As filed with the Securities and Exchange Commission on June 30, 2000
================================================================================
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, 1999
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:
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: 224,356,523
________________________
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|
<PAGE>
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 Communications Group plc and its subsidiaries
after the Demerger. The term "Ordinary shares" refers to the Ordinary shares of
10p each of the Company. The term "Financial Statements" shall mean the audited
consolidated financial statements and notes thereto of Saatchi & Saatchi plc as
of December 31, 1999 and 1998 and for each of the years in the three year period
ended December 31, 1999 included elsewhere herein. The term "Unaudited Pro Forma
Financial Information for 1997" shall mean the unaudited pro forma financial
information for 1997 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, 1999 was
L1.00 to $1.61. Unless otherwise specified, translations into US dollars
contained herein are made at the Noon Buying Rate on December 31, 1999. The Noon
Buying Rate on June 20, 2000 was L1.00 to $1.51.
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-Industry Background" 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", "Description of Business-Competition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the subheading "Industry Background". 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
general level of advertising expenditures in the Group's markets referred to
above, 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), the factors discussed
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations-Introduction", 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 of
those businesses from Cordiant in December 1997 (the "Demerger"). Prior to the
Demerger, Cordiant was the holding company for a group of advertising and
creative marketing communications businesses, including the Saatchi & Saatchi
advertising network ("S&S").
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 Compton Partners Limited. During the
1980s, an international advertising network was formed, primarily through a
series of acquisitions which included Compton Communications, Inc. and
Dancer-Fitzgerald-Sample, Inc. In 1995, the S&S network was expanded to Latin
America through an equity investment in NAZCA S&S, which was increased to a
majority holding in early 1999. Investments have also been made in other
developing markets, including China and India. As a result of these
developments, S&S is today a worldwide advertising network with 152 offices and
affiliated agencies located in 92 countries.
In 1985, The Rowland Company, a US strategic communications firm, was
acquired by Cordiant. 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 the Rowland Company
and 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 and S&S.
In 1988, Zenith Media Buying Services Ltd. was formed. The operation was
renamed Zenith Media Worldwide ("Zenith") in 1991 and in 1992 extended its
services to include media planning. Following the Demerger, the Saatchi &
Saatchi Group and CCG each retained a 50 percent shareholding in Zenith, which
is accounted for as a joint venture.
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 a Demerger Agreement, dated
September 30, 1997, between Cordiant, the Company and CCG (the "Demerger
Agreement"). These arrangements are described herein under "Description of
Property" and "Options to Purchase Securities from Registrant or Subsidiaries."
RECENT DEVELOPMENTS
On June 20, 2000, the Company and Publicis S.A. ("Publicis") announced that
they had reached agreement on the terms of a proposed merger to be implemented
by way of a scheme of arrangement under the UK Companies Act 1985. Shareholders
of the Company will receive 1.64 shares of Publicis ("New Publicis Shares") for
every 100 Ordinary shares of the Company. In addition, Company shareholders will
receive one Publicis contingent value right ("Publicis CVR") with each New
Publicis Share, which will entitle the holder to a cash payment if the price of
the Publicis shares falls below a certain level. The exchange ratio is subject
to an adjustment mechanism that is intended to maintain, subject to certain
limitations, the value of the Publicis shares to be received by the Company's
shareholders in the merger in the event of changes in the market price of
Publicis shares and the exchange rate between the Euro and the pound sterling
(the "Adjustment Mechanism").
Subject to the Adjustment Mechanism, and assuming full exercise of
outstanding Company options, existing Publicis shareholders will own
approximately 69% and former Company shareholders will own approximately 31% of
the combined company.
The merger will be subject to certain conditions including the approval of
the Company's shareholders and Publicis' shareholders and the sanction of the
High Court of Justice in England and Wales. Subject to such conditions, the
Merger is expected to become effective by the middle of September 2000.
Additional details regarding the merger are set forth in the Company's Report on
Form 6-K, filed on June 22, 2000.
The Company's principal corporate offices are located at 83/89 Whitfield
Street, London W1A 4XA, England, telephone number +44-(0)20-7436-4000.
ORGANIZATION AND SERVICES
The Saatchi & Saatchi Group's operations consist of advertising and other
creative marketing services including strategic communications, pre-production
services and media planning and buying. The Group's principal activities are
organized as follows:
Organization Activities
------------ ----------
Advertising
S&S Advertising and creative
marketing services
Marketing communications services
Rowland Worldwide Strategic communications
The Facilities Group1 Pre-production services in
design, print and television
Media services
Zenith Media Worldwide2 Media planning and buying
1 Owned 70 percent by the Group and 30 percent by CCG.
2 Owned 50 percent by the Group and 50 percent by CCG.
Advertising
S&S is headquartered in New York and currently has 152 offices and
affiliated agencies located in 92 countries. It has a reputation for outstanding
creative ability and benefits from long-standing relationships with many
multinational clients. In 1999, advertising accounted for approximately 93
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 1999, S&S's ten largest clients accounted for approximately 53 percent
of the Saatchi & Saatchi Group's revenues. The two largest clients, Toyota and
Procter & Gamble, accounted for 19.3 percent and 13.6 percent, respectively, of
the Saatchi & Saatchi Group's revenues in 1999. In 1999, S&S served
approximately 43 clients in five or more countries. Details of S&S's largest
clients in 1999 and recent significant new business wins from existing and new
clients are set forth below:
S&S Clients
<TABLE>
Number of countries Year relationship
in which serviced first established
----------------- -----------------
<S> <C> <C> <C>
Largest clients in 1999 American Home Products 35 1983
DuPont 23 1949
General Mills 1 1924
Hewlett-Packard 45 1974
Johnson & Johnson 36 1971
Pharmacia Upjohn 1 1999
Procter & Gamble 65 1921
Sony 32 1999
Toyota 31 1975
VISA 34 1990
</TABLE>
Business wins in 1999 included Sony-Europe, Celebrity Cruises,
Galaxo-Relenza, Unum Provident, Preussen Elektra, Iams, DuPont and Hewlett
Packard. Business losses in 1999 included Delta, France Telecom, Norwich Union
and Sanitarium.
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 Rowland in Rochester (formally Saatchi & Saatchi Business
Communications) for business-to-business communications, Saatchi & Saatchi
Vision for interactive and three dimensional media, Kid Connection for youth
marketing, GMG for co-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 intranet 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.
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 three core operating centers in London, New York and Sydney, with an
additional six owned offices and 32 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, 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 Cadbury
Schweppes, Canon, DuPont, European Space Agency, Johnson & Johnson and Smirnoff.
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 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.
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.
The Company, CCG, Saatchi & Saatchi (Central Services) Limited ("SSCSL")
and The Facilities Group, entered into a shareholders' agreement ("The
Facilities Group Agreement") to regulate the relationship between the Company
and CCG as shareholders of The Facilities Group. The Company is a party to that
agreement in order to guarantee the obligations of SSCSL. SSCSL 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 is undertaken by three executive Directors. The Company is
entitled to appoint two directors and CCG is entitled to appoint one. The
agreement also contains provisions relating to the transfer of shares.
The distributable profits of The Facilities Group are 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 is 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.
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 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.
Media Services
Zenith Media Worldwide
Zenith is a specialist media services and planning agency. It is
headquartered in London and has 56 offices in 33 countries across Europe, the US
and Asia Pacific with representative offices in a further 60 countries.
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 1999 approximately 67% of its revenues were generated from Zenith's
own client list. Zenith's major direct clients include Alcatel, Bell Atlantic,
Bristol Myers, British Telecom, Campbell's, CIBA, Continental, Electrolux,
Ferragamo, HSBC, KFC and Lloyds TSB.
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(TM), 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. This
has been extended to at least December 31, 2001. Each media services agreement
introduced revised commercial terms for the purchase of media services from
Zenith.
Geographic Coverage
The Saatchi & Saatchi Group serves clients in all of the world's major
advertising markets.
<TABLE>
<CAPTION>
Geographic Analysis of S&S Revenue in 1999
Percentage of the Group's Percentage of worldwide
ongoing revenue(1) advertising expenditure(2)
(%) (%)
---------------------------------- -------------------------------- ------------------------------------
<S> <C> <C>
United Kingdom................... 14.7 6.9
North America.................... 49.3 40.1
Continental Europe, Africa and 18.3 21.6
the Middle East..................
Asia Pacific..................... 13.1 10.8
Latin America.................... 4.6 20.6
Total............................ 100.0 100.0
---------------------------------- -------------------------------- ------------------------------------
</TABLE>
(1) Ongoing revenue excludes revenue from disposed businesses.
(2) Source: Zenith Media Worldwide, Advertising Expenditure Forecasts,
January 2000.
In North America, the Saatchi & Saatchi Group's relative share is based on
S&S's relationships with a number of major US companies. The high share in the
UK reflects the strong position of S&S's London office. In Continental Europe,
Africa and the Middle East, the network's development is broadly in line with
the market, with significant contributions from France, Germany 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 with which it has trading affiliations.
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 32 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
Conill, Klemtner, Saatchi & Saatchi Canada, Taylor Tarpay, and GMG. Some of the
representative major clients of these businesses are American Home Products,
DuPont, Eastman Kodak, General Mills, Hewlett-Packard, Johnson & Johnson,
Procter & Gamble and Toyota. 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 by Rowland
Worldwide, Inc., which has offices in New York, and Saatchi Rowland Business
Communications Inc. based in Rochester, 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 Saatchi & Saatchi Group Ltd.
Some of the agency's representative major clients are Carlsberg,
Hewlett-Packard, Lloyds TSB, Procter & Gamble, Sony, 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
92 countries. The major owned international agencies are located in Australia,
China, France, Germany, Italy and New Zealand.
Rowland Worldwide has operations (including affiliated agencies) in 31
countries. Its owned offices are located in Australia, China, Hungary, Italy,
Poland and Switzerland.
Zenith has operations (including media affiliates) in 28 countries,
including Australia, China, France, Germany, Italy and Spain.
Latin America
S&S has agencies in 13 countries (including affiliated agencies). The major
owned agencies are located in Argentina, Brazil, Mexico, and Puerto Rico. Some
of the major clients serviced in the region include Hewlett Packard, Nortel, and
Reynolds Metals.
ACQUISITIONS & DISPOSALS
Acquisitions
During 1998 the Group acquired the business and assets of GMG Marketing
Services, a U.S. based co-marketing company, increased its shareholding to 80%
in Sista Saatchi & Saatchi Advertising PVT Limited, a company based in India,
and acquired 51% of the share capital of Dialog-Team Fienhold Agentur fur
Dialog-Marketing GmbH, a company based in Germany.
During 1999, the Company agreed to increase its equity investment in Nazca
Saatchi & Saatchi, Inc. from 50% to 75% and its voting rights from 37% to 75% in
return for a $7.0 million funding commitment.
Disposals
In 1998 the Group disposed of its interest in Siegel & Gale for $33.8
million (L20.3 million) which resulted in a profit on disposal of L8.6 million.
The closure and divestiture of businesses in Germany, Ireland, Norway and Spain,
together with the reduction of shareholding in South Africa, resulted in a loss
of L2.5 million.
In 1999 the Group disposed of its interest in Cliff Freeman & Partners for
a consideration of US$4.6 million (L2.8 million) which resulted in a profit on
disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of a partial release of a provision upon the
subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million.
PERSONNEL
As of May 1, 2000, the Group directly employed approximately 5,400 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 been ranked among the top four agencies by
creative awards won at the Cannes International Advertising Festival over the
last five 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(1) 456,000 $12.1 2003 2013
New York, New York
23 Howland Street 133,000 L1.6 2003 2013
together with
80/84 Charlotte St.
London, England
3501 Sepulveda Boulevard 90,100 $3.3 N/A 2006
Torrance, California
1960 East Grand Avenue 58,038 $1.4 N/A 2004
El Segundo, California
30 Boulevard Vital-Bouhot 34,900 N/A N/A N/A
Neuilly-sur-Seine, Paris
</TABLE>
________________________________
(1) In addition, the Company leases 293,000 square feet at an annual rental of
$7.7 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 and discounted.
At December 31, 1999 the Saatchi & Saatchi Group owned and leased
properties and fixtures (including furniture and equipment) which had a net book
value of L75.2 million ($121.8 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, 1999, L32.2 million ($51.8 million) had been
reserved by the Group for potential costs of surplus space, primarily in New
York City. The 456,000 square feet leased at the 375 Hudson Street location
includes 55,000 square feet sublet to Zenith through 2005 at a current market
rate at the time the lease was entered into.
The Company has guaranteed, with effect from the effective date of the
Demerger, 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. All 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.
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. 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.
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 $35 million. In 1996,
after ISM's claim against SSNA had been dismissed for failure to state a claim,
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." 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."
On March 17, 2000, a judgment was entered against SSNA in the amount of the
default judgment. The Company has been advised by its US counsel that, in its
view, the Opinion and Order and judgment are 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 an appeal.
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 December 31,
1999:
<TABLE>
Title of Class Identity of Person or Group Amount Owned Percent of Class
-------------- --------------------------- ------------ ----------------
<S> <C> <C> <C>
Ordinary shares Directors and Executive Officers of 237,472 Less than one
the Company as a group percent
</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>
1997 Fourth Quarter (beginning December
15, 1997).......................... 113 109 1.89 1.82
1998 First Quarter...................... 159 103 2.67 1.70
Second Quarter..................... 179 149 2.93 2.51
Third Quarter...................... 165 101 2.74 1.70
Fourth Quarter..................... 138 97 2.32 1.66
1999 First Quarter...................... 209 122.5 3.37 2.01
Second Quarter..................... 234.5 203 3.84 3.27
Third Quarter...................... 242.5 209.5 3.78 3.34
Fourth Quarter..................... 377.5 205 6.08 3.39
2000 First Quarter 431.5 343.5 6.81 5.62
Second Quarter (through
June 23, 2000)................... 421 266 6.32 3.92
</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.
<TABLE>
<CAPTION>
US Dollars per
ADS
-----------------------------------------------
<S> <C> <C> <C>
High Low
1997 Fourth Quarter (beginning 9 7/16 8 3/4
December 15, 1997).............................
1998 First Quarter.................................... 13 7/8 7 15/16
Second Quarter................................... 14 13/16 12 1/8
Third Quarter.................................... 13 3/4 7 7/8
Fourth Quarter................................... 12 1/4 7 7/8
1999 First Quarter.................................... 16 7/8 10 1/8
Second Quarter................................... 19 7/16 16 1/8
Third Quarter.................................... 19 5/8 16 1/2
Fourth Quarter................................... 31 1/2 16 3/4
2000 First Quarter.................................... 34 15/16 28 1/8
Second Quarter
(through June 23, 2000)......................... 33 1/16 20
</TABLE>
At June 1,2000, the Company had 224,928,841 Ordinary shares outstanding
held by approximately 13,200 registered shareholders (including nominees). At
June 1, 2000, approximately 7,000 persons with United States addresses, owned
approximately 1,873,620 of the Company's ADSs (representing approximately 4.2%
of all outstanding Ordinary shares). In addition, as of June 1, 2000,
approximately 54 persons with United States addresses reflected on the Company's
share register owned approximately 612,023 Ordinary shares (representing
approximately 0.3% 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 June 1, 2000, approximately
9,980,123 Ordinary shares representing approximately 4.5% of all outstanding
Ordinary shares. The Company believes that, June 1, 2000, approximately an
additional 13.4% of its outstanding Ordinary shares were beneficially owned by
US persons holding their shares through UK nominees, giving an aggregate US
holding of approximately 17.9%.
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
(possibly with retroactive effect) 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, real estate investment trusts,
regulated investment companies, persons subject to the alternative minimum tax,
dealers or traders or brokers 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, ten 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 amended by the Finance Act 1999.
