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As filed with the Securities and Exchange Commission on June 18, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-14736
SAATCHI & SAATCHI PLC
(Exact name of Registrant as specified in its charter)
ENGLAND AND WALES
(Jurisdiction of incorporation or organization)
83/89 WHITFIELD STREET
LONDON W1A 4XA, ENGLAND
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class: Name of each exchange on which registered:
Ordinary shares of 10p each represented by New York Stock Exchange, Inc.
American Depositary Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of
the close of the period covered by the annual report: 221,926,973
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________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 ( ) Item 18 (X)
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TABLE OF CONTENTS
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PART I................................................................................................1
Item 1. Description of Business...................................................................1
Item 2. Description of Property..................................................................17
Item 3. Legal Proceedings........................................................................17
Item 4. Control of Registrant....................................................................18
Item 5. Nature of Trading Market.................................................................19
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.......................20
Item 7. Taxation.................................................................................20
Item 8. Selected Financial Data..................................................................26
Item 9. Managements Discussion and Analysis of Financial Condition and Results of Operations.....33
Item 9A. Quantitative and Qualitative Disclosures About Market Risk...............................42
Item 10. Directors and Executive Officers of Registrant...........................................42
Item 11. Compensation of Directors and Officers...................................................45
Item 12. Options to Purchase Securities from Registrant or Subsidiaries...........................50
Item 13. Interest of Management in Certain Transactions...........................................62
PART II..............................................................................................62
Item 14. Description of Securities to be Registered...............................................62
PART III.............................................................................................62
Item 15. Defaults Upon Senior Securities..........................................................62
Item 16. Changes in Securities and Changes in Security for Registered Securities..................62
PART IV..............................................................................................62
Item 17. Financial Statements.....................................................................62
Item 18. Financial Statements.....................................................................62
Item 19. Financial Statements and Exhibits........................................................63
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INTRODUCTION
Unless the context otherwise requires, the term the "Company," as used
herein shall mean Saatchi & Saatchi plc, which was formed as a private limited
company in England and Wales on January 26, 1990 under the Companies Act and was
re-registered as a public limited company on September 4, 1997 in connection
with the Demerger (as defined below). Unless the context otherwise requires, the
"Group" and the "Saatchi & Saatchi Group" mean the Company and its subsidiaries.
Unless the context otherwise requires, "Cordiant" shall mean Cordiant plc and
its subsidiaries in relation to the period prior to the Demerger and "CCG" or
"CCG Group" shall mean Cordiant, which has changed its name to Cordiant
Communications Group plc, and its subsidiaries after the Demerger. The term
"Ordinary shares" refers to the Ordinary shares of 10p each of the Company, and
the term "Cordiant Ordinary shares" refers to the ordinary shares of 25p each of
Cordiant. The term "Financial Statements" shall mean the audited consolidated
financial statements and notes thereto of Saatchi & Saatchi plc as of December
31, 1997 and 1996 and for each of the years in the three year period ended
December 31, 1997 included elsewhere herein. The term "Unaudited Pro Forma
Financial Information" shall mean the unaudited pro forma financial information
included in this Report.
The Company's financial statements appearing in this annual report are
expressed in pounds sterling ("L"). References to "US dollars" or "$" are to
United States dollars and references to "pounds sterling" "L", "pence" or "p"
are to UK currency. The noon buying rate in the City of New York for cable
transfers in foreign currencies as announced by the Federal Reserve Bank of New
York for customs purposes (the "Noon Buying Rate") on December 31, 1997 was
L1.00 to $1.64. Unless otherwise specified, translations into US dollars
contained herein are made at the Noon Buying Rate on December 31, 1997. The Noon
Buying Rate on May 1, 1998 was L1.00 to $1.67.
References in this document to the "Companies Act" are to the Companies Act
1985, as amended, of England and Wales and references to the "Articles" are to
the Company's Memorandum and Articles of Association.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
This report contains certain "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward
looking statements include statements in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to trends in the
advertising and marketing services industry, particularly with respect to
anticipated advertising expenditures in the world's advertising markets. Actual
advertising expenditures may differ materially from the estimates contained
therein depending on, among other things, regional, national and international
political and economic conditions, technological changes, the availability of
media and regulatory regimes in the world's advertising markets. Additionally,
this report contains a number of "forward looking statements" relating to the
Group's performance, particularly in "Description of Business--General" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Group's actual results could differ materially from those
anticipated, depending on, among other things, gains to or losses from its
client base, the amount of revenue derived from clients, the Group's exposure to
changes in the exchange rates of major currencies against the pound sterling
(because a substantial portion of its revenues are derived and costs incurred
outside of the United Kingdom) and the overall level of economic activity in the
Group's major markets as discussed above. The Group's ability to reduce its
fixed cost base in the short term is limited and therefore its trading
performance can be significantly affected by variations in the level of its
revenues.
PART I
Item 1. Description of Business.
GENERAL
The businesses that comprise the Saatchi & Saatchi Group were transferred
to the Saatchi & Saatchi Group from Cordiant in connection with the Demerger.
Prior to the Demerger, Cordiant was the holding company for a group of
advertising and creative marketing communications businesses, the two largest of
which were the advertising networks, Saatchi & Saatchi ("S&S") and Bates
Worldwide ("Bates Worldwide"). The remaining businesses were retained within the
Cordiant Group, which changed its name to Cordiant Communications Group plc.
Cordiant was incorporated in 1977 as the successor to the original advertising
business founded in 1970 and changed its name from Saatchi & Saatchi Company PLC
to Cordiant plc on March 16, 1995.
Since its beginning in 1970, the Saatchi & Saatchi name has been synonymous
with highly creative, ground-breaking advertising. In 1975, the Saatchi &
Saatchi advertising agency was merged with a listed UK advertising company,
Compton Partners Limited. During the 1980s, an international advertising network
was formed, primarily through a series of acquisitions. The most significant
acquisitions were of the US agencies Compton Communications, Inc. in 1982 and
Dancer-Fitzgerald-Sample, Inc. in 1986. In 1987, a separate creative boutique
called Cliff Freeman & Partners was established in New York. In 1995, the S&S
network was expanded to Latin America through an equity investment in a
newly-formed associate, NAZCA S&S. Investments have also been made in other
developing markets, including China, Eastern Europe, South Africa and Vietnam.
As a result of these developments, S&S is today a worldwide advertising network
with 162 offices and affiliated agencies located in over 90 countries.
In addition to the growth of its advertising businesses, a range of related
communications businesses were assembled by Cordiant during the 1980s. In 1985,
The Rowland Company, a US strategic communications firm, and Siegel & Gale, a US
corporate identity and simplified communications business, were acquired. In
1987, The Facilities Group Limited ("The Facilities Group") was formed through
the amalgamation of a group of companies providing specialist advertising
production services in design, print and television. Following the Demerger, the
Saatchi & Saatchi Group retained a 70 percent shareholding in The Facilities
Group with the remainder held by CCG. These creative communications businesses
have developed during the 1990s by providing services to independent clients,
S&S and Bates Worldwide.
In 1988, Cordiant formed a single media buying operation in the UK called
Zenith Media Buying Services. This was created through the acquisition of Ray
Morgan & Partners which was merged with the media buying departments of
Cordiant's London advertising agencies. This was the first time a major agency
group had consolidated its media buying operations into a discrete unit. The
operation was renamed Zenith Media Worldwide ("Zenith") in 1991 and in 1992
extended its services to include media planning. Zenith has expanded its
operations internationally by opening offices in Europe in 1994 and in the US
and Asia Pacific in 1995. This expansion was achieved by combining and
rebranding the in-house media operations of S&S and Bates Worldwide. Following
the Demerger, the Saatchi & Saatchi Group and CCG each have a 50 percent
shareholding in Zenith, which is accounted for as a joint venture.
From the late 1980s to the end of 1995, Cordiant's history was
characterized by a period of financial and management instability which had an
adverse effect on the businesses comprising the Saatchi & Saatchi Group. During
the late 1980s, poor trading conditions in the advertising industry, coupled
with the requirement to service debt incurred to fund a number of acquisitions
contributed to a serious decline in Cordiant's financial position. By 1990
Cordiant's accounts showed that financial liabilities had reached almost L700
million. As a result, during the early 1990s Cordiant embarked on a series of
refinancings and disposals culminating in a rights issue in November 1995. This
series of actions substantially eliminated Cordiant's net financial liabilities
and restored its financial stability.
In early 1995, the Chairman (Maurice Saatchi) and four other senior
executives left the Cordiant Group. As a result, the S&S network suffered the
loss of several high profile clients which had accounted for approximately 5
percent of S&S's 1994 revenue. To restore management stability to Cordiant, Bob
Seelert was appointed Chief Executive Officer of Cordiant and Charles Scott was
appointed Chairman in July 1995.
Since the beginning of 1996, the management team of S&S has been
restructured with a number of internal and new appointments. In particular, in
early 1997, Kevin Roberts was appointed Chief Executive Officer of the S&S
network. In connection with the Demerger, Bob Seelert became Chief Executive
Officer of the Saatchi & Saatchi Group.
The Company's principal corporate offices are located at 83/89 Whitfield
Street, London W1A 4XA, England, telephone number 011-44-171-436-4000.
THE DEMERGER AND CONTINUING ARRANGEMENTS WITH CCG
The Demerger
On April 21, 1997, the Board of Directors of Cordiant announced its
decision to recommend to its shareholders that they approve a spinoff or
demerger of the Saatchi & Saatchi Group from Cordiant (the "Demerger"). The
Demerger was motivated by the desire to allow each of the Saatchi & Saatchi
Group and CCG to stand on its own and to allow the advertising agencies of the
Saatchi & Saatchi Group and CCG, namely S&S and Bates Worldwide, to respond more
quickly to client needs and opportunities. The Demerger took effect on December
15, 1997 and, as from the effective date of the Demerger (the "Effective Date"),
CCG and the Company have operated as separate public companies and neither CCG
nor the Company beneficially owns any shares of the other. As a result of the
Demerger, the Saatchi & Saatchi Group and CCG each own a 50 percent shareholding
in Zenith.
Relationship Between the Saatchi & Saatchi Group and CCG Following the Demerger
As a result of the Demerger, the Company and CCG are separate publicly
traded companies and operate independently of each other. Neither company has
any interest in the shares of the other. However, the Company and certain
companies that became its subsidiaries as a result of the Demerger entered into
certain agreements and arrangements with CCG and Zenith in order to enable the
Demerger to be carried out, allocate responsibility for certain obligations,
provide for certain transitional arrangements and otherwise define their
relationship following the Demerger. The terms of these agreements and
arrangements are principally governed by the Demerger Agreement, dated September
30, 1997, between Cordiant, the Company and CCG (the "Demerger Agreement"), and
certain agreements required to be entered into pursuant to the Demerger
Agreement. The principal terms of these agreements and arrangements are
described below.
Property Guarantees
The Company has guaranteed, with effect from the Effective Date, all of the
obligations of Cordiant Property Holdings Limited, a member of CCG, as lessee
under certain leases of premises at Lansdowne House, Berkeley Square, London W1,
for a term expiring on June 16, 2013. The current annual base rent under these
leases amounts to L10.6 million per annum, subject to upwards-only rent reviews
in 2002/2003 and every five years thereafter. This property is not currently
occupied by any company in the Saatchi & Saatchi Group or CCG. Most of this
property has been sublet, but for varying terms and at lower rents. There is
also an existing guarantee from CCG which will continue and CCG has agreed to
indemnify the Company against any liability under the Company's guarantee.
Bank Guarantees
The Company gave a guarantee to the lenders under CCG's new bank facility
agreement against liability under a bank guarantee of up to L5 million at
December 31, 1997 in connection with Cordiant's reduction of capital. CCG has
agreed to indemnify the Saatchi & Saatchi Group, to the extent that liability
arises under this guarantee in respect of obligations which are CCG's primary
responsibility.
Other
There are a number of existing guarantees by CCG companies of obligations
of certain companies in the Saatchi & Saatchi Group, including guarantees in
respect of leases of premises at 375 Hudson Street, New York and certain
premises in London and deferred consideration payable for the acquisition of the
minority shareholdings in Saatchi & Saatchi Advertising S.A. (France). The main
guarantees were not released in connection with the Demerger. In the Demerger
Agreement, the Company agreed to give additional, or in some cases substitute
guarantees and to indemnify CCG against any liability in respect of its existing
guarantees.
New Bank Facilities
In connection with the Demerger, the management of Cordiant allocated the
consolidated indebtedness of Cordiant between the Saatchi & Saatchi Group, CCG
and Zenith. The amounts allocated took into account the ability of each of the
companies to generate cash flow with the intention of establishing an
appropriate capital structure for each company.
Under an Agreement dated September 30, 1997, among the Company, various
other members of the Saatchi & Saatchi Group, BNY Markets Limited and Midland
Bank Plc as Arrangers and certain banks and financial institutions (the
"Banks"), the Banks agreed to make available to certain members of the Saatchi &
Saatchi Group a secured reducing multi-currency revolving credit facility of up
to $165 million (the "New Bank Facility"), which was used in part along with
facilities made available to CCG and Zenith to repay amounts drawn down by
Cordiant under its facility agreements and for general corporate purposes of the
Saatchi & Saatchi Group (the "New Bank Facility Agreement"). Amounts available
under the New Bank Facility are being amortized over the life of the facility.
The New Bank Facility Agreement requires the Company to comply with certain
financial and other covenants relating to gross interest cover, total cash
cover, maximum gross debt and maximum gross borrowings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The New Bank Facility will be reduced in an amount equal to 75 percent of
the net proceeds received (subject to a de minimis of $5 million per annum) on,
or following, a sale by the Saatchi & Saatchi Group of any subsidiary (or a
material part of the business of any subsidiary, except in the case of a sale of
Siegel & Gale in which case an amount equal to 20 percent of the net proceeds
received would be applied in reduction of the New Bank Facility). Interest is
payable on each advance under the New Bank Facility at a rate per annum based on
the aggregate of LIBOR and a margin of between 1.5 and 0.75 percent per annum,
depending on the Saatchi & Saatchi Group's ability to improve certain financial
ratios.
The New Bank Facility Agreement contains provisions whereby, on the
happening of certain specified events of default, the amounts made available
could be declared immediately due and payable. These events of default include
breach of the above covenants and cross default by certain companies in the
Saatchi & Saatchi Group in respect of indebtedness over a specified amount or
any change of control of the Company.
The New Bank Facility is secured by guarantees from certain members of the
Saatchi & Saatchi Group (or, where guarantees are not possible, share charges
over such companies) such that at all times the aggregate of the revenues of
those companies that have given guarantees (or whose shares have been charged)
will equal at least 60 percent of the Saatchi & Saatchi Group's consolidated
revenues, fixed and floating charges over the assets of the Company and certain
of its subsidiaries and share pledges over the shares owned by members of
Saatchi & Saatchi Group in various subsidiaries.
In addition to the New Bank Facility, Zenith entered into an agreement (the
"Zenith Facility Agreement") providing a L21.5 million secured reducing
multi-currency revolving credit facility (the "Zenith Facility") to be used in
part, along with the facilities being made available to CCG and the Company, (i)
for the purposes of repaying the outstanding indebtedness under the existing
facility agreements for Cordiant and (ii) for general corporate purposes of
Zenith. The Company and CCG provided unlimited guarantees to the lenders in
respect of the Zenith Facility and agreed between themselves that any liability
under such guarantees is to be shared equally.
Amounts outstanding under the Zenith Facility, which is for a five year
term, are required to be repaid as follows: L1 million in 1998; L2 million in
each of 1999 and 2000 and L4 million in 2001. The Zenith Facility will be
reduced by an amount equal to 75 percent of the net proceeds received (subject
to a de minimis of $1.5 million per annum) on or following a sale by Zenith of
any subsidiary (or a material part of a business of any subsidiary).
Interest is payable on each advance under the New Bank Facility Agreement
at a rate per annum based on the aggregate of LIBOR and a margin of between 1.5
and 0.75 percent per annum, depending on Zenith's ability to improve certain
financial ratios.
The Zenith Facility Agreement requires Zenith to comply with various
financial covenants relating to gross interest cover, maximum gross debt,
maximum gross borrowings and gross capital expenditure.
The Zenith Facility Agreement contains provisions whereby on the happening
of certain specified events of default the amount made available could be
declared immediately due and payable. In addition to customary events of default
these events include defaults by certain companies in the Zenith group in
respect of indebtedness over specified limits and any change of control of
Zenith.
The Zenith Facility is secured by guarantees from certain members of the
Zenith group (or, where guarantees are not possible, share charges over such
companies) such that at all times the aggregate of the revenues of those
companies that have given guarantees (or whose shares have been charged) will
equal at least 60% of Zenith's consolidated revenues, fixed and floating charges
over the assets of Zenith and certain of its UK subsidiaries and share pledges
over the shares owed in certain of its non-UK subsidiaries. CCG and the Company
have also provided unlimited guarantees to the lenders in respect of the Zenith
Facility.
Ownership and Operation of Zenith Media Worldwide
Zenith Shareholders' Agreement
Pursuant to the Demerger Agreement, CCG, the Company, Saatchi & Saatchi
Holdings Limited ("Holdings") and Zenith, with effect from the Effective Date,
entered into a shareholders' agreement (the "Zenith Shareholders' Agreement") in
order to regulate the relationship between CCG and Holdings as shareholders of
Zenith. The Company is a party to the Zenith Shareholders' Agreement in order to
guarantee the obligations of Holdings. The Zenith Shareholders' Agreement
provides that Zenith will be managed on a day to day basis by four executive
Directors agreed upon by the shareholders. Two non-executive Directors will also
be appointed by agreement between the shareholders. In addition, each
shareholder will have the right to appoint one further non-executive Director.
Pursuant to the Zenith Shareholders' Agreement, the following matters
require the consent of both shareholders before they can be undertaken by
Zenith: alterations to the capital structure of Zenith; the annual business plan
of Zenith; and the entering into of contracts by Zenith which are not in the
ordinary course of its business or not on arm's-length terms.
Seventy-five percent of the distributable profits of Zenith will be
distributed to shareholders and divided between them in part by reference to the
proportions in which Zenith receives revenue from clients of each shareholder.
The remainder will be retained by Zenith.
Following the Demerger, each of the Company and CCG owns 50 percent of the
outstanding shares of Zenith. The Zenith Shareholders' Agreement prohibits the
transfer of shares in Zenith except as described below. Transfers to third
parties are permitted either on the insolvency, or on a change of control, of
the other shareholder. Otherwise a shareholder is entitled to sell all of its
shares to a third party only if it has first offered to sell its shares to the
other shareholder at a specified price and the other shareholder has declined
that offer. In those circumstances, the sale to the third party must be at a
price being not less than that offered to the other shareholder. Any third party
to whom shares are transferred will be required to agree to be bound by the
terms of the Zenith Shareholders' Agreement as if it was an original party to
that agreement.
The Zenith Shareholders' Agreement also contains options whereby one
shareholder is entitled to acquire all the Zenith shares of the other
shareholder in the event that:
1. the other shareholder becomes insolvent;
2. the other shareholder is the subject of a change of control and
following which there is a material breach of any of the terms of the
media services agreement (described below) to which that shareholder
is a party which either is not capable of remedy or is not remedied
within a certain period; or
3. the other shareholder terminates the media services agreement to which
it is a party.
The price payable (a) on exercise of the option described in paragraph 1
above will be based on the market value of the Zenith shares and (b) on exercise
of the options described in paragraphs 2 and 3 above will be based on the net
asset value of Zenith. Each shareholder also charged its shares in Zenith to
secure all obligations under the new bank facilities for such shareholder's
group.
In the event that a dispute arises in relation to certain matters of
fundamental importance to the future of Zenith which cannot be resolved by
further negotiations between the shareholders then either shareholder will be
entitled to offer to acquire at any specified price all of the Zenith shares of
the other shareholder. The other shareholder will have the option either to
accept that offer and sell all of its Zenith shares at the specified price or to
purchase all of the Zenith shares of the other shareholder at the specified
price.
The Zenith Shareholders' Agreement also provides for the resolution of
potential conflicts between the clients of the shareholders and Zenith.
The Zenith Shareholders' Agreement will remain in force until (i) either
shareholder acquires all of the shares in Zenith held by the other, (ii) an
order is made or resolution is passed for the winding up of Zenith or (iii) a
third party acquires all of the shares of Zenith.
Prior to the Demerger, Zenith shared office space and facilities such as
computer, payroll and accounting systems, as well as insurance and pension
arrangements with members of the Cordiant Group. These arrangements were
formalized on an arm's length basis with the relevant members of the Saatchi &
Saatchi Group and CCG, where appropriate, prior to the Demerger.
Both CCG and the Company have guaranteed the new Zenith bank facilities
described above.
Zenith Media Services Agreements
Pursuant to the Demerger Agreement, at the time the Zenith Shareholders'
Agreement was entered into, each of CCG and the Company entered into a media
services agreement with Zenith. Under the terms of these agreements the
shareholders each appointed Zenith as the exclusive supplier of media buying,
media planning and certain related services for all of the clients, subject to
certain exceptions, of each shareholder. The media services agreements also set
out the duties of Zenith in respect of each country in which Zenith operates.
Each of the media services agreements will terminate on December 31, 2000
or on any subsequent anniversary of that date provided either party has given to
the other not less than 12 months' written notice of such termination.
Ownership and Operation of The Facilities Group
Pursuant to the Demerger Agreement, CCG, the Company, Saatchi & Saatchi
(Central Services) Limited ("SSCSL") and The Facilities Group entered into a
shareholders' agreement ("The Facilities Group Agreement") in order to regulate
the relationship between CCG and SSCSL as shareholders of The Facilities Group.
The Company is a party to that agreement in order to guarantee the obligations
of SSCSL. With effect from the Effective Date, the Company holds 70 percent of
the outstanding shares of The Facilities Group and CCG holds 30 percent. The
Facilities Group Agreement provides that the day to day management of The
Facilities Group will be undertaken by three executive Directors. CCG is
entitled to appoint one of three executives and the Company is entitled to
appoint the other two.
The distributable profits of The Facilities Group will be divided between
shareholders in the proportions in which The Facilities Group receives revenue
from clients of each shareholder. Revenue of The Facilities Group not
attributable to clients of either shareholder will be divided in proportion to
the shareholdings.
The Facilities Group Agreement prohibits the transfer of shares of The
Facilities Group except in the circumstances described in the agreement.
Transfers to third parties will be permitted either on the insolvency or on a
change of control of the other shareholder. Otherwise a shareholder will be
entitled to sell all of its shares to a third party only if it has first offered
to sell its shares to the other shareholder at a specified price and the other
shareholder has declined that offer. In those circumstances, the sale to the
third party must be at a price being not less than that offered to the other
shareholder. Any third party to whom shares are transferred will be required to
agree to the terms of The Facilities Group Agreement as if it were an original
party to that agreement.
The Facilities Group Agreement also contains options whereby one
shareholder is entitled to acquire all the shares of the other shareholder in
the event that:
1. the other shareholder becomes insolvent; or
2. the other shareholder suffers a change of control.
The price payable on exercise of these options will be based on the market
value of The Facilities Group shares.
The Facilities Group Agreement will remain in force until (i) either
shareholder acquires all of the shares in The Facilities Group held by the
other, (ii) an order is made or resolution is passed for the winding up of The
Facilities Group or (iii) a third party acquires all of the shares of The
Facilities Group.
Employee Benefit Plans
In the UK, Saatchi & Saatchi Group companies participate in the Cordiant
Group Pension Scheme, a UK defined benefit plan operated by CCG. The Demerger
Agreement provides for this participation to continue for a period of time
following the Demerger subject to Inland Revenue approval until the Company
establishes alternative arrangements.
CCG and the Saatchi & Saatchi Group have agreed that the Saatchi & Saatchi
Group's active members within the plan will be given the opportunity to transfer
to the Saatchi & Saatchi Group's new pension arrangements when they have been
established. The Demerger Agreement provides for a transfer payment of an amount
determined by the trustee of the plan on the advice of the actuary to be made to
the new pension arrangements in respect of the accrued rights under the plan of
those active members who request it.
Other Provisions of the Demerger Agreement
Operating Arrangements
The Demerger Agreement provides for the implementation of specific
arrangements in Eastern Europe and the Middle East where the two groups have
operated local offices jointly and sets out the bases on which these
arrangements continue. Each agency is owned and managed by S&S, but has been
branded jointly as "Bates Saatchi & Saatchi Advertising." S&S and Bates
Worldwide shared operating profits or losses of the local offices based on the
level of revenue introduced by each network. Subsequent to year-end, Bates
Worldwide gave notice of its intention to end the operating arrangements in
Poland and the Middle East.
In addition, members of both the Saatchi & Saatchi Group and CCG are
parties to existing joint venture arrangements with third parties in Russia and
Japan.
Shared Premises and Services
There are a number of locations in which offices leased by a member of the
CCG Group are occupied by, or shared with, a member of the Saatchi & Saatchi
Group, or vice versa. Pursuant to the Demerger Agreement, these arrangements
will continue, to the extent practicable, either indefinitely or at least for a
transitional period, generally on the same basis on which such arrangements
operated prior to the date of the agreement. The most significant of these
arrangements are a sublease by the Saatchi & Saatchi Group to Zenith of 55,000
square feet at 375 Hudson Street in New York and a sublease by the Saatchi &
Saatchi Group to CCG for approximately 15 months from the Effective Date at an
annual base rent of approximately $3.4 million. In some cases these arrangements
are the subject of formal subleases or licenses; in other cases the sharing
arrangements remains informal. The Demerger Agreement also contains certain
transitional arrangements in respect of such matters as access to information,
the preparation of accounts and insurance.
Network Affiliates
There are over 40 affiliated agencies of S&S around the world in which the
Saatchi & Saatchi Group holds only a minority interest or no equity interest.
Prior to the Demerger, the relationship with these affiliates was in most cases
governed by a "network membership agreement" between the affiliate and Cordiant,
on behalf of S&S. Under these agreements, the affiliate was given the sole
license to use the "Saatchi & Saatchi" name in relation to advertising services
in a specified territory and receives certain services and referrals of clients
from S&S, in return for paying to Cordiant fees based on income earned by the
affiliate. In most cases, these agreements provided for termination by either
party on 3 months' notice.
Pursuant to the Demerger Agreement, the Saatchi & Saatchi Group and CCG are
endeavoring to obtain the agreement of the S&S affiliates to the novation of
their network membership agreements, so that the Company will succeed to all of
the rights and obligations of Cordiant under these agreements. To the extent
that such agreement had not been obtained prior to the Effective Date, CCG held
these agreements for the benefit of the Saatchi & Saatchi Group pending novation
or termination and the Saatchi & Saatchi Group is responsible for ensuring that
all obligations of CCG thereunder are performed. Similar arrangements exist in
relation to agreements with Zenith affiliates.
Disputes
The Demerger Agreement sets out agreed procedures to be followed by CCG,
the Company and Zenith in seeking to resolve any dispute that may arise between
any of them under or in connection with the Demerger Agreement, other than
disputes arising under the Zenith Shareholders' Agreement.
Demerger Costs
Pursuant to the Demerger Agreement, subject to certain limited exceptions,
all costs incurred by Cordiant, the Company, Zenith and their respective
subsidiaries in connection with the Demerger, including, but not limited to,
those relating to the pre-Demerger reconstruction, Cordiant's reduction of
capital, the applications for listing of Ordinary shares and ADSs (defined
below) on the London and New York Stock Exchanges respectively, all of the new
employee share schemes and the new banking facilities, were paid by CCG. The
anticipated costs of the Demerger were taken into account in determining the
manner in which the overall debt of the Cordiant Group was divided between the
Saatchi & Saatchi Group, CCG and Zenith. Costs in excess of those anticipated
were recorded by CCG and 50% of them were charged back to the Company. These
costs were recognized as a reduction of the Company's share premium account.
Liabilities and Reciprocal Indemnities
The Demerger Agreement provides that following the Demerger, each of the
Company, CCG and Zenith will indemnify, or procure that its relevant
subsidiaries indemnify, the members of each other group, subject to certain
limitations, against certain actual and contingent liabilities associated with
the business of the indemnifying group. In addition, if there are incurred any
liabilities in relation to past disposals of subsidiaries not operated as part
of S&S or Bates Worldwide, certain liabilities in connection with the Demerger
process in excess of the amounts contemplated by the arrangements for dividing
the existing Cordiant Group bank borrowings between the Saatchi & Saatchi Group,
CCG and Zenith, or certain other types of liabilities, these will be shared
equally by CCG and the Saatchi & Saatchi Group. The general purpose of these
provisions is to ensure that legal effect is given to the principles upon which
it has been agreed that the assets and liabilities of the Cordiant Group should
be divided between the Saatchi & Saatchi Group, CCG and Zenith. They cover a
range of matters, in addition to the cross guarantees referred to above,
including (without limitation) UK, US and other tax liabilities and litigation
involving members of more than one group.
ORGANIZATION AND SERVICES
Saatchi & Saatchi Group's principal activities are organized as follows:
Organization Activities
Advertising
S&S Advertising and creative marketing services
Cliff Freeman & Partners Advertising
Marketing communications services
Rowland Worldwide Strategic communications
The Facilities Group<F1> Pre-production services in
design, print and television
Media services
Zenith Media Worldwide<F2> Media planning and buying
_______________________________
<F1> Owned 70 percent by the Group and 30 percent by CCG.
<F2> Owned 50 percent by the Group and 50 percent by CCG.
Advertising
S&S is headquartered in New York and currently has 162 offices and
affiliated agencies located in over 90 countries. It has a reputation for
outstanding creative ability and benefits from long-standing relationships with
many multinational clients. In 1997, S&S accounted for approximately 85 percent
of the Saatchi & Saatchi Group's revenues.
Advertising services
S&S is principally involved in the creation of advertising and creative
marketing programs for products, services, brands, companies and organizations.
These programs involve various media such as television, magazines, newspapers,
cinema, radio, outdoor, electronic and interactive media, as well as techniques
such as direct marketing, sales promotion and design. The creation of
advertising and marketing materials includes the writing, designing and
development of concepts. When the concepts have been approved by the client, S&S
supervises the production of materials necessary to implement that program.
These include film, video, print and electronic materials which are provided
externally.
S&S performs a strategic planning function which involves analysis of the
particular product, service, brand, company or organization against its
competitors and the market. This analysis includes the use of market research,
sociological and psychological studies as well as creative insight. S&S also
evaluates the choice of media to reach the desired market most efficiently and
monitors the effectiveness of the program. The advertising and marketing program
is devised within the limits imposed by the client's advertising budget. In the
case of global and regional campaigns, S&S plans and coordinates the
implementation of the program through its network of national agencies.
S&S is also involved in buying media space and time for its clients. This
is executed by Zenith, by S&S's in-house team or sourced from external
suppliers.
Clients
In 1997, S&S's ten largest clients accounted for approximately 42 percent
of the Saatchi & Saatchi Group's revenues. The two largest clients, Procter &
Gamble and Toyota, accounted for 13.5 percent and 18.9 percent, respectively, of
the Saatchi & Saatchi Group's revenues in 1997. In 1997, S&S served
approximately 40 clients in five or more countries. Details of S&S's largest
clients in 1997 and recent significant new business wins from existing and new
clients are set forth below.
<PAGE>
S&S Clients
<TABLE>
Number of Year
countries relationship
in which first
serviced established
<S> <C> <C> <C>
Largest clients in 1997 American Home Products 3 1983
Delta Air Lines 7 1997
DuPont 21 1949
Eastman Kodak 19 1949
General Mills 1 1924
Hewlett Packard 42 1974
Johnson & Johnson/Merck 35 1971
The National Lottery 1 1994
Procter & Gamble 60 1921
Toyota 31 1975
</TABLE>
Business wins in 1997 include Alcatel, Avery Dennison, Beck's Beer, Carrefour,
Castrol, Commerzbank, CPC, Delta Air Lines, Diesel Footwear, Electrolux, France
Telecom, Fox, KFC, Lloyds TSB, Merial, Meidi, Nina Ricci, PeopleSoft, Qualcomm,
TCL and Wild Turkey.
Network expertise
The network includes a separately branded healthcare marketing agency
called Klemtner Advertising. In addition, S&S has established a number of teams
to develop a greater understanding of certain specialist sectors. These include
Saatchi & Saatchi Business Communications for business-to-business
communications, Saatchi & Saatchi Vision for interactive and three dimensional
media, Kid Connection for youth marketing, and HealthCare Connection for
healthcare marketing.
The network has also developed a series of methodologies designed to
improve the agency's ability to understand consumer motivations. The
Psychological Probe is designed to improve the understanding of emotional
factors which shape consumer behavior. The Anthropological Probe is designed to
understand the cultural factors formed by the consumers' living environment. The
Brand Resource and Information Network, BRAIN, is a worldwide internet allowing
S&S to share product and brand knowledge both internally and with clients.
Management believes that these areas of expertise provide the network with
enhanced opportunities to attract new business and to extend business from
existing clients.
Cliff Freeman & Partners
Cliff Freeman & Partners is an advertising agency founded in 1987 in New
York. The agency has an outstanding creative reputation having won more than 100
awards in 1997 including "Most Popular Campaign" in USA Today's "Ad Track" poll.
The agency's principal clients are Ameritech Cellular Services, The Coca-Cola
Company, Fox/NHL and International Home Foods.
Marketing Communications Services
Rowland Worldwide
Rowland Worldwide is the Saatchi & Saatchi Group's international strategic
communications consulting firm. Headquartered in New York, the Rowland Worldwide
network has five business centers in Brussels, Hong Kong, New York, London, and
Sydney, with an additional nine owned offices and 28 affiliated offices.
Rowland's global network brings together for its clients strategic
communications capabilities, expertise and local market knowledge to influence
diverse and changing audiences worldwide. Rowland works with client companies to
build their reputations and their businesses through strategic
cross-disciplinary applications of communication techniques. These services
assist clients in marketing new or existing products, defining business
strategies, marketing mergers and acquisitions, managing crises, addressing
community issues and presenting financial results and business strategies.
Rowland Worldwide advises clients on project-specific or long-term assignments.
Its principal clients include Canon, DuPont, Johnson & Johnson/Merck, Procter &
Gamble and Visa International.
The Facilities Group
Based in central London, The Facilities Group provides a comprehensive
range of technical and creative services in the areas of design, print, artwork,
audio visual, multimedia and television production. Its revenues are derived
from both S&S and CCG and a number of independent accounts.
The business operates from a single site and provides 24 hour coverage.
This helps to reduce production times and to add a high level of security to
clients' projects. The Facilities Group has expanded its specialist services
through the recent introduction of two new divisions: Red Kite, an interactive
media company and Winkle Films, a film production company.
As a result of the Demerger, the Saatchi & Saatchi Group has a 70 percent
shareholding in The Facilities Group with the remaining 30 percent held by CCG.
See "The Demerger and Continuing Arrangements with CCG--Ownership and Operation
of The Facilities Group."
Media Services
Zenith Media Worldwide
Zenith is a specialist media services and planning agency. It is
headquartered in London and has offices and affiliated agencies in 15 European
countries and five Asia Pacific countries and has seven offices in North
America. Zenith continues to expand with further offices planned in Europe and
two new offices in North America opening shortly.
Zenith's services include researching media markets, forecasting media
trends and levels of expenditure, developing media buying strategies, planning,
negotiating and executing the details of buying programs, monitoring the media
to verify the execution of the buying program, researching the effectiveness of
the program and paying media owners. Zenith's Advertising Expenditure Forecasts,
which are published twice yearly, are regarded as authoritative by the
advertising industry.
Zenith provides its services to clients of S&S and Bates Worldwide. In
addition, in 1997 slightly more than half of its revenues were generated from
Zenith's own client list. Zenith's major direct clients include BMW/Rover Group
UK, Bristol-Myers Squibb, British Telecom, Calvin Klein, Darden Restaurants,
Kingfisher, Kraft Jacobs Suchard, Mars and Renault.
Zenith has made significant investment in its people, information
technology systems and proprietary software. Zenith's proprietary software helps
to differentiate it from its competitors and to allow it to deliver competitive
advantage to its clients. Zenith's systems, branded Zenith Optimization of
Media, ZOOM(Trade Mark), fall into three areas:
Infrastructure. Standardized hardware and software platforms, including
desk-to-desk e-mail, are used across the Zenith network.
Communication. Zenith uses internet communications incorporating password
protected web-sites to share and disseminate information both internally
and with clients.
Proprietary media systems. A number of proprietary media systems have been
branded and launched since 1996 to process, manipulate and analyze data
efficiently. Examples of these systems are ZOOM Wizard, which optimizes the
allocation of a client's budget by TV station and time of day; ZOOM
Optimiser, which generates TV spot schedules to maximize reach and
frequency; ZOOM Merlin, a portfolio optimization system which generates
multiple campaign schedules simultaneously; ZOOM Maps, which models
campaign and brand awareness; ZOOM Adweight, which helps determine targets
for effective advertising frequency levels; ZOOM Merc, which estimates
combined media net reach; and ZOOM Futures, which models estimated brand
sales from media and marketing campaigns.
As a result of the Demerger, the Saatchi & Saatchi Group and CCG each have
a 50 percent shareholding in Zenith. The Company accounts for Zenith as a joint
venture. In addition, both the Saatchi & Saatchi Group and CCG entered into an
agreement in which they agree to use Zenith as their exclusive media services
supplier, subject to certain exceptions, until at least December 31, 2000. Each
media services agreement will introduce revised commercial terms for the
purchase of media services from Zenith. See "The Demerger and Continuing
Arrangements with CCG--Ownership and Operation of Zenith Media Worldwide."
Geographic Coverage
The Saatchi & Saatchi Group serves clients in all of the world's major
advertising markets.
Geographic Analysis of S&S Revenue in 1997
<TABLE>
Percentage of the Group's Percentage of worldwide
ongoing revenue(<F1>) advertising expenditure(<F2>)
(%) (%)
<S> <C> <C>
-------------------------------- -------------------------------- ------------------------------------
UK............................. 16.2 6.1
North America.................. 48.0 38.2
Rest of Europe, Africa and the
Middle East.................... 22.0 23.1
Asia Pacific (exc. Japan)...... 13.6 10.7
Other (inc. Japan)............. 0.2 21.9
Total.......................... 100.0 100.0
-------------------------------- -------------------------------- ------------------------------------
<FN>
(<F1>) Ongoing revenue excludes revenue from disposed businesses.
(<F2>) Source: Zenith Media Worldwide, Advertising Expenditure Forecasts, December 1997.
</FN>
</TABLE>
In North America, the Saatchi & Saatchi Group's weighting is based on S&S's
relationships with a number of major US companies. The high weighting in the UK
reflects the strong position of S&S's London office on Charlotte Street. In the
Rest of Europe, Africa and the Middle East, the network's development is broadly
in line with the market, with significant contributions from France and Italy.
In Asia Pacific, the network receives significant contributions from Australia,
China (including Hong Kong), New Zealand and Singapore. Nearly all national
advertising markets are dominated by the major worldwide advertising networks.
The Japanese market is the exception as it is dominated by domestic agencies
with limited international presence. In the rest of the world, the network is
primarily represented by businesses in which it has minority equity holdings.
Accordingly, these businesses are not included within S&S's revenue.
For a more detailed breakdown of the Company's operations by geographic
area, see Note 31 in the Notes to the Financial Statements.
North America
S&S's main US advertising agency is Saatchi & Saatchi North America, Inc.
There are also a number of other units within the North American network such as
Cliff Freeman, Conill, Klemtner, Saatchi & Saatchi Business Communications,
Saatchi & Saatchi Canada and Taylor Tarpay. Some of the representative major
clients of these businesses are Delta Air Lines, DuPont, Eastman Kodak, General
Mills, Hewlett-Packard, Johnson & Johnson/Merck, Procter & Gamble, Toyota and
Wyeth. In North America, S&S has its major offices in New York and California in
the US and Ontario in Canada. In addition there are a number of field offices
throughout the US.
In North America, the Rowland Worldwide network is represented in North
America by Rowland Worldwide, Inc., which has offices in New York.
In North America, Zenith is headquartered in New York, and has offices in
California, Colorado, Illinois, Oregon and Texas.
United Kingdom
S&S is represented in the United Kingdom by the Saatchi & Saatchi Group
Ltd. Some of the agency's representative major clients are the British Army,
Carlsberg, Hewlett-Packard, The National Lottery, Procter & Gamble, Toyota and
Visa.
Other services in the United Kingdom are all based in London and are
comprised of the following: Albemarle Marketing Research Ltd., which provides
market research services; Rowland Worldwide; and The Facilities Group.
Zenith is headquartered in the United Kingdom and provides media services.
Rest of Europe, Middle East, Africa and Asia Pacific
S&S has international agencies (including affiliated agencies) located in
over 90 countries. The major international agencies are located in Australia,
China, France, Germany, Italy and New Zealand.
Rowland Worldwide has operations (including affiliated agencies) in 42
countries. Its own offices are located in Australia, Belgium, China, Hungary,
Italy, Japan, Poland and Russia.
Zenith has operations (including media affiliates) in 25 countries,
including Australia, China, France, Germany, Italy and Spain.
ACQUISITIONS & DISPOSALS
Acquisitions
During 1996 the minority 47.4 percent of the share capital of Saatchi &
Saatchi Advertising SA in France was acquired. The acquisition was completed in
September 1996, but for accounting purposes the minority was treated as having
been acquired on January 1, 1996.
During the second half of 1996, Cordiant acquired 51 percent of a South
African agency, Saatchi & Saatchi Klerk & Barrett Holdings (Proprietary)
Limited, and bought out the minority interest in BSB Saatchi & Saatchi MC
Limited in Poland.
Disposals
In April 1995, Cordiant completed the sale of the business of the
Minneapolis offices of Campbell Mithun Esty ("CME"). Prior to and after the
sale, all of the other operations of CME were either closed or integrated into
Cordiant. Also in April 1995, Cordiant completed the sale of its agencies in
Puerto Rico and Mexico. In September 1995, the Kobs & Draft Worldwide network
("KDW") was sold to its management. Revenues from these companies aggregated
L52.3 million in 1994 and L25.6 million in 1995. In 1996 KDW was sold by its
management to The Interpublic Group of Companies. This transaction resulted in
the receipt of contingent consideration as specified in the 1995 sale agreement
between Cordiant and KDW management which resulted in further gains in 1996 and
1997. See Note 3 in the Notes to the Financial Statements.
In June 1998 the Company sold its Siegel & Gale, Inc. and Siegel & Gale
Limited subsidiaries (together, "Siegel & Gale") to a company owned by the
management of Siegel & Gale and a third party. Consideration for the transaction
was $33.8 million in cash. See Note 36 in the Notes to the Financial Statements.
PERSONNEL
As of May 1, 1998, the Group directly employed approximately 5,200 people
worldwide. The success of the Group's advertising and marketing services
businesses, like that of all other agencies, depends largely on the skill and
creativity of its personnel and their relationships with clients. The Company
believes that its relationship with its employees is good.
COMPETITION
The advertising industry is highly competitive at both an international and
local level. The Saatchi & Saatchi Group's principal competitors in the
advertising industry are the large multinational agencies based in the US, the
UK and France as well as smaller agencies which operate in local markets. The
principal competitive factors include an agency's reputation, its creative
strength and quality of service, its ability to perceive clients' needs
accurately, the commercial effectiveness of its ideas, its geographic coverage
and diversity, its understanding of advertising media and its media buying
power. In addition, an agency's ability to maintain its existing clients and
develop new relationships depends to a significant degree on the interpersonal
skill of the individuals managing client accounts. Normal practice in the
industry is for agency contracts to have a three month termination period.
Management believes that S&S is well positioned to compete in the
advertising industry. The Saatchi & Saatchi name is one of the strongest and
best known in advertising. Furthermore, the Group's advertising agencies have an
excellent creative record, having together been ranked in the top three by
creative awards at the Cannes International Advertising Festival in each of the
last six years. Management also believes that the process of clients
consolidating their business in the advertising market will continue to offer
opportunities for S&S to win new business.
