Moray MacLennan has admitted M&C Saatchi’s “takeover saga” has been a “distraction” and put some hiring “on ice” but he insisted 10% revenue and 50% profit growth in the first half of 2022 shows that the agency group can prosper as an independent.
MacLennan, the chief executive, has launched a global efficiency programme to continue his strategy of simplifying the business but said there were no job reduction targets and is sticking to his previous 2023 profit forecast.
“You have to prepare for a downturn but we’re not seeing it yet” in terms of client spend, he told Campaign.
The takeover battle began in January when Advanced AdvT launched an unwanted bid and then a rival suitor, Next 15, subsequently agreed a deal for M&C Saatchi–only for the board to withdraw its recommendation because Next 15’s share price fell on global uncertainty.
Advanced AdvT has not given up its pursuit and accelerated the timing of a vote by M&C Saatchi shareholders–with a new deadline of 30 September to accept the offer–despite the fact MacLennan and the board oppose it.
“There is light at the end of the tunnel. I am keen to get this resolved, hopefully resulting in independence,” MacLennan told Campaign, speaking ahead of news that Advanced AdvT was accelerating the vote.
Here is a transcript of the interview:
How do you rate the first six months of the year? The first words in your results statement are: “Strong first half performance”.
I’d upgrade that, speaking to Campaign, and say: an excellent first-half performance. When you see what you’ve achieved over the last two to three years and the circumstances under which we’ve been operating–from the board changes, from the (accounting) misstatements, through Covid, then this year completely dominated by this takeover saga process–we set record results in 2021 and we have just posted a 50% increase (in profits) for the first half of the year.
So, I think exceptional would be fair in terms of the headline profit performance of the business and the way people have performed here, because the takeover is a distraction. I like to think we’ve focused on the business largely but there are some things that you can’t do and decisions you really can’t make when you don’t know what the ownership of the company is going to be next month.
You talk about the takeover saga and being unable to make certain decisions. Is it the case that the preferred option for M&C Saatchi is to get on with staying as an independent company?
The board’s and my preferred outcome is that M&C Saatchi remains an independent company and we’ve made that clear to shareholders. I think that these results underline our strength going forward and should give our shareholders confidence in our ability to deliver for them for the future. (Staying independent is) our preferred outcome at the current values of the (two) offers (from Advanced and Next 15), which are just too low.
Have you thought about what you would do personally, if shareholders do accept the offer from Advanced?
I have given it a moment’s thought, but I will keep my future plans to myself.
What’s the impact of the takeover saga on talent? In your results, you talk generally about “increased talent costs and churn” as a key market dynamic. Is the takeover saga making it harder to recruit and retain?
On the retention front, I think we’re probably in line with the industry and loyalty at the senior end remains extremely strong. There are two ways a company goes in these circumstances–it either splinters and fragments or it unites. And we’ve united at the top end and that’s proven in the lack of any talent drain at the top of the company.
But we share the churn and the reconsideration of careers at other levels (seen across the wider agency sector). Having said that, I would say that issue [of churn] is beginning to recede and maybe that is allied to the economic downturn. Maybe it’s just the effects of Covid and the Great Reassessment (playing out over the last two years) and we’re coming out of that era, is my sense.
In terms of talent attraction, we’ve tried to focus on the business and we’ve driven through various changes (such as setting up a consultancy business) and there are others still to make and there are some you just can’t accelerate when the ownership is unclear. So, when it comes to attraction and hiring, there are certain things that I have put on ice until this is resolved and then we can accelerate various plans. It’s certainly been a hindrance in that respect.
You talk about launching a Global Efficiency Programme in the second half of 2022, including “de-duplication” and “centralisation”. If we translate this from investor speak, does this mean job reductions?
Job reductions is not why we are starting this. (The efficiency programme) was something we were going to instigate in January of this year. It’s not related to the economic downturn; it’s not related to the takeover situation. It was something that we and I thought was the right thing to do as the next stage of our progress.
I know efficiency is one of those words where everyone goes, "job reductions". But it isn’t that – it’s looking at an efficient back office. We’ve grown up over the years with a strategy of starting many businesses and leaving them independent [in a federated model with dozens of subsidiaries] and that’s not the strategy going forwards. It’s actually about running some aspects of them centrally, more efficiently and yes, at a lower cost. But it’s also about investing in technology to make people’s jobs better and more enjoyable and leave people free to do things they want to do.
And it’s about improving the quality as well–it will be looking at what we make and where we make it across the globe. That starts with an audit and we’ve appointed PwC as our global partner in this. We have targets in terms of cost savings but not any target in terms of headcount reduction.
You identify a “heightened focus on creativity” as a market trend and yet M&C Saatchi’s advertising and CRM revenues fell 0.9% and it was high-growth specialisms such as Global & Social Issues (government advisory work), sports and entertainment marketing, performance media and consultancy that drove the growth in the first half. Can you explain that–even if we appreciate that creativity might not just be in the advertising & CRM business?
Across sport and entertainment and even consultancy, they would find it somewhat insulting when people don’t think their job requires imagination–and it does. Creativity does go across everything, even into something like performance media as targeting becomes less precise at least in the UK, less so in other parts of the world because they are largely Android, rather than Apple, and they don’t have those privacy restrictions (on allowing apps to track).
Over 50% of our business is in the high-growth, high-margin specialisms rather in the advertising and CRM businesses. We’re well placed in some respects, going into an economic downturn, because of Global & Social Issues and performance media and sports and passions, which will hold up.
There is a real opportunity to both increase the margin and invest across the agency network and I’ll be more explicit about that if and when we emerge at the end of the year as an independent company.
With the cost of living rising, what’s your instinct about how tough conditions will be? You have said you are not reducing your profit forecast for 2023.
There’s no reason for us to do that [to reduce our profit forecast] at the moment in terms of the indications that we’re getting from our clients and the budgets and revenue forecasts. So we’re good with our profit forecast. I am not under-playing it at all but in the UK the (cost of living) crisis is deeper than in other parts of the world–certainly the US.
Probably like other agencies, clients are revisiting their strategies and budgets and their customers and how it is affecting them and what we say. We haven’t seen any major or significant signs in terms of budget reduction but we watch the next two quarters with interest.
In the UK, the government plans in the next couple of months are not irrelevant–if there’s this huge investment and shoring up of household budgets and confidence through a freeze in energy prices and that feeds through to lower inflation, which then slows down interest rate rises–but it’s still going to be very tough.
The interesting question is: to what extent do our clients trim their budgets or look to the medium-term advantage?
You have to prepare for a downturn but we’re not seeing it yet. You’d be foolish not to expect some sort of pressures going into next year.
Liz Truss has become prime minister this week. Does the Conservative Party have a relationship with M&C Saatchi at the moment?
No, it doesn’t. We have a strong relationship with the Government–we retained the NHS, we work across the Department of Education, Work & Pensions, Trade and so forth–through the Government roster. But I would not rule out working with the Conservative Party in the future.