TIDMSFOR
RNS Number : 6672U
S4 Capital PLC
29 March 2023
S(4) Capital plc
("S(4) Capital" or "the Company" or "the Group")
Unaudited 2022 preliminary results
Full year net revenue like-for-like growth of 26% slightly ahead
of guidance
Operational EBITDA GBP124 million slightly ahead of guidance and
up sharply in H2 to over GBP90 million versus GBP30 million in
H1
Operational EBITDA margin improved significantly in H2 to 18%
versus 8% in H1
Net debt at GBP110 million, better than guidance of GBP130-170
million
Continued client conversion at scale, with 10 'whoppers' and a
further 14 in sight
Despite volatile economic environment expect continued progress
in 2023
GBP millions Year Year ended change change change
ended 31 Dec Reported Like-for-like(3) Pro-forma(4)
31 Dec 2021
2022
Billings(1) 1,890.5 1,296.9 45.8% 23.5% 24.3%
Revenue 1,069.5 686.6 55.8% 24.3% 25.8%
Net revenue(2) 891.7 560.3 59.1% 25.9% 27.1%
------------------------------ -------- ----------- ---------- ------------------ --------------
Operational EBITDA(5) 124.2 101.0 23.0% -16.4% -11.8%
Operational EBITDA margin(5) 13.9% 18.0% -410bps -710bps -650bps
Adjusted(6) operating profit 114.1 94.8 20.4%
Adjusting(6) items (249.4) (136.9) -82.2%
Operating loss (135.3) (42.1) -221.4%
Loss for period (159.6) (56.7) -181.5%
------------------------------ -------- ----------- ---------- ------------------ --------------
Basic loss per share (pence) (27.0)p (10.3)p -16.7p
Adjusted(6) basic earnings
per share (pence) 11.8p 13.0p -1.2p
Number of people 8,891 7,700
============================== ======== =========== ========== ================== ==============
Net debt(7) 110.2 18.0
============================== ======== =========== ========== ================== ==============
Financial highlights
@ Billings(1) were GBP1,890.5 million, up 46% on a reported basis, up 24% like-for-like(3) .
@ Revenue GBP1,069.5 million, crossing GBP1 billion for the
first time, up 56% reported, 24% like-for-like and up 26%
pro-forma.
@ Net revenue(2) GBP 891.7 million, up 59 % reported, and 26 %
like-for-like and 27% pro-forma, as the Group continued to
outperform both the digital advertising and transformation markets.
Two year and three-year stacks (like-for-like growth stacks for the
last two and three years) are 70 % and 89 %.
@ Operational EBITDA(5) GBP 124.2 million, up 23 % reported and
down 16 % like-for-like reflecting investment in hiring in the
first half ahead of net revenue growth, partly offset by the
benefit from increased focus on people investment and cost
management in the second half.
@ Operating loss GBP 135.3 million, after GBP 249.4 million of
primarily combination related expense, being payments linked to
continued employment and the associated expenses and amortisation
totalling GBP 229.8 million versus GBP 123.0 million in 2021.
@ Basic loss per share of 27.0p, down 16.7 p versus 10.3 p basic loss per share in 2021.
Adjusted(6) basic earnings per share, which excludes adjusting
items after tax, of 11.8p per share, down 9% versus 13.0p per share
last year.
@ Net debt (7) ended the period at GBP 110.2 million, or 0.8 x
net debt/ pro-forma o perational EBITDA, reflecting combination
payments made in 2022, principally for TheoremOne and XX Artists,
both 2022 combinations and Raccoon, a combination in 2021. Net debt
was well below the bottom end of the guidance range of GBP130 - 170
million reflecting better working capital management.
@ The balance sheet remains strong with sufficient liquidity and
long-dated debt maturities to facilitate growth. Pro-forma
operational EBITDA was GBP 136.3 million .
Strategic and operational highlights
@ In 2022 we secured 10 'whopper' relationships, up from 6 in
2021 and 2 in 2020. We have identified a further 14 clients which
are trending towards 'whopper' status (i.e. revenue of over $20m
per annum) making a potential total of 23, despite scaling down
some of our work for one of them (Mondelez) in early 2023, having
mutually chosen not to renew a contract. We remain on track to
reach our 20(2) objective (20 clients with revenue of $20m per
annum).
@ We had a challenging first half of 2022, despite H1 net
revenue growth of 28% like-for-like, as hiring ahead of the revenue
and net revenue growth impacted profitability particularly in the
Content practice.
@ Profit performance in the second half was much improved, with
significant cost management measures implemented, including a brake
on hiring and discretionary cost controls. These controls had the
desired effect, with the number of people at year-end being around
8,900, similar to over 9,000 at the half-year. A more balanced
approach to our investment in people will be maintained going
forward.
@ Major progress has been made in improving financial controls,
treasury, risk and governance and these improvements are now
included in our processes and practices. These include significant
additions to the team and organisational and reporting changes.
@ The Content practice posted 24% like-for-like net revenue(2)
growth, with Data&Digital Media up 17% and Technology Services
up 72%. Data&Digital Media had a more challenging second half,
with net revenue growth lower than the first half and corrective
actions have been taken to align the cost base with activity
levels. Content significantly improved on the first half,
particularly in operational EBITDA margin delivery, as a result of
the improved controls and cost management. Technology Services
remained strong.
@ Geographically, on a like-for-like basis, the Americas net
revenue growth was up 27% and now accounts for 75.6% of the total,
EMEA, accounting for 17.5% grew at 31% and Asia Pacific, accounting
for the remaining 6.9% grew at 4.8%, chiefly reflecting the impact
of covid-19 lockdowns in China on the region in 2022.
@ Three new combinations were added to the Group in 2022, with
total initial payments of GBP89.2 million.
@ In January Data&Digital Media practice combined with 4Mile
Analytics, a data consultancy specialising in custom data
experiences powered by the Looker platform. 4Mile has faced
significant challenges since joining the Group and has performed
below expectations.
@ 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. TheoremOne
has performed well since joining the Group.
@ In July the Content practice combined with XX Artists, a Los
Angeles based digital marketing agency. XX Artists has performed
well since joining the Group.
@ Colin Day was appointed as a Non-Executive Director and Chair
of the Audit and Risk Committee in August 2022.
Outlook
@ Our two major addressable markets, first the digital
platforms, which drive 90% of our net revenues, are forecast to
grow advertising revenue by around 7-8 % in 2023 and the second,
technology services, which accounts for about 10% of our net
revenue, by 8-10%. We expect to grow faster than these markets, as
in previous years, and set a like-for-like net revenue(2) growth
target for 2023 of 8-12 %, a fter taking into account the pro-forma
impact of one 'whopper' account reduction on net revenue (10) . The
pipeline remains healthy.
@ The operational EBITDA margin is targeted to be in the range
of 15-16% (8) for the full year, with the performance for the full
year weighted to the second half as normal.
@ Our net debt is anticipated to rise in 2023 reflecting
combination payments for prior year combinations, after which
virtually all of the existing contingent consideration due will
have been satisfied. Our expected range is GBP180-220 million. We
maintain our maximum leverage target of 1.5-2 times operational
EBITDA.
@ Over the longer term we expect our growth to outperform our
market and competition and operational EBITDA margins to return to
historic levels of 20%+.
Sir Martin Sorrell, Executive Chairman of S(4) Capital plc
said:
"The Company continued to outperform the growth of the digital
advertising and transformation markets in 2022, crossing GBP1
billion revenue for the first time and to broaden and deepen
relationships with its largest clients, continuing conversion at
scale. The actions taken by our management and the positive
response by our people to the first half challenge of balancing
growth in net revenue with growth in costs, have delivered a much
improved second half performance. This really reflects what the
Company is capable of achieving. We have momentum going into 2023
and are cautiously optimistic, despite the slowdown of growth in
our major addressable markets. We expect to make continued
progress, stimulated, in particular, by the early and rapid
implementation of revolutionary new technologies such as AI."
N otes:
1. Billings is unaudited gross billings to client including pass through costs.
2. Net revenue is revenue less direct costs.
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. Pro-forma 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 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 net revenue.
6. Adjusted for acquisition related expenses, non-recurring
items and recurring share-based payments.
7. Net debt excludes lease liabilities.
8. This is a target and not a profit forecast.
9. Controlled billings are unaudited billings we influenced in
addition to billings that flowed through our income statement.
10. For guidance purposes 2022 pro-forma net revenue is GBP907
million, including the full year impact of 2022 combinations
TheoremOne and XX Artists and a small adjustment for reduced
activity on Mondelēz.
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. S(4) Capital 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 17:30 BST/12:30 EDT. A webcast of the presentation will be
available at www.s (4) capital.com during the event.
17.30 BST webcast (watch only) and conference call (for
Q&A):
Webcast: https:// brrmedia.news/SFOR_FY22
Conference call:
UK: +44 (0)330 551 0200
USA: +1 786 697 3501
Enquiries to
S(4) Capital plc
+44 (0)20 3793 0003/ +44 (0)20 3793
Sir Martin Sorrell, Executive Chairman 0007
Mary Basterfield, Chief Financial
Officer
Scott Spirit, Chief Growth Officer
Powerscourt (PR Advisor)
Elly Williamson 44 (0)7970 246 725
Ollie Simmonds
Preliminary results statement overview
2022 was good in parts, with continued strong, client conversion
and top-line like-for-like growth offset by weaker than expected
operational EBITDA margins. We ended the year with good momentum,
with the second half delivering three times the operational EBITDA
of the first half. The much improved second half performance
reflected the expected market leading net revenue growth, tighter
cost management and better cash generation, underpinned by enhanced
commercial discipline and financial processes. These will remain
the core focus.
2022 was our fourth full financial year, with revenue of over
GBP1 billion for the first time. Net revenue of nearly GBP900
million was up 26% on a like-for-like basis ahead of our 2022
target of 25%. The growth rate achieved was well ahead of those
generated by our two main addressable markets - digital media and
transformation. Operational EBITDA of GBP124.2 million was also
slightly ahead of the revised guidance of GBP120 million. We
delivered an overall operational EBITDA margin of 13.9%, with a H2
margin of 18.2%. We are encouraged by the improved profitability in
the second half, which represented c.75% of the full year
operational EBITDA. The Company has a strong balance sheet, with
net debt ending lower than we had anticipated at GBP110 million or
0.8x pro-forma operational EBITDA. The net debt outperformance is
due to better working capital management and reflects our
strengthened financial discipline around billing and
receivables.
We made two important, large, combinations with TheoremOne and
XX Artists, both of which performed well in their first year with
the Company. We also merged with a smaller firm, 4 Mile Analytics,
built around Google's Looker platform, that has disappointed and
accordingly we have written down the goodwill and the majority of
the assets and are executing a reorganisation. In 2023 there will
be a cash outflow relating to 2022 and prior year combinations,
with net debt expected to rise as a result. We will maintain a
conservatively levered balance sheet and the focus for the time
being will be on maximising value from our existing businesses.
Both digital media and transformation growth rates remain well
above those of traditional, analogue markets. We are mainly focused
on the digital media and transformation markets and are at the
heart of developing trends around Blockchain, the Metaverse and AI.
