M&C SAATCHI PLC

Earnings Release • Apr 29, 2022

National Storage Mechanism | Additional information RNS Number : 7917J M&C Saatchi PLC 29 April 2022 M&C SAATCHI PLC (the "Company" or "M&C Saatchi") Audited Results for the Year Ended 31 December 2021 and Trading Update The Company today announces its audited results for the year ended 31 December 2021. The Company has demonstrated an exceptional turnaround at a time of unprecedented change and announces that trading is line with expectations for the first three months of 2022. Highlights �� 2021 net revenue growth of 10.6%. Like-for-like growth of 15.1%. �� Record 2021 Headline operating profit ��31.1m (2020: ��12.0m). Ahead of expectations, reflecting strong new business and deepening client relationships. �� Record 2021 Statutory profit before tax ��21.6m (2020: ��8.5m loss). �� 2021 Headline operating profit margin 12.5% (2020: 5.3%). �� Net cash ��34.4m (2020: ��32.7m). Borrowings reduced to ��20.6m (2020: ��29.6m). �� New client wins and deepened relationships: Google, Uber, WHOOP, Gorillas, PepsiCo, TikTok and Mondelez. �� Over 50 creative awards won in 2021 and a record number of effectiveness awards. �� Trading continues to be strong in the first quarter of 2022, with the Headline profit before tax for the years ending 31 December 2022 and 31 December 2023 expected to be in the region of ��31.0m and ��41.0m, respectively. Financial results for the year ended 31 December 2021 Headline * Statutory ��m 2021 2020 Movement 2021 2020 Movement Revenue 394.6 323.3 22.1% 394.6 323.3 22.1% Net revenue ** 249.3 225.4 10.6% - - - EBITDA ** 40.8 24.1 69.3% - - - Operating profit/(loss) 31.1 12.0 160.1% 27.3 (4.9) 652.7% Profit/(loss) before taxation 27.3 8.3 228.0% 21.6 (8.5) 354.3% Profit/(loss) for the year 20.0 5.0 298.2% 13.2 (9.9) 232.8% Earnings *** 13.7 1.7 729.5% 12.8 (9.9) 228.9% Basic Earnings/(loss) per share 11.3p 1.5p 643.4% 10.5p (9.1p) 215.7% Tax rate 26.6% 39.6% -13.0pts 39.1% -16.6% 55.7pts * Headline results represent the underlying trading profitability of the group and excludes: ��� Separately disclosed items that are one-off in nature and are not part of running the business. ��� Acquisition-related costs (including amortisation of acquired intangibles and impairment of goodwill). ��� Gains or losses generated by disposals of subsidiaries and associates. ��� Fair value adjustments to unlisted equity investments, acquisition related contingent consideration and put options. ��� Dividends paid to IFRS 2 put option holders. ** Net revenue and EBITDA excluded from Statutory results as these are not IFRS terms. *** Earnings are calculated after deducting share of profits attributable to non-controlling interests. Current trading and outlook �� The strong trading performance and momentum in 2021 has continued into the first quarter of 2022. �� The Company is now forecasting Headline profit before tax in the region of ��31.0m for the year ending 31 December 2022 (FY22) and ��41.0m for the year ending 31 December 2023 (FY23). Further details are included in the Company's announcement "Issue of Profit Forecasts" made earlier today. �� The strong trading performance has further strengthened the group's cash position, providing the balance sheet flexibility to settle put option liabilities as they fall due in 2022, resume the payment of dividends and to continue the delivery of the group's accelerated growth strategy. As at 31 March 2022, the Company had net cash of ��33.9m and ��15.0m of its ��47.0m revolving multicurrency credit facility drawn. Possible offer by AdvancedAdvT Limited ("AdvT") �� As detailed in the Company's "Further Extension of "Put Up or Shut Up" Deadline" announcement on 28 April 2022, discussions between the Company and AdvT remain ongoing and in accordance with Rule 2.6(c) of the City Code on Takeovers and Mergers, (the "Code") the directors of the Company other than Vin Murria (the "Independent Directors") have requested, and the Panel has consented to, an extension to the deadline by which AdvT is required either to announce a firm intention to make an offer for M&C Saatchi in accordance with Rule 2.7 of the Code or to announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. Such announcement must now be made by not later than 5.00 p.m. on 10 May 2022. This deadline can be further extended by the Independent Directors with the consent of the Takeover Panel. Board changes �� As previously announced on 19 January 2022, Mickey Kalifa, M&C Saatchi's Chief Financial Officer, has resigned from the M&C Saatchi board to pursue other interests. He will step down from his position as Chief Financial Officer and as a Director of the Company on 13 May 2022. �� The search process for a new Chief Financial Officer is underway. In the meantime, Bruce Marson, Deputy Chief Financial Officer, has been appointed as Interim Chief Financial Officer effective from 13 May 2022. Commenting on the 2021 performance and outlook, Moray MacLennan, Chief Executive Officer said: "These record-breaking results reflect the outstanding levels of commitment and creativity that our teams deliver to clients, on a daily basis. The strength and depth of our client relationships and the breadth of our capabilities position us exceptionally well for the remainder of this year, and beyond." For further information please call: M&C Saatchi Plc +44 (0)20-7543-4500 Moray MacLennan, Mickey Kalifa Brunswick Group +44 (0)207-404-5959 Sumeet Desai, Stuart Donnelly, Kate Pope Numis Securities +44 (0)20-7260-1000 Nick Westlake, NOMAD Iqra Amin Liberum +44 (0)20-3100-2000 Neil Patel, Benjamin Cryer, Will King Chief Executive Statement 2021 Performance In 2021 I outlined a new strategy to: become more connected via greater collaboration across specialisms and regions; drive digital acceleration by enhancing the Group's technology capabilities including data analytics and digital innovation; and implement further simplification from efficiencies delivered by central systems and consolidation. The impact of this strategy is evidenced by the 2021 performance. �� We had seven consecutive positive trading updates since January 2021. �� We had a record year in many companies across the Group. �� We trebled our Headline profit before tax. �� The Group's net cash position is at its strongest ever, ��34.4m at December 2021. This was delivered through strong new business, deepening client relationships and key client retention. Notable new business wins included PepsiCo, WHOOP and Mondelez, and new campaigns for Uber, De'Longhi and Franklin Templeton. We extended our client relationships into new specialisms with clients including Reckitt, GSK, Lexus and Sonos; and retained key clients, including key UK and US government assignments. Our creative heartbeat remains strong, with over 50 awards won in the last 12 months including a record number of Effies - the Oscars of campaign effectiveness. Specialism Performance The business operates through five connected specialisms, all of which benefit from our Central Fuel which provides expertise and capabilities in data and technology, digital innovation, sustainability and our Growth Team. All specialisms saw like-for-like growth in 2021. Advertising & CRM: Blending marketing science with creativity through earned, owned and paid-for content Like-for-like net revenue increased by 6% (2021: ��121.2m vs. 2020: ��114.8m). New business wins across the specialisms included NHS England, Origin Energy, Franklin Templeton, Gorillas, PepsiCo, BNY Mellon, Arla and Uber. Relationships with existing clients including Nando's, Woolworths in Australia, De'Longhi across Europe, and the UK Government - delivered significant organic growth as we focused on supporting their digital ambitions across the marketing ecosystem. We also built new relationships with organisations at the start-up and scale-up phase. Highlights included the most successful UK Census Campaign in history, the Australia office deepening its data capability and reinforcing its position as one of the leaders in the market, our SS+K office being named in the Top 10 most innovative agencies in the United States, a campaign for Tourism Iceland that parodied the Metaverse but nevertheless was retweeted by Zuckerberg, whilst our South African agency became the first African agency in the Metaverse. Media & Performance: Connecting brands with digitally connected consumers Like-for-like net revenue increased by 39% (2021: ��32.8m vs. 2020: ��23.6m). As the influence of Covid-19 continued to accelerate the shift to digital, our Media & Performance business benefitted from new digital advertisers entering the market. M&C Saatchi Performance celebrated its fifteenth anniversary, winning Performance Agency of the Year in Southeast Asia, supporting clients in their IPOs, and being responsible for millions of new app downloads and mobile transactions. Global & Social Issues: Driving global and social change, protecting the planet and transforming lives for the better Like-for-like net revenue increased by 19% (2021: ��33.2m vs. 2020: ��27.9m). This specialism continued to focus on the development, diplomatic, security and social impact sectors. It uses the latest in creativity, behavioural science and tech capabilities to tackle a broad range of critical global and social issues. Highlights of 2021 included leading comms for COP26 and new assignments from the UK, US and Australian Governments, the Conrad N. Hilton Foundation, UNICEF and the World Health Organisation. Brand & Experience: Transforming businesses by unlocking existing and new growth opportunities Like-for-like net revenue increased by 17% (2021: ��30.9m vs. 2020: ��26.4m). This growth reflects the continued demand from clients to re-examine and re-design their product, service and experience propositions in an increasingly digital world. Revenue gains were a result of major contract extensions with Discover and Optus. Growth was also a reflection of impressive new business wins, with clients including TikTok, Toyota and Diageo added to the roster. As we move into 2022, we are further investing in data, digital and technology, with the addition of new capabilities in digital business innovation. Our new start-up, Thread, brings key hires from Fjord/Accenture Interactive. It blends the commercial rigour of consulting with the creativity of design studios to help clients develop and build high-growth digital products and services. Sponsorship & Talent: Connecting brands direct to consumers through passions and personalities Like-for-like net revenue increased by 35% (2021: ��24.5m vs. 2020: ��18.1m). Following the devastating effects of Covid-19 on the sport and entertainment industry in 2020, this specialism bounced back to a record high in 2021. We won more than 40 pitches worldwide throughout the year including major client wins with Barclays, Red Bull, WHOOP, Dettol, Kia, Dreams and Origin Energy. The M&C Saatchi Talent Group added new talent and digital-first influencers and delivered its most successful year to date. Highlights included creating "live" digital and social campaigns for many brands throughout EURO 2020 (played in 2021) as well as for the delayed Olympics in Japan. We added talent including data analysts which gave us forensic insight into our clients' customers, as well as hiring visual effects expertise. Central Fuel Our central fuel capabilities are shared across the Group enabling growth through shared platforms consisting of: �� Growth Team: Our focus on connected business is led by our Chief Growth Officer and the central growth team. This has delivered an increase in connected business opportunities with client wins including Samsung, Barclays, Sonos, Healthcode and KLM. �� Data: Our data capability and consultancy, M&C Saatchi Fluency, launched in January 2021. It has grown its capabilities and client base, and now works with over 15 blue chip clients and has developed a proprietary data platform of our eight core data services. �� Sustainability: We strengthened our ESG position both in the way we work and in the work we do. We are delivering on significant societal commitments for "People and Planet" including announcing our Net Zero target, launching M&C Saatchi LIFE, a specialist sustainability consultancy, and promoting equity and inclusion through a number of initiatives including Mentor Black Business, Open House, Street Store and our internal colleague networks. �� Innovation: Our digital innovation consultancy, Thread, launched in February 2022 to help clients identify, develop and build high-growth digital products and services. Accelerated Strategy The strategy of connection, digitisation and simplification will be accelerated. Growth will increasingly come from cross-specialism and cross-border opportunities. We continue to fuel this through investment in central capabilities. In 2022 we launched and will scale two new service offerings: sustainability communications (M&C Saatchi LIFE) and digital innovation (Thread), and we continue to deepen our data capability by scaling our global data platform and consultancy. The Growth Team will further strengthen its resources as opportunities are converted. The simplification programme makes the Group's services easier for clients to understand and engage with. We will drive further efficiencies through accelerating centralisation of Group functions including IT, Finance and HR. We are investing in platforms to enhance ways of working, encourage collaboration and to attract and retain talent. Confidence in our future With record profits, a strong cash position, a more simplified structure and a loyal and committed management team, we can face the future with renewed confidence. M&C Saatchi is renowned for the impact it has on the world. This year we reinforced that reputation with leading campaigns addressing the major issues of the day from Covid-19 to climate change. We navigate, create and lead meaningful change and this market-leading proposition enables us to attract and retain the talent that provides solutions for our clients. 2021 Financial Review Financial key performance indicators The Group manages its financial performance through a number of key performance indicators. These are stated below, with the comparative key performance indicators for 2020. �� Net revenue of ��249.3m, up 10.6% from ��225.4m; like-for-like growth of 15.1%. �� Headline staff cost ratio, down 3.7pts from 71.9% to 68.2%. �� Headline operating profit margin, up from 5.3% to 12.5%. �� Statutory operating profit margin, improved from -2.2% to 10.9%. �� Headline profit before tax, up from ��8.3m to ��27.3m. �� Statutory profit before tax, up from a loss of ��8.5m to a profit of ��21.6m. �� Statutory earnings per share up from a loss of 9.1p per share to positive earnings of 10.5p per share. �� Increase in net cash, up from ��32.7m to ��34.4m. Headline results To assist 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 an appropriate basis to manage the business, to monitor its results on a month-to-month basis, enable comparison with industry peers and measure like-for-like year-on-year performance. The Headline results also more closely correlate with the operating cashflow position of the Group. The Group performed well ahead of expectations. Whilst there were stand-out performers amongst individual entities, we saw growth across the board, across virtually all entities and specialisms. Group net revenue increased by 10.6% or 15.1% on a like-for-like basis. This is significantly ahead of the 6% CAGR targeted growth in net revenue from 2020 to 2025 announced at the Capital Markets Day in January 2021. Group Headline operating profit was ��31.1m, increasing from ��12.0m in 2020. This represents a 51% increase compared to 2019 (��20.6m profit), showing a strong recovery in profits following the negative impact of the Covid-19 pandemic. The Group reported a Statutory operating profit of ��27.3m (2020 loss of ��4.9m; 2019 loss of ��11.0m). Group Headline operating profit margin increased to 12.5% from 5.3% in 2020 and from 8.0% in 2019. This shows good progress towards the Group's operating profit margin target of 18% by 2025 announced at the Capital Markets Day in January 2021. The Statutory operating profit margin improved to 10.9% from an operating loss margin of -2.2% in 2020 and -4.3% in 2019. The key movements between Statutory to Headline results Year ended 31 December 2021 Year ended 31 December 2020 Reconciliation of Statutory to Headline profit before taxation ��000 ��000 Statutory profit/(loss) before taxation 21,632 (8,507) Separately disclosed items (3,783) 1,972 Amortisation of acquired intangibles 965 1,686 Impairment of non-current assets 2,770 3,920 (Gain)/loss on disposal of subsidiaries and associates 83 (1,432) Revaluation of associates on transition to subsidiaries 234 - FVTPL investments under IFRS 9 (2,510) 2,095 Revaluation of contingent consideration 532 446 Dividends paid to IFRS 2 put option holders 4,314 4,728 Put option accounting - IFRS 9 and IFRS 2 3,077 3,420 Headline profit before taxation 27,314 8,328 Some of the larger items causing the movement between Statutory and Headline results for 2021 are explained below: Separately disclosed items, including restructuring One-off credits of ��3.8m (2020: costs of ��2.0m) arise as a result of the forgiveness of ��2.2m of US Paycheck Protection Program (PPP) loans and the ��2.8m release of a long-term incentive plan accrual relating to an employee who has now left the business. These are partially reduced by lease surrender expenses, due to the restructuring of two leases, and the cost arising from the repayment of ��1.0m of furlough money to the UK government. Last year's charge arose because of one-off restructuring costs, partially offset by the credits arising from the UK furlough money received. Impairment of non-current assets In 2021, the Group recorded goodwill write-offs of ��1.9m in Santa Clara Participa����es Ltda, which moved from being an associate to a subsidiary during the year, and in Scarecrow Communications Limited. The remainder relates to the impairment of M&C Saatchi Little Stories SAS, an associate, in which the Group increased its ownership in February 2021, and of an intangible asset in M&C Saatchi Share Inc. The 2020 charge mainly consisted of a ��2.7m impairment against the carrying value of our right of use of property assets and a ��0.9m associate impairment. Gain/(loss) on disposal of subsidiaries and associates The Board made a strategic decision at the start of 2020 to eliminate loss-making businesses from the Group. This process continued into 2021, with the closure, merger or divestment of our interest in M&C Saatchi PR LLP, M&C Saatchi Marketing Arts Limited and Create Collective Pte, which together generated a loss on disposal in 2021 of ��83k, net of severance and legal fees. 