REGULATION
Governments, government agencies and industry self-regulatory bodies in the
various countries in which the Group operates continue to adopt legislation and
regulations which directly or indirectly affect the form, content and scheduling
of advertising and other communications services, or otherwise affect the
activities of such businesses and their clients. Certain of the legislation and
regulations relate to considerations such as truthfulness, substantiation,
interpretation of claims made and comparative advertising. In addition, there is
a tendency toward restrictions or prohibitions relating to advertising for such
products as pharmaceuticals, tobacco and alcohol.
Item 2. Description of Property.
The Saatchi & Saatchi Group leases all its premises except for one office
building located in France which it owns. The principal properties of the
Saatchi & Saatchi Group (all of which are used as offices) are as follows:
<TABLE>
Area Annual Base Next Rent Expiration
Location Sq. Ft. Rental-Millions Review Date of Lease
<S> <C> <C> <C> <C>
375 Hudson Street(<F1>) 421,000 $11.1 February 2003 2013
New York, New York
23 Howland Street 133,000 L1.6 December 1998 2013
together with
80/84 Charlotte St.
London, England
3501 Sepulveda Boulevard 90,100 $3.3 March 1999 2006
Torrance, California
1960 East Grand Avenue 51,400 $1.1 1999 2004
El Segundo, California
30 Boulevard Vital-Bouhot 34,900 N/A N/A N/A
Neuilly-sur-Seine, Paris
________________________________
</TABLE>
(<F1>) In addition, the Company leases 326,000 square feet at an annual rental
of $6.4 million which is sublet to third parties at rates below those paid by
it. The expected shortfall in rental income from these third party subleases has
been fully reserved.
At December 31, 1997 the Saatchi & Saatchi Group owned and leased
properties and fixtures (including furniture and equipment) which had a net book
value of L83.3 million ($136.6 million).
The Company considers its offices and other facilities to be in good
condition. However, it has surplus office space based on the needs of its
current business. At December 31, 1997, L58.7 million ($96.3 million) had been
reserved by the Group for potential costs of surplus space, primarily in New
York City. The 421,000 square feet leased at the 375 Hudson Street location
includes 55,000 square feet sublet to Zenith through 2005 at a current market
rate. See Note 5 in the Notes to the Consolidated Financial Statements.
Item 3. Legal Proceedings.
In March 1992 Saatchi & Saatchi North America, Inc. ("SSNA"), a subsidiary
of the Company, disposed of the assets of its Lifestyle Marketing Group division
to Kaleidescope Holdings, Inc. (the "Purchaser"). In July 1992 International
Sports Marketing Inc. ("ISM") brought an action in the Circuit Court for Wayne
County, Michigan (the "Court") naming a number of defendants, including the
United States Olympic Committee ("USOC"), various individuals employed by or
associated with it and various advertising agencies and sports marketing
companies, including SSNA, alleging that the USOC had improperly withdrawn from
a program with ISM to produce commemorative olympic coins and that the
advertising and sports marketing defendants had tortiously interfered with this
program. In 1995 a default judgment was entered by the Court against a defendant
described as "Lifestyle Marketing Group." The total amount of the default
judgment (including interest to date) is approximately $31 million. In 1996,
after ISM's claim against SSNA had been dismissed on summary judgment, ISM filed
a supplemental action in the Court against, among others, SSNA and the
Purchaser, seeking to enforce against them the default judgment issued against
"Lifestyle Marketing Group." The Purchaser cross claimed against SSNA and others
for indemnity in the event that it was held liable to ISM. On February 11, 1998,
the Court issued an Opinion and Order holding that SSNA is liable to indemnify a
party which the Court referred to as "Lifestyle Marketing Group" or "Lifestyle
Marketing Group Inc." The Company has been advised by its US counsel that, in
its view, the Opinion and Order is based on palpable errors of fact and law.
SSNA is vigorously pursuing its defenses to this action through a rehearing.
Item 4. Control of Registrant.
The Company is not owned or controlled by any government or corporation.
The following table sets forth the number of Ordinary shares held by all
Directors and Executive Officers of the Company as a group as of May 1, 1998.
<TABLE>
<CAPTION>
Title of Class Identity of Person or Group Amount Owned Percent of Class
<S> <C> <C> <C>
Ordinary shares Directors and Executive Officers of 84,436 Less than one
the Company as a group percent
</TABLE>
The Company has also been notified of the following non-beneficial holdings
of ten percent or more of the issued Ordinary share capital of the Company as of
May 1, 1998.
<TABLE>
<CAPTION>
Title of Class Identity of Person or Group Amount Owned Percent of Class
<S> <C> <C> <C>
Ordinary shares Phildrew Nominees Ltd./ 53,177,885 23.96
PDFM Ltd
Harris Associates, L.P. 24,146,578 10.88
Trimark Investment Management, Inc. 22,199,629 10.00
</TABLE>
Item 5. Nature of Trading Market.
Prior to the Demerger, there was no public market for the Ordinary shares
or the ADSs. The Company's Ordinary shares are quoted on the London Stock
Exchange Limited (the "London Stock Exchange"). The table below sets forth, for
the periods indicated, the reported high and low middle market quotations for
the Ordinary shares on the London Stock Exchange based on its daily official
list. Such quotations have been translated in each case into US dollars at the
Noon Buying Rate on each of the respective dates of such quotations.
<TABLE>
<CAPTION>
Pence Per Translated into
Ordinary Share US Dollars
High Low High Low
<S> <C> <C> <C> <C> <C>
1997 Fourth Quarter............... 113 109 1.89 1.82
(beginning December 15, 1997)
1998 First Quarter................ 159 103 2.67 1.70
Second Quarter............... 172 150 2.91 2.50
(through May 1, 1998)
</TABLE>
The Ordinary shares trade in the United States on the New York Stock
Exchange, Inc. (the "NYSE") in the form of American Depositary Shares ("ADSs")
which are evidenced by American Depositary Receipts ("ADRs"). Each ADS
represents five Ordinary shares. The depositary for the ADSs is The Bank of New
York (the "Depositary"). The table below sets forth the high and low sales
prices for the ADSs as reported in the New York Stock Exchange--Composite
Transactions.
US Dollars per
ADS
-------------------------------
High Low
1997 Fourth Quarter........................ 9 7/16 8 3/4
(beginning December 15, 1997)
1998 First Quarter......................... 13 7/8 7 15/16
Second Quarter........................ 14 5/8 12 1/2
(through May 1, 1998)
At May 1, 1998, the Company had 221,926,973 Ordinary shares outstanding
held by approximately 14,800 registered shareholders (including nominees). At
May 1, 1998, approximately 7,500 persons with United States addresses, owned
approximately 6,991,653 of the Company's ADSs (representing approximately 15.8%
of all outstanding Ordinary shares). In addition, as of May 1, 1998,
approximately 16 persons with United States addresses reflected on the Company's
share register owned approximately 400,685 Ordinary shares (representing
approximately 0.2% of all outstanding Ordinary shares). Thus, in total, on the
basis described above, the Company's ADS holders and direct holders of Ordinary
shares with United States addresses owned at May 1, 1998, approximately
35,358,950 Ordinary shares representing approximately 15.9% of all outstanding
Ordinary shares. The Company believes that, at May 1, 1998, an additional
approximately 30% of its outstanding Ordinary shares were beneficially owned by
US persons holding their shares through UK nominees, giving an aggregate US
holding of approximately 45.9%.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.
There are no limitations on the rights of non-resident or foreign persons
by virtue of nationality to hold or vote the Ordinary shares imposed by the laws
of the United Kingdom or by the Articles except for certain restrictions imposed
from time to time by HM Treasury pursuant to legislation such as the United
Nations Act of 1946 and the Emergency Laws Act 1964, against the governments or
residents of certain countries. Article 157 of the Articles, provides, however,
that a member who has no registered address within the United Kingdom and has
not notified the Company in writing of an address within the United Kingdom for
the service of notice, shall not be entitled to receive notice from the Company.
There are currently no governmental laws, decrees or regulations restricting the
import or export of capital or affecting the remittance of dividends or other
payments to non-UK holders of Ordinary shares, except for restrictions of the
type referred to above.
Item 7. Taxation.
The following is a summary of certain UK tax consequences generally
applicable to a beneficial owner of ADRs or Ordinary shares in the Company who
is resident in the United States and not resident in the United Kingdom (a "US
Holder") for the purposes of the current double taxation convention on income
and capital gains between the United States and the United Kingdom (the
"Convention").
Subject to the following paragraph, this summary is based on current tax
law and practice as of the date of this filing and is subject to any changes in
US or UK tax law and practice (including changes in the Convention) occurring
after that date. As the following discussion is only a general summary of
certain UK and US federal income tax law consequences (not including
consequences under any other laws, including other federal, state, local or
foreign tax laws), it does not purport to address all potential tax consequences
for all types of investors and, consequently, its applicability will depend upon
the particular circumstances of individual investors. Certain holders
(including, but not limited to, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax, dealers
in securities or currencies, persons that have a "functional currency" other
than the US dollar, persons that will hold Ordinary shares (or ADSs) as a
position in a "straddle" or as part of a "hedging" or "conversion" transaction
for US federal income tax purposes and persons owning, directly or indirectly,
five percent or more of the voting shares of the Company) may be subject to
special rules not discussed below. Investors should, therefore, consult their
own tax advisers about their tax position in relation to the Company including
the particular tax consequences to them of owning and disposing of Ordinary
shares or ADSs.
The discussion of UK taxation of dividends and refunds of tax credits is
based on current UK tax law as potentially amended by the Finance (No. 2) Bill
1998. The discussion assumes that the Finance (No. 2) Bill 1998 will be enacted
as originally drafted.
United Kingdom Taxation of Dividends and Refunds of Tax Credits
The Company
When paying a dividend in respect of the Ordinary shares, the Company is
generally required to account to the UK Inland Revenue for a payment known as
advance corporation tax ("ACT"). The rate of ACT is 20/80ths of the cash
dividend paid to shareholders, equivalent to 20 percent of the sum of the cash
dividend and the related ACT. The payment of the dividend generally gives rise
to a "tax credit" in the hands of certain shareholders. The rate of the tax
credit is currently 20 percent of the sum of the cash dividend and the tax
credit (the "gross dividend"). However, the Finance (No. 2) Bill 1998 proposes
the abolition of ACT as from April 6, 1999.
The Company has the option to elect to pay a "foreign income dividend" out
of its non-UK source profits or those of its subsidiaries. To the extent that
the non-UK source profits have borne tax in a jurisdiction other than the United
Kingdom in respect of which double taxation relief is afforded in the UK, the
Company may be able to recover from the UK Inland Revenue the ACT it bears on
the foreign income dividend. A foreign income dividend does not carry a tax
credit. The Company's ability to pay foreign income dividends will cease on
April 6, 1999.
US Resident Shareholders
For purposes of the Convention and for the purposes of the United States
Internal Revenue Code of 1986, as amended (the "Code"), the holders of the ADRs
should be treated as the owners of the underlying Ordinary shares represented by
the ADSs that are evidenced by such ADRs.
Tax Credits Under the Convention
Except where the dividend is a foreign income dividend, an individual
Shareholder resident in the United Kingdom for tax purposes is treated for UK
income tax purposes as having taxable income equal to the sum of the dividend
paid to him and the tax credit in respect of his dividend. The tax credit will
be credited against the shareholder's income tax liability giving rise to a
refund in certain circumstances.
From April 6, 1999, the rate of the tax credit will fall to 10 percent of
the gross dividend and the tax credit will no longer give rise to a refund in
the case of shareholders with no tax liability.
Under the Convention, certain US Holders which are US corporations which do
not control, directly or indirectly, alone or together with associated
corporations, at least 10 percent of the voting shares of the Company or who are
US resident individuals will generally be entitled to claim from the Inland
Revenue payment of the tax credit (a "Tax Credit Refund") to which a UK resident
individual would be entitled, subject to a withholding tax equal to 15 percent
of the aggregate value of the dividend and the tax credit. Thus, at present
rates, the payment to a qualifying US Holder in this category of a dividend of
L80 would result in a Tax Credit Refund of L5 (i.e., L20 tax credit less a
deduction of L15 in respect of the withholding tax). From April 6, 1999, when
the rate of the tax credit falls to 10 percent, the payment of a dividend to a
qualifying US Holder in this category will result in a Tax Credit Refund of Lnil
(the withholding fully eliminating the tax credit).
A modified rule for Tax Credit Refunds, not addressed in this summary,
applies to US corporations controlling, directly or indirectly, alone or
together with associated corporations at least 10 percent of the voting shares
of the Company.
The rules entitling certain US Holders to Tax Credit Refunds do not apply:
(i) with respect to holdings of ADRs or Ordinary shares that are
effectively connected either with a permanent establishment in the
United Kingdom through which the US Holder carries on business
activities or, in the case of an individual, with a fixed base in the
United Kingdom from which an individual US Holder performs independent
personal services;
(ii) to certain categories of US Holder (including certain investment or
holding companies); and
(iii) wherethe dividend is a foreign income dividend.
If the US Holder of an ADR or an Ordinary share is a partnership, trust or
estate, any Tax Credit Refund as described above will be available only to the
extent that the income derived by the US Holder is taxable in the United States
as the income of a US resident, whether in the hands of the US Holder or of its
partners or beneficiaries, as the case may be.
The rules described above are subject to further special rules (set out in
the Convention) affecting the entitlement of certain US Holders to a Tax Credit
Refund. US Holders should consult their own tax advisers with respect to the
detailed application of the Convention to their own particular cases.
The Company and the Depositary have established arrangements with the
Inland Revenue whereby certain U.S. Holders of an ADR can obtain payment from
the Depositary of the Tax Credit Refund at the same time as and together with
the payment of the associated dividend. Such arrangements are implemented at the
discretion of the Inland Revenue and may be amended or revoked. U.S. Holders of
Ordinary Shares who do not satisfy the requirements to benefit from the
arrangements described above should, in order to obtain a Tax Credit Refund,
file in the manner and at the time described in Revenue Procedure 80-18, 1980-1
CB 623, and Revenue Procedure 81-58, 1981-2 CB 678. U.S. Holders should consult
their own tax adviser on procedures for obtaining Tax Credit Refunds.
Unitary Tax States
Under Section 812 of the Income and Corporation Taxes Act 1988, the UK
Treasury has power to deny the payment of Tax Credit Refunds under the United
Kingdom's income tax conventions to certain corporations if such a corporation
or an associated company (as described in Section 812) has a qualifying presence
in a state which operates a unitary system of corporate taxation. These
provisions come into force only if the UK Treasury so determines by statutory
instrument. As of the date of this filing, no such determination has been made.
The UK authorities have indicated that any action could be implemented on a
retrospective basis, thereby applying to dividends paid before the date of
implementation.
United Kingdom Taxation of Capital Gains
Holders of ADRs or Ordinary shares who are US citizens or residents of the
United States for US federal income tax purposes, and who are not resident or
ordinarily resident in the United Kingdom for UK income tax purposes, will not
normally be liable to UK taxation of capital gains realized on the disposal or
deemed disposal of their ADRs or Ordinary shares, unless the ADRs or Ordinary
shares are held in connection with a trade, profession or vocation carried on in
the United Kingdom through a branch or agency or, in certain circumstances,
their non-UK residence is only temporary. However, US citizens and residents
holding ADRs or Ordinary shares may be liable for taxation of such gains under
the laws of the United States.
In the case of an individual US Holder, any such capital gain or loss will
be (i) mid-term capital gain or loss if the US Holder held the Ordinary shares
(or ADSs held by or on behalf of the Depositary in the form of ADRs) for more
than one year but not more than 18 months and (ii) long term capital gain or
loss if the US Holder held the Ordinary shares (or ADSs held by or on behalf of
the Depositary in the form of ADRs) for more than 18 months. Any net mid-term
capital gain recognized by an Individual US Holder will be taxed at a maximum
marginal US federal income tax rate that is less than the rate applicable to
ordinary income, while any net long term capital gain recognized by an
individual US Holder will be subject to a further reduced maximum marginal rate.
US Holders who are neither resident nor ordinarily resident in the UK will
not normally be liable to UK tax on capital gains accruing to them on the
disposal or deemed disposal of Ordinary shares (or ADS), except where the
Ordinary shares (or ADS) are held in connection with a trade, profession or
vocation carried on in the UK through a branch or agency.
Subject to certain limitations, a US Holder that is liable, in the
exceptional case, for both UK tax (i.e., capital gains tax or UK corporation tax
on chargeable gains) and US tax on a gain on the disposal of Ordinary shares (or
ADSs held by or on behalf of the Depositary in the form of ADRs) generally will
be entitled to credit the UK tax against its US federal income tax liability in
respect of such gain, subject to the applicable limitations.
United Kingdom Inheritance and Gift Tax
UK Inheritance Tax ("IHT") is a tax charged broadly, on the value of an
individual's estate at his death, upon certain transfers of value (e.g., gifts)
made by individuals during their lifetime and on certain transfers of value
involving trusts and closely held companies. A transfer of value made during an
individual's lifetime may lead to an immediate liability to IHT (e.g., a
transfer into discretionary trust), or it may be potentially exempt (e.g., an
outright gift to another individual), in which case it will only become
chargeable if the donor dies within 7 years. The transfer of value which is
deemed to occur on death is an immediately chargeable transfer of value. Special
rules apply to assets held in trusts, gifts out of which the donor reserves a
benefit and gifts to or from closely held companies, which are not discussed
herein.
Many chargeable transfers of value do not in fact result in a charge to tax
because IHT is charged at a "zero-rate" on transfers of value up to L223,000
(for chargeable transfers made on or after April 6, 1998). In simple terms, the
value of all immediately chargeable transfers made within the seven year period
before the transfer under consideration are aggregated with the value of that
transfer in determining whether the limit of the L223,000 "zero-rate band" has
been reached. For transfers of value which (in accordance with the aggregation
principle) go beyond the limit of the zero rate band, the rates of tax are 20
percent on lifetime chargeable transfers and 40 percent on transfers on, or
within the period of three years before, death (with modified rules applying to
transfers within the period from seven to three years before death).
IHT is chargeable upon the worldwide assets of individuals who are
domiciled or deemed to be domiciled in the United Kingdom, and upon the UK
situate assets of individuals domiciled elsewhere.
Accordingly, an individual who is domiciled in the United States and is not
deemed to be domiciled in the United Kingdom is only within the scope of IHT to
the extent of his UK situate assets. These will include Ordinary shares in the
Company which are registered in the United Kingdom. It is understood to be the
Inland Revenue's normal practice to treat ADRs representing shares in UK
companies as assets situated in the United Kingdom for IHT purposes.
The rules outlined above will, in many cases, be modified by the US-UK
Convention on Inheritance and Gift Taxes. In general, an individual who is
domiciled in the US for the purposes of that convention and who is not a UK
national will not be subject to IHT in relation to Ordinary shares in a UK
company or ADRs representing Ordinary shares in a UK company on death or on a
lifetime gift, provided that any gift or estate tax due in the USA is paid and
that the Ordinary shares or ADRs are not part of the business property of a
permanent establishment in the UK or part of the assets of a fixed UK base used
by the holder for the performance of services.
In the exceptional case where the Ordinary shares or ADRs are subject both
to IHT and to US federal gift or estate tax, the gift tax convention provides a
credits system designed to avoid double taxation.
United Kingdom Stamp Duty and Stamp Duty Reserve Tax
Transfers of Ordinary shares for a consideration
UK stamp duty is payable ad valorem on certain documents or instruments
conveying or transferring shares or securities (including Ordinary shares in the
Company) on sale and UK stamp duty reserve tax ("SDRT") is imposed on agreements
for the transfer of certain shares and securities (including Ordinary shares in
the Company) for a consideration in money or money's worth. In the case of stamp
duty, the charge is normally at the rate of L0.50 per L100 (or part of L100) of
the amount or value of the consideration given for the transfer and, in the case
of SDRT, 0.5 percent of such amount or value. Stamp duty and SDRT are generally
payable by the purchaser but SDRT can in certain circumstances be collected from
persons other than the purchaser (e.g., certain brokers and market makers). The
charge to SDRT is normally incurred on the day ("the relevant day") on which the
agreement is made or, if later, becomes unconditional and it normally becomes
payable on the seventh day of the month following that in which it is incurred.
However, if the SDRT is paid and at any time on or within six years after the
relevant day the agreement is completed by a duly stamped transfer, a claim can
be made within that six year period for repayment of the SDRT and, to the extent
that it has not been paid, the charge will be canceled.
Consequently, transfers of, or agreements to transfer, Ordinary shares in
the Company will normally be subject to ad valorem stamp duty or SDRT.
The electronic transfer system known as CREST permits shares to be held in
uncertificated form and to be transferred without a written instrument. The
absence of a written instrument of transfer results in such paperless transfers
generally being liable to SDRT rather than stamp duty. Special rules apply to
the collection of SDRT on paperless transfers settled within CREST.
Transfers of Ordinary shares into ADS form
UK stamp duty or SDRT will normally be payable on any transfer of Ordinary
shares to the Depositary or its nominee, or where the Depositary issues an ADR
in respect of Ordinary shares hitherto held for another purpose by it or its
nominee. The charge is at the rate of L1.50 per L100 (or part of L100) or, in
the case of SDRT, 1.5 percent:
(i) in the case of a transfer of Ordinary shares for consideration, of the
amount or value of the consideration for the transfer, and
(ii) in the case of a transfer of Ordinary shares other than for consideration
and in the case of the issue of an ADR in respect of Ordinary shares
hitherto held for another purpose, of the value of the Ordinary shares.
Transfers of Ordinary shares within the depositary arrangements
No UK stamp duty will be payable on an instrument transferring an ADR or on
a written agreement to transfer an ADR, provided that the instrument of transfer
or the agreement to transfer is executed and remains at all times outside the
UK. Where these conditions are not met, the transfer of, or agreement to
transfer, an ADR could, depending on the circumstances, give rise to a charge to
ad valorem stamp duty.
No SDRT will be payable in respect of an agreement to transfer an ADR
(whether made in or outside the UK).
Transfers of Ordinary shares out of ADS form
Where no sale is involved, a transfer of Ordinary shares by the Depositary
or its nominee to the holder of an ADR upon cancellation of the ADR is not
subject to any ad valorem stamp duty or SDRT, though it will generally be
subject to a fixed UK stamp duty of 50p per instrument of transfer. By contrast,
a transfer of, or agreement to transfer, Ordinary shares underlying an ADR by
the Depositary or its nominee at the direction of the ADR seller directly to a
purchaser for a consideration may give rise to a liability to ad valorem stamp
duty or SDRT generally calculated by reference to the amount or value of the
consideration for the transfer.
Gifts of Ordinary shares
A transfer of Ordinary shares for no consideration whatsoever is not
chargeable to ad valorem stamp duty or SDRT, nor would it normally give rise to
the fixed stamp duty of 50p per instrument of transfer.
Item 8. Selected Financial Data.<F3>
The selected financial data set forth below is derived from the Financial
Statements and should be read in conjunction with, and is qualified in its
entirety by reference to, such Financial Statements. The Financial Statements,
which have been audited by KPMG Audit Plc, are included elsewhere herein. The
selected financial data at and for the year ended December 31, 1993 are
unaudited, but have been derived from the audited financial statements of
Cordiant and, in the opinion of management, have been prepared on a basis
consistent with that for subsequent years.
Significant changes were made to the Company's capital structure as a
result of the Demerger. See the Unaudited Pro Forma Financial Information
included elsewhere in this Report. The selected financial data set forth below
reflect the capital structure in place prior to the Demerger, which was
appropriate historically to Cordiant. The capital position, finance charges and
tax liabilities included in such data do not reflect the Company's capital
position, finance charges and tax liabilities in respect of any of the periods
covered had the Company been an independently financed and managed group during
such periods, or any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
_________________________
<F3> The Financial Statements of the Company are prepared in accordance with UK
Generally Accepted Accounting Principles ("UK GAAP") which differ in certain
significant respects from US Generally Accepted Accounting Principles ("US
GAAP"). Reconciliation to US GAAP is set forth in Note 38 to the Financial
Statements. The per share data has been translated into dollars per ADS where
appropriate.
<TABLE>
<CAPTION>
Year ended December 31,
1997 1997 1996 1995 1994
US$(<F1>) L L L L
<S> <C> <C> <C> <C> <C>
(In millions, except per share data)
CONSOLIDATED INCOME STATEMENT DATA:
Amounts in Conformity with UK GAAP
Commission and fee income
Ongoing businesses 617.8 376.7 373.2 370.4 373.5
Sold and closed businesses 2.5 1.5 2.1 25.6 52.3
Total 620.3 378.2 375.3 396.0 425.8
Profit (loss) before tax, and minority interests(<F2>) 1,306.1 796.4 18.5 32.7 4.9
Net profit (loss) 1,291.7 787.6 13.6 (41.4) -
Net profit (loss) per Ordinary share 5.8 354.9p 6.1p 28.3p -
(Basic and fully diluted)
Approximate Amounts in Conformity with US
GAAP
Net profit (loss) 13.9 8.5 (5.2) (46.0) (17.0)
Net profit (loss) per Ordinary share(<F3>) 0.1 3.8p (2.3)p (39.6)p (15.3)p
Net profit (loss) per ADS 0.5 19.0p (11.5)p (157.3)p (59.7)p
Dividends including tax credit
Per Ordinary share - - -
Per ADS - - -
December 31,
1997 1997 1996 1995 1994
US$ L L L L
(In millions)
CONSOLIDATED BALANCE SHEET DATA:
Amounts in Conformity with UK GAAP
Working capital deficiency (40.8) (24.9) (1,061.2) (1,031.3) (917.7)
Total assets 704.4 429.5 712.3 741.0 734.6
Long term liabilities, including minority interests 329.3 200.8 185.0 233.8 358.2
Shareholders' deficiency (225.2) (137.3) (1,036.7) (1,050.2) (1,047.7)
Approximate Amounts in Conformity with
US GAAP
Shareholders' deficiency (34.8) (21.4) (1,028.8) (1,052.3) (1,016.4)
_______________________________________
<FN>
(<F1>) These figures have been translated into US dollars at the Noon Buying
Rate on December 31, 1997 (L1.00 - $1.64).
(<F2>) The profit (loss) before taxes and minority interests reflects: (a)
exceptional credit of L764.5 million in 1997, exceptional costs of L16.3
million, L5.8 million and Lnil that were incurred in 1996, 1995 and 1994
respectively,; (b) a profit on disposal of operations of L17.7 million in
1996 and L1.3 million in 1994; and (c) a loss on disposal of operations of
L24.9 million in 1995 (details of both (b) and (c) are set out in Note 5 to
the Financial Statements).
(<F3>) Adjusted for the bonus element of the 1995 rights issue where
appropriate.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1993
L
(unaudited)
(In millions, except per share data)
<S> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Amounts in Conformity with UK GAAP
Commission and fee income
Continuing operations 400.2
Discontinued operations 77.0
Total 477.2
Loss before tax, and minority interests (8.2)
Net loss (15.1)
Net loss per Ordinary share (11.9)p
Approximate Amounts in Conformity with
US GAAP
Loss from continuing operations (37.1)
Profit from discontinued operations 1.4
Net loss (35.7)
Net profit (loss) per Ordinary share:(<F4>)
Continuing operations (37.4)p
Discontinued operations 1.4p
Net loss per share (36.0)p
Net profit (loss) per ADS:(<F5>)
Continuing operations (187.0)
Discontinued operations 6.8
Net loss per ADS (180.2)
Dividends including tax credit
Per Ordinary share -
Per ADS -
</TABLE>
_______________________________________
(<F4>) Adjusted for the bonus element of the 1993 and 1995 rights issues where
appropriate.
(<F5>) The profit (loss) before taxes and minority interests reflects
exceptional costs of L14.8 million that were incurred in 1993.
December 31, 1993
L
(unaudited)
(In millions)
CONSOLIDATED BALANCE SHEET DATA:
Amounts in Conformity with UK GAAP
Working capital deficiency (903.4)
Total assets 707.7
Long term liabilities, including minority interests 353.3
Shareholders' deficiency (1,029.6)
Approximate Amounts in Conformity with
US GAAP
Shareholders' deficiency (989.6)
DIVIDENDS
The only dividends to parties outside of Cordiant paid by the Group during
the last five years have been to minority shareholders of subsidiaries.
The Company intends to pay annual dividends, if declared, in the July
following each year end. The Company's Board of Directors has recommended the
payment of a net dividend of 1.2 pence per Ordinary share in respect of the year
ended December 31, 1997. If approved by the Company's shareholders, such
dividend will be paid in July 1998.
The Directors make dividend determinations taking into account the Saatchi
& Saatchi Group's results of operations, investment requirements, cash flow
after repayment of debt and legal and contractual restrictions, if any.
Consideration is given to the declaration of foreign income dividends, if
appropriate.
EXCHANGE RATES
Fluctuations in the exchange rate between the pound sterling and the US
dollar will affect the dollar equivalent of the pound sterling prices of the
Ordinary shares on the London Stock Exchange and as a result, are likely to
affect the market price of the ADSs in the United States. Such fluctuations will
also affect the dollar amounts received by holders of ADSs on conversion by the
Depositary of cash dividends paid in pounds sterling on the Ordinary shares
represented by the ADSs.
The following table sets forth, for the periods indicated, the average,
high, low and period end Noon Buying Rates for pounds sterling expressed in US
dollars per L1.
Average* High Low Period End
1993 (December 31) ........... 1.50 1.59 1.42 1.48
1994 (December 31) ........... 1.53 1.64 1.46 1.56
1995 (December 31) ........... 1.58 1.64 1.53 1.55
1996 (December 31)............ 1.57 1.71 1.49 1.71
1997 (December 31)............ 1.64 1.70 1.58 1.64
_______________________________________
* The average of the exchange rates on the last day of each month during the
period.
The Noon Buying Rate for pounds sterling on May 1, 1998 was L1.00 = $1.67.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma financial information for the Group has been included
for illustrative purposes only. Owing to the significant changes which were made
to the Group's structure and financing arrangements to effect the Demerger, the
trading result and actual interest and taxation charges incurred by the Group
prior to the Demerger are not representative of the Group's experience following
the Demerger.
Pro forma information is presented to reflect the present structure and
financing arrangements of the Group, prepared on the basis set out below. The
pro forma financial information is unaudited and it does not necessarily reflect
the results of operations or financial position of the Company that would have
been achieved as of the dates indicated, nor is it necessarily indicative of the
future results of operations or future financial position of the Company. The
pro forma financial information has been prepared on the basis of UK GAAP.
Adjustments were made to reflect changes to the structure of the Group and
its financing arrangements, new trading arrangements with and revised financing
of Zenith and the cost of the Demerger, together with the related interest and
tax implications. In all cases, adjustments have been made as if the
arrangements in relation to the Demerger were in place from January 1, 1997.
Adjustments made were to:
o reduce trading profit to reflect the new trading terms for the
purchase of media services from Zenith, with an offsetting increase in
share of profits of the joint venture;
o eliminate inter-Group interest payable to CCG and Zenith and adjust
external interest to reflect the revised financing of the Company and
Zenith; and
o adjust the tax charge to reflect the above adjustments and the current
structure of the Group.
Summary information reflecting the adjustments made is set out below.
<TABLE>
<CAPTION>
Statutory
1997 audited Adjustments Pro forma
Lmillion Lmillion Lmillion
- ------------------------------------------ ------------------- ----------------- --------------
<S> <C> <C> <C>
Revenue 378.2 (3.4) 374.8
Operating profit 29.7 (3.4) 26.3
Net interest payable and similar items (3.0) (3.7) (6.7)
Profit before tax 796.4 (768.6) 27.8
Tax (8.2) - (8.2)
Profit for the period 788.2 (768.6) 19.6
- ------------------------------------------ ------------------- ----------------- --------------
SHARE OF OPERATING PROFIT IN JOINT VENTURE 1997
Lmillion
- ------------------------------------------------------------------- -----------------
Share of Zenith's operating profit, historical basis 0.9
Effect of revising trading terms with Zenith 3.4
Pro forma basis 4.3
- ------------------------------------------------------------------- -----------------
</TABLE>
A subsidiary of the Company holds 50% of the ordinary share capital of
Zenith. The remaining 50% is held by CCG.
A total of 75% of the distributable profits of Zenith will be distributed
to its shareholders and divided between them in part by reference to the
proportions in which Zenith receives revenue from clients of each shareholder.
The remainder will be retained in Zenith.
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER ORDINARY SHARE 1997
Per
Lmillion share
<S> <C> <C>
Net Income 19.0 8.6p
Profit on disposal of operations (4.3) (2.0)p
Earnings (loss) per share net of non-operating 14.7 6.6p
exceptional items
Exceptional operating items net of tax credit of Lnil -- --
Adjusted net income 14.7 6.6p
</TABLE>
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
INTRODUCTION
The Saatchi & Saatchi Group's revenue is generated from commissions and
fees paid by clients. In each of the last three years between 35 percent and 45
percent of revenue was commission based and varied with the level of media and
production expenditure. The remainder was derived from fees which were project
or time based, as agreed with the client. With certain clients, an additional
element of remuneration can be earned by meeting certain performance criteria
set by the client. S&S generally has ongoing relationships with its clients
which last a number of years. In contrast, the majority of revenue from clients
of Siegel & Gale, Rowland Worldwide and The Facilities Group was based on
project specific assignments although they often have a relationship with the
same client over many years.
Revenue in any year is dependent primarily on the level of expenditure by
clients on existing assignments and to a lesser degree on business gains and
losses. When business is won or lost there is usually a delay of some months
before revenue is affected. This is primarily because it is usual in the
advertising industry for contracts to have a three month termination clause. In
the case of new commission based work the delay is longer as the agency is not
paid until advertisements have appeared in the media.
The profitability of new business varies depending on the terms of
remuneration negotiated and on the nature of the assignment. In particular,
profitability depends on whether revenue is generated by increased spending on
existing assignments, new or existing clients or product categories and on the
number of offices involved in the assignment.
The majority of the Saatchi & Saatchi Group's net operating costs are staff
related which in each of the past three years equated to approximately 55
percent of revenue. When revenue growth is slow or declining in any particular
operating unit, the Saatchi & Saatchi Group is able over time to reduce
headcount, although this can result in severance costs. Conversely, staffing can
be increased to handle sustained periods of increased business activity. The
remainder of net operating costs relate to leased properties, depreciation and
other administrative costs.
S&S has offices and affiliated agencies in over 90 countries, and its
revenues and costs are denominated in a number of currencies. Consequently,
exchange rate movements between pounds sterling and several other currencies,
have an impact on the operating result. The Group's costs are generally
denominated in the same currency as the associated revenue thereby mitigating
the impact of exchange rate movements on operating profit. At the net profit
level, the impact of exchange rate movements is also affected by the currency in
which debt is denominated and the countries in which the Group's tax charges
arise. The Group enters into foreign exchange forward contracts to hedge
existing and identifiable future foreign currency commitments. The effect of
such contracts is not material to the Company's financial condition or results
of operations.
In April 1995, the Minneapolis offices of CME were sold. In the same month
Saatchi & Saatchi Badillo in Puerto Rico and Saatchi & Saatchi Mexico were sold
to Nazca S&S, which became an associate of S&S. In September 1995, KDW, a direct
marketing business, was sold. In July 1997, Saatchi & Saatchi Russia entered
into a new joint venture relationship in Russia to serve clients in that market.
As part of the Demerger, the Group entered into a new trading relationship
with Zenith, the commercial terms of which differ from the historical terms in
that such arrangements reflect arm's-length dealing between Zenith and the
Group. Further details of the impact of this revised relationship are set forth
in the Unaudited Pro Forma Financial Information included elsewhere in this
Report.
The Financial Statements have been prepared in conformity with UK GAAP
which differs in certain significant respects from US GAAP. See Note 38 in the
Notes to the Financial Statements for an explanation of these differences.
INDUSTRY BACKGROUND<F4>
Zenith estimates that global advertising expenditure in the major media
(press, television, radio, cinema and outdoor) totaled $298 billion in 1997. The
developed economies of North America, Europe and Asia Pacific again accounted
for the vast majority of this expenditure, estimated by Zenith to have been 90
percent in 1997.
Zenith estimates that the growth in advertising expenditure in the
developed economies of North America, Europe and Asia Pacific was approximately
6.3 percent in 1997. Zenith forecasts that the rate of growth in 1998 will be
approximately 5.7 percent.
__________________________
<F4> Expenditure information in this section is based solely on estimates
published by Zenith in its Advertising Expenditure Forecasts, December 1997.
RESULTS OF OPERATIONS
For the purposes of this section, references to "ongoing" and "underlying"
performance exclude exceptional items and disposed businesses. In "underlying"
performance, the effect of exchange rate movements is also eliminated.
The 1996 revenues and operating and administration expenses figures have
been restated to reflect as a cost of sales certain costs charged by Zenith that
were previously included in operating and administration expenses.
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
Revenue from Continuing Operations
Revenue increased by 0.8% to L378.2 million in 1997 from L375.3 million in
1996. Ongoing revenue was up 0.9% to L376.7 million from L373.2 million in 1996,
and on an underlying basis revenues increased by 8.7%. This increase reflected
both an improved level of business from existing clients and a number of new
business wins, most notably Delta Airlines at the start of the year.
In the UK, revenue increased by 6.6% to L61.4 million in 1997 from L57.6
million in 1996 primarily reflecting growth in advertising expenditures by
existing clients.
In North America, revenue increased by 4.3% to L180.5 million in 1997 from
L173.1 million in 1996. Underlying growth was 9.7%. This represents a marked
improvement in performance compared to prior years and, despite the loss of Bell
Atlantic, reflects new business wins and additional business from existing
clients.
Revenue in the Rest of Europe, Africa and the Middle East declined 7.4% to
L82.6 million in 1997 from L89.2 million in 1996, but reflected an underlying
growth of 8.7% outperforming the estimated market growth of 5.3% in this region.
Increases on an underlying basis were achieved in Spain, up by 45.8%, France, up
by 20.0%, and Germany, up by 14.7%. Additionally, on an underlying basis,
Eastern Europe grew by 22.0% while Italy and the smaller markets were flat.
In Asia Pacific, revenue decreased slightly to L52.2 million in 1997 from
L53.3 million in 1996, but had underlying growth of 7.9%. Underlying revenues in
China increased by 56.5% while the rest of Asia was flat. Australia's underlying
revenue grew by 34.3%, but New Zealand declined by 17.5%, primarily due to
difficult market conditions.
Trading Profits from Continuing Operations before Exceptional Items
Trading profit increased by 27.5% to L29.7 million in 1997 from L23.3
million in 1996. Ongoing trading profit increased 20.9% to L30.6 million in 1997
from L25.3 million in 1996 and was up by 34.2% on an underlying basis. This was
due to the increased revenues and the impact of cost controls. The trading
results do not reflect the revised commercial terms with Zenith which the Group
has entered into as part of the Demerger. The impact of these terms is reflected
in the Unaudited Pro Forma Financial Information included elsewhere in this
Report.
In the UK, trading profit increased by 1.9% to L5.5 million in 1997 from
L5.4 million in 1996.
In North America, trading profit increased by 30.0% to L20.8 million in
1997 from L16.0 million in 1996. On an underlying basis, profit increased by
37.7% due to revenue growth plus the impact of an increased focus on the
profitability of the business to improve margins commenced in 1996.
In the Rest of Europe, Africa and the Middle East, trading profit increased
by 47.2% to L5.3 million in 1997 from L3.6 million in 1996 reflecting underlying
revenue growth and cost control. The underlying increase was in excess of 100%.
In Asia Pacific, there was a trading loss of L1.0 million in 1997 compared
with a trading profit in 1996 of L0.3 million. The performance was depressed
primarily by the revenue erosion in New Zealand.
Trading Margins before Exceptional Items
In 1997, the Group's trading margins improved to 7.9% from 6.2% in 1996.
The underlying margin was 8.1% compared with 6.8% in 1996. The improved revenue
generation of the Group enhanced margins. The Group also benefited from the
increased focus on profitability within the S&S network. On a geographical
basis, underlying trading margins from ongoing businesses were as follows:
1997 1996
------------ --------------
North America 11.5% 9.2%
UK 9.0% 9.4%
Rest of Europe, Africa and the Middle East 6.4% 4.0%
Asia Pacific (1.9)% 0.6%
Total Group 8.1% 6.8%
Year Ended December 31, 1996 vs. Year Ended December 31, 1995
Revenue from Continuing Operations
Revenue decreased by 5.2 percent to L375.3 million in 1996 from L396.0
million in 1995, primarily due to the sale and closure of businesses which
accounted for a movement of L23.5 million of revenue. This primarily reflected
the sale of the Minneapolis offices of CME in April 1995 and the sale of KDW in
September 1995. Ongoing revenue was static at L373.2 million in 1996 compared to
L370.4 million in 1995. Revenue was also flat on an underlying basis. Revenue
gains during the year were offset by major account losses in 1995.
In the UK, ongoing revenue decreased by 6.3 percent to L57.6 million from
L61.5 million in 1995. This was principally due to the decline in revenue
suffered by the S&S network resulting from the loss of a number of high profile
accounts, such as British Airways and Dixons following the departure of certain
senior executives. This only started to impact revenue from the second half of
1995.
In North America, ongoing revenue increased to L173.1 million from L162.3
million in 1995, which represented an increase of 6.7 percent, and an underlying
increase of 5.3 percent. This reflected strong growth at Siegel & Gale and in
healthcare advertising together with a modest increase at S&S.
The Rest of Europe, Africa and the Middle East reported a decrease in
ongoing revenue of 6.1 percent to L89.2 million from L95.0 million in 1995. The
underlying decrease was 4.8 percent and reflected client losses at the start of
1996 due to client realignments and a change in marketing strategy by a major
client. This particularly affected Germany which suffered an underlying revenue
decrease of 23.6 percent. Additionally, Italy and France experienced decreases
of 3.9 percent and 12.5 percent, respectively. There was a strong underlying
revenue increase in Eastern Europe of 22.7 percent due to a specific project
completed by Rowland Worldwide.
In Asia Pacific ongoing revenue increased by 3.3 percent to L53.3 million
from L51.6 million in 1995 despite a poor performance by Rowland Worldwide due
to the departure of a key executive in its Hong Kong office and the closure of
the Christchurch office of S&S New Zealand. China (including Hong Kong) was
static and Australia increased by 14.2 percent due to higher spending by
existing clients. The underlying increase in the region was 1.7 percent.
Trading Profits from Continuing Operations before Exceptional Items
Trading profits decreased by 5.7 percent to L23.3 million in 1996 from
L24.7 million in 1995. This decrease was principally due to there being no
contribution in 1996 from CME and KDW, which together with the loss incurred by
S&S in Russia, resulted in a reduction in trading profit of L2 million in 1996.
Ongoing trading profit increased by 13.5 percent to L25.3 million in 1996 from
L22.3 million in 1995 and increased by a similar amount on an underlying basis.
The trading results do not reflect the revised commercial terms with Zenith
which the Group entered into as part of the Demerger. The impact of these terms,
and other pro forma adjustments, is reflected in the Unaudited Pro Forma
Financial Information included elsewhere in this Report.
In the UK, ongoing trading profit increased by 68.8 percent to L5.4 million
in 1996 from L3.2 million in 1995. S&S in London recovered strongly due to
significant cost reductions following the client losses in 1995. Rowland
Worldwide and The Facilities Group also contributed to this increase due to a
combination of revenue performance and improved cost controls.
In North America, ongoing trading profit increased by 42.9 percent to L16.0
million in 1996 from L11.2 million in 1995. On an underlying basis trading
profit increased at a similar rate at 40.4 percent. This was due to a strong
revenue growth from healthcare advertising coupled with cost reduction at S&S,
together with improved results by Rowland Worldwide. Siegel & Gale's increased
revenues failed to convert into profits due to increased costs associated with
an office move in New York City.
In the Rest of Europe, Africa and the Middle East, ongoing trading profit
decreased by 43.8 percent to L3.6 million in 1996 from L6.4 million in 1995. On
an underlying basis, the decrease was 42.9 percent. This reflected declines in
revenue in Germany and France which chose not to implement staff reductions for
client reasons. In Italy profits increased despite a decline in revenue due to
management actions taken in 1995.
