UNAUDITED CONSOLIDATED BALANCE SHEET
UK GAAP IAS 1 IAS 1 & IAS 12 IAS 32 & IFRS
IAS 39 IAS 39
1 January 2006 Presentation of Presentation of Deferred Tax on Put options 1 January 2006
financial financial Options
statements statements
Notes (5) (4) (8) (9)
£000 £000 £000 £000 £000 £000
Non current assets
Goodwill 14,592 14,592
Intangible
assets - 87 - - - 87
Plant and
equipment 3,194 (87) - - - 3,107
Deferred tax
assets 354 (36) 318
Investments 100 - (100) - - -
Other non
current 224 - 19 - - 243
assets -------- -------- -------- -------- -------- --------
18,464 - (81) (36) - 18,347
-------- -------- -------- -------- -------- --------
Current assets
Work in
progress 3,277 3,277
Trade and
other
receivables 50,552 50,552
Cash and cash
equivalents 20,486 20,486
-------- -------- -------- -------- -------- --------
74,315 74,315
-------- -------- -------- -------- -------- --------
Current liabilities
Trade and
other (56,209) (56,209)
payables
Current tax
liabilities (2,760) (2,760)
Provision for
put options - - - - (5,540) (5,540)
-------- -------- -------- -------- -------- --------
(58,969) - - - (5,540) (64,509)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net current
assets 15,346 - - - (5,540) 9,806
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total assets
less current
liabilities 33,810 - (81) (36) (5,540) 28,153
-------- -------- -------- -------- -------- --------
Non Current liabilities
Trade and
other
payables
falling due
after more (949) - 81 - - (868)
than one year
Deferred tax
liabilities (21) (21)
Employment
benefits (302) (302)
Provision for
put options - - - - (7,679) (7,679)
-------- -------- -------- -------- -------- --------
Net assets 32,538 - - (36) (13,219) 19,283
======== ======== ======== ======== ======== ========
Capital and reserves
Share capital 542 542
Share premium
account 9,618 9,618
Merger 14,756 14,756
reserve
Put option
reserve - (13,219) (13,219)
Share option
reserve 599 599
Foreign - -
currency
translation
reserve
Retained
earnings 6,101 - - (36) - 6,065
-------- -------- -------- -------- -------- --------
Total
shareholders'
equity 31,616 - - (36) (13,219) 18,361
Minority
interest in
equity 922 922
-------- -------- -------- -------- -------- --------
Total equity 32,538 - - (36) (13,219) 19,283
======== ======== ======== ======== ======== ========
The numbers in the titles in brackets relate to the explanations in the notes to
these reconciliations. These explanations deal with the effects to all the
statements.
Cash flow statements
The IFRS Cash Flow Statement, prepared under IAS 7, presents cash flows in three
categories; operating activities, investing activities and financing activities.
This is fewer than the previous seven categories under UK GAAP. Other than the
reclassification of cash flow items into the new disclosure categories, there
are no significant differences between the Group's Cash Flow Statement under UK
GAAP and IFRS. Consequently, the revised Cash Flow Statement has not been
presented in this document.
Notes to the reconciliations between UK GAAP and IFRS
(1) Business Combinations - Goodwill amortisation
The Group has elected not to apply IFRS 3 retrospectively to business
combinations completed prior to 1 January 2006. In accordance with IFRS 1 the
2006 UK GAAP amortisation of goodwill entries have been reversed as follows:-
December 2006 June 2006
Annual Interim
£000 £000
Income statement
Operating profit increased 1,735 854
Balance sheet
Goodwill increased 1,735 854
Equity items
Merger reserve increased 1,203 612
Retained earnings increased 532 242
When we reorganised in 2004 prior to our AiM listing, we increased our holding
to greater than 90% in many of our subsidiaries, through an equity swap. The
share premium on these acquisitions was credited to merger reserve. The merger
reserve was released to retained earnings when the related asset is expensed to
the income statement. Under IFRS the 2006 amortisation of goodwill is reversed
together with the adjustments to merger reserve.
In 2006 and in future we will not amortise goodwill, however we will continue to
conduct an annual impairment review. In 2006 we identified no impairments.