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. The portfolio had a much stronger year than in 2020, as several companies bounced back following the Covid-19 pandemic, resulting in an upwards revaluation of ��3.5m. This is partially offset by an increase in management fees linked to the increase in the value of the investments. Put option accounting These charges relate to the revaluations of the put option liabilities (both IFRS 2 and IFRS 9) during the year. Net revenue performance by specialism and region Group net revenue increased 10.6% in 2021 (15.1% on a like-for-like basis, which removes entities disposed of or acquired during 2020 and 2021). The Media & Performance and Sponsorship & Talent specialisms saw the largest net revenue growth of all specialisms, and except for Advertising & CRM, all experienced double-digit growth in 2021. All specialisms, except for Advertising & CRM, have recovered to 2019 net revenue levels, with Global & Social Issues and Sponsorship & Talent showing growth of around 30% compared to 2019. There has been a marked shift in revenue between the different specialisms over the last two years. Advertising & CRM remains the largest specialism comprising 50% of total net revenue (2020: 54%) on a like-for-like basis. However, the other four specialisms have increased their share of total net revenue to 50% (2020: 46%). This shift away from Advertising & CRM has had a very significant upwards impact on operating profit, as these have an operating profit margin of 26% compared to Advertising & CRM with an operating profit margin of 9%. At the regional level, the UK remains the largest region in the Group comprising 43% of total net revenue (2020: 41%) on a like-for-like basis. Financial income and expense The Group's finance income and expense includes bank interest, lease interest and fair value adjustments to minority shareholder put option liabilities (IFRS 9). Further details can be found in Note 7 of the financial statements. Bank interest payable for the year was ��1.6m (2020: ��1.2m). The increase is mainly due to a higher interest margin on the Group's new revolving multicurrency credit facility agreement which was signed during the first half of 2021. The interest on leases increased to ��2.8m (2020: ��2.5m), due to new property leases entered into as old leases expired. The fair value adjustment of put option liabilities created a charge of ��0.9m (2020: charge of ��0.1m). This increase is due to an increase in the Company's share price year-on-year and the improved profitability in the agencies where there are outstanding put options. Tax Headline Tax Our Headline tax rate has reduced from 39.6% to 26.6%. The tax rate reduction is driven by fewer prior year tax adjustments (2020 was affected by the 2019 accounts restatements) and fewer loss-making subsidiaries where we expect no future tax benefit. Statutory Tax Statutory profit this year compared to a Statutory loss last year gave rise to a much higher tax rate. The Statutory tax rate increased from -16.6% in 2020 to 39.1% in 2021. We expect our effective tax rates to be higher than the actual tax rates in our markets, as a result of items such as put option charges being capital in nature and non-deductible for corporation tax purposes. In 2020 tax was payable despite the Statutory loss and in 2021 the effective Statutory tax rate is significantly higher than the worldwide average standard tax rate. Non-controlling interests (minority interests) On a Headline basis, the non-controlling interest share of the Group's profit represents the minority shareholders' share of each of the Group's subsidiaries' profit or loss for the year. In 2021, the share of profits attributable to non-controlling interests increased to ��6.4m (2020: ��3.4m). This reflects the increase in overall Headline profit in 2021. Despite this increase in the share of profits attributable to non-controlling interests, minority interests reduced to 32% of profit after tax in 2021 (2020: 67%) as a result of the settlement of ��5.3m of put options during the year. On a Statutory basis, non-controlling interests excludes any minority interests which are IFRS 2 put option holders (holders of put options that are contingent on being employed by the relevant company). Their share of the entity's Statutory profit is paid as dividends each year, which is reported as staff costs in the Statutory results. Dividend The Company did not pay a dividend to its shareholders in 2021 (2020: nil). The intention is to reinstate dividends from 2022. Cash flow and banking arrangements Total gross cash (excluding bank overdrafts) at 31 December 2021 was ��69.4m (2020: ��76.3m). Cash net of bank borrowings was ��34.4m, compared to ��32.7m in 2020. The Group generated operating cash (before working capital) of ��41.0m in 2021 (2020: ��19.1m). This was offset by a ��15.2m net outflow of working capital (compared to a ��16.2m net inflow in 2020), ��9.0m of lease payments made (compared to payments of ��9.7m made in 2020) and ��5.3m of payments made to acquire non-controlling interests (2020: ��0.2m). The swing in working capital was driven by ��14.5m of agreed deferral of payments from 2020 to 2021 (supplier invoices, UK VAT, UK rent and UK furlough), which was not repeated at the end of 2021, and the increase in billings issued in the last quarter of 2021, which were collected after 31 December 2021. There was also an increase in tax payments of ��6.8m in 2021 (compared to ��1.6m in 2020), due to the increased profitability across the Group. On 31 May 2021, the Company entered into a revolving multicurrency credit facility agreement with National Westminster Bank Plc and Barclays Bank PLC for up to ��47.0m (the "Facility"). The Facility includes a ��2.5m overdraft and the ability to draw up to ��3.0m 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 provide the Group with additional liquidity headroom to support any variations in working capital. At 31 December 2021, ��20.0m was drawn on the Facility. This has been reduced to ��15.0m at 31 March 2022. Capital expenditure Total capital expenditure in 2021 (including software acquired) decreased to ��2.6m (2020: ��3.7m). This included ��1.4m (2020: ��0.9m) on computer equipment and ��0.8m (2020: ��0.5m) on software and film rights. The remaining ��0.4m (2020: ��2.3m) was incurred on leasehold improvements and furniture and fittings. Share-based incentive arrangements The Group operates a business model through which certain senior management have minority ownership in the subsidiary companies they operate, through share-based incentive (put option) arrangements. Given the Group's strong cash position, we now intend to settle put options in cash rather than shares, when the options fall due, which significantly reduces the risk of substantial share dilution to shareholders. The table below presents a range of potential cash payments to settle put options, LTIPs, restricted share awards and deferred and contingent consideration for the next six years based on the future share price of the Company, the estimated future business performance for each business unit and assuming the put options are exercised as soon as possible. These forecasts are based on the Group's five-year plans developed as part of our budget cycle, assuming all Total Shareholder Return LTIP targets are fulfilled, and that equity is bought by the LTIP in the year of vesting at 168.5p (the share price at 31 December 2021). Paid so Potentially payable Future share price of the Company far in 2022 ��000 2022 ��000 2023 ��000 2024 ��000 2025 ��000 2026 ��000 2027 & 2028 ��000 Total ��000 At 150p 1,135 18,879 6,810 6,107 87 1,798 3,163 37,979 At 168.5p 1,135 20,403 7,733 6,806 122 1,985 3,553 41,753 At 190p 1,135 22,091 8,722 7,619 162 2,203 4,007 45,939 At 210p 1,135 23,608 9,589 8,373 200 2,405 4,428 49,738 At 230p 1,135 25,126 10,457 9,130 238 2,607 4,850 53,543 At 250p 1,135 26,643 11,324 9,885 275 2,809 5,272 57,343 At 300p 1,135 30,436 13,492 11,775 370 3,315 6,326 66,849 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 exercise their options later than the dates we have estimated in the table above. If, in the future, the Company decides to fulfil the put options in equity, then the amount of equity that will be provided is equal to the liability divided by the share price at the date of settlement. Summary The Company's performance in 2021 was exceptional. Driven by a 22% increase in revenue and a very strong increase in operating profit margin to 12.5% (2020: 5.3%), the Company generated the highest operating profit in its history. The foundations for future growth have now been laid. Trading has continued to be strong in the first quarter of 2022, with the outlook for the remainder of 2022 very positive. This statement along with the audited consolidated statutory financial statements is available on our website: https://www.mcsaatchiplc.com/reports-results/2021 Printed copies of the Annual Report are being posted to shareholders who have requested hard copies. Consolidated Financial Statements for the year ended 31 December 2021 Consolidated Income Statement 2021 2020 Total Total Year ended 31 December Note ��000 ��000 Billings (unaudited) 533,350 454,504 Revenue 4 394,575 323,250 Project cost/direct cost (145,239) (97,861) Net revenue 249,336 225,389 Staff costs 5 (172,493) (171,717) Depreciation 16,17 (9,196) (11,659) Amortisation 14 (1,412) (2,275) Impairment charges 14 (2,937) (3,217) Other operating charges (39,573) (38,635) Other gains/(losses) 19 3,533 (2,818) Operating profit/(loss) 27,258 (4,932) Share of results of associates and joint ventures 15 (190) (113) Gain on disposal of subsidiaries 11 42 1,432 Impairment of associate investment 15 (357) (895) Finance income 7 260 364 Finance expense 7 (5,381) (4,363) Profit/(loss) before taxation 21,632 (8,507) Taxation 8 (8,459) (1,411) Profit/(loss) for the year 13,173 (9,918) Attributable to: Equity shareholders of the Group 12,757 (9,897) Non-controlling interests 416 (21) Profit/(loss) for the year 13,173 (9,918) Profit/(loss) per share Basic (pence) 1 10.53p (9.10)p Diluted (pence) 1 9.38p (9.10)p Headline results Operating profit 1 31,136 11,970 Profit before taxation 1 27,314 8,328 Profit after tax attributable to equity shareholders of the Group 1 13,687 1,650 Basic earnings per share (pence) 1 11.30p 1.52p Diluted earnings per share (pence) 1 10.06p 1.31p EBITDA 40,821 24,105 * It is the intention to fulfil all options by either buying equity from market or in cash so the difference between Basic and Dilutive EPS is purely due to fact that the Group still has a choice that we intend not to take. The following notes form part of these consolidated financial statements. Consolidated Statement of Other Comprehensive Income 2021 2020 Year ended 31 December ��000 ��000 Profit / (loss) for the year 13,173 (9,918) Other comprehensive profit/(loss) Exchange differences on translating foreign operations 664 (289) Other comprehensive profit/(loss) for the year net of tax 664 (289) Total comprehensive profit/(loss) for the year 13,837 (10,207) Total comprehensive profit/(loss) attributable to: Equity shareholders of the Group 13,421 (10,186) Non-controlling interests 416 (21) Total comprehensive profit/(loss) for the year 13,837 (10,207) All items in the consolidated statement of comprehensive profit/(loss) may be reclassified to the income statement. The following notes form part of these consolidated financial statements. Consolidated Balance Sheet 2021 2020 At 31 December Note ��000 ��000 Non-current assets Intangible assets 14 40,499 36,523 Investments in associates and joint ventures 15 202 2,829 Plant and equipment 16 6,333 7,157 Right-of-use assets 17 44,397 34,006 Other non-current assets 18 1,211 3,494 Deferred tax assets 9 6,777 8,301 Financial assets at fair value through profit or loss 19 15,183 11,410 114,602 103,720 Current assets Trade and other receivables 20 132,741 89,262 Current tax assets 247 2,621 Cash and cash equivalents 69,419 76,295 202,407 168,178 Current liabilities Trade and other payables 21 (154,049) (124,740) Provisions 22 (1,193) (666) Current tax liabilities (837) (2,019) Borrowings 23 (14,737) (41,083) Lease liabilities 17 (6,950) (6,250) Deferred and contingent consideration 13 (984) (1,679) Minority shareholder put option liabilities 26/27 (20,788) (978) (199,538) (177,415) Net current assets/(liabilities) 2,869 (9,237) Total assets less current liabilities 117,471 94,483 Non-current liabilities Deferred tax liabilities 9 (777) (405) Borrowings 23 (19,821) (2,199) Lease liabilities 17 (49,895) (40,171) Minority shareholder put option liabilities 26/27 (11,572) (1,804) Other non-current liabilities 24 (2,549) (4,773) (84,614) (49,352) Total net assets 32,857 45,131 2021 2020 At 31 December Note ��000 ��000 Equity Share capital 28 1,227 1,159 Share premium 50,327 44,607 Merger reserve 37,554 37,554 Treasury reserve (550) (550) Minority interest put option reserve (6,615) (4,953) Non-controlling interest acquired (29,190) (29,190) Foreign exchange reserve 1,853 1,210 Accumulated losses (22,122) (4,939) Equity attributable to shareholders of the Group 32,484 44,898 Non-controlling interest 373 233 Total equity 32,857 45,131 The following notes form part of these consolidated financial statements. Reserves are defined in Note 35. These consolidated financial statements were approved and authorised for issue by the Board of Directors on 27 April 2022 and signed on its behalf by: Mickey Kalifa Chief Financial Officer M&C Saatchi plc Company Number 05114893 Consolidated Statement of Changes in Equity Share capital Share premium Merger reserve Treasury reserve MI put option reserve Non-controlling interest acquired Foreign exchange reserves Retained earnings/(accumulated losses) Subtotal Non-controlling interest in equity Total Note ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 At 31 December 2019 936 44,607 33,400 (550) (4,953) (32,239) 1,181 6,854 49,236 365 49,601 Exercise of Minority Interest put options 26 82 - 4,154 - - - - - 4,236 - 4,236 Exercise of share-based payment schemes 27 141 - - - - - - (683) (542) - (542) Disposal of subsidiaries - - - - - 3,049 318 (3,367) - 40 40 Share option charge 27 - - - - - - - 3,275 3,275 - 3,275 Reclassification of equity-settled share-based payments to cash-settled - - - - - - - (1,121) (1,121) - (1,121) Dividends 10 - - - - - - - - - (151) (151) Total transactions with owners 223 - 4,154 - - 3,049 318 (1,896) 5,848 (111) 5,737 Total loss for the year - - - - - - - (9,897) (9,897) (21) (9,918) Total other comprehensive loss for the year - - - - - - (289) - (289) - (289) At 31 December 2020 1,159 44,607 37,554 (550) (4,953) (29,190) 1,210 (4,939) 44,898 233 45,131 Acquisitions including deferred consideration 12,13 54 4,949 - - (2,000) - - - 3,003 - 3,003 Exercise of Minority Interest put options 26 5 419 - - 338 - - - 762 - 762 Transfer from equity to cash-settled put options 27 - - - - - - - (32,555) (32,555) - (32,555) Transfer from cash to equity-settled put options 27 - - - - - - - 994 994 - 994 Share option charge 27 - - - - - - - 2,235 2,235 - 2,235 Buyout of equity put options in cash - - - - - - - (632) (632) - (632) Issue of shares 6 352 - - - - - - 358 - 358 Exercise of put options 3 - - - - - - (3) - - - Disposal of subsidiaries - - - - - - (21) 21 - - - Dividends 10 - - - - - - - - - (276) (276) Total transactions with owners 68 5,720 - - (1,662) - (21) (29,940) (25,835) (276) (26,111) Total profit for the year - - - - - - - 12,757 12,757 416 13,173 Total other comprehensive income for the year - - - - - - 664 - 664 - 664 At 31 December 2021 1,227 50,327 37,554 (550) (6,615) (29,190) 1,853 (22,122) 32,484 373 32,857 The following notes form part of these consolidated financial statements. Consolidated Cash Flow Statement and Analysis of Net Cash Year ended 31 December Note 2021 ��000 2020 ��000 Operating profit/(loss) 27,258 (4,932) Adjustments for: Depreciation of plant and equipment 16 2,237 2,555 Depreciation of right-of-use assets 17 6,959 9,104 Impairment of right-of-use asset 17 - 2,651 Loss on sale of plant and equipment 95 640 Impairment of plant and equipment 16 - 374 Loss on sale of software intangibles 824 433 Revaluation of financial assets at FVTPL 19 (3,533) 3,315 Gain on disposal of financial assets at FVTPL 19 - (497) Revaluation of contingent consideration 13 532 446 Amortisation of acquired intangible assets 14 965 1,686 Impairment of goodwill and other intangibles 14 1,900 - Impairment and amortisation of capitalised software intangible assets 14 1,484 781 Exercise of share-based payment schemes with cash - (683) Equity-settled share-based payment expenses 27 2,235 3,275 Operating cash before movements in working capital 40,956 19,148 (Increase)/decrease in trade and other receivables (38,912) 9,052 Increase in trade and other payables 23,434 9,425 Increase/(decrease) in provisions 316 (2,323) Cash generated from operations 25,794 35,302 Tax paid (6,844) (1,645) Net cash from operating activities 18,950 33,657 Investing activities Acquisitions of subsidiaries and deferred consideration paid, net of cash acquired 12,13 633 - Disposal of associate or subsidiary (net of cash disposed of) 11 (2) (4,114) Acquisition of associates 15 - (1) Acquisitions of unlisted investments 19 (81) (713) Proceeds from sale of unlisted investments 209 1,233 Proceeds from sale of plant and equipment 223 387 Purchase of plant and equipment 16 (1,789) (3,184) Purchase of capitalised software 14 (837) (502) Interest received 7 260 364 Net cash consumed by investing activities (1,384) (6,530) Net cash from operating and investing activities 17,566 27,127 Financing activities Dividends paid to non-controlling interest (152) (151) Cash consideration for non-controlling interest acquired 27 (5,348) (204) Buyout of equity put options in cash (632) - Payment of lease liabilities 17 (6,210) (7,224) Proceeds from bank loans 23 9,301 3,472 Repayment of bank loans 23 (16,909) (8,900) Borrowing costs (602) (518) Interest paid 7 (1,555) (1,751) Interest paid on leases 17 (2,800) (2,471) Net cash consumed by financing activities (24,907) (17,747) Net (decrease)/increase in cash and cash equivalents (7,341) 9,380 Effect of exchange rate fluctuations on cash held (55) 246 Cash and cash equivalents at the beginning of the year 62,375 52,749 Total cash and cash equivalents at the end of the year 54,979 62,375 Cash and cash equivalents 69,419 76,295 Bank overdrafts 23 (14,440) (13,920) Total cash and cash equivalents at the end of the year 54,979 62,375 Bank loans and borrowings 23 (20,590) (29,628) Net cash 34,389 32,747 * 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. ** Bank loans and borrowings are defined in Note 23; they exclude our lease liability of ��56,844k (2020 ��46,421k) (Note 17) The following notes form part of these consolidated financial statements. Preparation Basis of preparation The consolidated financial statements have been prepared in accordance with UK adopted 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. Going concern These consolidated financial statements have been prepared on the going concern basis. The Board have concluded that under the most likely going concern scenarios, 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 consolidated financial statements. The Board have formed their opinion after evaluating four different severe but plausible forecast scenarios and a reverse stress test, extending to 31 December 2023. The severe but plausible scenarios comprise: 1. A significant reduction in new business wins. 2. A significant increase in wage inflation. 