We are already starting to use Artificial Generative Intelligence
in improving copywriting productivity, in delivering more
empathetic hyper-personalisation (better targeted content at
greater scale), more automated media planning and buying and
ensuring our people have access to what we term AI's 'superpowers'.
We do, however, expect our markets and clients to grow more slowly
in 2023, reflecting the weaker global economic conditions which
have been impacted by inflation and higher interest rates, and
general geopolitical uncertainty around US/China relations, the war
in Ukraine and relations with Iran.
The Company reports in three well defined practices Content,
Data&Digital Media and Technology Services. Content, which had
a challenging first half, had much improved operational EBITDA
delivery in the second half with net revenue growth converting to
the bottom line reflecting a more tightly managed cost base.
Data&Digital Media saw operational EBITDA reduce significantly
in 2022 against a strong comparative in 2021. Net revenue growth,
although good, was lower than expected in the second half and costs
ran ahead of growth. Corrective actions are being taken. In
Technology services both Zemoga and TheoremOne performed strongly
in the year. As expected and reflecting the need to improve the
Company's financial management, central costs grew significantly in
2022 with investment in people and processes to strengthen finance,
legal, governance and assurance.
ESG
2022 was a year of focus, concentrated around the three areas of
our ESG strategy: Zero Impact Workspaces, Sustainable Work, and
Diversity, Equity and Inclusion (DE&I). We are adopting new
tools to help us move towards increased transparency and measuring
of CO2 emissions. We continue to engage with leading stakeholders,
industry efforts and global initiatives - like the World Economic
Forum and Shanghai Municipality's International Business Leaders'
Advisory Council (IBLAC). After signing The Climate Pledge in 2021
with a goal to reach Net Zero by 2040, we took full inventory of
our emissions, using the Greenhouse Gas (GHG) Protocol standards to
understand the reduction opportunities within the Company. We
submitted our SBTi letter of commitment and are developing a
detailed roadmap in 2023. Across the Company, we donated 4,090
hours for community and charity services and increased our For Good
projects from 251 to 445.
We focused on our people and people experience with the launch
of our DE&I platform, Diversity in Action, which touches
all aspects of our business. Embedding a greater understanding
of diversity and cultural fluency into the Company is also a top
priority. We signed the United Nations (UN) Women's Empowerment
Principles and continue to focus on closing the representation gap
in our industry by providing training to underserved and/or
underrepresented talent. We also enhanced our ESG governance
structure, updated our global policies and compliance, completed
our Task Force on Climate-related Financial Disclosures (TCFD) risk
assessment and entered our ESG data into the CDP global disclosure
system for the first time.
Board update
In 2022 the Company strengthened its Board with a number of
senior appointments.
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 has made significant
progress in the year allowing the Company to deliver its full year
2022 results in a timely manner.
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. Colin has decades of experience in both
management and governance roles.
In addition, Christopher S. Martin, one of the founders of
MightyHive Inc., has been appointed Chief Operating Officer, to
scale the Company's organisational structure and processes.
We now have a Board of 15 directors, nine Non-Executive
Directors of which four are women and five are men, and six
Executive Directors.
Summary and outlook
The strategy of S(4) Capital remains the same. The Company's
purely digital transformation model, based on first-party data
fuelling the creation, production and distribution of digital
advertising content, distributed by digital media and built on
technology platforms to ensure success and efficiency, resonates
with clients. Our tagline 'faster, better, cheaper, more' or
'speed, quality, value, more' (to which with the arrival of AI we
have added 'more') and a unitary structure both appeal strongly,
even more so in challenging economic times.
For 2023 we target our net revenue growth rate to reflect those
of the two main addressable digital markets we serve. We estimate
this as around 8-12% like-for-like, after reflecting the pro-forma
impact of one 'whopper' reduction on net revenue. We will continue
to manage costs tightly and target an operational EBITDA margin of
15-16%(8) . As in previous years, given our seasonality, 2023 will
again be second half weighted. Longer term we expect to continue to
be able to deliver strong net revenue growth with operational
EBITDA margins returning to historic levels.
Financial review
Summary of result s
GBP millions Year ended Year ended change change change
31 Dec 31 Dec 2021 Reported Like-for-like(3) Pro-forma(4)
2022
Billings(1) 1,890.5 1,296.9 45.8% 23.5% 24.3%
Revenue 1,069.5 686.6 55.8% 24.3% 25.8%
Net revenue (2) 891.7 560.3 59.1% 25.9% 27.1%
--------------------------------- ----------- ------------- ----------- ------------------ ---------------
Operational EBITDA(5) 124.2 101.0 23.0% -16.4% -11.8%
Operational EBITDA margin(5) 13.9% 18.0% -410bps -710bps -650bps
Adjusted(5) operating profit 114.1 94.8 20.4%
------------------ ---------------
Adjusting(6) items (249.4) (136.9) -82.2%
------------------ ---------------
Adjusted(5) operating profit
margin 12.8% 16.9% -410bps
--------------------------------- ----------- ------------- ----------- ------------------ ---------------
Net finance expenses and
loss on net monetary position (24.4) (13.6) -79.4%
Adjusted(6) result before
income tax 89.7 81.2 10.5%
Adjusted(6) Income tax expenses (20.0) (9.4) -112.8%
Adjusted(6) result for the
period 69.7 71.8 -2.9%
--------------------------------- ----------- ------------- ----------- ------------------ ---------------
Adjusted(6) basic earnings
per share (pence) 11.8p 13.0p -1.2p
================================= =========== ============= =========== ================== ===============
A full list of alternative performance measures and non-IFRS
measures together with reconciliations to IFRS or GAAP measures are
set out in the Alternative Performance Measures.
Financial summary
It has been encouraging to see the progress made during the
year, given the challenges of the first half, including the delay
to the 2021 results and profit underperformance, as we delivered a
much stronger second half. The second half performance reflected
enhanced financial processes and controls, supported by a
strengthened finance team, an improved operational EBITDA margin,
also reflecting tighter cost controls and better cash generation
centred around working capital. While we are pleased with the
second half performance, we will continue to focus on all of these
areas throughout 2023 to support the Company as it continues to
grow and scale profitably.
Billings(1) were GBP1.9 billion, up 46% on a reported basis, up
24% on a like-for-like(3) and pro-forma(4) basis. Controlled
billings(9) , that is billings we influenced in addition to
billings that flowed through our income statement, increased to
approximately GBP5.7 billion (2021: GBP3.9 billion).
Revenue was GBP1,069.5 million, up 56% from GBP686.6 million on
a reported basis, up 24% like-for-like, and up 26% on a pro-forma
basis.
Net revenue was GBP891.7 million, up 59% reported, up 26%
like-for-like, and 27% pro-forma. Throughout the year our
addressable markets remained reasonably strong, and we continued to
outperform them.
Reported operational EBITDA was GBP124.2 million compared to
GBP101.0 million in the prior year, an increase of 23%. Operational
EBITDA was down 16% on a like-for-like basis and down 12% on a
pro-forma basis. The like-for-like growth reflects challenges in
our Data&Digital Media practice after a strong 2021,
particularly in the second half, and also hiring ahead of the net
revenue growth in Content in the first half. The Technology
practice performed strongly. The outturn was modestly ahead of our
revised Operational EBITDA target of GBP120 million.
Operational EBITDA margin was 13.9%, down 410 basis points
versus 18.0% in 2021, down 710 basis points like-for-like and 650
basis points pro-forma impacted by the speed of headcount growth
ahead of net revenue growth in the Content and Data&Digital
Media practices, particularly in the first half. We implemented
tighter controls from the end of the first half which are having
the desired effect. The second half operational EBITDA margin was
18.2%. Our ambition remains to return the margins to historic
levels, above 20%, over the medium term.
Adjusted operating profit was up 20% on a reported basis to
GBP114.1 million from GBP94.8 million, before adjusting items of
GBP249.4 million, including combination payments tied to continued
employment, share-based compensation, restructuring costs primarily
related to headcount and amortisation of business combination
intangible assets. Like-for-like adjusted operating profit was down
20% and pro-forma adjusted operating profit was down 15%.
The reported operating loss of GBP135.3 million, was GBP93.2
million higher than in 2021, reflecting an increase in the
amortisation of intangible assets, accounting for combinations
including those made in 2022, the write down of 4Mile and the
impact of increased personnel costs. Loss for the year was GBP159.6
million (2021: GBP56.7 million).
Adjusted basic earnings per share was 11.8p, versus adjusted
basic earnings per share of 13.0p in 2021.
The Board has decided that no dividends will be declared in
2022, as was the case in 2021, given the focus is on profitable
growth and reducing the level of net debt.
Practice and Geographic Performance
GBP millions Year ended Year ended change change change
31 Dec 31 Dec 2021 Reported Like-for-like(3) Pro-forma(4)
2022
Content 582.7 385.6 51.1% 24.1% 25.6%
Data&Digital Media 216.8 167.1 29.7% 17.3% 17.4%
Technology Services 92.2 7.6 1,113.2% 72.3% 62.4%
--------------------- ----------- ------------- ---------- ------------------ --------------
Net revenue (2) 891.7 560.3 59.1% 25.9% 27.1%
Americas 673.8 391.1 72.3% 27.1% 28.6%
EMEA 156.2 116.0 34.7% 31.2% 31.2%
Asia-Pacific 61.7 53.2 16.0% 4.8% 4.8%
--------------------- ----------- ------------- ---------- ------------------ --------------
Net revenue (2) 891.7 560.3 59.1% 25.9% 27.1%
Content 74.1 52.3 41.7% -0.3% 6.0%
Data&Digital Media 39.9 55.0 -27.5% -39.9% -39.8%
Technology Services 36.1 3.1 1,064.5% 109.9% 87.8%
S(4) central (25.9) (9.4) -175.5% -172.6% -172.6%
--------------------- ----------- ------------- ---------- ------------------ --------------
Operational EBITDA 124.2 101.0 23.0% -16.4% -11.8%
Practice performance
Content practice operational EBITDA was GBP74.1 million, up 42%
on a reported basis versus last year, down 0.3% on a like-for-like
basis and up 6% on a pro-forma basis. The Content practice
operational EBITDA margin was 12.7%, compared to 13.6% last year,
reflecting increased investment in people in the first half of the
year to staff newly secured 'whoppers'. The investment in hiring
ran further ahead of net revenue growth than planned. The Company
responded to this and the H2 2022 operational EBITDA margin
improved to 18.1%.
Data&Digital Media practice operational EBITDA was GBP39.9
million, down 28% on a reported basis from last year, down 40% on a
like-for-like and pro-forma basis. Data&Digital Media practice
operational EBITDA margin was 18.4%, compared to a strong
performance in 2021 of 32.9%, reflecting the significantly
increased investment in people to drive future growth and an
increase in travel and office costs post covid-19. We were
concerned by the H2 2022 performance for Data&Digital Media and
corrective actions have been taken to improve operational EBITDA
delivery.
Technology Services, which now includes Zemoga and TheoremOne,
performed strongly with operational EBITDA of GBP36.1 million
representing an operational EBITDA margin of 39.2%.
