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S4 Capital PLC (SFOR)

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Monday 13 September, 2021

S4 Capital PLC

Results for the six months ended 30 June 2021

RNS Number : 4856L
S4 Capital PLC
13 September 2021
 

 

S4 Capital plc

("S4 Capital " or "the Company")

 

Results for the six months ended 30 June 2021

 

Very strong first half to start 2021, with like-for-like gross profit (net revenue) up 49% and accelerating to 66% in second quarter, more in line with the fast-growing digital platforms

 

Like-for-like gross profit (net revenue) guidance for 2021 increased for the third time this year, now from 35% to 40% 

 

Operational EBITDA up 91% reported, 30% like-for-like and 36% pro-forma with EBITDA margin of 14.5% reflecting continued investment in human capital and "whopper" growth in the first half and preparation for a continued strong second half, signaled by July's like-for-like gross profit (net revenue) growth of over 50%

 

  Financial highlights

¤ Billings* £547.5 million, up over 110% reported, up over 82% like-for-like**, up almost 82% pro-forma***.

 

¤ Revenue £279.3 million, up almost 98% reported, up over 56% like-for-like, up almost 57% pro-forma.

 

¤ Gross profit (net revenue) £236.7 million, up almost 91% reported, up over 49% like-for-like, up almost 50% pro-forma.

 

¤Like-for-like gross profit (net revenue) growth of almost 33 % in Q1 more than doubled to almost 66% in Q2, partly reflecting easier comparatives due to the impact of covid-19 in 2020. Even more importantly, the gross profit (net revenue) two-year stack (ie adding this half year's like-for-like growth of 49% to last year's 12% ) was up 61% and up 73% in Q2 (adding this second quarter growth of 66% to last year's 7%), clearly demonstrating that S4Capital is more of a proxy on the growth of the digital platforms, with Google's Q2 two-year revenue growth stack at 57% and Facebook's Advertising revenue Q2 two-year growth stack at 66%, rather than the adholdcos, which were generally flat. On a like-for-like basis the Company's two year stack for the first half of 2021 was up 75% (ie comparing 2021 with 2019 on a constant currency basis). Like-for-like gross profit (net revenue) growth continued at over 50% in July and the Company is raising its like-for-like gross profit (net revenue) growth guidance for 2021 from 35% to 40%. This is the third time this year that such guidance has been raised from the original figure of 25% and clearly signals that the Company is confident of doubling its size purely organically (ie on a like-for-like basis) for all its three, three-year plans covering the periods 2019-21, 2020-22 and 2021-23.

 

¤Operational EBITDA**** £34.3 million, up 91% reported, up almost 30% like-for-like and up over 36% pro-forma, as the Company continued to invest in the human fabric of the firm and prioritised top-line growth. Headcount increased to 5,751 from 2,644 at the end of the first half last year, like-for-like headcount increasing by 56%, to support the even stronger revenue and gross profit (net revenue) growth anticipated in the second half and achieve the enhanced expectations for 2021.

 

¤Operating loss £16.1 million, which includes adjusting items of £47.5 million (primarily acquisition payments, some linked to continued employment and associated expense totalling £23.6 million versus a credit of £1.8 million in 2020, amortisation and share-based compensation), versus an operating profit of £1.3 million in 2020 and like-for-like operating loss of £18.1 million loss.

 

¤ Loss before income tax £19.4 million, which includes adjusting items, versus £1.0 million (loss) in 2020 and like-for-like loss before income tax of £20.1 million.

 

¤Loss for the period £21.1 million, which includes adjusting items after taxation versus £1.4 million (loss) in 2020 and like-for-like loss of £21.6 million.

 

¤ Basic and diluted loss per share 3.9p versus 0.3p loss in 2020

 

¤ Adjusted basic earnings per share, which includes adjusting items after tax, of 3.9p per ordinary share, up over 66%, versus 2.3p per share in the first half of last year and pro-forma adjusted basic earnings per share 4.4p.

 

¤Liquidity was strong throughout the first half, with net cash balances pretty much throughout the half-year, even after significant combination payments, with period end net cash***** £7.4 million, which excludes the impact of the seven-year €375 million senior secured term loan led by Credit Suisse AG, London branch, HSBC Bank plc and Barclays Bank plc. In addition, the company negotiated a five-year £100 million equivalent multi-currency senior secured revolving credit facility with Credit Suisse, HSBC, Barclays, JP Morgan and BNP Paribas. Both term loan and revolving facility were successfully completed in early August 2021. This replaced all existing facilities and will provide approximately £200 million for general corporate purposes, including the cash element of future combinations, which is typically one half of overall consideration. Combination firepower is therefore around £400 million. The Company will maintain its policy of maximum net leverage not exceeding 1.5-2x Operational EBITDA.

 

 

Sir Martin Sorrell, Executive Chairman of S4Capital Plc said:

"We have had a super strong first half start to 2021, in line with the fast-growing digital platforms. Even in comparison to 2019, we are up strongly, again more like the digital platforms. It is clear that the tragedy of covid-19 has accelerated the speed of digital transformation and disruption at consumer, media and enterprise levels. Especially, in these difficult times, we continue to be committed to ensuring that our people are well and safe, with sustainability and responsibility being a priority.

 

"These results confirm that S4Capital is converting at scale with five "whopper" client (clients of more than $20 million per annum gross revenues) already and ten more identified out of an overall target of 20. We are clearly in a disruptive, growth sweet spot and our digital only, faster, better, cheaper, unitary, " holy trinity" model, which combines first party data with digital content, data and digital media is gaining traction, particularly in a cookieless world.

 

"After only three years, on our third birthday as a listed company and with a market capitalisation of around six and a half billion dollars, which is well in to the top 125 FTSE companies, we are now in a position to build even stronger value-adding relationships with tech, healthcare, financial and FMCG clients amongst others. And with a strong and liquid balance sheet and significant combination firepower we are in a great financial place to expand through further combinations, which will add to our data, content, digital media and, potentially in the future, technology services capabilities. The second half of 2021 and the prospects for 2022 look very good primarily driven by the fiscal and monetary stimulus, as well as the years beyond driven by digital transformation".

 

Strategic and operational highlights

¤  In January, MediaMonks announced its combination with integrated creative, technology and media agency Decoded Advertising (completed on 31 December 2020), Shanghai based creative agency TOMORROW (completed on 8 January 2021) and Stuttgart based automotive specialist STAUD STUDIOS (completed on 19 January 2021). MightyHive also announced its combination with integrated digital performance marketing agency Metric Theory (completed on 31 December 2020).

 

¤ In February, MightyHive acquired the assets of Datalicious Australia, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific.

 

¤     In March, MediaMonks announced it had entered into a conditional agreement in relation to a combination of MediaMonks with Toronto-based design and experience agency, Jam3 (completed on 4 May 2021).

 

¤ In May, MightyHive announced it had entered into a conditional agreement in relation to a combination of MightyHive with the leading digital performance agency in Brazil, Raccoon Group (completed on 26 May 2021).

 

¤ After the half year end in July 2021, MightyHive announced a combination with Destined, a leading Salesforce agency (Platinum Partner) in Asia Pacific (completed on 23 July 2021).

 

¤ Finally, in September, our new unitary brand announced a combination with Cashmere, the iconic culture and creative  marketing agency based in Los Angeles (completed 3 September 2021).

 

¤ Post merger integration for these combinations and previous combinations has been planned and implemented carefully and effectively, enabling the integration process to commence quickly and effectively after completion. Our clients and people have been impressed with the talents and capabilities merged in.

 

¤Although the pandemic has taken a terrible social toll, it has also accelerated the process of digital transformation at hyper speed. The consumer, the media and the enterprise have all seen an acceleration in the pace of change. Consumers are buying more essentials and food online, as well as increasingly educating their kids online and buying healthcare and financial services online, in many cases for the first time, but once converted they will continue to do so. In media, the "streamers" are continuing to displace free to air tv networks, physical newspapers and magazines are in steeper decline accelerating digital transformation and digital outdoor is continuing to displace traditional. Finally, enterprises, following a financially challenged second quarter in 2020, no longer had cause to defend the status quo and "change agents" were given more oxygen to push through digital changes.

 

¤Similarly, while analogue or traditional advertising, marketing services and trade budgets may have declined last year by 10-15% or so, the digital segments of S4Capital's addressable $1.8 trillion market (excluding technology services) actually grew despite the pandemic, crossing a 50% share and promising to grow this year by 20%, driven both by the huge, unprecedented post-pandemic monetary and fiscal stimulus and by the surge in digital transformation. Digital is forecast to reach 70% of our addressable market by 2024. 2022 promises to be another year of surging global GDP growth of around 4-5%, slightly slowing from this year's 5-6%. Although, global GDP growth might slip in 2023 to pre-pandemic levels of 2-3%, digital markets will continue to grow driven by the pace of digital transformation and technological change. Given this considerable market opportunity, prioritising revenue and gross profit (net revenue) growth at this early stage of the Company's development continues to be part of its strategy, boosted by substantial human capital investment, particularly given the continuing second half 2021 momentum.

 

¤Part of our purpose is to provide jobs and long-term career opportunities for our people. We are growing S⁴Capital in a responsible and sustainable way, for the long-term benefit of all, making a meaningful difference and leaving a light footprint. Sustainability is an integral part of S4Capital's long-term business strategy, growing the world's brightest talent to create a skilled, diverse workplace and applying technology and our digital expertise for the greater good. Our strategy and activities are built around three pillars: Sustainable Production, Zero Impact Workspaces and Diversity, Equity & Inclusion. In response to last year's appalling racist events in America, the Company instituted a number of immediate programmes and changes - first to its recruitment and internal education programmes, secondly, with a matching contribution plan for a number of selected non-profits and, lastly, with the establishment of a Fellowship Programme for Historically Black College & University graduates in the United States. It is our intention to extend this Programme to High Schools. In addition, to develop even more significant gender diversity at senior management levels, the Company has instituted the S4Womens Leadership Programme at UC Berkeley. The Company is seeking to implement "B" Corp status by the end of this year.