United Kingdom Taxation of Dividends and Refunds of Tax Credits
The Company
As a result of changes to UK tax legislation which came into force on April
6, 1999, the Company is not liable to the UK Inland Revenue for advance
corporation tax in respect of dividends paid on or after 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
Individual shareholders resident in the United Kingdom for tax purposes,
who receive dividends paid by the Company, will be entitled to a tax credit. The
amount of the tax credit associated with dividends was reduced with effect from
April 6, 1999 and is currently one ninth of the cash dividend or 10 percent of
the aggregate of the cash dividend and the associated tax credit. 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. Shareholders whose
liability to income tax is less than the amount of the tax credit are generally
no longer entitled to a refund in respect of the tax credit.
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 were previously 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. The effect of the
reduction in the amount of the tax credit associated with dividends paid by the
Company on or after April 6, 1999 will be that, for such US Holders, the amount
of the withholding tax will exceed the amount of the tax credit. As a result,
such US Holders are not entitled to receive any payment in respect of the tax
credit for dividends paid on or after April 6, 1999.
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. Such corporations should consult their own tax advisors with
respect to the detailed application of the Convention to their own particular
circumstances and on the procedure for obtaining any Tax Credit Refunds to which
they may be entitled.
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 non-corporate US Holders who disposed, or are deemed to have
disposed, their ADRs or Ordinary shares, the maximum marginal US federal income
tax rate applicable to a capital gain will be lower than the maximum marginal US
federal income tax rate applicable to ordinary income if such US Holder's
holding period for such Ordinary shares (or ADSs held by or on behalf of the
Depositary in the form of ADRs) exceeds one year. The deductibility of capital
losses is subject to certain limitations.
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 ADSs), except where the
Ordinary shares (or ADSs) 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 a 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 L234,000
(for chargeable transfers made on or after April 6, 2000). The "zero-rate" limit
for chargeable transfers was L231,000 between April 6, 1999 and April 5, 2000
and L223,000 between April 6, 1998 and April 5, 1999. 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 L234,000 "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 0.5 percent 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. There will generally be a minimum fixed stamp
duty charge of L5 per instrument of transfer. 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 cancelled.
Consequently, transfers of, or agreements to transfer, Ordinary shares in
the Company will normally be subject to ad valorem stamp duty or SDRT,
respectively.
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 stamp duty charge is at the rate of 1.5%:
(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 L5 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 L5.
Item 8. Selected Financial Data.3
The following selected financial data as of and for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the
consolidated financial statements of the Company and the notes related thereto,
which were audited by KPMG Audit Plc. The consolidated financial statements as
of December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999, and the report of KPMG Audit Plc thereon, are included
elsewhere herein.
Significant changes were made to the Company's capital structure as a
result of the Demerger. The selected financial data set forth below for periods
prior to the Demerger reflect the capital structure in place at that time, 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. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements,
including the notes thereto, included elsewhere herein.
_______________________________________
3 The Financial Statements of the Company are prepared in accordance with UK
Generally Accepted Accounting Principles ("UK GAAP") which differ in
certain significnat 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,
----------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
(Restated) (Restated) (Restated)) (Restated)
US$(1) L L L L L
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT:
Amounts in Conformity with UK GAAP
Commission and fee income
Ongoing businesses 628.4 390.3 363.0 376.7 373.2 382.1
Sold and closed businesses 16.7 10.4 17.1 1.5 2.1 25.6
Total 645.1 400.7 380.1 378.2 375.3 407.7
Profit (loss) before tax, and minority interests(2) 58.4 36.3 34.8 794.2 16.1 (34.4)
Net profit (loss) 37.8 23.5 23.6 786.0 11.8 (42.4)
Net profit (loss) per Ordinary share - basic 17.2 10.7p 10.6p 353.9p 6.1p (27.7)p
Approximate Amounts in Conformity with US
US GAAP
Net profit (loss) (39.2) (24.3) 13.2 5.9 (5.2) (48.4)
Net profit (loss) per Ordinary share-basic(3) (0.18) (11.1)p 6.0p 2.8p (2.3)p (42.0)p
Net profit (loss) per ADS (0.90) (55.5)p 29.5p 14.0p (11.5)p (168.0)p
Dividends
Per Ordinary share 0.03 1.6p 1.4p - - -
Per ADS 0.13 8.0p 7.0p - - -
<CAPTION>
December 31,
1999 1999 1998 1997 1996 1995
US$ L L L L L
(In millions)
CONSOLIDATED BALANCE SHEET DATA:
Amounts in Conformity with UK GAAP
Working capital deficiency (53.9) (33.5) (37.2) (24.9) (1,061.2) (1,031.3)
Total assets 702.4 436.3 388.4 429.5 712.3 741.0
Long term liabilities, provisions
and minority interests 225.7 140.2 155.6 200.8 185.0 233.8
Shareholders' deficiency (118.8) (73.8) (93.6) (123.0) (1,021.5) (1,024.4)
Approximate Amounts in Conformity with
US GAAP
Shareholders' deficiency (1.2) (0.7) (12.3) (21.4) (1,028.8) (1,052.3)
</TABLE>
_______________________________________
(1) These figures have been translated into US dollars at the Noon Buying Rate
on December 31, 1999 (L1.00 = $1.61).
(2) The profit (loss) before taxes and minority interests reflects: (a) Lnil
exceptional items in 1999 and 1998, exceptional credit of L764.5 million in
1997, exceptional costs of L16.3 million and L5.8 million that were
incurred in 1996 and 1995 respectively; (b) a profit on disposal of
operations of L0.2 million, L6.1 million, L4.3 million and L17.7 million in
1999, 1998, 1997 and 1996, respectively; and (c) a loss on disposal of
operations of L24.9 million in 1995. Details for 1999, 1998 and 1997 are
set out in Note 5 to the Financial Statements).
(3) Adjusted for the bonus element of the 1995 rights issue where appropriate.
<PAGE>
DIVIDENDS
The Board recommended a final dividend of 1.0p per Ordinary share, at a
cost of L2.2 million, in respect of the year ended December 31, 1999. The final
dividend was paid on May 19, 2000 to shareholders on the register at April 14,
2000. There was an interim dividend of 0.6p declared and paid in 1999.
In May 1999, the Company paid a dividend of 1.4 pence per Ordinary share in
respect of the year ended December 31, 1998.
In July 1998, the Company paid a dividend of 1.2 pence per Ordinary share
in respect of the year ended December 31, 1997. No dividends were paid by the
Group to parties outside of Cordiant between 1994 and 1997, except to minority
shareholders of subsidiaries.
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.
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.
<TABLE>
Average* High Low Period End
-------- ---- --- ----------
<S> <C> <C> <C> <C>
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
1998 (December 31).......................... 1.66 1.72 1.61 1.66
1999 (December 31).......................... 1.62 1.68 1.55 1.61
</TABLE>
_______________________________________
* The average of the exchange rates on the last day of each month during the
period.
The Noon Buying Rate for pounds sterling on June 20, 2000 was L1.00 = $1.51.
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR 1997
Unaudited pro forma financial information for the Group for 1997 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 operating 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>
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
Fundamental reorganization-demerger 764.5 (764.5) --
Net interest payable and similar items (3.0) (4.1) (7.1)
Profit before tax 796.4 (768.6) 27.8
Tax (8.2) - (8.2)
Profit for the period 788.2 (768.6) 19.6
------------------------------------------- ------------------- ----------------- ----------------
</TABLE>
<TABLE>
SHARE OF OPERATING PROFIT IN JOINT VENTURE 1997
Lmillion
--------------------------------------------------------------------- -----------------
<S> <C>
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.
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 40 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 Rowland Worldwide and The Facilities Group is 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 may be longer as revenue is not
normally recognized until advertisements have appeared in the media.
Additionally, the revenues actually earned from new business wins may vary
significantly from revenues anticipated at the outset of any new business win
because the level of expenditure that a client ultimately determines is most
appropriate can vary significantly from the client's initially projected
amounts.
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 92 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.
During 1999 the Group acquired a majority stake in Nazca Holdings, Inc. (a
Puerto Rican company). Nazca Holdings Inc. held investments in Brazil, Mexico,
Puerto Rico and Venezuela. The Group's interest increased to 75% of the Nazca
group of companies in return for funding. There were no material adjustments
made upon acquisition. In late 1999, Nazca started a company in Argentina.
During 1999 the Group disposed of its interest in Cliff Freeman & Partners
for a consideration of US$4.6 million (L2.8 million) which resulted in a profit
on disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of a partial release of a provision upon the
subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million.
During 1998 the Group acquired the business and assets of GMG Marketing
Services, a U.S. based co-marketing company, increased its shareholding to 80%
in Sista Saatchi & Saatchi Advertising PVT Limited, a company based in India,
and acquired 51% of the share capital of Dialog-Team Fienhold Agentur fur
Dialog-Marketing GmbH, a company based in Germany.
In 1998 the Group disposed of its interest in Siegel & Gale for $33.8
million (L20.3 million) which resulted in a profit on disposal of L8.6 million.
Further, the Group closed or divested businesses in Germany, Ireland, Norway and
Spain and reduced its shareholding in South Africa.
The Financial Statements have been prepared in conformity with UK GAAP
which differs in certain significant respects from US GAAP. See Note 39 in the
Notes to the Financial Statements for an explanation of these differences.
INDUSTRY BACKGROUND4
_______________________________________
4 Expenditure information in this section is based solely on estimates
published by Zenith in its Advertising Expenditure Forecasts, January 2000.
Zenith estimates that global advertising expenditure in the major media
(press, television, radio, cinema and outdoor) totaled $299 billion in 1999. 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%
in 1999.
Zenith estimates that the growth in global advertising expenditure at
current prices over the prior year was approximately 4.9% in 1999. Zenith
forecasts that the rate of growth in 2000 will be approximately 6.5%.
<PAGE>
RESULTS OF OPERATIONS
For the purposes of this section, references to "ongoing" and "underlying"
performance exclude exceptional items and disposed businesses. In "ongoing"
performance, the results of those businesses disposed of in the latter year have
been excluded from the comparative information. In "underlying" performance, the
effect of exchange rate movements is also eliminated.
Year Ended December 31, 1999 vs. Year Ended December 31, 1998
Revenue from Continuing Operations
Group revenue increased by 5.4% to L400.7 million in 1999 from L380.1
million in 1998. Ongoing revenue was up 12.5% to L390.3 million from L346.8
million in 1998, and on an underlying basis revenues increased by 11.0%. This
increase reflected both an improved level of business from existing clients and
a number of new business wins.
In the UK, ongoing revenue decreased by 1.2% to L57.5 million in 1999 from
L58.2 million in 1998 primarily reflecting some budget reductions and client
losses.
In North America, ongoing revenue increased by 13.0% to L192.4 million in
1999 from L170.3 million in 1998, while underlying growth was 10.3%. This
reflects a continued improvement in the region's new business activity and
additional business awarded by existing clients.
Ongoing revenue in the Rest of Europe, Africa and the Middle East increased
1.0% to L71.2 million in 1999 from L70.5 million in 1998, and reflected growth
of 2.3% on an underlying basis.
In Asia Pacific, ongoing revenue increased by 7.1% to L51.2 million in 1999
from L47.8 million in 1998, but had underlying growth of 4.1%.
Operating Profits from Continuing Operations
Operating profit increased by 10.2% to L34.6 million in 1999 from L31.4
million in 1998. Ongoing operating profit increased 25.4% to L35.5 million in
1999 from L28.3 million in 1998. The increased revenue of the Group improved
margins, as did the impact of companies closed, sold or divested during the
year.
In the UK, ongoing operating profit decreased by 7.9% to L7.0 million in
1999 from L7.6 million in 1998, reflecting the reduction in revenues.
In North America, ongoing operating profit increased by 29.1% to L26.6
million in 1999 from L20.6 million in 1998. The increase was due to the revenue
growth plus a continued focus on improving margins. The underlying growth was
25.5%.
In the Rest of Europe, Africa and the Middle East, ongoing operating profit
decreased by 21.4% to L2.2 million in 1999 from L2.8 million in 1998, as the
gains in the major markets were more than offset by the decline in France in
particular as well as reductions in the smaller markets. The underlying decrease
was 18.5%.
In Asia Pacific, there was ongoing operating profit of L0.1 million in 1999
compared with an operating loss in 1998 of L2.7 million which reflected the
revenue increase.
Operating Margins
In 1999, the Group's ongoing operating margin was 10.5%. In 1998, the
Group's ongoing operating margin was 9.2% on a restated basis. 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, ongoing operating margins were as follows:
<TABLE>
1999 1998
------------------- -----------------
<S> <C> <C>
North America 13.8% 12.1%
UK 12.2% 13.1%
Rest of Europe, Africa and the Middle East 3.1% 4.0%
Asia Pacific 0.2% (5.6)%
Latin America (2.2)% -
Total Group (including Zenith) 10.5% 9.2%
</TABLE>
Year Ended December 31, 1998 vs. Year Ended December 31, 1997
Revenue from Continuing Operations
Revenue increased by 0.5% to L380.1 million in 1998 from L378.2 million in
1997. Ongoing revenue was up 4.8% to L363.0 million from L346.3 million in 1997,
and on an underlying basis revenues increased by 9.3%. This increase reflected
both an improved level of business from existing clients and a number of new
business wins.
In the UK, ongoing revenue decreased by 2.0% to L58.2 million in 1998 from
L59.4 million in 1997 primarily reflecting an unusually high level of
nonrecurring projects in 1997, some budget reductions and client losses,
including Camelot, Commercial Union and Walt Disney.
In North America, ongoing revenue increased by 12.3% to L182.3 million in
1998 from L162.3 million in 1997. Underlying growth was 14.0%. This reflected a
continued improvement in the region's new business activity and additional
business awarded by existing clients.
Ongoing Revenue in the Rest of Europe, Africa and the Middle East increased
2.1% to L73.9 million in 1998 from L72.4 million in 1997, and reflected growth
of 5.0% on an underlying basis. In the major markets, growth was strong in
Germany (50%) and Spain (37%) and was good in Italy (9%). France declined 10%
due to an unusually strong level of one-off revenues in 1997 and the sale of a
subsidiary at the start of 1998. The smaller markets (Austria, Holland, Middle
East and Eastern Europe) all grew. Belgium, Denmark and Switzerland declined due
to client losses.
In Asia Pacific, ongoing revenue decreased by 6.9% to L48.6 million in 1998
from L52.2 million in 1997, but had underlying growth of 6.8%. Revenues in
Greater China increased by 18% and by 37% in China on its own. The rest of Asia
Pacific declined 1%. In the region, Australia and New Zealand represent 42% of
revenues, Greater China 40%, Singapore 12.5% and others 5.5%.
Operating Profits from Continuing Operations
Operating profit increased by 5.7% to L31.4 million in 1998 from L29.7
million in 1997. Ongoing operating profit increased 3.1% to L30.2 million in
1998 from L29.3 million in 1997. The improved revenue of the Group maintained
margins, as did the impact of companies closed, sold or divested during the
year.
In the UK, ongoing operating profit increased by 33.3% to L7.6 million in
1998 from L5.7 million in 1997, reflecting a reduction in overheads, partially
due to costs reallocated to other regions and a reduction in personnel.
In North America, ongoing operating profit increased by 7.3% to L20.6
million in 1998 from L19.2 million in 1997, due to revenue growth plus a
continued focus on improving margins. The underlying growth was 8.5%.
In the Rest of Europe, Africa and the Middle East, ongoing operating profit
decreased by 13.0% to L4.7 million in 1998 from L5.4 million in 1997, as the
gains in the major markets were more than offset by the decline in France in
particular as well as reduction in the smaller markets. The underlying decrease
was 9.3%.
In Asia Pacific, there was an ongoing operating loss of L2.7 million in
1998 compared with an operating loss in 1997 of L1.0 million as the year saw
continued investment in China to service the needs of clients.