(2) Business Combinations - IAS 38 Intangible assets
On 24 July 2006 the Group acquired 80% of 03 International Projects GmbH
(renamed M&C Saatchi Berlin GmbH). At acquisition we acquired customer contracts
with a fair value of £20k, these contracts had been completed before the year
end and therefore were fully amortised at the year end. The adjustments that
relate to M&C Saatchi Berlin GmBH were as follows:-
December 2006 June 2006
Annual Interim
£000 £000
Income statement
Operating profit reduced (20) -
Balance sheet
UK GAAP goodwill 769 -
Goodwill reduced (20) -
----------- -----------
IFRS goodwill 749 -
----------- -----------
Intangible assets recognised 20 -
Amortisation of intangible assets (20)
----------- -----------
- -
----------- -----------
(3) Presentation of financial statements - associates
Under IAS 1 we show our share of the associate's profit after tax within the
Associate line in the income statement.
The effect of this adjustment is as follows:-
December 2006 June 2006
Annual Interim
£000 £000
Income statement
Reduction in share of results
associate 10 1
Reduction in interest payable 8 1
Reduction in taxation 2 -
----------- -----------
Profit on ordinary activities after taxation - -
=========== ===========
(4) Loans to loss making associates
In 2006 the Group had one associate Play London Limited (Play); which made a
£162k start up loss in 2005, funded by a loan from a Group company. Play made a
small profit in 2006.
Under IAS1 the loss is presented as a provision against the investment (in
accordance with IAS 39). Previously under UK GAAP we have presented the loan as
an investment and the provision against it separately within provisions. Within
this adjustment we also show a small reclassification from investments to other
debtors of £12k.
The effect of this adjustment is as follows:-
December 2006 June 2006 1 January 2006
Annual Interim
£000 £000 £000
Balance sheet
Investments of 93 93 100
Reclassified to:
Other debtors 12 12 19
Trade and other
receivables 5 - -
Provisions 76 81 81
(5) Software defined as intangibles - IAS 16
IFRS defines software as an intangible asset instead of its UK GAAP treatment as
a tangible asset within plant and equipment (fixed assets). The effect of this
adjustment is as follows:-
December 2006 June 2006 1 January 2006
Annual Interim
£000 £000 £000
Balance sheet
Increase in
intangible assets 87 88 87
Reduction in plant
and equipment (87) (88) (87)
The amortisation of software is included within headline profits.
(6) Reclassification to foreign currency translation reserve - IAS 21
We have taken the exemption in IFRS1 to treat cumulative translation differences
on all foreign operations arising pre 1 January 2006 as nil.
The translation differences between 1 January 2006 and period end are:-
December 2006 June 2006 1 January 2006
Annual Interim
£000 £000 £000
Balance sheet
Decrease in
foreign currency
translation
reserve (371) (264) -
Increase in
retained earnings 371 264 -
(7a) LTIP effect on diluted EPS - IAS 33
The M&C Saatchi plc long term incentive scheme (LTIP) issues a varying number of
nil priced options in accordance with performance targets. As of 30 June 2006
and 31 December 2006 the performance target had not been met, so no dilution is
caused.
IAS 33 looks at the position at the balance sheet date; this is different to
IFRS2 share based payments which looks forward to the position at vesting.
(7b) Put option effect on diluted EPS - IAS 33
The minority shareholders in group companies have the right to exchange their
minority holdings in the subsidiary into shares in M&C Saatchi plc (put
options). The impact of the put options, had they been exercised prior to the
start of the year would have been to increase diluted EPS by 0.10p (2006 half
year 0.28p). As this effect does not reduce diluted EPS, the effect is ignored.
(8) Deferred tax on employee share options - IAS 12
UK GAAP focuses on the income statement to calculate deferred tax; IFRS focuses
on the balance sheet to calculate deferred tax.