In Asia Pacific, ongoing trading profit declined by 80.0 percent to L0.3
million in 1996 from L1.5 million in 1995 with a similar decrease on an
underlying basis. The performance was depressed by increased costs, particularly
due to expansion in China together with the impact on profit of the loss of a
key executive from the Rowland Worldwide office in Hong Kong.
Trading Margins before Exceptional Items
The trading margins before exceptional items were 6.2 percent in 1996, the
same as in 1995. The trading margin does not reflect the revised commercial
terms with Zenith which the Group has entered into as part of the Demerger. The
impact of these terms, and other pro forma adjustments, is reflected in the
Unaudited Pro Forma Financial Information included elsewhere in this Report.
On a geographic basis, trading margins from ongoing businesses were as
follows:
1996 1995
UK 9.4% 5.2%
North America 9.2% 6.9%
Rest of Europe, Africa and the Middle East 4.0% 6.7%
Asia Pacific 0.6% 2.9%
Total Worldwide 6.8% 6.0%
Joint Venture
The share of operating profit in joint venture relates entirely to the
Group's investment in Zenith. It does not reflect the revised commercial terms
with Zenith which the Group entered into as part of the Demerger. The share of
operating profit of Zenith amounted to L0.9 million in 1997 compared with a
profit of L0.1 million in 1996 and a loss of L0.2 million 1995. See "Selected
Financial Data--Unaudited Pro Forma Financial Information" included elsewhere in
this Report.
Exceptional Items And Disposals
To implement the Demerger, intergroup indebtedness between the Saatchi &
Saatchi Group and each of CCG and Zenith had to be eliminated and cross holding
investments transferred which resulted in a net exceptional gain of L764.5
million in 1997. During the year ended December 31, 1996 there were exceptional
operating expenses of L16.3 million, all of which arose in the first half. Of
this, L8.1 million related to the termination of the defined benefits pension
plan in the US. The balance of L8.2 million related to providing for excess
leasehold property arising from a review of space utilization in New York.
In 1995 exceptional operating expenses totalled L5.8 million. This included
L2.0 million of litigation and associated costs allocated to the Saatchi &
Saatchi Group which related to the departure of the former Chairman of Cordiant
and other senior executives. An additional L3.8 million was incurred relating to
exceptional severance and reorganization costs connected to the high profile
account losses in that year.
In the year ended December 31, 1997 there was a gain of L4.3 million on
disposal of businesses. The profit on disposals of continuing operations for the
year ended December 31, 1996 was L17.7 million, of which L17.5 million arose in
the first half. Of this amount, L16.5 million related to the sale of the
remaining interest in KDW and the balance of L1.2 million reflected the receipt
of additional proceeds from disposals in prior periods.
The loss on disposal of continuing operations in 1995 was L28.3 million.
This related to the sale of CME and KDW, which included a non-cash write-off of
L45.1 million of acquired goodwill.
In 1995 the profit on disposal of discontinued operations was L3.4 million,
which arose from payments received in connection with consultancy operations
sold in prior years.
Net Interest Payable and Similar Charges
Net interest payable and similar charges were L14.5 million in the year
ended December 31, 1997. This amounted to L15.2 million in the year ended
December 31, 1996 and L26.6 million in 1995 (including L3.9 million of
exceptional bank fees in 1995 arising from the renegotiation of bank
facilities). The net interest expense comprised the actual interest paid by the
Saatchi & Saatchi Group on external borrowings and on interest bearing loans
that existed between the Saatchi & Saatchi Group and CCG, reflecting the capital
structure prior to the Demerger. These borrowings and the corresponding interest
charges do not reflect the Group's capital position had it been an independently
financed and managed group during the period. See "Selected Financial
Data--Unaudited Pro Forma Financial Information" included elsewhere in this
Report.
Taxation
The tax charge attributable to the Saatchi & Saatchi Group is based on the
aggregate of the tax charges of the companies which comprise the Saatchi &
Saatchi Group. The charge amounted to L8.2 million in the year ended December
31, 1997 compared to L4.5 million in the year ended December 31, 1996 and L6.9
million in 1995. These tax charges are not representative of the tax charges
that would have been incurred had the Group been separately constituted
throughout the periods. See "Selected Financial Data--Unaudited Pro Forma
Financial Information" included elsewhere in this Report.
Equity Minority Interests
Equity minority interests were L0.6 million in the year ended December 31,
1997 compared to L0.4 million in the year ended December 31, 1996 and L1.8
million in 1995. The reduction in 1996 compared to 1995 was due to the
acquisition of the 47.4 percent minority interest in France which was partly
offset by a 49 percent equity minority interest in South Africa acquired in the
second half of 1996.
Net Income (Loss)
In the year ended December 31, 1997, net income was L787.6 million,
compared with a profit of L13.6 million in 1996 and a loss of L41.4 million in
1995. No dividends have been paid by the Saatchi & Saatchi Group, other than to
members of the Cordiant Group, in respect of all the years presented, apart from
amounts to minority shareholders of subsidiaries. These results do not reflect
the Saatchi & Saatchi Group's capital structure had it been an independently
financed and managed group during the period. See "Selected Financial
Data--Unaudited Pro Forma Financial Information" included elsewhere in this
Report.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process information containing a
two-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
As the Company principally relies on third party vendors for its
applications, the Company intends to communicate with other companies with whom
it does significant business to determine their Year 2000 readiness and the
extent to which the Company is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total costs to the Company of these Year 2000 Compliance activities
have not yet been determined, and it has not yet been determined by management
whether such costs will be material to its financial position or results of
operations in any given year.
LIQUIDITY AND CAPITAL RESOURCES
General
Prior to the Demerger, the Saatchi & Saatchi Group's operations were
conducted substantially separately from those of other Cordiant operations.
However, the Saatchi & Saatchi Group was neither capitalized nor financed as an
independent group. Cordiant managed the Group's borrowings and cash resources
centrally. Cash generated or required by the Cordiant Group's businesses, was
either remitted to Cordiant by way of dividend or intercompany loan, or advanced
by Cordiant to the Saatchi & Saatchi Group's businesses by way of equity
contributions or intercompany loan at the direction of Cordiant's central
treasury function. The Saatchi & Saatchi Group's historical cash flows, in
respect of interest, taxes paid and financing are therefore not indicative of
the cash flows expected by the Saatchi & Saatchi Group as an independent group.
The Group's primary sources of liquidity following the Demerger are its
cash flow from operations and new bank facilities.
Net Indebtedness
Following the Demerger, the Company now has a capital structure consisting
of senior debt and equity. Senior debt consists primarily of a new bank facility
of up to $165 million, the covenants and terms of which are governed by the New
Bank Facility Agreement. The New Bank Facility will mature in 2002 and has
scheduled principal reductions of $7 million in 1998, $18 million in 1999, $20
million in 2000 and $25 million in 2001. See "Description of Business--The
Demerger and Continuing Arrangements with CCG--New Bank Facilities."
Prior to the Demerger becoming effective, Saatchi & Saatchi made a drawdown
under the New Bank Facility to assist Cordiant to repay its existing bank
facilities. At year end, a portion of the Group's facilities remained undrawn
and available for cyclical working capital needs. Cyclical cash needs arise
within each month as a result of country specific media payment cycles and from
seasonal variations in advertising activity during the year. Advances under the
Group's new bank facilities are primarily denominated in the same currency as
the majority of the Group's working capital needs.
The Group has significant cash balances in its international operations.
These balances are required primarily to finance the working capital cycles of
individual country operations and, in certain cases, to provide the required
level of working capital to allow the agencies to buy media space on behalf of
their clients.
The table below sets out certain cash flow items for the three years ended
December 31, 1997 and extracted from the Financial Statements appearing
elsewhere herein.
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
(L million)
<S> <C> <C> <C>
Cash flow items
Cash flow from operating activities
52.5 37.9 8.1
Cash outflow from returns on
investment and servicing of finance
(16.2) (10.0) (19.9)
Tax recovered/(paid) (3.8) (0.3) 1.1
Cash outflow from capital expenditure
and financial investment
(15.7) (13.6) (12.3)
Cash inflow/(outflow) from
acquisitions and disposals 161.5 (10.8) 21.0
Management of liquid resources 17.1 -- --
Cash inflow/(outflow) before financing 195.4 3.2 (2.0)
Net cash (outflow) from financing (204.3) (15.6) (12.5)
(Decrease) in cash in the period (8.9) (12.4) (14.5)
</TABLE>
Cash Flows from Operating Activities
In the year ended December 31, 1997, cash generated by operations totaled
L52.5 million compared with L37.9 million and L8.1 million in 1996 and 1995,
respectively. In the year ended December 31, 1997, there was a working capital
inflow of L19.7 million, compared with an inflow of L12.1 million in 1996 and an
outflow of L15.9 million in 1995.
Payments in respect of unutilized real estate, which have been provided for
in prior years, were L11.8 million in the year ended December 31, 1997, which
included a payment to terminate a lease. Payments in respect of unutilized real
estate were L12.0 million in 1996 and L8.2 million in 1995. The Group expects
these payments to reduce in future years. They represent the future rent expense
and related cost of leasehold property (net of estimated sublease income) where
the property is vacant or currently not planned to be used for continuing
operations. The majority of the Group's surplus property is sublet, but
generally at lower rents than the Group pays for the space. The excess space has
arisen mainly from a reduction in headcount following the loss of certain
clients and the restructuring of the Group's businesses in prior years.
Cash Outflows from Returns on Investments and Servicing of Finance
Cash outflows from returns on investments and servicing of finance relate
principally to net interest expense. In the year ended December 31, 1997, the
cash outflow was L16.2 million. In 1996 cash outflow was L10.0 million, compared
to L19.9 million in 1995. The increase in 1997 primarily reflected the
accelerated payment of interest on intergroup indebtedness which was either
forgiven or repaid in connection with the Demerger. The decrease in 1996 was the
result of a significant reduction in the Group's indebtedness following
Cordiant's rights issue at the end of 1995.
Tax Paid/Recovered
Net tax payments were L3.8 million in the year ended December 31, 1997
compared to L0.3 million in 1996 and tax recovered of L1.1 million in 1995. In
all periods the tax paid was lower than the tax charge in the statement of
operations because of several non-recurring cash recoveries related to prior
years. In the future, the Group expects tax payments to be broadly in line with
the tax charges as reflected in the profit and loss account.
Capital Expenditure and Financial Investment
In the year ended December 31, 1997, the Group invested L12.0 million in
capital expenditure net of proceeds from fixed asset disposals compared to L13.6
million in 1996 and L12.3 million in 1995. The level of capital expenditure for
all periods presented was lower than depreciation charged. In addition, the
Company took over the Cordiant art collection at a cost of L3.7 million as part
of the Demerger arrangements.
Acquisitions and Disposals
Deferred payments in respect of acquisitions were L7.9 million in the year
ended December 31, 1997 compared to L20.8 million and L3.0 million in 1996 and
1995, respectively. This primarily represented the cash payment in respect of
Grupo Bates S.A. and the purchase of the outstanding 47.4 percent minority
interest in France. At December 31, 1997, the Group's remaining commitments in
respect of past acquisitions were L2.4 million.
There were no material disposals in the year ended December 31, 1997.
Disposals of L9.5 million in 1996 primarily represented the cash proceeds from
the sale of the Group's remaining interest in KDW. Disposals in 1995 of L25.8
million primarily related to the sale of the offices of CME and the sale of KDW.
Management of Liquid Resources
In the year ended December 31, 1997, the Group disposed of its shares in
Interpublic Group of Companies Inc. ("IPG"), issued following the sale of KDW to
IPG in 1996. There were no movements in management of liquid resources in either
1996 or 1995.
Financing Activities
The Group's financing arrangements as presented in 1995 to 1997 reflect
Cordiant's financing arrangements and not the arrangements that have taken
effect following the Demerger.
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 10. Directors and Executive Officers of Registrant.
The Directors and Executive Officers of the Company are set out below:
Name Position Age
William H. Cochrane * Director, Chief Financial Officer of S&S 46
Susan W. Day Group Treasurer 42
Fiona M. Evans Company Secretary 32
Ian Irvine Non-Executive Director 61
Ken Olshan Non-Executive Director 65
Kevin J. Roberts * Director, Chief Executive Officer of S&S 48
Charles T. Scott Non-Executive Director and Chairman 49
Robert L. Seelert * Director, Chief Executive Officer 55
Wendy Smyth * Finance Director 44
Sir Peter Walters Non-Executive Director 67
David I. C. Weatherseed Deputy Finance Director 46
_________
* Member of the Executive Committee
Biographies
Executive Directors
William H. Cochrane. Mr. Cochrane has been a Director of the Company since
September 1997. He joined Saatchi & Saatchi Advertising in the United States in
May 1982 as Controller of International Operations. He was promoted to Chief
Financial Officer of Saatchi & Saatchi North America in 1989 and to Chief
Financial Officer of S&S in 1992. Prior to joining S&S, he spent seven years at
Arthur Andersen & Co., where he qualified as a Certified Public Accountant.
Kevin J. Roberts. Dr. Roberts has been a Director of the Company since September
1997. He joined S&S in May 1997 as Chief Executive Officer when he was appointed
to the Board of Cordiant. He has previously worked at Mary Quant, Gillette
Company and Procter & Gamble dealing with product development and marketing. In
1982, he became President and Chief Executive Officer of Pepsi-Cola, Middle East
being promoted in 1987 to President and Chief Executive Officer of Pepsi-Cola,
Canada. In 1989, he was appointed Chief Operating Officer of Lion Nathan
Limited, a brewery group listed on the New Zealand Stock Exchange. He is a
Director of New Zealand Rugby Football Union and of the North Harbour Rugby
Football Union Club.
Bob Seelert. Mr. Seelert has been a Director and the Chief Executive Officer of
the Company since September 1997. He joined Cordiant as Chief Executive Officer
in July 1995 and was appointed to the Board of Directors in August 1995. From
1966 to 1989 he worked for General Foods Corporation where from 1986 until 1989
he was President and Chief Executive Officer for the Worldwide Coffee and
International Foods division. He was President and Chief Executive Officer of
Topco Associates Inc. from 1989 to 1991 and President and Chief Executive
Officer of Kayser Roth Corporation from 1991 to 1994. He is a non-executive
director of The Stride Rite Corporation and Senior Tour Players Development,
Inc.
Wendy Smyth. Mrs. Smyth has been Finance Director of the Company since September
1997. She joined the Company in 1982 in the United States and was appointed
Regional Finance Director in 1984. She was the Finance Director of Saatchi &
Saatchi Advertising International from 1986 to 1989 and then became Finance
Director of Cordiant's Communication Division. In July 1991 she became Chief
Financial Officer of Cordiant and was appointed to the Board of Directors of
Cordiant in April 1993 as Finance Director.
Non-Executive Directors
Ian Irvine. Mr. Irvine has been a Director of the Company since May 1998. He is
currently Chairman of Capital Radio plc, Southern Star Circle Ltd., a UK
subsidiary of Southern Star (Australia), a film and television company and Video
Networks Ltd. He served as a director of Reed International Plc from 1987 to
1997 and was also appointed chairman of Reed International Plc and co-chairman
of Reed Elsevier Plc.
Ken Olshan. Mr. Olshan was appointed a non-executive director of the Company on
January 1, 1998. Mr. Olshan was Chairman and Chief Executive Officer of Wells
Rich Greene BDDP, a New York based advertising agency, until September 1995. He
is currently a private consultant.
Charles T. Scott. Mr. Scott has been a Director and non-executive Chairman of
the Company since September 1997. He joined Cordiant as Finance Director in
January 1990. He was promoted to Chief Operating Officer of Cordiant in July
1991 and Chief Executive Officer in April 1993. In January 1995 he was appointed
Chief Executive Officer and Acting Chairman. In July 1995 he was appointed
Executive Chairman of Cordiant. He is non-executive Chairman of Robert Walters
plc and is a non-executive director of Adidas AG and of Joe's Developments
Limited. He also is non-executive Chairman of CCG. In addition, he has been a
director of Emcore Corporation since February 1998 and of TBI since May 1998.
Sir Peter Walters. Sir Peter Walters has been a Director of the Company since
September 1997. He is Chairman of SmithKline Beecham plc and Deputy Chairman of
EMI Group plc. From 1991 to 1994 he was Chairman of Midland Bank plc and is
currently Deputy Chairman of its parent, HSBC Holdings plc. He is Chancellor of
the Institute of Directors, a Trustee of the Institute of Economic Affairs,
Chairman of the Trustees of the Police Foundation and a member of the Advisory
Board of the LEK Partnership. He was a Managing Director of BP plc from 1973 to
1980 and Executive Chairman from 1981 to 1990. He joined the Board of Cordiant
in January 1994.
Executive Officers
Susan W. Day. Ms. Day has been Group Treasurer of the Company since the
Demerger. Previously, she had been Treasurer of Cordiant Holdings, Inc. in New
York since 1989.
Fiona M. Evans. Ms. Evans joined Cordiant in 1996 as Deputy Company Secretary.
Prior to that she was Deputy Company Secretary at NBC Super Channel in 1997 and
was previously employed in the Company Secretarial department of Forte Plc from
1992 to 1996. She was appointed Company Secretary of the Company in 1997.
David I. C. Weatherseed. Mr. Weatherseed joined Cordiant in 1990 as Group
Controller. In 1997 he was appointed Deputy Finance Director of the Company.
Re-election of Directors
The Articles provide that at every Annual General Meeting of the Company any
Director appointed since the last Annual General Meeting and one-third of the
remaining Directors are required to retire and may, if eligible, stand for
re-election.
Corporate Governance
From the time of the Demerger until the appointment of Mr. Irvine on May 1,
1998, the Group has not had three fully independent non-executive Directors. In
all other respects the Company has complied with the requirements of the Code of
Best Practice published by the Committee on the Financial Aspects of Corporate
Governance and with the recommendations of the Greenbury Committee's report on
Directors' Remuneration (the "Greenbury Report").
An Audit Committee and a Remuneration Committee have been established by
the Board, both of which comprise exclusively non-executive Directors.
The main duties of the Audit Committee are to ensure that the financial
performance of the Saatchi & Saatchi Group is properly monitored and reported
on, to review the accounts and preliminary and interim results, to review the
reports from the auditors relating to the accounts, to monitor internal control
systems and to make recommendations to the Board concerning the appointment and
remuneration of the auditors.
The main duties of the Remuneration Committee are to determine the
remuneration, benefits and terms and conditions of employment of the executive
Directors and of the Group's most senior employees. It also deals with
nominations to the Board, for which the Chief Executive Officer also joins the
Remuneration Committee.
The Remuneration Committee also carefully considers the provisions of the
Greenbury Report. Full consideration is given to compliance with Sections A and
B of the best practice provisions relating to the Greenbury Report as annexed to
The Listing Rules of the London Stock Exchange, as the policy of the Company is
to establish a remuneration strategy which rewards individual performance and
enhances shareholder value by creating a greater community of interest between
shareholders and employees.
Directors Interests
<TABLE>
<CAPTION>
Date of Beneficially owned Ordinary Equity
Appointment Ordinary shares share options Participation Rights
<S> <C> <C> <C> <C>
Charles Scott* Sep 3, 1997 39,214 731,906 0
William Cochrane Sep 3, 1997 0 271,738 909,090
Dr. Kevin Roberts Sep 3, 1997 0 454,687 1,090,909
Robert Seelert* Sep 3, 1997 28,098 219,849 1,090,909
Wendy Smyth Sep 3, 1997 5,083 654,532 545,454
Sir Peter Walters Sep 3, 1997 5,000 0 0
_____________________
* Includes spouse's interests.
** In addition, Mr. Seelert has 1,527,363 phantom share options.
</TABLE>
Mr. Olshan was appointed to the Board on January 1, 1998 and had interests
in 3,000 shares on appointment. Other than this, the Directors' interests in the
Company's share capital have not changed since December 31, 1997. Other
Directors holding office in the year ended December 31, 1997 were Christopher
Bunton (resigned) September 3, 1997), Graham Howell (resigned September 25,
1997) and David Weatherseed (resigned September 25, 1997).
None of the Directors at any time during the period ended December 31, 1997
had any material interest in any contracts with the Company or any of its
subsidiaries. None of the Directors at any time during the period ended December
31, 1997 or subsequent to December 31, 1997 was interested in any debentures of
the Company or shares or debentures of the Company's subsidiaries.
Item 11. Compensation of Directors and Officers.
In 1997, the aggregate amount of compensation paid or accrued for all
Directors and Executive Officers as a group (10 persons) who served the Company
following the Demerger was L169,000. Such compensation was primarily in the form
of salaries and fees and included L8,800 set aside for pension plans.
Remuneration for senior executives is comprised of three elements: basic
salary and related benefits, annual bonus and a long-term incentive program. The
annual bonus paid is non-pensionable and depends on the attainment of certain
performance targets which are approved by the Remuneration and Nominations
Committee. The long-term incentive program is designed to align the interests of
senior executives with those of shareholders and to encourage senior executives
to remain with the Group.
The table below reports remuneration by the Company from the Effective
Date. To give a clearer presentation, the table includes details of the basic
salaries for 1998.
<TABLE>
<CAPTION>
December 15, 1997 to December 31, 1997 1998
-------------------------------------------------------------------- ---------------
Annual
Salary Retirement Salary
or fees Benefits contributions Total Total
L000 L000 L000 L000 L000
<S> <C> <C> <C> <C> <C>
Executive Directors:
Bob Seelert 21.3 1.7 6.0 29.0 457.3
Bill Cochrane<F5> 10.0 0.5 0.2 10.7 213.4
Dr. Kevin Roberts 19.9 1.3 - 21.2 426.8
Wendy Smyth 6.8 0.6 1.0 8.4 145.0
Non-executive Directors:
Charles Scott 6.3 0.3 0.8 7.4 125.0
Ian Irvine - - - - -
Kenneth Olshan - - - - 20.0
Sir Peter Walters 0.6 - - 0.6 20.0
Executive Officers as a 90.8 0.1 0.8 91.7 254.0
group*
Total 155.7 4.5 8.8 169.0 1,661.5
</TABLE>
*Includes Demerger bonuses of L78,950.
<F5> Following the Demerger, Mr. Cochrane's salary was reduced from $475,000 to
$350,000 per annum. To take account of this change, Mr. Cochrane received a
bonus of $200,000 on completion of the Demerger.
Details of the service agreements for the Directors of the Company are set
out below.
Bob Seelert
Prior to the Demerger, Mr. Seelert was employed under a service agreement
with Cordiant Holdings, Inc. (a company which became a member of the Saatchi &
Saatchi Group) and Cordiant plc as Chief Executive Officer of Cordiant. He has
entered into a new service agreement with the Company and Cordiant Compton
Worldwide Inc. dated September 30, 1997 on similar terms to those of his
previous service agreement (except as noted below), which replaced the prior
agreement.
Mr. Seelert's current salary is $750,000.
Mr. Seelert's new service agreement may be terminated on 12 months' notice
given by either party to the other, provided that if there is a change of
control of the Company, and his employment is terminated by the Company within
two years of such change of control (other than for cause, death or disability
or by his resignation without good reason), Mr. Seelert is entitled to the
payment of a sum equivalent to two years' gross salary, target bonuses of 60
percent of gross salary per year and benefits, including pension contributions.
Under the new service agreement, if Mr. Seelert terminates his employment
by reason of a material change in his duties or responsibilities, a reduction in
his benefits, a substantial relocation of his office or his non re-election to
the Board, he will be entitled to 12 months' gross basic salary, target bonuses
and benefits, subject to mitigation. If Mr. Seelert's employment is terminated
by reason of his death or disability he will be entitled to 12 months' gross
basic salary, target bonuses and benefits.
Mr. Seelert's service agreement entitles him to participate in annual
discretionary bonus arrangements calculated by reference to an Economic Value
Added improvement scheme which are determined each year by the Remuneration
Committee. For 1997 the annual bonus was a percentage of salary based on revenue
and earnings of Cordiant. Mr. Seelert's participation in the annual
discretionary bonus arrangements is on a basis no less favorable than that
provided to any other officer of the Company.
In addition, Mr. Seelert is entitled to certain other benefits in kind,
including the provision of a fully expensed automobile, medical, disability and
life insurance, travel allowances and the use of a London flat leased by the
Company.
Mr. Seelert has an unfunded personal retirement benefit scheme involving
notional employer contributions at the rate of 5.5 percent of salary up to June
30, 1998 and thereafter 6.25 percent of salary every three months. Interest
accrues on these notional contributions at 8 percent per annum. A payment of
$463,738 was made by Cordiant to Mr. Seelert, being the amount accrued in
respect of his entitlement under the prior agreement up to December 31, 1997.
Details of the manner in which phantom share options, granted to Mr.
Seelert under his prior service agreement, were dealt with in connection with
the Demerger are set forth in "Options to Purchase Securities from Registrant or
Subsidiaries."
Wendy Smyth
Mrs. Smyth is currently employed under a service agreement with the Company
dated September 30, 1997 on substantially the same terms as her prior service
agreement with Cordiant plc dated March 29, 1994 (except as noted below).
Under her new agreement, Mrs. Smyth is contracted to work for four days
each week. Her salary was reduced from its level of L165,000 to L145,000 per
annum to take account of this change. Mrs. Smyth's service agreement may be
terminated on 12 months' notice given by either party to the other. Under Mrs.
Smyth's service agreement, if there is a change of control of the Company and
her employment is terminated by the Company without notice within two years of
such change of control (other than for cause or disability), Mrs. Smyth is
entitled to the payment of a sum equivalent to 24 months' gross salary, target
bonuses of 40 percent of gross salary per year and benefits, including pension
contributions.
Mrs. Smyth is currently entitled to participate in annual discretionary
bonus arrangements based on revenues and earnings per share in the year in
question and calculated by reference to a bonus matrix which is determined each
year by the Remuneration Committee of the Board. For 1997, Mrs. Smyth's target
bonus was 40 percent of her gross basic salary. Her new service agreement
entitles her to participate in annual discretionary bonus arrangements
calculated by reference to an Economic Value Added improvement scheme which will
be determined each year by the Remuneration Committee. For 1997 the annual bonus
was a percentage of salary based on revenue and earnings of Cordiant.
In addition, Mrs. Smyth is entitled to certain other benefits in kind,
including the provision of a fully expensed automobile, medical, disability and
life insurance.
Mrs. Smyth is also a member of the Cordiant Group Pension Scheme. The
amount of the increase in pension during the year was L2,344, the accumulated
total amount as of December 31, 1997 in respect of the accrued benefit being
L42,264 and the transfer value (less contributions by Mrs. Smyth of L6,000) of
the relevant increase in accrued benefit was L16,525.
Kevin Roberts
Dr. Roberts is currently employed as Chief Executive Officer of S&S under a
service agreement made in April 1997 with Saatchi & Saatchi North America, Inc.
His current salary is $700,000 per annum. Dr. Roberts' current service agreement
is for a three year term from May 19, 1997 but it may be terminated on 12
months' notice given by either party to the other.
Dr. Roberts entered into a variation to his current service agreement with
Saatchi & Saatchi North America, Inc. on September 30, 1997 so that his service
agreement may be terminated on 12 months' notice given by either party to the
other, provided that if there is a change of control of the Company and his
employment is terminated by the Company within two years of such change of
control (other than for cause, death or disability). Dr. Roberts is entitled to
the payment of a sum equivalent to 18 months' gross salary, target bonuses of 60
percent of gross salary per year and benefits, including pension contributions.
He is also entitled to the same payment if he terminates his employment as a
result of material changes being made to his duties and responsibilities within
two years of such change of control. In addition, Dr. Roberts may terminate his
employment on 90 days' notice following either a material change in the senior
management of the Company or if the Chief Executive Officer of the Company is
replaced.
Dr. Roberts is entitled to participate in annual discretionary bonus
arrangements calculated by reference to an Economic Value Added improvement
scheme which will be determined each year by the Remuneration Committee. For
1997 his annual bonus was a percentage of salary based on the profitability of
S&S.
In addition, Dr. Roberts is entitled to certain other benefits in kind,
including the provision of a fully expensed motor car, disability and life
insurance and travel allowances. He is also entitled to a supplemental pension
payment on June 1, 2000 of $347,290. He will also receive a proportion of this
supplemental pension payment if his employment ceases before that date by reason
of his death or disability or if his service agreement is terminated by Saatchi
& Saatchi North America, Inc. (other than for cause).
Bill Cochrane
Mr. Cochrane entered into a new contract with Saatchi & Saatchi North
America, Inc. dated September 30, 1997 which replaced his existing employment
arrangements on the Effective Date. Following the Demerger, Mr. Cochrane's
salary was reduced from $475,000 to $350,000 per annum. To take account of this
change, Mr. Cochrane received a bonus on the completion of the Demerger of
$200,000.
Mr. Cochrane's service agreement provides that he may terminate his
employment on 12 months' notice to Saatchi & Saatchi North America, Inc. If
Saatchi & Saatchi North America, Inc. terminates Mr. Cochrane's employment for
any reason other than for cause, or if his employment is terminated by his death
or disability, or if he ceases to be a Director of the Company (other than due
to his death, disability or resignation), he will be entitled to a lump sum
payment equal to 140 percent of his annual salary. If there is a change of
control of the Company and his employment is terminated by the Company within
two years of such change of control (other than for cause, death or disability),
Mr. Cochrane is entitled to the payment of a sum equivalent to two years' gross
salary, target bonuses and benefits, including pension contributions. He is also
entitled to the same payment if, within two years of such change of control, he
terminates his employment as a result of material changes being made to his
duties, responsibilities or position, a reduction in his salary, a change of his
place of work or substantially increased travel requirements.
During 1997, Mr. Cochrane was entitled to participate in annual
discretionary bonus arrangements based on revenues and earnings per share in the
year in question and calculated by reference to a bonus matrix determined by the
Remuneration Committee. For 1997 Mr. Cochrane's target bonus was 40 percent of
his gross basic salary based on a combination of the revenue and profitability
of S&S and the revenue and earnings of Cordiant. He is entitled to participate
in annual discretionary bonus arrangements calculated by reference to an
Economic Value Added improvement scheme determined each year by the Remuneration
Committee.
In addition, Mr. Cochrane is entitled to certain other benefits in kind,
including the provision of a fully expensed motor car, medical, disability and
life insurance.
The terms of an agreement dated May 1, 1984, under which Mr. Cochrane is
entitled to deferred compensation equal to $1,200,000 payable in four equal
annual installments that began on January 2, 1998, have been incorporated into
his service agreement. Mr. Cochrane is also a member of the Saatchi & Saatchi
North America, Inc. 401k plan.
If Mr. Cochrane ceases to be in full time employment with Saatchi & Saatchi
North America, Inc. on or after his fifty-fifth birthday for any reason other
than his death, he will be entitled to receive an amount equal to the present
value of the right to receive $30,000 in cash on each of the first 10
anniversaries of the date on which he ceases to be a full time employee.
However, this entitlement will only apply if he provides consultancy services to
Saatchi & Saatchi North America, Inc. on an exclusive basis during such period.
Non-Executive Directors
Charles Scott
Mr. Scott is currently employed as Chairman of the Company. He is also
Chairman of CCG. Mr. Scott had an agreement with the Company and Cordiant dated
September 30, 1997, which replaced his then existing service agreement with
effect from the Effective Date. This contract has been replaced, effective April
1, 1998, by an agreement under which Kirkal Limited, a company controlled by Mr.
Scott and his wife, provides Mr. Scott's services. Mr. Scott devotes two days
each week to the Company and two days each week to CCG. He is paid an annual fee
of L125,000 by each of the Company and CCG and also receive pension
contributions from each company at a rate of 14 percent of his net relevant
earnings, together with a lump sum pension payment of L50,000 on January 1, 1998
from each of CCG and the Company. He also receives medical and life insurance
and a fully expensed motor car.
Mr. Scott is required to cease one of his directorships with effect from
December 31, 1998. The term of his remaining directorship will continue up to
the second anniversary of the Effective Date. If Mr. Scott ceases to be a
Director of both CCG and the Company with effect from December 31, 1998, Kirkal
Limited will be entitled to a payment equivalent to the fees, pension
contributions and benefits which would otherwise have been payable up to the
second anniversary of the Effective Date, payable equally by the Company and
CCG. If Mr. Scott ceases, before the second anniversary of the Effective Date,
to be a director of the company with which he has elected to continue, following
December 31, 1998, Kirkal Limited will be entitled to an equivalent payment paid
solely by that company.
Sir Peter Walters
Sir Peter Walters has been appointed as a non-executive Director of the
Company for a term lasting three years from the Effective Date under a letter of
appointment dated September 15, 1997. He is paid annual fees of L20,000 together
with allowances of L600 for each Board and Committee meeting attended in person
or L500 for each Board and Committee meeting attended by telephone and L250 per
calendar quarter for acting as Chairman of any Committee of the Board. He does
not participate in any incentive or benefit schemes of the Group.
Ken Olshan
Ken Olshan was appointed as a non-executive Director of the Company with
effect from January 1, 1998, under a letter of appointment dated September 17,
1997, for the same period and on the same terms as to fees as Sir Peter Walters.
Ian Irvine
Ian Irvine was appointed as a non-executive Director of the Company with
effect from May 1, 1998, under a letter of appointment dated March 17, 1998, for
the same period and on the same terms as to fees as Sir Peter Walters.
Item 12. Options to Purchase Securities from Registrant or Subsidiaries.
Employee Share Schemes
The Company has established two new employee share schemes, which came into
effect upon the consummation of the Demerger. They are the Saatchi & Saatchi
Equity Participation Plan (the "Equity Participation Plan" or "EPP") and the
Saatchi & Saatchi Performance Share Option Scheme (the "Performance Share Option
Scheme"). Participants in the Equity Participation Plan are not eligible to be
granted options under the Performance Share Option Scheme. The new schemes are
being operated in conjunction with the Saatchi & Saatchi Employee Benefit Trust
(the "Trust").
(a) The Saatchi & Saatchi Equity Participation Plan
The Equity Participation Plan is being operated in conjunction with the
Trust, the Trustee of which will, in exercising its discretion, take into
account the recommendations of the Remuneration and Nominations Committee.
Further details of the Trust are set out below. Employees and Executive
Directors of the Saatchi & Saatchi Group who are required to devote
substantially all their working time to the business of any company in the
Saatchi & Saatchi Group, will be eligible to participate in the Equity
Participation Plan.
On December 16, 1997, thirty-four employees and Directors were invited to
participate in the EPP. Thirty-two have agreed to participate and cash payments
of L1,572,500 have been received, which, if maximum performance targets are to
be met, would give rise to an issue of 11,436,362 shares. Further awards will
only be made within the period of 42 days following the announcement of the
Group's results for any period or at any time if the Trustee determines that
exceptional circumstances (such as the recruitment of a senior employee or
executive director) so warrant.
The maximum number of Ordinary shares which participants may become
entitled to acquire will be eight times the number that could have been bought
with the original investment at market value on the day preceding the date of
award. The exact number of Ordinary shares which may be acquired will be
determined by the performance formula described below.
With the exception of Directors of the Company, the number of Ordinary
shares that a participant may acquire will be determined by measuring the annual
growth in earnings per share ("EPS") of the Company over a three year period
("EPS Performance"). For the initial awards the base year for measuring EPS
Performance is 1997. The EPS figure used for that year is 6.6p, calculated on
the basis of the pro forma "headline earnings" using the Institute of Investment
Management and Research guidelines (although the Trustee will have the ability
to adjust this figure if the Trustee considers it appropriate to exclude certain
items including exceptional items such as the costs of the Demerger and other
significant non-recurring items).
If EPS Performance is less than the annual percentage growth in the UK
Retail Price Index plus 2 percent (the "Hurdle Rate") then the participant will
be entitled to acquire ten Ordinary shares. If EPS Performance is equal to or
greater than the Hurdle Rate then:
o where EPS Performance is 5 percent per annum, 12.5 percent of the
award vests, which is the same number of Ordinary shares which the
participant could have bought with his original investment;
o where EPS Performance is 15 percent per annum, 40 percent of the award
vests, so the participant will be entitled to acquire 3.2 times the
number of Ordinary shares which he could have bought with his original
investment;
o where EPS Performance is 25 percent per annum, all of the award vests,
so the participant will be entitled to acquire eight times the number
of Ordinary shares which he could have bought with his original
investment.
The percentage of the award that vests for EPS Performance between 5
percent per annum and 15 percent per annum and for EPS Performance between 15
percent per annum and 25 percent per annum increases on a straight line basis.
For participants who are Directors of the Company, only one-half of their
awards will vest based on EPS Performance. The other half of their awards will
vest based on the total shareholder return ("TSR") of the Company over a three
year period ("TSR Performance") relative to the TSR of a group of major publicly
traded advertising groups (the "Comparator Group") over the same period. The
percentage of the award that vests will be determined by reference to the
ranking attained by the Company.
Once the performance formula has been applied and the number of Ordinary
shares determined, a participant may acquire one half of the vested number of
Ordinary shares. The remaining half may only be acquired after the fourth
anniversary of the date the award was made. Ordinary shares cannot be acquired
after the seventh anniversary of the date of the award.
If a participant ceases to be employed by a company in the Saatchi &
Saatchi Group before the award vests because of injury, disability, ill-health,
death, redundancy, retirement because the company which employs him or with
which he holds office leaves the Saatchi & Saatchi Group or because the business
to which his office or employment relates is transferred outside the Saatchi &
Saatchi Group, or other circumstances at the Trustee's discretion, the
participant will be entitled to acquire a proportion of the maximum number of
Ordinary shares which would ultimately have been receivable. For the purpose of
determining the proportion of the award that vests, the cessation of employment
will be treated as occurring on the next day on which the Company announces its
results for its financial year. The performance formula will then be applied as
if the EPS Performance (and, if appropriate, the TSR Performance) had been
achieved over the full three years of the performance measurement period.
A participant who was granted an award prior to the announcement of the
results for the financial year ending in 1998 (the "1998 results") will be able
immediately following the determination to acquire:
(a) one third of the number of Ordinary shares so determined, if cessation
occurs on or before the announcement of the 1998 results;
(b) two thirds of the number of Ordinary shares so determined, if
cessation occurs after the announcement of the 1998 results but on or
before the announcement of the 1999 results; and
(c) all of the Ordinary shares so determined, if cessation occurs after
the announcement of the 1999 results.
Equivalent provisions will apply for participants who receive an award
after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, he will only
be entitled to receive 10 Ordinary shares, with the result that he will
effectively lose his initial investment.
In the event of a takeover of the Group prior to the announcement of the
Group's results for its financial year ending in 2000 (the "2000 results"), a
participant who received an award prior to the announcement of the 1998 results
will be entitled to acquire the number of Ordinary shares determined in
accordance with the following provisions:
(a) if the takeover occurs after the date of the award but before the
announcement of the 1998 results, the participant may acquire one
third of the maximum possible number of Ordinary shares;
(b) if the takeover occurs after the announcement of the 1998 results but
before the announcement of the Company's results for its financial
year ending in 1999 (the "1999 results"), the participant may acquire:
(i) one third of the maximum possible number of Ordinary shares; plus
(ii) one third of the number of Ordinary shares which would have
vested if the EPS Performance (and, if appropriate, TSR
Performance) for the Company's 1998 financial year had been
achieved over the full three years of the performance measurement
period; and
(c) if the takeover occurs after the announcement of the 1999 results but
before the announcement of the 2000 results, the participant may
acquire:
(i) one third of the maximum possible number of Ordinary shares; plus
(ii) two thirds of the number of Ordinary shares which would have
vested if the EPS Performance (and, if appropriate, TSR
Performance) over the Company's two financial years 1998 and 1999
had been achieved over the full three years of the performance
measurement period.
Equivalent provisions will apply for participants who receive an award after the
announcement of the 1998 results.
The rights of participants following any rights issue or capitalization
issue or other variation of share capital will be adjusted in such manner as the
Trustee may determine subject to written confirmation from the Company's
auditors that such adjustment is in their opinion fair and reasonable.
An aggregate of not more than 6 percent of the issued Ordinary share
capital of the Company from time to time may be issued or become issuable
pursuant to the Equity Participation Plan.
The Board will have power to administer, interpret and, with the
concurrence of the Trustee, amend the provisions of the Equity Participation
Plan. However, no amendment may be made to provisions relating to:
(a) the eligibility condition;
(b) the limit rules;
(c) the calculation of a participant's entitlement under the Equity Participant
Plan;
(d) the terms of the awards or the Ordinary shares received pursuant to them;
or
(e) the variation of share capital rule
to the advantage of participants without the prior approval of the
shareholders in general meeting (except for minor amendments to benefit the
administration of the Equity Participation Plan, to take account of a change in
legislation or to obtain or maintain favorable tax, exchange control or
regulatory treatment for participants or for the Company or for members of the
Saatchi & Saatchi Group).
No amendment to the limits mentioned above may be made without prior
approval of the shareholders. No amendment may be made which adversely affects a
participant's rights under an award made prior to the date of such amendment
without the participant's consent.
The benefits received under the Equity Participation Plan are not
pensionable.
The Trustee will invite no further participation in the Equity
Participation Plan after the third anniversary of the Effective Date and the
Board may terminate it any time, but the rights of existing participants will
not thereby be affected.
(b) The Saatchi & Saatchi Performance Share Option Scheme
The Performance Share Option Scheme will be operated in conjunction with
the Trust. The Trustee will, in exercising its discretion, take into account the
recommendations of the Remuneration Committee.
However, the rules provide that the Performance Share Option Scheme may
also be operated by the Company, in which case references in this summary to the
Trust and the Trustee should be read as being references to the Company and the
Remuneration Committee as appropriate.
Employees and Executive Directors of the Saatchi & Saatchi Group who are
required to devote substantially all their working time to the business of any
company in the Saatchi & Saatchi Group will be eligible to participate in the
Performance Share Option Scheme. However, participants in the Equity
Participation Plan will not be eligible to be granted options under the
Performance Share Option Scheme.
Participants in the Performance Share Option Scheme will be selected at the
discretion of the Trustee.
The exercise price for an option will be determined by the Trustee but may
not be less than the higher of the nominal value of an Ordinary share (if the
option is an option to subscribe for Ordinary shares) and its market value.
Market value will be taken to be the middle market quotation of an Ordinary
share on the dealing day of the London Stock Exchange immediately preceding the
date of grant as derived from the Daily Official List of the London Stock
Exchange.
On December 16, 1997, fifty-eight employees were invited to participate in
the Performance Share Option Scheme. Fifty-four have agreed to participate and
waive remuneration over a three-year period of L715,000 and, if maximum
performance targets are met, this would give rise to an issue of 7,150,000
shares.
Normally options may only be granted by the Trustee during the period
commencing on, and ending 42 days after the announcement of the Group's results
for any period and at any time if the Trustee determines that exceptional
circumstances (such as the recruitment of a senior employee or executive
Director) so warrant.
Options will lapse unless the option holder agrees within 120 days of the
grant of the option to sacrifice an aggregate amount of salary and/or bonus (not
exceeding L50,000) over a period not exceeding three years equal to one eleventh
of the aggregate exercise price of the Ordinary shares under option. The amount
so sacrificed is not offset against the exercise price payable.
The number of Ordinary shares to be acquired on exercise will be determined
by measuring EPS Performance, as for the Equity Participation Plan. The EPS
Performance and the Hurdle Rate for the Performance Share Option Scheme will be
the same as for the Equity Participation Plan.
If EPS Performance is less than the Hurdle Rate, then the option holder
will not be entitled to acquire any Ordinary shares and the option will lapse.
If EPS Performance is equal to or greater than the Hurdle Rate then:
(a) where EPS Performance is 5 percent per annum, the option holder may
exercise his option in respect of 30 percent of the number of Ordinary
shares under option;
(b) where EPS Performance is 15 percent per annum, the option holder may
exercise his option in respect of 65 percent of the number of Ordinary
shares under option; and
(c) where EPS Performance is 25 percent per annum, the option holder may
exercise his option in full.
The percentage of Ordinary shares over which the option holder may exercise
his option for EPS Performance between 5 percent per annum and 15 percent per
annum and for EPS Performance between 15 percent per annum and 25
percent per annum increases on a straight line basis.
Once the performance formula has been applied an option holder may exercise
his option over one half of the number of Ordinary shares determined by the
performance formula. The remaining half may only be acquired after the fourth
anniversary of the date of grant.
