TIDMSFOR
RNS Number : 0619A
S4 Capital PLC
21 September 2022
S4 Capital plc
( " S(4) Capital" or " the Company")
Results for first half 2022
Strong like-for-like 28% gross profit/net revenue growth ahead
of digital markets
Two and three half year stacks up 77% and 89%
Further client conversion at scale
Focus on management infrastructure and balanced cost base
required to continue growth
Revised revenue and operational EBITDA(5) targets unchanged
GBP millions Six months Six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June
2022 2021(2)
Billings(1) 765.6 547.5 39.8% 22.2% 22.5%
Revenue 446.4 279.3 59.8% 30.7% 30.9%
Gross profit/net revenue 375.3 236.7 58.6% 27.8% 28.2%
------------------------------ --------------- -------------- ----------- ------------------ ---------------
Operational EBITDA(5) 30.1 34.3 -12.4% -41.2% -34.7%
Operational EBITDA margin(5) 8.0% 14.5% -650bps -940bps -900bps
Adjusted(6) operating
profit 25.4 31.3 -18.7% -47.0% -39.6%
Operating loss (75.4) (16.6) -354.2% -17.1% -1.3%
Loss for period (82.4) (23.0) -258.5% -9.9% 1.7%
------------------------------ --------------- -------------- ----------- ------------------ ---------------
Basic net loss per share
(pence) (14.5) (4.2) -10.3p -0.7p 1.5p
Adjusted(6) basic earnings
per share (pence) 2.1 3.4 -1.3p -3.6p -3.5p
------------------------------ --------------- -------------- ----------- ------------------ ---------------
Number of people 9,041 5,691
Net Debt (135.5) 6.6
============================== =============== ============== =========== ================== ===============
Financial highlights
@ Billings GBP765.6 million, up 39.8% reported and 22.2% like-for-like.
@ Revenue GBP446.4 million, up 59.8% reported and 30.7% like-for-like.
@ Gross profit/net revenue GBP 375.3 million, up 58.6% reported,
and 27.8% like-for-like as the Company continued to outperform the
digital advertising and transformation markets. Two year and three
year stacks (half year organic growth for the last two and three
years) for the first half are 77% and 89%.
@ Operational EBITDA(5) GBP 30.1 million, down 12.4% reported
and 41.2% like-for-like reflecting continued investment in hiring
for expansion, which ran further ahead of gross profit/net revenue
growth in the first half than expected.
@ Operating loss GBP 75.4 million, which includes GBP 100.8
million of primarily combination payments, some linked to continued
employment, and the associated expense and amortisation totalling
GBP 93.9 million versus GBP 41.6 million in the first half of
2021.
Adjusted basic earnings per share, which excludes adjusting
items after tax, of 2.1p per ordinary share, down 1.3p versus 3.4p
per share in the first half of last year. Basic loss per share of
14.5p, down 10.3p versus 4.2p loss per share in the first half of
2021.
@ Net debt ended the period at GBP 135.5 million, or 1.2x net
debt/operational EBITDA, reflecting combination payments made
during the first half, principally for TheoremOne. Net debt was
below the bottom end of the guidance range of GBP140 - 190 million
reflecting better working capital management. The balance sheet
remains strong with sufficient liquidity and long-dated debt
maturities. Pro-forma Operational Earnings Before Interest, Taxes,
Depreciation and Amortisation for the latest twelve months to 30
June 2022 was GBP113.6 million.
Strategic and operat ional highlights
@ We have secured two new "whopper" clients, both of which will
be fully operational in 2023, making a total of eight. Five more
clients, making a potential total of 13, are trending towards
"whopper" status (i.e. revenue of over $20 million per annum). This
year 14 other clients have been identified as potential "whoppers"
over the 2022-24 three year planning period to reach the 20(2)
objective (20 clients with revenue of $20 million per annum).
@ Significant cost management measures, including a brake on
hiring and discretionary cost controls have been implemented in the
second quarter and half of the year. Tight cost management is
having the desired effect, with the number of people in the Company
stabilising at around 9,100 (including recent combinations) over
the past month or so.
@ The Company continues to invest in financial controls,
treasury, risk and governance. Several experienced finance
professionals have been appointed within the Group and Practice
finance teams. Significant progress is being made on processes to
support future growth, balancing revenue growth and the investment
in human capital. Work is ongoing and this remains a key priority
for the second half.
@ The Content practice posted 26% like-for-like gross profit/net
revenue growth, with Data&Digital Media up 23% and Technology
Services up 89%. However, hiring ahead of the revenue curve
particularly in the first quarter impacted profitability at both
the Content and to a lesser extent the Data&Digital Media
practices.
@ In January 2022 the Group's Data&Digital Media practice
combined with 4Mile Analytics, a leading data consultancy
specialising in custom data experiences powered by the Looker
platform. In May, the Technology Services practice made a large and
significant combination with TheoremOne, a leader in agile, full
stack innovation, engineering and design, which helps major
enterprises achieve strategic digital transformation .
@ In July, post the half year end, the Content practice combined
with XX Artists, a Los Angeles-based digital marketing agency.
@ Colin Day was appointed as a Non-Executive Director and
Chairman of the Audit Committee and Christopher S. Martin as Chief
Operating Officer in August 2022.
Outlook
@ Full year like-for-like gross profit/net revenue growth target remain s unchanged at 25%.
@ The Group continues to expect a significantly stronger second
half performance with a weighting to the fourth quarter. Pipeline
remains strong in comparison to last year.
@ For the full year expected operational EBITDA target remains
unchanged at approximately GBP120 million (9) .
Sir Martin Sorrell, Executive Chairman of S(4) Capital Plc
said:
"Our top line growth continues to outperform the digital
advertising and transformation markets. This momentum is underlined
by the increasing recognition of the success of our new age/new era
model in industry surveys such as the Forrester Waves (the guide
for buyers considering their purchasing options in a technology
marketplace) and increasing conversion of client relationships at
scale as we land more "whoppers". In the first half of 2022, we
continued to invest in increased human capital ahead of further top
line advances and in management infrastructure, which impacted our
Operational EBITDA. In the second half, we are focused on a better
balance between top and bottom-line growth to ensure we reach our
revised targets for the year. Combinations remain a key part of our
growth strategy, however, for the time being we are focused on
organic growth and maximising value from our existing businesses,
where momentum remains strong. Whilst the global economy faces many
significant challenges in areas such as climate change, a lengthy
war on Continental Europe, rising inflation and interest rates,
energy shortages, fractious US/China and Western/Russia
relationships and with Iran, the prospects for digital advertising
and transformation remain relatively bright, whilst traditional
media languish, and there is evidence that demand accelerates
during periods of economic uncertainty as we saw with Covid in
2020, when we performed strongly".
Notes (in this document):
1. Billings is gross billings to client including pass through costs.
2. Restated for the initial accounting for the business
combination of Staud Studios and Raccoon as required by IFRS 3.
Details are disclosed in Note 5.
3. Like-for-like is a non-GAAP measure and relates to 2021 being
restated to show the unaudited numbers for the previous year of the
existing and acquired businesses consolidated for the same months
as in 2022 applying currency rates as used in 2022.
4. Proforma numbers relate to unaudited full year non-statutory
and non-GAAP consolidated results in constant currency as if the
Group had existed in full for the year and have been prepared under
comparable GAAP with no consolidation eliminations in the
pre-acquisition period.
5. Operational EBITDA is EBITDA adjusted for acquisition related
expenses, non-recurring items and recurring share-based payments,
and includes Right-of-use assets depreciation. It is a non-GAAP
measure management uses to assess the underlying business
performance. Operational EBITDA margin is Operational EBITDA as a
percentage of Gross Profit/net revenue.
6. Adjusted for acquisition related expenses, non-recurring
items and recurring share-based payments.
7. Restated for the initial accounting for the business
combination of Orca, Brightblue, Metric Theory, Decoded, Tomorrow,
Staud Studios, Jam3, Raccoon as required by IFRS 3. Details for
Orca, Brightblue, Metric Theory and Decoded are provided in note 4
on page 127 of the Annual Report and Accounts 2021. Other details
are disclosed in Note 5 below.
8. Restated for the initial accounting for the business
combination of Raccoon, Cashmere and Maverick as required by IFRS
3. Details are disclosed in Note 5.
9. This is a target and not a profit forecast.
Disclaimer
This announcement includes 'forward-looking statements'. All
statements other than statements of historical facts included in
this announcement, including, without limitation, those regarding
the Company's financial position, business strategy, plans and
objectives of management for future operations (including
development plans and objectives relating to the Company's
services) are forward-looking statements.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These factors include but are not limited to those
described in the Company's prospectus dated 8 October 2019 which is
available on the news section of the Company's website. These
forward- looking statements speak only as at the date of this
announcement. S4Capital expressly disclaims any obligation or
undertaking to update or revise any forward-looking statements
contained herein to reflect actual results or any change in the
assumptions, conditions or circumstances on which any such
statements are based unless required to do so.
No statement in this announcement is intended to be a profit
forecast and no statement in this announcement should be
interpreted to mean that earnings per share of the Company for the
current or future years would necessarily match or exceed the
historical published earnings per share of the Company.
Neither the content of the Company's website, nor the content on
any website accessible from hyperlinks on its website for any other
website, is incorporated into, or forms part of, this announcement
nor, unless previously published by means of a recognised
information service, should any such content be relied upon in
reaching a decision as to whether or not to acquire, continue to
hold, or dispose of, shares in the Company.
Results webcast and conference call
A webcast and conference call covering the results will be held
today at 09:00 BST in London, followed by another webcast and call
at 08:00 EDT / 13:00 BST. Both webcasts of the presentation will be
available at www.s4capital.com during the event.