3. A significant number of top clients are lost. 4. A significant economic downturn. These severe but plausible scenarios are assumed to materialise from the second quarter of 2022 onwards. The estimated decline in profit before tax under these scenarios ranges from ��8.3m to ��19.1m compared to the base case plan for the cumulative period ending 31 December 2023: a ��2.3m to ��10.2m decline in profit before tax in 2022 and a ��6.0m to ��11.0m decline in profit before tax in 2023. 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 scenarios 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 scenarios, the Group will continue to have sufficient liquidity and headroom to operate within the terms of its banking covenants. The Board, therefore, have concluded the going concern basis of preparation continues to be appropriate. 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 Group's consolidated financial statements 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. The results of subsidiaries are included from the date of acquisition. Where necessary, adjustments are made to the consolidated financial statements of subsidiaries to bring their accounting policies into line with those of the Group. Intra-group transactions, balances, income, and expenses are eliminated on consolidation. Where a consolidated company is less than 100% owned by the Group, the 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 costs, 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 their potential impact on the consolidated financial statements. The critical accounting policies are listed below and are explained in more detail in the relevant notes to the Group consolidated financial statements. Revenue recognition The Group's revenue is earned from the provision of advertising and marketing services, together with commission-based income in relation to media spend and talent performance. Under IFRS 15, 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 Company 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 put option under IFRS 2 (Note 27) - see significant judgements below. An IFRS 9 scheme should be considered as reward for future business performance and is not conditional on the put option holder being an employee of the business. These instruments are recognised in full at the amortised cost of the underlying award on the date of inception, with both a liability on the balance sheet and a corresponding amount within the minority interest put option reserve being recognised. 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 are charged to the income statement within finance income/expense. The put option liability will vary with both the Company's share price and the subsidiary's financial performance. Upon exercise of an award by a put option holder, the liability is extinguished, and the associated minority interest put option reserve is transferred to the non-controlling interest acquired reserve. An IFRS 2 scheme should be considered as reward for future business performance and is conditional on the holder being an employee of the business. These schemes are recognised as staff costs over the vesting period (if equity-settled) or until the option is exercised (if cash-settled). In September 2021, the Board made the decision to move to cash settlement of these put options going forward. This required a fair value assessment on the day of the modification and a movement between reserves and liabilities. See Note 27 for a full description of the Group's accounting policy for IFRS 2 put options. Headline results As stated in the Financial review, 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 a number of items that are not part of routine business income and expenses. In addition, the Headline results are used for internal performance management and reward, and they are also used 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 and the segmental reporting (Note 3) reflects Headline results, in accordance with IFRS 8. The items that are excluded from Headline results are: �� Exceptional separately disclosed items that are one-off in nature and are not part of running the business. �� Acquisition-related costs. �� Gains or losses generated by disposals of subsidiaries and associates. �� Fair value adjustments to unlisted equity investments, acquisition related contingent consideration and put options. �� Dividends paid to IFRS 2 put option holders. Unlisted investments The Group holds certain unlisted equity investments which are classified as financial assets at FVTPL (see Note 19). 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 consolidated financial statements, management necessarily makes judgements and estimates that can have a significant impact on the consolidated 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 consolidated 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. Non-controlling interest put option accounting - IFRS 2 or IFRS 9 The key judgement is whether the awards are given beneficially as a result of employment, which can be determined where there is an explicit service condition, where the award is given to an existing employee, where the employee is being paid below market value or where there are other indicators that the award is a reward for employment. In such cases, the awards are accounted for as a share-based payment in exchange for employment services under IFRS 2. Otherwise, where the holder held shares prior to the Group acquiring the subsidiary or gained the equity as a result of starting up a subsidiary using their unique skills and there are no indicators the award should be accounted for under IFRS 2, then the award is accounted for under IFRS 9. Impairment - assessment of CGUs and assessment of indicators of impairment Impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. Assets with finite lives 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 by management, including a) adverse changes in the economic or political situation of the geographic locale in which the underlying entity operates, b) heightened risk of client loss or chance of client gain, and c) internal reporting suggesting that an entity's future economic performance is better or worse than previously expected. Where management have concluded that such an indication of impairment exists, then the recoverable amount of the asset is assessed. The Group assesses whether an impairment is required by comparing the carrying value of the CGU assets (including the right-of-use assets under IFRS 16) to their value in use. Generally, discounted cash flow models, based on the Group's latest budget and five-year financial plan, 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 estimation uncertainty. The results of impairment reviews conducted at the end of the year are reported in Note 14 (Intangible Assets), Note 15 (Associates), Note 16 (Plant and Equipment) and Note 17 (Right-of-use Assets). The Group has recognised a total impairment charge of ��3,294k in the year (2020: ��4,112k), of which ��2,937k relates to intangible assets (2020: ��192k) and ��357k relates to associate investments (2020: ��895k). There was no impairment in the year of plant and equipment (2020: ��374k), nor of right-of-use assets (2020: ��2,651k). 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. Significant estimates and assumptions Some areas of the Group's consolidated financial statements are 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. The Group has based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. 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) certain contingent consideration (Note 13). 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. 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 risk-free 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 Company'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. Leasing estimates Within IFRS 16, two estimates are used for the recognition of new leases and making amendments to existing leases: i. Derivation of the interest rate used for discounting future cash flows - the discount rate used in the calculation of the lease liability involves estimation on a lease-by-lease basis. This involves an estimate of incremental borrowing costs, driven by the 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. ii. 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. 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. Non-statutory accounts statement The financial information for the year ended 31 December 2021 and the year ended 31 December 2020 does not constitute the company's statutory accounts for those years. Statutory accounts for the year ended 31 December 2020 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2021 will be delivered to the Registrar of Companies in due course. The auditor's report on the accounts for 31 December 2021 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The auditor's report on the accounts for 31 December 2020 was qualified in respect of the comparability of the Group loss and cash flows with the 2019 year end and did not draw attention to any matters by way of emphasis. Solely in respect of the qualification the auditor included a statement under 498(2) and 498(3) of the Companies Act 2006. 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 for the current year. Statutory 2021 Separately disclosed items (Note 2) Amortisation of acquired intangibles (Note 14) Impairment of non-current assets (Note 14 & 15) Net loss on disposal of subsidiaries and related costs (Note 11) Revaluation of associates on transition to subsidiaries (Note 15) FVTPL investments under IFRS 9 (Note 19) Revaluation of contingent consideration (Note 13) Dividends paid to IFRS 2 put holders (Note 5) Put option accounting (Note 26 & 27) Headline results Year ended 31 December 2021 Note ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 Billings (unaudited) 533,350 533,350 Revenue 394,575 - - - - - - - - - 394,575 Net revenue 249,336 - - - - - - - - - 249,336 Staff costs 5 (172,493) (3,975) - - 28 - - - 5,270 1,225 (169,945) Depreciation 16,17 (9,196) - - - - - - - - - (9,196) Amortisation 14 (1,412) - 965 - - - - - - - (447) Impairments 14 (2,937) - - 2,413 - - - - - - (524) Other operating charges (39,573) 192 - - 97 - 664 532 - - (38,088) Other gains 19 3,533 - - - - - (3,533) - - - - Operating profit 27,258 (3,783) 965 2,413 125 - (2,869) 532 5,270 1,225 31,136 Share of results of associates and joint ventures 15 (190) - - - - 234 - - - - 44 Gain on disposal of subsidiaries 11 42 - - - (42) - - - - - - Impairment of associate investment 15 (357) - - 357 - - - - - - - Finance income 7 260 - - - - - - - - - 260 Finance expense 7 (5,381) - - - - - 359 - - 896 (4,126) Profit before taxation 8 21,632 (3,783) 965 2,770 83 234 (2,510) 532 5,270 2,121 27,314 Taxation 8 (8,459) 743 (246) - - - 680 - 11 - (7,271) Profit for the year 13,173 (3,040) 719 2,770 83 234 (1,830) 532 5,281 2,121 20,043 Non-controlling interests (416) - - - - - - - (5,940) - (6,356) Profit attributable to equity holders of the Group 12,757 (3,040) 719 2,770 83 234 (1,830) 532 (659) 2,121 13,687 * The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a IFRS 2 put option. ** Headline earnings are profit attributable to equity holders of the Group after adding back items within the columns above. The analysis below provides a reconciliation between the Group's Statutory results and the Headline results for the prior year. Statutory 2020 Separately disclosed items (Note 2) Amortisation of acquired intangibles (Note 14) Impairment of non-current assets (Note 15, 16 & 17) Gain on disposal of subsidiaries and associates FVTPL investments under IFRS 9 (Note 19) Revaluation of contingent consideration (Note 13) Dividends paid to IFRS 2 put holders (Note 5) Put option accounting (Note 26 & 27) Headline results Year ended 31 December 2020 Note ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 Billings (unaudited) 454,504 - - - - - - - - 454,504 Revenue 323,250 - - - - - - - - 323,250 Net revenue 225,389 - - - - - - - - 225,389 Staff costs 5 (171,717) 1,661 - - - - - 4,728 3,300 (162,028) Depreciation 16,17 (11,659) - - - - - - - - (11,659) Amortisation 14 (2,275) - 1,686 - - - - - - (589) Impairments 16,17 (3,217) - - 3,025 - - - - - (192) Other operating charges (38,635) 311 - - - (232) 446 - - (38,110) Other losses (2,818) - - - - 1,977 - - - (841) Operating (loss) / profit (4,932) 1,972 1,686 3,025 - 1,745 446 4,728 3,300 11,970 Share of results of associates and joint ventures 15 (113) - - - - - - - - (113) Gain on disposal of subsidiaries 11 1,432 - - - (1,432) - - - - - Impairment of associate investment 15 (895) - - 895 - - - - - - Finance income 7 364 - - - - - - - - 364 Finance expense 7 (4,363) - - - - 350 - - 120 (3,893) (Loss)/profit before taxation (8,507) 1,972 1,686 3,920 (1,432) 2,095 446 4,728 3,420 8,328 Taxation 8 (1,411) (482) (405) (575) - (398) - - (24) (3,295) (Loss)/profit for the year (9,918) 1,490 1,281 3,345 (1,432) 1,697 446 4,728 3,396 5,033 Non-controlling interests 21 - - - - - - (3,404) - (3,383) (Loss)/profit attributable to equity holders of the Group (9,897) 1,490 1,281 3,345 (1,432) 1,697 446 1,324 3,396 1,650 * The non-controlling interest charge is moved to operating profit due to underlying equity being defined as a IFRS 2 put option. ** Headline earnings are profit attributable to equity holders of the Group after adding back the adjustments noted above. Earnings per share Basic and diluted earnings per share are calculated by dividing the Group's appropriate earnings metrics 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. It is the intention to fulfil all options by either buying equity from market or in cash so the difference between Basic and Dilutive EPS is purely due to fact that the Group still has a choice that we intend not to take. Headline Year ended 31 December 2021 2021 2021 Profit attributable to equity shareholders of the Group (��000) 12,757 13,687 Basic earnings per share Weighted average number of shares (thousands) 121,130 121,130 Basic EPS 10.53p 11.30p Diluted earnings per share Weighted average number of shares (thousands) as above 121,130 121,130 Add -���LTIP 178 178 -���Restricted Shares 649 649 -���Deferred consideration (payable in cash) 695 695 -���Put options (payable in cash) 13,342 13,342 Total 135,994 135,994 Diluted EPS 9.38p 10.06p 135,994 135,994 Excluding the deferred consideration (payable in cash) (695) (695) Excluding the put options (payable in cash) (13,342) (13,342) Weighted average number of shares (thousands) including dilutive shares 121,957 121,957 Diluted EPS - excluding items we intend and are able to pay in cash 10.46p 11.22p Headline Year ended 31 December 2020 2020 2020 (Loss)/profit attributable to equity shareholders of the Group (��000) (9,897) 1,650 Basic earnings per share Weighted average number of shares (thousands) 108,783 108,783 Basic EPS (9.10)p 1.52p Diluted earnings per share Weighted average number of shares (thousands) as above 108,783 108,783 Add -���Conditional shares - 11,963 -���Put option - 3,356 -���Contingent consideration - 1,757 Total 108,783 125,859 Diluted EPS (9.10)p 1.31p 2. Separately disclosed items Policy Separately disclosed items include one off, non-recurring revenues, or expenses. These are shown separately and are excluded from Headline profit to provide a better understanding of the underlying results of the Group. Analysis Separately disclosed items for the year ended 31 December 2021 comprise the following: 2021 Operating costs ��000 Staff costs ��000 Taxation ��000 After tax total ��000 Strategic review and restructuring 192 (2,751) 466 (2,093) Forgiveness of US Payment Protection Program ("PPP") loan - (2,200) 462 (1,738) Repayment of UK furlough money - 976 (185) 791 Total separately disclosed items 192 (3,975) 743 (3,040) In 2021, we have recognised the repayment of the UK furlough money that was received in 2020 and the forgiveness of the US "PPP" loan that was received in 2020. Included within strategic review and restructuring above are: �� Staff costs relating to the release of a long-term incentive plan accrual for a previous employee who is no longer part of the business (��1.8m of this relates to pre-2021); and �� Operating costs comprising of the lease surrender expense incurred during 2021, due to restructuring of two lease spaces. Separately disclosed items for the year ended 31 December 2020 comprise the following: 2020 Operating costs ��000 Staff costs ��000 Taxation ��000 After tax total ��000 Restructuring - 2,637 (608) 2,029 Legal fees 311 - (59) 252 Furlough salary expense - (976) 185 (791) Total separately disclosed items 311 1,661 (482) 1,490 In 2020, the Board continued its strategic review of the Group to improve the long-term profitability of the business. This restructuring of the Group led to staff redundancy costs in the year. 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 have historically comprised of 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. From 2021, following the Group's strategic review, presented at the Capital Markets Day in January 2021, we now also assess the Group's performance under a new structure of specialisms, and this will be reported under two segments: Advertising & Customer and High Growth Specialisms, excluding Group Central Costs. Segmental Information by Geography UK Europe Middle East and Africa Asia Australia Americas Group Central Costs Total Year Ended 31 December 2021 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 Net revenue 104,231 15,207 20,216 17,213 53,997 38,472 - 249,336 Operating profit/(loss) 26,599 1,929 2,842 1,385 5,832 4,709 (12,160) 31,136 Operating profit margin 26% 13% 14% 8% 11% 12% - 12% Profit/(loss) before tax 26,188 1,906 2,430 756 5,257 3,625 (12,848) 27,314 UK Europe Middle East and Africa Asia Australia Americas Group Central Costs Total Year Ended 31 December 2020 ��000 ��000 ��000 ��000 ��000 ��000 ��000 ��000 Net revenue 86,919 28,433 15,648 10,631 47,991 35,767 - 225,389 Operating profit/(loss) 11,687 1,501 640 (706) 3,042 3,668 (7,862) 11,970 Operating profit margin 13% 5% 4% - 6% 10% - 5% Profit/(loss) before tax 10,623 1,353 282 (1,006) 2,939 2,705 (8,568) 8,328 No revenues were derived from an individual customer with a net revenue contribution of greater than 10% of the total net revenue during either 2021 or 2020. Other operating expenses consists of facilities & equipment, legal & professional fees, establishment, travel, new business and other admin expenses. Segmental Information by Specialisms Advertising & CRM High Growth Specialisms Group Central Costs Total Year Ended 31 December 2021 ��000 ��000 ��000 ��000 Net revenue 127,195 122,141 - 249,336 Operating profit/(loss) 11,052 32,244 (12,160) 31,136 Operating profit margin 9% 26% - 12% Profit/(loss) before tax 9,370 30,792 (12,848) 27,314 Advertising & CRM High Growth Specialisms Group Central Costs Total Year Ended 31 December 2020 ��000 ��000 ��000 ��000 Net revenue 128,903 96,926 - 225,389 Operating profit/(loss) 5,184 14,648 (7,862) 11,970 Operating profit margin 4% 15% - 5% Profit/(loss) before tax 4,646 12,249 (8,568) 8,328 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). 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 below. 