Operating Margins
In 1998, the Group's operating margin was 8.3%. In 1997, on a reported
basis it was 8.5% but on a pro forma basis determined as set forth in "Unaudited
Pro Forma Financial Information for 1997", the Group's operating margin would
have been 7.6%. The ongoing margin was 8.3% compared with 7.6% on a pro forma
basis in 1997. 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, ongoing operating margins were as follows:
<TABLE>
1998 1997 Pro Forma
------------------- --------------------------
<S> <C> <C>
North America 11.3% 10.1%
UK 13.1% 9.1%
Rest of Europe, Africa and the Middle East 6.4% 7.5%
Asia Pacific (5.6)% (1.9)%
Total Group 8.3% 7.6%
</TABLE>
Joint Ventures
The share of operating profit in joint ventures relates to the Group's
investment in Zenith, and South Africa for 1999 only. In 1998 and 1999 it
reflects the revised commercial terms with Zenith which the Group entered into
as part of the Demerger. The amount for 1997 does not reflect the revised
commercial terms. The share of operating profit amounted to L5.5 million in 1999
compared to an operating profit of L3.6 million in 1998 and L0.9 million in
1997.
Exceptional Items
Disposals
In 1999 the Group disposed of its interest in Cliff Freeman & Partners for
a consideration of US$4.6 million (L2.8 million) which resulted in a profit on
disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of a partial release of a provision upon the
subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million.
In the year ended December 31, 1998, the Group disposed of its interest in
Siegel & Gale for $33.8 million (L20.3 million) which resulted in a profit on
disposal of L8.6 million. The closure and divestiture of businesses in Germany,
Ireland, Norway and Spain, together with the reduction of shareholding in South
Africa, resulted in a loss of L2.5 million.
In the year ended December 31, 1997, there was a profit of L4.3 million on
disposal of businesses.
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.
Net Interest (Payable)/Receivable and Similar Items
Net interest payable and similar items were L4.0 million in the year ended
December 31, 1999. This amounted to L6.3 million in the year ended December 31,
1998 and L5.2 million in 1997. The net interest expense comprised the actual
interest paid by the Saatchi & Saatchi Group on external borrowings and in 1997
on interest bearing loans that existed between the Saatchi & Saatchi Group and
CCG, reflecting the capital structure prior to the Demerger. The borrowings and
the corresponding interest charges in 1997 do not reflect the Group's capital
position had it been an independently financed and managed group during the
period.
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 L11.3 million in the year ended December
31, 1999 compared to L9.7 million in the year ended December 31, 1998 and L8.2
million in 1997. The tax charge in 1997 is not representative of the tax charge
that would have been incurred had the Group been separately constituted
throughout the period.
Equity Minority Interests
Equity minority interests were L1.5 million in the year ended December 31,
1999 compared to L1.5 million in the year ended December 31, 1998 and L0.6
million in 1997.
Net Income
In the year ended December 31, 1999, net income was L23.5 million, compared
with income of L23.6 million in 1998 and L785.4 million in 1997. The results for
1997 do not reflect the Saatchi & Saatchi Group's capital structure had it been
an independently financed and managed group during that period. See "Selected
Financial Data-Unaudited Pro Forma Financial Information for 1997" included
elsewhere in this Report.
Dividend
The Board recommended a final dividend of 1.0p per Ordinary share (1998:
1.4p; 1997: 1.2p) at a cost of L2.2 million. The final dividend was paid on May
19, 2000 to shareholders on the register at April 14, 2000. There was an interim
dividend of 0.6p declared and paid in 1999 (1998: nil; 1997: nil).
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The transition period for the
introduction of the Euro is between January 1, 1999 and June 30, 2002. The Group
has significant operations within the European Union.
In early 1998, the Company established a dedicated steering committee to
address the issues raised by the introduction of the Euro. The Company is making
all the necessary changes to its internal systems and the timing of the phasing
out of all uses of the existing currencies will comply with European Council
regulations and be coordinated to meet the requirements of our clients and
suppliers.
Since January 1, 1999, the Company has undertaken Euro contracts covering
foreign exchange forward contracts and swaps that arise from intercompany
transactions. The Company does not presently expect that introduction of the
Euro will result in any material increase in costs to the Company.
LIQUIDITY AND CAPITAL RESOURCES
General
The Group's primary sources of liquidity are its cash flow from operations
and bank facilities.
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 by Saatchi & Saatchi 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 loans at the direction
of Cordiant's central treasury function. The Saatchi & Saatchi Group's 1997 cash
flows, in respect of interest, taxes paid and financing are therefore not
indicative of the cash flows since the Demerger.
Net Indebtedness
The Company has a capital structure consisting of senior debt and equity.
Senior debt consists primarily of a bank facility of up to $137.5 million, the
covenants and terms of which are governed by the Bank Facility Agreement. The
facility will mature in 2002 and has scheduled principal reductions of $20
million in 2000 and $25 million in 2001.
In connection with the Demerger, the Saatchi & Saatchi Group established
new banking arrangements 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 "Bank Facility Agreement").
The 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. It also contains
provisions whereby, on the happening of certain specified events of default, the
amount 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 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 the Saatchi & Saatchi Group in various
subsidiaries have also been given.
The facilities are in part required for the cyclical working capital needs
of the Group and in part provide a margin to finance any unforeseen contingency.
Cyclical needs arise both during each month, derived from the media payment
cycles in each country, and through the year during periods of high advertising
activity. The Group has significant cash balances in its international
operations. These balances are required primarily to finance the working capital
cycles of the individual country operations.
In addition, Zenith entered into an agreement (the "Zenith Facility
Agreement") providing a L21.5 million secured reducing multi-currency revolving
credit facility (the "Zenith Facility"). 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.
At December 31, 1999, the amount available under the Zenith Facility was
L18.5 million. This amount is required to be repaid as follows: L2.0 million in
2000 and L4.0 million in 2001, with the balance due in 2002. 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).
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. It also 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.
<PAGE>
The table below sets out certain cash flow items for the three years ended
December 31, 1999 and extracted from the Financial Statements appearing
elsewhere herein.
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998 1997
---- ---- ----
(L million)
<S> <C> <C> <C>
Cash flow items
Cash flow from operating activities 32.7 38.7 52.5
Cash outflow from returns on investments
and servicing of finance (3.7) (4.9) (16.2)
Tax paid (4.6) (4.5) (3.8)
Cash outflow from capital expenditure
and financial investment (13.2) (16.1) (15.7)
Cash inflow/(outflow) from acquisitions
and disposals 1.0 11.2 161.5
Equity dividends paid (4.4) (2.7) --
Management of liquid resources -- -- 17.1
---- ---- ----
Cash inflow before financing 12.0 21.7 195.4
Net cash outflow from financing (5.7) (30.9) (204.3)
---- ----- ------
Increase (Decrease) in cash in the period 6.3 (9.2) (8.9)
=== ==== ====
</TABLE>
Cash Flows from Operating Activities
In the year ended December 31, 1999, cash generated by operations totaled
L32.7 million compared with L38.7 million and L52.5 million in 1998 and 1997,
respectively. In the year ended December 31, 1999, there was a working capital
outflow of L9.9 million, compared with an inflow of L0.7 million in 1998 and an
inflow of L19.7 million in 1997.
Payments in respect of unutilized real estate, which have been provided for
in prior years, were L6.1 million in the year ended December 31, 1999. Payments
in respect of unutilized real estate were L7.2 million in 1998 and L11.7 million
in 1997. The Group expects these payments to further reduce in future years. 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 years ended December 31, 1999, 1998
and 1997, the cash outflows were L3.7 million, L4.9 million and L16.2 million,
respectively. The decrease in 1998 and 1999 primarily reflect the capital
structure following the Demerger.
Tax Paid
Net tax payments were L4.6 million in the year ended December 31, 1999
compared to L4.5 million in 1998 and L3.8 million in 1997. In 1997 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.
Capital Expenditure and Financial Investment
In the year ended December 31, 1999, the Group invested L11.3 million in
capital expenditure net of proceeds from fixed asset disposals compared to L11.7
million in 1998 and L12.0 million in 1997. The level of capital expenditure for
all periods presented was lower than depreciation charged.
An employee trust purchased Ordinary shares in the Company at a cost of
L6.8 million, of which L4.9 million was paid in 1998 and the balance of L1.9
million in 1999. The shares purchased by the Company were to satisfy options
held by employees participating in Shareforce, an international sharesave
scheme, and to satisfy phantom options issued to a senior executive. See
"Options to Purchase Securities from Registrant or Subsidiaries-Employee Share
Schemes."
Acquisitions and Disposals
During 1999 the Group acquired a majority stake in Nazca Holdings, Inc. (a
Puerto Rican company). Nazca Holdings Inc. holds investments in Brazil, Mexico,
Puerto Rico and Venezuela. The Group's interest increased to 75% of the Nazca
group of companies in return for funding. There were no material adjustments
made upon acquisition.
Payments in respect of acquisitions were nil in the year ended December 31,
1999 compared to L7.0 million in the year ended December 31, 1998 and L7.9
million in 1997.
In 1999 the Group disposed of its interest in Cliff Freeman & Partners for
a consideration of US$4.6 million (L2.8 million) which resulted in a profit on
disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of a partial release of a provision upon the
subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million.
The sum of these items were cash neutral.
In the year ended December 31, 1998, the Group disposed of its interest in
Siegel & Gale for $33.8 million (L20.3 million). The closure and divestiture of
businesses in Germany, Ireland, Norway and Spain, together with the reduction of
shareholding in South Africa, resulted in a loss of L2.5 million.
There were no material disposals in the year ended December 31, 1997.
The amounts associated with the Demerger were cash outflows of L0.4 million
and L0.9 million in 1999 and 1998, respectively, and a cash inflow of L169.3
million in 1997.
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
1999 or 1998.
Financing Activities
The Group's financing arrangements as presented in 1997 reflect Cordiant's
financing arrangements and not the arrangements that took effect following the
Demerger.
Item 9A. Quantitative and Qualitative Disclosures About Market Risk.
Financial Risk Management
The Company does not speculate in derivative financial instruments.
Foreign Exchange
The Company publishes its consolidated financial statements in pounds
sterling. A substantial majority of the Company's profits are denominated in
foreign currencies, primarily the US dollar (75% of 1999 operating profit). As a
result, the Company is subject to foreign exchange risk due to the effects that
foreign currency movements have on the Company's translation of results. In
order to provide a partial hedge against these exposures, the majority of the
Group's borrowings and interest expense are denominated in foreign currencies
(primarily US Dollars). The Company estimates that a 10% movement in the US
dollar/pound exchange rate would have led to a change in operating profit of
approximately L2.3 million.
Trading foreign exchange exposures, where they arise, are hedged via the
spot and forward exchange markets.
Interest Rates
In order to reduce the Company's exposure to adverse interest movements,
the Company has entered into interest rate caps which protect the majority of
core borrowings. The Company's weighted average interest rate for 1999 was 6.6%.
The Company estimates that if the 1999 interest rates had been 1 percentage
point higher, the net interest expense would have increased by L483,000.
<PAGE>
Item 10. Directors and Executive Officers of Registrant.
Charles T. Scott resigned as Chairman of the Company on December 31, 1998.
The Directors and Executive Officers of the Company are set out below:
NAME POSITION AGE
Bill Cochrane * Finance Director 48
Susan W. Day Group Treasurer 44
Fiona M. Evans Company Secretary 34
Ian Irvine Non-Executive Director 63
Ken Olshan Non-Executive Director 67
Candice Carpenter Non-Executive Director 48
Kevin J. Roberts * Director, Chief Executive Officer 50
Bob Seelert * Chairman 57
Wendy Smyth * Director of Corporate Affairs 46
Sir Peter Walters Non-Executive Director 69
David I. C. Weatherseed Deputy Finance Director 48
_________
* Member of the Executive Committee
Biographies
Executive Directors
Bill Cochrane. Mr. Cochrane has been a Director of the Company since September
1997 and became Finance Director with effect from January 1, 1999. 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. Mr. Roberts has been a Director of the Company since September
1997 and became Chief Executive Officer of the Company with effect from January
1, 1999. He joined S&S in May 1997 as Chief Executive Officer of Saatchi &
Saatchi Worldwide when he was appointed to the Board of Cordiant. He has
previously worked at 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 and was promoted in 1987 to President and
Chief Executive Officer of Pepsi-Cola, Canada. In 1989, he was appointed
Director and Chief Operating Officer of Lion Nathan Limited, a brewery group
listed on the New Zealand Stock Exchange. He is a Director of the New Zealand
Rugby Football Union and a Senior Fellow of the University of Waikato.
Bob Seelert. Mr. Seelert has been a Director of the Company since September 1997
and became Chairman with effect from January 1, 1999. He joined Cordiant as
Chief Executive Officer in July 1995 and was appointed to the Board of Directors
in August 1995. He served as Chief Executive Officer from the Demerger until
January 1999. 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.
Wendy Smyth. Mrs. Smyth has been Director of Corporate Affairs with effect from
January 1, 1999. She was Finance Director from September 1997 until January
1999. 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 Communications 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, Dawson International plc, and Vides
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, from 1990 to 1995. He is
currently a director of Footstar, Inc., Charming Shoppes Inc. and Welgen Inc.
Sir Peter Walters. Sir Peter Walters has been a Director of the Company since
September 1997. He is Chairman of SmithKline Beecham 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, Chairman of
the Trustees 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 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.
Candice Carpenter. Ms. Carpenter was appointed a non-executive director of the
Company on May 2, 2000. She is the co-founder and CEO of ivillage.com. Prior to
that, she was President of Q2, the upscale QVC, Inc. shopping channel and from
1989 to 1993 was President of the Time Life Video and Television division within
Time Warner.
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 subsequently
once every three years is 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 did not have three fully independent non-executive Directors. In
most other respects the Company has complied with the requirements of the
principles set out in Section 1 of the Combined Code annexed to the Listing
Rules of the London Stock Exchange.
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 gives full consideration to the principles set
out in Section 1 of the Combined Code 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.
<TABLE>
<CAPTION>
DIRECTORS INTERESTS
DATE OF APPOINTMENT BENEFICIALLY OWNED ORDINARY EQUITY
ORDINARY SHARES SHARE OPTIONS PARTICIPATION RIGHTS
<S> <C> <C> <C> <C>
Bill Cochrane Sep 3, 1997 36,121 216,854 909,090
Ian Irvine May 1, 1998 0 0 0
Ken Olshan Jan 1, 1998 11,400 0 0
Kevin Roberts Sep 3, 1997 0 454,687 1,090,909
Bob Seelert* Sep 3, 1997 178,098 219,849 1,090,909
Wendy Smyth Sep 3, 1997 5,083 654,532 545,454
Sir Peter Walters Sep 3, 1997 6,770 0 0
</TABLE>
_____________________
* In addition, Mr. Seelert has 1,527,363 phantom share options. On January 4,
2000 Bob Seelert exercised 787.131 of the phantom share options leaving
740,232 phantom share options.
The Directors' interests in the Company's share capital have changed since
December 31, 1999. In March 2000, Ken Olshan and Sir Peter Walters purchased
shares in the Company; they now have 14,525 and 8,543 interests in shares of the
Company respectively. In March 2000, Wendy Smyth exercised 219,537 share options
and now has 434,995 share options outstanding.
None of the Directors at any time during the period ended December 31, 1999
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, 1999 or subsequent to December 31, 1999 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 1999, the aggregate amount of compensation paid or accrued for all
Directors and Executive Officers as a group (10 persons) who served the Company
was L3,432,000. Such compensation was primarily in the form of salaries and fees
and included L489,000 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 for the year ended
December 31, 1999.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------------------------------------------
Salary Retirement
or fees and bonus Benefits contributions Total
L000 L000 L000 L000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Executive Directors:
Bob Seelert 247 29 77 353
Bill Cochrane 316 18 3 337
Kevin Roberts 894 54 358 1,306
Wendy Smyth 212 18 21 251
Non-executive Directors:
Ian Irvine 46 -- -- 46
Kenneth Olshan 42 -- -- 42
Sir Peter Walters 46 -- -- 46
Executive Officers as a group 493 528 30 1,051
----- --- --- -----
Total 2,296 647 489 3,432
===== === === =====
</TABLE>
Details of the service agreements for the Directors of the Company are set
out below.