Geographic performance
The Americas (7 5.6 % of total) net revenue was GBP673.8
million, up 72% on a reported basis from last year. On a
like-for-like and pro-forma basis the Americas net revenue was up
27% and 29% respectively, reflecting continued outperformance of
the market given growth in our ' whoppers ' and major clients.
EMEA (17.5% of total) net revenue was GBP156.2 million, up 35%
from last year on a reported basis. On both a like-for-like and
pro-forma basis EMEA net revenue was up 31% primarily reflecting '
whopper ' growth and market outperformance .
Asia Pacific (6.9% of total) net revenue was GBP61.7 million, up
16% on a reported basis. On both a like-for-like and pro-forma
basis Asia Pacific net revenue was up 4.8% reflecting continued
organic growth , despite the impact of covid-19 lockdowns in China
on the region .
Cash flow
GBP millions Year ended Year ended
31 Dec 2022 31 Dec 2021
Operational EBITDA 124.2 101.0
Capital expenditure (16.1) (14.9)
Interest paid (14.2) (5.5)
Income tax paid (19.0) (13.9)
Change in working capital (5.1) (33.4)
Free cashflow 69.8 33.3
Mergers & Acquisitions (162.6) (101.7)
Other 0.6 (1.2)
Movement in net debt (92.2) (69.6)
Opening (net debt)/net cash (18.0) 51.6
Net debt (110.2) (18.0)
============================= ============= =============
The table reflects how the business is managed and this is a
non-statutory cash flow format.
Free cash flow for 2022 was GBP69.8 million, an increase of
GBP36.5 million compared to 2021. This was driven by an improvement
in operational EBITDA and the benefits of the focus on working
capital management, with only a small outflow of GBP5.1 million in
year (in contrast to an outflow of GBP33.4 million in 2021). This
was partially offset by increased cash interest costs reflecting
the term loan being in place for the full year and the increase in
interest rates during the year.
Cash paid in relation to combinations (M&A) increased
GBP60.9 million year on year to GBP162.6 million reflecting
payments made in relation to 2022 combinations and prior year
activity.
Treasury and net debt
2022 2021
Net debt reconciliation
GBP millions
================================================= ======== ========
Cash and cash equivalents 223.6 301.0
Loans and borrowings (excluding bank overdraft) (333.8) (317.1)
Bank overdraft - (1.9)
================================================== ======== ========
Net debt (110.2) (18.0)
-------------------------------------------------- -------- --------
The year-end net debt was GBP110.2 million (2021: GBP18.0
million) or 0.8x net debt/pro-forma operational EBITDA, after the
initial 2022 combination payments and contingent consideration
related to prior year combinations. The balance sheet remains
strong with sufficient liquidity and long dated debt maturities.
During the year S(4) Capital Group complied with the covenants set
in its loan agreement.
Interest and tax
Income statement net financing costs were GBP25.7 million (2021:
GBP12.3 million), an increase of GBP13.4 million due to increased
levels of borrowing, to finance the in-year combinations, increased
in interest rates, increased lease costs and the discounting of
contingent consideration. The income statement tax credit for the
year was GBP0.1 million (2021: GBP1.1 million charge) reflecting
higher losses in the year.
Balance sheet
Overall the Group reported net assets of GBP849.6 million as at
31 December 2022, which is an increase of GBP48.4 million compared
to 31 December 2021, driven mainly by the combinations made in the
year increasing the goodwill balance, partially offset by increased
contingent consideration and holdbacks.
Acquisitions
Content p ractice
@ On 1 July 2022, S(4) Capital plc announced the business
combination between Media.Monks and XX Artists, an award-winning
social media marketing agency, headquartered in Los Angeles, with a
competitive talent edge, for an expected total consideration of
approximately GBP20.5 million. XX Artists performed well in the
year.
Data&Digital Media p ractice
@ On 11 January 2022, S(4) Capital plc announced the business
combination between Media.Monks and 4 Mile Analytics, a
California-based data analytics, data engineering, data governance,
software engineering, UX design and project & product
management business, for an expected total consideration, including
performance linked contingent consideration, of approximately
GBP25.1 million. The business has performed well below our
expectations and accordingly we have written down the goodwill and
the majority of the assets.
Technology Services p ractice
@ On 16 May 2022, S(4) Capital plc announced the business
combination between Media.Monks and TheoremOne, a California-based
leader in agile, full-stack, innovation, engineering, and design
and helps major enterprises achieve strategic achieve strategic
digital transformation. The expected total consideration is
approximately GBP143.0 million and the business performed well in
the year.
About S(4) Capital
S (4) Capital plc (SFOR.L) is the tech-led, new age/new era
digital advertising, marketing and technology services company,
established by Sir Martin Sorrell in May 2018.
Our strategy is to build a purely digital advertising and
marketing services business for global, multinational, regional,
and local clients, and millennial-driven influencer brands. This
will be achieved by integrating leading businesses in three
practices : Content, Data&Digital M edia and Technology S
ervices, along with an emphasis on ' faster, better, cheaper, more'
execution in an always-on consumer-led environment, with a unitary
structure.
Victor Knaap, Wesley ter Haar, Christopher S. 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 now has approximately 8,900 people in 3 1 countries
with approximately 70% of revenue across the Americas, 20% across
Europe, the Middle East and Africa and 10% across Asia-Pacific. The
longer-term objective is a geographic split of 60%:20%:20%. Content
currently accounts for approximately 6 0 % of revenue,
Data&Digital M edia 3 0 % and Technology S ervices 10%. The
long-term objective for the practices is a split of
50%:25%:25%.
Sir Martin was CEO of WPP for 33 years, building it from a GBP1
million 'shell' company in 1985 into the world's largest
advertising and marketing services company, with a market
capitalisation of over GBP16 billion on the day he left. Prior to
that Sir Martin was Group Financial Director of Saatchi &
Saatchi Company Plc for nine years.
Unaudited consolidated statement of profit or loss
for the year ended 31 December 2022
2022 2021
Unaudited Unaudited
Note GBP'000 GBP'000
================================================= ==== ============= ===========
Revenue 7 1,069,489 686,601
Direct costs (177,797) (126,338)
================================================= ==== ============= ===========
Net revenue 7 891,692 560,263
Personnel costs (682,072) (412,537)
Other operating expenses (83,327) (49,829)
Acquisition, restructuring and other expenses (155,873) (83,496)
Depreciation , amortisation and impairment (105,711) (56,456)
Share of loss of joint ventures (5) -
================================================= ==== ============= ===========
Total operating expenses (1,026,988) (602,318)
================================================= ==== ============= ===========
Operating loss (135,296) (42,055)
================================================= ==== ============= ===========
Adjusted operating profit 114,096 94,808
Adjusting items(1) (249,392) (136,863)
Operating loss (135,296) (42,055)
================================================= ==== ============= ===========
Finance income 1,493 1,032
Finance costs (27,200) (13,283)
================================================= ==== ============= ===========
Net finance costs (25,707) (12,251)
Gain / (loss) on the net monetary position 1,337 (1,344)
================================================= ==== ============= ===========
Loss before income tax (159,666) (55,650)
Income tax credit / ( expense) 32 (1,065)
================================================= ==== ============= ===========
Loss for the year (159,634) (56,715)
================================================= ==== ============= ===========
Attributable to owners of the Company (159,634) (56,715)
Attributable to non-controlling interests - -
================================================= ==== ============= ===========
(159,634) (56,715)
================================================= ==== ============= ===========
Loss per share is attributable to the ordinary
equity holders of the Company
Basic loss per share (pence) (27.0) (10.3)
Diluted loss per share (pence) (27.0) (10.3)
================================================= ==== ============= ===========
1. Adjusting items comprises amortisation and impairment of
intangibles of GBP78.8 million (2021: GBP39.5 million) ,
acquisition and restructuring expenses of GBP155.9 million (2021:
GBP83.5 million) and share-based payments of GBP14.7 million (2021:
GBP13.9 million) .
The results for the year are wholly attributable to the
continuing operations of the Group.
Unaudited consolidated statement of comprehensive income
for the year ended 31 December 2022
2022 2021
Unaudited Unaudited
GBP'000 GBP'000
=================================================== ========== ================
Loss for the year (159,634) (56,715)
Other comprehensive (expense)/income
Items that will not be reclassified to profit
or loss (1) -
Remeasurement of net defined benefit pension
liabilities
Items that may be reclassified to profit or
loss
Foreign operations - foreign currency translation
differences 70,673 (6,358)
=================================================== ========== ================
Other comprehensive income/(expense) 70,672 (6,358)
=================================================== ========== ================
Total comprehensive expense for the year (88,962) (63,073)
=================================================== ========== ================
Attributable to owners of the Company (88,962) (63,073)
Attributable to non-controlling interests - -
=================================================== ========== ================
(88,962) (63,073)
=================================================== ========== ================
Unaudited consolidated balance sheet
as at 31 December 2022
2021
2022 Unaudited
Unaudited Restated(1)
Note GBP'000 GBP'000
======================================= ====== =========== =============
Assets
Goodwill 8 720,365 624,989
Intangible assets 9 445,161 356,289
Right-of-use assets 55,703 36,608
Property, plant and equipment 29,701 21,548
Deferred tax assets 16,827 6,526
Other receivables 12,208 3,185
======================================= ====== =========== =============
Non-current assets 1,279,965 1,049,145
Trade and other receivables 440,799 335,498
Cash and cash equivalents 223,574 301,021
======================================= ====== =========== =============
Current assets 664,373 636,519
======================================= ====== =========== =============
Total assets 1,944,338 1,685,664
======================================= ====== =========== =============
Liabilities
Deferred tax liabilities (65,960) (68,627)
Loans and borrowings 11 (326,225) (308,571)
Lease liabilities (43,122) (31,423)
Contingent consideration and holdbacks 12 (11,278) (31,749)
Other payables (5,687) (2,845)
======================================= ====== =========== =============
Non-current liabilities (452,272) (443,215)
Trade and other payables (443,171) (334,916)
Contingent consideration and holdbacks 12 (177,329) (86,677)
Loans and borrowings 11 (674) (2,523)
Lease liabilities (15,274) (10,545)
Tax liabilities (6,009) (6,550)
======================================= ====== =========== =============
Current liabilities (642,457) (441,211)
======================================= ====== =========== =============
Total liabilities (1,094,729) (884,426)
======================================= ====== =========== =============
Net assets 849,609 801,238
======================================= ====== =========== =============
Equity
Share capital 141,958 138,827
Share premium 5,866 446,910
Merger reserves - 205,717
Other reserves 175,192 76,654
Foreign exchange reserves 48,469 (22,203)
Retained earnings/(accumulated losses) 478,024 (44,767)
======================================= ====== =========== =============
Attributable to owners of the Company 849,509 801,138
Non-controlling interests 100 100
======================================= ====== =========== =============
Total equity 849,609 801,238
======================================= ====== =========== =============
Notes:
1. The comparatives as at 31 December 2021 have been restated
for measurement period adjustments in respect of business
combinations and re-presented to split out certain balance sheet
items and provide more clarity for the year ended 31 December 2022.
See Note 2.