 

¤Our client roster continues to be dominated by and strengthened in technology, as well as in fast moving consumer goods (FMCG), in telecommunications and in pharmaceuticals, both by practice and geography. Notable assignments in the first half of 2021 were won with our existing clients such as Google, Facebook, HP, Netflix, Procter & Gamble and AB InBev, plus we added new logos including Amazon Fashion, FIFA, Burberry, Toblerone (Mondelēz), Shopify, Instacart, McLaren and OLX, as our new agency consultancy model gains traction and we continue to be included in a number of major client reviews, although we continue to favour expansion through "land&expand", as lengthy reviews are wasteful and time-consuming, as well as commoditising, for both client and agency. Having achieved brand awareness and brand trial over the first two years of its existence, the Company now has five "whopper" accounts (Google, another FAANG (NDA), BMW/MINI, Mondēlez, Facebook) and high hopes of adding two or three more "whoppers" next year to our roster of clients - that is, clients who represent more than $20 million of gross revenue each year. We have set a new client conversion target of "202", that is 20 clients with over $20 million annual revenue and have identified 15 out of the 20 so far, including the 7-8 identified above.

 

¤    By practice, Content gross profit (net revenue) was up over 66% reported, almost 51% like-for-like and 52% pro-forma. Data & digital   media up over 169% reported, almost 47% like-for-like and over 46% pro-forma.

 

¤By geography, the Americas gross profit (net revenue) was up 90% reported, over 47% like-for-like and over 48% pro-forma. EMEA was up over 101% reported, up 60% like-for-like and over 60% pro-forma, particularly reflecting two 'Whopper' wins. Asia-Pacific was up almost 76% reported, up over 43% both like-for-like and pro-forma.

 

¤Content and data&digital media capabilities added in the United States, Canada, Brazil, Germany, China and Australia in the first half through seven combinations.

 

¤Further content and data&digital media capabilities added in the United States and Asia Pacific after the half year end through two combinations.

 

Outlook
 

¤The first half of 2021 came in well above budget and/or target growing twice as fast as anticipated and with the two-year stack growing similarly to the digital platforms. The second half of 2021 has also started strongly and like-for-like gross profit (net revenue) guidance for the full year has now been raised for the third time this year to 40%, having started the year at 25%.

 

¤Given the strong organic growth rate in the first half of 2021 and July, the Company believes it will double organically (meaning like-for-like) over the three-year period 2021-23 (as we believe it will do in the three-year periods 2019-21 and 2020-22) and deliver like-for-like 40% revenue and gross profit (net revenue) growth and strong margins in 2021. The Company's prospects for 2022 also look stronger given the organic growth rate, increasing client conversion at scale, significant combination activity and the likely continued post-covid-19 economic recovery.

 

*Billings is gross billings to client including pass through costs

**Like-for-like relates to 2020 being restated to show the numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2021 applying currency rates as used in 2021

***Pro-forma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the S4Capital Plc Group (the group) had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations

****Operational EBITDA is EBITDA adjusted for non-recurring items and recurring share-based payments and is a non-GAAP measure management uses to assess the underlying business performance (also see note 13)

*****Net cash comprises cash minus bank loans

 

This document contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group, including, among other things, statements about expected revenues, margins, earnings per share or other financial or other measures. Although the Group believes its expectations are based on reasonable assumptions, any forward-looking statements, by their very nature, involve risks and uncertainties and may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted. The forward-looking statements reflect knowledge and information available at the date of preparation of this document and the Group undertakes no obligation to update these forward-looking statements. The Group identifies the forward-looking statements by using the words 'anticipates', 'believes', 'expects', 'intends', 'estimate', 'expect', 'project', 'plan', 'believe', 'target' and similar expressions in such statements. Important factors that could cause actual results to differ materially from those contained in forward-looking statements, certain of which are beyond the Group's control, include, among other things: the unanticipated loss of a material client or key personnel, delays or reductions in client advertising budgets, shifts in industry rates of compensation, regulatory compliance costs or litigation, natural disasters or acts of terrorism, the overall level of economic activity in the Company's major markets etc.

Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge and information available to the Directors on the date of this document.

Results webcast and conference call

A webcast and conference call covering the results will be held today at 09:00 BST in London, followed by another webcast and call at 08:00 EDT / 13:00 BST. Both webcasts of the presentation will be available at www.s4capital.com during the event.

 

09:00 BST call - For dial in Q&A only:

UK: +44 (0)330 336 9434

US: +1 323-994-2093

Confirmation code: 7785558

 

08:00 EDT/13:00 BST call - For dial in Q&A only

UK: +44 (0)330 336 9125

US: +1 323-794-2093

Confirmation code: 8150655

 

Enquiries to

S4Capital Plc  

Sir Martin Sorrell, Executive Chairman

Peter Rademaker, Chief Financial Officer

Scott Spirit, Chief Growth Officer

+44 (0)20 3793 0003

 

Dowgate Capital Limited (Joint Corporate Broker)  

James Serjeant/David Poutney

+44 (0)20 3903 7715

 

Jefferies International Limited (Joint Corporate Broker to S4 Capital plc)

Tony White/Harry Le May

+44 (0)207 029 8000

 

Morgan Stanley & Co. International plc (Joint Corporate Broker to S4 Capital plc) 

Paul Baker/Alex Smart

+44 (0)207 425 8000

 

Powerscourt (PR Advisor)    

Elly Williamson/Jane Glover

+44 (0)7970 246 725

About S4Capital

 

S 4 Capital plc (SFOR.L) is the tech-led, new age/new era digital advertising and marketing services company, established by Sir Martin Sorrell in May 2018.

 

Its strategy is to build a purely digital advertising and marketing services business for global, multinational, regional, local clients and millennial-driven influencer brands. This will be achieved initially by integrating leading businesses in two practice areas: content and data&digital media, along with an emphasis on "faster, better, cheaper" executions in an always-on consumer-led environment, with a unitary structure.

 

Digital is by far the fastest-growing segment of the advertising market. S 4 Capital estimates that in 2020 digital accounted for over 50% (for the first time) or $290 billion of total global advertising spend of $525 billion (excluding over $500 billion of trade promotion marketing, the primary target of the Amazon advertising platform), and projects that by 2022 this share will grow to approximately 60% and by 2024 to approximately 70%, accelerated by the impact of covid-19.

 

S 4 Capital combined with MediaMonks, the leading AdAge A-listed creative digital content production company led by Victor Knaap and Wesley ter Haar, in July 2018 and with MightyHive, the market-leading digital media solutions provider for future thinking marketers and agencies, led by Peter Kim and Christopher S. Martin, in December 2018.

 

In April 2019, MightyHive combined with ProgMedia to expand operations into Latin America and MediaMonks acquired film studio Caramel Pictures to expand content studio capabilities. In June 2019, MediaMonks announced a planned combination with Australia-based BizTech, a leading marketing transformation and customer experience company. In August 2019, MediaMonks combined with Amsterdam-based digital influencer marketing agency IMA. In October 2019, MediaMonks combined with Firewood Marketing, the largest digital marketing agency based in Silicon Valley, that was recently ranked, along with MediaMonks and Circus (see below), as one of the fastest growing agencies by Adweek, and MightyHive combined with award-winning UK-based digital analytics, biddable media and data science company ConversionWorks and South Korea-based data and analytics consultancy MightyHive Korea. In November 2019, MediaMonks announced its combination with Delhi-based content creation and production company WhiteBalance (completed in August 2020 - the delay due to necessary merger clearance procedures) and then with fully integrated digital agency Circus Marketing in January 2020 (completed in March 2020).

 

In May 2020, MightyHive announced a combination with Digodat, one of the leading Latin American data and analytics consultancies, and in June 2020, MightyHive announced its combination with Lens10, a leading Australian digital strategy and analytics consultancy. In July 2020, MightyHive announced a combination with Orca Pacific, a market leading full-service Amazon agency and boutique consultancy firm based in Seattle. In August 2020, MightyHive announced a combination with London-based Brightblue, an econometric and media optimisation consultancy. In September 2020, MediaMonks announced its combination with Dare.Win, expanding its geographical presence to France.

 

In January 2021, MediaMonks announced its combination with integrated creative, technology and media agency Decoded Advertising, Shanghai based creative agency TOMORROW and Stuttgart based automotive specialist STAUD STUDIOS. MightyHive also announced its combination with integrated digital performance marketing agency Metric Theory. In February 2021, MightyHive acquired the assets of Datalicious Australia, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific. In March 2021, MediaMonks announced it had entered into a conditional agreement in relation to a combination of MediaMonks with Toronto-based design and experience agency, Jam3. In May 2021, MightyHive announced it had entered into a conditional agreement in relation to a combination of MightyHive with the leading digital performance agency in Brazil, Raccoon Group.

 

On 26 July 2021, MightyHive announced a combination with Salesforce specialist Destined expanding its data and digital media practice in Asia Pacific. On 8 September 2021, the new unitary brand Media.Monks announced a combination with the iconic culture and creative marketing agency, Cashmere, based in Los Angeles.

 

In August 2021, S 4 Capital launched its unitary brand by merging MediaMonks and MightyHive into Media.Monks, represented by a dynamic logo mark that features MightyHive's iconic hexagon. As the operational brand, Media.Monks underpins S4Capital's agility, digital knowledge and efficiency and is the next step in delivering on its foundational promise to unify content, data&digital media and technology services.

 

On 16 July 2020, S4Capital announced the successful placing of 36,766,642 new ordinary shares at a price of 315p raising approximately £116 million gross proceeds which has been used for further expansion and combination purposes.

 

On 19 July 2021, S 4 Capital announced it had engaged Credit Suisse AG, London branch, HSBC Bank plc and Barclays Bank plc as lead arrangers for a seven-year €375 million senior secured term loan. In addition, it negotiated a five-year £100 million equivalent multicurrency senior secured revolving credit facility with Credit Suisse, HSBC, Barclays, JP Morgan and BNP Paribas. Both term loan and revolving facility were successfully completed in early August 2021. This refinanced its existing €25 million and US$28.9 million term loans and its €35 million and €43.5 million multicurrency revolving credit facilities and will provide approximately £200 million for general corporate purposes, including funding the cash element of future mergers, which is typically one-half of overall consideration. The Company will maintain its policy of maximum net leverage not exceeding 1.5-2x Operational EBITDA.

 

Victor Knaap, Wesley ter Haar, Pete Kim, Christopher Martin, Peter Rademaker and Scott Spirit all joined the S 4 Capital Board as Directors. The S 4 Capital Board also includes Rupert Faure Walker, Paul Roy, Daniel Pinto, Sue Prevezer, Elizabeth Buchanan, Naoko Okumoto, Margaret Ma Connolly and Miles Young.