Options may not be exercised in any event more than seven years after the
date of grant.
If an option holder ceases to be employed by a company in the Saatchi &
Saatchi Group before his option may be exercised because of injury, disability,
ill-health, death, redundancy, retirement, because the company which employs him
or with which he holds office leaves the Saatchi & Saatchi Group or because the
business to which his office or employment relates is transferred outside the
Saatchi & Saatchi Group or other circumstances at the Trustee's discretion, the
option holder will be entitled to exercise his option in respect of a proportion
of the number of Ordinary shares under option. For the purpose of determining
the number of Ordinary shares in respect of which the option holder may exercise
his option, the cessation of employment will be treated as occurring on the next
day on which the Company announces its results for its financial year. The
performance formula will then be applied as if the EPS Performance had been
achieved over the full three years of the performance measurement period. An
option holder who was granted an option prior to the announcement of the 1998
results will be able immediately following such determination to exercise his
option in respect of:
(a) one third of the number of Ordinary shares so determined, if cessation
occurs on or before the announcement of the 1998 results;
(b) two thirds of the number of Ordinary shares so determined, if
cessation occurs on or before the announcement of the 1999 results;
and
(c) all of the Ordinary shares so determined, if cessation occurs after
the announcement of the 1999 results.
Equivalent provisions will apply for option holders who are granted options
after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, his option
will lapse.
In the event of a takeover of the Group prior to the announcement of the
2000 results, an option holder who was granted an option prior to the
announcement of the 1998 results will be entitled to exercise his option in
accordance with the following provisions:
(a) if the takeover occurs after the date of the award but before the
announcement of the 1998 results, the option holder may exercise his
option in respect of one third of the number of Ordinary shares under
option;
(b) If the takeover occurs after the announcement of the 1998 results but
before the announcement of the 1999 results, the option holder may
exercise his option in respect of:
(i) one third of the number of Ordinary shares under option; plus
(ii) one third of the number of Ordinary shares in respect of which he
could have exercised his option if the EPS Performance for the
Company's 1998 financial year had been achieved over the full
three years of the performance measurement period; and
(c) if the takeover occurs after the announcement of the 1999 results but
before the announcement of the 2000 results, the option holder may
exercise his option in respect of:
(i) one third of the number of Ordinary shares under option; plus
(ii) two thirds of the number of Ordinary shares in respect of which
he could have exercised his option if the EPS Performance over
the Company's two financial years 1998 and 1999 had been achieved
over the full three years of the performance measurement period.
Equivalent provisions will apply for option holders who are granted options
after the announcement of the 1998 results.
On a variation of the Company's share capital by way of capitalization or
rights issue, subdivision, consolidation or a reduction, the exercise price and
the number of shares comprised in an option can be varied at the discretion of
the Trustee subject to certification from the Company's auditors that in their
opinion the variation is fair and reasonable.
An aggregate of not more than 3.5 percent of the issued ordinary share
capital of the Company from time to time may be issued or become issuable
pursuant to the Performance Share Option Scheme.
The Board will have power to administer, interpret and, with the approval
of the Trustee, amend the Performance Share Option Scheme. No amendment may be
made to provisions relating to:
(a) the eligibility conditions;
(b) the limit rules;
(c) the variation of share capital rule;
(d) the rules governing the terms of the options or share to be received
by option holders; or
(e) the rules governing the calculation of the option holder's
entitlements under the Performance Option Scheme
to the advantage of option holders without the prior approval of shareholders in
general meeting (except for minor amendments to benefit the administration of
the Performance Share Options Scheme or to take account of a change in
legislation or to obtain or maintain favorable tax, exchange control or
regulatory treatment for option holders, the Company or for members of the
Saatchi & Saatchi Group).
No amendment may be made which adversely affects an option holder's rights
under options granted to him prior to the date of such amendment without his
consent.
The benefits received under the Performance Share Option Scheme are not
pensionable.
The Trustee will grant no further options under the Performance Share
Option Scheme after the third anniversary of the Effective Date and the Board
may terminate it at any time, but the rights of existing option holders will not
thereby be affected.
(c) The Saatchi & Saatchi Demerger Share Option Schemes (the "Demerger Schemes")
Cordiant had three executive share option schemes: the Performance Share
Option Scheme for executives resident throughout the world; the Executive Share
Option Scheme (the "Number 1 Scheme") primarily for executives not resident in
the UK; and the Executive Share Option Scheme Number 2 (the "Number 2 Scheme")
for executives resident in the UK.
Holders of executive options under the former Cordiant share option schemes
who are employed by the Saatchi & Saatchi Group agreed to cancel their former
Cordiant options in return for the grant of replacement options over Ordinary
shares. Each replacement option is over the same number of Ordinary shares and
has the same exercise price, exercise period and performance conditions as the
option over Cordiant shares which it replaced. For Charles Scott, Cordiant
employees who ceased to be employed by Cordiant as a result of the Demerger, and
employees of Zenith and The Facilities Group who held executive options under
the former Cordiant share option schemes, the same principles applied except
that their replacement options were split 50/50 between options over CCG shares
and options over Ordinary shares.
Each Demerger Scheme mirrors, as far as practicable, the terms of the
former Cordiant share option scheme to which it relates. None of the Demerger
Schemes are approved by the Inland Revenue.
Cordiant's Save As You Earn, Sharesave 1995, was adopted for UK employees
and was approved by the Inland Revenue. Eligible employees were granted options
linked to a five year savings contract. The exercise price was fixed at 80% of
market value at the time of grant. Under Sharesave 1995, employees of the Group
who hold such options retain them but have been granted a parallel unapproved
option over Ordinary shares which will be exercisable with the accumulated
savings and interest/bonus under Sharesave 1995. Employees of Zenith and The
Facilities Group have parallel options split 50/50 between CCG Shares and
Ordinary shares.
No options can be granted under a Demerger Scheme other than to replace an
option which an option holder under one of the former Cordiant share option
schemes has agreed to cancel (or to run in parallel with an option under
Sharesave 1995).
(d) The Saatchi & Saatchi Employee Benefit Trust
The main purpose of the Trust is to operate the Equity Participation Plan
and the Performance Share Option Scheme. The Trustee makes awards (which may or
may not be in the form of options) under which participants are entitled to
acquire Ordinary shares. Alternatively, the Trustee may agree to deliver
Ordinary shares following the exercise of awards made by the Company.
The Trustee may purchase Ordinary shares in the market for the purpose of
awards made under the Equity Participation Plan and the Performance Share Option
Scheme. Alternatively, the Company may grant to the Trustee one or more options
to subscribe for Ordinary shares. The exercise price under such options will not
be less than the middle market quotation of Ordinary shares as derived from the
London Stock Exchange Daily Official List for the dealing day preceding the date
of grant.
The Trustee will fund the acquisition of Ordinary shares through one or
more of the following:
(a) by non-recourse loan or loans from Saatchi & Saatchi Group companies;
(b) by contributions from Saatchi & Saatchi Group companies; or
(c) by payments from the participants in the Equity Participation Plan and
the Performance Share Option Scheme.
(e) The Zenith Executive Incentive Plan (the "Zenith Incentive Plan")
The Zenith Incentive Plan was established to enable participants to acquire
CCG Shares and Ordinary shares through the exercise of options and/or in certain
circumstances to be paid a cash bonus. The principal terms of the Zenith
Incentive Plan are set forth below:
The Zenith Incentive Plan is operated in conjunction with the Zenith
Employee Benefit Trust (the "Zenith Trust"), the Trustee of which will, in
exercising its discretion, take into account the recommendations of the
non-executive directors of Zenith.
The Trustee can invite selected eligible employees and directors to invest
a certain amount of money (not exceeding L70,000) to enable them to participate
in the Zenith Incentive Plan. Awards will lapse unless such investment is, at
the discretion of the Trustee, either made by a payment to the Trustee within
120 days of the award being made or is made by the participant agreeing to
sacrifice that amount of salary and/or bonus over a period not exceeding three
years. The investment is non-refundable and is not offset against the exercise
price payable. The non-refundable investment to be provided by participants who
wish to participate in the Zenith Incentive Plan shall be one sixteenth of a
participant's maximum entitlement under the Zenith Incentive Plan. An award
comprises:
(a) an option over the same proportion of the total number of CCG Shares
available for the Zenith Incentive Plan as the participant's maximum
entitlement bears to L3.6 million being the aggregate maximum
entitlement for all participants available under the Zenith Incentive
Plan (the "CCG Option");
(b) an option over the same number of Ordinary shares as the number of CCG
Shares under the participant's CCG Option (the "Saatchi & Saatchi
Group Option"); and
(c) a contingent cash award of up to a participant's maximum entitlement.
The exercise price for the CCG Option and the Saatchi & Saatchi Group
Option is the middle market quotation of the underlying shares on the day
preceding the date the options are granted.
The exact number of shares which may be acquired and/or the cash award
payable will be determined by the performance formula described below.
A participant's maximum entitlement will be reduced proportionately if one
month after the end of the third year of the performance period the FTSE 100
Index is lower than on the date the award was made. A participant's actual
entitlement will be determined by measuring the growth in operating profit (as
defined in the rules of the Zenith Incentive Plan) over a three year period,
with the base year being the year ending December 31, 1997 for the initial
award ("Operating Profit Performance") as follows:
(a) If Operating Profit Performance is less than 5 percent per annum, the
award lapses;
(b) If Operating Profit Performance is 5 percent per annum a participant's
entitlement will be determined as 12.5 percent of his maximum
entitlement;
(c) if Operating Profit Performance is 15 percent per annum a
participant's entitlement will be determined as 40 percent of his
maximum entitlement; and
(d) if Operating Profit Performance is equal to or exceeds 25 percent per
annum a participant's entitlement will be determined as 100 percent of
the maximum entitlement.
A participant's entitlement in respect of Operating Profit Performance
between 5 percent per annum and 15 percent per annum and between 15 percent per
annum and 25 percent per annum increases on a straight line basis.
Awards will be satisfied so far as possible by the CCG Options and Saatchi
& Saatchi Group Options becoming exercisable to the same extent. The balance, if
any, of a participant's entitlement will be satisfied by the payment of cash by
the Zenith Trust or any company in the Zenith group.
Once the Performance Formula have been applied, the extent of vesting of
the CCG Option and the Saatchi & Saatchi Group Option determined and the cash
sum, if any, quantified, a participant will be entitled to receive one half of
his entitlement. The remaining half can only be acquired after the fourth
anniversary of the date the award was made. The award will lapse on the seventh
anniversary of the date of grant.
The Trustee will be required to waive its rights to any dividend on CCG
Shares or Ordinary shares while they are held within the Trust.
The following chart shows as of May 30, 1998 the total number of Ordinary
shares subject to outstanding options, the purchase price of the Ordinary shares
pursuant to the options and the expiration date of the options:
Number of Purchase Expiration Date
Option Scheme Ordinary shares Price of Options
Demerger Executive
(No. 1 Scheme) 635,276 107 p to 135 p June 1998-
April 1999
Demerger Executive
(No. 2 Scheme) 1,182,806 103 p to 135 p June 2001-
April 2004
Demerger 5,427,982 73 p to 132 p May 2002-
Performance Share Dec. 2004
Option Scheme
Performance Share 7,590,000 110 p Dec. 2004
Option Scheme
Sharesave 1995 929,449 64 p Dec. 2000
As at May 30, 1998, there are awards over 11,436,362 shares under the
Equity Participation Plan which are exercisable between December 2000 and
December 2004.
As of May 30, 1998, the number of Ordinary shares subject to options,
excluding phantom options, granted to the Directors and Executive Officers of
the Company was as follows:
Name Number of Ordinary shares*
William H. Cochrane 1,180,828
Susan W. Day 20,581
Fiona M. Evans 110,000
Dr. Kevin J. Roberts 1,545,596
Charles T. Scott 731,906**
Robert L. Seelert 1,310,758
Wendy Smyth 1,199,986
David I. C. Weatherseed 716,310
* Includes 909,090, 1,090,909, 1,090,909 and 545,454, respectively,
attributable to options under the Equity Participation Plan for William H.
Cochrane, Kevin Roberts, Bob Seelert and Wendy Smyth, respectively. These
amounts represent the maximum number of Ordinary shares subject to such
options.
** Includes options of spouse, a former employee of Cordiant.
<PAGE>
The table below describes the various share options awarded to the
Directors of the Company as of May 1, 1998.
Executive Directors' Share Options
<TABLE>
<CAPTION>
Scheme Date of Exercise Subscription Total Exercise Period
grant Price per number of shares exercise price
Share
<S> <C> <C> <C> <C> <C> <C>
Charles T. Scott* Demerger Executive (No. 2) Jun 1991 135p 243,084 328,163 to Jun 2001
Demerger Executive (No. 2) Apr 1992 107p 78,897 84,420 to Apr 2002
Demerger Performance** May 1995 73p 109,925 80,245 May 2000-May 2002
Demerger Performance** Apr 1996 130p 150,000 195,000 Apr 2001-Apr 2003
Demerger Performance Apr 1997 132p 75,000 99,000 Apr 2000-Apr 2004
Demerger Performance** Apr 1997 132p 75,000 99,000 Apr 2002-Apr 2004
________ __________
Total 731,906 885,828
Robert L. Seelert Demerger Performance Aug 1995 95p 219,849 208,857 Aug 1998-Dec 2004
Phantom Options*** Aug 1995 95p 487,131 462,774 Aug 1998-Dec 2004
Phantom Options*** Apr 1996 130p 540,538 702,699 Apr 1999-Dec 2004
Phantom Options*** Apr 1997 132p 499,694 659,596 Apr 2000-Dec 2004
_________ _________
Total 1,747,212 2,033,926
Wendy Smyth Demerger Executive (No. 2) Jun 1991 135p 82,327 111,141 to Jun 2001
Demerger Executive (No. 2) Apr 1992 107p 68,605 73,407 to Apr 2002
Demerger Executive (No. 2)** Apr 1992 107p 68,605 73,407 to Apr 2002
Demerger Performance** May 1995 73p 67,498 49,274 May 2000-May 2002
Demerger Performance** Aug 1995 95p 67,497 64,122 Aug 2000-Aug 2002
Demerger Performance Apr 1996 130p 75,000 97,500 Apr 1999-Dec 2004
Demerger Performance** Apr 1996 130p 75,000 97,500 Apr 2001-Apr 2003
Demerger Performance Apr 1997 132p 75,000 99,000 Apr 2000-Dec 2004
Demerger Performance** Apr 1997 131p 75,000 99,000 Apr 2002-Dec 2004
______ _______
Total 654,532 764,351
Bill Cochrane Demerger Executive (No. 1) Jun 1991 135p 54,884 74,093 to Jun 1998
Demerger Performance May 1995 73p 33,427 24,402 to May 2004
Demerger Performance Aug 1995 95p 33,427 31,756 Aug 1998 to Dec. 2004
Demerger Performance Apr 1996 130p 37,500 48,750 Apr 1999 to Dec. 2004
Demerger Performance** Apr 1996 130p 37,500 48,750 Apr 2001 to Apr 2003
Demerger Performance Apr 1997 132p 37,500 49,500 Apr 2000 to Dec. 2004
Demerger Performance** Apr 1997 132p 37,500 49,500 Apr 2002 to Dec. 2004
______ ________
Total 271,738 326,751
Dr. Kevin J. Roberts Demerger Performance June 1997 124p 227,344 281,907 June 2000 to Dec 2004
Demerger Performance** June 1997 124p 227,343 281,905 June 2002 to Dec 2004
_______ _______
Total 454,687 563,812
________________________________________________________________________________
From the period beginning on December 15, 1997 and ending on May 30, 1998, the Company's Ordinary shares traded on the London Stock
Exchange at a closing high of 181p, a low of 103p and closed at 170p on May 29, 1998.
All exercise prices for the share option schemes have been rounded to the nearest pence.
No Director exercised options under any of the share option schemes during the period from January 1, 1998 through May 30, 1998.
* Includes spouse's interests
** Denotes Super Options
*** Denotes phantom options which track real options, paying cash rather than converting into shares.
</TABLE>
<PAGE>
Directors' Equity Participation Plan Grants
<TABLE>
<CAPTION>
Maximum Number Contribution
of Shares payable
Scheme Date of grant L Vesting Period
<S> <C> <C> <C> <C> <C>
R. Seelert Equity Participation Dec 1997 1,090,909 150,000 Dec 2000 - Dec 2001
Plan
W. Cochrane Equity Participation Dec 1997 909,090 125,000 Dec 2000 - Dec 2001
Plan
K. Roberts Equity Participation Dec 1997 1,090,909 150,000 Dec 2000 - Dec 2001
Plan
W. Smyth Equity Participation Dec 1997 545,454 75,000 Dec 2000 - Dec 2001
Plan
</TABLE>
Item 13. Interest of Management in Certain Transactions.
Except for the employment arrangements referred to in Item 10, neither the
Company nor any of its subsidiaries was a party to any material transaction, or
proposed transaction, in which any Director, any other executive officer, any
spouse or relative of any of the foregoing, or any relative of such spouse had
or was to have had a direct or indirect material interest. There are no
outstanding loans granted by any member of the Group to any of the Directors or
guarantees provided by any member of the Group for their benefit.
PART II
Item 14. Description of Securities to be Registered.
Not applicable.
PART III
Item 15. Defaults Upon Senior Securities.
Not applicable.
Item 16. Changes in Securities and Changes in Security for Registered
Securities.
Not applicable.
PART IV
Item 17. Financial Statements.
The Company has elected to provide financial statements pursuant to Item
18.
Item 18. Financial Statements.
The Company's financial statements and the report thereon by its
Independent Auditor listed below and set forth on pages F-1 to F-63 herein are
hereby incorporated by reference into this Item 18.
(a) Independent Auditor's Report dated April 24, 1998, except as to Note
36 which is as of June 11, 1998.
(b) Consolidated Statements of operations of the Company and subsidiaries
for years ended December 31, 1997, 1996 and 1995.
(c) Consolidated balance sheets of the Company and subsidiaries as of
December 31, 1997 and 1996.
(d) Consolidated statements of shareholders' deficiency and other share
capital, total recognized gains and losses and cash flows of the
Company and subsidiaries for the years ended December 31, 1997, 1996
and 1995.
(d) Notes to consolidated financial statements.
Item 19. Financial Statements and Exhibits.
(a) Financial Statements
(1) Consolidated statements of operations of the Company and subsidiaries
for years ended December 31, 1997, 1996 and 1995. (Page F-2)
(2) Consolidated balance sheets of the Company and subsidiaries as of
December 31, 1997 and 1996. (Page F-5)
(3) Consolidated statements of shareholders' deficiency and other share
capital, total recognized gains and losses, and cash flows of the
Company and subsidiaries for years ended December 31, 1997, 1996 and
1995. (Page F-7, F-8, and F-9)
(4) Notes to consolidated financial statements. (Pages F-11 to F-63)
(b) Exhibits
1.1 Memorandum and Articles of Association of the Company.
2.1 Upon the request of the Securities and Exchange Commission, the
Company hereby agrees to provide a list of subsidiaries of the
Company.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SAATCHI & SAATCHI PLC
By: /s/ David I. C. Weatherseed
Name: David I. C. Weatherseed
Title: Deputy Finance Director
Date: June 18, 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Shareholders of Saatchi & Saatchi plc:
We have audited the accompanying consolidated balance sheets of Saatchi &
Saatchi plc and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' deficiency, total
recognized gains and losses and cash flows for each of the years in the three
year period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Saatchi & Saatchi
plc and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for each of the years in the
three year period ended December 31, 1997 and shareholders' deficiency at
December 31, 1997 and 1996 to the extent summarized in note 39 to the
consolidated financial statements.
/s/ KPMG AUDIT PLC
---------------------------
KPMG AUDIT PLC
CHARTERED ACCOUNTANTS
REGISTERED AUDITOR
London, England
April 24, 1998,
except as to Note 36,
which is as of June 11, 1998
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
Notes 1997 1996 1995
L million L million L million
<S> <C> <C> <C> <C>
Turnover from continuing operations
Group and share of joint venture 2,469.6 2,528.7 2,266.0
Less: share of joint venture (490.9) (578.3) (185.7)
Group turnover from continuing operations 1,978.7 1,950.4 2,080.3
Commission and fee income from continuing operations
Ongoing businesses and share of joint venture 397.7 393.5 390.2
Disposed businesses 1.5 2.1 25.6
Less: share of joint venture (21.0) (20.3) (19.8)
378.2 375.3 396.0
Operating and administrative expenses 4/5 (333.6) (354.0) (363.4)
Depreciation (14.9) (14.3) (13.7)
Operating profit from continuing operations 29.7 7.0 18.9
Share of operating profit (loss) in joint venture 0.9 0.1 (0.2)
Profit (loss) on disposal of continuing operations 3/5 4.3 17.7 (28.3)
Profit on continuing operations before interest and tax 34.9 24.8 (9.6)
Profit on disposal of discontinued operations 5 - - 3.4
Exceptional demerger reorganization item 5 764.5 - -
799.4 24.8 (6.2)
Net interest (payable) receivable and similar items
Net dividends from (to) the CCG companies prior
to the demerger 10.4 7.8 (0.9)
Joint venture 1.1 1.1 1.0
Other 7 (14.5) (15.2) (26.6)
Profit (loss) before taxation 796.4 18.5 (32.7)
Tax charge on profit (loss) 8 (8.2) (4.5) (6.9)
Profit (loss) after taxation 788.2 14.0 (39.6)
Minority interests (0.6) (0.4) (1.8)
Net income (loss) 787.6 13.6 (41.4)
Proposed dividend (2.7) - -
Retained profit (loss) 784.9 13.6 (41.4)
Earnings (loss) per share 9 354.9p 6.1 p (28.3)p
Adjusted weighted average number of shares in issue (millions) 221.9 221.8 146.2
</TABLE>
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
The net interest, taxation and earnings (loss) per share shown above were
significantly affected by the financing and taxation profile of the Cordiant
Group. In addition, trading profit does not reflect the proposed new trading
arrangements with Zenith. Accordingly, the amounts of those items included above
are not representative of those which may arise following the Demerger.
The 1996 revenues and operating and administrative expense figures have
been restated from the figures presented in the Registration Statement on Form
20-F filed by the Company on December 1, 1997 (the "Registration Statement") to
comply with FRS9 and to reflect certain costs charged by Zenith, previously
included in operating and administration expenses, as a cost of sale.
Revenue and operating profit from disposed businesses principally relate to the
results of Campbell Mithun Esty, Kobs & Draft Worldwide, Badillo and Saatchi &
Saatchi Russia before they were sold or closed. The profit or loss on disposal
of these operations is included within profit or loss on disposal of continuing
operations.
Except for the profit on disposal of discontinued operations (which arose from
the receipt of deferred consideration), all the components of the consolidated
profit and loss accounts arose from continuing operations.
There is no difference between the total reported results in the periods and
those on an historical cost basis.
See accompanying notes to consolidated financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
Notes L million L million
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits 57.5 69.3
Short-term investments
Shares - listed overseas 11 0.2 12.1
Accounts and other receivables,
prepayments and accrued income 12/13 258.4 400.8
Billable production 13 20.0 20.6
Total current assets 336.1 502.8
Investments:
In CCG - 112.1
Other 4.0 0.4
14 4.0 112.5
Long-term receivables:
Accounts and other receivables, prepayments
and accrued income 12 5.0 9.7
Properties, furniture, equipment and
motor vehicles 15 84.4 87.3
Total assets 429.5 712.3
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank loans and overdrafts 16 21.4 20.8
Accounts payable, other liabilities and
accrued expenses 17 333.8 1,529.0
Taxation and social security 10.8 14.2
Total current liabilities 366.0 1,564.0
Long-term liabilities:
Accounts payable, other liabilities and
accrued expenses 17 4.7 9.8
Investment in joint venture: 18
Share of gross assets (51.7) (65.7)
Share of gross liabilities 66.0 67.0
14.3 1.3
Property, pension and other provisions 19 74.9 74.5
Long-term debt 20 81.4 79.1
Taxation and other social security 23.3 18.6
Minority interests 2.2 1.7
Total long-term liabilities 200.8 185.0
Total liabilities 566.8 1,749.0
Shareholders' deficiency
Share capital
Allotted, called up and fully paid:
221,926,993 Ordinary shares of 10p each
(1996: 221,841,440 - assuming that the
Company had at all relevant times prior to
the Demerger the same number of issued
Ordinary shares as Cordiant). 22.2 22.2
Share premium 102.7 102.7
Merger reserve - (124.9)
Goodwill reserves (121.1) (121.3)
Accumulated deficit (141.1) (915.4)
Shareholders' deficiency (137.3) (1,036.7)
Total liabilities and shareholders' deficiency 429.5 712.3
</TABLE>
In December 1997 shares were issued and a share premium reserve created. In
order to present comparable numbers for 1996 and 1995 an amount equal and
opposite to the share capital and share premium had to be created and was
disclosed as the merger reserve. Upon issuance of the shares the merger reserve
was eliminated.
The 1996 presentation of the carrying value of the joint venture has been
restated from the figures presented in the Registration Statement to comply with
FRS 9.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
AND OTHER SHARE CAPITAL
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Accumu-
lated Total
Share Share Merger Goodwill earnings shareholders'
Capital premium reserve reserves (deficit) deficiency
L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
At January 1, 1995 22.2 102.7 (124.9) (147.7) (900.0) (1,047.7)
Loss for the year (41.4) (41.4)
Goodwill acquired and written off (5.3) (5.3)
Elimination of goodwill reserves
on disposals 45.1 45.1
Translation adjustment (0.9) (0.9)
At December 31, 1995 22.2 102.7 (124.9) (107.9) (942.3) (1,050.2)
Profit for the year 13.6 13.6
Goodwill acquired and written off (13.4) (13.4)
Translation adjustment 13.3 13.3
At December 31, 1996 22.2 102.7 (124.9) (121.3) (915.4) (1,036.7)
Profit for the year 787.6 787.6
Proposed dividend (2.7) (2.7)
Issues of Ordinary shares net
of expenses 124.9 124.9
Elimination of goodwill reserves
on disposals 0.2 0.2
Translation adjustment (10.6) (10.6)
At December 31, 1997 22.2 102.7 0.0 (121.1) (141.1) (137.3)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED
GAINS AND LOSSES
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Profit (loss) for the year 787.6 13.6 (41.4)
Translation adjustment (10.6) 13.3 (0.9)
Total gains (losses) recognized for the year 777.0 26.9 (42.3)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
Notes 1997 1996 1995
L million L million L million
<S> <C> <C> <C> <C>
Net cash inflow from operating activities 27 52.5 37.9 8.1
Returns on investment and servicing of finance
Interest received 2.1 2.8 3.5
Interest paid (18.1) (12.6) (22.1)
Interest element of finance lease rentals
payments - (0.1) (0.1)
Dividends paid to minorities (0.2) (0.1) (1.2)
Net cash outflow from returns on investments
and servicing of finance (16.2) (10.0) (19.9)
Taxation
UK corporation tax recovered - - 2.0
Overseas tax paid (3.8) (0.3) (0.9)
Net tax (paid) recovered (3.8) (0.3) 1.1
Capital expenditure and financial investment
Purchase of tangible fixed assets (12.0) (14.1) (13.5)
Sale of tangible fixed assets - 0.5 1.2
Purchase of other fixed asset investments (3.7) - -
Net cash outflow from capital expenditure and
financial investment (15.7) (13.6) (12.3)
Acquisitions and disposals
Purchase of subsidiary undertakings 30 (7.9) (20.8) (3.0)
Cash acquired with subsidiaries 30 - 0.5 -
Sale of subsidiary undertakings 30 0.1 9.5 25.8
Cash in businesses disposed - - (1.8)
Demerging CCG/Zenith companies 169.3 - -
Net cash inflow (outflow) from acquisitions and
disposals 161.5 (10.8) 21.0
Management of liquid resources
Disposal of current asset investment 17.1 - -
Cash inflow (outflow) before financing 29 195.4 3.2 (2.0)
Financing
External loans (repaid)/drawn 0.2 (21.3) (118.6)
Loans repaid to CCG/Zenith (1,068.6) - -
Loans drawn from CCG/Zenith 864.2 5.7 106.3
Capital element of finance lease/rental
payments (0.1) - (0.2)
Net cash outflow from financing (204.3) (15.6) (12.5)
Decrease in cash 28 (8.9) (12.4) (14.5)
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Preparation
In accordance with an agreement dated December 14, 1997 providing for the
demerger (the "Demerger") of the Saatchi & Saatchi group, Cordiant plc
("Cordiant") transferred its shares in its wholly owned subsidiary Saatchi &
Saatchi Holdings Limited to Saatchi & Saatchi plc (the "Company"). The
consideration for this transfer was satisfied by the issue to Cordiant plc
shareholders of one Ordinary share of 10p each in Saatchi & Saatchi plc
("Saatchi & Saatchi shares"), credited as fully paid, for each Ordinary share in
Cordiant plc.
The consolidated accounts comprise the accounts of the Company and its
subsidiary undertakings (collectively, the "Group" or the "Saatchi & Saatchi
Group"). The consolidated accounts have been prepared using merger accounting
principles as if the companies, businesses and assets comprising the Group had
been part of the Group for all periods presented, or, in the case of those
companies, businesses and assets disposed of or acquired by Cordiant plc during
these periods up to or from the date control passed, as appropriate. In addition
the following bases of preparation have been used:
Interest
The consolidated financial statements include interest income and expense
actually earned by or charged to the Saatchi & Saatchi Group. During the periods
presented, Saatchi & Saatchi's operations were principally funded by loans from
third parties and loans from Cordiant group companies. This basis of funding and
consequently, the interest charges and financing cash flows are not
representative of the capital structure, interest charges and financing cash
flows of the Saatchi & Saatchi Group following the Demerger.
Taxation
Where tax has been paid or accrued by individual companies within Saatchi &
Saatchi, these amounts are included in the consolidated financial statements
(see note 8).
Overheads
The consolidated financial statements include certain allocations of Cordiant's
overhead costs which have been allocated to Saatchi & Saatchi, CCG and Zenith
pro rata with the revenues of these groups.
As part of the Demerger restructuring, some subsidiary undertakings were
themselves subject to reorganization prior to the transfer. Schedule 4A to the
Companies Act 1985 and Financial Reporting Standard 6, Acquisitions and Mergers
("FRS 6") require such transfers to be accounted for using acquisition
accounting principles. The effect of applying acquisition accounting principles
to these subsidiary undertakings and businesses would have been to restate at
fair value certain assets and liabilities transferred and to recognize any
resulting goodwill.
The Directors consider that to apply acquisition accounting to any part of the
reorganization of the Group's businesses, with consequent adjustments to the
fair values of the related assets and liabilities, would fail to give a true and
fair view of the Group's state of affairs and results for the shareholders since
they have had a continuing interest in the Group's businesses both before and
after the Demerger. Had this departure not been necessary the effect on these
accounts would have been to consolidate the accounts of the subsidiary
undertakings based on the fair values of the related assets at December 14, 1997
and to present the results of the Group for the period from December 14, 1997 to
December 31, 1997. Owing to the number and complexity of transactions involved,
it is not practicable to quantify the effect of this departure.
The balance sheet at December 31, 1996 includes investments in CCG companies
which have not been consolidated, as these companies, subsequent to the
Demerger, form part of CCG. Provision was made to write these investments down
to their estimated net realizable value.
Joint ventures and associated undertakings
The Group's share of the profits less losses of all significant joint ventures
and associated undertakings is included in the Group profit and loss account on
an equity accounting basis in accordance with Financial Reporting Standard 9 -
Joint Ventures and Associates ("FRS 9"). The carrying value of significant joint
ventures and associated undertakings in the Group balance sheet is calculated by
reference to the Group's equity in the net assets of such undertakings.
Note 2 - Accounting Policies
The consolidated financial statements have been prepared under the historical
cost accounting rules and in accordance with applicable UK accounting standards.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires the Company's management (as
is the case with the management of all companies) to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following paragraphs describe the significant accounting policies used in
preparing the consolidated financial statements.
(a) Discontinued Operations
A business is classified as a discontinued operation if it is clearly
distinguishable, has a material effect on the nature and focus of the Group's
activities, represents a material reduction in the Group's operating facilities
and either its sale is completed or, if a termination, its former activities
have ceased before the earlier of three months after the commencement of the
subsequent period and the date on which the financial statements are approved.
(b) Income Recognition
Turnover represents gross billings to clients which are reduced by direct costs
of advertising and other related costs to arrive at commission and fee income.
Commission and fee income is recognized generally when work is billed to clients
and excludes sales taxes and intra group transactions. Billings are usually
rendered upon presentation date for media advertising and upon the completion of
radio, television and print production.
(c) Revenue
Revenue represents the fees and commissions, excluding sales taxes, from
services provided to clients, and is recognized generally when work is billed.
(d) Property Provisions
Provision is made for the future rent expense and related costs of leasehold
property (net of estimated sublease income) where the property is vacant or
currently not planned to be used for continuing operations.
(e) Pension Costs
Retirement benefits for employees of most companies in the Group are provided by
either defined contribution or defined benefit schemes which are funded by
contributions from Group companies and employees. The Group's share of
contributions to defined contribution schemes is charged against profit of the
year for which they are payable and the cost of providing defined benefits is
charged against the profit, in accordance with the recommendations of
independent actuaries, in such a way as to provide for the liabilities evenly
over the remaining working lives of the employees.
(f) Leases
Where the Group enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over the shorter of its estimated useful life and the lease term.
Future installments under such leases, net of finance charges, are included in
creditors. Rentals payable are apportioned between the finance element, which is
charged to the consolidated statement of operations as interest, and the capital
element which reduces the outstanding obligation for future installments.
All other leases are operating leases and the rental charges are taken to the
consolidated statement of operations on a straight-line basis over the life of
the lease, unless another systematic basis is more appropriate.
(g) Goodwill
Goodwill in respect of acquisitions, including any additional goodwill estimated
to arise from contingent capital payments, is written off directly to
shareholders' deficiency. Any purchased goodwill arising after January 1, 1998
will be capitalized and amortized in the Profit and Loss Account over
appropriate periods. A charge is recognized in the Group's statement of
operations in respect of any permanent diminution in the value of acquired
goodwill. Goodwill written off directly to shareholders' deficiency and not
previously charged to the Group's consolidated statement of operations is
included in determining the profit or loss on disposal or closure of an
operation.
Goodwill, after deducting provisions for diminution in value, in respect of
previous acquisitions made by the Cordiant Group, has been allocated to the
Group based on the companies and businesses which are included in the Group and
to which the goodwill originally related.
(h) Fixed Assets
Tangible fixed assets are stated at historical cost less accumulated
depreciation. Additions, improvements and major renewals are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred.
The cost of tangible fixed assets less estimated residual value is written off
by equal annual installments over the expected useful lives of the assets as
follows:
Freehold buildings and long leasehold properties 50 years
Furniture and equipment Between 4 and 10 years
Motor vehicles 4 years
(i) Investments
Investments are valued at cost, less amounts provided for any permanent
diminution in value of the investments.
(j) Billable Production
Billable production is valued at the lower of cost and net realizable value, and
comprises mainly outlays incurred on behalf of clients.
(k) Short-Term Investments
Short-term investments, including money market investments, are valued
individually at the lower of market value on date of receipt or net realizable
value at the balance sheet date. No credit is taken in the financial statements
for any increase in market value at the balance sheet date.
(l) Deferred Taxation
Deferred taxation is provided at the anticipated tax rates on timing differences
arising from the inclusion of items of income and expenditure in taxation
computations in periods different from those in which they are included in the
consolidated financial statements, to the extent that it is probable that a
liability or asset will crystallize in the foreseeable future.
No provision is made for deferred tax on unremitted overseas earnings unless
Saatchi & Saatchi expects them to be remitted.
(m) Foreign Currencies
Statements of operations denominated in foreign currencies are translated into
sterling at the average rate during the period, with the adjustment to closing
rates at the end of the period being taken to reserves. Assets and liabilities
in foreign currencies are translated using the rates of exchange ruling at the
balance sheet date. Gains or losses on translation of the opening net assets of
overseas subsidiaries are taken to shareholders' deficiency. Exchange
differences arising from the remeasurement of long-term foreign currency
borrowings used to finance foreign currency investments are also taken to
shareholders' deficiency. All other exchange differences are taken to the
statement of operations.
Saatchi & Saatchi's principal trading currencies and the exchange rates used
against pounds sterling are as follows:
<TABLE>
<CAPTION>
Average Rate Closing Rates
Year Ended December 31, December 31,
1997 1996 1995 1997 1996
<S> <C> <C> <C> <C> <C>
US Dollar 1.64 1.56 1.58 1.65 1.71
French Franc 9.55 7.99 7.87 9.90 8.90
Deutsche Mark 2.84 2.35 2.26 2.96 2.64
Australian Dollar 2.21 2.00 2.13 2.52 2.15
Italian Lira 2,790.00 2,409.00 2,571.00 2,909.00 2,602.00
</TABLE>
Note 3 - Acquisitions, Disposals and Deferred Capital Payments<F1>
Acquisitions
With effect from January 1996 Cordiant acquired the outstanding 47.4% of the
share capital of Saatchi & Saatchi Advertising SA in France. The acquisition was
completed in September 1996 for an initial consideration of L18.1 million
(including L2 million to settle a bank overdraft), with further cash payments
made of L3.3 million in 1997 and further deferred consideration due of L2.4
million in 1998.
During 1996 Cordiant acquired a 51% interest in Saatchi & Saatchi Klerk &
Barrett Holdings (Proprietary) Limited, a company based in South Africa. The
total consideration for this acquisition was L1.3 million in cash and L1.2
million of goodwill arose on purchase.
These acquisitions were accounted for under the purchase method of accounting.
Accordingly, the statements of operations reflect the results of operations for
new subsidiaries since the dates of acquisition. Goodwill of L13.4 million was
written off against shareholders' deficiency at the dates of acquisition. Pro
forma net income and earnings per share assuming the acquisitions had taken
place on January 1, 1995 would not be materially different than actual amounts.
____________________________
<F1> Where applicable in this Note translations from foreign currencies are made
at the rates at which the transactions were concluded.
Disposals
The loss on disposal in 1995 of L28.3 million arose from sale of the Minneapolis
office of CME (as defined below) together with the closure or integration of all
the other operations of the CME network into other Cordiant operations, and the
sale of the Kobs & Draft Worldwide network. The loss included the non-cash
write-off of L45.1 million of acquired goodwill. Details of the disposals are as
follows:
(i) In April 1995, Cordiant disposed of the assets and liabilities,
business and undertakings of the Minneapolis offices of Campbell
Mithun Esty, Inc., CME Promotion Marketing, Inc. and Cash Plus, Inc.
(together referred to as "CME"), Interpublic Group ("IPG") acquired
51% and CME's management acquired the remainder. Consideration of
$30.0 million (L18.8 million) was received in cash. Net assets
disposed were $7.3 million (L4.7 million).
(ii) At an Extraordinary General Meeting of Cordiant on September 1, 1995,
shareholders approved the sale of the Kobs & Draft Worldwide network
("KDW") to its management. Consideration was $12.1 million (L7.8
million) in cash (of which L4.3 million was received by Saatchi &
Saatchi), $9.5 million (L6.1 million gross; L4.2 million net of
provisions) in the form of a 10 percent subordinated loan note of the
purchaser, $4.0 million (L2.5 million) in the form of redeemable
preferred stock in the purchaser and warrants to subscribe for shares
of common stock in the purchaser representing approximately 25% of the
purchaser's fully diluted equity share capital, exercisable at a price
of $250,000 (L161,000) in aggregate. The net assets of KDW disposed of
were L2.8 million, of which L1.5 million of net assets were in CCG.
In 1996 KDW was sold to IPG and, as a result, Cordiant exercised its
right to take up the warrants and recognized a further gain of L16.5
million. The additional consideration received was $13.5 million (L8.7
million) in cash from the repayment of a loan note and redeemable
preferred stock, and $18.5 million (L11.8 million) in shares of IPG.
In 1997 the IPG shares were sold generating a further profit of L4.3
million.
(iii) Badillo was sold in 1995 for no consideration. Disposal proceeds in
1995 related to prior year deferred consideration proceeds.
The profit on disposal in 1996 and 1997 principally arose from the sale of KDW
(refer to paragraph (ii) of this note and Note 5).
Deferred Capital Payments
The Saatchi and Saatchi Group is committed to make certain capital payments in
the form of deferred consideration and to acquire certain minority interests in
subsidiary undertakings. Commitments totaling L2.4 million at December 31, 1997,
in respect of the acquisition of Saatchi & Saatchi Advertising S.A. (France),
have been accrued in the Group balance sheet. The Company estimates that the
total payments (including interest) that will be made are as follows:
1997 Total 1996 Total
L million L million
Due within 1 year 2.4 3.1
Due within 2-5 years - 2.9
2.4 6.0
Note 4 - Operating and Administrative Expenses
Operating and administrative expenses from continuing operations included the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Staff and other associated costs (including exceptional
items) see Notes 5 and 6 201.4 210.7 219.8
Hire of plant and machinery - operating leases (see
Note 26) 1.1 1.2 1.1
Hire of other assets - leasehold property net of
sublease income (see Note 26) 22.1 25.2 26.3
Loss (profit) on sale of tangible fixed assets - 0.2 (0.4)
Auditor's remuneration, including expenses 1.0 1.2 1.1
Auditor's remuneration, other than audit fees 0.1 0.4 0.4
Other administrative expenses, (including exceptional
items) - see Note 5 107.9 115.1 115.1
333.6 354.0 363.4
</TABLE>
Note 5 - Exceptional Operating and Non-Operating Items
Included in Operating and Administrative Expenses in Note 4 are the following
exceptional items:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
Operating items L million L million L million
<S> <C> <C> <C>
Property provisions - 8.2 -
Termination of a defined benefits pension plan - see Note 25 - 8.1 -
Severance and reorganization costs - - 3.8
Litigation and associated costs - - 2.0
Total exceptional costs included in operating profit - 16.3 5.8
</TABLE>
Property provisions in 1996 arose from the decision to vacate surplus office
space with an estimated future net rental shortfall of L8.2 million.
The pension plan costs arose from a decision taken as part of the Cordiant
Group's efficiency program to terminate the defined benefits plan in the U.S.
The scheme was frozen at June 30, 1996 and terminated on December 31, 1996.
Severance and reorganization costs in 1995 arose both due to downsizing
following the loss of major client accounts and due to reorganization costs
identified as part of an efficiency program.
Litigation and associated costs in 1995 related to the departure of the former
Chairman of Cordiant plc and other senior executives.
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
Non-operating items L million L million L million
<S> <C> <C> <C>
Fundamental reorganization demerger 764.5 - -
Profit (loss) on disposal of continuing operations 4.3 17.7 (28.3)
Profit on disposal of discontinued operations - - 3.4
Exceptional bank fees - see Note 7 - - (3.9)
Total profit (loss) outside operating profit 768.8 17.7 (28.8)
</TABLE>
In order to implement the Demerger, intergroup indebtedness between Saatchi &
Saatchi and CCG/Zenith had to be eliminated and cross holding investments
transferred. This was carried out predominantly by sale, settlement, assignment
and waiver and resulted in an exceptional gain of L770.6 million in 1997. This
was partly offset by an additional property provision of L6.1 million, which
arose as a result of the Demerger and represented the difference between the
rental payable by Saatchi & Saatchi and the amounts receivable from Zenith for
space sublet to them.
The profit on disposal of continuing operations in 1996 of L17.7 million
comprised of L16.5 million in respect of the disposal of the remaining interest
in KDW and the final payment of L1.2 million from Bozell in respect of the sale
of the business of the Detroit office of CME.
The loss on disposal of continuing operations in 1995 of L28.3 million arose
from the sale and closure of the CME network and the sale of KDW. The loss on
disposal included the non-cash write-off of L45.1 million of acquired goodwill
and a L4.2 million property provision.
