M&C Saatchi reveals strategy shift after revenues drop

M&C Saatchi, the listed holding company behind the eponymous ad agency, has outlined its future strategy after reporting a 2% drop in organic net revenue growth for the calendar year 2023.

Actual net revenues fell by 7% to £252.8 (US$ 320.4) million due to the impact of a number of disposals made in an effort to streamline the group and raise capital for redeployment. Pre-tax profits fell by 10% to £28.7 ((US$ 36.8) million.

The group’s executive chair Zillah Byng-Thorne said it was making good progress with its rationalisaiton and cost-reduction programme, and its next focus would be on “removing the internal barriers to growth that our historic approach had put in place to reflect the changing needs of our clients”.

This means a move to the integrated agency model that the company works on in Australia. “We have created a new integrated agency in the UK and we will see further integration as the year progresses.”

This process will be led by incoming group chief executive Zaid Al-Qassab, who Byng-Thorne hired earlier this year to replace the retiring Moray MacLennan. She said Al-Qassab, a veteran marketing leader, “brings a client perspective that will be critical to our customer-led growth journey”.

In future the group will focus on a particular kind of client, Byng-Thorne continued. “These are the regional champions that need the full suite of our capabilities but have yet to go fully global themselves.”

As a result the group plans to fill gaps in its “client-facing capabilities and regional coverage” through “selective M&A”. In March it agreed a new £50 (US$ 63.4) million bank facility with NatWest, HSBC and Barclays that allows it to borrow a further £50 (US$ 63.4) million for strategic acquisitions.

Advertising under pressure

The group’s historic specialism of advertising accounted for just 42% of revenues in 2023, down from 61% in 2020, although it cast this as a positive, stating: “This shift away from advertising continues to improve our overall operating margin mix, as these other specialisms have an average operating profit margin of 22%, compared to advertising with an operating profit margin of 8%.”

Its advertising business was hit by an 8% drop in like-for-like revenues between 2022 and 2023, which led the group to take “cost actions which reduced operating costs by 13% in 2023”.

Its media business was hit harder as technology clients reined in their spending, leading revenues to fall by 21% on a like-for-like basis.

However, its Issues business reported 22% growth in like-for-like revenues and its Passions business (which includes Sport & Entertainment) 10% growth in like-for-like revenues.

Second-half recovery and business sales

The group delivered a promised second-half improvement in its operating profit margin, to 16.7% from 12.2% in the same period last year.

This was partly due to an ongoing efficiency programme, which reduced central operating costs by £3.7 (US$ 4.7) million. As part of the savings push the company is looking to sub-let the sixth floor of its Golden Square headquarters in London.

In common with other agency groups, it has sought to simplify its offering in recent months by selling off non-core or loss-making assets and pushing through a restructure of some of its UK agencies that included the departure of its M&C Saatchi Sports & Entertainment chiefs.

Yesterday it announced it had agreed to sell M&C Saatchi South Africa Group, which comprises M&C Saatchi Abel, Connect, Levergy, Razor, Dalmatian and Black & White, to the existing local leadership teams for a total of £5.6 (US$ 7.1) million. It said it would continue to work with the South Africa business “as our trusted partners in the dynamic African markets”.

This disposal, according to group chief financial officer Bruce Marson, more or less materially completes the rationalisation of the group’s business portfolio that has been undertaken over the past year. Other disposals include businesses in France, Sweden and Indonesia.

Geographic split

The UK remained the group’s biggest region by revenues in 2023, with like-for-like revenues up 1% to £101.2 (US$ 128) million. APAC, the next largest, saw like-for-like revenues drop by 10% to £60.7 (US$ 77) million.

There was also an 8% drop in like-for-like revenues in the Americas, the third-biggest region with £46.9 (US$ 59.4) million. However, Africa, Europe and the Middle East all reported like-for-like growth.

The businesses the group disposed of or closed contributed £8.7 (US$ 11) million in net revenue and a loss before tax of £3.1 (US$ 3.9) million.