 

The Company now has nearly 6,000 people in 33 countries across the Americas, Europe, the Middle East and Africa and Asia-Pacific and a current market capitalisation of approximately £4.5 billion (c.$6.3 billion), and would rank well inside the FTSE 125. It achieved Unicorn status in a little over one year, unique in the advertising and marketing services industry. Sir Martin was CEO of WPP for 33 years, building it from a £1 million "shell" company in 1985 into the world's largest advertising and marketing services company with a market capitalisation of over £16 billion on the day he left. Today its market capitalisation is £12 billion, having recently been surpassed by Publicis for the first time. Prior to that Sir Martin was Group Financial Director of Saatchi & Saatchi Company Plc for nine years.

 

Summary of results

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year ended 31 Dec 2020

 

 

Like-for-like2 Six months ended 30 Jun 2020

Proforma3 Six months ended 30 Jun 2021

Proforma

Six months ended 30 Jun 2020

Notes

GBP'000

GBP'000

GBP'000

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

 

 

 

Revenue

6

279,288

141,344

342,687

 

 

178,773

291,444

185,924

Cost of sales

 

42,626

17,375

47,505

 

 

20,352

43,541

20,544

 

 

 

 

 

 

 

 

 

 

Gross profit

6

236,662

123,969

295,182

 

 

158,421

247,903

165,380

 

 

 

 

 

 

 

 

 

 

Content

 

157,047

94,410

220,497

 

 

104,141

161,952

106,557

Data & Digital media

 

79,615

29,559

74,685

 

 

54,280

85,951

58,823

 

 

 

 

 

 

 

 

 

 

America's

 

168,788

88,818

206,316

 

 

114,568

179,845

121,475

EMEA

 

48,284

23,991

59,235

 

 

30,170

48,468

30,222

Asia-Pacific

 

19,590

11,160

29,631

 

 

13,683

19,590

13,683

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

252,794

122,632

287,049

 

 

176,472

283,131

205,709

 

 

 

 

 

 

 

 

 

 

Operating ( loss ) / profit

 

(16,132)

1,337

8,133

 

 

(18,051)

(35,228)

(40,329)

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

 

 31,324

16,265

57,950

 

 

 24,409

 35,774

 26,382

Adjusting items

14

 (47,456)

(14,928)

(49,817)

 

 

 (42,460)

 (71,002)

 (66,711)

Operating (loss) / profit

 

 (16,132)

1,337

8,133

 

 

 (18,051)

 (35,228)

 (40,329)

 

 

 

 

 

 

 

 

 

 

Net finance expenses

 

(3,250)

(2,374)

(5,037)

 

 

(2,009)

(2,991)

(1,928)

 

 

 

 

 

 

 

 

 

 

(Loss) / profit before income tax

 

(19,382)

(1,037)

3,096

 

 

(20,060)

(38,219)

(42,257)

 

 

 

 

 

 

 

 

 

 

Adjusted result before income tax

 

28,074

13,891

52,913

 

 

 22,400

 32,783

 24,454

Adjusting items

14

 (47,456)

(14,928)

(49,817)

 

 

 (42,460)

 (71,002)

 (66,711)

(Loss) / profit before income tax

 

 (19,382)

(1,037)

3,096

 

 

 (20,060)

 (38,219)

 (42,257)

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(1,740)

(352)

(7,025)

 

 

(1,535)

(3,277)

(1,720)

 

 

 

 

 

 

 

 

 

 

(Loss) / profit for the period

 

(21,122)

(1,389)

(3,929)

 

 

(21,595)

(41,496)

(43,977)

 

 

 

 

 

 

 

 

 

 

Adjusted result for the period

 

 21,159

10,894

38,892

 

 

16,424

 24,099

 17,885

Adjusting items

14

 (47,456)

(14,928)

(49,817)

 

 

 (42,460)

 (71,002)

 (66,711)

Tax on a djusting items

 

 5,175

2,645

6,996

 

 

 4,441

 5,407

 4,849

Loss for the period

 

 (21,122)

(1,389)

(3,929)

 

 

(21,595)

 (41,496)

 (43,977)

 

 

 

 

 

 

 

 

 

 

Operating (loss) / profit

 

 (16,132)

1,337

8,133

 

 

 (18,051)

 (35,228)

 (40,329)

Adjusting items

14

 47,456

14,928

49,817

 

 

 42,460

 71,002

 66,711

Depreciation (excl. right-of-use assets)

 

 3,023

1,719

4,228

 

 

 2,087

 3,124

 2,162

 

 

 

 

 

 

 

 

 

 

Operational EBITDA

14

34,347

17,984

62,178

 

 

26,496

38,898

28,544

Central costs

 

4,840

2,493

6,112

 

 

2,479

4,840

2,479

 

 

 

 

 

 

 

 

 

 

Operational EBITDA before central costs

 

39,187

20,477

68,290

 

 

28,975

43,738

31,023

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares in issue for the purpose of basic and adjusted net result per share

 

  544,589,568

 

465,697,844

493,290,974

 

 

544,589,568

546,909,387

  546,909,387

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to equity owners of the company (GBP'000)

 

(21,122)

(1,389)

(3,929)

 

 

(21,595)

(41,496)

(43,977)

 

 

 

 

 

 

 

 

 

 

Basic net loss per share (pence)

 

(3.9)

(0.3)

( 0.8 )

 

 

(4.0)

(7.6)

(8.0)

Diluted net loss per share (Pence)

 

(3.9)

(0.3)

( 0.8 )

 

 

(4.0)

(7.6)

(8.0)

 

 

 

 

 

 

 

 

 

 

Adjusted profit for the period

 

21,159

10,894

38,892

 

 

16,424

24,099

17,885

 

 

 

 

 

 

 

 

 

 

Adjusted basic earnings per share (pence)

 

3.9

2.3

7.9

 

 

3.0

4.4

3.3

 

Notes:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2.  Like-for-like is a non-GAAP measure relates to 2020 being restated to show the unaudited numbers for the previous year of the existing and acquired businesses consolidated for the same months as in 2021 applying currency rates as used in 2021;

3.  Proforma numbers relate to unaudited full year non-statutory and non-GAAP consolidated results in constant currency as if the Group had existed in full for the year and have been prepared under comparable GAAP with no consolidation eliminations.

 

On its third stock market birthday,   S4Capital is delighted to report strong statutory, like-for-like and pro-forma revenue and gross profit growth for the first six months of 2021. Our 6,000 digital specialists in 33 countries have dealt superbly with the challenges and opportunities posed by the pandemic, together with the considerable personal and family difficulties encountered. The Company is well on the way to doubling organically over the period 2021-2023 and achieving the same objective in both the 2019-21 and 2020-22 triennials.

 

Billings were £547.5 million, up over 110% on a reported basis, up over 82% on a like-for-like basis and up almost 82% on a pro-forma basis. Controlled Billings were approximately $2.3 billion.

 

Revenue was £279.3 million, up almost 98% from £141.3 million on a reported basis, up over 56% on a like-for-like basis and up almost 57% on a pro-forma basis, partially reflecting the strength of the pound sterling against the US dollar in the first half of 2021 in comparison to the first half of 2020. 

 

Reported gross profit was £236.7 million, up almost 91% from £124.0 million for the comparable period in 2020, up over 49% like-for-like and up almost 50% pro-forma.

 

Like-for-like gross profit (net revenue) growth accelerated sharply from almost 33% in Q1 to almost 66% in Q2, partly due to the easier comparatives in a Q2 2020 depressed by covid-19, but, even more impressively, the two-year stack compared to Q2 2019 was up 73%  (adding this second quarter's growth of 66% to last year's 7%)), pretty much in line with the tech platforms and markedly different to the adholdcos, who struggled to find any growth over the two years.

 

Reported Operational Earnings Before Interest, Taxes, Depreciation and Amortisation ('EBITDA') was £34.3 million versus £18.0 million, an increase of 91%, primarily reflecting both combination activity and a continued, covid-19-driven reduction in freelance, travel and office costs. Operational EBITDA was up almost 30% on a like-for-like basis and up over 36% on a pro-forma basis, primarily reflecting an increase of 56% in the like-for-like headcount in the first half from 3,684 people to 5,751 people at the end of the first half. As disclosed in the secured term loan and revolving credit facility presentations, Operational EBITDA for the latest twelve months to June 2021 was £100.2 million. As outlined in both the First Quarter Trading Statement of 4 May 2021 and the AGM statement of 7 June 2021, the Group has continued to invest heavily in human capital, as it geared up for significant expansion in the second half of the year as a result of "whopper" wins and stronger client demand and geographic and practice expansion. This will support the continued strong anticipated revenue and gross profit (net profit) growth in the second half of 2021, which have already been signaled in the strong gross profit (net revenue) results for July.

 

Adjusted operating profit was up almost 93% at £31.3 million from £16.3 million on a reported basis, before adjusting items of £47.4 million, including non-recurring items, primarily acquisition payments tied to continued employment, share-based compensation and amortisation of business combination intangible assets. Like-for-like adjusted operating profit was up over 28% and pro-forma adjusted operating profit was up almost 36%, primarily reflecting the continued impact of covid-19 and the increase in like-for-like number of people in the firm, as the Company geared up for a stronger second half.

 

Adjusted result before income tax was £28.1 million, up over 102% versus £13.9 million in the comparable period last year. On a like-for-like basis adjusted result before income tax was up over 25% and up over 34% on a pro-forma basis.

 

Adjusted result for the period was £21.2 million, up 94% on a reported basis, up almost 29% on a like-for-like basis and up almost 35% on a pro-forma basis.

 

Basic and diluted loss per share was 3.9p versus 0.3p loss in 2020.

 

Adjusted basic earnings per share was 3.9p, versus adjusted basic earnings per share of 2.3p in the first half of 2020.

 

The Board has decided that there will be no interim dividend declared for the first half of 2021, although it continues to review the advisability of declaring a modest dividend in future.

 

Gross profit, Operational EBITDA and Operational EBITDA margins by practice

Content practice gross profit was £157.0 million (66% of total gross profit), up over 66% on a reported basis from last year. Gross profit on a like-for-like basis was up almost 51% and up over 52% on a pro-forma basis.

 

Data&digital media practice gross profit was £79.6 million (34% of total gross profit), up over 169%, from last year on a reported basis. Gross profit on a like-for-like basis was up almost 47% and on a pro-forma basis was up over 46%.