Unaudited consolidated statement of changes in equity
For the year ended 31 December 2022
Equity Share Share Merger Other Foreign Retained Total Non-controlling Total
capital premium reserves reserves exchange earnings/ GBP'000 interests equity
GBP'000 GBP'000 GBP'000 GBP'000 reserves (accumulated GBP'000 GBP'000
GBP'000 losses)
GBP'000
================ ======== ========== ========== ========= ========= ============= ========== ================ ==========
At 1 January
2021 135,516 364,195 205,717 29,275 (15,845) (3,181) 715,677 100 715,777
Comprehensive
loss
for the year
Loss for the
year - - - - - (56,715) (56,715) - (56,715)
Other
comprehensive
income - - - - (6,358) - (6,358) - (6,358)
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Total
comprehensive
loss
for the year - - - - (6,358) (56,715) (63,073) - (63,073)
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Hyperinflation
revaluation - - - 1,633 - - 1,633 - 1,633
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Transactions
with owners
of the Company
Issue of
Ordinary Shares - - - - - - - - -
Business
combinations 3,311 82,715 - 45,856 - - 131,882 - 131,882
Share-based
payments - - - (110) - 15,129 15,019 - 15,019
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
At 31 December
2021 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
At 1 January
2022 138,827 446,910 205,717 76,654 (22,203) (44,767) 801,138 100 801,238
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Hyperinflation
restatement - - - 3,266 - - 3,266 - 3,266
Adjusted
opening
balance 138,827 446,910 205,717 79,920 (22,203) (44,767) 804,404 100 804,504
Comprehensive
loss
for the year
Loss for the
year - - - - - (159,634) (159,634) - (159,634)
Other
comprehensive
income - - - - 70,672 - 70,672 - 70,672
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Total
comprehensive
income/ (loss)
for the year - - - - 70,672 (159,634) (88,962) - (88,962)
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
Transactions
with owners
of the Company
Issue of
Ordinary Shares - - - - - - - - -
Realised merger
reserve - (462,705) (205,717) - - 668,422 - - -
Business
combinations 3,131 21,661 - 94,852 - - 119,644 - 119,644
Share-based
payments - - - 420 - 14,003 14,423 - 14,423
---------------- -------- ---------- ---------- --------- --------- ------------- ---------- ---------------- ----------
At 31 December
2022 141,958 5,866 - 175,192 48,469 478,024 849,509 100 849,609
================ ======== ========== ========== ========= ========= ============= ========== ================ ==========
Notes:
1. Other reserves include the deferred equity consideration of
GBP171.8 million (2021: GBP77.0 million), made up of the following:
TheoremOne for GBP55.0 million, Raccoon for GBP43.0 million,
Decoded for GBP48.0 million, XX Artists for GBP7.8 million,
Cashmere for GBP6.9 million, Zemoga GBP8.7 million, 4Mile for
GBP2.3 million and Destined for GBP0.1 million, the treasury shares
issued in the name of S(4) Capital plc to an employee benefit trust
for the amount of GBP1.8 million (2021: GBP2.5 million), and
hyperinflation impact in Argentina of GBP4.9 million (2021: GBP1.6
million).
2. During the year ended 31 December 2022, the Group undertook a
reduction of capital to effect the cancellation of the C ordinary
shares resulting from the capitalisation of the sum of GBP2
05,717,000 standing to the credit of the Company's merger
reserve.
Unaudited consolidated statement of cashflows
For the year ended 31 December 2022
2022 2021
Note GBP'000 GBP'000
====================================================== ====== ========= ==========
Cash flows from operations 13 97,250 68,496
Income taxes paid (18,988) (13,874)
====================================================== ====== ========= ==========
Net cash flows from operating activities 78,262 54,622
====================================================== ====== ========= ==========
Cash flows from investing activities
Investments in intangible assets (1,512) (3,458)
Investments in property, plant and equipment (16,379) (11,119)
Acquisition of subsidiaries, net of cash acquired 6 (123,655) (86,604)
Tax paid as result of acquisition - (5,116)
Financial fixed assets 1,755 (323)
====================================================== ====== ========= ==========
Cash flows from investing activities (139,791) (106,620)
====================================================== ====== ========= ==========
Cash flows from financing activities
Proceeds from issuance of shares 206 1,143
Additional borrowings during the year 11 - 342,994
Payment of lease liabilities (17,534) (10,903)
Repayments of loans and borrowings 11 (891) (110,895)
Transaction costs paid on borrowings - (8,379)
Interest paid (14,166) (5,530)
====================================================== ====== ========= ==========
Cash flows from financing activities (32,385) 208,430
====================================================== ====== ========= ==========
Net movement in cash and cash equivalents (93,914) 156,432
Cash and cash equivalents beginning of the year(1) 299,122 142,052
Exchange gain/(loss) on cash and cash equivalents 18,350 638
====================================================== ====== ========= ==========
Cash and cash equivalents at the end of the year
(1) 223,558 299,122
====================================================== ====== ========= ==========
Note:
1 Including bank overdrafts GBPnil (2021: GBP1.9m).
Notes to the unaudited consolidated financial statements
for the year ended 31 December 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 financial statements represent the
results of the Company and its subsidiaries (together referred to
as ' S(4) Capital Group ' or the ' Group ' ).
S(4) Capital Group is a new age/new era digital advertising and
marketing services company.
2. Basis of preparation
A. Statement of compliance
The financial statements of S(4) Capital plc have 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 financial information set out above does not constitute the
company's statutory accounts for the year ended 31 December 2022.
The statutory accounts for 2022 will be finalised based on the
financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of
Companies in due course. The unaudited financial information is
prepared under the historical cost basis, unless stated otherwise
in the accounting policies.
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. 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 GBP100 million (expiring August
2026). Considering the Group's bank covenant and liquidity
headroom, the Directors have concluded that the Group will be able
to operate within its facilities and comply with its banking
covenants for at least 12 months 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 fulfil financial
obligations as they become due for at least 12 months.
B. Restatement and re-presentation
The changes made to the fair value of the net identifiable
assets acquired and the consideration during the Measurement Period
resulted in an increase in the goodwill balance of GBP363,000 which
has been retrospectively adjusted (see Note 6).
The impact of the retrospective adjustment on the consolidated
balance sheet at 31 December 2021 is shown below. The consolidated
balance sheet has also been re-presented to provide consistently
with the presentation of balances for the year ended 31 December
2022 and provide further clarity by splitting out specific balance
sheet items.
31 December 2021
As reported Restated Re-presented As restated
GBP'000 GBP'000 GBP'000 GBP'000
============================== =========== ======== ============ ===========
Goodwill - 363 624,626 624,989
Intangible assets 980,915 - (624,626) 356,289
============================== =========== ======== ============ ===========
Total non-current assets 1,048,782 363 - 1,049,145
============================== =========== ======== ============ ===========
Total assets 1,685,301 363 - 1,685,664
============================== =========== ======== ============ ===========
Deferred tax liabilities (68,478) (149) - (68,627)
============================== =========== ======== ============ ===========
Total non-current liabilities (443,066) (149) - (443,215)
============================== =========== ======== ============ ===========
Trade and other payables (324,059) 93 (10,950) (334,916)
Contingent consideration and
holdbacks (86,370) (307) - (86,677)
Tax liabilities (17,500) - 10,950 (6,550)
============================== =========== ======== ============ ===========
Total current liabilities (440,997) (214) - (441,211)
============================== =========== ======== ============ ===========
Total liabilities (884,063) (363) - (884,426)
============================== =========== ======== ============ ===========
Net assets 801,238 - - 801,238
============================== =========== ======== ============ ===========
C. Functional and presentation currency
The unaudited consolidated 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 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 year ended 31 December 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. Critical accounting judgements and estimates
The following are the critical accounting judgements and
estimates, made by management in the process of applying the
Group's accounting policies, that have the most significant effect
on the amounts recognised in the Group's unaudited consolidated
financial statements.
Judgements
The judgments and estimates that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Revenue recognition
The Group's revenue is earned from the provision of data and
digital media solutions and technology services. Under IFRS 15,
revenue from contracts with customers is recognised as, or when,
the performance obligation is satisfied.
Specifically for the Content segment, due to the size and
complexity of contracts, management is required to form a number of
judgements in the determination of the amount of revenue to be
recognised including the identification of performance obligations
within the contract and whether the performance obligation is
satisfied over time or at a point in time. The key judgment is
whether revenue should be recognised over time or at point in time.
Where revenue is recognised over time, an estimate must be made
regarding the progress towards completion of the performance
obligation.
Impairment of goodwill and intangible assets
The Group applies judgement in determining whether the carrying
value of goodwill and intangible assets have any indication of
impairment on an annual basis, or more frequently if required. Both
external and internal factors are monitored for indicators of
impairment. When performing the impairment review, management's
approach for determining the recoverable amount of a
cash-generating unit is based on the higher of value in use or fair
value less cost to dispose. In determining the value in use,
estimates and assumptions are used to derive cashflows, growth
rates and discount rates. The recoverable amount is compared with
the carrying amount of the cash generating units. See Note 8 and 9
for further information.
Tax positions
The Group is subject to sales tax in a number of jurisdictions.
Judgement is required in determining the provision for sales taxes
due to uncertainty of the amount of tax that may be payable.
Provisions in relation to uncertain tax positions are established
on an individual rather than portfolio basis, considering whether,
in each circumstance, the Group considers it is probable that the
uncertainty will crystallise.
Use of alternative performance measures
In establishing which items are disclosed separately as
adjusting items to enable a better understanding of the underlying
financial performance of the Group, management exercise judgement
in assessing the size and nature of specific items. The Group uses
alternative performance measures as we believe these measures
provide additional useful information on the underlying trend,
performance, and position of the Group. These underlying measures
are used by the Group for internal performance analyses, and credit
facility covenants calculations. The alternative performance
measures include 'adjusted operating profit', 'adjusting items',
'EBITDA' (earnings before interest, tax, depreciation) and
'operational EBITDA'. The terms 'adjusted operating profit',
'adjusting items', 'EBITDA' and 'operational EBITDA' are not
defined terms under IFRS and may therefore not be comparable with
similarly titled profit measures reported by other companies. The
measures are not intended to be a substitute for, or superior to,
GAAP measures. A full list of alternative performance measures and
non-IFRS measures together with reconciliations to IFRS or GAAP
measures are set out in the Alternative Performance Measures.
Estimates
Fair value of assets and liabilities acquired and measurement of
consideration on business combinations
During the year, the Group acquired 4Mile on 11 January 2022,
TheoremOne on 16 May 2022 and XX Artists on 1 July 2022. The most
significant fair value adjustments arising on the acquisitions were
in relation to allocating the purchase price to the acquired
intangibles recognised in the form of customer relationships.
In determining the fair value of the customer relationships to
be recognised, estimates and assumptions are used in deriving the
cashflows, renewal rates and discount rates. The cashflows include
estimates of revenue growth, attrition rates, profit margins,
contract durations, discount rates. Management involves external
advisors on the valuation techniques used in determining the fair
value of customer relationships. These inputs, combined with our
internal knowledge and expertise on the relevant market growth
opportunities, enabled management to determine the appropriate
value of customer relationships. See Note 6 for further
details.
The Group recognises contingent consideration on acquisitions,
which comprise both performance and employment linked contingent
consideration. The fair value of contingent consideration is based
on management's best estimate of achieving future targets to which
the contingent consideration is linked to, which is the most
significant unobservable input. See Note 6 and 12 for further
information.