The significant difference between these two standards is the accounting for
deferred tax on options. In calculating the deferred tax IFRS uses the period
end balance sheet share price rather than the option charge in the income
statement as UK GAAP does. The IFRS accounting creates further share price based
volatility in our numbers, an example of which can be seen in the adjustments
below. On 1 January 2006 our share price was £1.00 and below accounting price of
the options, causing the deferred tax benefit to be less than 30% of the income
statement option charge . By 31 December 2006 our share price was £1.40 and
above the accounting value of most of our options causing the deferred tax
benefit to be greater than 30% of the income statement option charge, the excess
above 30% of the income statement option charge is taken to reserves. The
adjustment are as follows:-
December 2006 June 2006 1 January 2006
Annual Interim
£000 £000 £000
Income statement
Reduction in tax 32 18 N/A
Increase in profit
after taxation 32 18 N/A
Balance sheet
Increase /
(decrease) in
deferred tax 29 (18) (36)
Equity
Increase in the
future tax benefit
of options 33 - -
Decrease in
retained earnings (4) (18) (36)
(9) Put options - IAS 32 & IAS 39 Financial instruments
The Group companies have minority shareholders which have the right to exchange
their minority shareholdings in the subsidiary companies for shares in M&C
Saatchi plc (a put option). IAS 32 & IAS 39 requires a valuation of these put
options (liability) at their creation (or at the Group's transition to IFRS) and
then at each reporting date. The movement in the valuation of the liability is
charged to the income statement (there is no revaluation of the reserve). At 31
December 2006 the following put options existed and are exercisable from:
Company Year % of Company
shares
exchangeable
Walker Media Holdings Ltd 2007 12.5
Walker Media Holdings Ltd 2008 12.5
Talk PR Ltd 2007 21.9
The Immediate Sales Company Ltd 2007 14.0
M&C Saatchi LA Inc 2007 16.0
M&C Saatchi Marketing Arts Ltd 2008 50.0
M&C Saatchi (M) SDN BHD 2008 20.0
M&C Saatchi Sports and Entertainment Ltd 2008 22.8
M&C Saatchi Agency Inc 2008 4.0
M&C Saatchi (Thailand) Co Ltd 2008 48.0
Provenance Communication Ltd 2009 35.0
Influence Communications Limited 2009 15.0
M&C Saatchi Europe Holdings Ltd 2010 4.0
M&C Saatchi GAD SAS 2011 28.0
M&C Saatchi Communications Pty Ltd 2011 23.0
M&C Saatchi Berlin GmbH 2011 20.0
The impact of accounting for put options are as follows:-
December 2006 June 2006
Annual Interim
£000 £000
Income statement
Financial costs
- Implicit interest expense 132 55
- Change in liability caused
due to performance
and share price 8,838 329
-------- --------
Total charge to financial cost
and reduction in profit 8,970 384
-------- --------
December 2006 June 2006 1 January 2006
Annual Interim
£000 £000 £000
Balance sheet
Non current assets
- Goodwill / intangibles - - -
Current assets
- Cash - - -
- Increase in
provision for put options (11,077) (6,821) (5,540)
Non current liabilities
- Increase in
provision for put options (11,211) (6,782) (7,679)
-------- -------- ----------
Net assets (22,288) (13,603) (13,219)
======== ======== ==========
Equity
- Share capital /
share premium account - - -
- Increase in other non
distributable reserve (13,318) (13,219) (13,219)
- reduction in
retained earnings (8,970) (384) -
-------- -------- ----------
Total Equity (22,288) (13,603) (13,219)
======== ======== ==========
Explanation of the transaction:-
• Initial valuation of a put option - An assessment is performed on the
expected value of the cash and M&C Saatchi plc shares that will be paid in
return for the minority interest, at the later of the date of, the put
option agreement and transition to IFRS (1 January 2006). Both the value of
the cash and shares are discounted to the present value, based on the date
from which the put options can be exercised. The shares to be issued are
valued at the market price for the shares at the agreement or transition
date before a present value discount is applied. A credit is charged to
provisions and a debit is charged to equity on initial recognition.
• The debit in equity will only change if new put options are issued or
the put options are exercised. On exercising the option, the debit in equity
becomes the investment in the subsidiary, and this amount less the fair
value of tangible net assets and intangible assets acquired becomes
Goodwill. If Goodwill is negative a credit is taken to the income statement.
• Changes in the provision - Assuming that no new options are issued or
put options exercised, any changes to the provision will be charged /
credited to the income statement. The provision changes in the following
way:-
o It will increase due to an imputed interest charge (implicit interest)
being charged to income statement. In 2006 this charge was £132k. The
charge is effected by share price movements, thus the full year
charge is 21% greater than two times the half year charge (the share
price increased by 21% in this period).
o It will increase / decrease with changes in M&C Saatchi plc share
price. As our share price goes up, the value of the shares we issue
to fulfil the put option increases. This will have an effect on the
imputed interest charge (in the same way that changes in contingent
consideration have on its imputed interest charge), as well as the
future consideration. Of the £8,970k charge in 2006, £856k was cased
by a share price increasing from £1.00 to £1.40.
o Increases in the value of companies with minorities holdings, due to
trading performance, increases the amount of the provision. In 2006
this charge was £7,982k excluding the effect of share price movements,
most of this movement related to Walker Media.
o The provision is defined as short term when the minority shareholders
can exercise it within one year. The £1.2m increase in the 2006 half
year short term creditor is mainly due to Talk PR Ltd, The Immediate
Sales Company Ltd and M&C Saatchi LA Inc being able to exercise in
less than one year.