Bob Seelert
From the time of the Demerger until January 1, 1999, Mr. Seelert was
employed under a service agreement with the Company and Saatchi & Saatchi
Compton Worldwide Inc. dated September 30, 1997 as Chief Executive Officer of
Saatchi & Saatchi plc.
With effect from January 1, 1999, Mr. Seelert entered into a new service
agreement with the Company and Saatchi & Saatchi Compton Worldwide, Inc. to be
chairman of Saatchi & Saatchi plc. His salary was reduced from $750,000 to
$400,000, and he did not receive a bonus.
Mr. Seelert's 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 and benefits, including
pension contributions. Under the new service agreement, Mr. Seelert will work
not less than 122 days a year.
Under the 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 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 and
benefits.
Mr. Seelert is entitled to certain other benefits in kind, including the
provision of a fully expensed automobile, medical, disability and life insurance
and travel allowances.
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, in each case every three months.
Interest accrues on these notional contributions at 8 percent per annum.
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 was employed as Finance Director under a service agreement with
the Company dated September 30, 1997. With effect from January 1, 1999, Mrs.
Smyth entered into a new service agreement with the Company as Director of
Corporate Affairs.
Mrs. Smyth is contracted to work for four days each week and her salary is
L145,000 per annum. 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 two years' 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 1999, the annual bonus was
a percentage of salary based on revenue and earnings of the Company.
In addition, Mrs. Smyth is entitled to certain other benefits in kind,
including the provision of an automobile allowance, medical, disability and life
insurance.
Mrs. Smyth is also a member of the Cordiant Group Pension Scheme. The
amount of the decrease in pension during the year was L1,266 p.a., the
accumulated total amount as of December 31, 1999 in respect of the accrued
benefit being L45,786 p.a. and the transfer value (less contributions by Mrs.
Smyth of L7,250) of the relevant decrease in accrued benefit was a reduction of
L10,001.
Kevin Roberts
Mr. Roberts was employed as Chief Executive Officer of S&S under a service
agreement made in April 1997 with Saatchi & Saatchi North America, Inc. With
effect from January 1, 1999, Mr. Roberts is separately employed by Saatchi &
Saatchi North America, Inc. ("SSNA") and by the Company for his time spent in
the US and UK, respectively. Elsewhere his services to the Group are provided by
Red Rose Limited. These agreements may be terminated on 12 months' notice by
either party, provided that, if there is a change of control and his employment
is terminated without notice within two years of the change, other than for
cause, death or disability, he is entitled to two years gross salary, target
bonuses of 70% of gross salary and benefits which include pension contributions.
His salary during the year was increased from $700,000 to $800,000.
Mr. Roberts is entitled to participate in annual discretionary bonus
arrangements calculated by reference to revenue growth and margin targets of the
Company which are determined each year by the Remuneration Committee. For 1999
his annual bonus was a percentage of salary based on the revenue and earnings of
the Group.
In addition, Mr. 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 $538,804. 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 SSNA
(other than for cause).
Bill Cochrane
With effect from January 1, 1999, Mr. Cochrane has entered into a new
contract with SSNA and is the Group Finance Director. His salary is $350,000 per
annum.
Mr. Cochrane's service agreement provides that he may terminate his
employment on 12 months' notice to SSNA. If SSNA 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.
For 1999, Mr. Cochrane's annual bonus was based on the revenue and earnings
of the Group. 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 five equal
annual installments that began on January 2, 1998, have been incorporated into
his service agreement. Mr. Cochrane is also a member of the SSNA 401k plan, and
$4,800 was contributed on his behalf in 1999.
If Mr. Cochrane ceases to be in full-time employment with SSNA 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 SSNA on an exclusive basis during such
period.
Non-Executive Directors
Sir Peter Walters
Sir Peter Walters was appointed as a non-executive Director of the Company
for a term lasting three years from the effective date of the Demerger under a
letter of appointment dated September 15, 1997. He is paid a fixed annual fee of
L42,500 together with an annual fee of L7,500 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
Mr. 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
Mr. 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.
Candice Carpenter
Ms. Carpenter was appointed as a non-executive Director of the Company with
effect from May 2, 2000 under a letter of appointment dated May 2, 2000, 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 Benefit Plans
In the UK, Saatchi & Saatchi Group companies participate in the Cordiant
Group Pension Scheme, a UK defined benefit plan, and the Cordiant Group Money
Purchase Pension Plan, a defined contribution scheme, both of which are operated
by CCG. Employees of the Company have continued their membership in both schemes
during the year pursuant to Inland Revenue approval.
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.
Employee Share Schemes
The Company has two 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 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, are eligible to participate in the Equity Participation
Plan.
Thirty-five employees and Directors currently participate in the EPP and
cash payments of L1,717,083 have been received, which, if maximum performance
targets are to be met, would give rise to an issue of 11,843,862 Ordinary
shares. Further awards will not be made.
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 adjusted EPS figure used for that year is 6.74p,
calculated on the basis of the pro forma "headline earnings" using the Institute
of Investment Management and Research guidelines (although the Trustee has 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 apply for participants who received 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 provision:
(a) 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 apply for participants who received 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 of the
Demerger 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.
Sixty-three employees currently participate in the Performance Share Option
Scheme and waive remuneration over a three-year period of L891,400 and, if
maximum performance targets are met, this would give rise to an issue of
7,809,220 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 150 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 provision:
(a) 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 of the Demerger
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 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 is 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.
(f) Shareforce
The Company has in place an international Save As You Earn scheme called
Shareforce. There have been two grants. Any employee who chose to participate in
Shareforce opened an account with an independent savings institution and agreed
to save an amount between L5 and L250 per month, or equivalent amount in local
currency, for a period of three years.
The shares that will be used to satisfy the options are existing shares
purchased in the market by a Jersey-based employee benefit trust established by
the Company in 1998.
The following chart shows as of June 20, 2000 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:
<TABLE>
<S> <C> <C> <C>
Number of Purchase Expiration Date
Option Scheme Ordinary shares Price of Options
------------- --------------- ----- ----------
Demerger Executive
(No. 2 Scheme) 439,980 108 p to 135 p June 2001-
April 2002
Demerger 4,067,228 73 p to 132 p May 2002-
Performance Share Dec. 2004
Option Scheme
Performance Share 7,002,552 110 p to Dec. 2004-
Option Scheme 214p August 2006
Sharesave 1995 466,301 64 p Dec. 2000
Shareforce 4,081,085 88 p to Dec. 2001-
194p May 2002
</TABLE>
As at June 20, 2000, there are awards over 11,363,862 shares under the
Equity Participation Plan which are exercisable between December 2000 and March
2006.
As of June 20, 2000, 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*
---- --------------------------
Bill Cochrane 1,125,944
Kevin J. Roberts 1,545,596
Bob Seelert 1,310,758
Wendy Smyth 980,449
Executive Officers as a group 596,600
* Includes 909,090, 1,090,909, 1,090,909, 545,454, and 100,000 respectively,
attributable to options under the Equity Participation Plan for Bill
Cochrane, Kevin Roberts, Bob Seelert, Wendy Smyth, and the Executive
Officers as a group respectively. These amounts represent the maximum
number of Ordinary shares subject to such options.
The table below describes the various share options awarded to the
Directors of the Company as of June 20, 2000.
<TABLE>
<CAPTION>
Executive Directors' Share Options
Scheme Date of Exercise Subscription Total exercise Exercise Period
grant Price per number of shares price
Share
<S> <C> <C> <C> <C> <C> <C>
Bob Seelert Demerger Performance Aug 1995 95p 219,849 208,857 to Dec 2004
Phantom Options** Apr 1996 130p 240,538 312,699 to Dec 2004
Phantom Options** Apr 1997 132p 499,694 659,596 Apr 2000-Dec 2004
_________ _________
Total 960,081 1,181,152
Wendy Smyth 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 to 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 132p 75,000 99,000 Apr 2002-Dec 2004
_______ _______
Total 434,995 503,396
Bill Cochrane Demerger Performance May 1995 73p 33,427 24,402 to May 2004
Demerger Performance Aug 1995 95p 33,427 31,756 to Dec. 2004
Demerger Performance Apr 1996 130p 37,500 48,750 to Dec. 2004
Demerger Performance* Apr 1996 130p 37,500 48,750 Apr 2001-Apr 2003
Demerger Performance Apr 1997 132p 37,500 49,500 Apr 2000-Dec. 2004
Demerger Performance* Apr 1997 132p 37,500 49,500 Apr 2002-Dec. 2004
_______ _______
Total 216,854 252,658
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
</TABLE>
___________________________________________________________
All exercise prices for the share option schemes have been rounded to the
nearest pence.
* Denotes Super Options
** Denotes phantom options which track real options, paying cash rather than
converting into shares.
<PAGE>
<TABLE>
<CAPTION>
Directors' Equity Participation Plan Grants
Scheme Date of Maximum Number Contribution Vesting Period
grant of Shares paid L
<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, Changes in Security for Registered Securities
and Use of Proceeds.
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-57 herein are
hereby incorporated by reference into this Item 18.
(a) Independent Auditor's Report dated March 8, 2000.
(b) Consolidated statements of operations of the Company and subsidiaries
for years ended December 31, 1999, 1998 and 1997.
(c) Consolidated balance sheets of the Company and subsidiaries as of
December 31, 1999 and 1998.
(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, 1999, 1998
and 1997.
Item 19. Financial Statements and Exhibits.
(a) Financial Statements
(1) Consolidated statements of operations of the Company and
subsidiaries for years ended December 31, 1999, 1998 and 1997.
(Pages F-2 and F-3)
(2) Consolidated balance sheets of the Company and subsidiaries as of
December 31, 1999 and 1998. (Pages F-4 and 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,
1999, 1998 and 1997 (Pages F-6, F-7, F-8, F-9 and F-10)
(b) Exhibits
2.1 Upon the request of the Securities and Exchange Commission, the
Company hereby agrees to provide a list of subsidiaries of the
Company.
3.1 Transaction Agreement between Publicis S.A. and Saatchi & Saatchi PLC.
4.1 Consent of Independent Auditor.
<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 30, 2000
<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, 1999 and 1998, and the related
consolidated statements of operations, total recognized gains and losses, cash
flows and shareholders' deficiency for each of the years in the three year
period ended December 31, 1999. 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( with the exception of note 39), the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Saatchi & Saatchi plc and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the years in the three year period ended December 31, 1999, 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, 1999 and shareholders' deficiency at
December 31, 1999 and 1998 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
March 8, 2000
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
Notes 1999 1998 1997
----- ---- ---- ----
(Restated) (Restated)
---------- ----------
L million L million L million
<S> <C> <C> <C> <C>
Turnover
Group and share of joint ventures 2,638.7 2,606.9 2,469.6
Less: share of joint venture (680.3) (716.0) (490.9)
------- ------- -------
Group turnover 1,958.4 1,890.9 1,978.7
======= ======= =======
Commission and fee income
Ongoing businesses and share of joint ventures 432.4 384.0 397.7
Disposed businesses 10.4 33.3 1.5
Less: share of joint venture (42.1) (37.2) (21.0)
----- ----- -----
Group revenue 400.7 380.1 378.2
Operating and administrative expenses 4/5 (351.8) (334.7) (333.6)
Depreciation and amortization (14.3) (14.0) (14.9)
----- ----- -----
Group operating profit 34.6 31.4 29.7
Share of operating profit in joint ventures 5.5 3.6 0.9
Profit on disposal of businesses 3/5 0.2 6.1 4.3
---- ---- ----
Profit before interest and tax 40.3 41.1 34.9
Exceptional demerger reorganization item 5 - - 764.5
---- ---- -----
40.3 41.1 799.4
Net interest (payable) receivable and similar items
Net dividends from CCG companies prior to the demerger - - 10.4
Joint ventures 0.9 0.3 1.1
Imputed interest (1.8) (2.0) (2.2)
Other 7 (3.1) (4.6) (14.5)
----- ----- -----
Profit before taxation 36.3 34.8 794.2
Tax charge on profit 8 (11.3) (9.7) (8.2)
----- ----- -----
Profit after taxation 25.0 25.1 786.0
Minority interests (1.5) (1.5) (0.6)
----- ----- -----
Net income 23.5 23.6 785.4
Paid and proposed dividend (3.5) (3.1) (2.7)
----- ----- -----
Retained profit 20.0 20.5 782.7
---- ---- -----
<PAGE>
<CAPTION>
Year ended December 31,
----------------------------------
Notes 1999 1998 1997
----- ---- ---- ----
(Restated) (Restated)
--------- ----------
L million L million L million
Earnings per Ordinary share 9
Basic 10.7p 10.6p 353.9p
Diluted 10.2p 10.5p 352.7p
</TABLE>
All of the above figures relate to continuing operations.
The consolidated statements of operations have been restated following the
adoption of FRS 12.
The net interest, taxation and earnings per share for the year ended December
31, 1997 was significantly affected by the financing and taxation profile of the
Cordiant Group. In addition, operating profit in the year ended December 31,
1997 does not reflect the current trading arrangements with Zenith. Accordingly,
the amounts of those items included for 1997 are not representative of those
which arise following the Demerger.
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,
-----------------------------------
1999 1998
---- ----
Notes (Restated)
----------
L million L million
--------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term deposits 51.0 30.8
Short-term investments
Shares - listed overseas 11 0.6 0.2
Accounts and other receivables,
prepayments and accrued income 12/13 262.6 238.9
Billable production 13 19.1 18.3
----- -----
Total current assets 333.3 288.2
----- -----
Investments:
Treasury stock 6.8 5.6
Other 5.9 7.0
---- ----
14 12.7 12.6
---- ----
Long-term receivables:
Accounts and other receivables, prepayments
and accrued income 12 7.6 4.5
Intangible assets net of amortization - goodwill 15 6.8 5.8
Properties, furniture, equipment and
motor vehicles 16 75.9 77.3
----- -----
Total assets 436.3 388.4
===== =====
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Bank loans and overdrafts 17 17.9 4.1
Accounts payable, other liabilities and
accrued expenses 18 338.9 313.1
Taxation and social security 17.6 12.7
----- -----
Total current liabilities 374.4 329.9
----- -----
</TABLE>
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
---- ----
Notes (Restated)
----------
L million L million
--------- ---------
<S> <C> <C> <C>
Long-term liabilities:
Accounts payable, other liabilities and
accrued expenses 18 22.7 25.0
Investment in joint venture: 19
Share of gross assets (82.2) (77.4)
Share of gross liabilities 95.3 91.1
---- ----
13.1 13.7
---- ----
Property, pension and other provisions 20 37.7 41.7
Long-term debt 21 40.5 47.5
Taxation and social security 21.7 24.2
Minority interests 4.5 3.5
----- -----
Total long-term liabilities 140.2 155.6
----- -----
Total liabilities 514.6 485.5
----- -----
Shareholders' deficiency
Share capital
Allotted, called up and fully paid:
224,356,523 Ordinary shares of 10p each
(1998: 222,946,716 - Ordinary shares of 10p each)
22.4 22.3
Share premium 105.2 103.9
Shares to be issued 1.8 1.6
Accumulated deficit (207.7) (224.9)
------ ------
Shareholders' deficiency (78.3) (97.1)
------ ------
Total liabilities and shareholders' deficiency 436.3 388.4
===== =====
</TABLE>
The consolidated balance sheet at December 31, 1998 has been restated following
the adoption of FRS12. See "Consolidated Statements of Shareholder' Deficiency
and Other Share Capital".