The profit on disposal of discontinued operations in 1995 of L3.4 million arose
from deferred consideration payments received from consultancy operations sold
in prior years.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Employees
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Average number of employees of the Company by geographic
area:
North America 1,870 1,675 2,253
UK 855 845 866
Rest of Europe, Africa and Middle East 1,428 1,047 1,073
Asia Pacific 1,103 1,125 1,016
Average number of employees 5,256 4,692 5,208
L million L million L million
Salaries and related costs
Wages and salaries 178.5 178.3 193.2
Social security costs 15.8 17.0 17.7
Pension costs* 7.1 15.4 8.9
201.4 210.7 219.8
</TABLE>
______________
* The pension cost for the year was L7.1 million (1996: L15.4 million; 1995:
L8.9 million). The 1996 Pension cost included L8.1 million to terminate the
defined benefits pension plan in the U.S. - see Note 25.
Directors' emoluments are not included above but are included within the
net Cordiant Group corporate costs attributable to the Saatchi & Saatchi
Group.
<PAGE>
Note 7 - Net Interest Payable and Similar Charges
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
External Interest
Interest payable and similar charges:
On bank loans, overdraft facilities and other loans
required to be repaid within five years 8.6 9.8 19.4
On capitalized leases and hire purchase - 0.1 0.1
Bank fees 2.2 1.0 0.6
Exceptional bank fees - see Note 5 - - 3.9
10.8 10.9 24.0
Interest receivable and similar items
Cash and deposits (2.3) (2.6) (3.3)
Foreign Exchange (1.4) - -
Net interest payable to CCG and Zenith 7.4 6.9 5.9
14.5 15.2 26.6
</TABLE>
Exceptional bank fees of L3.9 million in 1995 arose from the renegotiation of
bank facilities in April 1995 which were superseded by Cordiant's subsequent
rights issue and amended bank facility.
As noted in the consolidated statements of operations, the above finance charges
are not representative of the charges that will be incurred by the Group
following the Demerger.
There is a gain of L1.4 million included in the net interest expense for the
year ended December 31, 1997, which is the recognition of exchange differences
arising on loans from subsidiaries to parent companies.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Taxes on Income
Taxes on income were made up as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
UK corporation tax 32% (1996: 33%):
Currently payable 0.8 0.6 -
Deferred 0.2 1.0 (0.6)
Relief for overseas tax (0.4) - -
0.6 1.6 (0.6)
Overseas taxation:
Currently payable 6.9 2.3 4.6
Deferred 0.1 (0.2) 2.4
Share of tax charge of associated
undertakings 0.6 0.8 0.5
8.2 4.5 6.9
</TABLE>
There was no tax effect of the operating and non-operating exceptional items in
1997 (1996: Lnil; 1995: credit of L1.2 million).
The taxation charge represents the sum of the tax charges of the legal entities
forming part of the Group. These charges may have been affected by the surrender
of losses between the members of the Group and CCG. Consequently, and for other
similar reasons, the taxation charge is not representative of the taxation
charge that will be incurred by the Saatchi & Saatchi Group following the
Demerger.
No reconciliation of the UK statutory rate of taxation, which was 33% for the
two years ended December 31, 1996 but which changed to 31% in April 1997, is
presented as it would not be meaningful.
Profit/(loss) before taxation is analyzed as following:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
United Kingdom(<F1> 842.1 9.7 4.5
Overseas (45.7) 8.8 (37.2)
796.4 18.5 (32.7)
</TABLE>
<F1> After payment of interest of L1.1 million (1996: L2.9 million receipt;
1995: L8.1 million receipt).
The analysis of profit before taxation for 1997 is not considered to be
meaningful by the Directors, because of the exceptional Demerger reorganization
credit of L764.5 million which arose in the period.
At December 31, 1997 Saatchi & Saatchi had L325 million of operating loss
carryforwards expiring between 1998 and 2011. Additionally, Saatchi & Saatchi
had L5 million of operating loss carryforwards which had no expiration date. It
is possible that all or part of the operating loss carryforwards expiring
between 1997 and 2010 may be restricted or eliminated under any of several
statutory/regulatory provisions or judicially-created doctrines. Moreover, the
operating loss carryforwards are generally only available to offset future
income of the Saatchi & Saatchi Group within the tax jurisdiction where the
operating loss arose, and are not transferable between jurisdictions.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 - Earnings (Loss) Per Share
Basis of Calculation
The earnings (loss) per Ordinary share are based on the Directors' estimated
weighted average number of Ordinary shares which would have been in issue for
the year after taking into account the share consolidation of 221.9 million
(1996: 221.8 million; 1995: 146.2 million) and assuming that the Company had at
all relevant times prior to the Demerger the same number of issued Ordinary
shares as Cordiant. The number of Ordinary shares in issue at December 31, 1997
was 221.9 million.
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
pence per pence per pence per
L million share L million share L million share
<S> <C> <C> <C> <C> <C> <C>
Earnings/(loss) 787.6 354.9 13.6 6.1 (41.4) (28.3)
</TABLE>
Owing to the impact of interest and taxation on profit/(loss) for the periods,
which are not representative of the charges that will be incurred by the Saatchi
& Saatchi Group following the Demerger, earnings per share are not indicative of
earnings per share following the Demerger.
Earnings/(loss) per share on the nil distribution and fully diluted basis have
not been disclosed as they are not materially different.
Note 10 - Dividends
The Board has recommended a final dividend of 1.2p net per Ordinary share (1996:
nil; 1995: nil) at a cost of L2.7 million. The final dividend is expected to be
paid on July 6, 1998 to shareholders on the register at June 5, 1998
In the UK, dividends are paid out of taxed profits and no withholding tax
applies. The shareholder, however, when receiving a dividend, receives an
imputed tax credit against his personal tax liability. The equivalent gross
amount of the Company's dividend is 1.5p per share.
Note 11 - Short-term Investments
Short-term investments comprised overseas listed investments of L0.2 million
(1996: L12.1 million) with an aggregate market value of L0.2 million (1996:
L12.3 million).
During 1997, the Company disposed of its IPG stock (see Note 3).
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 12 - Accounts and Other Receivables, Prepayments and Accrued Income
December 31,
1997 1996
L million L million
Due within one year
Trade receivables 213.1 226.3
Other receivables 23.3 11.3
Prepayments and accrued income 16.5 32.0
Amounts due from CCG 5.1 122.0
Amounts due from joint venture 0.4 9.2
258.4 400.8
Due after one year
Other receivables 2.8 5.0
Prepayments and accrued income 2.2 4.7
5.0 9.7
Total prepayments and accrued income at December 31, 1997 amounted to L18.7
million (1996: L36.7 million).
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
charged to
Balance at costs and Balance at
beginning of expenses end of
Description period Lmillion Deductions* period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts (deducted
from accounts receivable) 7.3 - - 7.3
Allowance for non-recoverable billable
production (deducted from billable production)
2.2 - (0.2) 2.0
Year ended December 31, 1996:
Allowance for doubtful accounts (deducted
from accounts receivable) 7.8 - (0.5) 7.3
Allowance for non-recoverable billable
production (deducted from billable production)
2.5 - (0.3) 2.2
Year ended December 31, 1995:
Allowance for doubtful accounts (deducted
from accounts receivable) 8.6 - (0.8) 7.8
Allowance for non-recoverable billable
production (deducted from billable production)
2.5 - - 2.5
</TABLE>
*Substantially represents amounts utilized against non-recoverable billable
production and bad debts arising during the periods.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14 - Investments
<TABLE>
<CAPTION>
Associated Long term Works Investments
undertakings investments of art in CCG Total
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Cost
At January 1, 1996 2.5 9.9 - 421.5 433.9
Translation adjustment (0.2) (0.9) - - (1.1)
At December 31, 1996 2.3 9.0 - 421.5 432.8
Translation adjustment 0.1 0.3 - - 0.4
Disposals - (6.1) - - (6.1)
Demerger additions (disposals) - (2.4) 3.6 (421.5) (420.3)
At December 31, 1997 2.4 0.8 3.6 - 6.8
Provisions
At January 1, 1996 2.4 9.3 - 309.4 321.1
Translation adjustment (0.2) (0.8) - - (1.0)
Additions - 0.2 - - 0.2
At December 31, 1996 2.2 8.7 - 309.4 320.3
Translation adjustment 0.1 0.3 - - 0.4
Disposals - (6.1) - - (6.1)
Demerger disposal - (2.4) - (309.4) (311.8)
At December 31, 1997 2.3 0.5 - - 2.8
Net book value
At December 31, 1996 0.1 0.3 - 112.1 112.5
At December 31, 1997 0.1 0.3 3.6 - 4.0
</TABLE>
In accordance with FRS 9 the negative investment in the Zenith joint venture is
now presented as a non-current liability on the balance sheet.
Long term investments at December 31, 1997 include L0.3 million (1996: L0.3
million) of overseas listed investments with a market value of L0.3 million.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15 - Properties, Furniture, Equipment and Motor Vehicles
<TABLE>
<CAPTION>
Leasehold Leasehold Furniture
Freehold property property and Motor
property - long -short equipment vehicles Total
L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1996 8.4 1.0 75.1 90.5 4.2 179.2
Translation adjustments (2.0) - (5.3) (7.1) (0.1) (14.5)
Additions - 0.2 1.5 9.9 0.7 12.3
Revaluation 4.5 - - - - 4.5
Transfer from CCG - 0.1 - 0.9 0.3 1.3
Companies acquired - 0.1 - 0.1 - 0.2
Disposals - (0.1) (1.4) (4.3) (1.3) (7.1)
At December 31, 1996 10.9 1.3 69.9 90.0 3.8 175.9
Translation adjustment (1.1) 0.1 1.3 (0.8) - (0.5)
Additions - 0.2 3.1 8.7 0.5 12.5
Disposals - (0.2) (0.5) (2.1) (0.8) (3.6)
At December 31, 1997 9.8 1.4 73.8 95.8 3.5 184.3
</TABLE>
The revaluation of freehold property in 1996 arose from a fair value adjustment
on the acquisition of the minority shareholding in Saatchi & Saatchi Advertising
SA (France) and did not give rise to a revaluation reserve in shareholders'
equity.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 15 - Properties, Furniture, Equipment and Motor Vehicles (Continued)
<TABLE>
<CAPTION>
Leasehold Leasehold Furniture
Freehold property property and Motor
property - long -short equipment vehicles Total
L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C>
Depreciation
At January 1, 1996 3.0 0.3 21.0 60.9 2.4 87.6
Translation adjustment (0.5) - (1.7) (5.6) (0.1) (7.9)
Transfers from CCG - - - 0.5 0.1 0.6
Charge for the year 0.2 0.1 2.6 10.6 0.8 14.3
Disposals - (0.1) (1.2) (3.9) (0.8) (6.0)
At December 31, 1996 2.7 0.3 20.7 62.5 2.4 88.6
Translation adjustment (0.2) - 0.1 (0.7) 0.1 (0.7)
Charge for the year 0.2 0.1 3.7 10.3 0.6 14.9
Disposals - (0.1) (0.5) (1.6) (0.7) (2.9)
At December 31, 1997 2.7 0.3 24.0 70.5 2.4 99.9
Net book value
At December 31, 1996 8.2 1.0 49.2 27.5 1.4 87.3
At December 31, 1997 7.1 1.1 49.8 25.3 1.1 84.4
Net book value of assets
held under finance leases
included above
At December 31, 1996 - - - 0.2 - 0.2
At December 31, 1997 - - - 0.2 - 0.2
</TABLE>
Net book value of land and buildings at December 31, 1997 was L58.0 million
(1996: L58.4 million).
Depreciation attributable to owned fixed assets was L14.7 million (1996: L13.8
million; 1995: L13.2 million) depreciation attributable to assets held under
finance leases was L0.2 million (1996: L0.5 million; 1995: L0.5 million).
The Group had the following commitments in respect of capital expenditure on
properties, furniture and equipment:
December 31
1997 1996
L million L million
Committed but not provided for 0.2 0.4
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16 - Bank Loans and Overdrafts
Balance at end Weighted average
of period interest rate
Year ended December 31, 1997
L million %
Bank loans and overdrafts 21.4 5.8%
Year ended December 31, 1996
L million %
Bank loans and overdrafts 20.8 6.2
An amount of L0.6 million (1996: L0.8 million) included in bank loans and
overdrafts is secured by liens over assets.
Note 17 - Accounts Payable, Other Liabilities and Accrued Expenses
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
Due within Due after Due within Due after
one year one year one year one year
L million L million L million L million
<S> <C> <C> <C> <C>
Accounts payable 214.3 - 208.6 -
Payments on account 35.9 - 47.4 -
Finance leases 0.1 0.1 0.2 0.1
Amounts owed to CCG 15.4 - 1,196.0 -
Proposed dividend 2.7 - - -
Other payables 65.4 4.6 76.8 9.7
333.8 4.7 1,529.0 9.8
</TABLE>
An amount of L4.2 million (1996: L7.7 million) included in accounts payable is
secured by related trade receivables and cash balances. Liabilities under
finance leases are secured on the assets leased.
The Group is committed to make certain capital payments in the form of deferred
consideration for subsidiary undertakings. All such commitments totaling L2.4
million (1996: L6.0 million) have been accrued in the balance sheet. The
estimated total payments are set out in Note 3.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 18 - Investment in Joint Venture
The following table provides a further analysis of the Company's share of the
joint venture's net liabilities.
December 31,
1997 1996
Lm Lm
Share of assets
Share of fixed assets 1.8 2.0
Share of current assets 49.9 63.7
51.7 65.7
Share of Liabilities
Liabilities due within one year (64.4) (66.5)
Liabilities due after one year (1.6) (0.5)
(66.0) (67.0)
Total share of net liabilities (14.3) (1.3)
Note 19 - Property, Pension and Other Provisions
<TABLE>
<CAPTION>
Pensions and
similar employment
Property obligations Other Total
L million L million L million L million
<S> <C> <C> <C> <C>
At January 1, 1996 70.5 12.3 1.6 84.4
Translation adjustment (5.9) (1.3) (0.6) (7.8)
Charge to expense 8.2 2.2 0.4 10.8
Utilized (12.0) (0.1) (0.8) (12.9)
At December 31, 1996 60.8 13.1 0.6 74.5
Translation adjustment 1.3 0.1 0.1 1.5
Transfers 2.3 - - 2.3
Charge to expense 6.1 2.9 0.9 9.9
Utilized (11.8) (0.8) (0.7) (13.3)
At December 31, 1997 58.7 15.3 0.9 74.9
<F1> Where applicable in this Note translations from foreign currencies are made
at the rates at which the transactions were concluded.
</TABLE>
Analysis of leasehold property provision by years
December 31,
1997 1996
L million L million
Under one year 7.5 11.9
One to two years 6.4 5.7
Two to five years 13.9 9.0
Over five years 30.9 34.2
58.7 60.8
Note 20 - Long-Term Debt
Long term debt consisted of bank loans of L 81.4 million at December 31, 1997
(1996: L 79.1 million). Of the L 81.4 million, L 6.6 million includes bank loans
secured by charges over assets and L 74.6 million of the long term debt is
secured by guarantees from and charges over the assets of the Company and a
number of its subsidiaries.
The core banking facility contains certain covenants which relate principally to
interest cover. As of December 31, 1997 there had been no breaches of covenants
or other defaults under the agreement which have caused or are likely to cause
an early repayment of the debt to be enforced. The unamortized costs of the
banking facility at December 31, 1997 was L 1.9 million.
At December 31, 1997 the Group had committed core banking facilities totaling
US$165.0 million (L100.0 million), of which L74.6 million were being utilized.
The core banking facility will be reduced in accordance with following schedule:
- -------------------------------------------------------------------------------
1998 1999 2000 2001 2002
$7.0m $18.0m $20.0m $25.0m the balance
- -------------------------------------------------------------------------------
Interest is payable on each advance under the facilities at a rate per annum
based on the aggregate of LIBOR and a margin of between 1.5% and 0.75% per annum
depending upon the ability of the Company to improve certain financial ratios.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 21 - Guarantees and Contingent Liabilities
Guarantees given by Saatchi & Saatchi to third parties other than CCG or Zenith
amounted to L0.1 million (1996: L0.3 million).
In addition to those guarantees identified in Note 20, the Company has
guaranteed L2.0 million of outstanding borrowings of subsidiary undertakings.
The Company has jointly and severally with CCG provided unlimited guarantees to
the lenders, in respect of Zenith's L21.5 million bank facility agreement and
has guaranteed L3.3 million in borrowings of Bates Japan Limited, provided by
Yomiko Advertising, Inc. The Demerger Agreement provides for any liability under
these guarantees to be shared equally between CCG and the Company.
The Saatchi & Saatchi Group has guaranteed the following obligations of CCG.
(CCG has agreed in the Demerger Agreement to indemnify the Group against any
liability under the Group's guarantees of CCG obligations). The Company has
given a guarantee to the lenders under CCG's new bank facility agreement against
liability under a bank guarantee of up to L5 million at December 31, 1997 in
connection with Cordiant's reduction of capital.
The Company has guaranteed all of the obligations of Cordiant Property Holdings
Limited, a member of CCG, as tenant under certain leases of premises at
Landsdowne House, Berkeley Square, London for a term expiring on June 16, 2013.
The current base rent under these leases amounts to L10.6 million per annum,
subject to upwards only rent reviews in 2002/2003 and every five years
thereafter. This property is not currently occupied by any CCG company. Most of
this property has been sublet, but for varying terms and at lower rents. There
is also an existing guarantee from CCG which will continue.
The Company's subsidiary, Saatchi & Saatchi Compton Worldwide, Inc. has
guaranteed all of the obligations of Bates Advertising USA, Inc., a member of
CCG, as tenant under certain leases of premises at 2010 Main Street, Irvine,
California for a term expiring on March 3, 2003. The base rent over the
remaining life of the lease totals $11.9 million. Of 73,000 rentable square
feet, 24,000 is currently occupied by a CCG company. The remaining space has
been sublet for varying terms and at lower rents.
There are a number of existing guarantees by CCG in respect of obligations of
certain companies in the Saatchi & Saatchi Group, including guarantees in
respect of leases of premises at 375 Hudson Street, New York and certain
premises in London and deferred consideration payable for the acquisition of the
minority shareholdings in Saatchi & Saatchi Advertising S.A. (France). These and
certain other existing guarantees were not released in connection with the
Demerger. In the Demerger Agreement, the Company agreed to give additional, or
in some cases substitute, guarantees and to indemnify CCG against any liability
under its existing guarantees.
In March 1992 Saatchi & Saatchi North America, Inc. ("SSNA"), a subsidiary of
Saatchi & Saatchi, disposed of the assets of its Lifestyle Marketing Group
division. In 1995 a default judgment was entered by the Wayne County, Michigan
Circuit Court against a party described as Lifestyle Marketing Group. The total
amount of the default judgment (including interest to date) is approximately $31
million. On February 11, 1998, this court issued an Opinion and Order holding
that SSNA is liable to indemnify a party which the Court referred to as
Lifestyle Marketing Group or Lifestyle Marketing Group Inc. Saatchi & Saatchi
has been advised by its U.S. counsel that, in its view, the Opinion and Order is
based on palpable errors of fact and law. SSNA was previously dismissed from
this lawsuit in March 1997 on summary judgment. SSNA is vigorously pursuing its
defenses to this action through a rehearing and/or appeal.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22- Deferred Taxation
December 31,
1997 1996
L million L million
UK deferred taxation asset - -
Overseas deferred taxation
(liability) (1.7) -
(1.7) -
There were no material deferred tax liabilities at December 31, 1997 in respect
of accelerated capital allowances. No provision is made for tax that would arise
on the remittance of overseas earnings as the Company intends to keep these
earnings invested locally.
Unremitted earnings of subsidiaries which have been or are intended to be
permanently reinvested to meet media accreditation and working capital
requirements aggregated L30 million at December 31, 1997 (1996: L32 million;
1995: L36 million).
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 22- Deferred Taxation (Continued)
Under US GAAP temporary differences at the appropriate tax rate are as follows:
<TABLE>
<CAPTION>
Assets (Liabilities)
Year Ended December 31,
1997 1996
Deferred Tax Assets L million L million
<S> <C> <C>
Provision for investments - 124.0
Accrued property rental expense 29.9 26.6
Accrued compensation 9.2 7.0
Capital loss carryforwards 5.1 5.4
Operating loss carryforwards 139.8 135.6
Interest disallowed under Section 163(j)
of the IRC 23.3 28.6
Provision for notes receivable and other
long term receivables -
Other 5.4 10.9
Total deferred tax assets 212.7 338.1
Valuation allowance (202.2) (325.3)
Total deferred tax asset 10.5 12.8
Deferred Tax Liabilities
Accelerated depreciation on tangible
assets (9.3) (9.8)
Differences in basis of intangible assets (0.7) (0.5)
Other (2.2) (2.5)
Total deferred tax liabilities (12.2) (12.8)
Total deferred tax liability (1.7) -
</TABLE>
* See Note 8 for a discussion of potential restrictions on operating loss
carryforwards.
There are no material differences between UK GAAP and US GAAP.
A valuation allowance is provided to reduce the deferred tax assets to a level
which, based on the weight of available evidence, will more likely than not be
realized. The net deferred assets reflects management's estimate of the amount
which will be realized based on this criteria.
The net charge in the valuation allowance for deferred tax assets in the period
to December 31, 1997 amounted to L123.1 million (1996: L36.8 million).
Note 23 - Taxation
This largely represents corporation tax liabilities due to be paid in more than
one year from the date of the consolidated financial statements. Tax liabilities
due to be settled in less than one year are included under current liabilities.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 24 - Share Schemes
Employee share schemes
Cordiant had three executive schemes in existence prior to the Demerger.
Participants that were employed by the Saatchi & Saatchi Group were invited to
cancel their options in return for replacement options over Saatchi & Saatchi
shares. Replacement options are over the same number of Saatchi & Saatchi shares
and have the same exercise price, exercise period and performance conditions as
the old Cordiant options except that the more recent options all expire on
December 15, 2004. Options granted to participants in the Cordiant executive
schemes were issued at market value at time of grant. For Charles Scott and
Cordiant employees who ceased to be employed by Cordiant as a result of the
Demerger and employees of Zenith and The Facilities Group who held executive
options under the Cordiant schemes, the same principles apply except that their
replacement options have been split 50:50 between options over Saatchi & Saatchi
shares and options over CCG shares.
Cordiant's Save As You Earn scheme, Sharesave 1995, was adopted for UK employees
and was approved by the Inland Revenue. Eligible employees were granted options
linked to a five year savings contract. The exercise price was fixed at 80% of
market value at the time of grant. Saatchi & Saatchi Group employees holding
these options were granted a parallel unapproved option over Saatchi & Saatchi
shares which will be exercisable with the accumulated savings and interest/bonus
under the Cordiant scheme. Employees of Zenith and The Facilities Group have
parallel options split 50:50 between Saatchi & Saatchi shares and CCG shares.
Two new incentive schemes were introduced on Demerger, the Equity Participation
Plan and Performance Share Option Scheme. These schemes are described below.
Equity Participation Plan ("EPP")
On December 16, 1997, 34 employees and Directors were invited to participate in
the EPP, 32 have accepted and cash payments of L1,572,500 have been received,
which, if maximum performance targets are to be met, would give rise to an issue
of 11,436,362 shares.
Participants will be eligible to receive shares if EPS growth is higher than the
UK Retail Price Index plus 2% p.a. over a three year period. If growth is below
this hurdle rate participants will lose their investment. Participants other
than Directors will receive shares based on a scale of EPS growth up to a
maximum of eight times the number of shares that they could have acquired with
their original investment. To achieve the maximum allocation would require EPS
growth of 25% per annum.
One half of shares vesting will normally be receivable by participants after
three years with the remainder receivable one year later.
Awards to participants who are Directors of the Company will vest as to one half
on the basis of EPS growth as described above. The other half will be determined
on total shareholder return compared with a group of major publicly quoted
advertising groups. In that case, the maximum number of shares will vest only if
the Company is first or second of the comparator group.
Performance Share Option Scheme ("PSOS")
On December 16, 1997, 58 employees were invited to participate in the PSOS, 54
of whom have accepted the invitation. Options over 7,150,000 shares were granted
at an exercise price of 110p. Participants are required to sacrifice
remuneration over three years from May 1998 totalling L715,000. This sacrifice
will not be offset against the option price payable. Participants will be
eligible to exercise their options dependent on the performance of the Group
over a three year period. The PSOS has similar EPS-based growth performance
criteria to the EPP. One half of the eligible options may normally be
exercisable after three years and the remainder one year later.
The number of Saatchi & Saatchi shares issuable under equity participation
rights or options outstanding are as follows:
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 24 - Share Schemes (Continued)
<TABLE>
<CAPTION>
Executive SAYE
Equity Schemes Scheme
Participation Ordinary Ordinary
Rights Shares Shares
<S> <C> <C> <C>
At January 1, 1995 2,415,675 0
Options issued during the year 1,106,237 1,282,972
Options exercised during the year 0 0
Options lapsed during the year (414,037) (42,751)
Rights issue adjustment 887,940 0
At December 31, 1995 0 3,995,815 1,240,221
Options issued during the year 1,885,000 0
Options exercised during the year (13,721) (4,096)
Options lapsed during the year (195,520) (139,961)
At December 31, 1996 0 5,671,574 1,096,164
Options issued during the period 2,459,687 0
Options exercised during the period 0 0
Options lapsed during the period (415,976) (123,435)
Balance on demerger 0 7,715,285 972,729
Replacement options issued on demerger
7,715,285 972,729
Options issued during the period 11,436,362 7,150,000 0
Options exercised during the period
0 0
Options lapsed during the period 0 (34,199)
At December 31, 1997 11,436,362 14,865,285 938,530
</TABLE>
Options outstanding at December 31, 1997 under the Company's share option
schemes are shown below:
<TABLE>
<CAPTION>
Original date Number of Exercise Exercisable Exercisable to
Scheme of grant shares price from
<S> <C> <C> <C> <C> <C>
Demerger Executive Scheme Jun 1991 930,622 135p Dec 1997 Jun 1998
(No. 1) Apr 1992* 100,502 107p Dec 1997 Apr 1999
Demerger Executive Jun 1991 716,456 134p Dec 1997 Jun 2001
Scheme (No. 2) Apr 1992 147,502 107p Dec 1997 Apr 2002
Apr 1992* 199,980 107p Dec 1997 Apr 2002
Apr 1994 192,241 103p Dec 1997 Apr 2004
Demerger May 1995 439,373 73p May 1998 Dec 2004
Performance May 1995* 177,423 73p May 2000 May 2002
Share Option Aug 1995 719,002 95p Aug 1998 Dec 2004
Scheme Aug 1995* 67,497 95p Aug 2000 Aug 2002
Apr 1996 707,500 130p Apr 1999 Dec 2004
Apr 1996* 857,500 130p Apr 2001 Apr 2003
Apr 1997 1,002,500 132p Apr 2000 Dec 2004
Apr 1997* 1,002,500 132p Apr 2002 Dec 2004
Jun 1997 227,344 124p Jun 2000 Dec 2004
Jun 1997* 227,343 124p Jun 2002 Dec 2004
Demerger Sharesave Scheme Jun 1995 938,530 64p Jul 2000 Dec 2000
Performance Share Option
Scheme Dec 1997 7,150,000 110p Dec 2000 Dec 2004
</TABLE>
The performance targets for options under the Executive Demerger Schemes are as
follows:
For ordinary options under the No. 1 and No. 2 Schemes there must have been an
increase in the Company's earnings per share over any three year period
following the date of the grant of at least 2% more than the increase in the
Retail Price Index over the same period.
For ordinary options under the Performance Scheme the condition is the same as
for the No. 1 and No. 2 Schemes except that 2% is replaced by 6%.
Super options under all three schemes cannot be exercised before the fifth
anniversary of the date of grant and only then if the growth in earnings per
share from the date of grant has been such as would place it in the top quartile
of the FTSE 100 companies ranked by reference to growth and earnings per share.
The options marked * are super options.
As at December 31, 1997, there are awards over 11,436,362 shares under the
Equity Participation Plan which are exercisable between December 2000 and
December 2004.
Zenith share scheme
A Zenith incentive scheme was introduced on Demerger. On Demerger, options over
1,078,807 Saatchi & Saatchi shares were granted with the same exercise price and
period as for the Performance Share Option Scheme above. The scheme is described
below.
Zenith scheme
The Company and CCG have agreed an incentive scheme for senior executives of
their jointly held company, Zenith. To participate, executives have to invest in
the scheme by cash payment or salary or bonus sacrifice. An award will comprise
an option over shares in CCG and the Company and/or a cash reward. A
participant's actual entitlement will be determined by measuring the growth in
Zenith's operating profit over a three year period.
Note 25 - Post Retirement Benefits
Group employees are members of a number of Cordiant pension schemes throughout
the world, principally in the UK and the US. Group employees continue to
participate in the UK schemes following the Demerger, subject to Inland Revenue
approval, until alternative arrangements are established.
The majority of the schemes are externally funded and the assets are held in
separately administered trusts or are insured. None of the externally funded
schemes holds investments in, or has made loans to, the Company or any of its
subsidiaries.
The major schemes, which cover the majority of scheme members, are defined
contribution schemes.
The pension expense for each period was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Defined benefit schemes* 0.5 10 0 2.7
Defined contribution schemes 6.6 5.4 6.2
7.1 15.4 8.9
</TABLE>
* Includes an exceptional termination provision of L8.1 million in 1996.
Cordiant has only one UK defined benefit scheme with active membership, the
Cordiant Group Pension Scheme, details of which are given below.
In the U.S. Cordiant had only one funded defined benefit scheme, the Saatchi &
Saatchi Cash Balance Retirement Plan, details of which are given below. At the
last valuation date there was a current funding surplus of $0.3 million (L0.2
million). This scheme was frozen at June 30, 1996 and terminated on December 31,
1996. In addition to this there is a supplementary unfunded scheme to provide
certain guaranteed benefits to members of a former scheme who were transferred
to the main defined benefit scheme.
The pension expense on the defined benefit plans have been allocated to the
Company based on employee compensation levels as if the company participated in
a multi employer plan. The costs associated with the defined contribution plans
have been presented based on the actual amounts contributed by each Group
entity.
Set out below are the details of the most recent valuation of Cordiant's pension
schemes for the UK and US.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 25 - Post Retirement Benefits (Continued)
UK US (since closed)
Date of last actuarial valuation April 1, 1996 January 1, 1996
Market value of investments L26.2 million L24.4 million
Level of funding 108% 101%
Valuation method Attained age Projected unit credit
Main assumptions:
Investment return 9.0% 6.0%
Salary increases per annum 7.0% 5.5%
In the case of the Saatchi & Saatchi Cash Balance Retirement Plan for the period
January 1, 1996 through to June 30, 1996 the expected long-term rate of return
on assets was 9.0%. Following the decision to terminate the scheme, the assets
were realized and the resulting proceeds reinvested with an expected rate of
return of 6.0%
The Group has no material liabilities for post-retirement benefits other than
pensions.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 26 - Leases
The Company leases certain properties and equipment under operating leases.
Minimum payments for operating leases, before provisions for vacant property
(see Note 19), having initial or remaining noncancellable terms in excess of one
year are as follows:
Sublease
Minimum Rental Net
Years Ending Payments Income Payments
December 31, L million L million L million
1998 33.0 5.8 27.2
1999 28.7 5.1 23.6
2000 25.4 4.3 21.1
2001 23.8 4.3 19.5
2002 22.9 4.0 18.9
Thereafter 215.5 15.6 199.9
Total minimum lease payments 349.3 39.1 310.2
Total expense for all operating leases was:
Year ended December 31,
1997 1996 1995
L million L million L million
Total operating lease expense 29.9 32.5 36.7
Sublease rental income (6.7) (6.1) (9.3)
Net Property operating lease expense 23.2 26.4 27.4
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 27 - Reconciliation of Operating Profit to Operating Cash Flow
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Operating profit 29.7 7.0 18.9
Depreciation 14.9 14.3 13.7
Loss (profit) on sale of tangible
fixed assets - 0.2 (0.4)
Decrease (increase) in billable
production (0.3) 3.4 (10.2)
Decrease (increase) in receivables 9.8 7.9 (24.2)
Increase in creditors (net of
exceptional non cash items) 10.2 0.8 18.5
Exceptional non cash items (see
note 5) - 16.3 -
Utilization of property provisions (11.8) (12.0) (8.2)
Net cash inflow to operating
activities 52.5 37.9 8.1
</TABLE>
Note 28 - Reconciliation of Net Cash Flow to Movements in Net Debt
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Decrease in cash in the period (8.9) (12.4) (14.5)
Cash (outflow)/inflow from decrease/ (increase) in
debt and lease financing (0.1) 15.6 12.5
Change in net debt resulting from cash flow (9.0) 3.2 (2.0)
Net amounts repaid to CCG & Zenith 204.4 - -
Net debt repaid or forgiven as part of the Demerger
process 855.1 - -
Translation and non-cash movements (0.3) 7.2 (7.6)
Movement in net debt in the period 1,050.2 10.4 (9.6)
Net debt at beginning of period (1,095.7) (1,106.1) (1,096.5)
Net debt at end of period (45.5) (1,095.7) (1,106.1)
</TABLE>
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 29 - Analysis of Net Debt
<TABLE>
<CAPTION>
Exchange and
At January 1, non-cash At December
1997 Cash flow Demerger movements 31, 1997
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year to December 31, 1997
Cash at Bank and in hand 69.3 (9.4) - (2.4) 57.5
Bank overdrafts (20.8) 0.5 - (0.5) (20.8)
External debt less than one year - (0.6) - - (0.6)
External debt greater than one
year (79.1) 0.4 - (2.7) (81.4)
Finance leases (0.3) 0.1 - - 0.2
(30.9) (9.0) - (5.6) (45.5)
Net amounts due from CCG and
Zenith (1,064.8) 204.4 855.1 5.3 -
Total (1,095.7) 195.4 855.1 (0.3) (45.5)
Exchange and
At January 1, non-cash At December
1996 Cash flow Demerger movements 31, 1996
L million L million L million L million L million
Year to December 31, 1996
Cash at Bank and in hand 86.1 (13.2) - (3.6) 69.3
Bank overdrafts (20.1) 0.8 - (1.5) (20.8)
External debt greater than one
year (107.3) 21.3 - 6.9 (79.1)
Finance leases (0.3) - - - (0.3)
(41.6) 8.9 - 1.8 (30.9)
Net amounts due from CCG and
Zenith (1,064.5) (5.7) - 5.4 (1,064.8)
Total (1,106.1) 3.2 - 7.2 (1,095.7)
Exchange and
At January 1, non-cash At December
1995 Cash flow Demerger movements 31, 1995
L million L million L million L million L million
Year to December 31, 1995
Cash at Bank and in hand 103.5 (11.3) - (6.1) 86.1
Bank overdrafts (17.5) (3.2) - 0.6 (20.1)
External debt greater than one
year (225.9) 118.6 - - (107.3)
Finance leases (0.5) 0.2 - - (0.3)
(140.4) 104.3 - (5.5) (41.6)
Net amounts due from CCG and
Zenith (956.1) (106.3) - (2.1) (1,064.5)
Total (1,096.5) (2.0) - (7.6) (1,106.1)
</TABLE>
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 30 - Purchase and Sale of Subsidiary Undertakings
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Net assets acquired
Tangible fixed assets - 0.2 -
Work in progress - 0.1 -
Debtors 0.1 4.9 -
Cash at bank and in hand - 0.5 -
Creditors 8.0 (5.8) -
Minority shareholders' interest - 10.7 -
8.1 10.6 -
Property revaluation* - 3.6 -
Goodwill (0.2) 13.4 5.3
7.9 27.6 5.3
Satisfied by
Cash 7.9 20.8 3.0
Shares - - -
Deferred consideration - 5.5 1.0
Transfer from CCG - 1.3 1.3
7.9 27.6 5.3
Net assets disposed of
Tangible fixed assets - - 7.5
Investments 12.5 0.8 5.3
Work in progress - - 2.6
Debtors 0.2 3.0 36.1
Cash at bank and in hand - - 1.8
Creditors 0.2 (0.2) (43.5)
12.9 3.6 9.8
Goodwill - - 45.1
Profit on disposal 4.3 17.7 3.4
Loss on disposal - - (28.3)
17.2 21.3 30.0
Satisfied by
Cash 17.2 9.5 25.8
IPG shares - 11.8 -
Loan notes (net of provisions) - - 4.2
17.2 21.3 30.0
</TABLE>
* Net of deferred tax provision.
The net book value of assets acquired is not materially different from their
fair value, except in the case of Saatchi & Saatchi Advertising SA (France),
acquired in 1996 - see Note 3.
Companies acquired in 1996 were the outstanding minority holding in Saatchi &
Saatchi Advertising SA and Saatchi & Saatchi de Klerk and Barrett (Pty) Limited
- - see Note 3. In 1995 Cordiant acquired Laing Henry Limited and the outstanding
minority holding in Saatchi & Saatchi Denmark A/S.
In 1995 Cordiant sold CME, KDW and YSL and Peterson. In 1996, KDW was resold and
Cordiant recognized a further gain. In 1997, the IPG stock was sold. See Note 3.
Goodwill arising on acquisitions in 1995 of L5.3 million included a property
provision of L3.1 million.
Acquisitions in 1997 were in respect of the deferred consideration payable for
the minority interest in Saatchi & Saatchi Advertising S.A. (France).
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 31 - Operations by Geographic Area
<TABLE>
<CAPTION>
Rest of
Europe,
Africa &
United North Middle Asia Disposed
Kingdom America East Pacific Subtotal Businesses Total
L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Commission and fee income 61.4 180.5 82.6 52.2 376.7 1.5 378.2
Trading and operating profit 5.5 20.8 5.3 (1.0) 30.6 (0.9) 29.7
Total assets employed 73.7 192.5 84.5 78.8 429.5 - 429.5
Net assets (liabilities)2 44.1 (59.8) (19.0) (40.6) (75.3) - 75.5
Depreciation expense 3.7 7.3 2.2 1.7 14.9 - 14.9
Additions to properties, 2.2 5.9 1.9 2.5 12.5 - 12.5
furniture, etc.
Year ended December 31, 1996
Commission and fee income 57.6 173.1 89.2 53.3 373.2 2.1 375.3
Trading profit 5.4 16.0 3.6 0.3 25.3 (2.0) 23.3
Exceptional operating items - (16.3) - - (16.3) - (16.3)
Operating profit 5.4 (0.3) 3.6 0.3 9.0 (2.0) 7.0
Total assets employed1 93.1 212.7 94.3 68.9 469.0 - 469.0
Net assets (liabilities)2 20.7 (69.6) (0.4) (0.8) (50.1) - (50.1)
Depreciation expense 4.0 6.3 2.3 1.7 14.3 - 14.3
Additions to properties, 2.7 5.2 2.1 2.4 12.4 - 12.4
furniture, etc.
Year ended December 31, 1995:
Commission and fee income 61.5 162.3 95.0 51.6 370.4 25.6 396.0
Trading profit 3.2 11.2 6.4 1.5 22.3 2.4 24.7
Exceptional operating items (1.6) (3.0) (0.7) (0.4) (5.7) (0.1) (5.8)
Operating profit 1.6 8.2 5.7 1.1 16.6 2.3 18.9
Total assets employed<F1> 101.6 209.7 121.6 72.2 505.1 - 505.1
Net assets (liabilities)<F2> 9.3 (54.5) 9.0 (7.5) (43.7) - (43.7)
Depreciation Expense 3.5 6.5 2.2 1.5 13.7 - 13.7
Additions to properties, 3.2 6.2 2.2 1.7 13.3 - 13.3
furniture, etc.
</TABLE>
<F1> Where applicable, total assets employed are shown before investments in CCG
and amounts due to/from CCG/Zenith.
<F2> Net assets (liabilities) are stated before financial items, investment in
subsidiaries, amounts due from CCG/Zenith, amounts owed to CCG/Zenith and
equity accounting for Zenith. Net financial items include cash at bank,
loan stock, bank overdrafts, other loans, obligations under finance leases
and hire purchase commitments.
The geographic analysis of revenue, trading profit and net liabilities has been
prepared on a basis that reflects the management of the operations of the
Saatchi & Saatchi Group.
Management considers that there is only one business activity, namely
advertising and marketing services, and that is more appropriate to show a
geographic analysis of revenue than turnover. Revenue by geographic destination
is not materially different from revenue by geographic origin.
The Saatchi & Saatchi Group's customers are located throughout the world. During
1997, 1996 and 1995 two clients each accounted for more than 5% of the Group's
revenue. At December 31, 1997 and 1996, no account receivable from any customer
exceeded 5% of the Group's total assets.
Operating profit is stated after deducting net Cordiant Group corporate costs
attributable to the Saatchi & Saatchi Group in 1997 of L6.6 million (1996: L7.4
million; 1995: L6.7 million). Net corporate costs have been allocated to the
Saatchi & Saatchi Group, CCG and Zenith pro rata with the revenues of these
groups.
Note 32 - Directors' Emoluments
The Directors' total emoluments, pension costs and fees since the Company
commenced operations on December 14, 1997 were L77,300 (1996: nil) of which L600
were fees.
The emoluments, excluding pension contributions, of the Chairman for the year
ended December 31, 1997 were L6,600.
The emoluments, excluding pension contributions, of the highest paid UK
Director, were L7,400.
Directors' interests
<TABLE>
<CAPTION>
Benefically owned Equity
Date of appointment ordinary shares Ordinary share participation
shares options rights
<S> <C> <C> <C> <C>
Charles Scott<F1> September 3, 1997 39,214 731,906 0
William Cochrane September 3, 1997 0 271,738 909,090
Dr. Kevin Roberts September 3, 1997 0 454,687 1,090,909
Robert Seelert* September 3, 1997 28,098 219,849 1,090,909
Wendy Smyth September 3, 1997 5,083 654,532 545,454
Sir Peter Walters September 3, 1997 5,000 0 0
</TABLE>
<F1>Includes spouse's interests.
* In addition, Mr. Seelert has 1,527,363 phantom share options.
Mr. Olshan was appointed to the Board on January 1, 1998 and had interests in
3,000 shares on appointment. Other than this, the Directors' interests in the
Company's share capital have not changed since December 31, 1997. Other
Directors holding office in the year ended December 31, 1997 were Christopher
Bunton (resigned September 3, 1997), Graham Howell (resigned September 25, 1997)
and David Weatherseed (resigned September 25, 1997). None of the Directors at
any time during the period ended December 31, 1997 had any material interest in
any contracts with the Company or any of its subsidiaries. None of the Directors
at any time during the period ended December 31, 1997 or subsequent to December
31, 1997 was interested in any debentures of the Company or shares or debentures
of the Company's subsidiaries.
Note 33 - Related Parties
Prior to the Demerger, Saatchi & Saatchi Group had not operated as a separate
group, and consequently there were a number of related party transactions
between it and CCG, and between Saatchi & Saatchi Group, its joint venture,
Zenith and its associates. These include transactions relating to treasury,
insurance, taxation, information, systems support and other central services
supplied by CCG to the Saatchi & Saatchi Group.
All transactions have not been identified individually as it is not practicable
to do so. Transitional arrangements have been agreed for the provisions by each
of the Saatchi & Saatchi Group and CCG to the other of certain services,
including the provision of services relating to insurance management, the use of
certain properties, the provision of management information systems support and
pension administration.
Cordiant net corporate costs allocated to the Saatchi & Saatchi Group are set
out in note 31 above. Inter-company interest charged to the Saatchi & Saatchi
Group by CCG and Zenith is set out in note 7 above. Charges in the ordinary
course of business with the joint venture, principally Zenith for media and
production services, amounted to L13.6 million for the year ended December 31,
1997 (1996: L8.6 million; 1995: L11.0 million).
Balances with the associates and joint venture are disclosed in notes 14 and 18
above, all of which are of a trading nature.
Note 34 - Fair Value of Financial Instruments
Short-Term Investments - Short-term investments comprise L0.2 million (1996:
L12.1 million) of overseas listed investments which had a market value of L0.2
million (1996: L12.3 million). See note 11.
Net borrowings (excluding foreign exchange contracts) - The book value of cash,
short term deposits and short term borrowings approximate to their fair values
because of the short term maturity of these instruments. The fair value of long
term borrowings approximate their carrying value.