 

Content practice operational EBITDA before S4Capital central costs was £16.8 million, up over 8% from last year, reflecting a significant necessary increased investment in talent following major account wins and up almost 7% on a like-for-like basis and up over 15% on a pro-forma basis. The Content practice operational EBITDA margin was 10.7%, compared to 16.4% last year, again reflecting increased investment in human capital in the first half of the year to staff "whoppers" and prepare for a stronger second half and build client team structures, integration tools and software across a unitary organisation for the longer term.

 

Data&digital media practice operational EBITDA before S4Capital central costs was £22.4 million, up 350% from last year and up over 69% on a like-for-like basis and almost 67% on a proforma basis, reflecting very strong organic growth driven by the prospect of a cookie-less world, significant combination activity, the continued impact of covid-19 and increased investment in human capital to prepare for a strong second half. Data&digital media practice operational EBITDA margin was 28.2%, compared to 16.9% last year, reflecting   the positive impact of strong organic revenue growth on operational gearing and a fall in travel, office and other operating expenses during covid-19.

 

Gross Profit by Geography

Americas (71% of total) was £168.8 million, up 90% on a reported basis from last year. On a like-for-like basis Americas gross profit was up over 47% and up over 48% on a pro-forma basis reflecting strong trading, new "whoppers", the relative resilience and agility of our two practices in the United States and Canada and the strength of our market position in Latin America.

 

EMEA (20% of total gross profit or net revenue) was £48.3 million, up over 101% from last year on a reported basis. On both a like-for-like and pro-forma basis EMEA gross profit (net revenue) was up 60% primarily reflecting "whopper" growth in the key markets of EMEA.

 

Asia Pacific (9% of total) was £19.6 million, up almost 76% on a reported basis. On both a like-for-like and pro-forma basis Asia Pacific gross profit (net revenue) was up over 43% reflecting continued strong organic growth and the relatively rapid recovery in the region's major markets from the earlier impact of covid-19, subject to variant surges.

 

Client activity, development and integration

There has been strong individual Content practice and Data&digital media practice client development in FMCG, pharmaceutical, media, financial services, telecommunications, hospitality, retail, sport and technology. High profile wins during the first half have included Amazon Fashion, FIFA, Burberry, Toblerone (Mondelēz), Shopify, Instacart, McLaren and OLX.

 

Significant developments continue at Google, Facebook, HP, Netflix, Procter & Gamble and AB InBev amongst others. The Company is increasingly being included in a number of major industry reviews, reflecting the client interest in the new era/new age agency consultancy model, although we prefer landing&expanding with clients, as the process is less wasteful and time-consuming and a more effective way of selecting agency partners. We have added two more "whoppers" to our roster of clients making five - that is clients who represent more than $20 million of gross revenue each year. We currently have, Google, another well-known tech company (NDA), BMW/MINI, Mondēlez and Facebook and have identified ten other potential ones, of which two or three are trending towards the required level. Our new client conversion target of "202", that is 20 clients with over $20 million annual gross revenue, remains.

 

There has been significant joint and integrated activity in the auto, durables, healthcare, FMCG, financial services, media, retail, sports, telecommunications and technology areas.

 

The Company has successfully launched its new unitary operational brand, Media.Monks, which highlights the Company's roots in content creation at MediaMonks and features its data&digital practice through continued use of the MightyHive hexagon. There is sufficient flexibility in the branding's execution to offer expanded "space" to all our combined entities. The Company's financial brand remains S4Capital. The launch has been very successfully received by both clients and internally, particularly given the careful preparation taken with both communities. Clients have been pleasantly surprised by the firm decision to move to a unitary brand and the speed of implementation. Clients want a new, integrated offer giving them easy access to all our talents.

 

One of the impacts of covid-19 has been the increasing attraction of the hybrid office model, with our people potentially spending three days in the office. Our first, unitary office integrations have been or are being implemented successfully in Amsterdam, Buenos Aires, Singapore, London and Berlin and escalated integrations are being planned in all of the 57 cities that the Company operates in, dependent on the expiration dates of existing leases. Cross-functional geographic co-operation continues to be significant. In addition, the Company is implementing sales pipeline and HR tooling to underpin its unitary structure. First steps have been taken to implement unified ERP tooling.

 

Combination activity

This year has again seen significant combination activity, with nine transactions aimed at continuing to build our content capabilities and our data&digital media and key platform capabilities and resources.

 

In January 2021, MediaMonks announced its combination with integrated creative, technology and media agency Decoded Advertising, Shanghai based creative agency TOMORROW and Stuttgart based automotive specialist STAUD STUDIOS. MightyHive also announced its combination with integrated digital performance marketing agency Metric Theory.

In February 2021, MightyHive acquired the assets of Datalicious Australia, a leading Google Marketing Platform, Google Cloud and Google Analytics partner in Asia Pacific.

 

In March 2021, MediaMonks announced it had entered into a conditional agreement in relation to a combination of MediaMonks with Toronto-based design and experience agency, Jam3.

 

In May 2021, MightyHive announced it had entered into a conditional agreement in relation to a combination of MightyHive with the leading digital performance agency in Brazil, Raccoon Group.

 

In July, MightyHive combined with Destined to significantly increase its data&digital media practice in AsiaPacific and augment its global Salesforce capabilities.

 

Finally, last Wednesday, our new unitary brand, Media.Monks announced a combination with the iconic culture and creative marketing agency, Cashmere, based in Los Angeles.

 

In all cases, except Datalicious Australia, which was all cash, total consideration paid or payable was approximately half in cash and half in S4Capital Ordinary Shares, with a two-year lock-up from date of issue and in many cases acquisition payments tied to continued employment. Multiples paid were in the range of approximately 1-2 times revenues and 5-10 times EBITDA, depending on current and forecast performance over the current and/or following year, with no earnouts. The combination pipeline is extremely strong in both Content and Data&digital media, along with our planned third new practice in technology services.

 

Balance sheet liquidity

Liquidity remains strong with half-year end net cash around £7.4 million. This, of course, excludes the recently negotiated term loan and re-negotiated revolving credit facility. On 19 July 2021, S4Capital announced it had engaged Credit Suisse AG, London branch, HSBC Bank plc and Barclays Bank plc as lead arrangers for a seven-year €375 million senior secured term loan. In addition, it negotiated a five-year £100 million equivalent multicurrency senior secured revolving credit facility with Credit Suisse, HSBC, Barclays, JP Morgan and BNP Paribas. This refinanced its existing €25 million and US$28.9 million term loans and its €35 million and €43.5 million multicurrency revolving credit facilities and will provide approximately £200 million for general corporate purposes, including funding the cash element of future combinations, which is typically one-half of overall consideration. The Company will maintain its policy of maximum net leverage not exceeding 1.5-2x Operational EBITDA.

 

Outlook and July results

Like for like growth rates remain strong, with July's gross profit (net revenue) up over 50%.

 

As anticipated in the Company's 2021 budget and Q1 and Q2 revised forecasts, the second half is targeted to be strong and top line growth has started very well.

 

 

 

 

Unaudited consolidated interim statement of profit or loss

for the six month period ended 30 June 2021

 

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year

ended 31 Dec 2020

Notes

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Revenue

6

 

 

279,288

141,344

342,687

Cost of sales

 

 

 

42,626

17,375

47,505

 

 

 

 

 

 

 

Gross profit

6

 

 

236,662

123,969

295,182

 

 

 

 

 

 

 

Personnel costs

 

 

 

183,003

92,412

205,135

Other operating expenses

 

 

 

20,674

14,278

30,561

Acquisition and set-up related expenses

14

 

 

23,615

(1,805)

14,338

Depreciation and amortisation

 

 

 

25,502

17,747

37,015

 

 

 

 

 

 

 

Total operating expenses

 

 

 

252,794

122,632

287,049

 

 

 

 

 

 

 

Operating (loss) / profit

 

 

 

(16,132)

1,337

8,133

 

 

 

 

 

 

 

Adjusted operating profit

 

 

 

31,324

16,265

57,950

Adjusting items

14

 

 

 (47,456)

(14,928)

(49,817)

Operating (Loss) / profit

 

 

 

 (16,132)

1,337

8,133

 

 

 

 

 

 

 

Finance income

 

 

 

413

-

698

Finance expenses

 

 

 

(3,663)

(2,374)

(5,735)

 

 

 

 

 

 

 

Net finance expenses

 

 

 

(3,250)

(2,374)

(5,037)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) / profit before income tax

 

 

 

(19,382)

(1,037)

3,096

 

 

 

 

 

 

 

Income tax expense

 

 

 

(1,740)

(352)

(7,025)

 

 

 

 

 

 

 

Loss for the period

 

 

 

(21,122)

(1,389)

(3,929)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to owners of the Company

 

 

(21,122)

(1,389)

(3,929)

Attributable to non-controlling interests

 

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

(21,122)

(1,389)

(3,929)

 

Loss per share is attributable to the ordinary equity holders of the Company

Basic loss per share (pence)

7

 

 

(3.9)

(0.3)

(0.8)

Diluted loss per share (pence)

7

 

 

(3.9)

(0.3)

(0.8)

 

Note:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

 

 

Unaudited consolidated interim statement of comprehensive income

for the six month period ended 30 June 2021

 

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year

ended 31 Dec 2020

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Loss for the period

 

 

 

(21,122)

(1,389)

(3,929)

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

Items that may be reclassified to profit or loss

 

 

 

 

 

Foreign operations - foreign currency translation differences

 

 

(16,618)

34,341

2,905

 

 

 

 

 

 

 

 

 

 

 

(16,618)

34,341

2,905

 

 

 

 

 

 

 

Total comprehensive (loss) / gain for the period

 

 

(37,740)

32,952

(1,024)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to owners of the company

 

 

(37,740)

32,952

(1,024)

Attributable to non-controlling interests

 

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

(37,740)

32,952

(1,024)

 

Note:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

 

 

Unaudited consolidated interim balance sheet

as at 30 June 2021

 

 

 

 

 

As at 30 Jun 2021

As at 30 Jun 20201

As at

 31 Dec 20202

Notes

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

  Intangible assets

9

 

 

880,219

615,741

820,267

  Right-of-use assets

 

 

 

30,747

23,127

26,830

  Property, plant and equipment

 

 

 

16,775

12,880

14,537

  Deferred tax assets

 

 

 

3,327

993

2,068

  Other receivables

 

 

 

2,520  

2,606

2,125

 

 

 

 

 

 

 

 

 

 

 