See accompanying notes to consolidated financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
AND OTHER SHARE CAPITAL
Years ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Accumu-
lated Total
Share Share Shares to Merger Goodwill earnings shareholders'
Capital premium be issued reserves reserves (deficit) deficiency
------- ------- --------- -------- -------- --------- -------------
L million L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C> <C>
At January 1, 1997 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 - - - 124.9 - - 124.9
net of expenses
Elimination of goodwill - - - - 0.2 - 0.2
reserves on disposals
Translation adjustment - - - - - (10.6) (10.6)
At December 31, 1997 22.2 102.7 - - (121.1) (141.1) (137.3)
Prior year adjustment* - - - 121.1 (121.1) -
----------- ------------ ------------ ----------- ----------- ----------- ----------------
As restated 22.2 102.7 - - (262.2) (137.3)
Issues of Ordinary shares
net of expenses 0.1 1.2 - - - 1.3
Shares to be issued - - 1.6 - - 1.6
Reversal of imputed
employment charge - - - - 3.9 3.9
Elimination of goodwill
reserves on disposals - - - - 0.6 0.6
Profit for the year - - - - 25.0 25.0
Proposed dividend - - - - (3.1) (3.1)
Translation adjustment - - - - 0.2 0.2
----------- ------------ ------------ ----------- ----------- ----------- ----------------
At December 31, 1998 22.3 103.9 1.6 - (235.6) (107.8)
Prior year adjustment** - - - - 10.7 10.7
----------- ------------ ------------ ----------- ----------- ----------- ----------------
As restated 22.3 103.9 1.6 - (224.9) (97.1)
Issues of Ordinary shares
net of expenses 0.1 1.3 - - - 1.4
Shares to be issued - - 0.2 - - 0.2
Reversal of imputed
employment charge - - - - 3.8 3.8
Profit for the year - - - - 23.5 23.5
Dividends paid and proposed
- - - - (3.5) (3.5)
Translation adjustment - - - - (6.6) (6.6)
----------- ------------ ------------ ----------- ----------- ----------- ----------------
At December 31, 1999 22.4 105.2 1.8 - (207.7) (78.3)
</TABLE>
*Following the adoption of FRS10, a prior year adjustment has been made to
transfer the goodwill written-off to the profit and loss account.
** Following the adoption of FRS 12, a prior period adjustment has been made to
recognise the effect of net present valuing future long term liabilities.
The accumulated earnings deficit includes L120.5 million (1998: L120.5 million)
of goodwill written-off against reserves.
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,
--------------------------------------------------------------
1999 1998 1997
---- ---- ----
(Restated) (Restated)
---------- ----------
L million L million L million
<S> <C> <C> <C>
Profit for the year 23.5 23.6 785.4
Translation adjustment (6.6) 0.2 (10.6)
---- ---- ------
Total gains recognized for the year 16.9 23.8 774.8
==== =====
Prior year adjustment arising from the adoption of
FRS 12 10.7
----
Total recognised gains and losses since last
annual report 27.6
====
</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 1999 1998 1997
----- ---- ---- ----
L million L million L million
<S> <C> <C> <C> <C>
Net cash inflow from operating activities 28 32.7 38.7 52.5
Dividends received from joint ventures and
associates 4.2 - -
Returns on investments and servicing of finance
Interest received 2.0 2.3 2.1
Interest paid and similar charges (4.7) (7.1) (18.1)
Dividends paid to minorities (1.0) (0.1) (0.2)
----- ----- ------
Net cash outflow from returns on investments
and servicing of finance (3.7) (4.9) (16.2)
----- ----- ------
Taxation
UK tax paid (1.0) (0.7) -
Overseas tax paid (3.6) (3.8) (3.8)
----- ----- ------
Net tax paid (4.6) (4.5) (3.8)
----- ----- ------
Capital expenditure and financial investment
Purchase of tangible fixed assets (11.3) (11.9) (12.0)
Proceeds from sale of tangible fixed assets - 0.2 -
Purchase of treasury stock by ESOP Trust (1.9) (4.9) -
Purchase of other fixed asset investments - (0.1) (3.7)
Proceeds from sale of other fixed asset
investments 0.6 -
----- ----- ------
Net cash outflow from capital expenditure and (13.2) (16.1) (15.7)
----- ----- ------
financial investment
Acquisitions and disposals
Purchase of subsidiary undertakings 31 - (7.0) (7.9)
Cash acquired with subsidiaries 31 1.4 - -
Proceeds from sale of subsidiary undertakings 31 - 20.3 0.1
Cash in disposed subsidiary undertaking - (1.2) -
Demerging CCG/Zenith companies (0.4) (0.9) 169.3
----- ----- ------
Net cash inflow (outflow) from acquisitions and
disposals 1.0 11.2 161.5
----- ----- ------
Dividends
Equity dividends paid (4.4) (2.7) -
----- ----- ------
Net cash inflow before use of liquid resources and
financing 12.0 21.7 178.3
Management of liquid resources
Disposal of current asset investments - - 17.1
----- ----- ------
Cash inflow before financing 12.0 21.7 195.4
----- ----- ------
Financing
Issued and to be issued share capital 1.6 2.9 -
(Reduction)/increase in facilities utilized (7.1) (33.7) 0.2
Loans repaid to CCG/Zenith - - (1,068.6)
Loans drawn from CCG/Zenith - - 864.2
Capital element of finance lease rental payments
(0.2) (0.1) (0.1)
----- ----- ------
Net cash outflow from financing (5.7) (30.9) (204.3)
----- ----- ------
Increase (decrease) in cash 29 6.3 (9.2) (8.9)
=== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SAATCHI & SAATCHI PLC
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Preparation
The accounts are prepared in accordance with applicable accounting standards and
on the historical cost basis. During the year the Group has adopted the new
accounting standards: FRS12 - "Provisions, Contingent Liabilities and Current
Assets", and FRS13 - "Derivatives and other Financial Instruments: Disclosures".
The consolidated financial statements for 1999 incorporate the financial
statements of Saatchi & Saatchi plc and all its subsidiary undertakings and
joint ventures made up to December 31, 1999.
The consolidated financial statements for 1997 were prepared on the following
basis:
In accordance with an agreement dated December 14, 1997 providing for the
demerger of the Saatchi & Saatchi group, Cordiant plc transferred its share in
its wholly owned subsidiary Saatchi & Saatchi Holdings Limited to Saatchi &
Saatchi plc. 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, credited as fully paid, for each Ordinary share in Cordiant plc.
The consolidated financial statements comprise the financial statements of the
Company and its subsidiary undertakings (collectively the Group). The
consolidated financial statements were prepared using merger accounting
principles as if the companies, businesses and assets comprising the Group had
been part of the Group for the whole of 1997, or, in the case of those
companies, business and assets disposed of or acquired by Cordiant plc during
this period up to or from the date control passed, as appropriate. This basis of
accounting was adopted in order to show a true and fair view.
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 FRS6 - "Acquisitions and Mergers" required 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 considered that applying 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 have failed 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 business
both before and after 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 was not practicable to quantify the effect of this departure.
Note 2 - Principal Accounting Policies
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) 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.
(b) Revenue
Revenue represents the fees and commissions, excluding sales taxes, from
services provided to clients, and is recognized generally when work is billed.
The two largest clients of the Group accounted for 32.9% of Group revenue in
1999 (1998: 31.1%; 1997: 27.5%).
(c) Property Provisions
Provision is made at net present value for the future rent expense and related
costs of leasehold property (net of estimated sublease income) where the
property is sublet or vacant and currently not planned to be used for continuing
operations.
(d) 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 profits 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.
(e) 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 profit and loss account 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
profit and loss account on a straight-line basis over the life of the lease.
(f) Goodwill
Purchased goodwill arising on acquisitions after January 1, 1998 including any
additional goodwill estimated to arise from future consideration, is capitalized
and amortized in the statement of operations over the estimated useful life of
not more than twenty years.
Prior to January 1, 1998 goodwill in respect of acquisitions was written off
directly to reserves.
A charge is recognized in the Group's statement of operations in respect of any
impairment in the value of acquisition goodwill. Goodwill written off directly
to reserves and not previously charged to the Group's statement of operations is
included in determining the profit or loss on disposal.
(g) Tangible fixed assets
Tangible fixed assets are stated at historical costs 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
Short leasehold properties Period of lease
Furniture and equipment Between 4 and 10 years
Motor vehicles 4 years
(h) Investments
Except as stated below, fixed asset investments are shown at cost, less amounts
provided for any permanent diminution in value.
The Group's share of the profits less losses of associated undertakings,
including joint ventures, is included in the statement of operations and the
Group's share of the investment is shown in the consolidated balance sheet. The
Group's share of the profits less losses and net assets or liabilities is based
on current information produced by the undertakings, adjusted to conform with
the accounting policies of the Group.
(i) Billable Production
Billable production is valued at the lower of cost and net realizable value, and
comprises mainly outlays incurred on behalf of clients.
(j) 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.
(k) Deferred Taxation
Deferred taxation is provided at 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.
No provision is made for deferred tax on unremitted overseas earnings unless the
Company expects them to be remitted.
(l) Discounting
Where provisions have been made relating to future cash outflows, the time value
of money has been recognised by discounting the future payments to net present
values. The unwinding of the discount is shown as imputed interest in the
financial items of the Profit & Loss Account.
(m) Foreign Currencies
Statements of operations and cash flow statements in foreign currencies are
translated into sterling at the average rates during the year, with the year end
adjustment to closing rates being taken to reserves. Assets and liabilities in
foreign currencies are translated using the rates of exchange ruling at the
balance sheet date. Gains and losses on retranslation of the opening net assets
of overseas subsidiaries are taken to shareholders' deficiency. Exchange
differences arising from the retranslation 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.
The Groups 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,
----------------------- -------------
1999 1998 1997 1999 1998
<S> <C> <C> <C> <C> <C>
Australian Dollar 2.51 2.64 2.21 2.46 2.71
French Franc 9.89 9.76 9.55 10.55 9.29
German Mark 2.95 2.91 2.84 3.15 2.77
Italian Lira 2,911 2,877 2,790 3,125 2,743
New Zealand Dollar 3.05 3.09 2.48 3.09 3.15
US Dollar 1.62 1.66 1.64 1.61 1.66
</TABLE>
Note 3 - Acquisitions, Disposals and Deferred Capital Payments
Where applicable in this Note translations from foreign currencies are made at
the rates at which the transactions were concluded.
Acquisitions
Effective 1 January 1999 the Group acquired a majority stake in Nazca Holdings,
Inc. (a Puerto Rican company). Nazca Holdings Inc. held investments in Brazil,
Mexico, Puerto Rico and Venezuela. The Group's interest increased to 75% of the
Nazca group of companies in return for funding up to a maximum of US $7.0
million. This transaction was accounted for as an acquisition and no material
adjustments were made upon consummation.
During 1998 the Group acquired the business and assets of GMG Marketing
Services, a US based co-marketing company for an initial consideration of L3.1
million and further deferred consideration due of L1.5 million in 2001,
dependent on performance.
In addition, the Group increased its shareholding to 80% in Sista Saatchi &
Saatchi Advertising PVT Limited, a company based in India for a cash payment of
L1.1 million.
Further the Group acquired 51% of the share capital of Dialog-Team Fienhold
Agentur fur Dialog-Marketing GmbH, a company based in Germany for a cash payment
of L0.2 million.
Goodwill arising on the 1998 acquisitions amounted to L6.0 million of which L0.7
million and L0.2 million was charged to the statement of operations in 1999 and
1998, respectively.
Disposals
In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a
consideration of US$4.6 million (L2.8 million) which resulted in a profit on
disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of a partial release of a provision upon the
subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8 million.
In 1998 the Group disposed of its interest in Siegel & Gale for US$33.8 million
(L20.3 million) which resulted in a profit on disposal of L8.6 million. The
closure and divestiture of businesses in Germany, Ireland, Norway and Spain,
together with the reduction of shareholding in South Africa, resulted in a loss
of L2.5 million.
The 1997 profit on disposal of businesses arose from the profit on sale of the
IPG stock, issued to Saatchi & Saatchi, following the acquisition of Draft
Direct (formerly Kobs & Draft Worldwide) by IPG in 1996.
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. Effective June 30, 1998 the Group acquired certain
assets and liabilities comprising GMG Co-Marketing. In accordance with FRS 10, a
provision was made at December 31, 1998 in respect of future anticipated
payments dependant upon GMG's performance through June 2002. During the 1999
review of the acquisition, management determined that a L1.5 million revision to
the provisional estimate of deferred compensation be made. Commitments totaling
Lnil and L1.5 million at December 31, 1999 and 1998, respectively, in respect of
deferred consideration relating to the acquisition of GMG Marketing Services
were accrued in the Group balance sheet.
Note 4 - Operating and Administrative Expenses
Operating and administrative expenses from continuing operations included the
following:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
---------- --------- ---------
L million L million L million
<S> <C> <C> <C>
Staff and other associated costs (including
exceptional items) see Notes 5 and 6 218.9 212.0 201.4
Hire of plant and machinery - operating leases
see Note 27) 1.0 0.9 1.1
Hire of other assets - leasehold property net of
sublease income (see Note 27) 21.4 21.3 22.1
Profit on sale of tangible fixed assets (0.2) (0.2) -
Auditor's remuneration, including expenses 1.1 1.2 1.0
Auditor's remuneration, other than audit fees 0.2 0.2 0.1
Other administrative expenses, (including exceptional
items) - see Note 5 109.4 99.3 107.9
----- ----- -----
351.8 334.7 333.6
===== ===== =====
</TABLE>
Note 5 - Exceptional Non-Operating Items
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
L million L million L million
<S> <C> <C> <C>
Fundamental reorganization - demerger - - 764.5
Profit on disposal of businesses including goodwill 0.2 6.1 4.3
--- --- -----
Total profit outside operating profit 0.2 6.1 768.8
=== === =====
</TABLE>
In 1999 the Group disposed of its interest in Cliff Freeman & Partners for a
consideration of US$4.6 million (L2.8 million) which resulted in a profit on
disposal of L1.0 million. The closure and divestiture of businesses in Japan,
Belgium and the Czech Republic, net of the partial release of a provision upon
the subletting of the Siegel & Gale UK offices, resulted in a loss of L0.8
million.
In 1998 the Group disposed of its interest in Siegel & Gale for US$33.8 million
(L20.3 million) which resulted in a profit on disposal of L8.6 million. The
closure and divestiture of businesses in Germany, Ireland, Norway and Spain,
together with the reduction of shareholding in South Africa, resulted in a loss
of L2.5 million.
In order to implement the Demerger in 1997, 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 1997 profit on disposal of businesses arose from the profit on sale of the
IPG stock, issued to Saatchi & Saatchi, following the acquisition of Draft
Direct by IPG in 1996.
Note 6 - Employees
<TABLE>
Year ended December 31,
----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average number of employees of the Company by
geographic area:
North America 1,842 1,847 1,870
United Kingdom 782 812 855
Continental Europe, Africa & Middle East 1,119 1,368 1,428
Latin America 235 - -
Asia Pacific 1,311 1,179 1,103
----- ----- -----
Average number of employees 5,289 5,206 5,256
===== ===== =====
L million L million L million
Salaries and related costs
Wages and salaries 190.6 185.1 178.5
Social security costs 18.0 15.7 15.8
Pension costs 6.5 7.3 7.1
Equity Participation Plan Charge 3.8 3.9 -
----- ----- -----
218.9 212.0 201.4
===== ===== =====
</TABLE>
Note 7 - Net Interest (Payable) Receivable and Similar Items
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1999 1998 1997
---- ---- ----
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 (4.3) (6.2) (8.6)
Bank fees (0.8) (0.7) (2.2)
----- ----- -----
(5.1) (6.9) (10.8)
Interest receivable and similar items
Cash and deposits 2.0 2.3 2.3
Foreign Exchange - - 1.4
Net interest payable to CCG and Zenith - - (7.4)
----- ----- ------
(3.1) (4.6) (14.5)
===== ===== ======
</TABLE>
The above finance charge for the year ended December 31, 1997 were not
representative of the charges that are 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>
Note 8 - Taxes on Income
Taxes on income were made up as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1999 1998 1997
---- ---- ----
L million L million L million
(Restated)
<S> <C> <C> <C>
UK corporation tax at 30.25% (1998: 31.0%;
1997: 31.5%):
Currently payable 0.1 1.9 0.8
Deferred - - 0.2
Relief for overseas tax (0.2) (0.3) (0.4)
----- ----- -----
(0.1) 1.6 0.6
Overseas taxation:
Currently payable 9.1 7.3 6.9
Deferred 0.2 (0.5) 0.1
Share of tax charge of associated
undertakings 2.1 1.3 0.6
----- ----- -----
11.3 9.7 8.2
===== ===== =====
</TABLE>
There was no tax effect of the operating and non-operating exceptional items in
1999 (1998: Lnil; 1997: Lnil).