• When the put option is exercised the value of the provision should equal
the total value of the cash and equity given at the date of the transaction.
Any differences will be charged to the income statement.
Comment on the different answers that IFRS gives from similar transactions.
The formula we use to calculate the value that we pay minorities for their
shares are the same for put and call options. Under IFRS these are similar
transactions that produce the same result differently, the only key difference
between the transactions is how the date of exercise is determined. As of the
date of this announcement we have the following similar transactions that are
accounted for differently:-
• Put option have to be accounted for under IAS 32 and IAS 39 as the group
has an obligation it cannot avoid (the minority has a right to decide when
to exercise).
• If M&C Saatchi plc has a call option then we account also under IAS 32
and 39, however the options value from an accounting perspective is nothing
and thus has no effect on the financial statements (M&C Saatchi decides when
to exercise).
• When the shareholders or sales purchase agreement determines the date of
exercise, then it is a capital commitment and should be disclosed but not
accounted for (the minority and M&C Saatchi have agreed the date in
advance).
(10) Holiday pay accrual - IAS 19
As a result of further guidance in IAS 19, a £436k increase in the Group's
holiday pay accrual has been made at 30 June 2006. No accrual is required at 1
Jan 2006 and 31 Dec 2006 as the countries that this adjustment affects, have a
holiday year end of 31 December with an immaterial amount of holiday being
carried forward into the following year.
The effect of this adjustment is as follows:-
December 2006 June 2006
Annual Interim
£000 £000
Income statement
Reduction in operating profit - (436)
Reduction in taxation on profits
from ordinary activities - 133
----------- -----------
Reduction in profit after taxation - (303)
=========== ===========
Accounting Policies
These are the IFRS accounting policies that M&C Saatchi plc has adopted to
comply with IFRS.
Significant accounting policies
Our financial statements will be prepared in accordance with International
Financial Reporting Standards (IFRS) adopted by the European Union and therefore
the Group financial statements comply with Article 4 of the EU IAS Regulation.
Headline results
Headline results are used for internal performance management and the
calculation of rewards in the LTIP scheme. M&C Saatchi management focus on these
results in explaining the performance of the business. The term headline is not
a defined term in IFRS.
The key items that are excluded from headline results are the fair value gains
and losses on liabilities caused by our put option agreements, amortisation of
intangible assets created in business combinations and charges as a result of
goodwill impairment.
Basis of preparation
The financial information presented in this document has been prepared on the
basis of the recognition and measurement requirements of adopted IFRSs in issue
that either are endorsed by the EU and effective (or available for early
adoption) at 31 December 2007 or are expected to be endorsed and effective (or
available for early adoption) at 31 December 2007, the Group's first annual
reporting date at which it is required to use adopted IFRSs. Based on these
adopted and unadopted IFRSs, the directors have made assumptions about the
accounting policies expected to be applied, the significant effects of
which are set out below, when the first annual IFRS financial statements are
prepared for the year ending 31 December 2007.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 December
2007 are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements for the Group are prepared for the year ending 31 December 2007.
The Group's financial results for the six month period ending 30 June 2007 will
be prepared on the basis of the principles of adopted IFRS, and will be
presented together with details of the accounting policies expected to be
applied for the year ending 31 December 2007.
Basis of consolidation
The M&C Saatchi plc consolidated financial statements incorporate the financial
statements of M&C Saatchi plc and entities (including special purpose entities)
controlled by M&C Saatchi plc (its subsidiaries). Control is achieved where M&C
Saatchi plc has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. Where subsidiaries are
acquired in the year, their results and cash flows are included from the date of
acquisition up to the balance sheet date.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those used by
other members of the Group. All intra-Group transactions, balances, income and
expenses are eliminated on consolidation.