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 revenue 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. Disaggregation of revenue The Group monitors the composition of revenue earned by the Group on a geographic basis and by specialism. Net Revenue by Specialism Reported LFL 2021 2021 vs 2020 2021 2021 vs 2020 Specialism ��m Movement ��m Movement Advertising & CRM 127.2 (1.3%) 121.2 5.6% Media & Performance 32.8 39.1% 32.8 39.1% Global & Social Issues 33.9 21.6% 33.2 18.9% Brand & Experience 30.9 15.0% 30.9 17.1% Sponsorship & Talent 24.5 35.3% 24.5 35.3% Group 249.3 10.6% 242.6 15.1% Net Revenue by Region Reported LFL 2021 2021 vs 2020 2021 2021 vs 2020 Region ��m Movement ��m Movement UK 104.2 19.9% 104.2 20.1% Europe 15.2 (46.5%) 15.2 (8.4%) Middle East & Africa 20.2 29.2% 20.2 35.4% Asia 17.2 61.9% 12.3 16.2% Australia 54.0 12.5% 54.0 12.5% Americas 38.5 7.6% 36.6 8.0% Group 249.3 10.6% 242.6 15.1% 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 an 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. The Group operates a standard 30 day credit terms policy. All contract liabilities and contract assets (other receivables per Note 20) brought forward have been recognised in the current period. 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 above 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 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 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 Contributions to personal pension plans are charged to the income statement in the period in which they are due. 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). Analysis Staff costs (including Directors) 2021 2020 Year ended 31 December ��000 ��000 Wages and salaries ** 141,615 134,782 Social security costs 13,085 16,360 Pension costs 5,403 5,070 Other staff costs* 6,950 6,555 Total 167,053 162,767 Allocations and dividends paid to holders of IFRS 2 put options 1 5,270 4,728 Share-based incentive plans: Cash-settled 27 (2,065) 947 Equity-settled 27 2,235 3,275 Total share-based incentive plans 170 4,222 Total staff costs 172,493 171,717 * Other staff costs include dividends, profit share, LTIP charges, redundancy costs and insurance. ** Within the 2020 figures we identified an amount of ��2.5m that needed to be presented within pension costs, rather than wages and salaries. This was correctly accounted for in 2021 and reclassified in 2020 for comparative purposes. Staff numbers UK 734 687 Europe 161 357 Middle East and Africa 383 373 Asia 592 342 Australia 465 436 Americas 318 255 Total 2,653 2,450 These staff numbers are based on the average number of monthly staff in December each year. 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 ��5,403k (2020: ��5,070k) were made in the year and charged to the income statement in the period they relate to. Compensation for key management personnel and Directors 2021 2020 Key management remuneration ��000 ��000 Short-term employee benefit 2,735 2,325 Post-employment benefit 88 249 Share-based payments 268 485 Total 3,091 3,059 Key management personnel include the Directors and employees responsible for planning, directing and controlling the activities of the Group. 6. Auditors' remuneration The Group paid the following amounts to its auditors in respect of the audit of the consolidated financial statements and for other services provided to the Group: other assurance services - interim agreed upon procedures 2021 2020 Year ended 31 December ��000 ��000 Audit services: Audit of the Company and its consolidated financial statements 1,450 2,337 Audit of the Company's subsidiaries pursuant to legislation 237 255 1,687 2,592 Other services provided by the Auditors: Other assurance services - interim agreed upon procedures 46 - Taxation compliance services 66 - Taxation advisory services 112 - 224 - Total 1,911 2,592 In 2020, the Group's auditors were PricewaterhouseCoopers LLP. BDO LLP became the Group's auditors in 2021. 7. Net finance income/(expense) Policy Interest income and expense, including fair value adjustments to IFRS 9 put options, are recognised in the income statement in the period in which they are incurred. Analysis Year ended 31 December 2021 2020 ��000 ��000 Bank interest receivable 187 215 Other interest receivable 47 78 Sublease finance income 26 71 Financial income 260 364 Bank interest payable (1,555) (1,240) Amortisation of loan costs (130) (228) Other interest payable - (304) Interest on lease liabilities (2,800) (2,471) Valuation adjustment to IFRS 9 put option liabilities (Note 26) (896) (120) Financial expense (5,381) (4,363) Net finance expense (5,121) (3,999) 8. Current Taxation Policy 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. Analysis Income statement charge for year ended 31 December 2021 2020 ��000 ��000 Taxation in the year UK 1,832 (8) Overseas 4,470 3,765 Withholding taxes payable 31 7 Adjustment for under provision in prior periods * 1,476 1,312 Total 7,809 5,076 Deferred taxation Recognition/(reversal) of temporary differences 1,651 (3,100) Adjustment for over provision in prior periods * (974) (565) Effect of changes in tax rates (27) - Total 650 (3,665) Total taxation 8,459 1,411 * The 2020 tax position was adjusted due to the accounting restatements made in 2019. In 2021, the deferred tax positions became current due to the increase in profitability in the year. The differences between the actual tax and the standard rate of corporation tax in the UK applied to the Group's Statutory profit/(loss) for the year are as follows: 2021 2021 2020 2020 Year ended 31 December ��000 % ��000 % Profit/(loss) before taxation 21,632 (8,507) Taxation at UK corporation tax rate of 19.00% (2019: 19.00%) 4,110 19.0% (1,616) 19.0% Different tax rates applicable in overseas jurisdictions (i) 1,467 6.8% 213 (2.5%) Adjustment for current tax under/(over) provision in prior periods (ii) 1,465 6.8% 1,312 (15.4%) Adjustment for deferred tax (over)/under provision in prior periods (ii) (974) (4.5%) (565) 6.6% Option charges not deductible for tax (iii) 925 4.3% 1,303 (15.3%) Impairment with no tax credit (iv) 537 2.4% 170 (2.0%) Tax losses for which no deferred tax asset was recognised 528 2.4% 711 (8.3%) Expenses not deductible for tax 386 1.8% 127 (1.5%) Disposal of subsidiaries on which no tax is charged 16 0.1% (272) 3.2% Withholding taxes payable 31 0.1% 7 (0.1%) Tax effect of associates 1 0.0% 21 (0.3%) Effect of changes in tax rates on deferred tax (33) (0.1%) - - Statutory taxation 8,459 39.1% 1,411 (16.6%) Statutory effective tax rate 39.1% (16.6%) The key differences between the actual and Statutory tax rates are as follows: i. Different tax rates applicable in overseas jurisdictions: the Group operates in multiple locations around the world where tax rates are higher than the UK (e.g. Australia (30%) and USA (between 21% to 28%)). ii. The net effect of the adjustment for current and deferred tax in prior periods is ��491k (2020: ��747k) of total tax charge. iii. Option charges include dividends 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. iv. Impairment with no tax credit: On most of our acquisitions we received no tax benefit from the acquisition of goodwill and correspondingly there is no tax benefit from goodwill impairment. Looking forward, taxes are rising to recover the costs of the Covid-19 pandemic. For instance, UK corporation tax will increase from 19% to 25% from 2023. We expect large variations in future 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. Tax on Headline profits In 2021, the key difference between the actual and Headline tax rates is driven by our local entities' profitability in higher tax countries such as Australia and USA, with central costs being incurred in the UK, a lower tax market. Our Headline tax rate has reduced from 39.6% in 2020 to 26.6%. The tax rate reduction is driven by fewer prior period tax adjustments (2020 was affected by the 2019 accounts restatements) and fewer loss-making subsidiaries where we expect no future tax benefit. 2021 2021 2020 2020 Year ended 31 December ��000 % ��000 % Headline profit before taxation (Note 1) 27,312 8,328 Taxation at UK corporation tax rate of 19.00% (2020: 19.00%) 5,189 19.0% 1,582 19.0% Different tax rates applicable in overseas jurisdictions 1,510 5.4% 406 4.8% Adjustment for current tax under/(over) provision in prior periods 1,476 5.4% 1,312 15.8% Adjustment for deferred tax (over)/under provision in prior periods (974) (3.6%) (561) (6.7%) Tax losses for which no deferred tax asset was recognised 528 1.9% 710 8.5% Expenses not deductible for tax 386 1.4% 127 1.5% Withholding taxes payable 31 0.1% 7 0.1% Effect of changes in tax rates (6) (0.0%) - - Tax effect of associates (44) (0.2%) 21 0.3% Effect of changes in tax rates on deferred tax (230) (0.8%) - - Non-controlling interest share of partnership income (595) (2.2%) (309) (3.7%) Headline taxation (Note 1) 7,271 26.6% 3,295 39.6% Headline effective tax rate 26.6% 39.6% 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 profit 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. Analysis 2021 2020 At 31 December ��000 ��000 Deferred tax assets 6,777 8,301 Deferred tax liabilities (777) (405) Net deferred tax 6,000 7,896 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 2021 and 2020. Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total ��000 ��000 ��000 ��000 ��000 ��000 At 1 January 2020 298 49 1,523 (964) 4,008 4,914 Exchange differences (4) (1) (143) - (54) (202) Income statement (charge)/credit (58) 1,278 7,136 499 (5,190) 3,665 Disposals (Note 11) - - (13) - (468) (481) At 31 December 2020 236 1,326 8,503 (465) (1,704) 7,896 Exchange differences (16) (52) (337) - 237 (168) Income statement (charge)/credit (47) 103 (4,460) (767) 4,522 (649) Acquisitions (Note 12) (1,150) - 71 - - (1,079) At 31 December 2021 (977) 1,377 3,777 (1,232) 3,050 6,000 Based on the 2021 Board approved budget and five-year plans, 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. Within the local entities ��3,101k (2020: ��5,733k) of deferred tax has been naturally offset. Disregarding this offset, the split of deferred tax is as follows: Intangibles Capital allowances Tax losses Purchased investments Working capital differences Total ��000 ��000 ��000 ��000 ��000 ��000 At 31 December 2020 Deferred tax assets 290 1,328 8,503 - 3,953 14,074 Deferred tax liabilities (54) (2) - (465) (5,657) (6,178) Net deferred tax 236 1,326 8,503 (465) (1,704) 7,896 At 31 December 2021 Deferred tax assets 47 1,377 3,777 - 4,677 9,878 Deferred tax liabilities (1,024) - - (1,232) (1,622) (3,878) Net deferred tax (977) 1,377 3,777 (1,232) 3,055 6,000 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 IFRS 16 (Leases); and tax provision on any long-term deferred bonuses. UK tax legislation was implemented on 24 May 2021 which increased the UK corporation tax from 19% to 25% with effect from 1 April 2023. The effect on the revaluation of the deferred tax balance of this change is partly reliant on projections for 2022 and 2023 profits so is an estimate. An unrecognised deferred tax asset in respect of carried forward tax losses is shown below: Losses Deferred tax impact ��000 ��000 At 1 January 2021 4,772 975 Exchange differences (52) (14) Written off in year (750) (154) Differences in tax rates - 122 Losses in year 2,456 528 At 31 December 2021 6,426 1,457 Expiry date of losses: 2021 2020 ��000 ��000 One to five years - - Five to ten years 648 439 Ten years or more 809 536 Total 1,457 975 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 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 Company's Annual General Meeting. No interim or final dividends were approved for either 2020 or 2021. The dividend policy was reviewed as part of the Group's recent strategic review, which 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, the intention is to reinstate dividends from 2022. 11. Disposals Policy We account for disposals of entities in the Group in accordance with IFRS 10. 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 balance sheet. �� 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 IFRS standards. �� Recognises the gain or loss associated with the loss of control attributable to the former controlling interest. Analysis 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. This process continued into 2021, with four entities either ceasing trading or being divested. The entities that ceased trading were M&C Saatchi PR LLP and M&C Saatchi Marketing Arts Limited. The entity that was divested was Create Collective PTE. These entities contributed ��39k of losses to the 2021 results. The Headline results of the entities disposed in 2021, which have been included in the results for the year, were as follows: Year ended 31 December 2021 UK Europe Middle East and Africa Asia and Australia Americas Total ��000 ��000 ��000 ��000 ��000 ��000 Revenue 5 - - 87 - 92 Project cost/direct cost - - - - - Net revenue 5 - - 87 - 92 Staff costs (27) - (1) (46) - (74) Depreciation - - - (1) - (1) Amortisation - - - - - - Other operating charges (5) - - (37) (14) (56) Operating (loss)/gain (27) - (1) 3 (14) (39) Finance income - - - - - - Finance expense - - - - - - (Loss) / profit before taxation (27) - (1) 3 (14) (39) The Headline results of the entities disposed in 2020, which were included in the results for 2020, were as follows: Year ended 31 December 2020 UK Europe Middle East and Africa Asia and Australia Americas Total ��000 ��000 ��000 ��000 ��000 ��000 Revenue 155 23,170 897 1,209 3,375 28,806 Project cost/direct cost - (11,345) (178) (7) (604) (12,134) Net revenue 155 11,825 719 1,202 2,771 16,672 Staff costs (664) (9,788) (962) (945) (3,631) (15,990) Depreciation (2) (833) (17) (2) (327) (1,181) Amortisation (79) - (4) (291) - (374) Other operating charges (197) (1,518) (94) (355) (880) (3,044) Operating loss (787) (314) (358) (391) (2,067) (3,917) Finance income - - (1) - 2 1 Finance expense - (110) 15 - (32) (127) Loss before taxation (787) (424) (344) (391) (2,097) (4,043) The gain on disposal of the subsidiaries is calculated as follows: 2021 2020 ��000 ��000 Consideration received in cash and cash equivalents - 979 Share consideration receivable - 444 Deferred consideration payable - (536) Total consideration - 887 Plant and equipment 2 562 Right-of-use assets - 2,661 Other non-current assets - 63 Deferred tax assets - 481 Trade and other receivables 21 11,708 Current tax assets - 583 Cash and cash equivalents 2 5,094 Trade and other payables (67) (17,425) Borrowings - (1,462) Lease liabilities - (2,810) Add net liabilities (42) (545) Gain on disposal of subsidiaries 42 1,432 Within Note 1, there are costs of ��125k that relate to severance and legal fees for the disposal. 12. Acquisitions of subsidiaries On 10 February 2021, the Group acquired two entities that were previously associates, 40.0% of M&C Saatchi (Hong Kong) Limited and 25.1% of Santa Clara Participa����es Ltda. In addition, on 1 January 2021 we deemed that we had control of the 51% held in M&C Saatchi World Services Pakistan (Pvt) Ltd, therefore obtaining control of the three entities. M&C Saatchi (Hong Kong) Limited's primary activity is consultancy, and both Santa Clara Participa����es Ltda and M&C Saatchi World Services Pakistan (Pvt) Limited are marketing agencies, of which all qualify as a business as defined in IFRS 3. The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. M&C Saatchi (Hong Kong) ��000s Santa Clara ��000s Pakistan ��000s Total ��000s Financial assets 4,158 1,879 482 6,519 Property, plant and equipment 284 29 48 361 Identifiable intangible assets 1,653 2,211 - 3,864 Financial liabilities (3,395) (3,472) (530) (7,397) Deferred tax assets/(liabilities) (343) (736) - (1,079) Total identifiable assets acquired and liabilities assumed 2,357 (89) - 2,268 Plus: goodwill (Note 14) 2,677 1,945 - 4,622 Net assets acquired 5,034 1,856 - 6,890 Satisfied by: Equity instruments 2,627 1,856 - 4,483 Fair value of associate investment 2,407 - - 2,407 Total consideration transferred 5,034 1,856 - 6,882 Net cash inflow arising on acquisition: Cash and cash equivalent balances acquired 750 513 29 1,292 750 513 29 1,292 M&C Saatchi (Hong Kong) Limited The fair value of the financial assets includes trade receivables that amount to ��1.1m. It is expected that the full contractual amounts can be collected. Goodwill is mainly attributable to the workforce and synergies and amounts to ��2.7m. None of the goodwill is expected to be deductible for tax purposes. The fair value of the Company's 3,027,860 ordinary shares issued as the consideration (��2,627k) was determined on the basis of the agreed put option agreement, created at the time M&C Saatchi (Hong Kong) Limited became an associate in 2015. The entity acquired contributed ��15.5m revenue and ��0.1m to the Group's operating profit for the period between the date of acquisition and the reporting date. If the acquisition of this entity had been completed on the first day of the financial year, Group results for the year would have included ��16.4m of revenue and ��0.6m of profit. Santa Clara Participa����es Ltda The fair value of the financial assets includes trade receivables that amount to ��0.8m. The gross amount of trade receivables is ��0.8m and it is expected that the full contractual amounts can be collected. Goodwill is mainly attributable to the workforce and synergies and amounts to ��1.9m. None of the goodwill is expected to be deductible for tax purposes and this has been impaired in 2021 by ��1.4m. The fair value of the Company's 2,084,825 ordinary shares issued as the consideration (��1,856k) was determined on the basis of the agreed put option agreement, created at the time Santa Clara Participa����es Ltda. became an associate. The entity acquired contributed ��8.2m revenue and ��0.1m to the Group's operating profit for the period between the date of acquisition and the reporting date. If the acquisition of this entity had been completed on the first day of the financial year, Group results for the year would have included ��8.5m of revenue and Group profit of ��nil. 13. Deferred and contingent consideration Policy Certain acquisitions made by the Group include contingent or deferred consideration, the quantum of which is dependent on the future performance of the acquired entity. Such 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 either the end of each reporting period or crystallisation of the consideration payment. The movements in the fair value are recognised in profit or loss. Analysis Liabilities 2021 2020 ��000 ��000 Current Deferred consideration Levergy Marketing Agency (Pty) Limited (984) (691) M&C Saatchi F&Q Brasil Comunica����o LTDA - (536) Contingent consideration Scarecrow Communications Limited - (452) Total current (984) (1,679) Movements in liabilities in the year 2021 2020 ��000 ��000 At 1 January (1,679) (758) Exchange differences 48 61 Deferred consideration due on disposals * - (536) Charged to the income statement ** (532) (446) Conditional consideration paid in cash *** 659 - Conditional consideration paid in equity 520 - At 31 December (984) (1,679) * ��536k due to M&C Saatchi F&Q Brasil Comunica����o LTDA. ** ��984k revaluation of deferred consideration due to Levergy Marketing Agency (Pty) less ��452k revaluation of contingent consideration due to Scarecrow Communications Limited. *** ��536k paid to M&C Saatchi F&Q Brasil Comunica����o LTDA and ��123k paid to Levergy Marketing Agency (Pty). ��520k paid to Levergy Marketing Agency (Pty) Limited. ��984k of deferred consideration is payable to Levergy Marketing Agency (Pty) Limited from the Company and is held as a liability in the Company's own balance sheet. This has increased in 2021 due to Levergy's increased profitability in 2021, compared to 2020. Detail surrounding the fair value measurement of the contingent consideration recognised at year-end is provided in Note 29. 