09.00 BST webcast (watch only) and conference call (for
Q&A):
Webcast:
https://stream.brrmedia.co.uk/broadcast/630f190eda906b287e9a249c
Conference call:
UK: +44 (0)330 165 4012
Freephone: 0800 279 6877
Confirmation code: 2608950
08.00 EDT / 1pm BST webcast (watch only) and conference call
(for Q&A):
Webcast:
https://stream.brrmedia.co.uk/broadcast/630f1a7eda906b287e9a257c
Conference call:
UK: +44 (0)330 165 4012
US: +1 646-828-8073
Confirmation code: 5157196
Enquiries to
S(4) Capital Plc
Sir Martin Sorrell, Executive Chairman +44 (0)20 3793 0003/ +44
(0)2037930007
Mary Basterfield, Chief Financial Officer
Scott Spirit, Chief Growth Officer
Dowgate Capital Limited (Joint Corporate Broker to S(4) Capital
plc)
James Serjeant +44 (0)20 3903 7715
David Poutney
Jefferies International Limited (Joint Corporate Broker to S(4)
Capital plc)
Tony White +44 (0)207 029 8000
Harry Le May
Morgan Stanley & Co. International plc (Joint Corporate
Broker to S(4) Capital plc)
Paul Baker +44 (0)207 425 8000
Alex Smart
Powerscourt (PR Advisor)
Elly Williamson +44 (0)781 765 7528
Ollie Simmonds
Business overview
Introduction
In the first half of 2022, we continued to grow ahead of our
guided gross profit/net revenue run rates, gained major new
clients, maintained high key people retention rates, upgrading our
financial processes and improving working capital management. In
contrast, there were the results delays earlier in the year, and
the first half 2022 profits turned out below the Board ' s
expectations with the consequent impact on the full year outlook.
We are focussing intently on correcting these issues and have made
good progress in recent months. Underpinning our confidence in the
medium and long term are client demand for digital services and the
solid foundations of the Company's Content, Data&Digital Media
and Technology Services practices, centred on our 9,100 people and
"whopper", "whoppertunities" and local hero clients and having the
right data-driven strategy in the right functional and geographic
markets.
The Company grew strongly in the first half, with a
like-for-like gross profit/net revenue growth rate of 28%, above
the targeted 25%. Two year and three year first half like-for-like
stacks are 77% and 89%. First quarter and second quarter gross
profit/net revenue like for like growth rates were 35% and 23% with
two and three year stacks at 67%, and 88% and 86% and 95%. We
remain confident of outperforming the digital advertising and
transformation markets. We maintain our 25% gross profit/net
revenue target for 2022. Momentum was reinforced by the addition of
two further "whopper" clients making a total of eight against the
target of 20, one through pitch and one through combination, both
of which will be fully effective in 2023. We also secured important
new client wins with Adobe, Brewdog, Tiktok, Diageo, Booking.com,
Tim Horton's, Duolingo, Ekaterra, Golden Goose, Riot Games and the
US media account of a large NDA'd FMCG which will become a leading
account in 2023. In addition, we continue to extend our remits with
all our existing major clients. This represents a strong start to
achieving the Company ' s 2022-24 three-year plan of doubling its
size on a like-for-like basis and reaching the same targets for the
2020-22 and 2021-23 plans, having achieved them in the period
2019-21. We are about to start our three year planning process for
2023 - 25 and budgets for 2023.
Our profit performance in the first half was, however,
disappointing. While gross profit/net revenue growth was strong,
our Operational EBITDA and Operational EBITDA margin performance
were below our expectations. This was due to profit
underperformance mainly in our Content and Data&Digital Media
practices, where growth in costs ran ahead of growth in gross
profit/net revenue. We began taking action to correct this at the
end of the period and this continues into the second half. Our
focus is on tight cost management and commercials, such as pricing.
We are starting to see an improved performance and expect this to
continue through the second half of 2022 and into 2023, as we build
a stronger platform. This however will result in an even more
skewed second half Operational EBITDA performance than in prior
years.
We have also invested in our finance teams and processes.
Changes have already been implemented at the Board, Company and
Content practice levels in financial reporting and control,
internal audit, governance, risk and compliance. This remains a key
priority for the company for the second half and we expect to see
ongoing investment in our team and systems over the next few years
to support the business as it continues to grow.
Strategic progress
Corporate activity continued in the first half, with the
Data&Digital Media practice announcing the combination with
4Mile in the United States in January. The Technology Services
practice combined with TheoremOne in May. This is a larger and
important combination that has scaled our Technology Services
practice. After the period end in July, the Content practice
announced a combination with XX Artists. Our combinations have
generated significant revenue synergies through development of
existing and new client opportunities across all three practices
and geographies. Combinations remain a key part of our growth
strategy, however for the time being we are focused on organic
growth and maximising value from our existing business, where the
organic momentum remains strong.
We reported our Carbon Neutral status through obtaining official
certification for 2021 in May 2022 achieving our carbon neutrality
ambitions well ahead of our 2024 target. We are assessing the
feasibility of setting Science Based Targets (SBTi) and continue
our ESG risk assessments and reporting, for example CDP, the gold
standard for environmental reporting, for which we are maturing our
ESG data gathering processes. We are both reducing our emissions in
our own operations as well as through sustainable design for our
clients while we are creating more inclusive cultures and
experiences. Our longer-term ambition remains to become B
Corporation certified.
Whilst GDP growth is a driver of our four addressable markets -
global media, marketing services, trade budgets and digital
marketing transformation - the key trend for S(4) Capital is that
the digital segments of these markets, as opposed to the analogue,
are still forecast to continue to grow significantly. Despite the
changes in the economic outlook, digital advertising is still
forecast to grow by 10-15% inside the United States and strongly
outside, whilst analogue growth will be anaemic. Our own analysis
of analysts' current forecasts (Morgan Stanley, Evercore ISI,
eMarketer 2022) indicates that the top 8 global digital platforms
are forecast to grow advertising revenues by 13% in 2023, which
represents an acceleration from around 10% in 2022. Advertising as
a proportion of US GDP is still forecast to rise from under 1% to
approximately 1.4%, closer to its historical level, purely because
of the continued rise of digital advertising at around 10-15% per
annum to a share of 70% in 2025 against 62% last year. Other
addressable markets are projected to grow at significantly higher
rates such as cloud platform growth (31%), marketing technology
software (19%) and digital transformation spend (17%), all
contribute to our confidence around our gross profit/net revenue
target and three year plans. In addition, as we saw in 2020 with
the pandemic, the client demand for digital marketing
transformation intensifies as GDP growth slows and organic volume
gains for clients lessen and become more difficult.
Board update
In January 2022 we were pleased to welcome Mary Basterfield as
our new Group Chief Financial Officer and Director, Mary has over
20 years of extensive financial experience and, since joining, Mary
has appointed several experienced finance professionals within the
Group and Practice finance teams. The team is strengthening
processes to support our future growth and we have made significant
progress.
After the period end, on 2 August 2022, Colin Day was appointed
to S(4) Capital ' s Board as a Non-Executive Director including as
the new Chair of the Audit and Risk Committee, as part of our
previously indicated plans to invest in and tighten its financial
control, risk and governance processes at the Board level. Colin
has decades of experience in both management and governance roles.
The previous Chair is Senior Independent Director, Rupert Faure
Walker, who remains a member of the Audit and Risk Committee and
the Nomination and Remuneration Committee.
The Audit and Risk Committee ' s role is to assist the Board
with the discharge of its responsibilities in relation to external
audits and controls, including reviewing financial statements,
considering the scope of the work undertaken by external auditors
and reviewing the effectiveness of the internal control systems in
place within the Group.
In addition, Christopher S. Martin, one of the founders of
MightyHive Inc. with extensive experience at Yahoo Inc. in
post-merger integration, has been appointed Chief Operating
Officer, to scale the Company's organisational structure and
processes.
We will now have a Board of 15 directors, nine non-executive
directors of which four are women and five are men, and six
executive directors.
Financial review
Summary of result
GBP millions Six months Six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June
2022 2021(2)
Billings(1) 765.6 547.5 39.8% 22.2% 22.5%
Revenue 446.4 279.3 59.8% 30.7% 30.9%
Gross profit/net revenue 375.3 236.7 58.6% 27.8% 28.2%
-------------------------------- ----------- ----------- ----------- ------------------ ---------------
Operational EBITDA(5) 30.1 34.3 -12.4% -41.2% -34.7%
Operational EBITDA margin(5) 8.0% 14.5% -650bps -940bps -900bps
Adjusted(6) operating
profit 25.4 31.3 -18.7% -47.0% -39.6%
Adjusted(6) operating
profit margin 6.8% 13.2% -640bps -960bps -920bps
-------------------------------- ----------- ----------- ----------- ------------------ ---------------
Net finance expenses and
loss on net monetary position (10.2) (3.2) -214.6% -119.4% -129.4%
Adjusted(6) result before
income tax 15.2 28.1 -45.8% -64.9% -55.6%
Adjusted(6) Income tax
expenses (3.2) (9.8) 66.5% 74.1% 73.8%
Adjusted(6) result for
the period 12.0 18.3 -34.8% -61.1% -49.3%
-------------------------------- ----------- ----------- ----------- ------------------ ---------------
Adjusted(6) basic earnings
per share (pence) 2.1 3.4 -1.3p -3.6p -3.5p
================================ =========== =========== =========== ================== ===============
Reconciliation to non-GAAP measures of performance
GBP millions Six months Six months ended
ended 30 June 30 June 2021(2)
2022
Operating loss (75.4) (16.6)
Amortisation(*) 24.2 18.0
Acquisition and set-up related
expenses(**) 69.7 23.6
Share based compensation 6.9 6.3
Adjusted(6) operating profit 25.4 31.3
------------------------------------ --------------- -----------------
Net finance expenses and loss
on net monetary position (10.2) (3.2)
Adjusted(6) result before income
tax 15.2 28.1
------------------------------------ --------------- -----------------
Income tax credit/(expense) 3.2 (3.1)
Tax on adjusting items (6.4) (6.7)
Adjusted(6) result for the period 12.0 18.3
==================================== =============== =================
* Amortisation relates to the amortisation of intangible assets
identified as part of the purchase price allocation exercise as a
result of the acquisitions.
** Acquisition and set-up related expenses relate to acquisition
related advisory fees of GBP3.6 million, contingent consideration
as remuneration of GBP67.8 million and remeasurement gain on
contingent considerations of GBP1.7 million.
Revenue
Billings were GBP765.6 million, up 39.8% on a reported basis,
22.2% on a like-for-like basis and 22.5% on a pro-forma basis.