Foreign exchange forward contracts - Foreign exchange forward contracts are used
to hedge existing and identified future foreign currency commitments. At
December 31, 1997 and 1996, the Company had L25.2 million and L18.1 million,
respectively, of forward contracts outstanding, the fair value of which was not
materially different from the contracted amount in either year. Financial
instruments are only used to hedge underlying commercial exposures. Realized or
unrealized gains and losses on forward contracts which hedge firm third party
commitments are recognized in income in the same period as the underlying
transaction. The Company does not speculate in derivative financial instruments.
Interest Rate Caps - The Company entered into interest rate caps in December
1997 covering $70 million of its borrowings (1996: nil). The terms of these caps
are for between two and three years. The premiums are being amortized over the
relevant terms.
The counterparties to the Company's financial instruments are major
international financial institutions. It is Company practice to monitor the
financial standing of these counterparties on an on-going basis. The Company
does not anticipate any material adverse effect on its financial position
resulting from its involvement in the agreements, nor does it anticipate
non-performance by any of its counterparties.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Note 35 - Principal Subsidiaries and Joint Venture
Except where otherwise indicated the Company indirectly owned 100% of each class
of the issued shares of the subsidiary undertakings listed below. All these
subsidiary undertakings are advertising and marketing services companies. The
country of operation and registration of the principal subsidiaries and joint
venture are:
England Saatchi & Saatchi Group Ltd
The Facilities Group Ltd (70%)
Zenith Media Holdings Ltd (50% joint venture)
Australia Saatchi & Saatchi Advertising Pty Ltd
France Saatchi & Saatchi Advertising SA
Germany Saatchi & Saatchi Advertising GmbH
Italy Saatchi & Saatchi Advertising SpA
New Zealand Saatchi & Saatchi Advertising Ltd
US Klemtner Advertising, Inc.
Rowland Worldwide, Inc.
Saatchi & Saatchi North America, Inc.
Siegel & Gale, Inc.
In the opinion of the Directors, these subsidiary undertakings principally
affect the results or the assets of the Group. In addition to the companies
shown in the above list the Group also holds investments in many other
subsidiary and associated undertakings. A full list of subsidiary undertakings
will be filed with the Registrar of Companies.
Note 36 - Subsequent Events
On June 5, 1998 the Company sold its Siegel & Gale, Inc. and Siegel & Gale
Limited subsidiaries (together, "Siegel & Gale") to a company owned by the
management of Siegel & Gale and a third party. Consideration for the transaction
was $33.8 million (L20.4 million). The transaction will result in a profit on
disposal of approximately $13.5 million (L8.2 million), taking into account
certain adjustments including the elimination of intercompany indebtedness.
Note 37 - Nature of Business
The Company is a multi-national advertising and marketing services business. An
analysis of revenue and assets by geographic region is set out in Note 31 to the
statements.
Note 38 - Companies Act 1985
The Consolidated Financial Statements do not constitute "statutory accounts"
within the meaning of the Companies Act 1985 of England and Wales for any of the
three years ended December 31, 1997. The statutory accounts for 1997 will be
filed following the Company's Annual General Meeting. The auditors have reported
on these accounts. Their reports were unqualified and did not contain statements
under Section 237(2) or (3) of that Act.
Note 39 - United States Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance with
UK generally accepted accounting principles (UK GAAP) which differ in
certain significant respects from US generally accepted accounting
principles (US GAAP). A summary of material adjustments to the profit
(loss) and shareholders' deficit which would be required if US GAAP had
been applied instead of UK GAAP as set out below.
(a) Investments in CCG
The CCG companies were not combined but the investments in them in 1996
were stated at the lower of cost and net realisable value. As these
entities did not form part of the Saatchi & Saatchi Group under US GAAP,
the investments in these entities were eliminated. Dividends received from
these entities have also been eliminated as they are presented under UK
GAAP in the profit and loss account.
(b) Goodwill and US purchase accounting
Under US GAAP, goodwill and identifiable intangible assets acquired are
capitalized and amortized against income; intangible assets being amortized
over their economic lives which range from three to 20 years and the
remaining goodwill amortized over 40 years. For US GAAP purposes,
management review on an annual basis the carrying value of goodwill and
identifiable intangibles for impairment by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Under UK GAAP, purchased
goodwill arising after ascribing fair values to all tangible assets and
liabilities acquired is written off against reserves. On disposal of a
subsidiary, under UK GAAP the gain or loss on disposal is calculated after
taking account of goodwill previously written off to reserves. Under US
GAAP the gain or loss on disposal is calculated after taking account of any
related unamortized goodwill and intangible assets. A GAAP difference
arises from amortization charged under US GAAP for which no equivalent
charge has been recognized under UK GAAP. From January 1, 1998 the Company
will be required under UK GAAP to capitalize and amortize purchased
goodwill.
(c) Property leases
Under US GAAP, total rental payments, inclusive of increases in rental
charges specified in the lease, are recognized on a straight line basis
over the term of the lease. These increases are recognized when payable
under UK GAAP.
(d) Long-term property provisions
Under US GAAP, provisions for properties which are vacant or let at a loss
are provided on a discounted basis after allowing for estimated subrental
income, and amortization of the discount is charged to interest expense.
Under UK GAAP, provisions for properties which are vacant or let at a loss
are provided on an undiscounted basis, after allowing for estimated
subrental income.
(e) Pensions
The Statement of Financial Accounting Standards ("SFAS") No. 88, Employer's
Accounting for Settlements and Curtailment of Defined Benefit Plans and for
Termination Benefits, specifies the accounting treatment under US GAAP for
circumstances in which there has been an irrevocable transaction that
relieves the employer of primary responsibility for a pension benefit
obligation and eliminates significant risk related to the obligation and
the assets used to effect the settlement. As a result of the curtailment
and termination of the US scheme during 1996, the related termination
liability was accrued in full under UK GAAP and the additional US GAAP
accrual was reversed. Additionally, under US GAAP, the Company has
previously recognized an additional minimum pension liability for the US
underfunded plan, representing the excess of the accumulated benefit
obligations over the plan's assets. As a result of the curtailment and
termination of the plan during 1996, the Company has recorded the full
termination liability under UK GAAP and the additional US GAAP accrual has
been reversed.
(f) Demerger related items
Under UK GAAP these items have been reflected in the profit and loss
account. Under US GAAP they are reflected as a direct adjustment to equity.
(g) Dividends
Under UK GAAP Ordinary dividends proposed are provided in the year in
respect of which they are recommended by the Board of Directors for
approval by the shareholders. Under US GAAP, such dividends are not
provided for until declared by the Board of Directors.
(h) Deferred taxation
UK GAAP requires that no provision for deferred taxation should be recorded
if there is reasonable evidence that such taxation will not be payable in
the foreseeable future. US GAAP requires full provision of deferred
taxation liabilities and permits deferred tax assets to be recognised if
their realization is considered to be more likely than not. There are no
deferred taxation differences presented in the reconciliation below because
the Company is in a tax loss carry forward position and believes that the
realization of its net deferred tax assets at this time is not considered
likely.
(i) Employee share schemes
The Company has adopted SFAS 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively,
SFAS 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for share option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS 123 had been applied. The
Directors have elected to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma disclosure provisions of SFAS 123.
Accordingly, compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise
price. Under SFAS 123 the calculation of the option value is made using an
acceptable pricing model to include certain expected parameters. The former
Cordiant outstanding options have been replaced by Saatchi & Saatchi
options which closely mirror those presented in respect of current
employees who have transferred to the Company on this basis. If the
compensation cost of the options had been determined based on the fair
value at the grant dates for 1997, 1996 and 1995 consistent with the method
prescribed by SFAS No. 123, the Company's US GAAP net profit (loss) and
earnings (loss) per share would have been adjusted to the revised amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Net profit (loss) in - as reported L8.5 L(5.1) L(46.0)
L million
- revised L8.2 L(5.4) L(46.1)
Earnings (loss) per share in - as reported 3.8p (2.3)p (39.6)p
pence
- revised 3.8p (2.4)p (39.6)p
</TABLE>
The pro forma diluted earnings per share is the same as the revised
earnings per share figure presented above. The revised amounts were
determined based on employee share scheme awards in 1997, 1996 and 1995
only. Compensation cost is recognized over the expected life of the option
(i.e. between 3-1/2 and 6-1/2 years). The revised amounts for compensation
cost may not be indicative of the effects of net earnings and earnings per
share for future years. Under SFAS No. 123, the weighted average fair value
of each option grant is estimated to be 35.3p, 57.7p and 37.22p for options
granted during the year ended December 31, 1997, 1996 and 1995,
respectively. The fair values have been estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used
for grants in 1997, 1996 and 1995 respectively; dividend yields of 0%
throughout, expected volatility of 22% throughout, risk-free interest rates
of 7.0%, 8.2% and 8.2% and expected lives of between 3-1/2 and 6-1/2 years.
(j) Cash flows
The Group Statement of Cash Flow is prepared in accordance with Financial
Reporting Standard No. 1 'Cash Flow Statements' ('FRS 1'). Its objectives
and principles are similar to those set out in SFAS 95. The principle
difference between the standards relates to classification. Under FRS 1,
the Group presents its cash flows for: (a) operating activities; (b)
returns on investments and servicing of finance; (c) taxation; (d) capital
expenditure and financial investment; (e) acquisitions and disposals; (f)
management of liquid resources; and (g) financing. SFAS 95 requires only
three categories of cash flow activity: (a) operating; (b) investing; and
(c) financing. Cash flows from taxation and returns on investments and
servicing of finance shown under FRS 1 would, with the exception of
dividends paid, be included as operating activities under SFAS 95. The
payment of dividends would be included as a financing activity under SFAS
95. Movements in short term investments would be classified as an investing
activity under the SFAS 95 rather than the management of liquid resources
as shown under FRS 1. Amounts resulting from the demerging of CCG/Zenith
companies included in acquisitions and disposals would be presented as
financing. Changes in bank overdrafts are included within cash equivalents
under FRS 1 and would be considered a financing activity under SFAS 95.
Had bank overdrafts been shown as a financing activity in the Group
statement of cash flows the repayments would have been L204.8 million,
L16.4 million and L9.3 million in the years ended December 31, 1997, 1996
and 1995 respectively. The difference between the movement above and the
movement implied in note 28 is due entirely to foreign exchange.
(k) Investment in joint ventures
Under UK GAAP, the Company separately identifies the joint venture's
turnover, operating profit and interest on the face of the profit and loss
account and its share of the joint venture's tax is separately disclosed in
the notes to the financial statements.
US GAAP requires the Company to calculate its share of the income of its
joint venture after excluding inter-company transactions and present such
amount net of income taxes in the Statement of Operations. Accordingly, the
following table sets out the selected operating data on a UK GAAP basis
adjusted for these presentation differences.
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
L million L million L million
<S> <C> <C> <C>
Share of operating profit (loss)
in joint venture 0.6 (0.3) (0.4)
Share of net interest receivable
from joint venture 0.8 0.7 0.7
Profit/(loss) on ordinary
activities before tax 795.8 17.7 (32.3)
Tax charge on profit/loss on
ordinary activities 7.6 3.7 6.4
Summary financial information in respect of Zenith is set out below:
Year ended December 31,
Consolidated summary profit 1997 1996 1995
& loss account L million L million L million
Revenue 41.9 40.6 39.5
Operating profit (loss) 1.5 0.2 (0.4)
Profit on ordinary activities
before tax 3.7 2.3 1.7
Profit for the period 2.5 0.8 0.6
December 31,
Consolidated summary statement of net liabilities 1997 1996
L million L million
Fixed assets 3.6 3.9
Current assets 99.8 127.4
Current liabilities (128.7) (133.0)
Other long term creditors and provisions (3.2) (1.1)
Net liabilities (28.5) (2.8)
</TABLE>
(l) Prospective accounting changes
(i) SFAS 130, Reporting Comprehensive Income, was issued in June 1997 and
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods for
comparative purposes is required. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements. It requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. The Company is currently reviewing the likely impact on the
classification of items included in shareholders' deficiency.
(ii) SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997 and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application
comparative information for earlier years is to be restated. This
statement requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and
measuring their performance. It also requires entity-wide disclosures
about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major
customers. The Company is currently reviewing the likely impact on the
level of disclosure currently provided in its financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 39 - United States Generally Accepted Accounting Principles (Continued)
<TABLE>
<CAPTION>
Year ended December 31,
Effect on net earnings of differences between 1997 1997 1996 1995
US and UK GAAP Ref.: $million* L million L million L million
<S> <C> <C> <C> <C> <C>
Profit/(loss) for the year in conformity with 1,299.5 787.6 13.6 (41.4)
UK GAAP
US GAAP adjustments
Amortization of goodwill and other intangibles (b) (10.2) (6.2) (6.2) (5.9)
in accordance with US purchase accounting
Release of accumulated goodwill amortization of (b) -- -- -- 5.9
companies disposed
Straight lining of property leases (c) (1.7) (1.0) (2.4) (2.4)
Decrease in long-term property provisions (d) 12.4 7.5 0.1 0.7
Amortization of discount on property provisions (d) (7.4) (4.5) (4.3) (4.0)
Pension settlements (e) - - 1.8 0.2
Fundamental reorganization - Demerger (f) (1,261.4) (764.5) - -
Net dividends (from)/to CCG companies prior to (f) (17.2) (10.4) (7.8) 0.9
the Demerger
Net profit/(loss) applicable to Ordinary 14.0 8.5 (5.2) (46.0)
shareholders in conformity with US GAAP
Net profit/(loss) applicable per Ordinary share (i) $0.06 3.8p (2.3)p (39.6)p
- - basic
Average number of Ordinary shares (in millions) 221.9 221.9 221.8 116.1
Net profit/(loss) per Ordinary share - diluted $0.06 3.8p (2.3)p (39.6)p
Average number of Ordinary shares - diluted (in 222.6 222.6 221.8 116.1
millions)**
December 31,
Cumulative effect on shareholder's deficiency 1997 1997 1996
of differences between US and UK GAAP $million L million L million
Equity shareholders' funds in conformity with (226.5) (137.3) (1,036.7)
UK GAAP
US GAAP adjustments
Elimination of investment in CCG (a) - - (112.1)
Goodwill and US purchase accounting in respect (b)
of acquisitions and joint venture
Cost 305.3 185.0 186.9
Accumulated amortization (118.1) (71.6) (64.7)
Straight lining of property leases (c) (38.9) (23.6) (21.9)
Discount on property provisions (d) 38.6 23.4 19.7
Pension liability adjustment (e) - - -
Dividends (g) 4.5 2.7 -
Ordinary shareholders' deficiency in conformity (35.1) (21.4) (1,028.8)
with US GAAP
</TABLE>
* These figures have been translated at the closing rate on December 31, 1997
(L1: $1.65) for convenience purposes.
** The effect of potential ordinary shares (share options outstanding) for the
years ended December 31, 1996 and 1995 is anti-dilutive. Accordingly,
diluted loss per share does not assume the exercise of share options
outstanding.
<PAGE>
EXHIBIT INDEX
1.1 Memorandum and Articles of Association of the Company.
2.1 Upon the request of the Securities and Exchange Commission, the
Company hereby agrees to provide a list of subsidiaries of the
Company.
THE COMPANIES ACT 1985
----------------------------------------
PUBLIC COMPANY LIMITED BY SHARES
----------------------------------------
MEMORANDUM OF ASSOCIATION
(As amended by Special Resolutions passed on
2 April 1990 and on 3 September 1997)
- and -
NEW
ARTICLES OF ASSOCIATION
(Adopted by Special Resolution passed on
29 September 1997 taking effect on 15 December 1997)
- of -
SAATCHI & SAATCHI plc
Incorporated the 26 day of January 1990
No. 2464197
<PAGE>
No. 2464197
THE COMPANIES ACT 1985
---------------------------------------
PUBLIC COMPANY LIMITED BY SHARES
---------------------------------------
RESOLUTION
- of -
SAATCHI & SAATCHI PLC
At an Extraordinary General Meeting of the Company held at 2 Finsbury Avenue,
London EC2, on 29 September 1997 at 11.40 a.m., the following resolution (inter
alia) was duly passed as a Special Resolution.
SPECIAL RESOLUTION
1 THAT:-
1.1 in respect of each holding of issued ordinary shares of (pound)1
each in the Register of Members of the Company at the date on
which this Resolution is passed, every ordinary share of (pound)1
comprised within such holding be and is hereby sub-divided into
20 ordinary shares of 5p each in the capital of the Company;
1.2 the authorised share capital of the Company be and is hereby
increased to (pound) 30,000,000 by the creation of an additional
599,000,000 ordinary shares of 5p each ranking pari passu in all
respects with the existing ordinary shares of 5p each in the
capital of the Company arising pursuant to sub-paragraph 1.1 of
this Resolution;
1.3 in substitution for any and all authorities previously conferred
upon the Directors of the Company ("the Directors") for the
purposes of Section 80 of the Companies Act 1985 ("the Act"), the
Directors be and are hereby generally and unconditionally
authorised for the purposes of Section 80 of the Act to exercise
all of the powers of the Company to allot relevant securities (as
defined in Section 80(2) of the Act) up to a maximum nominal
amount of(pound)29,950,000 in aggregate, provided that:-
1.3.1 in the case of allotments other than allotments of ordinary
shares of 5p each pursuant to the terms of the Demerger Agreement
proposed to be entered into between Cordiant plc (1) the Company
(2) Saatchi & Saatchi Holdings Limited (3) and has been produced
to this Meeting and initialled by the Chairman for the purposes
of identification, such authority is limited to the allotment of
relevant securities up to a maximum nominal amount of
(pound)7,390,000 in aggregate; and
1.3.2 such authority (unless previously revoked, varied or renewed)
will expire at the conclusion of the first Annual General Meeting
of the Company following the date on which the Demerger
Allotments are made ("the Effective Date") or, if earlier, on 30
November 1998 (save that the Company may before such expiry make
an offer or agreement which would or might require relevant
securities to be allotted after such expiry and the Directors may
allot relevant securities in pursuance of such offer or agreement
as if the authority conferred hereby had not expired);
1.4 the Directors be and are hereby empowered, pursuant to Section 95
of the Act, to allot equity securities (as defined in Section
94(2) of the Act) pursuant to the authority set out in
sub-paragraph 1.3 of this Resolution for cash, as if Section
89(1) of the Act did not apply to such allotment, such power
(unless previously revoked, varied or renewed) to expire at the
conclusion of the first Annual General Meeting of the Company
next following the Effective Date or, if earlier, on 30 November
1998 (save that the Company may before such expiry make an offer
or agreement which would or might require equity securities to be
allotted after such expiry and the Directors may allot equity
securities in pursuance of such offer or agreement as if the
power conferred hereby had not expired) and such power to be
limited to:-
1.4.1 the allotment of equity securities in connection with or pursuant
to an offer by way of rights to ordinary shareholders of the
Company and other persons entitled to participate therein, in
proportion as nearly as may be to their holdings of such shares
(or, as appropriate, to the number of ordinary shares which such
other persons are for such purposes deemed to hold) subject only
to such exclusions or other arrangements as the Directors may
feel necessary or expedient to deal with fractional entitlements
or legal or practical problems in relation to such an issue,
under the laws of, or the requirements of any recognised
regulatory body or stock exchange in, any territory, or
otherwise;
1.4.2 the allotment of equity securities (i) under the share schemes
for employees of the Company, its subsidiaries and associate
companies approved pursuant to the Resolutions numbered 5 to 7
set out in the notice convening this Meeting (subject to such
Resolutions being duly passed without amendment and becoming
unconditional) or (ii) under any other share scheme for employees
of the Company, its subsidiaries and associate companies approved
by shareholders of the Company in General Meeting after the date
of the Demerger Allotments; and
1.4.3 the allotment of equity securities (otherwise than pursuant to
the powers conferred by sub-paragraphs 1.4.1 and 1.4.2 of this
Resolution) up to an aggregate nominal amount of
(pound)1,109,000; and
1.5 upon the redemption and cancellation of any of the issued
redeemable preference shares of (pound)1 each in the capital of
the Company ("Preference Shares") each authorised but unissued
Preference Share arising from such cancellation be sub-divided
into 20 shares of 5p each and each such share be re-classified as
an ordinary share of 5p ranking pari passu in all respects with
the existing authorised ordinary shares of 5p each in the capital
of the Company.
<PAGE>
THE COMPANIES ACT 1985
PUBLIC COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
(As amended by Special Resolutions passed on
2 April 1990 and on 3 September 1997)
-of-
SAATCHI & SAATCHI plc
1 The Company's name is "SAATCHI & SAATCHI plc"
2 The Company is to be a public company.
3 The Company's registered office is to be situated in England and
Wales.
4 The Company's objects are:
4.1 To carry on the business of a holding company and to acquire by
purchase, exchange, subscription or otherwise and to hold the
whole or any part of the shares, stock, debenture stock, loan
stock, bonds, obligations, securities, property, rights,
privileges or other interests of or in any company, corporation,
firm or undertaking carrying on business of any kind whatsoever
in any part of the world and to enter into, assist or participate
in financial, commercial, mercantile, industrial and other
transactions undertakings and businesses of every description and
to carry on, develop and extend the same or sell, dispose of or
otherwise turn the same to account, and to manage, conduct,
supervise, control and co-ordinate the activities, businesses,
operations or affairs of any company, corporation or firm in
which the Company is for the time being interested and to
co-ordinate the policy and administration of any companies of
which the Company is a member or which are in any manner
controlled by or connected or associated with the Company.
4.2 To carry on any other business which may seem to the Company
capable of being conveniently carried on in connection with any
business of the Company or calculated directly or indirectly to
enhance the value of or render profitable any of the Company's
property or assets.
4.3 To acquire and take over the whole or any part of the business,
property and liabilities of any company or person carrying on any
business which the Company is authorised to carry on, or
possessed of any property or assets suitable for the purposes of
the Company.
4.4 To purchase, take on lease or in exchange, hire or otherwise
acquire any real or personal property, patents, licences, rights
or privileges which the Company may think necessary or convenient
for the purposes of its business, and to construct, maintain and
alter any buildings or works necessary or convenient for the
purposes of the Company.
4.5 To pay for any property or assets acquired by the Company either
in cash or fully or partly paid shares or by the issue of
securities or obligations or partly in one mode and partly in
another and generally on such terms as may be determined.
4.6 To borrow or raise or secure the payment of money in such manner
and upon such terms as the Company may think fit, and for any of
such purposes to mortgage or charge the undertaking and all or
any part of the property and rights of the Company, both present
and future including uncalled capital, and to create and issue
redeemable debentures or debenture stock, bonds or other
obligations.
4.7 To stand surety for or guarantee, support or secure the
performance of all or any of the obligations of any person, firm
or company whether by personal covenant or by mortgage, charge or
lien upon the whole or any part of the undertaking, property and
assets of the Company, both present and future, including its
uncalled capital or by both such methods; and, in particular, but
without prejudice to the generality of the foregoing, to
guarantee, support or secure whether by personal covenant or by
any such mortgage, charge or lien as aforesaid or by both such
methods the performance of all or any of the obligations
(including the repayment or payment of the principal and premium
and interest on any securities) of any company which is for the
time being the Company's holding company (as defined by Section
736 of the Companies Act 1985) ("the Act") or another subsidiary
(as defined by the said Section) of any such holding company or a
subsidiary (as defined by the said Section) of the Company.
4.8 To lend and advance money or give credit on any terms and with or
without security to any person, firm or company (including
without prejudice to the generality of the foregoing any holding
company, subsidiary or fellow subsidiary of, or any other company
associated in any way with, the Company.
4.9 To invest and deal with the moneys of the Company not immediately
required in such manner as may from time to time be determined
and to hold or otherwise deal with any investments made.
4.10 To issue and deposit any securities which the Company has power
to issue by way of mortgage to secure any sum less than the
nominal amount of such securities, and also by way of security
for the performance of any contracts or obligations of the
Company or of its customers or of any other person or company
having dealings with the Company, or in whose business or
undertaking the Company is interested.
4.11 To establish and maintain, or procure the establishment and
maintenance of, any non-contributory or contributory pension or
superannuation funds for the benefit of, and to give or procure
the giving of donations, gratuities, pensions, allowances or
emoluments to any persons who are or were at any time in the
employment or service of the Company, or of any company which is
a subsidiary of the Company or is allied to or associated with
the Company, or any such subsidiary or of any company which is a
predecessor in business of the Company or of any such other
company as aforesaid, or any persons who are or were at any time
directors or officers of the Company, or of any such other
company as aforesaid, and the spouses, widows, widowers, families
and dependants of any such persons, and also to establish and
subsidise or subscribe to any institutions, associations, clubs
or funds calculated to be for the benefit of or advance the
interests and well being of the Company or of any such other
company as aforesaid, or of any such persons as aforesaid, and to
make payments for or towards the insurance of any such persons as
aforesaid, and to subscribe or guarantee money for any charitable
or benevolent object or for any exhibition or for any public,
general or useful object, and to do any of the matters aforesaid,
either alone or in conjunction with any such other company as
aforesaid.
4.12 To enter into any partnership or arrangement in the nature of a
partnership, co-operation or union of interests, with any person
or company engaged or interested or about to become engaged or
interested in the carrying on or conduct of any business which
the Company is authorised to carry on or conduct or from which
the Company would, or might derive any benefit, whether direct or
indirect.
4.13 To establish or promote, or join in the establishment or
promotion of, any other company whose objects shall include the
taking over of any of the assets and liabilities of the Company,
or the promotion of which shall be calculated to advance its
interests, and to acquire and hold any shares, securities or
obligations of any such company.
4.14 To amalgamate with any other company.
4.15 To sell or dispose of the undertaking, property and assets of the
Company or any part thereof, in such manner and for such
consideration as the Company may think fit, and in particular for
shares (fully or partly paid up), debentures, debenture stock,
securities or obligations of any other company, whether promoted
by the Company for the purpose or not, and to improve, manage,
develop, exchange, lease, dispose of, turn to account or
otherwise deal with all or any part of the property and assets of
the Company.
4.16 To distribute any of the Company's property or assets among the
members in specie.
4.17 To cause the Company to be registered or recognised in any
foreign country.
4.18 To do all or any of the above things in any part of the world,
and either as principal, agent, trustee or otherwise, and either
alone or in conjunction with others, and by or through agents,
subcontractors, trustees or otherwise.
4.19 To do all such other things as are incidental or the Company may
think conducive to the attainment of the above objects or any of
them.
And it is hereby declared that the word `company' in this Clause,
except where used in reference to this Company, shall be deemed
to include any partnership or other body of persons, whether
incorporated or not incorporated, and whether domiciled in the
United Kingdom or elsewhere, and that the intention is that each
of the objects specified in each paragraph of this Clause shall,
except where otherwise expressed in such paragraph, be an
independent main object and not be limited or restricted by
reference to or inference from the terms of any other paragraph
or the name of the Company.
5 The liability of the members is limited.
6 The Company's share capital is(pound)50,000 divided into 2
Ordinary Shares of(pound)1 each and 49,998 Redeemable Preference
Shares of(pound)1 each.*
<PAGE>
THE COMPANIES ACT 1985
---------------------------------------
PUBLIC COMPANY LIMITED BY SHARES
---------------------------------------
ARTICLES OF ASSOCIATION
-of-
SAATCHI & SAATCHI plc
(Adopted by Special Resolution passed on
29 September 1997 taking effect on 15 December 1997)
<PAGE>
CONTENTS
Articles Headings
1 - 2 Preliminary
3 - 8 Share Capital
9 - 11 Share Certificates
12 Joint Holders of Shares
13 - 18 Calls on Shares
19 - 28 Forfeiture of Shares and Lien
29 Share Warrants to Bearer
30 - 47 Transfer and Transmission of Shares
48 - 51 Alteration of Share Capital
52 - 53 Modification of Rights
54 - 56 General Meetings
57 - 62 Notice of General Meetings
63 - 71 Proceedings at General Meetings
72 - 83 Votes of Members
84 - 90 Directors
91 - 97 Powers and Duties of Directors
98 - 99 Borrowing Powers and Debentures
100 - 103 Directors' Interests
104 Disqualification of Directors
105 - 110 Election and Appointment of Directors
111 - 112 Alternate Directors
113 Local and Other Directors
114 - 123 Proceedings of Directors
124 - 126 Executive Directors
127 President
128 - 130 Secretary
131 Authentication of Documents
132 Minutes
133 The Seal
134 - 143 Dividends
144 - 145 Reserve Fund
146 - 148 Capitalisation of Reserves
149 - 152 Accounts
153 - 155 Audit
156 - 159 Notices
160 Suspended or Curtailed Postal Services
161 Provision for Employees
162 Indemnity
163 - 164 Winding Up
<PAGE>
PRELIMINARY
Exclusion of Table A
1 Neither the regulations contained in Table A in the First
Schedule to the Companies Act 1948 nor those contained in the
Schedule to the Companies (Tables A to F) Regulations 1985 shall
apply to the Company.
Interpretation Article
2 In these Articles, if not inconsistent with the context, the
following words in the first column of the table next hereinafter
contained shall have the following meanings.
Words Meanings
"Act" The Companies Act 1985.
"Articles" These Articles of Association, as altered from
time to time.
"Auditor" The auditor for the time being of the Company.
"business day" A day on which the London Stock Exchange is
open for the transaction of business.
"Directors" The Directors of the Company acting by Resolution
duly passed at a Meeting of the Directors or
otherwise as permitted by these Articles.
"the London
Stock Exchange" The London Stock Exchange Limited.
"Month" Calendar month.
"Office" The registered office of the Company.
"Recognised
Person" a recognised clearing house or a nominee of a
recognised clearing house or of a recognised
investment exchange who is designated as mentioned
in Section 185(4) of the Act.
"Register" The register of members of the Company.
"the
Regulations" The Uncertificated Securities Regulations 1995 (SI
1995 No. 95/3272) including any modification
thereof or any regulations in substitution
therefor made under Section 207 of the Companies
Act 1989 and for the time being in force.
"relevant system" A computer based system, and procedures,
enabling title to shares to be evidenced and
transferred without a written instrument as
defined in the Regulations.
"Seal" The Common Seal of the Company and, as
appropriate, any official seal kept by the Company
by virtue of Section 40 of the Act.
"Secretary" The Secretary of the Company appointed by the
Directors pursuant to Article 128.
"share" a share in the capital of the Company whether held
in certificated or uncertificated form.
"Statutes" The Act, every statutory modification or
re-enactment thereof for the time being in force
and every other Act or statutory instrument for
the time being in force concerning limited
companies and affecting the Company (including,
without limitation, Part V of the Criminal Justice
Act 1993 and the Companies Consolidation
(Consequential Provisions) Act 1985).
"Subsidiary" A subsidiary within the meaning contained in
Section 736 of the Act.
"United
Kingdom" Great Britain and Northern Ireland.
"in writing" Written or produced by any substitute for writing
or partly one and partly another.
"Year" Calendar year.
The expression "Secretary" shall include any person appointed by
the Directors to perform any of the duties of the Secretary and,
where two or more persons are appointed to act as Joint
Secretaries, shall include any one of those persons.
References to an uncertificated share or to a share (or to a
holding of shares) being in, or held in, uncertificated form are
references to that share being an uncertificated unit of a
security (within the meaning of the Regulations) which is for the
time being recorded in the Register as being held in
uncertificated form.
References to a certificated share or to a share (or to a holding
of shares) being in, or held in, certificated form are references
to that share being a certificated unit of a security (within the
meaning of the Regulations).
References to a dematerialised instruction shall mean an
instruction sent or received by means of a relevant system and
such an instruction shall be considered to be properly
authenticated if it complies with the specifications referred to
in paragraph 5(b) of schedule 1 to the Regulations.
Words importing the masculine gender shall include the feminine
gender and vice versa.
Words importing the singular number shall include the plural
number and vice versa.
References to any statute or statutory provision or statutory
instrument shall be construed as relating to any statutory
modification or re-enactment thereof for the time being in force.
Words or expressions which are not defined in these Articles but
which are defined in the Statutes shall, if not inconsistent with
the subject or context, bear the same meaning in these Articles.
SHARE CAPITAL
Capital
3 The share capital of the Company at the date of adoption of these
Articles is(pound)30,000,000 divided into 300,000,000 Ordinary
Shares of 10p each ("Ordinary Shares").
Rights attached to new shares
4 Without prejudice to any special rights, privileges or
restrictions previously conferred on the holders of any existing
shares or class of shares (which special rights or privileges or
restrictions shall not be affected, modified, rescinded or dealt
with except in accordance with Article 52), any shares in the
Company may be issued with or have attached thereto such
preferred, deferred or other special rights or privileges or such
restrictions, whether in regard to dividend, return of capital,
voting or otherwise, as the Company may from time to time by
Ordinary Resolution determine.
5.1 Subject to the provisions of the Statutes and to any rights
conferred on the holders of any other shares, any shares may be
issued on terms that they are or are liable to be redeemed at the
option of the Company or the shareholder on such terms and in
such manner as these Articles or the rights attaching to those
shares may from time to time provide.
5.2 Subject to the provisions of the Statutes, the Company may
purchase its own shares (including any redeemable shares).
5.3 The Company may not purchase its own shares if at the time of
such purchase there are outstanding any convertible shares of the
Company unless such purchase has been sanctioned by an
Extraordinary Resolution passed at a separate class meeting of
the holders of the convertible shares or is otherwise permitted
under the terms of issue of such shares.
5.4 Purchases by the Company of its own redeemable shares shall,
where such shares are listed by the London Stock Exchange, be
limited to a maximum price which, in the case of purchases by
private treaty or by tender, will not exceed the average of the
middle market quotations taken from the Official List of the
London Stock Exchange for the ten business days before the
purchase is made or, in the case of a purchase through the
market, at the market price, provided that it is not more than
five per cent. above such average. If such purchases are by
tender, tenders shall be made available to all holders of such
shares alike.
5.5 Notwithstanding anything to the contrary contained in these
Articles, but subject to any rights specifically attached to any
class of shares from time to time, the rights attached to any
class of shares shall be deemed not to be varied or abrogated by
anything done by the Company pursuant to this Article 5.
Control of Directors over shares
6 Subject to the provisions of these Articles and of the Statutes,
any unissued shares shall be under the control of the Directors,
who may allot and dispose of or grant options over the same to
such persons, on such terms and in such manner as they think fit.
Underwriting commission and brokerages
7 The Company (or the Directors on behalf of the Company) may
exercise the powers of paying commissions conferred by the
Statutes. The Company (or the Directors on behalf of the Company)
may also on any issue of shares pay such brokerage as may be
lawful.
Trusts not recognised
8 Save as required by statute, the Company shall be entitled to
treat the person whose name appears upon the Register in respect
of any share as the absolute owner of that share, and shall not
(save as aforesaid) be under any obligation to recognise any
trust or equity or equitable claim to or partial interest in such
share, whether or not it shall have express or other notice
thereof.
SHARE CERTIFICATES
Certificates
9.1 Every member whose name is entered on the Register as the holder
of any certificated share(s) (except a Recognised Person in
respect of whom the Company is not by law required to complete
and have ready for delivery a certificate) shall be entitled
without payment to one certificate for all the shares registered
in his name or, in the case of shares of more than one class
being registered in his name, to a separate certificate for each
class of such shares so registered. Every certificate shall
specify the number and class of shares in respect of which it is
issued and the distinctive numbers, if any, of such shares and
the amounts paid up thereon respectively.
9.2 Every certificate shall be delivered to a holder of certificated
shares within two months after the allotment or, as the case may
be, the lodging with the Company of the transfer, of the shares
comprised therein. A certificate shall be delivered in accordance
with, and in the time period permitted by, the Regulations to any
uncertificated holder of shares following the change of those
shares to certificated form.
9.3 Every certificate for shares, debenture stock or other form of
security (other than letters of allotment or scrip certificates)
shall be issued under the Seal or in such other manner as the
Directors having regard to the terms of issue and the
requirements of the London Stock Exchange may by resolution
authorise (including bearing an imprint or representation of the
Seal) and (subject as hereinafter provided) shall bear the
autographic signatures of one or more of the Directors and the
Secretary provided that the Directors may by resolution determine
that such signatures or any of them may be affixed thereto by
some mechanical or electronic means or may be printed thereon or
that the certificate need not be signed by any person.
9.4 Where some only of the shares comprised in a share certificate
are transferred, the old certificate shall be cancelled and a new
certificate for the balance of the shares issued in lieu without
charge.
Additional certificates
10 Subject as provided in Article 11, if any member shall require
additional certificates he shall pay for each additional
certificate such reasonable out of pocket expenses as the
Directors shall determine.
Renewal of certificates
11 If any certificate is defaced, worn out, lost, or destroyed, a
new certificate must be issued without charge (other than
exceptional out of pocket expenses) and the person requiring the
new certificate shall surrender the defaced or worn-out
certificate, or give such evidence of the loss or destruction of
the certificate and such indemnity to the Company as the
Directors shall determine.
JOINT HOLDERS OF SHARES
Joint Holders
12 Where two or more persons are registered as the holders of any
share they shall be deemed to hold the same as joint tenants with
benefit of survivorship, subject to the following:-
12.1 The Company shall not be bound to register more than four persons
as the holders of any share.
12.2 The joint holders of any share shall be liable, severally as well
as jointly, in respect of all payments which are to be made in
respect of such share.
12.3 On the death of any one of such joint holders the survivor or
survivors shall be the only person or persons recognised by the
Company as having any title to such share; but the estate of a
deceased joint holder shall not be released from any liability in
respect of any share which had been jointly held by him.
12.4 Any one of such joint holders may give effectual receipts for any
dividend, bonus or return of capital payable to such joint
holders.
12.5 Only the person whose name stands first in the Register as one of
the joint holders of any share shall be entitled to delivery of
the certificate relating to such share (if that share is held in
certificated form), or to receive notices from the Company, and
any notice given to such person shall be deemed notice to all the
joint holders.
12.6 Any one of the joint holders of any share for the time being
conferring a right to vote may vote either personally or by proxy
at any meeting in respect of such share as if he were the sole
holder, provided that if more than one of such joint holders be
present at any meeting, either personally or by proxy, the person
whose name stands first in the Register as one of such holders,
and no other, shall be entitled to vote in respect of the share.
CALLS ON SHARES
Calls, how made
13 The Directors may from time to time make calls upon the members
in respect of all moneys unpaid on their shares (whether on
account of the nominal amount of the shares or by way of premium)
and not by the conditions of allotment thereof made payable at
any fixed time; provided that (except as otherwise provided by
the conditions of allotment) no call shall exceed one-fourth of
the nominal amount of the share, or be made payable within one
month after the date when the last instalment of the last
preceding call shall have been made payable; and each member
shall, subject to receiving fourteen days' notice at least,
specifying the time and place for payment, pay the amount called
on his shares to the persons and at the times and places
appointed by the Directors.
When call deemed to be made
14 A call shall be deemed to have been made at the time when the
resolution of the Directors authorising such call was passed and
may be payable by instalments or postponed or revoked either
wholly or in part as the Directors may determine.
Differences in amounts paid on shares
15 The Directors may make arrangements on the issue of shares for a
difference between the holders of such shares in the amount of
calls to be paid and in the time of payment of such calls.
Interest on calls in arrear
16 If a call payable in respect of any share or any instalment of a
call is not paid before or on the day appointed for payment
thereof, the holder for the time being of such share shall be
liable to pay interest on the same at such rate, not exceeding 20
per cent. per annum, as the Directors determine from the day
appointed for the payment of such call or instalment to the time
of actual payment; but the Directors may, if they think fit,
waive the payment of such interest or any part thereof. No
dividend or other payment or distribution in respect of any such
share shall be paid or distributed, and no other rights which
would otherwise normally be exercisable in accordance with these
Articles may be exercised by a holder of any such share, so long
as any such sum or any interest or expenses payable in accordance
with this Article in relation thereto remains due.
Instalments to be treated as calls
17 If by the conditions of allotment of any shares, or otherwise,
any amount is made payable at any fixed time, whether on account
of the nominal amount of the shares or by way of premium, every
such amount shall be payable as if it were a call duly made by
the Directors, of which due notice had been given; and all the
provisions hereof with respect to the payment of calls and
interest thereon, or to the forfeiture of shares for non-payment
of calls, shall apply to every such amount and the shares in
respect of which it is payable.
Payment in advance of calls
18 The Directors may, if they think fit, receive from any member
willing to advance the same all or any part of the moneys
uncalled and unpaid upon any shares held by him; and upon all or
any of the moneys so paid in advance the Directors may (until the
same would, but for such advance, become presently payable) pay
interest at such rate (not exceeding, without the sanction of the
Company in General Meeting, 6 per cent. per annum) as may be
agreed upon between the member paying the moneys in advance and
the Directors. Any such payment in advance shall not entitle the
member concerned to participate in respect of the amount of such
payment in any dividend declared or paid on such shares.
FORFEITURE OF SHARES AND LIEN
Notice requiring payment of call or instalment
19 If any member fails to pay any call or instalment of a call on
the day appointed for payment thereof the Directors may, at any
time thereafter during such time as any part of the call or
instalment remains unpaid, serve a notice on him requiring him to
pay so much of the call or instalment as is unpaid, together with
interest accrued and any expenses incurred by reason of such
non-payment.
What the notice is to state
20 The notice shall name a further day (not being earlier than the
expiration of fourteen days from the date of the notice) on or
before which such call or instalment and all interest accrued and
expenses incurred by reason of such non-payment are to be paid,
and it shall also name the place where payment is to be made. The
notice shall also state that in the event of non-payment at or
before the time and at the place appointed the shares in respect
of which such call or instalment is payable will be liable to
forfeiture.
Forfeiture if notice not complied with
21 If the requirements of any such notice are not complied with, any
shares in respect of which such notice has been given may, at any
time thereafter before the payment required by the notice has
been made, be forfeited by a resolution of the Directors to that
effect, and any such forfeiture shall extend to all dividends
declared in respect of the shares so forfeited but not actually
paid before such forfeiture. The Directors may accept surrender
of any share liable to be forfeited hereunder.
Forfeited shares the property of the Company
22 When any share has been forfeited notice of the forfeiture shall
be served upon the person who was before forfeiture the holder of
the share; but no forfeiture shall be in any manner invalidated
by any omission or neglect to give such notice. Subject to the
provisions of the Statutes, any share so forfeited shall be
deemed to be the property of the Company, no voting rights shall
be exercised in respect thereof and the Directors may cancel the
same or within three years of such forfeiture sell, re-allot or
otherwise dispose of the same in such manner as they think fit
either to the person who was before the forfeiture the holder
thereof, or to any other person, and either with or without any
past or accruing dividends, and, in the case of re-allotment,
with or without any money paid thereon by the former holder being
credited as paid up thereon. Any share not disposed of in
accordance with the foregoing within a period of three years from
the date of its forfeiture shall thereupon be cancelled in
accordance with the provisions of the Statutes.
Liability to pay calls after forfeiture
23 Any person whose shares have been forfeited shall cease to be a
member in respect of the forfeited shares, but shall,
notwithstanding, remain liable to pay to the Company all moneys
which at the date of the forfeiture were presently payable by him
to the Company in respect of the shares, together with interest
thereon at such rate, not exceeding 20 per cent. per annum or
such lower rate as the Directors shall appoint, down to the date
of payment, but his liability shall cease if and when the Company
receives payment in full of all such moneys in respect of the
shares, together with interest as aforesaid. The Directors may,
if they think fit, waive the payment of such interest or any part
thereof.
Statutory declaration of forfeiture
24 A statutory declaration in writing that the declarant is a
Director of the Company or the Secretary and that a share has
been duly forfeited or sold to satisfy a lien of the Company on a
date stated in the declaration shall be conclusive evidence of
the facts stated as against all persons claiming to be entitled
to the share, and such declaration and the receipt of the Company
for the consideration (if any) given for the share on the sale,
re-allotment or disposal thereof, and the appropriate share
certificate, shall constitute a good title to the share, and the
person to whom the share is sold, re-allotted or disposed of
shall be registered as the holder thereof, and his title to the
share shall not be affected by any irregularity or invalidity in
the proceedings in reference to the forfeiture, re-allotment,
sale or disposal of such share. The Directors may authorise some
person to transfer a forfeited share to any other person as
aforesaid. The remedy (if any) of any former holder of any such
share, and of any person claiming under or through him, shall be
against the Company and in damages only.