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 in the year ended December 31, 1997 is not
representative of the taxation charge that will be incurred by the Saatchi &
Saatchi Group following the Demerger.
Profit/(loss) before taxation is analyzed as follows:
Year ended December 31,
----------------------------------------------
1999 1998 1997
-------- -------- -------
(Restated) (Restated)
-------- ---------- ----------
L million L million L million
United Kingdom* 12.4 10.5 842.1
Overseas 23.9 24.3 (43.7)
---- ---- ------
36.3 34.8 794.4
==== ==== =====
* After payment of interest of L0.4 million (1998: L0.7 million payment;
1997: L1.1 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, 1999 Saatchi & Saatchi had L301 million of operating loss
carryforwards expiring between 2000 and 2011. Additionally, Saatchi & Saatchi
had L7 million of operating loss carryforwards which had no expiration date. It
is possible that all or part of the operating loss carryforwards expiring
between 2000 and 2011 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.
Note 9 - Earnings Per Ordinary Share
Basic earnings per share have been calculated using earnings of L23.5 million
(1998 restated: L23.6 million; 1997: L785.4 million) and weighted average shares
in issue of 219.7 million shares (1998: 221.9 million shares; 1997: 221.9
million shares). The number of shares in issue has been reduced, for both basic
and diluted earnings calculations, by the weighted average number of the shares
acquired by the Sharesave Trust which has substantially waived its rights to
dividends on these shares. Diluted earnings per share have been calculated using
the same earnings on a weighted average of 230.3 million shares (1998: 224.1
million shares; 1997: 222.7 million shares). This takes into account the
exercise of share options issued to Group employees and employees of Zenith, and
contingently issuable shares to the extent that conditions have been met, which
may be issued to Group employees and employees of Zenith, where these are
expected to dilute earnings.
The earnings per share for 1997 are based on the Directors' estimated weighted
average number of shares which would have been in issue for that year after
taking into account the share consolidation and assuming that the Company had at
all relevant times prior to the Demerger the same number of issued Ordinary
shares as Cordiant.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------
1999 1998 1997
(Restated) (Restated)
------------------------ ------------------------ -----------------------
pence per share pence per share pence per share
L million L million L million
<S> <C> <C> <C> <C> <C> <C>
Earnings 23.5 10.7 23.6 10.6 785.4 353.9
Profit on disposal of (0.2) (0.1) (6.1) (2.7)
----- ----- ----- -----
businesses
Adjusted earnings 23.3 10.6 17.5 7.9
==== ==== ==== ===
</TABLE>
In the opinion of the Directors the additional earnings per share information
given above assists in understanding the performance of the Group.
Owing to the impact of interest and taxation on profit for the year ended
December 31, 1997, which is not representative of the charges incurred by the
Saatchi & Saatchi Group following the Demerger, earnings per share in the year
ended December 31, 1997 is not indicative of earnings per share following the
Demerger.
Note 10 - Dividend
The Board has recommended a final dividend of 1.0p per Ordinary share (1998:
1.4p; 1997: 1.2p) at a cost of L2.2 million. The final dividend was paid on May
19, 2000 to shareholders on the register at April 14, 2000. There was an interim
dividend of 0.6p declared and paid in 1999 (1998: nil; 1997: nil) at a cost of
L1.3 million (1998: nil; 1997: nil).
Note 11 - Short-term Investments
Short-term investments comprised overseas listed investments of L0.6 million
(1998: L0.2 million) with an aggregate market value of L1.0 million (1998: L0.2
million).
Note 12 - Accounts and Other Receivables, Prepayments and Accrued Income
December 31,
1999 1998
---- ----
L million L million
DUE WITHIN ONE YEAR
Trade receivables 232.5 206.8
Other receivables 11.0 9.8
Prepayments and accrued income 17.7 19.4
Amounts due from joint venture 1.4 2.9
--- ------
262.6 238.9
===== =====
DUE AFTER ONE YEAR
Other receivables 6.0 2.6
Prepayments and accrued income 1.6 1.9
--- ---
7.6 4.5
=== ===
Total prepayments and accrued income at December 31, 1999 amounted to L19.3
million (1998: L21.3 million).
Note 13 - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning of costs and end of
Description period expenses Deductions* period
----------- ------ -------- ---------- ------
L million L million L million L million
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts
(deducted from accounts receivable) 8.0 1.1 - 9.1
Allowance for non-recoverable
billable production (deducted from
billable production) 2.0 0.3 - 2.3
Year ended December 31, 1998:
Allowance for doubtful accounts
(deducted from accounts receivable) 7.3 0.7 - 8.0
Allowance for non-recoverable
billable production (deducted from
billable production) 2.0 - - 2.0
*Substantially represents amounts utilized against non-recoverable billable
production and bad debts arising during the periods.
</TABLE>
Note 14 - Investments
<TABLE>
<CAPTION>
Associated Long term Works Treasury Investments
undertakings investments of art stock in joint Total
L million L million L million L million venture L million L million
<S> <C> <C> <C> <C> <C> <C>
Cost
At January 1, 1998 2.2 0.8 3.6 - 0.2 6.8
Translation adjustment - 0.1 - - - 0.1
Additions 0.1 - - 5.6 - 5.7
Transfers - 3.4 - - - 3.4
Disposals - - (0.6) - - (0.6)
---------------- ----------------- ---------------- ----------------- ---------------- -----------------
At December 31, 1998 2.3 4.3 3.0 5.6 0.2 15.4
Translation adjustment 0.1 (0.4) - - - (0.3)
Additions - 0.5 - 1.2 - 1.7
Transfers (2.3) (0.6) - - - (2.9)
Disposals - (0.6) (0.3) - - (0.9)
---------------- ----------------- ---------------- ----------------- ---------------- -----------------
At December 31, 1999 0.1 3.2 2.7 6.8 0.2 13.0
================ ================= ================ ================= ================ =================
Provisions
At January 1, 1998 2.3 0.5 - - - 2.8
---------------- ----------------- ---------------- ----------------- ---------------- -----------------
At December 31, 1998 2.3 0.5 - - - 2.8
Translation adjustment - 0.1 - - - 0.1
Amounts written back (2.3) (0.3) - - - (2.6)
---------------- ----------------- ---------------- ----------------- ---------------- -----------------
At December 31, 1999 - 0.3 - - - 0.3
================ ================= ================ ================= ================ =================
Net book value - 3.8 3.0 5.6 0.2 12.6
At December 31, 1998
================ ================= ================ ================= ================ =================
At December 31, 1999 0.1 2.9 2.7 6.8 0.2 12.7
================ ================= ================ ================= ================ =================
</TABLE>
Long term investments at December 31, 1999 include L0.1 million (1998: L0.3
million) of overseas listed investments with a market value of L0.2 million
(1998: L0.4 million).
At December 31, 1999, the Sharesave Trust had 4,500,000 Ordinary shares of
Saatchi & Saatchi plc (1998: 4,000,000) with a market value of L16.8 million
(1998: L5.5 million).
Note 15 - Intangible assets - Goodwill
L million
Cost
At January 1, 1998 -
Additions 6.0
-----------------
At December 31, 1998 6.0
Translation adjustment 0.1
Additions 3.2
Re-evaluation (1.6)
-----------------
At December 31, 1999 7.7
=================
Amortization
At January 1, 1998 -
Charge for the year 0.2
-----------------
At December 31, 1998 0.2
Charge for the year 0.7
-----------------
At December 31, 1999 0.9
=================
Net book value
At December 31, 1998 5.8
=================
At December 31, 1999 6.8
=================
Note 16 - 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, 1998 9.8 1.4 73.8 95.8 3.5 184.3
Translation adjustment 0.7 - (0.2) (0.2) - 0.3
Additions 0.1 - 2.1 9.4 0.3 11.9
Disposals - - (2.4) (8.4) (1.1) (11.9)
---- --- ---- --- --- -----
At December 31, 1998 10.6 1.4 73.3 96.6 2.7 184.6
Translation adjustment (1.3) - 1.4 0.5 - 0.6
Additions 0.1 0.1 4.2 9.1 0.6 14.1
Disposals - - (2.4) (6.1) (1.7) (10.2)
---- --- ---- --- --- -----
At December 31, 1999 9.4 1.5 76.5 100.1 1.6 189.1
==== === ==== ===== === =====
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, 1998 2.7 0.3 24.0 70.5 2.4 99.9
Translation adjustment 0.2 - - - - 0.2
Charge for the year 0.2 0.1 3.9 9.1 0.5 13.8
Disposals - - (0.5) (5.2) (0.9) (6.6)
---- --- ---- ---- ---- -----
At December 31, 1998 3.1 0.4 27.4 74.4 2.0 107.3
Translation adjustment (0.4) - 0.4 0.3 - 0.3
Charge for the year 0.2 0.1 4.3 8.7 0.3 13.6
Disposals - - (1.3) (5.3) (1.4) (8.0)
---- --- ---- ---- ---- -----
At December 31, 1999 2.9 0.5 30.8 78.1 0.9 113.2
==== === ==== ==== === =====
Net book value
At December 31, 1998 7.5 1.0 45.9 22.2 0.7 77.3
==== === ==== ==== === =====
At December 31, 1999 6.5 1.0 45.7 22.0 0.7 75.9
==== === ==== ==== === =====
Net book value of assets
held under finance leases
included above
At December 31, 1998 - - - 0.2 - 0.2
==== === ==== ==== === =====
At December 31, 1999 - - - 0.1 - 0.1
==== === ==== ==== === =====
</TABLE>
Net book value of land and buildings at December 31, 1999 was L53.2 million
(1998: L54.4 million).
Depreciation attributable to owned fixed assets was L13.3 million (1998: L13.5
million; 1997: L14.7 million) depreciation attributable to assets held under
finance leases was L0.3 million (1998: L0.3 million; 1997: L0.2 million).
The Group had the following commitments in respect of capital expenditure on
properties, furniture and equipment:
December 31
1999 1998
---- ----
L million L million
Committed but not provided for - 0.5
Note 17 - Bank Loans and Overdrafts
Balance at end Weighted average interest rate
of period on interest bearing debt
--------- ------------------------
Year ended December 31, 1999
-----------------------------------------
L million %
Bank loans and overdrafts 17.9 6.6
==== ===
Balance at end Weighted average interest rate
of period on interest bearing debt
--------- ------------------------
Year ended December 31, 1998
-----------------------------------------
L million %
Bank loans and overdrafts 4.1 7.1
=== ===
An amount of L5.5 million (1998: L6.8 million) included in bank loans and
overdrafts is secured by liens over assets.
NOTE 18 - Accounts Payable, Other Liabilities and Accrued Expenses
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
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 240.8 - 202.3 -
Finance leases 0.3 - 0.1 -
Amounts owed to joint venture 2.4 - 3.6 -
Proposed dividend 2.2 - 3.1 -
Other payables 93.2 22.7 104.0 25.0
---- ---- ----- ----
338.9 22.7 313.1 25.0
===== ==== ===== ====
</TABLE>
An amount of L0.6 million (1998: L0.1 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 totalled L1.5
million at 31 December 1999 and 1998 of which L nil and L1.5 million have been
accrued in the respective balance sheets. The estimated total payments are set
out in Note 3.
Note 19 - 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,
--------------------------------------
1999 1998
L million L million
------------------ ----------------
Share of assets
Share of fixed assets 1.6 1.6
Share of current assets 80.6 75.3
------------------ ----------------
82.2 76.9
------------------ ----------------
Share of Liabilities
Liabilities due within one year (95.2) (90.5)
Liabilities due after one year (0.1) (0.1)
(95.3) (90.6)
------------------ ----------------
Total share of net liabilities (13.1) (13.7)
------------------ ----------------
A subsidiary of Saatchi & Saatchi plc holds 50% of the ordinary share capital of
Zenith Media Holdings Ltd., a media planning and buying group. The remaining 50%
is held by CCG. Up to 75% of the distributable profits of Zenith are 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
is retained in Zenith.
Note 20 - Property, Pension and Other Provisions
<TABLE>
<CAPTION>
Pensions and
Property similar employment Total
(Restated) obligations Other (Restated)
L million L million L million L million
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
At January 1, 1998 58.7 15.3 0.9 74.9
Translation adjustment (0.4) - 0.1 (0.3)
Transfers (6.8) (12.0) - (18.8)
Charge to expense 1.0 2.0 0.6 3.7
Utilized (7.2) (0.2) (0.4) (7.8)
FRS 12 restatement (9.9) - - (9.9)
---- ---- --- ----
At December 31, 1998 35.4 5.1 1.2 41.7
Translation adjustment 1.2 (0.5) (0.1) 0.6
Transfers to creditors - (0.5) - (0.5)
Charge to expense (0.1) 1.1 0.5 1.5
Unwinding of imputed interest
1.8 - - 1.8
Utilized (6.1) (0.7) (0.6) (7.4)
---- ---- --- ----
At December 31, 1999 32.2 4.5 1.0 37.7
==== ==== === ====
</TABLE>
Analysis of leasehold property provision by years
December 31,
----------------------------------------
1999 1998
(Restated)
----------
L million L million
Gross Payable
Under one year 3.9 4.8
One to two years 3.3 3.6
Two to five years 11.4 11.5
Over five years 21.7 25.4
---- ----
40.3 45.3
Less: Imputed interest (8.1) (9.9)
---- ----
32.2 35.4
==== ====
Note 21 - Long-Term Debt
Long term debt consisted of bank loans of L40.5 million at December 31, 1999
(1998: L47.5 million). Of the L40.5 million, L5.5 million includes bank loans
secured by charges over assets and L35.6 million (1998: L30.7 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, 1999 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, 1999 was L0.8 million (1998: L1.2 million).
At December 31, 1999 the Group had committed core banking facilities totaling
US$137.5 million (L85.4 million), of which L35.6 million were being utilized.
The core banking facility will be reduced in accordance with following schedule:
--------------------------------------------------------------------------------
2000 2001 2002
$20.0 m $25.0 m 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 financial ratios of the Company.
Note 22 - Guarantees and Contingent Liabilities
Guarantees given by Saatchi & Saatchi to third parties other than CCG or Zenith
amounted to L0.1 million (1998: L0.1 million).
In addition to those guarantees identified in Note 21 and the paragraph above,
the Company has guaranteed L0.4 million of outstanding borrowings of subsidiary
undertakings. At 31 December, 1999, a total L36.1 million of borrowings
guaranteed by the Company were outstanding.
The Company has jointly and severally with CCG provided unlimited guarantees to
the lenders, in respect of Zenith's L18.5 million bank facility. 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 guaranteed all of the obligations of Cordiant Property
Holdings Limited, a member of CCG, as tenant under certain leases of
premises at Lansdowne 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
five years thereafter. This property is not currently occupied by any CCG
company. All 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 $10.8 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. 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
$35.0 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.