Revenue was GBP446.4 million, up 59.8% from GBP279.3 million on
a reported basis, 30.7% on a like-for-like basis and 30.9% on a
pro-forma basis.
Reported gross profit/net revenue was GBP375.3 million, up 58.6%
from GBP236.7million for the comparable period in 2021, 27.8%
like-for-like and 28.2% pro-forma.
Practice performance and net revenue by geography
GBP millions Six months Six months change change change
ended ended Reported Like-for-like(3) Pro-forma(4)
30 June 30 June
2022 2021(2)
Content 250.2 157.1 59.3% 25.7% 25.7%
Data&Digital media 100.7 79.6 26.4% 23.1% 23.5%
Technology Services 24.4 - 100.0% 89.2% 57.9%
------------------------- ----------- -------------------------- ---------- ------------------ --------------
Gross profit/net revenue 375.3 236.7 58.6% 27.8% 28.2%
Americas 279.4 168.8 65.5% 26.0% 26.6%
EMEA 66.9 48.3 38.6% 36.0% 36.0%
Asia-Pacific 29.0 19.6 48.1% 27.6% 27.6%
------------------------- ----------- -------------------------- ---------- ------------------ --------------
Gross profit/net revenue 375.3 236.7 58.6% 27.8% 28.2%
Content 14.0 16.7 -16.7% -49.9% -49.9%
Data&Digital media 17.4 22.4 -22.6% -29.3% -28.9%
Technology Services 8.8 - 100.0% 147.1% 71.1%
S4 Central (10.1) (4.8) -107.6% -107.9% -107.9%
------------------------- ----------- -------------------------- ---------- ------------------ --------------
Operational EBITDA 30.1 34.3 -12.4% -41.2% -34.7%
Gross profit, Operational EBITDA and Operational EBITDA margins
by practice
Content practice gross profit/net revenue was GBP250.2 million
(67% of total gross profit), up 59.3% on a reported basis from last
year, on a like-for-like basis up 25.7% and 25.7% on pro-forma
basis.
Data&Digital Media practice gross profit/net revenue was
GBP100.7 million (27% of total gross profit), up 26.4%, from last
year on a reported basis, on a like-for-like basis up 23.1% and on
a pro-forma basis was 23.5%.
Technology Services gross profit/net revenue was GBP24.4 million
(6% of total gross profit/net revenue), on a like for like basis up
89.2% and on a pro-forma basis was 57.9%.
Content practice operational EBITDA was GBP14.0 million, down
16.7% on a reported basis verses last year, and down 49.9% on a
like-for-like basis and down 49.9% on a pro-forma basis, reflecting
a significant, increased investment in talent. The Content practice
operational EBITDA margin was 5.6%, compared to 10.7% last year,
reflecting increased investment in human capital in the first half
of the year to staff "whoppers" and prepare for a stronger second
half. This investment in hiring ran further ahead of gross
profit/net revenue growth in the first half than expected.
Data&Digital Media practice operational EBITDA was GBP17.4
million, down 22.6% on a reported basis from last year and down
29.3% on a like-for-like basis and 28.9% on a proforma basis.
Data&Digital Media practice operational EBITDA margin was
17.2%, compared to 28.2% last year, reflecting the increased
investment in human capital to drive future growth and an increase
in travel, office and other operating expenses post covid 19.
The Technology Services practice which now includes Zemoga and
TheoremOne has performed strongly with operational EBITDA of GBP8.8
million representing an EBITDA margin of 36.1%.
Gross profit/net revenue by Geography
Americas (74% of total) was GBP279.4 million, up 65.5% on a
reported basis from last year. On a like-for-like basis Americas
gross profit/net revenue was up 26.0% and up 26.6% on a pro-forma
basis reflecting continued out performance of the market and growth
in our "whoppers" and major clients.
EMEA (18% of total gross profit/net revenue) was GBP66.9
million, up 38.6% from last year on a reported basis. On both a
like-for-like and pro-forma basis EMEA gross profit/net revenue was
up 36.0% primarily reflecting "whopper" growth in the key
markets.
Asia Pacific (8% of total) was GBP29.0 million, up 48.1% on a
reported basis. On both a like-for-like and pro-forma basis Asia
Pacific gross profit/net revenue was up 27.6% reflecting continued
strong organic growth.
Financial performance
Reported Operational Earnings Before Interest Taxes Depreciation
and Amortisation ('EBITDA') was GBP30.1 million versus GBP34.3
million, a decrease of 12.4%, reflecting continued investment in
hiring for expansion and some post covid normalisation of travel
and office costs. Operational EBITDA was down 41.2% on a
like-for-like basis and down 34.7% on a pro-forma basis, primarily
reflecting increased hiring to support growth. In the first half we
saw hiring run further ahead of gross profit/net revenue growth and
as a result we have implemented cost control measures including a
break in hiring and discretionary costs controls to support the
anticipated stronger profit delivery in the second half.
Adjusted operating profit was down 18.7% from GBP31.3 million to
GBP25.4 million on a reported basis, before adjusting items of
GBP100.8 million, including non-recurring items, primarily
acquisition payments tied to continued employment, share-based
compensation, and amortisation of business combination intangible
assets. Like-for-like adjusted operating profit was down 47.0% and
pro-forma adjusted operating profit was down 39.6%, primarily
reflecting the increase in like-for-like number of people in the
company, as the hiring exceeded the gross profit net revenue growth
in the first half.
Adjusted result before income tax was GBP15.2 million, down
45.8% versus GBP28.1 million in the comparable period last year
reflecting the reduction in adjusted operating profit and higher
finance costs due to the term loan (which was not in place in the
first half of 2021). On a like-for-like basis adjusted result
before income tax was down 64.9% and down 55.6% on a pro-forma
basis.
Adjusted result for the period was GBP12.0 million, down 34.8%
on a reported basis, down 61.1% on a like-for-like basis and down
49.3% on a pro-forma basis.
Operating loss GBP75.4 million, which includes GBP100.8 million
of primarily combination payments, some linked to continued
employment, and the associated expense and amortisation totalling
GBP93.9 million versus GBP41.6 million in the first half of
2021.
Basic and diluted loss per share was 14.5p versus 4.2p loss in
2021.
Adjusted basic earnings per share was 2.1p, versus adjusted
basic earnings per share of 3.4p in the first half of 2021. The
weighted average number of shares as of 30 June 2022 was
567,714,015 (2021: 544,589,568).
The Board has decided that there will be no interim dividend
declared for the first half of 2022.
Balance sheet liquidity
Liquidity remains strong with half-year end net debt around
GBP135 million or 1.2x net debt/operational EBITDA , below the
lower end of the guidance range of GBP140-GBP190 million,
reflecting combination payments made during the first half,
principally for TheoremOne and improvement in working capital
management . Further combination payments in the second half of
GBP21 million are anticipated by 2022 year end and net debt is
expected to be in the range of GBP130 - GBP170 million.
Outlook
The global economy is in a difficult place. Since the beginning
of 2022, many political and economic challenges have been added to
climate change, diversity, equity and inclusion - the war in
Ukraine and Russian expansion, rising inflation, increasing
interest rates, fracturing US/China relations, Iran amongst others.
Despite all these uncertainties, revised growth forecasts for
digital advertising and digital transformation continue to
significantly outperform analogue segments.
For example, digital advertising in the United States is
forecast to grow by 10-15% per annum over the next three years,
with advertising as a proportion of US GDP forecast to grow from
under 1% to 1.4%, solely due to growth in digital segments, whilst
analogue or linear remains flat or declining. Digital
transformation growth forecasts are even stronger and there is
evidence, for example during the pandemic in 2020, that when GDP
growth falters, client demand for digital advertising and
transformation intensifies. Our targets from the end of July for
2022 remains unchanged and we continue to expect to outperform our
addressable markets in 2023 and beyond.
About S(4) Capital
S(4) Capital plc (SFOR.L) is the tech-led, new age/new era
digital advertising and marketing services company, established by
Sir Martin Sorrell in May 2018.
Its strategy is to build a purely digital advertising and
marketing services business for global, multinational, regional,
local clients, and millennial-driven influencer brands. This will
be achieved by integrating leading businesses in three practice
areas: Content, Data&Digital Media and Technology Services,
along with an emphasis on "faster, better, more efficient"
executions in an always-on consumer-led environment, with a unitary
structure.
Digital is by far the fastest-growing segment of the advertising
market. S(4) Capital estimates that in 2021 digital accounted for
over 60% or $420-450 billion of total global advertising spend of
$700-750 billion (excluding over $500 billion of trade promotion
marketing, the primary target of the Amazon advertising platform)
and projects that by 2022 total global advertising spend will
expand to $770-850 billion and digital's share will grow to
approximately 65% and by 2024 to approximately 70%, accelerated by
the impact of covid-19.
In 2018, S(4) Capital combined with MediaMonks, the leading
AdAge A-listed creative digital content production company led by
Victor Knaap and Wesley ter Haar and then with MightyHive, the
market-leading digital media solutions provider for future thinking
marketers and agencies, led by Peter Kim and Christopher S.
Martin.
Since then, MediaMonks and MightyHive have combined with more
than 25 companies across Content, Data&Digital Media and
Technology Services. For a full list, please see the S4Capital
website.
In August 2021, S(4) Capital launched its unitary brand by
merging MediaMonks and MightyHive into Media.Monks, represented by
a dynamic logo mark that features MightyHive's iconic hexagon. As
the operational brand, Media.Monks underpins S4Capital's agility,
digital knowledge and efficiency and is the next step in delivering
on its foundational promise to unify Content, Data&Digital
Media and Technology Services.
Victor Knaap, Wesley ter Haar, Christopher Martin, Scott Spirit
and Mary Basterfield all joined the S(4) Capital Board as Executive
Directors. The S(4) Capital Board also includes Rupert Faure
Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan,
Naoko Okumoto, Margaret Ma Connolly, Miles Young and Colin Day.