933,588

655,347

865,827

Current assets

 

 

 

 

 

 

  Trade and other receivables

10

 

 

233,985

120,409

181,708

  Cash and cash equivalents

 

 

 

119,566

84,972

142,052

 

 

 

 

 

 

 

 

 

 

 

353,551

205,381

323,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

1,287,139

860,728

1,189,587

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

  Loans and borrowings

11

 

 

41,430  

45,800

44,819

  Lease liabilities

 

 

 

24,978

17,579

20,860

  Contingent considerations

 

 

 

31,482

410

32,593

  Other payables

 

 

 

2,033

2,159

1,941

  Deferred tax liabilities

 

 

 

78,775

60,405

79,312

 

 

 

 

 

 

 

 

 

 

 

178,698

126,353

179,525

Current liabilities

 

 

 

 

 

 

  Trade and other payables

12

 

 

222,308

124,949

191,070

  Loans and borrowings

11

 

 

70,813

31,935

45,623

  Contingent considerations and holdbacks

 

 

 

51,880

15,858

37,012

  Lease liabilities

 

 

 

9,371

6,769

8,100

  Tax liabilities

 

 

 

18,090

14,161

12,480

 

 

 

 

 

 

 

 

 

 

 

372,462

193,672

294,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

551,160

320,025

473,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

 

 

 

735,979

540,703

715,777

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to owners of the company

 

 

 

 

 

  Share capital

 

 

 

137,102

122,530

135,516

  Reserves

 

 

 

598,777

418,073

580,161

 

 

 

 

 

 

 

 

 

 

 

735,879

540,603

715,677

  Non-controlling interests

 

 

 

100

100

100

 

 

 

 

 

 

 

Total equity

 

 

 

735,979

540,703

715,777

 

Notes:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2.  Restated for the initial accounting for the business combination of Decoded and Metric Theory as required by IFRS 3. Details are disclosed in Note 5.

 

Unaudited consolidated interim statement of cash flows

for the six month period ended 30 June 2021

 

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year ended 31 Dec 2020

 

Notes

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

  (Loss) / profit before income tax

 

 

 

(19,382)

(1,037)

3,096

  Finance income and expenses

 

 

 

3,250

2,374

5,038

  Depreciation and amortisation

 

 

 

25,502

17,747

37,015

  Share based compensation

 

 

 

6,312

6,141

12,331

  Acquisition and set-up related expenses

 

 

23,615

(1,805)

14,338

  (Increase) / decrease in trade and other receivables

 

 

(38,657)

11,936

(29,282)

  Increase in trade and other payables

 

 

 

19,953

2,210

29,892

 

 

 

 

 

 

 

Cash flows from operations

 

 

 

20,593

37,566

72,428

  Income taxes paid

 

 

 

(7,862)

(1,246)

(10,758)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

 

 

  12,731

36,320

61,670

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

  Investments in intangible assets

 

 

(411)

(49)

(34)

  Investments in property, plant and equipment

 

 

(3,562)

(4,192)

(7,396)

  Acquisition of subsidiaries, net of cash acquired

 

 

(50,344)

(40,876)

(124,155)

  Financial fixed assets

 

 

 

(391)

192

871

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

(54,708)

(44,925)

(130,714)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

  Proceeds from issuance of shares

 

 

 

-

126

113,386

  Additional borrowings during the year

11

 

24,057

  31,025

45,378

  Payment of lease liabilities

 

 

 

(5,401)

(5,688)

(12,175)

  Interest paid

 

 

 

(1,765)

(474)

(742)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

16,891

24,989

145,847

 

 

 

 

 

 

 

Net movement in cash and cash equivalents

 

 

(25,086)

16,384

76,803

  Cash and cash equivalents beginning of the year

 

 

142,052

66,106

66,106

  Exchange gain / (loss) on cash and cash equivalents

 

 

2,600

2,482

(857)

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 

 

119,566

84,972

142,052

 

Note:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

Unaudited consolidated interim statement of changes in equity

for the six month period ended 30 June 2021

Equity

Number of shares

Share  capital

Share premium

Merger reserves

Other reserves

Foreign exchange reserves

Accumulated losses

Total

Non-controlling interests

Total  equity

 

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 20 20

469,227,259

117,307

174,302

205,717

(1,160)

(18,750)

(11,215)

466,201

100

466,301

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income or (loss) for the period

 

 

 

 

 

 

 

 

 

 

  Loss for the period

-

-

-

-

-

-

(523)

( 523 )

-

(523)

  Foreign currency translation differences

-

-

-

-

-

34,341

-

34,341

-

34,341

Total comprehensive income or (loss) for the period

-

-

-

-

-

34,341

(523)

33,818

-

33,818

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the company

 

 

 

 

 

 

 

 

 

 

  Business combinations

20,275,846

5,068

30,364

-

(250)

-

-

35,182

-

35,182

  Employee share schemes

619,074

155

390

-

(426)

-

6,149

6,268

-

6,268

 

 

 

 

 

 

 

 

 

 

 

Balance as previously reported

490,122,179

122,530

205,056

205,717

( 1,836 )

15,591

( 5,589 )

541,469

100

541,569

 

 

 

 

 

 

 

 

 

 

 

Restatement1

-

-

-

-

-

-

  (866)

(866)

-

(866)

 

 

 

 

 

 

 

 

 

 

 

Balance as at 31 June 20 20

490,122,179

122,530

205,056

205,717

( 1,836 )

15,591

(6,455)

540,603

100

540,703

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income or (loss) for the period

 

 

 

 

 

 

 

 

 

 

  Loss for the period

-

-

-

-

-

-

(2,540)

(2,540)

-

(2,540)

  Foreign currency translation differences

-

-

-

-

-

(31,436)

-

(31,436)

-

(31,436)

Total comprehensive income or (loss) for the period

-

-

-

-

-

(31,436)

(2,540)

(33,976)

-

(33,976)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the company

 

 

 

 

 

 

 

 

 

 

  Issue of Ordinary Shares

36,766,642

9,192

103,995

-

-

-

-

113,187

-

113,187

  Business combinations

14,468,176

3,618

54,200

-

28,905

-

-

86,723

-

86,723

  Employee share schemes

708,461

176

944

-

(28)

-

5,814

6,906

-

6,906

 

 

 

 

 

 

 

 

 

 

 

Balance as previously reported

542,065,458

135,516

364,195

205,717

27,041

(15,845)

(3,181)

713,443

100

713,543

 

 

 

 

 

 

 

 

 

 

 

Restatement2

-

-

-

-

2,234

-

-

2,234

-

2,234

 

 

 

 

 

 

 

 

 

 

 

Balance as at 31 December 20 20

542,065,458

135,516

364,195

205,717

29,275

(15,845)

(3,181)

715,677

100

715,777

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income or (loss) for the period

 

 

 

 

 

 

 

 

 

 

  Loss for the period

-

-

-

-

-

-

(21,122)

(21,122)

-

(21,122)

  Foreign currency translation differences

-

-

-

-

-

(16,618)

-

(16,618)

-

(16,618)

Total comprehensive income or (loss) for the period

-

-

-

-

-

(16,618)

(21,122)

(37,740)

(37,740)

 

 

 

 

 

 

 

 

 

 

 

Transactions with owners of the company

 

 

 

 

 

 

 

 

 

 

  Business combinations

6,343,254

1,586

31,880

-

18,164

-

-

51,630

-

51,630

  Employee share schemes

-

-

-

-

-

-

6,312

6,312

-

6,312

 

 

 

 

 

 

 

 

 

 

 

Balance as at 30 June 2021

548,408,712

137,102

396,075

205,717

47,439

(32,463)

(17,991)

735,879

100

735,979

Notes:

1.  Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2.  Restated for the initial accounting for the business combination of Decoded and Metric Theory as requi red by IFRS 3 . Details are disclosed in Note 5.

Notes to the unaudited consolidated interim financial statements

for the six-month period ended 30 June 2021

 

1.  General information

S4 Capital Plc ( ' S4 Capital ' or ' Company ' ) is a public limited company incorporated on 14 November 2016 in the United Kingdom. The Company has its registered office at 12 St James ' s Place, London, SW1A 1NX, United Kingdom.

 

The unaudited consolidated interim financial statements represent the results of the Company and its subsidiaries (together referred to as ' S4 Capital Group ' or the ' Group ' ). An overview of the subsidiaries is provided in note 14 on page 128 of the Annual Report and Accounts 2020.

 

S4Capital Group is a new age/new era digital advertising and marketing services company.

 

2.  Basis of preparation

A.  Statement of compliance

The unaudited consolidated interim financial statements for the 6 months period ended 30 June 2021 are a condensed set of financial information and have been prepared on the basis of the policies set out in the 2020 annual financial statements and in accordance with UK adopted IAS 34 and the Disclosure Guidance and Transparency Rules sourcebook of the UK ' s Financial Conduct Authority.

 

This report is to be read in conjunction with the annual report for the year ended 31 December 2020, which was prepared in accordance with IFRS in conformity with the requirements of the Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

 

The Group has undertaken a detailed going concern assessment, reviewing its current and projected financial performance and position. The Directors believe that the Group's forecasts have been prepared on a prudent basis and have also considered the impact of future acquisitions. On 6 August 2021, S 4 Capital Group signed a new facility agreement, consisting of a Term Loan B of EUR 375 million (expiring August 2028) and a multicurrency Revolving Credit Facility (RCF) of GBP 100 million (expiring August 2028). Considering the Group's bank covenant and liquidity headroom and cost mitigation actions which could be implemented, the Directors have concluded that the Group will be able to operate within its facilities and comply with its banking covenants for the foreseeable future and therefore believe it is appropriate to prepare the financial statements of the Group on a going concern basis and that there are no material uncertainties which gives rise to a significant going concern risk. Given its debt maturity profile and available facilities, the Directors believe the Group has sufficient liquidity to match its requirements for the foreseeable future.

In the year to 31 December 2021 the annual financial statements will be prepared in accordance with IFRS as adopted by the UK Endorsement Board. This change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law. There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

 

The unaudited consolidated interim financial statements were authorized for issue by the Board of Directors on 13 September 2021.

 

B.  Functional and presentation currency

The unaudited consolidated interim financial statements are presented in Pound Sterling (£ or GBP), the Company ' s functional

currency. All financial information in Pound Sterling has been rounded to the nearest thousand unless otherwise indicated.