Note 23- Deferred Taxation
December 31,
-----------------------------------------
1999 1998
L million L million
Overseas deferred taxation liability (2.2) (1.8)
===== =====
There were no material deferred tax liabilities at December 31, 1999 (1998: nil)
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 L31.1 million at December 31, 1999 (1998: L35.2
million).
Under US GAAP temporary differences at the appropriate tax rate are as follows:
Assets (Liabilities)
------------------------------------------
Year Ended December 31,
------------------------------------------
1999 1998
---- ----
DEFERRED TAX ASSETS L million L million
Accrued property rental expense 23.7 22.4
Accrued compensation 6.6 10.6
Capital loss carryforwards 4.5 4.5
Operating loss carryforwards 132.5 136.4
Interest disallowed under Section
163(j) of the IRC 15.5 19.1
Difference in basis of intangible
assets - 1.5
Other 4.9 4.7
--- -------
Total deferred tax assets 187.7 199.2
Valuation allowance (178.5) (190.6)
------- -----
Net deferred tax assets 9.2 8.6
--- ---
DEFERRED TAX LIABILITIES
Accelerated depreciation on
tangible assets (7.7) (8.1)
Differences in basis of intangible
assets (1.3) -
Other (2.8) (2.3)
----- ---
Total deferred tax liability (11.8) (10.4)
------ --------
Net deferred tax liability (2.6) (1.8)
======= =======
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 change in the valuation allowance for deferred tax assets in the period
to December 31, 1999 amounted to L12.1 million (1998: L11.6 million).
Note 24 - 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.
Note 25 - Share Schemes
Employee share schemes
Cordiant had three executive schemes in existence prior to the Demerger.
Participants who 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,
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.
Prior to the Demerger, Cordiant had adopted a Save As You Earn Scheme, Sharesave
1995, for UK employees, which 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. With effect from 1 December, 1999, the
original options under Sharesave 1995 became exercisable for a period of six
months. Parallel options are exercisable in the period July-December 2000.
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")
35 employees currently participate in the EPP and cash payments of L1,717,083
have been received by the Company, which, if maximum performance targets are
met, would give rise to an issue of 11,843,862 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 after four years.
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")
63 employees currently participate in the PSOS and are sacrificing remuneration
of L891,400 over a three year period which, if maximum performance targets are
met, would give rise to an issue of 7,809,220 shares. 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 after four years.
Shareforce
The Company has in place an international Save As You Earn scheme called
Shareforce. There have been two grants. Any employee who chose to participate in
Shareforce opened an account with an independent savings institution and agreed
to save an amount between L5 and L250 per month, or equivalent amount in local
currency, for a period of three years.
The shares that will be used to satisfy these options are existing shares
purchased in the market by a Jersey-based employee benefit trust established by
the Company in 1998.
The number of Saatchi & Saatchi shares issuable under equity participation
rights or options outstanding are as follows:
<TABLE>
<CAPTION>
SAYE
and
Executive Shareforce
Equity Schemes Schemes
Participation Ordinary Ordinary
Rights Shares Shares
--------------- ------------------ ------------
<S> <C> <C> <C>
At January 1, 1998 11,876,362 15,305,285 938,530
Options issued during the year 467,500 274,220 3,135,938
Options exercised during the year (10) (988,571) (31,142)
Options lapsed during the year (639,990) (558,002) (136,522)
--------------- ------------------ ------------
At December 31, 1998 11,703,862 14,032,932 3,906,804
--------------- ------------------ ------------
Options issued during the year 700,000 1,155,000 1,259,390
Options exercised during the year (10) (1,373,299) (48,561)
Options lapsed during the year (559,990) (1,001,087) (632,470)
--------------- ------------------ ------------
At December 31, 1999 11,843,862 12,813,546 4,485,163
--------------- ------------------ ------------
</TABLE>
Options outstanding at December 31, 1999 under the Company's share option
schemes are shown below:
<TABLE>
<CAPTION>
Original date Number of Exercise Exercisable Exercisable
Scheme of grant shares price from to
---------------- -------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Demerger Executive Jun 1991 469,573 135p Dec 1997 Jun 2001
Scheme (No. 2) Apr 1992 147,502 107p Dec 1997 Apr 2002
Apr 1992* 77,523 107p Dec 1997 Apr 2002
---------------------------- ---------------- -------------- -------------- ---------------- -----------
Demerger May 1995 142,388 73p May 1998 Dec 2004
Performance May 1995* 177,423 73p May 2000 May 2002
Share Option Aug 1995 402,733 95p Aug 1998 Dec 2004
Scheme Aug 1995* 67,497 95p Aug 2000 Aug 2002
Apr 1996 413,750 130p Apr 1999 Dec 2004
Apr 1996* 728,750 130p Apr 2001 Apr 2003
Apr 1997 1,002,500 132p Apr 2000 Dec 2004
Apr 1997* 920,000 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 631,863 64p Jul 2000 Dec 2000
---------------------------- ---------------- --------------- ----------- ----------------- -----------
Performance Share Option
Scheme Dec 1997 6,490,000 110p Dec 2000 Dec 2004
May 1998 274,220 177p May 2001 May 2005
Mar 1999 220,000 190p Mar 2002 Mar 2006
Aug 1999 825,000 214p Aug 2002 Aug 2006
---------------------------- ---------------- --------------- ----------- ----------------- -----------
Shareforce Oct 1998 2,594,924 90p Dec 2001 May 2002
Oct 1998 22,007 88p Dec 2001 May 2002
Oct 1999 1,225,420 179p Dec 2002 May 2003
Oct 1999 10,949 194p Dec 2002 May 2003
---------------------------- ---------------- --------------- ----------- ----------------- -----------
</TABLE>
The options marked * are super options.
The performance targets for options under the Executive Demerger Schemes are as
follows:
For ordinary options under the No. 2 Scheme 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. 2 Scheme 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.
As at December 31, 1999, there are awards over 11,843,862 shares under the
Equity Participation Plan which are exercisable between December 2000 and March
2006.
Shareforce
In countries where it was not possible to grant a share option, 419,111 share
appreciation rights were granted whereby upon exercise each participant will
receive a cash amount instead of shares. There were 419,111 share appreciation
rights outstanding as at December 31, 1999.
Zenith Share scheme
The Company and CCG agreed an incentive scheme on Demerger 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 profit before tax over a three year period.
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. In 1999, 30,823 options lapsed and in April 1999 a further 61,646 options
over Saatchi & Saatchi shares were granted at a price of 215.5p.
Note 26 - Post Retirement Benefits
Group employees are members of a number of pension schemes throughout the world,
principally in the UK and the US. Group employees have continued to participate
in the Cordiant 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,
--------------------------------------------- -----------------------------------------------------
1999 1998 1997
L million L million L million
-------------------------------------------- ---------------- --------------- --------------
<S> <C> <C> <C>
Defined benefit schemes 0.7 0.6 0.5
Defined contribution schemes 5.8 6.7 6.6
--------------------------------------------- ---------------- --------------- -- --------------
6.5 7.3 7.1
--------------------------------------------- ---------------- --------------- -- --------------
</TABLE>
Saatchi & Saatchi 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.
UK US (since closed)
Date of last actuarial valuation April 1, 1999 January 1, 1996
Market value of investments L37 million L24.4 million
Level of funding 91.2% 101%
Valuation method Attained age Projected unit credit
Main assumptions:
Investment return 8.0% 6.0%
Salary increases per annum 6.0% 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.
Note 27 - Leases
The Company leases certain properties and equipment under operating leases.
Minimum payments for operating leases, before provisions for vacant property
(see Note 20), having initial or remaining noncancellable terms in excess of one
year are as follows:
Sublease
Years Ending Minimum Rental Net
December 31, Payments Income Payments
--------- ------ ---------
L million L million L million
2000 27.1 5.9 21.2
2001 25.4 5.8 19.6
2002 23.6 5.5 18.1
2003 25.2 4.3 20.9
Thereafter 180.0 8.6 171.4
----- --- -----
Total minimum lease payments 281.3 30.1 251.2
===== ==== =====
Total expense for all operating leases was:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1999 1998 1997
L million L million L million
<S> <C> <C> <C>
Total operating lease expense 30.6 28.3 29.9
Sublease rental income (8.2) (5.8) (6.7)
---- ---- ----
Net property operating lease expense 22.4 22.5 23.2
==== ==== ====
</TABLE>
Note 28 - Reconciliation of Operating Profit to Operating Cash Flow
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------
1999 1998 1997
L million L million L million
<S> <C> <C> <C>
Operating profit 34.6 31.4 29.7
Depreciation and amortization
14.3 14.0 14.9
Profit on sale of tangible fixed
assets (0.2) (0.2) -
Net movement in working capital
(9.9) 0.7 19.7
Utilization of property provisions
(6.1) (7.2) (11.8)
Net cash inflow to operating
activities 32.7 38.7 52.5
==== ==== ====
</TABLE>
Note 29 - Reconciliation of Net Cash Flow to Movements in Net Debt
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1999 1998 1997
L million L million L million
<S> <C> <C> <C>
Decrease in cash in the period (6.3) (9.2) (8.9)
Cash (outflow)/inflow from decrease/ (increase) in
debt and lease financing 6.9 33.8 (0.1)
---- ---- -----
Change in net debt resulting from cash flow 13.2 24.6 (9.0)
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)
---- ---- --------
Movement in net debt in the period 13.2 24.6 1,050.2
Net debt at beginning of period (20.9) (45.5) (1,095.7)
---- ----- ---------
Net debt at end of period (7.7) (20.9) (45.5)
===== ====== =======
Note 30 - Analysis of Net Debt
</TABLE>
<TABLE>
<CAPTION>
Exchange and
At January 1, non-cash At December
1999 Cash flow Demerger movements 31, 1999
L million L million L million L million L million
<S> <C> <C> <C> <C> <C>
Year to December 31, 1998
Cash at Bank and in hand 30.8 20.2 - - 51.0
Bank overdrafts (3.3) (13.9) - - (17.2)
External debt less than one year (0.8) 0.1 - - (0.7)
External debt greater than one (47.5) 7.0 - - (40.5)
year
Finance leases (0.1) (0.2) - - (0.3)
Net amounts due from CCG and - - - - -
Zenith ------ ---- -- -- -------
Total (20.9) 13.2 - - (7.7)
====== ==== == == =======
Exchange and
At January 1, non-cash At December
1998 Cash flow Demerger movements 31, 1998
L million L million L million L million L million
Year to December 31, 1998
Cash at Bank and in hand 57.5 (26.7) - - 30.8
Bank overdrafts (20.8) 17.5 - - (3.3)
External debt less than one year (0.6) (0.2) - - (0.8)
External debt greater than one (81.4) 33.9 - - (47.5)
year
Finance leases (0.2) 0.1 - - (0.1)
- -
Net amounts due from CCG and - - - - -
Zenith ----- ---- -- -- -----
Total (45.5) 24.6 - - (20.9)
====== ==== == == =======
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
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)
========= ===== ===== ===== =======
</TABLE>
Note 31 - Purchase and Sale of Subsidiary Undertakings
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1999 1998 1997
L million L million L million
<S> <C> <C> <C>
Net assets acquired
Tangible fixed assets 2.3 0.3 -
Debtors 27.0 - 0.1
Cash at bank and in hand 1.4 - -
Investment 0.5 - -
Creditors relieved - 2.2 8.0
---- --- ---
31.2 2.5 8.1
Goodwill 3.2 6.0 (0.2)
---- --- ----
34.4 8.5 7.9
==== === ====
Satisfied by
Cash 7.0 7.9
Deferred consideration 1.5 -
Liabilities assumed 34.4 - -
34.4 8.5 7.9
Net assets disposed of
Tangible fixed assets 1.3 5.3 -
Investments - (0.1) 12.5
Work in progress - 0.4 -
Debtors - 12.8 0.2
Cash at bank and in hand - 1.2 -
Creditors (1.7) (6.0) 0.2
Provisions for liabilities and charges 0.2 1.0 -
---- --- ----
(0.2) 14.6 12.9
Goodwill - 0.7 -
Profit on disposal 0.2 6.1 4.3
Minority interest - (0.3) -
---- --- ----
- 21.1 17.2
==== === ====
Satisfied by
Cash 20.3 17.2
Deferred consideration - 0.8 -
---- --- ----
- 21.1 17.2
==== === ====
</TABLE>
The above assets and liabilities were acquired without any need to make fair
value adjustment.
The acquisitions and disposals are described in Note 3.
Note 32 - Operations by Geographic Area
<TABLE> Continental
<CAPTION> Europe,
Africa &
United North & Middle Asia Latin Disposed
Kingdom America East Pacific America Subtotal Businesses Total
L million L million L million L million L million L million L million L million
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Commission and fee income 57.5 192.4 71.2 51.2 18.0 390.3 10.4 400.7
Trading and operating profit 7.0 26.6 2.2 0.1 (0.4) 35.5 (0.9) 34.6
Total assets employed -
Net assets (liabilities) 23.6 (48.9) 3.0 (29.2) (2.2) (53.7) - (53.7)
Depreciation expense 3.1 6.3 1.7 2.0 0.5 13.6 - 13.6
Additions to properties, 2.7 4.8 1.7 2.5 2.4 14.1 - 14.1
furniture, etc.
Year ended December 31, 1998
Commission and fee income 58.2 170.3 70.5 47.8 - 346.8 33.3 380.1
Trading and operating profit 7.6 20.6 2.8 (2.7) - 28.3 3.1 31.4
Total assets employed 69.0 176.8 85.3 57.3 - 388.4 - 388.4
Net assets (liabilities) 27.6 (60.1) (5.3) (31.9) - (69.7) - (69.7)
Depreciation expense 3.4 6.7 2.0 1.7 - 13.8 - 13.8
Additions to properties, 3.0 4.6 2.1 2.2 - 11.9 - 11.9
furniture, etc.
Year ended December 31, 1997
Commission and fee income 59.4 162.3 72.4 52.2 - 346.3 31.9 378.2
Trading and operating profit 5.7 19.2 5.4 (1.0) - 29.3 (0.4) 29.7
Total assets employed 73.7 192.5 84.5 78.8 - 429.5 - 429.5
Net assets (liabilities) 44.1 (59.8) (19.0) (40.6) - (75.3) - (75.3)
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.
</TABLE>
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 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
1999, 1998 and 1997 two clients each accounted for more than 5% of the Group's
revenue. At December 31, 1999, the account receivable from one customer
represented 10.2% of the Group's total accounts receivable. With this exception,
no customer accounted for more than 10% of total accounts receivable in 1999 or
1998.
Operating profit in 1997 is stated after deducting net Cordiant Group corporate
costs attributable to the Saatchi & Saatchi Group in 1997 of L6.6 million. Net
corporate costs have been allocated to the Saatchi & Saatchi Group, CCG and
Zenith pro rata with the revenues of these groups.
Note 33 - Transactions with Related Parties
Net charges in the ordinary course of business with the joint venture, Zenith,
for media and production services together with other charges, amounted to L16.0
million for the year ended December 31, 1999 (1998: L14.9 million; 1997: L13.6
million). Balances with the joint venture are disclosed in notes 12 and 18
above, all of which are of a current nature. During 1999, the Group recharged
Zenith L0.6 million (1998: L0.6 million) for costs incurred on its behalf.
Prior to the Demerger in 1997, Saatchi & Saatchi 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 Saatchi & Saatchi.
Cordiant's net corporate costs for 1997 as allocated to Saatchi & Saatchi are
included in the analysis of profits as set out in note 32 above. Inter-company
interest charged to the Saatchi & Saatchi Group by CCG and Zenith is set out in
note 7 above.
Note 34 - Financial Instruments
The Group finances its operations through earnings, bank borrowings and
management of working capital. The setting of policy for managing these monetary
assets and liabilities is the responsibility of the Board of Directors and the
Group's Treasury Department executes these policy decisions. It is, and has
always been, the Group's policy that no trading in financial instruments shall
be undertaken. Any financial instruments used have been acquired solely for
mitigating or eliminating currency or interest rate risks.