The Company has 9,100 people in 32 countries with approximately
70% of revenue across the Americas, 20% across Europe and 10%
across the Middle East and Africa and Asia-Pacific. The longer-term
objective is a split of 60%:20%:20%. Content currently accounts for
approximately 60% of revenue, Data&Digital Media 30% and
Technology Services 10%. The long-term objective is a split of
50%:25%:25%.
Unaudited consolidated interim statement of profit or loss
for the six month period ended 30 June 2022
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021(2) 2021
=================================
Notes GBP000 GBP000 GBP000
================================= ===== ========== ========== =========
Revenue 6 446,439 279,288 686,601
Cost of sales (71,162) (42,626) (126,338)
Gross profit 6 375,277 236,662 560,263
Personnel costs (308,812) (183,003) (412,537)
Other operating expenses (36,108) (20,674) (49,829)
Acquisition and set-up related
expenses 15 (69,698) (23,615) (83,496)
Depreciation and amortisation (36,013) (25,960) (56,456)
Total operating expenses (450,631) (253,252) (602,318)
Operating loss (75,354) (16,590) (42,055)
Adjusted operating profit 25,453 31,324 94,808
Adjusting items 15 (100,807) (47,914) (136,863)
Operating loss (75,354) (16,590) (42,055)
--------------------------------- ----- ---------- ---------- ---------
Finance income 768 413 1,032
Finance expenses (10,372) (3,663) (13,283)
Net finance expenses (9,604) (3,250) (12,251)
Loss on the net monetary
position (620) - (1,344)
Loss before income tax (85,578) (19,840) (55,650)
Income tax credit/(expense) 3,181 (3,147) (1,065)
Loss for the period (82,397) (22,987) (56,715)
================================= ===== ========== ========== =========
Attributable to owners of the Company (82,397) (22,987) (56,715)
Attributable to non-controlling - - -
interests
(82,397) (22,987) (56,715)
================================= ===== ========== ========== =========
Loss per share is attributable to the ordinary equity holders of
the Company
Loss per share (pence) 8 (14.5) (4.2) (10.3)
Diluted loss per share (pence) 8 (14.5) (4.2) (10.3)
Unaudited consolidated interim statement of comprehensive
income
for the six month period ended 30 June 2022
Six months Six months
ended ended Year
30 June 30 June ended
2022 2021(2) 31 Dec 2021
======================================
GBP000 GBP000 GBP000
====================================== ========== ========== ============
Loss for the period (82,397) (22,987) (56,715)
Other comprehensive income/(loss)
Items that may be reclassified
to profit or loss
Foreign operations - foreign currency
translation differences 70,364 (16,618) (6,358)
70,364 (16,618) (6,358)
Total comprehensive loss for the
period (12,033) (39,605) (63,073)
======================================= ========== ========== ============
Attributable to owners of the company (12,033) (39,605) (63,073)
Attributable to non-controlling - - -
interests
(12,033) (39,605) (63,073)
====================================== ========== ========== ============
Unaudited consolidated interim balance sheet
as at 30 June 2022
As at
As at 30 31 Dec
As at 30 June 2021 2021
June 2022 Restated(7) Restated(8)
===============================
Notes GBP000 GBP000 GBP000
=============================== ===== ========== ============ ============
Assets
Non-current assets
Intangible assets 9 1,189,535 859,033 981,326
Right-of-use assets 49,215 30,747 36,608
Property, plant and equipment 29,781 16,311 21,548
Deferred tax assets 10,492 3,466 6,526
Other receivables 11,228 3,680 3,185
1,290,251 913,237 1,049,193
Current assets
Trade and other receivables 10 349,731 233,985 335,498
Cash and cash equivalents 193,118 119,566 301,021
542,849 353,551 636,519
Total assets 1,833,100 1,266,788 1,685,712
=============================== ===== ========== ============ ============
Liabilities
Non-current liabilities
Deferred tax liabilities 67,152 57,460 68,627
Loans and borrowings 11 315,333 41,430 308,571
Lease liabilities 40,167 24,978 31,423
Contingent consideration
and holdbacks 14,885 31,482 31,749
Other payables 2,940 2,033 2,845
440,477 157,383 443,215
Current liabilities
Trade and other payables 12 318,311 225,971 324,059
Contingent consideration
and holdbacks 142,005 50,921 86,632
Loans and borrowings 11 5,400 70,813 2,523
Lease liabilities 15,109 9,371 10,545
Tax liabilities 19,874 18,215 17,500
500,699 375,291 441,259
Total liabilities 941,176 532,674 884,474
=============================== ===== ========== ============ ============
Net assets 891,924 734,114 801,238
=============================== ===== ========== ============ ============
Equity
Share capital 139,021 137,102 138,827
Reserves 752,803 596,912 662,311
Attributable to owners
of the company 891,824 734,014 801,138
Non-controlling interests 100 100 100
Total equity 891,924 734,114 801,238
=============================== ===== ========== ============ ============
Unaudited consolidated interim statement of cash flows
for the six month period ended 30 June 2022
Six months
ended Six months Year
30 June ended ended
2022 30 June 2021(2) 31 Dec 2021
======================================
Notes GBP000 GBP000 GBP000
====================================== ===== ========== ================= ============
Cash flows from operating activities 13 (2,333) 17,191 68,496
Income taxes paid (7,383) (7,862) (13,874)
Net cash (used)/generated from
operating activities (9,716) 9,329 54,622
======================================= ===== ========== ================= ============
Cash flows from investing activities
Investments in intangible assets (497) (411) (3,458)
Investments in property, plant
and equipment (10,231) (3,562) (11,119)
Acquisition of subsidiaries, net
of cash acquired (93,245) (46,942) (86,604)
Tax paid as result of acquisition - - (5,116)
Financial fixed assets 502 (391) (323)
Net cash used in investing activities (103,471) (51,306) (106,620)
======================================= ===== ========== ================= ============
Cash flows from financing activities
Proceeds from issuance of shares - - 1,143
Additional borrowings during the
year 11 - 24,057 342,994
Payment of lease liabilities (7,601) (5,401) (10,903)
Repayments of loans and borrowings (166) - (110,895)
Transaction costs paid on borrowings (288) - (8,379)
Interest paid (6,585) (1,765) (5,530)
Net cash (used)/generated from
financing activities (14,640) 16,891 208,430
======================================= ===== ========== ================= ============
Net (decrease)/increase in cash
and cash equivalents (127,827) (25,086) 156,432
Cash and cash equivalents beginning
of the year 299,122 142,052 142,052
Exchange gain on cash and cash
equivalents 17,060 2,600 638
Cash and cash equivalents at 299,122
end of period 188,355(*) 119,566 (**)
======================================= ===== ========== ================= ============
Note:
* Including bank overdrafts of GBP4.8 million.
** Including bank overdrafts of GBP1.9 million
Unaudited consolidated interim statement of changes in
equity
for the six-month period ended 30 June 2022
Foreign
Number Share Share Merger Other exchange Accumulated Non-controlling Total
of shares capital premium reserves reserves(*) reserves losses Total interests equity
================
Equity GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
================ =========== ======= ======= ======== =========== ======== =========== ======== =============== ========
Balance at 1
January 2021 542,065,458 135,516 364,195 205,717 29,275 (15,845) (3,181) 715,677 100 715,777
Comprehensive
income or (loss)
for the period
Loss for the
period (2) - - - - - - (22,987) (22,987) - (22,987)
Foreign
currency
translation
differences - - - - - (16,618) - (16,618) - (16,618)
---------------- ----------- ------- ------- -------- ----------- -------- ----------- -------- --------------- --------
Total
comprehensive
loss for
the period - - - - - (16,618) (22,987) (39,605) - (39,605)
---------------- ----------- ------- ------- -------- ----------- -------- ----------- -------- --------------- --------
Transactions
with owners of
the company
Business
combinations 6,343,254 1,586 31,880 - 18,164 - - 51,630 - 51,630
Employee share
schemes - - - - - - 6,312 6,312 - 6,312
Balance as at 30
June 2021(2) 548,408,712 137,102 396,075 205,717 47,439 (32,463) (19,856) 734,014 100 734,114
================ =========== ======= ======= ======== =========== ======== =========== ======== =============== ========
Comprehensive
income or (loss)
for the period
Loss for the
period - - - - - - (33,728) (33,728) - (33,728)
Foreign
currency
translation
differences - - - - - 10,260 - 10,260 - 10,260
---------------- ----------- ------- ------- -------- ----------- -------- ----------- -------- --------------- --------
Total
comprehensive
income
or (loss) for
the period - - - - - 10,260 (33,728) (23,468) - (23,468)
---------------- ----------- ------- ------- -------- ----------- -------- ----------- -------- --------------- --------
Hyperinflation
revaluation - - - - 1,633 - - 1,633 - 1,633
Transactions
with owners of
the company
Issue of - - - - - - - - - -
Ordinary Shares
Business
combinations 6,898,860 1,725 50,835 - 27,692 - - 80,252 - 80,252
Employee share
schemes - - - - (110) - 8,817 8,707 - 8,707
Balance as at 31
December 2021 555,307,572 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
================ =========== ======= ======= ======== =========== ======== =========== ======== =============== ========
Comprehensive
income or (loss)
for the period
Loss for the
period - - - - - - (82,397) (82,397) - (82,397)
Foreign
currency
translation
differences - - - - - 70,364 - 70,364 - 70,364
Total
comprehensive
income
or (loss) for
the period - - - - - 70,364 (82,397) (12,033) - (12,033)
---------------- ----------- ------- ------- -------- ----------- -------- ----------- -------- --------------- --------
Hyperinflation
revaluation - - - - 1,753 - - 1,753 - 1,753
Transactions
with owners of
the company
Business
combinations 777,894 194 2,887 - 91,005 - - 94,086 - 94,086
Employee share
schemes - - - - 315 - 6,565 6,880 - 6,880
Balance as at 30
June 2022 556,085,466 139,021 449,797 205,717 169,727 48,161 (120,599) 891,824 100 891,924
================ =========== ======= ======= ======== =========== ======== =========== ======== =============== ========
*Other reserves include the deferred equity consideration of
GBP168.0 million, made up of the following: TheoremOne GBP56.2
million, Raccoon for GBP49.1 million, Decoded for GBP47.9 million,
Cashmere for GBP6.9 million, Zemoga for GBP5.4 million, 4Mile for
GBP2.3 million and Destined for GBP0.2 million (2021: GBP77.0
million), the treasury shares issued in the name of S(4) Capital
Group to an employee benefit trust for the amount of GBP2.2 million
(2021: GBP2.5 million), and hyperinflation impact in Argentina of
GBP3.4m (2021: GBP1.6m).