 

3.  Significant accounting policies

The unaudited consolidated interim financial statements have been prepared on a consistent basis with the accounting policies of the Group which were set out on pages 105 to 108 of the Annual Report and Accounts 2020. No changes have been made to the Group's accounting policies in the period ended 30 June 2021.

 

Certain new accounting standards and interpretations have been published that are not mandatory for the six-month reporting period ending 30 June 2021 and have not yet been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

 

4.  Statutory information and independent review

The unaudited consolidated interim financial statements for the six-month period ended 30 June 2021 and the financial information for the year ended 31 December 2020 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 2020 have been delivered to the Registrar of Companies and received an unqualified auditors' report, did not include a reference to any matters to which the auditors drew attention by way of an emphasis of matter and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006. The consolidated interim financial statements are unaudited but have been reviewed by the auditors and their report is set out on the last page.

 

5.  Acquisitions

 

A.  Business Combinations

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and provisional goodwill of the subsidiaries acquired in the period ended 30 June 2021 are as follows:

 

 

Jam3

Raccoon

Others

Total

 

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

Intangible assets - Customer relationships

20,713

-

1,325

22,038

Intangible assets - Brand names

573

-

81

654

Intangible assets - Order Backlog

1,243

-

78

1,321

Intangible assets - Software

661

-

-

661

Property, plant and equipment

832

1,268

3,164

5,264

Cash and cash equivalents

3,233

589

204

4,026

Trade and other receivables

4,513

6,425

1,768

12,706

Other non-current assets

38

10

-

48

Trade and other payables

(3,871)

(746)

(1,892)

 (6,509)

Current taxation

(6,550)

(808)

(2)

 (7,360)

Lease liabilities

(461)

(738)

(1,951)

 (3,150)

Other non-current liabilities

-

(27)

(746)

 (773)

Deferred taxation

(6,085)

-

(282)

 (6,367)

Net assets

14,839

5,973

1,747

22,559

Goodwill

24,559

30,457

18,415

73,431

 

 

 

 

 

Total purchase consideration

39,398

36,430

20,162

95,990

 

 

 

 

 

 

 

 

 

 

Payment in kind (common stock)

16,176

-

5,564

21,740

Cash

10,785

18,193

7,240

36,218

Deferred consideration

-

18,164

-

18,164

Contingent consideration

12,078

-

6,959

19,037

Holdback obligations

359

73

399

831

 

 

 

 

 

Total purchase consideration

39,398

36,430

20,162

95,990

 

 

 

 

 

Cash purchase consideration

10,785

18,193

7,240

36,218

Cash and cash equivalents acquired 

3,233

589

204

4,026

 

 

 

 

 

Cash outflow on acquisition (net of cash acquired)

7,552

17,604

7,036

32,192

 

 

 

 

 

 

 

 

 

 

With all combinations 100% of the voting equity interest has been acquired.

 

The goodwill represents the potential growth opportunities and synergy effects from the acquisitions. The goodwill is not deductible for tax purposes. Trade receivables, net of expected credit losses, acquired are considered to be fair value and are expected to be collectable in full.

 

Contingent consideration arising from business combinations is fair valued, with key inputs including the probability of success,

consideration of potential delays and the expected levels of future revenues. The contingent considerations are contingent on the acquired companies achieving their 2021 results and, in some cases their 2022 and 2023 results, as determined upon acquiring the subsidiary. The contingent considerations are included for the maximum amount of the consideration which is in line with management's estimate of expected payout. Contingent consideration classified as a liability is subject to remeasurement at each reporting date until its ultimate settlement date. Any change in the fair value of the liability due to events that occur after the acquisition date would be recognised in earnings.

 

The total acquisition costs have been recognised under acquisition and set-up related expenses in the statement of profit or loss.

 

Since the acquisition date, the acquired companies contributed £12.5 million to the Group's revenue and £1.75 million into the Group's profit for the half year period ended 30 June 2021.

 

If the acquisitions had occurred on 1 January 2021, the Group's revenue would have been £291.4 million and the Group's loss for the year would have been £41.5 million.

 

Content Practice

During the period ending 30 June 2021 three businesses combined with the Content practice:

¤ On 11 January 2021, S4Capital Plc announced the combination with TOMORROW, an award-winning Shanghai-based creative agency.

¤ On 20 January 2021, S4Capital Plc announced the combination with Staud Studios, a German high-end creative production studio  specializing in the automotive industry.

¤ On 25 March 2021, S4Capital Plc announced the combination with Jam3, an award-winning Toronto-based design and experience agency with MediaMonks. The combination completed on 4 May 2021.

 

The total consideration for the above three transactions is expected to be approximately £58.5 million.

 

Data & digital media practice

During the period ending 30 June 2021 two businesses combined with the Data and Digital Media Practice:

¤     On 1 February 2021, S4Capital Plc announced that MightyHive has acquired the assets of Datalicious, a leading Google Marketing             Platform, Google Cloud and Google Analytics partner in Asia Pacific.

¤ On 4 May 2021, S4Capital Plc announced the combination between Raccoon Group and MightyHive, a leading digital performance   agency in Brazil.

 

The total consideration for the above two transactions is expected to be approximately £37.5 million.

 

At the end of the reporting period the purchase price allocation for Staud and Raccoon have not been fully finalised and therefore the acquisition accounting and resulting goodwill recognised remains provisional. During the measurement period in 2021, S4Capital Group will obtain the information necessary to identify and measure the identifiable intangible assets and retrospectively adjust the provisional amounts recognized at the acquisition date.

 

B.  Restatements

 

As stated on page 18 of the Group ' s 2020 Half Year Report, the initial accounting for the business combination of Circus Network, completed as of 12 March 2020, was incomplete by the end of the six-month reporting period ended 30 June 2020. At the end of the reporting period, the identifiable intangible assets acquired were not identified, were consequently not measured and were therefore not deducted from goodwill as at 30 June 2020.

 

In the second half of 2020, S4Capital Group has obtained the information necessary to identify and measure the identifiable intangible assets for the business combination of Circus Network and has adjusted its intangible assets, deferred tax liabilities and reserves as of 30 June 2020, as required by IFRS 3, as follows:

 

 

 

 

30 Jun 2020

Adjustment

30 Jun 2020

restated

 

 

 

GBP'00 0

GBP'0 0 0

GBP'000

 

 

 

 

 

 

 

Goodwill

 

 

 

40,352

(12,057)

28,295

Intangible assets - Customer relationships

 

 

 

 

14,436

14,436

Intangible assets - Brand name

 

 

 

 

416

416

Intangible assets - Order Backlog

 

 

 

 

984

984

Deferred tax liabilities

 

 

 

 

(3,959)

(3,959)

Tax liabilities

 

 

 

 

(686)

(686)

Charge for the period1

 

 

 

 

866

866

 

 

 

 

 

 

 

Total

 

 

 

40,352

-

40,352

1 Consisting of the amortization of the identified intangble assets of GBP 1.2 million and the movement of the deferred tax liabilities of GBP 0.3 millioncharged to the profit or loss.

 

The initial accounting for the business combinations of Decoded and Metric Theory, acquired as of 31 Dec 2020, was incomplete by the end of the reporting period ending 31 Dec 2020, as stated on page 116 of the Group ' s Annual Report and Accounts 2020. At the end of the reporting period, the identifiable intangibles acquired were not identified, were consequently not measured and were therefore not deducted from goodwill as at 31 December 2020.

 

In the first half of 2021, S4Capital Group has obtained the information necessary to identify and measure the identifiable intangible assets for the business combinations with Decoded Advertising and Metric Theory and has adjusted its intangible assets, deferred tax liabilities, contingent consideration and other items as 31 December 2020, as required by IFRS 3.

 

 

 

 

 

31 Dec 2020

Adjustment

31 Dec 2020

restated

 

 

 

GBP'00 0

GBP'0 0 0

GBP'000

 

 

 

 

 

 

 

Goodwill

 

 

 

160,630

(42,608)

118,022

Intangible assets - Customer relationships

 

 

 

 

56,537

56,537

Intangible assets - Brand name

 

 

 

 

1,758

1,758

Intangible assets - Order Backlog

 

 

 

 

2,989

2,989

Intangible assets - Others

 

 

 

 

2,462

2,462

Right-of-use assets

 

 

 

 

5,177

5,177

Trade and other receivables

 

 

 

 

317

317

Deferred tax liabilities

 

 

 

 

(17,212)

(17,212)

Lease liabilities

 

 

 

 

(5,971)

(5,971)

Contingent considerations1

 

 

 

 

(1,270)

(1,270)

Trade and other payables

 

 

 

 

55

55

Increase in fair value of equity consideration1

 

 

 

 

(2,234)

(2,234)

 

 

 

 

 

 

 

Total

 

 

 

160,630

-

160,630

1 Contingent considerations and Reserves refer to the remuneration adjustments as required by IFRS 3.

 

 

6.  Segment information

 

A.  Revenue from operations

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 2020

Year ended 31 Dec 2020

 

 

 

GBP'00 0

GBP'0 0 0

GBP'000

 

 

 

 

 

 

 

Services

 

 

 

279,288

141,344

342,687

 

 

 

 

 

 

 

Total

 

 

 

279,288

141,344

342,687

 

 

B.  Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Directors and executive management of S⁴ Capital Group.

 

During the reporting period, S⁴Capital Group has been active in two segments.

¤ Content Practice: Creative content, campaigns and assets at a global scale for paid, social and earned media - from digital platforms and apps to brand activations that aim to convert consumers at every possible touchpoint.

¤ Data & Digital media Practice: this technology and services practice encompasses full-service campaign management analytics, creative production and ad serving, platform and systems integration and transition and training and education.

 

The customers are primarily businesses across technology, FMCG and media & entertainment. Any intersegment

transactions are based on commercial terms.

 

The Directors and executive management monitor the results of the operating segments separately for the purpose of making decisions about resource allocation and performance assessment prior to charges for tax, depreciation and amortisation.