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 assumed. 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 and internally created software and film rights are recorded at cost. Internally created software and film rights 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: 3 years Customer relationships: 1 to 8 years Brand name: 1 to 10 years The Group has no indefinite life intangibles other than goodwill. Impairment 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. Impairment losses arise when the carrying amount of an asset or CGU is in excess of the recoverable amount, and these losses are recognised in the income statement. All recoverable amounts are from future trading (i.e. their value in use) and not from the sale of unrecognised assets or other intangibles. The value in use calculations have been based on the forecast profitability of each CGU, using the 2022 budget and five-year plans approved by the Board, 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. A discount rate is then applied to create 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 and right-of-use assets), 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 1.0 have been used for Brazil, South Africa and China, while 1.4 has been used for India and 1.2 has been used for rest of the world. 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 used for impairment review Residual growth rates 2021 Residual growth rates 2020 Pre-tax discount rates 2021 Pre-tax discount rates 2020 Market % % % % UK 1.5 1.5 14-17 12-13 Asia and Australia 1.5 1.5 16-19 13-14 Middle East 1.5 1.5 17 12 India 1.5 1.5 23 18 South Africa 1.5 1.5 28 24 Europe 1.5 1.5 15 11 Americas 1.5 1.5 15-18 12-13 Analysis Goodwill ��000 Brand name ��000 Customer relationships ��000 Software and film rights ��000 Total ��000 Cost At 1 January 2020 57,105 8,769 14,090 3,598 83,562 Exchange differences 12 (17) (173) 185 7 Acquired - - - 502 502 Disposal (2,809) (1,404) (2,766) (776) (7,755) Reclassification - - - 850 850 At 31 December 2020 54,308 7,348 11,151 4,359 77,166 Exchange differences (493) (73) (1) (46) (613) Acquired - business combinations 4,621 919 2,901 45 8,486 Acquired - - - 837 837 Disposal - - - (1,963) (1,963) At 31 December 2021 58,436 8,194 14,051 3,232 83,913 Accumulated amortisation and impairment At 1 January 2020 23,539 8,091 12,308 1,417 45,355 Exchange differences 125 5 (162) 175 143 Amortisation charge - 335 1,351 589 2,275 Impairment - - - 192 192 Disposal (2,809) (1,404) (2,766) (343) (7,322) At 31 December 2020 20,855 7,027 10,731 2,030 40,643 Exchange differences (295) (79) (20) (45) (439) Amortisation charge - 181 784 447 1,412 Impairment 1,900 - - 1,037 2,937 Disposal - - - (1,139) (1,139) At 31 December 2021 22,460 7,129 11,495 2,330 43,414 Net book value At 31 December 2019 33,566 678 1,782 2,181 38,207 At 31 December 2020 33,453 321 420 2,329 36,523 At 31 December 2021 35,976 1,065 2,556 902 40,499 * In 2020, there was a reclassification of property, plant and equipment and intangible assets, relating to software previously classified within computer equipment. ** The difference to Note 1 relates to the impairment of the Skategoat film which is yet to be released. This is treated as a headline expense. Goodwill Cash generating units (CGUs) 31 December 2021 ��000 31 December 2020 ��000 Segment M&C Saatchi Sport & Entertainment Limited 1,184 1,184 UK M&C Saatchi Mobile Limited 4,283 4,283 UK M&C Saatchi Merlin Limited 765 765 UK Talk PR Limited 625 625 UK M&C Saatchi Social Limited 2,612 2,612 UK Clear Ideas Limited 5,031 5,031 Europe M&C Saatchi Advertising GmbH 1,306 1,392 Europe M&C Saatchi Middle East Fz LLC (Dubai) 684 677 Middle East and Africa Levergy Marketing Agency (PTY) Limited (South Africa) 820 882 Middle East and Africa M&C Saatchi Agency Pty Limited (Australia) 2,719 2,860 Australia Bohemia Group Pty Limited (Australia) 1,812 1,907 Australia Shepardson Stern + Kaminsky LLP 5,375 5,321 Americas LIDA NY LLP (MCD) 5,198 5,145 Americas Santa Clara Participa����es Ltda. 529 - Americas M&C Saatchi (Hong Kong) Limited 2,806 - Asia Scarecrow Communications Limited 159 663 Asia M&C Saatchi (M) SDN BHD 68 106 Asia Total 35,976 33,453 * With exception of CGUs marked, all other movements in the table above are due to foreign exchange differences. During the year the Group made impairments of Santa Clara Participa����es Ltda. ��1,400k and Scarecrow Communications Limited ��500k (2020: Nil). Excluding the CGUs that have been impaired, the following sensitivity analysis of the remaining CGUs shows the impairment required, if the profit forecasts reduced and the discount rates increased. Annual profit forecast reduced by Discount rates increased by 0% 10% 20% 30% 0% - - 174 894 1% - - 588 1,477 3% 170 710 1,767 2,955 5% 975 1,984 3,033 4,076 The CGUs affected by this sensitivity analysis are LIDA NY LLP (MCD), M&C Saatchi Advertising GmbH, M&C Saatchi (Hong Kong) Limited (AEIOU) and Levergy Marketing Agency (PTY) Limited (South Africa). These entities remain at risk of impairment. 15. Investments in associates and joint ventures Policy 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. 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 it is neither control nor joint control over those policies. The carrying value of these investments comprise the Group's share of their net assets and any purchased goodwill. These carrying amounts are reviewed at each balance sheet date, to determine whether there is any indication of impairment. Analysis Investment in associates Proportion of ownership interest held at 31 December 2021 2020 2021 2020 Region & Name Nature of business Country of incorporation or registration ��000 ��000 Europe M&C Saatchi Istanbul Advertising Turkey - - - 25% M&C Saatchi Little Stories SAS PR France - - 25% 6% M&C Saatchi SAL Advertising Lebanon - - 10% 10% Asia and Australia M&C Saatchi (Hong Kong) Limited Advertising China - 2,365 80% 40% February Communications Private Limited Advertising India - 18 20% 20% M&C Saatchi Limited Advertising Japan - 2 10% 10% Love Frankie Limited Advertising Thailand 202 185 25% 25% Americas Technology, Humans and Taste LLC* Advertising USA - 3 - 30% Santa Clara Participa����es Ltda* Advertising Brazil - 256 50% 25% Total 202 2,829 * In February 2021, the minority shareholders in M&C Saatchi Little Stories SAS exercised their right to put their shares on the Group, increasing the Group's interest to 25%.This investment in associate has been fully impaired. ** In February 2021, the Group took a controlling stake in both these entities, becoming subsidiaries of the Group. They are therefore no longer associates. *** The investments for these associates have been fully impaired. Disposed in the year. The above associates at 31 December 2021 have the following subsidiaries: M&C Mena Limited and Al Dallah For Creativity & Design LLC. All shares in associates are held by subsidiary companies in the Group 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. The Group holds neither associates nor joint ventures in Australia, Middle East & Africa, or the UK. Disposals in the year M&C Saatchi International Holdings B.V. previously held a 25% investment in its associate M&C Saatchi Istanbul, but the parties agreed to dispose of the investment and terminate the licence agreement with effect from October 2021. No consideration was received for the disposal of the associate. The entity has been loss-making in the last few years and the investment was fully impaired in 2020. M&C Saatchi Agency Inc. held a 30% investment in its associate Technology, Humans and Taste LLC (THAT). On 21 December 2021, the membership interest in THAT was transferred back to the company (THAT), following which we no longer held any interest in THAT. The entity has been loss-making in the last few years and the investment in THAT was fully impaired in 2020. M&C Saatchi Agency Inc. received a credit of $200k as consideration for services to be provided by THAT, which can be used across the Group over the 36 months as of 21 December 2021. The fair value of the consideration is valued at nil as of 31 December 2021. 2021 2020 Balance sheet value at 31 December ��000 ��000 Investments intended to be held in the long-term 202 2,829 Investments categorised as held-for-sale - - Total associate investments 202 2,829 2021 2020 Balance sheet movements ��000 ��000 At 1 January 2,829 3,780 Exchange movements (11) 56 Transferred to subsidiary (2,407) - Revaluation of associates on transition to subsidiaries (233) - Acquisition of associates 338 1 Impairment of associate (357) (895) Share of profit/(loss) after taxation 43 (113) At 31 December 202 2,829 2021 2020 Income statement ��000 ��000 Profit net of cost of disposal - - Share of profit/(loss) after taxation 43 (113) Revaluation of associates on transition to subsidiaries (233) - Share of result of and gain on disposal of Associates and Joint Ventures (190) (113) Impairment of associate investment (357) (895) Year to 31 December (547) (1,008) The results and net assets of the associate entities are set out below, along with our share of these results and net assets: 2020 Asia Europe Americas Total 2021 Asia Americas Total 2020 Income statement ��000 ��000 ��000 ��000 ��000 ��000 ��000 Revenue 4,240 2,580 148 6,968 8,953 3,822 12,775 Operating profit/(loss) 940 71 (14) 997 (367) 12 (355) Profit/(loss) before taxation 215 71 (25) 261 (343) (151) (494) Profit/(loss) after taxation 174 49 (32) 191 (325) (251) (576) Group's share 43 12 (12) 43 (32) (81) (113) Dividends received - - - - - - - Asia Europe Americas Total 2021 Asia Americas Total 2020 Balance sheet ��000 ��000 ��000 ��000 ��000 ��000 ��000 Total assets 1,410 804 - 2,214 6,768 3,451 10,219 Total liabilities (914) (854) - (1,768) (3,950) (4,909) (8,859) Net assets/(liabilities) 496 (50) - 446 2,818 (1,458) 1,360 Our share 124 (12) - 112 1,172 (365) 807 Losses not recognised 12 12 - 24 178 365 543 Goodwill 66 - - 66 1,219 260 1,479 Total 202 - - 202 2,569 260 2,829 * Technology, Humans and Taste LLC was disposed of in the year, therefore we are showing an income statement above, but nil for the balance sheet at December 31, 2021. 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 - Lower of useful life and over the period of the lease Furniture and fittings - 10% straight-line basis Computer equipment - 33% straight-line basis Other equipment - 25% straight-line basis Motor vehicles - 25% straight-line basis The need for any fixed asset impairment write-down is assessed by a comparison of the carrying value of the asset against the higher of a) the fair value less costs to sell, or b) the value in use. Assets under construction are recognised at cost and only commence depreciation once the assets are completed and ready for use. Analysis Leasehold improvements Furniture, fittings and other equipment Computer equipment Motor vehicles Total ��000 ��000 ��000 ��000 ��000 Cost At 1 January 2020 10,299 5,387 6,109 66 21,861 Exchange differences (1,080) 551 136 11 (382) Additions 1,442 826 916 - 3,184 Reclassifications - - (88) - (88) Disposals (2,171) (2,743) (2,228) (60) (7,202) At 31 December 2020 8,490 4,021 4,845 17 17,373 Exchange differences (114) (48) (86) 1 (227) Additions 145 266 1,352 41 1,789 Additions - business combinations 3 152 177 29 361 Disposals (1,228) (473) (456) (10) (2,172) At 31 December 2021 7,296 3,918 5,832 78 17,124 Depreciation At 1 January 2020 4,830 3,977 3,596 3 12,406 Exchange differences (856) 381 201 6 (268) Depreciation charge 1,046 551 941 17 2,555 Impairment* 374 - - - 374 Reclassifications - - 762 - 762 Disposals (1,310) (2,264) (2,015) (24) (5,613) At 31 December 2020 4,084 2,645 3,485 2 10,216 Exchange differences 84 50 53 4 191 Depreciation charge 802 409 1,001 25 2,237 Disposals (940) (449) (449) (15) (1,853) At 31 December 2021 4,030 2,655 4,090 16 10,791 Net book value At 31 December 2019 5,469 1,410 2,513 63 9,455 At 31 December 2020 4,406 1,376 1,360 15 7,157 At 31 December 2021 3,266 1,263 1,742 62 6,333 * Leasehold improvement impairment relates to the impairment of the right-of-use assets in 2020. ** In 2020, there was a reclassification of property, plant and equipment and intangible assets, relating to software previously classified within computer equipment. Total depreciation in the income statement is broken down as follows: Note 2021 ��000 2020 ��000 From plant and equipment 16 2,237 2,555 From right-of-use assets 17 6,959 9,104 9,196 11,659 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. 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 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. A corresponding right-of-use fixed asset is also recognised at an equivalent amount adjusted for a) any initial direct costs, b) payments made before the commencement date (net of lease incentives), and c) 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 term The lease term 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. Periods covered by an option to terminate are included, if it is reasonably certain that this option 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) a renegotiation or market rent review, b) a change of an index or rate, or c) 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. Subleases At times entities of the Group will sublet certain of their properties when their 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. Analysis Set out below are the carrying amounts of right-of-use assets and lease liabilities recognised, and the movements during the year: Land & Buildings Computer equipment Motor vehicles Total Right-of-use assets ��000 ��000 ��000 ��000 At 1 January 2020 45,839 607 96 46,542 Additions 1,097 426 51 1,574 Modifications 640 - - 640 Sublease (259) - - (259) Disposals (30) - - (30) Depreciation (8,705) (328) (71) (9,104) Impairment (2,651) - - (2,651) Subsidiary disposals (2,661) - - (2,661) Foreign exchange (62) 11 6 (45) At 1 January 2021 33,208 716 82 34,006 Additions 16,802 24 60 16,886 Modifications 1,048 9 34 1,091 Disposals (394) (4) - (398) Depreciation (6,563) (309) (87) (6,959) Foreign exchange (209) (14) (6) (229) At 31 December 2021 43,892 422 83 44,397 Land & Buildings Computer equipment Motor vehicles Total Lease liabilities ��000 ��000 ��000 ��000 At 1 January 2020 54,014 659 97 54,770 Additions 1,097 426 51 1,574 Modifications 640 - - 640 Covid modifications (600) (59) - (659) Disposals (30) - - (30) Accretion of interest 2,428 38 5 2,471 Payments (9,328) (289) (78) (9,695) Subsidiary Disposals (2,810) - - (2,810) Dilapidations 211 - - 211 Foreign exchange (49) (8) 6 (51) At 1 January 2021 45,573 767 81 46,421 Additions 16,789 24 50 16,863 Modifications 823 9 34 866 Disposals (425) (4) 0 (429) Accretion of interest 2,766 31 3 2,800 Payments (8,557) (358) (95) (9,010) Reclassification (211) - - (211) Foreign exchange (426) (24) (5) (455) At 31 December 2021 56,332 445 68 56,845 This relates to lease dilapidations which have been reclassified to Provisions in 2021, refer to Note 22. The additions in 2021 predominately relate to the new offices in Sydney, Australia, and New York, Americas. Of lease payments made in the year of ��9,010k (2020: ��9,695k), ��6,210k (2020: ��7,224k) related to payment of principal on the corresponding lease liabilities and the balance to payment of interest ��2,800k (2020: ��2,471k) due on the lease liabilities. Lease liabilities Land & Buildings Computer equipment Motor vehicles Total ��000 ��000 ��000 ��000 Amounts due within one year 6,624 283 43 6,950 Amounts due after one year 49,708 162 25 49,895 At 31 December 2021 56,332 445 68 56,845 Amounts due within one year 5,859 335 56 6,250 Amounts due after one year 39,714 432 25 40,171 At 31 December 2020 45,573 767 81 46,421 Income statement charge 2021 ��000 2020 ��000 Depreciation of right-of-use assets (6,959) (9,104) Short-term lease expense (300) (337) Low-value lease expense (263) (220) Short-term sublease income 94 94 Right-of-use asset impairment - (2,651) Charge to operating profit (7,428) (12,218) Sublease finance income 26 71 Lease liability interest expense (2,800) (2,471) Lease charge to profit before tax (10,202) (14,618) 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 at 31 December 2021, net of sublease receipts, is as follows: Future cash payments 2021 ��000 2020 ��000 Period ending 31 December: 2022 9,280 8,974 2023 8,074 8,223 2024 6,730 5,448 2025 6,689 5,062 2026 5,922 4,199 Later years 35,943 26,546 Gross future liability before discounting 72,638 58,452 Of the future lease payments post-2026, ��24.9m 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. Analysis 2021 2020 At 31 December ��000 ��000 Other debtors including rent deposits 1,113 1,244 Loans to employees 98 2,250 Total other non-current assets 1,211 3,494 * During the year the Group reclassified many of its put options from equity-settled to cash-settled, creating a liability on the balance sheet, as ��1,967k of loans that the Group lent local management of M&C Saatchi Agency Pty Limited in 2015 to enable them to acquire 20% of that business will be extinguished by the put option liability when the shares are put, the debt and liability were offset at the time of the put options reclassification. The remaining employee loans relate to South African ��98K (2020: ��283K) loans that the Group lent investors in South African companies to enable them to acquire equity in the South African Group business. The full recourse loans are repayable in full if the purchasers no longer have a beneficial interest in the shares of the South African Group or are no longer employed. The loan is unsecured and charged interest at 2% above the LIBOR. The carrying value of the loans approximately equates to fair value. 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 valuations are based on several factors, including the share price from the latest funding round, recent financial performance (where available), discounting for liquidation preference shares and discounting for convertible loan notes. Analysis The unlisted equity investments held by the Group mainly relate to 20 (2020: 26) early-stage companies in the SaatchInvest portfolio. In addition, overseas investments are owned by: �� M&C Saatchi International Holdings B.V. which owns shareholdings in a French company, Australie SAS, and an Australian company, Sesi��n Tequila Holdings Pty Limited; �� M&C Saatchi Agency Pty Limited (Australia) which also owns a shareholding in Sesi��n Tequila Holdings Pty Limited; �� M&C Saatchi European Holdings Limited which owns a 10% shareholding in a Spanish company, M&S Saatchi Madrid SL. 