Notes to the unaudited consolidated interim financial
statements
for the six-month period ended 30 June 2022
1. General information
S(4) Capital Plc ( ' S(4) Capital ' or ' Company ' ) is a public
limited company incorporated on 14 November 2016 in the United
Kingdom. The Company has its registered office at 12 St James ' s
Place, London, SW1A 1NX, United Kingdom.
The unaudited consolidated interim financial statements
represent the results of the Company and its subsidiaries (together
referred to as ' S(4) Capital Group ' or the ' Group ' ). An
overview of the subsidiaries is provided in note 14 on page 140 of
the Annual Report and Accounts 2021.
S(4) Capital Group is a new age/new era digital advertising and
marketing services company.
2. Basis of preparation
A. Statement of compliance
This report is to be read in conjunction with the Annual Report
and Accounts of S(4) Capital plc for the year ended 31 December
2021 and has been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards.
The unaudited consolidated interim financial statements for the
6 months period ended 30 June 2022 are a condensed set of financial
information and have been prepared on the basis of the policies set
out in the 2021 annual financial statements and in accordance with
UK adopted IAS 34 and the Disclosure Guidance and Transparency
Rules sourcebook of the UK ' s Financial Conduct Authority.
The Group has undertaken a detailed going concern assessment,
reviewing its current and projected financial performance and
position. The Directors believe that the Group's forecasts have
been prepared on a prudent basis and have also considered the
impact of future acquisitions. On 6 August 2021, S (4) Capital
Group signed a new facility agreement, consisting of a Term Loan B
of EUR 375 million (expiring August 2028) and a multicurrency
Revolving Credit Facility (RCF) of GBP 100 million (expiring August
2028). Considering the Group's bank covenant and liquidity headroom
and cost mitigation actions which could be implemented, the
Directors have concluded that the Group will be able to operate
within its facilities and comply with its banking covenants for the
foreseeable future and therefore believe it is appropriate to
prepare the financial statements of the Group on a going concern
basis and that there are no material uncertainties which gives rise
to a significant going concern risk. Given its debt maturity
profile and available facilities, the Directors believe the Group
has sufficient liquidity to match its requirements for the
foreseeable future.
The unaudited consolidated interim financial statements were
authorized for issue by the Board of Directors on 21 September
2022.
B. Functional and presentation currency
The unaudited consolidated interim financial statements are
presented in Pound Sterling (GBP or GBP), the Company ' s
functional currency. All financial information in Pound Sterling
has been rounded to the nearest thousand unless otherwise
indicated.
3. Significant accounting policies
The unaudited consolidated interim financial statements have
been prepared on a consistent basis with the accounting policies of
the Group which were set out on pages 113 to 123 of the Annual
Report and Accounts 2021. No changes have been made to the Group's
accounting policies in the period ended 30 June 2022.
A number of amended standards became applicable for the current
reporting period. The Group did not have to change its accounting
policies or make retrospective adjustments as a result of adopting
these amended standards.
4. Statutory information and independent review
These condensed consolidated half year financial statements do
not constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006 . The statutory accounts for
the year ended 31 December 2021 have been delivered to the
Registrar of Companies and received an unqualified auditors'
report, did not include a reference to any matters to which the
auditors drew attention by way of an emphasis of matter and did not
contain a statement under sections 498 (2) or (3) of the Companies
Act 2006. The consolidated interim financial statements are
unaudited but have been reviewed by the auditors and their report
is set out on the last page.
5. Acquisitions
Business Combinations
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill of the
subsidiaries acquired in the period ended 30 June 2022 are as
follows:
4Mile TheoremOne Total
GBP000 GBP000 GBP000
============================================ ======== =========== ========
Intangible assets - Customer relationships 7,725 81,102 88,827
Intangible assets - Brand names 366 1,881 2,247
Intangible assets - Order Backlog 822 7,023 7,845
Intangible assets - Software 325 - 325
Property, plant and equipment 42 553 595
Cash and cash equivalents 2,334 5,238 7,572
Trade and other receivables 1,674 11,293 12,967
Other non-current assets 1 140 141
Trade and other payables (1,525) (2,225) (3,750)
Other non-current liabilities (258) 3 (255)
Net assets 11,506 105,008 116,514
Goodwill 13,574 39,157 52,731
Total purchase consideration 25,080 144,165 169,245
============================================ ======== =========== ========
Cash 6,964 77,975 84,939
Deferred consideration 2,264 56,188 58,452
Contingent consideration 12,450 - 12,450
Holdback obligations 3,402 10,002 13,404
Total purchase consideration 25,080 144,165 169,245
============================================ ======== =========== ========
Cash purchase consideration 6,964 77,975 84,939
Cash and cash equivalents acquired 2,334 5,238 7,572
Cash outflow on acquisition (net
of cash acquired) 4,630 72,737 77,367
============================================ ======== =========== ========
With all combinations 100% of the voting equity interest has
been acquired.
Content Practice
During the period ending 30 June 2022 there were no businesses
combined with the Content practice.
Data & Digital Media practice
@ On 11 January 2022, S(4) Capital Plc announced the business
combination between MediaMonks and 4 Mile Analytics, a
California-based leader in data analytics, data engineering, data
governance, software engineering, UX design and project &
product management, for an expected total consideration, including
contingent consideration, of approximately GBP25.1 million. Since
the acquisition date, 4Mile contributed GBP 4.4 million to the
Group's revenue and GBP 1.0 million profit for the six-month ended
30 June 2022. Once the opening balance sheet is finalised the
purchase price allocation can be concluded and therefore the assets
and liabilities remain provisional. During the measurement period,
S(4) Capital plc will obtain the information necessary to identify
and measure the assets and liabilities and retrospectively adjust
the provisional amounts recognised at the acquisition date.
Technology Services practice
@ On 16 May 2022, S(4) Capital Plc announced the business
combination between TheoremOne and Media.Monks, a California-based
leader in agile, full- stack, innovation, engineering, and design
and helps major enterprises achieve strategic digital
transformation, for an expected total consideration, including
contingent consideration, of approximately GBP144.2 million. Since
the acquisition date, TheoremOne contributed GBP 9.3 million to the
Group's revenue and GBP 3. 9 million profit for the six-month ended
30 June 2022. Once the opening balance sheet is finalised the
purchase price allocation can be concluded and therefore the assets
and liabilities remain provisional. During the measurement period,
S(4) Capital plc will obtain the information necessary to identify
and measure the assets and liabilities and retrospectively adjust
the provisional amounts recognised at the acquisition date.
The total consideration, including contingent consideration, for
the above two transactions is expected to be approximately GBP
169.2 million.
At the end of the reporting period the purchase price allocation
for 4 Mile Analytics and TheoremOne have not been fully completed
and therefore the acquisition accounting and resulting goodwill
recognised remains provisional. During the measurement period in
2022, S(4) Capital Group will obtain the information necessary to
identify and measure the identifiable intangible assets and
retrospectively adjust the provisional amounts recognised at the
acquisition date.
Goodwill and financial statement line items
The goodwill represents the potential growth opportunities and
synergy effects from the acquisitions. The goodwill for 4Mile and
TheoremOne is potentially deductible for tax purposes. Trade
receivables, net of expected credit losses, acquired are considered
to be fair value and are expected to be collectable in full. The
gross contractual amounts receivable of the acquired companies at
the acquisition date are GBP8.9 million and the best estimate at
the acquisition date of the contractual cash flows not expected to
be collected is GBP2 million, which is adjusted in the acquisition
workings.
Contingent consideration arising from business combinations is
fair valued, with key inputs including the probability of success
of the combinations achieving target, consideration of potential
delays and the expected levels of future revenues. The contingent
consideration is contingent on the acquired companies achieving
their 2022 results and, in some cases their 2023 results, as
forecasted upon acquiring the subsidiary. The contingent
considerations are included for the maximum amount of the
consideration expected to be paid which is in line with
management's estimate of expected pay-out. In 2022, the contingent
consideration arising from business combinations is GBP12.5
million. The contingent consideration can be materially lower in
case the acquired companies do not reach their forecasted results.
Contingent consideration classified as a liability is subject to
remeasurement at each reporting date until its ultimate settlement
date. Any change in the fair value of the liability due to events
that occur after the acquisition date would be recognised in the
profit or loss.
Deferred considerations are commonly expected to be paid on the
second-year anniversary of the acquisition date. Holdbacks, as part
of the purchase consideration are in some cases held in third party
escrow accounts and are expected to be released within four years
of the acquisition date. As at 30 June 2022, the third party escrow
balances are reported under non-current other receivables and
current other receivables in line with the expected release
dates.
The contingent consideration of GBP126.7 million and holdbacks
of GBP30.2 million as at 30 June 2022 includes GBP73.2million of
employment linked payables. During the reporting period, an amount
of GBP15.9 million of contingent consideration and holdbacks have
been paid.
The total acquisition costs of GBP3.6 million (2021: GBP1.7
million) have been recognised under acquisition and set-up related
expenses in the statement of profit or loss.
Since the acquisition date, the acquired companies, 4 Mile
Analytics and TheoremOne, contributed GBP13.7 million to the
Group's revenue and GBP5.0 million into the Group's profit for the
half year period ended 30 June 2022.
If the acquisitions had occurred on 1 January 2022, the Group's
revenue would have been GBP469.0 million and the Group's loss for
the year would have been GBP107.7 million.
Restatements
As stated on page 18 of the Group ' s interim report for the
period ended 30 June 2021, the initial accounting for the business
combination of Tomorrow, Jam3, Staud Studios and Raccoon, were
incomplete by the end of the six-month reporting period ended 30
June 2021. Therefore, the assets and liabilities acquired were not
fully identified, were consequently not fully measured, and were
therefore not fully deducted from goodwill as at 30 June 2021.