Where a consolidated company is less than 100% owned by the Group, the minority
interest share of the results and net assets is recognised at each reporting
date. Where such a company has net liabilities, no asset is recorded within
minority interests unless the minority shareholder has an obligation to make
good its share of the net liabilities.
Subsidiary acquisition
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of acquisition is measured at the aggregate of the fair values of the
assets given, liabilities incurred or assumed and the equity instruments issued
by the Group in exchange for control, together with any costs that are directly
attributable to the business combination. The identifiable assets and
liabilities (including contingent liabilities) acquired that meet the conditions
for recognition under IFRS 3 are recognised at their fair values at the date of
acquisition.
The interest of minority shareholders in the acquiree is initially measured at
the minority's proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled
entity is recognised as an asset, being the excess of the cost of the business
combination over the Group's interest in the net fair value of the identifiable
net assets acquired.
Goodwill relating to associates is included within the carrying value of the
investment in associates.
Following initial recognition, goodwill is carried at cost less any accumulated
impairment losses. Goodwill recognised under UK GAAP prior to the date of
transition to IFRS is stated at net book value as at that date.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the combination.
Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication of
impairment. Any impairment is recognised immediately in the income statement and
is not subsequently reversed.
Goodwill arising from foreign investments are translated at the year end rate.
Associates
Associates are all entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of the
voting rights. Investments in associates are accounted for using the equity
method of accounting and are initially recognised at cost. The Group's
investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.
The Group's share of its associates' post-acquisition profits or losses is
recognised in the income statement, and its share of post-acquisition movements
in reserves is recognised in reserves. The cumulative post-acquisition movements
are adjusted against the carrying amount of the investment. When the Group's
share of losses in an associate equals or exceeds its interest in the associate,
including any other unsecured receivables, the Group does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the
associate.
Unrealised gains on transactions between the Group and its associates are
eliminated to the extent of the Group's interest in the associates. Unrealised
losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of associates have been
changed where necessary to ensure consistency with the policies adopted by the
Group.
Intangible assets
Separately acquired intangible assets are capitalised at cost. Intangible assets
acquired as part of a business combination are capitalised at fair value at the
date of acquisition. Intangible assets that relate to associates are included
within the carrying value of the investment in associates.
Intangible assets are stated at historical cost less accumulated amortisation.
Amortisation is provided to write off the cost of all intangible assets, less
estimated residual values, evenly
over their expected useful lives.
Amortisation is calculated at the following annual rates:
Software - 33% in equal instalments
Client contract - length of contract in equal instalments
Brands acquired - over expected length of time that brand will be in use in
equal instalments
The need for any intangible asset impairment write-down is assessed by
comparison of the carrying value of the asset against the higher of net
realisable value and value in use.
Property, plant and equipment
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 - over the period of the lease
Furniture, fittings - 10% in equal instalments
Other equipment - 25% in equal instalments
Computer equipment - 33% in equal instalments
Motor vehicles - 25% in equal instalments
The need for any fixed asset impairment write-down is assessed by comparison of
the carrying value of the asset against the higher of net realisable value and
value in use.
Inventory - work in progress
Work in progress comprises all outlays incurred on behalf of clients which have
still to be recharged, and is stated at the lower of cost and net realisable
value.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and deposits with an
original maturity of three months or less, net of overdrafts.
Leased assets
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets held under finance lease agreements are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable over the term of the lease. The corresponding leasing
commitments are shown as amounts payable to the lessor. Lease payments are
apportioned between finance charges and reduction of the lease obligation so as
to achieve a constant rate of interest on the remaining balance of the
liability.
Rentals payable under operating leases are charged to profit or loss on a
straight-line basis over the term of the lease. Reverse premiums and similar
incentives to enter into operating lease agreements are initially recorded as
deferred income and released to profit or loss account over the lease term.
Revenue recognition
Turnover (billings) represents the gross amounts billed to clients in respect of
revenue earned and other client recharges, net of discounts and sales taxes.
Revenue comprises commission and fees earned in respect of turnover.
Revenue for each type of revenue is recognised on the
following basis:
(1) Project fees are recognised over the period of the relevant assignments or
agreements.
(2) Retainer fees are spread over the period of the contract on a straight-line
basis.
(3) Commission on media spend is recognised when the advertisements appear in
the media.
Employee benefits
Pensions
Contributions to personal pension plans are charged to the income statement in
the period in which they are due.