5. Statutory information and independent review
The unaudited consolidated financial statements for the year
ended 31 December 2022 and the financial information for the year
ended 31 December 2022 do not constitute statutory accounts 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.
6. Acquisitions
Current year acquisitions
Content Practice
On 1 July 2022, S(4) Capital plc announced the business
combination between Media.Monks and XX Artists LLC (known as XX
Artists), an award winning Social Media Marketing agency,
headquartered in Los Angeles, with a competitive talent edge, for
an expected total consideration of approximately GBP20.5 million,
including initial cash consideration of GBP11.8 million. The
initial GBP11.8 million cash outlay was funded through the Group's
own cash resources for the entire issued share capital of XX
Artists. The acquisition will augment the Group's Social Media
Marketing capabilities. Since the acquisition date, XX Artists
contributed GBP25.3 million to the Group's revenue and GBP4.6
million to the Group's operational EBITDA for the year ended 31
December 2022.
Included within the total purchase consideration is deferred
consideration of GBP7.8 million and holdbacks of GBP0.8 million.
The deferred consideration relates to the share issuances which
have been deferred with no element contingent on future events. The
holdbacks relate to amounts held back due to cover and indemnify
the Group against certain acquisition costs and damages. The Group
currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs
and damages, with the minimum amount payable being nil.
In relation to XX Artists, the employment linked contingent
consideration due to the sellers who remain employees of the
business is deemed to represent employee remuneration given that it
will be forfeited in the event of a seller being a bad leaver and
therefore should be excluded from the total purchase consideration.
At 31 December 2022, GBP35.8 million was included within the
employment linked contingent consideration (see Note 12) with no
additional amounts to be accrued in future periods as the liability
had been accrued in full. The employment linked contingent
consideration is payable on the basis that XX Artists achieved
agreed post acquisition EBITDA targets for the 12 month period
ended 31 December 2022. This represents the maximum amount payable
as at the date of the acquisition. The business is expected to
achieve the performance targets in full. If the business does not
achieve the minimum performance target the amount payable would be
nil.
The assets and liabilities in the table below remain provisional
as the purchase price allocation have not been fully finalised at
the end of the reporting period.
Fair value Provisional
Book value adjustments fair value
GBP'000 GBP'000 GBP'000
=========================================== ============ ============ ===========
Intangible assets - Customer relationships - 15,402 15,402
Intangible assets - Brand names - 990 990
Property, plant and equipment 388 - 388
Right-of-use asset - 709 709
Other non-current assets 42 - 42
Cash and cash equivalents 96 - 96
Trade and other receivables 9,898 - 9,898
Trade and other payables (8,122) - (8,122)
Lease liabilities - (709) (709)
=========================================== ============ ============ ===========
Net identifiable assets 2,302 16,392 18,694
Goodwill 18,192 (16,392) 1,800
=========================================== ============ ============ ===========
Total 20,494 - 20,494
Cash 11,880
Deferred consideration 7,786
Holdback obligations 828
Total purchase consideration 20,494
=========================================== ============ ============ ===========
Cash consideration 11,880
Cash and cash equivalents acquired (96)
Cash outflow on acquisition (net of
cash acquired) 11,784
=========================================== ============ ============ ===========
Data&Digital Media practice
On 11 January 2022, S(4) Capital plc announced the business
combination between Media.Monks and 4Mile LLC (known as 4Mile), 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
performance linked contingent consideration, of approximately
GBP25.1 million including initial cash consideration of GBP7.0
million. The initial cash outlay was funded through the Group's own
cash resources for the entire issued share capital of 4Mile . This
will enhance the Group's global analytics capabilities and expands
its client base. Since the acquisition date, 4Mile contributed
GBP8.0 million to the Group's revenue and GBP0.7 million to the
Group's operational EBITDA for the year ended 31 December 2022.
Included within the total purchase consideration is performance
linked contingent consideration of GBP12.5 million, deferred
consideration of GBP2.3 million and holdbacks of GBP3.4 million.
The performance linked contingent consideration is payable on the
basis that 4Mile achieved agreed post acquisition Gross Margin
targets for the 12 months ending 31 December 2022. The deferred
consideration of GBP2.3 million relates to the share issuances
which have been deferred with no element contingent on future
events.
The assets and liabilities recognised as a result of the
acquisition is as follows:
Fair value
Book value adjustments Fair value
GBP'000 GBP'000 GBP'000
============================================ ============ ============ ============
Intangible assets - Customer relationships - 7,725 7,725
Intangible assets - Brand names - 366 366
Intangible assets - Order backlog - 822 822
Intangible assets - Software - 325 325
Property, plant and equipment 42 - 42
Other non-current assets 1 - 1
Cash and cash equivalents 2,334 - 2,334
Trade and other receivables 1,674 - 1,674
Trade and other payables (1,525) - (1,525)
Other non-current liabilities (258) - (258)
-------------------------------------------- ------------ ------------ ------------
Net identifiable assets 2,268 9,238 11,506
Goodwill 22,812 (9,238) 13,574
============================================ ============ ============ ============
Total 25,080 - 25,080
Cash 6,964
Deferred consideration 2,264
Performance linked contingent consideration 12,450
Holdback obligations 3,402
Total purchase consideration 25,080
============================================ ============ ============ ============
Cash consideration 6,964
Cash and cash equivalents acquired (2,334)
Cash outflow on acquisition (net of
cash acquired) 4,630
============================================ ============ ============ ============
As part of the 4Mile acquisition, the Group is also contracted
to pay employment linked contingent consideration due to sellers
who remain employees of the business, which is deemed to represent
employee remuneration given that it will be forfeited in the event
of a seller being a bad leaver. The full amount of employment
linked contingent consideration, of GBP6.5 million, had been
accrued by 31 December 2022.
During the period, GBP6.8 million of the performance linked
contingent consideration which had been recognised on acquisition
and GBP2.8 million relating to employment linked contingent
consideration which had been accrued in the post acquisition period
was released into the consolidated statement of profit or loss
respectively as performance targets were not expected to be
achieved in full. At 31 December 2022, the performance linked and
employment linked contingent consideration remaining on the balance
sheet is GBP8.8 million and GBP3.7 million respectively. The
amounts held at 31 December 2022 represent the maximum amount
payable as the performance targets have not been met in full. If
the business does not achieve the minimum performance target the
amounts payable would be nil. Given the performance of the business
we expect to have commercial discussions with the sellers regarding
the outstanding consideration.
At 31 December 2022, the GBP5.0 million of holdbacks relates to
amounts held back due to cover and indemnify the Group against
certain acquisition costs and damages. The Group currently expects
to settle the maximum holdback amount. The amount payable would be
dependent on the acquisition costs and damages, with the minimum
amount payable being nil.
Technology Services practice
On 16 May 2022, S(4) Capital plc announced the business
combination between Media.Monks and Citrusbyte LLC, Proof LLC,
Technical Performance Services LLC, Lemma Solutions LLC and Formula
Partners LLC (collectively known as TheoremOne), 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 of approximately GBP143.0
million. The initial consideration of GBP78 million was funded
through the Group's own cash resources for the entire share capital
of TheoremOne . The acquisition augments the Group's Technology
Services and consulting capabilities and expands its client base.
Since the acquisition date, TheoremOne contributed GBP59.0 million
to the Group's revenue and GBP22.5 million operational EBITDA for
the year ended 31 December 2022.
Included within the total purchase consideration is deferred
consideration of GBP55.0 million and holdbacks of GBP10.0 million.
The deferred consideration relates to the share issuances which
have been deferred with no element contingent on future events. The
holdbacks relate to amounts held back due to cover and indemnify
the Group against certain acquisition costs and damages. The Group
currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs
and damages, with the minimum amount payable being nil.
In relation to TheoremOne, the employment linked contingent
consideration due to sellers who remain employees of the business
is deemed to represent employee remuneration given that it will be
forfeited in the event of a Seller being a bad leaver and therefore
should be excluded from the total purchase consideration. At the 31
December 2022, GBP54.2 million was included within employment
linked contingent consideration. A further GBP28.9 million will be
accrued during the year ended 31 December 2023. The employment
linked contingent consideration is payable on the basis that
TheoremOne achieves post acquisition EBITDA targets for the 12
month period ended 31 December 2022.
This represents the maximum amount payable as at 31 December
2022. The business is expected to achieve the performance targets
in full. If the business did not achieve the minimum performance
target the amount payable would be nil.
The assets and liabilities in the table below remain provisional
as the purchase price allocation have not been fully finalised at
the end of the reporting period.
Book value Fair value Provisional
GBP'000 adjustments fair value
GBP'000 GBP'000
=========================================== =========== ============ ===========
Intangible assets - Customer relationships - 81,102 81,102
Intangible assets - Brand names - 1,881 1,881
Intangible assets - Order backlog - 7,023 7,023
Property, plant and equipment 553 - 553
Other non-current assets 140 - 140
Cash and cash equivalents 5,238 - 5,238
Trade and other receivables 12,780 (1,978) 10,802
Trade and other payables (1,753) - (1,753)
------------------------------------------- ----------- ------------ -----------
Net identifiable assets 16,958 88,028 104,986
Goodwill 126,034 (88,028) 38,006
=========================================== =========== ============ ===========
Total 142,992 - 142,992
Cash 77,975
Deferred consideration 55,016
Holdbacks 10,001
Total purchase consideration 142,992
=========================================== =========== ============ ===========
Cash consideration 77,975
Cash and cash equivalents acquired (5,238)
Cash outflow on acquisition (net of
cash acquired) 72,737
=========================================== =========== ============ ===========
The goodwill represents the potential growth opportunities and
synergy effects from the acquisitions. The goodwill for 4Mile,
TheoremOne and XX Artists is deductible for US 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 GBP18.6 million of which GBP2.0 million
was expected to be uncollectable at the date of acquisition.
The total acquisition costs of GBP13.2 million (2021: GBP8.1
million) have been recognised under acquisition and set-up related
expenses in the consolidated statement of profit or loss.
Since the acquisition date, the acquired companies, XX Artists,
4Mile and TheoremOne, contributed GBP92.3 million to the Group's
revenue and GBP27.8 million operational EBITDA to the Group's
results for the year ended 31 December 2022. If the acquisitions
had occurred on 1 January 2022, the Group's revenue would have been
GBP1,108.7 million and the Group's operational EBITDA for the year
would have been GBP136.3 million.
Prior year acquisitions
The initial accounting for the business combination of Raccoon,
Zemoga, Cashmere and Maverick were incomplete by the 31 December
2021. As required by IFRS 3, the following fair value adjustments
have been made during the measurement period, which had no material
impact on the profit and loss statement.