 

Operating segment information under the primary reporting format is disclosed below:

 

 

 

Six months ended 30 June 2021

 

 

 

Content

Data &

digital media

Total

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Gross profit

 

 

 

157,047

79,615

236,662

 

 

 

 

 

 

 

Segment profit

 

 

 

16,750

22,438

39,188

 

 

 

 

 

 

 

Overhead cost

 

 

 

 

 

(4,840)

Adjusted non-recurring and acquisition related expenses

 

 

 

 

(29,927)

Depreciation1 and amortisation

 

 

 

 

 

(20,553)

Net Finance expenses

 

 

 

 

 

(3,250)

 

 

 

 

 

 

 

Profit before income tax

 

 

 

 

 

(19,382)

1 Depreciation is exclusive of depreciation on right-of-use assets.

 

 

Six months ended 30 June 2020

 

 

 

Content

Data &

digital media

Total

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Gross profit

 

 

 

94,410

29,559

123,969

 

 

 

 

 

 

 

Segment profit

 

 

 

15,491

4,987

20,478

 

 

 

 

 

 

 

Overhead cost

 

 

 

 

 

(2,493)

Adjusted non-recurring and acquisition related expenses1

 

 

 

 

(4,336)

Depreciation2 and amortisation

 

 

 

 

 

(12,312)

Net Finance expenses

 

 

 

 

 

(2,374)

 

 

 

 

 

 

 

Loss before income tax

 

 

 

 

 

(1,037)

1 Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2 Depreciation is exclusive of depreciation on right-of-use assets.

 

Year ended 31 December 2020

 

 

 

Content

Data &

digital media

Total

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Gross profit

 

 

 

220,497

74,685

295,182

 

 

 

 

 

 

 

Segment profit

 

 

 

46,687

21,603

68,290

 

 

 

 

 

 

 

Overhead cost

 

 

 

 

 

(6,112)

Adjusted non-recurring and acquisition related expenses

 

 

 

 

(26,669)

Depreciation1 and amortisation

 

 

 

 

 

(27,376)

Net Finance expenses

 

 

 

 

 

(5,037)

 

 

 

 

 

 

 

Profit before income tax

 

 

 

 

 

3,096

1 Depreciation is exclusive of depreciation on right-of-use assets.

 

7.  Income tax

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year ended 31 Dec 2020

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Current tax for the year

 

 

 

(7,377)

(3,004)

(12,970)

Adjustments for current tax of prior years

 

 

462

7

(203)

 

 

 

 

 

 

 

Total current tax

 

 

 

(6,915)

(2,997)

(13,173)

Decrease in deferred tax

 

 

 

5,175

2,645

6,148

 

 

 

 

 

 

 

Income tax expense

 

 

 

(1,740)

(352)

( 7,025 )

1 Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

 

 

 

8.  Earnings per share

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year ended 31 Dec 2020

 

 

 

 

 

 

 

Loss attributable to owners of the Company (GBP'000)

 

 

(21,122)

(1,389)

(3,929)

Weighted average number of ordinary shares

 

 

544,589,568

465,697,844

493,290,974

 

 

 

 

 

 

 

Basic loss per share

 

 

 

(3.9)

( 0.3 )

(0.8)

 

 

 

 

 

 

 

Diluted loss per share

 

 

 

(3.9)

( 0.3 )

(0.8)

1 Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

 

Earnings per share is calculated by dividing the net result attributable to the shareowners of the S4Capital Group by the weighted average number of Ordinary Shares in issue during the period.

 

 

9.  Intangible assets

 

 

 

Goodwill

Customer relationships

Brands

Order Backlog

Other

Total

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Cost

328,836

206,706

15,276

5,464

6,364

562,646

Accumulated amortisation

-

(14,598)

(1,295)

(5,464)

(1,160)

(22,517)

 

 

 

 

 

 

 

Net book value at 1 January 2020

328,836

192,108

13,981

-

5,204

540,129

 

 

 

 

 

 

 

Acquired through business combinations

40,111

-

-

-

-

40,111

Additions

-

-

-

-

49

49

Amortisation charge for the period

-

(7,874)

(819)

-

(745)

(9,438)

Foreign exchange differences

25,738

14,001

1,008

-

364

41,111

 

 

 

 

 

 

 

Total transactions during the period

65,849

6,127

189

-

(332)

71,833

 

 

 

 

 

 

 

Cost

394,685

222,046

16,405

5,863

6,887

645,886

Accumulated amortisation

-

(23,811)

(2,235)

(5,863)

(2,015)

(33,924)

 

 

 

 

 

 

 

Net book value as previously reported

394,685

198,235

14,170

-

4,872

611,962

 

 

 

 

 

 

 

Restatement1

(12,057)

14,436

416

984

-

3,779

 

 

 

 

 

 

 

Net book value at 30 June 2020

382,628

212,671

14,586

984

4,872

615,741

 

 

 

 

 

 

 

Acquired through business combinations

197,529

27,241

854

2,081

2,254

229,959

Amortisation charge for the period

-

(9,873)

(1,047)

(1,919)

(871)

(13,710)

Foreign exchange differences

(20,235)

(11,698)

(714)

56

(270)

(32,861)

 

 

 

 

 

 

 

Total transactions during the period

177,294

5,670

(907)

218

1,113

183,388

 

 

 

 

 

 

 

Cost

559,922

250,583

16,799

8,805

8,745

844,854

Accumulated amortisation

-

(32,242)

(3,120)

(7,603)

(2,760)

(45,725)

 

 

 

 

 

 

 

Net book value as previously reported

559,922

218,341

13,679

1,202

5,985

799,129

 

 

 

 

 

 

 

Restatement2

(42,608)

56,537

1,758

2,989

2,462

21,138

 

 

 

 

 

 

 

Net book value at 31 December 2020

517,314

274,878

15,437

4,191

8,447

820,267

 

 

 

 

 

 

 

Acquired through business combinations

73,431

22,038

654

1,321

661

98,105

Additions

-

-

-

-

411

411

Amortisation charge for the period

-

(11,965)

(1,316)

(2,945)

(1,303)

(17,529)

Foreign exchange differences

(13,480)

(6,847)

(472)

(77)

(159)

(21,035)

 

 

 

 

 

 

 

Total transactions during the period

59,951

3,226

(1,134)

(1,701)

(390)

59,952

 

 

 

 

 

 

 

Cost

577,265

321,310

18,652

12,751

12,344

942,322

Accumulated amortisation

 

(43,206)

(4,349)

(10,261)

(4,287)

(62,103)

 

 

 

 

 

 

 

Net book value at 30 June 2021

577,265

278,104

14,303

2,490

8,057

880,219

1 Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2 Restated for the initial accounting for the business combination of Decoded and Metric Theory as required by IFRS 3. Details are disclosed in Note 5.

 

 

10. Trade and other receivables

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 2020

Year

ended 31

Dec 20201

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Trade receivables

 

 

199,142

108,830

159,598

Prepayments

 

 

6,724

3,921

4,555

Accrued income

 

 

18,130

5,355

12,934

Other receivables

 

 

9,989

2,303

4,621

 

 

 

 

 

 

 

Total

 

 

 

233,985

120,409

181,708

1 Restated for the initial accounting for the business combination of Decoded and Metric Theory as required by IFRS 3. Details are disclosed in Note 5.

 

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. A provision for expected credit loss of GBP 4.7 million was recognised on the Group's trade receivables at the end of the period (30 June 2020 GBP 2.0 million, 31 December 2020 GBP 3.4 million).

 

11. Loans and borrowings

Loans and borrowings

 

 

 

Bank loans

Transaction costs

Total

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Principal amount

 

 

 

43,215

(1,134)

42,081

Accumulated charges to profit-or-loss

 

 

 

-

293

293

 

 

 

 

 

 

 

Balance as at 1 January 2020

 

 

 

43,215

(841)

42,374

 

 

 

 

 

 

 

Additions

 

 

 

31,025

25

31,050

Charged to profit-or-loss

 

 

 

-

126

126

Exchange rate differences

 

 

 

4,293

(109)

4,184

 

 

 

 

 

 

 

Total transactions during the period

 

 

 

35,318

42

35,360

 

 

 

 

 

 

 

Principal amount

 

 

 

78,533

(1,240)

77,293

Accumulated charges to profit-or-loss

 

 

 

-

442

442

 

 

 

 

 

 

 

Balance as at 30 June 2020

 

 

 

78,533

(798)

77,735

 

 

 

 

 

 

 

Additions

 

 

 

 14,598

 (269)

 14,329

Acquired through business combinations

 

 

 

 1,958

 - 

 1,958

Charged to profit-or-loss

 

 

 

 - 

 160

 160

Exchange rate differences

 

 

 

 (3,804)

 64

 (3,740)

 

 

 

 

 

 

 

Total transactions during the period

 

 

 

12,752

(45)

12,707

 

 

 

 

 

 

 

Principal amount

 

 

 

91,285

(1,442)

89,843

Accumulated charges to profit-or-loss

 

 

 

-

598

598

 

 

 

 

 

 

 

B alance as at 31 December 2020

 

 

 

91,285

(844)

90,441

 

 

 

 

 

 

 

Additions

 

 

 

24,057

-

24,057

Acquired through business combinations

 

 

 

424

-

424

Charged to profit-or-loss

 

 

 

-

92

92

Exchange rate differences

 

 

 

(2,797)

26

(2,771)

 

 

 

 

 

 

 

Total transactions during the period

 

 

 

21,684

118

21,802

 

 

 

 

 

 

 

Principal amount

 

 

 

112,969

(1,386)

111,583

Accumulated charges to profit-or-loss

 

 

 

-

660

660

 

 

 

 

 

 

 

Balance as at 30 June 2021

 

 

 

112,969

(726)

112,243

 

 

 

 

 

 

 

Repayment obligations coming 12 months

 

 

 

71,032

(219)

70,813

 

 

 

 

 

 

 

Non-current b alance as at 30 June 2021

 

 

 

41,937

(507)

41,430

 

On 6 August 2021, S4Capital Group has entered into a new facility agreement. On 9 August 2021, S4Capital Group has prepaid its existing facilities in full. During the reporting period, the average interest rate of the outstanding loans amounts to 1.38% (six-month period ending 30 June 2020 1.71%, 12-month period ending 31 December 2020 1.42%). The average effective interest rate for the outstanding loans is 1.34% (six-month period ending 30 June 2020 1.65%, 12-month period ending 31 December 2020 1.38%) and during the period interest expense of GBP 0.8 million (six-month period ending 30 June 2020 0.6 million, 12-month period ending 31 December 2020 GBP 1.1 million) was recognised.

 

 

12. Trade and other payables

 

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 2020

Year

ended 31 Dec 20201

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Trade payables

 

 

143,454

85,584

127,344

Accruals

 

 

51,962

21,701

34,010

Deferred income

 

 

26,892

17,664

29,716

 

 

 

 

 

 

 

Total

 

 

 

222,308

124,949

191,070

1 Restated for the initial accounting for the business combination of Decoded and Metric Theory as required by IFRS 3. Details are disclosed in Note 5.