In the second half of 2021, S(4) Capital Group obtained the
information necessary to identify and measure the identifiable
assets and liabilities for the business combinations of Tomorrow,
Jam3, Staud Studios and Raccoon and has adjusted its assets and
liabilities as of 30 June 2021, as required by IFRS 3, as
follows:
30 June Adjustment 30 June 2021
2021
reported restated
Restatement Note GBP'000 GBP'000 GBP'000
=================================== ========= =========== =============
Intangible assets - Customer
relationships 22,038 17,067 39,105
Intangible assets - Brand names 654 657 1,311
Intangible assets - Order backlog 1,321 338 1,659
Intangible assets - Software 661 168 829
Property, plant and equipment,
ROU assets 5,264 (570) 4,694
Cash and cash equivalents 4,026 122 4,148
Trade and other receivables 12,706 (2,698) 10,008
Other non-current assets 48 - 48
Trade and other payables (6,509) (211) (6,720)
Current taxation (7,360) (30) (7,390)
Lease liabilities (3,150) 54 (3,096)
Other non-current liabilities (773) (25) (798)
Deferred taxation (6,367) 3,520 (2,847)
---------------------------------------- --------- ----------- -------------
Net assets 22,559 18,392 40,951
Goodwill 73,431 (22,302) 51,129
---------------------------------------- --------- ----------- -------------
Total purchase consideration 95,990 (3,910) 92,080
======================================== ========= =========== =============
Payment in kind (common stock) 21,740 - 21,740
Cash 36,218 (1,332) 34,886
Deferred consideration 18,164 (1,329) 16,835
Contingent consideration 19,037 (1,130) 17,907
Holdback obligations 831 (119) 712
Total purchase consideration 95,990 (3,910) 92,080
======================================== ========= =========== =============
Purchase consideration - cash 36,218 (1,332) 34,886
Cash and cash equivalents 4,026 122 4,148
---------------------------------------- --------- ----------- -------------
Cash outflow on acquisition
(net of cash acquired) 32,192 (1,454) 30,738
======================================== ========= =========== =============
In addition to the above, the Group's balance sheet as at 30
June 2021 was also restated for the fair value adjustments for the
business combinations in 2020 which include Orca, Brightblue,
Metric Theory and Decoded. Details are provided in note 4 on page
127 of the Annual Report and Accounts 2021.
The profit and loss account for the period ended 30 June 2021
was restated for the amortisation (GBP0.5 million charge) and
related tax (GBP1.4 million charge) as a result of the above
restatements.
As stated on page 124 of the Group ' s 2021 annual accounts
report, the initial accounting for the business combination of
Cashmere, Maverick and Raccoon, were incomplete by the end of the
reporting period ended 31 December 2021. As required by IFRS 3, the
following adjustments have been made to deferred tax and
consideration based on the information obtained post 31 December
2021, which had no material impact on the profit and loss
statement.
31 Dec 2021 Adjustment 31 Dec 2021
reported restated
Restatement Note GBP'000 GBP'000 GBP'000
=================================== ============ =========== ============
Intangible assets - Customer
relationships 86,552 - 86,552
Intangible assets - Brand names 2,804 - 2,804
Intangible assets - Order backlog 3,547 - 3,547
Intangible assets - Software 829 - 829
Property, plant and equipment,
ROU assets 8,849 - 8,849
Cash and cash equivalents 15,839 - 15,839
Trade and other receivables 20,918 - 20,918
Other non-current assets 703 - 703
Trade and other payables (21,897) - (21,897)
Current taxation (8,439) - (8,439)
Lease liabilities (6,354) - (6,354)
Other non-current liabilities (2,288) - (2,288)
Deferred taxation (16,337) (160) (16,497)
---------------------------------------- ------------ ----------- ------------
Net assets 84,726 (160) 84,566
Goodwill 134,975 416 135,391
---------------------------------------- ------------ ----------- ------------
Total purchase consideration 219,701 256 219,957
======================================== ============ =========== ============
Payment in kind (common stock) 56,236 - 56,236
Cash 77,204 - 77,204
Deferred consideration 28,444 - 28,444
Contingent consideration 57,817 256 58,073
Total purchase consideration 219,701 256 219,957
======================================== ============ =========== ============
Purchase consideration - cash 77,204 - 77,204
Cash and cash equivalents 15,839 - 15,839
---------------------------------------- ------------ ----------- ------------
Cash outflow on acquisition
(net of cash acquired) 61,365 - 61,365
======================================== ============ =========== ============
6. Segment information
Revenue from operations
Six months Six months
ended ended Year
30 June 30 June ended
2022 2021 31 Dec 2021
=========
GBP000 GBP000 GBP000
========= ========== ========== ============
Services 446,439 279,288 686,601
Total 446,439 279,288 686,601
============ ========== ========== ============
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the
Directors and executive management of S Capital Group.
During the reporting period, S Capital Group has been active in
three segments:
@ Content Practice: Creative content, campaigns and assets at a
global scale for paid, social and earned media - from digital
platforms and apps to brand activations that aim to convert
consumers at every possible touchpoint.
@ Data&Digital Media Practice: Full-service campaign
management analytics, creative production and ad serving, platform
and systems integration and transition and training and
education.
@ Technology Services: Digital transformation services in
providing advanced digital product design, engineering services and
delivery services.
The customers are primarily businesses across technology, FMCG
and media & entertainment. Any intersegment transactions are
based on commercial terms.
The Board of Directors monitor the results of the operating
segments separately for the purpose of making decisions about
resource allocation and performance assessment prior to charges for
tax, depreciation and amortisation.
Operating segment information under the primary reporting format
is disclosed below:
Data &
Digital Technology
Content Media Services Total
=======================================
Six months ended 30 June GBP000 GBP000 GBP000 GBP000
2022
======================================= ======= ======== ========== ========
Gross profit 250,180 100,664 24,433 375,277
Segment profit(*) 13,950 17,362 8,831 40,143
Overhead cost (10,050)
Adjusted non-recurring and acquisition
related expenses (76,578)
Depreciation and amortisation(**) (28,869)
Net Finance expenses and gain on
net monetary position (10,224)
Loss before income tax (85,578)
======================================== ======= ======== ========== ========
* Including GBP7.1 million depreciation on right-of-use
assets.
** Excluding GBP7.1 million depreciation on right-of-use
assets.
Data &
Digital
Content Media Total(2)
=======================================
Six months ended 30 June GBP000 GBP000 GBP000
2021
======================================= ======= ======== ========
Gross profit 157,047 79,615 236,662
Segment profit(*) 16,750 22,437 39,187
Overhead cost (4,840)
Adjusted non-recurring and acquisition
related expenses (29,927)
Depreciation and amortisation(**) (21,010)
Net Finance expenses (3,250)
Loss before income tax (19,840)
========================================= ======= ======== ========
* Including GBP5.0 million depreciation on right-of-use
assets.
** Excluding GBP5.0 million depreciation on right-of-use
assets.
Data & Technology
Digital Services
Content Media Total
=======================================
Year ended 31 December GBP000 GBP000 GBP000 GBP000
2021
======================================= ======= ======== ========== ========
Gross profit 385,552 167,079 7,632 560,263
Segment profit(*) 52,286 55,024 3,087 110,397
Overhead cost (9,410)
Adjusted non-recurring and acquisition
related expenses (97,372)
Depreciation and amortisation(**) (45,670)
Net finance expenses and loss on
net monetary position (13,595)
Loss before income tax (55,650)
======================================== ======= ======== ========== ========
* Including GBP10.8 million depreciation on right-of-use
assets
** Excluding GBP10.8 million depreciation on right-of-use
assets
7. Income tax
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021(2) 2021
===============================
GBP000 GBP000 GBP000
=============================== ========== ========== ========
Current tax for the year (6,325) (7,377) (12,638)
Adjustments for current tax of
prior years - 462 620
Total current tax (6,325) (6,915) (12,018)
Movement in deferred tax
liabilities 6,174 3,525 6,594
Movement in deferred tax
assets 3,332 243 4,359
Income tax credit/(expense) 3,181 (3,147) (1,065)
================================== ========== ========== ========
8. Earnings per share
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021(2) 2021
==================================== =========== =========== ===========
Loss attributable to owners of
the Company (GBP'000) (82,397) (22,987) (56,715)
Weighted average number of ordinary
shares 567,714,015 544,589,568 551,752,618
Basic loss per share (pence) (14.5) (4.2) (10.3)
======================================= =========== =========== ===========
Diluted loss per share
(pence) (14.5) (4.2) (10.3)
======================================= =========== =========== ===========
Earnings per share is calculated by dividing the net result
attributable to the shareowners of the S(4) Capital Group by the
weighted average number of Ordinary Shares in issue during the
period.