As disclosed At 31 December
at 31 December 2022
2021
============================================ ================ ============ ================
Provisional Fair value
fair adjustments Fair value
value 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 2,827 - 2,827
Right-of-use asset 6,022 - 6,022
Other non-current assets 703 - 703
Cash and cash equivalents 15,839 - 15,839
Trade and other receivables 20,918 - 20,918
Trade and other payables (21,897) 91 (21,806)
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 identifiable assets 84,726 (69) 84,657
Goodwill 134,975 365 135,340
============================================ ================ ============ ================
Total 219,701 296 219,997
Payment in kind (common stock) 56,236 - 56,236
Cash 77,204 - 77,204
Deferred consideration 28,444 - 28,444
Performance linked contingent consideration 45,672 296 45,968
Holdback obligations 12,145 - 12,145
Total purchase consideration 219,701 296 219,997
============================================ ================ ============ ================
Cash consideration 77,204 - 77,204
Cash and cash equivalents acquired (15,839) - (15,839)
============================================ ================ ============ ================
Cash outflow on acquisition (net
of cash acquired) 61,365 - 61,365
============================================ ================ ============ ================
Raccoon Group (raccoon)
Included within the total purchase consideration is deferred
consideration of GBP16.8 million and holdbacks of GBP0.1 million.
The deferred consideration relates to the share issuances which
have been deferred with no element contingent on future events. The
holdbacks relate to amounts held back due to cover and indemnify
the Group against certain acquisition costs and damages. The Group
currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs
and damages, with the minimum amount payable being nil.
In relation to Raccoon, the contingent consideration linked to
employment due to sellers who remain employees of the business is
deemed to represent employee remuneration given that it will be
forfeited in the event of a Seller being a bad leaver and therefore
should be excluded from the total purchase consideration. At the 31
December 2022, the payable balance is GBP55.1 million with no
additional amounts to be accrued in future period as the liability
had been accrued in full.
The contingent consideration linked to employment is payable on
the basis that Raccoon achieved agreed post-acquisition EBITDA
targets for the 12 month period ended 31 December 2022. This
represents the maximum amount payable as at the date of the
acquisition. The business is expected to achieve the performance
targets in full. If the business did not achieve the minimum
performance target the amount payable would be nil.
Zemoga Group (Zemoga)
The total purchase consideration within the provisional fair
value for the year ended 31 December 2021, included performance
linked contingent consideration of GBP22.0 million (restated to
GBP22.2 million), deferred consideration of GBP5.5 million and
holdbacks of GBP7.7 million. During the year ended 31 December
2022, the Group settled the performance linked contingent
consideration and partially settled the holdbacks. The performance
linked contingent consideration represents the maximum amount
payable and has been paid during the year as the business achieved
post acquisition EBITDA targets for the 12 months ending 31
December 2021.
The deferred consideration of GBP5.5 million relates to the
share issuances which have been deferred with no element contingent
on future events. The remaining GBP6.3 million, as at 31 December
2022, of holdbacks relates to amounts held back due to cover and
indemnify the Group against certain acquisition costs and damages.
The Group currently expects to settle the maximum holdback amount.
The amount payable would be dependent on the amount of these
acquisition costs and damages, with the minimum amount payable
being nil.
Cashmere Agency Inc (Cashmere)
Included within the total purchase consideration is deferred
consideration of GBP6.2 million and holdbacks of GBP2.8 million.
The deferred consideration relates to the share issuances which
have been deferred with no element contingent on future events. The
holdbacks relates to amounts held back due to cover and indemnify
the Group against certain acquisition costs and damages. The Group
currently expects to settle the maximum holdback amount. The amount
payable would be dependent on the amount of these acquisition costs
and any damages, with the minimum amount payable being nil.
7. Segment information
A . Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
(CODM). The CODM has been identified as the Board of Directors of
S(4) Capital Group.
During the year, S(4) Capital Group has three reportable
segments as follows:
-- 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 practice: digital transformation services
in delivering advanced digital product design, engineering services
and delivery services.
The customers are primarily businesses across technology, FMCG
and media and entertainment. Any intersegment transactions are
based on commercial terms.
The Board of Directors monitor the results of the reportable
segments separately for the purpose of making decisions about
resource allocation and performance assessment prior to charges for
tax, depreciation and amortisation.
The Board of S(4) Capital Group uses net revenue rather than
revenue to manage the Company due to the fluctuating amounts of
direct costs, which form part of revenue.
The following is an analysis of the Group's net revenue and
results by reportable segments:
Data&Digital Technology
2022 Content Media services Total
GBP'000 GBP'000 GBP'000 GBP'000
============================================== ========= ============== ============ =============
Revenue 755,422 220,498 93,569 1,069,489
Net revenue 582,713 216,818 92,161 891,692
Segment profit(1) 74,053 39,870 36,137 150,060
Overhead costs (25,888)
Adjusted non-recurring and acquisition
related expenses(3) (170,533)
Depreciation, amortisation and impairments(2) (88,935)
Net finance costs and gain on net monetary
position (24,370)
============================================== ========= ============== ============ =============
Loss before income tax (159,666)
============================================== ========= ============== ============ =============
Data&Digital Technology
2021 Content Media services Total
GBP'000 GBP'000 GBP'000 GBP'000
============================================== ========= ============== ============ =============
Revenue 513,433 165,646 7,522 686,601
Net revenue 385,552 167,079 7,632 560,263
Segment profit(1) 52,286 55,024 3,087 110,397
Overhead costs (9,410)
Adjusted non-recurring and acquisition
related expenses(3) (97,372)
Depreciation, amortisation and impairments(2) (45,670)
Net finance costs and loss on net monetary
position (13,595)
============================================== ========= ============== ============ =============
Loss before income tax (55,650)
============================================== ========= ============== ============ =============
Notes:
1 Including GBP16.8m (2021: GBP10.8m) depreciation and
impairment on right-of-use assets.
2 Excluding GBP16.8m (2021: GBP10.8m) depreciation and
impairment on right-of-use assets.
3 Consisting of acquisition and restructuring expenses of
GBP155.9m (2021: GBP83.5m) and share-based payment costs of
GBP14.7m (2021: GBP13.9m).
Segment profit represents the profit earned by each segment
without allocation of the share of loss of joint ventures, central
administration costs including directors' salaries, finance income,
non-operating gains and losses, and income tax expense. This is the
measure reported to the Group's Board of Directors for the purpose
of resource allocation and assessment of segment performance.
B. Information about major customers
S(4) Capital Group has an attractive and expanding client base
with seven clients providing more than GBP20 million of revenue per
annum representing 39% of the Group's revenue. During the year
ended 31 December 2021 five clients provided more than GBP20
million of revenue representing 31% of the Group's revenue.
One customer accounted for more than 10% of the Group's revenue
during the year, contributing GBP187.5 million. The revenue from
this customer was attributable to both the Content and
Data&Digital Media segments. For the prior year, one customer
accounted for more than 10% of the Group's revenue, contributing
GBP94.2 million. The revenue from this customer was attributable to
both the Content and Data&Digital Media segments.
8. Goodwill
Net book value 2022 2021(1)
GBP'000 GBP'000
=========================================== ======== ========
At 1 January 624,989 498,113
Acquired through business combinations 53,380 135,338
Impairments (15,165) -
Foreign exchange differences 57,161 (8,462)
=========================================== ======== ========
At 31 December 720,365 624,989
=========================================== ======== ========
1. Restated for the business combinations.
Refer to Note 2 .
During the year an amount of GBP53.4 million has been acquired
through business combinations. See Note 6.
Goodwill represents the excess of consideration over the fair
value of the Group's share of the net identifiable assets of the
acquired subsidiary at the date of acquisition.
Goodwill - impairment testing
Goodwill acquired through business combinations is allocated to
CGUs for impairment testing. The goodwill balance is allocated to
the following CGUs:
2022 2021(1)
GBP'000 GBP'000
=========================================== ========= =========
Content 393,252 372,305
Data&Digital Media 241,014 210,347
Technology Services 86,099 42,337
=========================================== ========= =========
Total 720,365 624,989
=========================================== ========= =========
1. Restated for the initial accounting for
business combinations. Refer to Note 2 .
The recoverable amount for each CGU is determined using a
value-in-use calculation. In determining the value in use, the
Group uses forecasted revenue and profits adjusted for non-cash
transactions to generate cash flow projections. The forecasts are
prepared by management based on Board approved business plans for
each CGU which reflect result expectations, including the impact of
inflation, cash performance and historic trends.
An underlying revenue growth rate of 14.5% to 57.6% (2021: 21%
to 45%) per annum depending on the practice in years one to three
have been used accordingly. Beyond the explicit three year forecast
period, a two year transition period bridging the revenue growth to
the assessed long term growth rate has been used. Following the
fourth year, a long term growth rate has been applied in
perpetuity. A terminal value has been applied using an underlying
long term growth rate of 2.0% (2021: 2.0%). The cash flows have
been discounted to present value using a pre-tax discount rate
which was between 11.2% and 11.9% (2021: 9.4% and 9.8%) depending
on the CGU. The value-in-use exceeds the carrying amount of the
CGUs by two to three times.
Sensitivity analysis has been carried out by adjusting the
respective CGU discount rates and growth rates. Based on the
Group's sensitivity analysis, no indicators of impairment have been
identified. In carrying out the impairment review, management
believes that there are no CGUs where reasonably possible changes
to the underlying assumptions exist that would give rise to an
impairment.
During the end of the reporting period, the Group assessed there
to be an indicator of impairment in relation to the goodwill,
customer relationships and brand names relating to 4Mile. The
indicator of impairment was as a result of the actual performance
of 4Mile being significantly lower than forecasted. As a result of
the impairment review, the Group recognised an impairment of
goodwill of GBP15.2 million for 4Mile. 4Mile is part of the DDM
segment but the business has not yet been integrated and is
monitored separately by the Group. The intangible assets relating
to customer relationships, brand names and other intangible assets
were also impaired by GBP6.1 million, GBP0.3 million and GBP0.3
million respectively to the value in use recoverable amount. The
impairment of goodwill and intangible assets has been recognised
within the consolidated statement of profit or loss within
depreciation, amortisation and impairment.
9. Intangible assets
Customer Order
relationships Brands Backlog Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ============== ========= ======== ============== ================
Cost
At 1 January 2021 307,120 18,557 11,794 11,207 348,678
Acquired through business
combinations 86,552 2,804 3,547 829 93,732
Additions - - - 3,458 3,458
Disposals - - - (117) (117)
Foreign exchange differences (4,632) (478) (354) (174) (5,638)
============================= ============== ========= ======== ============== ================
At 31 December 2021 389,040 20,883 14,987 15,203 440,113
============================= ============== ========= ======== ============== ================
Acquired through business
combinations 104,229 3,237 7,846 325 115,637
Additions - - - 1,512 1,512
Disposals - - (22,915) - (22,915)
Foreign exchange differences 38,534 1,960 614 1,381 42,489
============================= ============== ========= ======== ============== ================
At 31 December 2022 531,803 26,080 532 18,421 576,836
============================= ============== ========= ======== ============== ================
Accumulated amortisation
and impairment
============================= ========= ======== =========== ======== ===========
At 1 January 2021 (32,243) (3,121) (7,604) (2,757) (45,725)
Charge for the year (26,762) (3,312) (6,380) (3,037) (39,491)
Foreign exchange differences 842 47 326 177 1,392
============================= ========= ======== =========== ======== ===========
At 31 December 2021 (58,163) (6,386) (13,658) (5,617) (83,824)
============================= ========= ======== =========== ======== ===========
Charge for the year (38,542) (5,554) (9,184) (3,731) (57,011)
Impairment (6,103) (277) - (304) (6,684)
Disposals - - 22,915 - 22,915
Foreign exchange differences (5,394) (622) (441) (614) (7,071)
============================= ========= ======== =========== ======== ===========
At 31 December 2022 (108,202) (12,839) (368) (10,266) (131,675)
============================= ========= ======== =========== ======== ===========
Net book value
============================= ========= ======== =========== ======== ===========
At 31 December 2021 330,877 14,497 1,329 9,586 356,289
============================= ========= ======== =========== ======== ===========
At 31 December 2022 423,601 13,241 164 8,155 445,161
============================= ========= ======== =========== ======== ===========
The impairment of customer relationships, brands and other
intangibles relates to 4Mile. See Note 8.