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 is ��0.1m. The Group invests in these companies for long-term return. The activity in the year relating to our equity investments held at FVTPL is presented below: Financial assets held at FVTPL 2021 2020 ��000 ��000 At 1 January 11,410 14,851 Additions 501 713 Disposals (209) (736) Revaluations 3,533 (3,315) Foreign exchange (52) (103) At 31 December 15,183 11,410 Other gains/(losses) in income statement 2021 2020 ��000 ��000 Gains on disposal - 497 Revaluations 3,533 (3,315) Total 3,533 (2,818) Of the 2021 additions of ��501k, ��420k relates to a 10% shareholding in an unlisted investment, Australie SAS, acquired as part of a share for share exchange, and the remainder relates to additions of ��81k in SaatchInvest which were paid in cash. Of the 2020 additions, the ��713k related to additions in SaatchInvest and was paid in cash. Refer to Note 30 and the significant estimate in relation to financial instruments. In 2021, the ��209k disposal was of a company in the SaatchInvest portfolio and it resulted in neither a gain nor loss on disposal. The 2020 disposals of ��736k both related to companies in the SaatchInvest portfolio and resulted in a gain on disposal of ��497k. Of the 2021 revaluations, ��3,758k relates to the unlisted investments held by SaatchInvest Limited (2020 - downward revaluation of ��2,477k), which is partially offset by a reduction relating to the shareholding held by our Australian business and M&C Saatchi International Holdings B.V. in Sesi��n Tequila Holdings Pty Limited. The Group also holds 10% shareholdings in M&C Saatchi Madrid SL, Send Me A Sample Limited and 59A Limited. All of these investments are 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. 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. Analysis 2021 2020 ��000 ��000 Trade receivables 86,302 58,534 Loss allowance (877) (677) Net trade receivables 85,425 57,857 Prepayments 2,664 3,504 Amounts due from associates 123 837 VAT and sales tax recoverable 52 304 Other receivables 44,477 26,760 Total trade and other receivables 132,741 89,262 * Other receivables comprises accrued income of ��13.9m (31 December 2020: ��7.7m), which is considered to constitute trade receivables as defined in IFRS 15 on the basis its collectability is subject only to the passage of time, as well as contract assets of ��2.4m (31 December 2020: ��1.4m) and other amounts receivable of ��28.2m (31 December 2020: ��17.7m). Set out below is the movement in the loss allowance (which includes provision for expected credit losses) of trade receivables and contract assets. 2021 2020 ��000 ��000 At 1 January (677) (1,621) (Increase)/release for expected losses during the year (40) 32 Movement in forward looking provision for specific bad debts: - Charge during the year (375) (555) - Released during the year 190 756 - Utilisation of provision 25 711 At 31 December (877) (677) The information about credit exposures is disclosed in Note 30. 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. Analysis 2021 2020 ��000 ��000 Trade creditors 36,578 39,490 Contract liabilities 18,939 22,022 Sales taxation and social security payables 6,059 6,803 Accruals 75,466 42,267 Other payables 17,007 14,158 Total trade and other payables 154,049 124,740 Settlement of trade and other payables is in accordance with the terms of trade established with the Group's local suppliers. 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 were higher than in 2021, because of the continued costs of the Group restructuring programme initiated in 2019, the principal cost being staff redundancy. There were also additional provisions in 2020 relating to overseas sales and payroll tax provisions in India and Kenya, along with an income protection provision in the UK, which increased in value in 2021. Analysis The year-end provision of ��1.2m (2020: ��0.7m) comprises of costs relating to the tax liabilities in India and Kenya, and income protection schemes of ��0.6m (2020: ��0.4m), along with ��0.3m (2020: ��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) and ��0.3m relation to property dilapidations. 2021 2020 ��000 ��000 At 1 January (666) (2,989) Reclassification (346) - Charged to the income statement: - Restructuring costs - (2,688) - Costs associated with accounting misstatements - (260) - Overseas sales taxation and social security liabilities (16) (220) - Income protection provision (165) (145) Utilised in the year - Restructuring costs - 5,376 - Costs associated with accounting misstatements - 260 At 31 December (1,193) (666) This relates to lease dilapidations which were included within the lease liability at 31 December 2020 (��0.2m), refer to Note 17, plus ��0.1m included within other creditors at 31 December 2020. At the end of 2021 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. Interest payable is included within accruals as a current liability. Analysis Amounts due within one year 2021 2020 At 31 December ��000 ��000 Overdrafts (14,440) (13,920) Local bank loans (297) (158) Secured bank loans - (27,005) (14,737) (41,083) * These overdrafts are legally offsetable. However, they have not been netted off in accordance with IAS32.42 as we do not intend to settle on a net basis. Amounts due after one year 2021 2020 At 31 December ��000 ��000 Local bank loans (293) (2,199) Secured bank loans (19,528) - (19,821) (2,199) * The local bank loans in 2020 included the US Paycheck Protection Program (PPP) loans, which were forgiven in 2021. Secured bank loans On 31 May 2021, the Company entered into a revolving multicurrency credit facility agreement with National Westminster Bank Plc and Barclays Bank PLC for up to ��47.0m (the "Facility"). The Facility includes a ��2.5m net overdraft and the ability to draw up to ��3.0m 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 previous ��33.0m credit facility and ��5.0m overdraft which were due to terminate on 30 June 2021, and previously included as short-term. The Facility includes two financial covenants, which if either were to be breached would result in a default of the Facility: 1. Interest Cover - EBIT for the previous 12 months must exceed 4 times the net finance charge (external debt interest, excluding IFRS 16 finance lease interest payments) for the previous 12 months (increases to 5 times from 30 June 2022). 2. Leverage - Total Indebtedness at the period end must not exceed 3.5 times EBITDA for the previous 12 months (adjusted for acquisitions and disposals). This reduces to 3.0 times from 31 March 2022, 2.5 times from 30 June 2022, and 2.0 times from 31 March 2023. At 31 December 2021, the Group had up to ��47.0m (2020: ��33.0m) of funds available under the Facility. 2021 2020 At 31 December ��000 ��000 Gross secured bank loans (20,000) (27,271) Capitalised finance costs 472 266 Total secured bank loans (19,528) (27,005) Total secured bank loans are due as follows: 2021 2020 At 31 December ��000 ��000 In one year or less, or on demand - (27,005) In more than one year but not more than five years (19,528) - (19,528) (27,005) Total bank loans and borrowings used to calculate net cash are as follows, excluding IFRS 16 leases in accordance with our bank covenants: Gross secured bank loans ��000 Local bank loans ��000 Total bank loans ��000 At 1 January 2020 (35,677) (502) (36,179) Cash movements 8,900 (3,472) 5,428 Disposals - 1,462 1,462 Non-cash movements - Foreign exchange - - - - Lease (494) 155 (339) At 31 December 2020 (27,271) (2,357) (29,628) Cash movements 7,608 - 7,608 Disposals - - - Acquisitions - business combinations - (468) (468) Non-cash movements - Leases - - - - Foreign exchange (337) 35 (302) - Other - 2,200 2,200 At 31 December 2021 (20,000) (590) (20,590) * Other includes the forgiveness of the US Paycheck Protection Program (PPP) loans. 24. Other non-current liabilities 2021 2020 At 31 December ��000 ��000 Employment benefit provisions 561 1,416 Long-term bonus provision 1,014 1,765 Other 974 1,592 2,549 4,773 * 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 item includes a Termination Indemnity Plan in Italy of ��547k (2020: ��576k), this liability is for the 13th month salary accrual for all Italian employees to be paid to them when they leave the company. 25. Equity related liabilities This disclosure note summarises information relating to all share schemes disclosed in Notes 13, 26 and 27. In the case of deferred consideration (Note 13), IFRS 9 minority shareholder put option liabilities (Note 26), and IFRS 2 put option schemes (Note 27), the Group has a choice to pay in cash or equity. As part of approving the Group's interim statement, issued on 21 September 2021, the Board made the decision and communicated externally that put options will, from now on, be settled in cash, where we have cash resources to do so. In the case of LTIP and restricted share awards, it is the Board's intention that an ESOP trust is set up to acquire the shares and fulfil these schemes using the acquired equity. In the table below, we present the potential cash payments, based on the 2021 year-end share price of 168.5p and the estimated future business performance for each business unit. The payments are classified based on the year at which the put option schemes first become exercisable. The forecasts are based on the Group's five-year plans, developed as part of our budget cycle, and assume all TSR targets are fulfilled, and that equity is bought by the LTIP in the year of vesting at 168.5p. The table also shows the amount of these potential cash payments that has been recognised as a liability at 31 December 2021, with the percentage of the related employment services not yet delivered to the Group at that date. Total future expected liabilities at 31 December 2021 Paid so far Potentially payable Services not yet delivered at 31 Dec 2021 %* Balance sheet liability at 31 Dec 2021 ��000 At 168.5p In 2022 ��000 2022 ��000 2023 ��000 2024 ��000 2025 ��000 2026 ��000 2027 & 2028 ��000 Total ��000 IFRS 9 put option schemes - 3,238 - 1,000 - - 1,000 5,238 - 5,238 IFRS 2 put option schemes 1,135 16,181 6,815 2,131 122 1,985 2,553 30,922 14% 27,122 LTIP - - - 3,247 - - - 3,247 92% - Restricted share awards - - 918 428 - - - 1,346 86% -* Deferred and contingent consideration - 984 - - - - - 984 - 984 1,135 20,403 7,733 6,806 122 1,985 3,553 41,737 - 31,344 * Share-based payments (Note 27) charge liability to income statement over period of vesting i.e. as the employee fulfils their time obligation to earn the put option. ** LTIP & restricted shares are accounted for as equity-settled, and thus do not create a balance sheet liability. 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 exercise their options later than the dates we have estimated in the table above. If the Company in the future decides to settle in equity, then the amount of equity that will be provided is equal to the liability divided by the share price. Effect of a change in share price The same data from the table above is presented in the table below, but in this analysis the potential payments are based on a range of different potential future share prices. Paid so Potentially payable Future Share Price of the Company far in 2022 ��000 2022 ��000 2023 ��000 2024 ��000 2025 ��000 2026 ��000 2027 & 2028 ��000 Total ��000 At 150p 1,135 18,879 6,810 6,107 87 1,798 3,163 37,979 At 168.5p 1,135 20,403 7,733 6,806 122 1,985 3,553 41,737 At 190p 1,135 22,091 8,722 7,619 162 2,203 4,007 45,939 At 210p 1,135 23,608 9,589 8,373 200 2,405 4,428 49,738 At 230p 1,135 25,126 10,457 9,130 238 2,607 4,850 53,543 At 250p 1,135 26,643 11,324 9,885 275 2,809 5,272 57,343 At 300p 1,135 30,436 13,492 11,775 370 3,315 6,326 66,849 26. Minority shareholder put option liabilities (IFRS 9) Policy See below but also the Basis of Preparation Note. Some of our subsidiaries' local management have a put option. The put options give these employees a right to exchange their minority holdings in the subsidiary into shares in the Company's or cash (at the Company's election). These IFRS 9 schemes should be considered as rewards for future business performance and are not conditional on the holder being an employee of the business. These instruments are recognised in full at the present value of the redemption amount of the underlying award on the date of inception, with both a liability on the balance sheet and a corresponding amount within the minority interest put option reserve being recognised. At each period end, the present value of the redemption amount 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 present value of the redemption amount of these instruments are charged to the income statement within finance income/expense. The put option liability will vary with both the Company's share price and the subsidiary's financial performance. Current liabilities are determined by the Company's year-end share price and the historical results of the companies in which the minority interest holders can exercise their put options in 2022. Non-current liabilities are determined by the Company's year-end share price and the projected results of the companies in which the minority interest holders can exercise their put options after 2022. 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. Analysis IFRS 9 put options exercisable from the year ended 31 December: Subsidiary Year % of subsidiaries' shares exercisable M&C Saatchi (Switzerland) SA Vested 21.0 M&C Saatchi Merlin Limited Vested 15.0 Resolution Design Pty Limited Vested 15.0 Bohemia Group Pty Limited Vested 25.9 This Film Studio Pty Limited 2022 30.0 Santa Clara Participa����es Ltda 2024 25.0 Santa Clara Participa����es Ltda* 2027 24.9 * Entity acquired with existing put options in year. It is the Company's option to fulfil these options in equity or cash and it is the Company's present intention to fulfil the options in cash (if available). However, if we fulfil in equity, the estimated number of Company shares that will be issued to fulfil these options at 168.50p is 3,108,605 shares (2020: 83.6p is 3,327,751 shares). 2021 2020 Liability at 31 December ��000 ��000 Amounts falling due within one year (3,238) (978) Amounts falling due after one year (2,000) (1,804) (5,238) (2,782) 2021 2020 Movement in liability during the year ��000 ��000 At 1 January (2,782) (7,101) Exchange difference 16 (1) Exercises 424 4,440 Acquisitions (2,000) - Income statement charge due to: -���Change in profit estimates (399) 1,671 -���Change in share price of the Company (497) (1,732) -���Amortisation of discount - (59) Total income statement charge (Note 7) (896) (120) At 31 December (5,238) (2,782) Put options exercised in year 2021 ��000 2020 ��000 Paid in equity 424 4,236 Paid in cash - 204 Exchange difference - - Total 424 4,440 27. Share-based payments (IFRS 2) Policy See below but also Basis of Preparation note. 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. Where this put option is dependent upon the holders' continued employment by the Group, or where the holder received the option as a result of employment with the Group, these options are accounted for under IFRS 2 as equity-settled share-based payments to employees or as cash-settled share-based payment schemes. These are redeemable, at the choice of the Group, either in shares of the Company or by means of a cash payment to the holder. 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 fair value of the award is calculated at the grant date of each scheme based on the present Company's share price and its relevant multiple. The fair value of the awards is calculated by means of a Monte Carlo model with inputs made in terms of the Company's share price at date of grant, risk free rate, historic volatility of share price, dividend yield and time to vest. 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 reserves. In the event an employee's contract includes a business continuity 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. Upon exercise of the awards, the nominal value of the shares issued is credited to share capital with the balance to retained income. Cash-settled share-based payment schemes When an award is intended to be settled in cash, then a liability is recognised at inception of the award, based on the present Company's share price and its relevant multiple. This value is recognised as an expense in the income statement from the date of award to the date it is exercised, on a straight-line basis, with a corresponding increase in liabilities. Conversion from equity-settled to cash-settled In the past, the Group has settled the options using equity, where there was a choice to cash-settle or equity-settle. As part of approving the Group's interim statement, issued 21 September 2021, the Board made the decision that put options will from now on be settled in cash, where we have cash resources to do so. Up to 21 September 2021 we have accounted for these put option as equity-settled, from 21 September 2021 we have accounted for these put options as cash-settled. The transition from equity-settled to cash-settled requires a fair value assessment on the day of the modification and a movement between equity and liabilities. Where, for an unvested scheme, the Company's share price multiple (the market condition) at the inception of the option was higher than the current Company's share price multiple, then the difference is charged to the income statement, from 21 September 2021 onwards. The following table sets out a comparison between equity settlement and cash settlement of IFRS 2 put options: Equity-Settled IFRS 2 scheme Cash-Settled IFRS 2 scheme Cost of the put option Booked to staff costs. Booked to staff costs. Liability of the put option Booked to equity (no impact on net assets). Booked to liabilities (reduces net assets). Recognition of the cost Spread evenly between the date the put option is issued and the date the put option vests. No further costs after vesting date. Spread evenly between the date the put option is issued and the date the put option vests. Further valuation adjustments are made to the income statement until the option is exercised. Revaluation adjustments Adjusted by changes in the profit of the subsidiary only. Adjusted by changes in the profit of the subsidiary and the relevant share price multiple. Exercise of put option New Company shares issued to put option holders. Cash issued to put option holders. Summary of schemes The Group has the following share-based payment schemes, and in the year these have been the major changes to them: �� Put options - from 21 September 2021 we have accounted for these put options as cash-settled. �� South African equity purchased with non-recourse loans - some of our South African subsidiaries have sold equity to employees with non-recourse loans that are repaid out of dividends and from the proceeds of selling the equity to other employees, with the entity that has issued the equity acting as an intermediary. The equity does not have any put rights, so there is no obligation to acquire the equity, however the South African Rand 17,706k debt lent to acquire the liability (netted against the fair value of the award) is at risk. �� Cash awards - these are long-term cash schemes that were historically treated as a share-based scheme. At the end of 2021 one of the put option award holders resigned, causing a one-off reversal in the charge. �� Executive LTIP - on 28 September 2021 and 21 December 2021, the Group issued equity-settled LTIPs to senior executive managers. This scheme grants a future award of the Group's shares, dependent on the achievement of certain future performance conditions: o Group's total shareholder return versus the total shareholder return of the FTSE Small Cap Index over the 3 years from December 2020 to December 2023 (70% of the award); o Group's Full Year Headline profit before tax performance in 2023 versus target (30% of the award). �� Restricted share awards - the two cash awards made to the Chief Financial Officer on his recruitment were converted to restricted share awards on 28 September 2021, based on the 45-day average share price to 28 May 2021 of 137.7p. No further shares will be issued under the plan. Analysis For the Executive LTIP and restricted share awards, it is intended that an ESOP trust is set up to acquire the shares to fulfil these schemes in equity; thus the schemes are accounted for as equity-settled. The inputs to Monte Carlo models used to calculate the fair value of these share awards granted during the year are as follows: 2021 LTIP 2021 LTIP 2021 Restricted share awards 2021 Restricted share awards Issue date 21/12/2021 28/09/2021 28/09/2021 28/09/2021 Vesting date 21/12/2024 28/09/2024 15/05/2023 15/05/2024 Share price at grant ��1.63 ��1.56 ��1.56 ��1.56 Expected volatility 80% 81% 88% 85% Risk free rate 0.67% 0.51% 0.40% 0.51% Dividend yield 0% 0% 0% 0% Fair value of award per share ��1.62 ��1.55 ��1.56 ��1.55 TSR element against FTSE Small Cap index: Expected volatility 147% 158% Fair value of award per share ��0.72 ��0.67 The weighted average share price of options exercised during the period was ��1.27 (2020: ��0.33). Income statement charge 2021 Equity ��000 2021 Cash ��000 2021 Total ��000 2020 Equity ��000 2020 Cash ��000 2020 Total ��000 Put options to 21 September 2021 - equity-settled 1,283 - 1,283 3,275 - 3,275 Put options from 22 September 2021 - imputed equity charge due to transition 779 - 779 - - - - charge/(credit) since transition (see below) - (797) (797) - - - South Africa non-recourse loan scheme - (40) (40) - 25 25 Total not affecting Headline results (Note 1) 2,062 (837) 1,225 3,275 25 3,300 Release of cash award due to leaver (Note 1) - (2,598) (2,598) - - - Executive LTIP 135 - 135 - - - Restricted share awards 38 - 38 - - - Cash awards - 1,370 1,370 - 922 922 Total 2,235 (2,065) 170 3,275 947 4,222 Total put option liability 2021 Total ��000 2020 Total ��000 Put options liability (IFRS 2) (Note 27) (27,122) - Put options liability (IFRS 9) (Note 26) (5,238) (2,782) Total put options (Note 25) (32,360) (2,782) Current - minority shareholder put option liabilities (20,788) (978) Non-current - minority shareholder put option liabilities (11,572) (1,804) Total (32,360) (2,782) Cash-settled liability The movement in the liability by scheme is detailed below: Put options ��000 South Africa non-recourse loan scheme ��000 Cash awards ��000 Total ��000 At 1 January 2020 - (571) - (571) Equity-settled transferred to cash-based and cash-settled awards - - (1,121) (1,121) Charged to income statement - (25) (922) (947) Foreign exchange - 51 - 51 At 31 December 2020 - (545) (2,043) (2,588) Equity-settled options transferred to cash-settled awards (32,555) - - (32,555) Offsetable debt 1,691 - - 1,691 Acquisitions (Note 12) (1,848) - - (1,848) Charged to income statement -���Straight-line recognition (692) - (1,043) (1,735) -���Change in subsidiary profit estimates (3,382) - (327) (3,709) -���Change in Company multiple 4,871 40 - 4,911 Total income statement charge 797 40 (1,370) (533) Reversal of charge caused by employee resignation - - 2,598 2,598 Settled 4,859 - 489 5,348 Foreign exchange (66) 37 - (29) At 31 December 2021 (27,122) (468) (326) (27,916) Put Options Vesting % Entity subject to the put option Clear Deutschland GmbH 2024 20.00% Clear Deutschland GmbH 2026 20.00% Clear Ideas (Singapore) Limited 2023 10.00% Clear Ideas Ltd - B1 shares 2022 5.00% Clear Ideas Ltd - B2 shares 2022 10.00% Clear LA LLC 2022 12.00% Cometis SARL Vested 49.00% FCINQ SAS Vested 11.62% Greenhouse Australia Pty Limited 2022 11.00% Greenhouse Australia Pty Limited 2023 1.80% Greenhouse Australia Pty Limited 2024 7.20% Human Digital Limited Vested 11.50% Human Digital Limited 2022 11.50% Human Digital Limited 2023 17.00% Levergy Marketing Agency (Pty) Limited Vested 11.90% LIDA NY LLP (MCD) Vested 24.50% M&C Saatchi (Hong Kong) Limited* Vested 20.00% M&C Saatchi (UK) Limited 2023 12.00% M&C Saatchi AB Vested 30.00% M&C Saatchi Advertising GmbH Vested 8.20% M&C Saatchi Advertising GmbH 2023 4.10% M&C Saatchi Advertising GmbH 2024 10.00% M&C Saatchi Agency Pty Limited Vested 10.00% M&C Saatchi Digital GmbH 2022 5.00% M&C Saatchi Holdings Asia Pte Limited (Indonesia) 2024 27.40% M&C Saatchi Holdings Asia Pte Limited (Indonesia) 2026 22.50% M&C Saatchi Merlin Limited 2023 15.00% M&C Saatchi Middle East Holdings Limited Vested 20.00% M&C Saatchi Share Inc Vested 20.00% M&C Saatchi Social Limited Vested 13.50% M&C Saatchi Social Limited 2023 13.50% M&C Saatchi Spencer Hong Kong Limited 2024 30.00% M&C Saatchi Sport & Entertainment Limited 2022 25.00% M&C Saatchi Sport & Entertainment NY LLP Vested 13.00% M&C Saatchi Sport & Entertainment NY LLP 2024 12.50% M&C Saatchi Sport & Entertainment NY LLP 2025 5.00% M&C Saatchi Sport & Entertainment Pty Limited Vested 10.00% M&C Saatchi Sports & Entertainment GmbH Vested 14.00% M&C Saatchi Talk Limited Vested 39.00% M&C Saatchi Talk Limited 2023 10.00% M&C Saatchi World Services LLP Vested 4.00% M&C Saatchi World Services LLP Vested 6.00% M&C Saatchi World Services LLP 2022 6.00% M&C Saatchi, S.A. DE C.V. 2023 40.00% Majority LLC 2024 8.00% RE Team Pty Limited Vested 13.00% RE Worldwide UK Limited 2022 49.90% Scarecrow M&C Saatchi Limited 2020 24.50% Scarecrow M&C Saatchi Limited 2022 24.50% The Source (W1) LLP Vested 10.00% The Source Insight Australia Pty Limited 2022 14.00% The Source Insight Australia Pty Limited 2025 21.00% Thread Innovation Limited 2027 10.00% Thread Innovation Limited 2028 10.00% * New scheme in year. ** Entity acquired with existing put options in year. *** Shown as a liability in M&C Saatchi plc Company accounts. Shares issuable At the start of the year all our equity-settled share-based payment schemes are put options (referred to as conditional shares in last year's Annual Report and Accounts). The shareholder holds equity in a subsidiary company and has a right, after a period of time, to convert it to shares in the Company. Changes to the Company's share price, local subsidiary profitability or Group profitability affect the number of shares we are committed to pay in exchange for these put options. During the year we also issued Executive LTIPs and restricted share awards. The table below shows the number of shares that we will issue at the share price at 31 December 2021 of 168.5p (2020: 83.6p) assuming: 1) The put option was exercised at the first available opportunity, even if that gives no reward. 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). 3) All LTIP and restricted awards are held to their vesting date and fully vest. Number of Shares Put options 000 LTIP 000 Restricted shares 000 Total 000 At 1 January 2021 22,511 - - 22,511 Exercised - Shares issued (��1.27) (327) - - (327) Reclassification to cash-settled scheme (22,184) - - (22,184) Granted or amended - 1,927 799 2,726 At 31 December 2021 - 1,927 799 2,726 Shares issuable used in these accounts Note 2021 Number of shares 000 2021 Share price used 2020 Number of shares 000 2020 Share price used Per EPS calculation 1 828 141.6p 11,963 65.1p Share-based payments 27 2,726 155p-162p 22,511 83.6p The share-based payments (Note 27) calculates the number of shares that could be issued at the first vesting date after the year. The EPS calculation (Note 1) 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 the start of the year and the share of profits the is allocatable to the equity during the year. Where a scheme has been issued for part of the year (and is not converted from an existing cash-based scheme) the shares are reduced by the proportion of the year that they are in issue. The EPS calculation is thus attempting to show the dilutive effect rather than the likely shares we will issue and is income statement focused rather than the true future position. 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 from proceeds, net of tax. Where the Group re-acquires its own equity instruments (treasury shares), the consideration paid is deducted from equity attributable to the owners of the Group and recognised within the treasury reserve. Analysis 1p Ordinary shares Number of shares ��000 At 31 December 2019 93,596,760 936 Exercise of M&C Saatchi Mobile share options 13,671,602 137 Final payment for acquisition of 33% of Shepardson Stern & Kaminsky LLP 8,295,033 82 Acquisition of 22% M&C Saatchi Social Limited 353,195 4 At 31 December 2020 115,916,590 1,159 Acquisition of 40% of M&C Saatchi (Hong Kong) Limited 3,027,860 30 Acquisition of 25.1% of Santa Clara Participa����es Ltda 2,084,825 21 Acquisition of 19.9% of Little Stories SAS 475,730 5 Acquisition of 5% M&C Saatchi Mobile Asia Pacific PTE. Limited 327,239 3 Shares issued for cash 620,180 6 Payment of deferred consideration 291,011 3 At 31 December 2021 122,743,435 1,227 The Company holds 485,970 (2020: 485,970) of the above shares in the Company in treasury. 29. Fair value measurement Policy See also basis of preparation. Some 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 from selling the asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. Both 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 ��3,819k (2020: ��Nil). Refer to Note 14 for full details. 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. Analysis 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 2021 and 31 December 2020: Level 1 Level 2 Level 3 At 31 December 2021 ��000 ��000 ��000 Financial assets Equity investments at FVTPL - - 15,185 Financial liabilities Contingent consideration - - - Level 1 Level 2 Level 3 At 31 December 2020 ��000 ��000 ��000 Financial assets Equity investments at FVTPL - - 11,410 Financial liabilities Contingent consideration - - (452) The level at 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: Equity instruments at FVTPL ��000 Contingent consideration ��000 At 1 January 2021 11,410 (452) Net gain in the income statement 3,473 452 Additions 501 - Disposal (209) - Currency movements 10 - At 31 December 2021 15,185 - ��452k of contingent consideration relating to management's put option in Scarecrow Communications Limited has been written off because current results indicate that nothing will be payable under the put option scheme. Valuation and sensitivity to valuation The Group's finance team performs valuations of financial items for financial reporting purposes, including level 3 fair values. The equity instruments at FVTPL relate to unlisted equity investments as detailed in Note 19. Management bases its primary assessment of their fair values on the share price from the last funding round but also incorporates discounts depending on performance, more senior shareholdings held by other investors and the possibility of future dilution due to the presence of convertible loan notes. Fluctuations in the share price would change the fair value of the investments recognised at year-end as follows assuming a 10% uplift or downwards movement in the price: Increase/ (decrease) in fair value of asset 2021 Increase/ (decrease) in fair value of asset 2020 Adjusted share price ��000 ��000 +10% 1,519 1,141 -10% (1,519) (1,141) 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: Decrease in fair value of asset Decrease in fair value of asset 2021 2020 Risk adjusted sales price ��000 ��000 -30% sales discount due to illiquid nature (4,556) (3,423) -12% risk discount for unwilling marketplace (1,276) (958) Value after discounts 9,353 7,029 * 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%. 30. Financial risk management Principal financial instruments The principal financial instruments held by the Group, from which financial instrument risk arises, include trade and other receivables, cash and cash equivalents, trade and other payables, loans and borrowings, 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. 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 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). 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: Increase/ (decrease) in profit before tax Increase/ (decrease) in profit after tax Increase/ (decrease) in profit before tax Increase/ (decrease) in profit after tax 2021 2021 2020 2020 Exchange rate ��000 ��000 ��000 ��000 USD +10% 362 214 764 625 USD -10% (330) (195) (695) (568) AUD +10% 526 349 268 172 AUD -10% (478) (317) (244) (156) The year-end and average exchange rates to GBP for the significant currencies are as follows: Year End Rate Average Rate Currency 2021 2020 2021 2020 USD 1.35 1.37 1.35 1.29 AUD 1.86 1.77 1.87 1.87 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 2021 year-end cash balances we hold ��307k in Indian Rupees; ��637k in Libyan Dinars; and ��2,191k in South African Rands. 30.4 - Interest rate risk The Group is exposed to interest rate risk because it has a banking facility of up to ��47.0m and a net overdraft facility of up to ��2.5m, both based on floating interest rates. 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 2021 would (decrease)/increase by ��(100)k/��100k (2020: ��(138)k/��138k). This is principally attributable to the Group's exposure to interest rates on its floating rate loan. 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 fall 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 Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years ��000 ��000 ��000 ��000 ��000 At 31 December 2021 Trade and other payables (96,561) (25,359) (5,285) (1,846) (1) Lease liabilities (2,320) (6,960) (8,074) (19,342) (35,943) Loans and borrowings - - - (19,528) - Overdrafts (14,440) - - - - IFRS 9 put options - (3,238) - (1,000) - Deferred and contingent consideration - (984) - - - Total (113,321) (36,541) (13,359) (41,716) (35,944) * Excludes taxes as these are not considered financial instruments and contract liabilities as these are not financial liabilities Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years ��000 ��000 ��000 ��000 ��000 At 31 December 2020 Trade and other payables (65,915) (30,000) - - - Lease liabilities (2,244) (6,731) (8,223) (14,709) (26,546) Loans and borrowings - (27,163) (2,199) - - Overdrafts (13,920) - - - - IFRS 9 put options - (978) (1,804) - - Deferred and contingent consideration - (1,679) - - - Total (82,079) (66,551) (12,226) (14,709) (26,546) Company Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years ��000 ��000 ��000 ��000 ��000 At 31 December 2021 Trade and other payables (3,551) (361) (292) (161) - Loans and borrowings - - - (19,528) - Total (3,551) (361) (292) (19,689) - Up to 3 months 3 to 12 months 1 to 2 years 2 to 5 years over 5 years ��000 ��000 ��000 ��000 ��000 At 31 December 2020 Trade and other payables (2,887) (45,355) - - - Loans and borrowings - (21,600) - - - Total (2,887) (66,955) - - - The Group breached no banking covenants during the year. 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 applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. 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 2021 or 31 December 2020 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 at 31 December 2021 and 31 December 2020 was determined as follows for trade receivables under IFRS 15. Trade receivables 31 December 2021 Not past due 0 - 30 days past due 31 - 90 days past due 91 - 120 days past due > 120 days past due Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55% Trade receivables 72,941 19,200 6,107 956 3,302 Loss allowance 11 2 1 5 117 Trade receivables 31 December 2020 Not past due 0 - 30 days past due 31 - 90 days past due 91 - 120 days past due > 120 days past due Expected loss rate (%) 0.02% 0.01% 0.02% 0.51% 3.55% Trade receivables 53,918 13,312 4,501 966 1,338 Loss allowance 8 1 1 5 47 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 in Note 27, the Group uses put option awards to incentivise certain local key management. The value of these awards is in part dependent upon the Company'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 * Entities in which the Group holds less than 50% of the share capital and which 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 company is entitled to, and has opted to take, the exemption from the requirement relating to the audit of its individual accounts for the year/period ended 31 December 2021 by virtue of Section 479A of the Companies Act 2006 as the Company will guarantee the subsidiary company under Section 479C of the Companies Act 2006. *** With the exception of M&C Saatchi Network Limited, our South African subsidiaries, Scarecrow Communication Limited and M&C Saatchi Social Limited (as indicated in the table below) where all our equity is directly held by the Company, all other subsidiary companies' equity is either in part or wholly held via subsidiaries of the Company. At 31 December Specialism Country Company Number Address Effective % ownership 2021 UK Lean Mean Fighting Machine Limited Advertising & CRM United Kingdom 5038272 36 Golden Square, London, W1F 9EE 88 LIDA (UK) LLP Advertising & CRM United Kingdom OC395890 36 Golden Square, London, W1F 9EE 88 LIDA Limited Advertising & CRM United Kingdom 3860916 36 Golden Square, London, W1F 9EE 88 M&C Saatchi (UK) Limited Advertising & CRM United Kingdom 3003693 36 Golden Square, London, W1F 9EE 88 M&C Saatchi Accelerator Limited Advertising & CRM United Kingdom 9660056 36 Golden Square, London, W1F 9EE 89 M&C Saatchi Export Limited Advertising & CRM United Kingdom 3920028 36 Golden Square, London, W1F 9EE 91 M&C Saatchi Fluency Limited Advertising & CRM United Kingdom 12853921 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Marketing Arts Limited Advertising & CRM United Kingdom 3357727 36 Golden Square, London, W1F 9EE 50 M&C Saatchi PR International Limited Advertising & CRM United Kingdom 8838406 36 Golden Square, London, W1F 9EE 100 M&C Saatchi PR Limited Advertising & CRM United Kingdom 7280464 36 Golden Square, London, W1F 9EE 100 M&C Saatchi PR UK LLP Advertising & CRM United Kingdom OC362334 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Shop Limited Advertising & CRM United Kingdom 9660100 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Talk Limited Advertising & CRM United Kingdom 4239240 36 Golden Square, London, W1F 9EE 51 Talk.Purpose Limited Advertising & CRM United Kingdom 11557398 36 Golden Square, London, W1F 9EE 51 The Source (London) Limited Advertising & CRM United Kingdom 7140265 36 Golden Square, London, W1F 9EE 100 The Source (W1) LLP Advertising & CRM United Kingdom OC384624 36 Golden Square, London, W1F 9EE 90 This Is Noticed Limited Advertising & CRM United Kingdom 11843904 36 Golden Square, London, W1F 9EE 69 Thread Innovation Limited Advertising & CRM United Kingdom 13510974 36 Golden Square, London, W1F 9EE 80 Alive & Kicking Global Limited Brand & Experience United Kingdom 11250736 36 Golden Square, London, W1F 9EE 100 Clear Ideas Consultancy LLP Brand & Experience United Kingdom OC362532 36 Golden Square, London, W1F 9EE 85 Clear Ideas Limited Brand & Experience United Kingdom 4529082 36 Golden Square, London, W1F 9EE 85 Influence Communications Limited Brand & Experience United Kingdom 4917646 36 Golden Square, London, W1F 9EE 95 Re Worldwide Limited Brand & Experience United Kingdom 10503044 36 Golden Square, London, W1F 9EE 57 Black & White Strategy Limited Dormant United Kingdom 11295145 36 Golden Square, London, W1F 9EE 100 H2R Research