9. Intangible assets
Customer Order
Goodwill relationships Brands Backlog Other Total
==============================
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
============================== ======== ============== ======= ======== ======= =========
Cost 498,113 307,120 18,557 11,794 11,207 846,791
Accumulated amortisation - (32,243) (3,121) (7,604) (2,757) (45,725)
Net book value at 1 January
2021 498,113 274,877 15,436 4,190 8,450 801,066
============================== ======== ============== ======= ======== ======= =========
Acquired through business
combinations 73,431 22,038 654 1,321 661 98,105
Additions - - - - 411 411
Amortisation charge for
the period - (11,965) (1,316) (2,945) (1,303) (17,529)
Foreign exchange differences (13,480) (6,846) (471) (76) (162) (21,035)
Total transactions during
the period 59,951 3,227 (1,133) (1,700) (393) 59,952
============================== ======== ============== ======= ======== ======= =========
Cost 558,064 321,310 18,652 12,751 12,344 923,121
Accumulated amortisation - (43,206) (4,349) (10,261) (4,287) (62,103)
Net book value at 30 June
2021(*) 558,064 278,104 14,303 2,490 8,057 861,018
Restatement(7) (20,916) 17,900 650 203 178 (1,985)
============================== ======== ============== ======= ======== ======= =========
Net book value at 30 June
2021 537,148 296,004 14,953 2,693 8,235 859,033
Acquired through business
combinations 82,460 46,614 1,500 2,023 (10) 132,587
Additions - - - - 3,047 3,047
Amortisation charge for
the period - (14,797) (1,996) (3,435) (1,734) (21,962)
Foreign exchange differences 5,018 3,056 40 48 48 8,210
Total transactions during
the period 87,478 34,873 (456) (1,364) 1,351 121,882
============================== ======== ============== ======= ======== ======= =========
Cost 624,626 389,040 20,883 14,987 15,203 1,064,739
Accumulated amortisation - (58,163) (6,386) (13,658) (5,617) (83,824)
Net book value at 31 December
2021 624,626 330,877 14,497 1,329 9,586 980,915
============================== ======== ============== ======= ======== ======= =========
Restatement(8) 411 - - - - 411
============================== ======== ============== ======= ======== ======= =========
Net book value at 31 December
2021 625,037 330,877 14,497 1,329 9,586 981,326
============================== ======== ============== ======= ======== ======= =========
Acquired through business
combinations 52,731 88,827 2,247 7,845 325 151,975
Additions - - - - 557 557
Amortisation charge for
the period - (16,835) (2,327) (3,250) (1,818) (24,230)
Foreign exchange differences 49,466 28,717 942 152 630 79,907
Total transactions during
the period 102,197 100,709 862 4,747 (306) 208,209
============================== ======== ============== ======= ======== ======= =========
Cost 727,234 511,386 24,724 23,923 17,226 1,304,493
Accumulated amortisation - (79,800) (9,365) (17,847) (7,946) (114,958)
Net book value at 30 June
2022 727,234 431,586 15,359 6,076 9,280 1,189,535
============================== ======== ============== ======= ======== ======= =========
* Goodwill has been restated for the initial accounting for the
business combination of Orca, Brightblue, Metric Theory, Decoded
amounting to GBP19.2 million.
10. Trade and other receivables
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
==================
GBP000 GBP000 GBP000
================== ========== ========== =======
Trade receivables 271,611 199,142 271,747
Prepayments 16,708 6,724 14,516
Accrued income 43,337 18,130 36,870
Other receivables 18,075 9,989 12,365
Total 349,731 233,985 335,498
===================== ========== ========== =======
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. A provision for expected
credit loss of GBP5.8 million was recognised on the Group's trade
receivables at the end of the period (30 June 2021 GBP4.7 million,
31 December 2021 GBP5.3 million).
11. Loans and borrowings
Senior
secured Loan
term loan Transaction interest
Bank loans B (TLB) costs Total
=============================
Loans and borrowings GBP000 GBP000 GBP000 GBP000 GBP000
============================= ========== ========== =========== ========== =========
Balance as at 1 January
2021 91,285 - (844) - 90,441
============================== ========== ========== =========== ========== =========
Additions 24,057 - - - 24,057
Acquired through business
combinations 424 - - - 424
Charged to profit-or-loss - - 92 - 92
Exchange rate differences (2,797) - 26 - (2,771)
Balance as at 30 June 2021 112,969 - (726) - 112,243
============================== ========== ========== =========== ========== =========
Additions 575 318,938 (8,379) - 311,134
Acquired through business
combinations 2,336 - - - 2,336
Loans waived (1,592) - - - (1,592)
Repayments (110,895) - - (5,530) (116,425)
Charged to profit-or-loss - - 1,191 6,169 7,360
Exchange rate differences (67) (3,833) (47) (15) (3,962)
Balance as at 31 December
2021 3,326 315,105 (7,961) 624 311,094
============================== ========== ========== =========== ========== =========
Additions 2,864 - (288) - 2,576
Acquired through business
combinations 258 - - - 258
Loans waived (266) - - - (266)
Repayments (166) - - (6,117) (6,283)
Charged to profit-or-loss - - 517 6,115 6,632
Exchange rate differences 114 6,720 (127) 15 6,722
Balance as at 30 June 2022 6,130 321,825 (7,859) 637 320,733
============================== ========== ========== =========== ========== =========
Repayment obligations coming
12 months 4,763 - - 637 5,400
Non-current balance as
at 30 June 2022 1,367 321,825 (7,859) - 315,333
============================== ========== ========== =========== ========== =========
Facility agreement
On 6 August 2021, S(4) Capital Group signed a new facility
agreement, consisting of a Term Loan B (TLB) of EUR 375 million and
a multicurrency Revolving Credit Facility (RCF) of GBP100 million.
The interest on the facilities is the aggregate of the variable
interest rate (EURIBOR, LIBOR or, in relation to any loan in GBP,
SONIA) and a margin based on leverage (between 2.25% and 3.75%).
The duration of the facility agreement is seven years in relation
to the TLB, therefore the termination date is August 2028, and five
years in relation to the RCF, therefore the termination date is
August 2026. S(4) Capital Group has pledged the assets of its
companies as security for this facility. During the reporting
period the RCF remained fully undrawn.
The average interest rate of the outstanding loans amounts to
3.58% (six-month period ending 30 June 2021 1.38%, 12-month period
ending 31 December 2021 2.96%). The average effective interest rate
for the outstanding loans is 3.58% (six-month period ending 30 June
2021 1.34%, 12-month period ending 31 December 2021 2.93%) and
during the period interest expense of GBP 6.6 million (six-month
period ending 30 June 2021 GBP0.8 million, 12-month period ending
31 December 2021 GBP6.2 million) was recognised.
The facility agreement imposes certain covenants on the Group.
The loan agreement states that (subject to certain exceptions) S(4)
Capital Group will not provide any other security over its assets
and receivables and will ensure that the net debt will not exceed
4.50:1 of the proforma earnings before interest, tax, depreciation,
and amortisation, measured at the end of any relevant period of 12
months ending each semi-annual date in a financial year.
During the year S(4) Capital Group complied with the covenants
set in the loan agreement.
12. Trade and other payables
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021(7) 2021
================
GBP000 GBP000 GBP000
================ ========== ========== =======
Trade payables 178,876 147,117 204,985
Accruals 71,603 51,962 51,446
Deferred income 56,841 26,892 58,887
Other payables 10,991 - 8,741
Total 318,311 225,971 324,059
=================== ========== ========== =======
13. Cashflow from operations
The following table shows the items included in the cash flows
from operations.
Six months Six months Year ended
ended ended 31 Dec
30 June 30 June 2021
2022 2021(2)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
================================ ========= =========== ======== =========== ======== ===========
Cash flows from operating
activities
Loss before income tax (85,578) (19,840) (55,650)
Financial income and
expenses 9,604 3,250 12,251
Depreciation and amortisation 36,013 25,960 56,456
Share based compensation 6,880 6,312 13,876
Acquisition and set-up
related expenses 69,698 23,615 83,496
Contingent consideration
paid(*) (32,331) (3,402) (9,985)
================================= ========= =========== ======== =========== ======== ===========
37,367 20,213 73,511
Loss on the net monetary
position 620 - 1,344
Increase in trade and
other receivables 40,882 (38,657) (131,662)
Increase in trade and
other payables (48,121) 19,953 98,370
================================= ========= =========== ======== =========== ======== ===========
Cash flows from operations (2,333) 17,191 68,496
* Contingent consideration tied to employment is deemed
remuneration expenses according to IFRS 3.
14. Related party transactions
Details of compensation for key management personnel for the 12
months to 31 December 2021 are disclosed on pages 71 to 91 of the
Annual Report and Accounts 2021. Apart from the key management
personnel compensation and the interest in S4S Ventures noted
below, S(4) Capital Group did not have any other related party
transactions during the financial period (2021: nil).
Interest in S4S Ventures
The Group, through its subsidiary S(4) Capital 2 Limited a
directly owned subsidiary within the S4 Group ("S4"), together with
Stanhope Capital LLP ("Stanhope LLP"), through its subsidiary
Portman Square General Partner S.à r.l. ("Stanhope"), subscribed
for the initial EUR6,000 of shares each to incorporate S4S Ventures
General Partner S.à r.l . ("GP"), a Luxemburg company. The GP has
since established two S4S Ventures funds established in Luxemburg
and the US. Transactions pertaining to the fund were immaterial as
at the half year.
15. Reconciliation to non-GAAP measures of performance
Management includes non-GAAP measures as they consider these
measures to be both useful and necessary. They are used by
management for internal performance analyses; the presentation of
these measures facilitates comparability with other companies,
although management's measures may not be calculated in the same
way as similarly titled measures reported by other companies; and
these measures are useful in connection with discussions with the
investment community.
Acquisition
and set-up
related Share
Reported Amortisation(*) expenses(**) based compensation Adjusted(6)
==============================
Six months ended 30 Jun GBP000 GBP000 GBP000 GBP000 GBP000
2022
============================== ======== =============== ============= =================== ===========
Operating profit / (loss) (75,354) 24,229 69,698 6,880 25,453
Net finance expenses and loss
on monetary position (10,224) - - - (10,224)
Profit / (loss) before income
tax (85,578) 24,229 69,698 6,880 15,229
Income tax expense 3,181 (6,444) - - (3,263)
Profit / (loss) for the
period (82,397) 17,785 69,698 6,880 11,966
=============================== ======== =============== ============= =================== ===========
* Amortisation relates to the amortisation of intangible assets
identified as part of the purchase price allocation exercise as a
result of the acquisitions.
** Acquisition and set-up related expenses relate to acquisition
related advisory fees of GBP3.6 million, contingent consideration
as remuneration of GBP67.8 million and remeasurement gain on
contingent considerations of GBP1.7 million.
Acquisition
and set-up
related Share
Reported Amortisation(*) expenses(**) based compensation Adjusted(6)
==============================
Six months ended 30 Jun GBP000 GBP000 GBP000 GBP000 GBP000
2021(2)
============================== ======== =============== ============= =================== ===========
Operating profit / (loss) (16,590) 17,987 23,615 6,312 31,324
Net finance expenses (3,250) - - - (3,250)
Profit / (loss) before income
tax (19,840) 17,987 23,615 6,312 28,074
Income tax expense (3,147) (6,582) - - (9,729)
Profit / (loss) for the
period (22,987) 11,405 23,615 6,312 18,345
=============================== ======== =============== ============= =================== ===========
* Amortisation relates to the amortisation of intangible assets
identified as part of the purchase price allocation exercise as a
result of the acquisitions.