10. Interest in joint ventures
The Group, through its subsidiary S(4) Capital 2 Ltd a directly
owned subsidiary, 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
Luxembourg company. The GP has since established two S4S Ventures
funds established in Luxembourg and the US. The Group has a 50%
interest in the GP, a joint venture whose primary activity is to
invest in technology companies focused on the marketing and
advertising industries, to focus on early-stage technology
investments with the ability to transform the sector. S4S aims to
invest in companies across five principal areas: Martech, Adtech,
Data Technology, Creative Technology, and Emerging Digital
Media/Content. The Group's interest is accounted for using the
equity method in the consolidated financial statements.
11. Loans and borrowings
Senior Interest
secured Transaction on Facilities
Bank term loan Costs Agreement Total
Loans B (TLB) GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
======================================= ========= =========== =================== =============== ============
Balance at 1 January 2021 91,285 - (844) - 90,441
Drawdowns 24,632 318,938 (8,379) - 335,191
Acquired through business combinations 2,760 - - - 2,760
Loans Waived (1,592) - - - (1,592)
Repayments (110,895) - - (5,530) (116,425)
Charged to profit-or-loss - - 1,283 6,169 7,452
Exchange rate differences (2,864) (3,833) (21) (15) (6,733)
======================================= ========= =========== =================== =============== ============
Total transactions during the
year (87,959) 315,105 (7,117) 624 220,653
======================================= ========= =========== =================== =============== ============
Balance at 31 December 2021 3,326 315,105 (7,961) 624 311,094
======================================= ========= =========== =================== =============== ============
Drawdowns 16 - - - 16
Acquired through business combinations 258 - - - 258
Loans Waived (266) - - - (266)
Repayments (2,790) - - (13,543) (16,333)
Charged to profit-or-loss - - 1,320 13,543 14,863
Exchange rate differences 45 17,471 (283) 34 17,267
======================================= ========= =========== =================== =============== ============
Total transactions during the
year (2,737) 17,471 1,037 34 15,805
======================================= ========= =========== =================== =============== ============
Balance at 31 December 2022 589 332,576 (6,924) 658 326,899
Included in current liabilities 16 - - 658 674
======================================= ========= =========== =================== =============== ============
Included in non-current liabilities 573 332,576 (6,924) - 326,225
======================================= ========= =========== =================== =============== ============
S(4) Capital Group has a facility agreement, consisting of a
Term Loan B (TLB) of EUR 375 million and a multicurrency Revolving
Credit Facility (RCF) of GBP100 million. During 2022, the RCF
remained fully undrawn. 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.
During the reporting period, the average interest rate of the
outstanding loans amounted to 4.76% (2021: 2.96%) The average
effective interest rate for the outstanding loans is 4.06% (2021:
2.93%) and during the period interest expense of GBP13.5 million
was recognised (2021: GBP6.2 million).
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 pro-forma 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. Financial instruments
The Board of Directors of S(4) Capital plc has overall
responsibility for the determination of the Group's risk management
objectives and policies. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without
unduly affecting the Group's competitiveness and flexibility. S(4)
Capital Group reports in Pound Sterling.
All funding requirements and financial risks are managed based
on policies and procedures adopted by the Board. S(4) Capital Group
does not issue or use financial instruments of a speculative
nature.
S(4) Capital Group is exposed to the following financial
risks:
-- Market risk
-- Credit risk
-- Liquidity risk
The Group is exposed to risks that arise from its use of
financial instruments. The principal financial instruments used by
the Group, from which financial instrument risk arises, are trade
and other receivables, cash and cash equivalents, accrued income,
trade and other payables, loans and borrowings, contingent
consideration and lease liabilities.
Fair values of the Group's financial assets and liabilities are
categorised into different levels in a fair value hierarchy based
on inputs used in the valuation techniques as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs) as applicable for
contingent consideration.
To the extent financial instruments are not carried at fair
value in the consolidated balance sheet, the carrying amount
approximates to fair value as of the financial year end due to the
short-term nature.
Financial instruments by category
Financial assets 2022 2021
GBP'000 GBP'000
============================ ========= =============
Cash and cash equivalents 223,574 301,021
Trade receivables 349,600 271,747
Accrued income 44,728 36,870
Other receivables 42,236 12,365
============================ ========= =============
Total 660,138 622,003
============================ ========= =============
Financial liabilities 2022 2021
GBP'000 GBP'000
========================================== ========= ===============
Financial liabilities held at amortised
cost
Trade and other payables (369,192) (265,079)
Loans and borrowings (326,899) (311,094)
Lease liabilities (58,396) (41,968)
Financial liabilities held at fair value
through profit and loss
Contingent consideration and holdbacks (188,607) (118,426)
========================================== ========= ===============
Total (943,094) (736,567)
========================================== ========= ===============
Note
1. The comparatives as at 31 December 2021 have been restated
for measurement period adjustments in respect of business
combinations and re-presented for consistency with the presentation
for the year ended 31 December 2022. See Note 2.
The following table categorises the Group's financial
liabilities held at fair value on the consolidated balance sheet.
There have been no transfers between levels during the year.
2021 2021
2022 2022 Fair value Level 3
Fair value Level 3 Restated(1) Restated(1)
Financial liabilities GBP'000 GBP'000 GBP'000 GBP'000
======================================= ============ ============= ============= =============
Contingent consideration and holdbacks 188,607 188,607 118,426 118,426
Total 188,607 188,607 118,426 118,426
======================================= ============ ============= ============= =============
Note
1. The comparatives as at 31 December 2021 have been restated
for measurement period adjustments in respect of business
combinations. See Note 2 .
The following table shows the movement in contingent
consideration and holdbacks.
Performance Employment
linked linked
contingent contingent
Contingent consideration and holdbacks consideration consideration Holdbacks Total
GBP'000 GBP'000 GBP'000 GBP'000
========================================== ================ ================ ============ ==========
Balance at 1 January 2021 57,885 1,732 10,306 69,923
Acquired through business combinations 45,968 - 12,145 58,113
Recognised in consolidated statement
of profit and loss - 72,250 - 72,250
Cash paid (19,281) (9,985) (5,923) (35,189)
Equity settlement (41,527) (5,718) - (47,245)
Exchange rate differences (80) 383 271 574
Balance at 31 December 2021(1,2) 42,965 58,662 16,799 118,426
Acquired through business combinations 12,450 - 14,232 26,682
Recognised in consolidated statement
of profit and loss (13,067) 155,599 1,581 144,113
Cash paid (16,949) (38,936) (9,437) (65,322)
Equity settlement (19,126) (35,449) - (54,575)
Exchange rate differences 4,677 11,818 2,788 19,283
Balance at 31 December 2022 10,950 151,694 25,963 188,607
Included in current liabilities 40,744 40,866 5,067 86,677
Included in non-current liabilities 2,221 17,796 11,732 31,749
Balance at 31 December 2021 42,965 58,662 16,799 118,426
Included in current liabilities 10,950 151,694 14,685 177,329
Included in non-current liabilities - - 11,278 11,278
Balance at 31 December 2022 10,950 151,694 25,963 188,607
Note
1. The comparatives as at 31 December 2021 have been restated
for measurement period adjustments in respect of business
combinations. See Note 2.
2. In the prior year we referred to the employment linked
contingent consideration as GBP67.9 million, however, this should
have been GBP58.7 million as reflected in the table above.
Where the contingent consideration conditions have been
satisfied, the Group recognises deferred equity consideration,
which is included within Other Reserves.
The fair value of the performance linked contingent
consideration has been determined based on management's best
estimate of achieving future targets to which the consideration is
linked. The most significant unobservable input used in the fair
value measurements is the future forecast performance of the
acquired business. The fair value is assessed and recognised at the
acquisition date, and reassessed at each balance sheet date
thereafter, until fully settled, cancelled or expired. Any change
in the range of future outcomes is recognised in the consolidated
statement of profit or loss. The impact of discounting on the
performance linked contingent consideration is GBP1.5 million for
the year (2021: GBPnil). During the year ended 31 December 2022, a
revaluation gain of GBP14.6million (2021: GBPnil) was recognised in
the consolidated statement of profit or loss.
The fair value of the employment linked contingent consideration
has been determined based on management's best estimate of
achieving future targets to which the consideration is linked. The
most significant unobservable input used in the fair value
measurements is the future forecast performance of the acquired
business. The fair value is assessed at the acquisition date, and
systematically accrued over the respective employment term. Any
changes in the range of future outcomes are recognised in the
consolidated statement of profit or loss. During the year ended 31
December 2022, the amounts recognised in the consolidated statement
of profit or loss, of GBP155.6 million (2021: GBP72.3 million),
related to the systematic accrual of the employment linked
contingent consideration.
Holdbacks relate to amounts held by the Group to cover and
indemnify the Group against certain acquisition costs and damages.
The fair value of the holdbacks has been determined based on
management's best estimate of the level of the costs incurred and
damages expected to which the holdback is linked, which is the most
significant unobservable input used in the fair value measurement.
During the year ended 31 December 2022, GBP1.6 million (2021:
GBPnil) ha s been recognised in the consolidated statement of
profit or loss.
13. Net debt and cashflow reconciliation
The following table shows the reconciliation of net cash flow to
movements in net debt:
Net Debt
including
Borrowings Lease
and overdraft Cash Net Debt Leases Liabilities
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net debt as at 1 January
2021 (91,285) 142,052 50,767 (28,960) 21,807
Financing cash flows (232,099) 158,331 (73,768) 10,903 (62,865)
Acquired through business
combinations (2,760) - (2,760) (6,354) (9,114)
Lease additions - - - (15,953) (15,953)
Foreign exchange adjustments 6,712 638 7,350 (76) 7,274
Interest expense (6,169) - (6,169) (1,602) (7,771)
Interest payment 5,530 - 5,530 - 5,530
Other 1,016 - 1,016 74 1,090
Net debt as at 31 December
2021 (319,055) 301,021 (18,034) (41,968) (60,002)
Financing cash flows 891 (95,778) (94,887) 17,534 (77,353)
Acquired through business
combinations (258) - (258) (709) (967)
Lease additions - - - (26,946) (26,946)
Foreign exchange adjustments (17,550) 18,331 781 (3,498) (2,717)
Interest expense (13,543) - (13,543) (2,146) (15,689)
Interest payment 13,543 - 13,543 - 13,543
Other 2,149 - 2,149 (663) 1,486
Net debt as at 31 December
2022 (333,823) 223,574 (110,249) (58,396) (168,645)
The following table shows the items included in the cash flows
from operations:
2022 2021
GBP'000 GBP'000
Cash flows from operating activities
Loss before income tax (159,666) (55,650)
Financial income and expenses 25,707 12,251
Depreciation and amortisation 105,711 56,456
Share-based payments 14,216 13,876
Acquisition , restructuring and other expenses 155,873 83,496
Contingent consideration paid (38,936) (9,985)
Share of loss in joint venture 5 -
(Gain)/loss on the net monetary position (1,337) 1,344
Increase in trade and other receivables (48,682) (131,662)
Increase in trade and other payables 44,359 98,370
Cash flows from operations 97,250 68,496
14. Events occurring after the reporting period
There were no material post balance sheet events, that require
adjustment or disclosure, occurring between the
reporting period and the 29 March 2023.