 

 

13. Related party transactions

Details of compensation for key management personnel for the 12 months to 31 December 2020 are disclosed on pages 70 to 80 of the Annual Report and Accounts 2020. Apart from the key management personnel compensation, S4Capital Group did not have any other related party transactions during the financial period (2020: nil).

 

 

14. Reconciliation to non-GAAP measures of performance

Management includes non-GAAP measures as they consider these measures to be both useful and necessary. They are used by management for internal performance analyses; the presentation of these measures facilitates comparability with other companies, although management's measures may not be calculated in the same way as similarly titled measures reported by other companies; and these measures are useful in connection with discussions with the investment community.

 

 

Six months ended 30 Jun 2021

 

Reported

Amortisation1

Acquisition and set-up related expenses2

Share based compensation

Adjusted

 

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Operating profit / (loss)

(16,132)

17,529

23,615

6,312

31,324

Net finance expenses

(3,250)

-

-

-

(3,250)

 

 

 

 

 

 

 

Profit / (loss) before income tax

(19,382)

17,529

23,615

6,312

28,074

Income tax expense

(1,740)

(5,175)

 

 

(6,915)

 

 

 

 

 

 

 

Profit / (loss) for the period

 

(21,122)

12,354

23,615

6,312

21,159

1 Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.

2 Acquisition and set-up related expenses relate to acquisition related advisory fees of GBP 3.6 million, bonuses of GBP  0.3 million and revaluation of contingent considerations of GBP 19.7 million.

 

 

 

Six months ended 30 Jun 20201

 

Reported

Amortisation2

Acquisition and set-up related expenses3

Share based compensation

Adjusted

 

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Operating profit / (loss)

1,337

10,592

(1,805)

6,141

16,265

Net finance expenses

(2,374)

-

-

-

(2,374)

 

 

 

 

 

 

 

Profit / (loss) before income tax

(1,037)

10,592

(1,805)

6,141

13,891

Income tax expense

(352)

(2,645)

-

-

(2,997)

 

 

 

 

 

 

 

Profit / (loss) for the period

 

(1,389)

7,947

(1,805)

6,141

10,894

1 Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2 Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.

3 Acquisition and set-up related expenses relate to acquisition related advisory fees of GBP 5.4 million, bonuses of GBP  1.0   million and revaluation of contingent considerations of   GBP 8.2 million.

 

 

 

 

Year ended 31 Dec 2020

 

Reported

Amortisation1

Acquisition and set-up related expenses2

Share based compensation

Adjusted

 

GBP'000

GBP'000

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Operating profit / (loss)

8,133

23,148

14,338

12,331

57,950

Net finance expenses

(5,037)

-

-

-

(5,037)

 

 

 

 

 

 

 

Profit / (loss) before income tax

3,096

23,148

14,338

12,331

52,913

Income tax expense

(7,025)

(5,758)

(1,238)

-

(14,021)

 

 

 

 

 

 

 

Profit / (loss) for the period

 

(3,929)

17,390

13,100

12,331

38,892

1 Amortisation relates to the amortisation of certain intangible assets recognised as a result of the acquisitions.

2 Acquisition and set-up related expenses relate to acquisition related bonuses of GBP 2.2 million, transaction related advisory fees of GBP 13.6 million and a remeasurement gain for contingent consideration of GBP 1.5 million.

 

 

 

Reconciliation to adjusted operational EBITDA

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 20201

Year ended 31 Dec 2020

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Operating profit / ( loss )

 

 

(16,132)

1,337

8,133

 

 

 

 

 

 

 

Amortisation of intangible assets

 

 

17,529

10,592

23,148

Acquisition and set-up related expenses

 

 

23,615

(1,805)

14,338

Share based compensation

 

 

6,312

6,141

12,331

Depreciation property, plant and equipment2

 

 

3,023

1,719

4,228

 

 

 

 

 

 

 

Operational EBITDA

 

 

 

34,347

17,984

62,178

1   Restated for the initial accounting for the business combination of Circus as required by IFRS 3. Details are disclosed in Note 5.

2 Depreciation property, plant and equipment is exclusive of depreciation on right-of-use assets.

 

 

Billings 1

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 2020

Year ended 31 Dec 2020

 

 

 

GBP'000

GBP'000

GBP'000

 

 

 

 

 

 

 

Revenue

 

 

279,288

141,344

342,687

 

 

 

 

 

 

 

Pass-through expenses

 

 

268,259

119,105

310,713

 

 

 

 

 

 

 

Billings

 

 

 

547,547

260,449

653,400

1 Billings is gross billings to client including pass-through expenses.

 

 

Adjusted Basic net profit per share

 

 

 

Six months ended 30 Jun 2021

Six months ended 30 Jun 2020

Year ended 31 Dec 2020

 

 

 

 

 

 

 

Weighted average number of shares in issue

 

 

544,589,568

465,697,844

493,290,974

Adjusted net profit attributable to equity of owners of the company (GBP'000)

 

 

21,159

10,894

38,892

 

 

 

 

 

 

 

Adjusted Basic net earnings per share

 

 

 

3.9

2.3

7.9

 

15. Events occurring after the reporting period

 

A.  New facility agreement

On 6 August 2021, S4Capital Group signed a new facility agreement, consisting of a Term Loan B of EUR 375 million and a multicurrency Revolving Credit Facility (RCF) of GBP 100 million. The interest on the facilities is the aggregate of the variable interest rate (EURIBOR, LIBOR or, in relation to any loan in GBP, SONIA) and a margin based on leverage (between 2.25% and 3.75%). The duration of the facility agreement is seven years in relation to the TLB, therefore the termination date is August 2028, and five years in relation to the RCF, therefore the termination date is August 2026.

 

The facility agreement imposes certain covenants on the Group. The loan agreement states that (subject to certain exceptions) S4Capital Group will not provide any other security over its assets and receivables and will ensure that the net debt will not exceed 4.50:1 of the proforma earnings before interest, tax, depreciation and amortisation, measured at the end of any relevant period of 12 months ending each semi-annual date in a financial year.

 

B.  Prepayment of existing facilities

On 9 August 2021, S4Capital Group has prepaid its existing facilities, consisting of a EUR 25.0 million term loan, USD 28.9 million term loan, a multicurrency Revolving Credit Facility (RCF) of EUR 35 million, which was fully drawn at the end of the reporting period, and a multicurrency Revolving Credit Facility (RCF) of EUR 43.5 million, which was fully drawn at the end of the reporting period, by making use of the proceeds from the new Term Loan B.

 

C.  Business combinations

¤ On 26 July 2021, S4Capital Plc announced the combination between MightyHive and Destined, a leader in digital transformation strategy, Salesforce platform implementation, integration strategy & execution, managed services, and training and change management.

¤ On 8 September 2021, S4Capital Plc announced the combination with Cashmere, the iconic culture and creative marketing agency based in Los Angeles.

 

 

16. Principal risks and uncertainties

 

The key risks for the Group achieving their objectives remain the same as at the year end of 2020 and can be found on page 31 up to and including page 36 of the Annual Report and Accounts 2020.

 

Economic environment

Adverse developments in the global economy or the local economies in the territories where the Group has operations could impact the level of demand for the Group's services.

 

People and leadership

The quality of the services provided by the Group's businesses are fundamentally derived from the quality of the Group's people. The Group's performance could therefore be adversely affected if it is not able to recruit, train and retain key talent in the Group's businesses and at the Group level.

 

Strategic

The Group's strategy is to build a purely digital multinational advertising and marketing services business, initially by business combinations and long term through robust organic growth. Failing to identify and complete, or, if completed, integrate suitable merger opportunities may adversely impact the Group's business and prospects.

 

The Group is dependent on relationships with certain third parties with significant market positions, such as Google, Amazon and Facebook.

 

IT and data security

The Group is subject to a number of laws relating to privacy and data protection governing its ability to collect and use personal information. These data protection and privacy-related laws and regulations are becoming increasingly restrictive and complex and may result in greater regulatory oversight and increased levels of enforcement and sanctions.

 

Financial

The Group has exposure to credit risk through the default of a client or other counterparty.

 

Any significant movement in foreign exchange rates between Pound Sterling and other currencies in which revenue is generated could have an impact on the Group's results and financial position.

 

Regulatory, sanctions and taxation

The Group is and will continue to be subject to strict anti-corruption, anti-bribery and anti-trust legislation and enforcement in the countries in which it operates.

 

The Group may be subject to regulations restricting its activities or effecting changes in taxation.

 

The Group is and will continue to be subject to the laws of the UK, the US, the EU and other jurisdictions that impose sanctions and regulate the supply of services to certain countries.
 

Responsibility statement

 

We confirm that these unaudited consolidated interim financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

¤ an indication of important events that have occurred during the first six months and their impact on the unaudited consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

¤ material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

 

The maintenance and integrity of the S4Capital plc website is the responsibility of the directors; the work carried out by the authors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that might have occurred to the interim financial statements since they were initially presented on the website.

 

A list of directors is maintained on the S4Capital plc website: www.s4capital.com

 

Signed on behalf of the Board on 13 September 2021

 

 

Sir Martin Sorrell  Peter Rademaker

Executive Chairman  Group Chief Financial Officer

 

Independent review report to S4Capital plc

 

Report on the condensed consolidated interim financial statements

 

Our conclusion

We have reviewed S4 Capital plc's condensed consolidated interim financial statements (the "interim financial statements") in the unaudited consolidated interim financial statements of S4 Capital plc for the 6 month period ended 30 June 2021 (the "period").

 

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

 

¤ the unaudited consolidated interim balance sheet as at 30 June 2021;

¤ the unaudited consolidated interim statement of profit or loss and unaudited consolidated interim statement of comprehensive income for the period then ended;

¤ the unaudited consolidated interim statement of cash flows for the period then ended;

¤ the unaudited consolidated interim statement of changes in equity for the period then ended; and

¤ the explanatory notes to the interim financial statements.

 

The interim financial statements included in the unaudited consolidated interim financial statements of S 4 Capital plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

The unaudited consolidated interim financial statements, including the interim financial statements, are the responsibility of, and has been approved by the directors. The directors are responsible for preparing the unaudited consolidated interim financial statements in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the unaudited consolidated interim financial statements based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the unaudited consolidated interim financial statements and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

13 September 2021

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