Limited Dormant United Kingdom 11668322 36 Golden Square, London, W1F 9EE 80 Human Digital Limited Global & Social Issues United Kingdom 7510403 36 Golden Square, London, W1F 9EE 60 M&C Saatchi World Services LLP Global & Social Issues United Kingdom OC364842 36 Golden Square, London, W1F 9EE 80 M&C Saatchi WS .ORG Limited Global & Social Issues United Kingdom 10898282 36 Golden Square, London, W1F 9EE 80 Tricycle Communications Limited Global & Social Issues United Kingdom 7643884 36 Golden Square, London, W1F 9EE 80 M&C Saatchi Network Limited + *** Group Central Costs United Kingdom 7844657 36 Golden Square, London, W1F 9EE 100 SaatchInvest Limited Group Central Costs United Kingdom 7498729 36 Golden Square, London, W1F 9EE 100 M&C Saatchi International Holdings B.V. Local Central Costs United Kingdom 24295679 36 Golden Square, London, W1F 9EE 100 M&C Saatchi European Holdings Limited Local Central Costs United Kingdom 5982868 36 Golden Square, London, W1F 9EE 96 M&C Saatchi German Holdings Limited Local Central Costs United Kingdom 6227163 36 Golden Square, London, W1F 9EE 100 M&C Saatchi International Limited Local Central Costs United Kingdom 3375635 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Middle East Holdco Limited Local Central Costs United Kingdom 9374189 36 Golden Square, London, W1F 9EE 80 M&C Saatchi WMH Limited Local Central Costs United Kingdom 3457658 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Worldwide Limited Local Central Costs United Kingdom 2999983 36 Golden Square, London, W1F 9EE 100 FYND Media Limited Media & Performance United Kingdom 10104986 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Mobile Limited Media & Performance United Kingdom 5437661 36 Golden Square, London, W1F 9EE 100 M&C Saatchi Merlin Limited Sponsorship & Talent United Kingdom 3422630 36 Golden Square, London, W1F 9EE 67 M&C Saatchi Social Limited + *** Sponsorship & Talent United Kingdom 9110893 36 Golden Square, London, W1F 9EE 73 M&C Saatchi Sport & Entertainment Limited* Sponsorship & Talent United Kingdom 3306364 36 Golden Square, London, W1F 9EE 75 Europe M&C Saatchi (Switzerland) SA Advertising & CRM Switzerland 660-0442009-4 Boulevard Des Promenades 8, 1227, Carouge, Geneva 76 M&C Saatchi AB Advertising & CRM Sweden 556902-1792 Skeppsbron 16, 11130, Stockholm 70 M&C Saatchi Advertising GmbH Advertising & CRM Germany 95484 Munzstrasse 21-23, 10178, Berlin 78 M&C Saatchi Digital GmbH Advertising & CRM Germany 137809 Munzstrasse 21-23, 10178, Berlin 95 M&C Saatchi Go! AB Advertising & CRM Sweden 559076-6076 Skeppsbron 16, 11130, Stockholm 70 M&C Saatchi Little Stories SAS Advertising & CRM France 449386944 32 Rue Notre Dame Des Victoires, 75002 Paris 26 M&C Saatchi PR AB Advertising & CRM Sweden 559103-4201 Skeppsbron 16, 11130, Stockholm 70 M&C Saatchi PR Srl Advertising & CRM Italy IT08977250961 V.Le Monte Nero 76, Milano, 20135 100 M&C Saatchi SpA Advertising & CRM Italy IT07039280966 V.Le Monte Nero 76, Milano, 20135 100 Clear Deutschland GmbH Brand & Experience Germany 113523 C/O Wework, Taunusanlage 8, 60329, Frankfurt Am Main 51 M&C Saatchi Sport & Entertainment Benelux BV Sponsorship & Talent Netherlands 860734560 Keizersgracht, 81015cn, Amsterdam 100 M&C Saatchi Sports & Entertainment GmbH Sponsorship & Talent Germany 142905 Munzstrasse 21-23, 10178, Berlin 93 Middle East and Africa Black & White Customer Strategy (Pty) Ltd Advertising & CRM South Africa 211/005859/07 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 Creative Spark Interactive (Pty) Ltd Advertising & CRM South Africa 2010/016508/07 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 Dalmatian Communications (Pty) Ltd Advertising & CRM South Africa 2015/396439/07 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 M&C Saatchi Abel (Pty) Ltd Advertising & CRM South Africa 2009/022172/07 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 M&C Saatchi Africa (Pty) Ltd Advertising & CRM South Africa 2013/037719 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 M&C Saatchi FZ LLC Advertising & CRM United Arab Emirates 177 PO Box: 77932, Abu Dhabi 80 M&C Saatchi Middle East FZ LLC Advertising & CRM United Arab Emirates 30670 M&C Saatchi, Penthouse, Building 1, Twofour54, PO Box 77932, Abu Dhabi 80 M&C Saatchi SAL Advertising & CRM Lebanon 1010949 Quantum Tower, Charles Malek Avenue, St Nicolas, Beirut 10 Razor Media (Pty) Ltd Advertising & CRM South Africa 2017/177757/07 9 8th Street, Houghton, Johannesburg, Gauteng, 2198 49 M&C Saatchi Bahrain WLL Dormant Bahrain 74157 Venture Capital House 6th Floor, PO Box 11409, Manama 90 M&C Saatchi Connect (Pty) Ltd Media & Performance South Africa 2013/037737/07 Media Quarter, 5th Floor, Corner, Somerset And De Smit Street, De Waterkant, Cape Town 50 Levergy Marketing Agency (Pty) Ltd Sponsorship & Talent South Africa 2005/021589/07 9 8th Street, Houghton, Johannesburg, Gauteng, 2198 58 Asia Design Factory Sdn Bhd Advertising & CRM Malaysia 201001000000 Unit 10 - 2, 10th Floor, Bangunan Malaysian Re, No.17, Lorong Dungun, Damansara Heights, 50490 Kuala Lumpur 100 February Communications Pvt Ltd Advertising & CRM India U74999DL2012PTC233245 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049 20 M&C Saatchi Advertising (Shanghai) Ltd Advertising & CRM China 91310000740556813A Room 248, Floor 2, Unit 5, No.11, Wanghang Road, New Lingang Area, Pilot Free Trade Zone 80 M&C Saatchi Spencer Hong Kong Ltd Advertising & CRM Hong Kong 2661802 1st Floor, Catic Plaza, No.8 Causeway Road 70 M&C Saatchi Communications Pvt Ltd Advertising & CRM India U74300DL2005PTC141682 Flat No.270-D, Pocket C Mayur Vihar Phase II, New Delhi, 110091 95 Scarecrow M&C Saatchi Ltd* Advertising & CRM India U22190MH2008PLC188548 2nd Floor, Kamani Chambers 32 Ramjibhai Kamani Marg, Ballard Estate, Mumbai, Mumbai City, 400038 51 PT. MCS Saatchi Indonesia Advertising & CRM Indonesia 576/1/IU/PMA/2018 Dea Tower 1, Mezzanine Floor, Jl. Mega Kuningan Kav.e4.3 No.1-2, Kuningan Timur, Setiabudi, Jakarta Selatan, 12920 50 M&C Saatchi Ltd Advertising & CRM Japan 0110-01-060760 1-26-1 Ebisu-Nishi, Shibuya-Ku, Tokyo 150-0021 10 M&C Saatchi (M) Sdn Bhd Advertising & CRM Malaysia 606116-D No.15b, 2nd Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Alam, Selangor 49 M&C Saatchi Source (M) SDN BHD Advertising & CRM Malaysia 1313653-D No.15b, 2nd Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Alam, Selangor 49 Watermelon Productions Sdn Bhd Advertising & CRM Malaysia 1083441 -M No.15b, 2nd Floor, Jalan Tengku Ampuan, Zabedah F9/F, Section 9, 40100 Shah Alam, Selangor 49 M&C Saatchi World Services Pakistan (Pvt) Ltd Advertising & CRM Pakistan 81911 2nd Floor, Mir Square, Civic Center, G-6 Markaz, Islamabad, Islamabad Capital Territory 41 M&C Saatchi (S) Pte Ltd Advertising & CRM Singapore 199504816C 59 Mohamed Sultan Road, #02-08, Sultan-Link 100 Love Frankie Ltd Advertising & CRM Thailand 105557000000 571 Rsu Tower, 10th Floor, Soi Sukhumvit 31, Sukhumvit Road, Wattana District, Bangkok 20 Clear Ideas (Singapore) Pte Ltd Brand & Experience Singapore 201020335R 59 Mohamed Sultan Road, #02-08, Sultan-Link 86 Clear Asia Ltd Dormant Hong Kong 1289028 6th Floor, Alexandra House, 18 Chater Road, Central 95 Re HK Ltd Dormant Hong Kong 2699219 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 100 M&C Saatchi World Services (Singapore) Pte Ltd Global & Social Issues Singapore 202104508W 59 Mohamed Sultan Road, #02-08, Sultan-Link 80 M&C Saatchi (Hong Kong) Ltd Local Central Costs Hong Kong 509500 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 80 M&C Saatchi Asia Ltd Local Central Costs Hong Kong 1959819 Rm 2610, 26/F Prosperity, Millennia Plaza, 663 King's Rd, North Point 100 M&C Saatchi Holdings Asia Pte Ltd Local Central Costs Singapore 20172 5519K 1 Coleman Street, #05-06a, The Adelphi, 179803 50 M&C Saatchi Mobile India LLP Media & Performance India AAK-8869 141b First Floor, Cl House Shahpur Jat, New Delhi, 110049 100 M&C Saatchi Mobile Asia Pacific Pte Ltd Media & Performance Singapore 201410399M 59 Mohamed Sultan Road, #02-08, Sultan-Link 100 Australia 1440 Agency Pty Ltd Advertising & CRM Australia 100 473 363 99 Macquarie Street, Sydney, NSW 2000 90 Bellwether Global Pty Ltd Advertising & CRM Australia 114 615 226 99 Macquarie Street, Sydney, NSW 2000 90 Brands In Space Pty Ltd Advertising & CRM Australia 129 800 639 99 Macquarie Street, Sydney, NSW 2000 90 Elastic Productions Pty Ltd Advertising & CRM Australia 635 737 861 99 Macquarie Street, Sydney, NSW 2000 90 Go Studios Pty Ltd Advertising & CRM Australia 092 941 878 99 Macquarie Street, Sydney, NSW 2000 90 Greenhouse Australia Pty Ltd Advertising & CRM Australia 629 584 121 99 Macquarie Street, Sydney, NSW 2000 72 Hidden Characters Pty Ltd Advertising & CRM Australia 108 886 291 99 Macquarie Street, Sydney, NSW 2000 86 House Key Productions Pty Ltd Advertising & CRM Australia 634 729 374 99 Macquarie Street, Sydney, NSW 2000 90 LIDA Australia Pty Ltd Advertising & CRM Australia 125 908 009 99 Macquarie Street, Sydney, NSW 2000 90 M&C Saatchi Direct Pty Ltd Advertising & CRM Australia 072 221 811 99 Macquarie Street, Sydney, NSW 2000 90 M&C Saatchi Melbourne Pty Ltd Advertising & CRM Australia 004 777 379 99 Macquarie Street, Sydney, NSW 2000 90 M&C Saatchi Sydney Pty Ltd Advertising & CRM Australia 637 963 323 99 Macquarie Street, Sydney, NSW 2000 90 Park Avenue PR Pty Ltd Advertising & CRM Australia 604 298 071 99 Macquarie Street, Sydney, NSW 2000 90 Resolution Design Pty Ltd Advertising & CRM Australia 621 985 288 99 Macquarie Street, Sydney, NSW 2000 77 Saatchi Ventures Pty Ltd Advertising & CRM Australia 614 007 957 99 Macquarie Street, Sydney, NSW 2000 54 The Source Insight Australia Pty Ltd Advertising & CRM Australia 618 841 928 99 Macquarie Street, Sydney, NSW 2000 59 This Film Studio Pty Limited Advertising & CRM Australia 624 003 541 99 Macquarie Street, Sydney, NSW 2000 63 Tricky Jigsaw Pty Limited Advertising & CRM Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000 88 Ugly Sydney Pty Limited Advertising & CRM Australia 618 242 710 99 Macquarie Street, Sydney, NSW 2000 68 Re Team Pty Limited Brand & Experience Australia 105 887 321 99 Macquarie Street, Sydney, NSW 2000 79 Yes Agency Pty Limited Brand & Experience Australia 621 425 143 99 Macquarie Street, Sydney, NSW 2000 79 eMCSaatchi Pty Limited Dormant Australia 089 856 093 99 Macquarie Street, Sydney, NSW 2000 90 World Services (Australia) Pty Limited Global & Social Issues Australia 629 191 420 C/O Walker Wayland Services Pty Limited, Suite 11.01, Leve 11, 60 Castlereagh St, Sydney NSW 80 M&C Saatchi Agency Pty Limited Local Central Costs Australia 069 431 054 99 Macquarie Street, Sydney, NSW 2000 90 M&C Saatchi Asia Pac Holdings Pty Limited Local Central Costs Australia 097 299 020 99 Macquarie Street, Sydney, NSW 2000 100 Bohemia Group Pty Limited Media & Performance Australia 154 100 562 99 Macquarie Street, Sydney, NSW 2000 67 M&C Saatchi Sport & Entertainment Pty Limited Sponsorship & Talent Australia 139 568 102 99 Macquarie Street, Sydney, NSW 2000 90 Americas Ag��ncia Digital Zeroacem Ltda Advertising & CRM Brazil NIRE-3522979148 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 46 CSZ Comunica����o Ltda Advertising & CRM Brazil 03.910.644/0001-05 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 50 Lily Participa����es Ltda Advertising & CRM Brazil 21.188.539/0001-96 Avenida Brigadeiro Faria Lima, 1355, Jardim Paulistano 16 Andar, Sal, Sao Paulo, 01452-919 100 M&C Saatchi Brasil Participa����es Ltda Advertising & CRM Brazil 10.570.593/0001-85 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 100 M&C Saatchi, S.A. DE. C.V Advertising & CRM Mexico N-2017052183 Darwin 74, Piso 1, Miguel Hidalgo, 11590 Ciudad de M��xico, CDMX, Mexico 60 Majority LLC Advertising & CRM USA 5445173 874 Walker Rd Ste C, Dover, Kent, 19904 92 Santa Clara Participa����es Ltda Advertising & CRM Brazil 09.349.720/0001-31 Rua Wisard, 305, Vila Madalena, 3 Andar-Con, Sao Paolo, 05434-080 50 Shepardson Stern + Kaminsky LLP Advertising & CRM USA 4656653 80 State Street, Albany, 12207-2543, New York 100 Clear USA LLC Brand & Experience USA 20-8599548 138 West 25th Street, Floor 5, New York, Ny 10001 95 LIDA NY LLP (MCD) Brand & Experience USA 4902983 138 West 25th Street, Floor 5, New York, NY 10001 76 Clear LA LLC Dormant USA 6241713 2711 Centerville Road, Suite 400, Wilmington, De 19808 95 Clear NY LLP Dormant USA 30-0891764 1209 Orange Street Wilmington De 19801 95 LIDA USA LLP Dormant USA 6333479 251 Little Falls Drive, Wilmington, New Castle, 19808, Delaware 100 M&C Saatchi NY LLP Dormant USA 45-4683918 874 Walker Rd Ste C, Dover, Kent, 19904 90 M&C Saatchi PR LLP Dormant USA 27-1665526 1740 Broadway, New York, 10019 100 M&C Saatchi Share Inc. Dormant USA 5580330 160 Greentree Dr Ste 101, Dover, Kent, De, 19904 80 World Services US Inc. (California) Global & Social Issues USA C2543767 2032 Broadway, Santa Monica Ca, 90404 100 World Services US Inc. (New York) Global & Social Issues USA 90-0851801 1740 Broadway, New York, 10019 100 M&C Saatchi Agency Inc. Local Central Costs USA 13-3839670 304 East 45th Street, New York, New York, 10017 100 M&C Saatchi Mobile LLC Media & Performance USA 45-3638296 2032 Broadway, Santa Monica Ca, 90404 100 M&C Saatchi Sport & Entertainment LA LLC Sponsorship & Talent USA 6369786 874 Walker Rd Ste C, Dover, Kent, 19904 65 M&C Saatchi Sport & Entertainment NY LLP Sponsorship & Talent USA 46-5182795 160 Greentree Dr Ste 101, Dover, Kent, De, 19904 70 Within the above list the following companies are associates: Love Frankie Limited, M&C Saatchi Limited (Japan), February Communications Private Limited, M&C Saatchi Little Stories SAS and M&C Saatchi SAL. The Group has a 49% effective shareholding in Razor Media (Pty) Limited but retains control so the company is treated as a subsidiary. 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. Other related parties During the year, the Group made purchases of ��418k (2020: ��1,534k) from its associates. At 31 December 2021, there was ��35k due to associates in respect of these transactions (2020: ��118k). During the year, ��420k (2020: ��574k) of fees were charged by Group companies to associates. At 31 December 2021, associates owed Group companies ��123k (2020: ��837k). 33. Commitments With the introduction of IFRS 16 Leases in 2019, all of the Group's commitments are shown on the balance sheet except for those below: Leases There has been one lease entered into, post balance sheet, in Indonesia, which commenced on 1 February 2022 for three years, terminating on 31 October 2025. The annual cash payments for this space are IDR972.8m (��0.05m). Capital commitments At the year-end we had ��nil committed costs (2020: ��677k) to acquire property plant and equipment. Other commitments Other than our normal contractual commitments to employees 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 As announced on 6 January 2022, the Company has received a preliminary approach from AdvancedAdvT Limited, a vehicle connected with Vin Murria. The Company has facilitated access to provide AdvancedAdvT Limited with the opportunity to make a formal offer to the Company's shareholders, but to date no offer has been received. On 18 January 2022, the Chief Financial Officer, Mickey Kalifa, notified the Board of his resignation from his executive role of Chief Financial Officer. On 19 January 2022, as a result of the exercise of two put option arrangements, the Group acquired a 49% holding in Cometis SARL, a French company. On 21 January 2022, the Company reported that the Financial Conduct Authority had notified the Company that its investigation of the Company was being closed and that no enforcement action would be taken by it against the Company. In February 2022, the Group launched two new businesses, a digital innovation consultancy, Thread, and a specialist sustainability consultancy, M&C Saatchi LIFE. 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. 35. Other accounting policies Reserves Equity comprises the following: Share capital Represents the nominal value of equity shares in issue. Share premium Represents the excess over nominal value of the fair value of consideration received for equity shares, net of issuance costs. Other reserves Merger reserve Represents the premium paid for shares above the nominal value of share capital, caused by the acquisition of more than 90% of a 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 Represents the amount paid to acquire our own shares for future use. Minority interest put option reserve Represents the initial fair value of the IFRS 9 put option liabilities at creation. When the put option is exercised, the related amount in this reserve is taken to the non-controlling interest acquired 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. It represents either a) the minority interest put option reserve transferred less the book value of the minority interest acquired (where the acquisition is due to an IFRS 9 put option), or b) the consideration paid less the book value of the minority interest acquired. If the equity stake in the subsidiary is subsequently sold, impaired or disposed of, then the related balance from this reserve will be transferred to retained earnings. Foreign exchange reserve For overseas operations, income statement 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 this reserve. Such translation differences will be recognised as income or expense in the period in which the operation is disposed of. Retained earnings Represents the cumulative gains and losses recognised in the income statement. 36. New and revised standards issued but not yet effective In the current year, the following standard and interpretation became effective: �� Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). We do not believe that the Interest Rate Benchmark Reform has had a material difference on the Group's accounts. At the date of authorisation of these consolidated financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective: Amendments to IFRS 17 Changes to international insurance accounting Applying IFRS 9 "Financial Instruments" with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4) IFRS Insurance Reference to the Conceptual Framework Amendments to IFRS 3 Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) Application of consistency Property, Plant and Equipment - proceeds before intended use (Amendments to IAS 16) Recognition criteria Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) Application of materiality Annual Improvements 2018 - 2020 Cycle Impacts IFRS 1, IFRS 9, IFRS 16 and IAS 41 Extension of the temporary exemption from applying IFRS 9 (Amendments to IFRS 4) Fixed expiry date variation Deferred Tax - Amendments to IAS 12 Income Taxes Recognising deferred tax on leases Onerous Contracts - (Amendments to IAS 37) Cost of fulfilling a contract Definition of Accounting Estimate (Amendments to IAS 8) Distinguishing between accounting policies and estimates Initial Application of IFRS 17 and IFRS 9 - comparative information (Amendments to IFRS 17) Presentational around comparative information The Directors do not expect that the adoption of the standards listed above will have a material impact on the consolidated financial statements of the Group in future periods. 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