** Acquisition and set-up related expenses relate to acquisition
related advisory fees of GBP3.6 million, bonuses of GBP0.3 million
and revaluation of contingent considerations of GBP19.7
million.
Acquisition
and set-up
related Share
Reported Amortisation(*) expenses(**) based compensation Adjusted(6)
==============================
Year ended 31 Dec 2021 GBP000 GBP000 GBP000 GBP000 GBP000
============================== ======== =============== ============= =================== ===========
Operating profit / (loss) (42,055) 39,491 83,496 13,876 94,808
Net finance expenses and loss
on monetary position (13,595) - - - (13,595)
Profit / (loss) before income
tax (55,650) 39,491 83,496 13,876 81,213
Income tax expense (1,065) (6,941) (1,426) - (9,432)
Profit / (loss) for the
period (56,715) 32,550 82,070 13,876 71,781
=============================== ======== =============== ============= =================== ===========
* Amortisation relates to the amortisation of intangible assets
identified as part of the purchase price allocation exercise as a
result of the acquisitions.
** Acquisition and set-up related expenses relate to
acquisition-related advisory fees of GBP10.5 million, bonuses of
GBP0.8 million, contingent consideration as remuneration of GBP70.5
million (out of which GBP10.0 million is cash) and remeasurement
loss on contingent considerations of GBP1.7 million.
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021(2) 2021
=======================================
Reconciliation to adjusted operational GBP000 GBP000 GBP000
EBITDA
======================================== ========== ========== ========
Operating profit / (loss) (75,354) (16,590) (42,055)
Amortisation of intangible assets 24,229 17,987 39,491
Acquisition and set-up related
expenses 69,698 23,615 83,496
Share based compensation 6,880 6,312 13,876
Depreciation property, plant and
equipment(*) 4,640 3,023 6,179
Operational EBITDA 30,093 34,347 100,987
========================================== ========== ========== ========
* Depreciation property, plant and equipment is exclusive of
depreciation on right-of-use assets.
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2022 2021 2021
======================
Billings(1) GBP000 GBP000 GBP000
====================== ========== ========== =========
Revenue 446,439 279,288 686,601
Pass-through expenses 319,202 268,259 610,249
Billings 765,641 547,547 1,296,850
========================= ========== ========== =========
Six months Six months Year
ended ended ended
Adjusted(6) Basic net profit 30 June 30 June 31 Dec
per share 2022 2021(2) 2021
==================================== =========== =========== ===========
Weighted average number of shares
in issue 567,714,015 544,589,568 551,752,618
Adjusted(6) net profit attributable
to equity of owners of the company
(GBP000) 11,966 18,345 71,781
Adjusted(6) Basic net earnings
per share 2.1 3.4 13.0
======================================= =========== =========== ===========
As at 30 June 2022 the outstanding number of shares is
556,085,466.
16. Events occurring after the reporting period
Business combinations
@ On 01 July 2022, S(4) Capital Plc announced the business
combination between MediaMonks and XX Artist, an award-winning
Social Media Marketing agency headquartered in Los Angeles who also
touts an industry-leading talent social practice, working with over
40 top musicians, actors, artists and public figures on their
digital platforms, for a total estimated consideration of GBP 20.1
million for 100% of equity and voting rights. The initial
accounting for the business combination has not been completed at
the time the interim financial statements were authorised for
issue.
Capital reduction
@ The Company is in the process of undertaking a reduction of
capital to affect the cancellation of: (i) the C ordinary shares
resulting from the capitalisation of the sum of GBP205,717,000
standing to the credit of the Company's merger reserve and; (ii)
the entire amount standing to the credit of the Company's share
premium account (the "Capital Reduction"), in order to create
distributable reserves. The Capital Reduction was approved by
shareowners at the Company's Annual General Meeting held on 16 June
2022. As announced on 13 September 2022, the Capital Reduction was
approved by the High Court of Justice of England and Wales on 13
September 2022 and is expected to be registered by the Registrar of
Companies no later than 28 September 2022, upon which the Capital
Reduction will become effective. This will provide the Company with
the flexibility to make future purchases of its own shares and/or
to make future ordinary course dividends although, at this time,
the Board confirms that it has no current plans to do so. The Board
continues to review the advisability of declaring a modest dividend
in future.
17. Principal risks and uncertainties
The key risks for the Group achieving their objectives remain
largely the same as those reported in the Annual Report and
Accounts 2021 and can be found on page 33 up to and including page
38. A description of the risks and uncertainties have been included
below.
Economic environment
Adverse developments in the global economy or the local
economies in the territories where the Group has operations could
impact the level of demand for the Group's services
People and leadership
The quality of the services provided by the Group's businesses
are fundamentally derived from the quality of the Group's people.
The Group's performance could therefore be adversely affected if it
is not able to recruit, train and retain key talent in the Group's
businesses and at the Group level.
Strategic
The Group's future results of operation and financial
performance are partly dependent on the successful implementation
of the Group's strategy. The Group's strategy is to build a purely
digital multinational advertising and marketing services business,
initially by business combinations and long term through robust
organic growth.
The Group's strategy envisages that it will continue to grow
rapidly. The Group may not have the infrastructure, management time
and/or governance structure to be able to grow at the desired speed
and/or to fully integrate new businesses into the Group.
The Group has combined with a large number of businesses, which
are being integrated into the Group, and the Group's strategy
envisages further combinations. The Group's performance could be
adversely affected if the combined businesses are not successfully
integrated into the Group.
The Group is dependent on relationships with certain third
parties with significant market positions, particularly Google
Marketing Platform and the rest of the Google advertising ecosystem
and an unnamed telecommunications company (subject to a NDA), but
also Amazon and Meta.
As part of the Group's strategy, the Directors intend to
identify suitable combination opportunities. The Group may not
successfully identify and complete, or, if completed, integrate
suitable combination opportunities in the future.
The Group conducts due diligence as it deems reasonably
practicable and appropriate based on the facts and circumstances
applicable to any business combination under consideration.
Material facts or circumstances may not be revealed in the due
diligence and may surface once the integration starts.
As the Group has been established through combinations, and the
Company was only listed on the London Stock Exchange in 2018, the
Group's control environment and governance arrangements are
relatively in their infancy in comparison to other listed
companies, which could negatively impact on the financial position
and prospects of the Group.
Google, a key customer to us, recently announced that
third-party cookies would be blocked in Chrome by 2023. As a
result, in the next 12 months, third-party cookies will become
effectively unusable for advertising measurement and many forms of
third-party data already challenged by GDPR since May 2018, will
cease to exist.
Competitive environment
The digital media and communication services industry is highly
competitive. The Group's revenues and/or margins could be reduced
if clients are lost to competitors, competition erodes the Group's
pricing power or the economic environment results in lower demand
for advertising and marketing services of the type which the Group
provides. The advertising and marketing services industry is
subject to significant and rapid change.
IT and data security
The Group is subject to a number of laws relating to privacy and
data protection governing its ability to collect and use personal
information. These data protection and privacy-related laws and
regulations are becoming increasingly restrictive and complex and
may result in greater regulatory oversight and increased levels of
enforcement and sanctions. The European Union's General Data
Protection Regulation (GDPR) and, the UK version of GDPR, both
provide for fines of up to 4% of global turnover to be levied for
breaches.
The Group may be vulnerable to hacking, identity theft and
fraud.
The intellectual property rights of the Group are important to
its business. There is a risk that title to the relevant
intellectual property rights has not been properly assigned to the
Group. There is a risk that third-party distributors of
intellectual property could allege that the Group has not complied
with the conditions of a licence.
Financial, regulatory, sanctions and taxation
The Group has exposure to credit risk through the default of a
client or other counterparty.
The Group does and expects to continue to generate a significant
proportion of its revenue in US dollars and other currencies. There
is a risk that any significant movement in foreign exchange rates
between Pound Sterling and other currencies in which revenue is
generated could have an impact on the Group's results and financial
position.
The Group is and will continue to be subject to strict
anti-corruption, anti-bribery and anti-trust legislation and
enforcement in the countries in which it operates.
The Group may be subject to regulations restricting its
activities or effecting changes in taxation.
The Group is and will continue to be subject to the laws of the
UK, the US, the EU and other jurisdictions that impose sanctions
and regulate the supply of services to certain countries.
Responsibility statement
The directors confirm that these unaudited consolidated interim
financial statements have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and
that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
@ an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
@ material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The maintenance and integrity of the S(4) Capital plc website is
the responsibility of the directors; the work carried out by the
authors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that might have occurred to the interim financial statements since
they were initially presented on the website.
The directors of S(4) Capital plc are listed in the S(4) Capital
plc annual report for 31 December 2021 (with the exception of the
following changes in the period: Mr Peter Rademaker and Mr Peter
Kim resigned on 16 June 2022, and Mr Colin Day was appointed on 2
August 2022 ). A list of current directors is maintained on the
S(4) Capital plc website: www.s4capital.com
Signed on behalf of the Board on 21 September 2022
Sir Martin Sorrell Mary Basterfield
Executive Chairman Group Chief Financial Officer
Independent review report to S4 Capital plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed S4 Capital plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
unaudited consolidated interim financial statements of S4 Capital
plc for the 6 month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the unaudited consolidated interim balance sheet as at 30 June 2022;
-- the unaudited consolidated interim statement of profit or
loss and unaudited consolidated interim statement of comprehensive
income for the period then ended;
-- the unaudited consolidated interim statement of cash flows for the period then ended;
-- the unaudited consolidated interim statement of changes in
equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the unaudited
consolidated interim financial statements of S4 Capital plc have
been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the unaudited
consolidated interim financial statements and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The unaudited consolidated interim financial statements,
including the interim financial statements, is the responsibility
of, and has been approved by the directors. The directors are
responsible for preparing the unaudited consolidated interim
financial statements in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the unaudited consolidated interim
financial statements, including the interim financial statements,
the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the unaudited consolidated interim
financial statements based on our review. Our conclusion, including
our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of complying with the Disclosure Guidance
and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
21 September 2022
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END
IR URVKRUAUKUAR
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