Alternative Performance Measures
The Group has included various unaudited alternative performance
measures (APMs) in its unaudited consolidated financial statements.
The Group includes these non-GAAP measures as it considers these
measures to be both useful and necessary to the readers of the
Annual Report and Accounts to help them more fully understand the
performance and position of the Group. The Group's measures may not
be calculated in the same way as similarly titled measures reported
by other companies. The APMs should not be viewed in isolation and
should be considered as additional supplementary information to the
IFRS measures. Full reconciliations have been provided between the
APMs and their closest IFRS measures.
The Group has concluded that these APM's are relevant as they
represent how the Board assesses the performance of the Group and
they are also closely aligned with how shareholders value the
business. They provide like-for-like, year-on-year comparisons and
are closely correlated with the cash inflows from operations and
working capital position of the Group. They are used by the Group
for internal performance analysis and the presentation of these
measures facilitates comparison with other industry peers as they
adjust for non-recurring factors which may materially affect IFRS
measures. Adjusting items for the Group include amortisation of
acquired intangibles, acquisition related expenses costs, share
based payments, employment-related acquisition costs and
restructuring costs. Whilst adjusted measures exclude amortisation
of intangibles, acquisition costs and restructuring costs they do
include the revenue from acquisitions and the benefits of the
restructuring programmes and therefore should not be considered a
complete picture of the Group's financial performance, that is
provided by the IFRS measures.
The adjusted measures are also used in the calculation of the
adjusted earnings per share and banking covenants as per our
agreements with our lenders.
Closest Adjustments to
APM IFRS measure reconcile to IFRS Reason for use
Measure
Consolidated statement of profit or loss
Controlled Revenue Includes media spend
Billings contracted directly It is an important measure
by clients with to help understand the
media providers scale of the activities
and pass-through that Group has managed
costs (see reconciliation on behalf of its clients,
A1 below) in addition to the activities
that are directly invoiced
by the Group.
Billings Revenue Includes pass through
costs (see reconciliation It is an important measure
A1 below) to understand the activities
that are directly invoiced
by the Group to its clients.
Net Revenue Revenue Excludes direct This is more closely aligned
costs (see reconciliation to the fees the Group earns
A2 below) for its services provided
to the clients. This is
a key metric used in business
when looking at the Practice
performance.
Operational Operating Excludes amortisation Operational EBITDA is Operating
EBITDA profit of intangible assets, profit before the impact
Acquisition related of adjusting items, amortisation
expenses, share of intangible assets and
based payments and PPE depreciation. The Group
PPE depreciation considers this to be an
(see reconciliation important measure of Group
A3 below) performance and is consistent
with how the Group is assessed
by the Board and investment
community
Like-for-Like Revenue and Like for like is an important
operating Is the prior year measure used by the Board
profit comparative, in and investors when looking
this case 2021, at Group performance. It
restated to include provides a comparison that
acquired businesses reflects the impact of
for the same months acquisitions and changes
as 2022, and restated in FX rates during the
using same FX rates period.
as used in 2022
(see reconciliations
A4 below)
Closest Adjustments to reconcile
APM IFRS measure to IFRS Measure Reason for use
Pro-forma Revenue Is full year consolidated Pro-forma figures are used
and operating results in constant extensively by management
profit currency and for and the investment community.
acquisitions as if It is a useful measure
the Group had existed when looking at how the
in full for the year Group has changed in light
(see reconciliations of the number of acquisitions
A5 below) that have been completed
and to understand the performance
of the Group.
Adjusted basic Basic earnings Excludes amortisation Adjusted basic earnings
earnings per per share of intangible assets, per share is used by management
share acquisition related to understand the earnings
expenses, share based per share of the Group
payments and restructuring after removing non-recurring
expenses (see reconciliation items and those linked
A6 below) to combinations.
Consolidated balance sheet
Net debt None See reconciliation Net debt is cash less gross
A7 below bank loans (excluding transaction
costs). This is a key measure
used by management and
in calculations for bank
covenants.
2022 2021
Billings and Controlled billings (A1) GBP'000 GBP'000
=================
Revenue 1,069,489 686,601
Pass-through expenses 820,988 610,249
=================
Billings (1) 1,890,477 1,296,850
Third party billings direct to clients 3,760,747 2,696,311
Controlled billings (2) 5,651,224 3,993,161
Notes:
1. Billings is gross billings to clients including pass-through expenses.
2. Controlled billings are billings we influenced.
2022 2021
Net Revenue (A2) GBP'000 GBP'000
=================
Revenue 1,069,489 686,601
Direct costs (177,797) (126,338)
Net Revenue 891,692 560,263
Reconciliation to Operational EBITDA (A3) 2022 2021
GBP'000 GBP'000
Operating (loss) / profit (135,296) (42,055)
Amortisation and impairment of intangible assets 78,859 39,491
Acquisition , restructuring and other expenses 155,873 83,496
Share based payment 14,660 13,876
Depreciation of property, plant and equipment(1) 10,076 6,179
Operational EBITDA 124,172 100,987
Note:
1. Depreciation of property, plant and equipment is exclusive of depreciation on
right-of-use
assets
Like-for-Like (A4)
Data&Digital Technology
Like-for-like revenue Content Media Services Total
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 513,433 165,646 7,522 686,601
Impact of acquisitions 79,389 34,590 50,005 163,984
Impact of foreign exchange 29,454 (15,854) (3,629) 9,971
============
Like-for-like revenue (1) 622,276 184,382 53,898 860,556
% like-for-like revenue change 21.4% 19.6% 73.6% 24.3%
Note:
1. 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.
Data&Digital Technology
Like-for-like net revenue Content Media Services Total
Year ended 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
Net revenue 385,552 167,079 7,632 560,263
Impact of acquisitions 57,902 33,520 49,328 140,750
Impact of foreign exchange 26,252 (15,741) (3,479) 7,032
Like-for-like net revenue (1) 469,706 184,858 53,481 708,045
% like-for-like net revenue
change 24.1% 17.3% 72.3% 25.9%
Note:
1. 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.
Like-for-like Operational EBITDA Total
Year ended 31 December 2021 GBP'000
Operational EBITDA 100,987
Impact of acquisitions 39,039
Impact of foreign exchange 8,450
Like-for-like operational EBITDA (1) 148,476
% like-for-like operational EBITDA change - 16.4%
Note:
1. 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.
Data&Digital Technology
Pro-forma (A5) Content Media Services Total
Pro-forma revenue GBP'000 GBP'000 GBP'000 GBP'000
FY22 Revenue 755,422 220,498 93,569 1,069,489
Impact of acquisitions 17,146 284 21,818 39,248
FY22 Pro-forma revenue (1) 772,568 220,782 115,387 1,108,737
FY21 Revenue 513,433 165,646 7,522 686,601
Impact of acquisitions 83,287 34,590 65,758 183,635
Impact of foreign exchange 29,785 (15,854) (2,726) 11,205
FY21 Pro-forma revenue (1) 626,505 184,382 70,554 881,441
% pro-forma revenue change 23.3 % 19.7% 63.5% 25.8%
Note:
1. Pro-forma relates 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.
Data&Digital Technology
Content Media Services Total
Pro-forma net revenue GBP'000 GBP'000 GBP'000 GBP'000
FY22 net revenue 582,713 216,818 92,161 891,692
Impact of acquisitions 10,540 276 21,572 32,388
FY22 Pro-forma net revenue(1) 593,253 217,094 113,733 924,080
FY21 net revenue 385,552 167,079 7,632 560,263
Impact of acquisitions 60,345 33,520 64,970 158,835
Impact of foreign exchange 26,454 (15,741) (2,585) 8,128
FY21 Pro-forma net revenue(1) 472,351 184,858 70,017 727,226
% pro-forma net revenue change 25.6% 17.4% 62.4% 27.1%
Total
Pro-forma Operational EBITDA GBP'000
FY22 operational EBITDA 124,172
Impact of acquisitions 12,083
FY22 Pro-forma operational EBITDA (1) 136,255
FY21 Operational EBITDA 100,987
Impact of acquisitions 44,712
Impact of foreign exchange 8,796
FY21 Pro-forma operational EBITDA (1) 154,495
% pro-forma operational EBITDA change -11.8%
Adjusted basic earnings per share (A6)
Amortisation
Year ending 31 December and impairment(1) Acquisition Share-based Restructuring
2022 Reported GBP'000 expenses payment expenses Adjusted
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Operating (loss) / profit (135,296) 78,859 150,973 14,660 4,900 114,096
Net finance costs (25,707) - - - - (25,707)
Gain on net monetary
position 1,337 - - - - 1,337
(Loss) / profit before
income tax (159,666) 78,859 150,973 14,660 4,900 89,726
Income tax credit/(
expense) 32 (16,714) (64) (2,454) (837) (20,037)
(Loss) / profit for
the year (159,634) 62,145 150,909 12,206 4,063 69,689
1. Amortisation and impairment relate to the intangible assets
recognised as a result of the acquisitions.
Acquisition Share-based Restructuring
Reported Amortisation(1) expenses payment expenses Adjusted
Year ending 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2021
Operating profit (42,055) 39,491 83,496 13,876 - 94,808
Net finance costs (12,251) - - - - (12,251)
Loss on net monetary
position (1,344) - - - - (1,344)
(Loss) / profit before
income tax (55,650) 39,491 83,496 13,876 - 81,213
Income tax expense (1,065) (6,941) (1,426) - - (9,433)
(Loss) / profit for
the year (56,715) 32,550 82,070 13,876 - 71,780
1. Amortisation relates to the amortisation of the intangible
assets recognised as a result of the acquisitions.
Adjusted basic result per share 2022 2021
Adjusted profit attributable to owners of the
Company (GBP'000) 69,689 71,780
Weighted average number of ordinary shares
for the purpose of basic EPS (shares) 590,667,949 551,752,618
Adjusted basic earnings per share(pence) 11.8 13.0
Net Debt (A7)
Net debt is cash less gross bank loans (excluding transaction
costs). This is a measure used by management and in calculations
for bank covenants.
2022 2021
Net debt GBP'000 GBP'000
Cash and bank 223,574 301,021
Loans and borrowings (excluding bank overdrafts) (333,807) (317,156)
Bank overdrafts (16) (1,899)
Net debt (110,249) (18,034)
Lease liabilities (58,396) (41,968)
Net debt including lease liabilities (168,645) (60,002)
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