Share-based compensation
Certain employees receive remuneration in the form of share based payments,
including shares or rights over shares. The cost of equity settled transactions
with employees is measured by reference to the fair value at the date at which
they are granted excluding the impact of any non-market vesting conditions (for
example profitability and sales growth targets). The non-market vesting
conditions are included in assumptions about the number of options that are
expected to become exercisable. At each balance sheet date the entity revises
its estimates of the number of the options that are expected to become
exercisable. It recognises the impact of the revision of original estimates, if
any, in the income statement, and a corresponding adjustment to equity over the
remaining vesting period. Where awards depend on future events we assess the
likelihood of these conditions being met and make an appropriate charge at the
end of each reporting period. The credit for equity settled transactions is
taken to the share option reserve.
For cash-settled share based payments, a liability is recognised for the amount
payable at the balance sheet date with a corresponding charge being made to the
income statement. Where payments depend on future events an assessment is made
of the likelihood of these conditions being met in determining the amounts to be
recorded. Where cash settled share options are only part of the way through
their vesting period, the liability and income statement charge are adjusted to
reflect the proportion of the vesting period that has been covered up to the
balance sheet date.
The charge for equity settled share based payments is recognised, together with
a corresponding increase in equity, over the vesting period of the related share
options. The cumulative expense recognised for equity-settled share based
payments at each reporting date reflects the extent to which the directors
consider, as at the balance sheet date that the awards will ultimately vest.
The dilutive effect of un-vested outstanding options is calculated based on the
number that would vest had the balance sheet date been the vesting date, this
dilution is reflected in the computation of diluted earnings per share.
Share based payments include options issued to employees, phantom bonuses and
other long term equity linked bonuses. Payments may be in the form of cash or
equity. When options are exercised, the cash received for the issued shares is
taken to share capital and share premium and the related balance in the share
option reserve is taken to the profit and loss reserve. In the event that an
option is unexercised at the end of the period when it is exercisable then the
related balance in the share option reserve is taken to the profit and loss
reserve.
Taxation
Current tax, including UK and foreign tax, is provided at amounts expected to be
paid (or recovered) using the tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.
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. However, the deferred
tax is not accounted for, if it arises from 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 profit or loss. Deferred
tax is determined using tax rates (and laws) that have been enacted or
substantially 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 that 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.
Dividends
Interim dividends are recorded when they are paid and the final dividends are
recorded when they become legally payable.
Foreign currency
Foreign currency transactions arising from normal trading activities are
recorded in local currency at the current
exchange rates.
Monetary assets and liabilities denominated in foreign currencies at the year
end are translated at the year end
exchange rate.
Foreign currency gains and losses are credited or charged to the income
statement as they arise.
For overseas operations, results are translated at the average rate of exchange
and balance sheets are translated
at the closing rate of exchange. Exchange differences which arise from
translation of foreign subsidiary results are taken to a separate component of
equity.
Non monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated.
Financial instruments
Financial assets and financial liabilities principally include the following:
Trade receivables
Trade receivables do not carry any interest and are stated at amortised cost. If
the trade receivable becomes irrecoverable then a bad specific debt provision is
created.
Trade payables
Trade payables are not interest bearing and are stated at their amortised cost.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially recorded as the
proceeds received, net of direct issue costs. Direct issue costs are amortised
over the period of the loans and overdrafts to which they relate. Finance
charges, including premiums payable on settlement or redemption and direct issue
costs, are charged to the income statement as incurred using the effective
interest method and are added to the carrying value of the instrument to the
extent that they are not settled in the period in which they arise.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Derivative financial instruments - put options
Liabilities in respect of put option agreements that allow the Group's equity
partners to require the Group to purchase the minority interest are treated as
derivatives over equity instruments and are recorded in the balance sheet at
fair value. The fair value of such put options is re-measured at each period
end. The movement in the fair value is recognised in profit or loss. The Group
recognises its best estimate of the amount it is likely to pay, should these put
options be exercised by the minority interests, as a liability in the balance
sheet.
When the initial fair value of the liability in respect of the put options is
created the corresponding debit is included in equity. When the put option is
exercised this debit becomes the investment in the subsidiary.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date, and are
discounted to present value where the effect is material. The increase in the
provision due to passage of time is recognised as interest expense.
This information is provided by RNS
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