Lien on partly paid shares
25 The Company shall have a first and paramount lien upon all the
shares, other than fully paid-up shares, registered in the name
of each member (whether solely or jointly with other persons) for
any amount payable in respect of such shares, whether presently
payable or not, and such lien shall apply to all dividends from
time to time declared or other moneys payable in respect of such
shares. Unless otherwise agreed, the registration of a transfer
of a share shall operate as a waiver of the Company's lien, if
any, on such share. The Company shall in no circumstances have a
lien over fully paid shares.
Sale for lien
26 For the purpose of enforcing such lien the Directors may subject
(in the case of uncertificated shares) to the provisions of the
Regulations sell the shares subject thereto, in such manner as
they think fit, but no such sale shall be made until all or any
part of the sum outstanding on the shares shall have become
payable and until notice in writing stating, and demanding
payment of, the sum payable and giving notice of the intention to
sell in default of such payment shall have been served on such
member and default shall have been made by him in the payment of
the sum payable for fourteen days after such notice.
Proceeds of sale
27 The net proceeds of any such sale, after payment of the costs
thereof, shall be applied in or towards satisfaction of such part
of the amount in respect of which the lien exists as is presently
payable. The residue, if any, shall (upon surrender to the
Company for cancellation of the certificate for any certificated
shares sold and subject to a like lien for sums not presently
payable as existed upon the shares before the sale) be paid to
the member or as he shall in writing direct or the person (if
any) entitled by transmission to the shares immediately before
the sale.
Title
28 An entry in the Directors' minute book of the forfeiture of any
shares, or that any shares have been sold to satisfy a lien of
the Company, shall be sufficient evidence, as against all persons
claiming to be entitled to such shares, that the said shares were
properly forfeited or sold; and such entry, the receipt of the
Company for the price of such shares, and the appropriate share
certificate, shall constitute a good title to such shares, and
the name of the purchaser or other person entitled shall be
entered in the Register as a Member, and he shall be entitled, if
such shares are in certificated form, to a certificate of title
to the shares and shall not be bound to see to the application of
the purchase money, nor shall his title to the shares be affected
by any irregularity or invalidity in the proceedings in reference
to the forfeiture or sale. For giving effect to any such sale,
the Directors may, subject (in the case of uncertificated shares)
to the provisions of the Regulations, authorise some person to
transfer any such shares sold to the purchaser thereof. The
remedy (if any) of the former holder of such shares, and of any
person claiming under or through him, shall be against the
Company and in damages only.
SHARE WARRANTS TO BEARER
29.1 No share warrants shall be issued in respect of any deferred
shares of the Company but, subject to this provision, the Company
is hereby authorised to issue share warrants under the powers
given by the Act and the board may accordingly, with respect to
any shares which are fully paid-up (in any case in which they
shall in their discretion think fit so to do), upon an
application in writing signed by the person registered as the
holder of such shares and authenticated by such statutory
declaration or other evidence (if any) as the board may from time
to time require as to the identity of the person signing the
request, and upon receiving the certificate (if any) for such
shares, and the amount of the stamp duty (if any) on such
warrant, or if the Company shall previously have compounded for
such stamp duty, then such sum (if any) as the board may
determine in respect of the amount payable for such composition,
and such fee as the board may from time to time require, issue at
the expense in all respects of the person applying for the same a
warrant duly stamped (if applicable) stating that the bearer of
the warrant is entitled to the shares therein specified, and may,
in any case in which a warrant is so issued, provide by coupons
or otherwise for the payment of the future dividends or other
moneys on the shares included in such warrant.
29.2 Subject to the provisions of these Articles and of the Act the
bearer of a warrant shall be deemed to be a member of the Company
and shall be entitled to the same privileges and advantages as he
would have had if his name had been included in the register as
the holder of the shares specified in such warrant.
29.3 No person shall, as bearer of a warrant, be entitled (i) to sign
a requisition for calling a meeting or to give notice of
intention to submit a resolution to a meeting, or (ii) to attend
or vote by himself or his proxy, or exercise any privilege as a
member at a meeting, unless he shall, in case (i) before or at
the time of lodging such requisition or giving such notice of
intention as aforesaid, or in case (ii) three days at least
before the day fixed for the meeting, have deposited at the
registered office of the Company or any such other place as may
be specified in the notice the warrant in respect of which he
claims to act, attend or vote as aforesaid, and unless the
warrant shall remain so deposited until after the meeting and any
adjournment thereof shall have been held.
29.4 Not more than one name shall be received as that of the holder of
a warrant.
29.5 To any person so depositing a warrant there shall be delivered a
certificate stating his name and address, and describing the
shares included in the warrant so deposited, and bearing the date
of issue of the certificate, and such certificate shall entitle
him, or his proxy duly appointed, as hereinafter provided, to
attend and vote at any general meeting of the Company held within
three months from the date of the certificate in the same way as
if he were the registered holder of the shares specified in the
certificate.
29.6 Upon delivery up of the certificate to the Company, the bearer of
the certificate shall be entitled to receive the warrant in
respect of which the certificate was given.
29.7 The holder of a warrant shall not, save as aforesaid, be entitled
to exercise any right as a member, unless (if called upon by any
member of the board or the secretary so to do) he produces his
warrant and states his name and address.
29.8 The board may from time to time make regulations as to the terms
upon which, if it in its discretion thinks fit, a new warrant or
coupon may be issued in any case in which a warrant or coupon may
have been worn out, defaced or destroyed, but no new warrant may
be issued to replace one that has been destroyed unless the board
is satisfied beyond reasonable doubt that the original has been
destroyed.
29.9 The shares included in any warrant shall be transferred by the
delivery of the warrant without any written transfer and without
registration, and to shares so included the provisions
hereinafter contained with reference to the transfer of shares
shall not apply.
29.10 Upon the surrender of his warrant together with the outstanding
dividend coupons, if any, in respect thereof to the Company for
cancellation, the bearer of a warrant shall be entitled to have
his name entered as a member in the register in respect of the
shares included in the warrant, but the Company shall in no case
be responsible for any loss or damage incurred by any person by
reason of the Company entering in its register upon the surrender
of a warrant the name of any person not the true and lawful owner
of the warrant surrendered.
TRANSFER AND TRANSMISSION OF SHARES
Form of instrument of transfer of certificated shares etc.
30 All transfers of certificated shares shall be in writing in the
usual common form or in any other form permitted by the Stock
Transfer Act 1963 or approved by the Directors. The instrument of
transfer shall be signed by or on behalf of the transferor and,
if the certificated shares transferred are not fully paid, by or
on behalf of the transferee. The transferor shall be deemed to
remain the holder of such certificated shares until the name of
the transferee is entered in the Register in respect thereof.
Transfers of uncertificated shares
31 Subject to the provisions of these Articles, a Member may
transfer all or any of his uncertificated shares in any manner
which is permitted by the Statutes and is from time to time
approved by the Directors and the Company shall register such
transfer in accordance with the Statutes. The transferor shall be
deemed to remain the holder of such uncertificated shares until
the name of the transferee is entered on the register in respect
thereof.
Renunciation of Allotments
32 The Directors may at any time after the allotment of any share
but before any person has been entered in the Register as the
holder thereof recognise a renunciation thereof by the allottee
in favour of some other person and may accord to any allottee of
a share a right to effect such renunciation upon and subject to
such terms and conditions as the Directors may think fit.
Power to refuse registration of transfers
33 Subject (in the case of uncertificated shares) to the provisions
of the Regulations and the facilities and requirements of the
relevant system concerned, the Directors may, in their absolute
discretion and without assigning any reason therefor, refuse to
register any transfer of shares of any class (not being fully
paid shares), and may also decline to register any transfer of
certificated shares of any class on which the Company has a lien,
provided that, where any such shares are admitted to the Official
List of the London Stock Exchange, such discretion may not be
exercised in such a way as to prevent dealings in the shares of
that class from taking place on an open and proper basis.
34 The Directors may also refuse to recognise any instrument of
transfer of a certificated share, unless the instrument of
transfer, duly stamped, is deposited at the Office or such other
place as the Directors may appoint, accompanied by the
certificate for the certificated shares to which it relates if it
has been issued, and such other evidence as the Directors may
reasonably require to show the right of the transferor to make
the transfer.
35 The Directors may, in their absolute discretion and without
assigning any reason therefor, refuse to register any transfer of
an uncertificated share where permitted by the Statutes.
36 The Directors may also refuse to register any transfer of shares
unless it is in respect of only one class of shares.
37 The maximum number of persons who may be registered as joint
holders of a share is four.
Notice of refusal of transfer
38 If the Directors refuse to register a transfer they shall send to
the transferee notice of the refusal:-
38.1 in the case of a certificated share, within two months after the
date on which the transfer was lodged with the Company; or
38.2 in the case of an uncertificated share, within two months of the
date on which a properly authenticated dematerialised instruction
attributable to the operator of the relevant system was received
by the Company in respect of such transfer.
Register may be closed
39 Subject to compliance with the Statutes, the Register may be
closed at such times and for such periods as the Directors in
their absolute discretion may from time to time determine,
provided that:-
39.1 the Register shall not be closed for more than thirty days in any
year; and
39.2 where shares have been permitted to be transferred by means of a
relevant system, the consent of the operator of that system has
been obtained.
No fee for registration
40 No fee shall be charged in respect of the registration of any
transfer, probate, letters of administration, certificate of
marriage or death, power of attorney or other document relating
to or affecting the title to any shares.
Transfer instruments to be retained by the Company
41.1 All instruments of transfer which shall be registered shall,
subject to Article 41.2, be retained by the Company, but any
instrument of transfer which the Directors may refuse to register
shall (except in any case of fraud) be returned to the persons
depositing the same.
41.2 The Company shall be entitled to destroy the following documents
at the following times:-
41.2.1 registered instruments of transfer or dematerialised instructions
transferring shares and any other documents which were the basis
for making an entry on the Register: at any time after the
expiration of six years from the date of registration thereof;
41.2.2 allotment letters: at any time after the expiration of six years
from the date of issue thereof;
41.2.3 dividend mandates, powers of attorney, grants of probate and
letters of administration: at any time after the account to which
the relevant mandate, power of attorney, grant of probate or
letters of administration related has been closed;
41.2.4 notifications of change of address: at any time after the
expiration of two years from the date of recording thereof; and
41.2.5 cancelled share certificates: at any time after the expiration of
one year from the date of the cancellation thereof.
41.3 It shall conclusively be presumed in favour of the Company:-
41.3.1 that every entry in the Register purporting to be made on the
basis of any such documents so destroyed was duly and properly
made; and
41.3.2 that every such document so destroyed was valid and effective and
had been duly and properly registered, cancelled, or recorded, as
the case may be, in the books or records of the Company.
41.4 The provisions aforesaid shall apply to the destruction of a
document in good faith and without notice of any claim
(regardless of the parties thereto) to which the document might
be relevant.
41.5 Nothing herein contained shall be construed as imposing upon the
Company any liability in respect of the destruction of any such
document earlier than as aforesaid or in any other circumstances,
which would not attach to the Company in the absence of this
Article.
41.6 References in this Article to the destruction of any document
include the disposal thereof in any manner.
Persons recognised on death of a member
42 On the death of any member (not being one of two or more joint
holders of a share) the legal personal representatives of such
deceased member shall be the only persons recognised by the
Company as having any title to the share or shares registered in
his name.
Transmission
43 Any person becoming entitled to a share or shares by reason of
the death or bankruptcy of a member may, upon such evidence being
produced as may from time to time be required by the Directors,
elect either to be registered as a member in respect of such
share or shares, or to make such transfer of the share or shares
as the deceased or bankrupt person could have made. If the person
so becoming entitled shall elect to be registered himself he
shall give to the Company a notice in writing signed by him to
that effect. The Directors shall in either case have the same
right to refuse or suspend registration as they would have had if
the death or bankruptcy of the member had not occurred and the
notice of election or transfer were a transfer executed by that
member.
Limitation of rights before registration
44 Any person becoming entitled to a share by reason of the death or
bankruptcy of a member shall be entitled to the same dividends
and other advantages to which he would be entitled if he were the
registered holder of the share, except that he shall not, unless
and until he is registered as a member in respect of the share or
unless the Directors otherwise determine, be entitled in respect
of it to receive notice of, or to exercise any right conferred by
membership in relation to, meetings of the Company: Provided
always that the Directors may at any time give notice requiring
any such person to elect either to be registered himself or to
transfer such share to some other person, and if such notice is
not complied with within ninety days after service the Directors
may thereafter withhold payment of all dividends and other moneys
payable in respect of such share until the requirements of the
notice have been complied with.
Untraced members
45.1 Subject to the provisions of the Statutes, the Company shall be
entitled to sell at the best price reasonably obtainable any
share or stock of a member or any share or stock to which a
person is entitled by transmission if and provided that:-
45.1.1 for a period of twelve years no cheque or warrant sent by the
Company through the post in a pre-paid letter addressed to the
member or to the person entitled by transmission to the share or
stock at his address on the Register or other the last known
address given by the member or the person entitled by
transmission to which cheques and warrants are to be sent has
been cashed and no communication has been received by the Company
from the member or the person entitled by transmission provided
that in any such period of twelve years the Company has paid at
least three dividends in respect of the shares in question
whether interim or final and no such dividend has been claimed;
and
45.1.2 the Company has at any time following the expiration of the said
period of twelve years by advertisement in a national daily
newspaper and a local newspaper circulating in the area in which
the last known address of the member or the person entitled to
the shares by transmission at which service of notices might be
effected in accordance with these Articles is located given
notice of its intention to sell such share; and
45.1.3 the Company has not during the further period of three months
after the date of the advertisement and prior to the exercise of
the power of sale received any communication from the member or
person entitled by transmission; and
45.1.4 the Company has given notice in writing of its intention to sell
such shares or stock in each case to the Quotations Department of
the London Stock Exchange.
45.2 To give effect to any such sale, the Directors may authorise some
person to transfer such share and such transfer shall be as
effective as if it had been executed by the registered holder of,
or person entitled by the transmission to, such share. The
Company shall account to the member or other person entitled to
such share or stock for the net proceeds of such sale by carrying
all moneys in respect thereof to a separate account which shall
be a permanent debt of the Company and the Company shall be
deemed to be a debtor and not a trustee in respect thereof for
such Member or other person. Moneys carried to such separate
account may either be employed in the business of the Company or
invested in such investments (other than shares of the Company or
its holding company (if any)) as the Directors may from time to
time think fit. The Company shall not be required to pay interest
on the said moneys or to account for any amounts earned thereon.
Uncertificated shares - general provisions
46 Subject to the Regulations and the facilities and requirements of
the relevant system concerned, the Directors shall have power to
make such arrangements as they may (in their absolute discretion)
think fit in order for any class of share to be a participating
security and subject thereto the Company may issue shares of that
class in uncertificated form and permit such shares to be
transferred by means of a relevant system to the fullest extent
available from time to time. No provision of these Articles shall
apply or have effect to the extent that it is inconsistent with:-
46.1 the holding of shares in uncertificated form;
46.2 the transfer of title to shares by means of a relevant system;
and
46.3 the Regulations.
47 Without prejudice to the generality of Article 46,
notwithstanding any provision of these Articles and subject
always to the Regulations, where any class of share is a
participating security:-
47.1 the register relating to such class shall be maintained at all
times in the United Kingdom;
47.2 shares of such class held by the same holder or joint holder in
certificated form and in uncertificated form shall be treated as
separate holdings, unless the Directors otherwise determine;
47.3 shares of such class may be changed from certificated to
uncertificated form, and from uncertificated to certificated
form, in accordance with the Regulations;
47.4 the Company shall comply with Regulation 21 of the Regulations in
relation to the rectification of, and changes to, the Register
relating to such class;
47.5 the provisions of these Articles with respect to meetings,
including the holders, of such class shall have effect subject to
the provisions of Regulation 34 of the Regulations; and
47.6 the Directors may, by notice in writing to the holder of any
uncertificated shares of such class, require that holder to
change the form of such shares to certificated form within such
period as may be specified in the notice.
ALTERATION OF SHARE CAPITAL
Capital, how increased
48 The Company may from time to time by Ordinary Resolution increase
its capital by the creation of new shares, such increase to be of
such aggregate amount and to be divided into shares of such
respective amounts as the resolution shall prescribe.
New capital to be considered part of original unless otherwise provided
49 Any capital raised by the creation of new shares shall, unless
otherwise provided by the conditions of issue, be considered as
part of the original capital, and shall be subject to the same
provisions with reference to the payment of calls and the
forfeiture of shares on non-payment of calls, transfer and
transmission of shares, lien or otherwise, as if it had been part
of the original capital.
Alteration of capital
50.1 The Company may by Ordinary Resolution:-
50.1.1 consolidate all or any of its share capital into shares of larger
amount than its existing shares;
50.1.2 cancel any shares which at the date of the passing of the
resolution have not been taken or agreed to be taken by any
person and diminish the amount of its capital by the amount of
the shares so cancelled;
50.1.3 sub-divide its shares or any of them into shares of smaller
amount than is fixed by the Memorandum of Association (subject,
nevertheless, to the provisions of the Statutes), and so that the
resolution whereby any share is sub-divided may determine that as
between the holders of the shares resulting from such
sub-division, one or more of the shares may have any such
preferred or other special rights over or may have such deferred
rights or be subject to any such restrictions as compared with
the others as the Company has power to attach to unissued or new
shares. Provided that in the sub-division of an existing share
the proportion between the amount paid and the amount (if any)
unpaid on each reduced share shall be the same as it was in the
case of the share from which the reduced share is derived.
50.2 The Company may by Special Resolution reduce its share capital,
any capital redemption reserve and any share premium account in
any manner authorised by law.
Fraction of shares
51 Anything done in pursuance of Article 50 shall be done in the
manner therein provided and subject to any conditions imposed by
the Statutes so far as they shall be applicable and, so far as
they shall not be applicable, in accordance with the terms of the
resolution authorising the same and be otherwise in such manner
as the Directors deem most expedient, with power for the
Directors on any consolidation of shares to deal with fractions
of shares in any manner they think fit. In particular, whenever
on any consolidation members shall be entitled to any fractions
of shares the Directors may sell all or any of such fractions and
shall distribute the net proceeds thereof amongst the members
entitled to such fractions in due proportions. In giving effect
to any such sales, the Directors may authorise some person to
transfer the shares sold to the purchaser thereof and the
purchaser shall be registered as the holder of the shares
comprised in any such transfer and he shall not be bound to see
to the application of the purchase money nor shall his title to
the shares be affected by any irregularity or invalidity in the
proceedings relating to the transfer.
MODIFICATION OF RIGHTS
Rights of various classes may be altered
52.1 If at any time the capital is divided into different classes of
shares, the rights attached to any class or any of such rights
(unless otherwise provided by the terms of issue of the shares of
that class) may, subject to the provisions of Section 127 of the
Act, whether or not the Company is being wound up, be modified,
abrogated or varied with the consent in writing of the holders of
three fourths of the issued shares of that class, or with the
sanction of an Extraordinary Resolution passed at a separate
general meeting of the holders of the shares of the class, but
not otherwise.
52.2 To every such separate general meeting the provisions of these
Articles relating to General Meetings shall, mutatis mutandis,
apply, but so that:-
52.2.1 at every such separate general meeting the quorum shall be two
persons at least holding or representing by proxy one third of
the issued shares of the class. Provided that if at any adjourned
meeting of the holders of any class a quorum as defined is not
present those holders who are present in person or by proxy shall
form a quorum;
52.2.2 any holder of shares of the class in question present in person
or by proxy may demand a poll;
52.2.3 the holders of the shares of the class in question shall, on a
poll, have one vote in respect of every share of the class held
by them respectively.
52.3 This Article shall apply to the modification, variation or
abrogation of the special rights attached to some only of the
shares of any class as if each group of shares of the class
differently treated formed a separate class the special rights
whereof are to be modified, varied or abrogated.
52.4 For the avoidance of doubt, the provisions of these Articles
relating to General Meetings shall apply, with necessary
modifications, to any separate meeting of the holders of shares
of a class held otherwise than in connection with the variation
or abrogation or modification of the rights attached to shares of
that class.
Creation or issue of further shares of special class
53 The rights attached to any class of shares shall not (unless
otherwise provided by the terms of issue of the shares of that
class or by the terms upon which such shares are for the time
being held) be deemed to be modified or varied by the creation or
issue of further shares ranking in some or all respects pari
passu therewith but in no respect in priority thereto.
GENERAL MEETINGS
Annual General Meetings
54 The Company shall in each year hold a General Meeting as its
Annual General Meeting in addition to any other meetings in that
year, and not more than fifteen months shall elapse between the
date of one Annual General Meeting and that of the next. The
Annual General Meeting shall be held at such time and place as
the Directors shall appoint. All General Meetings other than
Annual General Meetings shall be called "Extraordinary General
Meetings".
Extraordinary General Meetings
55.1 The Directors may whenever they think fit, convene an
Extraordinary General Meeting and shall do so upon a requisition
made in accordance with Section 368 of the Act.
55.2 If at any time there shall not be present in England and capable
of acting sufficient Directors to form a quorum, the Directors in
England capable of acting, or if there shall be no such Directors
then any two members, may convene an Extraordinary General
Meeting in the same manner as nearly as possible as that in which
General Meetings may be convened by the Directors, and the
Company at such meeting shall have power to elect Directors.
Business at meeting called by requisition
56 In the case of an Extraordinary General Meeting called in
pursuance of a requisition, unless such meeting shall have been
called by the Directors, no business other than that stated in
the requisition as the objects of the meeting shall be
transacted.
NOTICE OF GENERAL MEETINGS
Notice of meeting
57 An Annual General Meeting and an Extraordinary General Meeting at
which it is proposed to pass a Special Resolution or (save as
provided by the Statutes) a resolution of which special notice
has been given to the Company shall be called by twenty-one days'
notice in writing at the least, and any other Extraordinary
General Meeting shall be called by fourteen days' notice in
writing at the least. The notice shall be exclusive of the day on
which it is served or deemed to be served and also of the day for
which it is given.
Recipients of Notices
58 Notice of every Annual General Meeting and Extraordinary General
Meeting of the Company shall be given to:-
58.1 all Members other than any who, under the provisions of these
Articles or the terms of issue of the shares they hold, are not
entitled to receive such notices from the Company;
58.2 the Auditors; and
58.3 each Director.
Contents of notice
59 The notice shall specify the place, the day and the time of
meeting, and, in case of special business, the general nature of
the business. The notice shall be given in manner hereinafter
mentioned or in such other manner (if any) as may be prescribed
by the Company in General Meeting to such persons as are under
these Articles entitled to receive such notices from the Company.
Every notice calling an Annual General Meeting shall specify the
meeting as such.
Meeting convened by short notice
60 A meeting of the Company shall, notwithstanding that it is called
by shorter notice than specified above, be deemed to have been
duly called with regard to length of notice if it is so agreed:-
60.1 in the case of a meeting called as the Annual General Meeting, by
all the members entitled to attend and vote thereat; and
60.2 in the case of any other meeting, by a majority in number of the
Members having the right to attend and vote at the meeting, being
a majority together holding not less than 95 per cent. in nominal
value of the shares giving that right.
Statement as to proxies in notice
61 In every notice calling a meeting of the Company or of any class
of members of the Company there shall appear with reasonable
prominence a statement that a member entitled to attend and vote
is entitled to appoint a proxy to attend and vote instead of him,
and that a proxy need not be a member.
Omission to give notice
62 The accidental omission to give notice to any person entitled
under these Articles to receive notice of a General Meeting, or
the non-receipt by any such person of such notice, shall not
invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
Business of meeting
63 The ordinary business of an Annual General Meeting shall be to
receive and consider the accounts and balance sheets, the reports
of the Directors and Auditors, and any other documents required
by law to be attached or annexed to the balance sheets, to elect
Directors in place of those retiring, to elect Auditors where no
special notice of such election is required by the Statute and
fix their remuneration, or determine the method by which it may
be fixed, to declare dividends and to confer, vary or renew any
authority under Section 80 of the Act or any power pursuant to
Section 95 of the Act. All other business transacted at an Annual
General Meeting, and all business transacted at an Extraordinary
General Meeting, shall be deemed special.
Quorum
64 No business shall be transacted at any General Meeting unless a
quorum of members is present; and such quorum shall consist of
not less than two members present in person by representative (in
case of a corporation) or by proxy and entitled to vote.
Adjournment for want of quorum
65 If within fifteen minutes from the time appointed for a General
Meeting a quorum is not present the meeting, if convened by or on
the requisition of members, shall be dissolved. In any other case
it shall stand adjourned to such day and to such time and place
(not being less than seven nor more than thirty days thereafter)
as the Chairman may determine. In default of such determination
it shall be adjourned to the same day in the next week or, if
that day is not a business day, the next following business day
at the same time and place; if at such adjourned meeting a quorum
is not present within half an hour from the time appointed for
the meeting, the meeting shall be dissolved.
Chairman
66 The Chairman (if any) of the Board of Directors shall preside as
Chairman at every General Meeting of the Company. If there is no
such Chairman, or if at any meeting he is not present within
fifteen minutes after the time appointed for holding the meeting,
or is unwilling to act as Chairman, the Directors present shall
choose one of their number to act as Chairman or if no Director
is present and willing to take the chair the members present
shall choose one of their number to be Chairman.
Adjournment
67.1 The Chairman may, with the consent of any General Meeting at
which a quorum is present (and shall if so directed by the
meeting), adjourn the meeting from time to time and from place to
place; but no business shall be transacted at any adjourned
meeting other than the business which might lawfully have been
transacted at the meeting from which the adjournment took place.
67.2 The Chairman may at any time adjourn any meeting (whether or not
it has commenced or a quorum is present) either sine die or to
such other time and place as the Board or the Chairman of the
meeting may decide, if it appears to him that:-
67.2.1 the number of persons wishing to attend cannot be conveniently
accommodated in the place appointed for the meeting; or
67.2.2 the unruly conduct of persons attending the meeting prevents or
is likely to prevent the orderly continuation of the business of
the meeting; or
67.2.3 an adjournment is otherwise necessary so that the business of the
meeting may be properly conducted.
67.3 When a meeting is adjourned for thirty days or more or sine die,
seven days' notice of the adjourned meeting shall be given in the
like manner as in the case of an original meeting. Save as
aforesaid, it shall not be necessary to give any notice of an
adjourned meeting or of the business to be transacted thereat.
Voting
68.1 At any General Meeting every question shall be decided by a show
of hands unless a poll is (on or before the declaration of the
result of the show of hands) directed by the Chairman or demanded
by:-
68.1.1 at least three members present in person or by proxy and entitled
to vote; or
68.1.2 one or more members representing not less than one-tenth of the
total voting rights of all the Members having the right to vote
at the meeting; or
68.1.3 one or more members holding shares in the Company conferring a
right to vote at the meeting, being shares on which an aggregate
sum has been paid up equal to not less than one-tenth of the
total sum paid up on all the shares conferring that right.
The demand for a poll may be withdrawn.
68.2 A declaration by the Chairman that a resolution has been carried
or not carried, or carried or not carried by a particular
majority, and an entry to that effect in the minute book of the
Company, shall be conclusive evidence of the facts, without proof
of the number or proportion of the votes recorded in favour of or
against such resolution.
Poll
69 If a poll is duly directed or demanded it may be taken
immediately or (subject to the provisions of Article 71) at such
other time (but not more than thirty days after such direction or
demand) and in such manner as the Chairman may appoint, and the
result of such poll shall be deemed to be the resolution of the
meeting at which the poll was directed or demanded. No notice
need be given of a poll not taken immediately.
Casting Vote
70 In the case of an equality of votes at any General Meeting,
whether upon a show of hands or on a poll, the Chairman shall be
entitled to a second or casting vote.
When poll taken without adjournment
71 A poll demanded upon the election of a Chairman or upon a
question of adjournment shall be taken forthwith. Any business
other than that upon which a poll has been demanded may be
proceeded with pending the taking of the poll.
VOTES OF MEMBERS
Votes
72 Subject to any special terms as to voting upon which any shares
may for the time being be held, upon a show of hands every member
present in person or by representative (in the case of a
corporate member) shall have one vote, and upon a poll every
member present in person or by representative (in the case of a
corporate member) or by proxy shall have one vote for every share
held by him.
By committee or curator
73 A member incapable by reason of mental disorder or otherwise of
managing and administering his property and affairs may vote
whether on a show of hands or on a poll by his receiver or other
person appointed by any Court of competent jurisdiction to act on
his behalf and any such person may on a poll vote by proxy
provided that such evidence as the Directors may require of the
authority of the person claiming to vote shall have been
deposited at the Office, or at such other place as is specified
in accordance with these Articles for the deposit of instruments
of proxy, not less than forty-eight hours before the time of
holding the meeting or adjourned meeting at which such person
claims to vote.
Persons whose calls are unpaid not entitled to vote
74 No member shall be entitled to vote at any General Meeting unless
all calls or other sums presently payable by him in respect of
the shares held by him in the Company have been paid.
Disenfranchisement of members
75.1 For the purposes of this Article, unless the context otherwise
requires:-
75.1.1 "disclosure notice" means a notice issued by or on behalf of the
Company requiring disclosure of interests in specified shares
pursuant to Section 212 of the Act;
75.1.2 "restrictions" means one or more, as the case may be, of the
restrictions referred to in paragraph 75.3 of this Article;
75.1.3 "specified shares" means all or, as the case may be, some of the
shares specified in a disclosure notice;
75.1.4 a person other than the member holding a share shall be treated
as appearing to be interested in the share if the member has
informed the Company that the person is, or may be, so
interested, or if the Board (after taking account of any
information obtained from the member or, pursuant to a disclosure
notice, from any other person) knows or has reasonable cause to
believe that the person is, or may be, so interested; and
75.1.5 "interested" shall be construed as it is for the purpose of
Section 212 of the Act.
75.2 Notwithstanding anything in these Articles to the contrary, if:-
75.2.1 a disclosure notice has been served on a member or any other
person appearing to be interested in the specified shares; and
75.2.2 the Company has not received (in accordance with the terms of
such disclosure notice) the information required therein in
respect of the relevant specified shares not later than fourteen
days (subject as provided in Article 75.7 below) after the
service of such disclosure notice
then the Directors may (subject to Article 75.3 below) determine
that the member in respect of the relevant specified shares
shall, upon the issue of a restriction notice (as referred to
below), be subject to the restrictions referred to in such
restriction notice (and upon the issue of such restriction notice
such member shall be so subject). A "restriction notice" shall be
a notice issued by the Company stating, or substantially to the
effect, that (until such time as the Directors determine
otherwise pursuant to Article 75.4) the specified shares referred
to therein shall be subject to one or more of the restrictions
stated therein.
75.3 The restrictions which the Directors may determine shall apply to
specified shares pursuant to this Article shall be one or more,
as determined by the Directors, of the following (save that, (i)
where the holder of specified shares is the holder of less than
0.25 per cent. (in nominal value) of the shares of the same class
as the specified shares in issue at the time of service of the
disclosure notice in respect of such specified shares, only the
restriction referred to in Article 75.3.1 below may be determined
by the Directors to apply) and (ii) the restrictions referred to
in Article 75.3.2 shall not apply to sales of specified shares to
a bona fide unconnected third party (such as a sale of specified
shares on a recognised stock exchange as defined in the Financial
Services Act 1986 or on any stock exchange on which the Company's
shares are normally dealt or pursuant to an acceptance of a
takeover offer for the Company (as defined in Section 428 (1) of
the Act)):-
75.3.1 that the member registered in respect of such specified shares
shall not be entitled, in respect of those specified shares, to
be present or to vote either personally or by representative or
by proxy or otherwise at any general meeting or at any separate
general meeting of the holders of any class of shares or upon any
poll;
75.3.2 that no transfer of such specified shares (other than a transfer
to a bona fide unconnected third party) by the member registered
as a certificated holder in respect of such specified shares
shall be effective or shall be recognised by the Company; and
75.3.3 that no dividend shall be paid to the member registered in
respect of such specified shares in respect of those specified
shares and that in circumstances where an offer of the right to
elect to receive shares or other securities instead of cash in
respect of any dividend is or has been made, any election made
thereunder by such member in respect of such specified shares
shall not be effective.
75.4 The Directors may determine that one or more of the restrictions
imposed on specified shares shall cease to apply (whereupon they
shall cease so to apply) at any time, and all the restrictions
imposed on the specified shares shall in any event cease to apply
on the expiry of two business days after:-
75.4.1 the Company receives (in accordance with the terms of the
relevant disclosure notice) the information required therein in
respect of such specified shares; or
75.4.2 the Company receives any other executed instrument of transfer in
respect of such specified shares held in certificated form or a
properly authenticated dematerialised instruction in respect of
the transfer of such specified shares held in uncertificated form
which would otherwise be given effect to and the Directors have
not determined, within ten days after such receipt, not to give
effect thereto on the grounds that it has reasonable cause to
believe that the change in the registered holder of such
specified shares would not be as a result of an arm's length sale
resulting in a material change in the beneficial interests in
such specified shares.
75.5 Where dividends are not paid as a result of restrictions having
been imposed on specified shares, such dividends shall accrue and
shall be payable (without interest) upon the relevant restriction
ceasing to apply.
75.6 Where the Directors make a determination under Article 75.3 above
they shall notify the purported transferee as soon as practicable
thereof and any person may make representations in writing to the
Directors concerning any such determination. The Directors shall
not be liable to any person as a result of having imposed
restrictions or having failed to determine that such restrictions
shall cease to apply if the Directors acted in good faith.
75.7 Where the holder of the specified shares is the holder of less
than 0.25 per cent. (in nominal value) of the shares of the same
class as the specified shares in issue at the time of service of
the disclosure notice in respect of such specified shares, the
period of fourteen days referred to in Article 75.2.2 above shall
be deemed to be replaced by a period of twenty-eight days.
75.8 Shares issued in right of specified shares in respect of which a
member is for the time being subject to restrictions under this
Article shall on issue become subject to the same restrictions
whilst held by that member as the specified shares in right of
which they are issued. For this purpose, shares which the Company
procures to be offered to shareholders pro rata (or pro rata
ignoring fractional entitlements and shares not offered to
certain members by reason of legal or practical problems
associated with offering shares outside the United Kingdom) shall
be treated as shares issued in right of specified shares.
75.9 The Directors shall at all times have the right, at their
discretion, to suspend, in whole or in part, any restriction
notice given pursuant to this Article either permanently or for
any given period and to pay to a trustee any dividend payable in
respect of any specified shares or in respect of any shares
issued in right of specified shares which are referred to in such
restriction notice. Notice of suspension, specifying the
sanctions suspended and the period of suspension shall be given
to the relevant holder in writing within seven days after any
decision to implement such a suspension.
75.10 The provisions of this Article are without prejudice to, and
shall not affect, the right of the Company to apply any of the
provisions referred to in Part VI of the Act.
Objection to the qualification of a vote
76 If any objection shall be raised as to the qualification of any
voter or it is alleged that any votes have been counted which
should not have been counted or that any votes are not counted
which ought to have been counted, the objection or allegation
shall not vitiate the decision on any resolution unless it is
raised at the meeting or adjourned meeting at which the vote
objected to is given or tendered or at which the alleged error
occurs. Any objection or allegation made in due time shall be
referred to the Chairman of the meeting, whose decision shall be
final and conclusive.
Voting by proxy
77 Upon a poll votes may be given either personally or by proxy. A
proxy shall not be entitled to vote except on a poll.
How signed
78 The instrument appointing a proxy shall be in the usual common
form or such other form as may be approved by the Directors from
time to time (provided that it shall be so worded as to enable
the proxy to vote either for or against the resolutions to be
proposed at the meeting at which the proxy is to be used) and
shall be in writing under the hand of the appointor, or of his
attorney duly authorised in writing, or if such appointor is a
corporation either under its common seal or under the hand of an
attorney or duly authorised officer of the corporation. A member
may appoint two or more persons as proxies in the alternative,
but if he shall do so only one of such proxies may attend as such
and vote instead of such member on any one occasion.
Any person may act as proxy
79 Any person may be appointed to act as proxy. A proxy need not be
a member of the Company.
Deposit of proxy
80 The instrument appointing a proxy, and the power of attorney or
other authority (if any) under which it is signed, or a
notarially certified copy of such power or authority, shall be
deposited at the Office (or such other place in the United
Kingdom as may be specified for that purpose in or by way of note
to the notice convening the meeting) not less than forty-eight
hours before the time fixed for holding the meeting or adjourned
meeting at which the person named in such instrument is
authorised to vote, or, in the case of a poll taken more than
forty-eight hours after it was demanded, not less than
twenty-four hours before the time appointed for the taking of the
poll or, in the case of a poll not taken forthwith but taken
within forty-eight hours after it was demanded, at the meeting at
which such poll was demanded with any Director or the Secretary,
and in default the instrument of proxy shall not be treated as
valid; Provided that an instrument of proxy relating to more than
one meeting (including any adjournment thereof) having once been
so delivered for the purposes of any meeting shall not require
again to be delivered for the purposes of any subsequent meeting
to which it relates.
A proxy may demand a poll
81 The instrument appointing a proxy shall be deemed to confer
authority to demand or join in demanding a poll but shall not
confer any further right to speak at the meeting except with the
permission of the Chairman.
When vote by proxy valid, though authority revoked
82 A vote given or act done in accordance with the terms of an
instrument of proxy shall be valid notwithstanding the previous
death or insanity of the appointor, or revocation of the proxy,
or of the authority under which the proxy was executed, or the
transfer of the share in respect of which the proxy is given,
unless notice in writing of such death, insanity, revocation or
transfer as aforesaid shall have been received by the Company at
the Office (or such other place in the United Kingdom as may be
specified for depositing the instrument of proxy in or by way of
any note to the notice convening the meeting) at least one hour
before the commencement of the meeting or adjourned meeting or
poll at which the vote was given or the act was done.
Votes by corporations
83 Any corporation which is a member may, by resolution of its
directors or other governing body, authorise such person as it
thinks fit to act as its representative at any meeting of the
Company, or at any meeting of any class of members, and the
person so authorised shall be entitled to exercise the same
powers on behalf of the corporation which he represents as that
corporation could exercise if it were an individual member
attending the meeting in person.
DIRECTORS
Numbers of Directors
84 Unless and until the Company in General Meeting shall otherwise
determine, the number of Directors shall be not less than three
nor more than fourteen.
Director's retiring age excluded
85 A Director shall be capable of being appointed or re-elected a
Director notwithstanding that he shall have attained the age of
seventy nor shall a Director be required to retire by reason of
his having attained that or any other age, and Section 293 of the
Act shall not apply.
Director's share qualification
86 A Director shall not require a share qualification. A Director
shall be entitled to receive notice of and attend and speak at
all General Meetings of the Company and at all separate general
meetings of the holders of any class of shares in the capital of
the Company.
Remuneration of Directors
87 The remuneration of the Directors for acting as Directors
(including acting as members of any committee of the Directors)
shall from time to time be determined by the Company in General
Meeting, save that the Company may pay to Directors not being
employees of the Company or any of its subsidiaries such fees as
may be determined by the Directors, in an amount not exceeding a
basic fee of (pound)20,000 per Director per annum, together with
allowances of up to (pound)600 per Director for each meeting of
the Directors or any committee thereof attended in person,
(pound)500 per Director for each such meeting attended by
telephone and (pound)250 per calendar quarter for acting as
Chairman of any committee of the Directors, in each case
exclusive of value added tax, if any (or such other amount(s) as
may from time to time be fixed by the Company in general
meeting).
Repayment of expenses
88 The Company may repay to any Director all such reasonable
expenses as he may incur in attending and returning from meetings
of the Directors, or of any committee of the Directors, or
General Meetings, or otherwise in or about the business of the
Company.
Payment for duties outside scope of ordinary duties
89 Any Director who is appointed to any executive office or
otherwise performs services which in the opinion of the Directors
are outside the scope of the ordinary duties of a Director may be
paid in addition to any Directors' fees to which he may be
entitled under Article 87 such remuneration by way of salary,
percentage of profits or otherwise as the Directors may
determine.
Register of Directors' holdings of shares or debentures by Directors
90 The Company shall in accordance with the provisions of the
Statutes duly keep at the Office a register showing, as respects
each Director, the number, description and amount of any shares
in or debentures of the Company and of other bodies corporate in
which he is interested. Such register shall be open to inspection
between the hours of 10 a.m. and 12 noon on weekdays other than
national holidays and shall also be produced at the commencement
of each Annual General Meeting and shall remain open and
accessible during the continuance of the meeting to any person
attending the meeting.
POWERS AND DUTIES OF DIRECTORS
Powers
91 The business of the Company shall be managed by the Directors who
may exercise all such powers of the Company as are not required
to be exercised by the Company in General Meeting, subject, to
the provisions of these Articles and of the Statutes, and to such
regulations as may be prescribed by the Company in General
Meeting; but no regulation made by the Company in General Meeting
shall invalidate any prior act of the Directors which would have
been valid if such regulation had not been made. The general
powers conferred upon the Directors by this Article shall not be
deemed to be abridged or restricted by any specific power
conferred upon the Directors by any other Article.
Pensions, etc.
92 Without prejudice to the generality of the last preceding
Article, the Directors may give or award pensions, annuities,
gratuities and superannuation or other allowances or benefits to
any persons who are or have at any time been employed by or in
the service of the Company (including Directors who have held any
executive office under the Company) and to the husbands, wives,
widows, widowers, children and other relatives and dependants of
any such persons, and may set up, establish, join with other
companies (being Subsidiaries or companies with which it is
associated in business), support and maintain pension,
superannuation or other funds or schemes (whether contributory or
non-contributory) for the benefit of such persons or any of them
or any class of them. Any Director shall be entitled to receive
and retain for his own benefit any such pension, annuity,
gratuity, allowance or other benefit. Any such pension, funds or
schemes may, as the Directors consider desirable, be granted to
an employee either before and in anticipation of or upon or at
any time after his actual retirement.
Subsidiaries
93 The Directors may arrange that any branch of the business carried
on by the Company or any other business in which the Company may
be interested shall be carried on as or through one or more
Subsidiaries, and they may, on behalf of the Company, make such
arrangements as they think advisable for taking the profits or
bearing the losses of any branch or business so carried on or for
financing, assisting or subsidising any such Subsidiary or
guaranteeing its contracts, obligations or liabilities, and they
may appoint, remove and re-appoint any persons (whether members
of their own body or not) to act as Directors, Managing Directors
or Managers of any such Subsidiary or any other company in which
the Company may be interested and may determine the remuneration
(whether by way of salary, commission on profits or otherwise) of
any persons so appointed, and any Directors of the Company may
retain any remuneration so payable to them.
Attorneys
94 The Directors may from time to time and at any time by power of
attorney executed under the Seal or otherwise by the Company as
its Deed appoint any company, firm or person or body of persons,
whether nominated directly or indirectly by the Directors, to be
the attorney or attorneys of the Company for such purposes and
with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Directors under these
Articles) and for such period and subject to such conditions as
they may think fit, and any such powers of attorney may contain
such provisions for the protection and convenience of persons
dealing with any such attorney as the Directors may decide and
may also authorise any such attorney to delegate all or any of
the powers, authorities and discretions vested in him.
Seal for use abroad
95 The Company may exercise the powers conferred by Section 39 of
the Act with regard to having an official seal for use abroad,
and such powers shall be vested in the Directors.
Overseas Branch Register
96 The Company may exercise the powers conferred upon the Company by
Section 362 of the Act with regard to the keeping of an Overseas
Branch Register, and the Directors may (subject to the provisions
of that Section) make and vary such regulations as they may think
fit respecting the keeping of any such register.
Authorisation of signatures and acceptances
97 All cheques, promissory notes, drafts, bills of exchange and
other negotiable or transferable instruments, and all receipts
for moneys paid to the Company, shall be signed, drawn, accepted,
endorsed, or otherwise executed, as the case may be, in such
manner as the Directors shall from time to time determine.