The following numerical disclosures relate to the Group's financial assets and
financial liabilities and exclude short-term debtors and creditors, which arise
directly from the Group's operations (apart from the currency disclosure) as
permitted by FRS 13.
The Group is primarily exposed to exchange rate movements to the extent of
profits earned outside the UK. In order to provide a partial hedge against these
exposure investments, the Group's borrowings are predominately denominated in
foreign currencies. The most significant of these is the USA where, at December
31, 1999, L28.6 million of core borrowings were denominated in US dollars partly
offsetting US dollar profits.
Currency Risk
The Group has monetary assets and liabilities that arise in the currencies of
the countries where the Company is represented. Generally, these amounts are
used for local working capital purposes. However, there are times when temporary
excess cash available locally is lent on a short-term basis to another Group
company. Where this does occur, the Group always buys the currencies forward to
extinguish any exchange exposure. Where cash is lent upstream on a longer-term
basis, the currencies are always hedged, eliminating any exchange exposure at
the parent level.
Where long-term funding of certain operations is done by way of downstream
loans, these are not hedged as they are considered to be permanent financing.
Any gains or losses are recognised through the Consolidated Statement of Total
Recognised Gains and Losses.
At the balance sheet date forward contracts outstanding in various currencies
totalled a notional value of L41.2 million, the fair values of which were not
materially different from the contracted amounts. Further, there were no foreign
currency monetary assets and liabilities that produced exchange differences in
the profit and loss account.
After taking into account the hedging activities described above, the group has
no material currency transaction exposure.
Interest Rate Risk
The interest charges on the core bank borrowings drawn in both US dollars and
sterling are based on LIBOR plus a percentage (see Note [21). When the related
borrowing line was originally secured in December 1997, the Group entered into
two interest rate caps at a total cost of less than L0.1 million. The caps are
amortised on a straight-line basis over their respective periods. At 31 December
1999, a single cap covering US $20 million at a rate of 7.5% was still in force.
This expires in December 2000 and is of negligible value. It is not the
intention of the Group to renew the cap when it matures.
The Group also has a mortgage in France, denominated in French francs, with a
sterling equivalent value at 31 December 1999 of L5.5 million that is secured on
the freehold property there. Throughout 1999 the mortgage was at a fixed rate of
interest of 5.14% pa. This matured in February 2000. Currently, the interest on
the mortgage is based on floating rate as the Group intends to repay the
mortgage during the first half of 2000.
Other bank loans of note are in Canada and Puerto Rico both of which are used
for working capital purposes and are repayable on demand. The Puerto Rican loan
interest is based on LIBOR plus a percentage, while the Canadian loan interest
is based at the Canadian Prime lending rate plus a percentage.
At 31 December 1999, the currency profile of the Group's financial liabilities
was as follows:
<TABLE>
<CAPTION>
------------------------- ----------------------- ----------------------- -----------------------
Fixed rate financial Floating rate
Total liabilities financial liabilities
------------------------- ----------------------- ----------------------- -----------------------
L million L million L million
------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Currency
------------------------- ----------------------- ----------------------- -----------------------
Sterling 10.5 - 10.5
------------------------- ----------------------- ----------------------- -----------------------
US Dollar 40.9 0.3 40.6
------------------------- ----------------------- ----------------------- -----------------------
French Franc 5.5 5.5 -
------------------------- ----------------------- ----------------------- -----------------------
Others 1.8 - 1.8
------------------------- ----------------------- ----------------------- -----------------------
Total 58.7 5.8 52.9
------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
With the exception of the core bank borrowings, the maturity of which is set out
in Note 21, all financial liabilities fall due within one year. All the
financial assets at 31 December 1999 were available to the Group on demand or
overnight.
The Group considers that the book values attributed to the financial assets and
liabilities in the balance sheet at 31 December 1999 are not materially
different from the fair values, except where stated in Notes 11 and 14 in
respect of Fixed Asset Investments and Current Asset Investments, respectively.
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 France SA
-------------------------- -----------------------------------------------------
Germany Saatchi & Saatchi Werbeagentur GmbH
-------------------------- -----------------------------------------------------
Italy Saatchi & Saatchi SpA
-------------------------- -----------------------------------------------------
New Zealand Saatchi & Saatchi Ltd
-------------------------- -----------------------------------------------------
US
Klemtner Advertising, Inc.
Rowland Worldwide, Inc.
Saatchi & Saatchi North America, Inc.
-------------------------- -----------------------------------------------------
In the opinion of the Directors, these subsidiary and joint venture undertakings
principally affected 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 undertakings. A full list of subsidiary undertakings will be filed
with the Registrar of Companies.
Note 36 - 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 32 to the
statements.
Note 37 - 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, 1999. The statutory accounts for 1999 have been
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 38 - 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 and shareholders' deficiency
which would be required if US GAAP had been applied instead of UK GAAP as set
out below.
(a) 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. Under UK GAAP, purchased goodwill
arising after ascribing fair values to all tangible assets and
liabilities acquired after January 1, 1998 is capitalized and
amortized over appropriate periods not exceeding 20 years. Goodwill
arising on acquisitions prior to January 1, 1998, was 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 not
previously written off through the statement of operations. Under US
GAAP the gain or loss on disposal is calculated after taking account
of any related unamortized goodwill. A GAAP difference arises on the
disposal of entities acquired prior to January 1, 1998, being equal to
the difference between the full amount of goodwill written off to
reserves under UK GAAP and the amortization charged under US GAAP.
Under US and UK GAAP 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.
(b) 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.
(c) Long-term property provisions
Under US and UK 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. A difference arises in the rates of
discounts applied due to the different dates of adoption of the
relevant standards.
(d) 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.
(e) 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.
(f) Deferred taxation
UK GAAP requires provision for deferred taxation to be recorded only
to the extent that it is probable that an actual liability will
crystallise. US GAAP requires full provision of deferred taxation
liabilities and permits deferred tax assets to be recognised if their
realisation 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 carryforward position.
(g) Compensation Costs
Under UK GAAP the Company does not recognise any compensation for
certain performance based share options. Under US GAAP compensation
expense is recorded for all performance based share options over the
vesting period for the excess of the market price of the underlying
shares over the exercise price.
(h) Employee share schemes
The Company has adopted SFAS 123, Accounting for Stock-Based
Compensation, which permits entities to recognise 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 subsequent 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 from the date of grant only if the
current market price of the underlying stock exceeded the exercise
price (see note (g) above).
Under SFAS No. 123 the calculation of the option value is made using
an acceptable pricing model to include certain expected parameters.
If the compensation cost of the options has been determined based on
the fair value of the grant dates for 1999 and 1998 consistent with the
method prescribed by SFAS No. 123, the Company's US GAAP net profit and
earnings per share would have been adjusted to the revised amounts
indicated below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
(Restated)
<S> <C> <C> <C> <C>
-------------------------- -------------- --------------- ----------------- --------------
Net profit (loss) in - as reported (L24.3) L13.2 L8.5
L million
- revised (L24.9) L11.9 L8.2
Earnings (loss) per - as reported (11.1p) 6.0p 3.8p
share in pence
- revised (11.3p) 5.4p 3.8p
-------------------------- -------------- --------------- ----------------- --------------
</TABLE>
The revised amounts were determined based on employee share scheme awards in
1999, 1998, 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 on 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 72.3p, 57.9p
and 35.7p for options granted during the year ended December 31, 1999, 1998 and
1997, respectively. The fair values have been estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1999, 1998 and 1997 respectively; dividend yields of nil throughout,
expected volatility of 32% for options issued in 1999 and 30% for those issued
earlier, risk-free interest rates of 5.6%, 7.0% and 7.0% and expected lives of
between 3 1/2 and 6 1/2 years.
(i) Treasury stock owned by Employee Share Option Plan (ESOP)
Under UK GAAP, treasury stock purchased by the ESOP is recorded as a
fixed asset investment at cost less any amounts written off. Under US
GAAP, treasury stock is recorded at cost and deducted from
shareholders' equity.
(j) Cash flows
The Group Statement of Cash Flows 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, Saatchi & Saatchi 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 L41.5 million,
L48.4 million and L204.8 million in the years ended December 31, 1999,
1998 and 1997 respectively. The difference between the movement above
and the movement implied in note 29 is due entirely to foreign
exchange.
(k) Investment in joint ventures
Under UK GAAP, the Company separately identifies the joint ventures'
turnover, operating profit and interest on the face of the profit and
loss account and its share of the joint ventures' 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,
1998 1997
1999 (Restated) (Restated)
L million L million L million
------------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Share of income, net of tax,
in joint ventures 4.3 2.6 1.4
Profit on ordinary activities
before tax 34.2 33.5 793.6
Tax on profit on ordinary
activities 9.2 8.4 7.6
------------------------------- ------------------ ------------------- -------------------
</TABLE>
Summary financial information in respect of Zenith, presented in
accordance with UK GAAP, is set out below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------
Consolidated summary profit & loss 1999 1998 1997
account L million L million L million
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 57.0 49.1 41.9
Operating profit 8.4 4.9 1.5
Profit on ordinary activities
before tax 9.7 5.3 3.7
Profit for the period 6.5 3.5 2.5
------------------------------- ------------------ ------------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
CONSOLIDATED SUMMARY STATEMENT OF NET LIABILITIES 1999 1998
L million L million
------------------------------------------------------ ------------ ------------
<S> <C> <C>
Fixed assets 3.2 3.2
Current assets 161.2 150.7
Current liabilities (190.5) (180.9)
Other long term creditors and provisions - (0.2)
------------------------------------------------------ ------------- -------------
Net liabilities (26.1) (27.2)
------------------------------------------------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------- ------ ----------------------------------------------------------------
Effect on net earnings of differences between US 1999 1999 1998 1997
and UK GAAP $million* L million L million L million
Ref.: (Restated) (Restated)
-------------------------------------------------- ------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Profit for the year in conformity with UK GAAP
37.8 23.5 23.6 785.4
US GAAP adjustments
Amortization of goodwill and other intangibles (a) (6.1) (3.8) (6.1) (6.2)
in accordance with US purchase accounting
Straight lining of property leases (b) (0.2) (0.1) (0.1) (1.0)
Share option compensation (g) (68.9) (42.8)
Increase in long-term property provisions (c) - - - 7.5
Effect of discount rates on property provisions (c) (1.8) (1.1) (4.2) (4.5)
Fundamental reorganization - Demerger (e) - - - (764.5)
Net dividends received from CCG companies prior (d) - - - (10.4)
to the Demerger
-------------------------------------------------- ------ ------------- ------------- ------------- -------------
Net profit (loss) applicable to Ordinary (39.2) (24.3) 13.2 6.3
shareholders in conformity with US GAAP
-------------------------------------------------- ------ ------------- ------------- ------------- -------------
Net profit/(loss) applicable per Ordinary share ($0.18) (11.1p) 6.0p 2.8p
- basic
Average number of Ordinary shares (in millions) 219.7 219.7 221.9 221.9
Net profit/(loss) per Ordinary share - diluted - - 5.9p 2.8p
Average number of Ordinary shares - diluted (in - - 224.1 222.6
millions)
-------------------------------------------------- ------ ------------- ------------- ------------- -------------
December 31,
------------------------------------------------------------------------ ---- ------------------------------------------------
Cumulative effect on shareholders' deficiency of differences between 1999 1999 1998
US and UK GAAP $million* L million L million
(Restated)
------------------------------------------------------------------------ ---- -------------- ------------- -------------
<S> <C> <C> <C>
Equity shareholders' funds in conformity with UK GAAP (126.1) (78.3) (97.1)
US GAAP adjustments
Goodwill and US purchase accounting in respect of acquisitions and (a)
joint venture
Cost 278.7 173.1 173.1
Accumulated amortization (118.1) (73.4) (69.5)
Straight lining of property leases (b) (38.8) (24.1) (23.5)
Discount on property provisions (c) 10.6 6.6 7.1
Dividends (e) 3.5 2.2 3.1
Treasury stock owned by Employee Share Option Plan (h) (11.0) (6.8) (5.5)
------------------------------------------------------------------------ ---- -------------- ------------- -------------
Ordinary shareholders' deficiency in conformity with US GAAP (1.2) (0.7) (12.3)
------------------------------------------------------------------------ ---- -------------- ------------- -------------
</TABLE>
Comprehensive Income
Comprehensive income under US GAAP is defined as all changes in equity of a
business enterprise during a period, except investments by, and distributions to
equity owners. Accordingly, comprehensive income consists of net income and
other items that are reflected in stockholders' equity on the balance sheet and
have been excluded from the income statement. Such items of other comprehensive
income include foreign currency translation adjustments, and unrealised gains on
securities available for sale.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------ ---------------------------------------
1999 1999 1998
COMPREHENSIVE INCOME $ million* L million L million
(Restated)
------------------------------------------------ ---------- ----------- -----------
<S> <C> <C> <C>
Net profit (loss) in accordance with US GAAP (39.2) (24.3) 13.2
Translation differences (11.4) (7.1) 0.2
Holding gain on securities available for sale 0.6 0.4 0.1
------------------------------------------------ ---------- ----------- -----------
(50.0) (31.0) 13.5
------------------------------------------------ ---------- ----------- -----------
*These figures have been translated at the noon buying rate on December 31, 1999
(L1: $1.61) for convenience.
</TABLE>
(l) Prospective Accounting Pronouncement
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities," was
issued in June 1998. SFAS 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring recognition of those
instruments as assets and liabilities and to measure them at fair
value. While originally scheduled to be effective for us in the year
2000, a proposal to delay the implementation of the statement for one
year was approved. The Company has not completed its analysis of the
impact of this statement on the consolidated financial statements.
Note 39 - Subsequent Event (excluded from the scope of the Independent Auditor's
Report)
On June 20th, 2000, the Company and Publicis S.A. announced that they have
reached agreement on the terms of a proposed merger. The proposed merger terms
are as follows:
o 1.64 Publicis shares for every 100 Saatchi & Saatchi shares,
valuing each Saatchi & Saatchi share at 500p, subject to an
adjustment mechanism that is intended to maintain, subject to
certain limitations, the value of the Publicis shares to be
received by Saatachi & Saatchi shareholders in the event of
changes in the market price of the Publicis shares and/or the
exchange rate between the Euro and the pound sterling; and
o Saatchi & Saatchi shareholders will receive one Publicis CVR
(contingent value right) with each Publicis share.
The merger is to be effected by way of a scheme of arrangement of Saatchi &
Saatchi under section 425 of the Companies Act. Under the scheme of arrangement,
all of the issued Saatchi & Saatchi shares will be cancelled in consideration
for the issue to Saatchi & Saatchi shareholders of new Publicis shares and
Publicis CVR's, and Saatchi & Saatchi will become a wholly-owned subsidiary of
Publicis.
The scheme of arrangement (and matters incidental to it) will require approval
by a special resolution of Saatchi & Saatchi shareholders to be proposed at a
Saatchi & Saatchi extraordinary general meeting. The scheme of arrangement will
also require separate approval by Saatchi & Saatchi shareholders at a meeting to
be convened by direction of the High Court of Justice in England and Wales (the
"Court"). The approval required at the Court Meeting will be a majority in
number of the Saatchi & Saatchi shareholders who vote at the meeting, either in
person or by proxy, representing not less than 75% of the Saatchi & Saatchi
shares voted. The scheme of arrangement will also require the sanction of the
Court.
The scheme of arrangement will become effective upon delivery to the Registrar
of Companies in England and Wales of a copy of the order of the Court
sanctioning the scheme of arrangement and registration of such order.
The merger is expected to be completed by the middle of September, 2000.
EXHIBIT INDEX
2.1 Upon the request of the Securities and Exchange Commission, the Company
hereby agrees to provide a list of subsidiaries of the Company.
3.1 Transaction Agreement between Publicis S.A. and Saatchi & Saatchi PLC.
4.1 Consent of Independent Auditor.