BORROWING POWERS AND DEBENTURES
98.1 The Directors may exercise all the powers of the Company to
borrow money and to mortgage or charge all or any part of its
undertaking, property and uncalled capital and to issue
debentures and other securities whether outright or as principal
or collateral security for any debt, liability or obligation of
the Company or of any third party. The Directors shall restrict
the borrowings of the Company and exercise all voting and other
rights or powers of control exercisable by the Company in
relation to its Subsidiaries (if any) so as to procure (as
regards Subsidiaries so far as by such exercise they can procure)
that the aggregate principal amount for the time being remaining
undischarged of all moneys borrowed by the Company and its
Subsidiaries (exclusive of intra-group borrowings) shall not, at
any time prior to the approval by the Directors of the Company of
the audited accounts of the Company for its first financial year
following the adoption of these Articles, exceed (pound)250
million and thereafter shall not at any time without the previous
sanction of an Ordinary Resolution of the Company exceed four
times the aggregate of:-
98.1.1 the amount paid up or credited as paid up on the share capital of
the Company; and
98.1.2 the amount standing to the credit of the consolidated capital and
revenue reserves of the Company and its subsidiary companies
(including any share premium account and capital redemption
reserve but excluding any reserves for taxation and after
deducting any amount standing to the debit for the time being on
profit and loss account)
all as shown by the latest audited consolidated balance sheet of
the Company and its subsidiary companies but after:-
(i) making such adjustments as may be appropriate in
respect of any variation of paid-up capital
effected or any distribution made or any shares
transferred (other than a transfer between the
Company and/or any of its Subsidiaries) since the
date of such balance sheet and so that for this
purpose capital allotted shall be treated as
issued and any capital already called up or
payable at any fixed future date should be treated
as being paid up; and
(ii) adding the cost of goodwill which arose on
consolidation of businesses or assets acquired by
the Company or any Subsidiary and which are held
by the Company or any Subsidiary as at the date of
such consolidated balance sheet, less amortisation
as if such goodwill had been carried on the
balance sheet as an asset and amortised over 40
years on a straight line basis, such amount to be
certified by the Company's Auditors.
For this purpose the expression "moneys borrowed" shall be deemed
to include all amounts outstanding by way of loan capital
notwithstanding that the same may have been or may be issued in
whole or in part for a consideration other than cash.
98.2 No such sanction shall be required to the borrowing of any sum of
money intended to be applied in the repayment (with or without
premium) of any moneys then already borrowed and outstanding and
so applied within 60 days of the borrowing thereof
notwithstanding that the same may result in such limit being
exceeded. Notwithstanding the provisions of this Article, no
person dealing with the Company shall be concerned to see or
enquire whether this limit is observed, and no debt incurred or
security given in excess of such limit shall be invalid or
ineffectual unless the lender or the recipient of the security
had at the time when the debt was incurred or security given
express notice that the limit hereby imposed had been or would
thereby be exceeded.
98.3 A certificate by the Auditors for the time being of the Company
as to the aggregate amount of moneys borrowed which may at any
one time in accordance with Article 98.1 above be owing by the
Company and its Subsidiaries without such sanction as is provided
for in that paragraph, or as to the actual amount of moneys
borrowed at any time shall be conclusive and shall be binding
upon the Company, its members and all persons dealing with the
Company.
Bonds, debentures, etc., to be subject to control of Directors
99 Subject to the provisions of the Statutes, any debentures or
other securities issued or to be issued by the Company shall be
under the control of the Directors, who may issue them upon such
terms and conditions and in such manner and for such
consideration as they shall consider to be for the benefit of the
Company.
DIRECTORS' INTERESTS
Power to hold other office
100 Subject to the provisions of these Articles and the Statutes:-
100.1 a Director may hold subject to Section 319 of the Act any office
or place of profit under the Company in conjunction with the
office of Director for such period, and on such terms as to
remuneration and otherwise, as the Directors may determine, and a
Director or any firm in which he is interested may act in a
professional capacity for the Company and he or such firm shall
be entitled to remuneration for professional services as if he
were not a Director: Provided that no Director or any such firm
may act as Auditor to the Company;
100.2 a Director may enter into or be interested in contracts or
arrangements with the Company (whether with regard to any such
office or place of profit or any such acting in a professional
capacity or as vendor, purchaser or otherwise howsoever) and may
have or be interested in dealings of any nature whatsoever with
the Company and shall not be disqualified from office thereby. No
such contract, arrangement or dealing shall (subject to the
provisions of the Statutes) be liable to be avoided, nor (subject
as aforesaid) shall any Director so contracting, dealing or being
so interested be liable to account to the Company for any profit
arising out of any such contract, arrangement or dealing to which
he is a party or in which he is interested by reason of his being
a Director of the Company, or the fiduciary relationship thereby
established.
Declaration of interest
101.1 A Director who to his knowledge is in any way, whether directly
or indirectly, interested in any contract or arrangement or
proposed contract or arrangement shall declare the nature of his
interest at a meeting of the Directors in accordance with the
provisions of this Article.
When declaration to be made
101.2 In the case of a proposed contract such declaration shall be made
at the meeting of Directors at which the question of entering
into the contract is first taken into consideration, or, if the
Director concerned was not (or did not know that he was) at the
date of that meeting interested in the proposed contract, at the
next meeting of the Directors held after he became so interested,
or knew he had become so interested. Where the Director concerned
becomes interested (or knows he is interested) in a contract
after it is made, such declaration shall be made at the first
meeting of Directors held after the Director becomes so
interested, or knows that he is so interested.
General notice
101.3 A general notice given to the Directors by a Director (if it is
given at a meeting of Directors, or such Director takes
reasonable steps to secure that it is brought up and read at the
next meeting of Directors after it is given) to the effect that
he is a member of a specified company or firm and is to be
regarded as interested in any contract which may, after the date
of the notice, be made with that company or firm, shall for the
purpose of this Article be deemed to be a sufficient declaration
of interest in relation to any contract so made. For the purposes
hereof a transaction or arrangement of the kind described in
Section 330 of the Act made for a Director or a person connected
with such Director (within the meaning of Section 346 of the Act)
shall if it would not otherwise be so treated (and whether or not
prohibited by that Section) be treated as a transaction or
arrangement in which that Director is interested.
Interests of Directors in other companies
102 A Director may be or continue or may become a director or other
officer or servant of, or otherwise interested in, any other
company promoted by the Company or in which the Company may be in
any way interested and shall not (in the absence of agreement to
the contrary) be liable to account to the Company for any
emoluments or other benefits received or receivable by him as
director, or officer or servant of, or from his interest in, such
other company.
Exercise of voting rights conferred by shares of other companies
103 Subject to Article 116, the Directors may exercise or procure the
exercise of the voting rights attached to shares in any other
company in which the Company is or becomes in any way interested,
and may exercise any voting rights to which they are entitled as
directors of any such other company in such manner as they shall
in their absolute discretion think fit, save that no Director
shall be entitled to vote (or be counted in a quorum) in respect
of any resolution appointing himself as a director, officer or
servant of such other company.
DISQUALIFICATION OF DIRECTORS
Disqualification
104 The office of a Director shall be vacated if the Director:-
104.1 becomes bankrupt or insolvent or compounds with his creditors
generally or shall apply to the Court for an interim order under
Section 253 of the Insolvency Act 1986 in connection with
voluntary arrangements under that Act;
104.2 he is, or may be, suffering from mental disorder and either:-
104.2.1 he is admitted to hospital in pursuance of an application for
admission for treatment under the Mental Health Act 1983 or, in
Scotland, an application for admission under the Mental Health
(Scotland) Act 1984; or
104.2.2 an order is made by a court having jurisdiction (whether in the
United Kingdom or elsewhere) in matters concerning mental
disorder for his detention or for the appointment of a receiver,
curator bonis or other person to exercise powers with respect to
his property or affairs; or
104.3 becomes prohibited from being a director of a company by reason
of any order made under the Statutes;
104.4 is convicted of an indictable offence (not being an offence
which, in the opinion of the Directors, does not affect his
character or position as a Director of the Company);
104.5 is absent from meetings of the Directors for a period of six
months without leave expressed by a resolution of the Directors
and the Directors resolve that his office be vacated;
104.6 (not being an executive Director whose contract of employment
precludes resignation) he resigns his office by notice in writing
left at the Office;
104.7 is removed from office under Section 303 of the Act or as
provided in Article 109; or
104.8 is requested in writing by all of the other Directors to resign
his office.
But any act done in good faith by a Director whose office is so
vacated shall be valid unless, prior to the doing of such act,
written notice shall have been served upon the Company or an
entry shall have been made in the Directors' minute book stating
that such Director has ceased to be a Director of the Company.
ELECTION AND APPOINTMENT OF DIRECTORS
Directors to retire by rotation
105 At the Annual General Meeting in every year, one third of the
Directors for the time being, or if their number is not three or
a multiple of three then the number nearest to one-third, shall
retire from office, the Directors to retire in each year being
those who have been longest in office since their last election,
but as between persons who became Directors on the same day those
to retire shall (unless they otherwise agree among themselves) be
determined by lot. A retiring Director shall be eligible for
re-election. Any Director not re-elected at the Annual General
Meeting shall retain office until the Meeting appoints another
person in his place, or if it does not appoint a replacement,
until the end of the Meeting.
Filling vacancies
106 At the Annual General Meeting, the Company may elect a person to
any and each retiring Director's office and appoint persons to
any other offices which may then be vacant. The Company may also
at any Extraordinary General Meeting on notice duly given, fill
any vacancies in the office of Director, or appoint additional
Directors, provided that the maximum number fixed as hereinbefore
mentioned shall not be exceeded.
Notice of intention to propose a Director
107 No person other than a Director retiring at the meeting or who is
recommended by the Directors for election shall be eligible for
election to the office of Director at any General Meeting unless,
not less than seven nor more than twenty-one days before the day
appointed for the meeting, there shall have been left at the
Office notice in writing, signed by a member duly qualified to
attend and vote at such meeting, of his intention to propose such
person for election, and also notice in writing signed by that
person of his willingness to be elected.
Power to fill casual vacancy
108 The Directors shall have power at any time and from time to time
to appoint any other person to be a Director of the Company,
either to fill a casual vacancy or as an addition to the Board of
Directors, but so that the total number of Directors shall not at
any time exceed the maximum. Any Director so appointed shall hold
office only until the next following Annual General Meeting, when
he shall retire, but shall be eligible for re-election. Any
Director who retires under this Article shall not be taken into
account in determining the number of Directors who are to retire
by rotation at such meeting.
Removal of a Director by the Company in General Meeting
109 The Company may in accordance with and subject to the provisions
of the Statutes by Ordinary Resolution, of which special notice
has been given in accordance with Section 379 of the Act, remove
any Director (including a managing or other executive Director)
before the expiration of his period of office (notwithstanding
anything in these Articles or in any agreement between the
Company and such Director but without prejudice to any claim for
damages in respect of the breach of any such agreement), and may
by Ordinary Resolution appoint another person in his stead.
110 Any Director so appointed shall hold office only until the next
following Annual General Meeting, when he shall retire, but shall
be eligible for re-election.
ALTERNATE DIRECTORS
Directors may appoint an alternate Director
111 Any Director may at any time appoint a person approved by the
Directors to be an alternate Director of the Company and may at
any time remove any alternate Director appointed by him from
office. An alternate Director so appointed shall not be entitled
to receive any remuneration from the Company nor be required to
hold any qualification, nor be counted in reckoning the minimum
number of Directors allowed or required by these Articles, but
shall otherwise be subject to the provisions of these Articles
with regard to Directors. An alternate Director shall (subject to
his giving to the Company an address within the United Kingdom at
which notices may be served upon him) be entitled to receive
notices of all meetings of the Directors and to attend and vote
as a Director at any such meetings at which the Director
appointing him is not personally present, and generally to
perform all the functions of such appointor as a Director. An
alternate Director shall ipso facto cease to be an alternate
Director if his appointor ceases for any reason to be a Director,
provided that if any Director retires pursuant to Article 105 but
is re-elected by the meeting at which such retirement took
effect, any appointment made by him pursuant to this Article
which was in force immediately prior to his retirement shall
continue to operate after his re-election as if he had not so
retired. The appointment of an alternate Director shall
automatically determine on the happening of any event which if he
were a Director would cause him to vacate such office. All
appointments and removals of alternate Directors shall be
effected by writing under the hand of the Director making or
revoking such appointment left at the Office.
Responsibility of alternate Director
112 Every alternate Director shall be an officer of the Company, and
shall alone be responsible to the Company for his own acts and
defaults, and he shall not be deemed to be the agent of or for
the Director appointing him.
LOCAL AND OTHER DIRECTORS
Power to appoint local Directors
113 The Directors may from time to time pursuant to this Article
appoint any other persons to any post with such descriptive title
including that of Director (whether as local, associate,
executive, group, divisional, departmental, deputy, assistant,
advisory director or otherwise) as the Directors may determine
and may define, limit, vary and restrict the powers, authorities
and discretions of persons so appointed and may fix and determine
their remuneration and duties, and subject to any contract
between him and the Company may remove from such post any person
so appointed. A person so appointed shall not be a Director of
the Company for any of the purposes of these Articles or of the
Act.
PROCEEDINGS OF DIRECTORS
Meetings and quorum
114.1 The Directors may meet together for the despatch of business,
adjourn and otherwise regulate their meetings as they think fit,
and determine the quorum necessary for the transaction of
business. Until otherwise determined two Directors shall
constitute a quorum.
114.2 Any Director may participate in a meeting of the Directors by
means of conference telephone or similar communications equipment
whereby all the Directors participating in the meeting can hear
each other and the Directors participating in this manner shall
be deemed to be present in person at such meeting and shall
accordingly be counted in the quorum and entitled to vote.
Subject to the Statutes, all business transacted in such manner
by the board of Directors or a committee of the board of
Directors shall for the purposes of these Articles, be deemed to
be validly and effectively transacted at a meeting of the board
of Directors or a committee of the Board notwithstanding that
fewer than two Directors or alternate Directors are physically
present at the same place. Such a meeting shall be deemed to take
place where the largest group of those participating is assembled
or, if there is no such group, where the chairman of the meeting
then is.
Voting
115 Questions arising at any meeting shall be decided by a majority
of votes. In case of an equality of votes the Chairman shall have
a second or casting vote. A meeting of the Directors at which a
quorum is present shall be competent to exercise all powers and
discretions for the time being exercisable by the Directors.
Restrictions on voting
116.1 Save as provided in the following paragraphs of this Article, a
Director shall not vote in respect of any contract or arrangement
or any other proposal whatsoever in which he (together with any
person connected with him within the meaning of Section 346 of
the Act) has any material interest otherwise than by virtue of
his interests in shares or debentures or other securities of, or
otherwise in or through, the Company. A Director shall not be
counted in the quorum at a meeting in relation to any resolution
on which he is debarred from voting.
116.2 A Director shall (in the absence of some other material interest
than is indicated below) be entitled to vote (and be counted in
the quorum) in respect of any resolution concerning any of the
following matters, namely:-
116.2.1 the giving of any security, guarantee or indemnity in respect of
money lent or obligations incurred by him or any other person at
the request of or for the benefit of the Company or any of its
Subsidiaries;
116.2.2 any proposal concerning an offer of shares or debentures or other
securities of or by the Company or any of its Subsidiaries for
subscription or purchase in which offer he (or any person so
connected with him) is entitled to participate as a holder of
securities or is or is to be interested as a participant in the
underwriting or sub-underwriting;
116.2.3 any proposal concerning any other company in which he is
interested, directly or indirectly and whether as an officer or
shareholder or otherwise howsoever, provided that he is not the
holder of or beneficially interested in 1 per cent. or more of
any class of the equity share capital of such company (or of any
third company through which his interest is derived) or of the
voting rights available to members of the relevant company (any
such interest being deemed for the purpose of this Article to be
a material interest in all circumstances);
116.2.4 any proposal concerning the adoption, modification or operation
of any arrangement for the benefit of employees of the Company or
any of its Subsidiaries (including a superannuation fund or
retirement benefits scheme under which he may benefit or an
employees' share scheme under which he may benefit) and which
does not confer on any Director any privilege or advantage not
generally accorded to the employees to whom such arrangement
relates;
116.2.5 any proposal concerning the purchase or maintenance of any
insurance policy under which he may benefit.
116.3 Where proposals are under consideration concerning the
appointment (including fixing or varying the terms of
appointment) of two or more Directors to offices or employments
with the Company such proposals may be divided and considered in
relation to each Director separately and in such cases each of
the Directors concerned (if not debarred from voting under the
proviso to Article 116.2.3) shall be entitled to vote (and be
counted in the quorum) in respect of each resolution except that
concerning his own appointment.
Determination of Restrictions on Voting
117 If any question shall arise, in connection with Article 116, at
any meeting as to the materiality of a Director's interest or as
to the entitlement of any Director to vote and such question is
not resolved by his voluntarily agreeing to abstain from voting,
such question shall be referred to the Chairman of the meeting
and his ruling in relation to any other Director shall be final
and conclusive except in a case where the nature or extent of the
interests of the Director concerned have not been fairly
disclosed.
Summoning Meetings
118 A Director may, and the Secretary on the requisition of a
Director shall, at any time summon a meeting of the Directors.
Notice of a meeting of Directors need not be given to a Director
who is not in the United Kingdom. Notice of a Board Meeting shall
be deemed to be duly given to a Director if it is given to him
personally or by word of mouth or sent in writing to him at his
last known address or any other address given by him to the
Company for this purpose. A Director absent or intending to be
absent from the United Kingdom may request the Directors that
notice of Board Meetings shall during his absence be sent in
writing to him at his last known address or any other address
given by him to the Company for this purpose, whether or not out
of the United Kingdom.
Directors may act notwithstanding vacancy
119 The continuing Directors may act notwithstanding any vacancy in
their body, but if and so long as the number of Directors is
reduced below the number fixed by or pursuant to these Articles
as the necessary quorum of Directors, the continuing Directors
may act for the purpose of increasing the number of Directors to
that number, or of summoning a General Meeting of the Company,
but for no other purpose.
Chairman
120 The Directors may elect a Chairman and a Deputy Chairman of their
meetings, and determine the period for which each is to hold
office; but if no such Chairman be elected, or if at any meeting
the Chairman is not present within five minutes after the time
appointed for holding the same, the Directors present shall
choose one of their number to be Chairman of such meeting.
Memorandum signed by all the Directors
121 A memorandum in writing signed by all the Directors for the time
being entitled to receive notice of a meeting of Directors and
annexed or attached to the Directors' minute book shall be as
effective for all purposes as a resolution of the Directors
passed at a meeting duly convened, held and constituted. Any such
memorandum may consist of several documents in like form each
signed by one or more of such Directors. Such a resolution need
not be signed by an alternate Director if it is signed by the
Director who appointed him, and need not be signed by the
appointing Director if signed by his alternate.
Delegation to committees
122 The Directors may delegate any of their powers to committees,
consisting of such one or more of their body as they think fit.
Such committees may also include members who are not Directors
provided that the presence of at least one Director shall be
required for a quorum at any meeting of any such committee and no
resolution of any such committee shall be effective unless
approved by a majority of the Directors present. Any committee so
formed shall, in the exercise of the powers so delegated and in
its conduct of its meetings, conform to any regulations that may
be imposed on it by the Directors. The resolutions herein
contained for the meetings and proceedings of Directors shall, so
far as not altered by any regulations made by the Directors,
apply also to the meetings and proceedings of any committee.
Acts valid although defective appointment
123 All acts done by any meeting of the Directors or of a committee
of Directors, or by any persons acting as Directors, shall
notwithstanding that it is afterwards discovered that there was
some defect in the appointment of any such Directors or persons
acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every such person had been duly
appointed and was qualified to be a Director.
EXECUTIVE DIRECTORS
Power to appoint Executive Directors
124 The Directors may from time to time appoint one or more of their
number to an executive office including the offices of Chairman,
Vice-Chairman, Managing Director, Joint Managing Director,
Assistant Managing Director or manager or any other salaried
office for such period and on such terms as they think fit.
Without prejudice to any claim a Director may have for damages
for breach of any contract of service between him and the Company
the appointment of any Director hereunder shall be subject to
determination ipso facto if he ceases from any cause to be a
Director, or (subject to the terms of any contract between him
and the Company) if the Directors resolve that his term of office
as an executive Director be determined.
Remuneration of Executive Directors
125 A Director holding office pursuant to Article 124 shall receive
such remuneration (whether by way of salary, commission or
participation in profits, or partly in one way and partly in
another) as the Directors may determine and such remuneration
shall, unless otherwise agreed, be additional to such
remuneration (if any) as is from time to time payable to him as a
Director and such Director shall be a Director for the purposes
of and subject to the provisions of Section 319 of the Act.
Powers may be delegated
126 The Directors may entrust to and confer upon a Director holding
such executive office as aforesaid any of the powers exercisable
by them as Directors upon such terms and conditions and with such
restrictions as they think fit, and either collaterally with or
to the exclusion of their own powers, and may from time to time
revoke, withdraw, alter or vary all or any of such powers.
PRESIDENT
127 The Directors may, from time to time, appoint any person who, in
their opinion, has rendered outstanding services to the Company
to be President of the Company. The President shall not, by
virtue of his office, be deemed to be a Director but
nevertheless, by invitation of the Directors, he may attend
meetings of the Directors for the purpose of giving advice and
the Directors may remunerate the President in respect of advice
and assistance from time to time.
SECRETARY
Secretary
128 The Directors shall appoint, and may remove at their discretion,
a Secretary, and shall fix his remuneration and terms and
conditions of employment. Anything required or authorised to be
done by or to the Secretary by the Statutes or these Articles
may, if the office is vacant or there is for any other reason no
Secretary capable of acting or willing or available to act, be
done by or to any assistant or deputy Secretary, or, if there is
none, by or to any officer of the Company authorised in that
behalf by the Directors.
Disqualification
129 No person shall be Secretary who is either:-
129.1 the sole Director of the Company; or
129.2 a corporation the sole director of which is the sole Director of
the Company; or
129.3 the sole director of a corporation which is the sole Director of
the Company.
Restriction on powers of Director who holds office as Secretary
130 A provision of the Statutes or these Articles requiring or
authorising a thing to be done by or to a Director and the
Secretary shall not be satisfied by its being done by or to the
same person acting both as Director and as, or in place of, the
Secretary.
AUTHENTICATION OF DOCUMENTS
131.1 Any Director or the Secretary or any person appointed by the
Directors for the purpose shall have power to authenticate any
documents affecting the constitution of the Company and any
resolutions passed by the Company or the Directors and any books,
records, documents and accounts relating to the business of the
Company, and to certify copies thereof or extracts therefrom as
true copies or extracts; and where any books, records, documents
or accounts are elsewhere than at the Office, the manager or
other officer of the Company having the custody thereof shall be
deemed to be a person appointed by the Directors as aforesaid.
131.2 A document purporting to be a copy of a resolution of the
Directors or an extract from the minutes of a meeting of the
Directors which is certified as such shall be conclusive evidence
in favour of all persons dealing with the Company that such
resolution has been duly passed or, as the case may be, that such
extract is a true and accurate record of a duly constituted
meeting of the Directors.
MINUTES
Minutes to be made
132 The Directors shall cause minutes to be made in books provided
for the purpose:-
132.1 of all appointments of officers made by the Directors;
132.2 of the names of the Directors present at each meeting of the
Directors and of any committee of the Directors; and
132.3 of all resolutions and proceedings at all meetings of the Company
and the holders of any class of shares in the Company and of
Directors and of committees of Directors.
THE SEAL
Seal and sealing
133.1 The Directors shall provide for the safe custody of the Seal. The
Seal shall not be affixed to any instrument except by the express
authority of a resolution of the Directors or of a committee of
the Directors and in the presence of at least one Director, and
of the Secretary or of such other person as the Directors or such
committee of the Directors may appoint for the purpose, and that
Director and Secretary or other person as aforesaid, shall sign
every instrument to which the Seal is so affixed in their
presence Provided that the Directors may determine that any
certificates for stock and shares of the Company and (subject to
the terms or conditions of issue thereof) debenture stock or
other forms of security may at the discretion of the Directors be
issued with such signatures or any of them affixed thereto by
some mechanical means or without any such signature or
counter-signature if the system of controlling the affixing of
the Seal thereto and (where appropriate) the mechanical signature
or signatures thereon is approved by the Auditors, Transfer
Agents or Bankers of the Company.
133.2 Any instrument expressed to be executed by the Company and signed
by two Directors or one Director and the Secretary by the
authority of the Directors or of a committee authorised by the
Directors shall (to the extent permitted by the Statutes) have
effect as if executed under the Seal.
DIVIDENDS
Dividends how payable
134 Subject to the rights of the holders of any shares entitled to
any priority, preference or special privileges and the terms of
issue of any shares, all dividends shall be declared and paid to
the members in proportion to the amounts paid up or credited as
paid up on the shares held by them respectively. No amount paid
on a share in advance of calls shall be treated for the purposes
of this Article as paid on the share. All dividends shall,
subject as aforesaid, be apportioned and paid proportionately to
the amounts paid up or credited as paid up on the shares during
any portion or portions of the period in respect of which the
dividend is paid: but if any share is issued on terms providing
that it shall rank for dividend from a particular date or pari
passu as regards dividends with a share already issued it shall
rank accordingly.
Directors to recommend Company to declare dividend
135 The Directors shall lay before the Company in General Meeting a
recommendation as to the amount (if any) which they consider
should be paid by way of dividend, and the Company shall declare
the dividend to be paid, but such dividend shall not exceed the
amount recommended by the Directors.
Dividends only out of profits
136 No dividend or interim dividend shall be paid otherwise than out
of profits available for distribution in accordance with the
provisions of the Statutes.
Interim dividends
137 The Directors may from time to time pay to the members, or any
class of members, such interim dividends as appear to the
Directors to be justified by the profits of the Company. If at
any time the capital of the Company is divided into different
classes of shares the Directors may pay such interim dividends in
respect of those shares in the capital of the Company which
confer on the holders thereof deferred or non-preferred rights as
well as in respect of those shares which confer on the holders
thereof preferential or special rights with regard to dividends
and provided that the Directors act bona fide they shall not
incur any responsibility to the holders of any shares for any
damage that they may suffer by reason of the payment of an
interim dividend on any shares. The Directors may also pay half
yearly or at other suitable intervals to be settled by them any
dividend which may be payable at a fixed rate if they are of
opinion that the profits justify the payment.
Lien
138.1 The Directors may retain any dividend or other moneys payable on
or in respect of a share on which the Company has a lien and may
apply the same in or towards satisfaction of the debts,
liabilities or engagements in respect of which the lien exists.
138.2 The Directors may retain the dividends payable upon shares in
respect of which any person is under the provisions as to the
transmission of shares contained in these Articles entitled to
become a member, or which any person is under those provisions
entitled to transfer, until such person shall become a member in
respect of such shares or shall transfer the same.
Method of Payment of Dividends
139.1 Any dividend or other money payable in respect of a share may be
paid by cheque or warrant or similar financial instrument sent by
ordinary post to the registered address of the person entitled
or, if two or more persons are the holders of the share or are
jointly entitled to it by reason of the death or bankruptcy of
the holder, to the registered address of that one of those
persons who is first named in the Register or to such person and
to such address as the person or persons entitled may in writing
direct. Every cheque or warrant or similar financial instrument
shall be made payable to, or to the order of, the person or
persons entitled or to such other person as the person or persons
entitled may in writing direct.
139.2 Any such dividend or other money may also be paid by any other
method (including by direct debit or bank transfer to the bank
account of the person otherwise entitled to receive payment by
cheque or warrant or similar financial instrument pursuant to
this Article 139 or by other form of electronic media (including
in respect of uncertificated shares by means of a relevant
system)) which the Directors consider appropriate. Payment by
such electronic media shall be made to the bank account details
of which have been provided to the Company in writing by the
person entitled to receive the same, save in respect of payments
through a relevant system which shall be made in such manner as
is consistent with the facilities and requirements of the
relevant system concerned, including by the sending of an
instruction to the operator of the relevant system concerned to
credit the cash memorandum account of the person entitled to
receive payment. Any joint holder or other person jointly
entitled to a share as aforesaid may give receipts for any
dividend or other money payable in respect of the share.
139.3 The Company may cease to send any cheque or warrant or similar
financial instrument (or to use any other method of payment) for
any dividend payable in respect of a share if, in respect of at
least two consecutive dividends payable on that share, the cheque
or warrant or similar financial instrument has been returned
undelivered or remains uncashed (or that other method of payment
has failed) but, subject to the provisions of these Articles,
shall recommence sending cheques or warrants or similar financial
instruments (or using another method of payment) for dividends
payable on that share if the person or persons entitled so
request.
139.4 Payment by such cheque or warrant or similar financial instrument
or the collection of funds from, or transfer of funds by, any
bank or other person so authorised on behalf of the Company in
accordance with such direct debit or bank transfer or by means of
such other form of electronic media (including the making of a
payment in accordance with the facilities and requirements of the
relevant system concerned) shall be an absolute discharge to the
Company.
Dividends not to bear interest
140 No dividend or other moneys payable on or in respect of a share
shall bear interest as against the Company.
Distribution of assets in kind
141 The Directors may, with the sanction of the Company in General
Meeting, distribute in kind among the members by way of dividend
any of the assets of the Company, and in particular any shares or
securities of other companies to which the Company is entitled:
Provided always that no distribution shall be made which would
amount to a reduction of capital except in the manner required by
law.
Purchase of assets from a past date
142 Subject to the provisions of the Statutes, where any asset,
business or property is bought by the Company as from a past date
at a price fixed wholly by reference to the value of such asset,
business or property at the past date and without any addition or
reduction in respect of subsequent transactions upon the terms
that the Company shall as from that date take the profits and
bear the losses thereof, the actual profit or loss as the case
may be so accruing to the Company may at the discretion of the
Directors be credited or debited wholly or in part to revenue
account and in that case the amount so credited or debited shall,
for the purpose of ascertaining the fund available for dividend,
be treated as a profit or loss arising from the business of the
Company and available for dividend accordingly.
Unclaimed dividends
143 Payment by the Directors of any unclaimed dividend or other
moneys payable on or in respect of a share into a separate
account shall not constitute the Company a trustee in respect
thereof and any dividend unclaimed after a period of twelve years
from the date such dividend became due for payment shall be
forfeited and shall revert to the Company.
RESERVE FUND
Reserve Fund
144 Before recommending a dividend the Directors may set aside any
part of the net profits of the Company to a reserve fund, and may
apply the same either by employing it in the business of the
Company or by investing it in such manner as they think fit, and
the income arising from such reserve fund shall be treated as
part of the gross profits of the Company. Such reserve fund may,
subject to the Statutes, be applied for the purpose of
maintaining the property of the Company, replacing wasting
assets, meeting contingencies, forming an insurance fund,
equalising dividends, paying special dividends or bonuses, or for
any other purpose for which the profits of the Company may
lawfully be used, and until the same shall be so applied it shall
be deemed to remain undivided profit. The Directors may also
carry forward to the accounts of the succeeding year or years any
profit or balance of profits which they shall not think fit to
divide or to place to reserve.
145 Notwithstanding any other provisions contained in these Articles,
if an adjustment is made to the option price payable by an option
holder under any employees' share scheme operated by the Company
which results in the adjusted price per share payable on the
exercise of any option in respect of any share being less than
the nominal value of such share ("the adjusted price"), the
Directors may upon the allotment of any share in respect of and
following the exercise of the relevant option ("the New Share")
capitalise any sum standing to the credit of any of the Company's
reserve accounts which is available for distribution (excluding
any share premium account, capital redemption reserve or other
undistributable reserve) by appropriating such sum to the option
holders concerned and applying such sum on their behalf in paying
up in full an amount equal to the difference between the adjusted
price and the nominal value of the New Share. The Directors may
take such steps as they consider necessary to ensure that the
Company has sufficient reserves available for such application.
No further authority of the Company in general meeting shall be
required.
CAPITALISATION OF RESERVES
Capitalisation of Reserves
146 Subject to the provisions of the Statutes, the Company in General
Meeting may upon the recommendation of the Directors resolve that
it is desirable to capitalise any part of the amount for the time
being standing to the credit of any of the Company's reserve
funds or reserve accounts (including any undistributable
reserves) or to the credit of the profit and loss account (not
being required for the payment of or provision for any fixed
preferential dividend), and accordingly that such sum be applied
on behalf of the members who would have been entitled thereto if
distributed by way of dividend and in the same proportion either
in or towards paying up any amounts for the time being unpaid on
any shares held by such members respectively or paying up in full
unissued shares or debentures of the Company to be allotted and
issued credited as fully paid up to and among such members in the
proportion aforesaid or partly in the one way and partly in the
other, and the Directors shall give effect to such resolution:
Provided that a share premium account and a capital redemption
reserve may, for the purposes of this Article, only be applied in
the paying up of unissued shares to be allotted to members as
fully paid shares.
Appropriations by Directors
147 Whenever such a resolution shall have been passed the Directors
shall make all appropriations and applications of the amount
resolved to be capitalised, and all allotments and issues of
fully paid shares or debentures, if any, and generally shall do
all acts and things required to give effect thereto with full
power to the Directors to make such provision by the issue of
fractional certificates or by payment in cash or otherwise as
they think fit for the case of shares or debentures which would
otherwise be issued in fractions, and also to authorise any
person to enter on behalf of all the members entitled thereto
into an agreement with the Company providing for the allotment to
them respectively, credited as fully paid up, of any further
shares or debentures to which they may be entitled upon such
capitalisation, or (as the case may require) for the payment up
by the Company on their behalf, by the application thereto of
their respective proportions of the amount resolved to be
capitalised, of the amounts or any part of the amounts remaining
unpaid on their existing shares, and any agreement made under
such authority shall be effective and binding on all such
members.
Scrip Dividends
148 Subject to approval by the Company in General Meeting and subject
as hereinafter provided, the Directors may at their discretion
resolve (at the same time as they resolve to recommend or to pay
any dividend on any shares in the capital of the Company) that
the members will have the option to elect to receive in lieu of
such dividend (or part thereof) an allotment of additional
Ordinary Shares credited as fully paid provided that:-
148.1 an adequate number of unissued Ordinary Shares is available for
this purpose;
148.2 the approval by the Company in General Meeting may only be given
in respect of a specified dividend or of any dividends declared
or to be declared or paid in respect of a specified financial
year;
148.3 the number of Ordinary Shares to be allotted in lieu of any
amount of dividend as aforesaid shall be determined by the
Directors so that the value of such shares shall equal (as nearly
as possible without exceeding) such amount and for this purpose
the value of an Ordinary Share shall be deemed to be the average
of the middle market quotations of such shares as shown in the
Official List of the London Stock Exchange (adjusted as below) on
the ex-dividend date and on the next four business days and each
such middle market quotation as is not "ex-dividend" shall be
adjusted by deducting therefrom the cash amount of such dividend
per share;
148.4 the Directors, after determining the maximum number of Ordinary
Shares to be allotted as aforesaid, shall give notice in writing
to the members of the option to elect accorded to them and shall
send with such notice forms of election which specify the
procedure to be followed and the place at which and the latest
date and time by which duly completed forms of election must be
lodged in order to be effective;
148.5 following the receipt of a notice or notices of election pursuant
to Article 148.4 the Directors shall allot to the holders of
those shares in respect of which the share election has been or
is duly exercised in lieu of the dividend (or that part of the
dividend in respect of which the right of election has been
accorded) such number of additional Ordinary Shares determined as
aforesaid and for such purpose the Directors shall appropriate
and capitalise out of any reserve or fund (including any share
premium account or capital redemption reserve or profit and loss
account) as they shall determine an amount equal to the aggregate
nominal amount of the additional Ordinary Shares so to be
allotted and apply the same in paying up in full the appropriate
number of unissued Ordinary Shares for allotment and distribution
to and amongst those members who have given notices of election
as aforesaid, such additional Ordinary Shares to rank pari passu
in all respects with the fully paid Ordinary Shares then in issue
save only as regards participation in the relevant dividend;
148.6 the Directors may do all acts and things considered necessary or
expedient to give effect to any such capitalisation, with full
power to the Directors to make such provisions as they think fit
for the case of shares becoming distributable in fractions
(including provisions whereby, in whole or in part, fractional
entitlements are disregarded or the benefit of fractional
entitlements accrues to the Company rather than to the members
concerned). The Directors may authorise any person to enter, on
behalf of all the members interested, into an agreement with the
Company providing for such capitalisation and matters incidental
thereto and any agreement made under such authority shall be
effective and binding on all concerned;
148.7 the Directors may on any occasion determine that rights of
election shall not be made available to any members with
registered addresses in any territory where in the absence of a
registration statement or other special formalities the
circulation of an offer of rights of election would or might be
unlawful and in such event the provisions aforesaid shall be
construed subject to such determination;
148.8 unless the board otherwise determines, or unless the Regulations
and/or the rules of the relevant system concerned otherwise
require, the new Ordinary Share or Shares which a member has
elected to receive instead of cash in respect of the whole (or
some part) of the specified dividend declared in respect of his
elected Ordinary Shares shall be in uncertificated form (in
respect of the member's elected Ordinary Shares which were in
uncertificated form on the date of the member's election) and in
certificated form (in respect of the member's elected Ordinary
Shares which were in certificated form on the date of the
member's election);
148.9 the board may also from time to time establish or vary a
procedure for election mandates, which, for the avoidance of
doubt, may include an election by means of CREST, under which a
holder of Ordinary Shares may elect in respect of future rights
of election offered to that holder under this Article until the
election mandate is revoked in accordance with the procedure.
ACCOUNTS
Accounts to be kept
149 The Directors shall cause proper books of account (being such
books of account as are necessary to give a true and fair view of
the state of the Company's affairs and to explain its
transactions and otherwise complying with the Statutes) to be
kept with respect to:-
149.1 all sums of money received and expended by the Company, and the
matters in respect of which such receipts and expenditure take
place;
149.2 all sales and purchases of goods by the Company; and
149.3 the assets and liabilities of the Company.
Limitation of right to inspect
150 The books of account shall be kept at the Office, or (subject to
the provisions of Section 222 of the Act) at such other place or
places as the Directors may determine, and shall always be open
to the inspection of the Directors. The Directors may from time
to time determine whether and to what extent and at what times
and places, and on what conditions, the books and accounts of the
Company, or any of them, shall be open to the inspection of the
members (not being Directors), and the members shall have only
such rights of inspection as are given to them by the Statutes or
ordered by a Court of competent jurisdiction or by such
resolution as aforesaid.
Production of accounts
151 The Directors shall from time to time in accordance with the
provisions of the Statutes cause to be prepared and to be laid
before the Company in General Meeting such profit and loss
accounts, balance sheets, group accounts (if any) and reports as
are referred to in the Statutes.
Copies
152 A copy of every balance sheet, Directors' report and profit and
loss account, including every document required by law to be
annexed thereto, which is to be laid before the Company in
General Meeting, together with a copy of the Auditors' report,
shall, not less than twenty-one clear days before the date of the
meeting, be sent to every member (whether he is or is not
entitled to receive notices of General Meetings of the Company),
every holder of debentures of the Company (whether he is or is
not so entitled), and all other persons so entitled. Provided
always that if and to the extent permitted by the Statutes the
Company need not despatch copies of these documents to members,
but may instead send to them (or certain of them) summaries of
such financial statements or other documents. In addition this
Article shall not require a copy of such documents to be sent to
any person to whom, by virtue of Section 238(2) of the Act, the
Company is not required to send the same. There shall also be
sent to each recognised investment exchange on which the shares
of the Company are dealt in or listed the number of copies of the
aforesaid documents required by such exchange.
AUDIT
Auditors to be appointed
153 Auditors shall be appointed and their duties regulated in the
manner provided by the provisions of the Statutes.
All acts to be valid
154 Subject to the provisions of the Statutes, all acts done by any
person acting as an Auditor shall, as regards all persons dealing
in good faith with the Company, be valid, notwithstanding that
there was some defect in his appointment or that he was at the
time of his appointment not qualified for appointment.
Power to attend certain General Meetings
155 The Auditor shall be entitled to attend any General Meeting and
to receive all notices of and other communications relating to
any General Meeting which any member is entitled to receive, and
to be heard at any General Meeting on any part of the business of
the meeting which concerns him as Auditor.
NOTICES
Notice, how served
156 A notice may be served by the Company upon any member either
personally or by sending it through the post in a prepaid letter
addressed to such member at his registered address. Any notice
may be given to a member by reference to the register of members
as it stands at any time within ten days before notice is given,
and no change in the register after that time shall invalidate
the notice.
Members out of United Kingdom
157 No member shall be entitled to have a notice served on him at any
address not within the United Kingdom but any member whose
registered address is not within the United Kingdom may by notice
in writing require the Company to register an address within the
United Kingdom which, for the purpose of the service of notices,
shall be deemed to be his registered address. A member who has no
registered address within the United Kingdom and has not given
notice as aforesaid shall not be entitled to receive any notices
from the Company.
Time of service of notice
158 Any notice sent by first class post shall be deemed to have been
served on the day after the same shall have been posted and if
sent by second class post on the second day thereafter; and in
proving such service it shall be sufficient to prove that the
envelope containing the notice was properly addressed, stamped
and posted.
Notice to be given in case of death or bankruptcy of a member
159 A notice may be given by the Company to the person entitled to a
share in consequence of the death or bankruptcy of a member by
sending it through the post in a prepaid letter addressed to him
by name, or by the title of representative of the deceased, or
trustee of the bankrupt, or by any like description, at the
address, if any, within the United Kingdom supplied for the
purpose by the person claiming to be so entitled, or (until such
an address has been so supplied) by giving the notice in any
manner in which the same might have been given if the death or
bankruptcy had not occurred.
SUSPENDED OR CURTAILED POSTAL SERVICES
160 If at any time by reason of the suspension or curtailment of
postal services within the United Kingdom the Company is unable
effectively to convene a General Meeting by notices sent through
the post, a General Meeting may be convened by notice advertised
on the same date in at least two leading daily newspapers, at
least one of which shall be a national daily newspaper, with
appropriate circulation and such notice shall be deemed to have
duly served on all members entitled thereto at noon on the day
when the advertisement appears. In any such case the Company
shall send confirmatory copies of the notice by post if at least
seven days prior to the meeting the posting of notices to
addresses throughout the United Kingdom again becomes
practicable.
PROVISION FOR EMPLOYEES
161 The power conferred upon the Company by Section 719 of the Act to
make provision for the benefit of persons employed or formerly
employed by the Company or any of its Subsidiaries in connection
with the cessation or the transfer to any person of the whole or
part of the undertaking of the Company or any Subsidiary shall
only be exercised by the Company with the prior sanction of a
Special Resolution. If at any time the capital of the Company is
divided into different classes of shares, the exercise of such
power as aforesaid shall be deemed to be a variation of the
rights attached to each class of shares and shall accordingly
require either:-
161.1 the prior consent in writing of the holders of three fourths of
the issued shares; or
161.2 the prior sanction of an Extraordinary Resolution passed at a
separate General Meeting of the holders of the shares, of each
class in accordance with the provisions of these Articles.
INDEMNITY
162 Subject to the provisions of the Statutes, every President,
Director, Auditor, Secretary or other officer of the Company
shall be entitled to be indemnified by the Company against all
costs, charges, losses, expenses and liabilities incurred by him
in the execution and discharge of his duties or in relation
thereto. The Directors may purchase and maintain insurance for
the benefit of any Director or other officer or auditor to the
extent permitted by the Statutes.
WINDING UP
Distribution of assets in winding up
163 If the Company shall be wound up the assets remaining after
payment of the debts and liabilities of the Company and the costs
of the liquidation shall be applied, first, in repaying to the
members the amounts paid up on the shares held by them
respectively, and the balance (if any) shall be distributed among
the members in proportion to the number of shares held by them
respectively: Provided always that the provisions hereof shall be
subject to the rights of the holders of shares (if any) issued
upon special conditions.
Assets may be distributed in specie
164 In a winding up any part of the assets of the Company, including
any shares in or securities of other companies, may, with the
sanction of an Extraordinary Resolution of the Company, be
divided among the members of the Company in specie, or may, with
the like sanction, be vested in trustees for the benefit of such
members, and the liquidation of the Company may be closed and the
Company dissolved but so that no member shall be compelled to
accept any shares whereon there is any liability.
